Why women typically take less investment risk

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A substantial amount of financial literature supports the idea that women tend to be more risk-averse than men when it comes to investing. This is thought to be because men tend to overestimate how profitable their investments will be, whereas women underestimate the potential, as well as their own capabilities as investors. In other words, women are more pessimistic and modest.

 

Having children can make women more risk-averse

A survey conducted on behalf of BNP Paribas Asset Management by research group CICERO in the summer of 2015 found that having a family influenced women’s views on investment risk.

The study found that for 24% of men, having a family meant they couldn’t take any risks with their savings, whereas among women, 36% took this view.

This finding is supported by studies such as Seda Ertac and Mehmet Gurdal’s report on gender and risk-taking, which found that women were much less likely to take any risk if it were likely to have an impact on other people rather than just on themselves.

However, when asked about their overall attitude to investment risk in our BNP Paribas Asset Management study, a remarkable 73% of French women said: ‘I never take any risks with my money’ – far more than the 55% of French men who claimed the same.

Women generally have less money to take risk with

Researchers have found that one compelling reason why women may take less risk is simply because their economic status is often lower. When you have very little in savings, you are less inclined to take many or any risks with it.

Authors of the report ‘Gender Differences in the investment decision-making process’ Lori Embrey and Jonathan Fox found that there was a link between earnings and risk-taking and that high-earning women were more likely to buy riskier assets such as stocks.

Our own survey supports this to a certain extent. It found that both sexes in the ‘mass affluent’ category (those with more than EUR 100 000 in savings/investments) were less risk-averse, although affluent women still remained more risk-averse than their male counterparts. Only 35% of wealthy men said they ‘never take any risks with money’ compared to 65% of wealthy women.

Women look at investments differently

What is clear from the many studies comparing the investment approaches of men and women is that women look at money in a very different way and this affects their investment style.

For example:

1. Women are more likely to focus on longer-term goals such as paying for a child’s education, buying a home or obtaining financial peace of mind). Men, in contrast, tend to focus more on the short-term performance of their portfolios.

2. Women take much longer to make any decisions because they are more thorough.

3. Women are more likely to seek advice.

Women focus less on the money

On the first point, the BNP Paribas Asset Management survey found that French women prioritised home ownership more than French men (39% versus 33%). While the women were more likely to keep their money in cash or property, the men were more likely to put their money in financial products such as tax-advantaged mutual funds (i.e. ‘assurance vie’ products).

A whitepaper by LPL Financial in the US found that women’s overall approach to financially planning was different and that achieving ‘financial peace of mind’ was seven times more important to them than accumulating wealth. For many women, money provides security and protection for their families, not power or prestige.

 Does taking less risk matter?

Taking less investment risk can be a good thing if it is based on doing lots of research beforehand, speaking to a number of people about your strategy and diversifying your investments.

However, if you are so afraid of risk that you never start investing at all, then inadvertently you are taking a significant risk since it is likely that inflation – even if it is currently very low – will reduce the already depressed returns on your savings to almost zero.

Justine Trueman

International Marketing Executive

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