It's been said that men are from Mars, and women are from Venus. This notion, posited by author John Gray, Ph.D., in his bestselling book of the same name, speaks to the differences in the way that men and women interact with one another on a social level. According to Gray, men and women are as different as beings from two totally different planets, and if they are to have meaningful relationships with one another, they need to understand the differences in each other's nature, as well as the differences in their communication styles and emotional needs. 1
While differences may exist between the genders with respect to social interactions, how might they differ with respect to investing? Are there differences in the way that men and women invest? Do they tend to have different preferences with respect to investing, or different investment styles?
Overall, women seem to be more inclined to learn about investing by networking with family members, friends or a financial advisor. Men, on the other hand, tend to seek information from the internet, and are more likely to learn on their own. 2 With respect to security selection, a study conducted by Mintel Group and Brinker Capital found that men are more likely to hold individual stocks, and exchange traded funds (ETFs), as well as options and futures. Women, on the other hand, more often tended toward mutual funds. 3
When comparing trading patterns, men, on the whole, tended to trade more frequently than women. Furthermore, they seemed to be more confident in their investment decisions. According to a 2001 study co-authored by Professor Brad Barber, Gallagher Professor of Finance at the University of California at Davis, men traded stocks approximately 50% more than women. 4 While one may assume that men trade more frequently because they are more confident in their abilities, their higher level of trading has actually proven to be somewhat detrimental to their portfolios' overall performance. According to Barber's research, women's portfolios tended to outperform those of men by about 1% annually. 5
Why? While men may have greater confidence in their investment abilities, over confidence may cause them to take excessive risk, thereby subjecting them to greater or more frequent losses. Similarly, the belief of some that they can successfully time the markets is, we believe, wishful thinking. In order to market time successfully, investors must determine the appropriate time to sell before the market drops, and then once the downturn does occur, they must successfully time when to re-enter the markets before a rally passes them by. And let's not forget the impact of transaction costs and taxes that are associated with trading. Logically, frequent trading tends to be more costly than a buy and hold strategy, and is also more likely to trigger taxable events that will similarly detract from investor returns.
With respect to differences in risk tolerance, the results of a 2001 survey of financial advisors and analysts tended to show that women are more risk averse than men as they felt it more important to avoid losses, and they were also more hesitant to make decisions if they felt they didn't have access to complete information. 6 Furthermore, a study by Spectrum Group reported that only 28% of women were willing to risk a significant portion of their portfolios in the hope of capturing greater returns vs. 43% of men who were willing to do so. 7
So while the research suggests that there may be some differences between the sexes when it comes to investing, particularly with respect to risk-taking, are they attributable to nature, or are they influenced by cultural or societal values?
Alexandra Bernasek, professor of economics at Colorado State University suggested that historical differences between the genders such as a disparity in earnings, wealth, power or social status may help explain a difference in the genders' attitudes toward risk. If, historically, women had lesser incomes, or more limited wealth, they may have been more inclined to be protective of the assets that they did have, and therefore less prone to taking risks. 8
When comparing the risk-taking tendencies of men and women of opposite sex and same sex relationships, research from Ohio State University found that married women in opposite sex relationships tended to be more risk averse than men. Women in same sex relationships were, however, just as willing to take risks as were the married men, and they also tended to take more risks than the men in same sex relationships.
A possible explanation for these findings? Investor education. Regardless of gender, people with a similar understanding of investing appear to be just as likely to take financial risks. According to the research, men have often filled the role of primary decision-maker with respect to the finances in an opposite sex relationship. Given that they were historically more involved with the family wealth, they were likely more knowledgeable in this arena, and therefore more comfortable taking risks. Women in same sex relationships would, however, be the primary decision-makers with respect to their finances, so they would likely become more knowledgeable about investing, and therefore, just as inclined as the married men to take risks. 9
While societal factors may contribute to differing investment styles, research suggests that evolutionary psychology may have similarly played a role. According to Bernasek, over time, males may have evolved to become greater risk takers in an effort to better their chances of reproducing. Females, however, may have evolved to be more cautious and risk averse given their primary role as the caretakers of their young. 10
Further supporting the notion of risk taking as a product of biology is the research of former Wall Street trader, John Coates. According to Coates, signals from the body, both chemical and electrical, can affect how people approach financial risks. According to his research, high levels of testosterone may create a chemical reaction that leads to men's increased risk-taking, similar to what was seen during the dot.com bubble. Women, he contends, with much lower testosterone levels, are less prone to taking such risk. 11
So when it comes to investing, are men truly from Mars, and women from Venus? While research on the topic is on-going, certain dissimilarities between men and women do seem to be evident. One should remember, however, that the differences among men or among women are likely far greater than those that may exist between the genders as a whole. Regardless of any gender differences, however, from our perspective, education is key to bettering one's overall investment experience. When possessing the knowledge to make informed decisions, we believe all investors - both male and female - have a greater chance of developing a sound investment plan and staying disciplined in their strategy, thereby giving themselves a greater chance of reaching their long-term goals.
Content written by Symmetry Partners, LLC. Our firm utilizes Symmetry Partners, LLC for investment management services. Symmetry Partners, LLC, is an investment adviser registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. All data is from sources believed to be reliable, but cannot be guaranteed or warranted. No current or prospective client should assume that future performance of any specific investment, investment strategy, product or non- investment related content made reference to directly or indirectly in this article will be profitable. As with any investment strategy, there is a possibility of profitability as well as loss. Symmetry follows a passive investment strategy that involves limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance. Passively managed portfolios are designed to closely track their respective benchmark index rather than seek out performance. As a result, the portfolio may hold securities regardless of the current or projected performance of a specific security or particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of a specific security could cause the portfolio to lose value if the market as a whole falls. Please note that you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Symmetry Partners or your advisor.