QUIZ: Which Type of Investor are You?

Dear Rich Lifer,

You can tell a lot about a person by how they handle their money.

For instance, do you know someone who always brags about their latest bargain? People driven by deals, whether they need the sale item or not, may be signalling loneliness or a lack of self esteem.

Or maybe you have a friend who insists on picking up the cheque when you’re out with large groups? Their generosity may come from a place of wealth, it might also come from a place of status anxiety.

How you spend your money can say a lot about you.

Financial institutions know this all too well. They spend loads of money every year trying to better understand the different personalities that drive their customers.

What does that say about these institutions?

Well a happy customer is a loyal customer…

The Chartered Financial Analyst (CFA) Institute, the world’s largest association of investment professionals, breaks down investor profiles into four groups: Preservers, Accumulators, Followers and Independents. These profiles are largely dependent on the investor’s time horizon.

Another popular model is BB & K’s five-way model, created by fund managers Tom Bailard, Larry Biehl and Ron Kaiser, which characterizes investors as either: Individualists, Adventurers, Celebrities, Guardians and Straight Arrows.

What differentiates each personality in the BB & K model is each investor’s attitude when seeking professional advice.

For example, individualists have faith in their own investment abilities, are diligent, and tend not to seek much financial advice.

The downside to being an individualist is you could be missing out on potential gains by playing it too safe in the market, say their advisors.

You can see where this gets murky…

Then there’s the Barnwell two-way model which is the most clear-cut of the bunch, grouping investors as either “passive” or “active.”

Passive investors are people who have become wealthy passively — by inheriting, by a professional career, or by risking the money of others rather than their own. Think: non-medical doctors, accountants, lawyers, etc.

Active investors, according to Barnwell, are those who have achieved significant wealth, or earned well, during their own lifetime. They are more likely to take risks in investing because they have previous experience of taking risks in their previous wealth creation. Think: business owners, medical surgeons, entrepreneurs, etc.

What all three studies could suggest is your feelings toward risk can change given your circumstances.

For example, you could be an Accumulator during your prime working years, but when you retire, your personality shifts to a Preserver.

Or take the risk tolerance of a professional managing your money. How much risk would you take investing someone else’s money and not your own?

This is the question Jonathan Myer set out to answer. Myer hypothesized that a person’s propensity towards risk is unlikely to change regardless of circumstance.

Myer pioneered Psychonomic profiling which classifies investors into six categories: Cautious, Emotional, Technical, Busy, Casual or Informed.

Myer’s approach differs from other models in that it doesn’t assume people have different attributes depending on the circumstances they’re faced with.

Psychonomic profiling suggests your feelings towards risk are influenced by how you perceive that particular risk, and also how you feel about money in general, i.e. do you hate losing a dollar more than gaining one?

So, which test is best?

That’s the thing… there’s no right answer.

Every profiling model has its own merits. It’s like debating whether the Big Five personality test is better than Myers Briggs (I’m sure some academics would cringe hearing me say that).

What matters most is what you discover about yourself when you take these tests.

Knowing your investor profile will help you make better decisions with your money because you’ll know where those decisions are coming from. You’ll have an idea of which lens you’re viewing an investment through. 

So, why not learn something about yourself today? 

I included a short financial profiling questionnaire like what professional institutions use that will give you some insight into your risk tolerance.

I like this questionnaire because it’s simple. It should take you less than 10 minutes to complete and by the end you should have an idea of your risk tolerance level. 

How it Works

  • Complete the questionnaire
  • For each question, choose the answer you identify with most, only choose one answer per question
  • Beside each answer is the score it carries
  • At the end, add the scores for your answers together to get your total score
  • Match your total score with the investor profile, shown in the table at the end

The Investor Indicator Quiz

Take your time to think through each question.

What do you want to achieve when you invest?

  • An investment that does not fluctuate in value. (1)
  • Keep the value of my investments with regular income on which to live. (2)
  • Maintain regular income with some exposure to capital growth. (3)
  • I’m not worried about income, just maximising the growth of my investments. (4)

How long are you prepared to hold investments for?

  • Two years or less. (1)
  • Three to five years. (2)
  • Six to ten years. (3)
  • More than ten years. (4)

How would you react if your investments were to fall in value by 15 percent over a one-year period?

  • Help! Take all my money out and put it in a bank deposit account. (1)
  • Take out some of my money and move it to a ‘safer’ investment strategy. (2)
  • Wait until I recover the loss and then consider other investments. (3)
  • Stick to my guns and follow the recommended strategy. (4)
  • Wow! It’s 15 percent cheaper to invest more money in the same investment. (5)

What is your willingness to risk short-term losses for the prospect of higher long-term returns?

  • Low. (1)
  • Not sure. (2)
  • Moderate. (3)
  • High. (4)

Choose the most appropriate response to the following statement: I am willing to experience the ups and downs of the market for the potential of greater returns.

  • Strongly disagree. (1)
  • Disagree. (2)
  • Neither agree nor disagree. (3)
  • Agree. (4)
  • Strongly agree. (5)

Choose the most appropriate response to the following statement: My main concern is security; keeping money safe is more important than earning high returns.

  • Strongly disagree. (5)
  • Disagree. (4)
  • Neither agree nor disagree. (3)
  • Agree. (2)
  • Strongly agree. (1)

When it comes to investing, how experienced do you think you are?

  • Inexperienced — investing is a new experience for me. (1)
  • Somewhat inexperienced — investing is fairly new to me. (2)
  • Somewhat experienced — knowledgeable. (3)
  • Experienced — I know the factors that make investments go up and down. (4)
  • Very experienced — I do my own extensive research and have an excellent understanding of what factors affect investment performance. (5)

How secure is your future income (such as from salary, pension or other investments)?

  • Not secure. (1)
  • Somewhat secure. (2)
  • Fairly secure. (3)
  • Very secure. (4)

How would you describe your current financial situation?

  • Completely debt-free. (5)
  • Mortgage-free but a few other obligations (such as credit card debt, education fees). (4)
  • A reasonable mortgage but no other debt. (3)
  • A mortgage and some obligations. (2)
  • Up to my eyeballs in debt (such as a mortgage, credit card and/or margin loan). (1)

Your Score

Add up the scores for all your answers and match the total score with the investor type in the table below.

Total Score Investor Type
9-14 Defensive
15-21 Conservative
22-28 Balanced
29-35 Growth
36-41 Aggressive growth

 

Does your investor type match what you thought it would be? 

Think about your circumstances. Would your answers change if you were 10 years younger? How about 20 years? 

To a richer life, 

The Rich Life Roadmap Team

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Peter Coyne

Peter Coyne is the publisher of all of Paradigm Press’ free and paid publications. He received his degree in economics and political science from Loyola University Maryland where he studied under the Austrian economist, Tom DiLorenzo. Before joining Agora Financial, Peter worked in Congress for Dr. Ron Paul until he retired in 2012.

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