Women and investing

Contents

1. Key points

2. Women are more worried about losing money

3. Women pay more attention to what could go wrong

4. Are women less confident about investing or are men too confident?

5. The appeal of smooth funds

6. Adviser Takeaways

Women are more worried about losing money

Our survey reveals significant differences in how men and women think about investing and risk-taking. These differences have important implications for advice.

Women are more worried than men about losing money. 61% of women are worried there will be a financial crash compared to 46% of men. In a similar vein, 68% of women are concerned about the volatility of financial markets versus 54% of men.

These differences in how men and women weight negative outcomes carry over into investing behaviour. A higher proportion of men invest in the riskiest assets; this holds true whether they are advised or not. Women are more wary, especially non-advised women, the only group who are still investing more in cash than in equities.

The face-value interpretation is that a greater amount of men recognise that taking investment risk over time beats returns on money in the bank. When advisers articulate the benefits of investing and the need to take sensible risk to non-advised women, we see the benefit of advice come through in the higher female advised equity allocation of 49%. This is, invariably, a critical advice intervention, given many women will take career breaks to have children. In fact, given the significant impact of pay breaks on pension accumulation, the imperative is to go further and explore whether women can take higher equity risk than men to close the gender pension gap.¹

Women pay more attention to what could go wrong

We should not fall into the trap of thinking differences in investment confidence and risk taking are purely explained by gaps in knowledge. While advice is a great leveller, advised women still invest materially less in in risk assets than advised (and non-advised) men. Why is this?

There may be other factors at work. Evidence from the behavioural and physiological fields indicate there are systematic differences in risk processing between men and women. Women typically display a higher degree of loss aversion than men and tend to estimate the incidence of negative outcomes more highly.²

With this in mind, let’s look at the first chart again, this time filtered for advice. We know advice improves the willingness to take risk, but it does not alleviate worry. This makes sense - it is perfectly rational to worry about losing money the more of it one puts at risk, which is why we see greater levels of worry on the part of both male and female advised investors. The fact that women worry more than men holds true however, reinforcing the idea there are systematic differences.

This insight has key consequences for advice, not just in terms of the investment recommendation but particularly for the investment ‘journey’ a woman experiences in getting to a great outcome. If women show systematically higher levels of worry and aversion to losses than men - as this survey makes clear - then the smoothness of the ‘journey’ becomes much a greater consideration. 

Are women less confident about investing or are men too confident?

The fact that women pay greater attention than men to what could go wrong in investing is another way of saying men are more confident, and, this is borne out in another of our survey findings. On a 12-month equity market view, men show greater optimism, with 48% taking a bullish outlook compared to 39% of women. A greater proportion of women (30%) are bearish versus men (23%).

Unfortunately (for men), a growing body of evidence indicates that male confidence in investing often tips into overconfidence, which can be a headwind for building portfolio wealth. Retail brokerage studies consistently show that women are better investors than men.³ Male overconfidence, and the fact men pay less attention to negative outcomes than women, drives overtrading (and higher transaction fees) and overly-concentrated bets relative to women, who display a greater willingness to buy and hold diversified, multi asset funds in their portfolios.⁴

The appeal of smooth funds

Given that women may be more worried about volatility, and may have a higher sensitivity to losses, they may make particularly suitable candidates for smooth funds. Indeed, our survey shows more women recognise the appeal of smooth funds and are slightly more likely than men to invest. The fact that both advised men (79%) and women (82%) are even more likely to invest shows the valuable role that advisers play in fully explaining the benefits of the smooth fund category. Whether that is, for example, in reducing the overall volatility of a blended portfolio in the approach to retirement, or as a decumulation option that mitigates the sequencing risk of selling units at market lows when taking an income. Interestingly, the appeal of smooth funds is strongest with our youngest cohort of investors, with the 26-34 group showing a 90% level of interest. This suggests that advisers also have considerable scope to engage with a new generation of investors.

When it comes to impact investing, we find that it resonates more highly with women than men, but it also resonates more strongly with advised investors. Similarly, we find that access to private assets, such as infrastructure, real estate and private companies, often the reserve of institutional investors, is something that the majority of consumers want, but especially advised investors. 81% of advised women and 77% of advised men would consider investing in an easy-to-access fund that includes private assets.

What is remarkable about these findings is the powerful role that advice plays in significantly boosting the strength of the results across the board. It is evident that advisers play a critical role in articulating the benefits of diversifying into unlisted assets and in helping clients to understand how those investments can make a difference to UK economy and society. 

Adviser Takeaways

• Probe for and acknowledge women’s potentially greater concerns around loss and volatility in discussions about appetite for risk, capacity for loss and market composure.
• Address women’s concerns by discussing the importance of the investing journey as well as the outcome in providing ongoing peace of mind.
• Discuss how smooth, multi-asset funds can offer an elegant solution that provides an attractive outcome via moderate to high levels of equity risk, achieved in a way that alleviates the impact of volatility and drawdowns.
• Bear in mind that men who show similar concern over volatility can also benefit from smooth funds in the approach to retirement as well as in mitigating sequencing risk when taking a retirement income.

¹Government data shows a private pension gender gap of 35%.

²Dawson, C. Gender differences in optimism, loss aversion and attitudes towards risk. British Journal of Psychology. Using data from 13,575 people, losses were found to be more painful for women, with no differences in the psychological response to gains between the sexes.

³Barber and Odean’s study of 35,000 retail brokerage accounts in ‘Boys will be boys: gender, overconfidence and common stock investment’ revealed that men trade 45% more than women as result of overconfidence and that this trading reduced men’s net returns by 2.65% annually as opposed to only 1.72% for women.

⁴A similar study by Warwick Business School showed that women outperform men by 1.8% annually. The Warwick study found women were also more likely to invest in diverse portfolios and in funds with a consistent track record of high returns rather than opt for the volatility of a less likely big win in individual stocks. A number of other studies show similar results. Further studies by Revolut, Fidelity and HL have all showed that women outperform male investors.