Vive la différence
Humans don’t tend to make good investors. We’re prone to panic and irrational decision making. So, anything that increases the odds in our favour should be grabbed. Know thyself therefore becomes a key investment skill.
Which led me to wonder, inspired by a work colleague, what might be the differences between men and woman as investors? It’s not a topic I had researched. But I have observed over time that the male is often the more aggressive investor. They are return-seeking and less concerned with risk.
That can be a negative. Many of these male investors were very good at chasing opportunities but less successful at earning returns. We should expect to be rewarded for taking more risk. But if those risks are not well thought through or managed then our outcomes are at risk. A slow and steady, more conservative approach can have merit.
Recognising the entrepreneurial spirit inherent in many of these investors (or perhaps that they are simply men) my job became to encourage them to build a solid foundation to support their risk-taking activities. If their risk taking paid off, then great. They would have a very comfortable retirement. If it didn’t – at least they had the foundation to fall back on.
So, anecdotally, I was seeing differences. But what does the rest of the world have to say?
The evidence seems fairly conclusive. Studies show that women tend to have lower financial risk tolerance than men and make smarter, more calculated decisions about their investments. Women tend to be less competitive than men, who are more likely to continue investing even when the odds grow against success. Men tend to measure themselves against the market itself. Women, in contrast, tend to see their investing as a means to an end -- a way of accumulating enough money to buy a house or retire early, as examples.
One review looked at behaviour on two days when US share markets suffered material losses in February 2018. It seems that women acted more sensibly in reacting to these days.
Did the male users panic? I can’t know for sure but on one platform they were 87% more likely than women to sell an investment after the market falls. And that behaviour continued into the following week, with males still being 76% more likely to sell. In doing so they effectively locked in their losses. The market, not unexpectedly, went on to recover.
So, like many areas of life, investment can be an area of difference between the sexes. And while I have many clients where male and female think very similarly, it is those couples where there are wide differences in approach that require a sensible discussion on their goals and how best to achieve them.
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Stephen McFarlane is an adviser with NZ Funds Private Wealth in Timaru. The opinions expressed in this column are his own. A copy of Stephen’s Disclosure Statements are available on request, free of charge.
First published in the Timaru Courier on 11 April 2019, as 'Differences in way men and women invest.'
