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I couldn’t let this MIT study pass me by.
Can you say, “Freak Out?”
Researchers at the Massachusetts Institute of Technology found that investors who are male, above the age of 45, married, and say they have “excellent investment experience or knowledge tend to “freak out” with greater frequency than other investors when markets dive.
They dump their portfolio holdings in “panic sales,” according to that analysis of more than 650,000 anonymous individual brokerage accounts drawn randomly from one of the largest brokerages in the United States.
Hmm. Who’s emotional about investing? That’s typically a rap that women get. The researchers defined a panic sale as a plunge of 90% of a household account’s equity assets over the course of one month, of which 50% or more is due to trades.
“Financial advisors have long advised their clients to stay calm and weather any passing financial storm in their portfolios,” wrote researchers Daniel Elkind, Kathryn Kaminski, Andrew Lo, Kien Wei Siah and Chi Heem Wong. “Despite this, a percentage of investors tend to `freak out’ and sell off a large portion of their risky assets in certain adverse market environments.”
“While freaking out does protect investors during a crisis, such investors often wait too long to reinvest, causing them to miss out on significant profits when markets rebound,” they noted.
The occupational groups with the highest risks of panic selling are generally ‘self-employed’, or ‘owners,’ which I can understand as a solo business operator. It’s terrifying to see your assets disappear when you might need to tap funds sooner than you planned to cover expenses should your business fall off for some reason.
In general, being young, or elderly, decreases the risk of panic selling, according to the findings, which makes sense to me. When you’re young, you know you can wait it out. For those who are elderly, presumably, you have been through ups and downs many times before and are aware of the value of sitting tight.
Overall, the report and the headlines it grabbed tickles me. It’s women who are always called out for being risk averse. But as I have advised for years in my workshops, books and articles, women are better investors than men when they get down to it.
Studies have shown that over time women’s retirement investments outperform their male counterparts. In large measure because, women don’t freak out. We don’t buy and sell our investments wearing our emotions on our sleeves. We don’t go for the homeruns, or the dump and run when thing go south.
We do our research. We take out time deciding what to invest in. We ask questions, and we tend to stay the course, patiently letting our investments grow.
This drives financial advisors batty at times. Many male financial advisors I’ve spoken to often roll their eyes and off the record say they find working with women investors, particularly divorcees and widows, to be frustrating. When I first got married, I tried to work with my husband’s male advisor, and, it was not for me, or him, I suspect. That’s why I often recommend women seek out advisors who have a more holistic approach and understands their individual values and priorities. I also prefer working with a female advisor who is around my age to be honest.
This report didn’t surprise me one iota. But I did make me grin at those brave swashbucklers who brag about their investment savvy and run for the hills when things get shaky in a sharp market downturn. And I simply love that the researchers call this phenomenon “freaking out.”
So, unlike what a woman might do.
I admit while I am a big fan of the slow and steady tortoise approach to investing, I regularly urge women of all ages to step it up periodically when it comes to investing in stocks or stock mutual funds, which have benefit of higher rates of return over longer time horizons than fixed-rate investments.
It can be a tough sell. Data from LT Trust found that during the pandemic, 78% of boomer men increased their retirement portfolio of stocks while only 51% of women did.
I interviewed Michelle Connell, owner of Dallas-Fort Worth-based Portia Capital Management, for this Next Avenue column. She was resolute about boomer women needing to alter their normal safety-first attitude about investing. “Women need to take more risk and balance it out if they are going to finance a life expectancy nearing ninety and the potential for rising inflation,” she said.
Connell suggested picking out “a few stocks or a basket of stocks in a mutual fund or exchange traded fund. And do not look at it every day.”
To be honest, that’s what most women I know do. No jittery gals here.
