Are women better investors, and if so, why? What should men do differently? How did those women achieve their returns? Beat the cost of living crisis long-term with this chapter reading of Inspirational Investing from a free ebook published by Harriman House.
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Transcript of Are Women Better Investors?
Bear: [00:00:00] Good evening, my fellow bears. And if it’s not evening where you are, I’ll let you decide if I am too early or too late. If you’ve been here before, you know I’m quite wary of the word free, but I did want to share a free thing with you today because I think it’s a novelty. Harriman House have published a book called Inspirational Investing. You can buy a copy in print, but they’re also offering the ebook completely free. Now, I dunno if it’ll be free forever.
So it might be worth downloading sooner rather than later; they might be offering it free just because it’s a new publication. But I wanted to share one of the chapters with you to talk about some of the misconceptions and barriers or supposed barriers to investing. At the end, of course, I will also add some thoughts about accessibility.
Because perhaps you, like me, were once in the spot where you thought investing wasn’t accessible to you. As I record this, the UK is currently imploding with a cost of living crisis. Even Martin Lewis at moneysavingexpert.com has said he’s at the end of the tips he can give in terms of money management and that the government needs to intervene.
Now as someone [00:01:00] who has a podcast, YouTube channel, blog in the personal finance niche called Save Like A Bear of all things where I’m supposed to be helping you save and make money using my anecdotes from my experience. It does make you rather think, why do I bother? Should I just shut up shop? I mean, I’m not really selling anything, except my mistakes
in the form of information in case you can learn from them.
But when you hear something like that, and if you don’t have a lot of faith that the government are going to intervene, then you do kind of think, well, I guess I should just stop posting about saving money. If we’re at the limit of what people can save, I should just give up shouldn’t I? Let’s try for two, take two. Shall we? I’m not going to give up because then that might imply that you should give up and we don’t want that. If you can’t tell, I do care about this deeply. I’m also recording this in the run up to autism acceptance month. And if you’re like, Bear, didn’t you get the memo? If you’re autistic,you’re not capable of feeling empathy.
Well, if you think that, then you could probably do with going away and doing some research into autism during autism acceptance month; maybe look at the intense empathy theory[00:02:00] of autism.
Pain is invariably temporary. And if that wasn’t true, I wouldn’t be here. And so if there is one thing that we can do whenever we are struggling the most financially, and maybe across the board as the, as a result of that it’s arm ourselves with knowledge.
So, if you feel like as Martin Lewis says that you have cut back as far as you can, and that the tips on saving money are for your neighbour who still has a car that they can sell, or you feel like information about investing is for someone else who might have any money at all to invest because you don’t,
I still think there is one last bastion for us,
which is to build our arsenal now of what we will do in future when the pain invariably ends, because pain is invariably temporary.So I am gonna continue to share information about making and saving money even if you can’t act on the information right now, and today, I’m gonna read this chapter from Inspirational Investing.
It’s called The Behavioral Science of Investing. What can we learn from gender differences? And it’s written by April Vellacott. April has been studying the field of human behaviour for a decade. I’m quoting directly from the [00:03:00] book, by the way, Anne holds degrees in psychology and behaviour change. She applies this knowledge as a consultant, helping financial services clients to use behavioural science to improve their organizations.
April recently coauthored Ripple, the big effects of small behavior changes in business, a practical guide for applying behavioural science and nudging in business. Harriman House didn’t ask me to read this by the way.
I just thought it was useful and that any of you might find it useful also. So this is April’s chapter on gender investing and closing the gap: insights from the world or behavioural science. She says, gender feels like a thorny topic to talk about right now. Especially so if you’re making claims about the inherent nature of men and that of women. Should women win the same prize money as men at Wimbledon, despite not having the same physical endurance?
Is it fair to have quotas of women on the boards of large corporations if there are more talented male candidates? Should female toilets be sacred spaces for cis women, or open to anyone who identifies as female? These are all discussions I’ve… Just reminder I’m reading from the book. So ‘I’ is April.
These are all [00:04:00] discussions april has dabbled in over the past few years and then promptly shied away from at the first sign of tension or disagreement, but as thorny as they may be, it’s only by talking about these gaps, disparities, and differences that we can begin to overcome them. About three years into studying behavioural science, April took a module dedicated to gender differences in psychology. Fascinatingly, studies reveal gender differences all over the place,
and I found it strangely compulsive to start making sweeping generalizations about men and women. For example, men tend to outperform women when you ask them to mentally rotate objects in their mind, whereas women tend to demonstrate more empathy than men, but as tempting as it is to divide the world into two neat categories, each with their own superpowers and weaknesses,
it’s worth saying that when we talk about gender differences in psychology, we’re talking about averages over big groups of people. Some women will have better spatial perception than men, and some men will be more empathetic than women. It’s also worth saying that these differences aren’t necessarily good or bad.
Certain differences may give men the edge in a specific situation, but will hold them back in another. Being aware of the [00:05:00] potential differences means we can learn from and compensate for them. When I first started helping financial services businesses to apply behavioural science to improve their customer experience, it soon became obvious that gender differences extend to financial behavior. The gender pay gap is now well known, but the pensions gap accumulates over a lifetime of savings opportunities into something far greater. By the time they come to retire, women are likely to have a hundred thousand pounds less saved in their pension than men. Compounding this disparity, women are less likely to invest than men.
Just one in five women currently hold an investment in the UK compared with one in three men. But when they do invest, they do better. A study from Warwick business school looked at male and female investors returns over three years and found that women outperform men by 1.8 percentage points. Insights from behavioral science could illuminate the source of this difference.
There may be persistent features of the way we think that either enhance or detract from our investing success. There are some which may hold women back- compared with men, women have fewer role models, tend to avoid losses more and prefer to take less risk equally. There are some which [00:06:00] may give women the edge – compared with men,
women tend to be less overconfident about their investing abilities. And are less likely to trade their investments too often. Again, to reiterate these differences are not necessarily good or bad, but being aware of which traits we are more likely to have, may increase our self knowledge and ultimately help us become better investors.
A lack of role models may deter women from investing. With the lack of visible role models, female investors are more likely to experience imposter syndrome. Imposter syndrome is named to capture how undeserving you feel about your successes and how hard you might find it to attribute these successes to yourself. Using a measure known as the imposter phenomenon scale, studies have found that women experience more imposter syndrome than men. If women find it much easier to call to mind examples of men who invest and are successful in their field rather than other women, then we’re more likely to experience imposter syndrome. A lack of female role models therefore may delay women from making their first steps in investing. And starting to invest late or failing to invest at all means that you lose a, key ingredient in investing success. Time spent in the market. Women tend to be more [00:07:00] loss averse than men. It seems that women are likely to feel losses more intensely than men.
If you’ve ever struggled to give back your Peloton after a 30 day free trial or suffered through a whole pint of craft beer, which you weren’t enjoying, you’ve been trying to avoid a loss. Loss aversion is a well established concept in behavioural science, where we feel losses as more painful than the pleasure from equivalent gains.
For example, if you were to lose a 20 pound note on the street, the pain you would feel would be more acute than the joy you would feel at luckily finding the same note on the same street. Multiple studies have found that women are more loss averse than men, and this can be problematic when it comes to investing.
Rooted in loss aversion, the disposition effect is when investors prefer to sell their assets which have gained value and avoid selling those which have lost value. In other words, you hold underperforming stocks and sell performing ones. Female investors are significantly more likely to behave in this way.
As a result, fearing losses may detract from your investing sucess. Female investors prefer less risk, hampering long term gains. Anyone wanting to invest their money has to be willing to take some degree of risk. Some investments are less [00:08:00] risky than others, but the highest returns and potentially losses may go to those who are willing to take the biggest risks.
There seem to be gender differences for risk tolerance, ones which may help or hinder female investors. There are plenty of studies which demonstrate that men and women have significantly different appetites for financial risk. And in general, women prefer less risk than men. And as Bannier and Neubert have noted the gender gap in risk preference is of enormous economic importance.
In short the less risk that women are prepared to take in their investments, the less wealth they can expect in the long run. Just as this may hamper female investors, it could also be a benefit. Perhaps having a lower tolerance for risk creates female investors who are considered rather than cautious. If successful investing is partly down to mitigating worst case scenarios while maximizing best case scenarios, having a lower tolerance for risk is incredibly helpful for the former and in the long run gives returns, which are both sustainable and less volatile. Female investors are less overconfident. Just as there are some features of our psychology, which may hold us back
there are others which may boost women’s investing tendencies. For example,[00:09:00] women may benefit from being less overconfident than men. Overconfidence is where our own confidence in our talent is greater than our actual ability. For example, people tend to think they are better drivers than average, that they can complete tasks in less time than they actually do. And that they are better looking than they really are. In a study from 2017, Fidelity found that whilst women have less confidence in their investing, their choices outperform those of men. This lack of overconfidence amongst female investors is positive. It might lead to having less concentrated portfolios, which come with higher risks, make us more likely to seek guidance and consider a wide range of perspectives and motivate us to thoroughly research
our investments. Women benefit from trading less often. When investing, it’s easy to mistake activity for achievement, I’m buying and selling. So I must be adding value. Known as action bias this is our preference to do something, anything, rather than do nothing. If you’ve ever found yourself queuing for coffee in Pret and switching to another equally slow moving queue, you’ve experienced action bias.
When it comes to investing behavior, this bias makes it tempting to [00:10:00] trade an investment rather than hold it. Women trade less frequently than men. And this could be because women are less likely to experience action bias, something which may occur more with overconfidence. Counterintuitively, doing nothing to investments is often the best cause of action. Trading too often, or abandoning a trading plan can lead to making rash decisions, incurring extra fees wasting time. In short, women may benefit from their predisposition to trade less often.
Knowing your strengths and weaknesses will make you a better investor. Understanding gender differences in decision making can help everyone, male or female to become a more self-aware investor. Female investors may also be held back by imposter syndrome, making them less likely to invest in the first place.
Women seem to feel losses more than men, making them more likely to hold underperforming stocks and sell performing ones. Having a naturally lower inclination for risk may hinder women with less opportunities for big returns in the long run. Alternatively, a lower risk tolerance might contribute to a more sustainable investing approach.
Proportionately, women’s investing styles may benefit in different [00:11:00] ways. Women tend to be less overconfident in their investing abilities, leading to a more considered approach, a diversified portfolio, lower levels of risk and volatility. Linked to this women trade less frequently than men saving money and time while avoiding the pitfalls of rush decisions. Of course it would be naive to make blanket statements about how men always invest in one way. And women in another investing styles will differ from women to women and man to man. Some men will be more loss averse than some women. And some women will prefer greater risk than some men, but by being aware of how we make investment decisions differently, we can all begin or indeed continue to invest with greater self knowledge.
And then of course she’s included all of her references for the research that she quoted. By all means let me know what you think.
And I mentioned that I’m recording this around the time of autism acceptance month. Perhaps autism acceptance month will be been and gone by the time I post this. But then I also think that kind of every month of the year should be human acceptance month, autism acceptance month, all of the acceptance month.
So I wanted to highlight this chapter because it, it did also
make [00:12:00] me think about what is it that makes anything accessible to anyone. Is it just that we need more free things? No, I don’t think so. It’s great I think that this ebook is being offered for free, is it that we need to be separating everything out by sex or gender To make things accessible. Do we need to have resources that are only for neuro divergent people like myself? this book was I think, mostly written for neurotypical people. And yet I don’t need like a special autistic copy and yet another autistic person might need this information presented differently.
I just wanted to go back again to that sentence, understanding gender differences in decision making can help everyone, male or female to become a more self-aware investor. And I think that’s really the crux of it, which is that when I’m trying to make my content more accessible,
The key is that there needs to be just this research and information there in the first place. And that when you come across something don’t immediately disregard it. Just like I wouldn’t immediately disregard something if it didn’t say it was designed for someone who’s autistic.
If you’re a woman interested in [00:13:00] investing, don’t disregard something
just because it seems to be aimed at men and vice versa.
Don’t be that dude who was like, well, I would’ve liked the movie, but the lead character was a female. So I just don’t see how I could ever possibly relate to this other human being. Aiii…
Let me know if you decide to download a copy of the book for yourself and any insights you get from that.
And next time I’m gonna be sharing another book on investing. If Save Like A Bear has impacted your finances positively and you want to pay forward what you’ve learned on the podcast to someone else,
there’s a few ways you can do that. One, simply share episodes with someone who’d appreciate your help. And number two, if you can’t think of anyone right now, check out previous episodes, have another listen or download your favorites again in the meantime.
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