What’s Wrong With Women?

Women don’t tend to invest as well as they could, getting far lower returns than the market average.  How bad a problem is it?  What should be done?

What’s the problem?  It comes down to our confidence in one area.

• Women tend to avoid the stock market, believing they can’t pick stocks well.
• Men tend to be much more confident believing they can pick good stocks.

Here’s the problem. 

“Am I good at stock picking?” is the wrong question.  Women tend to correctly answer, “no”.  The problem here is that men are wrong.  Pretty much no one is good at picking above average stocks.

There are two ways this overconfidence is a problem:

1. Professional stock picking is not as good as flipping a coin.  Amateurs are no better.
2. Confident stock pickers buy and sell much more.  This reduces profit through increased taxes and fees, and self-inflicted bad market timing.

The big question to ask yourself is:

“What is the best way to protect and increase my investments?”

The smaller problem is that women tend to avoid stocks, when bonds and bank accounts have trouble keeping up with inflation.  The correct belief that you can’t predict the future on individual stocks needs to be combined with the historical knowledge that the stock market has given a very good rate of return.  The simple solution is to buy a low-cost index fund. such as an S&P 500 fund.  You then get the market rate of return, minus a tiny administrative fee.  This puts you in the safest position of not being dependent on any one company but also gets you much better odds of beating inflation.