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Behavioral Finance

Data Suggests Women Are Better (Behaved) Investors

Betterment, the first automated investing service to examine the gender gap in investing, found that women are the smartest customers when it comes to staying on track to meet financial goals.

Articles by Betterment Editors

By the Editorial Staff
Betterment Resource Center  |  Published: March 3, 2015

Female customers change their asset allocation less frequently than male customers.

Male customers are nearly six times more likely to make massive allocations changes—switching from 100% stocks to 100% bonds or vice versa.

If there is one mantra that applies to long-term investing, it’s “stay the course,” even when the ride feels like a roller coaster. Easy to say, harder to do—but it turns out one group of investors are pretty good at doing exactly that. Who is that group? Take a look at your mother or sister—or if you have two X chromosomes, even yourself.

Academic research has shown that females tend to behave in a way that better suits long-term investing compared to their male counterparts.¹ Our new research confirms the women investing with Betterment are no different.

Betterment data scientist Sam Swift, Ph.D., looked at the differences in behavior between male and female customers and found that women are steadier customers when it comes to following suggested allocation advice to meet financial goals.

Betterment is the first automated investing service to examine the gender difference inside an automated portfolio.

The Findings

Betterment’s new data underscores earlier findings that women’s behavior is likely to be more conservative and steady over time compared to men’s. The difference between men and women investors has piqued academics’ interest for years, and research findings generally line up around these key takeaways:²

  • Women take less risk.
  • Women trade less frequently.
  • Women tend to stay the course during market swings.

Until now, no one has investigated whether the behavior gap is present with investors using an automated investing service, where portfolio management is conducted by algorithms rather than individual account holders.

Betterment’s data showed that most customers, both male and female, behaved very similarly—and the majority of customers followed suggested allocation advice. But when it came to taking on more risk than advised (which occurred with a minority of customers), it skewed male.

Dan Egan, Betterment’s Director of Behavioral Finance and Investing, said that the data highlighted men’s overconfidence bias for performance just as much as it revealed women’s risk aversion.

“Both the desire to perform better than a buy-and-hold strategy, and the conviction that it’s possible and worth the effort, runs far deeper in men,” Egan said. “They can be more competitive, even when it leaves them worse off.”

Deviation from Recommended Allocation Advice

The data also showed female Betterment customers changed allocation 20% less frequently and monitored their accounts 45% less frequently than their male counterparts.

Male customers also tended to crank the dial to 100% stocks at least twice as often as women. They are also nearly six times more likely to make massive allocation changes—switching from 100% stocks to 100% bonds or vice versa.

However, Egan cautioned that erring on the conservative side—which women did more than men—can backfire if investors reduce risk too much. He noted Betterment’s automated advice is devised to provide an optimal level of risk for a specific time horizon.

Earlier research has surfaced a number of explanations for the difference in risk tolerance between men and women, including socio-economic reasons, financial literacy, and life expectancy. While there is no one explanation to attribute the difference in risk tolerance, other research has shown that the gender gap in asset allocation closes for married couples, suggesting joint financial management has a way of moderating risk.

Keep Calm and Carry On

Egan said women’s behavior may be more likely to set them up for long-term success to meet their stated financial goals over time. He pointed to several issues that can affect returns over time.

First, frequent allocation changes, a behavior demonstrated more often by male investors, can be a form of market timing. That has been shown to hurt returns over time and also creates an unwanted short-term capital gains tax burden. The less customers tinker with allocations, the more likely they are to hit their goals, Egan said.

Average Number of Allocation Changes Per Year

Secondly, high-frequency monitoring of returns leads to a greater chance of seeing something negative, like a short-term dip in returns—and that often prompts investors to (mistakenly) try to make a short-term course correction. That means logging in less frequently may actually be better for your investment health.

Average Logins per Week

“Investing is a job that pays you more the less often you come into work,” Egan said. “Studies show that men seem to think they have to work hard, while women take a vacation and earn more.”

The Methodology

Our research looked at historical login rates, allocation change frequency, and deviation from recommended allocation for more than 60,000 Betterment customers from Jan. 1, 2012, to Jan. 6, 2014.

We excluded customers from the analysis if they were Betterment customers for fewer than 30 days or if they are Betterment employees. The data did not control for marital status, account balance, goal type, or self-reported net worth. Betterment’s customer base is 75% male and 25% female. The data did not compare risk-adjusted returns between men and women.

Can automated investing close the gap?

While our initial data shows a slight gender gap for investor behavior, Betterment’s responsive and behaviorally informed platform is evolving to help all investors course correct when their natural biases might otherwise interfere. Critically, all measures to date of the so-called behavior gap for both genders have been significantly below the average found in academic research of self-directed customers.

That means in the future we might expect the gender gap to narrow even more as we implement even more automated behavioral nudges to help keep investors on track to get the best possible results over time.

With contributions by Catherine New.

¹Additional research has suggested women also have an edge with active trading when it comes to behavior. 


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