Investing Styles​

Revised by Ricardo Ribeiro

It Is Essential to Know Which of the Investing Styles Is the Best for You

This is the first step you have to take.

Because You Need to Create a Plan That Suits You

The thing is, you cannot follow a plan that does not fit your personality and current situation. 

Which Investing Style is Best for You?

For example, you cannot be a short-term investor if you are always busy. Well, you could… but you would have to find a way to stop being busy all the time.

Whatever you do, it must make sense to you.

You Need Some Math Skills

Investing is not rocket science. For the most part, you need some simple math. It also helps to understand compound interest. That is about it. No kidding. 

Of course, you’d need more skills to analyze an investment opportunity (and I actually mean making the analysis itself).

But that is not your job. You can use your broker’s research or buy the analysis from a specialized company.

Your job is to make the decisions, not the analysis.

And You Need Some Logic Skills

Let’s say you want to buy some stock.

If the stock is falling, waiting to buy the stock later is not a bad idea because nobody really knows how low the price would go. 

When it stops falling, and if you still want to buy it, then you can go for it. 

Another example is not to put all your eggs in one basket.

You need to think like “If I put all my money into one single investment and that investment goes south, then I would be in trouble, so I better diversify.”

Again, nothing very complicated, but you need to act logically and it must make sense. 

Depending on How Much Available Time You Have

This point is pretty straightforward. As we already talked about, a short-term investor probably stays glued to a computer screen most of the time.

On the other extreme, a long-term investor might not check the markets every day or maybe not even every week.

If you have a lot of time, then you could day trade. It does not mean that you have to. It only means that it is possible from a time perspective.

For example, let’s categorize this way:

  • Short-term investor
  • Intermediate investor
  • Long-term investor

What you want to do and how much available time you have must fit together.

And Depending on Your Personality

Here is where your wishes and preferences come into play.

If you love action, long-term investing might be boring to you. If you are impulsive, short-term investing probably will not be profitable to you. 

You get the point…

The investing style you want to adopt must be a good fit for your personality.

It Will Become Clear Which of the Investing Styles Is the Best for You

You have to put together your math skills, your logic skills, how much time you have available and your personality characteristics.

The outcome will be clear. You will know right away which is the best investing style for you.

At the very top level, these are the investing styles:

  • Adviser-assisted investor
  • Self-directed (DIY) investor

The Adviser-assisted investors do not manage their money directly. They delegate that to an adviser, which can be a human adviser or a robo-adviser. But they still have to know quite a bit about investments, otherwise they will not be able to evaluate the adviser's performance.

The Self-directed investors do everything themselves. They have to know more about investments and it is more work but they have full control of their money.

You might not find a good fit for you. Then what?

Well, maybe you are a Saver type: you hate taking risks and prefer putting your excess savings into some very low risk savings instrument (hopefully not under the mattress).

You just need to remember that, when accounting for inflation, the value of your money may decrease over time.

You can go for the Saver type (nothing wrong with that) or you can decide to change your situation in a way that it fits your desired investing style. 

Of course, that is entirely up to you.

You Will Probably Have to Learn Some Stuff

Yes, I am stating the obvious here. It is like “you have to study if you want to become a doctor.” Everybody knows that, right?

Sure... but many people try to skip the learning part and want to go directly to the being an investor part. It does not work that way.

To become a competent investor, you probably need to learn some additional things.

Maybe you already have all math and logic skills you need but there are investing techniques and strategies you may have to learn.

But You Will Only Be Learning the Stuff You Really Need

Investing is a huge subject. It would take a long time to learn everything about it.

That is exactly why it is a good idea to know which investing style is the best for you.

If you know it, you will focus your learning efforts.

You do not need to learn quantum physics if you want to become a doctor. The same here regarding your investing education.

You will skip all stuff you do not need and that will reduce a lot the duration of your learning phase.

In the End, You Will Have a Good Actionable Plan

You might say, “Why go through all the trouble. Just give me a great investment plan.”

It does not work that way.

I could give you my plan but that won’t work either.

Nobody can give you a perfect investment plan because it doesn't exist. What exists is a plan that is perfect for you.

The thing is, only you can build your perfect plan. I can sure help and guide you along the way but you have to do your part.

Now You Need to Find out the Best Investing Style for You

I have put together 4 simple questions (and the interpretation of possible answers) you can use to find out which investing style is the best for you.

Investing​​​​ Knowledge

This one is clear. You cannot be an investor if you don’t know much about investing.

Therefore, the first criteria is: are you willing to learn whatever you have to learn to become a competent investor? 

If you are not, then you have no other option but to settle as a Saver. That is it.

Available Time

You need at least a couple of hours per month to manage and/or monitor your investments. No matter if you are an adviser-assisted investor or a self-directed investor.

If you don’t have a couple of hours, then you have no other option but to settle as a Saver. That is it… again.

If you have some time available, you might go deeper and see if you prefer a short-term or a long-term approach. But that is out-of-scope of this article.

Personal Preferences

Here it gets more complicated. There are lots of things that can influence the end-result. But there are two major factors:

1.  Do you enjoy (or think you will enjoy) managing your own money?

2.  Do you want to manage your own money?

If you answer "No" to either question, then you better settle as an Adviser-assisted investor.

If you enjoy and want to manage your money, you have the option to settle as a Self-directed (DIY) investor.

What's Next?

Now that you know your style, focus your learning efforts...

Start by joining our Free Financial Education Program.


 

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