Investors are people or entities that risk their money in various financial assets or ventures with the expectation of earning a return, which they may or may not realize. Here’s what you need to know about what an investor does, types of investors and the types of things investors invest in.
What is an investor and what do they do?
An investor is a person or organization that provides capital with the expectation of earning a return on their investment. Investors assume the risk that a venture may fail and are compensated in the form of a return if they are successful.
There are many different types of investors and they employ a variety of investment strategies ranging from very simple ones that require little financial knowledge to very sophisticated approaches used by professional investors.
Professional investors spend their days researching investments – both current and new opportunities – and may meet with company management teams. Some professional investors may also spend time meeting with existing and potential clients.
Types of investors
Investors come in all shapes and sizes, but can broadly be separated into two categories: individual investors and institutional investors.
Individual investors
Individual, or retail, investors invest on their own behalf. This includes people that invest for retirement through 401(k) plans or IRAs, as well as someone who buys and sells securities in a brokerage account.
Individual investors are typically managing significantly less money than institutional investors and likely won’t have access to the same resources. Here are some other ways individual and institutional investors differ.
Institutional investors
Institutional investors are investing money that doesn’t belong to them on behalf of other investors and covers a broad range of entities. Hedge funds, mutual funds, pension funds, insurance companies would all fall under the category of institutional investors.
Institutional investors typically invest more broadly than individual investors and might include assets such as real estate, private equity or other alternative investing strategies.
Investors vs. traders: What’s the difference?
The terms investors and traders are often used interchangeably in the financial media, but there are some major differences between the two.
Traders tend to be more short-term focused and may hold positions for just a few weeks, days or even seconds. In fact, traders may not even care about the underlying assets they’re trading if they’re trading based on technical analysis, which uses charts and other tools in an effort to predict future prices. The success of a trader depends on short-term price changes, rather than the performance of the underlying asset.
Investors, on the other hand, tend to take a longer-term view, with intended holding periods of years rather than days. The longer you hold an asset, the more your return will be determined by the underlying asset’s performance rather than the whims of traders at a given time. As famed security analyst Benjamin Graham said, in the short run the market is a voting machine but in the long run it is a weighing machine.
What do investors invest in?
Investors invest in a number of different types of financial assets where they hope to earn a return on their money. Below are some of the most popular investments.
Investors may also own assets that don’t produce anything for their owners, meaning the return is entirely based on what you can sell the asset for to someone else. These assets are more speculative by nature.
Bottom line
Investors can be individuals or institutions that invest money with the expectation of generating a return. They invest in a wide variety of assets such as stocks, bonds, real estate and more. Investors tend to take a longer-term perspective than traders, who may hold their positions for just a matter of days or less. Beginner investors may want to consider investing in low-cost index funds before trying to identify individual stocks or other winning securities.
FAQs
Investors are people or entities that risk their money in various financial assets or ventures with the expectation of earning a return, which they may or may not realize.
What is the role of an investor? ›
An investor is an individual that puts money into an entity such as a business for a financial return. The main goal of any investor is to minimize risk and maximize return. It is in contrast with a speculator who is willing to invest in a risky asset with the hopes of getting a higher profit.
What does an investor job do? ›
What Is an Investor? Investors commit their own money or their client's money into products, property, or financial ventures in order to gain more money in return. As an investor, you may invest in the stock market and purchase stocks, bonds, mutual funds, options, and futures.
How do investors make money? ›
Some pay income in the form of interest or dividends, while others offer the potential for capital appreciation. Still, others offer tax advantages in addition to current income or capital gains. All of these factors together comprise the total return of an investment. Internal Revenue Service.
What is the duty of an investor? ›
Your responsibilities as an investor
Read thoroughly all sales literature, prospectuses, and/or other offering documents, when available, before making any investment. Carefully consider all investment risks, fees, and/or other factors explained in these documents.
Do investors get paid back? ›
There are different ways companies repay investors, and the method that is used depends on the type of company and the type of investment. For example, a public company may repurchase shares or issue a dividend, while a private company may pay back investors through a management buyout or a sale of the company.
What do investors get in return? ›
The return on an investment is usually quoted as a percentage and includes any income that the investment generates (e.g., interest, dividends) as well as capital gains (price increases). To generate higher expected returns, investors usually need to take on more risk of potential losses.
How much do investors get paid? ›
What Is the Average Private Investors Salary by State
| Annual Salary | Hourly Wage |
|---|
| Top Earners | $74,500 | $36 |
| 75th Percentile | $57,000 | $27 |
| Average | $55,726 | $27 |
| 25th Percentile | $44,500 | $21 |
Legal advice. So, are shareholders and investors the same? No. Although the differences are quite subtle; a shareholder is an entity owner of a company when it is possible to buy and hold shares, whereas an investor is someone that puts money into a business that does not have shares issued.
What is the main goal of an investor? ›
Safety, income, and capital gains are the big three objectives of investing but there are others that should be kept in mind as well.
Earn Compound Interest
The main reason the stock market has been such a tremendous wealth generator is the effect of compound interest. While you can make short-term profits in the stock market, it's actually a safer bet to leave your money in the market for the long term and let compound interest do its magic.
What happens when you get an investor? ›
More Pressure to Make a Profit
Receiving financing from an investor will likely come with increased pressure to make a profit. An investor took a risk in funding your business and you won't want them to lose money or regret their investment.
How do investors get cash? ›
Investors can cash out stocks by selling them on a stock exchange through a broker. Stocks are relatively liquid assets, meaning they can be converted into cash quickly, especially compared to investments like real estate or jewelry.
What does an investor do all day? ›
Investors can be individuals or institutions that invest money with the expectation of generating a return. They invest in a wide variety of assets such as stocks, bonds, real estate and more. Investors tend to take a longer-term perspective than traders, who may hold their positions for just a matter of days or less.
Do you return money to investors? ›
One of the most straightforward ways for companies to pay back their investors is through dividends. A dividend is the distribution of some of a company's profits to its shareholders, either in the form of cash or additional stock.
What is the income of an investor? ›
Investment income is profit that comes from interest payments, dividends, capital gains collected as a result of the sale of a security or other assets, and other profits made through an investment vehicle of any kind.
What is the role and responsibility investor? ›
Investor's responsibilities: Investors play a key role in providing funding and support for your startup. They may also provide valuable connections, expertise, and mentorship.
What are investors responsible for? ›
Investor Responsibilities
- Learn about investing. ...
- Understand that all investments involve risk. ...
- Investigate the broker and securities firm. ...
- Review new account documents carefully. ...
- Do your research on any potential investment. ...
- Give the broker complete and accurate information.
Investors typically generate returns by deploying capital as either equity or debt investments. Equity investments entail ownership stakes in the form of company stock that may pay dividends in addition to generating capital gains.
