In the category of “not breaking news”, here’s a headline to consider: “Men and Women are DIFFERENT in their approaches to Managing Money.” (Before some of you write in and tell me that you and/or your spouse/partner does not fit the classic descriptions, what I am about to discuss is based on surveys and doesn’t pertain to all!) Women tend to view money “holistically, emotionally” according to New York Times writer M.P. Dunleavy. According to her review of gender-specific investment data over the past five years, women’s approach to money focuses on long-term saving, while men are all about transactions and performance.
The general difference may explain why communicating about money is so difficult. According to an Associated Press-GfK poll of Americans in a romantic relationship, 67 percent said that is was harder to talk about money, while just 29 percent thought it was harder to talk about sex. I leave the sex part to experts in that field, but given the focus of this column, I thought it might be useful to see what each sex can learn from the other to improve everyone’s comfort with financial matters.
When it comes to investing, a study conducted in the 1990s found that men are more overconfident than women. That may seem like a good trait, but when translated into numbers, researchers found “that men trade 45 percent more than women.” Increased trading increases your chance of losing and it amounts to investors’ racking up transaction fees, which can lower portfolio returns. “Trading reduces men’s net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women.” In other words, men’s investment performance was about one percent worse than that of women’s.
Because that research was conducted in the nineties, when trading costs were higher, perhaps the differential may have narrowed twenty years hence. Wrong! Portfolio platform SigFig conducted a study, which concurred with the older data. In an examination of 750,000 portfolios in 2014, which anonymized for gender, netted out fees and included dividends, the results were clear: women investors earned an average of 4.7 percent for the year and men earned 4.1 percent. (The S&P 500 index increased by 11.4 percent in 2014, excluding dividends, so both genders were likely utilizing balanced portfolios.) That differential may not seem like a lot, but “With $100,000 to invest and assuming this performance trend continued for 30 years, a woman would earn $58,000 more than a man.”
Despite their underperformance versus both the benchmark and their female peers, men were 1.5 times more confident that they would beat the market in 2015. At least they’re consistent! The big lesson men can learn from women is to slow down on the trading-it really takes a bite out of your bottom line!
Men should also borrow a page from women when it comes to retirement planning. According to a study by Prudential, “With a longer life expectancy, women generally assign higher levels of importance to long-term financial goals than men.” Because of that big picture approach, women tend to be better savers than men.
A Fidelity study found that while women typically earn two-thirds of what men do, and their retirement balances are smaller on average, they actually save more of their income: 8.3 percent versus 7.9 percent for men. Again, small percentages can add up—if you earn $50,000, the 0.4 percent equals $200 more per year, every year, than men.
So what can women learn from men? A Vanguard study found that women can be more risk-averse than men, which can be good, but not in the extreme, especially for younger women. SixFig found that women tend to own more expensive funds than men, so they are throwing away money on an annual basis and perhaps most importantly, women need to embrace their abilities to manage money and trust themselves.