Credit: Shutterstock photoW ant a "hot tip" on how to invest with aplomb? Follow what the women are doing. Much -- although not all -- data show female investors outperforming males.
While this trend's origin may be biological, cultural or some blend, the bottom line is: Women often get the better investing results , many experts say, by following a long-term financial path and not taking rocky shortcuts.
"Men tend to treat investing as competition," observes financial advisor Pedro Silva, a partner at Provo Financial Services. "They might look at gold prices and say, 'they're low right now, so let's buy a ton.' Women will look at gold and ask, 'Why? How does this investment work? Can I lose money in it?' "
"Men will try to outperform; whereas women see investments as money to be managed and watched over," he added.
Women Have It Right
Data underscore the benefits of women's approach. A pioneering study by academicians Brad Barber and Terrance Odean, found that over six years, from 1991 to 1997, using account data from a large discount brokerage firm of more than 35,000 households, men traded stocks 45% more than women, and that trading -- fueled by overconfidence -- cut men's net returns by 2.65 percentage points a year vs. the lesser 1.72 percentage points reduction for women.
In a more recent study, among investors who connect their portfolios with the robo-advisory firm SigFig, last year women's median net returns were 12% higher than those of men. One major cause: Men traded their portfolios 50% more than women did, the firm reported.
The Right Touch
Evidently, many women money managers also have the right touch: According to a Rothstein Kass (now KPMG) study of women-run hedge funds, from January 2007 through June 2013 the Women in Alternatives Hedge Fund Index generated a compound average annual return of 6%.
That compared with a 1.1% average annual loss by a broader hedge fund index, according to Meredith Jones, who did the study for the Rothstein Kass Institute.
To be sure, new data show men and women in Vanguard defined contribution (DC) retirement plans posting similar returns. In the five years ended 2014, men had fractionally higher -- 0.4 percentage point -- average annual returns compared with women. Evidently, growing use of target-date funds in DC plans partly explains the similar results. With target-date funds, investors hand over portfolio decisions to a professional manager instead of doing it themselves.
So what's the take-away for women? To create, and then follow, a long-term financial plan. Financial advisor Jennifer Myers, president of SageVest Wealth Management, specifically recommends that "unless you're in a pension plan, save 20% of your income, annually.
"With those savings, first fund a cash account that will cover six months' of your living expenses in case of emergencies," Myers added.
"After that, create an investment portfolio geared to your long-term needs."
When constructing an asset allocation, "my rule is to subtract your age from 120. The resulting percentage is the amount to put in stocks," says Nicole Boyson, associate finance professor at Northeastern University. As for investments, "buy well-diversified funds, particularly low-cost, index funds."
Experts say once you have a long-term investment plan in place, sit tight through the stock and bond markets' short-term gyrations. But rebalance the portfolio, perhaps annually, if certain asset classes exceed or fall below their target allocations.
However, holding losers too long isn't wise, counsels Prof. Boyson. For example, "if a certain mutual fund way underperforms for a year or two, think about whether it makes sense to sell it."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
