Investors are not one-size-fits all. Every investor has different psychological reasoning behind their decisions and comfort level with risk. While there is endless research surrounding the psychology behind investment decisions and behavioral finance, we want to focus on research by Russ Alan Price and Brett Van Bortel that identified nine different investment personalities of affluent individuals. Do you know which investment personality you most fit within? You may find that you are a cross between a few investment personality types, but understanding what drives your decisions can allow you to become more aware of how you are approaching your financial decisions and why.
The nine investment personalities identified include:
Family Stewards:
Taking care of their family and meeting family obligations comes first. When discussing goals, many of their goals relate to their family and their legacy. While other investor personalities may also have a level of focus on family, family stewards will rank any goals related to their family the highest.
Independents:
While the word independent may lead you to think of this personality as someone who is on their own, that is not always the case. Independents may have partners or family that they are responsible for. When it comes to their goals, they may list goals to meet their family obligations but also have a clear focus on their personal financial freedom. They may want to ensure they have a solid financial safety net, a budget that accounts for their personal goals, and the freedom to spend their hard-earned money on bucket list trips or expensive hobbies throughout their life and retirement.
Phobics:
When it comes to this investor personality type, we prefer the term apprehensive investors. This personality type is scared of investing. They may not understand it and have no desire to learn or have had a bad experience. In addition, they may have a very low risk tolerance as well as a desire to delegate all investment responsibilities to an advisor they trust. With this mindset, we find that a financial plan, communication, building trust, and going slowly can help an apprehensive investor gain more comfort within the process and their ability to use investments to achieve their goals.
The Anonymous:
This personality type is focused on full confidentiality around their finances. They do not want anyone, friends or family, to have any idea about their financial situation. Confidentiality is their top concern. The ability to be discreet and for a firm to provide multiple services to reduce the number of individuals involved in their finances is important. This personality type may have to develop trust and a solid foundation with their advisor before they become fully comfortable diving into their finances.
VIP:
As a VIP, you may care about investing in prestige brands, purchasing non-investable assets (like designer goods), and status. You care about the opinions of others and want to maintain a strong social status with a focus on appearing wealthy.
Accumulator:
An accumulator is someone focused on penny-pinching early in life to increase their long-term savings. They do not mind frugal living if it allows them to accumulate a greater amount at a faster rate. This may be to allow them to retire early or protect them against economic uncertainty. Either way, they are focused on investing as much as they possibly can now, even if it limits their lifestyle in the present.
Moguls:
Moguls look at finances as you are either winning or losing. Almost as if they are game to keep score of. This personality type is the opposite of the anonymous investor, as they are looking to leverage their wealth to gain influence or control. Moguls also tend to be decisive leaders, want to maintain control of their investments, and have a greater tolerance of risk. This type of investor is heavily involved in all financial decisions, especially surrounding their investments.
Gamblers:
Gamblers enjoy the adrenaline rush that can come with beating the market or “winning” on a risky investment. This type of investor is often knowledgeable about investments and will self-manage their portfolio. They have a high-risk tolerance when it comes to their finances and related activities.
Innovators:
Innovators are focused on being at the cutting-edge of business, finance, and technology. They are analytical, interested in various new technologies that could aid in their finances, and often focused on investing in leading tech companies with a high potential for high returns. Like gamblers, this type of investor is often self-managed and very interested in analytics.
Additional Personalities:
In addition, in recent years we have found that the following personality types may also apply:
Philanthropists:
This investment personality is strongly focused on giving back. As they see their wealth grow, they are looking at how they can use it to help. When it comes to their legacy, they care about leaving a mark on the world and improving life for others.
Socially Conscious Investors:
These investors prefer to invest in companies that match their values. This may include companies focused on climate change, diversity, gender equality, and more. Whether or not the values of the companies they invest in match their own personal values is of great importance to these investors. They would rather have a lower rate of return than be connected to companies that are not driven to make a positive impact in the areas they care most about.
Conclusion
Understanding the psychology behind your financial decisions and what matters to you is important. It provides insight into the “why” behind your financial decisions. In addition, it also allows your advisor to gain a better understanding of your goals and additional details they may need to factor into your financial plan or how they may need to alter their approach to communication. Please reach out to your advisor at Planned Ahead by Godsey & Gibb Wealth Management with any questions.
Written by: Alexis Houlihan, CFP®, CSLP® | Financial Advisor
Written: July 18, 2024
Updated: December 5, 2024