Smart Investing
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Andrew Hallam
27.03.2019

Are Women Better Investors Than Men?

Whenever I give financial seminars, married women often say, “My husband looks after our money.” That doesn’t surprise me. After all, men score higher on financial literacy scores. That’s according to findings from the 2018 TIAA Institute-GFLEC Personal Finance Index report.

Women also say they are less confident about investing. A 2018 study by Merrill Lynch and Age Wave reports that just 52 percent of women are confident investors. In contrast, 68 percent of men felt confident about their investment abilities. A 2016 Wells Fargo survey found much the same thing.

But an increasing number of studies say women are better investors. Consider the tumultuous period from 2005-2010. U.S. stocks went on a gut-wrenching ride. But according to a Vanguard study, the investment firm’s female clients earned 5 percent more than its male investors.

When U.S. Stocks Struggled Women Beat Men

2005-2010

 

 

According to a 2015 Wells Fargo study, women tend to be more conservative, holding higher bond allocations. When stock markets plunge, bonds never fall as far. Sometimes, bonds even rise when stocks drop. That’s why you might expect women investors to beat men when stocks don’t perform well, such as the time period between 2005 and 2010.

But women beat men when stocks rise too. University researchers Brad Barber and Terrance Odean studied 35,000 household brokerage accounts between 1991 and 1997. As you can see on the chart below, U.S. stocks soared. But over this time period, women beat men by almost 3 percent per year on a risk-adjusted basis. But an increasing number of studies say women are better investors. Consider the tumultuous period from 2005-2010. U.S. stocks went on a gut-wrenching ride. But according to a Vanguard study, the investment firm’s female clients earned 5 percent more than its male investors.

 

When U.S. Stocks Soared Women Beat Men

1991-1997

Let me explain what risk-adjusted means.

Stocks beat bonds over long periods of time. That’s why, long-term, portfolios with high stock allocations beat portfolios with high bond allocations. Women tend to be less risky. More often, they build portfolios with lower stock allocations than men. A risk-adjusted analysis compares apples to apples. It would compare, for example, men’s portfolios with 80 percent stocks and 20 percent bonds with women’s portfolios that comprise the same allocation. When looking at portfolios of equal risk levels (a risk-adjusted basis) Barber and Odean found that women beat men by 3 percent per year from 1991-1997.

Too many men might dismiss these reports. But the evidence is growing. In 2016, Fidelity tracked performance for 8 million of its clients. That year, U.S. stocks gained 11.9 percent. In other words, it was a strong year for stocks. That should have been great for men: the riskier investors. But Fidelity found that its female clients beat its male clients by 0.4 percent. That study, however, wasn’t risk-adjusted. If it were, women would have won by more.

Wells Fargo found much the same thing. They compared investment performances between 2010 and 2015. Once again, women beat men. Unlike Fidelity’s study, they adjusted for risk. As a result, women pulled even further ahead.

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But if men know more about investing, why do women beat them? A 2005 Merrill Lynch investment survey might have the answer. It found that men make more mistakes than women. Thirty-two percent of men are more likely to put too much money in a single investment. That compares with just 23 percent of women who do the same thing.

Barber and Odean also found that men trade 45 percent more frequently than women. Such activity increases trading costs, and it reduces returns.

And that doesn’t just happen to amateur investors. In a study of male and female professional fund managers, investigators at the Center for Financial Research in Cologne, Germany found that returns between the sexes (before fees) were similar, but male fund managers traded more frequently—ensuring higher transaction costs and lower returns after fees.

In the testosterone world of hedge funds, men lose too. That’s according to Dan Abrams, author of Man Down. Hedge funds have a high mortality rate, but surviving funds managed by women between 2000 and 2009 averaged 9 percent per year, compared to just 5.82 percent for men.

One theory behind women’s investment superiority relates to testosterone. Simply, women have less of it than men. Researchers Yan Lu and Melvyn Teo found that hedge fund managers with less testosterone beat hedge fund managers apparently brimming with the stuff. They published their findings for the University of Central Florida and Singapore Management University. The researchers examined 3,228 male hedge fund managers between January 1994 and December 2015…by measuring the widths of their faces.

Men with wider faces tend to have higher testosterone levels. The researchers found that the hedge fund managers with narrower faces beat their higher-testosterone, wider-faced counterparts by 5.8 percent per year on a risk-adjusted basis.

The researchers wrote, “In the context of the ultra-competitive and male-dominated hedge fund industry, where masculine traits such as aggression, competitiveness, and drive, are encouraged, expected, and even celebrated, our results on the underperformance of high-testosterone fund managers are indeed surprising. Investors will do well to go against conventional wisdom and eschew masculine fund managers.”

Warren Buffett says the ability to control emotions is an investor’s greatest asset. His thoughts prompted research by LouAnn Loften. In 2012, she wrote Warren Buffett Invests Like A Girl, And Why You Should Too. She referenced several studies suggesting that women are better investors. Women might know less about investing. They might be less secure about managing money. But when it comes to investing, women might be the stronger sex.

 Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas


Internaxx Bank S.A. accepts no responsibility for the content of this report and makes no warranty as to its accuracy of completeness. This report is not intended to be financial advice, or a recommendation for any investment or investment strategy. The information is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Opinions expressed are those of the author, not Internaxx Bank and Internaxx Bank accepts no liability for any loss caused by the use of this information. This report contains information produced by a third party that has been remunerated by Internaxx Bank.

Please note the value of investments can go down as well as up, and you may not get back all the money that you invest. Past performance is no guarantee of future results.

 

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