Women Investors Don’t Play It Safe

(Bloomberg Businessweek) -- A couple came into Mike Giefer's Minneapolis office in late September for some financial planning advice. The woman presented herself as the risk-averse one and her husband as the financial maverick. Then Giefer had them take a test. “It turned out the exact opposite,” he says. Giefer, an adviser at the Johnston Group, uses Riskalyze, an online tool that gauges clients' risk tolerance by walking them through various financial scenarios and then assigning them a “risk number.” The woman scored a 70. Her husband, only a 52.

Women are often cast as conservative when it comes to investing, but the results for Giefer's clients should be no surprise. In a sampling of 5 million users over the last five years, women fell pretty evenly across the risk spectrum, Riskalyze found in data provided exclusively to Bloomberg. Only 37 percent of women have a below-average tolerance for risk, 25 percent have an average tolerance, and 38 percent have an above-average tolerance. “The data show that the stereotypical risk-averse woman is not a reality,” says Aaron Klein, chief executive officer of Riskalyze.

Riskalyze did find that more men—about 51 percent—showed an above-average taste for risk. But when it comes to picking investments, women don't act particularly risk-averse, even compared with men. Another recent survey of 640,000 investors by Stash, an investing app, found that about 50 percent of women using the app have put money in higher-risk assets including equities or aggressive exchange-traded funds, such as an asset-allocation fund that favors stocks. Men and women devoted about the same percentage of their portfolios, on average, to stocks—the more volatile investment.

“It seems especially small-minded to believe that the genders think completely differently,” says Carol Fabbri, an adviser in Denver with Fair Advisors. “I believe experiences with money shape people's risk aversion, not their hormones.”

The idea that women are inherently less likely to take risks comes from confirmation bias, says Julie Nelson, an economics professor at the University of Massachusetts at Boston. In other words, people, including researchers, think of women as less aggressive, so they look for ways to prove it. In a book and two meta-analyses of the studies on the subject, Nelson has found this notion doesn't hold up. “It turns out the evidence is very mixed, and where a difference exists it is small,” she says. Any differences in investing behavior between men and women have little to do with biology. “To the extent differences are found, it can be from investment advice, it can be from social pressure: Don't stick your neck out,” Nelson says.

Sallie Krawcheck, co-founder and CEO of Ellevest Inc., an investing platform for women, has said that in addition to the gender pay gap, there's an investing gap. Only about half of women have started saving for retirement, compared with 65 percent of men, according to a 2015 survey of 27,500 investors by BlackRock Inc. Even those who've started saving have accumulated less than half the savings men have.

And there lies the real difference between male and female investors. Men tend to have more money than women, which colors their investing behavior. People with a bigger income have a higher risk tolerance, and that applies to women, too. A report from Spectrem Group found that 54 percent of women who earn more than $200,000 are willing to take “a significant investment risk” to earn higher returns, compared with 32 percent of the broader population of investors.

Kerri Kimball, a financial adviser in New York, confirms that her clients, who are primarily women executives and professionals, are “very competitive” investors. “They'll take risks, but they'll be calculated risks,” she says. There's something to this. One famous study from the University of California at Davis did find a difference in how men and women traded. Due to overconfidence, men traded more often and had worse returns as a result. Many financial planners say their female clients tend to prepare more before making investment decisions.

Still, many women have internalized the message that they don't like to take chances with their savings. The Stash survey found that only 13 percent of women rated themselves as having a high risk tolerance; 35 percent of female users rated themselves as having a low risk tolerance. Those numbers don't line up with their behavior.

“There are many stereotypes that persist about women and money that are likely due to the fact that women have been left out of the financial-services industry for so long,” says Alexandra Phelan, the data scientist who led the Stash study. “We're told that money is the man's world. It's not hard to believe that women perceive themselves as more risk-averse.” That's a problem if it means women are guided by advisers to take less risk than they can handle. Because higher risk can mean higher returns over the long run, playing it too safe can make the investment gap even wider.

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net, Eric Gelman

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