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Once an investor has decided how much money to invest, how should one go about constructing a suitable portfolio? Match your investments to your personality. This is one of the most basic rules of smart personal investment. An investment advisor who recommends a high-risk potentially high-return portfolio for a nervous elderly investor will almost certainly have an unhappy client.

Conversely, a 20 year old who is at the start of his/her career will be satisfied with a safe but low-return portfolio. It is necessary to apply appropriate levels of exposure to various investment markets for different personality types. Advisors can fine-tune the recommended asset allocations according to their knowledge of individual clients, their own views on the markets and their own research. Investors can be classified into 5 main personality types.

The conservative investor : Risk must be very low and the investor is prepared to accept lower returns to preserve capital. The adverse effects of inflation and tax will not be of concern provided the initial investment is protected. Whilst it is not possible to be definitive about the types of people who fall into any particular profile most investment advisors would agree that elderly investors, retirees or investors who are unwilling to take any risk, for some reason or other, can be considered as conservative investors.

The cautious investor : The investor is seeking better-than-basic returns but risks must be low. Typically an older investor seeking to protect wealth which have been accumulated. Investors who often fit in this profile include a trustee of an estate or those with only a few years from retirement who prefer to switch away from risky investments to reduce chances of losses in the value of their portfolio.

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