Types of Investors Based on Risk Appetite
— Risk Appetite is the amount of uncertainty that an investor is willing or able to take in the pursuit of financial gain. It is important to know your risk appetite and invest with it in mind to avoid a constant rise in your blood pressure levels.
Before you start your journey as an investor, it is important to know your risk appetite and invest with it in mind to avoid a constant rise in your blood pressure levels. For some investors, the thought of risk excites them as they see it as an opportunity to earn more while for other investors, it is all they need to hear to avoid a proposed investment.
Risk is the chance that the outcome of your investment might differ from the expected returns . Risk Appetite is the amount of risk that an investor is willing or able to take in the pursuit of financial gain.
An investor is any entity that allocates money to an asset with the expectation that it will lead to some advantages in the future. This advantage is usually financial. Investors can be classified using a wide range of factors but the most common differentiation of investors is by their risk appetite.
Every investor's risk appetite is determined by different factors including age, income, personality etc. Investors can have low-risk, medium-risk or high-risk appetite.
- Conservative Investor
Conservative investors are people who actively avoid risk when it comes to their investments. They focus on stable assets that pose the lowest form of risk.
Due to their low appetite for risky investments, most conservative investors are very pessimistic and focus on low-risk investment options such as government-backed securities like treasury bills and bonds, deposits, and real estate.
For conservative investors, the safety and preservation of their capital is of the highest priority.
- Moderate Investor
Moderate investors are people who take a healthy amount of risk during their investment decisions.
Such investors usually take on a little bit of a calculated risk in search of medium to high returns. Moderate investors adopt a very balanced approach towards investing, which is an almost equal amount of both low-risk and high-risk investment instruments.
Investment options like Mutual Funds which have a mix of low and high-risk instruments are usually favoured by these types of investors. Moderate investors are focused on two things, general capital preservation and moderate to high return on investment.
- Aggressive Investor
As the name implies, aggressive investors are people who go all out in search of high returns. They love to take risks and have an over-optimistic approach toward investments.
These types of investors are not afraid to put their capital on the line with the promise of high returns. Their favourite mantra is "With high risk comes high rewards," conveniently forgetting that the actual quote says, "With high risk comes the expectations of high rewards."
Due to their high-risk appetite, aggressive investors tend to focus on volatile investment options such as Stocks/Equity and Ponzi schemes. Aggressive investors are only focused on hitting it big with high returns. Every other thing is secondary.
Ideally, first-time investors are advised to start as conservative investors until they find their feet and after then, they can decide to stay as conservative investors or graduate to being moderate or aggressive investors.
You can reach out to us to start your investment journey here.