A prior IFOD delved into the performance advantage found with strong female leadership: Benefits of Female Corporate Leadership. This IFOD concerns male vs. female investing differences. Note: while generalizations can be made between female and male investing, individuals are still individuals, behaviors vary and there is a lot of overlap. That being said, there are some valid generalizations as follows:
Females Tend to Be Better Investors
A seminal study in the 1990s of 35,000 households with investment portfolios at a discount brokerage firm by researchers at the University of California found that men trade stocks more aggressively than women and this additional trading led them to lag women owned portfolios by nearly a percent per annum during the study period. Study: Boys Will Be Boys
A more recent study looking at the behavior and performance of Finnish investors over 17 years found “significant and remarkable gain made by female investors at the expense of male investors.” Study summary: Female Trading Performance
A study published last year from Fidelity found that women investors, on average, earn about 0.4% more per year than men (this difference while seemingly minor, is a very big difference over long periods of time). The Fidelity study also found that women have higher savings rates than men. Fidelity Study
A study performed by the online trading platform Openfolio of 60,000 accounts in 2014 and 2015 found that women account owners outperformed men both both in the up and down markets studied.
A study by HFR (Hedge Fund Research) found that hedge funds led by women slightly outperformed ones run by men over the study period. Note however, that only about 2% of hedge funds are run by women, so its a pretty small sample size.
Why are Females Better Investors? The primary reason given for female investment out-performance is that men are more likely to be overconfident than women when it comes to the markets and investing. Overconfidence is associated with more trading (which is destructive) and shorter holding periods. Interestingly, in the Fidelity study referenced above, “when asked who they believed made the better investor this past year, a mere nine percent of women thought they would outperform men.”
Additionally, Women have been found to be more long-term goal oriented in terms of finances and female owned portfolios are more stable. Male portfolios are subject to wider swings in value than female portfolios. Vanguard found that women are much more likely to pick target-date funds in retirement portfolios than men, which tends to lead to much less portfolio activity and greater investment returns.
Side Note: Inactivity is often better than activity when it comes to investing. From Warren Buffett: Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly-profitable subsidiaries because a small move in the Federal Reserve’s discount rate was predicted or because some Wall Street pundit had reversed his views on the market. Why, then, should we behave differently with our minority positions in wonderful businesses?
But Its Not All Good News for Women on the Investing Front. When women invest they tend to be better investors, but men are much more likely to be investors. Females have generally been found to have lower levels of financial and market literacy which can lead to reluctance to invest in the markets at all. Additionally, women tend to be more risk adverse and men more risk-seeking. While this often leads to a more diversified portfolio (studies have shown men are much more likely to have a 100% stock portfolio), this risk aversion can lead to lower potential returns over time.