Would you like to improve your money management skills? Then think like a girl.
According to Rothstein Kass Institute, hedge funds managed by women outperformed the Standard & Poors (an index that tracks the market as whole) by 1.8% and the HFRX Global Hedge Fund Index by 7.1% in the six and a half year period ending in June 2013.
Related article: The Truth about Why Men Are Better Than Women at Earning Money
This is not the first study to suggest the fairer sex may have an edge when it comes to investing. This 2001 study from Berkeley indicated that on average women investing in the stock market beat men by about 1% point every year. That may not sound like much, but in the stock market world a consistent gain of 1% is huge.
So why are women better at managing money? Nobody knows for sure, but there is no lack of theories on the subject. Here is a comprehensive list of the 24 reasons why women may be better at money management than men.
1. Women Take Fewer Risks
Compared to men, women tend to be more risk-averse. Timing the market to make short-term profits on buying and selling stocks is extremely difficult. So difficult, some Nobel-laureate economists think it is impossible to do over the long run. By being cautious, women make less mistakes and, therefore, lose less money. (MarketWatch)
2. Men Are More Competitive
Wait a second. Isn’t a competitive spirit good for business? Not when it comes to managing money. A competitive, or “keeping up with the Joneses” attitude is deadly for both investment portfolios and household budgets. It’s much smarter to make financial decisions based on your circumstances, needs and goals not on the choices others make.
“The competitor to be feared is one who never bothers about you at all but goes on making his own business better all the time.” – Henry Ford
3. Women Are Better Students
Managing money is a cerebral activity that requires thoughtful research. Research indicates that women are better students than men and this shows when it comes to handling their finances. (NYTimes)
4. Women Are Less Self-Assured
On average, women are more realistic about what they do and don’t know and what they can and can’t control. This protects them from making impulse choices on a hunch or a misguided sense of certainty.
5. Women are Less Likely to Take on Large Amounts of Debt
According to a BMO poll, men are more likely to get into debt. Thirty-three percent of the male respondents had over $100,000 in debt as opposed to only 22% of the women. Although a willingness to take on debt can open new opportunities, not having a healthy respect of taking on too much too fast is a recipe for disaster when managing money.
6. Men Are Over-Optimistic
According to Benefits Canada, 21% of male investors (as opposed to 13% of women) admit to being impulsive with their trades. Optimism is all very good when it’s based on facts. When it’s not, it’s just wishful thinking, which is not the best foundation for money decisions.
7. Women Have Lower Testosterone Levels
High testosterone levels are associated with a drive toward dominance, impulsiveness and a tendency to take chances. For many testosterone-fueled investors, the only thing that feels better than beating the competition is bragging about it.
A woman’s lower levels of testosterone unburden her from these tendencies and give her the freedom to make more rational financial decisions.
8. Men Have More Power In The Workplace
The fact women have less power helps them make more calculated and insightful decisions. According to a study by researchers at Stanford Graduate School of Business, the dominant members of a group are more likely to overestimate their ability to control the future, which affects the quality of their decision-making ability.
9. Women Are More Likely to Collaborate
All things being equal, women are more likely to collaborate than try to go solo. This is why women are better at building bipartisan coalitions in government, and why they sponsor more bills and get more co-sponsors for their bills. (NPR)
Treating money management as a team sport is a much more efficient way to collect information and make financial decisions.
10. Women Have to Work Twice As Hard
Although things are much better than they used to be, women still have to work harder to achieve the same results in most spheres. This creates a survivor bias which could explain why female hedge-fund managers are so damn good.
The survivor’s bias is the tendency of not including in a performance study companies, people, or funds that have failed and are no longer around to be included in studies. This causes the results of certain studies to be higher than they would if they included the results of companies, people or funds that were not successful enough to survive.
To succeed as a woman in a male-centric business requires women to be better than their male peers. Mediocre females just never make it to the top, and never become hedge-fund managers, CEOs, or politicians, which explains why those who are at the top are so good.
11. Women Are Not Scared to Ask For Help
It’s a cliché but it’s true. Men are less likely to ask for help, or directions, than women. According to a report by Fidelity, women are more likely to seek information and advice from professional financial advisers (53% of women against 44% of men). Of course, being smart and humble enough to ask for help is one of the best ways to get ahead in business and get out of difficult financial situations.
12. Women Buy and Sell Shares Less Often
This is a major reason why women tend to do better than men when investing. According to Berkeley researchers, men trade 45% more than women, which reduces their net returns by 2.65 percentage points as opposed to 1.72 percentage points for women.
The smart way to invest, the way successful investors like Warren Buffet do it, is to buy shares in solid companies with big potential for growth and keep those stocks for the long run. By trading less often women also save on fees and commissions, which can quickly eat up any profits made by trading.
13. Women Have More Self Control
This is a corollary to men being risk-takers and overly confident but is worth highlighting separately. As was showed by a study by Barclays Wealth and Ledbury Research, the aggressive, self-confident and risky approach men tend to have when investing can be just as easily framed as a lack of self-control.
Women are good at managing money because they are better at controlling themselves, are more likely to buy and hold on to good investments, and avoid frequent and pointless trading.
14. Women Are Better at Goal Setting
When it comes to managing money, whether at home or on Wall Street, it’s crucial to have specific, actionable, measurable and timely goals. Without them it is easy to get distracted and lose focus.
When was the last time you saw a guy at a grocery store with a shopping list to ensure he didn’t go over budget? That grocery list was probably written by his wife.
A tendency to write lists, and set detailed goals is a big plus when you want to manage money efficiently.
15. They Have More Endurance
Men have greater brute strength than women, which is why women can’t compete against men in most sports. One exception is ultra-running, which includes any race that is longer than a marathon. In those cases women don’t only compete with men, they sometimes beat them outright.
Take for instance, Pam Reed, who won the 146-mile Badwater Ultramarathon in 2002 and 2003. What women lack in strength they more than make in endurance and tenacity, which gives them an edge in activities where grit and determination are more important than the size of your biceps, such as money management.
16. Women Love Control
Women view the world as a scarier and more dangerous place, which pushes them to seek more control in relationships and not to overestimate their own ability and knowledge. This thirst for control leads them to work harder, micromanage their employees and spouses, and ultimately get more bang for their buck.
17. Women Respond With Fear Instead of Anger
The knee-jerk reaction of men to uncertainty and danger is anger, not the best emotion if you’re aiming to maximize your investment or protect your assets. Women on the other hand, tend to respond with fear, which moves them to regroup, assess dangers and minimize damage.
18. Women are Less Likely to Extrapolate on Incomplete Information
Women are less likely to act on incomplete information. In one survey participants were asked whether having ambiguous information would dampen their confidence and raise their perception of risk; 92% of women responded yes as opposed to only 69% of men. (WSJ)
Obviously, making a habit of working off incomplete information is not great for business.
19. Women Are Better at Following Rules
Men’s tendency to ignore or break rules is an expensive habit women don’t have to deal with. According to research by the Social Issues Research Center, women are less likely to be in an accident involving the loss of life, they are less likely to break traffic laws, and four times less likely to get arrested for drunk driving.
20. Women Are More Patient
If paying off debt, following a budget or setting financial goals were sports, they would be more like playing chess and running a marathon than football or boxing. With money matters, patience nearly always wins over exuberance; and women are simply more patient.
21. Women Are More Detail Oriented
According to the American Astronomical Society, women are more meticulous and detail-oriented than men. On average they are more thorough and perfectionist than men.
The report showed that although female scientists tend to publish less articles than their male counterparts, women’s articles received significantly more citations per article than men’s articles did, which may indicate their work was of higher quality. Dotting your I’s and crossing your T’s before making a decision are great qualities both when running a business or managing a family budget.
22. Women Stress More Over Money. Period
Women are more likely to report that money and the economy are sources of stress (79% of women as opposed to 73% of men). Although this probably doesn’t help their health, women are also more likely to report physical symptoms associated with stress, it does mean they think more about money matters. (American Psychological Association)
23. Women Are More Worried About the Consequences of Financial Decisions on the Family
Wealthy people of both genders are worried about the implications of their investment decisions on the family, but women worry more. For instance, 69% of women admitted worrying about keeping their family financial level secure, while only 61% of men did. (Ledbury Research)
The difference is even greater when women have children. Women make more conservative, deliberate and patient choices than men, particularly when they have children. Women with more children under 18, make more conservative short- and long-term choices. Having children did not affect the patience displayed by men in the study. (IZA)
24. Women Live Longer, Healthier Lives
Women are less likely to smoke, abuse alcohol, or take drugs, which puts more money in their pockets to invest in more productive endeavors. They are also less susceptible to disease and live longer, healthier lives.
Women Are Better At Money Management, But…
Although it is true that, on average, women display more strongly certain psychological traits that give them an edge over men, gender is a small part of what makes us different. Defining people by their gender is not particularly useful when assessing psychological characteristics. Sex is a significant factor, but our psychological traits vary much more across individuals, regardless of gender, than between men and women. Men and women are just not that different in how they think. (University of Rochester)
Having said that, investing like a stereotypical girl really is the best way to manage your money. In other words: Be cautious, avoid excessive risk, invest into well-run companies, hold on to those shares for the long haul, and don’t be scared to ask for help. Set specific goals, avoid risks, don’t trick yourself into thinking you know more than you do, and research thoroughly before making a financial decision.