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By Adrian Mastracci, KCM Wealth
Special to the Financial Independence Hub
“Each of us has a distinct investment personality. Hopefully, it resembles our comfortable tolerance for risk. Especially during market jitters like today.”
One of the significant guidelines that I use in designing investment portfolios is the client’s investment personality.
Let’s understand those personalities, also known as investor profiles, by summarizing the six I have adopted.
1.) Preservation
These are investors with virtually no tolerance for unpredictability in annual returns. They generally invest in guaranteed interest vehicles, which are stable investments having predictable income and no fluctuation in capital value. Typical asset mix is 20% in stock investments.
2.) Income
Investors with low tolerance for variation in annual returns. These investors usually desire stability with fairly predictable growth and relatively little fluctuation in capital value. Typical asset mix is 40% in stock investments.
3.) Balanced
Investors who accept a trade-off between growth and security of capital, without significant variation in annual returns and small fluctuations in capital value. These investors are comfortable with a balanced approach of emphasis between achieving growth and a steady return. Typical asset mix is 50% in stock investments.
4.) Growth
Investors who are patient and willing to tolerate some variability in investment returns and some fluctuations in capital value. Such investors are primarily interested in growth, with capital preservation as a secondary consideration. These are also referred to as “business risk” investors. Typical asset mix is 60% in stock investments.
5.) Aggressive
Investors who seek to achieve significant potential growth, willing to tolerate greater fluctuations in capital value. Superior long-term investment results are sought after as the investor accepts much greater annual variation in returns. Typical asset mix is 80% in stock investments.
6.) Speculative
Investors who aspire to maximum potential growth, prepared to tolerate significant fluctuations in capital value. These investors accept a significant emphasis on equities in order to gain the potential for long-term growth, and can tolerate greater annual volatility in investment returns. These individuals are referred to as speculators. Typical asset mix is 100% in stock investments.
Spouses may have different investment personalities
The characteristics of the client’s investment personality is essential information. I structure a client portfolio that reflects the stated goals and desires only after considering the client’s comfort with the chosen personality. I also find that two spouses may each have a different investment personality.
Priorities often change as we progress through our life stages. Someone first starting out may be an aggressive investor, while someone approaching, or in the midst of retirement, is more likely to be concerned with preservation of the nest egg.
Most investors can tolerate 40% to 60% in stocks and the rest in bonds. No client has 100% stocks or bonds.
Investors may not have thought of themselves as having distinct investment personalities. If the current portfolio design does not bear resemblance to your investment personality, it may be prudent to review the appropriateness of the asset mix.
Questions, feedback and comments are invited.
Adrian Mastracci, MBA, is president and portfolio manager for Vancouver-based KCM Wealth Management Inc., specializing in designing and stewarding retirement portfolios.
