Findings about women, investments and risk-taking
“Women take less investment risk”.
I’m 100% sure your heard it at least once in our life.
And I can’t say that it is biased idea. After all, data about Magnetis female customers confirm this pattern:
• Among women, our most popular portfolio is the conservative;
• But among men, our best-seller is a moderate portfolio.
But which came first? Men interested in stock markets or the idea that women fear risk?
False stereotypes are dangerous. When it comes to investments, they potentially affect how you will reach short and long term life objectives.
“In fact, the biggest risk most of our female clients will ever face is being pigeonholed into the wrong asset allocations due to inaccurate stereotypes. Cash is the lowest performing asset class over time. If we stay in cash, we won’t be able to achieve our long-term objectives. That is about as serious as it gets.”
This quote is from Barbara Stewart, who’s from Canada, and one of the world’s leading researchers and speakers on women and finance. After a 20-year career as a portfolio manager and investment counsellor for high net worth investors, she started researching.
It all started in the 2009 financial crisis. She found out that the media used to describe women in a very depreciative way: weak, uninformed and lacking confidence.
For the past eight years Barbara has been releasing her white paper Rick Thinking, always in the International Women’s Day. Today’s edition is about: Smart women and risk-taking.
Over 600 women from all over the world were interviewed. I had a joyful chance of being one of them in 2017. Before, we hadn’t personally met. In 2016 traded a few emails when I was in the USA for a fellowship. Fortunately, she remembered of me in her first visit do São Paulo, Brazil. :)
In our one-hour coffee we talked about everything but investments. WHAT!
Yes! And I was thinking that she would ask about my portfolio composition!
But what she needed was a broader vision of me and risk, risk and I. “What is the biggest risk you ever taken?”. Her analysis is pure qualitative — and that is what Barbara thinks that the financial advisors should do. In the end of the day, answering “are you conservative or moderate?” is a very cold way of measuring risk tolerance.
Barbara says that stereotypes hurt the way women think about their own approach to risk-taking. Also, they restrict how female investors access the stock market.
“I have found that even if a woman is excellent at managing her investments, she will often be self-deprecating and say that she should ‘know more.’”
Again, Magnetis’ own data reinforces this pattern:
What is your investing experience?
• 63% of female customers say they are beginners.
• 47% of male customers say the same.
On this International Women’s Day I interviewed Barbara. The highlights above.
It was the first time you research about women and risk-taking? Why choosing this subject?
I am tired of hearing the same old assumptions that women are ‘risk averse.’ This is a lazy statement that is based on archaic stereotypes. I feel strongly that we need to reposition this…we need a more current perspective on women and risk. In my opinion, the most compelling way to find out what is going on in the real world is to listen to accomplished women discuss their actual investing behaviours. This is why I do qualitative interviews — one hour intense discussions. I have now done over 600 interviews over the past eight years.
I believe that the onus should be on the financial industry to understand the complexities around women and risk. My report goes into detail on this topic.
About your methodology: why did you choose to ask questions about the woman professional and personal life in general, instead of asking strictly about money and finance? Why don’t just asking “are you conservative or moderate”?
At first I thought I would ask people only about their biggest financial risk. But then it occurred to me that I would run the risk of playing into the stereotypes of women not investing as heavily in equity markets. In other words, women might not think too hard about their risk tolerance — they have been conditioned not to think hard about it. I have found that even if a woman is excellent at managing her investments, she will often be self-deprecating and say that she should ‘know more.’ Let me clarify:
I used to work for a bank. We had a risk questionnaire. Essentially it boiled down to trying to pick your percentage in equities. It was the only measure of risk that we had. The majority of women were advised to tick the box that said either ‘conservative’ or ‘moderate.’ The default used to be that women were conservative, fearful, shrinking violets in the big bad area of investing. Leave them in cash, maybe buy them a few bonds, but equities? Now we’re talking about a man’s world.
This is why I decided to change to conversation with women to something much much bigger! The adviser/client conversation needs to include a much broader discussion around risk…one that isn’t shy to explore real-life past experiences — financial and non-financial. What type of risks has the client taken?
It is very risky when longer term objectives are not met. To properly assess investment risk, investors need to look at their investment portfolio as a whole. It is no different with personal risks. To properly assess any personal risk, clients and advisors need to consider their personal world as a whole. What are the implications for overall life and welfare if they take the risk?
“What is the biggest risk have you ever taken in your life?” was your main interview questions on this research. What were the most common answers?
I heard a lot of different ‘big risks.’ The answer to this question is different from woman to woman, because risk is a relative concept. One women’s ‘big risk’ is not the same as another women’s ‘big risk.’ Some women are comfortable speaking in public while others would rather do anything but!
Some women take financial risks by betting on a single stock or buying an apartment on the spur of the moment. Others pursue their big idea such as writing a book or starting up a new business.
Some women risk doing the unconventional whether in their choice of life partner or their career decision. Others seek out adventure by moving to a new country by themselves.
Some women risk speaking out against injustice and some risk saying “No” to their largest client.
And then there are the women who choose high-risk professions such as fire fighter, air traffic controller, shark scientist, spy, or stuntwoman!
So what can we learn from this?
What’s risky for one person isn’t so risky for another. The more that you can discuss risk-taking (including non-financial risk-taking) the more you will gain an understanding of the person and the better job you will do offering them investment advice.
What are the key findings on this white paper about risk-taking?
Risk is a moving target.
Risk tolerance is the result of a complex combination of factors for women. Even their mood affects their risk tolerance.
Comfort with risk varies as time passes. Something that didn’t feel risky at all 15 years ago might feel very risky today or the other way around. Women’s past experiences will shape how confident they are taking risks in the future.
Risk tolerance isn’t based on gender. Risk is based more on life experience, education, personality type, situational factors, and environment.
Women have a process for coping with risk.
And how they cope with risk can tell us a lot about how they might cope with market risk.
The Preparers have a strategy: they plant seeds of some kind; they hire a coach; they set money aside; or they get started with a side project.
The Leapers follow their instincts: they see an interesting looking roller coaster and just know it will all be okay.
Risk-taking behaviour probably won’t be a perfect predictor of future risk-taking behaviour.
This needs to be an ongoing conversation.
Considering all your study since 2011, what are the most common prejudice and stereotypes about woman and finance?
We have all heard that women are not financially literate, women are not interested in investing, women lack confidence around investing, and women prefer to defer financial decision-making to the men in their lives. But I think the stereotype of women being ‘risk averse’ continues to be the most dangerous one for society.
Why?
Because I think that part of the conversation around women ‘not taking risks’ is that it is a codeword that they are timid, cowardly, and shrinking violets. But this is not true and the idea that women are risk averse has been a way of keeping women down.
This demeaning language around all of these stereotypes was a tool for a patriarchal society. And the financial industry bought into it. But…this actually stopped working quite a few years ago. Now that their number one client is women, the industry can’t afford to operate this way.
Fortunately this is starting to change. The financial industry is now very interested in understanding their #1 target customer!
How can we fight these financial stereotypes? What are the benefits for society on doing this?
In fact, the biggest risk most of our female clients will ever face is being pigeonholed into the wrong asset allocations due to inaccurate stereotypes.
Perpetuating false stereotypes is dangerous. People of both genders have their own mix of risk-avoiding and risk-seeking tendencies. More importantly, how much risk anyone will take is based on how aware they are of all of their options in any given context.
If a woman has a financial adviser who relies on inaccurate judgements about women and risk that adviser will end up guiding women to the wrong financial future.
Cash is the lowest performing asset class over time. If we stay in cash, we won’t be able to achieve our long-term objectives. That is about as serious as it gets.
So what can we do about this? At least three things…and all will be of great benefit to society.
1 — We need to talk more about risk
Talk more together — in groups both large and small, as well as in one-on-one conversations.
If a woman is interested and an opportunity is aligned with her values, she will be motivated to take a risk and she will make either a financial investment or an investment in herself, or both.
Women don’t need to be talked into taking more risk. They’ve already made that decision. Women want to be given specific advice as to the investments that are available to them. They want lists of companies that correspond to their investing criteria.
I recommend that financial services firms and educational institutions invite women (and men) of all ages to discuss their opportunities, their risks and their investments.
2 — Focus on financial competence, not confidence
One of the single greatest causes of people believing that women are risk averse and men are more confident is: If you ask a group of men and women a question about something complicated, men are much more likely to say they know the answer, and women are much more likely to say they don’t know the answer.
Men are more overconfident than women. What ultimately matters isn’t what men and women say about themselves, it is whether or not they are actually competent with their finances!
3— Encourage women to share their financial success stories
Many women were socialized not to talk about money and especially not to brag about how much money they are making.
The good news is that most women welcome the chance to communicate digitally…especially if they are too shy to talk about investing otherwise.
Social trading allows the person who would never normally talk in real life about investing to get started and build confidence — and they might even end up bragging online if they do well. Every woman needs to have her own trading account. Start small. But use real money.
