Caution can work to women’s advantage

Let’s face it— when it comes to money, like so much else in life, men are from Mars, women are from Venus.

Men tend to be warriors, and women tend to be worriers, says Cam Neri, senior managing partner at Retirement Capital Strategies Inc., an LPL Financial LLC affiliate in San Jose, Calif.

“Men view money as a never-ending stream that keeps flowing and will always be there, which is why men feel they can take risks,” Ms. Neri explained. “Women view it as a pool that could evaporate if they don’t tend to it carefully.”

While this isn’t true for all males and females, in general, women are more conservative with their portfolios and less confident about their investment knowledge. At times, this hurts women; at other times, it helps them.

WOME LESS CONFIDENT

Kirby Rosplock, director of research and development at GenSpring Family Offices LLC in West Palm Beach, Fla., observed in a white paper that one distinct difference between the sexes is how they perceive their knowledge when it comes to wealth management.

According to a series of studies conducted by GenSpring, 88% of the men surveyed said they are very knowledgeable when it comes to financial planning, compared with 57% of women. The statistics are similar for men’s confidence when it comes to investment management, tax planning and insurance issues.

Lack of confidence about financial knowledge may not seem serious, but perception can become reality. GenSpring’s studies show that men not only feel more knowledgeable than women when it comes to wealth management, they perceive greater involvement, control and decision making around their finances, as well.

“If women are married, they often defer to a spouse because their perception is that other people know more than they do, which is not always true,” says Heather Locus, a principal at Balasa Dinverno Foltz LLC in Itasca, Ill.

(Read the full InvestmentNews Women & Investing special report.)

Because women are less confident they tend to be more risk-averse than men, leading to more conservative decisions about their portfolios. Women’s lower risk tolerance means they don’t tend to trade as often as men and therefore may be better investors.

The Vanguard Group Inc., in a research note released in 2009, found that of 2.7 million IRA investors during the financial crisis of 2008-09, men were 10% more likely than women to forgo the traditional buy-and-hold strategy. Many men sold at market lows and missed the subsequent stock market rally.

Vanguard’s study is backed up by research by the economists Brad M. Barber and Terrance Odean. In their study from 2001 titled “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” they looked at trading records for more than 35,000 households and found that men were 45% more likely than women to make trades, resulting in a decrease of almost 1 percentage point more than women in their annual returns.

The reason: Men are overconfident.

Ms. Locus has found this to be true in her own practice. Men, she has found, make changes to their portfolios when the market is down, and then when the market is up, they want to invest more — the death knell for investors.

Women tend to take the bigger-picture view, Ms. Locus pointed out. They ask questions. They want clarification. They like to be educated about the process.

“I can think of one female client out of 800 who substantially changed her portfolio allocation during the financial crisis,” Ms. Locus said. “Yet I can tell you about a number of men who have changed their allocations.”

DIVERSIFIED PORTFOLIOS

Women also are better savers. Women who earn between $30,000 and $100,000 are more likely to join their workplace retirement plans and contribute more, compared with men in the same income range, according to “How America Saves 2009,” a report by Vanguard.

Women also tend to have more-diversified portfolios than men, with more bond funds and balanced funds holding both stocks and bonds, Vanguard found. During the financial meltdown in 2008, women’s portfolios served them well, with women’s median account value declining by 13%, compared with 16% for men.

All of these statistics may make you think that women have higher retirement account balances than men. But that’s not the case.

Men had an average account balance of $68,208 versus $41,357 for women in 2008, according to Vanguard. Although women may have slightly better investing habits, women also tend to have shorter job tenures and lower income than men. So while women save and invest a higher percentage of their pay, their absolute savings is lower because they typically have less income.

This may explain why women are more conservative with their portfolios. The reality is that women outlive men by five to seven years, according to the Social Security Administration. On average, they are also paid less. In addition, they are less likely to remarry after a divorce.

LESS AGGRESSIVE

It’s logical then, given the circumstances, that women are less aggressive with their portfolios than men, said Rebecca Hall, managing director at Rebecca Hall & Associates, a Reston, Va., private-wealth-advisory practice affiliated with Ameriprise Financial Inc.

“At some point in their lives, women are very likely to be solely responsible for their finances,” she said. “And they don’t want to outlive their money. There is a constant fear of not having enough.”

For women, safety and security are paramount. That can mean making decisions that aren’t smart financially, said Lauren G. Lindsay, director of financial planning at Personal Financial Advisors LLC in Covington, La. She has seen many of her female clients give up everything in a divorce settlement in exchange for gaining ownership of the house.

“These are women in their 50s or 60s, where the kids are long gone, and they are now living in a house with four bedrooms,” Ms. Lindsay explained. “They have given up retirement accounts they were entitled to just to stay in a house they can’t afford and that is too big for them.”

The good news is that with each successive generation, the comfort gap between men and women when it comes to financial knowledge is narrowing, said Kol Birke, a financial behavior specialist at Commonwealth Financial Network.

Ideally, the genders can learn a lot from each other, he said. Women can take a dose of confidence from men’s playbook — and make their retirement a priority. And men can stop and ask for help instead of making snap judgments when the stock market tumbles.

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