It is easy to get sucked in to stereotyping while thinking about the differences between men and women when investing. That men are confident and short term, while women are risk-averse and long term are among the popular conceptions. As with any urban myth, however, the truth is generally far more complicated.
Nature or nurture?
Wayne Berry, Investment Manager at Brewin Dolphin in London, believes that while there can be differences between the sexes, they are not necessarily to do with gender per se: “Most economic decisions have more to do with environmental factors,” he says.
“He points to research among Norwegian school children, which found that attitudes to risk were more closely correlated to socio-economic backgrounds than sex. “Boys and girls of similar socio-economic backgrounds displayed no difference in attitude to risk. The higher social class they were, and therefore probably wealthier, the more risks they took, regardless of gender.”
That is borne out in an analysis of behavioural finance research conducted by Merrill Lynch in 2014, which found that men and women “share a number of fundamental similarities” and that attitudes are driven as much by social and demographic factors, like education, employment status and financial circumstances, as by gender.
Merrill Lynch’s own research found the key influence on investor behaviour was men and women’s reported level of financial knowledge. It said that women were far more likely than men to say they had lower levels of financial knowledge.
However much people think they know and how much they actually know can be two very different matters. The research pointed to an academic study of mutual fund investors, which indicated men seemed to take more risks than women. Yet when the results were adjusted to take investing knowledge into account, the willingness of women to take risks was closer to that of men. In other words, as the difference in the knowledge level between men and women investors narrowed, so did the presumed gender difference about risk.
Educate to accumulate
Rather than over-analysing the differences between men and women, therefore, it is perhaps more productive to assess what the two sexes can learn from each other to help them become more successful investors. Berry says: “In general, men tend to be more confident than women. The risk is that confidence becomes over-confidence and that risk aversion leads to being over-timid.”
Similarly, the supposedly female characteristic of a lack of risk appetite can be detrimental in a young person saving for retirement; as retirement approaches, however, the risk in the portfolio should be reduced to safeguard the value of the investment.
Sarah Pennells, editor of the money website SavvyWoman, says: “Women can learn that ‘no risk’ doesn’t have to be the ideal. It’s not something we experience in our everyday lives and investing should be no different. The danger comes when you take on more risk than you can cope with or the risks aren’t explained. Many women are keen to learn about investing, but they are worried about taking the first step – either being ripped off or making a mistake. They’re also very distrustful about being given the hard sell.’
She adds: “Men can also learn from women. There’s lots of research that shows when women do invest, they do as well as men – if not better. Sometimes men chop and change their investments too often and rack up higher costs than they should. Some men can also take on too much risk – especially when it comes to alternative or unregulated investments – and don’t tend to weigh up the downsides before parting with their money.”
Better still is to recognise that biases can exist and take steps to overcome them. “Money is a very emotional subject,” says Berry. “If it is your own money, you tend to be a bit more risk averse anyway. But part of the advantage of professional advice is that you can take the emotions out by giving the decision-making over to someone else, who will look at things more rationally.”
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The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.