Man Smart, Woman Smarter

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The Motley Fool crew is no ship of fools. We're putting Mom first, and so should you. Check out all of the Fool's Mother's Day articles.   

The song "Man Smart, Woman Smarter" was written by calypso legend King Radio and covered by artists as diverse as Harry Belafonte and The Grateful Dead. It's just Foolish to invest like Mom because, as the lyrics say, "The women are smarter."

In a long-term study involving 35,000 investors, two U.C. Davis professors found that women earned higher investment returns than men. On a risk-adjusted basis, married men annually underperformed women by 1.4%. For single guys, the numbers were even worse; they lost to the fairer sex by 2.3%. I detect the hissing sound of deflated male egos through cyberspace. Let it slide, my brothers -- Mother's Day approaches. Perhaps there's a lesson here.

Nurture or nature?
These lackluster results are linked not to genetics but rather to men's misguided confidence in their trading ability. Overconfidence, in turn, leads to excessive trading, and that's where the boys lose. Interestingly, when you adjust the results for trading frequency, men and women have similar performance -- the stocks they sold generally underperformed the ones they bought. A corollary here is that active investors of either sex can't beat market indices regularly. A better option is a diversified portfolio of low-cost index funds or exchange traded funds (ETFs) from companies like DFA, Vanguard, or Barclay's (NYSE: BCS). Index funds and ETFs have very low annual expenses because, drum roll, their managers trade infrequently.

In Rick Ferri's bookAll About Asset Allocation, the author points out that women have more success in sticking with an investment plan because they tend to have a long-term view of the market. If you don't have a long-term investment plan, you should think about making one. If you need some help, take advantage of a free 30-day trial to our Rule Your Retirement newsletter. For instance, you can use Rule Your Retirement's online guide to calculate whether or not you're on track to reach your retirement goals.

Obey your mom
For investing success, follow Mom's example. First, have a plan and stick with it. Next, stop trying to beat the market. Investment plans rarely fail. Rather, investors abandon the plan during market doldrums or periods of euphoria -- if they ever have a plan at all.

Most importantly, don't forget to give your Mama a call. I wish I could call mine.

Buz Livingston, CFP, believes investors benefit from professional advice. He appreciates your feedback. He doesn't own shares of Barclay's. He recommends All About Asset Allocation for all investors, especially since the author is donating all profits to the Intrepid Fallen Heroes Fund.