Financial Advice
Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.

Why Women are Better Investors than Men

Why Women are Better Investors than Men

Several significant studies have shown that, over a period of time, which includes both up and down markets, women generate returns, on average, higher than men. Merrill Lynch studied the investment decisions of 35,000 households and found that married women outperformed men by at least one percentage point and single women by a full point and a half.

The data revealed that, generally, women make smarter investment decisions than men and are better at assessing risk. The study suggests that “men think they know what they’re doing, even when they really don’t know what they’re doing.” You probably won’t see many women arguing against that point.

None other than Warren Buffett said the key to successful investing is to avoid mistakes. That could be one of the keys to women’s investing advantage over men because women tend not to repeat mistakes. For instance, less than half of women who waited too long to sell a stock make that mistake twice, while more than 60% of men did. Less than half of women investors ignored the tax consequence of an investment decision more than once, while nearly 70% of men did.

Here are some other reasons why women are better investors than men.

Women exert more self-control and discipline

Research shows that women under stress demonstrate a heightened desire to exercise more self-control and discipline than men. That may account for why, in periods of extreme market volatility, men are more likely to sell a stock, while women will wait until they have assessed the situation. Also, men actively trade their holdings 45 percent more than women, resulting in more losses and transaction costs. The bottom line is women are better investors than men because they trade less often.

Women aren’t overconfident

One of the reasons men trade more actively is they tend to be overconfident. Overconfidence typically stems from an overestimation of one’s knowledge and skills. Women tend to underestimate their investment knowledge and skills, resulting in “under-confidence” and a tendency to exercise more caution and discipline in their investment decisions. It’s also why women tend to have a formal, long-term investment strategy, which helps them keep their emotions in check.

Women are less competitive

Men have always been more competitive than women. The innate desire to win invariable effects short-term decision-making. Men want to “beat” the market, which is why they take greater risks than necessary. To women, investing is not a game. They have no desire to beat the market as they treat investing as a solution for achieving their long-term goals. Without testosterone to juice their ego or competitiveness, women allow themselves to focus less on short-term performance and index benchmarks and more on their own benchmarks for achieving long-term financial security.

Women are more cautious

For women, caution typically manifests itself as patience and self-control. Instead of jumping on the next hot stock, or dumping stocks in a panic, women are more likely to pause and assess. They aren’t likely to get caught up in media hype, preferring to conduct their own research and due diligence. That could explain why women generally sat out the dot-com boom, thereby avoiding its bust, and why, during the market crash of 2008, most women chose to stay the course and avoid panic selling or buying.

Women take the long view

Women are more concerned than men with what the future holds and are willing to take their short-term lumps as long as they can see that they are on track. While men raise high-fives over a stock that triples in value overnight, women sleep soundly at night when their boring index fund keeps chugging along, taking them closer to financial security and their long-term goals.

Women know when to ask for directions

The research indicates that, while men are prone to overestimate their financial competence and go it alone, women are quick to get help, seek information, and compile data so they can make an informed decision. Studies are consistent in finding that investors who seek an expert’s input realize returns two percentage points higher than those who choose to fly solo.

It is safe to assume that the key to women’s investment success is to simply let women be women and allow their natural tendencies to guide their decisions.

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