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Profiling Your Investments
Sunday 7, January 2018

Profiling Your Investments

YaniqueF

As the New Year is now well underway and you have already completed your review of your investment successes and failures for 2017, you are perhaps still refining your investment strategy for the New Year.  In this article we will examine some common investor profiles, and the corresponding investments typically associated with those profiles.  Look carefully, you should be able to identify your profile quite quickly. The profiles were developed by Thomas Bailard, David Biehl and Ronald Kaiser in their BB&K Five-Way model.  It describes five different investor types: the Adventurer, the Celebrity, the Individualist, the Guardian and the Straight Arrow. You may be wondering why it is necessary to understand your investment profile/personality.  The idea is that it is better for advisors to understand their clients’ profile before they recommend the specific investments. In other words, understanding the clients, help the advisors to suggest investments which are more suitable, i.e. a better fit for the clients. Description: https://i.investopedia.com/inv/articles/site/7_habits_1r.gif

Source: Thomas Bailard, David Biehl and Ronald Kaiser, Personal Money Management, 5th ed. (Chicago: Science Research Associates, 1986)

The Adventurer has a high level of confidence in themselves.  They are not very receptive to getting advice because they are convinced that they already know everything.  The Adventurer takes big bets in the hopes of a huge payoff.   They are drawn to equity in all its forms, i.e. they seek out private equity investments, start-up/venture capital investments if they have access, hedge funds and equity mutual funds.

The Celebrity goes for whatever is the biggest trend in investing.  They tend not to know much, if anything, about investments, but are willing to go with the crowd.  As a result, they are susceptible to making bad decisions, because they don’t know how to analyse the advice they are given.  They too are attracted to equity, as, let’s face it, equity is sexier than bonds. If you fall in this category, please take the opportunity to learn as much as you can about investing, so that no one can take advantage of you.

The Individualist as the name suggests, makes up their own mind about investments and normally includes small business owners or independent professionals.  Most people would prefer to identify with this profile because they are described as having a certain degree of confidence about them, but also being cautious, methodical and analytical. Advisors like to engage with this type of client, as they like to understand what they are investing in, and are pretty decisive about investments.  This profile is drawn to real estate, equity and derivatives (more sophisticated investments).

The Guardian is how many of us will become if we are lucky enough to live long enough.  We will become more cautious and actively prepare for retirement. Guardians recognize that the working years are limited and capital preservation becomes critical to all their investments. They are definitely not interested in volatility or excitement. Guardians are not as confident as some of the other profiles so they actively seek investment guidance. They are heavily drawn to fixed income assets such as bonds.

Finally, there is the Straight Arrow which is a lovely mix of the other four profiles.  They really don’t fall in a specific category; in fact, they are directly at the center. This group of clients is pretty average, and they are willing to take on medium risk.  They invest in a diverse group of assets, striving for balance in their portfolio.  They tend to invest in a mix of equity, real estate and bonds.

In finance, there are many ways to classify investors- this is just one model.  Other models may use different names or descriptor, but the bottom line is that investors fall into different categories and understanding where you fall will benefit both you and your advisor.  Happy Investing!

Yanique Leiba-Ebanks, CFA, FRM is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm Feedback:  If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm

 

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