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Over the last few years, the dearth of women in powerful C-suite positions in the financial industry has come under growing scrutiny. Men tend to dominate banking, venture capital and investment industries, and this dominance has given rise to widely held yet unsubstantiated belief that the male gender is simply more skilled when it comes to understanding numbers and finances.
Luckily, times are changing. Over the last decade, there’s been an increasing body of research that has started to challenge old-school, stereotypical notions about women and finances. Much of the research focuses on men's and women’s investing habits and abilities. The stock market, mutual funds and ETFs are commonly seen as one of the best ways to grow individual wealth, hence the different ways in which men and women approach investing is of particular interest to researchers.
So, what are the findings? Do men have some natural ability with numbers that justifies their overwhelming dominance in the investment industry? In a word: nope! In fact, according to some studies, women actually make better investors than men.
Male vs. Female Investors: What Does the Research Say?
Take for instance the 2018 Warwick Business School study, which noted that women were “found to outperform men at investing by 1.8 percent.” Furthermore, The Financial Times notes that “A separate study by Hargreaves Lansdown, the UK’s biggest consumer investment platform, also found that women investors had the edge, returning on average 0.81 percent more than men over a three-year period. Hargreaves points out that if this pattern were to continue for 30 years, the average woman would end up with a portfolio worth 25 percent more than the average man.”
The studies go on to theorize that women’s successful investment returns are in large part due to qualities frequently associated with women like risk aversion, a distrust of speculative funds and favouring a slow-and-steady investment approach.
Tuula Jalasjaa, founder and CEO a new robo advisor for women called Smart Money for Her, believes that women make better investors than men in part due to behavioural traits related to money management.
“A lot of recent research and studies tend to support the theory that women make better investors,” Jalasjaa says. “One example of such a study is Fidelity Investment’s research from 2017, where the finding showed that women earned higher returns on their investments than their male counterparts by approximately 0.4 percent.”
However, Jalasjaa says to take the study with a grain of salt. She points out that the mismeasurement in these studies is the pool size – there are a lot more men to include in these studies versus women, and the women investors who are in the pool are probably more financially literate than the men in the sample.
“I don’t think it’s a completely fair comparison just yet,” she says. “But moving the sample sizes aside and focusing more on behavioural traits as it relates to women and money – women do have an advantage.”
So, the future looks bright for women investors—right? Not necessarily. There are some big issues and questions that the above studies don’t tackle. For instance, if qualities like risk aversion and taking the long view are so favourable, why aren’t women enjoying more prominent roles in the investing field?
Context Is Key to Understanding Female Investors
Not all economic experts are quick to embrace the notion that women have inherent traits that naturally make them better investors. In fact, some experts suggest that if women are to reach their full potential in the realm of finance and investing, issues like better incomes and a more inclusive investing environment are key.
Sarah Kaplan, Director of the Institute for Gender and the Economy at the University of Toronto’s Rotman School of Management, doesn’t believe women naturally make better investors than men. Kaplan highlights the importance of analyzing complexities surrounding women’s participation in investing, as well as breaking down gender stereotypes.
“Intrinsically, research shows that there is no difference between men and women in terms of risk propensity or other investing-related characteristics,” says Kaplan. “In fact, some studies show that — controlling for education, experience and income — women are actually more risk-seeking than men. However, because investing has historically been seen as a masculinized domain, women are made to feel that they don’t belong – which could drive them to be more careful with their investment strategies and avoid losses, because they are worried losses will reinforce stereotypes about women and investing.”
Furthermore, women tend to have lower salaries on average than men, and therefore, have less to invest (or more to lose). This may lead them to adopt less risky strategies that could otherwise result in bigger gains.
“Women participate less in stock markets (even after controlling for a large set of individual characteristics, such as income, financial wealth, education) and when they do so, they participate to a lesser extent,” says Claire Célérier, an Assistant Professor of Finance at the University of Toronto’s Rotman School of Management. “However, when we investigate other settings, there is no evidence that women are more risk-averse. One possibility is that women are less willing to contribute to financial decisions because finance is stereotypically outside their gender's domain.”
The Verdict: No Clear Winner
Obviously, there's a lot of conflicting research out there on whether women make better investors than men. What does seem clear, however, is that for women to fully participate in the world of investing, they’ll need to attain income parity with men and be nurtured to develop better financial literacy and the confidence to enter a traditionally male-dominated field.
While there may be no simple answer as to whether men or women are better investors, robo investing is a wonderful way for would-be financial whizzes (male or female) to experiment with ETF investing and the stock market. A robo-advisor is a perfect platform to get started managing your investments online and still get some human support when needed. Robo investing is an especially ideal option for women who often may lack the confidence to enter the “masculinized” domain of investing. Using a robo advisor allows an investor to save money on fees and often reap respectable returns even if they have very little experience with investing.
If you’re not sure which one is for you, review our Canadian robo-advisor comparison guide. But here’s the short story: our top choice is Wealthsimple, Canada’s leading robo advisor that wins rave reviews for its easy-to-use platform, competitive fees, and outstanding customer service. With a click of a button, Wealthsimple can build you a globally diversified portfolio of index-tracking funds. Plus, Young & Thrifty readers who sign up for Wealthsimple get $10,000 of assets with no management fees for a year.
But if you're comfortable with DIY investing, it doesn’t get any easier or affordable than opening an account at Questrade, where you can purchase commission-free ETFs. As a bonus, Young & Thrifty readers who open a Questrade account get $50 in free trades. Get all the info with our Ultimate Guide to Online Brokerages in Canada.
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