How Do Women Really Invest?

A closer look at the data suggests that income, rather than gender alone, may be the real determinant of women's investing choices.

Christine Benz 9 March, 2021 | 4:38AM

Women's Day 2021

“Women invest less aggressively than men.”

How many times have you heard that assertion? And indeed, numerous studies point to women having lower stock weightings than men.

But a closer look at the data suggest that women’s lower average incomes--rather than gender-related risk preferences--are the key driver behind their lower average allocations to stocks. Women earn less, on average, than men. And not surprisingly, people with lower incomes contribute less and invest less in stocks than do higher-income people. That skews the data on women’s average savings rates and equity allocations downward. But after controlling for income, it appears that women contribute as much to their retirement accounts and invest just as much in stocks as men at the same income levels.

That suggests that the key area of concern for women’s financial health relates to income rather than any sort of risk aversion that’s specific to women.

Digging into the Data
To be sure, it can be difficult to draw conclusions about how people invest, or how much. There’s no central repository of information about investing behaviors for women or men. Any hard data is siloed by investment provider and account type. To the extent that investment firms study and share information about their investors’ choices, it’s necessarily influenced by the specific composition of their client bases: income levels, what industries their clients work in, and so forth. The data from individual firms may not be representative of the investing population at large. Extrapolating conclusions from brokerage accounts--rather than retirement accounts where it’s at least likely that most contributors are saving toward retirement rather than shorter-term goals--seems especially risky.

Moreover, numerous factors may influence investment decisions: income, education level, marital status, age, and gender, to name some of the key ones. That makes it difficult to untangle what role gender plays in investment decision-making.

To help shed some light on these issues, I delved into available research to look at women’s investing behaviors in three key areas: contribution rates, equity weightings, and willingness to use professional advice, such as a target-date fund or managed account. I focused on retirement-plan participants in an effort to remove the noise of people saving for goals other than retirement. The conclusion? Women do indeed appear to exhibit different behaviors than men in each of the three areas. But many of those trends decline or melt away altogether when the data are adjusted for demographics, especially income level.

Exhibit 1

Participation/Savings Rates
Women have fewer financial assets and lower company retirement plan balances, on average, than their male counterparts. Data also indicate that men contribute to their company retirement plans at a higher rate than do women.

David Blanchett, head of retirement research for Morningstar Investment Management, made a similar observation when assessing the behavior of more than 1 million 401(k) participants, using data from another major retirement-plan recordkeeper. The average deferral rate was 9% for male participants in that sample group, versus 8.1% for women.

Yet intuitively, those differences appear to be related to income levels: Women save less, on average, because they earn less on average. In Vanguard's How America Saves research, for example, women with incomes of less than $29,999 had lower deferral rates than males at that same income level. But at every income band over $30,000, women actually invested more than males at that same income threshold. For example, women with incomes between $75,000 and $99,999 deferred 8.3% of their salaries, versus 7.8% for men at that same income level. Blanchett’s observation was similar: After controlling for demographics, the differential in contribution rates between men and women was just 0.01%.

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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