There are the many type of investor that prefers different styles and methods. One may allow emotion to affect them and can make rash decision by thinking about it too much. Other may be too afraid to jump in the stock market and try to time the market. Some may prefer the automation method and try to set it and forget it. The hardest part is to figure out what style you’re comfortable with. You need to figure out the risk/return and take action. These are the different type of investors.
The IPO chaser type
This type just found out about a hot stock and is getting ready to start there IPO (Initial Public Offering). You read on the newspaper, magazine, and television that this will be the next “Google” and everyone will be buying this stock. You decided that you will also buy into this stock as soon as they offer the IPO, since it’s the talk of the town. You hear this all the time people trying to get rich quick, but end up getting broke quick. Although there may be time that you might get lucky, but chances are really slim and you should not bet your whole life saving on this. Chasing performance because you hear it on the news will not go well, you need to analyze the company and you have to remember the people who advertise these may be getting paid from that same company they’re promoting. You should think of investing as a long-term investment and not a get rich scheme.
The conservative type
This type hoards a lot of cash and invests in low risk/return investment. They invest in CD, bonds, and rather not lose their principal amount. They are happy with their low returns and rather not risk their investment. They stay away from stocks and do not consider inflation in the future. As long as they earn some money from the interest rate, they’re satisfied with the result.
The index investor
This type focuses more on diversification and simplicity. They rather not have one egg in one basket but rather many eggs in different basket. They also factor in expense fee and rely on the low-cost fee of the index funds to eventually outweigh funds that are managed by a person that charges high fee. This index fund is consider boring because it mirror a certain index depend on what type of index fund you choose, and tend to fluctuate accordingly to the market. It’s a slow and steady index fund that eventually will build over time if you plan on reinvesting and contributing regularly. Also with the power of compounding you can allow this portfolio to grow.
Buy high sell low
This type of investor buy the stock when it is high and when things go sour they tend to sell it. They let their emotion get in the way and panic when they see a price drop. They also try to time the market and anticipate the stock to increase but when it decreases they react by selling the stock. This type probably heard about the stock from friends, relative, magazine, and television. Then decided to follow their advice instead of doing their own research about the companies.
The dividend investor
This type invests in large cap stock and rely on dividend to grow their portfolio. They look at how long the company has been around, increase in dividends, and the payout amount. They create a portfolio that can eventually provide them with passive income in the future. They reinvest their dividend and use it to grow their portfolio for long-term investing.
There are the many type of investor and variable that can have a factor in it. Knowing what your comfort zone and risk is the key. Once you figure that out you can start investing slowly and learn as you go.
So what type of investor do you think you’re?