Practical analysis for investment professionals
24 April 2017

Point of No Return: Two Factors Shaping Women and Investing

How can we frame the idea of women and success in the context of broader finance?

In an interview I conducted with John Hagel, co-chairman of Deloitte’s Center for the Edge, he asserted that all successful movements in history are driven by narratives: arbitrary, open-ended conversations that are yet to be resolved. Narratives provide the opportunity for society to engage in discussion, form concepts, create new spaces, and take action.

The global narrative about women and money is changing significantly and for the better. Two major factors have helped to shape this:

1. The social context has shifted. Negative stereotypes about women’s financial confidence and risk tolerance are not dead and gone, but they are losing credibility.

Jane Bryant Quinn used a subheading that made me laugh in “What Investing Women Want“: “We Want Respect and Stock-Market Advice — So How Come We Get Treated Like Beanie Babies in Portfolioland?”

The article’s opening paragraph reminded me why I began my research: “Friends, I’ve had it,” Quinn rants. “Don’t send me one more book about feminine ‘fear of finance,’ no more stories on ‘what women need to know about mutual funds’ (is it any different from what people need to know?).”

She refers to a 1998 Deloitte & Touche study showing that women earning more than $100,000 found that they enjoyed investing and, in general, that their investment behaviors and attitudes weren’t any different from those of men.

“But what about all of those surveys showing women to be ‘less confident’ about their financial choices than men?” Quinn asks. “First, some of these ‘confident’ guys are bluffing (or kidding themselves). Second, none of the surveys control for investing’s most essential ingredient: experience.”

Confidence is a fraught word.

In “The Problem with Confidence,” David Brooks explains:

“If you want to talk about something real, it’s probably a mistake to use a suspect concept like self-confidence, which is self-oriented. It’s probably a better idea to think about competence, which is task-oriented. If asked, ‘Am I competent?’ at least you are measuring yourself according to the standards of a specific domain.”

What about financial confidence?

“Confidence is a matter of context, not character,” Quinn states, “and women on average are less exposed to investing than men. We hear less table talk and get less practice.” Fortunately, this is changing.

Kristi Ross, co-CEO of the online trading platform tastytrade, agrees about the importance of practice:

“Trading evokes skills that are important; particularly assessing risk and quick decision making. We teach repetition and staying small, which builds confidence without betting all you have on one trade. This experience builds confidence in women . . . it helps develop life skills and gives you practice. The women who watch tastytrade are no different from the men when it comes to the stocks or options that they trade. Online trading knows no gender.”

Actions speak louder than words.

Ask a woman, “Are you financially confident?”

When I pose that question, the usual answer is, “Not really. I should know a lot more than I do and I should be doing more about my finances” — even from those with backgrounds in math or economics running multi-billion-dollar businesses.

I have stopped asking. The answers are meaningless. When it comes to women and financial aptitude, actions speak louder than words. Watch behavior and measure the results.

Risk tolerance varies, but not because of gender.

In 2013, I determined that “women are risk aware, not risk averse.” I turned the phrase into a PowerPoint slide, and it has remained a staple of my presentations ever since, with many women taking pictures of the screen and tweeting out the message. And word continues to spread, with other speakers on women and finance using the phrase. But this is about much more than just a tagline.

One of the best pieces I have read on risk tolerance is “The Risky Rhetoric of Female Risk Aversion,” by Sarah Kaplan and Natassia Walley.

They quote the conclusion of a meta-analysis done by Julie Nelson, of the University of Massachusetts, Boston: “’Women are not more risk averse, or only marginally so, and only in certain contexts [emphasis mine].’”  According to Nelson, “there are more differences within men, or within women, than across genders.”

Kaplan and Walley write:

“If risk aversion is not intrinsic to being female, why might we still observe behaviors by women that appear to be risk averse? Nelson then suggests that other factors that tend to be associated with the different genders, such as pressures to conform to gender expectations or status in a particular social context, may actually explain the differences.”

Nelson’s study, in turn, cites a 2013 report, “Unlocking the Potential: Women and Mobile Financial Services in Emerging Markets.” According to Kaplan and Walley, that report asserts that:

“Bank sales agents should be equipped to ‘reduce potential customers’ anxiety and overcome women’s risk aversion to try new tools.’ And if MFS [mobile financial service] providers invest in these opportunities for women, the data suggests that many potential male customers’ fears also may be addressed.”

Kaplan and Walley found that:

“The implication is that men are potentially as risk averse as women, but people find it difficult to attribute such a characteristic to them. One insight is that if we think about changing the contexts that might contribute to risk-averse reactions [emphasis mine] rather than focusing on how individual women can change themselves, the benefits will accrue to everyone.”

What happens when we change the context?

Not long ago, there were just a few lonely voices attempting to set the record straight on women, confidence, and risk tolerance. By 2017, smart women have figured out how to change the conversation and embrace the business opportunity.

Sallie Krawcheck, co-founder of Ellevest, a digital investing platform for women, says, “Investing in women is simply smart business.” Her latest win? The Oprah Magazine published an Ellevest writeup, showing that the topic of women and money has entered the mainstream.

Thanks in part to the internet, motivated women are collectively rejecting the old ways of thinking.

2. New female-friendly concepts and investing spaces have emerged. 

Women are motivated to invest in causes and concerns that matter to them. They have platforms and communities where they can communicate openly, benefit from other people’s knowledge, share information, and get inspired.

Farhad Manjoo makes a compelling point in “How the Internet Is Saving Culture, Not Killing It“:

“In just about every cultural medium, whether movies or music or books or the visual arts, digital technology is letting in new voices, creating new formats for exploration, and allowing fans and other creators to participate in a glorious remixing of the work. This isn’t new; from blogs to podcasts to YouTube, the last 20 years have been marked by a succession of formats that have led to ever-lower barriers for new and off-the-wall creators.”

He doesn’t mention finance, but “creators” can include creators of wealth. Finance has its own culture — one that is changing — and women and millennials are the new faces of it.

Investing (or trading) is driven not only by purely fundamental motives but also by behavioral motives such as socialization.

A shift in socialization — it used to be only men who talked about stocks.

Back in 1983, my investment-savvy boyfriend came to my house for dinner. After the meal, my father sat back in his chair, put his hands behind his head, and asked him, “Where are interest rates headed?” I was in my third year of studying finance. Why did neither man include me in the conversation, and why didn’t I speak up? The answer is that this wasn’t something women were expected to discuss.

If women weren’t part of the conversation about finance, they could hardly shine in the field. As Florian Willet said in The Social Swan: where Kahneman, Taleb and Darwin meet Marx:

“A man living under communism can never demonstrate that he has an exceptional talent for business and might have become a billionaire had he lived in a capitalist society.”

Due in part to our shifting culture, women are now poised to build more wealth and are redefining and recreating the world of finance and financial behavior.

Smart women are taking action. And if all your friends are doing it, why not you?

The rise of the new investor class of women has resulted largely from the influence of social behavior on investing. Younger women know that investing is important. They are interested in it, they are encouraging each other, and they are boldly sharing their successes.

And in social forums, women now talk about their reasons for wanting to buy and sell stocks. They debate the pros and cons explicitly.

Sandra Lindqvist is the ambassador for Sweden’s FemInvest, a social forum with over 10,000 female investors. There are many Facebook groups for women who want to get started investing, but FemInvest’s consists of members who have made their first investments and want to continue to evolve as investors. FemInvest’s success is about socialization and shifting cultural norms.

As Lindqvist told me:

“Women like to talk about things that matter to them and share. Our Facebook group is only women and no questions are too stupid. It is an open environment. When you start to invest you learn something new and get practical experience. Then after a while, you become more curious. You gain a little confidence trading and then you suddenly realize ‘It’s just the stock market . . . it’s not super dangerous!’”

The world is now one giant investment club thanks to all the new apps and platforms available to investors. Digital investing has opened up the floodgates, and we are on the cusp of a global social movement for women investors. This will have major implications for both the makeup and activity of the stock market.

As Willet points out, “A new invention can be considered innovative if it causes a large selection pressure that brings about long-lasting change in the world. Skills are successful when they are rewarded with socio-economic success.”

History is being made. The conscious destruction of negative stereotypes has changed the social context for women and finance and we are past the point of no return.

The narrative around women and money is now one of success.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/kmlmtz66

About the Author(s)
Barbara Stewart, CFA

Barbara Stewart is a chartered financial analyst (CFA) with 30 years of investment industry experience; five years as a foreign currency trader, more than two decades as a portfolio manager for high net worth entrepreneurs, and during the past six years, as an interview-driven researcher for multiple global financial institutions. She is a keynote speaker for CFA societies, banks, stock exchanges, and industry conferences globally, and she is a columnist for CFA Institute, Canadian Family Offices, and Canadian Money Saver. She is on the Advisory Board for Kensington Capital Partners and also is the Ambassador for the Kensington Women’s Forum. Fourteen years ago, Stewart saw a need to challenge outdated financial industry stereotypes and share positive messages about women and money. Today, she is recognized worldwide as one of the leading researchers in women and finance. Rich Thinking® global research papers quote smart women and men of all ages, professions, and countries, and are released annually on International Women’s Day, 8 March. To find out more about her research, visit Barbara Stewart.

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