Investment demands self-reflection – investors who scrutinise a certain investment vehicle ought to turn the mirror on themselves. While you will judge a company by its long-term prospects, goals and strategy, these should be considerations for yourself. A superior education of the market and industry is necessary for both investors and their chosen companies alike. The below compilation of different investor types invites you to question which category best suits you.
Let’s start with the basics – there are three investor types that are easy to distinguish from the outset; high-risk, medium-risk and low-risk. Going from high to low will assist with the comparison.
These are individuals willing to risk substantial capital for the prospect of high returns. These investments should not be undertaken by retail or ‘mum and dad’ (aka new) investors. Their investments demand a waiting period typically beyond five years. High risk investors actively manage funds with this high risk/high return prospect. While the patience and gamble can sometimes be rewarded, the volatility is not sustainable for financial novices or small-time investors. Investments in unlisted companies are always high-risk investments.
Next, there are medium-risk investors – those seeking to minimise risks through investment in a wide range of shares via investment funds, frequently using tracker funds. This distinction is important, as with ‘actively managed funds’, a risk is present where the fund manager or investment team will fall short, compared with tracker funds which are more secure. For less experienced investors, they are not obliged to discern which particular fund is the strongest or which fund manager is more accurate – they can rely on the staid and solid work of the tracker funds instead.
Finally, low-risk investors are an increasingly burgeoning and open class of investors. They opt for secure returns, that are shielded from risk, but that nonetheless yield higher results than cash deposits. Low-risk investors look to be protected against a fluctuating stock market, often turning to asset classes like fixed interest and property, or global funds that hold shares, in order to do so. However, that is not to say that low-risk investors shun all other kinds of investment. Those low-risk investors that have longer-term foresight accept that increased revenue demands increased exposure in turn.
An analogy: the investment highway
Similarly, financial commentators have described the above investors using a separate analogy – those in ‘the fast-lane’, the ‘overtaker’ and ‘the left-lane driver’. The first refers to high-risk investors, prepared to accept losses in emerging markets or with small companies. The second dictates a medium-risk investor, those happy to capitalise on opportunities to get ahead, with a mixture of growth assets with defensive assets that combine to balance risk against stability. The last refers to low-risk investors, those who are happy to rest with modest returns, with their concerns centred more around losing money than accruing immense gains.
This analogy is accurate as all investors find themselves on an investment highway – no one should feel fixed in a certain lane, as there is always mutability, and the right moment will allow you to adjust your progress. By seeking independent financial advice, aiming for a diversified portfolio, and constructing long-term goals, investors will find themselves in the right lane for them.
What kind of investor are you? If you find yourself in the high- or medium-risk categories, unlisted investments might be good portfolio balancers for you. Sign up to our newsletter to receive more news about unlisted investments.
About the author
Richard Andrée Wiltens is a commentator within the fintech sector, who has written for an array of international investment platforms. His career has spanned from investment banking to financial technology firms, backed by an education in economics and finance.