Many studies have shown that men and women tend to have different approaches to investing. In general, men are more aggressive in their investment strategies, whereas women tend to be more conservative.1
The difference is probably not surprising, but the practical results of these different approaches may not be what you expect. Research dating back to the 1990s suggests that women investors often outperform male investors, especially in down markets when a more conservative approach may help limit losses.2 A recent study focusing only on 2014 and 2015 found that women also outperformed men in an up market (see chart).
Frequent Trading vs. Buy and HoldThe most fundamental reason for this performance disparity seems to be that men are more likely to trade frequently in an effort to “beat the market,” while women typically follow a long-term buy-and-hold philosophy.3 Regardless of one’s gender, frequent trading is a slippery slope. In 2015, a down year for the market, investors who turned over 100% of their portfolio holdings lost almost 5% for the year, whereas investors who turned over less than 10% lost only about 1%.4
A Question of ConfidenceMen tend to be more confident than women regarding their investment knowledge, which helps explain their tendency toward frequent trading.5 Clearly, confidence is a positive trait, but overconfidence can be dangerous. Low confidence can be dangerous, too, if it leads to a lack of action or an overly conservative approach. Both men and women may need to assume some investment risk to make their savings last over a long retirement, and women — who generally live longer than men — are likely to be the primary decision maker at some point in their lives.
Take a Tip from the ProsThe world of professional investment management is still dominated by men. Less than 10% of U.S. mutual fund managers are women, and only 2% of the total amount invested in such funds is managed exclusively by women. Although the sample size is small, female-managed funds have performed about the same as funds managed by men. However, management teams that include both genders — representing about one out of five funds — have outperformed funds managed by only men or only women.6
This may be a worthwhile lesson for couples to consider. Rather than letting different investment approaches get in your way, you might take advantage of those differences by maintaining a true financial partnership, acting as checks and balances on each other and finding a middle ground. This includes not only sharing investment decisions but also making sure each of you has the knowledge and confidence necessary to make decisions on your own if that time ever comes. As the French say, vive la différence — but make the difference work for you.
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1–3) CNNMoney, February 19, 2015
4) CNBC.com, December 18, 2015
5) The Wall Street Journal, May 3, 2015
6) Morningstar, 2015