More and more evidence confirm that women might be more successful in investing, in contrast with the fact that we meet more men at investment companies. University of California and SigFig, independently from each other, reached the same conclusion through their researches. From the article of Nutmeg online investment company we can find out what would happen, if women would take over all the investment decisions.
Although in the investment world we see usually men, the results of the newest researches show the fact that in certain terms women could be better investors. Knowing this fact, it’s an interesting question, why are less female investors at investment companies and what would happen if this would change significantly? (Women represent 22% of all business people, 19% of senior associates at institutional investment companies and they are present only in 7% with high-level position at asset management companies.)
Yet all women, who reached high positions in the world of investments, provide enough evidence, that their particular behavior is effective in investment decision-making processes. The experiment of California University demonstrates this fact with concrete numbers. The 7-year-long study states that female investors outperform by 2.3 percentage points the returns gained by men.
According to the study, the main reason for this is the fact that men trade much more. This not only worsens the return because of the increased costs, but also by trading more and more it raises the possibility of losses.
Professionals of SigFig online investment company reached similar result at the beginning of the year 2015, when they analyzed 750 thousand portfolios. In 2014 female investors earned better results with 12%, considering the net median returns.
Although the difference does not seem too high, on a 100 thousand dollar initial investment, it means a higher gain with 58 thousand dollars, on a 30 year horizon.
A LOT DEPENDS ON PSICHOLOGY
Nowadays we have to be careful with the behavior dissociation according to gender; but it is a proved fact, that differences coming from the biological structure have influence on thinking and on the behavior as well. Several studies from the last 10 years show that women and men define success differently, so they react in other ways to gains and losses earned on the stock market.
(But we cannot ignore the fact, that there are basic observed differences as well, regardless the gender.)
GOALS ARE DIFFERENT
Nutmeg highlights in its writing, that the nature of goals is what defines the success of investments. The two genders formulate the goals in totally different ways. As long as men focus on short term successes, in order to beat the markets quickly, until then women define success as a long term goal.
This makes women suitable to successfully execute such investments as pension savings; regardless if she is a professional investor or she saves money only for the elder age. This capacity is connected to the fact that women feel more comfortable with rather abstract targets and achievement of rewards on the long run. Men, however, contrary to women, have the need to see their progress continuously.
SMUGGERY SHOULD BE TAKEN SERIOUSLY
Each investor might be aware of the fact that over reacting certain short-term market movements can have catastrophic effects on returns. However keeping in mind all long-term goals is the most essential for a successful investment.
Women, with their long-term approach, are capable to face their stock market success and failure in a way that doesn’t distract them from their way towards the targeted goals. Due to their way of thinking they can avoid smuggery and also loss of faith. In contrast with women, men are much more receptive to the “winner effect”, namely to the disproportionately big overconfidence regarding their investment decisions. Too much smuggery can turn big growth into sharp decline.
THE POINT IS DIVERSITY
However, according to Nutmeg, if we replace all male investors to female ones, we could face another problem, the opposite of the above mentioned situation. Several studies have the conclusion that the main indicator of success is diversity. The best performing investor teams are in the same time the most varied. The different approaches, perspectives, the diversity of cognitive behaviors are the recipe for smart and balanced decisions. The result of this is reflected in high returns.
The equality between sexes is important not only for itself, but also regarding economic decision making.
Original date of Hungarian publication: December 8, 2015