1. Savers. Savers use the idea of slowly but surely saving their money, often a certain percentage of each paycheck, and allow either financial planners or money managers to invest their money for them. Many savers also choose to invest their money in a “diversified portfolio,” which is a collection of different types of investment tools such as stocks, bonds, and real estate. This idea basically says that although some of the investments won’t pay off or will lose value, others will gain and, hopefully, will not only compensate for loses, but result in an overall gain. There is very little real strategy in this type of investing. Savers also rely on time and the power of compounding interest to help them reach their investing goals.
2. Speculators. Speculators differ from savers in that they are willing to accept a little more risk than savers in return for the prospect of greater returns on their investments. Speculators rely less on diversification of their investment portfolio in favor of a more targeted approach. They also rely less on the time element to make money than savers. Speculators also spend more time listening to stock reports and read market news and so-called “tip sheets” to make investing decisions.
3. Analysts. Analysts are the third type of investor. Analysts reject luck and hot tips in favor of solid research and a deep understanding of what makes the market work.
Analysts don’t necessarily have a finance background but they do have considerable experience with investing. Analysts also may have experience in the industry in which they invest. They understand how different market conditions can affect stock prices and invest accordingly. Some analysts utilize strategies mentioned above as well as shorting stocks or high volume trading by picking up large amounts of the best penny stock picks.
Suffice it to say that investing takes all kinds, and even combinations of kinds. How a person invests will probably incorporate several different aspects of each type of investors. How a particular investor determines which investment to make is often a combination of each type of investor. It all depends on each person’s success and failure. As with so many other situations: experience is the best teacher.