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More than 2,000 years ago, the Chinese Confucian philosopher Mencius said friends are the siblings God never gave us. Those sage words ring ever truer in retirement when the opportunities to find friendship are more limited.
Women investing better than men as gap between the sexes narrows
Gender inequality is rife in the investment economy, but women’s participation in investment markets is increasing worldwide. While the pace of change is incredibly slow, and innumerable barriers remain in place, women are not only investing more but they’ve proven to be consistently better at it than men.
Development towards broader gender parity is “tepid”, says the World Economic Forum (WEF) managing director Saadia Zahidi, and not always linear. The broader gender gap only recovered to its 2020 level last year and has risen by just 4.1 per cent since 2006, according to the WEF’s 2024 Gender Gap report.
Full gender parity will be reached in another 131 years at the current rate, the report adds.
On the investment side, however, women are becoming a “major force”, according to the DWS Research Institute’s recent How Asset Managers Can Support Female Investment Trends report. At the top end of the income scale, the percentage of women millionaires and billionaires worldwide hit “record levels”, while digital financial services are increasing access on a global level.
But it’s the way women invest, and their decision-making nous, that not only sets them apart but has the potential to contribute towards greater societal benefit, according to research.
A 2021 study by Fidelity found investments by American women outperformed men by 40 basis points, while a WEF 2023 report put the figure at 1.8 percentage points annually.
“Women not only have the potential to invest more, but their investments tend to generate higher returns compared with men,” DWS states. “Women are also more likely to invest with social and environmental factors in mind.”
Female outperformance
While the reasons for this outperformance are varied according to researchers and academics, the proclivity of women to have lower average risk profiles is universally attributed as a primary factor. Women trade less frequently than men, DWS says, tend to stay invested during market downturns, and follow the advice of their financial advisers more closely.
What’s behind the risk tolerance delta is a matter of conjecture. “Some say that in primitive societies men were forced to fight to gain status and to compete for positions of power, while women were more likely to be caregivers,” DWS says. “Another explanation suggests that men tend to have more sensation-seeking personalities, where risk is part of their enjoyment.”
According to UNSW associate professor Benjamin Loos (pictured), it’s inherent cockiness that makes men poorer investors. “Men often exhibit greater overconfidence than women, leading them to trade more frequently (45 per cent more) and, as a result, achieve poorer performance (about one per cent lower) after accounting for transaction costs,” Loos said in Computershare’s 2024 ETF Insights report.
Alternative research suggests the drivers are more “nuanced”, DWS says, with men and women inherently thinking about risk with different mindsets stemming from broader economic disparity.
“Income uncertainty had a negative effect on having risk tolerance among women, but a positive effect on men’s likelihood of having risk tolerance. It is possible that the types of income uncertainty experienced by men and women differ. Further, higher net worth was positively associated with men having high risk tolerance.”
Providers on board
Product providers are well aware that women are increasingly participating in financial investment, and keen to both support and take advantage of the market that represents.
Consultancy Oliver Wyman says there’s a $US700 billion ($AU1,130 billion) revenue opportunity for financial services firms in tailoring products for women. For financial advisers, it’s estimated there’s a global US$25 billion ($AU40 billion) bucket of new wealth management fees that could be picked up.
Perhaps the investment product set with the most potential to benefit from increasing female participation is the ETF market. Computershare says the Australian ETF industry, now worth AU$225 billion, is disproportionately under-represented by women.
“Our survey revealed a significant disparity in ETF investors, with 78 per cent of ETF investors being male and only 19 per cent female,” the Computershare report states. “In contrast, 66 per cent of non-ETF investors are male and 31 per cent female. This indicates a substantial opportunity to increase female participation in ETF investments.”
Product targeting and education may increase female participation in investment, DWS says, but improving access to quality education and advice is more important.
“It is reasonable to design investment products that are focused on women, but even more women would benefit from a personalised approach that is tailored to their financial objectives and personal goals, such as funding their retirement or care responsibilities,” the DWS report states.
“One obvious area of change is the low level of female financial advisers since more than two thirds of women prefer to speak to a female financial adviser. In many countries, including the US, Germany and the UK, no more than 20 per cent of financial advisers are women.”
