Are Women Better Investors?
According to Women’s Health Magazine, a whopping 74% of women say they don’t know enough about investing, and in a recent survey, 29% said they still expect Social Security to be their primary source of income in retirement. Stacy Francis, president and CEO of Francis Financial (she’s also the founder of Savvy Ladies, see link below) says that part of the reason women shy away from these financial options is that “a lot ladies feel like [they] don’t know enough about the stock and bond market, and so don’t feel comfortable making those decisions.”
Yet, as experts are finding out, for the women who DO invest, they’re incredibly good at it. Dare we say… better, even, than men? According to Francis, the truth is women’s portfolios typically out-perform men’s by an average of 1% per year and in fact, investment clubs tracked by the National Association of Investors Corporation (NAIC) found that female-only investment groups earned a 21.3% average annual return, compared with a 15% return for men-only groups, a margin of about 6.3 percentage points.
Francis says women indeed have a lot of strengths when it comes to investing:
“Women spend more time researching their investment choices, tend to take on less risk than men do, and we hold onto our investments longer,” she says. Instead of trying to “time” the market, women tend to be more patient, less rash, and they trade less often, which also means they save on trading fees. This tendency to ‘stay the road’ longer than men is likely what accounts for the difference in performance. That said, women are much more nervous about the stock market, and less likely to take action, says Francis. She thinks that overall, women can afford to be more aggressive with their portfolios.
In fact, we might not have a choice:
Among those who participate in 401K programs, both men and women contribute pretty equally to their portfolios: an average of about 7% of their income, and allocate their assets in roughly the same way. However, the average woman’s account is worth 37% less: $24,320 vs. $38,460 for the average male investor. This difference is likely due to the fact that women earn less. We also live an average 7 years longer than men, and are out of the workforce for a longer period of time for either taking care of children or other family members. All this adds up to portfolios that are going to require more growth than men over time, because our retirement funds simply have to be larger.
Here are 5 tips that can help any woman start small and get the confidence they need to gain big:
Do it Now
Experts say women must take charge of their finances sooner rather than later. “The biggest mistake that women still make in managing their money is leaving it until it’s too late,” says Esther M. Berger to CNN Money, a financial planner in Beverly Hills. CNBC’s Jim Cramer says it’s as easy as starting with as few as five companies you’re interested in and care about, with at least one large Fortune 500 company to keep you afloat — it’s enough to stay diversified, but a small enough portfolio to be able to do your own homework on each stock.
Cramer is right. Start small, and you’ll be able to educate yourself faster. Francis says, “You didn’t start out of the gate understanding geometry or calculus, and the same is true with finances. It’s all about baby steps and having a community to help you get on the right path.” She advises taking a strong financial stance, by educating yourself as much as possible. An informed investor is a strong investor.
Speaking of community, to get on a successful investment path women do better when they’re a part of a supportive network. Francis advises finding a co-worker, mentor, investment buddy or even an investment club. Savvy Ladies is a free, online resource for financial education, and a great place for connecting with finacially-savvy women. They offer a monthly “Financial Fitness” hotline where you can speak one-on-one with a financial planner, for free. And they even offer webinars where you can learn all about investing from the ground up!
Play It Safe…. Just Not Too Safe
Though more and more women are taking advantage of investments and 401(k)s, experts agree that women are still “playing it safe” when it comes to their more conservative portfolios. The truth is that women can’t afford to invest “just as well’ as men, says Francis. “We have to do better.”
Photo Courtesy of: flickr.com/68751915@N05/6793832171/