Women Provide Investment Lessons



Teresa Black Hughes

Financial Advisor & Portfolio Manager


Women Provide Investment LessonsWomen are often personally connected to the object and process of learning. Their sense of identity, self-esteem, social world and power affect how they learn. With this natural sense of inquiry and dimension, it is no surprise that women bring a unique perspective to investing. Comedians may joke that it’s women who read the instruction manual, but it’s no joke that they can provide some great lessons on how to invest. 

More goal-focused. Whether it’s due to a penchant for detail, or the ability to focus while multi-tasking, or the emotional need to feel in control, I have found that most women like to set goals and measure results. These can be goals for savings, debt-reduction, or career achievement. 

More education: wanted to understand “why”? Women may be more relationship-oriented than men, but their comfort in the relationship comes from trusting the source. Women want to know there are supporting details but are less inclined to get into them. Education about specific topics answers the big picture question of “why”. And disclosure unveils the hidden truths. 

Less likely to remarry and live longer. This may speak to a greater sense of independence. But for women living longer, and on their own, they need to have confidence in their financial well-being. I have found a greater interest by women wanting to understand what the future looks like if/when they lose their partners. 

Greater comfort with financial vulnerability. It may be because I am a woman, but I find that women, more than men, are better able to open up about their financial worries. If we can get to the “why” of the worries, then we can empower her to make more confident decisions. 

More likely to establish an emergency fund. (I’m not sure my husband and I would define an emergency in the same way.) Perhaps this harkens back to the “cookie jar savings”, but more women prefer establishing a defined emergency account than drawing on an available line of credit. 

And what about the specific investment nature of women? 

“Women tend to be less overconfident than men,” found behavioral finance researcher Meir Statman. "In the stock market, where so much is random, trying to do better than average is more likely to get you results that are below average. This really is where all the confidence is going to hurt you." Statman is a professor of finance at the Leavey School of Business at Santa Clara University and author of "What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions." 

Confidence can give you a push to make decisions, but being overly confident can have negative results. Trading excessively and taking too much risk is considered being overconfident. The reverse is taking too little risk due to lack of confidence. 

Taking risks is necessary when investing long-term. Investing too conservatively can notably hamper results (recall our last decade of low interest rates) in the same way as overconfidence can by excessive trading and risk-taking. 

In 2001, research by Brad M. Barber, professor at UC Davis, Graduate School of Management, and Terrance Odean, professor at UC Berkeley Haas School of Business, found that overconfidence leads men to trade excessively. As a result, their returns suffer more than women's. But women also buy and sell securities indiscriminately; they just do it less often, so their performance doesn't suffer as much. 

So whether you’re a woman or a man, what can you take away from this? 

  1. Set specific, measurable goals for savings and debt-reduction. Include both short, mid and long-term objectives. Track progress annually. 
  2. Ask questions about financial topics pertinent to you. You don’t have to spend hours researching. There are some great informational websites and your advisor can provide you with some resources. 
  3. Ensure you have a firm grasp of the future – even if you don’t like it. It’s easier to change something you know, than what you don’t know. And it’s easier to change behavior now than later, if you need to cut back. 
  4. Take some time for introspection to understand what makes you worry about financial matters. Share them with your financial advisor. Knowing why, leads to what, and then to how. 
  5. If you haven’t already, establish an emergency fund. This is Job One of any financial plan for success. 
  6. Establish your investment strategy and stick to it. Don’t deviate when you hear the daily market noise. That doesn’t mean that all positions will be “buy and hold”. It means making change for fundamental reasons and not emotion.

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