IS MARRIAGE KEY TO INVESTMENT RETURNS?
There have been many studies that show that women are better investors than men. An article in SmartMoney recently quoted a study confirming what many had already known: “A new study by Barclays Capital and Ledbury Research found that women were more likely to make money in the market, mostly because they didn’t take as many risks. They bought and held. Women trade this way because they aren’t as confident, or perhaps as overconfident, as men, the study found.”
Other research has shown that single women enjoy better returns than single men because of far less frequent trading. Elizabeth MacBride of Wealthfront wrote, “Sorry, guys, but the evidence is clear that some of you tend to be afflicted with overconfidence that leads to one of the most obvious investment mistakes: active trading. Using account data for over 35,000 households from a large discount brokerage, Brad M. Barber and Terrance Odean of the University of California-Berkeley looked at the common stock investments of men and women from February 1991 through January 1997. They did the research when both were at the University of California-Davis, where Prof. Barber remains. Prof. Odean has since moved on to the University of California-Berkeley.
“They found that men traded 45 percent more than women and that trading reduced men’s net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women. The effect was even more pronounced when the researchers compared single men and single women. Single men trade 67% more than single women, thereby reducing their returns by 1.44 percentage points per year more than do single women.”
Perfect Ladies?
Okay so enough ragging on men.
Believe it or not, women are NOT perfect investors either. There is one mistake that they make and that is that they tend to be way too conservative. Research shows that they tend to hold onto large amounts of cash instead of getting that money invested. Being risk-averse worked to their benefit a few years ago when the market crashed but over the long term it actually costs them significant amounts of money.
Put a ring on it
Maybe Beyonce knew what she was talking about!
Believe it or not, recent data shows that married couples actually perform better with investments than single men and women. They both bring their strengths to the “investing” table, and that helps investment returns.
My colleague Zack Miller recently had a piece in Forbes where he spoke about this phenomenon.
“A study (The Effects of Marriage and Divorce on Financial Investments: Rangvid, Joensen and Christiansen) on investing patterns in marriage and divorce, showed that members of a married couple adjust the portfolio’s risk profile to jive better with their partner’s tolerance for volatility. Married men dial risk down and hitched women tend to own more stocks than they would when they were single. And that spells more stock market participation for married couples than for single men and women. In fact, married couples generally perform better than single men and women, at least when it comes to retirement investing.
“Examining nearly 7,000 retirement accounts, researchers found that married couples had 42.88% of their portfolios in stocks, while unmarried people averaged only 36.52%. That exposure to the stock market, combined with less male-driven trading, means married couples in that same research performed better than single (8.92% per year vs 8.16%). When men and women work together on the investing equation, the whole turns out to be greater than the sum of the parts.”
Money magazine ran a survey a few years ago that showed husbands and wives divvy up money-related tasks along very traditional lines, with men doing most of the big-picture, long-term planning and women managing the day-to-day budgeting and spending. Based on the aforementioned data that Miller speaks about, this is a big mistake.
By being involved in the long-term planning with their husbands, women are actually helping the long-term financial situation of the marriage.
Oh and by the way, did I mention that yesterday was my 12th wedding anniversary? Happy investing dear, uh, I mean happy anniversary!
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA, FSI. For more information, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il
