The science of behavioural economics suggests that women, compared to men, need much more knowledge and want to understand products better before they invest. Apparently, a common theme is that many women subconsciously think, “There’s no way I should do something when I’m not 100 percent sure if it will succeed”.
But a mixed, diversified portfolio to manage normal markets does not work that way. There are always winners and losers in the cycle of success to create the balance of risk rather than guarantee. This is exactly why there is an initiative to offer more support and financial education to ease women’s fears. The theory also suggests that most women behave completely differently toward financial markets than the majority of men who are much more willing to take “measured risks” when it comes to finances and see this as a kind of competition, a challenge to “beat the market” or consider the logic of needing to “hedge bets” and spread risk.
Anja Heßeler is Head of Asset Management and Liquid Assets at Bethmann Bank in Frankfurt and one who strongly advocates a complete change in women’s financial behaviour. Not only for such pressing reasons as avoiding greater hardship in old age, which is a particular threat to women, but also because, as she says, she wants women to be more confident when it comes to investing money. She has stated that women want to take as little risk as possible when investing money and also want to understand all the financial options in their entirety, with the aim of being aware of all the potential losses.
This can take a considerable amount of time and as the saying goes, analysis can equal paralysis. In addition, it can become too much of a burden increasing the risks of non completion as a path of least resistance. Something of true value will have a cost and that cost is effort. A non completed task means no progress. The further problem is that if you should always play it ultra safe, you not only reduce the chance to increase money, but you can also actually make a loss to inflation over time. Keeping excess money in deposit accounts for too many years or only paying off cheap mortgage loans (rather than servicing them well over time) are arguably not the smartest moves for building future income assets.
When it comes to investing in shares, 7 percent of all adult men have invested more than women. There are various reasons for this significant difference, one of which is the distribution of wealth. Historically, men were more likely to be in managerial positions. Society has begun the change here to abandon these old role models, but it is said that the decision habits of women are still lagging behind. Heßeler has said that this puts women at a financial disadvantage; in some cases a disadvantage for a whole family.
Women often don’t realise that if they totally shy away from the smallest risk and avoid participation in financial markets, they will suffer a real loss. The calculation is very simple: with 3 percent interest and 7 percent inflation as examples, at the end of a year you have less than before, especially when compounded over years. And that is precisely the trap that women fall into. They may not be taking a risk, but they are causing a risk and need to be braver towards the upside rather than suffer a real loss of capital purchasing power.
The first steps to be taken are preferably in combination with good advice. It’s good to know that many advisers now position themselves differently and take women’s concerns into account. As head of asset management, Heßeler would of course put her money in a well-diversified asset management company or fund. You don’t even have to deal with this yourself; seek help from professional hands. Of course, every professional first asks about your framework conditions; to “know their customer”.
Everything is worked out and discussed together. Asset managers try to get the best out of these framework conditions for all their clients, while keeping them completely in control (not taking over). In particular, Heßeler would never do one-sided investments; only investing in single assets such as property or gold. Investments must always be broadly diversified. A good adviser will work with you for a solution and never try to push you along one path.
“Women should change their behaviour when it comes to finances. Just like men, we are allowed to get rich”, Heßeler says. “We can have more confidence in ourselves”.