Are women better investors? Yes, but probably not by as much as you might think

22 Aug 2022

Has there ever been a more fertile field of academic study, jokes and stereotypes than gender differences? Just the fact that all three of those things go into a single sentence is evidence of its ubiquity. We are all a gender of some sort, some of us multiple. We all have feelings about our genders, and from there it’s a short trip to joking about gender, being angry about gender and, of course, being prejudiced about gender.

As comedian Louis CK once said, “I don't think women are better than men, but I do think men are worse than women.” And we are off, down the path of quasi-truth, partial truth and perceived truth. Another comedian, Rita Rudner, often makes jokes on the subject of the difference between men and women. She loves, she says, men’s confidence. “I love how far men think they are going to hit the golf ball.” Men and women react differently to a mess, she says; women clean it up. Men announce it. “Oh look, the dog has vomited on the carpet.” And so on.

We live in the age of greater gender fluidity, and greater acceptance of being gay, which is a fabulous thing. It’s amazing how fast people’s perceptions change. As recently as the election of Bill Clinton as US president in 1992, the stated policy of both presidential candidates was that marriage is an institution exclusively between men and women. Now even the US Supreme court, which seems unable to accept the idea of abortion, does accept that gay men and women can marry, at least for now.

It’s Women’s Month this month, which seems to me both a righteous acknowledgement that women’s position in society should be improved and also slightly bizarre: why a month? It seems too little and simultaneously too generic. Well, we can debate these things for eternity.

I should put my cards on the table: I think the differences between men and women are overstated. There are slight chemical and physical differences, but my guess is that they are smaller than popular culture would acknowledge. Of course, that doesn’t mean the social differences aren’t meaningful, and aren’t meaningfully bad.

It’s possible I think that because I’m male; I don’t know. Parents in my social circle often say they believe gender differences are a consequence of how children are brought up, or how they are nurtured. But as soon as they actually see how their children actually develop on their own, they then are forced to change their minds. Suddenly, gender differences are a consequence of nature, how we are configured biologically and chemically.

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There are lots of gender differences that occupy our minds but there is one pertinent to this column: are women better investors? Oddly enough, last week, a press release dropped into my inbox, which makes this very assertion, naturally timed for Women’s Month.

According to Nicole van den Munckhof, Certified Financial Planner at Independent Securities, women hold the edge over their male counterparts because they are risk averse, tend to remain invested for the longer term and don’t switch out of investments as quickly as men.

Instinctively, this makes complete sense to me. Men just seem more likely to get impatient with an investment and try something new. Men have something called an “availability bias”, which is a tendency to overestimate the probability of an event occurring based on the most available information. It’s exactly as Rudner says about men and how far they think they are going to hit their golf balls. QED!

But then I thought, wait a minute. Men know that investing for the longer term is the more sensible strategy. Men also know that swapping out of your investments can be counterproductive and will definitely be expensive. These are fundamentals of investing.

So I decided to have a look at this data a bit more closely. The assertion that women are better investors than men is based on investment house Fidelity Investments 2021 Women and Investing study. The study is huge, based on 5.2 million accounts. It does show that women make better investors than men, but the difference is 40 basis points. That is a 0.4% difference.

That can make a significant difference over time, as Van den Munckhof points out. A 0.4% difference means a 20% difference in outcome over an investment lifetime. But still, it’s close to being insignificant compared with some other performance measures. Investment advisors Morningstar tracked major global investment funds last year, and the best performer returned 96% and the worst -18%. That’s in one year.

Often, I find, people situate women and men at odds with each other, either for fun or to make a social point. Fair enough. I don’t mind at all. But in our effort to laugh or be righteous, we shouldn’t lose track of our similarities. Simple point but profound enough. BM/DM

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