A recent study by the Warwick Business School, which analysed the behaviour and returns of 2800 investors over three years, found that women outperform men by 1.8%.
By looking at a range of criteria, the study was able to ascertain a number of significant differences between the genders when it came to their investment behaviour. The behavioural qualities displayed by women investors – many of which are aligned to an outcome-based approach to investing – may explain their superior performance.
A more considered approach
After examining these behavioural differences, Florbela Yates, Head of Momentum Investment Consulting, says that the outperformance of female investors over their male counterparts comes as no surprise. “The study found that, generally, women tend to take a longer-view perspective and trade less frequently. This reveals a more considered approach by women, with greater focus being placed on the realisation of a financial goal, rather than the thrill of investing.”
Yates highlights that many of these same qualities which have resulted in women being superior investors to men, form the basis of Momentum Investments’ underlying philosophy of outcome-based investing. “We know that staying invested over the long-term produces superior returns, which is why we follow an outcomes-based investment philosophy that aims to shift investors’ focus away from tracking performance and towards their personal investment objectives.”
The case for staying invested has proven to be especially strong during times of financial market uncertainty and high volatility, says Yates. “This is because volatile markets increase the risk of buying and selling at the wrong time. By trying to time the market, investors therefore risk missing top performing days because it is often intuitive to buy when prices are low, but difficult or even impossible to correctly predict the best time to invest.
“In fact, our research has shown that investors who stayed the course over a twenty-year period would have received nearly double the returns than their peers who missed the top 25 performing days over the past two decades,” she notes.
Helpful investment tips
To help investors take a more outcome-based approach, Yates provides the following helpful investment tips:
- Diversify. Investing money in various multi-asset funds with diverse strategies is the surest way to earn superior returns over time. As such, choosing a few balanced funds or CPI +5% funds will go a long way.
- Compound your interest. The power of compounding is really the eighth wonder of the world, so ensure that you grow the money you save by investing it into a compound interest-bearing account.
- Pay off your bond. Owning the house that you live in is the best risk-adjusted investment you will ever make. So paying a little bit extra on your bond every month is a great investment, but taking the extra money out of your bond and spending it on consumer goods is very bad.
- Avoid the switch itch. Investors are 2.5 times more likely to switch funds as a result of their current fund performing poorly, than as a result of another fund performing exceptionally well. Even when the markets get rocky, try stick with your investment strategy and portfolio choice. There will be times when you have the urge to change investment funds, but don’t chop and change.
- Be tax savvy. Retirement annuities and pension funds are tax efficient investments. Maximise your tax benefits (and cost benefits) through institutional (employer provided) arrangements. With any excess, you can take out a retail investment product but group/employer provided products give you the benefit of a discount through economies of scale.
Florbela Yates, Head of Momentum Investment Consulting