What type of investor are you? First things first, investors are people (or funds or organizations) who buy stocks, bonds, ETFs, and other assets to yield financial gains. The whole point to investing is putting your money in a place where it has the potential to make more money. Of course, this requires risks, and different types of investors are more or less comfortable with different levels of risk.
You may, for example, be investing to buy a house in the short-term future. This means you may not be as comfortable risking too much of your savings as someone who is investing for their longer-term retirement. Their money has more time to overcome volatility.
So how do you know what type of investor you are? Here are some questions to ask yourself and the different types of investors to get you started.
What Type of Investor Are You?
Determining what type of investor you are requires diving a little deeper into your investment goals. Here are some questions you should first ask yourself.
- Why do you want to invest? In other words, for what are you investing?
- What are your investment goals?
- How knowledgable are you about investing in the stock market?
- How old are you?
- What is your investment timeline? In other words, for how long do you plan to leave your money invested?
- Are you looking to buy a house, save for children’s education, or pay for another big expense in the next few years?
- How would you react if your investments were to drop in value by 10 percent over a one-year time period?
- How willing are you to risk short-term losses to have potentially higher long-term returns?
- How much do you own in liquid assets?
- What appeals to you more: growth investing or value investing?
Once you have answers to these questions, you can better determine your risk tolerance. And knowing how much you can stomach volatility can help you determine how to best invest your money.
For example, if you are young, planning to invest for a long time, and do not have any major financial commitments, you are probably going to be a riskier investor than an older person who is also trying to pay off major medical bills in the next few years.
4 Different Types of Investors
There are several different types of investors. Generally, here are the four most common types of investors to help you decide which type of investor resonates the most.
1. Passive Investors
Passive investors tend to be risk-adverse and, therefore, “buy and hold.” They let their investments sit for longer to earn over time. This means that they may make small yet steady gains over a long period of time — sometimes even decades. It is difficult for returns to outperform markets with this strategy, but it is more cost effective and tax efficient than some of the others.
2. Active Investors
Active investors are the opposite of passive investors. They seek out higher returns, which requires more engagement, as well as more risk. Some active investors day trade to make above-market average returns. But the costs of actively managed investment portfolios is much higher than passively managed ones. And, while the potential for returns is big, the potential for loss is also quite big.
3. Growth Investors
Growth investors, not unlike passive investors, seek out longer-term gains in the stock market. They look to invest in companies that they think have a lot of value and potential to grow. Therefore, the foresee gains on the stock prices in the future. That said, investing in a company because you think it has value and could grow is risky because, despite heavy research, the investment is inevitably subjective.
4. Value Investors
Value investors look to invest in securities that they believe are currently underpriced in the market. Value investing earns when the market then realizes the full value of those assets, and prices jump. This means that value investing has a lot of potential for high returns. But determining a “value” stock can be difficult because, again, your opinion on what the price of stocks should or should not be is ultimately subjective.
If you are curious about trying out different investing strategies, you can do that with Q.ai You do not have to be tied to one strategy or box yourself as any single type of investor, despite how you choose to answer the aforementioned questions. With Q.ai Invest, you can switch your investment kits at any time (though we recommend giving them enough time to perform), and you can invest in more than one kit at once.
Looking for a hands-free approach to investing? Download Q.ai and let AI manage your money with institutional-grade, AI-powered investment kits – totally commission-free.