While many wealth management firms and financial advisors believe that men and women have the same financial needs, research* shows that a more customized approach may serve women better. When developing an investment framework, it’s vital to understand how women view financial success. For most women, financial success is a means to live and improve their life.
A recent PIMCO survey showed that women rank health and wellness on par with financial longevity**. By contrast, male investors typically prioritize market outperformance as their primary goal.
There also tend to be marked differences between men’s and women’s investment decision-making and behavior. Three behaviors that tend to differentiate men and women from an investment standpoint are: confidence in investing abilities, portfolio risk tolerance and financial discipline. As highlighted in UBS’s Own Your Worth , research shows that “women consistently underestimate their own abilities while overestimating what is required to be financially involved.” Women’s lack of confidence in their financial literacy and the belief that it is too complicated or that they don’t know where to begin are some of the primary reasons women invest less than men.***
Education is key to overcoming this hurdle. Financial advisors who take the time to provide comprehensive explanations can help women become more comfortable with investing.
While men and women are both willing to take risk, women are more comfortable taking calculated risks that are based on the certainty of achieving their goals. Women take a more “fact-based” approach, however; this can make them less willing to invest in the capital markets*. Higher cash balances and an over-allocation to low risk investments, including fixed income, can dampen returns. Thoughtful financial planning can help women take an appropriate amount of risk aligned with meeting their goals.
Lastly, on average women are more disciplined investors than men; they trade less and are less likely to try to time the market.**** Women tend to stick to a long-term plan, which discourages buying and selling assets opportunistically. By contrast, men trade more over time, which detracts from their portfolio returns, with the result that women’s investment portfolios often outperform men’s, assuming the same level of risk.*****
These findings are supported by a 2017 study by Fidelity, which found that women outperform men by 40 basis points by analyzing clients’ data.******
Given what we know about the differences between men and women, it is important to have a way to address these differences.
UBS Wealth Way * can be an effective approach to help prioritize and pursue personalized goals and objectives. Starting with questions and a discussion, UBS Wealth Way helps you to focus on what’s really important. This allows your Financial Advisor to help organize your financial life into three key strategies:
• Liquidity to help provide cash flows for short-term expenses,
• Longevity for longer-term needs and
• Legacy for needs that go beyond one’s own.
This framework allows women to define risk and returns based on the financial and personal goals that are uniquely important to them.
*Time frames may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.
Main contributors: Emily Brunner and Kristin Kostiw
Read more on the wealth way framework for women as well as detailed guidance on considerations for women during estate planning in Matriarchs on the rise.
*Zakrzewski, A. et al. Managing the Next Decade of Women’s Wealth. Boston Consulting Group
**Shanahan, E. R. Women, Investing and the Pursuit of Wealth-Life Balance. PIMCO
***Own your worth. UBS (2018)
****Odean, T., Barber, B. M. Boys will be boys: Gender overconfidence and common stock investment.
Quarterly Journal of Economics (2001).*****Taking Action. UBS (2017).
****** Who’s the Better Investor: Men or Women? Fidelity (2017).
Approval date: 6/8/2020
Review Code: IS2003533