Different Types Of Investors
An investor is a person or an entity that invests capital that many startups need. Investors are always looking for a return on their investment in the future. For this purpose, they seek to know more than just a great business idea or solid business plan. That is, they need to see whether you have proof of concept behind your thoughts. They may be looking for a startup with a competitive advantage and a significant market size since there is no guarantee that one can make returns on investment. Most types of investors research investment opportunities based on risk tolerance. There are basically three types of angel investors. They assist throughout the business plan by advising to manage funds precisely and attempt to create goodwill for the startup. It further attracts more investors to invest, thereby improving cash flow.
For the success and growth of a startup, it is crucial to maintain a strong and sustainable relationship with investors. As we all know, investors expect a financial reward in return. Hence, the preferred investment will decide which individual falls into a specific category. There are three types of angel investors based on their tactics and attitude towards investing. Such as;
1. Pre-Investors
Pre-investors are those individuals who haven’t started investing. He may lack financial consciousness or awareness, which could change the direction of their lives. They are very little concerned about investing. Likewise, there’s little savings or investment to exhibit. “Consumption needs” rule the pre-investor financial world, which doesn’t prioritize savings and investment. These investors spend most of their entire income to cover monthly expenses, with no money left for savings. However, it is possible to transform this mindset of pre-investor entirely during this stage.
Likewise, some individuals may prefer to invest after a change of perspective. But they wouldn’t have a retirement plan or capital to fall back on. In any case, the personnel department doesn’t have to arrange it for them. When pre-investors procure more income, they spend more since lifestyle is more important than monetary security. A pre-investor should set aside time for themselves to gain knowledge about personal finance, the current market situation, and competition to improve their caliber and take action as an investor.
2. Passive Investors
Passive investors are ready to leap into investing with low maintenance costs. It is the most common starting point for financial security, mainly supported by financial institutions, educational services, and websites. They often prefer to invest for an extended period and adopt a buy-and-hold strategy. Generally, they depend on experts like brokers, money managers, and financial planners for their investment strategy since they lack the required knowledge and skills. These types of investors usually buy and hold securities (mutual funds, stocks, and real estate) at retail prices for a longer period with minimal trading in the market. Unlike active investors, since they ignore market fluctuations and setbacks, they may not expect to profit from short-term gains. Index investing (index ETF and index managed fund) is a typical example of passive investing.
The positive side of passive investors includes complete transparency over their investments. They know precisely where their cash is and can eliminate it and reinvest it wherever they see fit. Furthermore, when concerned about its negative side, it requires regular savings contributions to achieve financial security and generate lower returns than other investors.
3. Active-Investors
An active investor is an investor who takes more hand-on-approach intending to earn higher returns. He may dedicate most of his time and effort to saving money. They need to focus on building active strategies that add value in return on capital, which is not an easier task to follow constantly. The main difference between passive and active investors is that passive investors aim to get market returns. In contrast, active investors aim to beat the market index.
One significant advantage of active investors is that they receive two sources of return on investment: “market-based” and “value-added returns”. Suppose they can accurately assess the market and gain from price fluctuations. In that case, they can profit and quickly make trades from active investing. Also, they continuously monitor market conditions to identify short-term trading opportunities. They used to engage active fund managers to oversee investment on their behalf. This type of investor requires deep knowledge about wealth management to earn a return on their capital and a high confidence level to make investment decisions properly. The downside includes higher transaction costs and the risk of generating higher returns by incurring passive investing. Active investment can be a good choice for investors who have substantial time and energy to learn the pros and cons of marketing strategies.
What Type Of Investor Do You Want To Be?
Every investor is unique, having a different investment style. The right choice depends on the investor’s personal preferences, risk tolerance, and financial goals. So, there is no single answer that will be suitable for everyone. The first step toward the investment journey is to set a clear strategy. For example, if you are interested in the stock market and desire to put your efforts into accessing your funds, you may consider active investing. Suppose you have enough years before retirement and are working hard to increase your income without any interest in learning the ins and outs of the market. In that case, passive investing might be worth exploring.
A pre-investor is the appropriate starting point for all individuals. They should take considerable time to learn about market conditions and personal finance options and step out of this stage to develop a vivid financial future. You can choose to be one of the three types of angel investors.
Any individual can become an investor with just a little money at hand. Many people pass through these stages of investing as their knowledge, experience, and skills develop. These three types of investors determine financial security and ways to advance your investment strategy to the next level. If you are confused about the right investment option, – Sign up for a consultation with us. We are here to support you!