INVESTOR
What Is an Investor?
An investor is any person or other entity (such as a firm or mutual fund) who commits capital with the expectation of receiving financial returns. Investors rely on different financial instruments to earn a rate of return and accomplish important financial objectives like building retirement savings, funding a college education, or merely accumulating additional wealth over time.
A wide variety of investment vehicles exist to accomplish goals, including (but not limited to) stocks, bonds, commodities, mutual funds, exchange-traded funds (ETFs), options, futures, foreign exchange, gold, silver, retirement plans, and real estate. Investors can analyze opportunities from different angles and generally prefer to minimize risk while maximizing returns.
Investors typically generate returns by deploying capital as either equity or debt investments. Equity investments entail ownership stakes in the form of company stock that may pay dividends in addition to generating capital gains. Debt investments may be as loans extended to other individuals or firms, or in the form of purchasing bonds issued by governments or corporations which pay interest in the form of coupons.
Key Takeaways
Investors use different financial instruments to earn a rate of return to accomplish financial goals and objectives.
Investments include stocks, bonds, mutual funds, derivatives, commodities, and real estate.
Investors can be distinguished from traders in that investors take long-term strategic positions in companies or projects.
Investors build portfolios either with an active orientation that tries to beat the benchmark index or a passive strategy that attempts to track an index.
Investors may also be oriented toward either growth or value strategies.
Styles and Risk Tolerance
Investors are not a uniform bunch. They have varying risk tolerances, capital, styles, preferences, and time frames. For instance, some investors may prefer very low-risk investments that will lead to conservative gains, such as certificates of deposits and certain bond products.
Other investors, however, are more inclined to take on additional risks to make a larger profit. These investors might invest in currencies, emerging markets, or stocks, all while dealing with a roller coaster of different factors daily.
Institutional investors are organizations such as financial firms or mutual funds that build sizable portfolios in stocks and other financial instruments. Often, they can accumulate and pool money from several smaller investors (individuals and/or firms) to make larger investments. Because of this, institutional investors often have far greater market power and influence over the markets than individual retail investors.
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Important
Financial investments have the very specific goal of buying something that (hopefully) appreciates in value. Consider other forms of investing such as returning to school to complete your degree or embarking on a diet to ensure good health in the future.
Types of Investors
Angel Investors
An angel investor is a high-net-worth private individual who provides financial capital to a startup or entrepreneur. The capital is often provided in exchange for an equity stake in the company.
Venture Capitalists
Venture capitalists are private equity investors, usually in the form of a company that seeks to invest in startups and other small businesses.
P2P Lending
P2P lending, or peer-to-peer lending, is a form of financing where loans are obtained from other individuals, cutting out the traditional middleman, such as a bank.
Personal Investors
A personal investor can be an individual investing on their own in stocks, bonds, mutual funds, and ETFs.
Institutional Investors
Institutional investors are organizations that invest the money of other people, such as mutual funds, ETFs, hedge funds, and pension funds.
How To Become an Investor
Learn the basics of investing, understand risk management, open a brokerage account, and stay informed about market trends.
What Do Investors Invest In?
Stocks
Bonds
Real estate
Mutual funds
ETFs
Commodities
Alternative investments
The 3 Types of Business Investors
Pre-Investors – Friends or family offering small amounts of capital.
Passive Investors – Provide capital without managing the business (e.g., angel investors).
Active Investors – Invest and actively participate in management (e.g., venture capitalists).
How Do Investors Make Money?
Appreciation – Asset increases in value.
Income – Regular payments from investments (e.g., dividends, interest).
What Makes a Good Investor?
Diligence
Patience
Knowledge
Risk management
Discipline
Optimism
Clear goals
The Bottom Line
An investor is an individual or entity using capital to generate returns and build wealth through various assets and financial vehicles.