April 25, 2012

The Battle of the Sexes. (That’s Right, Women Are Smarter).

Photo: missmareck

Here’s a controversial thought: men and women are different.

Not in terms of strength, temperament, intuition or any of those things (not for the purposes of this article, anyway). They’re different in terms of how they invest.

Which gender do you think gets better returns in their investment portfolios: men or women?

Most men would guess that they do, and a lot of women would agree. But don’t worry gals—all is not what it seems to be. Finance professors Brad Barber and Terrance Odean have found that women’s risk-adjusted returns beat those of men by an average of about one percentage point annually. Women trade less frequently, hold less volatile portfolios and expect lower returns than men do. Men trade 45 percent more than women, while single men trade 67 percent more than single women. Both men and women reduce their returns by trading, but married men reduce their returns by one percent while single guys reduce theirs by one and a quarter percent.

Men are testosterone driven, and it is important to them to beat the other guy (in this case the market) and, of course, brag about it. Behavior-finance researchers have coined this behavior as “overconfidence.” Women are less afflicted than men by overconfidence or the delusion that they know more than they really do. They tend to put safety first. For instance, women are more inclined than men to wear seat belts, avoid cigarette smoking and get regular medical checkups. And they’re more likely than men to attribute success to factors outside themselves, like luck or fate.

To quote the old Harry Bellefonte song: “Man Smart (Woman Smarter)!”

Other studies have shown that women tend to feel inadequate about their investment acumen. They often feel that they don’t know all the technical language of the investment world, and they can’t use the data to project market directions. Don’t worry gals because no one can. Memo to men: your household’s investment portfolio will be less risky and more diversified if your wife helps to manage it. Down the road, she will share what comes out of that portfolio. So shouldn’t she share what goes into it?

Chances are, her ideas and emotions will complement yours, and you will both end up wealthier. And at least one of you will end up wiser.


Editor: Brianna Bemel

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