12th November 2019
Risk averse – or just aware?
Countless studies show that women aren’t as afraid of investment risk as many seem to think.
There’s a myth that’s been circulating for some time that, when it comes to investing, women are generally risk averse – and more so than their male counterparts. However, when you dig a little deeper, it seems this idea is more fiction than fact.
A recent report from Riskalyze showed that women fall somewhat evenly across the risk spectrum when compared with men. From a sample of 5 million users over the past five years, just 37% of women have a below-average tolerance for risk, 25% have an average tolerance, and 38% have an above-average tolerance. From this data, it seems just as likely for a woman to be risk averse as it is for her to be risk tolerant.
When looking at the actual investment behaviour of men and women, it’s even harder to see a difference in their choices. Stash, an investing app, found that men and women dedicate roughly the same percentage of their portfolios to stocks – which can be considered a riskier investment.
This is again confirmed by a 2012 meta-analysis of more than 25 economic studies on the risk tolerance of men and women. Researchers found that the difference between the two genders was negligible. In fact, they concluded that the perception of women as cautious investors “appears to perhaps be rooted more in confirmation bias than in reality.”
There are however some proven distinctions between men and women as investors – namely that women are actually more successful. A study by the University of California at Davis discovered that men traded more often and had worse returns as a result. Women, on the other hand, are more likely to play a longer game, which has been proven to pay off.
All these things considered, it seems that women are not so much risk averse as they are risk aware – a valuable quality to have on your side. After all, the more aware we are of the risk involved in our investments, the more thoughtful we can be when managing our financial plans. Better still, being risk aware can help to steady us in time of turmoil where we might be tempted to give into emotion and make hasty decisions.
Whether it’s a confirmation bias that has us thinking women are cautious investors, or an overconfidence bias that can lead one to believe they can time the market, we should all be diligent in checking our biases and keeping our emotions from driving our behaviour in a negative direction.
Fortunately, your financial planner is there to act as a guide and help keep you on track to reach your financial goals, both in calm and turbulent markets. They can also offer some clarity as to how your risk tolerance and awareness add up.
As a next step, why not set aside some time with your financial planner to assess your risk tolerance? They will be able to see how this aligns with your long term financial plan.
Sources: Raymond James Financial, Bloomberg, Merrill Lynch, The Motley Fool, The Humphrey’s Group, Ellevest . The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial planner about your individual situation.