When it comes to investing, everyone has their own goals and plans. Some may be investing for retirement, while others are using their investments for income. Whatever the case may be, each investor is different. This isn’t a surprise since each one of us are unique individuals. But knowing what type of investor you are can make you become a better investor. See which type of investor you identify with most below.
Broad Classifications of Different Types of Investors
The largest classification of investors is simply active versus passive. If you are trying to beat the market, you are an active investor whereas if you simply want to earn what the market gives, you are a passive investor. I go into greater detail about these types of investors in this post.
From there, we could also put conservative and aggressive investors in a broad category as well. Conservative investors tend to take on less risk and are more prone to have a portfolio that is invested more in bonds than in stocks.
The aggressive investor on the other hand, takes on a great deal of risk and tends to invest more in stocks. A really aggressive investor will invest mainly in small cap companies and those companies in emerging markets.
Specific Classifications of Different Types of Investors
While it is easy to see us in one of these categories, they are too broad for us to learn anything about ourselves. If we could narrow in on the different types of investors, we might be able to learn where we fall short. Below are 6 additional classifications for investors along with the pro’s and con’s of each.
The saver is someone that fears the stock market. They would rather keep their money in the bank than invest it in stocks. Many savers are like this because they lost a lot of money during the 2008 stock market crash. Their losses stung them enough that they would rather earn a low return on their money, knowing they can’t “lose” it than earn a higher return with the stock market.
- Pro: The good side of a saver is that they are saving money. They are living within their means and are avoiding debt. Should they lose their job or have an emergency hit, they have the money to survive.
- Con: The bad side of a saver is that they aren’t earning anything on their money and are in fact losing money. They are losing in the sense that the statement value of their savings never drops, but rather their purchasing power is declining. With inflation around 3%, savers need to earn this rate just to keep up with rising prices. If a saver is earning less than 3%, the price of goods is increasing at a faster pace than their savings. This in turn is causing them to lose money and potentially not afford to retire.
How do you get over your fear of investing in the stock market as a saver? Some might say to just jump in, but that would cause more harm than good. Instead, savers need to take the slow and steady approach. Find a good mutual fund (you can learn the basics here) and invest $1,000. Then set up a re-occurring monthly transfer of $100 to invest more. Look at something like the Vanguard Star Fund.