|
 |
|
|
Women Have The Upper Hand When It Comes To Investing |
| |
Men may strive to be kings of the jungle in the business world, but their aggressive striving and risk-taking makes them poorer investors than women, according to several studies.
Financial researchers attribute disparities in performance between portfolios managed by men and by women to overconfidence on the part of men.
In the latest study, researchers for Vanguard Investment Counseling and Research, an arm of the Van-guard mutual fund firm, found that men were more likely than women to abandon stock holdings in their individual retirement accounts during the recent bear market.
Missing the rally
Women were 10 percent less likely to abandon the stock market at its lows than were men, Vanguard found in a survey of its 2.7 million IRA accounts.
Such behavior can lead to poor investment results, because those who flee the market when things are bad usually are still on the side-lines during sudden, sharp recoveries like the one that began in March 2009.
The Vanguard findings corresponded to other studies of investment behavior by gender.
"There's been a lot of academic research suggesting that men think they know what they're doing, even when they really don't know what they're doing," John Ameriks, one of the authors of the study, told The New York Times.
Boys will be boys
The classic study on gender behavior, titled "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment," studied the trading patterns of 35,000 house-holds between 1991 to 1997 and found that male investors traded more frequently than women, incurring higher costs and realizing lower returns.
The study found that men traded stocks about 50 percent more frequently than women and that, on average, their investment performance suffered by more than 1 per-centage point per year compared to women.
The study's authors, Brad Barber of the University of California at Davis and Terrance Odean of the University of California at Berkeley, noted that there are plenty of differences in investment style among men and among women, and that not all men are necessarily bad traders nor are all women necessarily good traders.
MEN ARE HURT BY OVERCONFIDENCE IN THEIR INVESTMENT ABILITIES
Odean and Barber theorized that overconfidence is the main driver of investors who under-perform the market. "Overconfident investors overestimate the precision of their knowledge about the value of a financial security," they wrote in their study.
Many psychological studies have argued that, on average, men display more over-confidence than women.
One study cited by Odean and Barber found that "men are inclined to feel more competent than women do in financial matters."
Although short-term movements in the stock market have been shown to offer very little predictive information about the future, it appears that men spend more time than women trying to make sense of it, Odean and Barber found.
Men's overconfidence in their own interpretations of events apparently leads them to trade more frequently, the study found. It quotes 19th century humorist Josh Billings on this phenomenon: "It's not what a man don't know that makes him a fool, but what he does know that ain't so."
©OSB Financial Services, INC. rights reserves. Information has been obtained form sources believed to be reliable, but its accuracy and completeness and the options based thereon, are not guaranteed. Always consult your a financial adviser and prospectus before making an investment
©2010, Kelly Ruggles Web site
Kelly C. Ruggles is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, President of American Reliance Group, Inc., a registered investment advisor.
Kelly Ruggles is the author of "The Financial Playbook" for Retirement
Kelly C. Ruggles does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions
|
|
|
|
