Who you are influences how you invest.
People don't think exactly alike about money, which is a painful reality in many households. Although better judgment or spousal pressure can overcome questionable tendencies, the struggle with one's inner self is never easy.
"We love or hate money, we fear or worship it, but we certainly never ignore it," said Stacy Francis, a certified financial planner and president of Francis Financial Inc. in New York. "Money personalities explain people's behavior in terms of earning, spending, gifting, borrowing, saving and investing."
Beginning in childhood the money personality becomes a strong indicator of a person's risk profile and ultimate investment performance, Francis said. An individual may identify with a number of traits, but has one primary personality affecting financial aspirations and emotions, experts said.
"You have to look at these personality issues head-on and not sidestep them," said William Wright, a certified financial planner and president of Guidance Financial Consultants Inc. in Wichita, Kan.
Deciding which common investment personality you resemble provides perspective on past and future decision-making. Financial planners say many can be dangerous for your financial health.
The hot shot: This free-spender views life and investments as a roll of the dice, willing to assume risks because "it's only money."
"We show them why a system of big bets doesn't work, since they'll shoot themselves in the foot and their financial planning just won't work," said Matthew Chope, a certified financial planner with the Center for Financial Planning Inc. in Southfield, Mich. "They take too much risk, so we try to change that through education or persuade them to do business elsewhere."
Such gamblers love excitement and the odds, said James Hatton, a certified financial planner and vice president with Hatton Consulting Inc. in Phoenix, but any individual who considers it possible to consistently beat the market is asking for trouble.
The church mouse: Afraid to get burned, this investor stashes money in the lowest-interest accounts because it is always better to be safe than sorry - even though they may be sorry if their investments don't even keep up with inflation.
"They're averse to risk but also often want high interest rates, asking why they're only earning 4 percent when their friend Mary is earning 9 percent," said Angela Thomson, a certified financial planner and president of Coastal Financial Planning Inc. in Lincoln, R.I. "They need to be constantly reminded of their risk tolerance and how certain investments raise risk."
A mind-set comfortable only with certificates of deposit represents paralysis, said Wright, who considers a questionnaire on risk tolerance crucial to any financial plan.
The absent-minded professor: This type loses track of most investments, has only hazy recognition of what is held and lets the financial statements pile up.
"They come in with six envelopes they've never opened and ask, 'Should I open these?'" Thomson said. "But we find some can actually become some of the best clients with top performance because they put their faith in you and let the adviser focus on managing the client's business rather than the client's personality."
Still, always open the envelopes.
The human computer: This investor overanalyzes every investment, with adjustments made continually, based on the most minute market changes.
"Control freaks feel they need constant portfolio movement," Thomson said. "They read every newsletter and market report, and they gather all the information in the universe, even though not all of it is right. These are extremely difficult people."
Often investing like mad scientists, they can run up hefty trading expenses.
The believer: With lots of faith, these investors put money in every new thing that comes along, trust the pitches of infomercials and brokers, and fervently wish for the ultimate answer.
"They can come up with some interesting ideas, but my main response to them is that I can't do everything they want," Chope said. "If they really want to invest something on the side, we'll set up an account for them to do so."
Thomson tells investors that by the time they hear information on a "hit" investment, it is likely already reflected in the market. If her clients insist on buying, she has them sign a form acknowledging that she advised against it. Then she makes their purchase.
The blowhard: This person lives in a fantasy world in which winners are embellished and trumpeted, losers conveniently forgotten.
These folks are loud at cocktail parties, nowhere to be seen on a down market day. Delusions, unfortunately, do not translate into results and a portfolio's bottom line is all that ultimately matters.
The most valuable investor: These investors plan a balanced long-term strategy, learn the fundamentals, stay the course and stick with the game plan to the end.
"The dominant focus is taking care of their family," Hatton said. "They aren't focused on driving a particular return, but just want to be able to invest and enjoy, so if their goals are realistic, they're going to be really happy."
Although many people haven't really analyzed what kind of investor they are, Hatton said, investment personalities are easily diagnosed by many investors and planners alike. Whether investing on their own or working with a planner, the best investors carefully avoid extremes.
"Basically, they think long-term, have goals and focus on the big picture," Thomson said.
Andrew Leckey writes for Tribune Media Services.