What’s Your Investor Personality? TD Wealth Behavioural Finance Industry Report Key Findings

This post is sponsored by TD. All views and opinions expressed represent my own.

I can’t believe I’m writing this, but I recently realized that I started investing for the first time 10 years ago (where did the time go?!) which also made me realize that a lot can change about yourself in a decade. Especially when it comes to what type of investor you are. That’s why I found the 2021 TD Wealth Behavioural Finance Industry Report so fascinating. Although this report was written with the advisor-client relationship in mind, it provides interesting insights for all types of investors, including people like me who are self-directed. It helped me pinpoint why I used to be an ultra-conservative, risk-averse investor in my 20s, and why I evolved into someone who has a very high risk tolerance and now invests almost exclusively in equities in my 30s.

To give you some context, when I first started investing I was 24 and started with $1,000. It was no easy feat to save up that first $1,000 because I’d just moved out of my parents’ basement and had a lot of new financial obligations like paying rent, buying a new computer and furniture, and saving up a modest emergency fund. But since I’d just discovered personal finance books and blogs, I knew that investing as soon as I could afford to was the smartest thing I could do for my future (and I was right!).

So, what type of investor was I at 24? I remember it like it was yesterday because it was one of the scariest things I’d ever done on my own before. I was extremely risk-averse, had very little financial literacy or confidence, and honestly, the 2008 stock market crash shook me to my core. Even though all the books and blogs I read told me that market crashes were a normal part of the stock market’s life cycle and a crash meant an eventual rebound, I was still scared. And I was scared because I had a lot to lose. A thousand dollars was a lot of money to me at the time, and I didn’t want to end up like some of my parents’ friends who lost all their savings in the 2008 crash. Needless to say, my investment portfolio was fairly conservative with a 60/40 asset mix.

Fast-forward to me at 34 and it’s basically a night-and-day transformation in terms of the kind of investor I am. Although I predominately invest in index ETFs with a small percentage of individual stocks, my asset mix is closer to 95/5. I always thought that was largely due to gaining confidence through improving my financial literacy and being a more experienced investor. But I discovered through TD Wealth’s most recent behavioural finance report that it’s much deeper than that.

Risk Capacity vs. Risk Tolerance

As the report shares, there’s a big difference between risk capacity and risk tolerance that may impact what your portfolio’s level of risk should be compared to what you want it to be. Risk capacity means your ability to take on risk based on your investment goal, time horizon, income, need for liquidity, ability to afford capital loss and amount of accumulated assets. Risk tolerance is the amount of emotional and psychological pain you’re willing to take with your investments.
In other words, if you’re in your 20s and investing for retirement which is decades away, you will likely have a greater capacity for risk because you’ve got plenty of time to ride out those ups and downs in the market. If you’re in your 50s with only a decade left until you retire, your capacity will likely be much smaller since your time horizon to reach your goal of retirement is so much shorter.

But risk capacity isn’t the only thing you should consider when determining your portfolio’s risk level. You need to consider the psychological along with the logical. Do you have the stomach for taking on risk, and how much risk can you stomach?
Because I’d just witnessed what seemed like an entire generation lose their savings in a matter of months, I had barely any stomach for risk at 24. The lesson I learned from the 2008 crash was to be careful, be cautious, and don’t take on risk your not truly comfortable with or understand because you might get burned!

At 34, I’ve now learned that I was making decisions with a lack of information, knowledge, and experience. Since the 2008 crash, I’ve experienced several market corrections and the latest market crash in 2020. And I didn’t get burned. Sure, my portfolio dropped significantly last March, and I did have a mini panic when I saw how much money I lost. But then I remembered if you’re patient and stick to the original, goal-based investment plan you set up, the odds are likely in your favour. And a year later, I can happily say that not only did I recoup those unrealized losses, I’m in an even better financial position than I was before the crash.

Higher self-assessed investment knowledge and experience may signal a preference for higher volatility portfolios.

As my investing experienced and knowledge increased over time, so did my confidence. The report found that confident and knowledgeable investors were 3.5x more likely to choose a more volatile investment portfolio than those who had less knowledge and lower confidence, so it’s no surprise that I chose to increase the volatility of my portfolio over time. My investing journey over the years has brought me to a place where I’m confident, but not overconfident: it’s a fine line we’ve all probably seen some investors cross over. Overconfident investors may opt for higher risk portfolios, even if they don’t have the personality or capacity to take on that much risk. Obviously, this can lead to some unwanted outcomes.

Career choice may impact riskier portfolio selection and influence impressions of retirement readiness.

Another key finding I thought was interesting was that investors who considered their income and the industry they work in to be volatile were 2x more likely to select a more volatile investment portfolio. Since I’m self-employed, my income and the nature of my job are always up and down and nothing’s ever certain. I guess that’s another reason why I’m in the portfolio I’m in today.

Investment Goals Matter

Having a goal based financial plan with a professional advisor may help mitigate risky decisions during market downturns.

I just mentioned that I stuck with my investment plan during last year’s crash, but I’m sure 24-year-old me would’ve panicked and pulled out my investments.

When I was 24, I had a goal for my investments (retirement), but I definitely didn’t have a plan. I had no idea when I was going to retire, how much I needed, or when I should adjust my portfolio. All I knew was that it was important to start investing early. But without a solid plan for your investments, the report found that you would be more likely to make risky decisions with your portfolio during market downturns, such as panicking and cashing out everything which would lock in your losses. And believe me, there were several times I wanted to do just that in my 20s. I also saw a lot of these reactions last March from people I know.

Now in my 30s, I’ve got a plan and I am sticking to it no matter what. I honestly credit my investment plan for guiding me through the rollercoaster of emotions that was 2020. Investing is emotional after all, so you need an anchor to keep you steady during turbulent times.

Personality Impacts Your Risk Behaviours

One thing that really made me sit and think for a while after reading the report was how much our personalities impact our risk behaviours and investing decisions. Not only was this discussed in the report, but I got to see this firsthand for myself when TD Wealth offered to let me take their Wealth Personality™ assessment (you can get a teaser of the assessment here). Typically, this assessment is only available through a TD Wealth advisor and takes about five minutes to complete. And if you have a partner or spouse, it can also be completed individually, and your TD Wealth advisor will walk you through your comparative results. Since my sister and I are both investors and she’s 6 years my junior, I thought it would be interesting for her to take the assessment as well and compare our results. Thanks to TD Wealth for help making this possible!

So, how does the assessment work? We both completed the assessment independently and were then given our detailed results based on our responses.

Using the Five Factor Model of Personality dimensions, the assessment is meant to gauge how an individual makes financial and investing decisions. Not only that, the results from the assessment will also indicate some of your potential financial “blind spots.”

Each of the dimensions of your personality are represented on a spectrum that has character traits on either end which collectively help define your Wealth Personality™ profile.

So, here are my Wealth Personality™ profile!

When I got my results, I was actually surprised by how spot-on they were. For example, with the “Quick to React” trait, it’s 100% accurate. Security is my love language. That’s why I’m always harping on about emergency funds, insurance, and estate planning because to me, they bring me so much comfort. Similarly, the “Curious of Options” is very me. I’m a little bit more conventional than innovative due to me doing all of the research I’ve done over the years.

In terms of blind spots, I’ve got quite a few.

For example, “Sensitivity to Noise” is a big one for me which is honestly why I don’t read the financial news every day. My nerves just can’t take in all the doom-and-gloom headlines predicting the next crash or recession. Same with my “Loss Aversion.” Even though I shared that I didn’t make any rash decisions last March when I saw my portfolio take a major hit, I did feel that loss (even if it was unrealized) very deeply, even more so than the gain in my portfolio a year later.

Now I bet you’re wondering what results my sister got, and for that, you’re going to have to check out our video together where we do a deep-dive comparison.

But if you’re curious about some of the findings in the report I mentioned, check out the full TD 2021 Wealth Behavioural Finance Industry Report here. If you want to try out the Wealth Personality™ assessment yourself, TD Wealth has an intro assessment on their website that you can check out. To get started with a TD Wealth advisor and take the full Wealth Personality™ assessment like I did, visit the TD Wealth website.

Disclosure: Nothing on my website or affiliated channels should be considered advice or an endorsement, and some content may include affiliate links in which I may earn a commission at no extra cost to you. Please read my disclaimer to learn more.
Showing 2 comments
  • Kara Foster
    Reply

    Thanks for the high-quality posts, Jessica! Always great information. I love that I can learn in different formats BTW. Sometimes I am in the mood to close my eyes and listen to your podcast, sometimes I feel more connected watching you on YouTube, but today I felt like curling up with my iPad and taking my time browsing. I imagine this is all time-consuming for you, but we appreciate it 🙂

    • Jessica Moorhouse
      Reply

      Thanks so much for the kind comment Kara! I’ll definitely be making more YouTube videos and maybe even more blog posts throughout the summer as the podcast wraps up this week. Thanks for dropping by the blog!

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Start typing and press Enter to search