Investing: Gender-Based Differences
The more you know about yourself, in particular, and investing, in general, the more likely it is that you will obtain a better investing results.
The intent of this article is twofold: primarily, it is to raise your awareness of certain gender-based investing tendencies and secondarily, it is to make you a better investor given what you now know about gender-based tendencies. It is not the intent state that the differences are genetic, cultural, and sociological or some combination of the three that cause these measurable differences.
The following is a summary of data gleaned from numerous articles and papers derived from a variety of independent sources. It is important to remember that the following are merely tendencies and not absolutes. In other words, out of a large sample of both sexes, there are measurable gender-based differences, but by no means should that be construed to suggest that all women do this while all men do that.
Men tend to be less risk adverse; in other words, men are more comfortable with investing risk. Women, in general, tend to be more risk adverse or less comfortable with investing risk. Men tend to take more risks even when they shouldn’t. Women, on the other hand, take considerably less risks, even when they should.
Men generally describe themselves as being more knowledgeable about investing than women describe themselves. Men also report that they spend more time learning about investing then women report that they do. When it comes to investing, men are more apt to believe that they know more than they really do while women often do know more then they believe they know.
Investing Information Processing
Women tend to rely on others for investing information and once that investing information is in hand, they are better at integrating or processing it. They are also better at deciphering even contradictory information. Men prefer to collect their own investing information and they are more likely to disregard outright any conflicting information.
Men tend to be more confident and as a result are far more susceptible to the risks, which come with overconfidence. Women are less confident and thus much less susceptible to the risks, which inherently come with overconfidence. To some extent, this is why women are more likely to use a financial advisor than men.
Men are less patient for a positive outcome from their investments and more likely to modify their portfolio if they view it is underperforming. Over time, women are more patient with their existing investments, and if they consider a change to their portfolio they are also more likely to consult with a financial advisor first.
Investing Time Frame
Women tend to live longer than men of the same age yet they also tend to have less in their retirement accounts than men. As a result, women need to be certain that they make the best financial decisions. In general, men can tolerate poorer investment decisions since they tend to have more money to begin with and do not need to hold the assets as long.
So what does all of this mean? On the face of it perhaps not much, as it may seem to be little more than an eye-opener. But that was, in fact, the goal of this exercise; to make you, as an investor, aware of possible gender-based traits. And while it is unlikely that any single investor can lay claim to all of the identifiable gender-based traits, it is important that everyone, man or woman, have good “self-awareness” when it comes to investing. To that end, you should:
- Be aware of the gender-based tendencies in both you and your spouse or partner. When you are aware of your specific tendencies, you can make conscious decisions to offset any negative behavior.
- Become more aware of your investing goals – write them down
- Understand your current portfolio, i.e. what is the expected return, what is the level of risk and what is the level of diversification.
- Have a plan, or what is commonly referred to as an Investment Policy Statement.
- Get professional advice if needed but be sure that the advice comes from a fee-only advisor. This means that the advisor does not sell you investments and does not make a commission on any sales. You are much more likely to get objective advice from a Register Investment Advisor than a sales person.