Managing Money How Well Do You Know Your Investing Personality?

by Ari Bendersky | February 10, 2021

Maybe you’ve dipped a toe into investing.

Perhaps you’ve socked away money in an interest-bearing savings or money market account or CD. Or maybe you’re a confident DIY trader who knows your way around the stock market.

No matter your experience, all investors fall into a category (or categories) that can help determine your investing style. And it's important to understand your investing style or personality as it can help as you think about setting — and meeting — financial goals for your future.

Many questions exist about when to invest or what to invest in. But knowing how you want to invest and understanding your risk tolerance with regard to investing, may be two very important factors impacting your level of comfort when it comes to trying to grow your money for your future.

As with many money habits — are you more of a spender or saver? — your approach to investing was most likely shaped when you were young. It can have ties to experiences from your childhood or teenage years in viewing how your family dealt with money.

“The psychology of money is where all these things start,” says Tori Dunlop, the founder of Her First 100k, a money and career platform for millennial women. “The majority of money habits are cemented by age seven. So much of your relationship around money is about how the people around you growing up, like your parents, managed money.”

Dunlop was lucky in that her parents talked about money and investing while she was growing up. One important lesson her dad taught her? “He said we’re aggressive early because you have time,” she adds. “If you lose some money, you have 30 to 40 years to gain it back.”

While some may jump into investing with both feet, not everyone has that same type of mindset. And negative experiences with money may lead to fears around investing. To gain a better understanding of where you land, here are five investment styles to help you figure things out and build out your own portfolio.

First-time investor

While it seems like millionaires are minted overnight these days as technology stocks have soared, the truth is that many of us have never made an investment. Sure, your Uncle Joe may have bought you some stocks or savings bonds when you were born, but 45% of Americans currently do not own stocks of their own, according to a 2020 Gallup poll.

No matter your age, it’s important to get started investing to plan for your future — yet taking that first investing step can be daunting. Not to mention, when you do invest, stock market volatility might have you reconsidering your investing strategy. It doesn’t have to be that way.

“First timers should get good coaching,” says Anjali Pradhan, founder of Montreal, Canada-based investment coaching service Dahlia Wealth. “Get someone to guide you so you don’t fall prey to your emotions. The danger is people get scared, they sell and then sit on the sidelines for a number of years.” They miss out on the potential to see investment gains, Pradhan says.

Get someone to guide you so you don’t fall prey to your emotions.
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Looking for assistance? Consider tapping into websites or books that are available for every level of investor, or take a basic course. Working with a financial advisor is also an option for many.

Dedicated saver

This next group tends to be cautious and keeps a more watchful eye over their money. It’s not as though they stow it all away in a mattress for the future, but they may not be comfortable investing in the markets to take that greater risk or stretch to grow savings.

“Saving and investing are not the same thing,” says Amanda Clayman, a Los Angeles, CA-based financial therapist. “Saving is about protecting ourselves from trouble. Investing requires a different approach and skill set. It’s hard for people who are dedicated savers to naturally convert that savings behavior into an investing strategy without some self-awareness. It’s important to know ourselves and where that motivation to save comes from.”

Dedicated savers may contribute to a 401(k) through their jobs (as well as any employer-match programs as part of that) or fund an individual retirement account (IRA) to save incremental amounts that are then invested in various stocks, mutual funds or other investments. Some may think of this as a way to “set it and forget it,” where a fixed amount can be invested automatically weekly or monthly.

woman working from home with dog

Independent investor

People who take on investing all on their own may tend to go all-in. They might spend hours researching to create a portfolio that, say, aligns with their values  or their personal interests, open investment accounts, maybe take calculated risks and day trade. This type of investor may have a higher tolerance for risk and trusts their own instincts instead of (or in addition to) seeking an advisor's guidance.

On the flip side, people who fall into this category can also get overwhelmed with the amount of information available between books, websites and more, and may also on occasion benefit from guidance on their investment needs.

“Investment will always have an element of risk, but this particular type of investing can cause stress if [the investors] aren’t getting big wins and they can face extreme lows,” says Chane Steiner, CEO of Crediful, a personal finance education website. “This is definitely more sensible for those who have been at it longer and have a deeper understanding of what they are doing.”

As investing on your own takes a certain level of risk, knowledge and confidence, this category tends to include those who have a better understanding of the stock market and various methods of investing.

Investment guidance seeker

People may seek the help of an advisor for different reasons. Perhaps you don’t know much about investing and want someone to guide you. Maybe you’re a high net worth investor who wants someone else to handle your nest egg. Or you want to take more of a hands-off approach and have someone else manage your investments, checking in once in a while to see how your portfolio is performing.

Regardless of where you land, one thing you need in a relationship with a financial advisor is trust. It’s important to know what questions to ask an advisor in general and in a shifting market to help set you up to make sound investing decisions.

“Find a financial educator you trust to help explain your options and what’s right for you,” Dunlop says. “That way, you’ll have someone to guide you through the process. Any big or small investing decision, make sure you work with people you trust and whose values align with yours versus someone who doesn’t have your best interests at heart.”

Find a financial educator you trust to help explain your options and what’s right for you.
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Blended returns

In reality, when it comes to investing styles, most people tend to exhibit aspects of all of the types above. Either they are new to investing — or a type of investing (such as mobile investing), can be a thoughtful saver, self-directed or in need of some guidance.

You may have worked with a financial advisor, but also spent time educating yourself, doing research and now want to open an investment account where you control what you buy and sell. As a result, you may mix investments between stocks, bonds, real estate, art and more. You might also have some money in liquid savings that can be easily accessed.

“This is usually a person who tries to gain the confidence to manage money on their own — even if they don’t realize that’s what is happening,” Pradhan says.

Working with an advisor while learning how to manage your own money may also be a way to gain more emotional control over investing. “Maybe it’s a way to diversify our anxiety,” Clayman adds. “Ultimately we want to notice where our emotions pull us and then layer some [investing] analysis on top of that.”

Investing can come with highs and lows. The more you learn and understand can help you make more educated decisions and gain confidence. That can allow you to go it on your own, work with an advisor or do a mix of the two.

Trying to figure out where you land as an investor may take some time. You may know exactly who you are financially, or it may take years to learn. Either way, it’s important to start asking those questions so you can start investing and set yourself on a path of planning for your future.

Ari Bendersky

is a Chicago-based writer and has written for the New York Times, WSJ magazine, Men's Journal, Departures, Wine Enthusiast and Crain's Chicago Business.