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Gemma Dale
+ About Gemma Dale
Gemma Dale, Director, SMSF and Investor Behaviour, Self Directed Wealth at National Australia Bank Limited

How women invest and what that means for their portfolio

Thursday, March 08, 2018

The field of behavioural finance has helped dispel the myth of the ‘rational man’ pre-supposed by most economic models, and helped us to understand the many foibles that thwart and enhance our investing behaviour. Recently, this field has started to look at gender, and how men and women differ in their approaches to money.

Largely as a result of lower average wages, career breaks to have children, a higher propensity to undertake (lower paid) part time work and longer life expectancies, women sadly have poorer economic outcomes than men in general. On a much brighter note, international and domestic research shows that what women do with the income and assets they accrue is frequently both wise and more than competitive with the investing behaviour shown by their male counterparts. Younger women are also participating more actively in investment markets than their forebears and clearly choosing to take responsibility for their own wealth creation, which is likely to reduce the gap between male and female financial outcomes over time.

Through an analysis of the nabtrade investor base, women tend to start both investing and trading later than their male peers, represented by fewer Generation Z women who are actively invested in the market. Over a third of new female nabtrade customers in the year to the end of February 2018 were over the age of 50. Generation Y and X women, however, have equal assets invested to their male peers, and tend to show more patience and higher conviction with their investment strategies, trading less frequently but in higher values. Overall, nabtrade’s female investors turned over their holdings 6% less than men in 2017, and their portfolios have grown more strongly over the last three years than those of their male counterparts. These findings are consistent with global research that points to better portfolio returns for women as a result of their different behaviours.

Despite the challenges of generally earning less and therefore having less to invest, international research supports these findings and gives some clues as to why women manage to achieve measurable investment success. Women have been found to be more risk averse than men and save a great proportion of their income as a result – adjusted for income, 0.4% more of their salary on an average basis (1). When they invest, they are more likely to commit to and retain longer term winners, and divest poor performing assets with less compunction; research published in the Quarterly Journal of Economics (2) showed that male investors traded nearly 50% more frequently than female investors, increasing their costs and lowering their returns. In their findings, both men and women tended to trade out of winners and into losing stocks, however women made this mistake with significantly less frequency. Investment management behemoth Vanguard published similar findings nearly a decade later (3), showing that male investors were ‘much more’ likely to sell their portfolios at the very lows of the Global Financial Crisis, realising large investment losses.

This data doesn’t change the financial realities for women facing lower superannuation balances at retirement, or earning lower salaries despite the Equal Pay legislation enacted in the 1970s. What it should do, however, is give women, young and old, the confidence to begin or continue their investment journey. The opportunities that exist for all investors, male and female, young and old, are significantly greater than at any time in history, thanks to lower costs, better personal data and fantastic education and insights that were previously unavailable to the average person. Women who wish to take responsibility for their financial future have every reason to believe their experience will be a positive one.