Are men and women from different planets when it comes to investing? If you read some of the research out there, you’d be forgiven for thinking so. Women tend to be more risk averse. Men are more confident. Men trade more often, while women are in it for the long haul. The comparisons go on and on.
Sweeping generalisations are always dangerous, so how about some hard data to back up these statements? Well, some very interesting facts about how men and women perceive investment can be found in the latest Isa investment statistics from HMRC. The figures released this week are telling.
Most concerning is the fact that cash Isas still remain the most popular choice across age groups and genders, accounting for just under 80 per cent of all Isa accounts opened.
But notable is the glaring gender divide when it comes to investing, with men far more willing to move up the risk spectrum and invest in a stocks and shares Isa compared with women, who prefer to leave their hard-earned savings languishing in cash.
Looking at the latest Isa subscription figures by gender, it is clear that women are diligent savers given their overall take up of Isas, which outpaces that of men. Drill deeper into the figures, however, and you’ll see that women hold far more in cash Isas compared to men, who are more inclined than their female counterparts to hold a stocks and shares Isa.
“Buy and hold” investors
Perhaps this tendency of women to prefer cash over stocks and shares is reflective of the findings of Terrance Odean, a professor at Berkeley’s Haas School of Business, known for his work on behavioural finance. Back in the 1990s, he found that men traded 45 per cent more than women, blaming this on male overconfidence.
Women, in contrast, tend to be “buy and hold” investors. We have long-term goals and are happy to stick to these, whether we’re saving for our child’s education or putting something away for a comfortable retirement. This is a good thing, because stopping and starting investments not only ratchets up costs, it also undermines the power of compounding – that snowball effect of earning returns on returns you’ve already made.
But here’s where women mess up: while we tend to be diligent and committed savers, we often steer clear of the stock market altogether.
Fidelity Personal Investing, the division of Fidelity International serving self-directed investors, conducted some research into this and found the biggest barrier between women and an investment in the stock market was not feeling confident about this type of investing (34 per cent) and believing we did not have enough knowledge to invest our money (31 per cent).
It could be a lack of confidence, or it could be the fact that women still earn less than men, making us naturally more hesitant of taking greater risk with our hard-earned savings.
Or it could be some sort of apparent innate female reluctance to give more than a passing thought to our own future financial security. After all, we tend to be far better at prioritising everyone else’s needs ahead of our own.
Either way, by choosing to keep our money in cash, we’re losing out over the long term. With interest rates at record lows for almost a decade now and inflation rapidly rising, anyone holding an investment in cash will struggle to achieve a decent real return.
Granted, the stock market is a more risky option than cash, but it is a well-established fact that, over the long term, equities tend to outperform. The Barclays Equity Gilt Study 2017, which contains data on UK equity, bond and cash returns from the end of 1899 to the end of last year, shows that the stock market has outperformed cash in 75 per cent of all the five-year periods since 1900, rising to 91 per cent of the 10-year periods. Over a period of 18 years, the chance of the stock market outpacing cash is 99 per cent.
As women we risk falling into a glaring “investment gap” by leaving our money in cash and steering clear of the stock market.
If it is true that women are fundamentally different creatures to men when it comes to investing, then our wiring should bode well for an investment in the stock market. That’s because a buy and hold strategy favours the stock market as those who remain invested typically benefit from the long-term uptrend in stocks.
Those who try to time the market, stop-and-start their investments or trade excessively, run the very real risk of denting future returns by missing the best recovery days in the stock market, alongside the most attractive buying opportunities that often become available during periods of pessimism.