Tom: Good morning, Mellody!
Mellody is president of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.
Mellody: Good morning, Tom.
Tom: You are digging into the differences between men and women when it comes to money?
Mellody: Well, I want to talk about the differences between men and women when it comes to financial behavior, Tom. It really is fascinating! The differences between how the sexes approach money and investing have big impacts on the financial strategies and outcomes for women and men.
Tom: Let’s talk about how women approach money and finances differently. What sets women apart?
Mellody: There are couple big differences in the way that women approach investing and saving. The first? Women take a longer-term view than men do, and we tend to think of investing through the lenses of our non-monetary goals. For example, studies have found that women think of money in a broader context, linking it to things like security, independence and quality of life.
In terms of the longer-term outlook, women set more concrete goals, like saving for their child’s college education, or a specific dollar amount of retirement savings. Additionally, we tend to be more risk averse. Comparatively, men are less risk averse and more competitive, paying greater attention to the short-term performance of their portfolios.
Secondly, and very much linked to the first piece I just mentioned, women are more thoughtful when making financial decisions, taking more time to make decisions, and we are much more likely to ask for help. We tend to do our homework, Tom, researching investments in depth before making decisions. And women are more likely to ask for, and take, financial advice. The result? Women tend to be more patient as investors, whereas men are more likely to act on impulses and market fluctuations.
Tom: What implications do these differences have?
Mellody: There are some positives and negatives for both men and women. The tendency among women investors to focus on far-off, non-financial goals can cause us to allocate our portfolios inefficiently in the short- to medium-term. Risk aversion can also cause this, as women can emphasize downside protection, undercutting the full income generating potential of their money.
On the flip side, it should come as no surprise that men’s tendency to be impatient can cause problems as well. In the pursuit of faster, or better, investment returns causes men to try to time the market, which rarely works, especially for individual investors. A study on individual investor behavior found that women were much less likely than men to sell out of equities during the downturn in 2008-2009, which cost them when the market rebounded.