With recent excessive market volatility, I’ve talked with a number of folks about their retirement investments. I find everyone can generally be categorized into one of three groups. Which group you are in will dramatically affect your approach.
1. Savers — Savers pick an investment and stick with it, wanting stability and Often, a saver is either unaware or unconcerned about the impact of inflation on their investment. Savers view both investors and traders as “gamblers.” They often perceive a successful investor as a “trader.” Uncomfortable with this approach, they retreat to their safety net, investing conservatively and avoiding risk.
It’s not uncommon for a saver to simply purchase a CD at a bank. Considering other investment options is out of the question and savers are not even concerned about shopping around for the best CD rates. Familiarity, safety and stability are more important.
2. Investors — Investors have some understanding of the risk vs. reward connection in investing. They are willing to take a reasonable risk to increase An investor is not overly concerned about short-term losses, anticipating a greater reward in the long term. Investors tend to view the other two types as naïve — the saver in taking too little risk and the trader in taking excessive risk.
Market volatility in recent years has caused some investors to question whether they are — to some degree — really a saver. Others, while not happy with huge losses they experienced in some recent years, are true investors. They are in it for the long term and will ride it out, even if feeling a little apprehensive.
3. Traders — Traders enjoy the “game” of investing, using market timing and making frequent changes in their portfolio. They are comfortable with risk and volatility in investments. Enjoying the challenge of trying to “beat the market,” they thrive emotionally at their successes — even if they are often wrong. Traders tend to view the other two types as stupid and naïve in the modern information age.
Through the early and mid 1990s, some investors began to “flirt” with being a trader. They wanted to “get on the band wagon.” They began using market timing and going after those high profile stocks everyone was talking about. They’ve discovered they really were not traders after all because a true trader knows the big market drops can be there and that’s part of challenge of the “game.”
There is no “right” or “wrong.” God created us as unique persons. Make sure your investments are compatible with who you are as an individual and with your overall investment goals.
Don Spencer is Kentucky Baptist Convention Church Financial Benefits Counselor.
Don Spencer