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An old friend of mine from college called me recently to tell me that he is getting married. I was pleased to hear it. His fianc�e is intelligent, has a nice sense of humor, enjoys the outdoors as much as he does and shares his passion for archery. She is perfect for him, and yet he seemed apprehensive about the union. After probing, I immediately understood the problem. You see, they have conflicting investment personalities: She is a tip lover, one who jumps to invest in the latest gizmo, and he always has been an automatic saver, one who faithfully and diligently puts away a little each month. It would be a challenge for a person who invests so religiously to merge with someone whose investment style is more sporadic. As we have witnessed the longest bull market in history, profoundly different types of investor behavior have emerged — and seem to permeate many other aspects of our lives. So much so that a financial planner and a psychologist could spend their careers managing investors’ behavior. While helping lawyers with their personal finances at various career stages and witnessing an array of investment behaviors, I have been able to identify several types of investors. These characters are not exclusive, and you may identify with more than one. The important lesson is not only to recognize your investor profile, but also to learn from introspection. Will your investor traits take you where you want to go? And, more important, will you be happy getting there? COLLECTOR The first principle that most people learn when they start investing is diversification. If you spread your investments across different asset classes, you may reduce your chances of being devastated by a downfall in a single stock or sector. The collector is an investor who is over-diversified. Collectors have two problems. First, tracking net worth and investment return takes hours. Then, as the portfolio grows, each individual investment accounts for a smaller percentage of the entire asset value. I have a client who owns 500 shares of a great Internet company. This company is poised to become a leader in its field; in the past year, it has doubled its value. She loves this stock. The problem is that it accounts for less than 1 percent of her entire portfolio. The value of her total portfolio fluctuates more in one hour than the value of her entire stake in this individual stock. The stock just doesn’t make a difference either for security or risk. If you are spread too thin, as are many investors who hit new plateaus of wealth, you are at risk of becoming a collector. A sure warning sign that you are a collector is if you tend to keep picking new investments instead of adding to your solid current holdings. It can be so simple to open a new account with a mutual fund company or brokerage firm, either online, in person or by mail. If you’re not careful, you may find yourself with 10, 20 or 30 accounts. AUTOMATIC SAVER Every financial planner loves the disciplined investor. The automatic saver sets up a system for investing a predetermined amount of money each month, either independently or through his company’s retirement plan. Many attribute the fortunes of the vast majority of those who have achieved real wealth to this type of investing. The best-seller by Thomas J. Stanley and William D. Danko, “The Millionaire Next Door,” is an engaging study of millionaires who made their riches without stock options or venture funds, but rather the slow and steady way. This method takes some of the psychology out of investing. Human nature is the worst enemy of average investors, who tend to buy high and sell low — the exact opposite of desired flow of money into the market. If you ever have dumped a stock after it dropped or bought a stock when it was at its all-time high, you should consider a systematic plan. And if you are tempted to spend a large distribution, bonus or settlement, you should consider investing systematically. If you are an automatic saver, keep up the good work. Stay organized and avoid picking new choices just for the sake of putting funds in a new place. Just remember that auto-saving into several accounts can lead to becoming a collector. One mutual fund can own anywhere from 20 to hundreds of holdings, so owning 20 different mutual funds is going a little overboard — and can get complicated. TIP LOVER The news of a new drug to cure cancer is a dream to this investor. It is even sweeter if she can invest before everyone else does. This is seldom possible. I once got a tip on the golf course from a guy whose friend of a friend works for a company that was beginning to manufacture a new heart gadget that fixes something or other. My golfing partner knew enough of the details to tell me that it was a “heart thing” and that it was going to be “big!” It was going to be so big, he proceeded to talk up the stock to the entire clubhouse. Sometimes the tip lover gets special insights. But let me warn you: Most tips seem to come from people who already have put a chunk of change into a particular investment and are touting the stock to justify the decision. And don’t forget the real danger of investing on insider tips: huge fines and possibly jail time. NEW MATTRESS-STUFFER Many of our relatives who lived through the Great Depression lost all faith and trust in banks and chose to stash their cash in the house. These were the original mattress-stuffers. That generation passed on to their children their sophisticated strategy for not earning interest on their investments. The new mattress-stuffers laugh at the paranoia of their aged relatives. They believe that banks are the only secure place to store their money. Not only do they get a safety vault, a security guard and maybe an FDIC guarantee, but they also reap the rewards of interest on the balance. I recently enrolled in a premier checking account at my bank and was told (with a straight face) that my interest would be 0.85 percent. Per year. Taxable. With that kind of income generated from this “interest-bearing account,” I could retire like a king — in 2230. Want to keep your money relatively safe while earning some noteworthy interest? Consider a money market fund. It typically pays higher interest rates than a basic checking account. As a general rule, keep enough in your checking account to cover monthly expenses. Then move everything else to a higher interest-bearing account. Money market funds are liquid, so you can easily access yours if you need quick cash. Keep in mind that money market funds are not insured or guaranteed by the FDIC; while they seek to preserve the value at $1 per share, it is possible to lose money. DOOM-AND-GLOOMER This investor delights in constantly reminding those around him of any bad time that has happened in history. He likes to recall not only where he was when President John F. Kennedy was assassinated, but also his percentage loss during every bear market since the 1960s. If you talk to him about the safety of Treasury bills, this investor’s auto-response is, “But what if the federal government doesn’t pay?” I suppose anything is possible. Anyone who believes the U.S. government might fail should be investing in hard hats, batteries and canned goods. Doom-and-gloomers frequently associate with new mattress-stuffers. The fears of both prevent them from investing in vehicles that can generate greater returns than inflation. To make matters worse, they often are suspicious of those professionals, including financial planners, who can help them the most. If you see yourself as a new mattress-stuffer or a doom-and-gloomer, consider a balanced portfolio of relatively safe investments, such as money markets, Treasury bills and certificates of deposit. NIMBLE TRADER Whatever you do, don’t call this investor a day trader: This term conjures up images of a person on the edge of a breakdown. The nimble trader thinks she’s in control, but her friends and family probably should plan an intervention. If you’re a nimble trader, you have some advantages over the average gambler, like saving money on trips to Las Vegas. But as far as investing goes, few succeed in achieving anything other than a higher tax bill for short-term capital gains — and ulcers. Besides, you can’t bill a client while you are day trading. PROFESSIONAL-HELP SEEKER This investor is typically one who, in her professional life, is comfortable referring clients to a specialist who has expertise in the particular area of law — for example, a divorce attorney who chooses not to arrange the buy-sell agreement of her client’s dental practice. The professional-help seeker may only use an adviser periodically to help her organize her finances, offer ideas and avoid pitfalls. Someone is looking after her investments while she’s busy practicing law. Truly, this style of investing is not for everyone. You may not have a personality that willingly yields to the advice of others. If this is the case, make sure that your financial information comes from reliable sources. (See tip lover above.) As you evolve through the stages of your career, re-examine your investment style. Your investor personality will depend on your confidence in your knowledge, the ups and downs you can stomach, and how much time you plan to dedicate to your finances. Don’t despair if you discover you are not the type of investor you want to be. I have seen the nimble trader morph into the automatic saver. And unfortunately, I have seen the reverse. Take an inventory of your goals, and move forward with discipline to get where you want to be. Barry Glassman is a certified financial planner and first vice president with Cassaday & Co. in McLean, Va. He specializes in assisting attorneys with individual financial planning and firms with evaluating and implementing firmwide retirement plans. His e-mail address is [email protected]


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