Hey, boy, why can’t you invest like a girl?
Men dominate the finance industry, but they’d do better at investing if they learned a few lessons from the ladies.
THE world of finance is soaked in testosterone. At the highest level, Wall Street is basically a giant locker-room of blokes competing to outdo one another, complete with chest-bumps and terrible cologne.
If it’s mostly men who are drawn to the world of investing, people tend to assume that’s because they’re naturally better at it.
When multinational investment firm Fidelity asked millions of its clients how well they thought they’d done in the last year, only nine per cent of women reckoned they would have outperformed the blokes.
After some number-crunching, the Fidelity analysts found the opposite was true. Women had not only earned an average of 0.4 per cent more than men, they’d done better over the last 10 years. That’s consistent with a growing body of research which suggests women make better investors, earning up to 1 per cent higher annual returns.
It might not sound like a lot, but the compounding effect makes a huge difference over the course of a lifetime of investing – we’re talking an extra quarter of a million bucks by the time an average Jane gets to retirement age.
This suggests women don’t need to be more aggressive if they want to play rough-and-tumble with the boys. In fact, a willingness to stand on the sidelines and take more of a passive approach is exactly what makes them more successful.
TRADING IS FOR MUGS
A famous study called ‘‘trading is hazardous to your wealth’’ found that wheeler-dealers did far worse than those who simply bought and held for the long term. Every trade creates a winner and loser. Both the buyer and the seller think they’re getting a bargain, but only one will be proven right. By chance, you’d expect to be wrong about half the time. In practice, it’s worse than 50-50 odds, because you’re getting charged brokerage fees on every trade.
Naturally, men are more likely to believe they’re smarter than everyone else in the market, and trade their portfolios about 45 per cent more than women.
ASKING FOR HELPIf
you’re the the kind of person who would rather drive in circles for hours than swallow your pride and ask for directions, you might not make a very good investor.
A study by Wells Fargo found women were more likely to ask professionals for help, with twice as many saying that what they needed most from a financial advisor was education about investing principles and concepts.
SAVING MOREWomen
tend to save more of their pay checks, at every level of salary. This is crucial because the key to investing success is starting as early as possible, and making regular contributions.
Despite all of these good habits, women still tend to end up with less in their KiwiSaver account than men. ANZ has calculated the gap at $80,000, on average. That’s mostly because women earn less income than men, for a variety of reasons covered last week, but there’s another factor at play.
Schemes like KiwiSaver don’t have the temptation of trading in and out of stocks, which eliminates the trading penalty for men. Women might not be taking enough risk in the investment mix they choose, which would make this one area where they can learn from the blokes.
One of my biggest bugbears with KiwiSaver is that so many people are still sitting in the low-risk ‘‘default’’ holding pens. If you haven’t made a deliberate choice, that inaction could cost you hundreds of thousands of dollars in foregone returns – check out Sorted’s Fund Finder to get a feel for the right scheme for you.
The perfect investor is careful, disciplined and recognises their own limitations, rather than being impulsive and overconfident. After learning several lessons the hard way, I for one am proud to say I’m finally starting to invest like a girl. Got a money question? Email Budget Buster at richard.meadows@thedeepdish.org, or hit him up on Twitter at @MeadowsRichard.