Data suggests men are more risk-tolerant investors than women, and women's financial plans will need to consider their preferences for risk as well as their greater longevity, say the experts.

According to data from risk tolerance specialist FinaMetrica, in 65 per cent of couples, men have a higher tolerance for financial risk than their female partners. Where there is a material difference in their risk tolerance levels, in 82 per cent of cases it is the man who is the more risk-tolerant of the two.

However, that's not always the case. In one in six couples, it will be the female who is the risk-taker, according to the data.

Experts say that any differences between male and female risk tolerance must be considered in financial planning, so investments meet the needs of each partner in the couple.

"Understanding that there may be gender differences is an important part of helping clients with their investment decisions. It may be necessary to focus in discussion with male clients on the potential for negative returns, while with female clients we may want to emphasis probabilities," says financial adviser Jay Adamson with countplus one.

"A goals-based advice process is a great way to help clients make the right decisions. If we understand what the client wants to achieve, we can show the consequences of taking too much or too little risk and we can steer our clients toward an asset allocation that will achieve their objectives while minimising volatility," she says.

"For investment decisions, the gender bias can mean men invest in an asset allocation that will provide greater volatility of returns than may be necessary to achieve their goals. Women may fall short of achieving their objectives by being overly risk-averse and/or not taking a long-term view.

"This is a particular problem for women who need to provide for their retirement as not only are [their] contributions to superannuation likely to be lower over their working life, but as they also tend to live longer in retirement, women need to provide for retirement income for a longer period than men.

"A better understanding of what a client wants to achieve, will bring the focus back to not what risk they can tolerate, but what risk they need to take."

FinaMetrica co-founder Paul Resnik has suggests that the discrepancy in risk tolerance could stem from evolutionary differences between men and women.

"Part of the reason we believe for males' greater propensity to take financial risk could be buried in Darwin's views of successful and adaptive behaviour. Nature enabled aggressive males to flourish. They were successful hunters and gatherers and the more aggressive males flourished while the passive males never got to eat. So, over time, this has transferred over the males' behaviour generally, including their appetite for financial risk."

Resnik says the gap in risk appetite between the sexes on average isn't great. "But we need to understand which of our clients aren't average to give good personal advice."

"Both men and women on average sit in the same risk group, so what we are seeing are modest differences. Individually, however, males and females may vary widely in their risk tolerance levels.

"Either way, before they make financial decisions, each person should have their risk tolerance objectively measured, which is best through scientific testing. Ultimately, how a person feels about financial risk will affect which type of investments suit their needs and those with which they can sleep well at night," says Resnik.

FinaMetrica says tolerance for financial risk is an enduring personal trait that is typically set by early adulthood. Individuals vary widely in how well they tolerate financial risk.

Some investors don't like risk so they naturally might prefer to stick to investing in low-yielding term deposits while others swear by shares, even if they have been knocked by previous losses. Many people insure their home and contents, but not their life. As individuals we all behave differently when faced with risk.

Says Adamson: "Women may focus more on a relatively low probability, but potentially severe outcome. Anecdotally I have seen this behavior in clients, particularly in relation to insurance. The driver of insurance decisions is often the woman in a relationship who is concerned about the high cost (consequence) of not having adequate insurance, while the male sees this as a lower priority having a lesser probability."

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Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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