Smart investing puts your money to work to outpace inflation and potentially builds wealth by increasing its value over time. Investing has great growth potential because of compounding profits and interests and the principle of risk-return trade-off or rising potential return with higher risk.
Many invest in stocks, real estate, cryptocurrency, precious metals, bonds, and other investment options. Once you have a sizeable passive income from these investments, you can achieve financial independence. To learn more about attaining a rich life, check out this article on the 3 Fastest Ways To Get Rich.
But not all investors are the same. Each individual has different tolerance, risk levels, and budgets. Economic, cultural, and socio-political factors can also affect investment decisions and practices. So, what type of investor are you? Read on below to find out.
Table of Contents
The Aggressive Investor
According to Finance Strategists, aggressive investing is a high-risk investment strategy with high return potential. Aggressive investors usually invest in stocks, exchange-traded funds (ETFs), mutual funds, real estate, options and futures, cryptocurrency, and alternative investments.
Aggressive investors purchase outperforming securities to seek lucrative returns from a rising market. An aggressive investor who invests in stocks aims to reap greater gains up to the extent of borrowing money to buy high-yield bonds. This investor has an aggressive portfolio, such as high beta stocks with greater price fluctuations than the overall market.
However, aggressive investment portfolio management isn’t easy. A good aggressive investor takes hours to study and analyze the market. Aggressive investors must endure frustrating down moves when stocks stumble, tolerate market downturns, and remain resilient when failures occur.
The Defensive Investor
Defensive or conservative investors first lay down their investment protection and aim to achieve modest growth. They aim to gain a stable income stream with lower investment risk and more short-term stable returns.
A defensive investor’s investment strategy involves maintaining an asset allocation through regular portfolio rebalancing, such as buying good-quality, short-maturity bonds. But holding on too much to bonds can be too conservative, hindering risk-return trade-off potential.
Defensive investors love to diversify their modest profit-generating investments. A conservative investor is interested in investing in stock shares of highly established companies in healthcare, utilities, and consumer staples. Unlike aggressive investors, they use stop-loss orders instead of holding on to them until the market stabilizes. Also, they hold cash and cash equivalents during market downturns.
Defensive investors underperform in a bullish market because their investments are less sensitive to changing market conditions. Unlike aggressive investors, they benefit less from high market values. Furthermore, the defensive investor’s assets have lower returns in the longer term than the aggressive investor’s assets.
The Moderately Aggressive Investor
Moderately aggressive investors value higher long-term returns and are willing to face significant risks. These investors desire higher long-term returns, like exploring the stock market, and care less about protecting the principal.
Moderately aggressive investors aim to yield long-term investment gains with combined equity investments. A moderately aggressive investor is similar to an aggressive investor, except that some assets are conservative. This investor type builds a portfolio that accumulates wealth with fewer swings in the annual portfolio performance.
Moderately aggressive investors have six to ten years of investment timeframe, expecting an average return of 10 to 11 percent in annual growth. This annual investment return demonstrates the long-term average stock market growth over the past years.
The Moderately Conservative Investor
Moderately conservative investors focus on capital preservation with medium to long-term assets. They aim to combine income and capital growth from their investment portfolio, including cash, shares, bonds, listed properties, and offshore assets.
For instance, a moderately conservative investor will likely include individual and mutual bonds into their portfolio, expecting to earn 6 to 8 percent growth yearly. This investor aims to receive dividends quarterly or annually instead of waiting for income for years like aggressive and defensive investors.
Moderately conservative investors don’t willingly accept portfolio balance variations. These investors need their money within three to six years. Hence, they seek a regular source of income stream. So, they aren’t able to maximize and benefit from rising markets.
What Type Of Investor Are You?
After learning the different types of investors, how do you identify yourself as an investor? You may now have a better perspective of the type of investor you are, or you want to be and want to enhance your investment knowledge and skills around it. But your investment preference doesn’t have to adhere to the qualities and practices of your preferred investor type. Sometimes, you might make an investment decision reflecting an aggressive, defensive, or conservative investor, making you a moderately aggressive or moderately conservative investor.