The Rise of The Female Investor

Women are taking a more active role in investing, and there’s evidence that may be to the good.

Earlier this year, for the first time ever, more U.S. women were employed than men. That’s unfortunately not because of huge gains for women, but rather enormous job losses for men.

This short-term effect, however, feeds into a larger trend of growing female economic power. Last year Boston Consulting Group published a study estimating $5 trillion in new income would be earned by women globally over the next five years. While that still leaves the gender far behind men’s worldwide income of $23.4 trillion, it does reflect a narrowing wage differential and higher rates of female employment. Newsweek called this shift “the biggest emerging market in the history of the planet—more than twice the size of the two hottest developing markets, India and China, combined.”

As a result women are taking a greater interest in their family finances.

What are the investing implications of that?

For one thing, women trade less often than men, which can be to their benefit.

Behavioral Finance experts Brad M. Barber and Terrance Odean found in one of their most famous studies that men traded common stocks 45% more often than women, a practice that reduced the male net  returns by 2.65 percentage points a year. Women lost on trading too, but lost less, 1.72 percentage points. The study included over 35,000 households who were  using a large discount brokerage from February 1991 through January 1997.

More recently, a study of 2.7 million Vanguard mutual fund customers found fewer women than men ditched the stockmarket in the rocky days of 2008 and 2009.

Women are less confident that they have enough saved for retirement.

According to a study by the Employee Benefit Resarch Institute, 19% of men felt certain they would have enough money to live comfortably through retirement. Only 16% of women agreed. Sadly the pessimists are right on this one. EBRI’s subsequently released Retirement Readiness Rating concluded that indeed far too many of us are at risk of running out of money in our golden years.

Women tend to prefer fixed income investments.

Women have been shown to be more risk-averse than men in their investment choices according to this story in the New York Times.  Over time, that might be a drag, but recently caution has been rewarded.

Women are open to financial education.

Curtis Smith, a financial advisor, recently wrote a piece arguing:

If you ask many financial consultants, they will tell you that they find women more open to financial education, with fewer entrenched beliefs and presumptions. Women are often quick to realize how much they don’t know, how much they can learn, and how much needs to be done…
Some men have a very subjective take on the financial world and their financial status and potential, whereas women tend to be in search of a candid, objective assessment of what needs to be done and what options are available.

All of this leaves me curious. If women do continue to exert more influence over investments, will new products pop up catering to them? Will regulation change? What will it mean to the markets overall?

One thought on “The Rise of The Female Investor

  1. Toddi Gutner

    Hey Nanette,
    Informative post. Nice to see the topic of women and investing, a passion of mine, still getting ink…Be well and enjoy your blog!
    Toddi

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