Wednesday, June 17, 2015

Say It Ain't So! Women Are Smarter Than Men At Investing

In terms of finance and money management, as well as investing, females have often been belittled - if not as the weaker sex- as the "knowing less" sex, and certainly inferior to males in terms of investing. However, the facts and stats disclose the converse is true. It turns out males are the real dolts and often let their testosterone get in the way of judicious investment acumen. But don't take my word.

Research in the 1990s found that men were over confident compared to women, betrayed by the fact they traded 45 percent more than women.  The problem, as financial analyst Jill Schlesinger notes (Denver Post, p. 4K, June 14), is  "more trading increases your chance of losing and racks up higher transaction fees which lowers portfolio returns".

She goes on to note that the same 90s study found:

"Trading reduces men's net returns by 2.65 percentage points a year compared to 1.72 points for women."

In other words males' performance was about one percentage point worse than for females.  But that was an old study  (when trading costs were greater) and perhaps doesn't hold up today. Not really. A recent study conducted by the portfolio platform SigFig agreed with the 1990s' data - based on an examination of 750,000 portfolios in 2014.

The results, after anonymizing for gender, netting out fees and including dividends, showed female investors earned an average of 4.7 percent per year compared to 4.1 percent for males.  Given $100,000 to invest and assuming the same projected performance over 30 years it translated to women earning $58,000 more than the men. Not an insignificant sum for most people!

The findings of SigFig weren't all in favor of the women. For example, females tended to own more expensive funds than men so ended up tossing money away given the higher fees, costs - commissions. Also, their retirement balances tended to be less than for men given their lower rate of pay but also being less risk averse. Additionally, the broad range of women often demonstrated less financial savvy than men,  including getting fewer questions correct on financial literacy tests.

Bottom line, women could actually fare much better if they trusted themselves more. Women - many -  also needed more financial literacy to go along with greater confidence. On the plus side, women "are more aware than men that they don't  know much about finance" so that "women may be more open to being educated in finance" (WSJ,  June 15, p. R8).

How would you do with these finance questions which the Global Financial Literacy Center found that  women answered correctly 22% of the time, and men 38% of the time?

1) Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years how much would you have left in the account if the money was left to grow?

A) More than $102......B) Exactly $102......C) Less than $102.......D) Unknown - not enough info

2) Imagine that the interest rate on your savings account was 1% per year and inflation was 2 % per year. After one year how much would you be able to buy with the money in this account?

A) More than today.....B)Exactly the same......C) Less than today......D) Unknown

3) Buying a single company's stock usually provides a better return than a stock mutual fund.

True or false.

Answers tomorrow!

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