How Women Historically Invest Smarter Than Men

When it comes to admitting that women are better at certain things, men have a difficult time conceding any degree of supremacy. One of the more contentious debates in the gender stakes is over which is the better driver – the male or female of the species.  Of course, as with any contest of proficiency, establishing superiority is contingent on what exactly is being measured.  While, men will invariably point to their superior parallel parking skills, the case for women is bolstered by insurance statistics that clearly show men are more likely to crash their cars. Men may be able to boast of their superior skills, but, according to the insurance companies, women are safer drivers, which by their measure, means they are better drivers.

Of course, much of this can be explained by the volumes of studies on gender behavior. Women are naturally predisposed to avoid risk where they can; women are better able to keep their egos in check so driving is not a competition to them; in times of stress, women are better able to exercise self-control and discipline; and women generally take the long view on matters of life, which means they’re not in as much of a hurry.

And, perhaps, it’s for all of these reasons why women might make better investors than men. Men, don’t take our word on this and stop covering your ears. The data is very clear. Several significant studies have shown that, over a period of time, which includes both up and down markets, women generate returns, on average, higher than men. The most celebrated of reports by Merrill Lynch, which studied the investment decisions of 35,000 households, found that married women outperform men by at least one percentage point and single women by a full point and a half.

The data seems to indicate that women in general make smarter decisions regarding investments than men; that when it comes to money, it’s the women in the household that are better at evaluating risk. In fact, the academic research seems to suggest “that men think they know what they’re doing, even when they really don’t know what they’re doing.”  Would any woman find that to be a surprising conclusion?

The survey found that women were less likely to make the same mistake twice. Of men who reported buying a stock without doing any research, 63% said they did it again, whereas only 47% of women repeated the mistake. Nearly half (48%) of all women who waited too long to sell an investment did it again, but 61% of men repeated the mistake. And among men who ignored the tax consequences of an investment decision, 68% did it more than once while only 47% of women did. Warren Buffett often says the key to successful investing is simply to avoid mistakes, and he has become one of the richest men in the U.S. by following this strategy

The study also found that men are more likely to trade out of their stocks (49%) while women will refrain from doing so until after they have further assessed the situation. Men trade 45 percent more actively than women (single men 67 percent more), and by most measures, the more actively one trades, the more losses and transaction costs they incur. That particular study concluded that women make better investors than men, not because they are smarter, but because they trade less often.

All of this explains, to a large extent, why women adopt a more passive approach to investing. They are more accepting of short term fluctuations of the markets recognizing that stocks and other market-based assets follow cycles. And, because most woman are able to recognize bargains when they them, they are more likely to add to their stock positions when prices decline – a smart investment tactic right out of Warren Buffet’s playbook.

Source: Women and Investing: A Behavioral Finance Perspective. Wealth Management Institute. November 2013 

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