We all want to invest, the question is what should I invest in, why is it necessary to invest, and when and how should I invest? In order to answer these questions, we need to understand what type of investor we are. As we navigate this journey, I recognize that there are types of investors that we can identify to help inform our persona as investors.
There are two types of investors; type A and type B investors that I have come across and have found that they resonate with a few people.
In my opinion, type A investors are natural risk-takers, who understand their risk appetite and make decisions based on their knowledge of things. They look for problems, a capitalistic trait, and use their money to solve these problems, often expecting approximately 30% to infinity return on their investment.
• A Type A investors are typically more aggressive, have a higher risk tolerance, and prefer investments that have higher volatility and short-term returns.
• Common investments include stocks, futures, forex, options, commodities, startups, and cryptos.
• Type A investors are generally in it for the long haul, willing to take on more risk for the possibility of higher returns.
These types of investors possess the skills and traits necessary to succeed as business owners and investors.
A type B investor is not your typical risk taker when it comes to finances, they typically seek financial advice and expert planning to inform their decisions.
• Type B investors are the most conservative, they have a low to moderate risk tolerance, they prefer investments that have a low to moderate risk, low volatility, and long-term returns.
• Common investments include government bonds and mutual funds, gold, cash and savings accounts, and generally real estate.
• These type of investors tend to have an eye towards preserving their money with less risk and are usually more concerned with capital preservation than potential profits.
They are inquisitive and often ask questions like:
- What mutual funds are good for me?
- Do you think I should buy real estate now?
- What organization do you think I should buy shares in?
Ultimately, each type has to use their own judgement, understanding their own tolerance of risk, goals, and timeline, to decide what investing type is best for them. Once that has been established, it is important to thoroughly research all investment options and strategies, and always diversify your portfolio to reduce risk and increase the likelihood of meeting goals. Investing can be a complicated and daunting process, but, by understanding your own objectives clearly and focusing on risk management, the rewards of investing can be great.
A blog that expounds on the learning from the types of investors is Why Financial Literacy is Essential for Young Adults.