Do you want to become a better investor? If so, I’d encourage you to look at the lessons that female investors can teach us.
During the last decade, there has been a plethora of research on the investing differences between men and women. At the outset, it wasn’t exactly clear what the research would show.
But by now, the evidence is clear: women have qualities that make them far better investors than men.
Another study by University of California at Berkeley looked at 35,000 brokerage accounts and found that “women tended to generate returns of one percentage point more on average.”
My points I’m not sure exactly where it falls, is it 0.4%, 1% or 1.4%? I don’t know. But I do know that all of these studies consistently show us that women tend to do better than men, which is something that we should be aware of and something we should learn from.
The reason for this doesn’t come down to intelligence, as pure IQ doesn’t necessarily correlate with being a great investor. Instead, the difference comes down to things that all of us can control, which is good news for all of us..
FOUR REASONS WHY WOMEN ARE BETTER INVESTORS
Studies have shown that women have a natural temperament that is more advantageous to good investing.
What traits, exactly? They are calmer in their emotions, have a long-term outlook, trade less, remain more steady under pressure, take on less risk and are more realistic about their investments.
I know that’s quite a list, so let’s go through them one by one.
FIRST, AND MOST IMPORTANTLY, WOMEN HAVE MORE CONTROL OVER THEIR EMOTIONS, ESPECIALLY IN THE FACE OF BAD NEWS.
One example of this came in 2008. In 2008, when the Great Recession was taking an enormous toll on the stock market, women did decidedly better with their emotions than men did.
According to a study by Vanguard, “men were much more likely than women to sell their shares at stock market lows.”
So men overreacted and panicked about the market and the lowered value of their portfolios, which led them to sell at the worst possible time imaginable.
Women, on the other hand, had a better handle of their emotions, and stuck with their investments.
Which means that when the market rebounded in March 2009, women were more likely to be invested and able to capitalize on the 26.46% return that the U.S. markets had in 2009, as well as solid returns that followed for the next few years. Men, sadly, were much more likely to be in cash and miss out on those gains.
So our first lesson we learn from women might be our most important one: You need to be in control of your emotions and not overreact to bad news.
THE SECOND LESSON IS TO NOT BE OVERCONFIDENT.
While we should all strive to become knowledgeable and informed about our investments, we should never become so confident that we become cocky and think that we know everything. To me it’s not a great attribute to have in life, and it’s certainly not a good attribute to have when it comes to investments.
According to George Washington University, men tend to be much more confident about their investing knowledge than women. However, as we’ve examined before, women actually get better investment returns than men, despite the fact that they are less confident.
What does that mean? Perhaps men are too confident! Perhaps they think they are smarter than they actually are, and that they are better at investing than they actually are.
Image Source: https://www.fool.com/research/women-in-investing-research/
Third, women trade less than men, and check their accounts less often than men.
This is a point that is essential for all of investors to follow. Too often, I hear stories from clients and friends where they are checking their accounts daily, and always thinking of new things to do in their accounts. And often times these ideas come from men. But don’t worry, this isn’t just anecdotal evidence.
According to Louann Lofton, author of the book Warren Buffett Invest Like A Girl, “Men trade 45% more often than women do…By trading more often — and without enough research — men reduce their net returns. But by trading less often, women get better returns and also save on transaction costs and capital gains taxes.”
In addition to that, men tend to log into their accounts more often than women, and there have been numerous studies showing that the more you log into your account, the worse you will do.
The day to day change in your account isn’t something you should be concerned about, and be feeding your mind with continual updates to your accounts, it makes it much more likely that you make an impulsive decision that will hurt your long term results.
Fourth, women spend more time researching their investment choices than men do.
This point ties in with our previous point about overconfidence. Since women are less confident in their investing skills, they tend to do more research before they invest, while men are more likely to “chase “hot” tips and trade on whims” — behavior that tends to weaken men’s portfolios.
So women’s extra time researching things leads to better decisions, while men’s quicker and more impulsive decisions leads to poor decisions.
And there you have: If you want to be a better investor, you should follow these lessons from women investors. Keep your emotions in check, don’t be overconfident, don’t trade too frequently, stop checking your accounts daily, and do more research before you invest.
That is a fantastic list of attributes of great investing. If you need someone to help you stick to these wise strategies that women teach us, I’d love to see if I can help. You can book a time for us to chat at StartMyRetirement.US.