Men undertake their investments with complete faith in what they know and what they want to accomplish. They attack their finances the same way women tackle stilettos. Women will coddle their investment portfolio, and tend to be more timid when making changes. In the financial world, men show overconfidence, and women are inclined to be self-doubting with their decisions. First, let’s see whether this is something only I’ve noticed, if it’s notable development, or a complete myth.
In BlackRock’s latest 2014 Investor Pulse survey, 54 percent of men are confident in their investment decisions versus only 34 percent of women[1]. Many studies have been performed to find out the reason for the difference between our conviction levels. So why does this pattern exist? What in our genetic makeup creates this difference in how women and men think?
A study by John Coates, who is a former Wall Street Trader, shows “a connection between testosterone and risk taking leads to irrational exuberance.” This link leads men to trading 45% more in their portfolios than women do. The “irrational exuberance” intensifies when markets are going down[2]. I have to say this makes a lot of sense, and can probably be applied to other areas of life. Women, on the other hand, favor investments with guarantees; remember we like to coddle our portfolios just like our children. They prefer to stay away from stock market volatility and invest in CDs and short term bonds. However, there isn’t much growth with these “safe” investments. Between taxes and inflation, you are left with a very small rate of return, if any. Even with women taking the more conservative route, how have they fared compared to men with their portfolio’s rates of return?
ven with the “safe” investments, women have done better than men. It is during the periods of large market fluctuations, when women have outperformed. Studies executed on gender differences and behavioral investing, show that women have consistently achieved better results[3]. Women like to invest in conservative investments; therefore, they do well in periods of market instability. We take more time with our investment and financial decisions because we like to fully understand all of our options. This is not necessarily a bad way to behave, and more likely, the better way to analyze new ideas. Maybe it is a sign of confidence to say we don’t know enough about this investment to make a quick decision. As investors, we should embrace our feminine strengths while overcoming our insecurities with our financial confidence.
Here are 5 tips to become more comfortable and confident with your finances:
- Start small with your 401(k) plan at work. If your employer matches part of your contribution, make sure to contribute up to that percentage amount.
- Take an active role in your family’s finances. You can put more bills in your name or be the one responsible to pay them each month. Make sure to have a credit card in your name to build your own credit history. Make all your family’s financial decisions as a couple.
- Find an advisor who understands you and what your goals are.
- Make communication a priority with your advisor. If you don’t understand what they are saying, have them educate you. Don’t leave the office not knowing about your investments and their risk consequences.
- Become educated, the more you know about investments, the more comfortable you will become with risk.
f you have any suggestions, please share them with me at Jessica.weaver@raymondjames.com or post them on my Facebook page Jessica Weaver, Wealth Advisor.
Jessica Weaver, CFP®, CDFA™, CFS®
Wealth Advisor
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Jessica Weaver and not necessarily those of Raymond James.
[1] Aleks Todovora, “What Men Can Learn From Female Investors.” U.S. News Money, http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2015/02/24/what-men-can-learn-from-female-investors (February 24, 2015)
[2] Lisa Smith, “Women and Investing: It’s A Style Thing.” Investopedia http://www.investopedia.com/articles/investing/031313/women-and-investing-its-style-thing.asp
[3] Lisa Smith, “Women and Investing: It’s A Style Thing.” Investopedia http://www.investopedia.com/articles/investing/031313/women-and-investing-its-style-thing.asp