Women Are Better Investors And Will Lead Fees Lower

In study after study, we know that women make better investors than men. The singular reason is that they tend to have a lower risk tolerance and a lot more uncertainty in what they are doing. They put their money in diversified investments and then never change them. Changing investments is associated with overconfidence. It is also associated with lower rates of return.

But let’s think about this. In a world where picking an investment and never changing it actually wins, why do we need advisors? Can you imagine if you had $1mil. to invest, and you met with an advisor and told him to put the whole thing in a target date retirement fund? The advisor would certainly try to talk you out of that plan. The advisor charged the standard 1%, meaning that he would  take $10,000 in a fee every year for overseeing that investment.

Only he literally did nothing to your investment. He heeded the research and settled science that found that a broad, diversified fund with low fees beats any actively managed, market timed investment strategy. So, he is doing the right thing, only he is doing nothing. Yet he is making $10,000.

“Eventually, you might ask the question. What are you doing for me?“

Advisors make the case that they are worth their fees because they can keep you from doing something stupid like selling when the stock market crashes. So following our logic, over a 10 year period to follow some kind of normal stock rise and fall, you need to pay someone $100,000, and their only real job is to answer the phone during that one moment of a stock market correction and tell you not to sell.

Hmmm….

You get where this is going, right? We have thought a lot about why women are alienated from the investment world. We have generations of gender biases that contribute. But I think there is a deeper story that the industry knows:  they can generate fees if they can make their clients think they are doing something—working actively on their clients’ behalf. So they trade. In fact, the more trading they do, the more perception of value the male client has.

But the moment when the ladies rise up and ‘splain the situation fees will collapse. Because no one can justify making 1% of your money every year. If you have an expected rate of return of 6% every year, that means someone gets to take nearly 17% of your investment gain every year. Nope. That’s too much.

Especially if you know, finally, and believe, finally, that you can and will do it better for yourself.