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How Your Personality Affects Your Financial
Decision-Making
The recent volatility in the stock market has everyone a
little jumpy — even folks who have worked with a trusted
financial planner for years. But if you've never worked with a
planner before, one of the first things he or she will do is
make you fill out a risk analysis questionnaire.
Why is risk analysis important before you make decisions with
your money? Risk tolerance is an important part of investing —
everyone knows that. But the real value of answering a lot of
questions about your risk tolerance is to tell you what you
don't know — how the sources of your money, the way you made it,
how outside forces have shaped your view of it and how you're
handling it now will inform every decision you make about it in
the future.
The most important thing a risk questionnaire can tell is
what's important about money to you. Trained financial advisers
can determine your money personality through a process of
questioning discovery. Planners can then guide investors within
their money personality. Do you want certainty, are you willing
to take a little risk or let it roll because "you can
always make more of it?"
A financial planner tries to see through the static to find
out what you really need to create a solid financial life. But
it might make sense to ask yourself a few questions before you
and your planner sit down:
- What's important about money?
- What do I do with my money?
- If money was absolutely not an
issue, what would I do with my life?
- Has the way I've made my money —
through work, marriage or inheritance —
affected the way I
think about it in a particular way?
- How much debt do I have and
how do I feel about it?
- Am I more concerned about
maintaining the value of my initial investment or making a
profit from it?
- Am I willing to give up that
stability for the chance at long-term growth?
- What am I most likely to enjoy
spending money on?
- How would I feel if the value
of my investment dropped for several months?
- How would I feel if the value
of my investment dropped for several years?
- If I had to list three things
I really wanted to do with my money, what would they
be?
- What does retirement mean to
me? Does it mean quitting work entirely and doing whatever I
want to do or working in a new career full- or
part-time?
- Do I want kids? Do I
understand the financial commitment?
- If I have kids, do I expect
them to pay their own way through college or will I pay all
or part of it? What kind of shape am I in to afford their
college education?
- How's my health and my health
insurance coverage?
- What kind of physical and
financial shape are my parents in?
One of the toughest aspects of getting a financial plan going
is recognizing how your personal style, mindset, and life
situation might affect your investment decisions. A financial
professional will understand this challenge and can help you
think through your choices. Your resulting portfolio should feel
like a perfect fit for you!
September 2007 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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