When it comes to finance, women investing habits have been largely unexplored. Men and women disagree on many issues, but usually, not on whom should be running the household finances. In most cases, both spouses have more confidence in a husband’s ability to take care of retirement finances. However, women have better long-term investment performance than men.
In both business management and investing, women are more conservative but deliver higher returns over the long run. As the better investor historically, there are many good reasons why you should take control of your investment portfolio. Woman live five years longer on average than men, yet have less in retirement savings. As a result of lower salaries and more work interruptions (pregnancy, caring for sick family members, and so on), women, on average , accumulate less in employer retirement savings, health insurance and social security.
How do you close the performance gap and build a larger retirement nest egg? Applying winning female investment traits is only half the battle. Your other half, although he may trail you in investment returns, has a few good male investment traits you could adopt.
- Winning Female Investment Traits
Patience – Men are not worse stock pickers; overconfidence is their weakness. Women, in contrast, suffer from the lack of confidence. Women exercise patience and hold stocks longer term, while men like to trade in and out of stocks and try and beat the market. Men trade 45% more than women resulting in a 2.65% reduction in their trading performance, find Harvard researchers. In other words, patient passive investors such as women traditionally outperform active investors.
Diversification – Women diversify their investment portfolio more than men. They tend to take a holistic approach to investing as part of overall financial planning. The more conservative sex tends to hold more balanced portfolios and a higher percent of blended assets, reports Fidelity
- Winning Male Investment Traits
While men need to save, women have room to take on more risk. Over a 10-year period, Fidelity found that women had comparable investment returns to men but took less risk. Many women could take on more risk and still maintain a conservative risk profile.
Taking Losses, Not Profits (The Disposition Effect) – Take profits is familiar investment advice. The more market booms and busts an investor has lived through the more likely she is to take profits in fear of a pending decline. The disposition effect refers to the tendency of some investors to sell shares that are increasing in price while holding onto losing shares. While clearly value investor Warren Buffet has done better than most by letting his winners run, the disposition effect can produce lower returns. Women are more likely to hold onto shares that are not increasing in value. Selling losing stocks also enables the investor to claim a tax reduction on capital gains.
Take Losses, Reinvest at Market Bottoms
Lee, for example, is a marketing director who has realized a fair return by parking her money in index funds for the last 5 years. Marina is a more active trader. She sold some losing stock in 2009 and benefited from the tax deduction. She then reinvested the money at the market bottom when stocks fell 20%. Marina’s portfolio was up 372% over the 2009 – 2014 period, while Lee delivered a healthy but more modest 207% return on the iShares Core S&P 500 ETF. Investors who buy low during market crashes rather than sitting on losses perform better over the longer term (remember the Disposition Effect!).
Confidence – The increased trading activity of men is attributed to testosterone and overconfidence. Women, on the other hand, suffer from an under confidence bias. They could increase their returns by taking on moderate risk.
Shifting a small percent of assets into growth stocks is another moderate risk strategy. During the recent bull market, returns on value and growth ETFs did not significantly diverge. Consider if Lee had shifted 10% of her assets into a pure growth ETF. The Guggenheim S&P Pure Value ETF delivered a 512% return during this same 5-year period, which would have increased Lee’s returns by 30%.
Risk equals returns when a prudent risk management strategy is applied. Even high-risk investors such as hedge funds only put 30% of their assets at risk at any time. A more modest tilt into growth or undervalued stocks can increase your returns while maintaining a conservative risk strategy.
Find out how male and female investing habits differ or read the fundamentals here.