Investment 2011

Does Your Investment Style Match Your END Goals?

Investment styles usually refer to value versus growth or active versus passive or small cap versus large cap… but choosing one style doesn’t necessitate you abandon the other and they may not help you reach your investment goals anyway. In fact, integration of all of these investment styles can really create a truly diversified portfolio.

Some advocates of one style over another argue for the returns their style produces… but the studies of such returns are only as good as the investors themselves. In fact, even investors in the top quartile can lose money if the markets are down significantly, such as the 14% Year-to-Date drop in the TSX.

Rather than arguing for one style over another, I’m going to help you discover what style is more natural to you… and then share a few ways each of the styles can help you achieve your end goals!

Know your Investment Styles

Each of us has a natural investment style… which is usually dependent upon our knowledge of investing as well as our broader personality as it relates to taking risks. If your not a risk taker in day-to-day matters, you’re likely going to gravitate to an investment style that is more conservative in nature. On the contrary, if you’re a risk taker in life and entrepreneur by spirit, you’re more likely to take calculated risks when it comes to investing your money.

Investment styles are more personal than they are financial… so rather than focus on the traditional value versus growth or active versus passive or small cap versus large cap styles, we’ll focus on the broader financial personality you exhibit and how that likely impacts your investment style.

First, we have the Saver. If you normally hate parting with money, you’re likely exhibit a saver’s financial personality. The Saver is meticulous in finding deals, researching before acting and rarely invests impulsively. You’re more likely to focus on the fundamentals of a company and be less swayed by the “hot stock tip” of the day. Rarely impulsive, the Saver is all about capital preservation more than maximizing returns.
Second, we have the Spender. If you love to make purchases, you’ll also love the latest stock tip. After all, you don’t want a “deal” to pass you by… in fact, you may never look at the fundamentals of the stock nor the technicals for that matter. All that research just slows you down from buying on impulse when it feels right! Cash doesn’t sit in your account… it gets “invested” as soon as possible.

Third is the Spark Plug. Are you willing to risk losing money for the potential of greater investment returns? In the typical “know-your-client” questionnaires, the Spark Plug is the one who will risk the most to make the most. Spark Plugs are confident in their investment decisions, so much so that when a stock drops in price, they’ll be the first to advocate for a doubling-down (which they usually call “dollar cost averaging” because it sounds more refined). The lower the stock price, the more excited they get knowing the potential of that little stock to double or triple in price. Emotion often drives their decision making… and consulting others is a formality… and even a nuance at times.
Fourth is the Security Seeker. Playing it safe is the motivation behind your investment decisions. Saving in a “guaranteed” financial instrument is where 90% of their money goes… and insurance products are investment tools. Conservative doesn’t begin to describe the Security Seeker… and if they do invest in a stock, it better be a big name that was around the past 20 years with a sizeable and reliable dividend payment.

Most investors discover they relate immediately to one of these styles, but also find affinity with one of the other styles at times. Typically speaking, these are the types of investments most commonly found in the portfolios of these investment styles:

Saver – Large cap stocks, Index ETFs, Dividend stocks (i.e. Johnson and Johnson, Proctor and Gamble, Intel, General Electric).
Spender – You name it… any investment is a good investment. Diversity is found in not being picky or being locked into a particular investment track.
Spark Plug – Leveraged ETFs, Initial Public Offerings (IPOs), “hot” Technology Stocks, and penny stocks (i.e. TZA or TNA, Groupon, little companies that make parts for Apple like Interdigital Communications – IDCC).
Security Seeker – Guaranteed Investment Certificates, Government Treasury Bills, Money Market Funds and big name stocks with history and future (i.e. McDonalds, Ford, IBM).

Matching your Investment Style to Meet your END Goals

Knowing your investment style and how your personality impacts your investment style can help you recognize why you may not be accomplishing your investment goals. And while you’ll never divorce yourself, nor should you, from your investment style, you might want to consider opening up to incorporating just a little bit of another investment style. If you do so, you’ll be more likely to reach your end goals!

So, before you start to invest, consider the END. Here’s how:

Evaluate why you invest – Before you start to invest, you need to begin by evaluating what you know and don’t know… and why you’re considering investing to help you reach your goals. Knowing why tucking money under the mattress won’t help you reach your goals will help you evaluate what investment styles you may need to adopt at times in order to reach your investment goals.
What is your investment Needs – If you were to spend all of the profits you make your first year investing, what would you spend that money on? The answer to that question will help you identify your most pressing need. Knowing what it is you are wanting to do with you investment capital will prompt you to expand your investment style.
Remember your Dreams – What do you want your future to look like? Do you want to start a business, retire comfortably, leave a legacy for your children, buy a home, or? Remembering your dreams focuses your investment styles to ensure they are working for you, not simply holding you hostage to meager results.

Knowing your investment styles and keeping your END in mind is a 10 minute review once a month, a worth-while investment of time to ensure you are on track to reach your investment goals. Rather than buying into the often less than helpful paradigm of investment styles such as value versus growth or active versus passive or small cap versus large cap, consider integrating your natural investment styles with one that is a little more foreign and experience the benefits of directing your investments rather than being controlled by some overarching investment style that isn’t helping you accomplish your investment goals!