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For centuries, women have been referred to as the fairer sex. I could not find a satisfying explanation of the origin, but it’s a fair guess it was coined by a male, probably because he found women more attractive than men.One thing we do know is that when it comes to investing, and financial matters in general, women are definitely the fairer sex. Let’s see why this is true.
The Spectrem Group conducted a survey to determine if the Mars/Venus divide extends to financial matters. The following is a summary of its findings:
- Women were more inclined to worry about every aspect of financial matters and make more deliberate investment decisions.
- Their generally more conservative approach made women more likely than men to use frugality as a wealth building strategy.
- Women were more likely than men to cut spending and increase savings in response to economic concerns.
- Men were more inclined to take on investment risk — they were twice as likely to describe themselves as “most aggressive” and “aggressive” investors.
- The willingness to take on investment risk goes hand-in-hand with investment confidence — men were more than twice as likely to say they are “very knowledgeable” about financial products and investments, while women were more than twice as likely to say they’re “not very knowledgeable.”
The surveys raise some interesting questions:
- Is the greater confidence of men in their investment knowledge justified? Does it result in superior performance?
- Is the greater willingness of men to take more investment risk rewarded?
- Is the greater frugality of women the right approach?
Fortunately, there are academic papers to help us answer these questions. Thanks to a series of studies, we know that the greater confidence of men in their financial skills, which probably contributes to their willingness to take on more risk, isn’t justified — women investors have achieved superior results. The following is a brief summary of that evidence.
The study “Boys Will Be Boys” examined the role that gender played in investment returns. The study covered the performance of 35,000 households at a large brokerage house from February 1991 to January 1997. The authors found that both women and men were lousy stock pickers — both sexes produced returns below appropriate risk-adjusted benchmarks.
On average, the stocks they bought went on to underperform, and the stocks they sold went on to outperform. Both sexes would have been better off if they simply held the portfolios they began the year with. However, because women traded less, incurring lower costs, they produced higher net returns, the only kind you get to spend.