Women investors have unique strengths. Over the last few years, several studies have found that women investors outperform men significantly. The first of these, by the University of California at Berkeley, found that women outperformed by a full percentage point over a six-year period.

What gives women investors their investing superpowers? It’s a combination of several factors, and the good news is that it isn’t limited to women with a high degree of investing skill or acumen. Instead, the difference comes down to things women are already adept at doing in their daily lives.

Women currently hold over $10 trillion of wealth, according to McKinsey & Company, and this amount is projected to increase to over $30 trillion in the next three to five years. We take a look at why women investors have an edge – and one thing that may hold them back.

Women Put Goals First

Women tend to focus on an end goal, whether it’s long-term or short-term. Having a goal in mind, like saving for retirement, kids college, or buying a house, means that women are motivated to stay invested until the goal is achieved, regardless of market movements.

Staying invested throughout market turmoil means that you may experience downturns, but you recover along with the market. Trying to time an exit and entry point often means missing the best days. Bank of America looked at returns for the S&P 500 by decade, going back to 1930 and ending in 2020.

Missing the ten best days of each decade resulted in a total return across the entire time span of 28%. An investor that experienced all the ups and the down by remaining invested the whole time ended up with a return of 17,715%.

They Develop a Plan

Because women are goal-based investors, they do not tend to chase returns. Instead, they focus on developing a plan that can reach their goal. They ask questions before they make investment decisions and are open to advice. The end result is often a more balanced plan, with greater diversification across asset classes. This can help ride out market downturns.

Patience is a [Female] Virtue

Patience is also a key watchword. Once a plan is in place, women tend to be more “buy and hold” investors. They are less likely to trade their accounts actively, so they may avoid higher levels of transaction costs. Over time, transaction costs can significantly bite into portfolio return, so a less active strategy can passively add to performance. A University of California, Berkeley study showed similar findings, reporting that women traded 45% less frequently than men. While men’s trading activity reduced their yearly returns by 2.65% per year, women’s reduced theirs by 1.72%

One Thing to Watch – Keeping Too Much on the Sidelines

While being a conservative investor can preserve capital, it may also result in leaving behind opportunities. Women tend to be more conservative in their investments, resulting in a lower risk profile. When the risk profile is intentional and is part of a fully-invested plan, the level of risk can be dialed up and down, depending on the market and economic outlook. Being careful about risk can actually lead to better returns over time, as volatility may be lower.

However, when the risk profile is low because the plan is not fully invested – meaning when the percentage of cash is too high – this can result in giving up significant returns over time.

Often, holding cash is the result of a need for financial security. Women still make less than men over the course of their careers, and women’s careers are often interrupted as they care for children or parents. Holding excess cash over and above a fully-funded emergency fund may provide a sense of safety.

However, it can also result in lower long-term returns. If this is a concern, creating a plan with flexibility that allows for both growth and capital preservation may help female investors get more comfortable with being all-in on an investment plan.

A New Generation Is Starting Early

A 2023 survey by Fidelity in recognition of Women’s History Month found that 81% of teen girls “would like more hands-on ways to learn about investing and personal finance.” This generation understands the value of getting involved and learning by doing. The study found that women between the ages of 18 and 35 reported an average age of 21 for opening their first brokerage account. For comparison, women 36 and older were, on average, 30 years old when they opened their first brokerage account.

The Bottom Line

Women are a financial force, and increasingly they see investing as a way to achieve their financial goals alongside career success. Starting early and sticking to the principles that make for good investors isn’t confined to women – they can be practiced by anyone.

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Collabria Capital, Inc. is a San Francisco-Bay Area fee-only fiduciary financial planner& investment manager providing wealth management services to clients locally and virtually throughout the US.

Paul Saad, Co-Founder at Collabria Capital, Inc, is a CERTIFIEDFINANCIAL PLANNER™ (CFP®) focusing on comprehensive financial planning, personalized investment management, and equity/variable compensation.

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The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.