We all know that men and women think differently, like different things and even react differently to the same event, so it’s not a big surprise to find that they take a different approach when it comes to investing. While men are way ahead in many respects, investing more and building more diverse portfolios, they can still learn from women when it comes to investing – and vice versa.
The most striking difference is that men are far more likely to invest than women. Men are also more likely to take advantage of their stocks and shares individual savings account allowance and put away substantial sums for their retirement.
They also tend to take advantage of a more diverse range of investment options. According to a survey by CreditExpert, men prefer to have a variety of investments and savings options at their disposal, with 32% using a range of vehicles, compared with 16% of women.
Men also take more risks. A 2007 study by Gary Charness from the University of California’s Department of Economics and Uri Gneezy from the University of Chicago Booth School of Business analysed the results of an experiment in which men and women were given a sum of money and asked how much they would invest in something risky.
The results showed that men consistently risked far more, while women were more risk-averse. Advisers have similar experiences. Lisanne Mealing, managing director of independent financial adviser MDM Associates, says: “I find that even when women want returns, they also want more security.”
Battle of the sexes
A lack of risk-taking can be a problem. Take pensions, for example – women typically earn less than men, have a shorter working life and live longer in retirement, so they need to fund a longer retirement with less income. This means they may need to take some risks with their retirement investments and that they are doing themselves a disservice by shying away from shares.
“Reckless conservatism has blighted a lot of pension investment,” says Tom McPhail, head of pensions research at Hargreaves Lansdown. “Over 30 years, you should be exposing yourself to equities,” he says.
Male attitudes to risk certainly bring the potential for bigger gains over the long term. McPhail says: “Men are more likely than women to go for more volatile funds at the margins. They sometimes get bigger gains, sometimes bigger losses.” Men are also more likely to invest in futures and options and other traded products.
Dr Stephen Barber, head of research at Selftrade, says: “Our client base is generally made up of men. And, anecdotally, when we host seminars on things like covered warrants, a highly volatile investment, the audience is usually predominantly male.”
The average man also tends to be more familiar with investments. A report by Peggy Dwyer, James Gilkeson and John List, of the University of Central Florida and Department of Agricultural & Resource Economics at the University of Maryland, says some of the differences in the way men and women invest are simply due to a disparity in financial knowledge.
The authors found that when investor knowledge of financial markets and investments was factored into the equation, the difference gender made in investment decisions was weakened.
Some also claim that men are more interested in the more technical side of investment. But John Maule, professor of human decision making at the Leeds University Business School, is sceptical about the science behind this claim.
“Some people just enjoy the process of thinking and, given the opportunity, will engage in complex analysis for its own sake,” he says. “Not only that, but they enjoy staking their money on their own thought processes. Apocryphally, women are supposed to be more intuitive and men more technical, but that’s a gross generalisation."
Clearly, women could take some cues from men when it comes to investing. But once women have been persuaded to enter the world of investment, the balance of power shifts and they can become the gender to follow – as sometimes having less appetite for risk can be a blessing.
For example, Brad Barber and Terrance Odean of the University of California undertook a study called Gender, Overconfidence, and Common Stock Investment, looking at data from 1991 to 1997. They used account information for over 35,000 households from a large discount brokerage firm, analysing the common stock investments of both men and women.
They found that men trade 45% more than women. This was even more striking among singles – single men trade 67% more than single women. Yet, despite all this activity, the report calculated that men earn annual risk-adjusted net returns of 1.4% less than those earned by women.
These differences are more pronounced between single men and single women, as single men earn annual risk-adjusted net returns that are 2.3% less than those earned by single women.
They concluded that men are overconfident in their ability to pick a winner. Over-confident men can often be sucked into investing in something they have not fully investigated or don’t completely understand.
Anna Sofat, director of Addidi Wealth, a company that specialises in advising women, says: “Men are more likely to come in and say they have read about something and want to give it a go.”
Women gain from taking a more measured approach that is designed to control risk. Dolores Maisonneuve, a 44-year-old investor and founder of the Blue Chip Stockings, a women-only investment club, says: “We aren’t super-aggressive – we invest in blue chips and hold them for a while. We’re interested in buying into this sort of growth rather than trying to turn things over quickly.”
The club focuses on companies with a track record of paying dividends, which Maisonneuve says “paid off this year”. This sensible, large-company, defensive, lower-risk approach tends to serve an investor better in tough economic times.
Women are also more inclined to take a holistic view of a firm, using not just a technical analysis but also their experience of the company in the real world. Maisonneuve says this sort of approach has suited the club well.
“When we started out, we didn’t know how to do the technical analysis, so we began with stocks we knew and were comfortable with,” she says. “One of the first shares we bought was Mayborn, the company that makes the Tommee Tippee cup [a cup for children]. One of our members was a mother. She looked around her house for products she really liked and suggested the cup – and we went with it. It was one of our best-performing stocks.”
Maisonneuve adds: “Now, with a few years behind us, we’re interested in technical analysis too, but our experience of a company still forms a large part of our decision-making.”
Nature or nurture?
So, what lies behind our different investment approaches? There are a number of reasons why women invest less. At its most simple, it may be due to the fact that women just don’t have the same sorts of sums to put aside.
Professor John Maule of the Leeds University Business School says: “Some people have argued this about women’s status in society. In traditional female roles they may not have the same amount of money, so it’s more to do with status than any fundamental difference.”
These roles may also be responsible for stopping women thinking about the future. Mealing says: “Women tend to look after the day-to-day family finances, and don’t look any further. They budget within their allowance, pay all the bills and do all the shopping, but they don’t look ahead.”
The reasons behind women’s risk aversion may be cultural. Maule says: “Some have argued that it may be due to the fundamental roles they play in society. Women have a family nurturing role: protecting the next generation is crucial to the survival of the species, so it would be functional for women to be more risk-averse.”
There are also more practical reasons. Anna Sofat, director of Addidi Wealth, says: “Women won’t take any risks with things they see as essential, such as their home or their pension. They start with the view of protecting their safety net.”
The reasons for lack of knowledge are harder to pin down. For non-working women, there’s an argument that men have been exposed to more information in the workplace around issues such as share schemes and pensions. However, for a generation of working women, it may be less due to a lack of opportunity than to a cultural belief that money management is for dull people.
What men and women can teach one another:
Taking the best attributes of each gender may be the answer. Following a typically male approach of getting involved in investing, building a diverse portfolio and learning to accept a certain amount of risk will pay off, while following a typically female approach of balancing risks and taking things more slowly once you get there may also be valuable, especially in the current turbulent economic climate.
It’s perhaps unsurprising, therefore, that when Brooke Harrington, an assistant professor at Brown University in the US, undertook a study of investment clubs, she found those that included both men and women made better returns than single sex-groups.
What men can learn from women:
* Cut portfolio churn. Investors risk missing out on growth by rushing to sell if a fund or stock hasn’t performed quickly. They also lose sums through up-front commissions, which could become significant if churn is particularly high.
* Reconsider risk. If the risk level suits your needs, there’s no reason to hold back. However, think carefully about the implications of the risks you are taking.
* Get to know your stock. This isn’t just about technical analysis. Get into the ‘touchy-feely’ stuff too, and find out what customers and employees think about a company. Follow the stock for a while before you jump in and get to know it in reality rather than just on paper.
What women can learn from men:
* It’s OK to take a risk. In fact, if you’re investing for the long term, it’s absolutely vital.
* Learn as much as you can about investments. Nothing is as complicated as it first looks, and once you have got to grips with investment, the chances are you have all the skills you need to conquer it.
* Do your research. If you are investing in stocks and shares, go beyond your experiences and delve into the company accounts too.