Study Pinpoints Investment Confidence Gap Between Men, Women

Amanda Cheesley

6 February 2023

A study from behavioural finance specialists reveals that women are less confident than men when it comes to investing, but the firm warned that this information should not affect how wealth managers communicate or create an investment strategy.

The study, entitled Sex and Suitability, which surveyed nearly 2,000 investors in the UK, Hong Kong, Taiwan and Singapore, shows that women scored 3.04 for confidence compared with 3.51 for men on a five-point scale.

It identified four groups of investors. Group one, which makes up 29 per cent of investors, have low financial confidence, low ESG preference but high composure, and 64 per cent of this group are women. At the other end of the scale, group 4 consists of investors who have very high financial confidence, high ESG preference, but very low composure, and 59 per cent of this group are men.

Oxford Risk warns, however, that wealth advisors relying on the common belief that female clients are less risk tolerant and confident are ‘reckless’ and could get advice badly wrong.

Women’s lower confidence is a factor resulting in more women than men not investing and having much higher cash balances, which in turn means that they miss out on potential returns, the firm explained. But using that information to tailor an investment or communication strategy would be to “cut the cloth with rather blunt scissors,” it added.

“The way an advisor attends to a client will shape that client’s investment experience,” Greg B Davies, PhD, head of behavioural finance, Oxford Risk, said in a statement. “Subtle beliefs grounded in part on ‘average’ assumptions, such as that female clients are going to be less confident and more risk-averse, can be harmless most of the time,” he added. “But sometimes they lead to unsuitable advice. And more to the point, they’re always unnecessary. "Lower confidence in investing is not necessarily a bad thing,” he said.

Oxford Risk, founded in 2002, aims to apply behavioural finance expertise and technology to help its clients deliver superior advice and service more efficiently. The subject of behavioural finance has grown more mainstream within the wealth management sector in recent years. The term applies to understanding how people mistake portfolio gains from pure skill rather than also accepting the role of chance, or treating losses more emotionally than they do gains, and following crowd behaviour. These insights draw on views about how humans have evolved from pre-history, and are used to explain events such as stock market booms and busts, or share trading frenzies such as the GameStop affair in the US more than a year ago, or the regular gyrations of bitcoin. The pandemic, Russia’s invasion of Ukraine and a spike in energy prices have given plenty of reasons for emotions to hold sway in markets.

In other details of the firm's report, it said that in Group 2, accounting for 27 per cent of the population, 47 per cent are women and 53 per cent are men. They have "low familiarity preference," low ESG preference and "low composure." In Group 3, accounting for 14 per cent, 45 per cent of this category are women and 55 per cent are men. They have high financial confidence, very high ESG preference, high composure and high familiarity preference.