Understanding Investor Persona

Investor persona is a composite “personality” to help advisors get a full grasp of the client’s behavior patterns, which will help advisors provide truly personalized services.

Investor persona is primarily driven by the investor temperament, which is how investors tend to behave when the market goes up and down. According to research by Dr. Andrew Lo from MIT based on a global survey of 29,352 investors collected over three years, investors can be put into the following categories.

  • Passive Investors: Tend not to react to market movements. Believe in buy and hold. Often invest in index funds. According to the research, 35% of investors are passive investors.
  • Trend Followers: Tend to chase market trends – to buy when the market goes up and sell when the market goes down. According to the research, 27% of investors are trend followers.
  • Contrarians: The opposite of trend followers. Tend to buy when the market goes down and the sell when the market goes up. According to the research, 8% of investors are contrarians.
  • Safety Seekers: Value safety over anything else but may expect a return that doesn’t match the risk tolerance level. According to the research, 19% of investors are safety seekers.
  • Risk Seekers: The opposite of Safety Seekers. According to the research, 11% of investors are risk seekers.
  • Adaptive Investors: Adaptive investors are willing to stay put during short-term fluctuations but at cognizant of large market trends. While not listed as a category in the research, Dr. Andrew Lo is the inventor of the Adaptive Markets theory.

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