Good Morning Green Panda Friends. It’s Tuesday January 31st, it’s the last Tuesday of the month, and it’s also the last post in our “Investing: The Ins and Outs of Dividends” series. It is a great idea to start investing, but its an even better idea to know what types of investments are available for us on the market. Before we can decide which type of investments we should buy, we must first determine what type of investor we are by establishing our investor profile.
An investor profile is a series of questions that we answer in order to determine our investment personality. There are two parts to an investment profile, personal and financial. The personal questions of an investor profile include our age, income, and investment knowledge/experience, as well as our net worth. The financial questions of the investor profile include our time horizon (how long we want to invest), our risk tolerance (comfort with daily fluctuations in the value of our investments), as well as our investment objective (what do we want our investments to do/how do we want them to perform). Generally there are 6 different types of investor profiles.
Preservation of Capital
These types of investors are not concerned with growth, and they are not comfortable with any type of fluctuations in the value of their investments. Their main objective is to ensure that their capital investment (original money) remains stable with zero risk that the money will ever lose value. The best types of investment options are cash equivalent investments such as a high interest savings account. Term Deposits and Guaranteed Investment Certificates can also be a good investment options for investors who are looking for preservation of their capital.
A Conservative Investor likes their money to be secure but not necessarily 100% guaranteed. These types of investors can slowly start to buy into the market through Money Market and T-Bill Mutual Funds. Too much fluctuation in the value of their investments make Conservative Investors nervous, but small variations can be acceptable. Individual Government and Corporate Bonds can be a good investment option for Conservative Investors.
Income Investors are looking for a regular income stream from their investments. They are not hoping that their original investment will grow substantially over time, they hope that the regular interest (usually compounded) will help their investment grow. Bond Mutual Funds, Mortgage Backed Securities (MBS), and Real Estate Income Trusts (REITs) are great investment options for investors who are looking for a regular income stream from their investments.
A Balanced Investor is looking for security with some growth. Balanced Mutual Funds are a great option for new investors because they provide a combination of both risk with growth investments as well as security with income or cash equivalent investments. Balanced Investors can choose to purchase dividend paying Stocks or Dividend Mutual Funds in the growth portion of their portfolio.
Growth orientated investors are specifically looking for long term growth in their investment portfolio. However with more growth comes more risk, and with more risk comes the possibility of larger losses. Growth Investors are not concerned with short term losses in the value of their portfolios because they are focused on the value of their investments over the long term. Growth Investors can purchase Domestic and Foreign Equity Mutual Funds as well as a variety of different Stocks, including Stocks that pay Dividends to their owners.
Aggressive Growth Investors are willing to accept the maximum amount of losses for the possibility of the highest possible returns. These types of investors can purchase Precious Metals such as Gold, they may also invest in specific sectors of the economy (which are considered to be very high risk) such as Technology and Health Care.
Which Type of Investor Are You?
If you like this post please check out all of the previous posts in our “Investing: The Ins and Outs of Dividends” series. Keep reading for a new series that will start next Monday.