By David Chazin
Your personality affects many things in your life — whether you’re shy or outgoing, which activities you enjoy doing, how well you get along with your fellow Chevron employees, and even your job function at Chevron. But personality can also affect investment performance, because certain psychological traits — rather than logic — might influence investment decisions.
Could your personality be interfering with your investment success? Intuitively, it makes sense that your personality might affect your investment performance, whether in your ESIP or outside Chevron, but to understand the practical effect, check out the hypothetical Chevron employees described below. Please note that these are four hypothetical investors exhibiting whose behaviors and consequences do not represent actual clients or prospective clients and are instead based on general behaviors.
People (yes, that includes your Chevron colleagues) typically are much more upset over losses than they are happy about gains. Fearful Frank is no exception. His reaction to falling prices has had a big impact on his ESIP and other money. As soon as he experiences a small loss, Frank moves his money out of the market, thinking he’ll reinvest when the market rebounds. While no one likes to lose money, Frank risks earning lower returns by selling than he might get if he waited out the downturn.
Instead of moving his money around with every market fluctuation, Frank should examine his risk tolerance and time horizon and choose an appropriate mix of investments for his portfolio. When he does make changes, he should be sure they fit in with his overall investing strategy.
When it comes to making investment decisions, Confident Connie constantly overestimates her abilities and the accuracy of the information she receives. She trades investments often, trying to increase her returns. But, instead of earning higher returns, Connie’s frequent trading often leads to losses, higher transaction costs, or significant tax liabilities (at least outside of the ESIP).
Connie can remedy her habit of overtrading by having a well-thought-out asset allocation* that she sticks with over the long term. By keeping track of her returns and transaction costs, Connie will be able to see how much money her frequent trading costs her. And knowing how her investments have historically performed can help Connie determine if her expectations are realistic or if she has exposed herself to more risk than she’s comfortable with.
Haphazard Harriet has a willy-nilly approach that keeps her from rationally evaluating her investment decisions. For example, she may buy an investment simply because its price has fallen and seems “cheap” relative to its former cost.
In reality, Harriet should investigate the reasons for the price decline and evaluate the stock to determine if it’s really worth owning. Working with a comprehensive financial planner and adhering to a well thought-out financial plan may keep Harriet from making impulsive decisions that could lower her returns.
Here-and-Now Hal’s immediate financial needs take precedence over his long-term goals. Saving for his new home, for instance, is more important to Hal than saving for a retirement that’s many years in the future. Hal places a high priority on the present and puts off saving in the ESIP. If Hal’s not careful, his procrastination may keep him from achieving the kind of retirement he’d like to have. Chevron has one of the more competitive employer matches, so missing out on it has the potential to be especially costly in your post-Chevron years.
To avoid coming up short at retirement, Hal should work with a financial planner to determine a suitable dollar amount to automatically deduct from each paycheck and invest in his ESIP or other outside accounts. A regular savings program can help keep Hal on track to accomplish all of his goals — not just the ones around the next corner.
We’d be happy to sit down with you to discuss the ways in which you can overcome the potential pitfalls your personality presents when it comes to your investments and your overall financial picture. Because we work with Chevron executives, managers, employees and retirees, we’re knowledgeable about your various compensation plans and benefit offerings, plus other issues specific to Chevron employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of our Chevron clients and you can ask them how working with a financial planner has helped them.
* Asset allocation does not guarantee a profit or protect against losses.
Please contact us at (800) 318-7848 with specific questions or to schedule a time to meet in our San Ramon, Point Richmond or Houston, TX offices. Also, follow us on LinkedIn.
This piece is presented to you as a courtesy by Insight Wealth Strategies. Content written by Newkirk®, as distributed to Symmetry Partners, LLC. and adapted with permission.