The Power of Compounding: Why Women Investors Have a Structural Advantage

A February 2025 study by the Wells Fargo Investment Institute found that women earned stronger risk-adjusted returns due to a more disciplined approach to investing than men. Research from Warwick Business School has shown that female investors are less likely to invest in speculative stocks. They tend to exit quickly losing positions. The same research suggests that women can see risks that men might miss, leading to better diversification and less interest in speculative bets. Women, when compared to men, are also more open to seeking financial education and professional advice. This results in a preference for structured portfolio construction rather than impulsive market involvement.

These findings clearly show that women have all the attributes for long-term wealth creation – patience, discipline, diversification, calculated risk-taking and consistency. Perhaps because of their more rounded experience in managing household budgets, they also show more caution in managing their personal accounts.

However, the question arises as to why women are not equal to men when it comes to making investment decisions, despite being better equipped by nature to handle finances?

Financial autonomy

According to a research conducted by the International Center for Research on Women –

“A woman is financially empowered when she has both the ability to succeed and grow financially and the power to make and act on economic decisions.” Lack of autonomy and financial agency are primary factors behind women not participating equally in investment decisions.

Additionally, a CRISIL and AMFI study observed that self-employed women are more likely to make their own financial decisions (55%) than salaried women (39%). Studies show that women who regularly make decisions feel more comfortable investing their extra money. It also found that women’s financial autonomy varies by source of income, age and affluence. Financial independence increases with age—65% of women over 45 manage their own money. Similarly, 58% of affluent women show higher autonomy compared to 38% of semi-affluent women, apparently due to greater literacy and resources.

Financial literacy and knowledge

In the recent past, financial awareness among Indian women has increased, leading to increased investment activities. Although the percentage of women investors has remained stable over six years, their share of industry assets has increased from 15% in March 2017 to nearly 21% by December 2023. This growth is particularly significant in the B-30 cities, where women’s share of wealth increased from 17% to 28%. But women still have a long way to go in making smart investment choices. A report by Crisil DBS found that women in India allocate 51% of their funds in fixed deposits and savings accounts, compared to 46% of the average household investing in the same instruments. Similarly, they invest 15% in capital markets, compared to 8.4% for households.

Therefore, with a thorough understanding of investment options, associated risks and potential returns as discussed above, women are better equipped to build a well-diversified and profitable investment portfolio.

Income levels influence the ability to invest

There is a structural income gap between men and women, with women earning 17% less on average. To reach financial equality, women must save about 20% more, which reduces their disposable income. Lower salaries and career breaks further limit women’s earning potential and investable capital, often leading them to invest more conservatively than men.

risk tolerance

Risk appetite is shaped by financial goals, personality traits, life experiences, and broader life responsibilities. In a predominantly male dominated society, women get delayed exposure to various financial aspects which hamper their risk appetite. As a result, women start their investment journey later than men. In a 2024 survey in the US, more than 70% of women regretted not starting to invest their extra savings. In India, the risk-averse nature of women is reflected in investment choices. Women’s investment portfolios include mutual funds and more traditional investment avenues, such as deposits, gold and real estate.

In summary, women’s reputation for being risk-averse can be a significant advantage in building sustainable, long-term wealth. The combination’s power benefits those who practice perseverance and patience—characteristics of many women. By increasing financial literacy and making informed decisions, women are better positioned to build diverse, high-performance portfolios, emphasizing the importance of their approach to achieving financial success.

(The author is the Chief Investment Officer of India First Life Insurance Company)