Take This Test to Determine Your Financial Personality
Jun. 24, 2009
In the previous articles of our series on the importance of your investment personality we have talked about investment goals, risk tolerance and uncertainty. We have shown how these factors come together to form your investor personality. But you may ask yourself: How do I practically find out about my investor personality?
To make this easier, we have developed a short multiple-choice test working in tandem with a group of experienced psychologists and behavioural finance specialists. Our test helps you to have a look into the mirror. You will recognize your attitudes towards financial goals, risk and uncertainty. A word of caution is necessary: Our test cannot substitute for personal advice but it may facilitate your investment strategy process. Now, please take the test before you read on.
Download Questionnaire (You will find the questionnaire also in the appendix of our guide Making the Right Asset Allocation)
Evaluation of Results
Our test determines your personality type as an investor in all three dimensions. Which personality type is closest to you? The conservative type (A), the balanced type (B) or the long-term investor type (C)? Or are you a combination of these types? Ideally, you should be of the same type (A, B or C) with respect to all three dimensions. In this case, the judgement is clear and you have some clear guidelines to design your asset allocation accordingly. In other cases you may be a conservative type A personality with respect to your goals, for instance, but in terms of risk tolerance and ability to cope with uncertainty, tend to be more like a balanced type B. In this case your asset allocation will probably end up somewhere in between type A and B.
A difficult situation arises when your test indicates that your investor personality is all over the place. We have seen quite a few cases with C type goals (more aggressive), A or B type of risk tolerance (conservative or balanced) and very conservative A type ability to cope with uncertainty (very sensitive to uncertainty and cautious). In these cases we recommend that people should reconsider their goals, as they obviously do not match with their ability to cope with uncertainty. If they fail to reframe their goals, they will typically switch their behaviour between all types of personalities, with very poor outcomes.
If you are able to identify your financial personality correctly and allocate your assets accordingly, you can protect yourself against various grave mistakes, namely: You would not switch your financial personality during market cycles or be overconfident during market upswings or fearsome during downturns. In consequence, you will avoid constantly moving and changing your asset allocation. You would be able to keep off the hunt for quick profits, which are usually unsuccessful, by picking special stocks, bonds or rare commodities. You would also avoid getting seduced by financial witch doctors who promise wonderful but totally unrealistic gains. Finally, you can also avoid being overly conservative and fearful during times of opportunity. All these patterns of behaviour can endanger and could even wipe out your wealth.
So, taking the test and rethinking your financial goals, risk appetite and ability to cope with uncertainty is definitely worth your while.