Crawl or run investors have to find their pace
Published in the Adelaide Advertiser, August 2014 by Karina Barrymore
Would you make a quick, risky dash to the finish line or take a slow, safer path?
When it comes to investing, risk is the key difference between the hare and the tortoise, so what type of investor are you?
Risk means the likelihood of losing your money, either through a poor decision, cyclical downturn or bad luck.
Unfortunately, however, there is no guarantee all the risks will be known. Even so-called secure, blue-chip investments lose money, while there are many multimillionaires who made a fortune from new technology and unknown ventures.
Experienced investors, analysts and economists argue the side of both strategies - the fastest route may prove costly but when time is short, a slow pace may not get you there.
"Investing is all about fear and greed, so there is nothing like having money on the line to bring out the best and the worst in people,'' Wealth Within analyst Dale Gillham says.
"Because it involves money, investing brings with it a vast range of emotions that can see a normal, rational person act irrationally,'' Gillham says.
"When it comes to investing, we know that there are a few different psychological types.
To be successful, a person should invest in line with their personality type."
Gillham, a fund manager, author, educator and analyst, says after more than two decades teaching investors, the key to success is knowing your psychological profile and developing a strategy to manage those emotions.
"Pretty much everything revolves around risk and, in turn, someone's psychology.
This will determine if they move toward taking a risk or if they try to avoid it ,'' Gillham says.
A risk avoider (or tortoise) runs away from risk, while a gambler (the hare) runs toward risk with its promise of a bigger, faster profit.
But there are variations in between, including "drifters" and "achievers", he says, depending how fast you run toward risk or how slowly you run away from it.
BT Advice partner David Simon says investors fit two broad categories: "investors" or "traders".
Investors are long-term thinkers and are typically prepared to ride out the shortterm volatility, he says.
"The ambition of an investor is more about accumulating wealth over a long time frame, essentially purchasing quality assets. They are also looking for income along their investment time frame in addition to capital growth,'' Simon says.
Traders are focused on short-term wins and generating lump sum gains.They look for discounted assets that can then create a potential profit.
"They have an intimate level of knowledge in the industry, market or asset they are trading and this knowledge provides an opportunity to [create] arbitrage against the broader market and hence make a profit, be the market falling or rising,'' Simon says.
"The trading mentality is much more speculative and opportunistic than the investor and typically carries more risk."
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