Research tells us a person’s gender can impact the way they make investment decisions. Anatomical differences in male and female brains could explain differences in our attitudes towards investment risk as well as determine how much emotions drive our money decisions.
By understanding these differences and what they could mean, you can take an active approach to managing your financial future.
1. Women are more Risk Averse
Research shows there are differences in our brains that mean men tend to focus on excitement and rewards in many activities, without due attention to negative consequences. Women on the other hand are generally more cautious and seek less excitement from the same activities. For those who are more cautious, it’s important to assess if returns from lower risk investments like cash, term deposits and fixed income will in fact help meet their goals. Inflation is a really important consideration. These lower risk investments may not be able to give you the returns you need to keep up with inflation. Real return focused portfolios, with outcome or inflation targets that manage downside risk may be a good option for some.
2. Men take too much risk
Men generally look for more risk and excitement in their investment portfolios which can mean they invest in ways that can be costly to their long-term goals. For example, research shows that men are more likely to invest in ‘high risk’ options than women. This need for more excitement in investment is also clearly demonstrated in more frequent share trading behaviour, which doesn’t necessarily translate to higher returns. Men have been shown to trade 45% more than women, but on average produce lower returns, by 2.7%.
For those tempted to take on too much risk, a disciplined approach could work well. A separately managed account may be worth considering. This option lets you have ownership and daily oversight of your investments, but ensures the portfolio is being professionally managed to a risk profile and objective.
3. Women procrastinate more
If you’re someone who’s likely to procrastinate when it comes to making important investment decisions, because you’re worried about losses or making a poor investment decision, consider a dollar cost averaging strategy to get into the market slowly. By investing smaller amounts at regular intervals, you’ll buy less units of investments when the market is up (and prices are high) and more when the market is down (and prices are low). Your total cost is averaged so you could end up with a greater number of units than if you invest in a lump sum. This helps take the guesswork out of deciding when to invest, particularly when markets move up and down frequently, and avoid the risk of poorly timed initial investments.
4. Men benchmark themselves
When assessing the success of their investments, men are more likely to compare their investment returns to a benchmark or their peers, rather than actually considering what return they need to meet their personal goals. A good idea for people who know they like to benchmark themselves is to figure out what they actually need. For example; “I need a 7% return each year adjusted for inflation before I have enough money to retire”. For these investors, it’s worth considering outcome driven investment strategies, like real return portfolios, which aim to produce a return above inflation.
Speak to a Heart financial adviser to help you make decisions about managing your financial future on 1300 861 143.
This information may constitute general advice. It has been prepared without taking account of an investor’s objectives, financial situation or needs and because of that an investor should, before acting on the advice, consider the appropriateness of the advice having regard to their personal objectives, financial situation and needs.
