3 Reasons Women Tend to Be Great Long-Term Investors

Since March is Women’s History Month, we’re celebrating the many accomplishments of women—both past and present. And when it comes to investing for the future, women tend to take the cake. In this article, we examine why.

The month of March provides an opportunity to celebrate the many achievements of women. So when Fidelity released its 2021 Women and Investing Study, we were pleased to see that women continue to close the investing gap.

Indeed, more women than ever are taking a seat at the investing table, according to Fidelity. And when women invest, we tend to be pretty good at it. Based on an analysis of more than 5 million Fidelity customers over the last ten years, women outperformed their male counterparts by 0.4% annually, on average.

Unfortunately, many women still lack confidence in their investment acumen. A recent study from Merrill Lynch found that only 52% of women are confident in managing investments, compared to 68% of men.

Of course, we’re not diminishing the unique strengths of male investors. But there are a few characteristics that give women an advantage when it comes to investing long-term. In this article, we’re sharing three key strengths of women investors so that more women may feel confident about investing for the future.

When it comes to investing for the future, women share three key advantages:

Advantage #1: Women Tend to Trade Less Than Men

In a seminal behavioral economics study, researchers Brad Barber and Terrance Odean sought to determine if overconfidence caused male investors to trade more and therefore underperform their female counterparts. Using account data for over 35,000 households from a large discount brokerage firm, Barber and Odean analyzed the common stock investments of men and women from February 1991 through January 1997.

The researchers found that single men trade 67% more than single women. And they earn annual risk-adjusted net returns that are 2.3% less than those earned by single women, on average. The results for married men and women were similar but less pronounced.

A more recent study from Boring Money found that women hold onto mutual funds for 10.7 years on average. On the other hand, men have a holding period of 8.3 years, on average.

Indeed, women’s lack of confidence in their investment abilities can be problematic, especially when it leads to under-investment. However, when women do invest, a lack of overconfidence actually benefits us.

Advantage #2: Women Are Less Likely to Panic in a Downturn

Another advantage is that women investors are more likely to stay the course when markets are turbulent. A recent MIT study revealed that the most likely group of investors to abandon their investment plans when markets decline are men over age 45 who are married, have dependents, or identify as having excellent investment experience or knowledge.

The researchers defined a panic sale as a plunge of 90% of a household account’s equity investments over one month. And of this decline, at least half was due to trading activity. The study also found that 31% of panic-sellers never reinvest their assets in “risky” investments, which often creates additional headwinds.

Interestingly, those participating in the study who felt less confident in their investment experience were found less likely to panic and sell their investments in a downturn. Data from Vanguard further demonstrates this point. In March 2020, at the height of the Covid-19 pandemic, only 4% of women made trades in their accounts compared to 7.5% of men.

Advantage #3: Women Are More Likely to Delegate to a Professional

Lastly, women are more likely to seek help when it comes to managing their investments. In fact, 86% of women who participated in the Fidelity study agreed that having their investments managed by professionals makes life less stressful.

According to Spectrem Group, women are more likely to be “Advisor-Dependent” or “Advisor-Assisted” than men.  More specifically, 58% of women rely on and trust their financial advisor for most of their financial needs. Only 52% of men feel that way.

Ironically, Spectrem Group also found that men are less likely to work with a financial advisor. That’s because they believe they can do a better job managing their investments themselves. Meanwhile, women report feeling far less knowledgeable about financial products and investments. They’re also more likely to prioritize financial security over superior investment performance.

Closing the Investment Gap

According to McKinsey & Company, “An unprecedented amounts of assets will shift into the hands of U.S. women over the next three to five years, representing a $30 trillion opportunity by the end of the decade.” As we increasingly control a greater share of wealth, it’s more important than ever for women to feel confident about investing for a secure financial future.

SageMint Wealth is proud to be a female-run wealth management firm with a passion for supporting women, the LGBTQ+ community, and individuals in the technology space. If you’re ready to take the next step towards securing your financial future, please give us a call. We’d love to hear from you.