Thursday, January 29, 1998

Women taking more risk with investments

By MIKE MEYERS / Minneapolis-St. Paul Star Tribune

In the late 1980s, Peggy Evans received an inheritance. But the money, more than she had ever had on hand before, presented a problem. Where should she invest it?

The reaction of the Edina, Minn., woman was cautious. She put the nest egg into a money market fund, where it earned only a small return, but she didn't have to worry that it would drop in value.

In a few months, however, Evans' aversion to risk started to erode. Talks with friends and a stockbroker convinced her to try buying stocks. These days, more than 60 percent of her investment portfolio is in stocks. And, Evans said, she isn't losing sleep over the risk, even in times of market volatility.

"I hang tough," she said. "I've hung tough every time."

Evans' change of heart about investment risk may mirror what's been happening to many women in recent years. Americans are tucking away hundreds of billions of dollars for retirement, but economists have worried that women may be getting smaller returns on their investments than men do.

The reason: A broad body of economic research indicates that women are less likely than men to put money into riskier investments, particularly stocks, which can deliver greater rewards in return for those higher risks. That could mean financial struggle in old age for women, who on average live longer (and earn less) than men.

But new studies revealed this month at the American Economic Association annual conference in Chicago suggest that marital and economic status may play as big a part as gender in women's choice of investments.

What's more, a recent Fidelity Investments survey of more than 500 people with 401(k) retirement plans found that women have become as aggressive as men in searching for investments that promise higher returns, even in the face of higher risk.

The debate over gender differences in risk aversion is of more than academic interest. In recent years, more and more employers have scaled back conventional retirement programs in favor of 401(k) accounts that compel workers to call the shots on where to put their nest eggs.

The ranks of workers covered by conventional defined-benefit retirement plans, where the employer promises that a specific sum will be paid to its retirees based on their length of service and salary, fell from 26.8 million in 1975 to 25.1 million in 1993. In the same period, the number of workers with 401(k) and similar self-directed retirement plans rose from 9.9 million to 36.4 million, the U.S. Labor Department said.

"The trend toward defined-contribution plans makes individual investment decisions particularly important in determining how much wealth is accumulated for retirement," said a paper by Annika E. Sunden and Brian J. Surette, economists at the Federal Reserve Board, that was delivered at the association conference. "In the presence of an equity premium (in which stocks tend to outperform other investments in the long run), the failure of some groups Ñ such as single women Ñ to invest sufficient assets in stocks may lead to lower retirement wealth."

Still more individual responsibility for retirement investments would result from a proposal by some in Congress to give workers a choice in how their Social Security contributions are invested Ñ putting investment risks onto the shoulders of future beneficiaries.

So, are women equal to the challenge? It depends upon their circumstances, the latest economic research said.

For instance, Sunden and Surette found that marital status had as much influence as gender on investment choices. Married women make risky investments almost as often as men, said an analysis of more than 7,000 households polled in financial surveys by the Fed and the Internal Revenue Service. That might be because married women make decisions jointly with their husbands, the study suggested, or because income for a family tends to be higher than for an individual.

When a woman had as much wealth as a man, gender differences in risk-taking also eroded substantially, the study found.

Paradoxically, married men are less likely than single men to put the bulk of their retirement savings into stock. But single women are the least likely to bet on the stock market.

"These results demonstrate that the effects of gender on investment decisions are more complicated than previous research had suggested," the study said.

Another study took a different approach to arrive at a similar conclusion.

Tapping data from a national survey of more than 200 middle-aged workers, Michigan State University economist Leslie Papke found that workers Ñ regardless of gender Ñ will increase their investments in retirement accounts when given a choice.

"For the older group of participants I study here, there appear to be no differences in investment patterns by gender," Papke said.

But women often go through an evolution in attitude before investing in stocks, said Cinda Collins, investment officer at Dain Rauscher, a Minneapolis brokerage firm.

"They're terrified at first," said Collins, who is Evans' stockbroker.

Many times, women who are widowed, divorced or come into a large sum of money through inheritance are facing their first financial decisions and rush to the safety of money market funds or other low-return investments, Collins said.

"It usually takes about two years," she said. Then women begin to realize that while too much risk can result in loss of their investments, too much caution can mean that they won't be able to accomplish their dreams for the future.

Evans, 52, said she's been willing to take on more risk because she has her own company, run out of her home, and her husband, Chip, provides a second income. Another plus: Both their children are grown.

Investing in stocks gave Evans enough income to help pay the mortgage and finance expansion of her business, a consulting enterprise that advises individuals and companies on how to be organized better.

Nevertheless, some research presented at the economists' conference suggested that Congress cannot assume that women will behave the same as men in making decisions about how to allocate their retirement investments.

A study by three Colorado State University economists found that women with self-directed retirement plans put a smaller share of their wealth into such plans than men did. The share for women was 27 percent vs. 35 percent for men.

But, again, circumstances shaped decisions on how much to put into retirement savings, said the research of economists Nancy A. Jianakoplos, Alexandra Bernasek and Vickie L. Bajtelsmit.

One of the findings derived from a government survey of the finances of more than 3,000 U.S. households:

An increase in the number of children prompted men and women to set aside more in retirement accounts. Single men put a greater share of their wealth into retirement accounts than married women did, but single women earmarked even less than married women for retirement.

"If the result of these decisions by women is lower accumulated retirement wealth, it is likely that women will have lower relative retirement income, particularly in light of women's greater average longevity," the Colorado State researchers warned.

(Distributed by Scripps Howard News Service.)