Compliment of the Week: You invest like a woman.
This week we’ll dive into female vs male investors, PLUS: ETFs Are Cheaper, Financial Competitions, Tax Havens, Crypto Corner, and Fly Now Pay Later.
💁🏽♀️ Why women make better investors
Tons of research demonstrate the strength of female investors, but I’ll start with compelling research from Fidelity Investments that analyzed 5 million investors over the last decade.
On average, women outperformed men by 0.4%. This can seem minor, but the difference adds up over time in the hundreds of thousands of dollars over investing careers.
Women also put more money in retirement accounts like 401ks, and in general save more money.
The secret sauce to this outperformance? On average, female investors are…
- Less prone to overconfidence than men
- More passive investors / less active traders than men
Regardless of gender, there are behavioral lessons that all investors can learn from.
Research shows that trading more frequently leads to worse returns. Men trade 45% more often than women, so it makes sense that men earn worse returns. Frequent trading also triggers short term capital gains taxes, which are higher than long term taxes on investments held for at least 1 year.
Female investors are more chill. Women are more likely to take advantage of passive, long term investing, such as using index funds instead of trading individual stocks, This systematic approach assumes that most people can’t beat the market.
Time in the market beats market timing every time.Warren Buffett
But here’s the rub: While women exhibit better performance in sheer returns in aggregate, they tend to invest smaller amounts than men and hold onto much extra cash. At the individual level, the picture might look like this:
- Women: $1000 invested, 8% return = $1080
- Men: $2000 invested, 7.6% return = $2152
Fidelity Research reports that women put less money in the market due to feeling a lack of confidence and knowledge about investing. 70% of women believe they need to know more about picking individual stocks. Instead, financial journalist Laura Cooper say that women should play to their strengths. I’ll end with these takeaways for any investor:
- Use passive, low-cost investment vehicles that track an index as the foundation of your portfolio. There’s a time to trade individual stocks, but this sound not be the primary strategy.
- Don’t trade often; the less you trade the better.
- Size your risk (here’s a framework) to consider if you’re putting enough money in the market / holding too much in cash.
- Humility and a long-term perspective wins
Here’s a tip: get inspiration from female investors. I follow Cathie Woods, Lyn Alden and Kyla Scanlon who are all incredible analysts and investors.
💵 ETFs are cheaper than mutual funds
Compared to mutual funds, which are actively managed and charge higher fees, Exchange-Traded Funds (ETFs) have the following advantages:
- Cheaper: the median expense ratio for U.S.-based ETFs is 0.5% a year compared with 0.93% for mutual funds
- More tax efficient: To sell an ETF, the investor just sells it to another investor like a stock. As a pass-through vehicle, ETF transactions avoid capital gains and taxes. Meanwhile, if you want to get your money out of a mutual fund, the fund needs to sell some holdings to generate cash. If those holdings have appreciated in value, the fund’s remaining shareholders are left with the tax bill.
- Transparency: With most ETFs you’ll know the underlying holdings at any time, but mutual funds only have to report this quarterly
- Flexibility of a stock: With ETFs, you can do things normally available with stock trading, like options and different order types. Getting in and out ETFs is easier than index or mutual funds, because they’re traded like stocks. The minimum investment for ETFs (since you just need to buy 1 share at a time) is also typically lower than mutual funds.
If you’re like me, you might be wondering “What about index funds?” Most of my retirement accounts are invested in Vanguard index funds.
ETFs and index funds tend to have lower costs. If you’re already using index funds over expensive mutual funds, you’re already winning.
However, I never understood the difference between index funds vs ETFs until now. If all things being equal (especially cost), I may switch my investments over to ETFs for optionality.
🐂 Financial competitions
I recently discovered the United States Investing Championships, which began in 1983. According to this press release, this competition is “a real money verified competition which gives up-and-coming traders an opportunity to showcase their talent on the world stage.”
How it works: competitors specify an account number at the beginning of the year for tracking purposes. Brokerage statements associated with that account are used to verify performance claims.
Two of my takeaways:
Returns are impressive, but not unachievable.
Competitors have ranked for having returns as low as 15% to as high as 500% across different divisions of the competition. These returns are impressive, but they’re not as high as you think considering the amazing market returns since the bottom of the coronavirus. I’ve met investors who put money in Upstart, which has performed 1,214.18% over the past year, or Solana, which has returned 6777% (yes) in same time period.
If you’re going to follow any trading guru, consider someone who has ranked in a competition.
Mark Minervini has won this competition before and is in the lead currently at a 223.4% return. I figured, if you’re going to learn from any financial “guru,” might as well be someone like Minervini who has authored 2 best-selling trading books,Trade Like a Stock Market Wizard and Think & Trade Like a Champion.
I noticed that most of the names on this list are high level investors like the CEO of an investment bank or partners in trading companies. Outside of competitions like this, their trades are not disclosed.
Enter eToro, an investment platform with a Copy Trader feature allowing you to literally copy the portfolio of another investor and trade accordingly. I just signed up and it’s pretty neat. They offer mainly crypto trading but are offering stocks soon. If you want to get $50 for signing up, use my friend link here.
🌚 USA: #2 Tax Haven in the World?
When you think of “tax haven” and “secret offshore accounts,” you’re probably thinking of exotic places like the Cayman Islands. And you’d be right—Cayman still ranks #1 in financial secrecy.
So you might be surprised that the United States ranks #2 in financial secrecy, according to The Financial Secrecy Index, which ranks the countries that are easiest to hide wealth. Countries that rank high in financial secrecy means that they’re considered tax havens that often attract illicit activity, or even, as the site says, “abusive financial flows.”
What does an abusive financial flow look like? Let’s say a rich oligarch from a third world country finds a way to take money out of their homeland – often untaxed – and protect it in some country with banking secrecy laws. This Forbes article details some examples.
A World Bank study has found that as much as a sixth of foreign aid intended for the world’s poorest countries has flowed into bank accounts in tax havens owned by elites.
On average 7.5% of the aid given over the 10-year period between 1999 and 2010 ended up in tax havens, such as Switzerland and Luxembourg. However, this increases with the ratio of aid to GDP, the study found, with as much as 15% “leakage” for the most aid dependent countries. The average of total foreign deposits was $199 million.
- Not surprisingly, the highest ranked countries are first world countries like the U.S. and Switzerland. These are mature and relatively stable economies that expat investors would prefer to park their money in.
- The U.S. aggressively protects against foreign tax havens, while being a tax haven for foreigners
- This expands my point of view on foreign aid. It’s not just a matter of “give to poorer countries!” Especially if the elites of that country are able to capture that aid – and keep it out of their country
- I have a U.S. centric point of view about corruption – that it’s usually happening in third world countries. But financial secrecy can support corruption at another level.
- The bright side: as Americans, we should appreciate our privilege of living in a country where foreigners want to park their money. But never try to take money out of Uncle Sam’s hands ;)
🤑 Crypto Corner
Just a few things I’m paying attention to in the crypto universe:
- Speaking of ETFs, one of the first Bitcoin ETFs may be approved next week. This bullish news has probably influenced Bitcoin to reach its previous high of $60,000.
- This Youtube video is one of the best explainers of the Stock to Flow model, which helps explain the scarcity of an asset, such as Bitcoin.
- Watch what leaders do, not what they say: regardless of what bank leaders like JPMorgan CEO Jamie Dimon might say about Bitcoin (“it’s worthless”), watch what they actually do, like offering clients access to crypto funds.
- Celsius Network, one of my favorite platforms for earning crypto interest, is launching a beta to do zero cost crypto to crypto swaps. This is really exciting. If I want to convert my USDC to ETH, I could do that seamlessly in app. This is already possible inside BlockFi, but Celsius has more coins and will purported offer lower fees than BlockFi, which makes a spread.
💸 Money tip of the week: Fly Now Pay Later
Everyone knows about Buy Now, Pay Later options now for shopping. Affirm, Klarna, QuadPay and a host of other services will let you pay for a product in installments vs all at once—sometimes even for no fee.
“BNPL” is usually available for eCommerce purchases and physical products, so it’s cool to see Fly Now Pay Later to use an installment plan for travel. They’ve partnered with AirBnB, Expedia, and big airlines, so keep this in your back pocket for maintaining cash flow while making epic travel plans.
Just for fun: The Mona Lisa was overlooked until its theft in 1911 made the art piece into an overnight sensation. Had it not been for the theft, the Mona Lisa might not have reached its world-renown status today.