No two investors are exactly alike. Each will have quirks and differences that influence their decisions and personalities that dictate their actions during trades. Did you know that there are basically three types of investor? See which one you are!
But first, why should you care?
If you’re looking to begin your stock market investment, identifying the type of investor you are beforehand will help you better understand how your investment style will shape or affect your success. Also, you’ll be able to learn the advantages and limitations that naturally result from the way you invest.
Furthermore, you’ll be able to choose if the option available at the next level of investing is good decision by knowing what the next level of investing looks like.
You’ll find no right answer if you’ll ask what the best investment type is, but there’s a right answer that’s appropriate to your situation. Only one investment type is right for your plan to achieve your end goal, and it is on you to find out what that type is.
If you’re like most of us, you’d be starting as a pre-investor – unless of course, you’ve been born into a well-off family with an already lucrative stock investment business.
In short, a pre-investor is someone who hasn’t start investing. Pre-investors have minimal financial awareness. There’s little thought or desire of investing, and there’s possibly little savings or investment to show for as well.
Are you a pre-investor? Assess your savings and investment plan progressing. Is your financial consciousness ruled by your consumption needs, or are you looking to prioritize savings and investment?
The passive investor
As time goes and we mature and start getting more responsibility, we generally transition from pre-investor status and enter the investment world via the window of passive investing, which is known as the most common start on the financial security journey.
Passive investors typically employ all the basics of a good personal financial planning: own a home, have fund tax-deferred retirement plans, asset allocation, as well as save at least 10% of earnings.
Passive investors usually rely on other people’s expertise for their investment strategy rather than become their own expert on investing. They submissively ride the market roller coaster into the future and bets financial security hoping that the roller coaster will continue gaining momentum and go up.
However, sometimes the result is that the passive investor endures higher volatility and even the possibility of lower returns compared to the successful execution of an active investment strategy.
The active investor
Active investors evolve from passive investors. They push to the next level by running their wealth like a business. The key difference between them is that the active investor doesn’t just get market-based passive returns, but also acquires a value-added return stream from skill; combining two sources of return in one investment.
This gives the active investor money regardless of the market conditions and to lessen losses during bad times. This also holds the potential to improve returns while lowering risk.
Active investors have extensive control of their financial future by not only utilizing investment capital as passive investors but also taking responsibility for their invested capital through active strategies that bring more value.
The good thing about investor types is that everyone starts as a pre-investor, and we can all move towards the next level of investment skill through perseverance, education and experience. The first step is always the hardest, but that’s it – everything else can be learned and brings us closer to our goal – financial independence.