Every few years another study arrives claiming that women are better investors than men. I’m normally wary of broad gendered claims, but this one deserves a closer look.
At first glance, the finding seems counterintuitive because women consistently score lower on standard financial literacy tests, report lower confidence in their investment knowledge and, on average, take on less financial risk.
Yet across multiple countries, datasets, and decades of research, a remarkably consistent finding emerges. Female retail investors tend to outperform men, albeit modestly, in terms of annualised net return. The difference is rarely dramatic, but over an investing lifetime, that compounds into a meaningful advantage.
The explanation is not that women possess some innate investing ability that men lack. Instead, the investment behaviour of women aligns closely with one of investing’s oldest lessons: success comes from avoiding unnecessary mistakes.
The most famous study, by finance professors Brad Barber and Terrance Odean, analysed more than 35,000 households’ brokerage accounts for their 2001 paper in the Quarterly Journal of Economics. It has become one of behavioural finance’s defining findings: men traded 45% more frequently than women, and that extra activity cost them roughly 1.4 percentage points a year in net returns.
The irony is that the additional trading wasn’t driven by superior information. It was driven largely by confidence. Or, more accurately, overconfidence.
Humbled by Mr Market
Investing often rewards patience, yet our brains reward action. We like feeling in control. We believe we can spot the next winning share, time the next market correction, or know when to buy and sell. The market is generally effective at humbling those beliefs.
Women appear less susceptible to this particular behavioural trap. They trade less frequently, incur fewer transaction costs, and are less likely to abandon long-term investment plans because of short-term market movements. Doing less, it turns out, often produces more.
This shouldn’t surprise us. The evidence has been building for years that excessive activity is one of the biggest destroyers of long-term investment returns. Every unnecessary trade incurs costs. Every attempt to time the market increases the probability of making an emotional decision. Every reaction to a frightening headline risks missing the market’s eventual recovery. The best investors are often distinguished not by what they do, but by what they resist doing.
Women also tend to approach investment risk differently. Research from asset managers including Vanguard and Fidelity consistently finds that female investors hold more conservative portfolios than men. They are generally less attracted to concentrated bets, speculative investments, or the promise of extraordinary returns. Some critics say this caution is excessive. But there is an important distinction between avoiding risk and avoiding unnecessary risk.
Probability over excitement
The purpose of investing is not to maximise excitement. It is to maximise the probability of achieving long-term financial goals. That mindset naturally encourages diversification, regular investing, and a willingness to accept market returns rather than attempting to outperform them.
Indeed, one of the most important developments in investing over the past half century has been the growing recognition that beating the market consistently is extraordinarily difficult. The rise of index investing reflects that reality.
Rather than attempting to identify tomorrow’s winning shares, index funds simply buy the market at very low cost. S&P’s SPIVA scorecards, which have tracked this for more than two decades, show that after fees, relatively few professional fund managers consistently outperform broad market indices over long periods.
In many respects, the behavioural tendencies often observed among women naturally complement this philosophy: lower trading frequency, longer investment horizons, less confidence in market timing, and a greater willingness to stay invested. Whether intentional or not, these habits mirror many of the principles championed by investors such as John Bogle and Warren Buffett.
The real insight is therefore not about gender. It is about habits. The characteristics that repeatedly emerge from the research are surprisingly ordinary and easy to follow. Trade less. Invest for longer. Accept that you cannot predict markets. Diversify broadly. Ignore short-term noise. Focus on minimising costs.
These are not revolutionary ideas. Yet they remain genuinely difficult for many investors to follow, and the financial industry does not always help. Television celebrates traders making bold predictions. Social media rewards constant market commentary. Investment platforms make buying and selling almost frictionless, because they mostly make their money from trading fees.
Every market wobble produces another flood of opinions urging investors to act immediately. Activity has become synonymous with expertise. Patience rarely goes viral. That may explain why many investors continue making the same mistakes despite decades of evidence showing what works.
The confidence gap
Women often report lower confidence in their financial knowledge than men, despite achieving better investment outcomes. That confidence gap deserves more attention.
Certainly, improving financial literacy among women remains essential. Too many women still participate less in financial markets because they underestimate their own ability or have historically been excluded from financial decision-making.
But there is another lesson hiding in the data. A little humility can be an investing superpower. Markets are uncertain. No investor, however experienced, can consistently predict what will happen next.
Recognising those limits encourages behaviours that have historically produced better long-term outcomes: diversification, disciplined saving, and resisting the temptation to trade every new idea, whereas overconfidence can destroy portfolios.
As South Africa works to expand financial inclusion – the Financial Sector Conduct Authority’s own strategy singles out women as a group facing persistent barriers to accessing and using financial products – there is an opportunity to rethink what good investing looks like. For decades, investing has been portrayed as a competitive and largely male pursuit, and the language reflects that: “beat the market”, “find the next big winner”, “prove you’re a winner”.
We should celebrate something different: consistency over cleverness, discipline over drama. If the research tells us anything, it is not that women possess a secret formula for investing success. It is that they are, on average, more likely to practise the habits that long-term investing has always rewarded. And if we adopted more of them, our portfolios would probably thank us.
Thomas Brennan is a co-founder of Franc, a South African fintech company that helps people invest easily and affordably.