Close your eyes and picture the person in your life you’d ask if you needed investment advice.
If that person is a man, you may do well to reconsider. After all, according to Fidelity Investments, women are meaningfully better investors than men.
Women vs. Men: Who’s the Better Investor?
Women outperform men by 0.4% per year based on Fidelity’s analysis of more than 5 million of its investment acounts. That’s a 4% difference each decade. Applied to a large retirement account, that can represent tens or even hundreds of thousands of dollars.
“Invest like a woman is what you want to learn from this,” Lorna Kapusta, head of women investors and customer engagement at Fidelity, told the New York Times.
What exactly does investing “like a woman” mean? And what can all investors, men and women, learn from those results?
According to Fidelity, its male investors traded about twice as often as its female investors. That’s pretty typical. A Vanguard study from 2011 to 2020 also found that women traded about 40% less frequently than men within workplace retirement accounts.
Some of the best minds in investing throughout modern history have advocated for well-diversified investment portfolios. The idea is to “buy and hold” for long periods of time — often a decade or more.
To make money trading, you have to contend with fees, taxes and trying to time the market, which is often a major gamble.
“The impulse to buy, sell, buy, sell, buy, sell reduces returns so much,” money expert Clark Howard said. “You end up with a return far, far less than you would if you were just merely average.
“You tell a lot of guys, ‘Hey, wouldn’t you like to just be average?’ No! They want to be the greatest. And that’s why they get into this whole mania of trading.”
Whatever your gender, if you have an urge to try to outperform the market, Clark strongly advises that you follow the “core and explore” strategy that investing pioneer Chuck Schwab coined decades ago.
Positing that we all like to perform better than average, Schwab advocated for investing the large majority of your money into index funds. That has expanded to include ETFs and low-cost, zero-commission index funds, Clark says.
“And then on the side, if you want to have your play money to rapid-fire trade and buy this hot stock or that one or whatever, do that,” Clark says.
The New York Times cited neurologist William J. Bernstein, who postulated that testosterone may make a big difference in the investing styles of men and women. Bernstein said that in terms of investing, testosterone leads to increased greed, decreased fear and overconfidence.
Despite being better investors than men, just 9% of women in Fidelity’s study said they had confidence they’d outperform men in the market. Only 14% of women said they know a lot about savings and investing. And just 19% of women said they feel confident selecting investments that align with their goals.
The trend seems to be changing though, especially among younger women. Just 44% of women invested outside of retirement accounts in 2018, according to Fidelity. But as of 2021, 71% of women between 25 and 40 years old invested outside of a retirement account.
“What’s fascinating about this to me is that women historically have been savers, not investors,” Clark says. “You gotta play to win. So I’ve long encouraged women to invest their money for the long-term future instead of putting it in savings accounts or CDs or something like that.
“Because you’ve got to build up assets and over the years, the risk in the long term is much greater worrying about the short term of losing money in the market. You’ve got to be in for the long term.”