Different personality types favor different investments based on the qualities and values they possess, regardless of whether or not the investment is a good one.
Broad personality classifications like introvert or extrovert can be limited in terms of providing insight into a person’s subconscious choices and influences.
James Brook, an expert in organizational psychology and the designer of the TalentPredix talent assessment tool, explained to this website why personality tests like these don’t work and what personality qualities might be holding investors back.
“Personality factors, notably their appetite for risk and the proportion of income they invest, can have a major impact on the way people invest,” he began.
“Personality assessments can help investment firms understand how their employees and investors will behave.”
“Traditional psychometric approaches, on the other hand, classify everyone into a few broad ‘types,’ which often overlook our unique set of features and motivations.”
When it comes to investing, it is generally recommended that people start by determining what financial goal they want to achieve with this investment.
With this in mind, one’s personality traits and qualities influence one’s investing from the start by influencing the investment’s incentives.
Personality tests range from simple extrovert or introvert quizzes to the Myers-Briggs Type Indicator, all of which provide differing levels of insight into one’s natural state of mind.
Varied personality types have different attributes, values, and qualities, and it is the mix of these three that distinguishes each person’s investment strategy.
“Qualities like conscientiousness, pragmatism, and forward-thinking will decide how much money people are willing to invest every week/month,” Mr Brook concluded.
“Risk-taking characteristics such as decisiveness, boldness, self-confidence, and ambiguity tolerance will also influence the risk profile of investors.
“In other words, whether they are willing to invest in high-risk assets like start-ups and emerging markets vs lower-risk assets like bonds and established markets.”
Risk appetite varies based on one’s prior investing experience and the financial goals they hope to attain with their investment.
Someone making their first investment with a five-year investment horizon will often choose a low-risk investment.
A seasoned investor looking to invest for a decade or two, on the other hand, will have a far higher risk appetite.
“People who are amiable are also more likely to follow investment trends,” according to Brinkwire Summary News.