You may have seen reports of women being more successful investors than their male counterparts. Here we look at the two of them and consider the possible reasons for this trend.
While women investors may be in the minority, the numbers show that, in general, they make better investors than men.
A 2017 study of more than eight million investment accounts by Fidelity revealed that women outperformed men by around 0.4% a year.
Separate research by Warwick Business School showed the gap to be even bigger, with women outperforming men by an average of 1.8% over a three-year period.
So, if data shows women are better investors, the obvious question is: why?
The truth is, there is no one simple answer. But experts believe, in general, female investors tend to display certain character traits that boost their performance.
Having a long-term view
All of the world’s best investors, from Warren Buffett to UK home-grown stars such as Neil Woodford, have a long-term goal in mind. They don’t cash out at the first sign of trouble, preferring instead to hold on and wait for things to improve.
By selling underperforming investments early, not only do you get clobbered by trading fees, you don’t give your shares and funds a chance to grow.
Warwick Business School found that, typically, women only traded their investments nine times a year, compared to 13 for men.
Professor Neil Stewart, who led the research, said this shows women tend to invest to support long-term goals, rather than simply for the thrill of investing. As a result, they were more likely to achieve better returns, he argued.
Taking a punt
Most of us have heard about someone who claims to have made a decent amount of money on some weird and wonderful investment that most people wouldn’t touch with a bargepole. But you’re best off avoiding these unless you are willing to stomach big losses.
Various studies have found that women tend to avoid speculative, high-risk punts in favour of investments with a decent track record.
While this may sound a little boring, clearly there’s a reason these slow and steady investments have performed so well in the past. Having said that, past performance is not always a guarantee of future riches.
For example, a company you invest in may lose its edge in a competitive market, or the management’s approach may become dated and not in tune with the current market.
So, by all means use past performance to narrow down your search for the right investment, but don’t base your entire decision to invest on it.
We have all heard the phrase ‘don’t put all of your eggs in one basket’ before. This is very apt in the world of investing.
I’ll give you an example. Let’s say three years ago you inherited £10,000 and decided to spend it on Apple shares.
By August of last year, that £10,000 investment would have grown a whopping 134% to roughly £23,400.
But since then Apple’s shares have dived, meaning today your shares would be worth just £15,400. While that’s still a very good return, it shows how risky investing in just one company or fund can be.
You’re better off spreading that £10,000 over a number of different shares and/or funds, so that if one of your investments isn’t performing, the others will hopefully compensate. This diversification is something women tend to do more than men.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past or future performance indicators are not a reliable indicator of future performance.