Myth #1: Men Are Better Investors Than Women

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Myth #1: Men Are Better Investors Than Women

At The Humphreys Group, it’s no secret that we revere the many ways women today are breaking through gender stereotypes. Lately, we’ve been especially fascinated by stereotypes that permeate discussions about women and money. These phrases probably sound familiar: “Women aren’t interested in investing. They lack confidence about their financial decisions. When women do invest, they’re too risk averse.” By and large, these – as well as many other commonly accepted notions in finance, by the way – are all myths.

That’s why we’re going to spend the coming weeks busting myths about women and money and shining a light on the data that disproves them. We’ll also share what we’ve learned from our work with clients, and offer some thoughts on what we can all do to re-direct the conversation from myth to truth

Myth #1

First up, we’re starting with a big one: Men are better investors than women.

When you do a simple Google image search of the word “investor,” you are instantly overwhelmed by photos of men in suits and ties, peering seriously at stock charts, pointing at computer screens together, and even holding handfuls of money. To the extent that women are included, they are usually standing behind their male partner gently offering emotional support. The message is loud and clear:  the world generally considers men to be the more skilled and knowledgeable gender when it comes to investing.

But it turns out that is simply not the case. According to a 2016 Fidelity study, women investors outperform men by an annual average of 0.4%.[1] This doesn’t seem like much, but it accumulates to a significant financial difference over time. For example, if a man and woman each invested $100,000, assuming a 4.6% average annual return for the man and 5.0% for the woman, after 30 years, her investment will have grown to $432,200, while his will be valued at only $385,400. That’s nearly $50,000 more, and half the original investment!

What’s operating here?  Men tend to buy and sell their investments more often. The same Fidelity study found that men made an average of 55% more trades in 2016 than their female counterparts.[2] This can be financially injurious because the more an investor trades, the more he risks making an investment right before it decreases in value, or selling right before it gains momentum. Because women are more likely to hold on to their investments throughout fluctuations in the market, they capture more growth over time.

Digging deeper, why do women hold on longer?  Lots of reasons. As women, we usually conduct more research before investing, maintain a long-term perspective more often, and tend to view investing less as a game to be won, and more as a means to accomplish our goals. Regardless of the psychology at play, our success as investors is good news.  Chances are high that we will have sole responsibility over our finances at some point in our lives. In fact, 90% of women will find themselves in this situation, whether it’s because they delay marriage, remain single, go through a divorce or simply find themselves outliving their spouse.[3]

The Humphreys Group has focused on working with women since its founding more than 30 years ago, and we have seen over and over what’s possible. Whether their financial responsibility was gained over night or over time, we have stood arm-in-arm with women as they have faced the steep end of their individual learning curve. We know that women’s behavioral tendencies, combined with a willingness to learn, make for great results. Many women surprise themselves by just how good they are at “money stuff.”

In Our Experience:

  • Women view investing as a way to accomplish a goal, rather than as a game. In doing so women sidestep the seduction of investing in order to accrue bragging rights.
  • Women are already money smart. They often serve as the de facto family CFO, have budding or demanding careers, or gain valuable experience via volunteer work. This is a great starting point for learning more and in doing so, building confidence.
  • Women are multi-taskers. Juggling a long list of duties can leave little time to build the knowledge base needed to feel confident about financial decisions. The good news is that women are also good delegators. Call it a squad or a posse, we are good at gathering support and providing it to others.
  • The world of investing is filled with jargon and unnecessary complication. By keeping it simple and manageable we can stop procrastinating, make real progress, and achieve great investment results.

Our Advice to You:

  • Think about what type of financial advice you need, that is, what to delegate and what to keep in-house. Find and work with advisors who support and respect you. Check out the online resources of the two primary industry organizations, FPA and NAPFA.

FPA – http://www.plannersearch.org

NAPFA – https://www.napfa.org/find-an-advisor

  • By focusing on a short-list of investment principles, you can achieve excellent investment results. Curate your investment resources and don’t get distracted by dazzle and jargon. Vanguard, a mutual fund company that has long advocated for individual investors, is a great place to start.

https://personal.vanguard.com/us/insights/investingprinciples

  • Your mom was right. There is no such thing as a stupid question. Don’t be afraid to ask a question that many others are afraid to pose (but probably have themselves).

 

Ready for a deeper dive? Give us a call if you have questions or would like to talk – we’re here to help.

 

What’s next?  Stay tuned for Myth #2:  Women are more risk averse than men.

[1] “Who’s the Better Investor: Men or Women?” Fidelity, May 2017
[2] “Who’s the Better Investor: Men or Women?” Fidelity, May 2017
[3] “Helping Clients in Times of Grief,” Investment News, Robert Sofia, January 2014