We talk a lot about characteristics we assign to men or women, acknowledging there are sometimes differences in the way women and men approach different situations. When you start breaking down the research about gender and investing, general variances tend to emerge.
While some argue the differences between men and women when it comes to investing might be socially constructed rather than inherent in biology, the reality is there does seem to be some variance.
But this isn’t necessarily a bad thing. It’s possible for you to look at your own investment weaknesses, and balance them out by treating your portfolio like a member of the opposite gender might.
How Do Men and Women Invest Differently?
Financial coach Ozeme Bonnette works at Tri-Quest Investment Advisors and has worked with thousands of clients over the years. “Men take more risks, choosing more aggressive investments,” Bonnette says. “Women are often more cautious and conservative.”
Bonnette also says women are willing to cut their losses sooner, moving out of a poorly performing investment quicker. “Men will hold on with the hope it will recover and grow,” she says.
From this standpoint, women seem to have something of an edge. Their caution can mean fewer losses, especially since ego doesn’t get in the way and encourage women to hold onto an asset even after it has tanked beyond all hope of recovery. But this doesn’t mean women should always be the model for investing.
One of the reasons women might be more cautious is they might not feel knowledgeable about their investments. “Men review their accounts and statements,” says Bonnette. “They also want to understand the intricacies of their investments. Women are less likely to take the time to learn to understand their accounts, and they are less likely to open and review their statements.”
This might be one of the reasons for the so-called confidence gap seen in investing. Women feel less confident about their investing ability, and are more cautious as a result. But what if this lack of confidence has something to do with education and knowledge?
There is a good chance many women would feel more confident about investing — and take a few more risks — if they had the knowledge that allowed them to rely more on their own abilities when it comes to investing.
Bonnette is careful to point out the differences she has noticed in men and women are very general, and might not apply to all individuals. She’s not alone in her caution that investments should be looked at on an individual basis, and plans shouldn’t be made based on your gender.
Michael Giokas, a wealth coach and the president of Giokas Wealth Advisors, agrees gender isn’t always the defining driver behind investment styles. “The differences are not necessarily gender-related,” he says. “The brain makes decisions based on four action modes: Fact finding, process or procedure, bottom line, and tangible solutions.”
“Since we are all born with our own unique blend of these four characteristics, some of us have more of one and less of the other,” Giokas continues. While he acknowledges gender doesn’t necessarily determine which characteristics are stronger with investors, he does say, in general, men and women seem to emphasize different items.
“Men in general are more fact finders and bottom line investors. They will absorb what they think is enough information and then pull the trigger.” Giokas says. “Women tend to have more procedural traits. They want to go through all the steps one by one in order to develop a comfort level before investing.” He points out women also like the idea of tangible solutions, in which they can see examples of implemented solutions and get outside help from those who have more experience with investing.
How to Improve Your Portfolio
Take a look at your portfolio, and consider your own investing style. No matter your gender, consider whether or not you have some of the characteristics that might be holding you back. Perhaps you have the “male” characteristic of too much risk and too-frequent trading. If this is the case, you can balance it out by changing some of your assets to lower-risk, long-term investments. This way, you reduce the chance of loss, and you reduce the fees you pay for frequent trading.
“More conservative portfolios can do almost as well, performance-wise, over the long term,” says Bonnette. “While short term gains and losses may not be as extreme, it’s the long term most of us are most concerned with.” Not only can men look for less risky assets, but they can also seek a little more help. “Seeking professional assistance can also improve overall portfolio performance,” Bonnette continues.
Women, Bonnette says, can boost their portfolios by taking the time to learn about assets and taking a few more risks. An overly conservative portfolio might not allow you to build wealth at a rate that secures your financial future. As a result, it makes sense to add a few higher-performing assets to your portfolio. If you want the confidence to take this step, a little more education can help.
To really make solid improvements, though, it’s less about getting hung up on gender and more about creating a plan that works for you.
“It’s important to have an open discussion with your advisor or spouse about your style so you don’t have conflict,” says Giokas. “There is no right or wrong when it comes to these traits. Put it out there so you can identify how you invest, and how a partner invests.”
The idea is to balance your weakness with the investing strengths of your partner. If you don’t have a partner, it’s important to acknowledge your investment style, and be realistic about how it might be holding you back.
Once you get an idea of what’s reducing your long term performance results, you can make adjustments to benefit your portfolio over time.
Image credit: wavebreakmediamicro