Women gaining traction on investing results, intentions

Women reap better returns from their individual, self-directed investment accounts and are improving their financial status more rapidly than are men, according to a new flight of research.

It’s not a huge difference — 0.4% to about 1% more earned by women than men in accounts they direct on their own, according to a new report compiled by The Motley Fool. But it’s likely to be a long-lasting trend, given that since 2018, women have been opening investment accounts earlier in their lives, and now do so at an average age of 21. Currently 67% of women are investing directly, outside their retirement accounts, up from 44% in 2018.

Among women investors, women of color are rapidly emerging as the most engaged and productive in their investing approach, according to new data from Edelman Financial Engines.

“We need to continue shouting from the rooftops that women can and do get better outcomes,” said Alyce Lomax, senior analyst with The Motley Fool. “A lot of that comes from the fact that women tend to remain calm during market volatility. Women don’t tend to suffer from feeling so connected to their stocks.”  

Ironically, the very images of emotional reactions to market volatility should reinforce the data that indicate women have a steady hand, Lomax said. “The typical photo of the market trading floor is men screaming and crying. We women are not up to those antics.”  

Additional research from UBS reinforces Lomax’s findings. “That is what we see on average, that women are investing for the long term, they’re less likely to trade based on market conditions,” said Carey Shuffman, head of the UBS women’s segment. Less trading means fewer fees, which also bolsters women’s returns.

Building on ongoing UBS findings that women tend to relinquish hands-on financial management to spouses, and then regret it when they become single late in life, financial advisors face a major challenge in persuading women to fully engage in financial decisions as early as possible, she said.

One of the biggest barriers is that financial management strikes 70% of women as hard to understand and hard to accomplish, Shuffman said. When women get the message that asset allocation, risk and other key factors are difficult to absorb and navigate, they tend cede control to partners who claim prowess.

But Lomax found that the gender dividend holds for women regardless of age, potentially arming advisors with proof that there’s a literal payoff for women to master investing basics later in life. 

Evidence of women’s competence, she said, might finally dismantle the chronic perception that women lack investing confidence. The Motley Fool’s analysis found that 71% of millennials, 56% of Gen X women, and 62% of baby boomer women directly manage their own investments outside structured retirement accounts.

“For so many years, it was difficult to get women interested in investing. Seeing that increase in the percentage of women investing outside of retirement plans was good news to me. The problem can be solved,” said Lomax.  

The Motley Fool analysis aggregated data from a number of studies, including Fidelity’s 2021 Women and Investing Study, which surveyed working Americans age 21 and older who had personal incomes of at least $50,000 and who participated in workplace retirement savings plans.

One missing link that’s starting to be filled in is how women tend to invest with “a goals focus, instead of a performance focus,” Shuffman said. Advisors can “approach conversations from the lens of, for instance, a final plan that addresses each of their goals as well as couples' goals.”

GENERATIONAL AMBITION

Women of color are consciously striving to do better financially than their parents, according to data just released by Edelman Financial Engines in its report, Women of Color & Wealth: Striving to Create a New Financial Future.

Even though women of color — especially Black women — carry greater student debt and are committed to helping family members, they’re also determined to build wealth, said Rose Niang, director of financial planning at Edelman Financial Engines. The investment that women of color make in themselves through education also bolsters their confidence, with 48% reporting that they are on the right track financially, she said.

Family priorities are always going to be preeminent for women of color, Niang explained.

“Advisors need to have an awareness of that, and if you don’t sympathize with that, you won’t have that affluent Black woman as a client. She’s going to move in mom no matter what you say,” she said, citing examples of Black women blending their own assets with that of family members to stabilize family finances. “You have to help them juggle those goals.”

Black women, especially, realize that they are unlikely to inherit a house or other assets, and are keenly aware that they're starting from scratch, Niang said. Their unique circumstances are matched by a drive to build retirement security, even if takes longer, but their goals require custom-crafted financial strategies, too.

“They are more open to help from financial planners than their white counterparts,’ Niang said. “Are we in the profession ready to serve them?”