4 Reasons Women are Wise Investors
Women Save More, Earn Higher Returns and Trade Less Than Men
By Kim Molitor, Windward Wealth Strategies
There are myriad articles and financial presentations on how and why women may arrive at retirement with less money than their male counterparts. As a society, women earn approximately 80 cents per every dollar a man earns – in part because they are more likely take time off during crucial earning years to raise children or care for elderly relatives. As a result, women sock away fewer overall dollars than men.
If you’re reading this and feeling down, wait. There’s more!
Research increasingly finds women are often better investors than men when they do decide to enter the investment arena. Here are four reasons why women tend to invest wisely and enjoy better returns than their male counterparts:
Reason #1: Women Take Financial Literacy Seriously
Women tend to take more time to learn the fundamentals and of investing, which generally causes them to hold more sophisticated investments and plan more effectively for their financial goals.
Perhaps it is this financial literacy that keeps them from relying on adrenaline-pumped market timing. Women are less likely to try to beat the market, by buying at its trough and selling at its peak. More often, female investors buy when they can afford to do so and sell when they reach their goals. It’s a simple-to-follow, low-stress plan.
This makes women make fewer trades than their male counterparts. And, that affinity for fewer trades adds up to significantly lower fees over time. A study in The Quarterly Journal of Economics reported that “Trading reduces men’s net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women.” The race is won by inches, not miles.
Reason #2: Women Tend to Prioritize Relationships
Many women insist on making personal and/or emotional connections with both their financial advisors and the companies in which they invest. Investors (of either gender) who develop in meaningful relationships with their advisors learn more and earn more. And, investors who develop meaningful relationships can more effectively communicate their risk tolerances, a key driver of growth.
In general, women tend to be more interested in investing in companies to which they assign meaning and purpose. That interest translates into an on-going passion for those companies’ stock performance, too.
Reason #3: Family Matters
Women are the family members who are more likely to sacrifice their earning power early in their working lives in support of family caregiving. When they return to work, savvy female investors see the value in a slightly higher proportion of their portfolios invested in growth-oriented equities that increase their return on investment (ROI).
Female investors with their own families often make it a priority to leave money to their children. These heart-fueled motivations tend to fuel attentive, long-term investment strategies.
Reason #4: Balancing Risk and Reward
According to a recent study by Fidelity, women tend to take less risk. When they do invest, they tend to take the right amount of risk. The study also found patience pays. Short-term capital gains tax on an investment is far less favorable than the long-term capital gains rate. Trading in and out of stocks penalizes men twice. By taking a more long-term approach, women often earn higher rates of return, according to the Fidelity study.
Celebrating Women as Investors
While women’s more risk-averse nature may play a role in their investing success compared to men, if it keeps them from getting into investing, it becomes destructive. Women have the tendency to postpone investing because they want to be sure they are ready before they take the plunge. The key is to get women to open the gate to that arena and enter like the winners they know they can be. Women won’t be ready until they try it. The best advice: Find an advisor you trust. Then, invest early and often.