Everyone wants to make money in the stock market. But not everyone has the same investment goals or approach to get there.
You can be a high-risk trader who punts for cash every few months. You have the middle-class trader who isn’t risk averse and just wants a decent return on his savings. You have the low-wage earners who want to bust out of poverty.
But regardless of the financial needs, the trader will fit into one of three categories:
Conservatives prefer to take the safe route to financial security and are not very risk averse. You’re definitely a conservative if you rely on time and the power of compounding interest to make money.
Conservatives aren’t too worried about getting the highest possible returns as long as their investments are able to beat inflation. They are also big on principal protection, that is, they want to make sure that the original amount invested never decreases.
Here are the advantages of being a conservative:
- Less affected by temporary falls in the market since they’re in it for the long haul.
- Less anxiety because they “buy only” instead of constantly buying and selling.
- Keen on perpetual income bonds, index funds, and assets that hedge against inflation such as gold.
Speculators are looking to gain (and lose) money within the shortest time possible. They have high risk appetites and are willing to take losses for the chance at a bigger future payoff.
Some speculators are calculated gamblers, while others are “all or nothing” types. Many try to “time” the market, that is, they buy when prices bottom out and then sell when they peak.
It’s not something for the amateur investor, as you need knowledge of chart reading, indicators, and fundamental investment analysis. If you have a high tolerance for losses and get a high from the volatility of quick trades, you’re definitely a speculator.
Here are the advantages of being a speculator:
- Speculators tend to earn higher returns than conservatives and in shorter time spans.
- Keen on high-yield bonds, emerging market stocks, and penny stocks.
Hands-off investors prefer to let someone else manager their portfolios, usually fund managers or through an investment-linked insurance policy.
Hands-off investing is convenient because you don’t need in-depth knowledge of the investment process or even what products are available. So if you prefer not to deal with the stress of managing your portfolio and want to pay someone else to do it, you’re a hands-off investor.
The problem is that they’re at the mercy of whoever they hire, so your major concern is picking a fund manager who will get results. Just remember that your fund manager’s fee will eat into your investment returns.
Here are the advantages of being a hands-off investor:
- Depending on your choice of fund manager, you can receive some good returns without having to worry about your investment choices.
- Hands-off managers gain the convenience of not having to make complex financial decisions.
- Keen on investment-linked insurance policies, which double up as life insurance and offer protection and financial growth.