Why We're Missing the Biggest Emerging Market in History

On a grand scale, the position of women on the world stage has never been so strong. As women occupy an increasing number of leadership positions, fill an ever-growing proportion of higher-education rosters, and control a larger and larger slice of the global financial pie, they've become what a Newsweek article once described as the "biggest emerging market in the history of the planet." Yet women remain dramatically underrepresented in the investment world, because the investment world fails miserably in meeting women's demands.

The financial sector doth protest too much, methinks
The financial services industry has lately been engaged in collective hand-wringing over women's supposedly mysterious unwillingness to join the established investment paradigm. The stakes are high: As of 2012, women in the U.S. controlled $8 trillion, and that number is projected to reach $22 trillion by 2020. So why won't the ladies just get on board and pump their cash into the system's gaping maw?

The more I look at this question, the more it strikes me that women and men are altogether different beasts when it comes to investing. Until recently, I have found such Mars-Venus arguments to be fanciful, even distasteful. However, the evidence on this one is compelling.

A 2012-2013 Prudential study found that, while men's top financial priority is to "maintain lifestyle in retirement," women's is to "not become a financial burden to loved ones." Karin A. Risi, principal at the Vanguard Group's Asset Management and Advice Services division, found in recent research that, where men want to hear about growth and the comparative performance of funds, women want to know how a particular investment will help them achieve their long-term goals, like sending their kids to college. It should come as no surprise, then, that 70% of American women fire their financial advisors within one year of being widowed.

Just ignore that elephant in the room
But there's more to this story. Mainstream financial writers, analysts, and advisors consistently overlook an analytical dimension that is far more important to women than to men. Specifically, women place greater value on social and environmental factors than men do. Consider some recent evidence:

  • Recent Spectrem Group research found that among affluent investors, 53% of women are interested in environmentally responsible investments, and 47% in socially responsible investments, compared with just 33% of men in both cases.
  • A recent Millionaire Corner survey of investors found that 42% of women said they were "likely" or "very likely" to make environmentally responsible investments. Only 27% of men said the same.
  • U.S. Trust performed a survey of high-net-worth investors to find out how important environmental, social, and political factors were in respondents' investment analysis. Sixty-five percent of women identified these factors as "somewhat" or "extremely" important, compared with just 42% of men.

Despite all of this, the male-dominated financial scene generally dismisses any investment strategy that incorporates broader social and environmental considerations. The mildest rebuke is that these factors are somehow irrelevant. Many arguments get far more vehement: I constantly hear the bizarre assertion that "moral" and "political" judgments are harmful to our capitalist system.

Effectively, it seems that the mainstream financial world feels deeply threatened by a strategy that the majority of women consider important. In reality, taking a broader view, and considering the wide range of factors that affect the investment ecosystem, can even be a value-creating strategy.

Let's ask the best investors ...
It turns out that women are good investors. Indeed, mounting evidence shows that they outperform their male peers, and the market, in general.

Terrance Odean, a professor at the University of California, Berkeley, is an expert in stock-picking by gender. His seven-year study found that single female investors outperformed single men by 2.3%, female investment groups outperformed male investment groups by 4.6%, and women, overall, outperformed by 1.4%. 

Rothstein Kass, a tax and audit firm, published a report this month showing that hedge funds and private equity funds owned or managed by women consistently outperform those of their male counterparts, as well as industry benchmarks. Barclays Capital research has yielded similar findings.

So let me lay this little syllogism on you: If women are strong investors, and if women think that social and environmental factors are important, then maybe social and environmental factors are important. Maybe the mainstream financial world is missing the boat on two fronts: women's investment, and sustainable investment.

If the financial world wants to capture the massive emerging market that is the female investor, maybe all it has to do is widen the analytical aperture. Doing so might just make everyone a better investor, no matter the gender.

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Read/Post Comments (11) | Recommend This Article (33)

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  • Report this Comment On January 31, 2014, at 6:18 AM, gkirkmf wrote:

    I have always wondered why my spouse's 401k vs. my 401k has always done a bit better (3-4%) than mine, even though I manage BOTH of them... Mystery solved!!!

  • Report this Comment On January 31, 2014, at 2:25 PM, Truth2Power wrote:

    gkirkmf,

    The EXACT SAME thing happens to me! In 2013, my stock portfolio was up 59%, but my wife's was up 76%...even though I picked ALL THE STOCKS in each!

    I have to give my wife credit, though. She picked Apple, Amazon and Netflix way back in 2009. Smart wife.

    --Truth2Power

  • Report this Comment On January 31, 2014, at 6:28 PM, momklok wrote:

    Motley Fool should take this information to heart when recommending stocks considering the blistering rebukes it got from their article on Monsanto and how we need to get over our concerns about GMO's. Every response I read condemned the article and Monsanto's lobbying and strong arming techniques. I will never buy Monsanto stock, or stock in companies that frack.

  • Report this Comment On February 04, 2014, at 7:14 PM, cmalek wrote:

    @Truth2Power:

    "She picked Apple, Amazon and Netflix way back in 2009. Smart wife."

    She would have looked much smarter if she picked AAPL and AMZN in 1999. :-)

  • Report this Comment On February 04, 2014, at 10:51 PM, Tiensman wrote:

    My wife outperformed me as well. When we got divorced she got the entire portfolio.

  • Report this Comment On February 07, 2014, at 1:27 PM, SocialRespInvest wrote:

    Yes, I have been asking Motley Fool for a responsible fund for years!

    This is especially important for international investments, where the Fool has invested in extractive industries-- perhaps their companies aren't despoiling vast areas of the Earth and poisoning and exploiting workers, but how am I to know if the investments are not screened?

    It is time for a Responsible Fool Fund. Perhaps your column signals that this will happen soon.

  • Report this Comment On February 07, 2014, at 4:25 PM, shbeavers wrote:

    The characteristics that make women better investors aren't necessarily the ones cited in this article. Perhaps stated better, the reason women value social and environmental concerns more than men may stem from the same characteristics that make them better investors. But to say having those concerns makes them better investors is likely to be confusing cause and effect.

  • Report this Comment On February 08, 2014, at 11:52 PM, VictorErimita wrote:

    Concerns about GMOs are in direct defiance of voluminous scientific inquiry that has shown no problems. But ecoreligious superstition reigns in the minds of many anyway. That example typifies my concerns about putatively "socially responsible" investing philosophy. If GMOs produce more food with less water, less reliance on fertilizers and pesticides, yet show zero evidence of health or environmental problems, how is it "socially responsible" to doggedly oppose them? Monsanto has been stand in scapegoat for adolescent anti-capitalist paranoia for decades. Like Walmart (but not Target) Nike (in the past but not now,) McDonalds (but not Burger King, Taco Bell or numerous others) and countless other examples, this sort of "social conscience" smacks of fashionable groupthink.

    As for gender-based stock picking, I have no interest in investment "analysis" based on the PC fashion topic of the moment.

  • Report this Comment On February 14, 2014, at 6:19 PM, owen14 wrote:

    Why is it that men refuse to see the cause and effect of what we do to the environment. I am a man and I think that women's maternal instincts and a genuine desire to leave a better world for their children and grandchildren is at the core of why they recognize the importance of environmentally sound investment. Monsanto's "frankenplants" are a perfect example of what happens when we mess with nature. I too refuse to invest in Monsanto and companies that track.

  • Report this Comment On February 14, 2014, at 6:21 PM, owen14 wrote:

    Sorry I meant track.

  • Report this Comment On February 14, 2014, at 6:22 PM, owen14 wrote:

    Frack!

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