In our years of experience teaching financial literacy to women and their partners, we have noticed three areas where women tend to have the edge over men when it comes to investing. These include the knowledge gap, overconfidence, and less trading.

Knowledge Gap

We have all experienced a man in our lives bragging about their great investment. They rarely tell you about investments that didn’t go well. As women tend to have less exposure and knowledge about investing, they tend to underestimate their abilities with regard to money management or picking investments. When men have a knowledge gap, they tend to overestimate their abilities in the same areas, resulting in high levels of trading with lower performance. Women also overestimate men’s investment knowledge and overwhelming defer financial planning decisions to their partners even when they shouldn’t.

Women have less exposure to financial matters when they are younger and tend to make more conservative financial decisions because of this. The existing wage gap plus this knowledge gap leads to the wealth gap. We also know that women live longer and have significantly less assets… 75% of women will die single, while only 25% of men will. This means that women are more likely to be alone, especially later in life, dealing with financial decisions they did not anticipate or participate in.

Overconfidence

Men tend to be overconfident in their investment abilities, more likely to follow trends and jump in and out of investments. Overconfident investors lower their expected utility by trading too much, holding unrealistic beliefs about their potential returns, and expending too much time and money on investment information.

Excessive trading results in worse performance, locks in losses and misses opportunities in an uneven market that can fall and recover quickly. We saw this is 2020, and are seeing it in the current market as well. Men’s overconfidence affects women and money because men may manage all the accounts, cutting women out of the decision making process, and even the annual portfolio review. This is detrimental to both parties, in that a couple working together to invest in their future is more likely to balance each other. The man may encourage investing more money and looking for growth through high returns, while the woman may temper chasing volatile stocks by pressing for quality long-term choices.

We encourage working together on your financial journey and this recent blog post has more tips about building your relationship and your money at the same time.

Less Trading

There is considerable evidence that men and women have different attitudes toward risk. When women become familiar with money management and investing, they research, debate, and generally choose investments they stick with. When men invest, they tend to follow trends and pursue investment performance, even if it means higher risk. The irony is that even though men are looking for higher returns, excessive trading lowers their investment performance. Multiple studies have shown that less trading results in superior investment account performance over the long term.

One downside to the slow and steady approach taken by most women is that they wait to get started. One of the most important elements of successful investing is time. The sooner women begin managing their money and picking quality investments, the more those investments compound and grow over the decades. Because timing the market perfectly is nearly impossible, the best strategy for most of us is to plan and invest as soon as possible. In the long term, it is almost always better to invest in stocks than not to invest at all.

If you are looking for financial advice for women, reach out to us for customized coaching today!