What Type of Investor Are You?

There are as many different types of investors as there are distinct personalities, so any attempt to categorize them can underemphasize the variations among investors, who each have unique goals and attitudes toward risk. Nevertheless, in my experience, I have witnessed four distinct categories of investors – conservative, cautious, aggressive, and disciplined:

 Conservative

 A conservative investor typically knows in advance that their returns will be comparatively lower due to making conscious decisions to invest in lower-risk assets. An investment in a CD, a money market fund, a short-term Treasury, or low exposure to equity investments is an example of the strategies employed by conservative investors. As people move through retirement, they tend to become more conservative naturally. However, there is also a risk of being too conservative, especially for younger investors with longer investment time horizons and those whose income or expenses are sensitive to rising inflation.

Cautious

 The cautious investor is probably the most common type, but they are also the most likely to engage in inefficient investment strategies. Cautious investors often consider themselves conservative, typically prefer to accept less risk. Still, they also want higher returns if the opportunity presents itself. They are more likely to buy when the investment has already risen and sell when it has already fallen – buying high and selling low. They tend not to have a plan or strategy to accomplish financial goals. They also tend not to have the discipline to weather market declines, and their strategy usually involves chasing returns.

Aggressive

 An aggressive investor may be disciplined (see below), and their risk tolerance and objectives warrant an aggressive style. However, there is also the type of aggressive investor who seeks opportunities through public or private investments and is willing to accept the higher risk to capitalize on those opportunities. Although the potential to earn higher returns exists for aggressive investors, the risk can also be greater, including a higher chance of principal loss, excessive costs, and a lack of liquidity, transparency, and diversification.

Disciplined

 A disciplined investor usually follows an investment plan, part of a bigger financial plan. A portfolio with an expected return tailored to your overall financial goals could be constructed. The original allocation should be occasionally rebalanced and only altered if the investor’s financial situation or goals have changed. Maintaining discipline can be challenging in today's investment environment, as a multi-billion-dollar industry exists with vested interests in encouraging the public through advertising to adopt more active strategies.

What separates the type of investor is the level of risk accepted. Defining risk and exploring ways to reduce overall portfolio risk creates an expected return that should be tailored to your financial goals. Please contact us by phone (925) 484-1671 or email at anthony@carrwealth.com to ask questions or schedule a no-charge consultation or portfolio review.

Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. Diversification neither assures a profit nor guarantees against loss in a declining market. There are no guarantees that strategies will be successful.