What is Your Investing Personality?

June 2015

It's a question every investor should ask and be asked. Why? Because no two investing personalities are alike, no one-size-fits-all investing formula exists, and every investor weighs the tradeoff between risk and return with a different scale.

p>Let's consider the Branch sisters. When they were young girls everyone marveled at how different they were. Not all sisters are alike, but the Branch sisters were triplets. Weren't they supposed to be three of a kind? Granted, the Branch sisters were tough to tell apart, in person and over the phone. But when it came to personality and behavior, it was hard to believe they were genetic carbon copies.

Cathy, the cautious one, was careful to a fault, rarely taking chances. Mary, more middle-of-the-road, took chances when it felt right and pulled back when it didn't. Amy, the polar opposite of Cathy and far bolder than Mary, had an appetite for chance and it showed in her every move. Triplets, born and raised together, each with her own level of comfort and personal barometer for risk.

Through life, the sisters have approached every situation with the same question – What's the tradeoff? And, as expected, each makes choices based on her individual tolerance for risk and the expected return. Now well into adulthood, each Branch sister demonstrates her own distinctly individual personality when it comes to investing.

Preserving her wealth is Conservative Cathy's goal. She is far more comfortable with low risk and a more predictable return. Choosing to protect her principal, Cathy's portfolio has higher allocations of assets that are characterized by lower risk, such as bonds.

When it comes to choosing between risk and its return, Moderate Mary still leans both ways. She has a medium tolerance for risk, and is interested in moderate growth while protecting some principal. Mary's response to the tradeoff between risk and return can change case-by-case.

Where others see danger, Aggressive Amy sees profit. And when it comes to investing, Amy is risk-tolerant with an interest in growing her portfolio's principal. Having a higher tolerance for short-term losses and lower tolerance for missing out on opportunities, Amy believes more risk leads to higher reward.

At first glance investors may indeed look alike, yet they each have a distinctly individual investing personality and risk tolerance. Your wealth advisor should get to know you, the investor, individually, and make your investing personality and investment goals the foundation upon which the ideal investing strategy is created just for you.

With each client, a number of factors including risk tolerance should be evaluated – return needs, time horizon, tax situation, liquidity preferences, legal situation and unique circumstances – in order to develop a customized investment strategy that most appropriately reflects the personality and goals of the individual investor.

What's the tradeoff? Among all the questions your wealth advisor should be prepared to answer for each investing personality type, this one tops the list. Why? Because no two, or three, investing personalities are alike, no one-size-fits-all investing formula exists, and every investor weighs the tradeoff between risk and return with a different scale. Just ask the Branch sisters.

Talk to a Commerce Trust advisor today at 855-295-7821.

  • This article is a special report designed to provide general information only and is not to be construed as tax advice. Please consult with your tax professional regarding your situation.
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