Investment

At some point during your investment-planning pathway, you would have been asked about your investment personality or your risk profile. What is this and how will it influence the way you plan and prepare during the current economic climate?
Your investment personality is determined by your tolerance for risk, your approach to savings and what you would like to achieve with those savings. In the pre-pandemic environment knowing your investment personality would have had a big impact on your investment strategy, but today we are all facing unprecedented risks and long-term unknowns. So how does understanding our investment personality help us now? There have been numerous studies into investment personalities and it seems to come down to 6 key types.

  • Cautious – conservative investor needing financial security and avoids high-risk ventures.
  • Emotional – trusts gut instinct more than good research and understanding. Luck is their guide and they don’t necessarily understand when its time to cut their losses and let go.
  • Technical – all decisions are based on research-backed by facts and figures. They follow the market closely and are always looking for the edge.
  • Busy – have the trading bug. They buy and sell based on trends and advice from just about anyone. Not really into holding things for the long term.
  • Casual – the hands-off investor letting an adviser do all the work for them. Possibly more interested in bricks and mortar type investment than shares.
  • Informed – gets information from multiple sources before making a decision. They keep up to date with market information and the economy in general in aiming to get the best returns.

Each of these personalities will be struggling in these times of rapid market fluctuations, with no clear trends emerging and no one being able to advise them on where the market is headed over the next few months. But those whose main strategy is to avoid high levels of risk and reduced returns are clearly being affected the most right now. There are some strategies that can be put in place to manage the impact and speaking to an adviser is a good place to start.
According to the ASX, the share market has dropped by up to 36percent in one day and continues to fluctuate on a daily basis. While this level of price fluctuation has been seen at other times including the GFC and the recession in 1982, it feels worse this time because of the social and emotional issues attached to the current situation. Many investors who are approaching or are in retirement are concerned about their savings and income and are looking for some sort of security around their investment strategy.

If we take the Cautious investor for example, what strategies might be available to them to manage some of the risk? Every case is different and depends on the individuals, age, employment status and the ability of their investment portfolio to ride this through. There are some things all investors should be investigating. Are you best positioned to take advantage of the rebound? This might mean holding cash, or shares that are related to key and emerging sectors that will pick up quickly once the market opens up. Should you need to have an alternative savings plan in place to make up for lost income through your investments? If on the other hand, you have some spare cash, is this in fact a good time to invest and are the shares the best option?

The most important thing is to continue thinking about your investments as a long-term strategy. Your decisions should not be solely based on what’s happening in the market at the moment or made when you are stressed and possibly not thinking in a way that ties back to your initial long term strategy. Remember that if you consolidate your loss by making a snap decision, you may not be able to recoup that loss any time soon.
Speak to a financial adviser about your current situation, they will help you to review your position and put an appropriate strategy in place going forward. It might even all start with reassessing your attitude to risk and which investor category you actually fit in.

If you are interested in finding out more about your money personality, read Pretty Rich, a light-hearted, practical and humorous guide to making the most of your money personality and optimising your relationships with others who may have different money personalities.