What kind of Investor are you?
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I’m sure you know a friend, neighbor, work colleague or family member that always has the latest ‘get rich quick’ scheme or the one with the worst luck in business and investing. These people can have tremendous effects on how we view investing and taking risks.
We are now living in an era where we are constantly bombarded with information. We have friends, family, social media, news, and podcasts that are constantly pushing investment tips our way, voluntarily and involuntarily. While some of the information may appear helpful and good, most of it may not suit your specific needs, thereby leading to making bad investing decisions.
Access to all this information at our fingertips can quickly feel overwhelming and lead to information overload. To bring it all back, it’s important to remember that investing involves an element of risk. Each one of us perceives risk differently, resulting in people investing differently.
Money evokes emotion. Therefore, we all face a constant battle in making rational investment decisions. If emotion is a driver, how do we know we are making a good investment decision? How do we know that we aren’t letting other people’s doom and gloom or exaggerated win stories affect how we make our investment decisions?
Understand Yourself
The first step to overcoming some of these questions or misconceptions is understanding yourself.
Do you know your PURPOSE? You have to separate yourself from the “noise” around you. Your life’s purpose helps you determine the kind of investor you are.
What are your short and long-term goals?
Are you a parent focused on protecting your children’s future?
Do you have people who are dependent on you?
Are you building wealth to pass on to your loved ones?
Do you need money in 10 weeks? 10 months? 10 years?
Once you truly know your purpose, you then determine the level of risk you are willing to take.
What kind of risk taker are you?
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Risk! The R word! Money comes with risk. Risk is the chance of an unfavorable outcome. Therefore keeping money underneath your mattress is taking risk, keeping it in a bank account bears risks, not doing anything with your money is taking on risk.
Do you know how you perceive risk as an investor?
In his book Behavioral Finance and Wealth Management, Michael M. Pompian outlines the following investment types. Which one are you?
"Type: The Preserver. A passive investor type, Preservers tend to value financial security and wealth preservation far more than growth. They are generally highly risk-averse, and losses are much more painful to bear than gains are a joy to experience.
Type: The Follower. A passive investor type, Followers tend to be compliant in taking the advice they receive even from friends, family and colleagues. They are often thoughtful and listen carefully to the advice of others but can be prone to making abrupt investment decisions at the urging of trusted.
Type: The Independent. An active investor type, Independents can act quickly and decisively, and are usually confident in their own research. Though investors should always take the time to understand their investments, Independents study more than most. They are avid consumers of information and appreciate data over emotion when making decisions.
Type: The Accumulator. An active investor type, Accumulators are risk-takers and have a strong conviction in their ability to be successful investors. They often had great success in business, and passionately believe that they can carry that success into investing."
Source: Meyer, Robert L. “Investment Psychology 101: Don't Let Emotions Influence Your Investing Decisions.” CNBC, CNBC, 4 Apr. 2017, www.cnbc.com/2017/04/03/dont-let-emotions-influence-your-investing-decisions.html.
What do I do next?
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The great news is that there is an investment type for you. The key is to use your knowledge of self and your life’s purpose to develop a long term strategy to meet your goals.
Your wealth specialist can help you understand more about the kind of investor you are, your true appetite for risk and recommend the type of investment suitable for you.
If you want to learn more about the type of investor you are and what risk means to you, send me a LinkedIn message for a free risk assessment.