Why Women Should Invest More

June 22, 2021

Even though there have been great gains in the equality of the sexes over the last 100 years - and even in the last three decades - there are still huge parts of society where women are at a lesser advantage than men. That sometimes translates into a totally unbalanced workforce in certain sectors. Some sectors - like childcare and education for example - are heavily made up of women, while other sectors like finance and engineering are made up of men.

Investing and asset management is one such sector where the proportion of men in the top jobs being far far higher than women. Yet, it is important for that gap to close for several reasons - not least as women have been found in many instances to be better investors. Here, we explore the idea of why women should invest more and what the repercussions are if they do not.

Why Women Do Not Invest More at The Moment

At present, there are a number of sizeable reasons why women do not invest more that makes it difficult for them to enter the market. The following factors are huge systemic and societal forces that create a perfect storm for why women not only do not invest now, but are in danger of not investing for the foreseeable future either.

Less Income

As briefly alluded to above, women usually work in different sectors to men. Many of those sectors are not paid as well as jobs in male dominated industries. The result is that women in general earn less than men. However, it is also more than just women choosing to work in sectors where salaries are not as high. Women are also often found to be paid less in the same positions as their male counterparts.

Plus, when women come to take career breaks for raising a family, that also has longer term implications on their earnings potential. Not only do they have to re enter their career at the same point they left it - whereas male counterparts would have had that time to continue upwards - they also will often reenter the workforce on part time contracts, depressing their earnings further still.

Less Surplus Money

The result of all these factors amounting to women earning less, is that they also have less surplus cash - yet will often have the same outgoings as men. If not more so. Women therefore cannot invest that spare cash and lock it away to start earning interest. Not only does that have an immediate effect on women - they simply do not have the same amount of cash as men - it also has a compounding effect too. Women will not only have less cash now, in 20 years time they will have even less spare cash as men do. It thus makes it extremely difficult to eradicate what is a sizeable wealth gap between genders. For example, women on average have £7,000 less a year when drawing their pension.

Male Orientated World

Lastly, many women shy away from investing at the moment as it remains such a male dominated arena. Plus, women are very rarely encouraged to invest by the society that brings them up. Men, arguably, are educated to a different tune. Such an issue is perhaps one that could start to help the first two factors that influence women not to enter the investment world. Education of women as to how to invest, and that they should, could make a world of difference.

Why Women Should Invest More

It has long been argued that it is curious that women do not invest more than men because they have been shown in a number of reports to be better at it. In a study by Hargreaves Lansdown, women outperformed male investment performance. However, that could be because the women who do invest will ordinarily be ones that know what they are doing. The male population of investors, in comparison, is more likely to be made up novices that are more likely to make failed investments. A natural skew therefore arises, though that is not to say these findings should be dismissed at all. In fact, the following factors support why women, expert investor or not, tend to see better performance over the long term then men.

Tolerance to Risk

Women in general are more risk averse than men. The result is that they always conduct due diligence over every investment decision. If they find it to be too risky, they are happy to walk away from it. Men, however, after their own due diligence are still happy to take on that risk due to the potential upside.

No Performance Chasing

In addition to being more risk averse, women also do not hold on to stocks that are no longer adding value to their portfolio. It also means they do not make rash decisions - all in the name of chasing outperformance in comparison to their peers. Instead, capital preservation and long term growth are far more important to them. They suffer less big losses as a result which add as a drag on male investors’ outperformance. Additionally, performance chasing also means that men trade more. With more trades, come more transaction costs which also add as a drag on returns.

Happier With Short Term Volatility

Finally, women, as shown by trading less than men, are happier with short term volatility. They are more likely to take a long term view and as a result do not react to any near term fluctuations in the market. By waiting that little bit longer to buy or sell, their market timing can be that little bit better which has an overall impact on their long term performance.

Also Read: 5 Types of Investment Strategy

Women and Investing - Key Takeaways

Getting women into investing is a really crucial idea. By bringing more diversity to the investment community, companies as a whole should benefit - as evidenced by the improved success of companies that have a more diverse board of directors. Additionally, it will help generate more wealth globally as well as ensuring that women are financially independent of men.

Rachel Lee
Having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments, Rachel now works as a full-time business and financial writer.

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