Myths about the innate differences between men and women when it comes to investing behavior and performance are debunked in a new research report publishedby the Merrill Lynch Wealth Management Institute. A study of 11,500 investors found that while men and women differ in their approach to investment decision-making, gender is less a determinant of investing success than other social, demographic and circumstantial factors.
The Merrill Lynch report, “Women and Investing: A Behavioral Finance Perspective,” suggests that the basis of previous research, which focuses on investing behavior of men versus women, has relied on stereotypes that are limiting in scope. The goal for researchers and advisors is to move away from gender comparisons and instead focus on women’s varied and unique perspectives.
Numerous studies have found that compared to men, women are more averse to investment risk, less engaged in investment decision-making, trade less often and establish investment goals that put the needs of family and community ahead of personal needs.
Merrill Lynch analyzed the behavior and preferences of women investors through a wider lens of social and demographic factors, and found that men and women are far more alike than many people have thought.
Key findings of this research include:
- Eighty-five percent of women agree that risk-taking is beneficial, and 81 percent of women feel they can adapt to changing market conditions and investment outcomes.
- Men and women who have a similar level of financial knowledge share similar risk behavior. The greatest differentiating factor among investors is their perceived financial knowledge, and women are more likely than men to say they have lower levels of financial knowledge. More than half (55 percent) of women, but only 27 percent of men, agree they know less than the average investor about financial markets and investing.
- One-half (50 percent) of women and 55 percent of men want to be personally engaged in making investment decisions.
- Approximately one-half of women (51 percent) are concerned they might not reach a key investment goal: having enough money for the rest of their lives. While 58 percent of women say their focus on investing is to meet the needs of their family, more than 40 percent said they do not feel they should put financial support for other family members ahead of their own goals.
“Our research reinforces the importance of concentrating on the unique, personal goals of each investor. Doing so can identify a deeper understanding of the individual’s concerns and priorities which may better align investments to achieve the outcomes the investor desires,” said Michael Liersch, head of Behavioral Finance for Merrill Lynch Wealth Management. “We believe we need to change the dialogue with both men and women, to discuss what really matters to them and what they want their investments to achieve.”
The Merrill Lynch report provides three key action steps action steps for advisors to better understand the unique perspective of men and women clients:
- Engage both men and women in dialogue about the investment process. Identifying the right level of engagement can be useful in gaining experience and confidence with investing and managing investments toward desired outcomes.
- Make investing personally meaningful. Articulating specific, personally meaningful goals – such as meeting lifestyle needs or leaving money to family members – can help investors develop the right investment strategy.
- Structure communication with key decision makers. Identifying various perspectives on investment can help joint decision makers come to the right set of investment-related actions.
A copy of the Merrill Lynch paper “Women and Investing: A Behavioral Finance Perspective” is available here.