Latest / Money Grows on Trees / #317 - The 3 Wealth Archetypes (Don’t Get This Wrong)

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#317 - The 3 Wealth Archetypes (Don’t Get This Wrong) · Money Grows on Trees

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  There are three types of investors when it comes to risk. Most people invest backwards. They chase
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  returns first and think about risks second. That's how you lose money. So here's the truth. Your risk
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  appetite isn't just about how much volatility you can handle. It's about your age, your income, your
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  goals, and your time horizon, and certainly your psychology. And if you get it wrong. If you're
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  going to aggressive when you should be conservative or you're too conservative, when you
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  should be aggressive, you're going to either blow up your portfolio or miss out on decades of
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  wealth creation. So I spent years helping people build portfolios that match their actual risk
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  tolerance, not what they think they can handle, what they can actually handle when markets crash
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  or fear takes over. So the next few minutes, I'm going to show you exactly how to assess your own
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  real risk appetite, how to build a portfolio that matches it, and how to avoid the biggest mistakes
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  investors make when they don't understand their own psychology. So firstly, what is risk tolerance?
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  Risk tolerance is not how aggressive you want to be. It's how you behave under pressure. Okay? That's
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  the difference. Anyone can tolerate risk in a bull market. Real tolerance shows up when markets crash.
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  Headlines in the news scream. Friends panic. Your neighbour panics. Your wife panics. Portfolios
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  bleed. Right. This is when the pressure's on. Okay. So have you ever experienced a true 30 to 50%
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  drawdown? Because if you haven't, you don't actually know your risk tolerance yet. Okay. So
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  getting into what they are. There are three investor archetypes. How many? Three. So let's
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  define them. Number one is the Guardian low risk tolerance which means you don't tolerate risk
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  well. And by risk I want to say is the moment. There's two things to risk. Just to nail this in
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  academics. Risk is the movement or volatility of an asset. That's why they say stocks are more
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  risky because they're the price swings and moves so much. However, as Warren Buffett and Charlie
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  Munger define risk, which is I think is how you should define it, is the risk of the likelihood or
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  the probability of permanent loss of capital. That's how I decide for risk. Okay. It's not the
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  movement of an asset. Okay. So just bear that in mind. Now let's go to the first archetype low risk
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  tolerance. Which means you don't tolerate volatility. Well that's what this means. So it's
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  the academic version because there's I don't think anyone would tolerate losing their capital
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  well. So if we can apply those risk tolerance measures under this it would be as an asset moves.
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  But also what's the likelihood you're going to lose your money. So the Guardian doesn't want
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  anything to do with permanent loss of capital. Okay. You're with me. So the Guardian values
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  stability and certainty. Okay. So psychologically, the Guardian hates
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  volatility. They lose sleep over market drops. They prefer predictability. They value
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  security over upside. And their portfolio trades are typically large cash buffers. They're like
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  broad diversified index exposure. You won't see them buying individual stocks. You won't see them
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  punting on crypto in no way. They love defensive assets. They love low leverage. So they don't like
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  having any debt as well okay. Their strengths are they can survive any downturn comfortably. Their
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  weaknesses they may sacrifice upside for safety. Okay, so here's a bit of history. During the crash
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  of 2008, even 2020, in Covid, guardians didn't panic because their portfolios didn't implode, right?
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  So if your portfolio dropped 25% or you felt physically stressed, like you couldn't sleep, you
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  felt sick during crashes, you're probably a guardian, okay? And that's not a weakness. A
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  guardian is someone who can survive, right? Totally fine. And I think it's a wonderful idea. In fact,
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  they're all great. They have their own traits. But you could be a guardian. Okay. And I'd love to know
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  in the comments below as I go through these. Which one are you? All right, the second one. Number two
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  is the builder. Okay. Now, these folks have moderate risk talents somewhere in the middle. Okay. The
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  builder understands that volatility is there, but they manage it. The psychology is they accept
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  drawdowns. They think long term and they seek growth. But with structure. Okay, they don't chase
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  hype. And the portfolio trades are typically heavy equity exposure. Some diversification across
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  sectors. Limited speculative allocation strong emergency fund and their strengths are balanced
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  growth with survivability. So it's a bit of a combo. Their weaknesses they can feel FOMO in
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  extreme bull markets. But builders definitely survived the dotcom crash. They survived GFC. They
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  survived Covid because they stayed invested and they had enough conservative ness in their
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  portfolio. Okay, so do you view crashes as opportunities but still want stability? If that's
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  the case then you have builder energy. Now, just so turns out that actually I'll leave you this. I'll
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  see if you can guess what I am at the end of these three archetypes. So stay to the end to
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  explain this and I'll tell you which one I am. All right. So the third one, this is the third one, the
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  hunter I should say the hunter. So high risk tolerance. The hunter seeks asymmetric upside. They
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  want they're like, oh there's no downside. Let's just go fully upside. Right. Who does want
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  asymmetric returns. But they look for them. Unfortunately they get caught out in non
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  asymmetrical terms and they lose a lot of money. So the psychology is they're super comfortable
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  with volatility. Right. They're they're usually entrepreneurs too. At the same time they've got
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  higher conviction mindsets like this is the way you'll see a lot of these people are like this.
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  This is the only this is how it's going to happen. And they like, come on my journey. And they you
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  know, I'm thinking I'm like Michael Saylor, right? High conviction mindset. They can tolerate major
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  swings, right? And they pursue very concentrated portfolios. In fact, you'll see these guys, they'll
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  have their entire net worth in just one asset class. One thing that could totally implode okay.
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  In their portfolios they're typically high growth asset sector concentration, speculative
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  allocations lots of speculation. So possibly a lot of crypto early stage venture capital Start-Ups
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  where the likelihood of success is low. But when it does succeed, it boom. It goes way up right. High
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  beta stocks which is like high volatility stocks a lot of growth stocks a lot of AI stuff AI
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  exposure. The strengths are they capture explosive upside. Like you can see some of these guys and
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  they go oh I've got you know I've built this $10 million portfolio in a few years. It's like, whoa,
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  How are you? Survived. Right. They flew close to the sun like Icarus, but they survived. Someone like
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  Elon Musk is this. He's a hunter. He has flown close to the sun on multiple occasions and
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  survived. And he's what we call. He displays what's called survivorship bias because most people
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  didn't survive that, but they capture a massive upside. The weakness, of course, is the higher
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  probability of making mistakes even if their discipline fails. So hunters thrive in bull
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  markets, but they seldom survive bear markets. Right. So they get knocked out. They often say, have
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  you ever really seen or met a 95 year old fat person obese person? The answer is no because
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  they've never made it. So it's the same like the hunter. If they make it their hunter tendencies,
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  they end up losing it again, you know? So you've got to be careful of this. If you genuinely
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  wouldn't flinch at a 50% drawdown, and if you've got, uh, no real financial buffer to survive it, you
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  might be a hunter. Just quickly, if you're ready to take control of your finances but feel. Stuck. On
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  where to start, I have a solution. My book, Money Bias Happiness simplifies investing and wealth
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  building with practical steps to help you achieve financial peace. Get your copy via the link in the
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  show notes and let's get your money working for you. Now back to the episode. So 100 is just
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  someone who takes bigger swings, right? So which one. Are. You? Which one are you? Which one do you
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  think I am? The biggest mistake. I'll tell you which one I am in a second. The biggest mistake
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  you can make as an investor is trying to be a hunter when you're a guardian. Right? And so you've
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  got to be careful. Because if you're a guardian and you're watching hunters like an influencer,
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  you'll try and copy the influencer, you'll copy friends who are hunters, you'll copy social media
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  portfolios, and then boom, when the volatility hits, you're panic. You're like, Holy shit, what am I
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  going to do, right? Markets don't destroy. Investors. It's the mismatched, mismatched risk that does it.
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  Okay, so are you investing according to your ego, your archetype, your investing archetype or your
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  psychology? Or you're just following people willy nilly into what theirs is? Right. And history will
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  punish the mismatch. So if we go back to the year 2000 tech collapse, like 2008, equities melted
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  50% of the GFC. Bitcoin. It's just had a huge 50% drawdown in the last few month or so that hunters
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  who weren't financially prepared have become four sellers. You can see on X, if you go and see all
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  these Bitcoin accounts, they're all hunters and they're just getting slain. They're all
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  capitulating. Like, what. Have I done? I've seen so many portfolios like I've lost everything. I've
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  never done hunters right. They weren't prepared financially. I mean, hunters that weren't prepared.
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  If you're a hunter and you're well prepared, you can survive it. Okay. Um, Guardians who became
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  overextended are more so. Probably them. Shouldn't laugh. But, you know, if you're a guardian, you've
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  become overextended because of Michael Saylor. Then you would become what's called traumatised.
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  You would have financial trauma. Okay, it's called lost pawn, and it's everywhere right now. So
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  builders who stayed in somewhere in the middle tend to be disciplined compound, as I'd say Warren
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  Buffett's a builder. Um, whereas Elon Musk is a hunter, I think because he could have gone broke
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  so many times. Right. Uh, so is your portfolio built to survive the worst year of the next decade?
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  That's my question to you. Is it because if it isn't, you might be too much. You might be
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  following the hunters too much. Okay. Hunters are like YOLO. Let's just go for this because you I
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  only get one life. So how do you build? How do you build based on your own archetype? Well, here's the
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  step. Ready? Step one. First foremost, identify your archetype. Pop in the comments below. What one are
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  you? All right, you're the guardian, the builder, or the hunter? Pop below. Which one are you? That's the
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  first step. Second step. Build allocation around that, around your emotional threshold. So not for
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  when times are good, but for when times get bad. Okay, I've redeployed and restructured our
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  portfolio based on those things and it without a doubt was one of the smartest things I did.
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  Because I understand my archetype and I understand to play around the archetype, I listen
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  to that archetype. I don't, I don't, I listen to it inherently. So that keeps me steady. Okay. Step
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  three stress test your portfolio. What do I mean by that? Well, what you got to play it out. What
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  happens if it falls 30%. And sometimes you don't know this until it actually happens to you, right?
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  What if income what if your income drops? What if what happens if markets go sideways for five? I
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  often think about this and people don't actually like hmm, could my portfolio survive me and my
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  psychology If it did nothing but just go sideways for 14 years, which is exactly what the Nasdaq did
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  from the year 2000 to 2014 went sideways. So could I survive that? Would the portfolio survive? But
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  would I survive not killing the portfolio? And the answer is yes, I would now. So I think asking these
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  questions allows you to fix your portfolio to you basically fix it against your own self-sabotage.
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  Right? And if your strategy breaks under stress, it's not really a line. So it's like you've got to
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  stress test it mentally and ask these good questions. Okay. So getting to me personally I lean
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  towards builder. Okay. So I'm in the middle there. Builder I prefer cash flowing income producing
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  assets durable businesses, compounding machines, limited speculation. I have no speculation. None. I
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  wouldn't think all the things I own are cash flowing, pieces of cash flowing businesses, private
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  business, or whatever it is. Even when I've got into businesses, entrepreneurship because I've got
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  now we've got five businesses and five companies, all each one of them has got downside protection.
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  It's all it was already proven and they were our asymmetric very much asymmetric doesn't mean
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  there's not risk as you build them because you've got to take swings and scale and so forth. But
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  they're calculated how I approach this through building mentality, which is why I'm not, you know,
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  you won't see me experiencing fast growth. I grind through and build things that have sustainability
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  and durability. That's me. I value endurance over adrenaline, basically, and a lot of people don't,
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  but I do. I don't need a swing for home runs. I need to survive and compound. Survive and compound.
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  When I was boxing, my boxing coach said, hey, you got to survive. You don't want to get knocked out.
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  You got to, you know, at least get to points. So you got a chance. You can't, you know, no chance. You're
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  knocked out. Right. So your defence as important as your offence sometimes offence is a great defence.
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  But you'll be careful you don't wear yourself out and get on the rope a dope. Like what happened to
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  George Foreman? Rumble of the jungle with Muhammad Ali. All right, well, so would you rather compound
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  at 12% for 20 years or chase 50% returns in your investing and risk blowing it up? This is what's
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  happening out there, right? I think you know the answer to that question, but you've got to be
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  reminded of it. So you need to identify your investing archetype. Don't need you You don't need
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  to have the most aggressive portfolio. You don't need to be the fastest. You just need to be the
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  most aligned. Okay. Guardians will build wealth slowly, slowly and steadily. Builders will build
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  consistently and intelligently, and hunters will build explosively, right? If they survive, you've
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  got to be careful. You're following them. They may not be here in a couple of years. Just so you know,
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  there's a lot that have gone right. So mismatch investors are the ones that lose. And knowing and
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  choosing your archetype is the most important thing right. So then build according to that. So
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  comment below again are you a guardian a builder or a hunter G, B or H below. And be honest, how
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  would you react to a 40% drawdown? If you want disciplined frameworks for long term wealth, hit
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  the subscribe button. Stay smart. See you in the next episode. Thanks for listening to Money Grows
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  on Trees. If you enjoyed the episode, leave a five star review on Apple Podcasts and Spotify, and
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