An irrational and frequently obnoxious
overconfidence in one's own investment prowess, this
narcissistic condition is so named because it is far
more common among men than women. The ailment has been
well-known among women for some time but was first quantified
by researchers Brad M. Barber and Terrance Odean.
Looking at data from 45,000 different investors between 1991 and 1997, Barber and Odean found that overconfidence in trading ability caused men to trade more often than women -- a lot more. The men in the sample, all told, traded 45 percent more on average than women. As a result, the increased transaction costs and taxes associated with frequent trading shaved 2.45 percentage points off men's total returns every year, compared with just 1.75 percentage points for women.
The thing is, men and women look at money
in different ways, says Nancy Langdon Jones, a financial
planner who practices in Rancho Cucamonga and Claremont,
Calif. "For women, money means security. For men, it
Matt McGrath, a planner with the Miami
area wealth management firm Evensky & Katz, agrees.
"Most of our couples seem to fit the stereotype," he
says. Men tend to be more aggressive, while women are
often more conservative and circumspect -- sometimes
to the extent that they separate their accounts completely.
Treating testosterus can be tricky. Its victims frequently
resent the therapy. Consider channeling the same masculine
energy into fee reduction instead. Low-cost investment
strategies, such as indexing, also tend to be tax-efficient.
Women, be sure to praise your brachiating, bellowing
spouse for his scintillating foresight when he takes
measures to reduce fees. After all, a reduction in fees
is free of risk, and the potential upside is powerful.
Consider the erosive effects of trading
costs on the portfolios of a typical male afflicted
with testosterus versus that of a woman, using Barber
and Odean's numbers. Over 30 years, a $10,000 investment
earning a 7 percent annualized return, minus costs,
would be worth about $38,000 for a man versus roughly
$46,400 for a woman. The $8,400 difference might be
enough to fund a midlife crisis.