GENDER STEREOTYPES ABOUND when it comes to finances. One of the most common misperceptions, for instance, is that women are more conservative as investors, and men are more comfortable taking risks.
Michael Liersch, head of Behavioral Finance at Merrill Lynch Wealth Management, busts that myth, and others, in his whitepaper, Women and Investing. His findings are based on the responses of more than 11,500 men and women to Merrill Lynch's Investment Personality Assessment, as well as an array of published academic research.
Here, he shares some key takeaways from his research.
On Being Risk Averse
"When you control for factors such as age and lifestyle goals, the risk-taking profiles of men and women aren't all that different," Liersch says. What is confirmed by his research is that women are less likely to want to make regular changes in their investment direction just to try to improve returns. Fewer changes can result in an approach that can result in lower trading fees and offer a slightly better overall return on investment.
"Women are less likely to make changes in investment direction. Fewer changes can result in lower fees and a slightly better overall return on investment."Michael Liersch,head of Behavioral Finance at Merrill Lynch Wealth Management
On Financial Education
Yes, women tend to ask more questions than men do, but it's not because they don't "get" investing, Liersch says. They simply want to make sure that they understand the purpose of a recommended strategy and how it will help them reach their individual goals. "These are important questions that every investor should be asking."
On Setting Priorities
A common question couples must ask themselves is: Are we investing for our family or for ourselves? "About half the time it's the woman who puts the family first, and about half the time it's the man," notes Liersch. "What should really drive investment decisions are your financial priorities, and those are very personal. They have nothing to do with gender."
Of course, there are some gender-linked differences—like the wage gap, or the fact that women tend to live longer than men—that can create financial challenges for women, says Liersch. And those realities should be considered carefully as women develop their investment strategies, he says.
How Do You Compare?
Taking the Investment Personality Assessment can help you identify what your true priorities are. Liersch recommends that couples take the assessment separately to uncover any differences they may have in their priorities and preferred investment approach. "Answering its 27 questions will help you and your advisor create an investing approach that works for both of you," he explains.
3 Questions to Ask Your Advisor
- Where can I take the full Investment Personality Assessment?
- What strategies should I consider so that I don’t outlive my assets?
- Am I on track to have a financially secure retirement?