If I asked you to name a legendary investor you’d probably come back with Warren Buffett, George Soros or Benjamin Graham. Whoever you pick I’ll bet you London to a brick that it will almost certainly be a man.
Women don’t get much of a look in in the world of investing. For example, Morningstar published a report last year revealing that less than 10 per cent of all US fund managers are women. But there’s evidence to suggest that men could learn a lot from women when it comes to investor behaviour, although as with most things, it is a two way street.
The first successful investing trait that the average woman has over the average man is that they don’t fiddle as much with an investment portfolio. Betterment, a large independent robo-advisor that tracks client trades reveals women changed asset allocation 20 per cent less frequently than men. This amounts to some pretty significant savings in transaction costs over time.
Even worse, men are nearly six times more likely to swing their portfolio from 100 per cent in equities to 100 per cent in bonds or vice versa. Market timing is notoriously difficult to get right and swinging your portfolio around as wildly as this can often mean missing out on market returns and again, paying more in transaction costs. SigFig (another robo-advisor) found that clients who reacted to the market sell-off in August last year actually did worse than those who did nothing.
Secondly, studies suggest women are generally better savers than men. Vanguard found that women in the US save slightly more income than men (7 per cent for women compared to 6.8 per cent for men). And the Australian Securities and Investment Commission released a survey revealing 39 per cent of women had an emergency savings fund compared to 25 per cent of men.
So to generalise (admittedly, in a fairly gross manner) women transact less, save more of their income, and stay the course of an investment strategy – all excellent qualities for an investor. Nothing will kill an investment strategy quicker than constantly chopping and changing, over-leveraging, or simply not having enough savings to start with in the first place.
Well done ladies. Unfortunately though, it’s not all champagne and roses. A general theme that shines through in the traits of the average woman is one of ‘conservatism’, which is usually a good thing when it comes to investing. However, it’s important to recognise that being overly conservative in the long-term can be costly.
Betterment’s data shows that from an asset allocation perspective, women generally take less risk than men. That is, they invest more in assets like cash and fixed interest and less in shares, property and infrastructure.
It is difficult to pinpoint exactly why this is the case. However, as the average woman has a longer life expectancy and a lower superannuation balance than the average male, women should probably be more aggressive with their asset allocation than men, not less.
Conservative investments such as cash struggle to keep pace with inflation – the tendency of prices to increase over time. Inflation means that a dollar will buy you less in the future than it does today. The returns from growth assets like shares, property or infrastructure have historically outpaced inflation, albeit with a much rougher ride. History suggests that the returns from these growth assets will outperform those of cash over the course of, say, a decade or more, but over shorter periods they may not produce a return at all, or even lose money.
That’s not to say all women should load up on shares in a quest to conquer their conservative nature; a sensibly, diversified portfolio is the best approach. However, it may be worth considering and even seek advice (based on your age, stage of life and objectives) on whether your asset allocation actually reflects your investment objectives or just your inherent traits.