Vanguard ? Warren Buffett and the feminine side of investing

Are there differences in the way men and women invest? And, if so, which gender has the advantage?
Ask LouAnn Lofton, author of Warren Buffett Invests Like a Girl: And Why You Should, Too, and you'll get an interesting answer: advantage, women.?
How so? And why is Warren Buffett a shining example of the way women invest??
To find out, we interviewed Ms. Lofton, who is also a contributing writer for The Motley Fool, a financial education company, and a former managing editor there.?
Question:?You started investing when you were quite young. How did that come about??
Ms. Lofton:?I wasn't interested in investing growing up and we didn?t talk about it in our house. But my Dad passed away when I was 14, and I knew that when I turned 21, I would get a little money as an inheritance.?
It wasn't going to be a life-changing amount, but it was enough that I didn't want to mess up the opportunity and disappoint him. So I decided to learn about investing and started doing so after I graduated from high school.?
Question:?How did you approach investing??
Ms. Lofton: I started reading books on investing, and one of the earliest ones I stumbled across was a book about Warren Buffett.?
I had never heard of him, but I was taken with his story of being a small-town, Nebraska guy who worked his way up, had created a fortune, but was still humble. I was also taken with the way he invests.?
I had read about investing with technical analysis and charts, and it all sounded so complicated. But when I saw that Mr. Buffett doesn't try to time the market, that he doesn?t rely on computers, that he researches the companies he will invest in, that he only invests in quality companies, and invests for the long-run, I said to myself that was something I could do, too.?
It seemed safe and doable, and while?I didn't think it would turn me into one of the world's richest people overnight, I also knew I wouldn?t screw up and lose the money I'd inherited.?
Question:?Why did you write Warren Buffett Invests Like a Girl??
Ms. Lofton:?Although the book is for all investors, men and women?alike, I thought it was important for women to realize that they can and should start investing today because they have some attributes that can make them great long-term investors.?
Question:?Why is learning to invest especially important for women??
Ms. Lofton: According to?a statistic cited in a December 2010 U.S. Congress Joint Economic Committee report, by age 64 the average woman will have?missed out on $430,000, attributable just to the pay gap between?what?men?earn?and?what women?earn over their working lifetimes.??
Women tend to go into retirement with?retirement account balances that are half of those of men. On average, according to a 2008 report from the Retirement Security Project of the Brookings Institution, women retire with $34,000 in their retirement accounts, while men's accounts, on average, are worth $70,000.?
Women need to recognize the unique challenges we face and be ready to confront them. They also need to be realistic and more proactive about investing and not think that someday someone's going to come along like Prince Charming and make it all OK.?
The time to start thinking about your economic future and security is right now. Don't wait.?
Question:?Do you think that women tend to shy away from investing??
Ms. Lofton:?I believe a lot of women might be intimidated about investing. Just the other night I was talking to a friend of mine, a really smart woman with a master's degree in psychology, who owns her own home, has it all together, basically. She told me that the idea of investing scares her to death. I hear this all the time.?
Question:?And yet your book's thesis is that women can be very good investors.?
Ms. Lofton:?Yes, absolutely. In my book I refer to several studies, including a ground-breaking study by two University of California researchers and one by Vanguard, that show that women, at times, may have qualities that make them better investors then men.*?
Question: What might those qualities be??
Ms. Lofton:?One is that women are not as likely to panic in bad markets as men.?
The Vanguard study I cited in the book analyzed 2.7 million IRA investors saving for retirement.?
It showed that during the financial panic of 2008 and 2009, men, more than women, were likely to sell stocks at the bottom of the market. That meant that the men locked in their losses and probably missed out on the market recovery that ultimately came.?
The thing to do in a down market is what Warren Buffett does, which is to have a shopping list ready for when stocks or funds are cheaper. That is a tough lesson to learn, but in the long term it will be rewarded.
Studies also show that women tend not to be as confident as men in making investing decisions. Men actually tend to be overconfident when it comes to investing, according to the studies.?
Women's tendency to be less confident means that they are more likely to do more research than men?before making investing decisions.?
And once women have made an investing decision, they are into their investments for the long haul.?
That is very reminiscent of Warren Buffett and the calm, long-term way he has been investing for decades and decades. See? Warren Buffett really does invest like a girl!?
Question:?Any other attributes that may be helping women investors??
Ms. Lofton:?In my book I mention a study** by?Joan MacLeod Heminway of the University of Tennessee College of Law in which she summarizes much of the research on the differences between men and women investors.*?
She concludes that women investors may be less optimistic than men.?
Question:?Why is that a good thing??
Ms. Lofton: I think that being overly optimistic can get you into trouble because you tend to think that you know all you need to know and that can stop you from asking questions or more questions about your investing ideas.
When it comes to investing, you should consider figuring out what information you may be missing, rather than why you are right.
Question:?How does attitude toward risk influence investing decisions by men and women??
In the book I point out that the study by the two University of California researchers showed, in their words, "that women tend to hold less risky positions than men in their common-stock portfolios."?
Other studies have shown that generally women are more risk averse.?
We can't eliminate risk from investing altogether, but not taking on more risk than is absolutely necessary can really help you preserve capital over the long run.?
Just sticking to the tried and true method of investing carefully and thoughtfully for the long run, rather than getting caught up in the latest crazy short-term trading strategy or investment fad will serve risk-averse investors well.?
Question:?When women invest do they make fewer mistakes then men??
Ms. Lofton:?All investors make mistakes, but women may be more willing to learn from their mistakes.?
In the book I mention a Merrill Lynch Investment Managers poll of 500 men and 500 women investors. Of the men, 24% admitted they were likely to buy a so-called hot investment without doing research, but only 13% of the women said they would do so.?
More tellingly, 63% of the men admitted they would do the same thing again, but only 47% of the women said they would.?
The most important thing you can do when you have made a mistake is to learn what you have done wrong. And women may be more willing to ask, "What?did I miss?"?when they make a mistake.?
You see the same willingness to admit mistakes in Warren Buffett's year-end shareholder letters, where he will take himself to task over his investment decisions that were wrong.
Question:?Any final thoughts??
Ms. Lofton:?These principles?controlling your emotions, doing research, and so on?can make everyone, men and women, better investors.
Men may trade too much, but women should consider that at least the men are giving investing a go. Men may want to consider that when they invest, they may be better off thinking long term.?
And if you are in a relationship, each of your investing traits can balance each other, and you could have a great investment outcome if you work together.?
Notes:?
?All investing is subject to risk.?
*Boys will be boys: Gender, overconfidence, and common stock investing,?by Brad M. Barber and Terrance Odean, the Quarterly Journal of Economics, February 2001, and Equity abandonment in 2008-2009: Lower among balanced investors, Vanguard Research Note, December 2009.?
**Female Investors and Securities Fraud: Is the Reasonable Investor a Woman?, by?Joan MacLeod Heminway, 15 William & Mary Journal or?Women and the?Law. 291 (2009)??
Ms. Lofton's opinions are not necessarily those of Vanguard.?
This article is for educational purposes only.
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