Why women make better investors than men

Thomson Reuters

When it comes to investing, men dominate the field: Look at any picture of a trading floor and you’ll see a virtual sea of male faces.

Research from Morningstar shows that men make up over 90% of all U.S. fund managers, with women running just 2% of the industry’s assets.

And yet, study after study shows that when women do invest, they do it well, outperforming men in many cases. In 2001, researchers found that women outperformed men by close to 1% per year, largely due to men’s propensity toward frequent trading.

More recent data continues to back that up. Women were more likely to stay the course during the recession, Vanguard says. Robo-advisor Betterment’s analysis of its data found similar results. SigFig, another robo that offers a free portfolio tracker, found that of those portfolios, men were 25% more likely to lose money in the market.

In fact, it’s tough to locate research that finds women aren’t superior investors. So what’s their secret? Turns out they have a few.

They're more likely to save.

Men have retirement plan balances that are roughly 50% larger than the average and median women’s balance, it’s true. But that isn’t the result of women’s failure to save; in fact, women are actually more likely to contribute to an employer retirement plan.

Better still, according to Vanguard’s data, they save at higher rates across all income levels — between 7% and 16% higher than men’s savings rates.

The discrepancy, of course, is the wage gap — though women are participating, and contributing a greater percentage of their income, those incomes are lower so they’re stashing away less money overall. Still, aiming to save 10% to 15% of your income is the first step toward a bigger retirement nest egg.

They're less likely to tinker.

No, you shouldn’t set it and forget it. Even if you’ve elected to invest in a target date fund or through a robo-advisor — both of which do the work of rebalancing for you — it’s wise to check in on a regular basis to make sure your portfolio is performing as it should.

But messing with your asset allocation too much can be equally destructive, and research shows men are much more likely to fall into this trap. One trouble, according to that 2001 research, is overconfidence: In that analysis, titled “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment,” researchers Terrance Odean and Brad Barber found that men traded stocks 45% more often than women, resulting in higher costs and lower returns.

Betterment’s much more recent analysis of its customers found that the company’s female customers changed their asset allocation 20% less frequently and monitored their accounts 45% less frequently than male customers.

As Dan Egan, Betterment’s director of behavioral finance and investing, noted in the analysis, investing is a “job that pays you more the less often you come into work. Studies show that men seem to think they have to work hard, while women take a vacation and earn more.”

They ask for help.

They not only ask for advice — women are more likely to use a financial advisor, which may be a result of that confidence gap mentioned above — but they listen to the advice that’s given.

According to the Betterment research, the majority of its customers followed its asset allocation advice. But among those who deviated, men were more likely to take on more risk, moving into a 100% allocation toward stocks twice as often as women.

They were also six times more likely to make large allocation swings, like abruptly moving from a portfolio allocated completely to stock to one allocated completely to bonds. Those kind of reactions are often an attempt to time the market, something most of us know doesn’t work.