Don’t let your investments be a victim of your personality
Ms. Chitra Iyer is a Cost Accountant and Certified Financial Planner with 20 years’ experience in the Financial Services Sector. As the CEO at MFA Consulting Pvt. Ltd., she is passionate about making a meaningful difference in people’s life through the right kind of financial planning.
16 Jun, 2017
Are you obsessively checking your bank balance and wanting to know every detail about your account, or are you so uninformed that you have no clue whether you’re managing to even meet the minimum balance in your account? Is your entire investment experience based on someone else’s advice or are you the kind who continually checks up on the latest options to make your choice? Being a part of any of the above mentioned four categories is a result of a choice the individual makes.
The approach that people take while making investments is massively influenced by their personalities. While each personality type has certain traits that make them successful investors, there are often more dominant traits that can make investing a stressful activity. Changing one’s core personality isn’t an easy task because it takes a concentrated effort to adapt. Overcoming one’s personality flaws is essential to avoid any hindrance in one’s financial success.
People who have an aggressive approach to investing don’t shy away from investing in extremely risky avenues. Most of their decisions rely on instincts which could be shaped by brokers, media, friends circle, etc. As their focus is always on high returns, they often lose sight of the fact that taking higher risks might also result in a larger loss of capital. This personality type is either fully knowledgeable or pretend to know everything even if they may not.
For this personality type, the most important thing to do is understand the risk quotient every investment holds and then weighing that against the returns it will provide. If they do not seem appropriate, it is best to stay away from such investment schemes. Financial advisors play the role of a director in one’s financial journey. Thus, it is best to hire one and listen to their advice on the level of aggression in their portfolio. Another strategy of overcoming increased aggression is consciously sticking to an asset allocation in the portfolio.
Passive people find it very difficult to make concrete decisions. Their money often just sits in the bank or in whatever investments they have already committed to. There is not much effort to be pro-active and look for ways of improving one’s portfolio.
Since the passive personality type is generally compliant to advice of others, it is best to take the advice of financial planners or advisors who act as coaches and guide people on consistently making sound money related decisions. Sticking to a calendar to review investment decisions is also a solid plan as it keeps one updated on their progress.
People with an ignorant personality trait tend to be oblivious about their money or how to make the most of it. The money simply remains in the bank when investing it could yield higher returns. Financial decisions for such people tend to be taken by someone else, most often another family member.
To be ignorant is to be uninformed. Thus, the biggest challenge for this type of person is to be consciously open to understanding and learning more about money. The first step in this process of financial literacy would be getting a financial advisor to guide you and answer all your questions. This advisor would hold your hand as you take baby steps on the way to making independent financial decisions.
Followers have a sort of ‘Herd Mentality’ in that they are willing to follow anyone whom they feel that they can rely on. With no prior thought being given before trailing behind a broker, a “well-meaning” friend, or even the media, these people commit the classic mistakes of investing in the market when it might be time to exit it.
Group decisions about anything leave someone dissatisfied. Thus, when it comes to something as important as money, it is best to stay away from group decisions. Consulting a financial advisor is another great option. Advisors can help you look at your own case as separate from the other in your group and suggest the way to move forward.
The procrastinator is one step behind the passive investor when it comes to taking decisions regarding the investments. They often miss the bus because of their delayed decision making. The main problem could be that the ample options available make the decision very confusing and hence, the delay seems like the easier way out.
Procrastinators mostly just need that little shove to get them going. This is where a financial advisor works perfectly. With the continuous prodding, taking quick decisions becomes much easier. Make lists and set deadlines to accomplish your goals. Your personal finances are important, so making time to sort them out must be of utmost importance.
‘Investment mistakes are investor mistakes’. This quote by Carl Richards aptly sums up the impact one’s personality has on the decisions they take while making investments. Thus, the crux of doing well in the investment game lies in comprehending the shortcomings of your personality and consequently devising a plan to combat them and achieve financial success.