Women are often more nervous about investing than men, but there are several studies which suggest that they may make better long-term investors.
Despite this, lack of confidence continues to hold many female investors back. According to insight and strategy consultancy BritainThinks, only 38% of women compared to 53% of men said they feel confident making investment decisions.
There are other obstacles women may come up against, such as difficulty engaging with investments, and the perception investing will take up too much time.
Find out more about some of the barriers to investing women often face
Here, we look at how women investors typically fare compared to men when it comes to returns, and some of the possible reasons behind their success.
Women tend to get better results than men
According to research by Warwick Business School carried out on behalf of Smart Investor, women’s returns on their investments were on average about 1.2 percentage points higher than men. Researchers surveyed 2,456 investors, of which 450 were female, between April 2012 and July 2016.
The study found that women typically trade less often than men and tend to have larger portfolio sizes than men. Women on average hold onto their investments for longer too, keeping them for an average of 875 days, compared to 830 days for men.
A separate study, conducted by academics from the University of California Berkeley, similarly found that female investors’ returns beat those of their male counterparts by just under a percentage point a year.
The study analysed the common stock investments of men and women in over 35,000 households from February 1991 through to January 1997. The results showed than men trade 45% more than women, with trading reducing the net returns of males by 2.65 percentage points a year, as opposed to 1.72 percentage points for women.2 The authors of the study previously found that overconfident investors – who believe their knowledge about the value of an investment is greater than it actually is – trade more frequently, and achieve lower returns. The psychological research examined by the authors shows that men are more likely to display overconfidence, particularly in areas such as finance, explaining the finding of the study that men trade more frequently than women, and therefore reduce their returns more.
How trading too frequently can impact on returns
Committing to your investments for the long-term, known as buy-and-hold investing, means you stay invested throughout various market cycles. The aim is that you reduce the likelihood of making a bad timing error and buying before a fall, and also similarly won’t miss out on any of the best days by trying to time the market. Generally it is time invested in the market, and not the timing of the market, which will dictate long term returns. Of course, there are no guarantees and you could still end up getting less than you put in.
Learn more about the pros and cons of buy-and-hold investing
Every time you buy and sell a fund or stock, you are also likely to incur a trading cost. Trading too frequently means these fees, which may seem small at the time, can end up eating into your long-term returns. These factors show how being too active when it comes to managing your portfolio can go against you, which is perhaps why women who trade less frequently have been shown to often achieve better returns than men.
Peter Brooks, Head of Behavioural Finance at Barclays, said: “Behavioural finance highlights how our emotional reactions to market events can affect good financial decision-making, making it difficult to stick to the ‘buy low, sell high’ advice we often hear. Taking action for action’s sake can prove more harmful to your wealth than the status quo, as the research above shows. The more frequently we trade the more we reduce our financial returns on average, not only because of the costs of trading but also because we react very differently to gains and losses."
That said, it’s important to regularly review your portfolio to make sure that your asset allocation is still in line with your investment objectives and approach to risk.
For example, parts of your portfolio which have performed strongly in recent months may have become a much bigger part of your asset allocation, meaning your portfolio is now skewed to one particular area. Rebalancing your portfolio is therefore important if you don’t want to expose yourself to unnecessary risk.
Remember that all investments can fall as well as rise, and whatever steps you take to protect investments from stock market movements, you could get back less than you put in.
If you’re unsure which investments to choose, consider taking professional financial advice.