How Do Women Really Invest?

“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 (401(k), IRA, and so on) 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 in a 401(k) plan. 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.

Participation/Savings Rates Women have fewer financial assets and lower company retirement plan balances, on average, than their male counterparts. Data from 401(k) recordkeepers also indicate that men contribute to their company retirement plans at a higher rate than do women.

For example, in Vanguard's 2020 How America Saves report, a compendium of statistics on more than 5 million participants in Vanguard 401(k) plans, the average deferral rate for men was estimated to be 7.1% in 2019, versus 6.7% for women. Interestingly, the gap in deferral rates has widened between genders over the past decade: The average deferral rate for both men and women in Vanguard retirement plans in 2010 was 6.9%.

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 the Vanguard 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%.

Men were more likely to contribute the maximum allowable amount to their company retirement plans, according to Vanguard’s report. Eleven percent of male company retirement plan participants did so, as of 2019, versus just 8% for women. But here again, that differential likely owes to income differences: Because of men’s higher average salaries, they likely have greater wherewithal to contribute the maximum allowable amount.

Investing Choices/Asset Allocation What do the data say about investment choices--specifically, the oft-cited assertion that women are more conservative than men? The available research suggests that the answer here, too, is nuanced.

Women allocated their pensions more conservatively than men, according to a 1996 study by Vickie L. Bajtelsmit and Jack L. VanDerHei. After examining investment choices for 20,000 management employees at a large U.S. employer, the researchers found that women were more likely to invest in fixed-income investments than their male counterparts and less likely to invest in employer stock. At the same time, the study's authors pointed out that they were missing information on the household's wealth and marital status, which could be contributing factors to the participant's allocation choices.

A 2008 study by Ann Marie Hibbert, Edward Lawrence, and Arun Prakash found that single men and single women with the same educational attainment (at least a graduate-level degree) tended to invest similarly; single women included in the survey were no more risk-averse than single men.

Vanguard’s data paint a similarly complicated picture of allocation choices by gender. Of the company retirement plan accounts included in the firm’s latest survey, the average and median equity weightings were roughly in line for both male and female employees’ accounts. For example, the median equity weighting for accounts held by male employees was 84%, versus 83% of females’ accounts. The study’s authors note that the uptake of target-date funds has eroded the differences in the asset allocation choices of male and female participants. In other words, both male and female 401(k) participants have increased their adoption of target-date funds; the fact that both men and women are investing in the same funds has brought their asset allocations into line with one another.

In the data set he examined, Blanchett looked at company retirement plan participants who were self-directing their own accounts, in an effort to remove the target-date effect and home in specifically on how men and women allocated their assets. Blanchett did observe a differential: The average equity allocation for self-directed female participants was 72%, versus 76% for men. However, after controlling for demographics, including income, the gap shrunk to less than 2 percentage points.

Willingness to Ask for Advice What about the likelihood that women will rely on professional investment advice relative to men?

Women were more likely to rely on a professionally managed solution for their investments, according to Vanguard’s How America Saves report. Forty percent of female-owned accounts in Vanguard’s survey included a target-date fund in 2019, versus just 35% for male-owned accounts.

Blanchett found a similar pattern in the data set he examined: 34% of women retirement plan participants went the self-directed route (that is, eschewed target-date and managed account offerings), versus 41% of men. But he notes that higher-income participants are generally more likely to self-direct their 401(k) allocations. That means that the differential in advice-seeking by gender was pretty minor overall. Adjusted for income and other factors, women were still more likely to rely on professional management then men, but the difference was fewer than 3 percentage points.

Conclusions The takeaway from the available data is that income differentials explain many of the gaps in investing choices that men and women make. Addressing income differences, and in turn savings rates, especially at lower income levels, is key to healing the gender gap with net worth and retirement savings. Of course, that's easier said than done. A complex set of factors contribute to the lifetime income gap between men and women--notably, the fact that women are much more likely to serve as caregivers for children or elderly parents than are men.

On a more hopeful note, the Vanguard data also point to the success of default contributions and professionally managed asset allocation programs, such as target-date funds, in ensuring that women of all income levels contribute enough and take appropriate levels of risk in their portfolios. Encouragingly, Vanguard’s data suggests that the uptake of target-date funds in 401(k) plans had helped bring men and women’s investing allocations more in line with one another.

Finally, the research suggests that financial advisors shouldn't assume that their female clients are more risk-averse than their male clients. A 2005 study suggested that financial advisors often did just that, even for male and female clients with the same levels of wealth. Based on the data, such an approach doesn't appear to be warranted.