Despite great strides being made towards shaping a more diverse and equitable future for the world of investment, many women still underestimate their abilities. A growing body of research, however, suggests that women’s natural traits may in fact put them at a significant advantage compared to their male counterparts. Women’s wealth and decision-making power is growing, and so is their unique investing potential.
This is according to Roger Eskinazi, Managing Partner at Tickmill. As he explains: “women investors are up against a barrage of challenges – the gender pay gap, access to capital, apprehension and insufficient time stand in the way of many wanting to enter the market. Those who do succeed in overcoming these hurdles, however, have a higher chance of reaping better returns than men.”
To this point, the most recent study by Fidelity found that women investors outperform men by 40 basis points. Further research conducted by the University of California, Berkeley found a larger difference of almost 1%. While this difference may seem marginal, the long-term effect of compound interest can significantly amplify these gains over time.
The relative success of women investors in comparison to men can be attributed in part to their unique character and key differences in how they make investment decisions. Collectively, these inherent qualities make a strong case for more women to invest in becoming financially literate, developing their confidence and actively engaging in planning for a financially secure future.
The conservative approach
Data collated by financial services company, Wells Fargo found that women tend to be more conservative in their approach to investing. Contrastingly, men are more aggressive in their approach (55%) as opposed to women (39%). This intrinsically more conservative approach helps women to consider their options more carefully and conduct more thorough research before making investment decisions.
“Being more conservative as an investor often proves to be more beneficial than adopting an aggressive approach due to several key reasons. Conservative investors tend to prioritise capital preservation and steady growth over high-risk, high-reward strategies. This approach can minimise the likelihood of significant losses, providing more stability and predictability in an investment portfolio,” says Eskinazi.
Less impulsivity equals more informed decisions
One of the biggest downfalls that even the most experienced investors fall prey to is impulsivity. During times of market volatility, sudden market corrections or unexpected price fluctuations, investors can experience high levels of fear. Likewise, during times of high profit, investors are prone to feelings of greed. Both these emotions can lead to investors making hasty, impulsive and emotionally driven decisions that could be ill-timed and underinformed.
Women, as research suggests, are less prone to impulsivity. Fidelity found that in times of market volatility, 51% of women choose not to respond, as opposed to only 43% of men. These findings are indicative of women’s tendency to be more consistent in their approach to investing and therefore more likely to follow their trading plan, despite untimely events. In the long-term, this consistency could play a pivotal role in helping women build financial resilience.
A balanced take on risk versus reward
Male investors, who historically have enjoyed higher levels of financial literacy and specialist education, are known to be more confident in their abilities that women. This has been confirmed by numerous studies, including that of behavioural finance research experts, Brad Barber and Terrance Odean. Their research revealed that men are more prone to being overconfident – a trait that has been attributed to their underperformance.
This, as Eskinazi explains, is one of the defining characteristics that gives women an edge over men. “Women, being naturally more cautious, are often more balanced in the way in which they think about risk. They therefore tend to be better at weighing up the potential for risk and reward in more realistic terms. Striking this delicate balance is central to an investor’s success.”
Impact-minded investment decisions
Women investors are also more likely to invest in instruments and companies that have a positive impact on society. Investment banking firm, BNY Mellon found that if women invested at the same rate as men, this would result in an additional $1.87 trillion worth of socially responsible investment every year.
This is illustrative of the fact that women tend to be more socially aware. Many fulfil the role of primary caregiver in their families and communities and are therefore more inclined to think of the impact their financial decisions will make on those whose lives they affect, as opposed to being more interested in personal gain.
Bigger-picture thinking
Lastly, building a profitable investment portfolio relies on being able to consider the long-term implications of decisions made today. The most savvy investors are those who avoid the trap of short-term thinking and ensure that their choices align with their broader financial goals.
As Eskinazi concludes: “women are bigger-picture thinkers who consider their present circumstances and immediate rewards as well as what it will mean in the long run. This is key to building a well-diversified portfolio that can stand the test of time and capitalise on compound growth. This approach not only minimises the risks associated with impulsive trading but also enhances the potential for sustainable wealth accumulationYolande and financial security in the future.”
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