Would the 2008 financial crisis have happened if Lehman Brothers had been Lehman Sisters? Surveys and scientific studies show that women invest distinctly differently from men – and post markedly different returns.  Paradoxically, the reasons may be rooted in what have often been considered investing weaknesses. But those weaknesses may just turn out to be strengths.

Saving for Security vs. Investing for Success

Women and men have fundamentally different definitions of wealth. According to a Fidelity study, 54% of women associate wealth with the word “security,” while men associate it with “success” and “power.”

Naturally, this affects the way men and women approach creating and preserving wealth. A Prudential study found that 70% of women see themselves as savers rather than investors. The exact opposite is true for men: 70% are willing to take some risk in exchange for the opportunity of greater financial reward, and 40% say that they enjoy the sport of investing.

It’s not surprising, therefore, that women tend to invest less aggressively than men. A 2013 Fidelity study on couples’ financial habits found that nearly three in ten (27%) women are most interested in preserving wealth at the expense of lower returns versus 20% of men. Even as the S&P began to soar in 2012, the top investments added to their portfolio by women who were the sole decision-makers for their family’s finances were CDs or cash equivalents (24%), followed by domestic individual bonds (15%); male decision-makers, meanwhile, piled into domestic individual stocks (29%) and equity ETFs (18%).

Obviously, this risk-averse investing style won’t boost returns in a big way. When risk aversion is paired with other traits typical of female investors, however, the tide turns.

Investing Ignorance Leads to … Research

Women admit to ignorance about investing much more readily than men do. A BlackRock Investor Pulse survey found that only 49% of women describe themselves as knowledgeable about saving and investing, compared to 57% of men. But they know exactly how to become more confident: Educate themselves.

Here’s where women have an edge. In her best-selling book The Female Brain, neuropsychiatrist Louann Brizendine, M.D., explains that the male brain is geared for individualism and self-directed learning. That’s why men often seem incapable of asking for directions, whether it's driving a car, learning to ski or investing. Women, on the other hand, prefer to gather information through networking – think investment clubs – and welcome an exchange of ideas and advice.

A Wealth of Opinions

That leads to another difference: Women tend to take more time to make investment decisions. They like to consult different experts, participate in online forums, and pore over financial newsletters and magazines to confirm their conclusions.  But while 44% of women say they rely on input from their financial advisors, they are quite comfortable making up their own minds: Only 15% base their investing decisions mostly on advisor recommendations.

Furthermore, because women are more aware of their lack of knowledge, they’re more likely to seek help to reach those conclusions. Barely 40% of women said that they act solely on their own investment research, compared to 54% of men.

The Hormonal Advantage

Hormones may enhance the gender differences. Testosterone skews investing style, says John Coates, a neuroscientist at Cambridge University, who studies the connection between physiology and risk-taking. He found that high levels of testosterone led to increased risk-taking, similar to the “winner effect,” in which success breeds a sense of invincibility. It also pushes investors to embrace trends and follow the pack, even if the pack is plunging lemming-like right over a cliff. 

Lack of testosterone reinforces women’s rational thinking and risk aversion – or maybe it’s that they’re able to keep their investing priorities in place because they’re less buffeted by hormonal hurricanes. Coates posits that women have their hormonal feet planted more firmly on the ground, and, consequently, are less prone to “irrational exuberance” in investing. That may be why women were less likely than men to abandon equities during the financial crisis of 2008-2009. They had done their research, and were confident about their decisions and content to hold their course.

Reaping the Rewards

How do these differences play out in cold cash?  According to professional-services firm Rothstein Kass, female hedge fund managers routinely outperformed their male counterparts. From Jan. 1, 2013, through the end of November, the 82 funds in Rothstein Kass’ Women in Alternative Investments (WAI) Hedge Fund Index were up 9.8%, while the HFRX Global Hedge Fund index returned only 6.13%. Over the longer term, the women trounced the competition: For the six-and-a-half years ending June 2013, the WAI index posted 6% gains, compared to 4.2% for the S&P 500 and a drop of -1.1% for the HFRX Global Hedge Fund Index.

The Bottom Line

Women, by nature, tend to be more cautious investors than men. But their research-intensive approach, characterized by considering a broad range of opinions and taking the time to deliberate, leads to better decision-making.