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Cautious women investors do better than men

By unknown | Aug 05, 2008 | COMMENTS [ 0 ]

Finance has long been considered an exclusively male domain.

Finance has long been considered an exclusively male domain.

What is the reason for men's tenacious hold on money management? The answer might lie more in the fact that it is not that men refuse to relinquish control, but rather that women are hesitant to assume control.

Women might be entrepreneurs and earning money at the same rate as men but are still to manage and invest it.

Research shows that 90 percent of women have become totally responsible for their own financial welfare at some point in their lives yet lag far behind men in financial planning and investing.

One possible explanation for this could be the differences between the sexes' approach to investing. Women investors are usually more cautious than men. Investors can be placed in three zones: action, comfort and caution. As can be expected, more men were in the action zone, while more women were in the comfort and caution zones.

The study also revealed gender differences in risk tolerance, perspective on change and on the future, control issues, attitudes about money and investment knowledge.

So men tend to be more aggressive investors and women more cautious investors, but this might not be a bad thing at all. A study of trading activity and annual returns of 150000 individual accounts in the US showed that women are better investors and make more money in the stock market. They make about 1percent more every year, with single women earning nearly 2 percent more every year than single men.

This might not sound like much but the difference between earning 10percent and 12percent every year on a R100000 investment means about R291879 more after 20 years.

This superior performance was not found to be the result of stock picking since the data showed that both sexes have an equally poor ability to pick the better-performing stocks.

The explanation for the higher returns was discovered to be the amount of trading each group does. The study showed thatboth sexes detract from their profits by trading actively, but men trade more often. Since men buy and sell more frequently they do worse, on average, than women.

Men are more confident investors, so they trade more. This feeling of competency gives them a false sense of security and causes them to trade excessively. Women are more cautious and tend to be intimidated by the market. They prefer to leave their portfolio "as is" for longer periods.

The way I see it, a woman investor's strength lies precisely in her so-called weaknesses: caution, low risk-tolerance and a different perspective on change and the future.

l The writer is a director of Pioneer Financial Planning. Visit or e-mail


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