Investments for individuals

Knowing your client's financial personality type will help you avoid making investments that will leave your client in a cold sweat, or at least help you to understand why they are reacting that way.

In the last edition of FAnews, we discovered that there are nine different financial personalities, according to the Moneymax Money Personality Assessment. In this edition, we take a look at the first three personality types – the Safety Players, the Optimists and the Entrepreneurs - and the type of investment strategies that suit them best.

Safety Players

Safety Players are prudent and cautious. Although they often have the intelligence and formal education to achieve financial success, they lack confidence and motivation. They are average income earners and accumulators of assets.

They also don't trust others. They will smile and pretend to agree with their advisor, but never call back, and never implement their financial plan. They believe that financial success is caused by fate or luck instead of personal effort. Safety Players are resistant to change, and are more motivated to avoid failure than to achieve success.

Investment choices

Safety Players most adamantly reject the stock market and are not interested in owning individual common stocks or mutual funds. Their top three investments are various types of bonds, with government bonds as their favorite.

Safety Players have great difficulty understanding and integrating the concept of inflation-adjusted return. Advisors should encourage Safety Players to take on small amounts of well-hedged risk. Once educated about investing, Safety Players are willing to take the risks necessary to be successful investors.

Entrepreneurs

Entrepreneurs can be salaried workers but have an entrepreneurial attitude. They are above-average risk-takers and believe that their efforts contribute significantly to their financial success. Their comfort with risk gives them confidence, but they often believe that they have total control of every aspect of a situation, and that their good fortune and self-determination will carry them through any crisis. Entrepreneurs go by a "gut feeling".

Investment choices

Entrepreneurs are the number-one investors in all common stock investments of all nine investor personality types and prefer direct ownership of individual shares to mutual funds. They are not interested in low-risk investments or investments that provide tax-exempt income. They are not particularly satisfied with the investment performance of insurance products, perhaps due to the lack of control of the investor in these products. Because of the Entrepreneurs' high need for control, advisors must work to gain their trust. Once proven trustworthy, Entrepreneurs will consider their advisor a partner in the business of their financial affairs.

Optimists

Optimists are satisfied with their current financial situation and believe that fate plays a significant role in their lives. They make financial decisions without much formal analysis and have little desire to personally manage their money. Optimists experience little stress and worry when making decisions with their money, since they do not desire money to bring them status or prestige. They get greater enjoyment from spending money than saving it.

Investment choices

Optimists prefer annuities for the security of their guaranteed income stream, but are also satisfied with other low-maintenance investments, including money market accounts, mutual funds, and government bonds. They are risk-averse and do not use options, commodities, or individual common stocks.

Advisors can help Optimists to develop financial plans that require little effort and maximise safety of principal. Complex plans that require market timing or constant adjustment should be avoided.