Nevertheless, it's really a balancing act between risk and return, with each investor having unique requirements, as well as a unique financial outlook. What must remain constant throughout, however, is the delivery of an investment program that is not only specific to an investor's personal needs but that also works well and provides financial security for the future. Within these constraints too, there should also be the opportunity to have some fun with investments if clients should so wish. For example, by, say, using a small proportion of available funds for dealing in more speculative investments such as technology companies or emerging market stocks.

To this end psychologists have become increasingly involved during recent years in attempting to classify, or provide some sort of typography of, different sorts of investor. The assumption is that investors, in one form or another, represent just a handful of types, and that then matching the investor to the investment will lead to better returns.

Besides being useful for clients, investor typographies have benefits for the professional as well. Many discount brokers make money on the high turnover of dealing. But as bull markets turn into bear markets, investors may shy away, leaving a hole in brokerage commission. Any method that gives brokers a marketing edge, under these conditions, is useful. Additionally, quality brokerage houses would love to have this information available as it gives them a way of targeting clients with a range of financial products more effectively - including insurance, saving schemes, mutual funds, and so forth. Overall, many responsible brokerage houses realize that if they provide an effective service that is tailored to individual needs, in the long-term there is far more chance they'll keep their clients through the bad market times as well as the good.

Yet, though it may be true that investors can be categorized according to a limited number of types, it has also led to much of the same ground being covered in the professional and popular literature on the subject; which is to say, most systems embody similar types but the names are different. In one source an investor may be classed as 'A "Stay At Home" Investor, while in another an investor may be referred to as an 'Inertia Riddled Investor'. Similarly, there may be no difference between a 'Careful Investor' and a 'Cautious Investor'. On the other hand, there may be some difference depending on what the researcher had in mind. We haven't yet reached a stage where there is consensus about what different types should be called or indeed what the types should mean in terms of their specific constellation of characteristics.

Another difficulty is that as the fashion in behavioral finance and investment psychology gains momentum and catches the public's imagination, books appear structured according to several types and a chapter is written outlining how such an investor behaves - in other words, the book is structured round a typography; and the typography is assumed to be correct and reflective of how different investors behave, which it may not be. One of the better examples, however, is in John Schott's Mind Over Money, where investors are profiled as: The "I Can't Stop Worrying Investor", The Power Investor, The Inheritor, The Impulsive Investor, The Gambler, "The Make Me Safe Investor", and The Confident Investor. In sum, what this boils down to is that these forms of classification system, even at their best, are still very much in their infancy. But, while they may still suffer from the problem of their meaning being similar to other typographies, as well as of greatly oversimplifying the different investor behaviors, the more carefully produced ones do draw to some extent on theories of personality already in the psychological profession's armory, and can therefore be helpful for increasing investor awareness.

Research, however, has gone further than what may be seen in popular books or Cosmo-type magazine articles. Below are several classification systems that bear greater scrutiny. Further information about the first two, by the way, can be found in: Individual Investors, Ronald W Kaiser, Chapter 3 in Managing Investment Portfolios: A Dynamic Process, John L Magnin and Donald L Tuttle (eds), Warren, Gorham & Lamont (1983; Student Edition, The Association for Investment Management and Research 1990).

The Barnwell Two-Way Model is a deceptively simple model that classifies investors as either 'passive' or 'active'. Marilyn MacGruder Barnwell of the MacGruder Agency, Inc. developed it in 1987.

Passive investors are characterized as individuals who have become wealthy passively - by inheriting, by a professional career, or by risking the money of others rather than their own money. To these investors security is more important than risk In addition, certain classes of occupation are more likely to contain passive investors. For example, non-surgical doctors, corporate executives, lawyers and accountants who work in companies. Reasons for this are that these individuals are less likely to have high financial resources at an early stage in their careers, having had to delay earning good salaries in order to study or having to repay student loans. Once earning a decent wage, they are then more careful with their money, having a greater need for security. Anyone, therefore, with reduced financial recourses is likely to be more risk conscious and, hence, a passive investor. For these individuals it's important to hang on to their money.

Passive investors make good clients because they tend to trust their financial advisor and are more likely to delegate the running of their financial affairs. And because they are risk averse, they tend to like diversified portfolios of investments in quality companies or investment products. However, they can believe that an investment is more risky than it is, which may keep them out of potentially lucrative opportunities. Passive investors are also more likely to need the approval of others and are unlikely to take a first step into unknown investment territory by being a contrarian. Consequently, they are more likely to follow the investment herd when it comes to stock market investment and stick to following the trend.

Active investors, according to Barnwell, are those who have achieved significant wealth, or earned well, during their own lifetime. They are more likely to take risks in investing because they have previous experience of taking risks in their previous wealth creation. These individuals have a high-risk tolerance and less of a need for security. They also need to feel in control of their investments, often to the extent of becoming highly involved with the running of their investments, researching or becoming overly involved with technicalities. The need for control is related to the fact that they have a strong belief in themselves and their own abilities. Once they feel they are losing control of an investment situation, their risk tolerance reduces. By being actively involved and in control, these investors feel they are reducing risk. However such involvement may actually be detrimental as it is likely to be a source of irritation to their investment advisor who cannot get on with the business of running their clients affairs due to constant questioning and harassment. The classes of occupation that are likely to be active investors include: small business owners who have developed their own businesses rather than inherited, medical surgeons, independent professionals, such as lawyers or accountants, who work for themselves rather than a large firm, entrepreneurs, and self-employed consultants.

Active investors are more likely to get personally involved with the running of their financial affairs, and may believe they know more than their advisor does. They are less likely to delegate the maintenance of those parts of their investment portfolio in which they believe they have experience or have had personal success. However, these individuals are more likely to be contrarian in their stock picking habits and have less need to be completely diversified. Age tends to soften their need to be constantly in control, so that older clients may be more malleable and open to their advisors suggestions.

Probably one of the most sophisticated models in use, the BB&K approach stresses the level of confidence an investor has and their preferred method of action - the way they respond. Level of confidence is reflected in the emotional choices made based on how much an investor may worry about a certain course of action or decision. Investors may range from confident to anxious. Method of action is reflected in how methodical an investor is, as well as how analytical and intuitive they are. This can range from careful to impetuous.

Within these ranges, the model defines five personalities:

• adventurers - confident 'go for it' types who are strong-willed and ready to take chances
• celebrities - those who need to be in the center of things and don't like to be left out, often constantly checking whether they should be in the latest fashionable investment but may not really have any clue as to how to take control of their finances
• individualists - confident individuals who make their own decisions but who are methodical, careful, balanced and analytical
• guardians - investors, often older ones, who are cautious and intent on safeguarding their wealth, shunning volatility or excitement
• straight arrows - Mr or Mrs Average who doesn't fall into any of the extremes of the above categories, who is somewhat balanced in their investment approach and willing to take on moderate risk

By understanding the personalities they're facing, the variations in characteristics according to confidence and response action, and how this is all modified under different conditions, the BB&K classification system provides investment advisors with a better way of dealing with clients, as well as choosing which clients to take on - ie who would make good long-term clients. It can be more clearly seen, for example, who is more likely to be a contrarian, who is more likely to have a tendency to leave the running of their financial affairs to their advisor, who is rash, and who is more likely to be a 'do it yourselfer'. It can also be more clearly seen which clients are not likely to be good clients at all, because they are predisposed to losing their money. Research shows that these were often impetuous celebrities, who were prone to follow a 'hot' stock tip on a crowd-fuelled, speculative bubble. In fact, it was found that this class of investor presented less frequently as they had either lost their money already or had accumulated few assets, and so had nothing to invest.

A classification produced by Kathleen Gurney of the Financial Psychology Corporation that stresses money style and how individuals react emotionally to financial decisions. The nine distinct personality groups identified are developed from her research concerning why people earn, spend, save and invest the way they do. It is a general financial typography, therefore, but has particular relevance to investment.

The nine personalities defined are:

1. Safety Players - those who take the path of least resistance, looking primarily for security and safety in their investments and doing what has worked previously.
2. Entrepreneurs - a particularly male-dominated profile driven by a passion for excellence and commitment, and who are not motivated by money in itself. Financial success is a scorecard and stock investment is a method of implementing and demonstrating that success.
3. Optimists - non-risk orientated, often near retirement, seeking peace of mind, these are investors who don't like to become too involved with their own financial management as it would cause them stress and reduce their enjoyment of life.
4. Hunters - often educated, high-earning women with an impulsive streak, a 'live now attitude'. They have a strong work ethic, much like entrepreneurs, but lack the same confidence in themselves. They may attribute their success to luck rather than ability.
5. Achievers - conservative, risk-averse, these investors like to feel in control of their money, with security and protection of their assets a primary consideration. They are often, married, well educated, high-earners who feel that hard work and diligence is more likely to bring financial reward than investing.
6. Perfectionists - afraid of making financial mistakes, they tend to avoid investment decisions altogether. They lack confidence and self-esteem, and have low pride in handling financial matters, finding every conceivable excuse for not taking action. For them, no investment is without fault.
7. Producers - highly committed to their work, they may earn less due to a lack of self-confidence in money management. And with a lack of basic financial knowledge they may have less available funds to invest. They do not appreciate how to evaluate risk appropriately.
8. High Rollers - thrill seekers, power seekers, creative and extroverted, they work hard and play hard. They have to be involved in high risk investing with a large amount of their assets. Financial security bores them - even though their actions may have financially dangerous consequences.
9. Money Masters - tending to have a balanced financial outlook that gives contentment and security, these investors like to be involved with the management of their money and their choice of investments, although they will take onboard good, sound advice. They are determined individuals, not easily thrown of their chosen course, and who don't leave things to luck.

The way the system is used is to highlight a client's personality type through psychometric testing. The score achieved makes it clearer for clients to face up to the financial problems they're having or why their investment choices are not as they would wish. Appropriate advice is then given.

This typography is based on my own work in the field. Investors are classified as either: Cautious, Emotional, Technical, Busy, Casual or Informed. An underlying assumption is that individuals will treat different aspects of their life in the same way. For example, if people are cautious by nature, avoiding danger to themselves, they will also be cautious when it comes to investing their money. What changes their investment behavior, under variable risk conditions, is not only how they personally view that risk but also how they view money itself - that is, its gain or loss. Money is a very powerful agent of behavioral change. This stems from work in behavioral finance which shows that investors perceive gains and losses asymmetrically; which simply means that it hurts to lose a dollar far more than gaining a dollar gives pleasure. Additionally, their behavior is modified by personal bias as well as crowd pressure - together forming their internal market and the external market that then acts on their decision-making ability. In this way an investor's level of cautiousness also changes. The approach differs from other systems, therefore, in that it doesn't assume that people have totally different attributes depending on the circumstances they're faced with. In a psychonomic approach, investors have the same attributes but they are mitigated - or their balance changes - according to the situation and the way they deal with it.

Consequently, many typographies, have risk as a part of the classification itself - ie The 'Risk-Seeker' - which is problematic. Two investors with the same profile characteristics may make very different financial choices. What's different about them is their propensity for risk, not their innate characteristics. In the psychonomic investor profile, individuals are assessed according to whether they have a high, medium or low propensity for risk, within their particular balance of personal characteristics.

The six investor types are:

• Cautious - very conservative, this investor has a need for financial security and will avoid high-risk ventures as well as listening to professional advice, preferring to conduct their own financial affairs. They don't like to lose even small amounts of money and never rush into investments, always giving financial opportunities a great deal of thought.
• Emotional - easily attracted to fashionable investments or 'hot' tips, these investors act with their heart and not their head. A whim or a gut feeling leads their decisions, and they have great difficulty disengaging from poor investments or cutting losses. They have an unreasonable belief that things will come right in the end and often put their trust in luck or 'providence' to safeguard their financial assets.
• Technical - hard facts - numbers - lead this type of investor to active trading based on price movements. They are screen-watchers, sometimes obsessional, but their diligence can be rewarded if they spot trends. They may also have a tendency to 'need' and buy the latest technology as they are always looking for some edge.
• Busy - these investors need to be involved with the markets, it gives them a buzz when they check the latest price movements, which may be several times a day. They have to keep buying and selling - on rumors, on overheard gossip, from the mass of newspapers and magazines they collect. Any tidbit of information they can glean is imbued with significance and a cause to take financial action.
• Casual - a laid-back attitude to investment, these individuals are often hardworking and involved with work or family. They tend to believe that once an investment is made it will take care of itself, and that a good job or a profession is the way to make real money. They easily forget that they own investment assets and rarely check on their financial affairs. And, though they may leave the running of their investments to professional advisors, they haven't been in contact with them for years.
• Informed - uses information from a variety of sources and keeps an ongoing watch on their investments, the markets and the economy. They listen carefully to financial opinions and expert assessments, and will only go against market fashion, as a contrarian, after weighing up all the pros and cons. They are financially confident and have faith in their decisions, knowing that knowledge and experience will always win out to give them long-term profits.

Profiling and typographies help individuals to become better investors by highlighting deficiencies in investment style and behavior or how an investor is interacting with the market - for example, trading too frequently, selling too early, inability to cut losses, or a failure to use information effectively. But what type of investor are you? Hit the link to test yourself and find out with an interactive online version of the Psychonomic Investor Profiler.

What is the future for investor profiling?

Psychologically based profiling and classification systems are gaining popularity, and it is my feeling that in a few years many brokerage houses will be using them regularly to aid in tailoring investment advisory services to their clients needs. As such they have an important role to play within traditional advisory methods. And for the clients themselves, any method that clearly demonstrates to them where they've been making investment errors is, by definition, a useful financial tool.

Jonathan Myers is an industrial psychologist specializing in behavioral finance. His latest book is Profits Without Panic: Investment Psychology For Personal Wealth