Types of Investors - Quick Intro

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Types of Investors – Explained!
Not all investors share the same financial objectives. In this short video we’ll take a quick look at different types of investors and some of their unique features;
Individual investor
Individual investors invest and save for several reasons from buying house, car to paying for college, university. They’re also known as retail investors, and they’re non-professionals. They trade, meaning that they buy and sell securities, through a broker. Their investment or savings amount is relatively lower than institutional investors like endowment funds and pension funds.
You must have heard about retirement funds and pension plans many times, that’s because many countries offer special retirement accounts targeting individual investors, which defer any taxes on investment income and gains until the investor withdraws the fund.
Institutional investors
Institutions have large investment portfolios, with different investment goals.
The purpose of investing in an endowment fund is that it provides financial support on an ongoing basis for a particular reason. For example, colleges and universities in the United States usually have an endowment fund to fund several departments, programs co-curricular activities etc.

A foundation is a fund established for a charitable purpose. The exact nature of the purpose can vary, the charity could be for researching a specific disease such as cancer or for other activities such as providing food for an orphanage. The investment objective of the foundation is usually to provide continuous funding for an activity, and not allowing the real or inflation-adjusted value of the portfolio assets cannot decrease. Both foundations and endowment funds have a long investment horizon, they are also relatively risk tolerant and do not have other needs, other than planned spending, which would require liquidity.

Now bank is also a type of investor and its objective is simply to earn more on the loans and investments it has made, than the amount it has to give on deposits to its customers. One of the key feature of banks is that they need high liquidity, therefore, they always have to ensure that sufficient cash is available when a customer wants to withdraw.

The main objective of an insurance company is to have enough funds available when a customer files a valid claim. Life insurance companies usually have a long investment horizon while property and casualty insurance companies have a shorter investment horizon, for obvious reasons.
Investment companies manage pools of investments, and their investment objectives vary considerably. They tap into a range of financial products and securities. For example if the pooled investment is a mutual fund the fund will have its own style of investing, for instance it could be looking for index investing, growth investing or bond investing, therefore, depending on these investment styles it could limit its investments to certain products such as large caps stocks, small-cap stocks, or buying stocks from the energy sector, or the fund could target a specific region such as North America or the emerging markets or Europe.
Then there are sovereign wealth funds, these funds are owned by governments, for example the Abu Dhabi investment Authority is a sovereign wealth fund owned and funded by the government of Abu Dhabi, and holds assets worth over $627 billion.
Now, ignoring a few exceptions, one thing common among all these types of investors is that they all have a portfolio.
Why do financial advisers keep talking about this portfolio? What is this portfolio perspective?
It simply means that you evaluate the risk and return of every element that you have put your money into. When you combine all these elements or financial securities this forms your portfolio. If you don’t make a portfolio you would be evaluating the risk and return of individual investments in isolation. Say, you buy a stock, just one stock, because you think it’s the best stock out there, this is not the portfolio style of investing. And it’s a very risky approach compared to holding a diversified portfolio.
Modern portfolio theory says that the extra risk you take on by holding a single security (stock, bond whatever) is not rewarded with higher expected return. On the flipside, when you make a portfolio, which is diversified, meaning its spread out into different securities, you reduce the risk without reducing the expected return, provided you diversify according to a strategy.
Creating a diversified portfolio is not that difficult, even if you have no knowledge and no market experience you can use the free tool, Ways2Wealth. The process is very simple, you just answer a few questions to create your risk profile, and it does the rest for you. Log on to Ways2Wealth.com and make your portfolio right now.