Have you ever wondered what the opposite sex was thinking? If yes, you’re probably not alone. Men and women have very different ways of thinking and approaching things. My wife would probably say that women are always right, and when it comes to investing, this might actually be true.
I once came across a University of California study called Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment that really caught my interest. The paper found that women outperformed men in the market by one percentage point a year because men were much more likely to be overconfident and make rash decisions that cost them money.1
And they are not alone in saying this. According to a recent study done by the University of Warwick Business School, women outperform men at investing by 1.8 per cent.
This could be due to the fact that women tend to take a more long-term perspective and trade less frequently. The research found that on average, women trade about 9 times a year, as compared to 13 times for men.2
The Highs and Lows of emotional investing
Studies have shown that men are more likely to be attracted to the thrill of investing, while women generally have a particular financial goal in mind. This in turn affects the type of investments that they choose. While women are more likely to focus on shares that already have a good track record, men tend to seek out that “diamond in the rough”.
This might come as a surprise to many, but men are often ‘emotional’ investors. They are more sensitive to news events and are more likely to buy and sell as a result. But something to remember is that high levels of trading tend to diminish returns, not increase it.
They also tend to hold on to shares after they have dived in the hope that they recover, which might result in their shares shriveling to nothing, while women are more likely to cut their losses.
Another reason that might account for women outperforming men is that they are more likely to do the necessary homework. A poll conducted in the U.S. found that women spend 40% more time researching a mutual fund before they invest3. This is especially important if you’re a beginner investor.
Taking the first step
The interesting thing is, despite all the evidence that point to women’s investment prowess, they are actually less confident about investing. In a 2018 HSBC survey4, less than a third of women in Singapore rated themselves as well-informed on financial matters compared to almost half of the men surveyed.
This mindset might be holding them back from investing. However, I know that taking the first step can be daunting.
For novice investors who are unsure of how or what to invest in, I would recommend that they tap on expert advice to overcome their fears and inertia, as well as give them more assurance. On the flip side, more seasoned investors, including men, should be more mindful of certain behavioural biases that might be affecting the returns of their investments.
More female advisors needed
Currently, less than 20 percent of financial advisors are women, which is something the industry needs to work on. In my career, I’ve met and worked with many top notch, successful female wealth managers, and I believe that they have a lot to offer and are in a good position to encourage more women to proactively manage their money.
For one, research has hinted that female advisors are more likely to take into account a family’s overall financial goals, rather than just thinking about investment performance. This is especially important because most women who invest tend to have a particular financial goal in mind.5
They would also be in a position to better understand the unique needs of women. According to a 2018 HSBC survey report, 40% of Singaporean women live on a day to day basis financially, while 38% say they don’t usually understand financial experts.6
Stay in but spread out
But regardless of gender, history has shown that long-term investing will increase the chance of positive returns. When markets are rocky, it is tempting to exit to avoid further losses. However, those who focus on short-term market volatility may end up buying high and selling low.
Staying invested for longer periods tends to offer higher return potential. However, that does not mean that you should do nothing at all. It is important to consistently review your portfolio and take appropriate actions when needed.
Also, remember to stay diversified. Different asset classes often perform differently under various market conditions.
By combining assets with different characteristics, the risks and performance of different investments are combined, thus lowering overall portfolio risk. For example, a lower return in one type of asset may be compensated by a gain in another.
Research has proven that women often display these good investment habits, and it’s time for us men to start taking notes.
A contribution piece by Deepak Khanna, Head of Wealth Development, HSBC Bank (Singapore). A version of this piece was first published in Lianhe Zaobao on 28th April 2019.
4HSBC The Future of Retirement: Bridging the Gap 2018 report
6HSBC The Future of Retirement: Bridging the Gap 2018 report