One study showed that over three years female investors not only outperformed their male counterparts, but beat the FTSE 100 index as well, says Faith Glasgow.
I recently attended an evening event designed as a forum for young women keen to learn how to make the most of their money. Most, I guess, were under 40. They were engaged and curious; they were not knowledgeable about investing, but they were certainly not fearful of the idea, and asked sensible, practical questions about how to get started, how to prioritise demands on their money and how to approach the risks attached to investing in the stockmarket.
It left me thinking again about the challenge of getting more women to grasp the nettle and start investing for their long-term future. Figures from our parent company interactive investor (ii) demonstrate the extent of the investment gender gap – only 28% of ii customers are women. Among Money Observer readers, the disparity is even higher, though of course it’s quite possible that a copy of the magazine will be read by several members of the same household.
It’s clear that the issues of engagement are different for specific age groups. The event I went to attracted a self-selected group of motivated, educated millennials with decent jobs; they are quite at home in the kind of online environment in which brokers such as ii operate and the great majority of self-directed investors run their portfolios. But for older women, many of whom have historically left investment decisions to their husbands and who in many cases spend little time using the internet, the challenges are typically much greater.
Those challenges are reflected in the alarming statistics around relative investment and pension wealth across the sexes. For example, a study in March last year by broker AJ Bell found that women are reaching retirement with pension savings worth £59,000 on average, just two-fifths of the £143,000 held by men.
Extra risk doesn't pay
Such findings help to feed the well-established view that men are therefore more competent when it comes to investing their wealth. The perception is that men are prepared to take the risks involved in equity investment, whereas women tend to lose out because their nesting instinct makes them inherently more cautious. However, against this there is plenty of evidence to suggest that this less gung-ho approach may play to women’s advantage, enabling them to become more successful investors than men over the longer term.
Research commissioned by Barclays and published in June 2018, for example, showed that over three years from 2012 to 2015 women not only outperformed their male counterparts by 1.8% a year but beat the FTSE 100 index by 1.94%. The study drilled down to examine the differences in trading patterns and asset choices between the two groups, and made several interesting findings. Not only did men tend to trade around 50% more frequently than women, but they also had a markedly stronger preference for what the study described as ‘lottery style’ choices – more speculative, lower-priced shares.
They also showed a greater reluctance to cut their losses than women, and a greater tendency to sell stocks that had made gains. Women were more inclined to a buy-and-hold approach, selecting holdings that had already proved their merits and sticking with them.
As Barclays’ director Clare Francis suggests, it seems reasonable to assume that “taking a more long-term view about what to invest in, rather than picking eye-catching and potentially more volatile shares, is actually likely to provide a better return on your money”.
Moreover, a lower level of trading keeps transaction costs down, which again helps enhance long-term returns.
The breakdown of investment choices among male and female ii clients tends to back up this difference in approach. There’s not a dramatic difference in the investment patterns between men and women, but the two most notable differentials between the genders are men’s predilection for Alternative Investment Market (Aim) stocks and women’s greater use of FTSE 100 blue-chip holdings.
Of course, it’s quite possible that women might simply be being pragmatic in the current environment, rather than inherently cautious. As ii’s Moira O’Neill suggests: “While familiarity might be a driver, cold hard stats could equally be winning the argument – the FTSE 100 has trounced the Aim market, which needs particularly careful stock selection.”
Pragmatism may lead them to make other eminently sensible decisions, too. Research by Hargreaves Lansdown finds that its female clients are more likely to make use of Isa wrappers, and it is 50% more likely that the named party on a Junior Isa will be a woman.
But the ‘womanly’ approach to investment, if one can get away with such a broad generalisation, has its own potential shortcomings. For instance, it is all too easy to overdo the ‘buy and hold’ approach by failing to monitor performance regularly, or by holding on to funds or shares even when performance has been significantly impacted by internal upheavals or a shift in the macroeconomic climate that could mean underperformance persists for some time. Hargreaves’ research suggests that a combination of perspectives may be the best bet, with accounts held in joint names outperforming even those held by women only (which, in line with ii’s findings, beat those held by men).
So how can the industry – itself historically heavily male-dominated – get more women to engage with investing? And what can Money Observer do to help close the gender investment gap? We would love to hear from female readers, friends or family as to what holds women back from the stockmarket and what could be done to encourage them to take the plunge. Do drop us a line.