User:Quebec/Women and investing

There is a gender difference in saving and investing: as a group, women tend to save less, and invest less, than men. Women also tend to have more conservative portfolios  , which has been perceived mostly as risk aversion behavior, but might also be caused by other factors. This results in lower average wealth. Yet women's life expectancy is longer (5 years longer on average in the US and 4-4.5 years in Canada ), leading to longer retirements. So investing less and avoiding equity investments may cause them financial difficulties later in life. In other words, the investment gender gap is likely to cause a retirement income gap.

This article aims to help Canadian women progressively bridge the investment gender gap. The article first attempts to briefly summarize the academic research on gender differences in saving, investing and wealth. Then it explores what women, and the investment industry, can do to close these gaps. Finally some ideas on what men can learn from women about investing are given. Each person is unique and what follows are broad generalities based on group averages.

Saving and investing: amounts and habits
Canadian women, as a group, save and invest less than men (in dollars per year and cumulatively)

Median contributions to registered savings accounts, Canada, 2017

In addition,
 * A greater proportion of Canadian women haven't started saving for retirement: in the 35-54 age group for example, that's 32% of women versus 17% of men
 * A greater proportion of Canadian men save and invest lump sums "whenever they can"
 * A greater proportion of Canadian men save/invest regularly through automatic deductions

Asset allocations

 * Women in many countries tend to have more conservative asset allocations, i.e. they tend to select lower percentages of risky assets such as equities and higher percentages of safer assets such as fixed income investments and cash.
 * Canadian men are more likely to invest in US equities ; this is an example of global diversification

Wealth
Unsurprisingly, saving less money every year, and keeping more of it and cash or bonds, leads to lower financial wealth for women, as a group, relative to men.

Attitudes and literacy

 * Women, as a group, are less financially literate than men, according to some measures, in most countries
 * Fewer Canadian women think and plan their finances 5 years ahead or more
 * Canadian men are more likely to say that they are in "full control" of their financial future

Incomes and career paths
Lower annual savings from women can be explained in part by the gender gap in incomes. This income gap has narrowed over time but still persists:

Median employment income, Canada, in 2015 constant dollars 

Lower total savings are influenced by fewer working years on average, often due to family responsibilities, such as caring for children or elderly parents.

Barriers to entry
In addition, among Canadian non-investors (men and women), more than half think that they "don’t have enough money to start investing". In worldwide surveys the proportion of women who make that statement tends to be larger than that of men. Further, the majority of Canadian non-investors (men and women) find "information about investing difficult to understand", and again in worldwide surveys this proportion is greater for women.

Personality traits
In psychology, there are five 'big' personality traits: openness, conscientiousness, extraversion, agreeableness and neuroticism. One hypothesis that may partly explain the gender gap in financial literality (and financial management or investment) is that women, on average, score differently on certain personality traits, such as neuroticism.

Risk aversion
Bajtelsmit and Bernasek (1996) explore the possible causes of women’s more conservative portfolio choices. In general, this has been attributed to risk aversion, and indeed Embrey and Fox (1997) report that in a survey of single households in the US, “62% of women indicated that they were not willing to assume any risk, compared to 34% of men who were not willing to take risks”. Also, “nearly 60% of the men in the sample indicated that they were willing to assume average or above average risk, while only 36% of women self-identified as risk tolerant”. Similar results were obtained in Germany: women perceive themselves as less willing to take risks.

Explanations for this greater risk aversion include: To sum up this line of reasoning, women have less money available then men to invest, and this explains in part their greater risk aversion (real or apparent).
 * Differences in wealth and income: women are less wealthy (and earn less income) then men on average , and risk aversion decreases with wealth
 * Differences in employment: women tend to work in lower income occupations and tend to work part time more
 * These differences in wealth and income can ultimately be explained by discrimination in labor markets, and greater family responsibilities

Financial literacy
Other explanations for more conservative asset allocations and lower wealth focus on general education levels and financial literacy in particular. If women have less financial knowledge, perhaps because they have "less inclination to collect and process financial information", this may lead to overly conservative behavior. Women may also receive more conservative recommendations from their financial advisors because of perceived lower risk tolerances. If women have less information, and perhaps less confidence in their financial skills, they may be less likely to challenge these conservative recommendations.

However, the idea that women are less financially literate on average can be challenged. The Economist reports that “research presented at a recent OECD conference on financial education showed that when asked a financial question, women in most member countries were more likely than men to respond “don’t know”. When that option was removed, however, they answered correctly as often as men.”

Confidence
A number of studies report that women are less confident than men in their financial skills or knowledge. In word words, their self-perceived (as opposed to measured) financial literacy is weaker. However, for women, confidence seem less important in explaining wealth than actual financial literacy.

Information processing
The perception of financial risk might be influenced by differences in how genders process information.

Optimism and perceived risk
A last group of explanations for the gender gap in equity holdings relates to gender differences in optimism and stock market risk perceptions. Jacobsen et al. (2014) find that as a group, men are more optimistic than women about the economy. Optimists tend to invest more in stocks since they expect future returns from stocks to be higher than pessimists do. Jacobsen et al. (2014) also show that women perceive the stock market as riskier than men do.

What women can do
Based on the evidence presented above, one of the keys to closing the gender gaps and wealth and investing is financial literacy. As the saying goes, knowledge is power.

Women should learn more about finance, portfolios, investment choices, etc. More familiarity with stock market history, historical risks and returns of different asset classes, behavioural pitfalls, etc. could lead to higher stock allocations, lower cash allocations, and higher expected portfolio returns. Ultimately, this should help women have more comfortable retirements and more financial security. Good entry points into the wiki include:
 * Getting started, for beginners
 * Portfolio design and construction

Financial knowledge can be gained from online sources including this wiki, from books, from seminars or courses offered by universities or other reputable institutions, and from good financial podcasts. Women should not hesitate to discuss financial topics with financially knowledgeable family members, friends or colleagues: investing should not be a taboo topic! And of course, women can seek and offer advice on the Financial Wisdom Forum.

The perception that significant sums are needed to start investing is mostly wrong; for example, many mutual funds have a $500 initial minimum, with smaller subsequent purchases allowed.

What the financial industry and advisors can do
The male-dominated financial industry has not been especially woman-friendly. There a few female role models in the investing world, and 80% of financial advisors are men. Having more women working in the financial industry, especially in top executive positions, should help change the industry's image over the long term. Communicating with less jargon should be helpful.

The same portfolio might be appropriate for a man and a woman if they have the same risk tolerance, time horizon, etc. However women may have different perceptions and attitudes towards money and investing, and when working with an advisor, may be looking for a different experience than men do. For example, many financial advisors focus on rates returns and selling products, but women might be looking "for a trusting relationship, not just higher rates of return". It may take longer for advisors to establish trust with female clients: "women want a financial advisor who takes the time to understand what is important to her, someone who respects her and listens to her concerns and doesn't jump to conclusions about what's “best” for her". Listening skills are important for financial advisors working with female clients, and so are connecting money with goals, and confidence-building.

What men can learn from women investors
Confidence and optimism are useful personality traits for investors, but overconfidence – which men tend to display more in financial matters -- can lead to mistakes. Overconfident investors trade stocks too much, and this tends to lead to lower investment returns. In a classic study of over 35 000 brokerage accounts in the US, Barber and Odean (2001) show that “single men trade 67 percent more than single women thereby reducing their returns by 1.44 percentage points per year more than do single women”. The popular press has attributed such behavioral differences to varying hormone levels between the sexes.

A Warwick Business School study of 2800 UK investment accounts found that women outperformed men by 1.8% a year. The main factors explaining the women’s better performance were (i) men’s greater willingness to buy speculative stocks; (ii) a tendency of men to hold on to losers; and (iii) the women’s preference for investment funds, which provide better diversification than individual stocks.

The finding that women appear to be better investors than men, as a group, according to some studies, might seem irreconcilable with the idea that women are less financially literate, etc. But recall that fewer women open self-directed brokerage accounts, compared to men. Among those who do open such accounts, women seem to be doing a better job, as a group.

In summary, if they want to improve their returns and lower their risk while keeping the same level of stock market exposure, men should trade less, refrain from buying speculative stocks, let go of losers, and hold more diversified portfolios.