Seemingly endless amounts of ink have been spilled on the differences between men and women. That holds true with investing, too.
Among the recent studies is a survey of millennials in the United States by PNC Investments that found women tend to choose more conservative strategies, where men generally favour more risky options.
This is hardly groundbreaking; plenty of studies have shown similar results. What is illuminating, however, is the survey indicates upbringing plays a big role.
For example, the PNC poll found the parents of young women were more likely to urge them to save. But young men were more likely to be educated on wealth building – in other words, investing.
The findings are largely consistent with other studies.
But the notion that women are more risk-averse is not without controversy, says behavioural finance expert Brad Barber, professor of finance at the Graduate School of Management at the University of California, Davis.
“There have been studies indicating the difference is less about gender and more based on certain attributes like financial literacy and economic backgrounds,” he says.
One challenging aspect of research showing that women are more risk-averse is it tends to offer limited insight into why this may be the case, Dr. Barber says. Some work suggests that it could be a result of women traditionally playing a bigger role in raising children and, therefore they must act more cautiously to project offspring.
Wealth manager Susan Latremoille says the findings are not surprising based on her experience with clients at her Toronto practice.
“I think generally women are more interested in security. And traditionally, our role has been as stabilizers in a household,” says the director of wealth management with the Latremoille Begg Group, with Richardson GMP.
Or as Ms. Latremoille further posits, the difference reflects socialization and lingering inequality regarding men’s and women’s roles. Finance has traditionally been a macho domain. Think The Wolf of Wall Street and other depictions.
“When I started back in the ’80s, for example, I was among the few women in the industry,” Ms. Latremoille says.
Even today, women are underrepresented in the industry, Dr. Barber says; they make up less than 10 per cent of fund managers in the United States. “That’s actually a decrease from 13 per cent in 2000.”
Additionally, men in a two-person household still often take the lead on financial decisions.
Chi Liao, University of Manitoba professor of finance at the Asper School of Business, cites research indicating women generally have lower financial literacy and, consequently, cede investment decisions to their male partner, which may explain risk-averse behaviour.
“Yet even when we look at single men and single women, women tend to be more risk-averse and less financially literate,” she says, adding this applies less so to young women.
Ms. Latremoille says social norms are shifting, so women are becoming more financially literate “as they increasingly have good incomes and acquire significant assets” on their own. As a result, they understand better the value of risk – increased exposure to stock-based investments – to achieve long-term goals.
What’s more, Ms. Latremoille argues that while women may be more risk averse, they often seek more advice and engage more in financial planning. This may explain why they save more, she says, noting a 2017 survey by Fidelity Investments (women saved 9 per cent compared with 8.6 per cent annually for men).
Women’s portfolio performance is also slightly better, the study states – 0.4 per cent better as an annual rate of return.
Why is this?
Women might hold more conservative investments, Ms. Latremoille says, that are less prone to volatility. “What you might be able to extrapolate is they’re not panicking and selling when the market goes down.”
Indeed, some research supports this notion, Dr. Liao says, pointing to a 2009 study that found while women are generally more risk-averse than men, they may be less so depending on how risks are framed.
“Men tend to be more risk-tolerant toward gains, but women are more risk-tolerant toward losses,” she says. Men thus may be more likely to embrace risk in a bull market while women could be more likely to endure a bear market.
Craig Basinger, chief investment officer with Richardson GMP, helps manage an investment fund rooted in behavioural finance. He says these findings speak to men being prone to overconfidence and social comparison biases. “Because of overconfidence and the desire to sound like they’re good at investing, men tend to chase performance a lot more.”
By comparison, women – given their risk aversion – may be less likely to invest in a popular and potentially overpriced investment. “That probably makes them better long-term investors,” he says.
Research has also shown that women trade less than men, Dr. Barber says, "which is consistent with men being more likely to be overconfident, and women tending to perform better as a result.”
Of course, research tends to paint behaviour with broad strokes, even though many men are conservative investors and plenty of women are comfortable with riskier strategies, Ms. Latremoille notes. “It really comes down to each person’s own situation and preferences.”