US households trading

What does the chart show?
It shows that men traded much more frequently than women during the recent market turmoil, according to new data from the US arm of Vanguard.

Of female households holding two common types of retirement accounts on the investment platform, 4 per cent made trades in the month to March 20 2020, compared with 7.5 per cent of male households, Vanguard said. 

Trading volumes were up across investment platforms in the US and UK since the coronavirus pandemic sparked a global economic crisis, with buys outnumbering sells by as much as 30 percentage points.

The Vanguard data covered investments held in different types of US retirement accounts, such as defined contribution arrangements and independent retirement accounts (IRAs).

Does less frequent trading give better or worse results? 
Investment experts suggest the former. “Women have always had a lower trading rate than men,” said Jean Young, senior research associate at Vanguard. Just 4 per cent of women on the platform made trades in 2019. 

When the market downturn began in late February, the share of trades made by women stayed relatively constant, while trading by male customers increased. “Women have been trading at rates that are about half of that of men, which is good in that they’re not overreacting,” she said.

Analysis of Vanguard retirement accounts in the US dating back to 2011 showed that during periods of market volatility such as the Ebola outbreak, a tumultuous presidential election, a debt crisis and a market correction, trading on the platform spiked but women continued to trade less frequently than men, said Ms Young.

Those who traded more frequently on the platform ended up with lower returns than those who traded sparingly or did not trade at all, she said.

This year the Share Centre, a UK investment platform, recorded a 165 per cent increase in the number of trades made by men from February 24 to March 18 compared with the same period last year. Trades by women were up 129 per cent.

In riding out the latest downturn, women showed a higher appetite for risk than their male counterparts, and stayed invested. Internal research by online wealth manager Nutmeg found that in the month leading to March 15, men on the platform were 56 per cent more likely than women to reduce risk in their portfolios during the sell-off, and almost twice as likely to withdraw their money. Ninety-five per cent of women made no adjustments to their accounts.

Why do women trade less often?
Experts said women do not, statistically, take fewer risks than men. They just require more information before taking action. Women are more likely to seek the help of an independent adviser to guide their trading behaviours than men, Ms Young said.

“What we see in this data is they’re taking the same levels of risk as men,” Ms Young said.

Platforms warn that by selling in a market downturn, investors can rack up trading fees and rarely time their re-entry into the market well, crystallising losses and missing out on valuable investment growth.

A seminal study on trading behaviours by Terrance Odean, a professor at the Haas School of Business, and Brad Barber, a professor at UC Davis Graduate School of Management, tested whether overconfident investors were more likely to trade shares. Because men tend to be overconfident in traditionally male-dominated arenas, such as finance, gender was used as a proxy for confidence.

The 2001 study concluded that men traded 45 per cent more than women, and trading reduced men’s returns by 2.65 percentage points a year. Women who traded reduced their investment by an average of 1.72 percentage points. These differences were even more pronounced in single men and single women.

“We don’t find that women make better trading decisions, they just make fewer bad ones,” said Prof Odean. “Men and women, as a group, would have been better off buying and holding.”

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