Women make better investors, new research shows
Women may be better suited to becoming long-term investors than men, according to automated investment service Stockspot.
When searching the internet for "world's most successful investors", very few women are mentioned. However, more and more research studies are revealing that women are in fact better suited to becoming successful long-term investors.
Studies have found that hedge funds run by women returned 9.8% compared with 6.1% by men in that year.
A US study of 750,000 portfolios also found women earned higher median returns than men.
Plenty of stereotypes are used to explain this trend of superior performance by women, from men's testosterone clouding their judgement to women being calmer under pressure.
But Stockspot has looked at its clients' data to find out why women may be better long-term investors.
Women accept lower returns to avoid risk
Stockspot's data showed that male clients are comfortable taking more risk, while female clients prefer to be less exposed to market movements.
Only 27% of women were comfortable taking on more risk to target higher returns, compared with 41% of men.
Men are overconfident
Confidence is positive, as it leads to action, which can improve investment outcomes.
However, being overconfident can mean you believe that you have more control over short-term investment returns than you actually do.
The US study that found women earn higher returns than men, identifying a significant difference in portfolio turnover.
The median portfolio turnover for women was 9% a year, compared with 14% for men.
Higher turnover means men incur extra costs and are more likely to be buying and selling at the wrong times because they are chasing returns. Both of these factors lead to worse performance compared with women.
Women underestimate themselves
Many women lack investment confidence, so avoid sensible risk, with a survey finding 55% of women agreeing with the statement, "I know less than the average investor about financial markets and investing."
This results in women having an aversion to risk and simply leaving their savings in a cash account rather than investing.
This is unfortunate because women who do invest commit to their strategy and achieve good results.
Among our female clients, 44% said they would stick to their investment plan if markets fell compared with 31% of men. Women are more disciplined long-term investors and that pays off.
Men and women can learn from each other's investment habits. Men can learn from the discipline women have in not being tempted to change course, whereas women can take some investing confidence from men.
Automated investment services such as Stockpot can help women be confident about taking sensible risks and prevent men from making the costly mistakes of trying to time the market or select individual stocks.