As the economy improves, more people may be interested in becoming active investors in the stock market again or for the first time. Whether you live in Southern California or elsewhere, a good way for anyone to begin is to determine what type of investor you are. Generally speaking, there are three types of investors: those who want to invest independently, those who want to invest with guidance, and those who want to delegate all their investment decisions.
Self-directed investors are those who want to invest on their own. They should be able to answer “yes” to these questions:
- Do I like to do my own research?
- Am I interested in learning more about investing?
- Do I want control over my investment decisions?
- Do I have enough time to review and manage my investments?
- Am I comfortable using technology to manage my investments, including making my own trades?
Being a self-directed investor means you are in the driver’s seat for managing your investments. In other words, you are conducting most or all of your trading, research, and typically manage your accounts online. One advantage to this method is that it offers you convenience and flexibility, so you can invest any time you want. However, keep in mind, that as a self-directed investor, you usually pay commissions and fees based on the types of transactions you make. These costs may be factors you will want to consider.
“Being a self-directed investor means you are in the driver’s seat for managing your investments.”
The second type of investor wants help from an investment professional, yet still wants to make the ultimate decisions. If that’s your style, you likely will agree with the following:
- Do I want someone with whom I can discuss my ideas?
- Do I want a steady flow of proactive ideas?
- Do I want help to keep me on track toward my overall goals?
This style of investing is a step beyond self-directed investing – while you are still in the driver’s seat, you also have help navigating your investment journey. You have access to an advisor who will discuss your goals and needs – a trusted guide who will seek to fully understand your financial situation, investment objectives, and risk tolerance. You still have the flexibility and convenience to conduct your own research and the ability to maintain control over investment selections. Yet you also will have the support of a professional who will regularly review your portfolio to make sure you’re moving toward your goals and who will suggest changes if you veer off track.
The third investment style may be best for people who have more complex needs and want professionals to manage day-to-day decision making. These investors typically answer “yes” to the following questions:
- Am I comfortable entrusting day-to-day control of my investments to someone else?
- Do I want someone else to be responsible for keeping my investment plan on track?
- Am I comfortable paying investment management fees based on my total portfolio?
“Investors who delegate their decisions may have a single investment professional or a dedicated team of professionals who actively manage, monitor, and rebalance their portfolio based on their investment objectives.”
This investment style is like turning over the steering wheel to a professional driver. You may be an investor who doesn’t have the time or desire to manage your own investments. Or your financial needs may be complex and you don’t feel comfortable making your own investment decisions. Investors who delegate their decisions may have a single investment professional or a dedicated team of professionals who actively manage, monitor, and rebalance their portfolio based on their investment objectives.
No matter what type of investor you are, the starting point to achieving your goals is to have a financial plan. If you already have one, remember to revisit your plan and review your long-term asset allocation and risk targets. That way, you’ll be well-positioned for the economic recovery and have a plan designed to help you meet your financial goal