Which profile are you?

Investment is a complicated beast.

Ambiguities and misinformation abound, and it’s hard to predict which investments are going to be worth your while, and which are going to make you want to get out of the game altogether.

Creating a sound investment strategy is always a good place to start, and knowing the difference between irrational and rational decisions is an important part of any game plan.

Bear markets

A bear market describes a stock market that has fallen overtime. While there is no specific definition, some measure it as a market that has fallen 20 per cent in two months or less.

In a bear market, investors become pessimistic and may sell off their assets while the market is low, to avoid losing even more money.

Bull markets

Contrastingly, a bull market occurs amid a period of generally rising prices, when optimism is high and investors take a ‘bullish’ approach to buying up shares.

The start of a bull market is often marked by a pessimistic bear market, from which a “bullish” sense of hope and optimism can grow out of.

Irrational or rational?

An old adage goes, “Buy on the sounds of cannons, sell on the sounds of trumpets.”

For stock market investors, this simple sentence can help decipher the difference between a ‘rational’ and an ‘irrational’ investor.

Irrational investors buy and sell based on emotion, rather than sound investment strategy.

To sell ‘on the sound of trumpets’ means to sell when the market is good and optimism high. Rather than betting on the market getting higher, rational investors take their profit when the going is good and get out.

Buying ‘on the sounds on canons’ means to buy when the market is down and irrational investors are selling off their assets at a low price. This is the time to be ‘bullish’ and snap up shares at a low price, before the market lifts again.

Which are you?

Knowing your own risk profile is an important step in managing your investments.

Your personal risk profile will depend on your age, resources and investment aims. For example, a young couple wanting to purchase a house will prefer short term investments, while someone setting up their retirement fund will want something more long term.

Your profile will also depend on how much risk you’re willing to take on in your investment strategy. Higher risk investments will yield faster returns, but they won’t be appropriate in a bull market.

First Super offers its members a number of investment options based on their risk profile: Shares Plus, Growth, Balanced (MySuper), Conservative Balanced and Cash.

It’s important to review your risk profile regularly, so your investment options always reflect your preferences.

 

First Super commissioned The New Daily to research and write this article. The views expressed are of The New Daily.

This publication was issued by First Super Pty Ltd (ABN 42 053 498 472, AFSL 223988), as Trustee of the First Super superannuation fund (ABN 56 286 625 181). It does not consider your personal circumstances and may not be relied on as financial advice. Content was accurate at the date of issue, but may subsequently change.