The financial world is still a man’s domain. While there’s no official data available, it’s estimated that around 12-15% of stock trading roles are occupied by women, and the evidence shows only 36% of financial advisors are female. But does this mean that men are really better investors than women?
Traditionally, women have not been involved in the professional world of finance nor with their own personal finances. As such, myths abound about women and money, often serving to keep women in the dark and disempowered when it comes to their finances.
This new series of blog posts is going to break those myths down, one by one, to help you see the truths and realize your financial potential.
Women and Wall Street
In your mind’s eye, picture a crowded stock market trading floor. Picture an investment banker. Picture a successful investor. I bet you’re looking at lots of extremely confident-looking men in suits, aren’t you? That’s what we’re accustomed to. Women and money aren’t closely associated.
But did you know – Wall Street is actually desperate to get more women in. It’s partly due to issues of representation, and the big corporations are wanting to show they’re making moves to diversify their workforce. But it’s also financially driven. It just makes good business sense. Wall Street CEOs have realized that having more women on their teams will save and also make plenty of money.
Why? Because women seem to be more level-headed when it comes to making financial decisions. As traders, they take fewer risks and make fewer mistakes while making fewer trades. When compared to men, they incur fewer costs, fewer fees and far fewer fines.
Doesn’t that sound like someone you’d want on your team? And how does that relate to personal finance?
Women and Money: A Harmonious Match
Traditionally, men have been in control of the family’s finances. They earned the money and controlled how it was spent. But that’s changing – in a recent study, 52% of women said that they control the household finances. And it makes perfect sense since women are perfectly capable and are likely to live longer than their male counterparts.
The difference between the psychological behavior of women and men when it comes to money, particularly as it relates to investing, may mean that women have the edge. Scholars at the University of California published a report called “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment.” This report concluded that the overconfidence typically associated with masculinity means that men actually underperform against women when investing.
Men often think their knowledge is better than it is, whereas women tend to make decisions that are better informed. Men make more trades, going after the big speculative investments and at higher risk. Thus, men spend more, and they lose more. They try and time the market, believing in their ability to make successful predictions. On the other hand, women make much more calculated decisions and often follow more disciplined investment strategies.
Take Geraldine Weiss, for example. She is one of the most successful investors ever to have lived and she gave financial advice that consistently outperformed the market average. She challenged the view that women and money don’t belong together. Weiss followed a strict investment strategy, one that said stocks must fulfil certain criteria before investing in them. This highly analytical and methodical approach set her apart as an investment professional.
More Women Should Invest
And more people should invest like women. Saying that women are more cautious with their money and are more risk averse is far from true, and continues to paint women as timid wallflowers. That’s just not the case. Female investors make extremely well-informed decisions. Women tend to not let emotions rule their processes, preferring to steadily achieve an end goal rather than lots of quick wins.
The data shows us that a buy-and-hold approach to investing (i.e. buying into the market and sticking with a strategy based on the long term) has a better long-term return potential. The alternative strategy of going in and out of the market more often than not leads to buying high and selling low. This approach is driven by overconfidence, pride and fear. And it’s been noticed that women manage to avoid this impulsive, emotion-driven behavior.
Unfortunately, there are young women today who still seem to feel that the financial world is something that they don’t have the ability to understand. It feels like a boys’ club, filled with complicated language and unfamiliar systems. But it’s really just a misconception. Investing is for everybody and more women should be investing. You don’t have to be super wealthy to begin investing and to make your own choices.
This isn’t just advice for single women either. Married women must be just as forward-thinking about their money as anyone else, and they need to feel empowered to make independent choices.
Take Control of Your Investments: What Next?
Our clients are women who came to us with concerns regarding their financial lives. They soon gain confidence in their investment strategy and as important, their overall ability to make smart choices with the use of their resources. To watch that transformation occur is one of the most rewarding aspects of my profession.
If you’d like to take the first steps towards being a more financially confident woman, then please do get in touch with us. We’ll be delighted to work closely with you and help you understand how to make your money work better for you.