GAUGING YOUR INVESTMENT PERSONALITY

To help you determine what kind of investor you are, we offer some answers to questions most frequently asked by first-time investors.

What does my personality have to do with investing?
A fundamental investment concept is the trade-off between risk and reward. Therefore, before you invest, it is important that you understand both how much risk you can tolerate and what level of return you will need. Conservative personalities generally stay away from aggressive or speculative investments, even if they have to give up some potential reward to sleep a little better at night. On the other hand, more aggressive types are willing to take a fair degree of risk in order to maximize the upside reward potential. How much loss you could comfortably absorb should be a key consideration in you evaluation of any potential investment.
                                                                                                                                                                                   Why can’t I simply buy good investments and not worry about personality?
Because what constitutes a good investment varies from person to person—a good investment is one that helps you meet your goals and achieve peace of mind. The next time you are tempted to buy an investment just because your neighbor, brother or best friend has purchased it, ask yourself the following questions: Are you both retiring at the same time? Do you make close to the same income? Do you have the same number of children? Will those children be entering college about the same time? If you answer “no” to these or similar questions, your investment personality may require that you consider different investments.

I keep hearing about “balancing” my portfolio—what does that mean?
Here’s that risk/reward concept again. A balanced portfolio is one that is designed to both help you achieve your growth and income objectives and manage risk. One of the easiest ways to balance a portfolio is with asset diversification. Diversification is the investment strategy of spreading investments among different investments, sectors, markets and instruments. As a result, your portfolio is not unduly vulnerable to the poor performance of one asset class, sector or security—losses in one or more investments will generally be offset by gains in others.

Can I build a diversified portfolio with only a small initial investment?
Many mutual funds, unit investment trusts and variable annuities enable you to buy shares of a professionally managed investment portfolio with a relatively modest initial investment. These vehicles vary widely in their investment objectives and guidelines, as well as in the degree of diversification and risk management they provide. You should read the prospectus and other available materials carefully before investing.

Should my savings accounts be considered investments?
Any time you put your money into something with the intent of making money, you’re investing. So you should look at your savings as you would any other investment—in terms of risk and reward. Generally, savings accounts are excellent liquidity vehicles—meaning you can withdraw your money at any time without incurring a loss or penalty—but do not offer very attractive rates of return. As a result, savings accounts are good for short-term goals—like saving for a vacation—and for emergency funds. 

How often should I review my investments?
It depends upon the type of investments you’re making and the professional assistance that is available to you. High risk, speculative investments should be monitored frequently, while more conservative investments, such as certificates of deposit, require little attention on your part until they mature. Generally, a portfolio review is recommended whenever an important change takes place in your life—e.g., getting married, buying a house, having children—or when there is significant movement in the economy.