Women Will Control $30T in Assets By 2030 — Here's Why They're Better Investors Than Men
Despite earning lower salaries than men, women have proven over and over again to make more effective investors with the money they do earn. In fact, over a 10-year period, women outperformed men in their investments by an average of 40 basis points, or .4% according to Fidelity Investments 2021 Women and Investing Study. Yet despite that success, only one-third of women consider themselves to be “investors,” according to the same report.
But overcoming that hesitation is key for women to make the most out of their hard-earned money, especially in an age where inflation is soaring and cash-on-hand has declining long-term value. One study reported that women keep up to 68% of their portfolio in cash or cash equivalents (like CDs and money market accounts), compared to 59% of men.
By harnessing the traits that make them smarter investors, women can create lasting value for themselves and their companies. We spoke to financial experts to learn how.
Risk vs. Reward
While women are often stereotyped as taking fewer risks than men, that’s not exactly a fair assessment, says some experts. “Women tend to be more risk-aware,” said Patience Marime-Ball, co-author of forthcoming The XX Edge: Unlocking Higher Returns and Lower Risk, along with co-author Ruth Shaber. “It’s not that they don’t take risks, but they factor in risk in a different way than men do. They are less likely to sacrifice a long-view perspective for short-term gains.”
Additionally, women also tend to take a more collaborative approach, soliciting the opinions from others before diving in. This diversity of thought is absolutely an asset in the financial world, where reports show that women- and nonwhite-owned hedge funds and private equity firms are overrepresented when evaluating the top quartile of performance.
Patience and Virtue
One of the primary reasons women’s investments perform better is because women tend to trade less frequently than men, which allows them to ride out market highs and lows and pay less fees. Wells Fargo found that single women traded 27% less frequently than men, and men were six times more likely to make 100% allocation shifts (100% from stocks to bonds for instance), which can negatively impact long-term returns.
Women also tend to be closer to many of the problems that need to be solved in the world and can make investment decisions that reflect this knowledge, says Marime-Ball. “They often understand the innovative solutions that will drive better outcomes and, as a result, better returns,” she says.
So it’s perhaps no surprise that women are also playing an outsized role in “impact investing,” by taking ESG factors into account when making investment decisions. More and more resources like Gender Equality Fund or Invest Your Values rate specific stocks and mutual funds so you can align your investment decisions with companies that have proven to take concrete steps on gender, the environment, or gun control.
The Confidence Game
Despite feeling confident in their ability to manage their day-to-day finances, only 29% of women surveyed by Fidelity felt confident in investing for short- or medium-term goals. That’s similar to how women tend to act in the workplace; many tend to wait until they satisfy every bulleted job requirement before applying.
“Men tend to learn on the job, while women tend to be more cautious about taking on new responsibilities that they don’t feel completely ready for,” said Marime-Ball. “Women in the C-Suite should have confidence in the power of their experiences and skills and know that (like men) they will learn the details along the way.”
That doesn’t mean women should eschew the things they’re already good at, especially when it comes to collaboration and input. “Don’t be afraid to seek other opinions about important investing decisions,” says Marime-Ball. “Ask for opinions from people who have different experiences and different life views than you do.” Any kind of additional research before making an investment decision is a sound strategy.
A Seismic Demographic Shift
While men have controlled the vast amount of wealth in this country for years, that is rapidly changing. According to McKinsey and Company, by 2030, American women are poised to control the $30 trillion in financial assets that baby boomers currently possess, due to their longer life expectancies. Not to mention, women from younger generations are making major financial and investment decisions that few of their grandmothers could.
Wealth management companies are rapidly trying to adapt with new marketing and engagement programs, but it’s women themselves who will have the most power to create the future of investments. By embracing their identity as investors, women can finally shape what wealth looks like for themselves, their companies, and their communities.
By Lindsey Galloway
Published April 18, 2022