Kim Kiyosaki (wife of Robert of Rich Dad Poor Dad fame) shares an interesting insight about what she calls: 4 kinds of people, grouping them by their mantras:
- I must be right — people who love to be validated and proven correct.
- I must be comfortable — people who like settling in their comfort zones and not push boundaries.
- I must be liked — people who live to please others and patronize.
- I must win — people who will do anything to succeed.
Although doubtless there are more archetypes than Kiyosaki claims (depending on whatever typology you subscribe to), the thing I find interesting about the 4 types above is how they would react and utilize critical thinking.
- Critical thinking seeks to clarify, not simply validate.
- It is often uncomfortable and involves challenging the status quo.
- It is not patronizing, and is often deprecating.
- It seeks to achieve its end goals.
Of the 4 types above, only those who seek to win would push criticism to its limit.
Kim says know who you’re dealing with and that will bring you success. In critical thinking it’s the same: it’s important to know who your talking to, who your audience is, and who you’re criticizing.
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4 Types Of People
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The first step in developing an investment plan is to identify what type of an investor you are. Investor types are often determined by their stages in life. Here is a guide:
- Single person under 40 years old. Focus: Long-term investments, medium to high risk. Emphasis: capital gain, compound growth.
- Two-income married couple, no children, aged 20 to 40 years. Focus: Long-term investments, medium to high risk. Emphasis: capital gain, compound growth.
- One-income family, young children, aged 20 to 40 years. Focus: Long-term investments, low to medium risk. Emphasis: compound growth.
- Single person, aged 40 to 60 years. Focus: Medium-term investments, medium risk. Emphasis: capital gain, compound growth.
- Married couple with adolescent or independent children, aged 40 to 60 years. Focus: Medium-term investments, medium risk. Emphasis: capital gain, compound growth.
- All investors, aged 60 and over. Focus: Short to medium-term investments, low risk. Emphasis: Income.
The following are examples of investment portfolio mixes for the various types of investors.
Low Risk Investments:
Low risk investments are predominately cash, fixed interest and superannuation. This has the lowest risk of all investments but has also the lowest return – in today’s market, approximately 3% to 6% per annum. Fixed interest includes cash, cash management trusts and bonds. They return approximately 5% to 10% per annum, sometimes as high as 15% if you invest in global bonds in good markets.
Superannuation returns and risk profiles vary from institution to institution, however the best and safest usually return on average 10% per annum.
Medium Risk Investments:
Medium risk investments include property and non-speculative shares. Diversified funds, which invest in a range of asset groups, are also considered to have medium risk profiles. Average returns from these types of investments will range from 8% to 15% per annum.
I also like to include the broad spectrum of mutual funds, to be discussed later, in the range of medium risk investments. Some can return up to 25% and more depending on the fund type and managers.
High Risk Investments:
High risk investments include all speculative shares, futures and any other type of investment that is purely speculative by nature. Because with these types of investments we are betting on whether the price will go up, or sometimes down, I often classify this as a form of gambling. Accordingly, the returns are unlimited but so is the ability to lose the total money invested.
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Investor Types and Risks
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