Who’s better at investing—men or women? If you are like 91% of women asked in a recent Fidelity Investments survey, your initial response is probably to say that men are better investors. Only 9% of women asked in the survey said that they are better investors than men. So you might be surprised that this widespread line of thought, even among women, is actually a myth, according to some studies. Studies show that women are actually the better investors.
So what could potentially make women better investors than men? Is it that women must be smarter than men on an investing level? Or that they know how to pick stocks better? And the answer to both of those questions is “no.” The idea that women might be better investors than men actually is rooted in investing behaviors. So let’s take a look at the investing behaviors that are more common for women to learn that might give them the investing edge:
Women are typically more conservative investors. Men are more likely to take risks when it comes to investing.
While the risk can definitely pay off on the upside, it can also do major damage to a retirement account if the investment doesn’t work out. Being a conservative investor generally means you have a lower allocation of your investment portfolio to stocks and a greater percentage to bonds, or other less volatile investment vehicles such as a money market fund. When investing, risk tolerance, time horizon, your present financial and tax status, and your specific goals for the funds being invested are the key elements that should be used in designing an investment portfolio that meets your investment objectives.
Since some women may tend to opt for safer investments, they may feel better about the lower volatility of their funds. Ultimately, though, this may not always achieve the goals set for invested funds, due to their lower potential growth rate over time compared to more moderate or aggressive portfolios. This can be viewed as another type of risk to consider in your investment strategy: the risk of falling short of your goals if you’re invested too conservatively.
Women make an investment and usually stick with it for a longer period of time, whereas men make changes to their investment portfolio more often.
If you look at the long-term trend of the stock market, it has consistently increased over time. Of course, there are plenty of bumps and dips along the way, some larger than others, but over time the trend is still up, and as a result a buy-and-hold strategy that incorporates both a core long-term holding component and a satellite, shorter term, sector rotation component, can be the key to maximizing your portfolios long-term growth potential. Although timing the market is a very tricky thing to do, and probably doesn’t work out so well most of the time, a pure buy-and hold strategy can be risky in and of itself if the stocks, or other investment vehicle you are holding fall out of favor for an extended period of time, or worse, whose value declines to zero. Think Enron, and what’s happening to the traditional brick & mortar retail sector today due to the influence of Amazon.com.
This is why having a trusted fee-only investment advisor can help make a meaningful difference in your portfolios construction and ongoing monitoring.
Women save more than men.
Despite the stereotypes that women love to shop and spend money, a recent study actually shows that women save more of their paychecks than men—women annually save about 9 percent of their paycheck, whereas men save around 8.6 percent of their paycheck. The same study also shows that women are earning a higher rate of return than their male counterparts as well—about 0.4 percent more. While both of these represent only small, incremental differences each year—it can really add up over the course of a few decades. The time value of money and the compounding effect that can be realized on even incremental amounts can literally translate into hundreds of thousands of extra dollars in your account at retirement.
Women aren’t afraid to seek investing advice, whereas men are more hesitant to ask.
It may stem from the fact that women don’t feel as confident about their investing abilities as men do, but women are more inclined to seek advice from financial professionals—which their retirement accounts seem to be benefiting from. When you have a question about your health, you ask a doctor. When you have a question about your car, you ask a mechanic. When you have questions about retirement planning and investing, you should ask your financial advisor. No one is an expert at everything, but knowing where to go and who to ask to find the answers is just as important.
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