Why women can be smarter investors

March 15, 2019 14:41
The thirst for information is a trait among women, one that serves them well with investing. Photo: Bloomberg

By 2020, women will be well on the way to holding a combined £54 trillion (US$71.5 trillion) in private wealth, according to Boston Consulting Group. They already hold a third of the world’s total disposable assets.

So why, with such huge piles of money, do women generally avoid putting it to work in the stock market or other investments? According to insight and strategy consultancy BritainThinks, only 38 percent of women compared to 53 percent of men said they feel confident making investment decisions

It is not that as a gender, women are incapable of getting their brains around finance. Some of the top roles at large financial institutions such as The World Bank and International Monetary Fund, are held by women.

Rather there are more deep-rooted behavioral and societal conditions (and barriers) that mean men are the ones making a buck from investing, while women lose out by sticking to savings accounts that often earn less than inflation.

We’re always keen to hear from women in finance about the secrets to success in this industry, and how they are actively encouraging others to get involved to create a more gender-balanced industry. Just after International Women’s Day, this couldn’t be more fitting.

The “what”

The first thing to note is that women, despite having fought and campaigned for decades, generally earn less than men. Investment research group Morningstar this month quoted figures from the Canadian Labour Force Survey that showed women in the country aged 15 and older earned $0.87 for every dollar earned by men in 2017, measured by average hourly wages.

This is a phenomenon echoed all around the world.

Sarah Newcomb, who is a senior behavioral scientist at Morningstar, said: “We simply have to work harder at our finances than men because we have a longer time to plan for, more people to care for, and often lower incomes to work with.”

Aside from equal pay, women continue to fight against discrimination in the workplace after a career break, meaning getting back to earning is tougher, never mind the break in pay.

Newcomb said women needed to make their money work harder by investing, being smart and resourceful with their money, and making sound decisions along the way.

Luckily, women are well-versed in doing all those things.

The “why”

Around the world, most women take control of (and excel at) running household budgets and for those that do invest, it is the traits and skills that this budgeting requires that produce excellent results.

An analysis of 2,800 investors in 2018 by Neil Stewart, professor of behavioral science at the Warwick University Business School, found that for the prior three years, female investors had outperformed not just the FTSE 100, but they also their male counterparts.

While annual returns on investments for men were on average a marginal 0.14 percent above the performance of the FTSE 100, annual returns on the investment portfolios held by women were 1.94 percent above it.

This success is based on the female attention to detail, according to experts. While men enjoy frittering away their hard-earned cash on lower priced shares and riskier companies, women tend use less ‘lottery style’.

Women thrive on researching – perhaps because of a tendency to talk to neighbors, friends, and even strangers in an everyday context. The thirst for information is a trait among women, and one that serves them well with investing.

Born in the US, just before the Great Depression, Geraldine Weiss was among the first females to really make inroads in the finance world. Her success proves that women can be just as good, if not better, than men at investing.

Weiss was self-taught – she read books, listened to conversations between her parents and peers, and studied business and finance at college. She was constantly overlooked by companies for investment-related roles, so at age 40 set up her own investment newsletter detailing her success and has written books on her (winning) approach.

The “How”

Female investors also take their time and invest with an end goal in mind – home improvements, a new car or boost to their pension, for example.

That is not to say that they hold on to investments that are going to cost them money, quite the contrary – they are not quick to cash in on those that are making it.

Professor Stewart’s research found that while men tend to make an average of 13 trades during a year, women make just nine – demonstrating that investing to serve a long-term goal is more productive than simply for the thrill of it.

Lena Birse, one of the best performing investors on eToro, explained how she puts together her portfolio.

“Forget the noise and the politics, investing is about businesses,” she said. “I follow all the companies’ earning reports, read over them carefully and understand the business.”

A survey by publisher Hearst UK found that 39 percent of women don’t know where to turn for financial advice, with many still thinking of City financiers as men in pinstripe suits with pots of money.

This led many of them to feel excluded, as though investing was for someone other than them.

Hearst UK’s Finance Editor Kaplana Fitzpatrick, who also launched the Mummy Money Matters blog, said: “It’s never as difficult or complicated as you think.”

“Of course, everyone needs a helping hand when they start up but there are so many options out there,” said Ms Fitzpatrick. “Tech has made investing so much more accessible.”

To all women – it is time to jump over the barriers and put your money to work – men can’t stop you making more than them through your investments. Unlike many things in life, investment is open to anyone – regardless of their gender, so don’t build barriers you don’t have to.

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Head of Southeast Asia at eToro.