Which Investor Personality Best Describes You?


This article was originally published on investopedia.com

According to many studies, our different personality traits and preferences, along with a range of emotional and mental behavioral biases, have a strong impact on the way we invest. This is commonly referred to as behavioral finance. As part of a two-part series on Behavioral Finance, we will start by exploring the different personality types of most investors. When it comes to money and investing, there are many factors that contribute to the “how” and “why” of important financial decisions.

Investor Personality Types

There are four different types of investors, according to the CFA Institute, each with their own distinct behavioral biases. Understanding your own investor personality type can go a long way toward helping you determine and meet your long term investment goals, as well as producing better returns. (For more from Brad Sherman, see: 6 Questions to Ask a Financial Advisor.)

Which of these profiles best describes you?


Preservers are investors who place a great deal of emphasis on financial security and on preserving wealth rather than taking risks to grow wealth. Preservers watch closely over their assets and are anxious about losses and short-term performance. Preservers also have trouble taking action for fear of making the wrong investments decisions.

Common Issues with Preservers: An investment strategy should take into account short-, mid- and long-term goals. By overemphasizing short-term returns, an investor risks making an emotional decision based on the short-term performance, which may end up being more detrimental to them in the long run.


Accumulators are investors who are interested in accumulating wealth and are confident they can do so. Accumulators tend to want to steer the ship when it comes to making investment decisions. They are risk takers and typically believe that whatever path they choose is the correct one. Accumulators have frequently been successful in prior business endeavors and are confident that they will make successful investors as well.

Common issue with Accumulators: Overconfidence. We recently wrote a blog on the issue with stock picking and active management. Overconfidence is a natural human tendency. As investors, accumulators consistently overestimate their ability to predict future returns. History has shown that it is impossible to predict markets at large scale, yet accumulators continue to try and do so and expose themselves to extreme risk.


Followers are investors who tend to follow the lead of their friends and colleagues, a general investing fad, or the status quo, rather than having their own ideas or making their own decisions about investing. Followers may lack interest and/or knowledge of the financial markets and their decision-making process may lack a long-term plan.

Common Issues with Followers: The herd mentality is a concept of investors piling into the same investments as others. This is often the basis of investment bubbles and subsequent crashes in the stock market. When you are a follower, you are typically following fund managers who have tools and recourses to act on new information in a fraction of a second. By the time the average investor “follows” them into a position, it is often too late. It is always important to understand your investment decisions and how they fit into your overall plan.


Independents are investors who have original ideas about investing and like to be involved in the investment process. Unlike followers, they are very interested in the process of investing, and are engaged in the financial markets. Many Independents are analytical and critical thinkers and trust themselves to make confident and informed decisions, but risk the pitfalls of only following their own research.

Common Issues with Independents: Similar to overconfidence bias associated with accumulators, independents face similar issues with relying too heavily on their own train of thought. We as humans have ability to convince ourselves that we are correct or that we don’t need guidance, even when that is not the case.



The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Don’t Expect to Win With Actively Managed Funds

actively managed

This article was originally published on NerdWallet.com

Trying to pick individual stocks is a losing game, and this doesn’t just apply to individual investors. It’s also true for professionally run, actively managed mutual funds.

Actively managed funds are tasked with picking a collection of stocks and bonds that will outperform market indices, or benchmarks, such as the S&P 500 or the Dow. They’re armed with Ph.D. analysts, hundreds of interns, and tools and research to which very few of us have access — but they can’t consistently beat their benchmarks by enough to justify their costs.

Long-term underperformance

Eighty-six percent of actively managed funds failed to beat their benchmarks in 2014, according to the S&P Dow Jones Indices scorecard. “So what?” you may say, “That’s only one year.” But 89% of funds failed to beat their benchmarks during the past five years; 82% failed to do so during the last decade.

The following data help illustrate how unlikely it is for active managers to beat the market over longer periods. During a one-year period, a high percentage of active managers in some categories may outperform their benchmarks. But over five- and 10-year periods, fewer active managers outperform.

Percentage of Actively Managed Funds That Outperform Benchmarks

Source: 2015 Morningstar data
Large-cap value 36.5 19.6 33.7
Large-cap core 28.7 16.7 16.6
Large-cap growth 49.3 11.9 12.2
Mid-cap value 53.5 22.7 42.3
Mid-cap core 42.1 27.7 11.0
Mid-cap growth 41.6 26.0 32.4
Small-cap value 66.7 38.0 38.3
Small-cap core 44.7 32.8 23.1
Small-cap growth 22.2 20.5 23.1

Some managers do outperform the market, but picking a winning manager is as tricky as picking winning stocks. If you still think you can find “a good manager” who is the exception, consider this widely accepted Wall Street rule of thumb: Past performance doesn’t guarantee future performance. A manager who outperformed last year may not do it again this year.

Reasons for underperformance

There are a few main reasons actively managed funds underperform, aside from picking the wrong investments:


Many actively managed funds charge 1% to 2% per year in management fees, while a passively managed exchange-traded fund could charge as little as 0.1% to 0.2% per year. And many actively managed mutual funds are loaded funds, which means you’ll pay a sales charge, typically between 4% to 8% of your investment, when you buy or sell the fund — though the fee may decrease the longer you stay invested. Compounded over time, these higher fees can eat up a lot of gain, reducing overall returns.


Because actively managed funds try to time the market and pick winners, they buy and sell positions frequently. These transaction costs reduce the fund’s returns, and all the buying and selling can also create taxable gain. Fund managers have no incentive to avoid this because they simply pass those taxable gains on to you, the shareholder.


Some argue that markets are becoming more efficient, making it difficult to identify overvalued or undervalued stocks. The efficient market hypothesis states that stocks are constantly adjusting to news and information, and thus their share prices reflect their “fair value.” In simpler language, other than in the very short term, there are no undervalued stocks to buy or inflated stocks to sell. This makes it virtually impossible to outperform the market through individual stock selection and market timing.

An unsustainable approach

Whether active management can outperform is a controversial topic. Many experts dismiss the science and say that they can indeed beat the market. Some of them may even do so for a year or two, or even five, but what about over the long run? It’s simply not sustainable, and to think otherwise is dangerous.

If the data shows that the vast majority of the brightest and most well-equipped professional investors can’t beat their benchmarks, why should you believe anyone who says they can?

This story also appears on Nasdaq.


The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

When A Storm Hits Are Investors Still Gluten-Free?

Empty Shelves

More snow coming?

Get ready for Instagrams and TV reports about empty bread shelves!

Here’s one from my local store before the blizzard a couple of weeks ago:

BreadShelvesNo matter how many people have resolved to stick to a gluten-free diet, that gluten seems much more appealing when a storm is on the horizon and gluten-free bread may get harder to find.

The same thing happens to investors. When the market is stormy, anxious investors often disregard their financial plans and start switching to what they perceive as “staples,’ sometimes at surge prices.

The trick with smart investing, as well smart shopping, is to make sure you’ve got enough of what you need – and want – before the storm hits, not during a run on the shelves. If you’re gluten-free, that means having a pantry already stocked with gluten-free pasta and a gluten-free loaf of bread in the freezer – not to mention beans, rice and tomato sauce – to tide you through the blizzard. It also means sticking to what you know has made sense for you in the past and realizing that two days without bread is not the end of the world – the bread will return to the shelves once the storm has passed.

Likewise, if you know your risk tolerance and have already planned effectively, you’ll have a balanced portfolio that contains the right balance of stocks and other less volatile instruments before a storm hits. With a fully diversified asset allocation strategy, there will be parts of your portfolio that go up, as well as other parts that go down, during times of stress. That way you’ll be comfortable sticking to your investment strategy and plan when the market is stormy. Plus, you’ll have purchased those less volatile instruments before pundits start shouting and everyone starts panic-purchasing.

A good financial advisor will help you build a portfolio strategy that truly for reflects your risk tolerance and, importantly, helps you understand exactly where the risk is in your portfolio. Your advisor will help you understand if, when and why to own bonds, Munis, Treasuries, and CDs, and how much of a cash component makes sense for your particular situation and need for liquidity.

The volatility we’re experiencing, current geopolitical uncertainty (like Japanese negative interest rates), and Federal Reserve uncertainty are all great litmus tests to determine whether you have a properly diversified portfolio and whether or not it’s an accurate match for your true risk tolerance.  If current market conditions or any paper losses you may be experiencing make you feel uncomfortable – or keeps you up at night – it’s likely that your investment strategy does not match your actual risk tolerance and needs to be re-balanced.

If, however, you’ve worked with your financial advisor and are comfortable with where you, then you’re best bet is probably to ignore the noise, ignore the panicking pundits, and stick to your saving and investing plan. Remember, if your investments made sense to you a couple of weeks ago, they probably continue to make sense for you, even during market volatility.

Just like a diversified pantry will help you stick to your nutritional goals when there’s a run on the supermarket, a good fee-only financial advisor can help you create a portfolio that is truly diversified, risk appropriate, and with the exact amount of liquidity that makes sense for your long-term goals, so you can sit back and weather the storm with confidence.

Photo Source: Reuters/Shannon Stapleton


The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

How Diversified is your Diversification?


In November yet another firm fell victim to the growing Valeant fallout as Tiger Ratan Capital Fund LP fell 33% over the past three months, wiping out gains for 2015.

Those losses stemmed from the fact that Valeant accounted for 20% of TRC’s U.S. holdings. But they weren’t alone. Many well-respected funds, including the mighty Sequoia Fund, and hedge fund manager Bill Ackman’s Pershing Capital also had extensive exposure to long time Wall Street darling Valeant and suffered losses not only of value – but of face as well.

The dramatic losses came as quite a shock to many of the investors who own these – and other affected – funds, and who assumed that the funds were diversified – when in fact they weren’t. By going out on a limb and investing too much of their allocation in what has been one of Wall Street’s hottest stocks for years, many respected “hedge” funds experienced huge capital losses that it will take years to recover from.

In fact, of the 1,000 hedge funds tracked by Symmetric.IO, approximately 12% had a position in Valeant. A startling 32% of Valeant’s shares were held by hedge funds.

When Diversification isn’t Diversification

Having 20% of your portfolio in one stock is a huge risk for anyone. You never know when the next Enron or Worldcom may be and, because of accusations of unorthodox practices, it may very well be Valeant.

On the other hand, Valeant could still turn out to be a home run and deliver big time. No one really knows, which is why diversification is so key.

Many investors diversify with ETFs and mutual funds. But how many investors are absolutely certain that the mutual funds they are counting on to provide diversification, are, in fact, properly diversified themselves?

When that Hot Stock is Too Much of a Good Thing

When a “hot stock” or fund keeps climbing, it’s tempting to want to jump on the bandwagon, and the same is true for a hot sector. That’s no doubt why so many otherwise experienced fund managers over-exposed themselves to Valeant and to the health sector in general.

But while a portfolio with correlated assets that tend to do well together, is also a portfolio with assets that can tend to do poorly together when the winds shift. As Ben Carlson put it in a recent blog post: “Diversification requires finding the right balance between eliminating unsystematic risk (risk that’s specific to single securities or industries) and di-worsification by adding too many overlapping funds.”

Put another way: it’s not enough to put your eggs in different baskets, the eggs themselves need to be diversified, some plain, some speckled, and the speckled ones should be speckled in different ways.

A properly diversified mutual fund or ETF allow you to invest in a sector or a “hot stock” while mitigating risk. Which is no doubt what the investors who held Tiger, Pershing, and Sequoia thought they were doing.

The Moral of the Story

Due diligence. While you and your financial advisor are most likely diversifying your holdings, make sure that your holdings are also diversifying their holdings. Review your mutual funds frequently to make sure that their strategies, risk tolerance, and diversification standards align with yours and that they are not over-weighted chasing impressive returns from a couple of current wall street darlings.

The jury is still out on Valeant and on the funds that held it. It may in fact recover, although it would have to recover quickly to make up for the loss of momentum for the funds and investors that held it.

Nonetheless, it’s an important lesson for individual investors. A truly diversified portfolio is made up of truly diversified assets.




This analysis is provided for informational purposes only and is not to be considered investment advice. The securities mentioned herein are for illustration of the concepts discussed and are not a recommendation to buy or sell any security. Please see additional disclosures.

Discussing Personal Finance is Difficult for Many – but Critical


Money can be a difficult subject for any of us to talk about, although it seems to be particularly challenging, statistically, for women.

According to a recent study released by Fidelity, 80% of women surveyed said that they had refrained from discussing financial issues with friends or family, despite the fact that over 92% of those surveyed expressed an interest in learning more about financial planning. Among those surveyed, some of the most common reasons given were that money was too personal a topic, it felt uncomfortable to talk about, or it was considered “taboo.” Additionally, women are also more likely to feel that they don’t know enough about the subject to speak about it intelligently. This is despite the fact that studies have shown that women tend to be better investors than men.

Money is, however, a critical subject that we all need to discuss – and discuss often – in relationships. A little while ago I wrote about the 7 Things Married Couples Should Discuss Today, where I talked about why it is critical that married couples go over their finances together. Marriage is not, however, the only relationship that requires having difficult conversations about money.

We need to communicate with our parents and children about money, and even friends, coworkers and extended family members in some cases.

With money playing such an important role in our daily lives, it’s critical that we learn to overcome our desire to avoid the topic and learn how to effectively and confidently communicate about financial matters.

Fortunately there are a few things you can do to make the topic of money easier to discuss:

1. Realize that difficult conversations are sometimes necessary

Whether you need to confront your parents about their retirement plans, your spouse about where to allocate investments, or your children about their spending habits money can be a difficult topic to talk about. By reminding yourself that these are conversations that you will ultimately need to have however you are setting yourself up for success.

2. Find someone knowledgeable about finances who you can trust

No one has all the answers when it comes to money, which is why it is often helpful to turn to others for ideas and suggestions. You should find someone – whether it’s a friend, family member or a financial advisor – who is knowledgeable, who you know has your best interests at heart, and with whom you feel comfortable speaking.

This will give you the opportunity to ask questions, bounce around ideas, and learn and grow. It will also give you the confidence to discuss finances with others.

3. Get educated

One of the best ways to feel comfortable discussing money with others is by learning as much about the subject as you can. Read books, ask questions, and get help when needed. By learning as much as you can, you feel more comfortable giving advice, making financial decisions and having what would otherwise be difficult conversations.

4. Don’t procrastinate when discussing finances

If there is a money-related conversation that you have been putting off, bring it up now or at the next time possible. Don’t wait!

Here are a few more suggestions for important conversation starters:

With your spouse:

  • Family’s budget
  • Retirement savings
  • Saving for children’s college fund
  • Where to invest money

With your children:

  • Allowance
  • Spending
  • Basic financial principles

With your parents:

  • Their retirement plans
  • Location of legal documents including wills, trusts and insurance paperwork

If you’re like most people, chances are there are many other subjects that you need to discuss with those you’re close to. It may be a good idea to contact a financial advisor to help you with these as well as other issues revolving around money.

Brad Sherman is a financial planner in Gaithersburg, Maryland who is committed to helping individuals and families achieve financial independence and gain confidence with regard to financial issues.

Call him today to see if his services are a good fit for your needs.


Mitigating Your Investment Volatility

Mitigating Investment Volatility

Volatile markets can be unsettling. You work hard for your money and even losing money on paper, to market fluctuations, can make you want to put all your cash under the mattress. In reality most investments will have volatility. Fixed rate products like CD’s may not have volatility, but will have their own risk of not keeping up with inflation. Currently 1 year CD’s are paying around 1%, and 5 year CD’s are only paying around 2%, according to Bankrate. This makes it necessary to have investments in your portfolio, which will fluctuate in value, in order to potentially have the needed funds to pursue your financial goals.

With inflation averaging 3.22% per year from 1913 to 2013², it is easy to see that establishing an investment portfolio that provides higher returns than inflation is essential to any long term plan. Investors look to mitigate the risk of the volatile markets, while seeking a return that will build investment values.

For all its Bull and Bear markets, runs and crashes, stock market investments in the last 100 years has been positive when looking at any 10 year period from 1903 to December 1912³. The average stock market return since 1932 is around 7% and when inflation is taken into account the average return is over 10%⁴. So while the markets do go up and down on a daily basis, the overall market pattern has a consistent upward trend. However, past performance is not indicative of future results and your investments selection(s) and time horizon will affect your results.

Investing With Your Risk Tolerance in Mind

Investment risk, by definition, is the likelihood of losses in relation to an expected rate of return for a specific investment. All investments have some investment risk. The challenge for you is to determine which investments have risks you are willing to accept, and may be potentially rewarded with higher returns on a consistent enough basis.

This is where a Sherman Wealth Management financial professional comes in. They work with you to determine a level of risk that is suitable for you and provide the potential growth needed to pursue your financial objectives. This requires not only understanding specific investments but also having a good pulse on what you, as an investor, need.

In order to give the best advice, it is necessary to truly understand the client’s needs. Just asking, how much risk are you comfortable with, is not enough. Educating and teaching you about risk and what it may mean for your future, is the goal. This allows you to select investments that reflect your risk tolerance and financial aspirations.

Taking a high level of personal interest in the changing needs of our clients is our goal. We believe this is the best strategy for maintaining an investment portfolio that is designed to have the appropriate amount of risk to pursue your financial goals, while striving to minimize the risk taken on individual investment choices.

Each investor has individual needs and no investor’s taste for risk is the same. You need recommendations that take all of your circumstances and life goals into account. Added risk might lead to higher returns, but not always.

If you have a lower tolerance for risk, building an investment portfolio that is designed to withstand market turmoil is more appropriate. These strategies still experience ups and downs, but the right blend of investments potentially moderate the fluctuations to align with your tolerance for risk.

The stock market offers investments that carry various levels of risk. There are value, dividend paying stocks that have a lower volatility than emerging small cap stocks. Bonds are also available at various risk levels, allowing you to manage risk and performance within the portfolio.

Asset Allocation for Mitigating Volatility

Another method to help mitigate market risk and volatility is through Asset Allocation. This is the process of using several asset classes within an investment portfolio by apportioning a portfolio’s assets according to the individual goals, risk tolerance and investment horizon. Stock market investments have the general categories of stocks and bonds.

Stocks are broken down further between value stocks and growth stocks, with value generally being more conservative. Stocks that pay dividends are usually more conservative than stocks that do not, because investors are getting some return while they still hold the position. Stocks are also broken down by company size. These are denoted as large cap, mid cap and small cap stocks. Large cap stocks include companies like Microsoft, Apple, Bank of America and national names we all recognize. Small cap companies are those with 300 million to 2 billion in revenue, and mid-caps are between these two. The last large category is US companies and International or global companies.

Bonds are rated much like individual credit is rated. There are consumers that are a much lower risk than others and this is measured through individual credit scores. Bonds operate in a similar way. There are independent credit agencies like S&P and, Moody’s which rate company bond offerings. Bond ratings are expressed as letters ranging from ‘AAA‘, which is the highest grade, to ‘C’ (“junk“), which is the lowest grade. Different rating services use the same letter grades, but use various combinations of upper- and lower-case letters to differentiate themselves. Lower ratings represent higher default risk and thus higher interest rates to investors.

Selecting the best mix of stocks and bonds is a delicate balance. Spreading your investments choices across different categories may provide an effective way to reduce the overall volatility of a portfolio. As the market fluctuates not all stocks and bonds move up and down at the same rate or the same time. When asset allocation is used correctly there is a designed buffer against losses and the overall risk of the portfolio should be reduced.

Advantages of Dollar Cost Averaging

Dollar cost averaging is an investment strategy where you invest a fixed dollar amount on a regular schedule, regardless of the actual price of the stock, bond or other investment vehicle. There are several advantages to using this strategy.

Smaller amounts can be invested providing potential benefits of growth over time. Time in the market is much more important than market timing and dollar cost averaging gets you in the market on a regular basis.

Buying more shares when the stock has a lower price and less shares when the price is higher. . Even the best companies will see stock prices fluctuate based on a current news reports, events that impacts the industry, or seasonal fluctuations.

Dollar cost averaging helps reduce the risk of the overall portfolio because you are investing at regular intervals and buying more shares when the prices are low. This can be an effective way to grow your portfolio. Studies have shown that those who invest in regular intervals are more consistent with their investments, providing better overall growth, according to Morningstar⁵.

Dollar cost averaging does not protect against a loss in declining markets. Since such a plan involves continuous investments in securities regardless of the fluctuating price levels, the investor should consider his or her financial ability to continue such purchases through period of low price levels.

Financial strategies require a long term strategy. As such, volatility must be considered in your investment choices. Avoiding volatility because of fear can result in negative returns, when adding the impact of inflation. Working with a financial professional who understands volatility and uses strategies designed to enable you to build a portfolio which is suitable to your risk tolerance. Let us help you determine which investments are appropriate for your financial goals.


Learn more about our Investment Management services.

Related Reading:

Tips for Millennials to Understanding the Stock Market

What is Dollar Cost Averaging?

5 Things Investors Get Wrong

5 Big Picture Things Many Investors Don’t Do

Why and How to Get Started Investing Today

The Psychology of Investing

Rebalance Your Portfolio to Stay on Track With Investments

Behavioral Investing: Men are from Mars and Women are from Venus!

1. http://www.bankrate.com/cd.aspx and http://www.nerdwallet.com/rates/cds/best-cd-rates.
2. http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp
3. https://www.efficient.com/pdfs/A_Century_of_Evidence_on_Trend-Following_Investing.pdf
4. http://observationsandnotes.blogspot.com/2009/03/average-annual-stock-market-return.html
5. http://www.morningstar.com/InvGlossary/automatic_investment_plan.aspx