Men seem more confident in their investing, but do they make more money? Who is better suited to react to the ups and downs of the market? Based on the research, women score better than men!
While much of the evidence is empirical, there is a growing consensus that women are better suited to be good investors than their male counterparts. In fact, a study by Barclays Wealth and Ledbury Research in 2011 provided evidence that women do indeed make more money in the stock market. Why is this?
Let's consider some of the reasons:
Emotional Intelligence:
Women tend to think more objectively about their investments, which means they will buy and sell based on the relevant facts. Being disconnected emotionally, allows women to sell a loser. Men are less likely to admit that the purchase was a mistake, causing men to hold on too long.
Confidence:
Many say that because women are less confident with investing, they want to research and understand before they take action. Women tend to ask questions before investing; men tend to be more spontaneous in their buying and selling. Male investors are more likely to be overconfident and rely more on their own personal assessment of the market as opposed to the actual market facts and valuations.
Patience:
Research shows that women trade less. Once an investment decision is made, women will give it time. Trading less creates less transaction costs; therefore, better net returns.
Fear versus Anger:
The University of Oregon did a nationwide survey in March 2009. The unintended timing was days after the DOW bottomed out at 6547. The result indicated that men tended to react to the down market with anger. This caused them to invest in riskier investments to make up for the loss, which only resulted in more losses. Women reacted to the down market with fear. Their fear caused them to pull back and hold tight for a while. Women were concerned, but took fewer hasty actions.
Guided by a Plan:
Women are more likely to want a plan for investing that reflects their short and long-term goals. Adhering to an asset allocation based on a plan focuses a woman's investment decisions and increases her probability of success.
Make sure time is on your side.
Only invest in the stock market if the money can remain invested for at least five years. Or, conversely, never put money you will need to spend over the short-term in the stock market. This strategy will allow you to avoid selling when the market is down.
Diversify your holdings.
Do not invest more than 10% of your stock portfolio in one company's stock. Consider using mutual funds that can provide this diversification along with professional management.
Don't focus on only one sector of the stock market.
Invest in companies of all sizes from a broad range of industries. Large, medium, and small companies perform differently during certain time periods as do those in different industries. It is best to have exposure to domestic companies as well as foreign stocks. Again, for most investors, using a combination of no-load mutual funds can make this level of diversification easy.
Summary
Men and women approach investing differently and, according to the data, tend to have different results. Regardless, the best advice is to do your homework, make a plan, and monitor your investments. However, if you don't have the interest or the time to give to investing, you may want to consider working with a qualified financial advisor. Delegating the investing responsibility, but staying engaged, can be the right decision for both male and female investors.