Understanding Why You Invest as You Do – A Look at Your Financial Personality

Use your brain, don’t act emotionally – that’s generally the advice given to individuals when they invest.  Unfortunately, it’s impossible to take your financial personality and your emotions out of investment decisions.  In Chapter 1 of Personal Finance, Turning Money into Wealth, we introduce Principle 9: Mind Games, Your Financial Personality,20-dollar-bill_640x480_480x360 and Your Money.  That principle points out how your financial personality, and the behavioral biases that come with it, can lead to big financial mistakes. In effect, your mind can get in the way of good financial decision-making.

If you understand your financial personality and how it impacts your investment decisions, you can use that understanding to make better investment decisions – and keep from making mistakes driven by psychological pulls.

How well do you know yourself?  A recent article in The Wall Street Journal, “Investor, Know Yourself” offers a quiz that will give you insights as to how your financial personality is driving your decisions one way and the other.  You might be surprised.

Class Assignment and discussion:

  1. Work through the article, “Investor, Know Yourself” in The Wall Street Journal. Be prepared to discuss your response to each of the questions posed.  What did you learn about your financial personality?
  1. Are you more of a risk-taker, or are you more risk averse than the average American (question 1 in the article)? What does your response to each of the following say about your financial personality:  (2) your propensity for regret, (3) confidence, (4) conscientiousness, (5) extroversion, (6) agreeableness, (7) openness, and (8) anxiousness – and how did you respond to the 8 questions in the article?  Be prepared to discuss this in class and give some specific examples of actions that are consistent with your financial personality.
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