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Your investor personality: Keys to lifelong financial planning

Aug 1, 2018
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Investor personality – essentially, your tolerance to risk – is critical in determining your asset allocation when establishing your portfolio. But this factor requires ongoing attention because it can change over time.

Here are three examples of how investor personality affects investment management decisions:

You receive an inheritance

Imagine that two people with the same investment objective and time horizon receive a sizable inheritance of equal amounts. If their risk tolerance differs, they may change their existing portfolios in completely different ways. A conservative investor might decrease risk by allocating even more assets to fixed income, since he or she can now accept lower returns. A more aggressive investor might raise the proportion in higher-risk equities in pursuit of greater returns, viewing the inheritance as a financial safety net.

You experience one or more market cycles

If you have lived through market declines and recoveries, you may have a better understanding of your tolerance to risk. Investors who suffer a distressing level of anxiety while fund values are down may alter their portfolios in favour of more conservative investments. Other investors may increase their equity holdings, comfortable with their view that market lows are inevitably followed by rebounds.

You are approaching retirement or already retired

Transitioning from wealth accumulation to wealth preservation and income generation involves a new slate of investment products and strategies. A conservative individual may focus on wealth preservation and favour investment plans offering guaranteed income for life. A more aggressive investor may maintain a focus on equities and draw tax-advantaged income from those holdings with a systematic withdrawal plan.

Whenever you are faced with such a financial decision, speak with one of our advisors. With our knowledge of your risk tolerance and our unique wealth management solutions, we can help ensure that your financial plan reflects your goals.

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