Figuring out your Investment Style

Investment style, like many things in life, is very much up to the individual. Just as some people like dressing in stripes and plaid at the same time while others are more comfortable with solids, investors take on different styles as well. So how can you tell if you are an investor who is more “stripes” or more “solids”?

Two of the broadest investment styles are related to the level of risk you are willing to take. Safe investors are not going to put their money where they have a high chance to loosing value. Of course, they are less likely to make a significant return either. Contrasting this investment style are investors who are more willing to gamble with investments that may be risky, yet have the potential to return a lot if things go well.

Investors who are risk takes are more likely to take chances with the hopes that they will score a big hit. How can you tell if this is your style? You have to be the type of person who isn’t worried about short term losses. If you are able to look at your portfolio and see that it’s down 10% in a single day, this might be your style. However, if you are the type who sees a stock you own drop by a penny and you immediately start to hyperventilate, worried that you’ll never be able to retire, it’s safe to say that you are a more “risk adverse” type person.

There’s nothing wrong with being a safer investor. As you get older and approach retirement, you should begin to shift your investment style to favor more conservative and safer investments. What you can afford to lose in your 20’s, you are less likely to want to lose in your 60’s. Consequently, younger investors tend to have a riskier investment style than those that are older.

Another major style in investing is related to how much detailed control you have over your investments. Some people want to decide where every penny goes in their investments. Other people are more willing to let others take greater control over their money, hoping that experts can do better than they could.

Often times people who rely on others to guide their investments will hire an investment counselor to handle decisions, or at least make recommendations. There is nothing inherently wrong with doing this, although personally I believe that no one cares more about your money than you do. Which is to say, “trust no one but yourself.” But that’s a reflection of my investment style, which is more “hands on”. I prefer to research what I’m investing in and guide where my money goes.

In the end, I’m sure there a people of all styles that do well with their investments. Much like fashion style, there is not necessarily a “right” or “wrong” style of investing. Knowing what you are comfortable with is more important than fitting in to any standardized notion of what is an acceptable style. If you know what level of risk you are willing to take, and how much active involvement you like to take in your investments, you are on your way to establishing a unique style all your own.