Who's making money?

Mixed-gender investment clubs perform better than same-sex clubs

Men and women together make more profitable investing decisions than groups of men only or women only, according to a Brown sociologist.

PROVIDENCE, R.I. -- Mixed company means more money according to a Brown University sociologist who studies investing behavior. In a two-year study of investment clubs throughout the U.S., assistant professor Brooke Harrington found that clubs made up of men and women together earn significantly higher returns on their stock portfolios than clubs made up of men only or women only.

Surprisingly, there is no difference between the performance levels of all-male and all-female clubs. This suggests that neither men nor women are better investors; instead, the combination of men and women produces a "diversity premium."

Harrington found that the stocks owned by mixed-gender investment clubs earn a rate of return 2 percent higher than that of same-sex clubs. This is equivalent to the difference between a savings account paying 3 percent versus 5 percent interest -- the small difference in interest rate makes a big difference in profits.

Mixed investment clubs make more profitable investing decisions than their same-sex counterparts for two reasons. First, men and women have fundamentally different approaches to investing: women select stocks based on their consumer experience, while men choose stocks based on their work experience. As a result, the portfolios of mixed clubs are often better diversified than those of same-sex clubs.

Secondly, mixed clubs are typically more serious investors than their same-sex counterparts. Members of mixed clubs are willing to debate proposals to buy or sell stocks based on financial merit. In contrast, members of same-sex groups suppress disagreements to avoid "rocking the boat" socially -- a priority that often leads to disastrous financial decisions. Mixed clubs are usually formed by co-workers, while same-sex clubs are usually based on friendships, in which members feel a stronger social bond.

With women having an increasing impact on the stock market and on financial decision-making at home, the gender differences that Harrington found could have major implications for the U.S. economy.

According to a recent poll, more than 51 percent of Americans own stocks or mutual funds; half of these investors are women. In addition, more than 11 percent of the population is involved in investment clubs -- groups of 10 to 20 people who pool their money to invest in the stock market.

"Companies and mutual funds that want to attract investors need to recognize that one size does not fit all," said Harrington, who presented her findings at the American Sociological Association conference earlier this month. "Women and men both want to make money, but they have totally different motivations and criteria for making investment decisions."

Harrington observed the meetings of six investment clubs - two all-male, two all-female, and two mixed - over 10 months, and gathered survey data from approximately 1,200 clubs nationwide.

The findings suggest some reason for optimism about the increasing diversity in the U.S. workforce. Previously, most studies in this area have concluded that diversity creates conflict that hurts group performance. "Diversity is often seen as bad for group performance but when people get too chummy they do not make great financial decisions," she said.

Harrington's research was funded by the National Association of Investors Corporation (NAIC), a non-profit organization that provides information and educational materials for individuals who want to start investment clubs.