How To Select The Right Investment Tool Based On Your Financial Personality


There’re so many types of investment vehicles that are readily available on the market these days. Sometimes as an investor, it can be so confusing having to decide an asset class to invest in.

The truth is… there is no asset class that is superior in all dimensions. What matters most is that you are comfortable and familiar with the choice of investment.

You need to pick an investment instrument that you are comfortable with – that is to say, that fits your financial personality. Making an impatient day trader to invest in the property market is a painful and pointless. It is like asking a 10 year old child not to eat the bag of sweets in placed in front of him.

You also need to be familiar with the asset class you are investing in – an amateur investor who does not know what he is investing is a disaster waiting to happen. He will lose tons of money… without even understanding why!

If you want to be a successful investor, it is important that you first discover what kind of investor are you. As stated in The Art of War:

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
― Sun Tzu

So here are some financial personalities below. See if you can correctly identify your natural tendencies.

1)     Investor vs Trader

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This almost always splits the crowd in two immediately. The investor sees equity stocks as shares of a company. To purchase stocks is fundamentally to investment the companies. And just like any investment, you would only invest in a company which you believe have a bright future ahead of them. This is why they are generally in for the long haul.

On the other hand, traders see stocks just as a tradable item. The trade is only as valuable as the price the next person is willing to pay for it. It doesn’t matter if the shares they hold belongs to a good company or bad company. They are just there to make a transaction and profit from it.

Depending on the situation, that might mean either to purchase it and quickly sell it off at a higher price, or to short it first and then buy back at a lower price. Given that the chance to profit lies in volatility and the transaction itself, they normally exit the trade very quickly.

2)     Long Term vs Short Term

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Long term investors have a longer time horizon for their investments (as their name clearly suggests). As a result, these people are not so bothered about day to day price fluctuations.

These people are normally investors who put their money in solid companies with a strong track record hence they have no reason to be uptight about the changes in prices.

They generally make their investment base on their analysis of the company’s financial statement, also known as fundamental analysis.

These investors are also usually comfortable with investments like property where the returns can only be realized after a few years as they are not in urgent need of the money they put in.

Short term investors usually exit their positions once they have made a pre-determined amount. Their investment time horizon is short as they just want to keep whatever profits they have made during that period of time. By exiting their positions quickly, they reduce the risk of losing their gains and cut short their losses (if any).

Short term investors normally base their trades on chart patterns and trends which is also known as technical analysis.

3)     Steady vs Volatile

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Some investors prefer steady increases in price. They are contented with buying dividend stocks that edge up slowly or investing in a property that they know will yield a positive return in the long run.

These investors generally shun IPOs and volatile tech stocks. Some of these investors don’t even bother checking out the price of their investments regularly for they fear that their hearts might not be able to take it.

On the flip side of the coin, there are the traders who love volatility and enjoy profiting from the wild swings in price. For these type of traders, the bigger the fluctuations, the more opportunity for them to rake in profit.

Their mantra is usually something along the lines of “High risk, high returns” or “Go big or go home”.

They like to buy tech stocks, high risk assets or anything that have prices that swing with every news in the market. These people are excited to take part in the ups and downs of the market and they have the guts to stomach the unpredictable fluctuations.

In general, if you’re a long term investor who prefers to collect a steady stream of dividends, you might prefer:

  • Value Investing in Stocks
  • Property Investing

However, if you’re a short term trader that enjoys profiting from market volatility, you might want to consider

(Click on the above links to find out more about each type of financial instrument)

optionsnative

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Which of the above best describe your financial personality?

Share with us in the comments below!

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