And are the two alternatives mutually exclusive? This is a question that every investor comes to at some point along the road. Full time investors are a special breed. For these folks, investment is a constant preoccupation. It’s something they think about for most of the day, and they get really good at it. Because they’re always thinking about it, they’re always reading about it. And because they’re always reading and listening, up to the moment on economic conditions that lead to great investments, they are able to spring at great chances that others miss. In short, great investors have skill, ambition, and obsession. It’s not something you can teach, so much as it is an innate fascination.
Maybe this sounds like you. And maybe it doesn’t. If you aren’t like this, it’s important to know what kind of investor you are. What are your goals? How much time and effort are you likely to put into this discipline, and what return are you likely to get back? There’s nothing wrong with being at any level of the investment game, so long as you have appropriate goals and allocations to match. I’ve got a few questions I like to ask beginning investors, to help them understand themselves and better chart their future.
- What Kind of Returns Are You Looking For? Are you investing just for retirement? Do you want dividends now? Do you want to retire early? Do you want to be wealthy in the next 10 years? The kinds of things you’ll invest in depend entirely on how you answer these questions. Some of these kinds of investment goals can be achieved passively, based on a few good decisions set in motion in a moment, then very nearly neglected. This is the “set it and forget it” mode of investment that works for a lot of regular people. It’s more than the general population does, but it’s still nothing more than a hobby, something the investor might think about a few times a week. On the other hand, if you want to get rich in 10 years, you’ve got to work at that 60-80 hours a week, if you don’t have those resources presently at hand. So take a look at what you want to do it, and how much work you think yourself capable of. When those two halves of the equation match, you’ll know your goals are realistic.
- How Much Risk Can You Tolerate? Obviously, not every level of investment has the same risk. I presently allocate parts of my portfolio to take advantage of many different levels of risk.
Using these questions, you’ll be able to identify what kind of investor you are. When you understand this, every investment will be placed within its proper context, and you’ll have a lot more direction in your investment and personal finance life.