When it comes to investing statistically it is women that excel, not men. At COCOA we explore some of the reasons why.
The world has changed a lot over the last 50 years; many industries that were once dominated by men have finally become more level playing fields where applicants actually compete on ability. As some industries rapidly modernize others are left behind like a scene from Mad Men, a television series set in the 1950s. An obvious example is the world of banking and investment management with many areas overdue for a re-invention.
When talking about the banking industry images of bankers come to mind characterized by alpha males aggressively competing on trading floors. This gives rise to the impression that the industry is a men-only adventure and is an activity that neither encourages nor attracts women. The truth, however, is somewhat different.
The evidence is starting to emerge that when it comes to the art of investing it is women that are very definitely leading the charge. In fact, nearly every study conducted on the area confirms women on average outperform men and here are a few reasons why:
Women save more
The first step to having a bigger nest egg in retirement is to save more. According to data produced by global asset manager Vanguard, women across all income levels save on average much more than men. Statistics show that women on save between 7% and 16% more than their male counterparts, and this has a huge impact over the long-term. Even adding as little as an additional 1% can have a massive impact. A 35 year old earning $ 60,000 a year who puts in an extra 1% (roughly $ 50 per month) into her retirement account will have an extra $ 3,200 per year to live on in retirement (assuming an average 7% rate of return).
Act as an investor, not a speculator
Research shows that women tend to think more long-term than men, taking a more goal-oriented approach. For example aiming to build up a deposit for a house or saving for a car. One reason that could explain this is that women live on average five years longer than men. This means that if a women was to retire at 60-65 they would require 7-10% more wealth to fund retirement.
Women also tend to display a very different attitude to risk and take a less aggressive and more tactical approach than their male counterparts. Men on the other hand typically are more active in trading, overconfidently seeking to “beat” or “time the market” and are much more likely to make large allocation swings. Women let the market do the hard work for them and display a buy and hold approach, which on average earns them a 1% outperformance over men per year.
Don’t overcomplicate things
One of the key advantages that women have over men is that men have a tendency to attempt to be the “master of the universe”. Women are far more likely to seek out further information and are not afraid to ask questions from an expert. They display less egotistic traits and so the solutions picked tend to be those that are not overly complicated. Research shows one of the possible explanations that women seek the most streamlined and time-saving solutions are that they have more tasks to manage and so need products that fit around them. Also by not constantly tinkering or trading their investments, they gain by reducing potential trading commissions. A study conducted by the American asset manager Fidelity Investments predicted that by 2020 women will control 67% of the total global personal wealth. Women are growing in number as the main breadwinners and already make 80% of household buying decisions.
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