If you are going to be an investor, you need to know who you are as a person and what your personal style of investing is. For starters, you need to be sure that investing is right for you. Having a 401(k) or IRA is pretty simple to manage, but once you start dealing with a real market portfolio, it is wise to take additional factors in to account. For example, even if you know what you are doing, it is important to know your investment style and the type of investing you seek to engage in.
Below are three key investment scenarios to ponder:
1. Since the market crashed in 2008, everyone is on edge about poor performing funds. After viewing the most recent quarterly statement in your retirement portfolio, you are shocked at the losses. With retirement 30 years away, can you afford this loss?
A. Yes, probably; stocks are volatile and having a portfolio means having ups and downs.
B. No, I have to sell and sell now! Maybe I should even sell the “just ok” stocks and go with low risk bonds.
C. Probably, I’ll know after I check with my finance guy, the benchmark indexes, my family and budget.
2. You’ve heard it through the grapevine that a certain company dominating the electronics industry has just had a big lay-off. You own stock in this company. Do you:
A. Ignore this gossip.
B. Head straight to the nearest computer to sell your shares.
C. Spend the next couple of days doing intense research and calculations.
3. You have the opportunity to make your portfolio more aggressive giving you a better financial gain over the long run. You decide to:
A. Just ask your financial advisor what to do.
B. Go for it. It sounds like a good idea. Who doesn’t want more money!
C. Talk to your financial advisor, examine the investment options and objective and maybe even reduce the amount you are contributing.
What the answers mean
If you answered mostly As, this means you are really lax when it comes to change and making decisions. A large part of investing involves decision making. If this is your personal style, you do not have to take yourself out of the investment game, but you do need to have a good financial team and a knowledgeable and trustworthy financial advisor around you to encourage you to make the best financial decisions for you. Pick people who will do the hard work for you, and you can still turn a profit.
Mostly B answers means you are very aggressive and ready to go! Don’t move too fast though or you will stray from your financial objective, if you have one. Selling as soon as you hear bad news, confirmed or not, can still cost you big time. Don’t be afraid to take time to evaluate your options. The more you know, the more you can trust your knowledge and intuition (gut feeling) when split second decisions need to be made and that is your strong point.
Mostly Cs means that you are a researcher. While this can be the best way to invest, you do not want to move too slowly to catch a great return. Gut feelings are said not to mix with investing, but no one says anything about your subconscience. With all that knowledge in your brain, how could you make an uneducated decision, let alone the wrong decision. This is more the case if you are on track with current market conditions and with a good financial firm.
Now this is just one way to determine what kind of an investor you are or could be. These examples are not exact points that tell you what you need to do. They are simple ways of allowing you to look at yourself subjectively in order to learn how to best spend your time and money pertaining to the investment world. You can always use a free investing simulator to find your success if you need to know more. Just make it a point to avoid jumping into the stock market without knowing if you are someone who is really ready for it.