What is Your Investment Personality? Are you a Preserver?

My Fall 2017 Investor’s Guide to Thriving tour features “What’s Your Investor Personality?” – a fascinating talk about the behavioural science of successful (and not so successful) investing. I will lead the audience through an exercise to identify what type of investor they are of the four key personality profiles of investors. I’ll examine the strengths and weaknesses of each profile, and show you how to use ETFs to build a more successful investment strategy for your personality type.

Last week, we considered the accumulator (or growth investor). The growth investor focuses on maximizing return and cares less about the risk on e needs to get the returns. Often until it’s too late and losses are stressful. This week we are looking at the opposite investors type, ‘the preserver.’ Preservers place far more emphasis on financial security and preserving wealth rather than taking risks to grow it.

Preservers tend to obsess over short-term investment returns and are slow to make investment changes because they are uncomfortable with change (status quo bias). They would tend to conduct themselves the same way in their professional lives. Preservers tend to focus on family, safety, education, and home buying. Due to the focus on family, preservers tend to be more emotional than cognitive. As age and wealth increase, more people move into this category.

Preservers would typically have trouble sticking with a portfolio that had a probability of losing 15 per cent or more in a year. That risk today is about as high as it has been in years. Historically, a conservative portfolio for these investors would have consisted of about 10-20 per cent in GICs, 40-50 per cent bonds, and about 30 per cent equity. That would have kept the worst year return in the past 40 years to less than 15 per cent.

 Canadian Bonds  6.7% 3.9%
Canadian Equity 7.8% 13.9%
 U.S. Bonds 6.4%  3.7%
 U.S. Equity 10.1%  14.2%
 Money Market (GIC)  3%  0%

Unfortunately, expected returns going forward are not likely going to provide the same type of returns and risk going forward. In bonds, the lower the yield, the higher the price risk for longer maturity holdings. And for equities, the average return likely over the next decade is going to be about half (or less) of what we have seen in the past few decades.

Canadian Bonds  2.5% 4.9%
 Canadian Equity  2.8%  15.1%
U.S. Bonds  2.4%  4.7%
 U.S. Equity  3.1%  15.2%
 Money Market (GIC)  1.5%  0%

Preservers are an increasing group of investors given the aging demographic. Investors need to learn how to evaluate return and risk and take a more strategic approach to their portfolios to improve the longer-term outcome given passive returns on average are expected to be lower and with slightly more risk than the past 30 years.

This type of investor can often take an ostrich approach to the market and react emotionally well after the fact. If this is you, come out to see my Fall 2017 Investor’s Guide to Thriving educational talks. You will learn how to identify what type of investor you are and some techniques to improve how to manage your asset allocation so you can preserve and grow your portfolio. The events are free and we ask for a voluntary charitable donation to either Sick Kids Hospital or Baycrest Brain Health research for Alzheimer’s..

Watch Larry discuss this topic in a video segment on BNN.ca

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