Women Investors: Play to their Strengths

Many women are intimidated by finance, but a new study shows that those who participate in the market reap higher returns than men.

SigFig conducted a study of 2.5 million accounts with over $350 billion in assets. The female account holders had a clear edge over their male counterparts. One possible explanation is that men trade more frequently than women, and excessive trading is usually a sign of overconfidence in one’s ability to time the market. Another interesting feature is that some of the data results for men contained more extremes. Some men made a lot of money, but others lost a lot. Men like to shoot for the sky: they have greater appetites for risk than women, but the overall results show that in finance, slow and steady really does win the race.

Why do women invest differently than men? John Coates, a former Goldman Sachs trader who is now a neuroscientist at Cambridge, wrote a book called The Hour Between Dog and Wolf: Risk Taking, Gut Feelings, and the Biology of Boom and Bust. In it, he writes: “Rising levels of testosterone can lead to irrational levels of exuberance.” When men make money, their testosterone spikes, which suppresses fear. Women only have 10 percent of the testosterone that men do, so they are less susceptible to its effects. “When it comes to trading,” says Coates, “men are more hormonal than women.” Men more hormonal than women? That’s right – and that assertion comes straight from a neuroscientist.

Women are also less likely to speculate with their money by day trading or by going all in on risky stocks. According to a study by Fidelity, women showed better performance and less risk associated with their portfolios.

Despite these apparent inherent strengths, why aren’t more women interested in finance and investing? One factor seems to be confidence: many women are either intimidated by finance, or simply underestimate their knowledge.

Another factor seems to be that the financial industry has historically catered more to men. As a result, over half of women with $100,000 of income or $500,000 of assets do not have financial advisers. This could mean more than $5 trillion of assets are not being managed by professionals. Women have plenty to gain by working with an adviser, but many choose to go it alone.

At times it may look easy to do it yourself, but without an adviser, these women may be missing out. Although women beat the men in the study, both groups achieved less than a five percent gain. In 2014, the S&P 500 returned 12 percent. Even if they weren’t fully invested in stocks, these individuals should still have more than a five percent return. An adviser can help these investors balance both the return and the risk equation. This is now especially important, since US stocks have been in a seemingly never-ending bull market since 2009. When the tide goes out, many amateur investors will be swept out to sea.

What does it take to engage the woman investor? Women care about more than just the bottom line and technical details.  They value planning and have a long- term perspective.  So work closely with your female clients to develop a long-term strategy they can embrace.

They especially want to understand how financial services can help them feel more secure about retirement. However, industry seminars and educational materials are often filled with technical jargon and lack conceptual focus. Who cares whether your fund has a high risk-adjusted return with low beta and options hedging? What does that mean for her personally? Will it help her save for retirement and protect her from large losses? These concerns are normally amplified in uncertain markets.

Also, because many women underestimate their knowledge of finance, they find educational opportunities very attractive.   Investing in your client’s education usually provides significant return to both the client and advisor by ensuring smooth communication going forward.

Answering these questions and offering more user-friendly educational opportunities are critical keys to serving women investors.

Learn how Wavelength’s unique content and digital learning tools can be employed by financial services firms to effectively attract women investors.