In ancient Greece, at the Temple of Apollo in Delphi, there were three maxims (proverbs) inscribed on a column in the forecourt. The first on the list was ‘know thyself.’ No, we are not going down a long, philosophical road. As you might expect from us here at Lighthouse Wealth Management, we are focusing the proverb on knowing yourself as an investor.
Narrowing in on who you are as an investor will guide you to making less mistakes. Less mistakes allows for a key piece of investor success – time invested. I’m walking you through five key questions that will help you clarify who you are as an investor.
1. Investor or trader? – These are very different approaches. Traders are often identified as those buying and selling to seek profits regardless of the fundamentals or story behind the investment. Investors are often identified as those that seek to profit from the long-term fundamentals or story behind an investment.
2. Complex or simple? – The world of investing can be relatively simple or complex. On the simple side there are pooled investments like mutual funds and exchange-traded funds (ETFs). These vehicles leave the specific decision making to managers. On the complex side, one can dabble in options and futures contracts which take a high degree of skill.
3. Active or passive? – A passive investor typically believes there is little value in owning specific companies or industries. Rather, they seek to own the broad investing market through investment vehicles like index funds. Active investors often take the stance that strategically shifting a portfolio around things like market cycles will offer better results over the long-term.
4. Individual securities or pooled products? – Some people want to know what they own in specific and often find themselves owning individual stocks. As well, some folks want exposure to or look to avoid exposure to particular companies or industries. This often sets them on a path to owning specific companies. On the flipside there are those that either don’t’ have the time or inclination to research individual companies and would rather use mutual funds or ETFs.
5. DIY or hire? – No matter what the answer to the previous four questions are, there are some that would rather hire someone else to take on the work involved with investing. There are a number of reasons people decide to hire an advisor. Our experience is that there is a correlation between the portfolio size and the proximity to needing the money that leads folks to seek to hire. For example, a young adult managing $25k often does not see the need to pay an advisor where a soon-to-be retired person with $1.5 million might.
Keep in mind these are not either-or questions. Plenty of investors, both professional or not, mix approaches in some of these regards. The bottom line is that most people’s investing profile will change as their life circumstances change. Regardless, as you move through life, keeping these questions in mind will help you or your advisor stay true to who you are as an investor.