Women are superb at investing – and tend to fare better than their male counterparts – so why don’t more of them do it?
It’s a question that financial specialists have been trying to answer for many years now, with data showing that those women who do put their money to work on the stock market often outperform men.
‘Fewer women are investing than men but here’s the good news – when women do invest, they do brilliantly,’ says Camilla Esmund, senior manager at investment platform Interactive Investor.
‘The more we celebrate that, the more we can encourage more women to invest.’
Warwick Business School, which has carried out research into women’s investment strategies, found that women who invest don’t only outperform the FTSE 100 index of Britain’s biggest stocks, they also outperform the men who are investing at the same time as them by 1.8 per cent on average.
Other studies into the subject have reached similar conclusions, with research from Fidelity concluding that women outperform men in investment by 0.4 per cent every year and Hargreaves Lansdown finding that women made 0.81 per cent more than men over a three-year period.
These may seem like small numbers but over time and if the level of investment is such, they can result in significant differences.
And yet despite all of this evidence, women still routinely report feeling less confident than men when managing money and are often perceived as less willing to take the risks associated with investment.
Instead, there’s a lot that everyone can learn from successful female investors of all ages about how to manage their portfolios and reach their financial targets.
The female advantage
Why do women outperform men when they invest? All the studies available suggest that the advantage is behavioural, with little differences over time adding up to more money overall.
Women trade less than men, who are slightly more likely to dump one stock and buy another because they are chasing the ‘next big thing’.
The Warwick Business School study showed that where men trade 13 times a year on average, women trade just nine. This saves in trading costs and avoids the danger of being outside of the market and missing increases in share value.
Women are also less likely to indulge in what Warwick called ‘lottery-style investment’, chasing the next big thing. This attitude can lead men towards ‘meme stocks’ or other risky investments such as cryptocurrency.
Joanne Phillips, managing director of direct wealth at insurance and wealth group Aviva, says women’s investment style is ‘patient and more disciplined’, which can lead to strong financial performance over time.
Women are also less likely to put all of their eggs into one basket – one study showed that they are more likely to invest using funds that pool their money with other investors so that they are invested over a wider spread of companies.
More than 44 per cent of women had most or all of their portfolio in funds in a recent Hargreaves Lansdown study, compared with 38 per cent of men.
As well as diversification, taking on less risky assets and spreading their wealth, women are also slightly more likely to use tax-efficient structures such as Isas and consider the implications of charges on their investments.
Not paying tax on investment growth as well as handing less of your money over to a manager can help it to grow faster over time.
These differences between the most typical female and most typical male investor may be slight but – again – over time, they are adding up to the outperformance shown in financial studies.
The trend even holds good when you step into the world of professional investors – including fund managers.
One study, by entrepreneurship group the Kauffman Foundation found that female-led tech teams generated a 35 per cent higher return on investment than all-male teams.
Similarly, when investment bank Goldman Sachs looked at the performance of funds in the Covid market turbulence of 2020, it found women-led funds held up better.
Lack of confidence
Yet, despite all of the evidence that they are good at it, studies also show that women don’t feel as confident about their investing ability. HSBC’s survey into women and investing found that 69 per cent didn’t feel confident about investing money.
Two-thirds said they didn’t know where to start with investing, compared with under half of men.
This may explain some of the disparity between women’s investment pots and those of men.
Men are more likely to have a stocks and shares Isa (30 per cent versus 17 per cent of women) and have more money invested excluding their pensions as well, at £52,000 versus £34,000. Put pensions into the mix and the disparity is even starker.
At 50 and over, men have pension pots worth more than twice those of women, at £84,205 versus £39,654.
Some of this is down to circumstance – women who have taken time out of the employment market to have children often have gaps in their pensions, for example,
‘Many women face structural hurdles: career breaks for children or caring for loved ones, part-time work, and lower average pay mean less time and money compounding in the markets,’ Esmund says.
However, she also acknowledges that confidence is an issue, despite all the evidence that many women are excellent at investing.
‘Women have all the qualities needed to be outstanding investors and the more we can showcase the ones who are, and how they’re doing it, the more we will inspire others.’
It’s no accident that women’s investments tend to outperform men’s.
Here’s what’s working for women that men too often ignore…
Focus on goals, not returns
A study from consultants McKinsey found that women create investment success that is specific to what they want, rather than focusing on returns from specific funds and assets. In 2023, women’s top financial goals were ensuring they did not outlive their retirement assets, managing healthcare and long-term care costs, and maintaining their lifestyle.
Don’t churn your investments
A study into women and men trading by Warwick Business School found that men trade 13 times a year on average while women trade nine times. Not selling as often allows women to avoid charges for doing so, as well as takes out the risk of missing days when the market does well.
Diversify, diversify, diversify
Women tend to invest in funds, rather than individual stocks.
That means they’re more likely to have their money spread across a large number of companies than having all of their eggs in a few baskets.
Be tax efficient
Where women invest, they are more likely to use an ISA than men – 65 per cent of women against 58 per cent use these tax-efficient vehicles. By handing less of their money to the tax man, their investments grow faster.
Look to the experts
Another study, from Hargreaves Lansdown, shows that women do their research before investing. Almost a third check expert reviews and opinions, while over a quarter get financial advice. Relying on other’s expertise helps them to pick better portfolios which then outperform.