As a group, women still feel unsure about investing our money. According to a Prudential study, only 5 percent of women surveyed consider themselves “very knowledgeable” about financial products. It doesn’t have to be this way, and women cannot continue to miss out on the opportunities the stock market has to offer.
Here’s how to quit being afraid of investing and start making serious cash.
Why You’re Scared
The Prudential study found women worry about risk more than men do: While 70 percent of men said they were willing to take risk for the opportunity of reward, only 49 percent of women agreed. In fact, 59 percent of women said they are solely interested in guaranteed financial products (like annuities and FDIC-insured accounts).
Women’s resistance to investing may simply be lack of confidence with finances in general. Two out of five affluent women (41 percent) say they are “not at all” confident in their ability to invest, according to a Wells Fargo survey. And women might be shut out from receiving investing advice. According to a Fidelity study, only 47 percent of women are comfortable talking about money and investments with a professional, and eight out of 10 confess they have avoided having financial conversations with family and friends.
The Reality: Women Make Great Investors
Women’s lack of confidence in investing is unfounded. Fidelity’s analysis of more than 12 million investors showed that women’s investments performed stronger in the long term than those of their male peers. A seven-year University of California, Davis study echoed those results: Individual female investors outperformed individual male investors by 2.3 percent, and female investment groups outperformed male groups by 4.6 percent.
Why do women do so well when they finally enter the market? The UC Davis study points to different behavior between male and female investors. For instance, men trade stocks 45 percent more often than women, and that excessive trading reduces men’s net returns by 2.65 percentage points per year, contrasted with 1.72 percentage points for women.
Women are more likely than men to be hands-off investors, which allows them to stick to a long-term investment plan instead of reacting impulsively to small market fluctuations. For instance, a study from automated investing platform Betterment shows that female investors sign into their accounts 45 percent less often than their male counterparts and change their asset allocation 20 percent less often, resulting in better long-term returns. Because women approach investing more passively, they are naturally more positioned to succeed in the market.
So rather than getting anxious about investing in the wrong products or not investing the right amounts, focus on simply investing, period. Consistent investments over time — with periodic checkups for diversification and goal setting — will yield results. And getting started is easier than ever with automated investing platforms such as Betterment and Acorns, as well as low-cost mutual funds and ETFs. It’s time for women to stop sitting on the sidelines and start maximizing their potential.