This might seem strange, but arguably the biggest risk that investors face is not taking enough risk. To build a sufficiently large retirement pot, you need to invest in equities. But the data show that women generally don’t invest enough in equities, and it’s largely down to a lack of confidence. A video on the Bloomsbury Wealth YouTube Channel.
Transcript: Robin Powell & Dr Ylva Baeckström/ King’s College London
RP: This might seem strange, but arguably the biggest risk that investors face is not taking enough risk. To build a sufficiently large retirement pot, you need to invest in equities. But the data show that women generally don’t invest enough in equities, and it’s largely down to a lack of confidence.
YB: Financial markets, investing: it’s a newer domain to women than it is to men. And that’s evident in how women couldn’t open a bank account in their own name without a male signature until the 1970s, they couldn’t become members of the stock exchange until 1975 or 1973, and lots of evidence like that – they couldn’t apply for credit in their own name until 1982. So therefore, women do not necessarily naturally belong in finance; and that is what can sometimes suppress women’s confidence
RP: The good news is that a lack of confidence — or at least not being overconfident as many male investors are — is not necessarily a bad thing, as long as you DO invest.
YB: Underconfidence is problematic to women, because it means that they tend to not go there – to not invest in the first place. And that’s the problem. However, when you compare a man who invests with a woman who invests; the woman can very often outperform and that’s because the men – more than the women – suffer from overconfident behaviour. And that means that men tend to do less research; they trade too often, which means they generate high commissions; and they hold on to their losing stocks for longer than women tend to do. So they kind of have exaggerated behavioural biases in their investment decision making process quite often. So: overconfidence is a problem, and lack of confidence is a problem – so we kind of need to work together to create the right level of confidence.
RP: Helping investors to take the right level of risk is a valuable role that a good financial adviser can play. Dr Baeckström says most women would benefit from an on-going relationship with an adviser they really trust.
YB: Financial advice is very important, particularly for excluded customer groups – which, unfortunately, women form the largest part of. So, it’s very important for the woman to seek financial advice, but she needs to do so with an adviser who she feels comfortable with. Otherwise, the financial advice is not necessarily going to work; and there is evidence which shows that women who go to male advisers can often feel a little bit patronised. And that is not going to become a trusting relationship where she’s going to share her emotional concerns, her financial concerns, with the adviser.
RP: Many women prefer to work with a female adviser, but research by Dr Baeckström and others shows that, in terms of investment performance, the gender of the adviser doesn’t actually make much difference. And don’t forget — investing is just one area an adviser can help you with. What all of us need most of all, men and women alike, is proper financial planning.
Disclaimer — The information in this video does not constitute advice or a recommendation, and you should not make any investment decisions on the basis of it. If you do however require advice please do not hesitate to contact Bloomsbury Wealth.