Women: the stock market money makers

Posted on March 24, 2016 by Eleanor McKenzie
Businesswoman looking at investment portfolio

The City of London is by tradition a male stronghold. It is a man who is Governor of the Bank of England and it was ever thus. Dark suits and crisp shirts in colours that rarely stray far beyond the spectrum of pale blues and white, with perhaps some soft pinks allowed these days, are the finance centre’s uniform. The finance markets tend to prefer a conservative ambience and the status quo is quite strictly observed; women may be more able to establish careers in the financial sector, but it is still a widely accepted truth that men are better with money.

Added to this, women are still generally more reluctant to put their spare cash in stock market investments than men, and that’s not surprising when generations of women have been raised to believe that this kind of thing should be left to males. And, you may think, that once you’re in your 50s or 60s there’s little point in learning about investments anyway because of the belief there isn’t enough time left. It may surprise you to know that investment banks and academics have known for some time that women are actually quite astute when it comes to investing. It’s time we discovered the research and ventured beyond our pension plans.

Testosterone, risk aversion and finance

Many women in careers have a private pension plan, but they still feel wary of the stock market. Despite women in their 50s being members of  “the most educated generation of women in history,” we still feel we don’t have the knowledge needed to make sound stock investments. There’s a suggestion that lack of testosterone makes us risk averse, according to a very interesting study of MBA students by researchers at the University of Chicago. It revealed that if you have high testosterone levels at birth, which leads to lower levels of risk aversion, then if you’re an MBA graduate, you’re much more likely to choose a risky career in finance. And, you’re more likely to be male.

Yet, a study called “Women and Investing” by leading investment bank Merrill Lynch shows that when women do invest in the stock market they do rather better with their investments than the chaps, despite having lower testosterone levels. In fact, the Merrill Lynch study suggests that is precisely because women have less testosterone that they do so well at investing. Well, there’s a turn up for the books and as the Dowager Duchess of Grantham might say, “Put that in your pipe and smoke it!”

What else makes women different?

What is the key difference? Well, apparently women make fewer investment errors than the gung-ho males who like to take a ‘bullish’ approach to this kind of thing, and look where that has landed some of them. I’m sure you remember Nick Leeson, the broker who brought down Barings bank. Women also make fewer trades and according the Wall Street Journal this means that they are less likely to make a trade at the wrong time. Obviously, men are pretty good at making investments, and I wouldn’t want you to think otherwise, but the point that needs to be recognised is that women can do just as well, so it’s time we took advantage of our skill.

What should women do?

We’re certainly better savers than men, regardless of income bracket, as the Wall Street Journal article also shows. Women tend to think in terms of the longer-term and are more goal-oriented with their savings, such as paying college fees for example. We are also more likely to seek more professional advice than a man who often prefers to do his own research and assessment of opportunities. The only reason that women end up with a smaller nest egg at the end of their working lives is generally because we earn less than men.

Women need to build confidence in our ability to invest and realise that it’s not too late to start now, because you can actually see a return on investment within five to 10 years. You don’t need to have a lump sum to invest; you can invest through “pound cost averaging” in which you invest a monthly sum and stand the best chance of making the most of the market’s fluctuations whilst also minimising your risk. If you’d like to learn more about becoming a ‘money maker’ then savvywoman website and Mrs Moneypenny’s Financial Advice for the Independent Woman are good places to start building your cash and shaking the foundations of the City – well, just a little bit.

 

by Eleanor McKenzie

Eleanor McKenzie is a Northern Irish writer with a passion for art, literature, and red wine. She's worked at advertising agency JWT, edited a journal for a European social policy think tank and tried to teach teenagers the difference between "there" and "their". Being 50+ has not significantly changed Eleanor's life, although she finds it a handy excuse when she wants to avoid anything too energetic.