Cents and Sensibility
Cents and Sensibility
Just as your personality affects all aspects of your life, it should have an impact on how you invest. Pick stocks that fit
your personalityTo determine your investment personality, ask yourself these questions:
>> Do you have trouble sleeping at night knowing that your investments may have lost money that day?
>> If you unexpectedly came into a cash windfall, would your first thought be to save it, spend it or invest it?
>> Do you check on how your stock is doing every day, or can you go weeks at a time without looking at the price?
There are no right answers to this quiz. But here are some general guidelines: If you can sleep at night, skip the daily stock quotes and invest the cash windfall, then, as an investor, you may be willing to risk short-term price fluctuations in exchange for potentially large gains over time. Conversely, if you can't sleep because you're worried, can't pass over the stock reports, and feel compelled to put your cash windfall in a savings account, then you're probably a moderate-to-conservative investor -- someone who's happier knowing his or her principal is protected, even if it doesn't grow much.
Regardless of personality, however, there are concerns that may lead you to step outside your comfort zone. For example, even if you're basically a conservative investor, it's important to realize so-called "safe" investments, such as certificates of deposit, may be more risky than you thought. That's because these fixed-rate vehicles may barely keep up with inflation -- meaning you could lose purchasing power over time. To achieve long-term goals, such as a comfortable retirement, you'll need growth, which means some ownership of stocks or stock mutual funds.
On the other hand, even if you are an aggressive investor by nature, you may need to rein in your instincts on occasion. Instead of putting all your money in young, fast-growing companies with potentially shaky earnings, consider diversifying across the broad spectrum of stocks.
Nature is not destiny. Your risk tolerance is a major factor in how you invest -- but it shouldn't be the only factor.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com