The larger retirement nest eggs of men are often wrongly attributed to better investing performance. Women live longer than men but have less stashed away for retirement – $63,700 versus $95,800 for men. The retirement savings difference is not because of investment performance but rather the higher salaries of men. Women take home about 80% of what men do.
Despite the smaller salaries, women invest more of their income and grow their investments faster, owing to their more conservative investing habits than men. With the more volatile investment environment in Asia, however, women could benefit from adopting some of the more active investment strategies of men.
Lack of Confidence
The investment industry is actively trying to woo women into taking more investment risk. A main obstacle is women’s lack of confidence in themselves as investors and the investment community, found the Fidelity Investments Money FIT Women Study.
“Our analysis of more than 12 million investors shows that women actually demonstrated stronger saving rates than their male counterparts and enjoyed better long-term investment performance when they did engage. Unfortunately, too many women still hesitate to take control of their finances,” says Kathy Murphy, president of Fidelity’s Personal Investing unit.
Murphy’s boss, Abigail Johnson, chairman of Fidelity Investments, is one of a number of influential women in wealth advisory to make a commitment to doing more to customise investment products and services for women in recent months.
The lower risk tolerance of women could put them at a disadvantage in Asia’s more volatile stock markets. Value investing as it is practiced in the West can introduce added risks in the East, notes Singapore’s value investment king Teng Ngiek Lian. Higher risks accompany higher growth, he says, including political instability, shorter business cycles, corporate governance and liquidity risks. Lian is known for turning $5.5 million into $2 billion through his Target Asset Management fund.
These higher risks and thus volatility can mean higher risk of loss when stocks are held long term. Most women consider themselves value investors who profit from buying undervalued companies and holding them. Lian recommends selling when the market is rising and buying on dips. While value investing historically outperforms active investing even in volatile markets, placing a small percent of funds in a more active fund could help reduce risk and capture more upside.
How Women Can Invest Better Than Men
Women can also become more active in managing how they invest.
Participate in company work programs – Over 60% of women are not participating in company retirement or savings plans, says Fidelity.
Build a relationship with an Investment Advisor – Women cite trust as one of the major reasons why they do not use an investment advisor.
Become more active in household finances – A surprising development is that while women have become a more powerful economic force, younger generations of women are less involved in family finances.
It is not that women are not thinking about finance. To the contrary, many are thinking about big investments that their mothers never dreamed of making – attracting crowd funding for a new idea, becoming an angel investor, or securing venture capital for a business. Concerning how they retire, younger generations suffer from a very high risk over confidence bias. They believe they will become wealthy through entrepreneurial efforts and will not need the retirement savings.
The original version of this story was published in The New Savvy on September 21, 2016.
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