You married a smart, funny and dashing extrovert, or perhaps a beautiful, intelligent introvert. If asked why you married that particular person, your answer may be along the lines of you were attracted to their personality. What is personality and what does money have to do with it?
Wikipedia describes personality as having to do with individual differences among people in behaviour patterns, cognition and emotion. A personality trait refers to enduring personal characteristics that are revealed in particular patterns of behaviour in a variety of situations. If you don’t know your individual personality type, we recommend taking the Myers-Briggs test here or here.
Thus, before you dive head first into investing, it’s important to know and understand your financial personality. Knowing this will help you make smarter decisions on how and what to invest your hard-earned cash on. Why is it important to know your personality type? We all handle money differently, according to our – you got it – personalities, and knowing your money personality can help determine how much risk tolerance you have and what types of investments attract you. Quite a number of investment experts recognize the importance that personality plays in the investment game and have categorized them along some common lines. We studied all the money personality types we could find and bring you a summarized Naija version-
- The Nervous Spender: This personality type is very conservative. You’re a creature of habit, and buy the same brands from the same place(s). You rarely deviate from routine and always plan ahead for the future. Though this may sound like an ideal personality for investing, you can be an emotional spender, making panicked decisions in the face of unanticipated change. You are cautious and hesitant about making proactive financial decisions. You usually like investments that are ‘safe’ and low-risk (hence low-turnover).
- The Touchy-feely Spender: This personality type is compulsive and don’t usually think long-term. You see yourself as care free or a ‘free spirit’. You frequently make financial decisions based on how you feel and are very good at second-guessing yourself. You are most likely to chase after investment fads and thus are often at the highest financial risk. If you have a portfolio, it would likely experience high turnovers as you change stocks very often, and possibly riskier investments.
- The Rigid Follower: This personality type is very strict about following a disciplined, set way of doing things. You go over and over all the details and will only make decisions based on hard facts. You are not at all emotional about finances and you rely heavily on research before spending. The downside to this is that you’re so focused on your long-term goals and diligently following your ‘rules’ that you may not always trust your gut or instincts and thus miss out on easy gains that may come your way.
- The Immovable Rock: this personality type has a lot of self-discipline and patience. While you listen to advice from other people and ‘experts’, you also trust your instincts and will usually do your own research concerning what you want. You have faith in your ability to manage your own money and are not swayed by the ‘in-thing’ of the moment. You don’t jump on bandwagons.
- Follow-Follow: the follow-follow is fairly easy to identify. You like to own or buy stuff that other people buy. As long as it seems popular, you’re all in. You own an iPad, not because it’s useful for you, but because it seems like a necessary accessory to own. You don’t bother doing your own research, as the popularity of the thing, be it an item, a service or stocks, means that it has been well researched by others and proved valid. Also, you don’t like to be responsible for making some decisions; it’s easier to hold others to blame.
NOTE that the above money personalities are not exhaustive. And it’s entirely possible that you or someone you know may be a mixture of these. Now let’s discuss investment personalities.
An investing personality or profile simply identifies how much risk your personality can take, which in turn determines the kind of stocks you are likely to invest in. As we said before, the better you know yourself, the higher the chances that you’ll make better-informed decisions. Read on for the various risk profiles and then, take the following quiz and find out how your personality plays out in making investment decisions!
Now, losing money is never a good thing but some are more hard-wired to withstand loss better than others. This is why understanding your risk tolerance level is critical to making good decisions. The thing with risk profiles is that you may assume more than one at different points in your investment life, or based on your prevailing investment goal.
- Extra Cautious– an EC investor wants returns on his/her investment but also wants to protect the money. ECs are easily affected by market variations because they need quick access to their money to address a particular goal.
- Cautious– the C investor has more room to take on a little risk. Variations in the market do not bother them as they are invested for the long, long term.
- Assertive– an Assertive investor is focused on growing their investments as much as possible and will willingly take on more risk. They are also invested for the long term so they do not worry about any variations or deviations in the market.
- Aggressive– as the term suggests, an aggressive investor willingly takes on big risks to grow their long-term gains, though such risks are sensibly chosen. They usually have time on their side and are prepared to sit on their portfolios, thus dips, variations or falls in the market doesn’t bother them, since they won’t need the money for a long while.
Why not take the following quiz to determine your risk profile.
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