I spoke with the WLTX team today about this topic. Here is a clip of the appearance.
Men May Master Mars, But Women Master Wall Street
Studies confirm that women in general are more conservative investors. On average, they tend to hold more “safe investments” like CDs, savings accounts, and bonds which enhances the diversification of their portfolios. They are more likely to enroll in their retirement plan at work and tend to save more of their income than their male counterparts. All in all, we ladies have greater self-control regarding our investments. Our disciplined approach results in more of a “buy and hold” approach which research shows can improve long range returns.
Men, on the other hand, tend to engage in riskier behavior and suffer from “overconfidence bias.” A study done by Barber and Odean in 2001 showed that men trade up to 45% more frequently than women. Interestingly, decreased trading frequency is one reason why women, when they do invest, tend to outperform men. On a net basis their returns are better than the men’s due to lower transaction costs.
Unfortunately women still have lower savings than men because they tend to spend less time in the work force. Plus, being overly conservative can increase their chance of outliving their savings. Even though women tend to be more disciplined, they often make the mistake of emotionally driven spending for our family members at the expense of their financial security. Similarly, they can easily be swayed by an emotional sales pitch for complex and expensive investment products that promise “guarantees” or protection from downside risk, but that may be unsuitable for their situation.
Given this information, what are some ways women can improve their overall financial health?
Luckily, it is never too late to become more dedicated to your financial well-being. Here are
some tips.
1) Get informed about your financial life. All too often, I deal with women who have suffered a loss due to divorce, death or disability of a spouse. They are left in a frightening position of uncertainty and fear because they were not involved in the financial decision-making. Women need to make financial literacy a priority. They can subscribe to a financial magazine or newspaper, attend educational seminars and even search the web to find information on a topic they don’t understand. I conduct a free educational monthly workshop where we discuss a different financial topic each time. I encourage discussion, because women learn by talking things out especially with other women. In sharing our experiences and vulnerabilities with respect to our financial lives, we realize that we are not alone. I reinforce to the women that there are no wrong or stupid questions. By asking questions, we learn and grow in our financial knowledge as well as confidence.
2) Get help if you need it. One thing that is great about women—unlike men, we like to ask for directions. In order to chart a course for success based on your goals, women may want to seek out a CERTIFIED FINANCIAL PLANNER™ practitioner to help in assessing their goals and forming a plan. You can get guidance on investments, insurance, estate planning, taxes and financial education. A female client may want to utilize a female financial advisor.
3) Discuss your finances with your husband or partner on an ongoing basis. Share the decision-making for large purchases and spend time together doing periodic reviews of investment statements and budget. A big mistake women make is to delegate all things financial to the men in their lives. Ninety-percent of women however become responsible for their finances at some time in their lives. Plus, women are closing the income gap on men and earning more income in many cases. It is important that such an integral part of your lives be a shared responsibility.
4) Invest with a long-term mentality. Remember that financial markets can be very volatile on a short-term basis. Understand your tolerance for risk by taking an online risk tolerance survey or with help from your financial planner.
5) Monitor your progress towards your goals. If you’re working with a planner, have a financial check-up at least once a year. Don’t set it and forget it. Life is ever-changing and your financial plan should also be dynamic.
