Investment Styles of Men and Women
by Gerald Townsend, Financial Editor
September 2009
It turns out that not only are men from Mars and women from Venus, but their investment styles may be planets apart also.
While it is dangerous to generalize and no one exactly fits any stereotype, it sure is fun. Besides, stereotypes develop because there is a grain of truth — or perhaps a whole loaf — in them. So, with that warning, let’s plunge in. Some of this is just anecdotal evidence, but there have also been several studies confirming much of these observations.
Women are more likely to have a more-measured and comprehensive investment approach while men tend to have an overall investment framework and then simplify the data to fit this framework. Perhaps this comes from the fact that men are more sequential in their thought process while women are more spatial. I’ve personally found this to be true, as my wife can juggle many thoughts and projects while I have to finish working on the first one before I’m ready to even think about the second one.
Men take more investment risk than women, who are more risk-averse. Is that a good or bad thing? It is both. We know there is a relationship between risk and return. Therefore, a riskier portfolio may perform better over time, but it could also perform much worse. Obviously, this doesn’t mean that women just buy CDs and men just chase hot stocks, but that the portfolios of men are often somewhat riskier than the portfolios of women.
Women do not trade as often as men, and that is probably a good thing. Men are often more confident — whether they should be or not — about their decisions. Frequent trading not only subjects you to higher trading costs and potentially higher taxes, but it gives you more opportunities to be wrong. The goal for most of us should be fewer, but better decisions.
Men often concentrate their investments. Therefore, men are more likely to have a greater percentage of their investments in a single stock. Again, this is both a good and bad thing. Serious money may be accumulated through concentration. However, serious money is preserved through diversification.
Losing money hurts more than getting money feels good — this is known as the principle of "loss aversion" and applies to both men and women. If an investment has declined in value we are often reluctant to sell it because then we must admit we have incurred a loss, which is painful. Men tend to hang onto both their winning and losing investments longer than women.
One study indicated that a husband and wife could improve their overall investment performance by making joint investment decisions instead of each one making independent decisions on their personal portfolios. Perhaps this is just another way of saying that men and women both have strengths and weaknesses in their decision-making processes and when both are involved these are balanced, leading to a more sane and sensible investment portfolio.
Of course, that is true for just about everything.
Gerald A. Townsend, CPA/PFS, CFP®, CFA® is president of Townsend Asset Managment Corp., a registered investment advisory firm. Email: Gerald@AssetMgr.com