Men and women investors are likely to react differently to volatility and market uncertainty. Learn more about the gender divide and market volatility.
In times of volatility, women investors are most likely to seek conservative investments, such as insured bank deposits and money market mutual funds, while men are apt to take on more investment risk by purchasing dividend stocks, according to the latest Millionaire Corner survey.
More than 22 percent of women investors say they would most likely bank their money in Certificates of Deposits, savings accounts and other products insured by the Federal Deposit Insurance Corp. in response to “today’s market of uncertainty and volatility,” according to our June survey. Nearly 23 percent would seek the relative safety of money market mutual funds, and another 23 percent would invest in dividend stocks, a potentially more risky strategy.
As a group, men express greater confidence in their investment knowledge and are more comfortable with investment risk. These characteristics are reflected in their responses to volatility and uncertainty. Nearly 40 percent of men say they are most likely to invest in dividend stocks, while 12 percent would put money into an FDIC-insured bank product and another 12 percent would invest in a money market mutual fund. In fact, men are slightly more likely to invest in gold than deposit accounts as a response to volatility. (Learn more about men and their relationship to investment risk.)
Dividend stocks offer exposure to equities, but tend to be less volatile than growth stocks. Companies that pay dividends tend to be larger and more stable than growth companies. And, while dividend companies have less growth potential, they help reduce investment uncertainty by providing regular payouts, usually on a quarterly basis. (Millionaires also prefer dividend stocks in times of volatility.)
Despite their reputation for stability, dividend stocks are not risk free. The stocks can and do lose value, and the dividend is not guaranteed. A company can reduce or eliminate its dividend in lean times.
Deposits at FDIC-insured institutions are guaranteed up to $250,000, but pose a different kind of investment risk. With prevailing low interest rates, bank deposits are subject to inflation risk because they fail to keep pace with rising costs, reducing the purchasing power of money held in deposit accounts over time.
Many fixed-income investments, such as certificates of deposits, also pose liquidity risk because the investments are held to maturity, an interval that typically ranges from six months to 10 years. Penalties apply to investors who wish to move their money prior to the maturity date. Some fixed-income investments, such as bonds, are can also lose face value due to rising interest rates.
Few men or women say they would invest in Treasury bonds, foreign bonds, corporate bonds, high yield bonds or municipal bonds in response to today’s market uncertainty and volatility, according to our June survey.