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Maximizing Potential: Why Women Succeed As Investors

By: Karyn Damschen

Much has been written about the reasons women investors arrive at retirement with less money than men. One of the most obvious reasons is that women are likely to take time off during prime earning periods to have children or take on the role of caretaker for elderly relatives. And despite significant progress in pay equality over the past few decades, women continue to make about 80% of what is paid to their male counterparts. All of these factors result in women being unable to squirrel away as much money as men during their top earning potential years.

If this paints a grim picture of women’s ability to successfully invest and prepare for retirement, don’t fret: while women may have less money to invest, they often do so with more success than men. Much like in many other areas, women and men often differ in how they approach investing. While there are many ways that men and women view and approach investing differently, a handful of them stand out as reasons why women are often better investors than men.

Ask questions and make connections

Before GPS technology was readily available on our omnipresent smartphones, asking for directions from strangers was a normal and expected social interaction. The adage that women were more likely to ask for directions is true. Men tend to seek out – due to both social conditioning and innate gender differences – advice and assistance less often than women. The same holds true in the sphere of investing. Women tend to foster more significant emotional and personal relationships with both their financial planners and the companies in which they choose to invest. By cultivating these relationships, women are often likely to become more learned and skilled investors. Establishing honest and trusted relationships with planners help women investors effectively share their risk tolerances (which is key to successful growth).

Invest with your heart

Women are also more likely to invest in companies that interest them beyond mere stock performance.  By investing in companies in which women find meaning – be it passion for the product or a desire to support a company’s commitment to corporate social responsibility – women tend to have a prolonged and multi-faceted investing passion that translates into a deep and lasting interest in those companies’ stock performance. This ability to prioritize and nurture these relationships over the long run is crucial to staying the course through the occasional stormy times that are inevitable for any investor. Knowing more about the companies in which one invests and feeling a personal connection with its products and core values enhances the feeling of being intimately involved in the process. Equally important is the profound emotional satisfaction of reaping financial rewards buoyed by ethical corporate behavior that mirrors their own values.

Proceed with caution

In addition to seeking advice and assistance more readily than men, women often take a cautious approach to investing that involves less trading than their adrenaline-driven male counterparts.  Fewer trades translate into lower fees. Measured over the course of a year, women who exercise more restraint in trading than men see a slightly smaller reduction in net returns due to fees as a result.  Slow and steady often wins the race, and women find themselves slightly ahead of men with their cautious and measured approach to trading.

Build on your knowledge

This patient and cautious approach also manifests itself in a more immersive approach to learning about investing fundamentals in general.  While men are more apt to simply dive into investing armed with a heavy dose of individualism and bravado, women tend to dip their toes into the investing pool slowly, learning the ropes and seeking out information and advice first. This approach leans towards more sophisticated investments, which helps yield sufficient investing and paves the way for reaching investment goals. The more impulsive approach by men may sometimes pay off, but slowly and cautiously moving from neophyte to educated investor often gives women an advantage in reaching long-term goals in a less stressful manner. By buying when it is financially feasible and selling when their goals are attained, female investors can avoid the pressure cooker stress that frazzles many freewheeling male investors.

The importance of family

Since women traditionally assume the role of caregivers for their children -and other relatives in times of need – they are more likely than men to take time off from their careers to fulfill these family duties. Because of sacrificing earning power during their earning years, women are likely to compensate for this gap by devoting a higher proportion of their portfolios in growth-oriented equities. This often results in a higher return on investment. This is a direct benefit of the steady approach associated with female investors in general. Women also prioritize family by making sure to leave money for their children and this emotionally based approach also falls in line nicely with their cautious and disciplined approach to investing.

The right amount of risk

The measured and thoughtful approach women bring to investing generally involves taking fewer risks than male investors. By investing with the right amount of risk – along with deep reserves of patience and a prudent long-term approach – women can actually earn higher rates of returns than men.  By avoiding the penalties that men can face by trading in and out of stocks more often, women investors can turn what is viewed as a potential disadvantage (lack of risk) into an extended formula for success.

The dilemma for some women interested in investing stems from one of the traits that can make them successful investors. Extreme caution can lead to risk-averse thinking that prevents them from becoming investors at all. By postponing investing until feeling they are educated and comfortable enough to take the plunge, women can find themselves in a debilitating predicament with detrimental long-term consequences. However, their willingness to seek out advice and nurture relationships can help maximize their potential by finding a skilled advisor to provide guidance in investing early and wisely.  When women emphasize their strengths as educated, patient and conscientious investors, the sky is the limit.