Just as you have a social personality, you have an investment personality, but there is a big difference between the two. An outgoing, bubbly individual can be very conservative when it comes to investing, or vice versa. You probably know what kind of person you are socially, but do you know what kind of investment personality you have?
When is comes to
financial planning, do you tend to play it safe by putting your money into money markets at the bank because you feel better knowing it is secure and available? Or are you the type of person that would borrow money to buy 1,000 shares of a stock because your friend has a hunch the stocks value will sky rocket in the near future?
In order to determine whether you will be comfortable with a given investment, you need an understanding of yourself. The most important psychological brick in building the foundation for your financial independence is assessing your own investment comfort zone.
There are three dimensions of your investment personality. First is your risk tolerance. Risk tolerance is how worried you feel about losing money if the value or purchasing power of your investments decline.
Next are your return objectives: the goals you set for investment growth over time. For example, are you content to earn an 8% average annual return on your portfolio over time or do you seek a high rate of return?
The last element of your investment personality is your time horizon, meaning the time you set for your investments to perform to your objectives. Do you want to achieve your return goals in one year, five years or longer?
Once you have figured out your investment personality, the next step is to meet with a
Certified Financial Planner to map out a financial strategy that will reach your investment goals while giving you peace of mind.
