Millenial Women are Shifting the Way Their Gender Invests

In honor of Women’s History Month, Ann Hynek speaks with The Blog’s resident behavioral finance expert, Nelli Oster, to discuss how millennial women invest.

by Ann Hynek, Global Editor of The Blog, Blackrock

There are 73 million millennials in the U.S. today, and roughly half of us are women. As my colleague Amy Schioldager notes, the theme for Women’s History Month here at BlackRock is “Make it Happen”. And making it happen is exactly what millennial women are doing when it comes to their investments.

According to our latest Investor Pulse Survey, millennial women are managing their finances more frequently than older generations and their investing habits are shifting. 31% of us describe ourselves as active investors while only 15% of our female baby boomer counterparts feel the same way about their own behaviors. We’re also twice as willing to take on higher risk investments to seek higher returns (41% of us versus 22% of female baby boomers).

Even though we’re more willing to take risks than older generations, we still lag our male peers in this department. Men also tend to enjoy managing their investments more than we do (70% versus 36%), which left me to wonder: Why the gap? To learn more about these gender discrepancies, I turned to behavioral finance expert and Blog contributor Nelli Oster.

Q: Nelli, let’s start with the millennial generation as a whole. What are their attitudes in general? And how do they feel about money and investing?

A: A study from Pew Research describes the millennial generation as confident, self-expressive, liberal, upbeat and open to change. Confidence and a flexible attitude are helpful traits when it comes to investing, and it seems more millennials are watching their spending more than they were nearly a decade ago. The Pew study found that 55% are keeping a close eye on their money today versus 43% in 2006. Overall, millennials are very focused on investing and building their savings; 77% worry that they aren’t saving or investing enough.

Q: Now to the gender issue. Why are millennial women more risk averse than millennial men?

A: While millennials as a whole are described as an upbeat demographic, the difference in tolerance for risk between male and female investors transcends generations. One study I found says that it’s not that women are that different from men when it comes to their perception of the size of possible gains and losses, but that they tend to be more pessimistic about the probability of high likelihood gains. A phenomenon known as the risk-as-feelings hypothesis tells us that when emotions conflict with rational assessments, emotions tend to dominate. And women often express feeling nervous more openly, as a result exhibiting more pessimism when faced with risky decisions.

Q: If women are generally more risk averse when they invest, how does this affect them in the long run?

A: Women’s tendency toward higher risk aversion can lead them to be under-invested in risky assets. The danger here is that they miss out on higher returns. But this isn’t all bad: given their generally lower confidence levels, women may have a more realistic picture of their investing skills, be more open to financial advice and research investment decisions more thoroughly before implementing them, relying on well-diversified buy-and-hold investment strategies rather than embarking on the futile exercise of trying to beat the market. This thoughtful approach can benefit women in times of stress. For example, during the financial crisis of 2008-2009, women were less susceptible than men to snap judgments and selling their stocks at market lows. Millennial women who take extra steps to educate themselves have that much longer to invest strategically for the future.

Q: How can women of all ages mitigate their investing biases?

A: My colleague Heather Pelant and I advocate  focusing on your long term goals, such as buying a house, retirement etc. To consider: Are you less comfortable taking investment risk because you expect returns in the current market environment to be modest and more volatile than in the past few years? Or are you staying on the sidelines because behavioral biases push you to be nervous? While the former may be justifiable as a near-term strategy, the latter risks derailing you from achieving your long-term financial goals.

Nelli Oster, PhD, is a Director and Investment Strategist at BlackRock. 

Ann Hynek is the Global Editor of The Blog, writing about investing from a millennial perspective. You can read more of her posts here.

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