Investors are people or entities that risk their money in various financial assets or ventures with the expectation of earning a return, which they may or may not realize. Here’s what you need to know about what an investor does, types of investors and the types of things investors invest in.
What is an investor and what do they do?
An investor is a person or organization that provides capital with the expectation of earning a return on their investment. Investors assume the risk that a venture may fail and are compensated in the form of a return if they are successful.
There are many different types of investors and they employ a variety of investment strategies ranging from very simple ones that require little financial knowledge to very sophisticated approaches used by professional investors.
Professional investors spend their days researching investments – both current and new opportunities – and may meet with company management teams. Some professional investors may also spend time meeting with existing and potential clients.
Types of investors
Investors come in all shapes and sizes, but can broadly be separated into two categories: individual investors and institutional investors.
Individual investors
Individual, or retail, investors invest on their own behalf. This includes people that invest for retirement through 401(k) plans or IRAs, as well as someone who buys and sells securities in a brokerage account.
Individual investors are typically managing significantly less money than institutional investors and likely won’t have access to the same resources. Here are some other ways individual and institutional investors differ.
Institutional investors
Institutional investors are investing money that doesn’t belong to them on behalf of other investors and covers a broad range of entities. Hedge funds, mutual funds, pension funds, insurance companies would all fall under the category of institutional investors.
Institutional investors typically invest more broadly than individual investors and might include assets such as real estate, private equity or other alternative investing strategies.
Investors vs. traders: What’s the difference?
The terms investors and traders are often used interchangeably in the financial media, but there are some major differences between the two.
Traders tend to be more short-term focused and may hold positions for just a few weeks, days or even seconds. In fact, traders may not even care about the underlying assets they’re trading if they’re trading based on technical analysis, which uses charts and other tools in an effort to predict future prices. The success of a trader depends on short-term price changes, rather than the performance of the underlying asset.
Investors, on the other hand, tend to take a longer-term view, with intended holding periods of years rather than days. The longer you hold an asset, the more your return will be determined by the underlying asset’s performance rather than the whims of traders at a given time. As famed security analyst Benjamin Graham said, in the short run the market is a voting machine but in the long run it is a weighing machine.
What do investors invest in?
Investors invest in a number of different types of financial assets where they hope to earn a return on their money. Below are some of the most popular investments.
Investors may also own assets that don’t produce anything for their owners, meaning the return is entirely based on what you can sell the asset for to someone else. These assets are more speculative by nature.
Bottom line
Investors can be individuals or institutions that invest money with the expectation of generating a return. They invest in a wide variety of assets such as stocks, bonds, real estate and more. Investors tend to take a longer-term perspective than traders, who may hold their positions for just a matter of days or less. Beginner investors may want to consider investing in low-cost index funds before trying to identify individual stocks or other winning securities.
FAQs
Investors can be individuals or institutions that invest money with the expectation of generating a return. They invest in a wide variety of assets such as stocks, bonds, real estate and more.
What is the job of investors? ›
What Is an Investor? Investors commit their own money or their client's money into products, property, or financial ventures in order to gain more money in return. As an investor, you may invest in the stock market and purchase stocks, bonds, mutual funds, options, and futures.
What is the main goal of an investor? ›
The primary goal of an investor is to maximize potential financial returns while minimizing risks. Investors willing to tolerate high risk levels in the hope of higher returns are considered speculators.
What are 3 things every investor should know? ›
Three Things Every Investor Should Know
- There's No Such Thing as Average.
- Volatility Is the Toll We Pay to Invest.
- All About Time in the Market.
What do you mean by Investment? Investment definition is an asset acquired or invested in to build wealth and save money from the hard earned income or appreciation. Investment meaning is primarily to obtain an additional source of income or gain profit from the investment over a specific period of time.
What do investors actually do? ›
Investors can be individuals or institutions that invest money with the expectation of generating a return. They invest in a wide variety of assets such as stocks, bonds, real estate and more. Investors tend to take a longer-term perspective than traders, who may hold their positions for just a matter of days or less.
What is the role of an investor? ›
An investor is an individual that puts money into an entity such as a business for a financial return. The main goal of any investor is to minimize risk and maximize return. It is in contrast with a speculator who is willing to invest in a risky asset with the hopes of getting a higher profit.
What are investors responsible for? ›
Investor Responsibilities
- Learn about investing. ...
- Understand that all investments involve risk. ...
- Investigate the broker and securities firm. ...
- Review new account documents carefully. ...
- Do your research on any potential investment. ...
- Give the broker complete and accurate information.
Investors are looking for how you plan on making money — or more specifically, how you plan on repaying their investment. For this, you need to know the costing of your business, and where the profit margins are.
How do investors make money? ›
People invest money to make gains from their investments. Investors may earn income through dividend payments and/or through compound interest over a longer period of time. The increasing value of assets may also lead to earnings. Generating income from multiple sources is the best way to make financial gains.
Take informed decision. Whether you decide to invest, sell or hold - always make sure that you know why you are taking the decision. Conduct proper research to ensure that your decisions are reasonable. Your investment decisions must be data-driven and not sentiment- or reputation-driven.
What do the best investors do? ›
Successful investors often focus on companies with strong fundamentals, such as low debt, high profit margins, and ample cash flow. Investors who diversify their portfolios and manage risk effectively are more likely to achieve long-term success.
What an investor wants to hear? ›
So they're going to want to know exactly why you need the cash and exactly what you plan to do with it. They'll also want to know when they can expect a return; that should be a part of your business plan. Investors will also be looking for an exit strategy, and you need to think about that in advance.
What is the best way to explain investing? ›
Investing involves committing money in order to earn a financial return. This essentially means that you invest money to make money and achieve your financial goals.
What is the overall purpose people have for investing? ›
Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.
What is the purpose of investment? ›
The act of investing has the goal of generating income and increasing value over time. An investment can refer to any mechanism used for generating future income. This includes the purchase of bonds, stocks, or real estate property, among other examples.
What is the duty of an investor? ›
Do your research on any potential investment. Materials such as the prospectus, annual reports, or any other offering information, should be reviewed carefully. Make sure that you understand how the investment works and the risks involved before moving forward. Give the broker complete and accurate information.
What do investors in people do? ›
Investors in People is a recognition that an organisation looks to improve performance and realise objectives through the management and development of its people.
What is the role and responsibility investor? ›
Investors are responsible for investing money or funds either in a specific account, financial assets, or business ventures. Investors achieve various financial instruments to get returns on their goals such as building retirement funds, college education funding, or adding wealth.
