Be more female? Women make better investors

by Richard Wadsworth, Director, Glasgow

Research has shown that women are better investors than men, yet women state they are less confident about their investment knowledge. What’s going on?

Fidelity carried out research on 5.2m investors over a 10 year period to December 2020 and found that, on average, females outperformed their male counterparts by 0.4% per annum. In an article published in 2018, Warwick Business School stated that they analysed 2,800 investors over a 36-month period and found that women outperformed men by 1.8% per annum.

The Warwick analysis shows a large outperformance, but the sample size was smaller and the period shorter, and so to be conservative we might consider the Fidelity outperformance, this being based on a far larger sample and a longer time period. The Fidelity research showed 0.4% outperformance, which might not sound like a huge amount, but it’s very roughly about the typical cost of investing for the combined product and fund (say an ISA and the investment fund held within it) that we at Carbon would recommend, so one way to look at that number is that the outperformance means that women effectively get ‘free’ investments. That saving over time will compound to a significant outperformance and help women better meet whatever their financial objectives are, be that a comfortable retirement or helping the grandchildren onto the property ladder, for example.

Meanwhile, research from fund manager Dimensional in 2021 from around 2,000 investors showed that women felt less confident about their investment knowledge as compared to men (women scored an average of 5.6 and men 6.6). If women are less confident about investing, should we not expect their returns to be less rather than greater than that of men?

The Warwick research suggests that, while there were a range of significant differences between men and women, “the biggest difference, and the one that impacted their returns, came in their appetite for the type of stocks they invested in. When surveyed by Professor Stewart’s team [at Warwick Business School], female investors were less likely to indulge in the ‘lottery style’ of investment that appealed to men, according to the research. The Warwick Business School analysis defines ‘lottery style’ investing as a tendency to invest in more speculative, lower priced shares that might increase in value substantially, along with a desire to keep to shares that show a loss while selling off their winners – the ones that have actually increased in value.”

The Warwick article goes on, and this perhaps best summarises the different approaches of the genders: "Men are just a little more likely to be drawn to more speculative stocks whereas women are more likely to focus on shares that already have a good track record. Women also take a more long-term perspective, trading less frequently. This possibly means women are investing more to support their financial goals, whereas men are attracted to what they see as the thrill of investing."

So, should the suggestion that women have a lack of confidence in their investment knowledge be reframed to be that men have a sense of over-confidence in theirs? And as a representative of Barclays, which was involved in the Warwick research, suggests, are women just adopting a more considered approach rather than being more cautious as such?

At Carbon we are all about helping clients meet their objectives and selecting investments based on rigorous academic investment research which does not rely on us being able to predict the future; it is not about chasing the hot fund or latest investment fad – if you want excitement, go to the casino, or spread bet on the Euros – but instead it’s about achieving a return to meet your objectives. As a generalisation, women get our approach, which dovetails with their outlook. As for us men, we might need to reign in our inner Gordon Gekko tendencies!

For more information please contact Richard or enquiries@carbonfinancial.co.uk.

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