Have you thought about the 2 types of investors and which one to become?
The two types of investors that we are about to discuss are all the categories that makeup investors.
Thus…
We have two main types of investors, which are…
- Retail or individual investors
- Institutional investors
When people engage in different types of investment, we call them investors.
An investor is any individual, or firm who willfully commits money to any investment or business plan for gaining profit as a return.
Every investor’s goals rely on profit maximization although they may be risky but to a minimum degree.
While the above definition does not differentiate between an individual who directly invests in stock and one who allocates funds to a business.
Still, they are both called investors.
Who Are Investors?
Investors are people under different works of life who engage in one profession or business.
Thus, those people may be business managers, entrepreneurs, corporate workers, skilled workers, and those in government agencies.
This type of investor has a glimpse or no knowledge about investments but they can make a good impact in the market.
The absence of expert knowledge may not affect them as modern investment technology.
For instance, the use of investment apps could help them fill the gap.
This explanation does not include institutional investors, as they are professionals in the field of investments.
What Are The 2 Types Of Investors
Retail or individual investors and institutional investors are the main types of investors.
We have other types of investors, which are…
- Peer-To-Peer
- Angel
- Venture capitalist
- Sweat equity investors
Retail Investors
Retail investors are non-experts in the field.
They are individual investors who purchase and sell assets like mutual funds, and exchange-traded funds from brokerage firms.
These investors utilize different investment accounts such as online or traditional accounts.
As they would prefer…
Retail investors would purchase their own securities rather than approach professional investors.
With that…, they can assume investing with low start-up capital.
Individual or retail investors usually invest for personal gain.
For instance…
They are either saving for retirement or building a lasting legacy.
These investors go through banks or online brokers with their personal funds.
One negative aspect of retail investors is that you may stand a risk of losing your own money in occasions of short-term investments.
This type of investor is based on risk
There are other 4 types of investors from rental Investors, which are…
A; Angel Investors
Angel investors are also known as seed or private investors.
They are individuals who take it upon themselves to provide financial backing for entrepreneurs or small business start-ups.
All this is done due to exchange for equity.
This investor is usually someone with high financial capacity, who invests in a company at the early stage of development.
This may be a risky investment, notwithstanding the profits from returns.
Most times these investors already have business accomplishments in the line of business they are investing in…
Or might have a professional to assist them.
This could help them understand the deal properly and be able to bring in their own ideology…
In order to see to the proper utilization of their fund so invested.
B; Sweat Equity Investors
This is a non-monetary investment that investors render towards the growth of the business which could be in the form of hard work.
Sweat equity is another means of investing in a business normally by entrepreneurs who may be unable to invest financially at start-ups.
In return, they are paid with sweat equity shares.
This type of investor is also known as.
- The types of investors in business
- The types of investors in startups
C; Peer-To-Peer Lenders
This type of investor falls into two categories, they can be groups or individuals.
They are a group of individuals with high net worth interested in funding small businesses from the start.
They work in collaboration with companies as lenders seeking a business to finance.
They do not use Banks as intermediaries due to their nature as a loan to other individuals.
They make use of online platforms where they match the lender and the borrower in a quick and handy way.
Individuals prefer peer-to-peer rather than approaching a bank for a loan because it can lend out even smaller amounts.
Again, the interest rate is considerable as compared to banks or other lending resorts.
It is also a risky deal if the investor is unable to recover its capital funding resulting from the inability to pay back the borrower,
D; Venture Capitalist Investors
Venture capitalists are high-net-worth private equity who are interested in finding other companies that have a good financial reputation.
Unlike the peer-to-peer lending…
They do not fund small businesses that are willing to make a start.
But instead…
They are interested in business deals that are worth much money with firms from an early stage.
Due to the nature and status of these investors, they become part owners and co-decision makers of any company they so invest with.
The venture capitalist can help the speedy growth of a start-up company, thus rather than wasting time sourcing revenue and implementation equipment.
Institutional Investor
Institutional investors are professionals who manage securities and funds for their clients in large volumes.
Examples are…
- Investment trusts
- Mutual funds
- Insurance companies
- Pension funds
- Banks
- Money managers
They are legal entities and as such, they exercise an essential role in the financial market trading and can influence the market positively.
However..,
There are a few risks associated with institutional investors which include a lack of clear policy on shareholders’ rights to the company’s profit.
Again, managerial problems of not following due protocols of organization policy.
The Difference Between Retail And Institutional Investors
A Retail or individual investor can invest in any security either in small volume or in large depending on the financial capacity.
While institutional investors are more prone to large and long-term investments.
Retail investors are individuals who pool their funds to invest for their gain.
While institutional investors are organizations who invest on behalf of other organizations.
Individual investors are non-professionals, who would prefer investing on their own rather than approaching an institutional investor.
On the other hand, institutional investors are groups of experts who pool funds together to invest for their members.
Which One To Become
Both institutional and retail investors have their pros and cons as well as their various risks.
Choosing the type of investors to become depends on individual preferences but note that an institutional investor is a professional.
Those professionals know investments and can fund larger firms but people would prefer retail investors due to their personalized projects.
CONCLUSION
Being an investor might demand a little task of understanding some investment strategies such as having a clear awareness of the market situations.
Choosing the right investment type, planning to invest for the long term, and trying to minimize risk.
That’s how we come to the conclusion of this article.
If you have any questions, use the comment section and I will respond to you.
