Women investors are steadily reshaping the financial world with their unique strengths. Recent studies, including one from the University of California at Berkeley, reveal that women have consistently outperformed men in investing by a full percentage point over a six-year span. The secret to this financial finesse? It's all about a combination of goal-setting, patience, and pragmatic planning — elements that many women naturally incorporate into their daily lives.
Today, women hold over $10 trillion in wealth, a figure predicted to triple in the next three to five years, according to McKinsey & Company. Let's delve into what gives women investors an edge and the one obstacle that could potentially hinder their financial progress.
Women Prioritize Goals
Women investors are typically driven by clear, defined goals, be it saving for retirement, funding their children's education, or purchasing a home. This goal-oriented approach motivates women to stay committed to their investments, regardless of market fluctuations.
This long-term investment strategy allows investors to weather market downturns and recover along with the market. An analysis by Bank of America demonstrated that missing the ten best days of each decade would result in a total return of only 28% from 1930 to 2020. In contrast, those who remained steadfast through market volatility saw a staggering return of 17,715%.
Planning is Key
With their goal-based approach, women investors tend not to chase after short-term gains. Instead, they focus on crafting a robust plan to reach their objectives. They value asking questions and seeking advice, which often results in a more balanced, diversified investment portfolio, capable of enduring market downturns.
Patience Pays Off
Once a plan is in place, women often adopt a "buy and hold" strategy, trading less frequently and thereby avoiding excessive transaction costs. This patience and restraint can indirectly enhance portfolio performance over time. In fact, the University of California, Berkeley study found that women traded 45% less frequently than men, reducing their yearly returns by only 1.72% compared to men's 2.65%.
Balancing Risk and Reward
While being a conservative investor can preserve capital, it may also result in leaving behind opportunities. Women tend to be more conservative in their investments, resulting in a lower risk profile. When the risk profile is intentional and is part of a fully-invested plan, the level of risk can be dialed up and down, depending on the market and economic outlook. Being careful about risk can actually lead to better returns over time, as volatility may be lower.
However, when the risk profile is low because the plan is not fully invested – meaning when the percentage of cash is too high – this can result in giving up significant returns over time.
Often, holding cash is the result of a need for financial security. Women still make less than men over the course of their careers, and women’s careers are often interrupted as they care for children or parents. Holding excess cash over and above a fully-funded emergency fund may provide a sense of safety.
But, it can also result in lower long-term returns. If this is a concern, creating a plan with flexibility that allows for both growth and capital preservation may help female investors get more comfortable with being all-in on an investment plan.
The Next Generation Starts Early
A 2023 survey by Fidelity in recognition of Women’s History Month found that 81% of teen girls “would like more hands-on ways to learn about investing and personal finance.” This generation understands the value of getting involved and learning by doing.
The study found that women between the ages of 18 and 35 reported an average age of 21 for opening their first brokerage account. For comparison, women 36 and older were, on average, 30 years old when they opened their first brokerage account.
Women are undoubtedly emerging as a formidable force in the financial world, viewing investing not just as a means to increase wealth, but also as a pathway to achieve their life goals and career aspirations. The principles that contribute to their success — starting early, setting clear goals, being patient, and planning wisely — can be adopted by anyone, regardless of gender. Together, we can foster a more inclusive, empowered, and financially literate society.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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