When you think of Wall Street, the London Stock Exchange or any other banking environment, women aren’t often involved. While you may imagine the odd woman sitting at a desk, doing the diary management, the men make the investment decisions and place trades. Even in a day and age where we have a female vice president in the White House, it seems that men disproportionately populate the world of investing. But why is that? And should that be the case?
Here, we explore why women are less likely to invest in the first place. Then, we move on to why that should not be the case, given all the reasons that seem to make women consistently better investors. In fact, bearing the gender wealth gap in mind, it would be hugely beneficial if women did invest more. On average, women have £7,000 less each year when drawing their pension compared to men. As pension pots can grow due to astute investment decisions, getting more women into investing would help close that gap.
Why are women less likely to invest?
There are some hugely influential systemic and societal reasons why women are less likely to invest than men. They are:
They earn less
Most people will be well aware that women earn less than men. There are several reasons for this. Firstly, women tend to work in lower-paid industries, thus capping their earnings potential from the outset. Secondly, women have career breaks to start families. Doing so means they earn less, or nothing at all, while raising children. Having a break to start a family also keeps them on the same earnings potential for many years. Men, conversely, do not have a break and continue up their career ladder, increasing their salary. Lastly, gender bias is still a thing, even in the 21st Century. In the same role, women will earn less than their male counterparts .
Less spare cash
The knock-on effect of earning less is quite simple: women have less spare cash. Their wealth is that much lower, and thus they do not have the funds required to lock away in investments as men may do. The compounding effect of this is important to recognise. While women have less spare cash in the present to invest, they will then have far less than men in retirement as a consequence. Not being able to grow their money makes it difficult to reduce the wealth gap between the sexes.
Historically male world
The investment industry has historically been seen as a male-orientated place. Consequently, this can be hugely off-putting to women. Having been brought up in a world where it is unusual for women to invest, other women are far less likely to get involved themselves. In fact, at its worst, it could be argued they are even indoctrinated to this fact.
Why women make better investors
In a Hargreaves Lansdown study, women have been shown to be better investors than men - giving yet more support to the notion that women should invest more. Such findings in other studies also give further credit to these results. However, some may argue that these studies have a natural skew. As more men invest, there is more scope for inexperienced or incompetent investors to be included. Any male outperformance thus has a natural drag. In comparison, the women included only tended to invest when they had the best investment and analytical skills. Despite this skew, several factors suggest why women are historically better investors than men.
Perhaps the most commonly asserted reason women make better investors than men is that they are more risk-averse. Women, on average, do prefer cash savings over stocks and shares. Cash ISAs are often preferred by women in comparison to Stocks and Shares ISAs. But how does that make them a better investor? The fact is that women will be far more likely to do their due diligence on an investment decision. Then, if it is too risky, they are happy to walk away from it. Men, however, are far more comfortable making risky investment decisions. A Warwick Business School study showed that women preferred to invest their money in funds that had a stable track record in the face of specific stock picking.
Less concerned with chasing performance
It can be easy to get locked into stereotypes when discussing genders and investing. However, it has been seen that one of the reasons women are better investors than men is because they are less competitive. Men, in comparison, chase outperformance. Such behaviour leads them to make more rash investment decisions with a more significant propensity to make bigger losses. Additionally, men have been shown to trade more than women. Those trades come with subsequent transaction costs, which slowly eat away at returns.
Women's ability to hold off buying and selling also seems to help them be historically better investors. In times of high market volatility, this can be incredibly beneficial. As mentioned earlier, women trade less than men, showing they are less likely to react to fluctuations in the market. Instead, they are happy to ride out any volatility and have confidence in their investments growing over time. Stock markets have, on average, grown by just under 10% each year since the early 1900s . As a result, it would appear that not making rash decisions is a smart strategy.
Investing as a woman - key takeaways
Looking at why women make better investors is all very well and good. However, the fact of the matter remains that they are poorly represented in the investment community. It is a huge shame as investing is such a good wealth generator. As a result, it can make substantial differences to a person when it comes to retirement. Increasing their pension pot value is critical for women, given that they are more likely to live longer than men, too. Plus, ultimately, with more spare cash comes more choices. Women need to look at investing as a world that can provide them with an income to support the future lifestyle to which they aspire.