Move over, men. Here are 4 reasons why women make better investors

You’ve probably heard some version of the following statistic: men apply for a job when they meet just 60% of the qualifications, but women apply only if they meet 100% of them. We’re seeing a similar pattern when it comes to women and investing.

Traditionally, women have been more likely than men to delay investing, or opt out altogether. But data shows that when women do invest, they often perform better than men. After analyzing more than 5 million customers over a 10-year period, Fidelity found women investors outperformed their male counterparts by 40 basis points, or 0.4%, on average. This number may seem small—but over decades, .4% can be a meaningful increase in overall returns.

4 reasons why women are better investors than men

Lack of confidence is an oft-cited reason behind women’s reluctance to invest. But as with the job interview (where women apply 20% less often, despite being 16% more likely to get hired) hesitation may be holding you back from reaping the benefits of investing.

We realize it’s tough to apply generic traits to millions of people. But, based on evidence—including our own experience working with numerous female clients—there are some shared characteristics that make women excellent at investing:

1. Women buy and sell less often

One source of women’s superior returns is their attitude towards trading. In studies of their customers, both Fidelity and Vanguard report that women buy and sell (i.e. trade) stocks approximately half as often as male investors.

The relative overconfidence of men (a trait which is linked to testosterone) leads to more frequent trades, which can end up hurting them in the long run. “Buy and hold” is a well-known and respected strategy for investors seeking healthy long-term returns. Numerous studies have also found that trading more frequently leads to lower returns.

2. Women are more likely to have a well-balanced portfolio

Women tend to be more risk-averse. And while this can hurt (if you invest too little, too late) a more cautious approach will usually lead to a more balanced portfolio.

Rather than being too stock-heavy, a woman’s portfolio is more likely to contain a healthy mix of cash, bonds, and stocks that balance return potential and risk.

3. Women ask for (and listen to) advice

Another thing we’ve seen with women is that once the trust is there, female investors are more inclined to collaborate, ask for advice, and follow recommendations given by our advisors.  Instead of relying on their own inflated sense of confidence, we’ve seen that women are open to explore opportunities and facts before making a move, leading to more informed, assured—and financially sound—decisions.

According to Fidelity’s 2021 Women and Investing study, 86% of women agree that having their investments managed by professionals makes life less stressful. And Spectrem Group found that 61% of women use a financial advisor, compared with only 56% of men. Spectrem also reported that men are more likely to feel that they can do a better job of investing than a professional.

4. Female investors stick to the plan

A woman’s M.O. when it comes to investing is simple: get educated, create a plan, and stick to it. Nationwide Financial found that women are more likely to remain calm in response to market volatility—only 8% of female investors liquidated their retirement accounts during a market downturn, compared to 15% of men.

Women are also less likely to jump onto shiny new trends like crypto or other potentially volatile investments. As a result, they suffer fewer losses.

Investing is simpler than they want you to think

Contrary to what some mansplaining brokers would like to admit—investing can be pretty simple. Sure, the details can get complicated. Some advisors even thrive on convoluted and jargon-filled explanations. But the principles of smart investing can be boiled down to a few basic concepts.

Here’s what you need to know:

Diversification is key to protecting your wealth

During the pandemic, the retail industry took one of the biggest hits. In the Global Financial Crisis of 2008, housing and banking markets suffered the most. And when the Dot-Com Bubble burst, it took tech stocks to new lows. What these stories teach us is, diversification is critical.

A diversified portfolio includes stocks and bonds across many asset classes. So, when a single sector tanks, you don’t have to worry. Other industries will continue to thrive and help keep your portfolio afloat, protecting you from sudden major losses.

Time in the market matters

Time—not timing—is how you win in the market. If a financial advisor tries to tell you the opposite, run.

History has shown us that over the long-term, stock market investments will generally outperform almost all other asset classes. Stocks are considered long-term investments because while their value may drop over the short-term, they will rarely lose money when held for a longer time period, such as 20 years.

Consistent, long-term investing means your money has more time to benefit from compounding interest. And, you take advantage of periodic market corrections by buying at a lower price. Not to mention, you’ll spend less on things like trade fees and capital gains tax.

Take only as much risk as you need

With active trading comes the potential to make big money, fast. But, you could also end up on the wrong side of a trade and lose it all. That’s why the most successful investment plans are built on steady,  long-term, low- to moderate-risk growth. Sure, it’s not as flashy or as exciting as those Wall Street brokers you see in the movies…but for most of us, that’s a good thing.

Rather than trying to time the market or squeeze out the absolute best performance (despite the added stress and risk) we encourage investors to seek out the performance that aligns with your goals.

Plan according to your time horizon

Your investment decision strategy will look different depending on whether you have 30, 20, or 10 years until retirement (or the semi-retired life many business owners adopt). In general, your portfolio should become more conservative as you get closer to retirement—but not always. It depends on a number of factors, such as your specific goals, risk tolerance, expected retirement age, potential lifespan, and other assets or income.

For example, money you’ll need within a relatively short time frame (such as contributing to your child’s wedding or supporting an aging parent) should be stored somewhere you’ll have easy access to the funds without penalties or sharp swings in value—like money market funds, high-yield savings accounts, and short-term bonds.

Depending on their age, your kid’s college fund might have a more medium-term investment horizon. Therefore, a mix of higher-risk (stocks) and lower-risk (bonds) might be best for protecting the value of your wealth against forces like inflation.

Long-term investments, like retirement savings, can handle slightly more risk in exchange for greater rewards. As financial planners, we help you break up your investment plans into phases according to time horizon, and help you rebalance your portfolio to account for changes along the way.

You don’t have to do it alone

Building a business, advancing your career, nurturing your family…you’ve already proven you can succeed at anything you set your mind to, and investing is no different. You’ve worked hard to build the wealth you have. So, don’t let limiting beliefs keep you from taking action to set up your future self for retirement.

When it comes to securing your financial future, you don’t have to put up with the status quo of duplicitous brokers, high fees, and advisors who talk down to you—and you don’t have to do it alone.

How a fee-only financial professional can help

Given some high profile bad behavior, it is understandable to think of some investment advisors as wolves in sheep’s clothing. But it’s not all bad—and there are concrete ways to know who you can trust.

A fee-only advisor who is a fiduciary (such as a CERTIFIED FINANCIAL PLANNER™) is legally bound to put the client’s interests first. They’re held to the highest standard in the industry when it comes to managing your investments and giving financial advice. And the fee-only payment model means there are no commissions involved for products sold or trades executed—so you don’t have to worry about being sold to.

Since day one, we’ve devoted ourselves to the fiduciary standard and being a source of trust for our clients. We always have—and always will—operate strictly on a fee-only basis.

Here’s how partnering with a pro can support your investing success:

Eliminate biases

It can be tough to view your own situation objectively, especially when markets move around. A fiduciary financial advisor provides objective, level-headed advice based on experience and data, not emotions.

Evaluate and stay on plan

When it comes to financial moves like asset allocation, selecting specific funds, and rebalancing, a financial advisor will help you weigh the pros and cons based on your financial goals, time horizon, and risk tolerance.

Advise on ongoing financial decisions

When you buy property, move to a higher-salary job, or set a significant new financial goal, consult your advisor. They’ll take time to understand how it affects the game plan, and crunch the numbers so you don’t have to.

As an accomplished woman, you’re equipped with all the skills and savvy you need to protect and grow your wealth. With the help of a professional, you get a strategic sounding board, plus the added bonuses of increased mental bandwidth, free time, and financial peace of mind.

If you’re ready to maximize your investing success with the help of a trustworthy team, let’s talk. Contact us to set up your complimentary consultation, or call us directly at (415) 977-1200.