“To know thyself is the beginning of wisdom”- Socrates
It is a common practice for financial advisors to send out “Risk-Tolerance” questionnaires to new clients to get a sense of their ability to emotionally tolerate the ups and downs of the stock market.
While this can be a valuable assessment, sometimes what people NEED their money to do for them entails accepting some level of short-term volatility to avoid running out of money during their lifetime…
Closing that gap between emotions, knowledge, and reaching financial goals is one of the greatest values that financial planning and coaching provides.
Since NO ONE likes to see dollar values on their statements recede, even temporarily, I find that the way to work on our “tolerance” is to understand the trade-offs, the true risks, and most importantly, examine our own unique personality!
I would challenge any person to find a credible financial fiduciary who has any advice during market downturns other than, “buy low, stay the course, and tune out the noise.”
However, I have observed that some personality types have trouble believing that this same advice applies to them and their situation.
So let’s look at the personality types! You are a unique individual, with different ways of processing information and emotions based on your experience, upbringing, beliefs, politics, and even birth order.
Pictured: Typical Youngest Sibling
A personality questionnaire generalizes much about us, but it can maybe shed a little light on some ways that you may tend to think about the world.
Once you explore the way you interpret the information you receive, and that not everyone is the same, then you can consider that your feelings aren’t always based on objective reality, but your interpretation of it.
We all do that!
· Neuroticism (High Anxiety & Fearful): Investors high in neuroticism tend to avoid risk, make panic-driven decisions, and underperform due to frequent emotional reactions.
“I grew up financially insecure. Some nights I went to bed hungry. I’ll never go through that again.”
· Extraversion (Sociable & Risk-Taking): More extroverted investors often take higher risks, which can lead to both high returns and potential losses.
“Everything I touch turns to gold. I’m going to play the markets- what could go wrong?”
· Conscientiousness (Organized & Disciplined): This trait is associated with long-term planning, disciplined investing, and better financial outcomes.
“I know that markets can go up and down over short periods. I’m going to systematically invest in a diversified portfolio to take advantage of all prices over time.”
· Openness (Curious & Creative): These investors are more likely to explore unconventional investments, sometimes leading to innovative but volatile strategies.
“I like the technology that this new business is developing. I have researched this opportunity and think I want to get in on the ground floor.”
· Agreeableness (Trusting & Cooperative): These individuals may rely on financial advisors but sometimes avoid necessary confrontations about financial decisions.
“I don’t really check my accounts- I know that markets are cyclical. I’m sure Rachel will tell me if I need to do anything different during this uncertain time.”
No two people are alike!
Creating a plan for lifelong financial security is designed to remove the emotion from the equation, and be a strategy you can stick with at all times.
The timeless truths of investing are the same for all investors! Let me know how I might help you deal with some of your personality traits that may be working against your long-term success.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Securities and Retirement Plan Consulting Program services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. Investment Advice offered through Western Wealth Management LLC, a Registered Investment Advisor. Kennebec Wealth Management LLC and Westen Wealth Management LLA are separate entities from LPL Financial.