Investing Women

Knowledge and experience bring results

Women investors are steadily gaining economic parity with men. But rising affluence brings responsibilities and pressures to manage their wealth. Fortunately, women investors are becoming aware of financial principles and can access tools and resources to manage their financial lives. Here are a few observations that may provide insight into their challenges:

Women need more investment confidence: Research indicates that women as a group have less confidence than men when handling financial matters. Their doubt stems from a lack of experience. They received little financial training while growing up and typically don’t play the lead financial role in marriage.

Despite higher education and more career choices today, many working women lack the time to get educated on financial and investment principles. This is especially true among younger workers.

Financial pressure is inevitable for most women: An estimated 90% of all women must take sole charge of family finances at some point in their lives.(1) Divorce or death of a husband may trigger this new responsibility. (The average age of widowhood in our country is 56.)

These women are left alone to sort through their deceased husband’s business and financial matters—or to enter the workforce to make financial ends meet. In both cases, they receive a painful crash course in personal finance.

Women may face more obstacles on the road to financial security: In most fields of work, women earn 60% to 80% of what men earn in the same job. They must take more time off or leave their jobs entirely to raise a family—a factor that cuts into their aggregate earnings and reduces both private pension savings and Social Security benefits.(2)

On average, women live seven years longer than men, so they have a longer retirement horizon. Also, many serve a dual role as sole breadwinner for their children and primary coordinator of their parent’s finances, health care and other elder care needs. In these and other cases, women must pursue financial security with less disposable income to invest and a shorter time frame to pursue their financial goals. It’s no wonder that many women—and particularly younger ones—start investing too late and don’t save enough to cover their retirement lifestyle.

Women must sort through the marketing noise: The investment industry has awakened to women’s rising affluence and are competing aggressively for their investment dollars. Books, websites and sales brochures offer guidance on financial management, investing, retirement planning, estate planning and other topics. Not all of this advice is sound, however. Much of the information reflects gender stereotyping and/or offers outdated investment strategies. Let the buyer beware.

Investment fundamentals apply to everyone: The basic tenets of investing are the same for everyone. These include setting financial goals, determining time horizon, risk tolerance and asset mix, monitoring performance and making midcourse adjustments as circumstances change. Men and women may face different circumstances resulting from divorce, education and income differences, and parental responsibilities. These may dictate how principles are applied.

Recognize possible gender differences: Academic studies and private surveys have explored whether men and women invest differently. Although the conclusions are mixed, the patterns suggest that women as a group have a favorable disposition for long-term investing. Consider these findings:

• Women have a lower risk appetite than men, which is reflected in more conservative asset allocation decisions in their pensions.(3)

• Women trade less in their brokerage accounts, which results in lower transaction costs and taxes, and higher total returns. Overconfidence in one’s abilities and a propensity to speculate may account for men’s active trading.(4)

• Women in their mid-30’s and beyond (i.e., those with more financial experience) are more likely to contribute to a company pension plan and invest more in their retirement plans than men.(5)

• Women are more likely to seek help from experts, share their financial experience with peers and listen to others. They also tend to conduct more methodical research before investing. In short, they have less ego involved in the education task and are willing to learn.(6)

Most research finds little evidence of unique investment traits—especially when both groups have similar experience in money matters. Indeed this may be the great equalizer. Knowledge brings understanding of markets while experience teaches valuable lessons and reinforces wise decisions.

Success may bring new problems: As women gain economic power, they should expect new issues and challenges to arise. Wealth raises the financial stakes in areas like remarriage, blended families, college planning, income and asset protection, trust management, estate planning and elder care, to name a few.

We may even discover that rising financial clout will subject women investors to the same hazards as men—overconfidence, higher risk taking and active trading.

All investors would do well to understand how their financial attitudes and behaviors contribute to long-term performance. Portfolio mix and discipline contribute to returns. But psychology drives these decisions.


(1)   “Created Equal”, Forbes, 11 Dec. 2000, p 280.

(2) By one study, an estimated 54% of women in the labor force lack pension accounts, compared to 22% of men. (“Women and Retirement”, Business Week, 13 Dec. 1999, p 192-93.)

(3) Ibid, p 193.

(4) Brad M. Barber and Terrance Odean, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment”, 1999.

(5) Based on a 1998 Deloitte & Touche survey (“What Investing Women Want”, Newsweek, 8 Jan. 2001, p 49.)

(6) “Women’s Work”, Financial Advisor, August 2001, pp 53-54.

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