Why Women Make Good Investors

Not to be competitive, but studies show that women are just better investors than men. Here’s why, and the lessons you can learn for yourself.

Written by Carla Fried / March 2, 2022

Quick Bites

  • When it comes to investing, most women say they just aren’t feeling it, but women are in fact good long-term investors.
  • In a recent Fidelity study, on average, women’s annualized investment performance was 0.40% better than men’s.
  • A hands-off approach works to women’s advantage.
  • So does the ability to weigh when to be conservative and when to be aggressive with investments.

Most women insist they don’t have investing chops.

Just one in three women recently surveyed by Fidelity said they feel confident in making investment decisions.[1]

That’s in line with another survey conducted by the FINRA Investor Education Center and the George Washington University School of Business Global Financial Literacy Excellence Center. For comparison’s sake, about half the men in the FINRA survey reported they are comfortable making investment decisions.[2]

The news was a bit better when Merrill Lynch Wealth Management asked the investing confidence question a few years ago. About half of women said they felt good about their investing capability, but there was a whiff of dread: Even more women—61%— said they would rather talk about their own death than money.[3]

Yet that lack of investing confidence doesn’t translate to poor results. The cold hard truth women need to face up to is that they are plenty good long-term investors.

Good as in better than men, on average.

Yes, better.

Yes, really.

We’ll get to the details in a sec. But job one for any woman who grapples with investing confidence gremlins is to “shift your mindset,” says Atlanta financial planner Russ Thornton. “So many women don’t give themselves enough credit.”

His message for self-doubting new clients at his firm, Wealthcare for Women, is that any woman who has succeeded in a career or raised a family or contributes to their community has no reason to doubt her ability to invest.

“Don’t go into this thinking you have one hand tied behind your back,” he says. “You got this.”

That’s not cheerleading. Women have plenty of reasons to be confident in their investing capabilities. Read on to find out why, and the strategies you can use to your own advantage.

Inside this article

  1. Women trade less
  2. Patience is a superpower
  3. Taking appropriate risks
  4. Keeping it simple can be smart

Women trade less, and get better returns

More than 20 years ago, two academics got their hands on the stock trading activity for more than 65,000 households over a six-year period. In a paper titled “Trading Is Hazardous to Your Wealth,” they showed that the more an individual traded stocks, the worse their returns.[4] By a lot.

During a period when the S&P 500 delivered an annualized return of 17.9%, the average return earned by investors in this mega dataset was 16.4%. And the most active traders earned just 11.4% annualized.

In behavioral economic circles, trading is a manifestation of overconfidence, which boils down to the fact that we humans are hardwired to think we know more than we do. Research has shown that while women aren’t immune from overconfidence, when it comes to financial matters, men are more prone to fall under its spell, which leads to more trading.

In a companion paper the academics took a gendered look at how trading impacts investment results. In “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment,” Brad M. Barber and Terrance Odean reported that men traded 45% more, on average, than women, and in the process generated worse returns.[5]

To be clear, trading caused both men and women to do worse, but the hit was worse for men. Trading reduced men’s returns by an average of 2.65% a year in the six years the academics studied, compared to women’s trading activity reducing their annual returns by an average of 1.72%.

Single men were even more trigger-happy, trading 67% more than single women. The trading among single men reduced their annual returns by an average of 2.9%, compared to women’s returns being reduced by 1.44%

More recently, Fidelity took a look at more than 5 million retail investment accounts. In the 10 years through 2020, women, on average, traded about half as often as men, and their annualized performance was 0.40% better.

Of course, investing is not an inter-gender competition. It’s a process to help pay for future goals. Period. Full stop. But these data suggest that any women questioning their investing capabilities, and perhaps holding back given a lack of confidence, should reconsider their wariness.

Patience is women’s investing superpower

Before he became a Certified Financial Planner specializing in helping women who are navigating divorce or being widowed, Joe Goldy was the branch manager at a discount brokerage that catered to day traders. “At least 90% of the day traders were men, and the majority didn’t make any money at it.”

Goldy says that in his current role developing and managing long-term plans for Highland Financial Advisor clients, he sees a related pattern. Men, more often than women, check in about their portfolio performance, especially during the recent slide in the stock market. That jibes with what Vanguard found in a 2020 look at retail investors. Female clients logged in to their accounts at half the pace of male clients.[6]

“Once there’s an investing plan in place, women are much more hands-off,” says Goldy. That’s meant as a compliment. “The more you tinker with a portfolio the more it works against you. Sticking to a long-term plan is where I think women have an investing edge.”

Taking appropriate risks is key

There’s a nagging mischaracterization in the financial service world that women are risk-averse investors.

Melissa Walsh, a CFP whose firm, Clarity Financial Design, specializes in planning for women, says that “while many women initially appear to be more conservative,” that’s typically a temporary state.

Once Walsh helps them craft a plan that addresses the need for safe savings for emergencies, she says women are then plenty willing to take more risk to meet their longer-term goals.

“She is typically comfortable knowing that there will be market volatility and price changes in her long-term investments because she knows she has a plan to meet her near-term goals with more conservative investments, and a plan for meeting her longer-term goals with more aggressive investments,” says Walsh.

That’s what Vanguard found a few years ago when it looked at the risk level of investment portfolios among its retail clients. Vanguard deemed the gender difference “negligible.”[6]

If you’re not sure how to plan/save/invest for both short-term needs and long-term goals, there’s help available for that

Don’t be cowed into thinking planning advice is just for people who have big enough portfolios to satisfy the typical mid-six-figure investment minimum plenty of advisors require before they will manage your portfolio. There’s also a large army of financial pros you can hire on an hourly or project basis to help you hatch an investing plan, and provide ongoing guidance. Check out the Garrett Planning Network and the XY Planning Network.

Keeping it simple can be smart

The investing ecosystem does its very worst to make us think that investing is hard or complicated, with impenetrable jargon and thousands of investment options.

It doesn’t need to be a heavy lift.

“There’s no need to overcomplicate things,” says Thornton. “Rather than trying to perfectly 100% optimize every financial decision and getting so mired in all the variables you do nothing,” he says a simpler approach that you can act on is obviously better.

A target-date fund (TDF) or other type of asset allocation fund makes diversified investing as easy as possible. For example, choose a TDF with a year in its name that corresponds to when you expect to retire, and you’re pretty much done. The folks running the TDF will figure out the right mix of stocks and bonds, and will rejigger holdings whenever that mix gets out of line. (For more on TDFs, check out our article on investing for gig workers; the advice is the same even if you're not one.)

In that same Vanguard study that reported women check their accounts less often than men, Vanguard also found that women have more of their money invested in TDFs and balanced funds than men. And for the record, Vanguard also reported that women traded about half as frequently as men.

“Women, at the margin, appear more aligned with Vanguard’s long-term investing principles such as diversification and discipline, ” the report summed up.

You don’t need to be a Vanguard client to appreciate that women really should be more confident they’ve got what it takes to invest for the long term. And you can use the same principles highlighted here as part of your own smart investment strategy.

Article Sources
  1. “2021 Women and Investing Study,” Fidelity, https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/about-fidelity/FidelityInvestmentsWomen&InvestingStudy2021.pdf.
  2. “Female Investors Lag Behind Male Counterparts in Investment Knowledge and Confidence,” FINRA and GFLEC, March 19, 2020, https://www.finra.org/media-center/newsreleases/2020/finra-foundation-news-new-research-female-investors-lag-investment.
  3. “Women & Financial Wellness,” Merrill Lynch and Age Wave, https://mlaem.fs.ml.com/content/dam/ML/Registration/Women-Age-Wave-White-Paper.pdf.
  4. Brad M. Barber and Terrance Odean, “Trading Is Hazardous to Your Wealth,” The Journal of Finance, Vol. LV, No. 2 (April 2000), https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf.
  5. Brad M. Barber and Terrance Odean, “Boys Will Be Boys,” The Quarterly Journal of Economics, vol. 116, issue 1 (2001): 261-292, http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/boyswillbeboys.pdf.
  6. Jennie Huang and Thomas J. De Luca, “Gender in Investor Behavior in Vanguard Accounts,” Vanguard, May 2020, https://corporate.vanguard.com/content/dam/corp/research/pdf/The-same-but-different-Gender-and-investor-behavior-in-Vanguard-retail-accounts-US-ISGRGD_052020_Online.pdf.

About the Author

Carla Fried

Carla Fried

Carla is an expert on retirement planning and behavioral finance with over 20 years’ experience in personal finance journalism. Her work has been published in Bloomberg, CNBC, Consumer Reports, Money, The New York Times, and other journalism brands.

Full bio

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