When it comes to investing who is the most rational – men or women?
If you believe nonsense marketing surveys (or the headlines of nonsense marketing surveys) women always need the most help, they’re the most emotional and don’t know what they’re doing.
Women may earn less and can also find themselves out of the workforce for an obvious reason, so by consequence it does make it harder for them to accumulate wealth.
However, their investing abilities and irrationality with money are more myth than fact.
According to a research paper called “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment” by Brad Barber and Terrance Odean, it’s the women who have better control of themselves when it comes to investing.
After analysing brokerage data over six years, Barber and Odean found males trade 45% more than females, and this reduces their returns by nearly 1% more per year than females.
When the figures are stripped back to compare only single males and single females, the single males trade 67% more than the single females.
The cost to the single males was a 1.44% per year reduction in returns versus the single females.
Most obvious conclusion? Putting your ego away leads to better returns and one gender seems to do it better than the other.
In previous research Odean found that overconfident investors trade significantly more than rational investors.
Overconfident investors overestimate their knowledge, ironically ignoring the long proven fact that more trading leads to higher costs and lower returns.
Psychological research has shown males overestimate their financial knowledge and are overconfident.
Females accept what they don’t know and stick to basic investment rules, keeping them out of trouble.
Research by fund manager Vanguard backs this up.
Between 2005-2010 (including the GFC) Vanguard’s female investment clients averaged 5% better returns than their male counterparts.
I suspect the urge to gamble also plays a part.
No surprise that gambling advertising and product placements never seem to be aimed at women.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Looking to reach your goals with one of Australia’s highly rated financial advisors?
