What Is Your Investment Style?

When it comes to handling investments, what’s your style?

There are two decisions that every investor has to make: asset allocation and security selection. The priority placed on each decision can reflect your risk tolerance, investment goals, and your beliefs about market efficiency.

Photo by thelastminute, courtesy of flickr

What’s your investment style?

The Asset Allocator – Your priority is to determine how much of your portfolio dollars should be invested in each of the broad asset classes: bonds and stocks.

You believe that markets are pretty efficient, and as such, it is not worth the extra time or effort to constantly adjust your portfolio’s holdings in search of abnormal returns.

The Security Selector – If security selection is your priority, then you are trying to find the next big thing. Any mispriced asset is fair game for your dollars.

You believe markets are inefficient, and if you are right, you can exploit the inefficiencies and enjoy the excess returns.

The Market Timer – You are willing to shift all of your assets from one class to the other depending on which you think will perform the best. Over time, this strategy is by far the most profitable, but only if you are able to predict the market with 100% accuracy. That’s a big “if,” one that no one has been able to conquer.

If you have no style, then you can always hire someone else to make the decisions for you.