Do Women Make Better Investors – with Laura Cuber
Doug Fabian, financial advisor with Mercer Advisors and host of the Science of Economic Freedom podcast, speaks with Laura Cuber about men, women, and financial planning. Laura is a certified financial planner and investment advisor with Mercer Advisors’s Chicago branch, and discusses the current research, as well as her own experiences with regarding the impact of gender when it comes to investment management.
Are women better with financial planning and investing than men? Is gender-based performance a real thing? What can we learn from research to improve our investment returns?
Laura walks us through some of the research she has found about women, money, investing, and the impact of gender. Topics included in this episode:
• Gender-based performance, what is it and why do women outperform?
• Do men trade more than women and if so what is the impact on their long-term return?
• How do women’s risk aversion impact their financial planning decisions?
• What can we learn about women and investing behavior?
• Do women tend to focus more on their long-term financial plan than men?
• What are some actions steps you can take today to get started on your path to Economic Freedom?
Doug: Welcome to The Science of Economic Freedom. I’m your host Doug Fabian. This podcast is all about helping you achieve your financial dreams. We call that economic freedom. This program is about your journey to achieve economic freedom for yourself and your loved ones. Today we want to help you identify your next step on that journey.
Before we get into today’s topic, let me refresh some of the content that is available now at The Science of Economic Freedom. Now, this financial education resource is for you, your friends, your family members. We have over 50 podcasts posted on a wide variety of subjects. Here are some episodes that you may find of interest. Our most popular podcast has been:
- Episode 24: What You Must Know About Social Security
- Episode 15: The Last Great Tax Shelters
- Episode 18: Building a Framework For Retirement
- Episode 25: Best Practices in Estate Planning
- Episode 34: How to Fund College Without Going Broke
Check these episodes out. All of our episodes at the scienceofeconomicfreedom.com. Remember, if you have a subject idea or a question, you can send me an email. My email address is firstname.lastname@example.org, email@example.com.
Joining me today is Laura Cuber one of Mercer Advisors’ outstanding client advisors from Chicago. Laura is a certified financial planner and is passionate about helping clients reach their goals by having a clear understanding of their needs, resources, and timeline. Laura began her career with a trust company, which gives her a great understanding of not only financial planning, but estate planning as well. Now, she has worked with many couples and women investors.
Now, I came across some research recently that made the case that women in general are better investors than men. Now, why is that? Is one research report valid? What does that tell us about gender success or lack thereof? I put this question to Laura, and she did deeper research on the subject. We think that there is a lesson in the results and the real stories we’re going to share with you today for all of us. Laura, thanks for joining us on The Science of Economic Freedom podcast.
Laura: Thanks for having me, Doug.
Do women make better investors: Laura’s Story
Laura: Well, I actually stumbled into the financial industry. When I was in college, I didn’t really have a clear vision for what I wanted to do. All I really had to guide me was the idea that I knew I wanted to help people and got an internship over the summer with a trust company outside of Chicago. There, while doing the filing and the scanning, I got to see how advisors interacted with clients and realized that these people, they weren’t just making people money. They were making a real difference in clients’ lives. That really appealed to me.
That internship turned into working as an assistant to some of the advisors there, turned into studying for the Certified Financial Planner exam and becoming an advisor myself. That’s how I got into the industry. It’s really what’s driving me is my passion for helping clients determine their goals, figuring out how to achieve them, and really making a difference in their lives.
Money, men vs. women
Doug: That’s great. Now, you mentioned in your background to me, you did some genders study in college. Did that give you any insight into the differences between men and women when it comes to money?
Laura: You’re absolutely right. I actually majored in women and gender studies when I was in college. I was thinking back on my experience and realized I never took one class that specifically addressed women and money while I did that, which with hindsight sounds like a really big gap in my education.
Gender studies in general really is about how your gender influences the way you are perceived in the world, the way you interact with the world, and just how you move in the world. Because of that you can really see how that applies to various aspects of anyone’s life, whether they’re men or women.
I have been able to apply that in my practice as a financial planner. Women face different issues than men when it comes to money. Over their careers, they tend to make less money. Whether that’s because they take lower paying jobs or because they take time off of work to take care of their kids or their ailing parents.
At the same time, women are living longer than their male counterparts, which means that they’re often needing to make their resources last longer. That really influences the way that women have to approach their financial planning, the particular topics that come up, and also what their concerns are.
Doug: To the men in the audience, before you click the fast forward on this subject, which may seem like it doesn’t matter to you, let me point out, all of us have women in our lives. Some of us have spouses, moms, daughters, granddaughters, sisters, nieces, and women friends. There are a ton of women in my life. If we really want to be a good partner, be a good dad, a brother, uncle, son, we should have some understanding of the differences between how we as men view money and how these women, we care about so much, view money. Stay tuned. You’re going to learn something new.
Research about women, money, and investing
Let’s get to the topic at hand. Laura, you went deeper into the research than I did. I just stumbled across a couple of stories. Tell us what the research says about women, money, and investing.
Laura: Yeah, absolutely, Doug. I was actually surprised by the number of different studies that are out there. This is a topic that interests both academics and people in the industry. I found a lot of different studies that all had varying results. The overarching theme really seemed to be that there is some gender-based outperformance. Women do outperform men when they invest their money. There are three studies that I found that I think point out the different factors that are in play when it comes to investing and why women might be better investors than men.
The first study
The first one is the foundational study that I saw referred to in a lot of articles in both academic and industry circles. A study out of the University of California called “Boys will be Boys” and it talks about gender overconfidence and common stock investment. It’s by Brad Barber and Terrence Odean from the University of California.
What they did was they studied data from 35,000 households from a large discount brokerage from 1991 to 1997. What they found was that over time, women’s accounts outperformed men’s by about 1% per year. When they dug into why that might be, the biggest factor that they saw in it was that men tended to trade more than women. In fact, they traded about 45% more than women did. That trading reduced their returns by 2.65% compared to 1.72% for women.
That’s one of the things that I often talk to my clients about when I’m dealing with them at Mercer Advisors is that we don’t like to trade a whole lot because we don’t want to eat away at returns with unnecessary trading fees. That’s something we’re really conscious of. That tended to apply to just average people managing their money as well. The more they traded, the more their fees ate away at their investments.
Doug: I wanted to ask a question about there or just make a comment about this. Thirty-five thousand households and six years, that is a deep research study. That’s just not somebody calling 1,000 households or something like that. I’m very impressed with the scope of this particular study by these two academics and the depth of the research that they did.
Laura: Yeah, absolutely. That’s one of the things I’ve noticed throughout the researches. It’s not just 100 or 1,000 accounts here and there, though some of the studies are smaller. There are somewhere they look at 8 million different accounts across a decent amount of time. This is something that has been repeated time and time again over different market conditions, different eras in what’s going on in the world, and different conditions overall.
The second study
Laura: The next study was the study from Barclays that they sponsored with the Warwick Business School. In this case, they surveyed 2,500 investors between April 2012 and July 2016. Over that time period, women outperformed men by about 1.2% a year. When we’re talking about overperformance, the thing I noticed is that the overperformance isn’t necessarily huge numbers. You’re not hearing 10%. You’re hearing 1%. Sometimes a little less than 1% but that compounding factor really can add up over time and that’s one of the things that I noticed through these studies.
Women outperformed men by 1.2% a year. That was both because they traded less often, like we talked about in the previous study, but also because they hold onto their investments longer. When they’re making their investing decisions, they’re not chasing after the latest trend. They’re not going after the hot stock tip that their buddy gave them. They’re tending to make their decisions a little less emotionally, a little less exuberantly based on what they want to achieve for themselves. That helps them not make rash decisions and ultimately, leads to outperformance.
The third study
Doug: Lastly, you have a big study out of Fidelity.
Laura: Yup, and this was the one I was referencing that looked at the behavior of 8 million retail customers from January 2016 to December 2016 at Fidelity. They looked at the accounts and women outperformed men by .4% over that time period. They did it while taking less risk than the men did. They found that when looking at these accounts, women were more likely to diversify away from stocks. That means they had bonds and other assets in their portfolio. They were also more likely to use target date funds, which basically allows the professional to determine their asset allocation for them. Even while they were taking less risk, they were getting a slightly higher return, which is the holy grail with what we’re looking for when we’re designing portfolios.
Ultimately, what they saw was that women were just less attracted to risk. They were more risk averse than their male counterparts, which actually ended up benefiting them because they ended up designing a less risky portfolio that still got them decent returns.
Are women better investors than men?
Laura: What the research shows is that when women invest, they do outperform men. They are better investors. The key term there is when women invest. A lot of women found that investing, they look at it as an unnecessary gamble or something to do with extra money that they’ve got lying around rather than an integral part of their financial plan. Sometimes, that keeps them on the sidelines and keeps them out of the investing game altogether. Yes, when women invest, they are better investors than men it seems.
Doug: Go through some of the attributes that you’re summarizing here with why women, when they invest, are better.
Laura: Generally speaking, what the research shows is that when women invest, they excel at investing because they tend to trade less often than men.
- They’re not having their fees eaten away by making a whole lot of trades in their account.
- They tend to be a little bit more dispassionate than men.
- They’re not carried away by their overconfidence in their abilities.
- They aren’t chasing whatever they think the hot new trend is going to be.
- They also tend to be more risk averse, which has led them to have a more diversified portfolio.
Finally, woman also focus on the financial plan and how investing, when they invest, can help them achieve their goals for both them and their families. By focusing on that instead of pure return, which in general male investors tend to focus on, straight up returns. What’s going to get me the highest return.
- They focus on how their investments are helping them achieve their goals, which leads them to do all those three behaviors that we talked about before.
- They’re trading less often.
- They’re less likely to make changes in their portfolio because they know it’s about the long-term time horizon and long-term goals that they want to achieve.
Where women fall short with investing
Laura: Absolutely, like I was saying I think the biggest way that women can fall short is by letting their lack of confidence combined with a tendency to be risk averse keep them on the sidelines. In general, these studies have shown that women are less likely to invest overall.
There is a 2017 study by Acorns that found that 57% of women didn’t invest at all compared only 44% of men. Barclay has found similar information when they looked at women in the UK. They found women held 870,000 investment accounts whereas men held over 1 million. A lot of times, the different concerns that women have can paralyze them and lead them to not see investing as something they can do or that they should do that should be part of their financial plan.
Even when women do invest, one pitfall that they can come into is that they tend to be a little more conservative than they probably should be to achieve whatever their goals are. That has been born out in studies that show that women tend to keep more cash in their portfolio than men do. For example, a 2015 study from Black Rock showed that women keep 68% of their portfolio in cash compared with men who keep about 59% of their portfolio.
Not that cash is bad but if you end up keeping too much of your portfolio in cash, it’s a significant chunk of your portfolio that isn’t keeping up with inflation, that isn’t growing to help you achieve your goals, whether that’s retirement or some other long-term goal. Paying for college, that kind of thing. It’s important to make sure that you aren’t just being too conservative because you’re afraid of taking risk.
Investment stories and the lessons learned
Doug: Laura, let’s talk about some stories. You and I both have stories of clients we’ve worked with. I think that there are always lessons to be learned from these kind of interactions, real life experiences that we have had that we can communicate to the audience. Let’s start with one you and I discussed as we were preparing for this interview. The overconfident overtrading male investor.
Joes and Dana
Laura: Yeah, absolutely. There is a client that we work with out of our Chicago office, Joe and his wife Dana. Dana’s entrusted us with managing all of her assets. She basically says, “You’re the experts. I’ll let you handle it.” We work with her to make sure her investments fit her financial plan.
Joe, on the other hand, has let us manage some of his money but he likes to keep a sizable account for himself to do his own side trading. His trading account has been a sticking point for him because he tends to buy individual stocks and options. He often buys them on margin, which is even riskier than simply buying stocks and options. Unfortunately, Joe’s investment decisions have really fallen into that trap of chasing a hot new trend, of chasing what you see in the news, potentially, a good idea.
A recent example of that was after Hurricanes Harvey and Irma in 2017, he was really excited. He came to us and said, “I’d love to buy some Mohawk stock. All these people had their houses flooded. They’re going to need new carpet. They’re going to need new flooring. I want to buy stock in a carpet company because I think that that’s going to really give me some extra returns.”
While that tends to be sound logic, yes people are going to need to replace their carpet. What Joe didn’t consider was there’s a whole industry here that has already priced that factor in. There are experts who estimate how many natural disasters there are going to be a year and how that’s going to impact the carpet industry. He didn’t really see any extraordinary returns from it in 2017.
He had stock. It did well just like the rest of the market did in 2017. Since 2018, the stock has dropped almost by half. His confidence in his own ability to spot a weakness in the market, actually led him to make an investment that wasn’t really sensible in the long run.
Be honest with your investing
Doug: You know Laura, this also brings up an issue to talk about with people is that there is a tendency by self-directed investors to overlook or paper over mistakes that they have made in their investing portfolio. This Mohawk stock is an excellent example. Cut in half in 2018. The market was down 4%. I find this more often with men than I do with women just in my own experiences.
When I coach people, when I’m on stage talking about how to be a better investor, one of the things that I talk about sometimes is what if this was your sister’s money or your mother’s money? If it’s somebody else’s money, the seriousness and the responsibility goes up much more significantly than if you were to have a loss in your own money.
One of the things I want people to remember, and this is important for your 401(k) and if you’re managing your own 401(k) and you have a family, you want to be thinking in terms of this is not only my money but this is my family’s money. You really need to be more serious about tracking returns, being honest with yourself when you make mistakes. Of course, if you need to use a professional because you’re not getting the job done, then that’s an indication that you should hire one. Thoughts on that, Laura.
Laura: I think that observation is absolutely correct. It’s hard for people to sometimes be honest with themselves when they aren’t getting stellar returns. You have to admit that you made a mistake when you made that decision to buy Mohawk or to buy some other stock. That requires being a little bit vulnerable and honest with yourself. That can be difficult.
Investing as a nervous widow
Laura: This was a prospect I was actually meeting with. It ended up not really going anywhere. What happened was she was dealing with the death of her husband at a fairly young age. He passed away suddenly at age 50. He had been managing their portfolio. She didn’t really have any experience with money decisions. She had just trusted it to him.
She suddenly found herself in a position where she was in control of it all and needed a lot of help. She had a ton of planning issues that she would have needed to address from paying medical bills from his final illness, navigating retirement planning for herself, just figuring out where her life was going to take her now that she had had this really unfortunate event happen with no warning.
When I proposed moving from the portfolio that he had, which was all over the place. It had some oil stocks, it had a large concentrated position in Chipotle to a more diversified portfolio that was more likely to help her meet her needs and get her steady, less volatile returns over time. She was paralyzed by fear and paralyzed by the emotional attachment that she had to her husband and didn’t want to make any moves.
She had trusted in his decision-making abilities so much that she felt that even making a change to a portfolio would have been questioning his ability to manage their money and her trust in him. She didn’t want to insult his memory that way basically.
Ultimately, we ended up not working with her because she couldn’t move on from that but getting trapped in that fear, lack of trust in her own ability to make a new decision that was different from her husband’s really paralyzed her and prevented her from making the right move.
The well diversified divorcée
Laura: Yeah, absolutely. This is a story that’s pretty common to a lot of the divorced women that I work with. They tend to come to me, like this client Lisa did, recently divorced in their maybe 40s or 50s and not knowing a whole lot about investing.
Lisa’s story in particular is that she had been recently divorced from her husband and had a significant payout from their shared retirement assets. They were actually reasonably managed. They were in a decent portfolio that was well diversified with low cost ETFs in it. She admittedly would say that she knew very little about managing money and she didn’t know if this was the right portfolio for her, if it made sense for her to be here, or any of that.
What I found working with women is that they’re more likely to rely on professionals. They don’t have more confidence than men do when it comes to investing but they’re more likely to say, “Hey, I really need help with this. I don’t know what I’m doing. Can I get some professional help?” They come to me with professionally designed portfolios, like Lisa did, and it turns out that they’re actually, without really knowing it, setting themselves up pretty well.
When I worked with Lisa, we put together a financial plan and figured out that she was probably a little too conservative in her portfolio based on what her goals are. Through our relationship we developed a plan.
We refined her investments a little bit, so they fit her goals better. In general, she was better set up than a lot of the men that I see that come to me with portfolios that are concentrated in one stock or don’t really have any sort of plan put together for them. It actually ended up being a great starting point for us to work on expanding her knowledge and understanding of each piece of her portfolio and what stocks do and what bonds do and how they work together.
Do women make better investors than men?
Doug: Laura, let’s pull this together for the audience and give some conclusions and advice to not only the women in the audience but everyone who is listening, men as well, on what’s the right path forward?
One of the great things about, whether it’s financial planning, whether it’s building an investment portfolio, whether it’s setting an investment goal. You know, one of the things that I absolutely love is the fact that it’s easy to start over. You get a do-over anytime you want.
If there’s something that’s not right, you don’t have a financial plan or your portfolio needs to be rebuilt, well just set it as your objective that you’re going to get that done and you do it. What kind of advice do you have to everyone in the audience in terms of a path forward to right here and how you would advise them to move forward with their money and investing endeavors?
Have a plan
Laura: Yeah, absolutely. Great question, Doug. I think my first piece of advice won’t be much of a surprise to anyone who’s listened to your The Science of Economic Freedom podcast for any length of time because it’s have a plan. Identify your goals, what you need to do to work toward them, and figure out exactly what you want and where you want to be this year, in five years, in 10 years in retirement. Whatever that time horizon looks like for you. That would be the first step that I think anyone needs to take.
Know your risk tolerance
The next step that I think would be important to take is know your risk tolerance. A lot of the female investors that I work with tend to come in and they know that investing is a little bit risky and that their portfolio could go down if the market has a correction, like we saw last quarter.
They don’t really know what that means or what that means for them. I think it’s really important to get to know how much risk you’re personally comfortable taking and how much risk you need to take to meet your goals. Knowing that you might not be very comfortable taking a lot of risk, but the money in my retirement portfolio isn’t money that I’m going to be touching for the next 30 years so I can take a little bit more risk there. Working through that, working through what your goals are, and how much risk you need to take to achieve them is really important.
Doug: You know, Laura, something I’ll add to that is I want the audience to understand that it’s just not about the stock market. You don’t have two asset class. It’s stocks and cash. Fixed income is a very important asset class, especially when it is married to a stock portfolio. It can increase returns, reduce volatility, give you an income stream. I find that so many people don’t understand fixed income and then they hear that, “If interest rates are going up, that’s going to go down.”
There’s really a lot of, people, “Yeah, I understand the stock market. I understand it can go up and down.” They really don’t understand fixed income. I would encourage people to understand that fixed income is a viable asset class for the right percentage of your portfolio and also remind everyone that a cash portfolio after we deduct inflation most of the time delivers a negative rate of return. Even though it might look positive, but after inflation it’s actually negative. I just wanted to make that point to everyone that fixed income is a great alternative, especially when you’re working through your own asset allocation risk tolerance.
Laura: Absolutely, Doug. That’s a really important piece of a portfolio.
Laura: The next thing that I would recommend for people, women and men alike, is really educate yourself. You don’t have to be an expert, but I think a lot of people don’t really feel confident in understanding their investments and learning about what risk and returns mean when they’re associated with different types of investments is really important. I don’t think that your audience members need to go out and become a CFP tomorrow.
Going back to your last point about fixed income, understanding how fixed income can work in your portfolio to smooth out volatility and lower the risk when compared with the right percentage of stocks, both US and international, is really an important piece for getting you on your way and making sure that you’ve got an investment portfolio that’s going to help you achieve your goals.
Executing your plan
Laura: This goes back to the pitfalls we were talking about with women investors. A lot of women investors know what they want to do. They have goals for themselves and their families but they’re just really afraid to get off the sidelines and actually put that money that money to work, whether it’s because they don’t know what to invest in or they just see investing as needlessly risky.
The important thing to do is once you have your goals and once you know that you understand your risk tolerance and are educated on how risk and return work together, you need to actually put the money in a portfolio and put it to work for you because having that solid foundation isn’t going to do anything until you actually put your money to work.
Then I think the final piece that goes hand in hand with that is reviewing your investments regularly. Once you’ve executed on your plan, you’re going to be set up for the immediate future, but things change. The market changes.
There’s different conditions you need to respond to. Looking at your portfolio regularly, rebalancing, assessing your allocation, and determining whether or not it still meets your goals and your needs, then looking at the investments themselves and determining whether or not they’re performing the way you’d expect them to are all important pieces. Once you do all that groundwork, you do need to respond to changing conditions whether it’s in the world at large or in your life personally.
Doug: Awesome. You know Laura, as I was thinking about our conversation today, there’s three things that really jumped out at me that I want to emphasize in regard to today’s show for both the men and women in the audience.
1) Number one is we call it when we begin a financial consultation with someone. It’s dreams and goals. What do you really want to achieve longer term? How would you describe that? Could be that you want to provide college education for a child. Could be you want financial security in retirement. Try to describe really what you want longer term because that’s going to start to give you some clarity on what you need to do in order to be able to get there.
2) A big part of the mistakes that we see women make when it comes to investing is actually sitting in the sidelines. Sitting in cash. Cash is not an investment strategy but if you’re not feeling confident with, I’m not suggesting that everybody should run out and invest their cash without having a plan or a strategy to do so but, if you’re sitting in cash or having a large cash position in your portfolio.
I had a wealth coaching conversation with a woman yesterday. She has a $400,000 retirement account. She’s 70 years of age and she told me that she is never, never going to invest this money outside of a money market account for the rest of her life. It just so happens that in her situation she has social security. She has a pension. She owns her own home. She has adequate income stream. She’s not under any pressure to actually have to invest.
Obviously, it’s her money and she can do whatever she wants to do. If she has heirs and there’s people she wants to leave money to, you’re not being a good steward of your assets just by sitting in cash. The reason why she was sitting in cash is because over the last year she had a bad investing experience where she underperformed the market. She didn’t feel she had a feel for the market anymore. Well, that again an indication, cash is not an investing strategy.
3) Lastly, it is all about a plan. When I first started working with Mercer Advisors, I came in from the investment side. I’ve always been an investment guy. I’ve always been focused on the markets, exchanged, traded funds, building portfolios. I didn’t have and I don’t have a financial planning background. I’ve learned so much about financial planning because of my friends and colleagues at Mercer Advisors.
I understand now before we want to put in place a portfolio, we want to have a plan. That plan always goes back to dreams and goals. I’ve always been a goal setter. I really never understood, until I spent time with my colleagues at Mercer Advisors, the importance of having a documented financial plan to keep you on track.
Laura, those are some of the things that I got from today’s show. Any last comments you want to leave for the audience.
Laura: No, I don’t think so. I think we covered it pretty well.
Doug: I always like to leave these podcasts with a couple of action steps for the audience.
One of my first action steps is have a conversation. If you’re a woman in the audience and you listened to today’s show or if you’re a man in the audience and you listen to today’s show, have a conversation with someone else about what we talked about here today. How could you do better with your investing endeavors? Is there anything that we talked about that is a reflection upon what you should be doing or what you’re not doing?
Again, I’m going to go back to that cash position. Have a big cash position. Well, maybe I should learn more about investing and I want to offer, of course, The Science of Economic Freedom podcast and previous episodes. There’s a lot of investing information that we have there.
Second, I want to ask everyone to share this podcast with a friend. Before I recorded today’s show, I was talking with my daughter. I told her that when I’m done with today’s show, I’m going to send her a copy of this show. I think she’s really going to find it of interest. She’s a young Millennial investing her own portfolio. I think that she’ll get a lot out of this and she’ll share it with other friends.
Then lastly, I want to mention to everyone in the audience if you have a question, question for me, question for Laura, send me an email. The email address is firstname.lastname@example.org, email@example.com. If you would like Laura to answer your question, I will make sure that she gets it. I will forward that question to her and you will receive an answer.
Laura, thank you very much for joining us today. Ladies and gentlemen, thank you for listening to this Science of Economic Freedom podcast.
Announcer: The Science of Economic Freedom is intended as an investor education resource. The views and opinions expressed on this program should not be construed as a recommendation to buy, sell, or hold any specific security. Consult your investment advisor and read any investment prospectus carefully before making any changes to your investment portfolio.
This program is sponsored by Mercer Advisors. Mercer Global Advisors, Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors, Inc. is the parent company of Mercer Global Advisors, Inc., and is not involved with investment services.