Personality Types and Investing Styles

  • June 21, 2024
  • General

by John M Oldham MD

If your financial status is solidly in the black, what’s your savings strategy?  Probably not cash under the mattress, maybe a rainy day fund in a savings account, but most likely investment in equities, i.e., the stock market.  Does your personality make a difference in how you invest?  A recent study published in the Journal of Financial Economics took a look at this question [Jiang Z, Peng C, Yan H, Personality differences and investment decision-making. Journal of Financial Economics 153 (2024) 103776].  The authors’ hypothesis was that “persistent differences in personality traits are related to persistent differences in both beliefs and investment decisions.”  They used the framework of the “Big Five” personality dimensions (Extraversion, Agreeableness, Openness, Conscientiousness, and Neuroticism) to survey over 3,000 members of the American Association of Individual Investors about their investment styles.  They concluded that only two of the Big Five personality traits, Openness and Neuroticism, correlate meaningfully with investor behavior.  People who score high on Openness are original thinkers, willing to try new things and take risks.  They are generally optimistic and creative investors.  In contrast, people who score high on Neuroticism tend to be pessimistic worriers who are cautious investors.  In colloquial terms, these traits could reflect “glass half full” versus “glass half empty” personality styles.  Friends, family, and colleagues might caution the former types to monitor carefully their impulses to invest in dazzling but untried new stock offers.  And advice to the latter types might be to take a few more chances!  In the language of NPSP25, those individuals scoring high on Adventurous, Dramatic, Idiosyncratic, Mercurial, and/or Self-Confident personality styles might align with the risk-takers, and those scoring high on Conscientious, Sensitive, Serious, and/or Vigilant might be more in the cautious camp.