Investing Tips Men and Women Can Learn From Each Other
Over the years, the sales rack at Amazon (AMZN) has said that you should think like a man, date like a man, play like a man. Simultaneously, it's said you should win like a woman, act like a lady, fight like a girl. But who should you invest like? Although women investors -- on average, at least in one large and oft-cited study -- outperform male investors due to the fact that they trade less frequently, the answer, experts say, is both. Both men and women have strengths you'd want to appropriate for your portfolio.
Here are a few things your spouse, partner, friend, brother or sister can teach you:
If you're a man:
Diffidence. Terrance Odean and Brad Barber, both professors of finance at the University of California, completed a study in 2001 called "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment." The title says it all: Men, in general, tend to be a bit too surefooted when it comes to investing. "We found that men traded more actively than women, and so attributed that, at least in part, to overconfidence, being too sure of themselves in terms of stock picking and too willing to trade on perhaps too little information," explains Odean.
Perspective. Keep in mind that these days, the average investor who trades actively is in competition with professional investors who have more experience and better information. It's very difficult to win.
If you're a woman:
Take more risk. That's right – men may be taking too much risk, women too little. The key, of course, is to strike a balance. Odean says there is evidence that women tend to invest less in equities, likely because we're a bit more risk adverse. But equities are a key part of your portfolio. They are a primary contributor of growth, which will help you hedge against inflation and earn more money.
Understand asset allocation. Even if you're knocking on retirement – or in retirement, for that matter – you need stocks in your portfolio. A good rule of thumb is to subtract your age from 100. The answer is the percentage of your portfolio you should have in equities: If you're 40, that's 60%. "I don't know what the magic number is, but I do know it isn't zero," says Odean. "And so I think a lot of women would benefit from being a bit more aggressive in their overall portfolio, in terms of asset allocation, but not in terms of trading."
Finally, both genders should understand that they key to investing is really consistency. If you get the right asset allocation, diversify, double check that you're on track on a regular basis, and then set up automatic contributions each month, you'll come out on top. "In our sample, neither men nor women profited from active trading. It's not like women made good picks and men made bad picks – both didn't make good picks, but men made more picks. It's not a great analogy, but it's a little bit like roulette: Neither men nor women tend to win, but whoever places more bets loses more," explains Odean.
