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Study uncovers 6 South African investment personality types
In a behavioural study that surveyed over 3 000 South African investors and financial planners, Nedgroup Investments has identified six investment personality archetypes that could give investors and advisers brand new insight into how they can make better investment decisions.
BY JANICE ROBERTS Editor: MoneyMarketing
Amy Jansen, Head of Behavioural Solutions at Nedgroup Investments, says the survey – one of the largest of its kind ever conducted in Africa – is part of a drive by the asset manager to foster better informed and more empowered investors in South Africa. “The investment industry has long used sophisticated techniques for building investment portfolios. Now, with this study, we have the opportunity to use the same level of sophistication to help investors make better decisions as they travel their investment journeys.”
She believes that by looking beyond demographics and delving into the psychological variables for individuals, it’s possible to create the best possible chance of ensuring that investors arrive at their investment goals.
Jansen led the survey in partnership with specialist behavioural economists, Oxford Risk. “We chose Oxford Risk for this exercise due to their specialisation and experience in researching the key drivers of investment behaviour across the world,” she says. “The methodology they use is built on the same foundations as more general personality models like the ‘Big 5’ or ‘OCEAN’ models, which you may have heard of.”
She believes that for people to have a successful investment journey, they have to be comfortable enough on a personal level to firstly, invest in a certain portfolio and secondly, stay invested in it for the appropriate timeframe. “If there is one thing this study illustrated, it’s that there is no one approach that will achieve this. It’s time for the investment industry to do things differently.”
The study assessed 12 personality traits* that have been known to affect investing behaviour across a variety of clients, and identified six main personality archetypes. The South African study revealed some very interesting differences between Nedgroup’s sample and the baseline studies that identified these traits:
• South African investors in the local sample show a stronger link between low composure and high desire for guidance: This means that in Nedgroup’s study, more nervous respondents tended to have a higher desire for professional help with their investments when compared to the more nervous investors of other studies.
• A stronger link between impact desire and impact trade-off: The desire for investments to do social good, and a willingness to make sacrifices in order to achieve this good, were more closely correlated in Nedgroup’s study compared with other surveyed populations.
• Higher scores on comparison tendency: The tendency for investors to compare investment returns with how the market, and others, have done, rather than just focusing on their own returns, is significantly higher in the local sample than in the UK baseline.
• Higher scores on internal locus of control: The belief in skill and hard work, rather than luck, as determinants of investment success is significantly higher in Nedgroup’s sample than in the UK baseline.
Interestingly, when the demographics are investigated, the six investing personalities identified occur in all ages, and both genders.
Investor personality archetypes
The low composure groups
The low composure groups as identified by the study are groups that are easily affected by short term news about their investments. They also tend to want more guidance from professionals.
Within this, there is the ‘Stressed’ group who seem to be generally uncomfortable with investing – low composure, low confidence, and low financial comfort. This group would likely appreciate things being slowed
down, spelled out, and simplified for them. The ‘Sensitive’ group have the highest impact trade-off and impact desire, as well as the highest desire for guidance and locus of control. This indicates that they are interested in doing social good with their investments and would appreciate active professional help to do so.
Meanwhile, the ‘Skittish’ group had the strongest response to questions indicating that although they are financially comfortable now, they fear a future event where they may need to draw down on their investments for income.
The high composure groups
The high composure groups are groups that are typically less unsettled by news that could affect their investments. They also have a more muted desire for guidance.
The ‘Secluded’ group have particularly high composure and the lowest desire for guidance, which indicates that essentially, this group is more than happy to look after themselves.
Meanwhile, as the name suggests, the ‘Secure’ group displayed a much more muted desire for guidance, while interestingly also showing a high interest in impact.
The survey has practical implications when it comes to the way that financial companies interact with their investors. For example, advisers can focus on adapting to the underlying personality of the investor and anticipate how they are likely to react – and accommodate that rather than trying to change how they are feeling.
“Understanding the influence of personality on behaviour allows us to identify what could derail each investor’s investment journey. Harnessing this insight, we can create the infrastructure to support those journeys that increases the likelihood that investors make choices through the journey that match their investment goal,” says Jansen.
*Composure, confidence, desire for guidance, comparison tendency, withdrawal preference, familiarity preference, impulsivity, financial comfort, internal locus of control, impact desire, need for evidence, and impact trade-off.
To see the full Nedgroup Investments Personality Report 2021, go to https://bit.ly/3hrIVhC
Amy Jansen, Head of Behavioural Solutions, Nedgroup Investments
