Practical analysis for investment professionals
24 May 2021

Women and Investing: Five Myths

Last month, I had the privilege of participating in a lively podcast discussion with two fellow women in investing, Jane Barratt, who serves as chief advocacy officer of the fintech MX, and Meredith Jones, author of Women of The Street: Why Female Money Managers Generate Higher Returns.

Our conversation, hosted by YieldStreet on 21 April, explores some of the major misconceptions about women and investing.

What follows are excerpts from our discussion, reprinted with YieldStreet’s permission.

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Myth 1: Women Are Not Confident as Investors

Barbara Stewart, CFA: Education should obviously be a major determinant of confidence, but I have observed that even some of the most financially educated and capable female professionals will put themselves down when describing their own skills. You can ask any woman — and it doesn’t matter how many degrees she has or how many billion dollar deals she’s worked on — “Are you confident with your finances?” And most of the time, she will say something along the lines of “I should be doing more” or “I should learn more.”

Women tend to be self deprecating, and this is an issue that I think every one of us has to work on if we’re going to change the global conversation around women and investing.

But when it comes down to it, is self-expressed confidence even relevant? I would argue no! Yet most financial surveys continue to focus on this archaic question and continue to get the same answer, obviously.

What is more relevant is competence and women are incredibly competent investors and we have lots of data on that, which is actually what matters.

Jane Barratt: I think it’s very similar to imposter syndrome. Maybe what we’re comparing ourselves to isn’t right. Maybe it’s not that women are underconfident, maybe men are overconfident.

I think how women show up in the world in terms of being confident is very measured, and that’s not a bad thing, but we need to recognize it’s more measured. Australians have a thing called “tall poppy syndrome”: If you stick your head up too high, the head of the poppy gets cut off. That is very true for women in business: Most women in social surroundings won’t pop up and say, “I’m a rockin’ investor,” like most bros would.

So I think this is a myth that can be thrown out for good but also countered with the idea that maybe the benchmark is wrong. Maybe the overconfidence of the other gender in the investing world is actually the problem more so than women’s lack of confidence.

Meredith Jones: No column or book about gender and investing is ever complete without citing Brad M. Barber and Terrance Odean’s ubiquitous study, “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.

They looked at male and female investing behavior in 35,000 brokerage accounts and found that the women in their sample actually outperformed. The reason they outperformed was because the men in the sample were all overconfident and overconfidence when you’re investing leads you to believe that every decision you make is a good one, whether it’s to buy in that moment, or to sell in that moment.

As a result of that overconfidence, men’s returns were eroded due to overtrading. If every year you think all your ideas are good, you’re going to tend to trade more often, so overconfidence is actually a negative. The real measure of success is being appropriately attuned to your real level of knowledge and skillset and not thinking that you know more than the market does 100% of the time.

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Myth 2: Women Are Risk Averse

Stewart: Women aren’t risk averse — they are risk aware! That’s the best phrase I’ve ever coined! I think that rephrasing is very important for a couple of different reasons: First, “risk averse” is a very demeaning term, and second, being “risk aware” is an incredibly positive skill.

A key issue in our industry that stems from the risk myth is that women are often advised by the more traditional advisers to stay in short-term bonds and cash equivalents to avoid risk. That is just a tragedy because this bad advice has serious repercussions for women over their lifetime.

What I have found through my research is that as long as a woman is interested and an opportunity is aligned with her values, she will be motivated to take a risk. She might take more time to make an investment decision, but this is because most women are meticulous about doing their homework. Once they have delved into the details to their satisfaction, they will take calculated risks and invest.

I did a global quantitative study in 2019 to test out the numbers on this and I gave women a broader selection of choices: Are you a risk seeker, are you a risk taker, are you risk aware, or are you risk averse? Fewer than 10% of the women said they were risk averse. So that means 90% were either risk aware, risk seekers, or risk takers!

Jones: A lot of the research shows that there is a difference between how men and women weight probabilities. There was one really interesting study that I cited in my book where they asked women and men to estimate what they thought they would pay for a new car they were going to go and buy, and then they sent them all out to buy that new car.

Overall, the prices they paid were pretty similar, but the deals that the men in the sample thought they were going to get were much more substantial than the deals that the women thought they were going to get. This is also something that can play a really important role in trading hygiene: If you have outsized expectations, it’s going to cause you to take more risk. On the other hand, matching expectations with reality can result in a more muted risk profile, but it also can deliver very consistent returns over time.

Barratt: I think there is an inherent flaw with KYC (know your client) when a person comes on as an investor, especially as a relatively inexperienced investor. When did they get the chance to build their risk awareness or their risk tolerance? I always talk about them as risk muscles and the more that you use them and the better you feel, the better developed the muscles will be.

I think there’s been a tendency for the industry to put you in a box as an investor, and this is where you stay because that’s your risk tolerance. But wait — I might be a 28-year-old novice investor and have no context! And what are the implications for someone like this? Because I was in the “low risk” box, I didn’t get the chance to have my teeny tiny first investment skyrocket over my lifetime.

I think changing the conversation — from talking about risk as a static thing to risk as a muscle that can be developed over time — this is really important.

Jones: Yeah, I used to get furious when I would go and see a financial adviser and they would recommend an annuity when I was 25 years old. I went through at least six first meetings with financial advisers where I either did not hire them or fired them for that alone — for just assuming that that’s what I would want!

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Myth 3: Women Are Not Good Investors

Stewart: As it turns out, whether or not they “feel confident,” women are in fact competent investors, and multiple studies show that!

  1. This 2013 Forbes article references the high-level findings from a study conducted by German Comdirect Bank and the DAB: “A large sample of almost half a million private portfolios demonstrates that in 2007 and the crisis year of 2008, women did 4 to 6% better than men.”
  2. Fidelity looked through eight million investment accounts in 2016 and according “Who’s the Better Investor: Men or Women?” women outperform men in investing by 40 basis points, or 0.4%, and save more.
  3. A June 2018 study of 2,800 investors by Warwick Business School in the UK showed: “While annual returns on investments for men were on average a marginal 0.14 per cent above the performance of the FTSE 100, annual returns on the investment portfolios held by women were 1.94 per cent above it. This means returns for women investing outperformed men by 1.8 percentage points.”

Jones: The statement that women are not good investors is one of the things that makes me crazy! Even though there aren’t that many women professional investors, that fact is used sometimes as a convenient excuse. But it’s something we really need to get away from because in the generational wealth transfer, women right now control 51.3% of the investable wealth in the United States. That number is going up to 66% by 2030, so we have got to get away from the myth that we’re not good at this because we’re about to be in it!

Also, if you believe that you’re not good with money that becomes a self fulfilling prophecy. It’s going to be critical that we all get to the point where we’re confident enough in our abilities because sisters are going to have the money going forward.

Barratt: One thing I found running my own platform GoldBean was the difference in the questions asked by each gender and the information that was shared. Generally, the inbound requests from women tended to be quite thoughtful and broad based, whereas the inbound from men was more often like they had to prove how much they knew first. We would let them know it’s okay, it’s a full beginners platform, you can come in not knowing anything.

My best insight was the fact that women make investment decisions all the time: purchases for the household, how they invest their time, investing in education for children, and running a business. There is so much competence in investing as a skill generally across the spectrum of life.

But with the old school mentality, the stock market was considered a different planet. Across the board there is this idea that an investment mindset applies first and foremost to the market and that all other types of investment decisions are fluffy. This is completely unfair! How you invest your time, how you invest in your community and your family, these decisions require the same amount of attention as investing in the market. Just because you might not know what a P/E ratio is, it doesn’t mean you will be a bad investor.

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Myth 4: Women Are Not Financially Literate

Stewart: In shocking news, how about this gem hidden inside a 2018 FINRA report? “Women may answer ‘Don’t know’ more often when surveyed. This could result from women being more open to assistance or less confident than men, or it could reflect men being overconfident in their self reporting. After removing respondents who answer ‘Don’t know’ from the analysis, the gender gap in financial literacy narrows for boomers and gen Xers and nearly disappears for millennials.”

If women don’t know, we’re going to say we don’t know whereas a man might be more inclined to take a wild guess. If we remove the “Don’t know” box, then we’re more or less equally financially literate.

From my 2019 global quantitative survey results: “The top choice when we asked what path was most important for their investing success was ‘just get started investing as soon as possible,’ with nearly half (45%) of all respondents picking this answer.

Barratt: I have a partnership with LinkedIn Learning and offer a ton of courses on financial education — everything from personal finance to investing to optimizing your portfolio. We focus on the key concepts and how you can build on them and put them into practice.

There is no substitute for a behavioral change and financial education can offer a starting point: You might find out about virtual investing platforms where you can practice without putting any money at risk and learn about the small leaps that can be made. This way you can start to build those money muscles or risk muscles before you invest real money and you can learn the magic of compound interest.

My best advice would be to just start and learn as you go versus feeling like you have to do all of the learning and then you will know where to put your first dollar.

Jones: The way I look at financial literacy is that it’s about a combination of education and exposure. I’ll share a couple of stories. First, I’m originally from Alabama and I grew up drinking powdered milk. I didn’t know that milk came in liquid form until I started going to elementary school and I had to buy milk in cartons. So I always tell people it’s kind of weird that I’m in the industry that I’m in, but I think that one of the main reasons I’m here is that I had a teacher in the seventh grade who had all of us in rural Alabama start trading paper portfolios! It was both education and exposure that I would not have had otherwise.

Second, my mom made the colossal mistake of allowing me access to a very small inheritance that came from my great uncle when he passed away. I started having conversations with a broker at Merrill Lynch when I was not yet able to drive. I took some of what I learned trading my paper portfolio in seventh grade, but I took more of what I’ll call the “Carrie Bradshaw approach” and I did quite a terrible job of managing my money.

I’m glad to say that my money habits have evolved significantly since I was 15 or 16 years old and I do think it was because of that combination of education and exposure.

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Myth 5: Women Are Not Interested in Investing

Stewart: Actually, what women are “not interested in” is the poor communication style of an archaic investment industry. Charts and graphs feel dry and dull to most women. In my interviews, nearly all women say they prefer stories about real people rather than death by PowerPoint. (And a fascinating secret is that many men feel the same way!)

If advisers don’t talk in a language that makes any sense, why would anyone bother taking their advice? Women prefer to talk about money matters in more of a grounded way, with a view to how a financial situation or an investment is likely to affect their family and their lifestyle.

Barratt: Oh, it is such rich territory around the “not interested” myth: At some point I will do a big long wall of shame of all of the comments I got back when I was fundraising for my investing for beginners platform and because I showed up as a human woman. Everyone just assumed the platform was for women! I’d explain that it was for beginners. But the guys would literally go on about why their wife is not interested in investing and all women want to do is shop and spend the money. Hahaha, such a funny joke.

The availability of technology is a huge leap forward towards the closing of the gap. And another thing that helps? If you no longer have to show up in some weird leather-paneled office to talk about money. That type of environment is so impenetrable: The communication style of the old school world is almost military-esque in its language around investing.

The industry has been so lazy by targeting only male boomers. It’s just been embarrassing to the point of reinforcing the stereotypes of women clearly not interested in investing: Every ad shows a silver fox guy on the beach with his silver fox wife who’s just smiling cutely beside him.

Jones: One thing that has made it difficult (perhaps) for women to be as interested in investing and finance is if they are being systematically ignored.

I have friends in the industry who have to remind their colleagues to speak to the women in the room when they are dealing with couples. Women have longer life expectancies, and at this point, because of the gender pay gap, they have smaller nest eggs, so their financial needs are different. You can’t just pink it and shrink it. You can’t leave women out of a couple’s conversation and expect that they’re going to be happy! The proof of this is that something like 70% of widows fire their financial adviser when their husband dies. That is not an indication of disinterest, that is an indication of being pissed off!

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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.

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About the Author(s)
Barbara Stewart, CFA

Barbara Stewart, CFA, is a researcher and author on the issue of women and finance. She released the 10th installment of her “Rich Thinking” series of monographs on International Women’s Day, 8 March 2020. Stewart uses her proprietary research skills to work as an Executive Interviewer on a project basis for global financial institutions seeking to gain a deeper understanding of their key stakeholders, both women and men. She is a frequent interview guest on TV, radio, and print, and she is a columnist for Golden Girl Finance. Stewart is on the Advisory Board for Kensington Capital Partners Limited in Toronto. All of Stewart’s research is available on Barbara Stewart.

2 thoughts on “Women and Investing: Five Myths”

  1. Mary H. says:

    What a great interview! I loved the positives about women investors contrasted with how poorly the industry treats them.

  2. Good questions and good response.

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