Wednesday, January 20, 2016

Are Women Better Investors?

There have been several articles and studies in recent years that have come out saying that, on average, women earn higher returns than men when investing (see here, here, and here). The articles cite research that finds that women tend to focus more on the long-term and make less emotionally driven investment decisions, which in turn leads to higher long term investment returns. I've read enough of these types of articles that it almost feels like conventional wisdom, but I recently had an experience that helped me see this in action.

As you probably know, the markets have had a rough start to the year, with the S&P 500 down nearly 10% since the start of the year. If you haven't already had conversations about the stock market with people who don't generally talk about the market, I'm sure you'll have the chance after January brokerage statements are mailed out and people see how much their accounts have gone down in value. My wife found herself in one of these conversations recently where a man was commenting about how much money he had lost in the market so far this year. He monitors his accounts regularly and knew fairly precisely how much his accounts had gone down this month. Her response was basically, "huh, I guess we've lost money too. Not sure how much, but it's invested for the long term so it doesn't really matter, we'll just keep doing what we've been doing."

To some, this response may sound ignorance, but in reality, my wife had the perfect reaction! Investors who fret about short-term market gyrations are more likely to sell AFTER the market has already done down and then wait too long to buy back in. If you are truly invested for the long-term, short-term fluctuations are just noise and should be ignored. If anything, the most recent market decline represents a fantastic buying opportunity for anyone with more than a 5-10 year time frame.
Although I am a man, in our household, financial decisions are made jointly. I have proven to not react poorly to market gyrations and have never made THE BIG MISTAKE of selling out. However, if it is true that I am somehow wired differently and more apt react poorly, I'd like to think that the way we jointly manage our investments will allow us to let cooler heads prevail and benefit from some 'female outperformance'. I won't make a blanket statement and say that women are better investors, but I will say that in my experience the most successful investors are those who can stick to a well-developed plan through market cycles, regardless of their gender.

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