What Kind of an Investor Are You? Find Out With These 15 Questions

Investing helps you build wealth. But there's not just one way to invest.

Some people are active investors and individually select assets to buy. Others do better putting their choices into the hands of others or choosing simpler investment options. Some investors are also willing and able to take on more risk than others and make this technique work for them.

Figuring out what kind of investor you are can help to guide you in the choices you make so you'll know what types of accounts to open and what kind of assets to consider buying.

These 15 questions can shed light on your investing style so you can decide on an approach that's likely to pay off for you.

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If you are willing to take on more risk, you have the potential to earn higher returns. But some investors are scared of losing money or don't have the time to recover if they do, so they can't afford to take these types of chances.

It's important to assess your risk tolerance so you can decide whether to build an aggressive portfolio, a conservative one, or somewhere in between.

ALSO READ: Risk Tolerance Was the First Thing I Reviewed With Clients for These 3 Reasons

With virtually all types of investments, there is a chance you will experience losses -- at least temporarily. But in many cases, if you've made sound decisions, your investments can recover and eventually turn a profit as long as you're willing to wait out downturns.

The problem is, if you're likely to panic sell and won't be able to wait for things to turn around, you can end up locking in temporary losses and making them permanent.

If this sounds like something you'd do, you likely need to be more conservative in your investment approach so you're less likely to make bad choices based on big downward swings.

If you want to invest in individual stocks and actively manage your portfolio -- or if you want to invest in riskier or more volatile assets such as cryptocurrency -- you are going to need to devote a lot more time to investing. You'll need to spend time researching what assets to buy and monitor your investments carefully so you can react to big changes in the fundamentals.

If you don't want to devote much or any time to investing, you may want to opt for a more passive approach. For example, you may want to use a robo-advisory service or buy a target date fund so you don't have to spend any time at all on portfolio management.

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Are you investing to try to make a quick profit? Is your goal to slowly and steadily build a retirement nest egg over time? Do you want to double your money within a decade?

Your goals will determine whether you should be an aggressive or conservative investor, as well as whether to actively manage your money yourself or not.

If you hope to double your money, you'll likely need to spend a lot of time researching stocks to buy with the potential for explosive growth. But if you want to slowly build a retirement nest egg, a target date fund or S&P 500 exchange-traded fund (ETF) could be the way to go.

If you are going to need to rely on your investments to begin producing income within a few years, you'll have to be a much more conservative investor than if you have decades left to invest.

Your timeline matters because you have less time to wait out downturns or to bounce back from big losses if you must rely on the money soon.

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Typically, people tend to do better at picking individual assets such as stocks or cryptocurrencies to invest in if they are interested in and engaged in the process.

If you don't want to spend time doing things like reading company earnings reports, you'll need to take a more passive approach to investing.

ALSO READ: Don't Trust Yourself to Pick Stocks? Do This Instead.

Sometimes it's very easy to pick an investment. If you want to buy an S&P 500 index fund or an ETF that tracks the performance of the market as a whole, you can find one within minutes and it doesn't matter a whole lot which one you buy.

But in other cases, you'll need much more knowledge to decide what assets to purchase. This is the case, for example, if you want to invest in real estate in the metaverse or altcoins or even if you want to buy individual stocks in small companies that aren't household names.

Be realistic about your level of knowledge because you don't want to invest in anything you don't understand.

If you want to have control over how your portfolio looks, this will dictate that you take a different approach to investing than someone willing to hand off some or all of the responsibility.

Obviously, you wouldn't want to use a robo-advisor or a target date fund in this situation since these options mean you're largely putting the performance of your portfolio in someone else's hands.

ALSO READ: Why I'm No Longer Investing With Robo-Advisors

Sometimes people feel better with a professional in control. If so, working with an investment advisor or using a robo-advisor that picks your investments based on an algorithm could be a good approach.

If you don't trust others, though, you'll need to learn the ins and outs of building a diversified portfolio so you can decide what type of assets to bet your future on.

The amount of money you have available to you can dictate your investment style in a few different ways.

First, there are certain kinds of investments that you'll need more money to make. You can't typically buy physical real estate with very little cash, for example.

Second, if you don't have much money, you may not be able to recover from losses as well as someone with more cash to spare. So you may decide you want to be more conservative in your investment choices.

On the other hand, you may also decide you'd rather put your limited cash on the line and choose more aggressive investments because otherwise it would be harder to build wealth with a limited income.

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Long-term investing is generally the best approach to building wealth over time. It eliminates the problem of trying to time the market and maximizes the chances your investments will be successful and eventually earn the returns you're hoping for.

If you're interested in making a quick profit day trading, this is a higher-risk strategy that will involve buying very different types of assets than those favored by long-term buy-and-hold investors.

ALSO READ: Investment Strategies for the Long Term

If you have a lot of confidence in your investing skills, then it may make sense to be a more active and aggressive investor.

Not only is this approach more likely to pay off if you know what you're doing, but having confidence reduces the chances you'll make bad decisions such as panic selling and locking in losses you could have recovered from.

If you don't trust yourself, then you may want to opt for a more passive approach with investments that have a long track record of performing well over time -- even if the potential returns you can earn are reduced.

Some investing strategies, such as using a robo-advisor or buying actively managed mutual funds, require you to pay fees. These eat into your potential returns and can reduce profits over time.

Still, if you want to take a hands-off approach, you may be willing to pay these fees in exchange for not having to spend time researching assets and keeping a close eye on your portfolio.

ALSO READ: How Investment Fees Add Up to Cost You Big Time

If you're scared about losing money, then you'll want to take this fear into account and invest more conservatively. This will reduce the chances your investments perform poorly and cause those much-feared losses.

Investing when you're afraid of losses can also be a self-fulfilling prophecy, as you can end up selling low because you panic when you hit a temporary bump in the road. You don't want this to happen to you.

Finally, you'll want to consider what sources of financial advice you trust. This can shape both what type of investor you should be and the assets you invest in.

If you tend to trust your own instincts, then you may be better off actively managing your portfolio. But if you are likely to get swept up by social media hype, this can be a high-risk approach to investing that could end up costing you if you're trading actively based on questionable advice.

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By considering these 15 issues, you can decide what investing approach makes sense.

Be sure that whatever you decide, you monitor your performance and make sure you're on track with your investment goals. If things aren't going right, making a change could be worth it. But if you are earning the expected returns, this should help give you even more confidence to stay the course and embrace your investing style.

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