How A Demographic Shift Can Impact Finance
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Karim Nurani is an entrepreneur, investor, CSO of Linqto, cofounder of the Global Investor Conference & host of the Global Investor Podcast.
One of the greatest shifts in society in the last 50 years has been a significant increase in the number of women taking control of their financial future. They’ve done so by gaining access not just to public markets but to private investments as well. They have options, they are financially empowered, but most of all they now have the confidence to benefit from it.
In the past, society and cultural bias limited women. However, today women participate and are equally responsible for their own and their family’s financial well-being. What has been the impact of this?
A study conducted by Fidelity Investments found that women consistently outperformed men in their investments by an average of 0.4% annually. Another study by Warwick Business School found that women investors were more likely to make rational investment decisions and less likely to be influenced by short-term market trends. The impact of having joint involvement in the economy has had positive results for us all and for generations to come.
If we dig deeper, we can see that women and men think differently about money. However, I believe it’s more than that. All people think about money differently; people in different cultures and from different nationalities, people from different generations, different asset classes, etc. So, what is it that forms our thought process, and what influences our mind when it comes to money and investing? Furthermore, how can we change our behavior toward these differences and overcome unconscious bias to increase returns and put more meaning into our money and our investments?
Diversity in general allows teams to see around corners and cover blind spots. If everyone in a boardroom looks the same, they are more likely to miss stuff. Understanding, appreciating and embracing those differences can have a positive impact on so many levels.
For instance, Fidelity’s study said women outperform men in their overall investment results. This was addressing specific tendencies of gender; women have less ego, they tend to be more collaborative, they assess risk differently and they are less likely to be influenced by peer pressure; they tend to be more interested in the long-term outcome of financial decisions rather than the short-term gains—these all manifest in different ways, but they seem to be gender traits that we see in financial markets. However, these are tendencies, not absolutes.
If we took nationalities, could investors from underdeveloped countries do more with less? In age gaps and generational differences, we can identify a tendency of younger investors to take more risks, but maybe older generations have a better eye for identifying opportunity.
There has been an opportunity for leaders to open their doors more to minority groups, and those who have are seeing great returns. Changing the way of life of almost half of the population (women) has benefited this generation and the ones to come. Being empowered means they are involved in existing markets, they have access to work, productive resources, savings and eventually economic decision-making that leads to financial freedom. The gender gap is closing.
What’s more important is the fact that women don’t take it for granted. They know that their predecessors, even their mothers, didn’t have the same opportunities they have today. They understand that there had to be strong personalities before them to get them where they are now. Could this be partly why women are closer to their investments and more attached to their decisions? They have a close relationship with money, and this could ultimately be the biggest incentive for the previously mentioned tendencies. Their money is serving a purpose, their money is helping a cause, is this why they are more patient? Are they waiting for results that are not just economical but also reflected in our society? Similar to their predecessors, they are fighting, in this new modern way and for a specific cause.
If we stop to think about it, women have been investing in both public and private markets way less time than men, so naturally, it’s okay for them to not know as much about the subject and ask questions, and they are. On the other hand, it’s uncommon to hear men say they are not in control of their finances. It’s okay for women to appear less confident about not knowing more about their personal finances, so why is it not equally okay for men? Bias is a two-way street.
Time and time again we’ve heard financial experts talk about portfolio and asset diversification; nobody recommends that you put all your eggs in one basket. The smart thing to do is to diversify your wealth into different asset classes to minimize risk. Similarly, wouldn’t we be decreasing risk if our teams were diversified and we didn’t put all of our decisions in the hands of the same gender? If we take it a step further, this isn’t only based on gender diversity, but cultural diversity, backgrounds, professional experience, etc.
Bias, history and the context we move around in influences our mind, our thought processes and our mindsets when we make investment decisions. So, what will happen when women have been in the game longer and are more experienced at it?
It’s important to remember that it’s all about balance. Ultimately the key is to include individual differences and instincts; a personal approach to investment decisions, without these we would be back in the 1950s.
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