Sorry, fellas, the verdict is out: Women are better investors than men. It may not seem like it because men get most of the media attention in investing, but facts are facts. Although women have historically invested less frequently than men, they outperform them in returns.
According to an analysis of 5 million Fidelity accounts over a 10-year period, women's returns were 0.4% higher than men's. This difference is even higher according to an University of California, Berkeley study, which showed women's returns were nearly 1% higher.
Image source: Getty Images.
Keeping your eyes on the ultimate prize
One of the most effective investing strategies is a simple one: Buy great companies and hold them for the long term. This is a lot easier to do when you ignore short-term noise in the market and keep your eyes on the prize. According to Vanguard, women log into their accounts about half as often as men and trade around 40% less frequently.
One reason men may trade more frequently on average is an attempt to time the market; selling before the market drops or buying before the market increases. The problem is that timing the stock market consistently over time is virtually impossible. You're essentially gambling.
The investing saying "Time in the market beats timing the market" has remained tried and true for a reason. It's passed the longevity test.
Let's imagine you invested $10,000 in the S&P 500 at the start of 2008 and let it sit until the start of 2023. Had you stayed fully invested over that time, that $10,000 would have been worth $35,461 (8.81% annualized total return).
If you instead attempted to time the market and pulled your money out of your investments, here's how much the $10,000 would be worth based on how many of the S&P 500's best days you missed during that time:
| NUMBER OF BEST DAYS MISSED | ANNUALIZED TOTAL RETURN | ENDING VALUE |
|---|---|---|
| 10 | 3.29% | $16,246 |
| 20 | -0.17% | $9,748 |
| 30 | -2.93% | $6,399 |
| 40 | -5.32% | $4,401 |
Data source: Putnam Investments.
Even missing just the 10 best days out of 15 years cuts the total capital gains (profit) by more than $19,000. Missing more than 20 of the best days results in actually losing money.
Don't panic
When the stock market experiences high volatility, only 8% of women liquidate their retirements versus 15% of men, according to a 2022 Nationwide study. Unless liquidation is the only way to cover basic living expenses, it's often counterproductive. Liquidating a retirement account early can have three unintended, costly consequences.
To begin, an early withdrawal from a retirement account could result in a 10% early withdrawal fee.
Selling shares could also spark a tax bill if you've made capital gains. How much you pay in taxes depends on how long you've owned the stock. If you've held them for less than a year, you'll be subjected to your regular income tax rate. You'll be subjected to a more favorable capital gains rate if you've held them for a year or longer.
Most people will fall into the 15% capital gains tax range, in which every $10,000 in capital gains means $1,500 owed in taxes.
The last reason liquidating a retirement account can be costly is that it takes away from any future gains those investments could've made.
Take an ETF like the Vanguard S&P 500 ETF (VOO 1.28%), for example. From February 2020 to March 2020, the S&P 500 plunged by over 30%. Investors who sold shares during the decline missed out on the index's rebound. Since its March 2020 low, the S&P 500 is up over 78%.
DATA BY YCharts
The proof is in the pudding: Tried-and-true investing strategies often pay off in the long run, no matter your gender. By keeping your eyes on the prize and focusing on the long term, you can ensure you're setting yourself up for investing success. History shows you'll likely be glad you did.
