There is a plethora of research suggesting that, at least at the individual level, women may be better investors than men. For example, a major financial institution looked at over 8 million client accounts and found that women outperformed men by 0.4%, while another popular study, conducted by Warwick Business School found an even greater gender-based outperformance, with women coming out ahead by 1.2%. Even at an advantage of only 0.4%, over time, such a difference will really add up!
The problem however is that research also shows that women are less likely to invest than men, tending to save a greater percentage of their income. There are many unsurprising reasons given for this phenomenon. Women have been found to be more averse to risk, and often claim to not have the confidence in their financial knowledge to invest more. The irony here is that these same qualities that may keep women from investing can actually be beneficial (and lead to better performance) when they do enter the market.
Trading too much is a common cause of underperformance. Generally, as more risk-averse investors, women tend to trade less, preferring to buy and hold. A study by the University of California Berkeley found, over a 6 year period, men traded 45% more than women. By trading less an investor avoids having returns eaten away by transaction costs, and also makes less emotional trading decisions (and mistakes). By hanging in there, women’s returns outpaced those of the men.
Despite being better savers, and (perhaps) having a more natural proclivity towards successful investing, women inevitably end up with less retirement savings than males. This is due in large part to the fact that women simply are not paid as much as men, even for the same work in the same position. According to Pew Research Center, in the United States, in 2017, women earned 82% of what men earned. While the gap is narrowing (it was 80% in 2016), a woman still has to work about 47 days more per year to earn the same as her male counterpart! The only chance women have of making up this discrepancy, by retirement, is to begin investing as early as possible, and sticking with it. As opposed to simply saving more, investors get the benefit of compounded returns, which over time are truly the path to building a nest egg.
According to Pew Research Center, in the United States, in 2017, women earned 82% of what men earned. While the gap is narrowing (it was 80% in 2016), a woman still has to work about 47 days more per year to earn the same as her male counterpart!
Here at BWFA we offer planning and investment advice to clients of all ages and circumstances, including men and women, ready to retire or just starting to dream. While we believe everyone can benefit from sound financial advice, and strive to treat each client as an individual with unique needs and circumstances, women’s fundamental investment characteristics align perfectly with what we do here. We seek to hold a portfolio of well positioned investments, diversified by industry and geography that will perform over the long term. We’ll help keep you on track for a successful and fulfilling retirement, navigating any of the inevitable bumps along the way. That’s a philosophy that we believe works equally well for men, women, and families of all shapes and sizes.
To discuss your unique situation and find out how we can help set you on a path for success, please call 410-461-3900 to meet with an advisor today.
Meghan Manas | Director of Client Services | mmanas@bwfa.com