The Feminine Edge

World's Work magazine in 1917 wrote, "The real guardian of a woman's fund is an honest and skillful man, and probably the simplest recipe for safety is to find the man." Such sexist currents about women and money flow blatantly through popular culture (Kiplinger's ran a story in 1951 titled "How to Money-Train Your Wife") until the 1970s, when they submerge. But apparently they continue to bubble just beneath the surface. A 2010 survey by the Boston Consulting Group concluded that women still don't garner the respect given men by financial professionals.

That attitude may be in response to what recent academic studies show: Women have a lower risk tolerance than men when it comes to investing. The studies suggest that women -- especially single women -- should consider juicing up their portfolios with more stocks.

But a healthy fear of risk isn't a bad thing. One study by Brad Barber, of the University of California at Davis, and Terrance Odean, at UC Berkeley, found that men tended to be overconfident and trade more, racking up higher commissions. As a result, the annual return on their stock investments was one percentage point less than the return women earned. Worse, single men, who have the highest risk tolerance, made about 1.5 percentage points less than single women. And Vanguard reported that during the depths of the recent market crash women were less likely than men to cut and run from stocks.

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So although women's aversion to risk is an issue in some cases, men's overconfidence and high risk tolerance may be a bigger problem. Professor Meir Statman, of Santa Clara University, a behavioral-finance expert and author of What Investors Really Want (McGraw-Hill, $30), proudly admits: "I'm a man who trades like a woman."

Earnings divide. Consequences aside, why are women generally more risk-averse? Alexandra Bernasek, an economics professor at Colorado State University, believes evolution plays a part. Men had to take greater risks as hunters, but for women, "taking risks when you're looking out for the kids doesn't produce great returns," she says. She and colleague Vickie Bajtelsmit theorize that women may receive more-conservative financial advice than men, and they may be excluded from informal finance networks.

Financial planner Lea Ann Knight of Bedford, Mass., says the difference in risk tolerance between men and women isn't so much a gender difference as it is an earnings difference. Says Knight: "Women who earn the same as their husbands are just as willing to take on reasonable levels of risk."

Bernasek and many financial planners think that women's lower tolerance for risk can be both logical and smart. A single woman with dependents especially needs to invest conservatively because she might not be able to absorb a deep financial blow. It's often recommended that women should be more-aggressive investors because they live longer than men and need more growth in their portfolio."But that doesn't take into account the downside of a major bear market," says Bernasek. A conservative portfolio, saving money and leading a modest lifestyle could make more sense.

The male-female risk schism presents special challenges to couples. Planners report that a man and woman with different tolerances for risk can often be brought to a healthy compromise that results in better investment returns than either could earn individually. When diplomacy doesn't work, planners will set up separate accounts.And there is a group of women for whom risk aversion is clearly not a virtue: women who haven't worked -- or who have been out of the workforce for a long time -- and who are widowed in or near retirement. They often cling to the safety of cash even though they may need growth from stocks to assure that they have enough assets to last a lifetime.

Robert Frick is a senior editor at Kiplinger's Personal Finance.