When you discuss women and investing, you may hear many myths relating to women’s skill and style. We’ve heard a host of them here at LWP, where all of our shareholders and about half of our clients are women.
Let’s explore the research that debunks three big myths — and learn why we think women shouldn’t be dissuaded from investing.
Myth 1: Women are less likely to invest
While it’s true that a greater percentage of men invest in equities than women, the gap is closing. And we argue the gap is due more to opportunity than to inclination.
Historically in the U.S., about 60% of men invested in stocks, compared with 40% of women, according to CFA Institute. That gap has narrowed — with 60% of men and 53% of women owning stock in 2021, according to a Gallup Poll.
As of January 2021, 68% of men and 56% of women were in the labor force. Therefore, there are fewer working women than working men, leading to fewer women investing.
A 2019 Vanguard study found that women and men have similar participation rates in workplace retirement accounts. A Fidelity Investments analysis of 8 million accounts found that women saved 9% of their paychecks for retirement, while men saved 8.6%.
The Vanguard study found that when controlling for income, women have higher account balances. Even so, it continues to be a challenging reality that women have lower median full-time earnings than men, which leads to less disposable income to invest for women than for men.
Despite income and employment gaps holding steady over the past 15 years, the CFA Institute predicts the investment gap will close. They attribute this to the rise in ESG Investing, which appeals to women investors, more accessible investing technology and an increase in women as wealth managers.
Myth 2: Women are bad investors
When asked in a recent survey which gender was better at investing its money, only 9 percent said women. But multiple studies have shown otherwise. For example, women’s portfolios in the Fidelity analysis had a 0.4% higher annual rate of return than men’s portfolios.
A University of Warwick study that also showed better returns by women attributed the performance to a slow and steady, long-term investment in funds, rather than a more volatile strategy based on individual stocks. Fidelity notes women invest more in vehicles like target-date funds, whose automatic allocations make for increased diversification.
Myth 3: Women are risk-adverse
As noted above, women do tend to take on less investment risk. But does that mean they’re risk-averse? We have observed that women are more likely to take on appropriate levels of risk, while some men may take on too much.
Similarly, women tend to rate themselves as less confident in their financial abilities. In the world of investing, it’s better to be less confident than over-confident. Confidence that outpaces skill can lead people to neglect important research and take on too much risk.
We have seen that women are more likely to research their options, ask for advice and have professionally managed allocations — all of which can lead to better returns.
Our take: Everyone can and should invest
As wage and employment gaps slowly close, this brings more financial equality between men and women, which gives women equal opportunity to invest. There is more education today than ever to help both women and men learn about smart investing strategies. More financial education brings more comfort with investments. Technology brings greater access to investment platforms.
We think people of any and all backgrounds can be successful investors. They just need to put in the work — to learn about the markets, diligently contribute and routinely balance their investments. At Laurel Wealth Planning, we delight in providing our clients with a solid plan, financial education and an investment strategy aligned with their goals and objectives.
Anne is a Senior Wealth Manager and Shareholder. She is passionate about simplifying complex issues and is a huge advocate for clients as they work through personal money questions and work toward financial life goals.