With investing, it’s a fact that the better you know yourself, the more likely you are to get better results. That’s why it helps to understand gender-based (some might say gender-biased) investing tendencies.
Let me explain first that “gender-based” is a bit of a misnomer. Though we can see differences along gender lines, those differences can be as much (or more) a product of culture and socialization as of biology.
It’s also important to understand that these differences are merely general tendencies within the population, not absolute qualities displayed by every individual. In other words, if you look at a large sample of both sexes, there may be measurable differences between genders — but that does not mean that all men or all women do (or don’t do) this, that or the other thing.
So, based on a variety of academic studies over the years, as well as my own observations, here are some commonly recognized gender-based differences in investing:
|Risk tolerance||In general, men tend to be more comfortable taking on investment risk. Men sometimes take more risks even when they shouldn’t.||Women generally are less comfortable with risk; in investing parlance, they are more risk-averse. They often take less risk even when it would be better to accept more.|
|Self-assessment||Men tend to describe themselves as more knowledgeable or better informed about investing than other people. However, men are more likely to think they know a lot more than they actually do.||Women generally describe themselves as being less knowledgeable and are less inclined to spend time learning about investing. But women are more likely to know more about investing than they think they do.|
|Information processing||Men prefer to collect their own investing information, but they are also more likely to disregard that same information outright.||Women tend to rely on others for investing information and are better at processing that information, even when it presents contradictions.|
|Confidence||Men tend to be more confident (bordering on overconfident). That’s why they’re more vulnerable to the risks that come hand-in-hand with overconfidence.||Women tend to be less confident and thus less vulnerable to errors of overconfidence. This is one reason women are more likely to use a financial advisor.|
|Investing patience||Men don’t want to wait (patiently or otherwise) for a positive outcome, so they are more likely to change their portfolio if they believe it is underperforming.||Women generally show more patience with their investments. If they do consider modifying their portfolio, they’re more likely to consult with a financial advisor first rather than press forward on their own.|
|Investing time frame||Generally, men are better able to tolerate poorer investment decisions, because they tend to have more money to begin with and do not need to hold assets as long.||Women have longer life expectancies than men, yet they tend to have less in their retirement accounts. As a consequence, women have a greater need to be certain that they are making the best decisions regarding their finances.|
It’s doubtful that any one investor will exhibit all of the traits ascribed to his or her gender. Even so, it’s important that every investor, male or female, has good self-awareness surrounding the tendencies described above. To that end, you should:
- Evaluate whether you and your spouse or partner show any of these characteristics. With that awareness, you can make a conscious decision to counterbalance potentially negative behavior.
- Write down your investing goals to gain a clearer awareness of your priorities.
- Better understand your existing portfolio — the expected return, how much risk you’re comfortable with, the degree of diversification and so on.
- Have a plan of action, what’s commonly referred to as an investment policy statement or ISP.
- Get professional advice, if necessary, from a fee-only advisor. These advisors don’t sell investments and don’t get commissions from sales. A registered investment advisor is more apt to give you objective advice than a salesperson.