Women Better at Stewarding 401(k) Plans, Too

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Add it the list: women are better than men at stewarding their retirement accounts, at least if we define better as "more likely to be in the game."

Earlier studies have already indicated that women outperform as hedge fund chiefs and as stock traders, but now a study from Vanguard shows they do better in important respects with their 401(k) accounts, too.

Crucially, not only are women saving at higher rates within given income bands, they are 14 percent more likely overall to participate in workplace savings plans.

If, as the saying goes, you miss 100 percent of the shots you don't take, participating has to have an outsized value when it comes to retirement saving.

Compared to men, women trade less, about a third less among the more than 3.6 million plan participants for which Vanguard directly provides record-keeping. As the typical investor destroys value through frequent trading, that's a wise choice.

Women also save more, at least as a percent of their incomes, which are lower. When you control for wages, age, tenure on the job and other factors, women 401(k) savers defer salary into plans at a rate 3 percent higher than men.

Interestingly, that's true up and down the earnings scale, including at lower wage levels, where saving for retirement can be difficult.

Crucially, not only are they saving at higher rates within given income bands, women are 14 percent more likely overall to participate in workplace savings plans. Interestingly, the spread of automatic enrollment in plans is therefore likely benefiting male employees more because more of them would, for whatever reason, otherwise pass.

"Despite a commonly held view that women are more risk-averse than men, equity allocations for women and men are similar in their defined contribution plan accounts," according to the study.

Women are more likely to use target date plans, which shift allocations gradually ahead of a planned retirement date. Those plans have their shortcomings, but they are usually far better than simply making your own trading decisions. Women overall are more likely to turn over their asset allocation decision to a professional, and as a result tend to have better constructed portfolios.

Men also are more likely to hold shares in their employers in retirement accounts. Employees are already making a substantial bet on their company by working there. From a diversification and risk management point of view owning too much of an employer's stock can be a mistake.

Being Right vs. Making More

Here is the funny thing: at least during the period the survey covered, men did slightly better in terms of annual return. The average annualized five-year total return for men was 10.1 percent for the period ending 2014, against 9.7 percent for women. Data wasn't supplied for the rockier previous five-year period.

None of this should be surprising, particularly the propensity to not trade needlessly. A survey by hedge fund research company HFR released this year showed that hedge funds run by women racked up 59 percent total returns since 2007, against 37 percent for the average fund.

It also tends to rhyme with a 2014 report from Merrill Lynch based on a survey of their investors showing that women were less likely to want to personally make regular changes to their investment approach in order to beat the market. Women were also more likely to say that they know less than average about finance and investing. Given how poorly the typical investor does on his or her own, that kind of humility is a good thing.

Analysis firm Dalbar, which for 21 years has been monitoring how poorly individual investors actually do, found that in 2014 the average investor in a stock market mutual fund underperformed the market by 8.19 percentage points. Fixed income investors also trailed. Both do poorly mostly because of bad decisions about getting in and out.

Far be it from me to say why women are less overconfident, but men, if they'd like to be better investors, might want to take note.

Knowing that you don't know is the difference between a settled ignorance and a proper caution. For women as investors, it seems, that makes all the difference.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. You can email him at jamessaft@jamessaft.com and find more columns at blogs.reuters.com/james-saft).
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