Although no two investors are exactly alike, there are patterns of investing and, broadly speaking, there are a variety of investor categories, including:
• Passive investor/low-maintenance investor
• Active investor
• Hands-off investor/automatic investor
Knowing which one you are could help you put your investments to work in a way that suits your personality and preferences. To help you figure it out, we’ve created overviews of investor profiles and a quick investor quiz that might offer you insights.
Passive Investor/Low-Maintenance Investor
This may well be the most common type of investor, with traits that might include:
Lacks time to monitor investments
• Enjoys reading financial news
• Likes to own a little bit of a lot of things
• Seeks to match, not beat, the market
• Looks up to Warren Buffett
This type of investor might be unemotional about the process while being active in portfolio management. They have an understanding of multiple types of investments as well as their overall risks. Low-maintenance investors might maintain portfolios consisting of these more-traditional types of investments:
• Passive mutual funds
• Passive ETFs
• A few high-quality blue-chip stocks
In general, this type of investor is proactive when selecting investments, but less so when it’s time for balancing and maintenance. Their philosophy? A long-term buy and hold philosophy.
Active Investor
In contrast, although this type of investor may also enjoy reading financial news, they also spend several hours each month watching over investments, and they are often first movers.
This person might want to be involved in every aspect of the investing experience—sometimes, this means they may be an active day trader who has an investment account at one or more online brokerages, or otherwise actively follows the stock markets, even if they don’t execute dozens of trades each month.
Overall, this kind of investor usually takes a more hands-on approach with their investments than the average person. The active investor might be emotionally invested in the process but perhaps restrained enough to not be checking too regularly.
Other traits of the active investor might include:
• Likes to own only select companies
• Doesn’t always invest in a diversified portfolio
• Wants full control over his or her investments
• Needs to know what investment terms mean
• Seeks to beat the market
The active investor might have a desire to learn how companies operate and an interest in learning about macroeconomic events—and, perhaps most challenging, they have the fortitude to not simply sell when the market is trending down.
Hands-Off Investor/Automatic Investor
In this third investor profile, hands-off investors just don’t have the time to watch their investments and/or they don’t trust their own ability to outperform professionals. Overall, the automatic investor wants to set it and forget it, at most doing an annual portfolio rebalancing, but generally outsourcing the work to a team of professionals.
Other traits of this type of investor might include:
• Doesn’t enjoy or doesn’t have the time to read financial news
• Likes to own a little bit of a lot of things
• Wants to partner with a professional
• Doesn’t want to know what investment terms mean
Some hands-off investors can be emotional about their decision-making, while others aren’t. Some types of investments they have might include:
Target date funds
• Mutual funds
• ETFs
• CDs
• Savings accounts
• Managed investment accounts by a professional or robo-advisory service
They may hold a few dividend-paying stocks, but might not have too much exposure to individual stocks outside of that. Hands-off investors might prefer to invest in a solution or an investment plan, rather than invest in many different places and balance their own portfolios.
More About Your Personality
The response you got after taking the SoFi investor quiz may provide you with all the insights you need to know. You may feel like, “Yep. That’s me.” This may, all by itself, give you the confidence and reinforcement you need to keep moving forward financially. And, if so, that’s great.
Alternatively, you might want to take a moment to think about how you respond to financial transactions—emotionally—which might help you invest in a way that’s within your comfort zone.
For example, if you’re already investing and you know that you sometimes (or often!) feel nervous about making a mistake, then you’ll know what emotional responses to watch for when you’re tempted to buy or sell as a feeling-based reaction. Or, you may notice how you tend to develop an emotional attachment to a certain stock or fund and hold onto it longer than you should, hoping against hope that it will begin to perform better.
In either of those cases, you might decide that it’s better to go with a passive investing plan. Or you might decide that simply having this insight into your money personality will allow you to actively invest.
No matter what investing decisions you ultimately make, there can be real value in having insights into your money personality, because that might make you feel even more comfortable with the investment process.
Interestingly enough, emotions connected to finances are often established as far back as your childhood. For example, if your parents were anxious over how to invest, then you may mimic that habit—it doesn’t mean that you will, but you very well could—so it could help to be aware of those emotion-based patterns.
Or you may have had a parent or grandparent who got so caught up in the thrill of investing that they made less-than-wise decisions while in full flush of excitement.
This could establish a similar pattern for you—or you might respond in the opposite way, being extra cautious. You may have had role models who were measured, thoughtful, and confident in their investment strategies, and this may give you a firm foundation for active investing.
Each situation is unique because everyone has a unique personality.
Understanding Your Risk Tolerance
It can help to also think more deeply about your own ability to deal with risk. To help, the Chartered Financial Analyst Institute (CFA) has broken down risk tolerance personalities in this way: cautious, methodical, spontaneous, and individualist.
For example, if you’re cautious, you may be extra sensitive when you have losses in your portfolio, and you may feel more comfortable with the safer types of investments. Fear can play a role in your decision-making.
If you’re methodical, you might make your investment decisions based on cold, hard facts. Details matter to you and you refer to research when making decisions. This personality type, according to the CFA Institute, can also have a lower risk tolerance.
Personality types with a higher tolerance for risk include the spontaneous investor and the individualist. If you’re spontaneous, you may switch from one investment to another, perhaps on advice you’ve received or read about, or because of a popular fad.
Individualists, meanwhile, typically do plenty of research and make their decisions independently. They’re often more willing to take risks because they’re more confident in what they’ve researched.
Getting Started
No matter what money personality you have or what your risk tolerance is, patience is typically a key ingredient in a successful investment strategy because this isn’t usually a short-term endeavor. Being patient is easier, of course, when the market is calm than when it’s volatile—but the reality is that the market will have plenty of short-term ups and downs.
Another important ingredient is consistency. If you regularly invest, even if it’s a small monthly amount at first, then the bigger the potential there will be for a nice nest egg. And, step one for everyone, regardless of personality and risk tolerance, is to simply get started.
Investing With SoFi
If you’re ready to get started investing, no matter what type of investor you are, you could start with an automated SoFi Invest® account to put your money to work. You pay zero SoFi management fees (seriously!) and members get unlimited access to financial advisors—on the house.
SoFi Invest can be a great option for every type of investor, whether you are checking your investments daily or have a set-and-forget mentality.
Benefits of choosing SoFi Invest include:
• Goal planning: SoFi works with you to map out a plan to help you achieve your goals and stick with a plan.
• Diversification: SoFi invests in different assets with the aim to reduce some of your portfolio’s risk.
• Portfolio selection: To give you the best of both worlds, SoFi actively manages passive assets.
• Auto rebalancing: SoFi does this automatically, as needed, with your investments.
Choose how you want to invest.
Ready to
do-it-yourself?
Want to take a
hands-off role?
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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