Everyone has a unique investment style. However, certain characteristics can be grouped together to form “investor personalities”. We have a broad look at three of these, and we consider some steps you can take to grow as an investor generally.
Tip: You can use the profit from your investments to help reduce your debt. Get help today.
The three kinds of investors
Aneesa Razack, CEO of share investing at FNB Wealth and Investments, says their research has identified three types of investors, as follows.
Investor 1: Avoiding risk completely
The first investor they have defined is governed by safety. This investor is completely risk averse and is nervous to invest money in any financial assets outside of traditional bank- and savings accounts.
Cash flow is a constraint for this investor and, for this reason, cash is kept in short-term instruments that are easy to access. As a result, this investor has the least knowledge of investments, and they have an extremely risk-averse stance toward growing savings.
Investor 2: Taking minimal risk
The second investor they have identified puts money away on a regular basis but is limited in investment knowledge. This investor is looking for assistance to make financial decisions and is happy to utilise different investment vehicles, as long as there is assistance in selecting these products.
This type of investor looks to investment assets, such as money market accounts, unit trusts, and ETF’s because they offer a basket investment compiled by professional fund managers.
This investor likes to keep risk low, and prefers investing in assets that have a strong track record, provide capital security and keep up with the increased cost of living.
Investor 3: Taking informed chances
The third type identified is the knowledgeable investor who follows the market themselves and uses research articles, podcasts, and investment- and trade ideas to grow their wealth.
The risk appetite for this investor is higher than the other two types, with risk being taken for higher potential returns.
This investor is happy to invest in a wide variety of asset classes and is looking to achieve inflation plus returns. They are experienced, and make investment decisions after conducting their own research and due diligence.
How to grow as an investor
There’s no “right” way to invest, and each of the investment personalities has their pros and cons. What’s important is to understand your own investment personality and to make it work for you.
Razack points out the following tips you should consider.
1. Define your investment goals
Deciding on the right investments and strategy means understanding what you are trying to achieve. You don’t plan the mode of transportation before selecting the journey. Ensure you know what your goal is before selecting a basket of assets.
2. Understand your risk profile
Understand how much risk you can afford to take as an investor. Should an investment depreciate, work out how long will it take you to earn that capital again.
This is crucial information before building your portfolio. Once your goal and risk profile have been established, the below steps come in handy in selecting the right assets.
3. Buy assets for the long term, ignoring market noise
Trying to predict the market’s direction, so that you’re only buying when the prices are low or only selling when the prices are high, has never worked over a long period of time.
Stocks for example can be high in price and continue to climb, meaning you are missing out on potential returns by sticking to that single strategy.
Despite the stock markets' ups and downs, market indexes over the long term have continued to increase. Investors both passive and active are better off taking the long view and investing set amounts regularly. This will result in an increase in dividends received from more shares and a chance for your capital to grow consistently over a longer period.
4. Reinvest All Earnings
Reinvesting the earnings for as long as possible allows the power of compounding to take effect. Reinvesting those insignificant dividends or small capital gains will increase the number of assets in your portfolio, thus increasing the potential for dividends, interest received and capital gains.
Reinvesting money in the market means growing your capital base year on year until you need to live off those returns. Invest in assets you understand from a business point of view and that offer potential for growth.
5. Invest in quality, not in cheap
Invest in assets and investment vehicles you understand or have dealt with before, and that are set to thrive in this new economic climate the world finds itself in.
For example, if you only shop at Woolworths because they are the best in your opinion, and you’ve done some research on some other revenue streams and strategies the company has adopted, then consider investing in them. As long as this investment matches your long-term goal and risk profile, it could be a worthwhile decision.
While you’re planning your investments, don’t forget to take care of your debt.