Before making investment decisions, it’s important for investors to self-assess, and employ the same level of scrutiny and reflections for themselves as for their chosen investment vehicle.
Just like the companies seeking your investment, you should consider your investment goals, strategies and long-term prospects. Similar to your investment targets, the more informed and aware of the market you are, the more likely your investment prospects are to succeed. Today, Equitise has compiled the different investor terms to allow you to consider – what type of investor are you?
Traditionally speaking, there are three different investor types. Firstly, high-risk investors are prepared to risk substantial sums of their capital in exchange for the possibility of much higher returns. The type of investments they target should be avoided by new investors. They also represent a much longer commitment – expect to see returns beyond ten years or so. Actively managed funds by this sort of investor target emerging areas that offer high returns, but an equally high risk. Their investments reward investors’ patience and investors’ willingness to gamble, but the rocky course that they chart is not for the faint of heart or financial novice.
By contrast, medium-risk investors reduce their investment risks by investing in a wide range of shares through investment funds, often using tracker funds. This is vital as with an actively managed fund there is always risk that a fund manager or an investment team will leave, whereas a tracker fund can be a true buy-and–hold option. It means novice investors don’t have to determine whether a one fund manager is a stronger performer than the other.
Low-risk investors are a newer investment class, who prefer secure returns that will shield them from as much risk as possible, but are higher than cash deposits. This class of investors will shore up against fluctuations in the stock market by opting to invest in asset classes such as fixed interest and property, together with global funds that hold shares. However, this does not mean that all low-risk investors should avoid shares of all varieties. Indeed, if low-risk investors look to a long-term perspective, they must recognise that it is difficult to obtain increased revenue without having some exposure in shares.
In their financial advisory section, the Telegraph recently apportioned these three investor types three alternate descriptions – ‘the left-lane driver’, ‘the overtaker’, and ‘the fast-lane’. The first represents a low-risk investor – preferring to settle for the prospect of modest returns, more concerned with losing money than making massive gain. The second refers to the medium-risk investor, willing to take advantage of opportunities to get ahead, holding a mix of growth and defensive assets in a combination of risk and stability. Finally the fast-lane concerns the high-risk investor, those willing to face big losses on small companies or emerging markets. This analogy is helpful as investment is much similar to a motorway – you should not consider yourself fixed in your lane, as with the right timing and movement it’s possible for you to adjust and progress – even if this seems risky at the outset.
Long-term goals, appropriate financial advice, and a diversified portfolio, all often combine to help investors occupy the appropriate bracket.