Many research studies exist about investor behavior. Although we like to believe that we are logical beings, we are primarily driven by our emotions. That hurts us when making investment decisions.
However, the research studies that intrigued me most were the ones that found women to be better behaved than men when it comes to investing. I wanted to dig into exactly what that means.
Don’t get me wrong, I adore all of the men in my life! My dearest Dad, two teenage stepsons, nephews, friends and colleagues. But I love that we as women are wired to be better investors than our male counterparts.
In this podcast episode, I walk through 5 of the reasons why we are better investors that I discovered in the research. Understanding the reasons and being aware of them can help you keep your emotions in check with your investment portfolio through the ups and downs.
Here are 5 Behaviors that make women better investors than men:
- Women are more risk averse
- Women are not overconfident investors
- Women have a “hang in there mentality”
- Women are better savers than men
- Women plan with purpose
On the podcast I go into each of these in more detail. I also talk about two issues that can potentially hurt us as investors that are related to the above.
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(00:05): Welcome to the midlife money gal podcast. This is the show.
(00:09): So for progressive and professional women, we want to take charge of it.
(00:13): The money in midlife. I'm your host, Stephanie Sammons, I'm an experienced certified financial planner and a midlifer just like you. Hello and welcome back to season
(00:31): Two of the midlife money gal podcast. I'm so excited to be back with you. And I have an exciting topic today. At least I think it's exciting. It's called why women are better investors than men. Now. I love the men in my life. Don't get me wrong. My dad, my two teenage step sons, my nephews, my friends, my colleagues, it goes on and on. But the truth is when it comes to investing as women, we are wired to behave better than men, and that increases the probability that we can achieve our financial goals. And over the years, there have been multiple research studies on this topic, including one by fidelity, a more recent one, which have all come back with this truth that women are proving to be better investors than men. And there are many reasons for that. And today I wanted to share five ways that we, as women are better investors than our male counterparts.
(01:48): Number one, women are more risk averse. That means that we take on less risk, not just with our investments, but in our lives as well. We are not daredevils if you will. And part of that is because we have a greater awareness of the risks that we are taking on. We also tend to value being more conservative, and we want peace of mind when it comes to our financial lives. Now, this can be a great tool for us that we are sensitive and aware of risk sensitive to and aware of risk, but it can also hurt us in some ways, which I'll talk about more toward the end of this episode. Number one, women are more risk averse or risk aware. Number two, women are not over-confident when it comes to investing. And this kind of goes hand in hand with the risk. Taking men tend to be more reactive and impulsive with their investment decisions.
(03:01): They make a lot of changes. They make big bets. They tend to take more of a binary approach to investing such as I'm either all in or I'm cashing out and getting out of the market completely. It's one or the other opposite extremes like that. This is kind of what I would call an ego driven approach, and it just doesn't serve men well in investing women are much less likely to try and outsmart the market to try and time the market and make those kinds of more ego driven impulsive decisions. So the problem with that is research shows the more changes you make in your portfolio, and the more predictions that you try to make in the short run that impacts your performance significantly over time. And ultimately this leads to women, outperforming men with their investment portfolios. So number two, we are not over confident with our investment decisions.
(04:12): Number three, women are more likely to hang in there and stay the course. We remain calmer during times of market turbulence and we weather the storm better. For that reason, we tend to think longer term with our money and that's because we were more goal oriented and we can visualize what we want to get out of our money. We, what our future goals are. And we view investing and money as a means to an end toward accomplishing those goals. In other words, we're not caught up necessarily in the day to day or month to month or year to year performance. Hey, how did we do, what number did we hit? We don't tend to care about that nearly as much as are we on track with our portfolio to achieve our financial goals. Over time, we stay away from trying to predict or time the market, which is very smart timing.
(05:22): The markets deciding when to get in, when to get out. And these sorts of things is almost impossible. Even for people who do it full time, people who make a correct decision, make a bet in the right direction. One time don't do it again consistently the next time, which is the problem. But when we have a plan as women and we know what our goals are, we know what the plan is. It's easier for us to just stay fully invested through the ups and downs. And this helps us outperform our male counterparts. So number three, women are more likely to hang in there and stay the course. Number four, women save more money than men. And this is the psychology of focusing on what we can control. We intuitively know as women that we can't control the economic environment and the markets and all the stuff going on around us, that we just absolutely have no control over.
(06:32): So we don't get caught up in it and wrapped up in it and obsess about it. We understand that a lot of it is out of our control, but something that is within our control is how much we are saving. And are we saving enough to meet our goals over the long term? So what's interesting here is when you combine the fact that we outperform men with our investments, because of the other reasons I talked about, and we save more, that can have a big impact on the growth of our wealth. Over time. Those two things combined really provide a significant bump for us as women investors, number four, women save more money than men. Now a caveat here is a pay gap still exists. We still don't make as much money as men. And that does have an impact on the overall dollars. We are able to put toward our retirement in the long run, but in terms of the percentage of those dollars that we can save, we are outpacing men in that area.
(07:57): Number five women plan with purpose. I talk about planning, financial planning, a lot on this show because when you do the planning and so many people don't plan when it comes to their financial lives, but you plan for everything else in your life. You plan for a big vacation when know where you are and you know where you're going and what you have to do to get there. It provides greater peace of mind and understanding about your overall financial and wealth picture women value this. We value planning in all aspects of our lives, including financial planning, but we're wired to think about the big picture. And we want to think about what is our vision or our future, and what are the goals that we want to accomplish. As I talked about earlier, and I believe, and have seen it firsthand that in-depth financial planning is really the key to financial success.
(09:11): Even more so than how you manage your investments. Because women plan with purpose. This helps us outperform our male counterparts. Men tend to be uninterested in planning. They tend to be overconfident that they are on track to achieve their goals. And they don't really feel like they need to look into it more deeply. And that is a problem when it comes to managing your money and making good decisions for your financial future. Now, earlier, I mentioned that there are a couple of things that can hold us back as women investors with number one, I had talked about women being more risk averse, or risk aware. And sometimes this can mean that we avoid risk altogether, that we don't take enough risk. Or when you apply that to your investment portfolio, that you may be too conservative and not have enough growth in your investments in order for your money to work harder for you.
(10:28): You do have to take some risk. Now, when I say risk, I'm not talking about absolute dollar losses in your investment portfolio. What I'm talking about is the range and the level of fluctuation that the magnitude of the ups and downs that happen in your portfolio as you are invested. And some of us avoid risk to the extent that we are afraid to see what does ups and downs look like. So the key is really to determine what risk level you are most comfortable with, where you can sleep at night, but also that you're taking enough risk. You have enough growth in your portfolio to have a fighting chance to achieve the kind of retirement lifestyle you want in the future. And that's where the trade off happens. So it's important to find the right risk level that's most appropriate for you given your age, your financial resources, goals, or time horizon, and all of these other factors that come into play when you develop a, an investment portfolio that is for you.
(11:55): So think about that and make sure that you're taking some level of risk so that you can get the kind of growth that you need over time. Second, another issue that we can run into as women investors is we really want to be more educated and informed about how to manage our money. And this can lead to plastination. When it comes to investing, we feel like we need more information. We don't have enough information to make a decision. And we're, I mean, this can manifest itself in you. You sit in cash and you don't get invested appropriately for your longterm goals, or you have changed jobs in the past, and you have various accounts spread out all over the place and you procrastinate. You don't really want to look at it and you don't know what to do. You don't know where to start to pull everything together and get a big picture, vision, feel like you need to learn more.
(13:05): It can also manifest itself in analyzing and over analyzing investment options and information about the markets, financial education. And honestly, if this is not your full time job, it is probably not serving you well, in terms of how you're using your time. There are professionals out there who do this full time. And one of the big beliefs I have and share it with my clients is look you, this is not your best and highest purpose to be researching and analyzing and trying to understand every last detail of your financial life, which is why having a partner can really be beneficial in making good decisions and taking the right amount of risk and making sure that you're on track and developing a thorough financial plan that really defines what you want to get out of your life, not just your financial life, but your life goals and your life vision.
(14:16): So I'm all for learning more and becoming more educated. In fact, I'm a lifelong learner and I constantly reading and listening to audio books and trying to learn as much as I can, especially with regard to the areas that I'm interested in. You need to get informed and be involved with your financial planning, with your investment. All I am saying is don't let it stop you dead in your tracks because you feel like you don't have all the information, just have to move forward sometimes. And you know what? Men are great at this. They can have a few data points and a little bit of information and say, okay, let's go, let's move forward. Let's do it. And that is actually a strength of theirs and an asset to them when it comes to investing. But overall, I think it's pretty interesting to find that as women, we are wired to be better investors than our male counterparts.
(15:19): And we should really be leveraging that and taking advantage of that, using that to our advantage, because there are ways that we're at a disadvantage when it comes to the pay gap, how much money we're paid, our ability to get promoted and move up the ranks into higher level positions. We live longer than men. We need our money to last longer. So there are some things that, that hurt us. And by knowing, and being aware that you are already wired to be a good investor, should help you move forward with making the right investment decisions
(16:02): For you. I want to thank you for listening and subscribing to and sharing midlife money gal podcast. It's been so exciting to see the word, get out and to see more and more women who are listening and learning from these ideas and insights that I'm sharing on the podcast. If you'd like to connect with me, you can find me on Instagram at Stephanie salmon. She could find me on Twitter. I'm Steph Sammons over there. And I'm also on Facebook. Stephanie Sammons C F E, and I'd love to connect with you. If you have a question or a topic that you'd like me to address on this show, you can shoot me an [email protected] What do you hear on this show is for informational and educational purposes only, and should not be considered specific investment tax or legal advice.
(17:05): Please consult with your own professionals who have a complete understanding of your unique situation.
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