Women and Investing Today: A Look at Behavioral Finance

By: Laura Pilz, Vice President and Financial Advisor, Merrill Lynch Wealth Management; FWSF Board Member

Researchers have spent a great deal of time exploring the behavioral differences between women and men when it comes to investing. Which gender makes for more successful investors? Is one sex more prone to making emotional decisions? By analyzing such areas, research has ultimately painted a picture on which gender is a more successful investor.

Despite these assumptions, new research from Merrill Lynch reveals that men and women may be significantly closer in their investing views and habits than people assume. Gender differences among investors tend to be overstated, especially in regard to risk tolerance, desire to be actively involved in the investment process, and focus on family legacy goals. 

The study did reveal one pronounced gender difference: women report themselves as having less financial knowledge in comparison to their male counterparts, whether or not that reported perception is based on actual fact. According to the research, 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.

Realizing that the inherent behavioral differences between men and women investors are minimal can be enormously liberating, because it suggests that it’s within each individual’s power to take control of our financial lives – all stereotypes aside. At the same time, it’s challenging – taking charge of our financial future can appear to be a daunting task as each individual must navigate their personal values and goals. 

The study is based on responses from 11,500 investors to Merrill Lynch’s proprietary Investment Personality Assessment, a tool which helps investors better understand their own views and needs regarding finances.

Here are three key points that women (and men) can keep in mind when it comes to investing:

• Make investing personally meaningful. Articulating specific, personally meaningful goals – such as meeting lifestyle needs or leaving money to family members – can help investors develop a tailored investment strategy.
• Be engaged in dialogue regarding your personal investment portfolio. Ensuring that you are actively involved in investment decisions can help you gain the experience and confidence to ultimately reach your financial goals.
• Communicate with the key people in your life throughout the investing process. Talking to your spouse, family members and other people impacted by your decisions can help you identify objectives and agree upon an investment action plan.

In the end, the right financial decisions are driven by the unique needs, concerns, and goals of each investor. These circumstances are based on the person, not the gender.

Source: Women and Investing: a Behavioral Finance Perspective, Merrill Lynch, Wealth Management Institute, Michael Liersch, November 2013.

By: Laura Pilz, Vice President and Financial Advisor, Merrill Lynch Wealth Management

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