You can tell a lot about someone by observing their finances. All you have to do is take a peek at their checkbook log, credit card statements or their investment portfolio. There's enough information there to draw several possible conclusions about many aspects of their lives. The contents of your portfolio can often provide a glimpse into your age and philosophies. (For more, see Measure Your Portfolio's Performance.)

IN PICTURES: 5 Investing Statements That Make You Sound Stupid

Age
A portfolio is sometimes a good indicator of an investor's age since younger people usually assume more risk than those who are retired or approaching retirement. Young people are counting more on long-term capital appreciation than on a steady income stream, so their portfolio would be more concentrated in growth stocks and mutual funds that yield higher potential returns.

People of middle-age tend to transition from an emphasis on growth to a more balanced allocation that could include growth stocks, stocks paying dividends, bonds, index funds, real estate and foreign equities. This approach protects some of your capital while still maintaining the opportunity for future growth. At the same time, income will be generated that can be reinvested, if you don't need it for living expenses.

Seniors are more focused on income-bearing investments, such as blue-chip stocks with dividends, CDs, treasuries, money markets, bonds and other interest-generating instruments.

Risk Tolerance
Your portfolio's percentage allocation of investments will provide an excellent gauge of your risk tolerance. If your portfolio is full of stocks with a beta greater than the market average of 1.0, then you are assuming greater risk and greater potential for higher returns and losses. Examples of stocks with high betas are emerging technology, recent IPOs, and biotechnology. Currencies would be considered high risk, except to those who are experienced in trading them.

Medium risk investments include blue-chip stocks, diversified mutual funds, corporate bonds, precious metals and stocks paying regular dividends. Up until the collapse of the housing bubble, real estate would have been considered a low-risk investment. Now that prices have dropped substantially, new buyers are assuming moderate risk.

Your risk tolerance is low if your investments are focused in savings accounts, money markets, government bonds, certificates of deposit, and mutual funds that concentrate on capital preservation.

IN PICTURES: 5 "New" Rules For Safe Investing

Investor Vs. Trader
A primary difference between investors and traders is that investors are usually focused on the long-term, where traders are focused on the short-term. An investor will buy a stock that has prospects for capital appreciation over a period of several months or years. It's not unusual for some people to hold stocks for decades and pass them on to their heirs.

Traders fall into two general categories: day traders and swing traders. A pure day trader may buy and sell the same stock several times in the same day, with the objective of holding 100% cash at the close of trading. Many day traders have a list of stocks that they track closely, allowing them to acquire an understanding of how they move and react to news events. Swing traders typically buy stock and sell it within a matter of a few days or weeks.

The investor's portfolio will likely contain a list of investments that appear on their statement every month and few - if any - trades. The trader's statement will show lots of buys and sells, but very few closing positions. (To learn more, check out Mastering Short-Term Trading.)

Investing Style
Some investors prefer certain categories of investments that aren't necessarily related to risk or other factors. For example, some people prefer to only buy mutual funds because they want professional management of their money. Others buy individual stocks and bonds because they want direct control over their money and prefer not to pay management fees.

Some investors like to specialize because they believe this gives them an advantage over those that are not as familiar with their area of expertise. For example, some investors focus strictly on real estate because they understand their local market. Others prefer to stick to index funds as a way of spreading their money while tracking financial performance to specific indexes.

The Bottom Line
Your portfolio provides a view into how you approach investing for your future, as well as what you have done in the past. If your list of stocks includes some that are currently losing positions, that's an indication that you are hoping they will come back at some point. Take a close look and see if you might be better off selling them and reallocating your capital into better investments. Investing is a learning process and it pays to learn from your past mistakes and experiences. (To learn more, see our Investing 101 Special Feature.)

For the latest financial news, see Water Cooler Finance: Lions And Diapers And Dows, Oh My!

Related Articles
  1. Investing Basics

    4 Things That Make a Stock a Safe Bet

    No investment is a sure bet, but you can reduce your chances of taking a loss by choosing fair-priced stocks with growth potential and low volatility.
  2. Retirement

    Smart Ways to Tap Your Retirement Portfolio

    A rundown of strategies, from what to liquidate first to how much to withdraw, along with their tax consquences.
  3. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  4. Mutual Funds & ETFs

    3 AllianceBernstein Funds that Are Rated 5 Stars by Morningstar

    Discover the top three mutual funds administered and managed by AllianceBernstein that have received five-star overall ratings from Morningstar.
  5. Mutual Funds & ETFs

    Top 4 Davis Funds for Retirement Diversification in 2016

    Discover the four best mutual funds managed by Davis Advisors that pursue different investment strategies that can help diversify retirement portfolios.
  6. Mutual Funds & ETFs

    Top 5 Natixis Funds for Retirement Diversification in 2016

    Discover five mutual funds from Natixis Funds that provide high income, growth and preservation of capital while diversifying a retirement savings plan.
  7. Mutual Funds & ETFs

    Top 3 Allianz Funds for Retirement Diversification in 2016

    Discover the top three Allianz funds for retirement diversification in 2016, with a summary of the portfolio's managers, performance and risk measures.
  8. Mutual Funds & ETFs

    3 PIMCO Funds Rated 5 Stars by Morningstar

    Learn about three fixed income mutual funds managed by Pacific Investment Management Company (PIMCO) that have received five-star overall ratings from Morningstar.
  9. Mutual Funds & ETFs

    3 Invesco Funds Rated 5 Stars by Morningstar

    Learn about the top three mutual funds administered and managed by Invesco Ltd. that have received a five-star overall rating from Morningstar.
  10. Mutual Funds & ETFs

    The Top 4 Russell Funds for Retirement Diversification in 2016

    Discover four mutual funds administered and managed by Russell Investments that would add diversification benefits to a retirement portfolio.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. Can hedge fund returns be replicated?

    You can replicate hedge fund returns to a degree but not perfectly. Most replication strategies underperform hedge funds ... Read Full Answer >>
  3. Does mutual fund manager tenure matter?

    Mutual fund investors have numerous items to consider when selecting a fund, including investment style, sector focus, operating ... Read Full Answer >>
  4. Why do financial advisors dislike target-date funds?

    Financial advisors dislike target-date funds because these funds tend to charge high fees and have limited histories. It ... Read Full Answer >>
  5. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
  6. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center