Women as Investors
Director of Fiduciary Advice
No, Women Aren’t from Venus
As investors, women get a bum rap. We’re told, over and over, that we’re naturally more cautious than men, less willing to take investment risk, and unsure about the judgments we make. Studies “proving” these points are all over the web and widely believed among the less thoughtful investment advisers. Men are from Mars, Women from Venus, q.e.d. Hold her hand and sell her something conservative.
But once you look into these so-called gender proofs, you’ll find them deeply flawed. Work by more careful researchers shows that, in real life, male and female investors are just about the same. Some women are risk-takers, in order to meet their goals. Some women are not. Ditto for men. Truly observant investment advisers know this well. There’s no special money-management gene on a YY chromosome and no lack of one on the XY.
Why are so many of the traditional gender studies so off the mark? Three main reasons.
First, they study female investors as a whole – for example, all those with accounts at a discount brokerage house or all those owning mutual funds. These samples include many widows who never handled investments until their husbands died. Naturally, they know less. For them, caution is a prudent choice.
That picture changes radically when researchers study women who have a similar amount of investment experience as men. Surprise, surprise. The level of risk-taking among both sexes is about the same. The more comfortable you become with investing – men as well as women — the more confidently you make decisions.
One of the researchers working on gender and risk-taking is Julie Nelson of Tufts University. She collected 24 published studies and put them together into one giant pool. The result: Most men and women overlap. Of the small group of highly risk-averse people, more are female; of the small group of madly risk-prone, more are male. Most of us fall somewhere in the middle.
Put all together, these data show that, on average, women are slightly more careful than men. Which leads me to my second point. When reporting such studies, both the researchers and the media forget those two little words, “on average.” The headlines read, “Women more risk-averse,” as if we all fall into that camp. You might as well say that if women, on average, prefer fish for dinner, restaurants should serve every female customer fish.
Nelson says there’s a 54 percent chance that a man picked at random will take more risks than a woman picked at random. Considering gendered factors like knowledge, experience, and beliefs about female capacity, the surprise isn’t the 4 percent difference, it’s that the difference is so small.
Bringing me to my third point – social beliefs about women. Any statements starting with “Women are…” assume that you mean essential female qualities, baked into our brains at birth. There probably are such qualities but they’re hard to disentangle from socialization. And socialization warns us against risk (“be careful, dear, don’t climb that tree”). I recently read an investment column (by a female asset manager!) claiming that women “naturally” exhibit “qualities like patience, humility and risk aversion.” That’s right out of A Handmaid’s Tale.
In her research, Julie Nelson found several studies showing women to be somewhat more braver and risk-taking than men in certain situations. But such conclusions rarely reach the popular press. Oddly, some of the researchers who did the “braver women” studies found sub-groups in their data that conformed with the stereotype of women as scaredy-cats, and emphasized the scaredy cats in their summaries. Nelson speculates that it’s easier to get published when your findings confirm what everybody already “knows.”
I recently read a fascinating book called “Testosterone Rex: Myths of Sex, Science and Society,” by Cordelia Fine, an associate professor at the University of Melbourne in Australia. It’s a detailed takedown of the “caveman theory” of ingrained male/female behavior (i.e, that evolution leads directly from bopping wooly mammoths in the Pleistocene Epoch to a male’s tendency to choose the wooliest Nasdaq stocks). Caveman theory is an easy mental shortcut to assumptions about risk, but it doesn’t stand up to what we know about hormones and brains.
What I like least about Women as Venus studies is that they treat risk aversion in anyone as a defect, inferring that high-risk (“male”) behavior is both the norm and the better choice. That’s just nuts. One of the classic pieces of gender research found that women’s investment performance (on average) is slightly better than men’s – not because they pick better stocks but simply because they wisely don’t trade as much, hence pay fewer fees. If this is “humility” and “risk aversion,” count me in.