If I were to ask you to name a few great investors, several men would doubtless spring instantly to mind -- Warren Buffett, Peter Lynch, Charlie Munger, John Templeton, and so on.
Yet it's safe to say you would struggle if I asked you to name some famous women from the world of investing. In fact, in the U.S., women are still far behind men when it comes to managing money.
Can women be great investors? Let's dig into some statistics on women and investing and find out.
Are women good investors?
First, lest you think I'm biased, I'll share the opinion of psychological experts and the findings of a couple of studies on human behavior and investing.
First, men are more over-optimistic and more over-confident than women, says Gerry Walsh, president of FINRA Investor Education Foundation and an expert on investment fraud and behavior. This means women are more cautious about their investments than men, typically doing more research before implementing an investment strategy.
Second, in a study conducted by Brad M. Barber of the University of California, Davis, and Terrance Odean, now at the University of California, Berkeley, they analyzed the behavior of 35,000 households. It was found than men traded stocks nearly 50% more than women. This drove up men's costs and lowered their portfolio returns. On average, trading reduced men's net returns by 0.94 percentage points more per year.
Third, Barber and Odean examined the performance of a group of brokerage accounts and observed that men who needed permission from their wives to trade outperformed single men, whereas women who needed their husband's permission to trade underperformed single women.
Finally, a growing body of research shows that females are more likely to have calm temperaments, and as Buffett has said, it's temperament, not intellect, that makes you a successful long-term investor. A Vanguard Group found in a study on individual investors that during the financial crisis of 2008-2009, women were less likely than men to sell stocks, which naturally worked in their favor.
What is the reality?
Based on the findings above, there is no doubt that women can be great investors. However, the reality may surprise you a bit. Here are a few facts:
- Only 45% of working women in the U.S. participate in a retirement plan. Fifty-five percent of American men say they understand how much they need to save for retirement; however, only 45% of women do.
- Only 41% of women consider themselves knowledgeable about saving and investing, compared to 57% of men. Thus while 58% of men in the U.S. indicate that they feel comfortable making their own investment decisions, a mere 41% of women do.
- In 40% of households, men take on the primary financial decision-making role, which involves day-to-day expenses, paying bills, large purchases, investing, long-term planning, insurance, real estate, and so on. But women take these responsibilities in only 16% of households. In 28% percent of households, couples share this role.
- When it comes to making investments, the situation is even worse: 83% of men take the lead, compared to only 2% of women. Fifteen percent of couples share this responsibility.
Why the reality needs to be changed
Following are three reasons why this situation needs to change.
- Women tend to live about five years longer than men, so their money has to stretch longer. If anything, they need to be more prudent and active about their savings and investing. However, according to a survey, around 59% of women guess the amount of money they need to save for retirement, and only 6% actually do a calculation on a worksheet to figure out their needs post retirement.
- It is observed that couples who share responsibilities and decisions feel most satisfied with how they make financial decisions and most confident about achieving financial goals.
- Managing investments and financial planning on their own provides women more control and knowledge of their future expenses and savings.
Foolish Bottom Line
Personally, I was surprised to learn the reality. However, the silver lining is that, as a nation, America is still better off than many countries in the world. With growing awareness about financial education, I'm confident that women can step up and take charge of their money.
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