Invest Like a Woman
It used to be a common playground slight: “You throw like a girl!” The activity might have been running, shooting a basketball, or some other pursuit—but regardless of context, being told you did it “like a girl” was never intended as a compliment.
That made the title of Lou Ann Lofton’s 2011 New York Times–bestselling book Warren Buffett Invests Like a Girl—And Why You Should, Too all the more interesting. Far from insulting the “Sage of Omaha,” Lofton was paying tribute to investing principles that have helped make Warren Buffett one of the world’s wealthiest investors: principles that can often be observed in the investment behavior of women.
Of course, the traditional thinking is that women’s investment behavior is inferior to their male counterparts for various reasons: women are too conservative, they keep too much in cash, they’re unwilling to take risks, and the list goes on. But the reality is, there’s no such thing as a “typical” woman investor. In fact, recent studies indicate that women’s portfolios often outperform men’s by anywhere from 0.4% to 1%.
So, what is making the difference for successful women investors? And are there special considerations for women who are designing financial strategies for the future?
Women are willing to take risks—as long as they’re worth taking. For many years the conventional wisdom, backed by research, held that women were generally less willing than men to accept risk in their portfolios. But more recently, evidence is mounting that the real situation is more nuanced. Women are more than willing to assume appropriate levels of risk in their portfolios, but only after they have done the research and determined that the risk is meaningful—that it matters for reasons that are important to them. A 2020 study published by the Harvard Business Review, for instance, looked at philanthropic venture capital firms with teams made up of men and women, in various percentages. The study found that the teams with more women tended to accept more risk than the male-dominated teams. Follow-up interviews with study participants confirmed that women were more willing than men to assume risk when they believed the outcome was meaningful and the level of risk was appropriate for the goals involved.
Women tend to prioritize non-financial considerations in their careers more than their male peers. In some ways, this tendency is the flipside of the one previously discussed. Because women take more carefully calculated risks that typically lead to better overall returns, the superior outcomes they achieve can help to mitigate the impacts of prioritizing non-financial goals. For example, take a look at the following decisions made by women who faced caretaking needs during their careers:
42% decreased their working hours;
13% passed on promotions or assignments;
39% took significant time off work;
20% switched from full- to part-time work;
27% quit their jobs;
13% retired early.
The upshot of these relationship-based decisions, which fall disproportionately on women ages 45–54 (during peak earning years) is that on average, women spend twelve fewer years in the workforce than men of the same age. This, combined with the persistent wage gap (women earn about 82% as much as their male counterparts doing the same work) makes it more challenging for women to save for retirement. This also means that money saved early in a woman’s career can be more critical for meeting her long-term saving and investing needs.
Women play the long game. Perhaps women’s tendency to consider non-financial factors in their career and financial decisions plays a part in their noted tendency to take a longer-term approach to their investing strategies. With apologies for the athletic metaphor, one way of understanding this difference is by comparing men’s tendency to approach an investing opportunity like a baseball slugger: to swing for the fences, even if that also carries a higher probability of striking out. Women, by contrast, tend to invest more like “contact hitters”: they seek to “get on base” by achieving more frequent, if smaller gains in their portfolios. Studies have shown, for example, that men are more likely than women to hold 100 percent of their assets in equity investments, as compared to women, who are more likely to maintain diversification between stocks and bonds or other fixed-income holdings. Other data suggest that male investors’ portfolios tend to be subject to wider swings in value than women’s, largely due to concentrations of assets with greater inherent volatility. In fact, a 2022 survey indicates that women are less likely than men to sell during a market downturn. This more patient approach may be an important contributor to their achieving superior returns over time. By building more diversified portfolios and avoiding the siren call of the “big score,” women investors often exhibit a more disciplined, long-term strategy than their male counterparts.
Women trade less frequently. Another evidence of women investors’ tendency toward a more measured, long-term approach to their portfolio decisions may be seen in their tendency toward the same type of “buy and hold” strategy famously embraced by Warren Buffett (accounting for the title of the book mentioned earlier). Studies indicate that women retail investors trade up to 50 percent less frequently than men. This may indicate that even in soft markets, women’s more patient and disciplined trading behavior helps their portfolios better weather market downturns, as compared with men, whose more frequent trading often contributes to underperformance.
Women benefit by collaborating. Perhaps the most significant advantage possessed by women investors is illustrated by studies showing that women are more willing than men to seek out help and advice, including professional financial planning and wealth management services. Additionally, women are more likely than their male counterparts to rely on professional assistance for a broader range of financial advice than just with their investment portfolios. According to a February 2021 study from market research and consulting firm The Spectrem Group, 61 percent of women investors utilize the services of a professional financial or wealth advisor, as compared with 56 percent of men. This more collaborative approach may account for the more measured, disciplined strategies that typify many women’s investment and financial planning behaviors.
Women live longer. Because of their statistically longer lifespans and historically lower lifetime earning potential, women would certainly benefit from taking the long-range view. According to the latest available figures from the US Centers for Disease Control (CDC), women in the United States have a life expectancy at birth of 79.3 years, on average, compared with 73.5 years for men. This means, among other things, that they are faced with the challenge of funding typically longer retirements—along with the associated increased health- and long-term care expenses that accompany advanced age—with less in lifetime earnings. This double-bind means that women need to make the most of their investments, with a focus on managing the more difficult challenges they face.
At Quantum, our fiduciary commitment to the client’s best interests means that our recommendations, guidance, and advice are built around a thorough knowledge of each client’s needs, goals, resources, and priorities. To learn more about our approach to women’s investing needs, visit our website to read our article, “Should Financially Savvy Women Invest in the Stock Market Right Now?”
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