Investors use various financial instruments to generate a rate of return and achieve goals such as building retirement savings or funding a child’s college education. Their investments include stocks, bonds, mutual funds, and real estate assets.
Accumulators tend to have confidence in their investment decisions. They may follow general investment trends, making them difficult for advisors to advise due to their strong desire to influence or control decision-making processes.
1. Preserver
Preservers place great importance on financial security and take losses seriously, often through inheritance or conservatively working at large companies. Preservers tend to make decisions more emotionally than cognitively, making them worry more than act. They prefer the status quo over risky investments.
Passive Preserver investors are susceptible to being influenced by friends, family, and advisors; this makes it hard for them to distinguish between “hot” and “boring” stocks and funds recommendations. They may also overemphasize short-term performance at the expense of long-term goals; thus, advisors should advise Preserver investors against succumbing to the temptation of short-term trading; they should encourage Preservers instead to stick with their long-term plan by diversifying their portfolio to handle better longer-term market volatility – especially important for older investors with significant wealth accumulation.
2. Follower
Early-stage business owners frequently rely on family and friends for funding assistance through personal investments. Unfortunately, this requires extensive paperwork and significant tax liabilities, and they may only have limited funds to invest.
These investors may also rely on popular investments or trends. They may avoid professional advice or research and overestimate their risk tolerance, often leaving high cash balances behind them.
These individuals could include physicians and scientists who invested in Vioxx even after later discoveries showed it could cause severe side effects for some individuals. Though these investments enabled them to make money, many lost much of their credibility over time.
3. Independent
Investors invest their capital across various investment vehicles such as stocks, bonds, mutual funds, real estate, commodities, and businesses. Investors may choose passive investing, tracked market indexes, or active investing based on fundamental corporate financial statements and ratios analysis.
You are an Independent investor with an analytical mindset. You enjoy researching investments thoroughly and are often open to unconventional ideas. Unfortunately, your analytical mind can sometimes work against you, leading you down a path of confirmation bias when researching–searching for information that confirms rather than challenging hypotheses or hypotheses.
As part of your startup business venture, personal investors (such as friends or family members) may help with funding. While this can be beneficial, these investors will require that you have an outline plan before they invest any money in it.
4. Institutional
As you read financial news daily, it can be intimidating to see articles detailing how influential institutional investors can be on the market. As an amateur investor yourself, this might seem even more so.
Institutional investors pool money from multiple people and businesses to purchase large volumes of assets, shares, or securities at once. They include insurance companies, banks, NBFCs, mutual funds, and pension funds. Institutional investors typically possess high creditworthiness and solvency and must abide by different regulations than retail investors.
Retail investors and institutions both participate in stock trading activities; professionals tend to trade larger volumes. Retail investors include people who invest themselves (such as parents investing for college costs for their child through 529 college funds or employees contributing monthly to their 401(k). Retail investors often make smaller investments more frequently and may not have access to all the same investments available to institutions.