Photo by Alec Favale on Unsplash

There are four kinds of investors: the Ferrari, the Minivan, the School Bus, and the Park Bench.

Ferrari Investors

Most people like to think of themselves as Ferrari investors—always wanting the highest returns. Yet, these investors don’t mind mentally and financially taking the risk. They know the road can be dangerous, but they thrive on the thrill of the ride and the performance of the Ferrari.

They accept that markets fluctuate, and they can stomach a 50% drop in their portfolio because they believe they’ll come out ahead in the long run because history has shown markets go up and down and do recover. However, just like a Ferrari crash, when things go south, it can be extremely costly. And the reality is, very few investors can truly handle this level of volatility without losing sleep.

Minivan Investors

The Minivan investor, on the other hand, prioritizes safety and reliability over speed. Minivan investors still want good returns, but they’re not looking to take excessive risks to potentially get them. They’re willing to sacrifice some upside potential in exchange for a smoother, more predictable ride. If a Ferrari crashes, the driver might regret not having chosen a Minivan instead. The Minivan investor will arrive at the same destination at the Ferrari, it just may take longer.

School Bus Investors

Then we have the School Bus investors. School buses are slow, steady, and built to protect their passengers. These investors are cautious and conservative, focused more on preserving their wealth than chasing high returns. They’ll still get to their destination, but it’ll take longer. And if markets take a hit, their portfolios are built to withstand the impact. This category includes many retirees or those who are particularly more risk-averse.

Park Bench Investors

Finally, there’s the Park Bench investor. This is the person who is so risk-averse that they’d rather sit on the sidelines than participate in market fluctuations. They’re less interested in growth and more focused on keeping their money still and safe. While this might feel comfortable in the short term, sitting on the bench too long can mean missing out on potential growth opportunities and they are OK with that.

The key takeaway? Investing isn’t one-size-fits-all.

Your investment style depends on your risk tolerance, financial capacity, financial goals, and time horizon. And just like in life, your approach may change over time. A young investor may start as a Ferrari but eventually transition to a Minivan or School Bus as their priorities shift.

Markets will always have ups and downs. In the past twenty-five years alone, we’ve seen major downturns in 2001, 2008, and 2020. Despite those crashes, markets have continued to reach all-time highs. The important thing is to know your risk tolerance and make investment decisions that align with your long-term goals.

Fun fact: I keep three Hot Wheels cars on my desk—a Ferrari, a Minivan, and a School Bus—as a visual reminder of these different investment styles. My right-hand man, Mr. Lewis, rolls his eyes whenever I bring them up, but I know they resonate because I’ve even caught him using my analogy himself!

So, what kind of investor are you? A Ferrari chasing high-speed gains, a Minivan balancing risk and reward, a School Bus prioritizing safety, or a Park Bench avoiding the ride altogether? Understanding your investment personality is the first step to building a portfolio that lets you sleep soundly at night while still reaching your financial destination.

Most people think a financial plan is an investment plan but an investment plan is a subset of a financial plan.