by Jeffrey C. Lewis
According to a recent study by SigFig, a portfolio platform, women are more likely to make money when investing than men. In this study, SigFig looked at 750,000 portfolios and analyzed the anonymized data by gender. In 2014, female investors had 12% better returns than male investors. This means that, with $100,000 to invest over a period of 30 years, a woman would earn $58,000 more than a man.
One reason for the difference in returns between women and men is that male investors tend to be more confident than female investors. Being overconfident leads men to be more active investors than women. In fact, men have a portfolio turnover rate of 45% more than women. But there is a downside to this overconfidence: the more you trade, the more likely you are to lose. Also, because investors have to pay a fee every time they buy or sell a stock, men pay more transaction fees than women, which can significantly lower their portfolio returns.
Behavioral economists have also studied how, since women are less confident investors than men, they are more likely to seek the opinion of a professional in order to make investment decisions. According to a study by Prudential, 44% of women rely on the advice of a professional advisor. Even with professional advice, women tend to conduct more thorough research and take more time to make decisions than men. This added research time means that women’s portfolios are usually low risk; women’s portfolios are generally more diversified than men’s portfolios and women tend to hold on to more secure stocks for longer periods of time.
Finally, women save more of their income than men: 8.3% for women versus 7.9% for men, according to a Fidelity study. This may not seem like a large difference, but if the average household salary in the United States is $50,000 a year, this means that women save on average $200 more per year than men. If men and women invest their money in exactly the same way, female investors will still come out ahead just because they have more money to invest and, thus, get returns on.
While female investors have an advantage over male investors largely because they are not overconfident with their investments, it is important that women feel empowered when making financial decisions. Today, according to Fidelity’s study, 57% of women report feeling confident with their financial decisions as opposed to 65% of men. Our next step is working together to increase the amount of women who feel at ease when thinking about their financial futures.
To learn more about Jeffrey Lewis, view his Paladin Registry profile.
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