The numbers tell an interesting story. More men trade shares than women, and they’re more brazen sharemarket investors, yet study after study shows women make better returns.
A study by fund manager Fidelity Investments, involving eight million of its clients, revealed women achieved portfolio returns 0.4 percentage points higher than men in the 12 months to December 2016. Yet, a mere 9 per cent of women thought they would outperform them.
Another study, published in Harvard University’s Quarterly Journal of Economics spanning almost six years’ worth of trades by 35,000 investors, found a difference of almost 1 percentage point a year in returns, in women’s favour.
Yet they often lack confidence in their own investment abilities and are less likely to own shares than men.
In Australia, 31 per cent of women, compared with 44 per cent of men, own shares or other listed investments, as reported in the ASX Australian Investor Study 2017. Women who do invest in shares typically take fewer risks with their money and trade less frequently.
And it seems it’s that sense of caution that puts them ahead. According to the ASX, women are less happy to accept ups and downs in share investing (only 26 per cent), meaning they manage investments to avoid such risk. This compares with 40 per cent of men who accept variable returns.
Fidelity also found women make much less trades than men, meaning there might be a consistency to their investing that serves them well. (Men were 35 per cent more likely than women to trade shares, in Fidelity’s research. And men who trade made an average of 55 per cent more trades in 2016 than women who trade.)
What makes a great share trading strategy?
Great investors exercise discipline and patience, and follow a sound money-management strategy, which they have written down, says Justine Pollard, founder of Smart Trading and author of Smart Trading Plans: a step-by-step guide to developing a business plan for trading the markets.
Pollard sees a clear difference between her female and male clients on this score.
“My female clients will take more time to create a trading plan and understand what they are doing before they enter the market, where a higher percentage of my male clients will be trading already and making many mistakes while they are trying to figure it out,” she says.
“For men, the plan will come afterward, once they realise they need one as they are losing money in the market.”
Pollard says a trading strategy should set out rules including:
- when shares will be bought and sold
- how much will be invested in each position
- how much the investor is willing to lose on each trade
- the acceptable total risk of the portfolio.
It’s also essential to carefully monitor the portfolio and keep records of shareholdings.
Pollard is an active trader but says buy-and-hold investors also need to keep track of their portfolios and adjust when necessary to mitigate risk. This applies whether market conditions are calm or volatile.
“It’s about being prepared for all scenarios … you have no control over the stock market,” she says.
Managing risk in share investing
Successful investors know what they don’t know and don’t assume they have greater insight than what they truly have, says Steve MacDonald, author Investing like a Woman white paper and partner at Lotus Impact, which invests in start-ups and small businesses in south-east Asia.
“Among older people, males commonly overestimate their investment knowledge and insights while women tend to underestimate their investment knowledge and insights,” MacDonald says.
“Fortunately for the women, it is better to underestimate knowledge than to overestimate. So, older women tend to make better investment decisions. This is because they tend to invest more conservatively and with a greater focus on income-producing investments than men.”
Women often invest with an holistic financial plan in mind, considering life goals rather than performance alone, Fidelity’s research shows.
They are more likely to buy and hold, rather than reacting quickly to market fluctuations, which leads to fewer mistakes and greater returns over the long term.
Women are also more likely to diversify, with fewer of them holding all of their savings in equities, which lowers risk.
Some studies suggest biology helps women to invest more rationally. University of Cambridge academics John Coates and Joe Herbert found higher levels of the male hormone testosterone contribute to rash investment decision making, which puts male investors at a disadvantage compared with female peers.
All of these characteristics benefit women when they invest, as long as they have the confidence to get started.
Attitudes that have lead older women, in particular, to consider themselves to be less financially capable than men are outdated, MacDonald says. And things are changing.
“I think that the investment differences between male and female Millennials will be much less distinct as the financial literacy and awareness and the expectations of younger women are closing the gap that previously existed,” he says.
Want to practice your trading skills before jumping in? Learn more about ASX’s Sharemarket Game here.