Are women better investors than men?

Research confirms that the sexes have distinctly different approaches to investing -- and it shows up in returns.

By Traders Reserve Mar 14, 2014 7:36AM

Smiling woman with digital tablet in office © Hero Images, Getty ImagesBy Karen Riccio


Maybe the Academy Award-nominated film The Wolf of Wall Street that depicted the seedy, greedy, male-dominated world of finance has triggered all the recent banter about whether men or women make better investors.


While everybody has an opinion, hard research has sorted out a wide range of differences in investor behavior by gender,  with many studies citing similar behavioral traits and quantifiable results.


The cornerstone study by finance professors Brad Barber and Terrance Odean, from UC Davis and UC Berkeley, respectively, probed investing behavior in 35,000 households from a large discount brokerage. The seven-year study showed that men trade 45 percent more than women, to their detriment. It reduced their net returns by 2.65 percentage points per year. Women traded less and their returns were reduced by only 1.72 percentage points.


Bottom line: Trading less and making more thoughtful investment decisions led to women making more money. Therefore, women rule.

 

Reasons for the conclusion really have nothing to do with IQ, or level of education, or even years of experience. It all boils down to one, major biological difference: Men produce, on average, 15 times more testosterone than women.

 

Aside from obvious physical effects of the hormone, it is linked to behavior like increased aggression, dominance, confidence, hostility and risk-taking behavior.


While these behavior traits can present communication gaps between men and women, they can also have big effects on investment decisions of each group, researchers say.  Here are five ways the two genders differ in investing attitudes and behavior:


Men get angry, women become fearful

University of Oregon researchers surveyed investors nationwide in March 2009, just days after the Dow Jones Industrial Average ($INDU) bottomed out at 6,547. The survey revealed that men tended to react to the down market with anger. The study found that this causes them to put money into riskier investments to make up for the loss, which only results in more losses.


In contrast, the Oregon researchers found that women reacted to the down market with fear, causing them to become conservative, hold tight and take fewer hasty actions. Females were twice as likely to expect the return on stocks over the coming year to be zero or negative and to think stocks would return 5 percent or less per year over the next 10 years.


Men are spontaneous, women are objective

Women tend to think more objectively about their investments and base what they buy or sell on relevant facts, studies show. This emotional disconnect allows women to sell a losing stock. A study of investor behavior by LPL Financial found that research is important to women; they tend to do more of it before making investment moves. Women ask questions before investing; men tend to be more spontaneous in their buying and selling.


Men, however, are less likely to admit to making a mistake, causing men to hold on too long. Many say that because women are less confident with investing, they want to research and understand before they take action.

 

Men ignore GPS, women ask for help

Men are not only more likely to ignore directions given to them by a car's GPS, they’ll probably argue with the female voice as well. Women may listen to the GPS and get a second opinion from a gas station attendant.


The same behavior is borne out in investing, experts say. Women are more likely to assess the situation, seek out assistance and consult advisers. Men are more likely to be overconfident and rely more on their own personal assessment of the market as opposed to the actual market facts and valuations. Doing so often leads to bigger losses.

 

Egos drive men, women drive plans

Men see the world as a competitive place, and often make decisions based on wanting to "one-up" a peer. It’s all well and good to boast about finding a great stock and pocketing profits, but the need to validate can get in the way of making wise choices. Big winning trades are great, but big losing days can deplete an account.


The research on investor behavior shows women are much more likely to push ego aside, stick to an investment plan and focus on personal goals.


Men crave risk, women want safety

There are many parallels between men and women when it comes to behavior around investments and cars. According to LeaseTrader analysis, 95 percent of women listed safety performance as their biggest concern during the shopping process, followed by 94 percent being interested in the accident history of the car. Men, on the other hand, tended to focus more on thrills, aesthetics, technology and speed.


The same behaviors and attitudes are evident in financial decision-making, researchers say. A Boston Consulting Group study confirmed that men's behaviors around competition and thrill-seeking behavior means they are more focused on short-term investing gains. Focused on safety and longer-term goals, women tend to more patient before investing.


More from Traders Reserve

Tags: $INDUSPY
8Comments
Mar 14, 2014 8:14AM
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By Traders Reserve? C'mon, some woman wrote this.


Woman ask advisors! Someone tell me what Advisors know? I've been making my own decisions and I'm fine with MSN Money, Schwab Research, Alpha and others. I dumped my full service, high commission broker long, long ago. Never used him much anyway and his (yea, he's a guy) advice never made me money.


Over the years as a CPA doing taxes, I've seen women and men with either men or women brokers and I see both winners and losers for each. Women can be just as greedy as any man and men can be just as fearful as any women.


I believe with investing besides research, patience is the most important element. Women may have more patience, but what I see is: successful investor's all have it.


Advisors? These clowns name a lot of stocks they don't own. If you have no skin in the game, then really, how much is your advice worth?


Yea, I'm a guy!

Mar 14, 2014 4:32PM
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Don't make me laugh!  Most women don't know the difference between compound discount and a compound fracture!  The ones that do are usually pretty good, but they are the exception.
Mar 17, 2014 6:41AM
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This article is nothing more than a feeble attempt to convince you that Financial Advisors and Mutual Funds are they way to invest - They are not !

 

Buy Large Cap, Iconic Product, Dividend Stocks and hold for Long Term. Put Dividends back into buying more stock and let the Power of Compounding be your "Financial Advisor".

Mar 15, 2014 4:02AM
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"Reasons for the conclusion really have nothing to do with IQ, or level of education, or even years of experience. It all boils down to one, major biological difference: Men produce, on average, 15 times more testosterone than women."

This is really study.  No, I mean extraordinarily stupid.  I couldn't believe I was reading this in an age of high scientific knowledge.

If it all boils down to testosterone, the why do men with it like Warren Buffett, me, and millions of other men buy and hold stock and are value investors?

No, the reason has to do with education or, rather, the lack of it.  Most men read a 4-page brochure from a 401k provider or a stock brokerage and think they know-it-all about stocks.  I think a higher percentage of women study what they're doing before they do it.
Mar 16, 2014 4:13PM
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iT  SEEM'S TO ME...That a LOT of men that have read this ARE insecure in their own beliefs...


Or haven't been around women, LONG enough, in their lives...


A few things that scare me about women are when they hold ALL the money...

They have a TASER, or worst a GUN...

And don't ever cross them when it comes to their family...ESPECIALLY any OFFSPRING.

Many women are cunning, sly, intelligent, risk takers, objective and conservative...

An ENIGMA wrapped in a RIDDLE..

Mar 17, 2014 6:07AM
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Women are overall better ,except for :EVE"  Good Day
Mar 14, 2014 9:39AM
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To answer the question;  Women are more conservative, patient and long term...

I don't need to read the article..

If A woman "has the interest", and is put in charge of finances, normally they do quite well in sticking to budgets...Better then men.

If they have and interest in investing, probably about same..

And they are pretty good savers, when having a reason...

Edited**** Went back and read the piece, Good job Karen; Pretty much all on the money.

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