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The actions that we take say a lot about who we are. They define us as people and as women: how we raise our children, the professions that we choose, even our favorite types of shoes. Another action that mimics our personalities is how we invest our money. Our investment strategies mimic different aspects of our personalities.
In order to best analyze investment styles and how they coincide with our disposition (as women), I’ve talked with professionals who make their living helping others invest their money.
Financial Coach Andrea Travillian specializes in helping business owners make money through investing. “Investing is very personal,” Andrea says. “And you should match your investing style to your personality. For example, real estate might be great for those who love houses, and everything that goes with them. On the other hand someone else might think the entire process is painful. If you think it is painful you should not do it, instead you should find what works for you.”
So what does Andrea invest in? A mix of stocks, bonds and other tools. “I personally prefer dividend investing and value investing – which is a good fit for my personality. I also split my assets into groups of active investing and passive investments.”
Kevin A. Kennedy (founder of Kennedy & Company, based out of Connecticut and Florida) works with men and women to help them get the most out of their investments. He has noticed that while men are more apt to take risks, the women that come to him are more cerebral and are interested in a more holistic approach to investing.
Carolyn Leonard, CEO and co-founder of DyMynd (pronounced “Diamond”) adds that women also make investment decisions based on their values and use their moral compass more than men.
“Our personalities definitely impact our behavior in investing. Women tend to invest from much more of a moral compass. The values of individuals can make an impact on our decision making.” Carolyn Leonard, DyMynd
However, if you’re new to investing, how do you know which parts of your personality to focus on and emphasize when you are investing? Should you invest based on your motherly instincts? Do you invest you money based on your instincts as a risk-taking, strong business woman? To help you further analyze this decision, it is important to also analyze different types of investment styles.
6 Investment Styles That Reflect Women’s Personalities
When it comes to investment styles, there are six distinctive types of investors: active management, passive management, growth investing, value investing, investing in small cap companies, and in large cap companies. Let’s talk about these different types and see if you can find one that may match your personality. Go through the various investment strategies and consider which is more appealing to you.
1. Active Management
Active Management Investors who are active managers rely heavily on forecasts and analytical research. They base their judgment on facts and experience which is why not all investors start off as “active” managers.
These types of investors don’t follow the efficient market hypothesis or the EMH (which states that stocks always trade at their fair value). In fact they agree this is it highly controversial and dispute it when possible. Active managers believe that they can make a lot of money from the stock market and aim to do so by identifying mispriced securities.
Active manager investors don’t mind taking chances, however they don’t believe that their actions are an example of “taking chances.” They are more aggressive than passive management types.
So are you the more aggressive and outgoing active investor? These women are more likely to be “go-getters.” They actively do the research and aren’t afraid to take that leap into action when they see a great company.
2. Passive Management
Passive Management goes by different names including “index investing” and “passive strategy.” The strategy behind passive management is to invest in index funds which have (traditionally) done better than those chosen by active managers.
While active managers don’t believe in the EMH, passive management investors do. They believe that individual stock picking is useless, pointless, and a waste of time and money. Passive investors are example of “holistic personalities”.
The holistic approach to investing includes looking at what you spend and where you spend it. These investors try to see where their money goes, so they can have better control over where they spend their money. That allows them the ability to see how much they can invest.
3. Growth Investors
When most people think about the stock market and picture the women who have made millions off of it, they’re picturing growth investors. Growth investors put money into stocks that they believe have the best growth potential.
If you are unexperienced in the stock market, you may believe that all investors put money into the stock market to make a fortune but that’s not necessarily true. Most people use the stock market to make some growth but are unwilling to make and take the risks that growth investors are willing to take.
Do you have big ambitions like growth investors? These women are more likely to have the personality type of a “Player”. These women are active in the markets and they don’t mind the higher risk. In fact, they welcome it because they know that with higher risk comes higher rewards.
“I prefer a growth investment style, not too risky. I think the way I invest is a reflection of my personality. I like to be in control of my life, and I’ll take calculated risks after I have evaluated all my options.”
4. Value Investors
Value Investors have a strong belief that the market often overreacts to good and bad news. These types of investors help create a little bit of balance in the market. They invest in companies that they believe are underestimated and underappreciated in the stock market. They seek out these companies (who normally have a deflated price) and invest in them, which will help that company grow. Specifically, value investors seek companies that have high dividend yields and a lower-than-most price.
Because most of their investments are based on the intrinsic value of the company, value investors will often appear sporadic in their choices. While one value investor may see the potential in one company, another investor may not and will take her money elsewhere. This makes this strategy completely subjective.
When it comes down to it, value investors try to buy stocks in companies for less than they think these stocks are actually worth. It is equivalent to shopping around for the best price and rummaging through sales bins.
Would you prefer to help the underappreciated and reap the profits like value investors? These women are more likely to have the personality type of an “Adventurer”. They are optimistic and they learn from their mistakes. They look at companies and assess their risks and value. Then they choose the most favorable (and money saving) adventure. If the company fails, the adventurer learns from her mistake and moves on to other companies.
5. Small Cap Companies
Investors who place their money in Small Cap Companies are looking for a company with a market capitalization that falls above $300 million but below $2 billion. Because institutional investors aren’t able to buy large portions of one company’s shares, small cap investors can beat the institutions to these specific companies. The risks are a little bigger because these companies are smaller and more vulnerable than the larger cap companies but that also means that they have room to grow.
6. Large Cap Companies
Large Cap Companies are companies like Wal-Mart and Microsoft who are the big head honchos of their specific market. Investors who want to invest in these companies know that it would take a lot to make those specific companies fall. Because of that, investing their money in these large cap (short for “large market capitalization) would be a much more safe bet than placing their money in a smaller company who may fall if the market tips one way or the other. This is another example of a passive investor. While this type of investment may not be as “safe” as others, companies like Wal-Mart and Microsoft are heartier and less vulnerable than smaller companies.
Are You New to the Scene?
If you’re new to the stock market (or investing in general), reading about these different types of investment strategies may be intimidating. However, this is the time for female investors. 4 in 10 women out-earn their husbands on their paychecks. Women are getting the knowledge and the know-how out in the workforce because we are dedicated to our jobs. Dedicate yourself to being financially independent and strong. Women are as financially literate when tested (as men) but when asked, we have a tendency of downplaying our confidence level.
“Only 29% of women said they know where to invest in today’s market (compared to 42% of men).” Source: Wells Fargo’s Financial Health Study 2014
Studies show that women are more intimidated by investing their money because they don’t feel like they understand what they’re doing.
You don’t have to be adventurous and exhibit risk-taking behaviors in order to invest in the stock market. If you are wary of your knowledge, do the research and meet with experts. In addition to that, you can join the 35% of the women (who were polled in a study done by the 14th Annual Transamerica Retirement Survey of Workers) who use a professional financial advisor.
Jacqueline Ko Mathews (founder of PJMINT.com) believes that women often make better decisions when it comes to investments.
“The greed and fear factors in men cause them to panic and exit at the wrong times and re-enter too late,” Mathews says. “Women have to juggle and multi-task a lot in life so once we understand and believe that a certain investment approach is sound, we don’t have time to constantly be fiddling with it. This ultimately results in a better outcome in the long run because if you keep “tweaking” your process, you ultimately have no process!”
“Overall women tend to be better investors than men because we are more focused on the long term and less on short term results.” Jacqueline Ko Matthews (Founder/CEO PJMINT.COM)
Anika Hedstrom (a senior financial analyst and advisor specifically for women and Gen X&Y professionals) agrees. “[We] overwhelmingly have the capacity to invest wisely and create their own success. While the financial services industry is still male dominated, we need to dispel this notion that women don’t know what they are doing and lack experience. In fact, a 2010 Vanguard study, along with other recent research, suggest otherwise.”
Carolyn Leonard, CEO and co-founder of DyMynd (pronounced “Diamond”) agrees, “67% of women feel that [their advisors] don’t get them.”
So spend the time and find a good financial advisor that understands you and what you do with your money. Get to know your financial advisor. When she sees what type of personality you have, she may suggest a strategy that coincides with it.
“Quality advisors are worth the price. If at first you’re not happy, keep looking. It’s worth double-checking. Second opinions are worth searching for. Disconnect between what the client truly needs and what their advisor provides.” Kevin A. Kennedy (founder of Kennedy & Company)
Leonard also suggests that you actively research in addition to meeting with an advisor. “Fear comes out of the unknown. Once you understand something your fear diminishes proportionally. One of the things that you have to do is to invest time in educating yourself. Spend 10 minutes a day reading about the market, and a half an hour on the weekend. Women know a lot more because women spend 2/3 of the money of this country in grocery stores and stores all over the country. We know much more than we think we know.”
According to this, I’m a holistic investor. Seeing where my money is going, to me, is the whole point of investing aside from making money. Why someone would want to blindly throw their money into the market is beyond me.
I agree with the point about women being better long term investors. I never think in terms of how well my money is going to be doing in, say, six months; I am much more focused on where my money is going to be in ten years.
My style is in the category of Passive Management, although it’s not all that passive! I am always monitoring my assets, reviewing my budget, and rebalancing my portfolio. I want to know where everything is and how it’s doing.
I’m rather curious about value investors. They purposely choose not-so-popular ones and try to push it to outgrow itself. Sounds way more dangerous compared to the others. I’d love to help other businesses to thrive, but it sounds too risky for both parties.
To me, that has a lot to do with age. A younger person who is just starting out and has lots of time ahead of them to invest could take the risk on something like that. I’m in my early 40s and I feel like my investments at this point need to be a little safer.
I have never given much thought about investing, but if I did I think I would be an active investor. I have the tendency to go in hard and head first when I believe in something and really want to work hard to make it happen. I cannot see myself ever being passive about anything that involved taking chances with my own money.
It’s possible that younger investors may not set their sight at such risky groups because they have just started and are not yet experienced. This sounds like perfect chance for seniors because they probably have more steady finance situations, sponsors, and skills to read the situations.
I guess I’m the small cap company type. The amount of risk isn’t that large, yet the type is. I do my homework before doing something like this though, and that does help reduce risk
I have a mixed portfolio of small, mid-cap, and large cap. So far I have done very well with what little knowledge I possess so I must be doing something right. This article was great because I never really understood the difference between small and large, and now I do!
I would be afraid to invest without doing research and hiring a financial advisor. I just do not have enough experience or confidence that I would be able to invest wisely on my own.
I’ve always wanted to try my hand at investing, but like the article states, I find it very intimidating because I’m not sure what I am doing. I’ve always thought that the stock market is too complicated to understand, but with the right teacher, I think anyone can invest their money.
These are great tips. I agree that investing in something you do not truly believe you can be successful at can lead to failure quickly. As much as I love looking at new homes, I would be a nervous wreck to ever try to invest in real estate, even though I am sure it can be a very lucrative way to earn money for the right people.
The article says that large cap investments may not be as “safe” as others, but mentions large corporations which are probably more steady compared to smaller ones. I don’t really understand this part. I do think it will be safer to invest with currently blooming companies or those who have good long-term prospect because their products are high in demand.
I’ve often wondered why the system has to be so complicated. I have spent countless hours educating myself and there are still some things I don’t understand. If it could be simplified in some way, it would make it a lot easier for everyone to manage their own money.
I have definitely never understood the difference between all the different portfolios and such. I’m not even sure if I am calling it the right thing. I try to make choices based on performance, but that is not always easy because the authors of some of these prospectus don’t make them lay-person friendly.
Unless we want to be a professional in this game, maybe it’s not really necessary to understand so much. We do need to consult to the right people to make sure we invest correctly, though. I suppose they can also act as mediators if needed because I can understand if some owners are not that friendly to investors.