Women have long been more reluctant investors than men, but it turns out that when they get round to it, they tend to generate better returns. There is an increasing body of data to prove it – and the reasons behind their success are actually quite simple.
As it stands, our research shows that 23% of women have investments (stocks and shares ISA, funds, personal pensions, SIPP etc) vs 35% of men. Around two-fifths have workplace pensions (vs 42% of men) and these will generally be invested in the stock market as well. Women are committed savers with 59% holding a cash savings accounts or cash ISAs vs 56% of men.
But, only 32% of women rated their confidence in choosing an investment account 6 out of 10 or above. Confidence is still a major issue, as we’ve been told again and again. We’re going to show why this seems misplaced.
The statistics are clear
Survey after survey shows that when they choose their investments, women tend to achieve higher returns. Hargreaves Lansdown’s report ‘Do women make better investors than men?’ found that over the three years from August 2014 to August 2017, female HL clients, on average, saw the value of their investments grow 0.81% more than their male counterparts each year.
Research by Warwick Business School on behalf of Barclays Smart Investor released in March showed women’s returns on their investments were on average about 1.2% higher than men. Researchers surveyed 2,456 investors, of which 450 were female, between April 2012 and July 2016. There is also a US-based study from Fidelity Investments analysing their client data, which shows women performing better than men by 0.4% annually.
The Hargreaves study points out that if women’s performance were repeated every year for 30 years women would, on average, end up with around 25% more than the men. We could solve the pensions gender gap in a heart-beat!
There is no genius involved in this, much though we’d like to claim it and in fact, women’s lack of confidence may be on their side. All the studies point to the same reasons for the outperformance: women typically trade less often than men. Women invested with Hargreaves Lansdown trade shares 49% less frequently than men and funds 67% less frequently, on average. Trading adds cost, so a buy and hold strategy is usually better.
Women also make ‘fewer speculative investments’, according to Hargreaves' report. They are almost 50% less likely to suffer losses of 30% or more than men. This is important – one of the most important elements of a long-term investment strategy is compounding and if you’re investing in a bunch of speculative investments and losing big one year, even if you win big the next, you’re not getting that benefit. Women also diversify and hold onto their investments for longer.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said:
"Women value the benefits of diversification: they are more likely to focus on funds than men, which naturally diversifies their portfolios. They also have the patience to buy and hold, so they don’t incur trading costs, and are more likely to invest through an ISA, so they don’t pay any unnecessary tax."
In other words, women are more likely to sit back and let the market do its work, rather than being over-confident and believing that they can out-smart it.
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