An investing style can often reflect the investor’s style in other aspects of their life, from fashion-sense to hobbies and even food choice. Styles can range from steady and conservative to more flamboyant, daring or aggressive. And comfort level often dictates any investor’s preferred style.
It’s critical to feel confident about staying true to your chosen investing style and staying the course with your decisions. If you’re always uncomfortable and second-guessing, you could end up constantly changing your investment choices. This can be physically, mentally and emotionally exhausting, as well as financially taxing.
Constantly buying and selling investments can lead to investors falling short of their investment goals because of increased trading costs and errors in market timing. These constant changes can lead to performance chasing and ultimately buying high and selling low.
It’s important to identify your style and stick with it over the long term. Let’s look at investment styles in a more relatable, familiar way.
Relaxing vacation style
Many people enjoy vacations without surprises: just reliable, relaxing beach vacations close to home and without excursions, currency risk or travel hassle. These same people might enjoy an investment portfolio without too many surprises, one that doesn’t stray far from experience.
This investment style may have a lot of home country bias, with familiar brand names that they’ve known since they were young (most likely large Canadian or North American companies). Think domestic bank stocks and bonds, or Google, IBM, Apple and Disney.
An example of getting diversified exposure to these kinds of investments is the Mackenzie US Large Cap Equity Index ETF (QUU). It contains hundreds of large American companies.
We all know someone who adds a little something to their typical wardrobe that not only grabs people’s attention, but also screams individuality. A high-quality black suit but with some red shoes, for example.
An investment portfolio for this person might allow space for something new, maybe an asset class or investment space that’s out of the norm. While 90% of their portfolio might contain commonly held large asset classes (and asset allocation ETFs can provide this), 10% could be freed up to take a bet on a single stock idea or a frontier market ETF.
Adrenalin junkie style
There are adventurous souls who like to skydive, go heli-skiing and trek through the jungle without a path or a guide. Their portfolio might reflect that sense of adventure by providing similar adrenalin highs and lows. This could include massive concentration, a few single stocks or small esoteric asset classes. Think a junior stock that few have heard of or possibly the new psychedelics asset class. The bet is either going to pay off or not and the adrenalin comes from either outcome. A good safety net for this type of investor would be an asset allocation ETF.
Comfort food style
Do you deviate from the food you grew up with or stick with it (to the point of following grandma’s recipe to a T)? I have a friend who will absolutely eat nothing other than meat and potatoes, spaghetti, and pizza. He also has an almost emotional attachment to the bank bonds that his grandparents gave him when he was a teenager.
This is a very specific attachment that defines my friend’s comfort zone, and there’s nothing wrong with that other than there is undoubtedly some concentration risk. While my friend would probably hesitate to invest in an asset class such as emerging markets, which would help reduce his overall concentration risk.
Netflix is an expert at this: it identifies our film and TV preferences based on what we’ve already watched. Is your spare time spent watching comedies or thrillers? Or do you prefer reading a book, exercising, or painting? It’s a similar concept for many investors. We tend to buy what we’ve purchased in the past.
However, some investors may like to mix it up from time to time, for example, an asset allocation ETF with a single country overlay (such as the Mackenzie China A-Shares CSI 300 Index ETF). And some investors don’t want an algorithmic, entertainment streaming platform to define their style: they buy the whole dart board minus the concentration (like the Mackenzie Maximum Diversification All World Developed Index ETF).
Be flexible with your style
Some exceptions apply. While in other aspects of your life it may be less of a worry to change up your style, your investing style should remain relatively consistent. This maintains your comfort level and avoids frequent and unnecessary changes. For example, some investors constantly worry about missing out, so their investment style is to mitigate this by chasing the next and best investment opportunity. You should consider the investing circumstances that will apply and alter your investing style to match the market conditions.
Lastly, sometimes you need to get out of your comfort zone to reach your goals. Comfort doesn’t always mean safe, so it’s essential to also match your style to your goals. Many investors don’t have much of an appetite for risk, but depending on your personal situation, higher risk investments may be necessary to reach your unique goals.
The ideal route is to find the style that suits you and helps you to reach your financial goals. Talk to your financial advisor to find out how best to incorporate your personal style into your investments.
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