Risk averse – or just aware?
Countless studies show that women aren’t as afraid of investment risk as many seem to think.
There’s a myth that’s been circulating for some time that, when it comes to investing, women are generally risk averse – and more so than their male counterparts. However, when you dig a little deeper, it seems this idea is more fiction than fact.
Bloomberg recently reported some interesting findings from Riskalyze that show women actually fall pretty evenly across the risk spectrum. From a sampling of 5 million users over the past five years, just 37% of women have a below-average tolerance for risk, 25% have an average tolerance, and 38% have an above-average tolerance. From this data, it seems just as likely for a woman to be risk averse as it is for her to be risk tolerant.
What’s more is that when looking at the actual investment behavior of men and women, it’s even harder to see a difference in their choices. Stash, an investing app, found that men and women dedicate roughly the same percentage of their portfolios to stocks – which can be considered a riskier investment.
This is again confirmed by a 2012 meta-analysis of more than 25 economic studies on the risk tolerance of men and women. Researchers found that the difference between the two genders was negligible. In fact, they concluded that the perception of women as cautious investors “appears to perhaps be rooted more in confirmation bias than in reality.”
Of course, we do know that there are some proven distinctions between men and women as investors – namely that women are actually more successful. A study by the University of California at Davis discovered that men traded more often and had worse returns as a result. Women, on the other hand, are more likely to play a longer game, which has been proven to pay off.
All these things considered, it seems that women are not so much risk averse as they are risk aware – a valuable quality to have on your side. After all, the more aware we are of the risk involved in our investments, the more thoughtful we can be when managing our financial plans. Better still, being risk aware can help to steady us in time of turmoil where we might be tempted to give into emotion and make a hasty buy or sell.
Whether it’s a confirmation bias that has us thinking women are cautious investors, or an overconfidence bias that can lead one to believe they can time the market, we should all be diligent in checking our biases and keeping our emotions from driving our behavior in a negative direction.
Fortunately, your financial advisor is there to act as a guidepost and help keep you on track to reach your financial goals, both in calm and turbulent markets. They can also offer some clarity as to how your risk tolerance and awareness add up.