Through the years I have noticed great similarities between an individual’s investment style and their personality. I have seen how one’s level of aggressiveness in investments often seems to mirror their occupation or the events they commonly face in their day to day to lives. This can either work for or against the client, given market conditions, but it is important that every investor makes sure their investment style is rational for their current financial situation.
I recently was a guest on a radio show where we were discussing money management for NFL players. It is a shocking fact that over 70% of all NFL players declare bankruptcy within 3 years of leaving the league (Source: USA Today, Yahoo, Sports Illustrated). Why does this happen? I believe many NFL players translate their feelings of invincibility and aggressiveness from the football field to their investment portfolio. Either they believe that their skills will be in demand for many years and choose not to invest, or they tend to invest in very high risk ventures such as restaurants, night clubs, or movies. They often learn the hard way that aggressiveness on the gridiron is often not rewarded the same way in the investment world. On the other side of the coin, I have seen many accountants miss great bull market runs due to being overly conservative. While their fundamentally sound companies may survive a financial storm better, their lack of any growth investments often causes them to miss market upswings.
Working with someone that can balance your portfolio and investment style is key. If you are a “worrywart” who is uncomfortable with any growth investments, you should find other ways to increase your returns (such as writing covered calls against the stable dividend stocks in your portfolio). If you crave action in your portfolio, finding ways to temper your aggressiveness are key to avoiding a financial disaster during a market downswing(such as value real estate investments that generate passive income). Ultimately, the person most responsible for your investment success is you. Being able to step back and take an objective view of your portfolio is critical. Your portfolio should be diverse and able to survive the uncertain hills and valley that lie ahead in the investment world. And although most brokers suggest you limit your risks which is defintely great advice, some exposure in the OTC and penny stock world can definitely be much profitable in the short-term than the regular large-cap stocks in the market.
The key to overall success is to try a little bit of everything in the investment world; see which ones you are most comfortable with; then keep narrowing down your list until you are happy with your risk/reward ratio.