Why Women are Investment NaturalsJune 21, 2018
When it comes to making investment decisions that deliver excellent returns in the long term, women are streets ahead of their male colleagues – and we’re not the only ones who think so.
Financial researchers have uncovered a unique combination of successful business instincts that most women seem to possess, including caution, thorough investment research, and long-term commitment to an investment once they own it. Interestingly, as the book Warren Buffet Invests Like a Girl points out, these also happen to be the traits that allowed the world’s wealthiest investor to amass his multi-billion dollar fortune.
But what does this mean for the future role of women in the financial services sector, particularly in Australia? There are several aspects to consider.
The best investors are those who are able to manage risk
The past decade has been a wild ride for financial and property markets around the world, with slower growth in developed countries and unpredictable boom-and-bust cycles in many emerging markets.
In order to thrive in a climate like this, savvy investors must be able to do one thing well: manage risk.
Women tend to approach investing in a cool-headed, end game-focussed way, whereas men are more likely to chase the next big gain – often while assuming unnecessary risk. In previous decades, when markets were on fire and high returns were the norm, this gung-ho approach produced some impressive returns – but today, the risk-conscious methods applied by female investors may be the key to long-term growth.
What the numbers say
A number of studies that examine the investment decision-making process employed by men and women have been released in recent years, with many of them confirming the edge that female investors enjoy in today’s economy.
Released in the wake of the 2008 financial crisis, a Vanguard survey of 2.7 million pension funds showed that men were more likely to run with the herd and sell when prices were falling – an impulsive tendency that could have a negative effect on the performance of the funds they manage. By contrast, women were more likely to consider the long-term prospects of holding on to investments that may recover over time. This is the famous ‘buy-and-hold’ strategy that has served the likes of Warren Buffet so well.
According to research carried out at the University of California, female investors are less likely to be overconfident of their investment decisions, prompting them to carry out extra research and weigh the risk of each investment carefully. This meticulous approach is a recipe for success in today’s volatile markets where long-term growth is often hard to come by.
Will women dominate 21st-century finance?
Patience, a balanced approach to risk, and level-headed responses to changes in the markets are characteristics that should propel female finance professionals to the top of their field – but will these stellar qualities be enough?
In an industry where returns are easy to measure and results speak for themselves, superior skill is bound to be rewarded. We look forward a time when women will take the lead in financial services – and it may not be far away.