When we think about stable financial well-being, we think of an association with a successful and big business, a prestigious profession. But you do not have to be the owner of any firm or, say, a successful lawyer to achieve financial success.
Whoever you are, no matter how much you earn, you can always try yourself in investments. In the new material from LC Work, we will figure out what an investor can be, who he is, and how you can become one.
Who Is an Investor?
To avoid confusion in the future, we emphasize that an investor is not the same as a trader or a businessman. For example, the goal of a trader is reduced to the usual: “buy cheaper — sell more expensive.” That is to make money on speculation. The investor, in turn, invests money for longer periods to increase his profits.
In short, an investor is, in simple words, a legal or natural person who invests in certain assets and projects for profit. At the same time, the investor independently chooses the direction, projects, and investments, considering possible risks and the profit level.
Investor or businessman?
Many people think that an investor and a businessman are generally one and the same. Both seem to be serious people engaged in important projects, multiplying capital … what’s the difference?
But the difference is colossal because these are completely different roles, a different approach to business, and a different psychology. Therefore, you are either a businessman or an investor. Let’s consider this difference in more detail.
| Businessman | Investor |
| Strives to make money. | Strives to save money. |
| Strives to earn operating profit. | Strives to capitalize. |
| Doesn’t want to pay dividends. | Wants to pay dividends. |
| Strives to run a stable business. | Has a certain period of time when it should exit. |
| Creates some value. | Redistributes this value. |
Moreover, the investor must be, to a certain extent, more picky about the business or cause in which he plans to invest. He must always rely on cold calculation, facts and, above all, take into account risks.
“I compare a businessman with a guy who fell in love with a girl (that is, a business), and therefore does not see any shortcomings in her because he is in love. And the investor, he is like the father of this guy, he sees her shortcomings. Therefore, the investor cannot “fall in love.” – Margulan Seisembaev, Kazakh investor, public figure.”
What Are Investors Like?
People are different, and so are investors. The difference may be in the style and approach to the case, the expected time frame, the level of risk they are willing to take, etc. For example, according to such criteria, investors can be active or passive.
| Aspect | Active investors | Passive investors |
| Purpose of investment | Getting higher profits. | Realization of long-term goals. |
| Management style | Active portfolio management. | Minimization of active actions. |
| Trading frequency | Frequent trading and rebalancing. | Rarely trade. |
| Market research | Analysis of companies, market factors. | Not actively following the news. |
| Tools used | Derivatives, stocks, bonds, and real estate. | Index funds, index mutual funds. |
| Risk and reward | High risk, but possibly high reward. | Lower risk, but stable profit. |
| Receiving the information | Informed decisions based on research. | Confidence in the development of the market. |
| Investment cost | High cost of tracking and market research. | Lower cost, simpler approach. |
An investor is a multifaceted profession; there are many options for starting this activity and approach to doing business.
Personal Investors
are also called individual or private investors. As a rule, ordinary people invest their personal funds in various assets: stocks, bonds, real estate, etc.
Venture Capitalists
They invest in start-ups and companies with high growth potential for a company share. As a rule, venture investors work with young companies in the early stages of development.
Retail Investors
These are individual investors trading through retail instruments: brokers, banks, and other intermediaries. They play a rather important role in the financial market, as they provide access to capital for companies and help maintain liquidity in the markets for financial instruments.
Angel Investors
They are business angels. These are private individuals, moreover, quite wealthy, investing in private small companies or start-ups. Thus, they help to obtain financing at the initial stages of the company’s development.
In addition to providing financial support, they can also share their experience or contacts that can help the startup grow.
Institutional Investors
Here, we are not talking about individuals, as about investors. Rather, large financial institutions manage their clients’ finances and invest them in various assets for profit. That is, it can be pension funds, insurance companies, or investment banks.
Corporate Investors
Another case is when the investor is not a person but a large company. This is the case when an investor company invests in other companies to increase its capital or diversify its operations.
State Investors
This is when public institutions invest in foreign reserves in various assets outside their country to expand their portfolio, diversify risks and ensure profitability. These can be various kinds of investment funds, central banks, and government bodies involved in management or financial management.
Institutional Traders
Investors are involved in selling and purchasing financial assets, thus increasing profits for their clients. As a rule, this category includes representatives of stock companies and trading organizations.
Their activities can be so influential that they can even cause fluctuations in the prices of investment assets and shake the global market.
Why Should I Become an Investor?
This question can be asked by anyone who is just getting acquainted with the investment culture and does not fully understand why he needs it. Being an investor means always thinking about the future and considering possible risks, including inflation. It is because of her that the usual storage of money is not effective.
Investments are a way to increase money, improve financial literacy and ensure financial stability and independence. This will protect your funds from inflation, provide a financial cushion or insure for the future until retirement age.
Where to Start to Become an Investor?
You should start with an understanding of the principles of financial literacy and, of course, with the fact that you must have free funds to have something to invest. Financial advisors say there are three main skills of financial literacy. In this case, these points are performed sequentially.
- Earn. Of course, it is impossible to store what has not yet been earned, meaning there is nothing to invest. Therefore, first of all, think about what will help you earn more. Perhaps this is the development of a new profession, options with an increase or additional qualifications can always be found.
- Keep. Further, when you reach higher incomes, another challenge awaits you — the temptation to spend more. Therefore, at this stage, your task is to learn how to spend less than you earn. This will help the habit of keeping track of money: income and expenses.
- Multiply money. Now that you have raised your earnings and optimized your expenses and expenses, you may have free money that can be spent (which is not profitable) or invested.
Investments are, first of all, discipline and motivation. That is, it should not be an end in itself, just to be an investor. Therefore, you need to start with clearly defined goals and develop a strategy.
Strategy as a Roadmap to Investing
First of all, what an investor should always keep in mind is that this is a well-thought-out strategy considering your financial situation, goals, and expectations. It is necessary to understand which part of the savings should be invested in real estate and which, for example, in a deposit. This will help to conduct investment activities more carefully and avoid most of the mistakes that lead to loss of money.
Many experienced investors advise not to invest all the funds in any one instrument (asset) when forming an investment portfolio. Even if this tool seems very effective to you. On the contrary, when you distribute capital among different financial instruments, you increase the chances of a stable and stable financial position.
One of the best tools that an investor can start with is deposits, and you can invest in different currencies. This tool does not require additional knowledge and skills from you, and in the event of a bank fall, the deposit guarantee fund will be able to return the lost funds to you (but up to a certain amount limit, of course). So, if you have at least a minimum amount of money in a bank deposit, you are already considered a full-fledged investor.
Anyone can become an investor, no matter how trivial it may sound. Even if today you only have a salary from income. In general, whenever we invest something in the hope of getting a profit from it (we study to get a prestigious profession, for example), we invest. Therefore, an investor is a person who, first of all, looks to the future and tries to improve it, using his current opportunities.
The main features of a successful investor are financial literacy, discipline, a strategic approach, and an emphasis on prospects and risks. Fortunately, these skills are not innate; they acquire practice and a willingness to learn and go to the goal.
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