Investor Definition, Types And Characteristics

Investor is a term we may have often heard. Investors are often mentioned in economic news. Then what is an investor?

What Is Investor Definition?

Investors are people who make investments. Generally, the term “investor” is addressed to individuals or institutions who invest in a company or business.

The purpose of investing itself is to get a return on the investment activities carried out.

So We can smartly conclude that an investor is a person or company who invests in the hope of making a profit in the future.

The types of investments are quite diverse, ranging from investments in stocks, bonds, mutual funds, pension funds, commodities, precious metals, foreign exchange, to property.

Difference between Investor & Trader

In capital market investment, investors are different from traders. An investor is placing capital for long-term profit orientation, while a trader is placing capital in the hope of making short profits, even by buying and selling securities repeatedly.

Types of Investors

Investors are defined as parties, either individuals or institutions originating from within and outside the country, who carry out long-term or short-term investment activities. So it can be concluded that there are two types of investors.

1. Institutional Investors

As the name implies, this type of investor is an organization such as a financial institution or company that invests in shares or other financial instruments. In some cases, they collect and accumulate funds from small investors such as individuals or small companies, then invest in building a sizeable portfolio.

So that institutional investors have greater power and influence than individual retail types. Examples of types of institutional investors are mutual funds, pension funds and hedge funds.

2. Retail Investor

Retail investors are investors who make investments in their own accounts, or representatives acting on behalf of individuals. So that in buying and selling must go through an intermediary broker-dealer.

Retail investors are divided into 3 groups based on the method of selecting their shares, namely:

  • Value investing, is a stock method that specifically looks for securities with a high intrinsic value compared to their capitalization value.
  • Income investment, a method of selecting shares from companies that are loyal in dividend distribution so that their income is safe and routine.
  • Growth investment, a selection method that focuses on the growth of a company in the long term.

Investor Characteristics

When you want to become an investor, you must first determine the type of investment you want to make. In that case, then you must consider the risk profile.

The risk profile is adjusted to the financial capability and purpose of investing. This risk profile describes the character of investors in general when investing. Here’s a full explanation.

1. Conservative Investor

Conservative investors are the type of investors who prefer to play it safe with a tendency to have a low risk profile ( risk averse ). This type is more likely to choose investment instruments that provide stable returns, although not too large. Such as money market mutual fund investments, deposits and gold.

2. Moderate Investor

For moderate investors, they have understood that there are risks in the short term, but on the one hand they also want higher returns. So this type is very suitable to take investment instruments of fixed income mutual funds or mixed mutual funds.

3. Aggressive Investor

The higher the return, the higher the risk. The aggressive type is an investor who takes the type of investment with a high level of risk ( risk taker ). They are brave in taking risks, so the chosen instrument is like stock mutual funds, forex or stock trading. Even this type of investor does not hesitate to enter the property investment sector.

In conclusion, investors are can be individuals or institutions who aim to obtain returns according to their risk preferences. Hope it is useful.

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