Individual investing can be an intimidating process, with volumes of contradictory advice competing for your attention. At the same time, there are so many variables for each investor to consider — their time horizon, their long-term goals, their risk tolerance and more. This can create a situation where, paralyzed by data, an investor builds a portfolio based on blind faith that may not actually be a good fit for their personality.
Maybe it’s a generic recommendation from a robo advisor, maybe it’s a basket of funds that you cobble together on your own, or maybe it’s a well-diversified portfolio put together by a qualified financial advisor. Whatever the case, often this approach does not take the full picture into account and leaves investors with portfolios that don’t meet their core needs.
That’s because most investors have not taken the time to fully understand their investing mindset. They think they know what they want out of their investment portfolios, but do they really? Often, this comes down to a failure of communication.
Often, when an investor sits down with their advisor they have a brief conversation about the investing values and goals before the advisor works up a sample portfolio. The advisor probably assumes that above all else, the client is looking for growth and positive returns, but often there is far more influencing the client’s investment values than just the bottom line. While your advisor may work up a well-diversified portfolio for you, it may not fully fit your unique core investment values and needs.
Much like how all of us have unique social personalities and values, we all have equally unique financial personalities and goals, though we may not always realize it. Social personality tests have been shown to help people sort through their leadership styles, decision making processes, and life goals. Tests such as the Myers Briggs test are commonly used in the business world by managers to get a baseline for their employees’ possible reactions to different situations.
Similarly, financial personality tests like Positivly’s can be extremely useful for prospective investors looking to gain a better understanding of their financial personality. This goes far beyond whether you are simply a spender or a saver. It can encompass your deeply held values about money, everything from the amount of control you want to exercise over your investments, to how much you emotionally invest in the companies you may decide to buy into. Knowing all of these things about yourself puts you on a firmer path to constructing an investment portfolio that resonates with your values.