Our Investor Personality Study reveals how investors cope differently in a market crisis

In times of market turbulence, such as the current market swings caused by COVID-19, investors and their wealth advisors need to make challenging decisions and/or avoid bad ones. Standard Chartered’s new Investor Personality Study reveals the individual personality traits that have a major impact on the way investors react when faced with difficult investment decisions. Understanding these traits can help investors and their wealth advisors recognise and overcome the natural biases that can compromise their ability to make objective decisions about their portfolios, and to drive better investment outcomes.

The report surveyed 1,200 emerging affluent, affluent and high-net-worth (HNW) investors across Hong Kong, Singapore and Taiwan. It revealed nine personality traits that best describe each investor’s financial personality: Risk tolerance; Speculation; Composure; Confidence; Financial Comfort; Desire for Guidance; Impulsivity; Desire for Legacy; and Internal Locus of Control.

Based on these personality traits, the research revealed three main investor archetypes:

• The Comfortable Investor: Ranks high on Composure, Confidence, Internal Locus of Control and Financial Comfort, but low on Impulsivity and Speculation. They are likely to stay relatively calm and make relatively more reasonable decisions in turbulent times.
• The Conservative Investor: Ranks high on Financial Comfort and Internal Locus of Control. They rank low on Speculation and Impulsivity. However, unlike Comfortable investors, they rank lower on Confidence and Composure and have the lowest Desire for Guidance of all the groups. They are less likely to invest in volatile portfolios and prefer clear investing and decision-making principles.
• The Enthusiastic Investor: Ranks high on Speculation, Impulsivity and Desire for Guidance with moderate Composure. They have the lowest Internal Locus of Control (they are less likely to believe they control their own destiny and luck). They prefer to set aside a portion of their wealth to satisfy their impulse for speculative investments without jeopardising their entire wealth.

Understanding an investor’s archetype can provide insights into how they make decisions, how they could potentially improve their investments and even how they view their existing investment portfolios. Wealth advisors can even use these behavioural insights to develop ways of communicating that are more suited to each archetype, for instance avoiding messages that may cause discomfort to an investor with a high Composure score even though similar messages helped avoid a panicked response from someone with a low Composure score. The ability to personalise advice can help avoid sub-optimal responses from investors, particularly during stressful times.

The report also highlights cultural and geographical differences in the prevalence of each investor archetype across the three markets: Hong Kong has the highest concentration of Enthusiastic investors (40 per cent of the market total), who are relatively impulsive, speculative and believe in luck; Taiwan has the largest concentration of Conservative investors (44 per cent of the market total), who are more likely to be affluent investors rather than HNW investors, with relatively lower risk tolerance, while 47 per cent of all Comfortable investors are largely Singapore-based with more investing experience, a high desire to leave a positive legacy and more likely to be male.

Overall, investors in Asia stand out in their appetite for speculative investments, where some enjoy investment risk for its own sake rather than future returns. This is in stark contrast to Europe*, where investors exhibit consistently low speculation.

The report also finds that wealthier individuals have a higher ability to withstand volatility over their investment journey and are more impulsive. They also have a fractionally lower need for investment advice and guidance, compared to affluent and HNW investors.

Alexis Calla, Global Head, Investment Strategy and Advisory, and Chief Investment Officer, Standard Chartered, said: “Our investment approach, based on beating cognitive biases, helps clients recognise what can compromise their ability to make objective decisions, especially during periods of extreme market volatility such as the current COVID-19 scenario. We are combining behavioural insights with emerging technologies to build innovative tools to deliver a more personalised investment experience to our clients, from the choice of investment products, to how and when they receive information on their portfolio performance.”

*Based on previous research conducted by Oxford Risk Research & Analysis Ltd in Europe

The Standard Chartered Investor Personality Report surveyed the investor behaviour of 1,200 emerging affluent, affluent and high net worth investors across Hong Kong, Singapore and Taiwan. The survey was conducted by behavioural finance experts from Oxford Risk and used robust behavioural and attitudinal techniques. Respondents represented a broad range of age, gender, location, and education. For further details, please refer to the full report and methodology here: www.sc.com/en/banking/banking-for-individuals/uncover-your-biases/the-standard-chartered-investor-personality-study-2020.