Berkeley researchers found that female investors earn almost a full percentage point more than men each year. Does that mean they’re better at picking winners?
As it turns out, that’s not the case at all.
Women outperform men because men trade stocks 45% more often than women, and the resulting fees cut into their profits. Trading reduced men’s net returns by 2.65 percentage points per year compared to 1.72 for women.
Why do men trade more often? Overconfidence, the Berkeley study found. Male investors overestimated their investment abilities, knowledge and future prospects.
The study analyzed the trading records for more than 35,000 households, separating accounts opened by men from those opened by women. The data show that the average turnover rate for men’s common stocks were nearly one and a half times that of women, thus reducing their net returns by .94 percentage points.
And the presence of a wife in the household ensured better profits for men. Single men traded at an even higher rate than married men – 67% more often than single women – and reduced their profits by 1.44 percentage points more than single women.
Women also bring a different mindset to the stock market. They are in it for the long haul, according to Kathy Murphy, president of personal investing at Fidelity. They invest with a long-term goal in mind, like saving for kids’ college educations or retirement. Men, on the other hand, see the stock market in competitive terms, and try to beat the market.
Nearly 90% of women will have to take sole control over their finances at some point in their lives, said Edward Jones Investment Strategies Kate Warne, because women usually outlive their spouses, divorce rates continue to rise and women are getting married later in life. So it’s important for all women to gain as much investment confidence and experience as possible.