Do Men and Women Invest Differently?

I have been long curious over the average gender differences that occurs with respect to personal finance.  Numerous studies and surveys by fund providers indicate that women tend to invest more conservatively than men, emphasizing safety over return.  Given the desire for long-term investments to outperform inflation, this leaves the women vulnerable to outliving their retirement savings due to low return rates.  Men, in contrast, seem to be more pro-active in trading their portfolios, leading to what a NYT article, based on surveys by Vanguard, called an overconfidence in predicting the markets.  This overconfidence meant that more men were likely to sell stocks at the bottom of a down market than women and to take high risks with investments.  Although any individual may be the exception to this general gender behavior, the dichotomy does point to interesting things that can be learned:

–In highly volatile markets, it is usually prudent not to act suddenly — if you tend to be a risk taker, or highly sensitive to market moves, it may be best to automate much of your investment decision and remove the temptation to sell low and buy high.   This also reduces your transaction costs.

–In highly volatile markets, it is easy to become too conservative – I am aware of several friends who have their entire retirement fund in money market accounts after the markets sharp fall in 2008. Unfortunately, this meant that they did not participate in the upturn of the markets in 2009 and 2010.

–Regardless of your investment style, look to balance out your behavior – if you are a risk taker, look to have a portion of your portfolio in safer investments; if you tend to be very conservative, branch out and have a portion of you portfolio that has a better probability of beating inflation.

–Regardless of your investment style, be sure to pay attention to other non risk-related factors:  for example, have you automated your savings and investment plans? do you need to increase your savings potential? Can you reduce investment management fees.  These steps will help to increase your savings pool independent of your risk appetite.

shared at this week’s Carnival of Personal Finance