Why women outperform men in investing

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Editor’s Note: This story originally appeared on SmartAsset.com.

In the world of finance, there is no lack of male presence. There are many more male CEOs of Fortune 500 companies than women, and the financial industry is dominated by men up and down the chain of command.

For some, this sends a signal that men need to be better at finance and investing. Such claims are a common refrain when it comes to discussions about employment and compensation also.

But as is the case with many other myths, the data does not support the claim. According to a recent Fidelity Investments study that surveyed millions of retail investment accounts, female self-directed investors outperform their male counterparts by an average of 40 basis points per year.

These women also tend to save more than men. It’s not very hard to imagine where the myth that men are better investors came from, but the insights from this data can help shape your investment management decision-making.

Evidence suggests that it may be high time to invest like a woman.

Study overview

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Fidelity recently released its 2021 Women and Investing Study, and the results paint a clear picture of women’s financial superiority. Self-employed retail investors who are female consistently outperform their male counterparts by an average of 0.4%, or 40 basis points, each year.

Women investors are also on the rise. In 2018, only 44% of women invested outside of retirement. In just three years, that number has risen to 67%.

Additionally, after carefully analyzing millions of investment accounts over the past 10 years, Fidelity has found that women save almost 1% more money than men per year.

While the study found reliable data on how women beat their male counterparts in investment performance, it was also revealing in terms of the public outlook on the investment issue.

Only 9% of Fidelity Women and Money survey respondents said they think women invest better than men. It is clear that stereotypes remain strong, even though the data clearly paints a different picture.

It’s also worth noting that Fidelity is not alone with its findings. Numerous studies at the University of California at Berkeley and at the University of California at Davis have shown an even greater gap between women and men. return on investment.

Why do women make better investors?

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The data is clear, but it’s also important to contextualize the reasons why women tend to outperform men when it comes to investing and saving. As you can guess, a lot of it has to do with behavioral characteristics.

Women tend to invest with a long-term time horizon, while many men invest like a game, much like gambling. While short-term bets can pay off, they can also fail, leaving investors with more. risk-averse and long-term a serious benefit.

Given that it’s hard to beat average market returns, it’s easy to see why groups that stick to long-term approaches fare better.

Men also tend to invest more in stocks, while women tend to spread their assets more widely among investments such as maturity funds, exchange-traded funds (ETFs) and bonds as well as stocks. A broad asset allocation is the hallmark of a healthy investment portfolio, and for good reason.

According to the Fidelity study, men are also 35% more likely to do trades. While most brokerages have gotten rid of transaction fees, some have not, and other transactions like writing options can still eat away at the value of any portfolio.

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Why is this important?

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Despite what studies from Fidelity and elsewhere find, it is easy to ignore the statistical differences, among retail investors, between portfolios led by women and men as being largely insignificant.

After all, female investors only outperform male investors by 0.4% on average, and the differences in savings rates differ between the two groups by only less than a percentage point.

However, as any savvy investor will tell you, small differences that get worse over time can make a huge difference.

Let’s see what those numbers might look like. Imagine a man who starts by investing $ 50,000 and saves $ 10,000 each year.

If he earns a modest return of 6% per year, he will see his portfolio grow to $ 2,262,333 in 40 years, around the time he is ready to retire. If you tweak those numbers very slightly to reflect the types of returns women would see, the difference is significant.

If a woman saves just 1% more each year and sees her portfolio grow 6.4% per year, just 0.4% more than the 6% in the male scenario, she will end up with $ 2,578,199 in the same amount of time.

That’s over an additional quarter of a million dollars to use in retirement. Increase the rate of return or annual savings and the difference becomes even more glaring.

Steps to follow

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The moral of the story is not to despair if you identify as a man. As a man, you are not destined for a life of below average investment and savings returns, just as women are certainly not destined to reach the top of the ladder.

The study shows that women save more and get better returns on their investment, but the data also shows that the momentum exists because of the investment and saving decisions women tend to make.

Taking a long-term approach might not be as flashy as betting on volatile stocks, which could explain why some people look down on women in finance. But the approach works better than many will admit.

When it comes to investing, it’s a good idea to spread your assets across a wide range of asset classes. If you are generally someone who only invests in stocks and options, consider making safer and more stable investments as well.

In terms of savings, be sure to contribute to retirement plans as much as you can. If you earn enough, take it a step further and make sure to maximize your retirement plans and take advantage of things like employer matchmaking programs if you have them available to you.

While there is no one “right” way to invest, face the reality. It’s always hard to beat the market, and while stock gambling can pay off sometimes, it’s generally a good idea to make sure your asset allocation includes securities other than stocks.

Final result

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Ultimately, the empirical evidence paints a clear picture: Portfolios of women running self-directed retail investment accounts significantly outperform the portfolios of men running self-directed retail investment accounts, especially when you project into the future.

In addition, women tend to save more for retirement, which compounds the gap. This is important data to be reckoned with, especially at a time when more women than ever are entering the retail investment market.

In many ways, it’s more than ever possible to define your financial future. Women tend to make better investment and savings decisions with a long-term, risk-free approach, and we can all take steps to learn and improve from these results.

Disclosure: The information you read here is always objective. However, sometimes we receive compensation for clicking on links in our stories.


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