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women and retirement

If there's one constant in almost every study about investing, it's that a real gender divide exists in financial behaviour. But when do women do it better, and when is it prudent to follow where men tread? A few strategies:

INVEST LIKE A MAN being more financially literate and more engaged

Here's a question put to both men and women in a U.S. poll, as documented in last November's Harvard Business Review: Suppose you owe $1,000 on your credit card and the interest rate you are charged is 20 per cent a year, compounded annually. If you didn't pay anything off, how many years would it take for the amount you owe to double?

a)two years

b)less than five years

c)five to 10 years

d)more than 10 years

e)do not know

f)prefer not to answer

The answer is b. Forty-six per cent of men got it right; only 26 per cent of women did.

For one of the two authors of the study, Annamaria Lusardi, it's a simple example of what study after study conducted by the Rand Financial Literacy Center, where she is director, shows. In general, women's financial literacy levels are lower than men's.

"When we started doing this research - it was back in 2005 - one of the things we found was a striking gender difference, but this was a sample of people 50 and older," says Prof. Lusardi, an economics professor at Dartmouth College in Hanover, N.H. "So we thought, it's only generational."

In a subsequent study aimed at young people from 23 to 28, Prof. Lusardi was surprised to find the results didn't vary much. "In this sample that included young women - they're very educated, very modern, very independent - [we found]the same striking gender difference."

Why the difference? Experts suggest it has a lot to do with how boys and girls are socialized. "In households, knowingly or unknowingly, we prepare males better …," says Tahira Hira, a professor at Iowa State University who co-authored a 2007 study on gender differences in investing.

"Men are slowly and gradually and regularly and continuously involved in financial decision-making. "

For women, the trajectory is different: They tend not to be involved in financial decisions in the same way until they begin to run a household. Even then, studies find that they are more involved in day-to-day finances - paying bills, doing the shopping, making up a budget - than investing for retirement. Women may even be the savers, but they're less likely than their spouses to be the investors.

"Research shows women find investing a little less exciting and satisfying than men do," says Patricia Lovett-Reid, a senior vice-president of TD Waterhouse. "And they have also found in studies that women find investing equals stressful, difficult and time-consuming."

INVEST LIKE A WOMAN ... by knowing your financial limitations

The 2001 study Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment, co-authored by Brad Barber of the University of California, Davis, is still widely quoted by personal-finance experts as the research that revealed a classic male investing behaviour: overconfidence.

"We knew from studying psychology studies that men were more prone to overconfidence than women," Prof. Barber says. "So with that, we had a pretty clean prediction about what would happen. If it's true that men are more overconfident than women, then we would expect them to trade more and do worse as a result. And that's exactly what we found."

The analysis of 35,000 households using data from a discount brokerage found men's overconfidence led them to trade stocks 45 per cent more often than women, which reduced men's net returns by 2.65 percentage points a year.

This spring, the U.S. mutual fund company Vanguard released a study with similar results: During the financial crisis of 2008 and 2009, men were more likely than women to sell their shares at their market lows. The study analyzed 2.7 million people who held IRAs - U.S. individual retirement accounts, which are similar to registered retirement savings plans.

"Definitely men still review their statements more regularly and make more frequent adjustments to their investment portfolios by either increasing the amounts allocated or altering the investment mix," Ms. Lovett-Reid says.

Doing so leads to higher trading costs and capital gains and lower returns, she says. Not to mention veering from a strategic long-term investment plan, all because of a quick, short-term reaction.

"Boring is beautiful and what women have going for them, they do the slow and steady approach," Ms. Lovett-Reid says.

INVEST LIKE A MAN ... by taking more risks

It may be true that men tend to be overconfident and trade more frequently, but there are benefits to their more risky behaviour. Men's portfolios tend to have a greater exposure to equities, which have generated higher returns over the years.

A poll released last month by BMO Nesbitt Burns and conducted by Leger Marketing found that after the recent downturn, men are still more likely than women to invest in equities (25 per cent compared with 13 per cent) and are more optimistic about the future of the stock market than women (69 per cent compared with 55 per cent).

Prof. Barber says that his study also found that men take more investing risks in almost every way. "Men tend to have in their retirement portfolios bigger allocations to stocks," he says.

But it was more than that: Men were more willing to invest in riskier stocks - small-capitalization stocks as opposed to blue chips, for example.

"The big question is why," he says. "We don't really have a good sense for why men are overconfident, we don't really have a good sense for why men are more are willing to tolerate risk - are these hard-wired tendencies? Are they a cultural phenomenon? I think those are open questions."

One possible answer: testosterone. A recent British study found that high levels of testosterone helped British day traders make bigger profits. Last year, a study by researchers at the University of Chicago and Northwestern University found that women with high levels of testosterone took greater risks.

Even in financial matters, it seems, the debate is about nurture versus nature.

With a report from Dianne Nice

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