Great Investors: Competencies for Success White Paper

What does it take to be a great investor today?

If you consider yourself the manager of your household’s finances, or if you’re a financial advisor that believes behavioral coaching and guidance can help clients be financially successful, then you will want to take a look at our latest white paper, Understanding Great Investors: The Competencies of Investing SuccessThe white paper, which shares the findings from one of our latest studies on investors in the mass and emerging affluent populations, gives both investors and advisors data-backed recommendations for improving investment-related decision-making and how to improve the guidance and counsel given to investors. Some of the data and findings from the white paper were included in The Next Millionaire Next Door and complement the Investor Profile assessment of psychological risk tolerance.

The white paper makes the case for the value of a comprehensive measure of psychological risk tolerance in distinguishing between different types of investors, but also in helping improve overall investing success. The paper examines differences between those who are considered successful or productive investors (that is, those with a high score on the Investor Profile assessment) from those who achieve sub-optimum investing results over time (those who score low on the assessment). By considering our life experiences and patterns of financial behaviors, we are better able to understand our strengths and weaknesses related to how we make investing decisions.

Key Findings from The Research

  • Most investors did not receive a significant amount of guidance regarding how to invest during their formative years: less than 20% reported that their parents or caregivers taught them how to invest.
  • Most investors (70%) understand that a fiduciary advisor must work in the client’s best interest, but only 37% express trust in the financial services industry as a whole.
  • Those investors scoring high on the Investor Profile, and thus considered to be very productive investors, tend to have a higher net worth, believe in the value of investing in the stock market, and have better general financial behaviors overall (including for example a higher savings rate) than those scoring low on the Investor Profile.
  • When it comes to satisfaction with our financial lives, those scoring higher on the Investor Profile report being more satisfied with their current and future financial situations than those who score lower.
  • Those scoring higher on the Investor Profile tend to put money into the market during a downturn, as opposed to their low-scoring peers who either sell or take no action. Successful investors tend to view market price declines as a strategic opportunity, while less successful investors tend to view the situation with a sense of panic.

The paper includes insights for investors regarding how they can understand their own competencies for investing success, how they can improve, and what to consider if they are looking for investment-related advice from professionals. To become a great investor, or to guide a client towards increased investing success, a behavioral approach is critical. Using the insights from our research and resulting recommendations, those managing their household finances can understand the competencies required to make great investing decisions. Advisors can use the insights to guide their clients toward optimum investing results through improved communications, guidance, and resulting behaviors–ultimately shrinking or even eliminating the behavior gap.

Building knowledge related to investing, increasing investing-related composure, and improving confidence in decision-making can help any individual become a better investor, and ultimately a more productive and successful household chief financial officer.

Download a copy of the report here.

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