Why women have an edge over men when it comes to long-term investments?

Women choose the financial products carefully, do not get easily lured by the short term returns, do not take blind risks as well as think of the long term, and keep on investing with discipline and focus.

“Invest like a woman is what you learn from this,” Lorna Kapusta, head of women investors and customer engagement at Fidelity Investments was quoted as saying in a report published by The New York Times in Oct 2021. The context of her comment was the Fidelity Investments’ 2021 Women and Investing Study that was conducted by the firm in the USA to gather insights into women’s attitudes and behaviors when it comes to managing their finances. In what turned out to be a pleasant surprise, the report stated that an analysis of more than 5 million Fidelity customers over the last ten years revealed that women outperformed their male counterparts by 40 basis points or 0.4%.

Female curiosity makes research a priority for them and they are aware of the risks as well as the cumulative benefits of their investments

Kapusta cited multiple reasons for women’s investments to broadly outperform that of men. “The first is that they trade less, allowing them to ride out market lows and avoid extra fees. They also tend to invest more consistently, which means they aren’t trying to time the market. Past research has also found women outperform men for similar reasons,” a report said.

While the study was limited to the US, it would not be a wild exaggeration to say that the Indian retail investment landscape has strikingly similar terrains. Investment patterns across the globe are linked to varying degrees with gender. In fact, a study conducted by ET Money found that in each of the past four years, women investors on ETMONEY earned around 10% more returns every year as compared to their male counterparts, with their investments offering the best returns in 2020.

Gender stereotypes and conditioning

Since time immemorial societal traditions have restrained women from taking independent financial decisions. In India, women have had to seek comfort in being granted monthly allowances from their husbands for managing household expenses and the occasional personal indulgences with the unspoken expectation that they had to save some of it too. Major investment decisions did not warrant their opinions and it was and continues to be a male bastion in many households.

Urmila Singh of S9 Financial Planners says, “Based on my experiences with my female clients, I have observed that women tend to be more inquisitive than men. They want to know all, understand all and then come to a conclusion. This curiosity makes research a priority and they are aware of the risks as well as the cumulative benefits of their investments.”

Conversely, gender binaries also enable men to develop underserved convictions in their investment decisions. A sense of overconfidence that stems from the erroneous analogy that the presence of testosterone guarantees a certain degree of financial acumen makes men take unnecessary risks and can foster greed too. This too has a bearing on the cumulative performances of investments of men in the long run.

Aditya Birla Sun Life Mutual Fund has started a special initiative called For Her that focuses on financial inclusion of women and intends to provide them avenues for financial security.

Another factor that plays out in favour of women in the game of investments is that patriarchal tropes have always made it hard for women to be candid about their emotions. They are always expected to be an epitome of serenity, poise and restraint even in the most challenging circumstances. Knee-jerk emotional responses from women continue to raise eyebrows and ironically it is this same internalized prudence that makes women better investors.

Preeti Zende, founder of Apna Dhan Financial Services says, “When we compare the behavior of women and men investors many will be surprised to know that women investors’ long-term returns are more compared to men. This happens because of the inherent nature of women to be tenacious. Women choose the financial products carefully, do not get easily lured by the short term returns, do not take blind risks as well as think of the long term, and keep on investing with discipline and focus. All these factors lead to better long-term returns as there is less churning of portfolio and they stay invested irrespective of market scenarios.”

While women may be far from achieving parity with men in terms of financial participation and conclusion, there can be a lot of investment lessons that can be learnt from the behaviourial patterns of the two genders, Zende says.

Key takeaways

1. Trusting the male members of your family in financial matters is a different thing and following them blindly should be a complete no-no. Learning the ropes of investment has to entail a certain degree of involvement on the part of the women themselves without relying on their partners, brothers and fathers.

2. Have a clear picture of your short term, mid-term and long term goals with timelines assigned to it.

3. Female curiosity makes research a priority for them and they are aware of the risks as well as the cumulative benefits of their investments

4. Women choose the financial products carefully, do not get easily lured by the short term returns, do not take blind risks as well as think of the long term, and keep on investing with discipline and focus.

This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.