The rise of the female investor

Each year Equal Pay Day, on a date calculated by the number of extra days women need to work in a year to earn the same annual pay as men, provides a poignant reminder of the challenges women continue to face in securing greater financial independence.

This resounding pay gap all too often results in women having significantly less money saved for their retirement – with the average super payout for women still about 35 per cent less than for men, as reported by ASFA in May 2021.

But while society continues to grapple with the factors driving this inequity, women are proactively turning to investing more than ever before, and in doing so demonstrating a very competent and sensible approach to building up their wealth outside of super.

Much has been written about the recent surge of first-time investors during 2020, with the ASX observing 3.4 times as many new investors joining the stock market than usual. Alongside this, concerns about frequent trading behaviour have worried the regulator to the extent that it issued a warning for those new investors to be more aware of the risks they may be taking.

But pre-dating this retail investing growth spurt, the percentage of females beginning to invest was already on the rise. Investment Trends data from 2019 showed a doubling of women participating in investing between 2013 and 2018. And earlier this year the annual ASX Australian Investor Study showed that a greater percentage of women (51 per cent) are in the category of intending to invest than men, indicating a continuation of this trend.

The same Investment Trends data also showed a growing interest in ETFs amongst female investors, with take up tripling over the period, while the more recent ASX study showed about a third of women were aware of ETFs and some 11 per cent held ETF assets.

Smart investing traits

Contrary to ASIC's concerns last year regarding ill-advised and risky retail investing behaviour, women actually demonstrate sound investing behaviours.

Various studies have shown women to be more focused on long term goals-oriented investing, more disciplined to stay the course in challenging market conditions, and more inclined to choose broadly diversified investments.

The ASX study showed that while some 20 per cent of men check in on their portfolio daily, only eight per cent of women do, and women were less likely than men to check their portfolio balances on a weekly basis. Pleasingly, some 44 per cent of women respondents said they only review their investments quarterly or less frequently.

Indeed, Vanguard's own study of gender differences in investing behaviour in the US has also shown women to be less digitally interactive with their investments, and far less likely to engage in frequent trading behaviour, trading up to 50 per cent less often than men. This aligns closely with what we observed in Australia: half as many female Vanguard investors than males sold down an investment over a 6-month period in 2020.

The Vanguard research showed slightly less alignment to the widely held theory that women have a much lower appetite for risk in investing, with data showing gender differences in overall portfolio risk were minimal. But what does differ from a gender perspective for both Vanguard's US and Australian investors is in their choice of investments, with a greater proportion of female investors choosing balanced diversified funds versus men.

This aligns with Vanguard's long held view that a diversified portfolio, together with planning, discipline and a long term perspective are the key things that give investors their best chance for success.

Women and indexing

Overall, there are key synergies that emerge when you consider the investing behaviours demonstrated by women and what index funds and ETFs bring to the table as part of an investment portfolio.

The low touch nature of index funds and ETFs by removing the need for stock picking, in addition to their offer of simplicity and instant diversification, likely means that as women continue to focus on investing as an avenue to greater financial independence, they will continue to represent a growing proportion of the indexing growth story.

Rachel White
Head of Product Management
31 Aug, 2021
vanguard.com.au