1 00:00:00,000 --> 00:00:06,079 There are three types of investors when it comes to risk. Most people invest backwards. They chase 2 00:00:06,080 --> 00:00:13,080 returns first and think about risks second. That's how you lose money. So here's the truth. Your risk 3 00:00:13,120 --> 00:00:19,000 appetite isn't just about how much volatility you can handle. It's about your age, your income, your 4 00:00:19,000 --> 00:00:24,040 goals, and your time horizon, and certainly your psychology. And if you get it wrong. If you're 5 00:00:24,040 --> 00:00:27,120 going to aggressive when you should be conservative or you're too conservative, when you 6 00:00:27,120 --> 00:00:33,360 should be aggressive, you're going to either blow up your portfolio or miss out on decades of 7 00:00:33,360 --> 00:00:37,560 wealth creation. So I spent years helping people build portfolios that match their actual risk 8 00:00:37,560 --> 00:00:43,720 tolerance, not what they think they can handle, what they can actually handle when markets crash 9 00:00:43,720 --> 00:00:48,759 or fear takes over. So the next few minutes, I'm going to show you exactly how to assess your own 10 00:00:48,759 --> 00:00:53,840 real risk appetite, how to build a portfolio that matches it, and how to avoid the biggest mistakes 11 00:00:53,840 --> 00:00:59,760 investors make when they don't understand their own psychology. So firstly, what is risk tolerance? 12 00:00:59,920 --> 00:01:04,729 Risk tolerance is not how aggressive you want to be. It's how you behave under pressure. Okay? That's 13 00:01:04,730 --> 00:01:10,849 the difference. Anyone can tolerate risk in a bull market. Real tolerance shows up when markets crash. 14 00:01:10,889 --> 00:01:17,529 Headlines in the news scream. Friends panic. Your neighbour panics. Your wife panics. Portfolios 15 00:01:17,529 --> 00:01:24,010 bleed. Right. This is when the pressure's on. Okay. So have you ever experienced a true 30 to 50% 16 00:01:24,010 --> 00:01:30,410 drawdown? Because if you haven't, you don't actually know your risk tolerance yet. Okay. So 17 00:01:30,730 --> 00:01:36,970 getting into what they are. There are three investor archetypes. How many? Three. So let's 18 00:01:36,970 --> 00:01:43,370 define them. Number one is the Guardian low risk tolerance which means you don't tolerate risk 19 00:01:43,370 --> 00:01:49,489 well. And by risk I want to say is the moment. There's two things to risk. Just to nail this in 20 00:01:49,489 --> 00:01:56,289 academics. Risk is the movement or volatility of an asset. That's why they say stocks are more 21 00:01:56,289 --> 00:02:02,249 risky because they're the price swings and moves so much. However, as Warren Buffett and Charlie 22 00:02:02,249 --> 00:02:08,449 Munger define risk, which is I think is how you should define it, is the risk of the likelihood or 23 00:02:08,449 --> 00:02:14,249 the probability of permanent loss of capital. That's how I decide for risk. Okay. It's not the 24 00:02:14,249 --> 00:02:20,089 movement of an asset. Okay. So just bear that in mind. Now let's go to the first archetype low risk 25 00:02:20,130 --> 00:02:24,129 tolerance. Which means you don't tolerate volatility. Well that's what this means. So it's 26 00:02:24,130 --> 00:02:27,969 the academic version because there's I don't think anyone would tolerate losing their capital 27 00:02:27,969 --> 00:02:32,889 well. So if we can apply those risk tolerance measures under this it would be as an asset moves. 28 00:02:32,889 --> 00:02:37,369 But also what's the likelihood you're going to lose your money. So the Guardian doesn't want 29 00:02:37,369 --> 00:02:42,729 anything to do with permanent loss of capital. Okay. You're with me. So the Guardian values 30 00:02:42,729 --> 00:02:49,049 stability and certainty. Okay. So psychologically, the Guardian hates 31 00:02:49,089 --> 00:02:55,729 volatility. They lose sleep over market drops. They prefer predictability. They value 32 00:02:55,729 --> 00:03:01,689 security over upside. And their portfolio trades are typically large cash buffers. They're like 33 00:03:01,729 --> 00:03:06,019 broad diversified index exposure. You won't see them buying individual stocks. You won't see them 34 00:03:06,020 --> 00:03:10,499 punting on crypto in no way. They love defensive assets. They love low leverage. So they don't like 35 00:03:10,499 --> 00:03:16,179 having any debt as well okay. Their strengths are they can survive any downturn comfortably. Their 36 00:03:16,179 --> 00:03:22,020 weaknesses they may sacrifice upside for safety. Okay, so here's a bit of history. During the crash 37 00:03:22,020 --> 00:03:28,739 of 2008, even 2020, in Covid, guardians didn't panic because their portfolios didn't implode, right? 38 00:03:28,779 --> 00:03:33,259 So if your portfolio dropped 25% or you felt physically stressed, like you couldn't sleep, you 39 00:03:33,259 --> 00:03:38,860 felt sick during crashes, you're probably a guardian, okay? And that's not a weakness. A 40 00:03:38,899 --> 00:03:45,219 guardian is someone who can survive, right? Totally fine. And I think it's a wonderful idea. In fact, 41 00:03:45,219 --> 00:03:48,819 they're all great. They have their own traits. But you could be a guardian. Okay. And I'd love to know 42 00:03:48,820 --> 00:03:53,420 in the comments below as I go through these. Which one are you? All right, the second one. Number two 43 00:03:53,460 --> 00:03:57,939 is the builder. Okay. Now, these folks have moderate risk talents somewhere in the middle. Okay. The 44 00:03:57,939 --> 00:04:02,779 builder understands that volatility is there, but they manage it. The psychology is they accept 45 00:04:02,780 --> 00:04:08,780 drawdowns. They think long term and they seek growth. But with structure. Okay, they don't chase 46 00:04:08,780 --> 00:04:14,499 hype. And the portfolio trades are typically heavy equity exposure. Some diversification across 47 00:04:14,499 --> 00:04:20,179 sectors. Limited speculative allocation strong emergency fund and their strengths are balanced 48 00:04:20,179 --> 00:04:25,099 growth with survivability. So it's a bit of a combo. Their weaknesses they can feel FOMO in 49 00:04:25,100 --> 00:04:29,539 extreme bull markets. But builders definitely survived the dotcom crash. They survived GFC. They 50 00:04:29,540 --> 00:04:34,420 survived Covid because they stayed invested and they had enough conservative ness in their 51 00:04:34,420 --> 00:04:40,379 portfolio. Okay, so do you view crashes as opportunities but still want stability? If that's 52 00:04:40,380 --> 00:04:46,379 the case then you have builder energy. Now, just so turns out that actually I'll leave you this. I'll 53 00:04:46,380 --> 00:04:50,260 see if you can guess what I am at the end of these three archetypes. So stay to the end to 54 00:04:50,260 --> 00:04:54,819 explain this and I'll tell you which one I am. All right. So the third one, this is the third one, the 55 00:04:54,820 --> 00:05:01,540 hunter I should say the hunter. So high risk tolerance. The hunter seeks asymmetric upside. They 56 00:05:01,540 --> 00:05:05,100 want they're like, oh there's no downside. Let's just go fully upside. Right. Who does want 57 00:05:05,140 --> 00:05:08,790 asymmetric returns. But they look for them. Unfortunately they get caught out in non 58 00:05:08,790 --> 00:05:13,349 asymmetrical terms and they lose a lot of money. So the psychology is they're super comfortable 59 00:05:13,350 --> 00:05:17,549 with volatility. Right. They're they're usually entrepreneurs too. At the same time they've got 60 00:05:17,549 --> 00:05:21,510 higher conviction mindsets like this is the way you'll see a lot of these people are like this. 61 00:05:21,510 --> 00:05:25,189 This is the only this is how it's going to happen. And they like, come on my journey. And they you 62 00:05:25,189 --> 00:05:29,790 know, I'm thinking I'm like Michael Saylor, right? High conviction mindset. They can tolerate major 63 00:05:29,790 --> 00:05:35,189 swings, right? And they pursue very concentrated portfolios. In fact, you'll see these guys, they'll 64 00:05:35,189 --> 00:05:41,029 have their entire net worth in just one asset class. One thing that could totally implode okay. 65 00:05:41,070 --> 00:05:45,469 In their portfolios they're typically high growth asset sector concentration, speculative 66 00:05:45,470 --> 00:05:51,350 allocations lots of speculation. So possibly a lot of crypto early stage venture capital Start-Ups 67 00:05:51,350 --> 00:05:56,269 where the likelihood of success is low. But when it does succeed, it boom. It goes way up right. High 68 00:05:56,309 --> 00:06:00,349 beta stocks which is like high volatility stocks a lot of growth stocks a lot of AI stuff AI 69 00:06:00,350 --> 00:06:05,109 exposure. The strengths are they capture explosive upside. Like you can see some of these guys and 70 00:06:05,109 --> 00:06:09,509 they go oh I've got you know I've built this $10 million portfolio in a few years. It's like, whoa, 71 00:06:09,589 --> 00:06:14,389 How are you? Survived. Right. They flew close to the sun like Icarus, but they survived. Someone like 72 00:06:14,390 --> 00:06:20,509 Elon Musk is this. He's a hunter. He has flown close to the sun on multiple occasions and 73 00:06:20,510 --> 00:06:27,189 survived. And he's what we call. He displays what's called survivorship bias because most people 74 00:06:27,189 --> 00:06:31,269 didn't survive that, but they capture a massive upside. The weakness, of course, is the higher 75 00:06:31,269 --> 00:06:36,430 probability of making mistakes even if their discipline fails. So hunters thrive in bull 76 00:06:36,430 --> 00:06:41,350 markets, but they seldom survive bear markets. Right. So they get knocked out. They often say, have 77 00:06:41,350 --> 00:06:46,469 you ever really seen or met a 95 year old fat person obese person? The answer is no because 78 00:06:46,469 --> 00:06:51,589 they've never made it. So it's the same like the hunter. If they make it their hunter tendencies, 79 00:06:51,589 --> 00:06:55,790 they end up losing it again, you know? So you've got to be careful of this. If you genuinely 80 00:06:55,829 --> 00:07:02,709 wouldn't flinch at a 50% drawdown, and if you've got, uh, no real financial buffer to survive it, you 81 00:07:02,709 --> 00:07:07,109 might be a hunter. Just quickly, if you're ready to take control of your finances but feel. Stuck. On 82 00:07:07,109 --> 00:07:12,839 where to start, I have a solution. My book, Money Bias Happiness simplifies investing and wealth 83 00:07:12,839 --> 00:07:17,959 building with practical steps to help you achieve financial peace. Get your copy via the link in the 84 00:07:17,959 --> 00:07:22,640 show notes and let's get your money working for you. Now back to the episode. So 100 is just 85 00:07:22,640 --> 00:07:26,399 someone who takes bigger swings, right? So which one. Are. You? Which one are you? Which one do you 86 00:07:26,400 --> 00:07:30,199 think I am? The biggest mistake. I'll tell you which one I am in a second. The biggest mistake 87 00:07:30,240 --> 00:07:35,640 you can make as an investor is trying to be a hunter when you're a guardian. Right? And so you've 88 00:07:35,640 --> 00:07:39,519 got to be careful. Because if you're a guardian and you're watching hunters like an influencer, 89 00:07:39,600 --> 00:07:43,399 you'll try and copy the influencer, you'll copy friends who are hunters, you'll copy social media 90 00:07:43,399 --> 00:07:47,959 portfolios, and then boom, when the volatility hits, you're panic. You're like, Holy shit, what am I 91 00:07:47,960 --> 00:07:53,159 going to do, right? Markets don't destroy. Investors. It's the mismatched, mismatched risk that does it. 92 00:07:53,200 --> 00:07:57,319 Okay, so are you investing according to your ego, your archetype, your investing archetype or your 93 00:07:57,359 --> 00:08:02,959 psychology? Or you're just following people willy nilly into what theirs is? Right. And history will 94 00:08:02,959 --> 00:08:09,599 punish the mismatch. So if we go back to the year 2000 tech collapse, like 2008, equities melted 95 00:08:09,640 --> 00:08:15,360 50% of the GFC. Bitcoin. It's just had a huge 50% drawdown in the last few month or so that hunters 96 00:08:15,360 --> 00:08:19,119 who weren't financially prepared have become four sellers. You can see on X, if you go and see all 97 00:08:19,119 --> 00:08:23,000 these Bitcoin accounts, they're all hunters and they're just getting slain. They're all 98 00:08:23,000 --> 00:08:27,480 capitulating. Like, what. Have I done? I've seen so many portfolios like I've lost everything. I've 99 00:08:27,480 --> 00:08:33,240 never done hunters right. They weren't prepared financially. I mean, hunters that weren't prepared. 100 00:08:33,240 --> 00:08:37,759 If you're a hunter and you're well prepared, you can survive it. Okay. Um, Guardians who became 101 00:08:37,760 --> 00:08:43,879 overextended are more so. Probably them. Shouldn't laugh. But, you know, if you're a guardian, you've 102 00:08:43,919 --> 00:08:47,840 become overextended because of Michael Saylor. Then you would become what's called traumatised. 103 00:08:47,840 --> 00:08:52,479 You would have financial trauma. Okay, it's called lost pawn, and it's everywhere right now. So 104 00:08:52,480 --> 00:08:57,560 builders who stayed in somewhere in the middle tend to be disciplined compound, as I'd say Warren 105 00:08:57,560 --> 00:09:02,159 Buffett's a builder. Um, whereas Elon Musk is a hunter, I think because he could have gone broke 106 00:09:02,159 --> 00:09:06,718 so many times. Right. Uh, so is your portfolio built to survive the worst year of the next decade? 107 00:09:06,719 --> 00:09:10,359 That's my question to you. Is it because if it isn't, you might be too much. You might be 108 00:09:10,359 --> 00:09:13,928 following the hunters too much. Okay. Hunters are like YOLO. Let's just go for this because you I 109 00:09:13,929 --> 00:09:19,369 only get one life. So how do you build? How do you build based on your own archetype? Well, here's the 110 00:09:19,369 --> 00:09:24,009 step. Ready? Step one. First foremost, identify your archetype. Pop in the comments below. What one are 111 00:09:24,010 --> 00:09:27,769 you? All right, you're the guardian, the builder, or the hunter? Pop below. Which one are you? That's the 112 00:09:27,770 --> 00:09:33,169 first step. Second step. Build allocation around that, around your emotional threshold. So not for 113 00:09:33,169 --> 00:09:37,690 when times are good, but for when times get bad. Okay, I've redeployed and restructured our 114 00:09:37,690 --> 00:09:43,009 portfolio based on those things and it without a doubt was one of the smartest things I did. 115 00:09:43,009 --> 00:09:48,169 Because I understand my archetype and I understand to play around the archetype, I listen 116 00:09:48,169 --> 00:09:54,169 to that archetype. I don't, I don't, I listen to it inherently. So that keeps me steady. Okay. Step 117 00:09:54,169 --> 00:10:00,849 three stress test your portfolio. What do I mean by that? Well, what you got to play it out. What 118 00:10:00,849 --> 00:10:04,609 happens if it falls 30%. And sometimes you don't know this until it actually happens to you, right? 119 00:10:04,650 --> 00:10:09,210 What if income what if your income drops? What if what happens if markets go sideways for five? I 120 00:10:09,210 --> 00:10:14,609 often think about this and people don't actually like hmm, could my portfolio survive me and my 121 00:10:14,609 --> 00:10:20,330 psychology If it did nothing but just go sideways for 14 years, which is exactly what the Nasdaq did 122 00:10:20,330 --> 00:10:25,530 from the year 2000 to 2014 went sideways. So could I survive that? Would the portfolio survive? But 123 00:10:25,530 --> 00:10:31,089 would I survive not killing the portfolio? And the answer is yes, I would now. So I think asking these 124 00:10:31,090 --> 00:10:37,729 questions allows you to fix your portfolio to you basically fix it against your own self-sabotage. 125 00:10:37,810 --> 00:10:42,369 Right? And if your strategy breaks under stress, it's not really a line. So it's like you've got to 126 00:10:42,369 --> 00:10:48,329 stress test it mentally and ask these good questions. Okay. So getting to me personally I lean 127 00:10:48,330 --> 00:10:53,569 towards builder. Okay. So I'm in the middle there. Builder I prefer cash flowing income producing 128 00:10:53,569 --> 00:10:59,210 assets durable businesses, compounding machines, limited speculation. I have no speculation. None. I 129 00:10:59,210 --> 00:11:04,609 wouldn't think all the things I own are cash flowing, pieces of cash flowing businesses, private 130 00:11:04,609 --> 00:11:08,369 business, or whatever it is. Even when I've got into businesses, entrepreneurship because I've got 131 00:11:08,369 --> 00:11:13,889 now we've got five businesses and five companies, all each one of them has got downside protection. 132 00:11:13,889 --> 00:11:19,539 It's all it was already proven and they were our asymmetric very much asymmetric doesn't mean 133 00:11:19,539 --> 00:11:22,979 there's not risk as you build them because you've got to take swings and scale and so forth. But 134 00:11:22,979 --> 00:11:28,059 they're calculated how I approach this through building mentality, which is why I'm not, you know, 135 00:11:28,099 --> 00:11:33,140 you won't see me experiencing fast growth. I grind through and build things that have sustainability 136 00:11:33,140 --> 00:11:37,619 and durability. That's me. I value endurance over adrenaline, basically, and a lot of people don't, 137 00:11:37,659 --> 00:11:43,939 but I do. I don't need a swing for home runs. I need to survive and compound. Survive and compound. 138 00:11:43,939 --> 00:11:49,179 When I was boxing, my boxing coach said, hey, you got to survive. You don't want to get knocked out. 139 00:11:49,219 --> 00:11:53,180 You got to, you know, at least get to points. So you got a chance. You can't, you know, no chance. You're 140 00:11:53,219 --> 00:11:57,459 knocked out. Right. So your defence as important as your offence sometimes offence is a great defence. 141 00:11:57,460 --> 00:12:00,619 But you'll be careful you don't wear yourself out and get on the rope a dope. Like what happened to 142 00:12:00,619 --> 00:12:05,019 George Foreman? Rumble of the jungle with Muhammad Ali. All right, well, so would you rather compound 143 00:12:05,020 --> 00:12:09,819 at 12% for 20 years or chase 50% returns in your investing and risk blowing it up? This is what's 144 00:12:09,820 --> 00:12:12,939 happening out there, right? I think you know the answer to that question, but you've got to be 145 00:12:12,939 --> 00:12:18,659 reminded of it. So you need to identify your investing archetype. Don't need you You don't need 146 00:12:18,659 --> 00:12:21,539 to have the most aggressive portfolio. You don't need to be the fastest. You just need to be the 147 00:12:21,539 --> 00:12:26,979 most aligned. Okay. Guardians will build wealth slowly, slowly and steadily. Builders will build 148 00:12:26,979 --> 00:12:33,499 consistently and intelligently, and hunters will build explosively, right? If they survive, you've 149 00:12:33,500 --> 00:12:36,779 got to be careful. You're following them. They may not be here in a couple of years. Just so you know, 150 00:12:36,820 --> 00:12:42,459 there's a lot that have gone right. So mismatch investors are the ones that lose. And knowing and 151 00:12:42,460 --> 00:12:46,659 choosing your archetype is the most important thing right. So then build according to that. So 152 00:12:46,659 --> 00:12:53,539 comment below again are you a guardian a builder or a hunter G, B or H below. And be honest, how 153 00:12:53,539 --> 00:12:58,058 would you react to a 40% drawdown? If you want disciplined frameworks for long term wealth, hit 154 00:12:58,059 --> 00:13:01,739 the subscribe button. Stay smart. See you in the next episode. Thanks for listening to Money Grows 155 00:13:01,739 --> 00:13:06,939 on Trees. If you enjoyed the episode, leave a five star review on Apple Podcasts and Spotify, and 156 00:13:06,940 --> 00:13:11,340 subscribe to us on YouTube so you never miss an episode. And if you're serious about building 157 00:13:11,340 --> 00:13:15,659 wealth, make sure to check out the links in the show notes and follow me on all social media 158 00:13:15,659 --> 00:13:20,618 platforms at Lloyd James Ross for more. See you in the next episode.