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Is Your Personality Right For Investing?

Over the past few decades the advent of behavioral economics has put the kibosh on the idea that we’re all highly effective rational machines when it comes to money matters. We’re now all well aware that our emotions come into play and can often lead us down some costly investing paths. It may be easy for Warren Buffett to become greedy when others are fearful and fearful when others are greedy, but it sure doesn’t come easily to most of us.

And it turns out it’s not just our emotional constitution that can have a large impact on our finances. Personality matters too. A recent study conducted by the Center for Retirement Research at the University of Michigan pored over the earnings history of nearly 10,000 folks age 50+ who submitted to a survey of their personality traits and came away with some telling results.

When it comes to the study of personality, researchers have long worked with what are considered the “five big” traits:

  1. Conscientiousness
  2. Neuroticism
  3. Agreeableness
  4. Openness to Experience
  5. Extroversion

If you’re prone to being an organized sort who puts a high premium on being responsible and thorough, chances are you’re going to out-earn folks who aren’t as conscientious. According to the U of M study, folks who scored in the 85th percentile for conscientiousness earn about $1,500 more a year than folks in the 50th percentile.

Somewhat disturbingly-at least to me-is that agreeableness is a contrary indicator of earnings: seems that nice guys do, um, have a propensity to finish further down the earnings scale.

Another wad of research-from the University of Chicago this time-took a look at the impact of personality on earnings for a specific cohort: high-IQ folks. (okay, 130+ if you’re curious). Once again, the same trend emerged. The smarty pants that had scored high on conscientiousness (and extraversion) had much higher lifetime earnings. Here’s a quick graphic from the UofC study that shows the extent to which specific personality traits drive lifetime earnings:

Graph C is the doozy. There’s a high financial hit for being agreeable (your propensity to be helpful, friendly, sympathetic etc…). The nicer you are the less you’ll earn relative to a cold-hearted schnook. Personally, I’d be willing to take that earnings hit. Karma has its value too. You?

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