Women have several traits that lead them to perform better than men as investors, according to a new Wells Fargo Investment Institute report.
The Wells Fargo Investment Institute report titled “Women and Investing — Building on Strengths” was co-authored by Tracie McMillion, head of global asset allocation strategy, and Veronica Willis, an investment strategy analyst.
Women’s greater willingness to show patience, forgo excessive trading, seek education and adhere to an investment plan has tended to result in better investment results. Despite this, as a group, women generally lack confidence about investing.
According to the report, women’s actual investment behavior tends to follow recommended investment principles more often than men’s.
A study of Wells Fargo Advisors’ clients found that single women traded 27% less frequently than single men — “possibly because men tend to be overconfident about their investment ability,” the report says. Frequent trading exacts both direct and indirect costs that can dampen returns, according to the report.
The report also finds that women tended to have a more disciplined approach to investing that also may have contributed to their stronger risk-adjusted returns compared with men. According to the report, Betterment found that male investors tended to invest 100% of their accounts in stocks at least twice as often as women. Men also are six times more likely to make massive allocation shifts — switching from 100% stocks to 100% bonds or vice versa.
Women are more likely to seek education and advice from investment professionals, the report finds. In Wells Fargo’s 2014 investor survey, twice as many women as men indicated that what they need most from a financial advisor is education about investing principles and concepts.
In the report, Wells Fargo also finds that women tended to invest more conservatively than men. According to the report, 29% of women consider themselves “more conservative” compared with 21% of men. Other the other side, only 2% of women admitted to taking on more risk compared with 6% of men.
“What we found most interesting is that women have more experience with money and finance than they give themselves credit for having,” McMillion said in a statement.
When asked to rate their own investor experience level, fewer women say they have a higher level of experience. According to the report, 42% of women and 60% of men self-report a higher level of investor experience. More women report middle or lower levels of investor experience — 39% and 19% respectively, compared with 29% and 12% of men.
This perceived lack of experience has consequences, the report says. According to the report, more women than men are fearful of a market downturn, women tend to expect lower returns on their investments, and women are more likely to say that they are afraid to take investment risks.
“It’s important for women to become more confident investors because they earn less than men and have longer lifespans, so their assets need to last longer,” McMillion said in a statement.
The report finds that women are often their own worst critics. A recent study of Wells Fargo Advisors’ clients indicated that many women have more experience with money and finance than they give themselves credit for. The study, conducted in December 2016, showed that single women earned the highest returns, followed by female-led investment accounts. Male-led investment accounts and single men had the lowest average returns.
“Our analysis showed that oftentimes, women’s investment returns outperformed those of men on a risk-adjusted basis,” McMillion said.
In December 2016, the Wealth and Investment Management (WIM) Analytics group conducted a study of Wells Fargo Advisors’ accounts for which gender information was available. Single-female and female-led households represented 37% of these accounts. The study covered the period from December 2010 to December 2015, and found that women investors tend to outperform men.
“Specifically, women investors in the study led men by a small absolute margin for the five-year period,” the report states. “Controlling for risk, however, led to higher average returns for the women investors.”
The WIM Analytics data showed that female investors, on average, took approximately 94% of the risk that men took. This means that women achieved higher returns on their investments by taking on less risk than men.
“Following a sound investment strategy and having enough confidence to take appropriate levels of risk are important to long-term results,” the report states.
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