Investing is known to be one of the best way you can do to grow your saved money without exerting that much effort. What most investors don’t know is that it can also help you grow as a person too. How?
It can help you because being an investor will test your skills and abilities, but you may have a hard time improving yourself if you don’t know what type of investor you are, so let’s identify which group do you belong to first.
Five Types Of Investors
Savers are investors who are looking to increase their saved money, but are afraid on taking on too much risk. They often invest on money market funds and bonds because those are low-risk investments — the exact thing they are looking for.
Is being a saver good?
Well, yes and no.
Yes, because savers are definitely good money savers, and they are more likely the ones who follow a budget plan than any other types of investor.
No, because they only settle for small amounts of returns on their investments. They are not risk-takers and are afraid on investing in other investments besides those low-risk investments mentioned above. That’s why even if they have the money to invest on big investments, they tend to back off because they think that it’s too risky for them.
Do you want to be good at saving money too? If you answered yes, then these article might help you out.
Window shoppers are your type of investors who are afraid to participate in anything related to investing, but they know the latest happening and how the market is doing. They are aware of the stocks that investors should buy, but they are not buying them. Why?
I could think of two reasons. First, is that they don’t have enough money to buy those shares. Second, is that, just like savers, they are afraid of the risk involved. They prefer to just watch others fail and succeed on their risky investments.
I could say that window shoppers are nobodies, but if you need somebody to talk to, you can talk to them but be wary of the tips or advice that they would give you. Sometimes they give good advice, sometimes they are not. So, it’s really up to you if you want to take their advice or not.
Specialist are investors who only invest on a specific investment. They could be only invested on real estates, gold or just stocks. They like to focus on only one investment because they believe that it’s better that way, and most of the time these specialists do excel on their chosen investment.
These are good investors, but when it comes to other investments besides where they are currently invested on, they may be not that good.
If you need advice on investments that they invest on, talk to them. They may give you a good advice that can help you grow your investment just like what they did before.
Traders are investors who can be easily identified by anyone of us. How?
It’s simple. Traders are your day traders. Traders are more likely to be investors in the stock market and in the Foreign Exchange Market, places where they can get good returns and easily do their thing which is to trade. They are always there buying and selling from the moment the market opens and closes. There are times that they make money, but there are more times that they lose money. Why?
It’s all because buying and selling will require you to pay for fees. Yes. Fees. That’s the reason why traders don’t make that much money compared to other types of investors who do the “buy and hold” strategy.
The Wise Investors
Wise investors are those people who have a great amount of knowledge when it comes to investing, and sometimes they are the ones who have experienced how it felt to be part of the bull market and also the bear market. Despite experiencing the down trend of the market, they still decided to invest, because they know that the market can recover just like it did in the previous years.
They are already aware of the fact that investing should be done for the long term for better returns, and not for only short periods of time like the traders do. Why?
Let’s use Apple Inc. as an example and let’s say Mr. Smith decided to invest on it before it began developing the most recognizable phone in the world today, the Iphone.
Apple was valued at $2.75 a share during its Initial Public Offering in 1980, that’s a pretty nice bargain price for a soon-to-be globally-recognized company.
If Mr. Smith decided to buy a thousand of those Apple Inc. shares back then, he would have to spend $2750 for those. What if he decided to buy more Apple shares each year until 1990? Then he would have 10,000 shares of Apple, and let’s just assume that the average price that he paid was $8. He then decided to just hold on for Apple for a while, and sell it when he retires at the age of 65.
By the way, Mr. Smith was just 31 years old when he first bought his Apple shares. This year, 2014, he will celebrate his 65th birthday, and he’s ready to sell his shares. What’s the value of Apple Inc. shares this time around?
It’s just valued at a whopping $531.24 (accurate as of March 5, 2014). That’s more than 1,000% increase in value. How much did Mr. Smith earned for his $80,000 investment back in the 1980’s?
Let’s do the math:
Expenses — $8 x 10,000 = $80,000.00*
Sale — $531.24 x 10,000 = $5,312,400.00*
Total Profit — $5,312,400.00 – $80,000.00 = $5,232,400.00*
*Fees were not yet deducted
That’s not bad for waiting that long, right?
He didn’t just doubled, tripled or quadrupled his invested money. Mr. Smith was able to get more than 60x of his invested money.
Of course, I just made those all up except for Apple’s IPO price (Source), and it’s price today (Source), but I hope you’re getting my point. Wise investors know how to pick the right companies to invest their money on just like Warren Buffett, but I still don’t think everyone can be as lucky as Mr. Buffett and Mr. Smith were.
Wise investors are good money savers too, and they are risk takers that’s why they are able to grow their money much better than any other types of investors.
And, yes, luck still has something to do with investing, just like in other aspects of our lives. However, it’s not all about luck, sometimes you also need to be gumptious.
Now, do you know which type of investors do you belong to?
Are you already a wise investor?
Photo Credit: David Ohmer