Research shows women are often better investors than men. Why? I think it comes down to the fact that women are usually better than men at avoiding the number-one pitfall of investing: frequent trading.
Classic research by Brad Barber and Terrance Odean found women trade 45 per cent less than men and earn risk-adjusted returns 1.4 per cent higher. But, women also need to earn more money from their investments than men do: women on average still make less than their male counterparts and their lifespans are longer. They are also more apt to be on the losing end of the financial stick during life crises like divorces or situations where somebody needs to bow out of a career to become a caregiver.
Statistically speaking, there are three big investing pitfalls that women are more likely to encounter than men.
1. Running into sexist financial services professionals.
I am disheartened by how many people, women and men, tell me about encounters with advisors and mutual fund salespeople who condescend to women, or don't address their concerns. Don't write this off as harmless: Someone who brings preconceived notions about women to their job is not only disrespectful, but also, by not listening to all the information, could put you into a portfolio that's not right for you.
The incorrect asset mix could cost you hundreds of thousands over your investing history. Just think about the historical performance difference between a portfolio of 60/40 bonds/stocks and one that's 30/70 bonds/stocks.
2. Not saving enough.
The average lifespan of a woman in Canada is four years longer than the average lifespan of a man - 84 versus almost 80 - according to the World Health Organization.
Generally, women should be saving more of their income for retirement every year, and their portfolios should be designed to last the length of their lives after retirement, not their partner's.
3. Not priming the pump.
The number one factor that affects where you end up financially is how much you have to invest! Sherry Cooper talked about this in an interview: “Women Are Taking Control of Their Financial Lives.”
Your career path has more of an effect on your financial life than anything else. By the same token, in financial settlements like divorces or property sales, insist on your fair share. Look at it this way: a $100,000 lump sum you get at the age of 45, for example, invested well, could grow to $400,000 by the time you're 70.
So, what should you do?
One of the best ways to address these three pitfalls is to align yourself with an advisor who makes you feel comfortable, respects your ideas and situation and has your best interests at heart. Don’t just take their word for it -- ensure that he or she has a fiduciary duty to put your interests ahead of their own and can sell you any product on the market.
Seek an advisor that wants to help you understand important aspects of investing like fees, risk, diversification and how to pick the right products for your situation. Make sure he or she talks to you with clarity and is transparent about fees.