The 12 Types of Passive Investors

by JT McGee

Passive investors' views of active investing are jaded.Much like the great psychoanalyst Carl Gustav Jung created the MBTI for broad personality types, I have taken the liberty to create my own niche personality type system for passive investors.

Do realize that this is written from a cynical active investor’s point of view–a rarity, I know:

  1. Holier than thou – The holier than thou investor asserts that no one can beat the market because he tried to do it, but failed.
  2. Look in the Mirror – The “Look in the Mirror” investor trolls the internet to leave a message for active investors: “look in the mirror, if you don’t see Ben Graham or Warren Buffett, then you can’t beat the market.” Oddly, the look in the mirror passive investor never owned a share of Berkshire Hathaway before it was added to the S&P500, even though he or she accepts that Buffett beats the market.
  3. Anomaly investor – The anomaly investor believes that the stock market is an anomaly. No one can beat market averages, but the anomaly investor went to college to get an above-average income, buys rental real estate because he’s a better than average REIT portfolio manager, and plays poker for a side income because he’s a better than average poker player. But he can’t be better than average in the market—that’s impossible!
  4. Cheapskate – The cheapskate invests passively to save on fees. Because the cheapskate was too cheap to hire an accountant, she accumulates stock in her tax-deferred accounts, while building a bond and dividend stock portfolio in a taxable account. The cheapskate saved $500 in CPA fees, but ends up paying tens of thousands of dollars in extra capital gains taxes to the IRS.
  5. Asset Allocator – I wish this label even made sense, because it doesn’t. The asset allocator touts maintaining some sort of guide for proper stock and bond mixes by arbitrarily deciding at certain points to move assets from one investment to another. The asset allocator doesn’t like to admit he is, in all actuality, an active investor. He takes comfort in suggesting that he’s buying more fixed income investments because he’s 50 years old, not because he actually thinks his decision will prove to be a good one.
  6. Einstein – The Einstein investor sees that passive investors are smarter than active investors, according to a new study, and tells the world why all smart people should invest passively. Unfortunately, he didn’t pass on the tidbit about smart people are less likely to get laid but are more likely to use drugs, binge drink. If you want to be smart like the Einstein, then grab some acid tabs, and start pouring the shots! That’s only after you open an index fund, of course.
  7. Bridge Jumper – The Bridge Jumper would never actually jump off a bridge because it’s too risky, but that doesn’t mean he wouldn’t jump off a bridge with his retirement account. The bridge jumper ignores risk in their portfolio, and accuses active fund managers of failing to beat the market because he doesn’t understand the concept of risk-adjusted returns. Most likely of all the 12 types to think that 100% stocks provide “the highest returns,” which would be true, if beta didn’t matter and humans lived forever.
  8. 8 Percenter – The 8 percenter is the kind of person that loves safety, security, and predictability. Believing in the efficient market hypothesis, the 8 percenter also believes that historical performance and traditional personal finance wisdom will always prove true. The 8 percenter is also the least likely to be related to a current retiree, who would invariably be a burned “4 percenter.” ZING!
  9. Willfully Ignorant – My favorite of all passive investors, I’m ashamed this type doesn’t get a better label. The willfully ignorant know that they could get better than average returns on their money if they were willing to commit to the task, but they’ve decided it’s just not worth it.
  10. The Hippy – The hippy thinks that active investing is garbage because passive investors beat active investors always. Nonetheless the hippy recommends actively investing in residential solar panels to achieve an annual rate of return lower than the net yield of US Treasury securities minus carbon offset credits. His four-function (solar powered) calculator wasn’t capable of computing easily the difference in returns.
  11. The Boglehead – The Boglehead has a portfolio of $10 million he built over the past three decades, but his love for Vanguard funds keeps him from yanking funds out of Vanguard’s S&P500 fund. Instead, the Boglehead pays $17,000 in annual fees to his preferred mutual fund company, even though Scottrade would charge him one-off commissions of $3,500 to purchase each S&P500 stock individually.
  12. Mathematically Challenged – Believes that no individual investor can beat the market because they don’t have lots of money. Not surprising, the mathematically challenged investor recommends buying CFL light bulbs to save money on electricity costs. The mathematically challenged investor earns 1200% on her money in 8 years, a risk-free annualized rate of return equal to 71.67% on her $100 investment. She never realizes that institutional investors couldn’t do the same with their many billions, or that institutional investors would jump up and down at the chance to earn even 5% risk-free. The hippy investor applauds her for her effort, but can’t stand her socially irresponsible, mercury-containing light bulbs.

So there you have it; JT’s Guide to Understanding the Passive Investor in Your Life is here! The next edition will be The Guide to Understanding the Active Investor–there’s surely some fun to be had there, too.

I guess we’ll know later this week if the Passive Investing Blog Carnival host has a sense of humor. 😉 That’s it for this week. See you next Monday!

{ 11 comments… read them below or add one }

Echo June 8, 2011 at 11:56

This is good stuff JT, it’s fun to see this flipped around on passive investors since they like to direct these types of posts towards active investors. My favorite is the asset allocator.

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JT McGee June 15, 2011 at 22:39

Ahh, the Asset Allocator. I think they’re my favorite, too.

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Jeff @ Sustainable life blog June 8, 2011 at 14:17

These are pretty hysterical JT – I think my favorite one is the hippy!

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JT McGee June 15, 2011 at 22:40

Ha, I’m glad someone who writes a sustainable blog could at least see it for what it is. 😛 I gotta say, this whole sustainable thing does occasionally rub me the wrong way–the hippy investor is an example of this. Still, I think there is a good middle ground to be found.

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Financial Success for Young Adults June 9, 2011 at 10:20

Funny! I tried to see if I could see myself in any of those but I think I may identify with the holier than thou one the most. Especially right after I blew an entire account my first time trading forex.

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JT McGee June 15, 2011 at 22:41

Oh snap! I wouldn’t put you in that category. You came back to the market with vengeance, right?

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Ashley @ Money Talks June 11, 2011 at 13:00

I’m an anomaly investor. But I don’t play poker… I play bingo because I KILL at bingo. I’m better than the average bingo player. 🙂

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JT McGee June 15, 2011 at 22:41

An above average bingo player?

I think that’s called a “bad sample.” 😉

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Buck Inspire June 14, 2011 at 00:25

Entertaining stuff JT! I think I fluctuate. Today I am Look in the Mirror investor.

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JT McGee June 15, 2011 at 22:42

The Look in the Mirror type is one of my favorites, usually because I get a chuckle every time I see it. If you’re in a S&P500 index fund at least you’ve some of Buffett’s wisdom backing you up. 🙂

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Lisa April 22, 2013 at 13:26

Regarding #11: the Boglehead —

A $10 million portfolio in Vanguard S&P500 incurs expenses of 5 bp or $5,000 per year. Where does your $17,000 figure come from?

At $7 bucks per trade, all 500 of the S&P500 could be purchased for $3,500, but eventually they would have to be sold for another $3,500.

Interesting idea, however, that with a large enough portfolio, it would eventually become more cost efficient to purchase the underlying securities directly. With my $800,000 Boglehead portfolio (containing large, mid-cap, small-cap domestic and international equities, corporate bonds, mortgages, and treasuries, all from low-cost index funds), I’m not worried about reaching that point any time soon.

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