What kind of investor are you?

by , 23 April 2018
What kind of investor are you?
Whether you've been an investor for years, or you've just decided you want to start investing money, you need to know what kind of an investor you are.

The reason is, if you understand what kind of investor you are, you can understand what your risk profile is.

That matters, because - there's no use in investing in bonds if you are an aggressive investor looking to double your money in a year.

In the same way, if you're a year or two from retirement and not willing to risk much, you shouldn't put your money in a high risk investment class such as penny shares.

There are literally hundreds of books on investment risk, and risk profiles.

But I've split it up in four basic risk categories that you can use to determine your risk profile:
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Even Einstein joked that it is “the most powerful force in the universe.”
 
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Four investor risk profile that can guide your investment ‘career’
 
Investor Profile #1 - The nervous investor
 
A nervous investor is extremely risk averse. A typical nervous investor might keep most of his funds in the bank, in fixed deposits or the money market – or even under his mattress!
 
If you currently sit with most of your investment and savings money in the bank, I urge you to start educating yourself about investing as soon as possible.
 
Your investments will be ravaged by inflation in the long run if you don’t.
 
While you might be getting risk free returns, even the best fixed-deposit interest will lag well behind other investment classes in terms of building and growing your wealth.
 
Improving your education and learning more about a variety of investments will help you with your nervousness.
 
Investor Profile #2 - The cautious investor
 
As a cautious investor, you have limited funds in the stock market, and you typically invest mostly in bond and money market funds, and perhaps cautious, conservative unit trust funds.
 
This type of investor typically also includes retirees who cannot afford to risk too much. Even if you are a retiree, you still have to be aware of the fact investing too conservativly will see you lose spending power to inflation.
 
If you’re a cautious investor, you’re not as careful as the timid investor, but you’re still wary about investing directly in the stock market. You’ll prefer to be in safer products such as unit trusts and ETFs, where you’ll probably diversify in cash, bonds and general equity funds.
 
A cautious investor will usually allow someone else to make his financial decisions after spending quite some time determining the best person for the job. If you’re a cautious investor (and you’re fairly lucky) you should be able to make inflation beating returns.
 
Investor Profile #3 - The shrewd investor
 
This is the category I believe you should aim for if you are younger than 60. If you have even the slightest interest in investing, you’ll probably belong to this investment class already. And if you don’t, then the fact you should get your affairs in order and join the club…
 
A shrewd investor is quite comfortable entering the stock market and will strive for reasonable returns from a range of carefully selected share investments. Your portfolio will include cash, bonds and equities – with some unit trust and exchange traded fund exposure too. But shrewd investors have the knowledge and skill to pick individual shares with the potential to make them inflation beating, and often market beating returns.
 
A shrewd investor accepts risk as an unavoidable side-effect of better investment return.
 
But to become a shrewd investor, you have to learn, or already have the following characteristics:
  • You are interested in capital growth and accumulating wealth more quickly relative to your investment time frame.
     
  • You understand the cyclical nature of investments and accept that there will be a very high level of volatility in the value of your investments.
     
  • You are experienced in all major investment markets and have a very good understanding of the investment markets. You are aware of the factors that may affect investment performance in investment markets.
     
  • Your investment time horizon is for the long-term, 7 years or more.
     
  • When you think of the term risk, you think it means 'thrill'.
     
  • When you make a financial decision, you always focus on the possible gains.
     
  • You can accept very high levels of variability in investment returns, as you understand that the higher the risks associated with investments, potentially the higher level of returns expected.   
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Better yet, I'll also send you regular trading insight and ideas, for the potential to skim profits out of the markets.
 
You can do this even if you've never even looked at a trading chart before. It's easy. 
 
  
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Investor Profile #4 - The adventurous investor
 
The adventurous investor has a far greater tolerance for risk and is constantly scanning the market for opportunities to make short-term gains.
 
The adventurous investor will concentrate on investment products with a higher risk reward relationship. He’ll certainly try his hand at trading futures and CFD’s. Money management and disciplined attention to trading strategy will be essential if you want to avoid suffering big losses when trading these financial instruments.
 
Investor Profile #5 - The ‘reckless investor
 
’The ‘reckless investor’ is prone to throwing caution to the wind. He seeks the thrill of making big money and pays almost no attention to the associated risk. Investors (and they should probably not even be called investors) in this category win big – and lose big. Mostly they’re left regretting the costly mistakes they make.
 
Reckless investors make investments without any kind of education, system or sound reasoning in place. They make their decisions based purely on greed.
 
Whilst this can work for many of them, and often works for a long time, it typically ends in tears with market corrections. Such as the 2008 financial crisis…
 
Which investor type are you?
 
There’s nothing wrong if you’re in one or the other category of risk profile – as long as you are not a reckless investor.
 
What is important though is that you need to know as much as possible about your investments, and what returns you can possibly make from them – considering the risk you take.
 
What’s more, if you realise that you are in the ‘wrong’ risk profile for the life stage you are at – you need to correct that as soon as possible.
 
For the shrewd and adventurous investors out there I can suggest a look at my Red Hot Penny Shares newsletter with short and mid-term profit opportunities, solid investment research, and an opportunity for you to grow your knowledge base about investing! 
 
Here’s to unleashing real value
  
Francois Joubert


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