By Manisha Thakor
Who is better at investing – men or women?
The data may surprise you. Academic studies show that women tend to trade, or buy or sell investments, less frequently than men, and as a result generate better investment returns. The most famous of these studies comes from the University of California where Professors Odean and Barber found men tend to trade 45% more often than women (with single men trading 67% more frequently than single women!).
Alas, all that activity did not result in better returns. That level of hyperactivity ended up reducing men’s net returns by a painful 2.65% a year.1
Yet all too often women tell me they feel they “aren't good investors.”
What’s going on here? I think there are three factors at work.
First, I have found that both men and women find investing confusing. That confusion has only increased in recent years in the face of increased product offerings, more volatile markets, and increased pressure to “get it right” due to a lackluster economy and tenuous job prospects. The difference is that women often are more comfortable admitting a discomfort with the topic.
Similar to stopping and asking for directions on a road trip, I find women are more comfortable asking for financial directions. That willingness to ask for advice and guidance can inadvertently be confused with having less knowledge than the men who are not seeking help.
Second, for years, the lingo of the financial services industry was filled with phrases that equated the financial markets with a battlefield (“dominate, crush, beat” the competition) or a sports field (“I’m playing the market.”). Many men find this language comforting and appealing. By contrast, I’ve observed that women see the goal of investing as helping their earnings grow enough to help them reach their goals and lead a rich and rewarding life. In other words, women tend to be more focused on generating returns that are sufficient to meet their end objectives, not to ‘beat’ an index or find the next hot stock.
Lastly, women are busy. Whether they work inside or outside the home, the amount of free time that women have these days is precious. To find some spare hours to self-educate on a topic as large as investing is no easy task for multi-tasking women. While men may pick up nuggets about the markets and investing in casual conversation with other men, I’ve observed that women share financial information less frequently. As a result, men may feel a greater (and potentially a false) sense of comfort around investing thanks to familiarity with the lingo and terms gained in conversation. This is not to say men are better investors, just that, as a result of social factors, they may be exposed more to the topic.
For example, just think of which networks the TVs are tuned to in the male (CNBC) vs. female (Oxygen) locker rooms at the gym.
What’s a woman to do? Start asking for those “financial directions.” Here are there specific steps to get you started on the journey to the financial life you deserve:
While clearly talking about “all men” or “all women” is dangerous when discussing a subject as broad as investing, one thing is true. Investing some time acting on the above three steps will put you on the path to taking control of your financial future.
1 “Boys will be boys: Gender, Overconfidence and the Common Stock Investment”
The study looked at the common stock investments of 37,664 households for which the researchers were able to identify the gender of the person who opened the household’s brokerage account. The researchers used documents from the discount brokerage to reasonably estimate monthly returns from February 1991 through January 1997. The net return performance is calculated after a reasonable accounting for the market impact, commissions, and bid-ask spread of each trade. For more information on methodology, see the study. For another study on women and investing, see http://www.rkco.com/resource-center/newsletters/proprietary-research/women-in-alternative-investments-building-momentum
Manisha Thakor (Harvard MBA, CFA) is founder and CEO of MoneyZen Wealth Management, which provides integrated, holistic financial life planning and investment management for women and families. She is a frequent commenter on issues of financial literacy and co-author of two books on personal finance.
The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons. Past performance does not guarantee future results.
Manisha Thakor is not affiliated with the TIAA-CREF organization.
TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products.
Learn how a TIAA-CREF IRA can help you save.