#317 - The 3 Wealth Archetypes (Don’t Get This Wrong)

There are three types of investors when it comes to risk. Most people invest backwards. They chase returns first and think about risks second. That's how you lose money. So here's the truth. Your risk appetite isn't just about how much volatility you can handle. It's about your age, your income, your

goals, and your time horizon, and certainly your psychology. And if you get it wrong. If you're going to aggressive when you should be conservative or you're too conservative, when you should be aggressive, you're going to either blow up your portfolio or miss out on decades of

wealth creation. So I spent years helping people build portfolios that match their actual risk tolerance, not what they think they can handle, what they can actually handle when markets crash or fear takes over. So the next few minutes, I'm going to show you exactly how to assess your own real risk appetite, how to build a portfolio that matches it, and how to avoid the biggest mistakes investors make when they don't understand their own psychology. So firstly, what is risk tolerance?

Risk tolerance is not how aggressive you want to be. It's how you behave under pressure. Okay? That's the difference. Anyone can tolerate risk in a bull market. Real tolerance shows up when markets crash. Headlines in the news scream. Friends panic. Your neighbour panics. Your wife panics. Portfolios bleed. Right. This is when the pressure's on. Okay. So have you ever experienced a true 30 to 50% drawdown? Because if you haven't, you don't actually know your risk tolerance yet. Okay. So

getting into what they are. There are three investor archetypes. How many? Three. So let's define them. Number one is the Guardian low risk tolerance which means you don't tolerate risk well. And by risk I want to say is the moment. There's two things to risk. Just to nail this in academics. Risk is the movement or volatility of an asset. That's why they say stocks are more

risky because they're the price swings and moves so much. However, as Warren Buffett and Charlie Munger define risk, which is I think is how you should define it, is the risk of the likelihood or the probability of permanent loss of capital. That's how I decide for risk. Okay. It's not the movement of an asset. Okay. So just bear that in mind. Now let's go to the first archetype low risk

tolerance. Which means you don't tolerate volatility. Well that's what this means. So it's the academic version because there's I don't think anyone would tolerate losing their capital well. So if we can apply those risk tolerance measures under this it would be as an asset moves. But also what's the likelihood you're going to lose your money. So the Guardian doesn't want anything to do with permanent loss of capital. Okay. You're with me. So the Guardian values

stability and certainty. Okay. So psychologically, the Guardian hates volatility. They lose sleep over market drops. They prefer predictability. They value security over upside. And their portfolio trades are typically large cash buffers. They're like broad diversified index exposure. You won't see them buying individual stocks. You won't see them

punting on crypto in no way. They love defensive assets. They love low leverage. So they don't like having any debt as well okay. Their strengths are they can survive any downturn comfortably. Their weaknesses they may sacrifice upside for safety. Okay, so here's a bit of history. During the crash of 2008, even 2020, in Covid, guardians didn't panic because their portfolios didn't implode, right? So if your portfolio dropped 25% or you felt physically stressed, like you couldn't sleep, you

felt sick during crashes, you're probably a guardian, okay? And that's not a weakness. A guardian is someone who can survive, right? Totally fine. And I think it's a wonderful idea. In fact, they're all great. They have their own traits. But you could be a guardian. Okay. And I'd love to know in the comments below as I go through these. Which one are you? All right, the second one. Number two

is the builder. Okay. Now, these folks have moderate risk talents somewhere in the middle. Okay. The builder understands that volatility is there, but they manage it. The psychology is they accept drawdowns. They think long term and they seek growth. But with structure. Okay, they don't chase hype. And the portfolio trades are typically heavy equity exposure. Some diversification across sectors. Limited speculative allocation strong emergency fund and their strengths are balanced

growth with survivability. So it's a bit of a combo. Their weaknesses they can feel FOMO in extreme bull markets. But builders definitely survived the dotcom crash. They survived GFC. They survived Covid because they stayed invested and they had enough conservative ness in their portfolio. Okay, so do you view crashes as opportunities but still want stability? If that's the case then you have builder energy. Now, just so turns out that actually I'll leave you this. I'll

see if you can guess what I am at the end of these three archetypes. So stay to the end to explain this and I'll tell you which one I am. All right. So the third one, this is the third one, the

hunter I should say the hunter. So high risk tolerance. The hunter seeks asymmetric upside. They want they're like, oh there's no downside. Let's just go fully upside. Right. Who does want asymmetric returns. But they look for them. Unfortunately they get caught out in non asymmetrical terms and they lose a lot of money. So the psychology is they're super comfortable

with volatility. Right. They're they're usually entrepreneurs too. At the same time they've got higher conviction mindsets like this is the way you'll see a lot of these people are like this. This is the only this is how it's going to happen. And they like, come on my journey. And they you know, I'm thinking I'm like Michael Saylor, right? High conviction mindset. They can tolerate major swings, right? And they pursue very concentrated portfolios. In fact, you'll see these guys, they'll

have their entire net worth in just one asset class. One thing that could totally implode okay. In their portfolios they're typically high growth asset sector concentration, speculative allocations lots of speculation. So possibly a lot of crypto early stage venture capital Start-Ups where the likelihood of success is low. But when it does succeed, it boom. It goes way up right. High beta stocks which is like high volatility stocks a lot of growth stocks a lot of AI stuff AI

exposure. The strengths are they capture explosive upside. Like you can see some of these guys and they go oh I've got you know I've built this $10 million portfolio in a few years. It's like, whoa, How are you? Survived. Right. They flew close to the sun like Icarus, but they survived. Someone like Elon Musk is this. He's a hunter. He has flown close to the sun on multiple occasions and survived. And he's what we call. He displays what's called survivorship bias because most people

didn't survive that, but they capture a massive upside. The weakness, of course, is the higher probability of making mistakes even if their discipline fails. So hunters thrive in bull markets, but they seldom survive bear markets. Right. So they get knocked out. They often say, have you ever really seen or met a 95 year old fat person obese person? The answer is no because they've never made it. So it's the same like the hunter. If they make it their hunter tendencies,

they end up losing it again, you know? So you've got to be careful of this. If you genuinely wouldn't flinch at a 50% drawdown, and if you've got, uh, no real financial buffer to survive it, you might be a hunter. Just quickly, if you're ready to take control of your finances but feel. Stuck. On where to start, I have a solution. My book, Money Bias Happiness simplifies investing and wealth building with practical steps to help you achieve financial peace. Get your copy via the link in the

show notes and let's get your money working for you. Now back to the episode. So 100 is just someone who takes bigger swings, right? So which one. Are. You? Which one are you? Which one do you think I am? The biggest mistake. I'll tell you which one I am in a second. The biggest mistake you can make as an investor is trying to be a hunter when you're a guardian. Right? And so you've

got to be careful. Because if you're a guardian and you're watching hunters like an influencer, you'll try and copy the influencer, you'll copy friends who are hunters, you'll copy social media portfolios, and then boom, when the volatility hits, you're panic. You're like, Holy shit, what am I going to do, right? Markets don't destroy. Investors. It's the mismatched, mismatched risk that does it.

Okay, so are you investing according to your ego, your archetype, your investing archetype or your psychology? Or you're just following people willy nilly into what theirs is? Right. And history will punish the mismatch. So if we go back to the year 2000 tech collapse, like 2008, equities melted 50% of the GFC. Bitcoin. It's just had a huge 50% drawdown in the last few month or so that hunters who weren't financially prepared have become four sellers. You can see on X, if you go and see all

these Bitcoin accounts, they're all hunters and they're just getting slain. They're all capitulating. Like, what. Have I done? I've seen so many portfolios like I've lost everything. I've never done hunters right. They weren't prepared financially. I mean, hunters that weren't prepared. If you're a hunter and you're well prepared, you can survive it. Okay. Um, Guardians who became overextended are more so. Probably them. Shouldn't laugh. But, you know, if you're a guardian, you've

become overextended because of Michael Saylor. Then you would become what's called traumatised. You would have financial trauma. Okay, it's called lost pawn, and it's everywhere right now. So builders who stayed in somewhere in the middle tend to be disciplined compound, as I'd say Warren Buffett's a builder. Um, whereas Elon Musk is a hunter, I think because he could have gone broke so many times. Right. Uh, so is your portfolio built to survive the worst year of the next decade?

That's my question to you. Is it because if it isn't, you might be too much. You might be following the hunters too much. Okay. Hunters are like YOLO. Let's just go for this because you I only get one life. So how do you build? How do you build based on your own archetype? Well, here's the step. Ready? Step one. First foremost, identify your archetype. Pop in the comments below. What one are you? All right, you're the guardian, the builder, or the hunter? Pop below. Which one are you? That's the

first step. Second step. Build allocation around that, around your emotional threshold. So not for

when times are good, but for when times get bad. Okay, I've redeployed and restructured our portfolio based on those things and it without a doubt was one of the smartest things I did. Because I understand my archetype and I understand to play around the archetype, I listen to that archetype. I don't, I don't, I listen to it inherently. So that keeps me steady. Okay. Step three stress test your portfolio. What do I mean by that? Well, what you got to play it out. What

happens if it falls 30%. And sometimes you don't know this until it actually happens to you, right? What if income what if your income drops? What if what happens if markets go sideways for five? I often think about this and people don't actually like hmm, could my portfolio survive me and my psychology If it did nothing but just go sideways for 14 years, which is exactly what the Nasdaq did from the year 2000 to 2014 went sideways. So could I survive that? Would the portfolio survive? But

would I survive not killing the portfolio? And the answer is yes, I would now. So I think asking these questions allows you to fix your portfolio to you basically fix it against your own self-sabotage. Right? And if your strategy breaks under stress, it's not really a line. So it's like you've got to stress test it mentally and ask these good questions. Okay. So getting to me personally I lean

towards builder. Okay. So I'm in the middle there. Builder I prefer cash flowing income producing assets durable businesses, compounding machines, limited speculation. I have no speculation. None. I wouldn't think all the things I own are cash flowing, pieces of cash flowing businesses, private business, or whatever it is. Even when I've got into businesses, entrepreneurship because I've got now we've got five businesses and five companies, all each one of them has got downside protection.

It's all it was already proven and they were our asymmetric very much asymmetric doesn't mean there's not risk as you build them because you've got to take swings and scale and so forth. But they're calculated how I approach this through building mentality, which is why I'm not, you know, you won't see me experiencing fast growth. I grind through and build things that have sustainability and durability. That's me. I value endurance over adrenaline, basically, and a lot of people don't,

but I do. I don't need a swing for home runs. I need to survive and compound. Survive and compound. When I was boxing, my boxing coach said, hey, you got to survive. You don't want to get knocked out. You got to, you know, at least get to points. So you got a chance. You can't, you know, no chance. You're knocked out. Right. So your defence as important as your offence sometimes offence is a great defence.

But you'll be careful you don't wear yourself out and get on the rope a dope. Like what happened to George Foreman? Rumble of the jungle with Muhammad Ali. All right, well, so would you rather compound at 12% for 20 years or chase 50% returns in your investing and risk blowing it up? This is what's happening out there, right? I think you know the answer to that question, but you've got to be reminded of it. So you need to identify your investing archetype. Don't need you You don't need

to have the most aggressive portfolio. You don't need to be the fastest. You just need to be the most aligned. Okay. Guardians will build wealth slowly, slowly and steadily. Builders will build

consistently and intelligently, and hunters will build explosively, right? If they survive, you've got to be careful. You're following them. They may not be here in a couple of years. Just so you know, there's a lot that have gone right. So mismatch investors are the ones that lose. And knowing and choosing your archetype is the most important thing right. So then build according to that. So comment below again are you a guardian a builder or a hunter G, B or H below. And be honest, how

would you react to a 40% drawdown? If you want disciplined frameworks for long term wealth, hit the subscribe button. Stay smart. See you in the next episode. Thanks for listening to Money Grows on Trees. If you enjoyed the episode, leave a five star review on Apple Podcasts and Spotify, and subscribe to us on YouTube so you never miss an episode. And if you're serious about building wealth, make sure to check out the links in the show notes and follow me on all social media

platforms at Lloyd James Ross for more. See you in the next episode.