What type of investor are you?
Investors as we know it, are broadly categorized as retail and institutional. However, the below article further divides the retail investor category on a lighter note.
Everyone is an investor, if not one yet, then definitely there’s a prospective investor in each one of us. Our investment decisions are influenced a lot by our understanding of the subject, past experiences and our personal behavior. Just like other decision-making process, taking financial decision is also a tricky one. As we know, failure is the best teacher and it’s important to learn from our mistakes. It is easier to avoid repeating the common mistakes if we know which category of investor we fall under.
The savers only
This type of investors take pride in the fact that they SAVE. Saving is definitely a good habit and a crucial step in attaining financial goals. But, only saving doesn’t help. With high inflation rate, putting money in saving banks account might earn a negative interest. A huge percentage of investors belong to this category as they feel equity is a risky proposition and they don’t wish to take any kind of risk. These investors limit themselves from future earning possibilities and getting financially better.
The indecisive lot
Unlike the savers only, this type of investors wishes to invest in the market or other avenues, but are mostly indecisive in nature. They most of the time keep weighing the pros and cons of the investment instrument, but genuine investing is still hard for them. Just like the earlier kind, they too are surrounded by fear of loosing money. They may or may not invest a very small portion from their paycheck.
The reverse mechanism followers
These investors are the ones who invest in order to earn profit and build up their corpus. They however, end up with marginal profit or mostly with a loss. They follow a herd mentality and enter market when the market has almost reached its peak. Thus, they buy at higher price and are compelled to sell at a loss. This is usually due to lack of knowledge or expert help.
The ‘I know everything’ kind
Investors of these kind are quite successful in their primary business. That’s that reason why they hold an aura of overconfidence in them thinking that, they know markets and financial products too quiet well. They will come up with some financial advice for you and also if they have tasted success in investment decisions, they won’t shy away from sharing their success story from literally anyone. They are under the impression that they know everything and don’t need any advice from financial advisors.
The excessive market lovers
This type of investors invests heavily in stock market. They trade frequently and many of them do earn lots of profit. Their complete portfolio revolves around equity shares and equity based mutual funds. They rarely have an exposure to debt instruments or any other asset class. Diversification is not something that they believe in. They have a very volatile portfolio and aggressive investment strategy that is, they keep churning their portfolio too quickly. Thus, most of them even lose their capital in trading.
The debt devotees
These are exactly opposite of the earlier kind, the excessive market lovers. These investors refrain themselves completely from equity stock market and other related investments. Their main aim is to safeguard the principal/ capital invested. Better returns on investment is not their priority. They invest only in bank FD, government securities and other debt instruments. With the advice from their financial advisor they might venture into liquid or debt mutual fund. Diversification in their portfolio is missing. They are difficult to convince as they are resistant to change.
The ideal club
These are rare breed of investors. They are smart, have their portfolio diversified, have a long-term overview and0 does a proper profiling of risk and return on their investments. This type of investors believes in financial planning and reviewing their portfolio, which they follow on timely basis. They are surely difficult to find but not impossible. Thus, very few can make a cut to this club.
Saving is good, investing even better but investing smartly and diligently the best of all. As an investor your prime aim would be to earn profit and live a life less stressful. How would that happen? I would say take small baby step and never stop learning.
So, which type of investor are you?