5 tips for investing women
Which gender succeeds more when investing? Women invest every bit as shrewdly as men, despite some self-imposed handicaps, such as believing that finance is men's work. If you're a woman looking to sharpen your market skills and confidence, here are some points to keep in mind.
Conventional wisdom holds that men have a lock on math know-how and business savvy – and if you believe that, you probably also think you can guess precisely where the Dow Jones industrial average will finish tomorrow.
Studies consistently reveal that women take charge of buying decisions, budgeting and daily spending plans yet claim to lack clarity about how to build wealth. I find that women are far more likely to keep savings in cash or low-returning, relatively high-risk bonds. Many women also struggle to give themselves permission to have enough money to take care of themselves, let alone build wealth and financial freedom.
Enough preconceptions and insecurity: Let's look at five things women need to know about investing:
You can't learn successful investing from the media. Some financial news TV shows and media reports are suspect. Financial commentators don't work for you. Instead, they often use frightening messages to scare you and keep you tuned in.
Men are not naturally better at investing. This might challenge something you've always assumed to be true.
A 2001 study of investment accounts as well as a recent Merrill Lynch report and a 2011 study from Barclays Capital and Ledbury Research all reached the same conclusion: In a comparison of individually constructed portfolios, women produced slightly higher returns than did men.
According to the studies, women take fewer uncompensated risks and tend to focus more on the end goal than on short-term wins. Also, women recognize their own fallibility. They know the future is uncertain, so rather than trade often, women are inclined to buy and hold their investments, which is typically more profitable in the long run.
Men enjoy no natural, overall advantage when studying math and sciences, nor do they outperform women in investing.
Risk is not a bad thing. Don't hide in bonds. Risk, appropriately taken, is associated with higher expected investment returns. When you take the long view in the market, prudent risk-taking combined with buy-and-hold investing can lead to significant wealth-building.
Finding good information takes work. Ever wonder why you still never seem to know how to invest in your 401(k) after watching a YouTube video (or after trying the many other ways we supposedly learn on the Internet these days)? Actually, Big Brother protects you from that kind of learning; many restrictive regulations govern what gets published about investing.
Most successful investors get help. Yes, some do-it-yourselfers invest full-time for their own benefit and do well. One behavioral study of average investors, on the other hand, finds that most of us who invest on our own earn significantly lower returns than benchmark indexes, a commonly accepted gauge of market success.
A good investment adviser can provide returns that compound over time. He or she ought to be able to clearly articulate and teach you an investment philosophy – and believe that you, a woman, can apply it successfully.