Many recent studies in psychology, sociology and finance suggest women are less inclined to take financial risks when saving or investing than their male counterparts.
But it may not be quite that straightforward. Even though the body of research (into the financial habits of women and how they may be distinct from those of men) is vast and growing, basically all of it is rather complicated.
That doesn’t mean you can dismiss it as academic claptrap though. Knowing how social constructs around gender may predispose you to less risky (and therefore potentially less rewarding) decision-making, puts you in a far better position to respond to and address those tendencies.
And of course there are a growing number of women who are smashing through the stereotypes too. Stories of successful female investors and founders show that being female in itself is no barrier to taking and managing financial risk.
So let’s unpack the issue a little bit and give you some tips on how to avoid being overly cautious with your investments.
Are women more risk-averse than men?
What exactly is risk aversion? Investors also call it “risk appetite”. It’s the kind of thing that urges you to “take a stab in the dark” or “go with your gut”.
Not all investments are guaranteed to give you good returns. Because you would effectively need a crystal ball to know the direction the share you buy will go in, there is always a certain element of risk involved.
Some decisions will invariably appear safer from the outset. And to some degree the adage “no risk, no gain” does hold some truth in the world of investment and savings. Riskier shares can give higher returns. But they could also fail completely.
So do women really have a preference for playing it safe? The evidence is mixed.
Looking to stereotypes may offer some clues. Women are traditionally considered more nurturing and famously better at multitasking. We think of women as the have-you-packed-a-jumper-planner-ahead-ers, the be-careful-cautioners, the dont-do-that-discouragers. We like to try before we buy.
Men on the other hand, are figured as impulsive, on-a-whim, adrenalin-seekers. They just buy. Men “go for it” whilst women “consider all the options” and “wait and see first”. And some research does agree with this.
But more recently, researchers like Julie Nelson are asking us to reconsider this. Whilst it seems the fairer sex does think about risk differently to men, saying women have a smaller risk appetite is not quite on the mark. In some instances, women may be even more inclined to take financial risks.
‘Women are taking more risks than ever because we can’ says serial entrepreneur, and founder of debt recovery service StillDue Gal Davis. ‘Although this may seem like an easy answer, it is nevertheless a true one. There is more help available for female entrepreneurs than ever before, both in training and in child care for mums. So although there is still undoubtedly a certain amount of risk involved with investing, it is now a much more controlled one’.
So is it a bad thing to be risk-averse?
Again, it’s a matter of degrees and context.
Greater risk aversion can help you to avoid devastating losses through short-term gambles. But it can also, of course, mean that you miss out on potentially lucrative opportunities if you’re not able to respond quickly enough.
However, some commentators have called risk aversion an extremely valuable trait as it leads to much more level-headed investments. This is an asset for more considered medium or long-term investments. And over the long-term female investors have been found to out-perform their male counterparts.
In fact, it could be said that women are more likely to be risk-aware, rather than risk-averse. In many situations that is no bad thing.
What you can do to make sure you’re not missing out
No one will really be able to tell you whether or not an investment opportunity will perform. Only a lucky few predicted that the once financially precarious Apple Inc. would go on to change the face of personal technology. And not that many even guessed that the once-mighty Top Shop would go bust in 2021.
So simply taking on more financially hazardous investments doesn’t necessarily guarantee a bigger return on your initial outlay.
What you want to do is know your risk profile. “Some of us can afford to take more risks than others,” explains Lee Robertson from London-based wealth management firm Investment Quorum.
It is really important that your risk appetite is balanced with your financial situation. “Can you deal with any potential losses? If so, you should be taking a few more risks. If not, we’d of course advise you to play it safe.”
So a wealth manager may not be able to point out investments that are risk-free or even give you a greater appetite for risk. But they can help you work out whether you can or can’t afford to be taking more risks in the first place.
And if you are a naturally risk-averse person looking to expose yourself to a bit more uncertainty, knowing whether you can afford to do so will certainly take some of the anxiety out of the task.
The same principles apply to taking risks when starting or growing a business. Know what you can afford to lose, plan carefully, and then, when the time is right, be prepared to take the leap.