Why women make great investors

Recent studies of investment accounts, between 2011 and 2020, show that women outperform men by roughly 0.4 per cent on their portfolios. But what is it that gives women their unexpected edge?

1. It may be that women simply trade less

Some studies chalk it down to just women being more patient, and willing to stay the course.

When you receive news that one of your investments is affected, how would you react? Men are generally more inclined to leap into decisive action; even when doing so can make things worse.

For example, if a news report shows that Facebook has suffered a huge hit in earnings, men are more likely to scramble and sell off their Facebook shares. The problem is, the values would have already fallen by the time the news got out; so they’re potentially selling at a loss.

Likewise, men are inclined to take active action, such as quickly buying up assets when they hear prices are rising (also problematic, as it could mean they’re buying when prices are already peaking).

Women, on the other hand, seem to be less reactive - they’re willing to maintain their portfolio and investment strategy despite short-term hiccups. This gives them a notable edge over the long term, as they don’t lose money on repeated trades (i.e. buying and selling assets over a short period).

2. Women are more risk-aware

In the past, women were often mistaken as being risk-averse. Today, we know that’s not actually true; it’s just that women are more risk-aware.

Risk awareness means being conscious of the gap between your risk appetite (how much risk you’re emotionally ready to take), and risk capacity (how much risk it’s actually safe for you to take on).

Men are likely to have a higher risk appetite, and tend to be more overconfident in investing. This means male investors are more likely to take on a higher risk that their financial situation allows. This coincides with studies that show men are almost twice as likely to be problem gamblers, compared to women.

Women can have a risk appetite that’s just as high as men; but they’re more aware that they can’t afford to take that risk, even if they would like to.

3. Contrary to stereotypes, men tend to spend more than women

Forget the stereotypes of women splurging on bags and clothes. In fact one study by Visa showed that affluent men actually tend to spend more.

Some ecommerce companies have even shown that men can spend as much as 68 per cent more than their female counterparts. Men may shop less often, but when they do buy, they buy much pricier items.

This is somewhat “balanced out” by the gender pay gap, as men also tend to earn more than women on average. However, that very same pay gap may be what makes women more conscious of their spending; and hence disciplined enough to maintain an investment plan.

4. Women are focused on financial goals, not the excitement of the asset itself

When women invest, they may not be overly-enthusiastic about the nature of the asset in itself. Rather, the asset is just a means to an end - they care less whether it’s something exotic like a cryptocurrency, or something as down-to-earth as an insurance savings plan.

On the flip side, men tend to be more deeply “into” what they’re investing in. When most men invest in assets like gold, tech stocks, cryptocurrency, real estate, etc. there’s often a passion and devotion to that particular asset - they’ll talk to friends and family about it, blog about it, put their predictions on social media, etc.

This isn’t always an advantage, as it creates investment biases. For example, a stubborn refusal to sell off a failing asset, because “I believe in it”, or a tendency to over-invest in that asset class.

For most women, the passion lies only in the end-goal: saving up for a condo they want, saving up for another degree, and so forth. They’re less likely to be blinded by a love for the asset itself.

As the longer-lived sex, women tend to invest and plan for the longer term

On average, women in Singapore live five years longer than men. This may colour their investment outlook, as they often need to save up more for retirement; and it can contribute to their being more patient investors.