Study findings: Women are better investors than men

January 30, 2012

Women are better wired than men to avoid emotionally driven investing mistakes. This is according to recent studies,  which indicated that women are better investors than men.

These findings are attributed to certain behavioural traits of both sexes and it seems women are doing it better.

Studies have been conducted which examine the behavioural traits of men and women, specifically regarding investments, and whilst some of the results have been predictable, others have been most enlightening.

It has been shown that women have higher emotional intelligence than men. This is unlikely to surprise most readers. However, it is the application of this superiority to investing that might be novel. The realisation has struck that investing is as much about human behaviour as it is about analysis – it is as much art as it is science. In fact, a whole field of study called “behavioural finance” has been born of this realisation. Any person having the ability to interpret or, indeed, anticipate human behaviour in the investment markets has an advantage.

Women trade less than men (on average, 45% less according to an American study). This sounds innocuous enough until one considers that trading incurs costs, and costs erode returns. As a result, men earn almost 1% less per annum on their portfolios than women. Whilst apparently paltry, this translates into a 22% wealth advantage over a 20 year investment term. Single women have an even more profound advantage over single men: bachelors trade 67% more than their fairer counterparts, and earn returns almost 1.5% per annum less for it!

Men are overconfident in their own abilities. They have a tendency to take too much credit for their own successes. They have a belief that returns are more predictable and so they expect higher returns. Women are more conservative, more intuitive and have a greater sense of urgency. Consequently women are less afflicted by inappropriate risks, “analysis paralysis” and bad timing.

Further to this, women are less encumbered by ego and as such they have no need to feign knowledge where they don’t have it. As a result, women free themselves to ask more questions and more questions facilitate better detection of charlatanism. Satisfactory answers to more questions create well-founded expectations and more comprehensive understanding of the role and consequences of a selected course of action.

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Managing your investment risks

September 28, 2011

Risk and investing are two sides of the same coin. You can’t avoid risk if you want the potential rewards of investing.

However, you can control the amount of risk you take and that begins with knowing your tolerance for risk.

Watch your risk tolerance or you’ll step out of your comfort zone and into a pile of trouble.

If you’ve ever been involved in any type of personal or professional growth counseling, you are probably familiar with the phrase “stepping outside your comfort zone.”

This is when you are encouraged to take a risk and try something that might seem challenging either emotionally or professionally.

Know Your Limits

While some risk-taking may lead to personal or professional growth (or not), it can be disaster in the market if you don’t know where your limits are.

Investing is all about taking risks; however, you know the risks are calculated relative to the potential payout. Every reasonable investor has a limit to their risk tolerance and the smart ones know where that limit is and don’t stray past it.

Bad things Happen

Several things can happen when investors stray past their risk tolerance level and they’re all bad. How do investors get themselves in trouble? Here are several ways:

  • They make a bad decision and refuse to admit they were wrong, so the problem just gets worse.
  • They invest more money than they can afford in a stock(s) that now don’t seem like such a good idea.
  • They bought on margin and shouldn’t have and now they can’t sleep.
  • They bought a stock that someone talked them into even thought they didn’t really understand the investment.

Whatever the reason when investors stray past their risk tolerance, they begin making decisions that are tainted by emotion, which are almost never good decisions.

How to Avoid this Mess

Investors can avoid these problems if they will simply know where their level of risk tolerance is. It is easy to find.

All you need to do is listen to that knot in your stomach to know if you are stepping over the line. Here are some practical tips:

  • Never invest in anything you don’t understand. If you don’t understand it, let it pass.
  • Make sure the money you invest is not needed to pay the mortgage. Investment funds come after you have covered the necessities.
  • If you are not completely comfortable with margin investing and fully understand the risks, don’t use it.
  • If you buy a stinker and it is always going to be a stinker, take a small loss rather than letting it become a big loss. There is no shame in making a mistake, but it is foolish to let it become a disaster.


Tips on Property Investment in South Africa

September 2, 2011

Are you looking to make a property investment in South Africa and need some help so that you can make an informed decision? Here are a few tips that you can use –

Research South African property market 

One of the best places to search for properties these days is the Internet. There are some excellent websites online that you can use to find different types of properties for sale in South Africa. Not only this, these websites also offer tools that enable you to compare different properties based on their size and price. So, you can use these websites to look for best bargains.

Find out why the current owner wants to sell

Take some time to find out the reasons for which the current owner wants to sell the property. If the owner urgently needs money or they are moving out of the city or if they have already bought another property, you may be in a condition to negotiate the price to make it lower.

Avoid going to overpriced properties

When you do your research, make sure to rule out overpriced properties located in same area. It is usually very difficult to negotiate on a lower price when the current owners want a higher value for their properties. However, if you want to go for such a property, it is better that you wait for a month or two. And, if the property fails to sell during this period, you can contact the owners to negotiate and lower down the sale prices.


Best ways to invest your money

August 8, 2011

There is nearly always risk associated with any type of investment.

What you need to do is weigh out the risk versus the potential return. There is a general believe that a safe strategy is to use 1/3, save 1/3 and invest 1/3 of whatever you earned. Obviously this depends very much on how much you earn, but if you can afford to save and invest at the same time this is good advice. The difference between saving and investing is that investing has a much higher potential return but also higher risk.

Let us now consider some of the ways to invest money. It depends on your individual circumstances, how much disposable income you have and how much risk you are prepared to take.

1. Property – Most people aspire to own their own home so they have somewhere to live when they retire without having to pay a large monthly rental or mortgage. In my opinion this is a good investment because you always need somewhere to live. And if you can earn enough to buy a second house outright then you will be able to live in one and live off the rental from the other.

2. Pension funds – Most people will invest a certain proportion of their income in a pension fund for retirement. This used to be seen as a safe way of investing although in recent years with the collapse of some private pension funds you need to consider your options very carefully.

3. Health insurance – Although this does not need a big investment, remember that if you are unfortunate enough to face a large medical bill you may have to sell your house or your savings to cover it. Good health insurance is a very good investment. The above types of investment are probably the safest ways to invest your money but if you have done well and can afford a bit more risk on speculative investments, you can consider some of the following.

Other options in clued, Stock Purchase Plans, Index Funds, Forex trading etc.

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