Don’t get me wrong. I’m not in favour of always taking the safe road. But after years of writing about women and money, I know that since we live longer, earn less, come out with less after divorce and earn less during retirement, we tend to have a much more conservative approach to investing our money.
But who said being conservative is a bad thing? Not professors Brad Barber and Terrance Odean of the University of California. According to their theory, men are overconfident investors; in their survey, the men traded 45 per cent more than the women did but earned annual net returns that were almost two per cent less. Seems the more the men traded, the more they lost to fees, unlike their more careful female counterparts. The lesson in all of this? Instead of trying to keep pace with those trigger-happy males, we’d make more money if we just followed our financial in-stincts and invested like a girl.
While we’ve often been portrayed as the emotional and impulsive sex, the National Association of Investors Corp. in the U.S. disagrees. Women spend an average of 40 per cent more time researching the security and profitability of an investment than men, which may mean better returns for women. Sounds pretty logical to me.
Guys can’t commit…to their investments, anyway. Women gather more information and end up more committed to their decisions. The phrase “Men churn, women earn” aptly describes the differences between the sexes. And the more you trade, the less likely you are to earn on your portfolio.
It’s a risky proposition to invest a whack of your portfolio in a single stock or sector. Women tend to diversify more, even when it comes to loading up on an employer’s own stock. Guys, on the other hand, often invest a larger portion of their portfolios with their employer’s stock and can lose big as a result.
While men get a lot of their investment ideas from the workplace, women look to the consumer marketplace. In fact, behavioural finance researchers say they can tell just by looking at the types of stocks in an account whether it belongs to a guy or a girl. Girls buy stocks such as Home Depot and Gap—companies with a proven track record they have experience with. Boys tend to buy chemical, engineering and high-tech companies.
Overconfidence is a man’s domain. And a good thing for us, too. While 52 per cent of men express confidence in their ability to invest wisely (according to a survey co-organized by the American Savings Education Council), only 38 per cent of women feel up to the job. The result is our slow and steady approach and more money at the end of the day.
While there’s a lot we’re doing right, there’s nothing wrong with broadening our horizons a little. Guys are still more likely to have a retirement plan—something we could learn from. And they’re still more apt to put their savings into growth-oriented investments such as stocks and stock-based mutual funds that tend to outperform everything else on the market.
Overconfidence may not pay off, but a little confidence could. Mistakes happen. It’s unrealistic to think that we’re always going to be right on every investment decision. (Here, the guys have it over us, since they’re so willing to forgive their own mistakes.) When things don’t go as we expect, we need to remember we’re made of tougher stuff…and that sometimes two X chromosomes are better than one.