Tracie McMillion, CFA®, is Head of Global Asset Allocation for Wells Fargo Investment Institute.
In my role at Wells Fargo Investment Institute, I’ve had the privilege of meeting many young people studying to enter the field of finance. When I ask them why they are majoring in finance, often they will say “My dad got me interested in investing.” To this, I always respond that my daughter will one day say, “My mom got me interested in investing.” Then it happened…a young man (finance majors are almost always young men) said, “My mom got me interested in investing.” I wasn’t even sure I heard that right, so I asked him to repeat himself, and sure enough, it was his mother who had taught him the basics of investing and helped him to understand how the financial markets work. She was the one who had sparked that interest in him! I began to wonder if things were starting to turn and more moms may be participating in the financial education of their children. I sincerely hope so, because I believe that women have a lot to offer when it comes to investing.
Passing on knowledge
As a parent, you can inspire your children to learn about and begin to invest their own money, setting them up for a lifetime of good financial habits. While sons certainly benefit from this type of financial education, it may be especially important for daughters to learn about investing.
Your daughter may never marry, she may be single before she marries, or she may be divorced or widowed leaving her to take charge of her family’s investments. Even if she invests with the help of a professional, she’ll feel more confident about her decisions if she has a better understanding of basic investment principles. This includes principles such as the relationship between risk and return, the role diversification plays in investing, and basic characteristics of asset classes like stocks and bonds.
Confidence is also important, because when we examine the differences between how men and women approach investing, women often say two things:
They have lower levels of confidence in their ability to invest
They have less experience doing so than men (see chart below)
On average, women surveyed in the third quarter, 2016 Wells Fargo/Gallup Investor and Retirement Optimism Index said that they expected lower rates of return on their investments than the men surveyed.
Women also tend to say they invest more conservatively than men do. But we also have learned that women investors tend to exhibit qualities such as patience, discipline, and the willingness to learn more about investing. According to a study of 900,000 Wells Fargo Advisor clients published in December 2016, on average, women tend to be more patient traders, buying and selling assets less frequently than men.
The study, which tracked average trades from December 13, 2010 to December 31, 2015, also found that:
Women tend to be more disciplined when it comes to sticking with their long-term investment plan
On average the investment portfolios of the women surveyed outperformed the investment portfolios of the men surveyed, a finding that’s in line with several studies over the past two decades*
Meanwhile, women are twice as likely as men to indicate that what they want most from their investment advisor is to learn more about investing, according to the 2014 Wells Fargo Wealth Management Investor Attitude Survey.
Final thoughts for investors
I think the qualities cited above—patience, discipline, and a willingness to learn—help to explain why this is so. In fact, the investment portfolios of the single women who were surveyed on average outperformed the portfolios of all other investor groups surveyed including married women, married men, and single men. Additionally, the aforementioned Wells Fargo research on gender differences in performance found that women outperform, on average, while taking less risk. The research assessed risk by looking at the return variance and beta of the surveyed women and men’s portfolios.
Women have a lot to share when it comes to teaching our children the qualities that may help them be successful investors in the future. And dads, if you are still reading, keep up the great work you are doing teaching your children about money. After all, it was my dad who got me interested in investing, and I am very grateful that he did!
*Brad M. Barber, and Terrance Odean, “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” The Quarterly Journal of Economics, February 2001.