When it comes to investing for retirement, are women more savvy than men?

June 1, 2022
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Article published by RJS Wealth Management Pty LtdThe last thing we want to do is create a gender divide around the subject of investing for retirement. But men and women are different, and without generalising too much, it’s fair to say that they do many things differently. Planning for retirement is no exception. And the most pressing question is not so much about whether women are better investors than men and more about what both genders can learn from each other when it comes to growing their wealth. We discovered that when all the evidence is in, there are two main differences in the way men and women approach investing for the future. The first is their level of confidence, and the second is their tolerance of risk.

Is a woman’s lower super balance a sign of poor investing or an uneven playing field?

There’s very little evidence to support any theory that either women or men are more capable investors. But women are less confident in their financial abilities than men, with 77{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} saying they have the ability to plan for their long term future compared to 84{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of men1.When the results are in, women do generally have lower super balances than men. But this isn’t down to poor investment choices. It’s because men earn more2. Women are more likely to take a break from their career to have children, and don’t always come back to work full time. Then there’s the gender pay gap which sat at 17.3{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} earlier this year according to the Australian Workplace Gender Equality Agency (WGEA)2. The gap is exacerbated by women’s longer life expectancy (they should be saving more for retirement, not less)., Women retiring today are 25{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} more likely to outlive their super earnings3.There is good news though, women aged 25-40 are currently the fastest growing wealth demographic in Australia4. So there’s hope this imbalance will soon be a thing of the past.

Low confidence prevents many women from taking financial control

It’s fairly common knowledge that men are more confident in the job market than women. A man seeing a job ad of which he only possesses 60{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of the required skills would apply for the job, confident he could carry it off, while a woman would pass over the opportunity because she wouldn’t feel qualified4.And it’s a similar story when it comes to finance and investments. Michael Liersch, head of behavioural finance at Bank of America Corp’s Merrill Lynch Wealth Management Unit shared the results of 11,500 investment personality assessments of his clients. He found that 55{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of women agreed or strongly agreed with the statement, “I know less than the average investor about financial markets and investing in general” Just 27{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of men had the same response5. Women are slow, or reluctant to begin investing for their future, because they’re not confident they’re going to get it right. But the truth is, even committing to put percentage of your salary away every month in a (very non risky) interest bearing cash account is better than doing nothing. Many women simply need to accept the need for action and make a start.

Can men help themselves or is risk taking in their nature?

On the other hand, there is plenty of evidence in to support the idea of men being more likely to take risks than women when it comes to investing their money. The Wall Street Journal article cites a 2013 study of couples in a committed relationship by mutual-fund company Fidelity Investments. It found that women have a much lower risk tolerance than men. Only 4{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of women were willing to invest a substantial amount to achieve potentially higher returns, if it meant possibly losing some or all of an initial investment, compared with 15{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of men6.Gary Dayton is founder and trading coach at Glastonbury, Connecticut-based TradingPsychologyEdge.com. He found that men’s chemical makeup was a big influence on their investment behaviour. Hormones like testosterone and cortisol can bring on risky trading behaviour and excessive optimism (aka overconfidence) in men. Dayton thinks this is definitely something men should be aware of when making investment decisions7.

The trade-off: what men and women can learn from each other

So, men are more likely to take control of their finances because they have the confidence to do so. And women are more likely to be consistent and risk averse because their hormonal make up is different. But does knowledge of these differences override the natural inclinations of men and women? Could they overcome their natural tendencies to be more confident (women) or less risk taking (men)? Not an easy ask perhaps, but for any investor, male or female, the difference in investment outlooks between the sexes is certainly one we all would do well to be aware of.Ultimately men and women have a great deal to teach each other about investing. Many women would do better if they were more like men, willing to back their own knowledge and capabilities and take charge of their superannuation. And many men would benefit from being more like women, more likely to hold on to investments through the tough times, and less likely to make rash trading decisions.This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this fact sheet can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

June 1, 2022

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