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How we “think” about money – what it means to us, how we feel about it, how we behave
when we have it (and when we don’t) – says a lot about us. Not surprisingly, it can also say a lot
about our portfolios and the returns which we can expect from them.
You don’t have to be a psychologist to understand that there are many different attitudes
toward money, some healthy and some…well…not so healthy. Healthy attitudes lead to
greater confidence and better financial decisions. Less-than-healthy attitudes can stand in the
way of our financial goals and rob us of peace of mind.
Whileevery investor isunique, thereare several investment“personalities”that create stumbling
blocks and challenges for us on the way to financial freedom. Below is a brief summary of some
of the more common personalities, described in easy-to-understand terms, along with some
simple suggestions for developing a healthier, more balanced relationship with our finances.
The Analyst
The Analysts are fascinated by the details of investing.
They enjoy poring over annual reports, gathering
information frommultiple experts and performing their
own investment calculations. They carefully consider the
implications of a given investment before committing to
a course of action.
Nothing wrong with that – to a point. Doing your own
homework and seeking second (or third!) opinions
about investment opportunities can help you avoid
financial mistakes. Taken to extremes, however, such
detailed number-crunching can lead to “analysis
paralysis.”This is the case with the Analyst, who often
feels more comfortable studying
and researching an investment
decision than taking timely
Instead of getting lost in
financial minutiae, Analysts
should train themselves
to see the big picture.
While weighing
the angles and
considering possible
investment outcomes
is always a good idea,
long-term strategy and
allocation decisions
ultimately matter more
than individual buy-
and-sell ideas.
Investor, know thyself
Understanding your investment personality can lead to better investment decisions
The Empire-Builder
The Empire-Builder tends to equate
worth. For Empire-Builders, investing
is competition and money is a way of keeping
score – a concrete way of proving how smart
and savvy they are to friends, to family and,
most of all, to themselves.
Because of this, Empire-Builders tend
to feel “empty”when they aren’t doing
with their money
and/or their portfolios. As a result,
they can often “overtinker”with their
portfolios, making tweaks and changes
in an attempt to get an edge on their perceived
competition. Often, this tinkering results in little
more than unnecessary fees. Empire-Builders
can also adopt overly risky or aggressive trading
strategies in an attempt to beat the market. They also risk spending
too much time on their finances and too little time on other
parts of their lives. This can be a common problem for retired
entrepreneurs and senior executives, who are highly driven, “Type
A” personalities used to taking quick, decisive action, rather than
sitting back and waiting for an investment idea to play itself out.
Empire-Builders need to break the “mental math” that considers
money part of their identity. Instead of seeing wealth as an end in
itself, they need to focus on their financial goals: securing a high
quality of life, crossing items off their “bucket” list, assisting family
and important causes, and so on. Perhaps most important, Empire-
Builders need to take time for those things – family, friends, simply
watching the sunset – which mean more than money. Without
sounding trite, we only live once.
By James Dolan