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Investors come in many different forms. Some prefer particular asset classes (e.g. stocks) and differences also exist regarding investment horizon; e.g. some investors like to day trade, whilst others invest over many decades. Then there is risk tolerance variation, where certain investors want to minimise volatility whilst others are comfortable with big price fluctuations in short time spaces. What type of investor are you, and how might this impact your portfolio strategy? Below, our team at Bure Valley Group outlines some common investor categories to help you identify where you might best place yourself.
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The automating investor
Some people are just too busy to watch their investments, research different opportunities and manage their portfolio. Automating investors typically like to pick a strategy, contribute to it every month and review it, say, once per year. In the meantime, most of the legwork is outsourced to financial advisers and investment managers. Common investments here include mutual funds, ETFs and managed investment accounts.
The proactive investor
These investors love to spend hours every month researching investments, watching over their portfolios and seizing opportunities before the majority of other investors (e.g. via IPOs). This person might be a day trader, active fund manager or an individual stock picker. They are very particular about what they include in their portfolios and value maximum investment control. Very often, he/she also seeks to beat the market – even if just by one or two percent.
The low-maintenance investor
This is perhaps the most common type of retail investor. Here, the individual may enjoy reading some financial news, tries to match the market (perhaps using some minor stock picking) and tends to be fairly detached, emotionally, from their investment process. Generally, this investor spends a decent amount of time researching investments for selection, but spends less time balancing and maintaining their portfolio.
The hype investor
Do you love the latest “hot stocks”? Hype investors love to identify popular trends and ride their surging market prices. Sometimes also known as “have a go heroes” or “TikTok investors”, here less attention is paid to underlying fundamentals of a stock and more focus is placed on the popularity, momentum and growth potential of a stock. A lot of amateur investors fall into this category, driven by social media frenzy. Yet experienced investors can take advantage of this to profit from the hype. A good example is Michael Burry’s famous position in Gamestop – the famous “meme stock” which rose 4,000% – which he sold before the Reddit rise.
The value investor
Are you the type of person who loves a bargain? In which case, value investing may appeal to you. Here, the goal is to find stocks with strong underlying fundamentals which are, currently, unloved by the market. By buying shares below their fair value with a good “margin of safety”, the value investor can hold their position hoping that other investors will eventually recognise the stock’s value – driving the price up.
The cautious investor
If an investment has been “tried and tested” – such as a steady blue chip stock – then this type of investor will likely be attracted to it. Here, the priority is on financial stability and the preservation of wealth. This often leads the investor to seek reliable dividend-paying stocks and fixed-income assets (e.g. UK government bonds). The minimisation of risk is highly prized and price volatility usually is avoided as much as possible.
The balanced investor
This type of investor is more “middle-of-the-road”, happy to take on some investment risk whilst also prepared to include a degree of “adventurous” assets in your portfolio (which have been carefully considered). Here, the strategy is to gradually grow wealth whilst mitigating needless volatility. A good example is Ray Dalio’s All-Weather Portfolio, which spreads investments over four asset quadrants which each perform differently in various economic conditions.
The innovative investor
Here, investors are drawn to “disruptive” companies and ground-breaking assets (e.g. crypto and blockchain-based opportunities) with high growth potential. Few things excite such people more than a new, exciting idea. Investment setbacks rarely cause worry, and a higher level of investment risk is readily accepted to access the possibility of higher returns. Startups and other early-stage companies can be an attractive option for these investors.
The thematic investor
Some investors like to confine themselves to a specific area of investing that they know very well – such as stocks in a specific industry or crypto mining. This might also involve focusing a portfolio into a specific region or country, to maximise the strengths of that area. Japan, for instance, has a strong tradition of technology and robotics whilst Switzerland boasts a healthy chemicals sector and financial sector.
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