Who invests better, men or women?
Academic research is nearly unanimous: women do. Why? Because men trade more often, incur unnecessary fees and taxes, and suffer inferior performance. (Guys, don’t worry. We’re only talking about investment performance.)
Or, as the title of a popular book put it: Warren Buffett Invests Like a Girl.
One of the most widely cited studies of investment performance by gender is a 2001 paper by Brad Barber and Terrance Odean called “Boys Will Be Boys.” In it, the authors look at the performance of over 30,000 households with accounts at a large brokerage. They found that men significantly underperformed women in their investment accounts. The difference was most pronounced—over 2 percentage points per year in returns—between single men and women.
But the data behind that study is now nearly twenty years old, collected before the advent of robo-advisors, online discount brokerages, and exchange-traded funds (ETFs). At SigFig, we were curious whether we’d find the same trend in our data set, collected from all types of accounts (taxable, 401(k), IRA, and so on) over the last 12 months.
The answer is mixed. Women definitely still invest better than men on a variety of measures — but men have a couple of habits worth emulating, too.
Trading and Performance
Men trade much more than women, executing 33% more trades, on average, in the last year. (If we measure by portfolio turnover, men have 50% higher portfolio turnover than women.) We’ve confirmed that trading more is associated with inferior performance.
Indeed, our data suggests that women earned higher returns (net of fees) than men in the last year, for portfolios of similar or even lower risk. The difference is on the order of 25-50 basis points, however, and the time period short. We’ll keep an eye on it.
Here’s where the story gets more mixed.
Men tend to hold more individual stocks than women as a percentage of their portfolios (29% vs 24%). But they also hold more ETFs than women (17% vs 12%). ETFs tend to be cheaper than traditional mutual funds and less likely to be actively managed.
Indeed, when we look at the fund expenses our users are paying, women pay slightly more, 0.48% for women vs 0.42% for men annually. That doesn’t take trading fees or taxes into account, however, which is probably why women still outperformed men.
Not so different
We’re stereotyping here. Male and female investors are more similar than different. It would be easy to find an individual woman who day-trades or a man (such as this writer) who sits on a low-cost portfolio and rebalances it once a year.
But the differences are real. Women who have to endure lectures about investing from the men in their life have every right to smirk and ignore them.