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. Here's what you need to know about what an investor does, types of investors and the types of things investors invest in.
What does a typical investor do? ›
An investor purchases an asset in the hopes that its value will grow and they can then sell it for more than they bought it for, earning a profit. Income is the regular payment of funds from the purchase of an asset.
What are two responsibilities you have as an investor? ›
At the same time, investors need to shoulder certain responsibilities themselves—for example, to plan carefully to meet their investment goals and to stay informed about the risks and rewards of their investments.
What is the job of investors? ›
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.
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.
What do investors actually do? ›
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 do investors do everyday? ›
If you talk to the most successful investors in the industry, they spend a majority of their time doing these two things: Generating leads and raising money. They hire out teams of competent people to perform the other tasks for the business.
What makes someone an investor? ›
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.
What is the duty of an investor? ›
Investors should keep track of the status of their investment. Know where your money is and how and when you can gain access to it if necessary and most importantly to keep updated with the performance of your investment.
What do the best investors do? ›
Key Takeaways
Successful investors all have one thing in common—they have rules. Notable investors like Warren Buffett recommend focusing on fundamentals and management quality before looking at the price of a stock. Other major investors advise on betting big when you have an edge and to always be forward-thinking.
Can You Make a Lot of Money in Stocks? Yes, if your goals are realistic. Although you hear of making a killing with a stock that doubles, triples, or quadruples in price, such occurrences are rare, and/or usually reserved for day traders or institutional investors who take a company public.
What is the income of an investor? ›
Investment income is money you make by selling something for more than you paid for it. Passive income is money you make from something you own, without selling it.
What do investors get paid? ›
Dividends are a form of cash compensation for equity investors. They represent the portion of the company's earnings that are passed on to the shareholders, usually on either a monthly or quarterly basis. Dividend income is similar to interest income in that it is usually paid at a stated rate for a set length of time.
How do investors get paid back? ›
The most common is through dividends. Dividends are a distribution of a company's earnings to its shareholders. They are typically paid out quarterly, although some companies pay them monthly or annually. Another way companies repay investors is through share repurchases.
How much do investors make a year? ›
Stock Investor Salary
| Annual Salary | Hourly Wage |
|---|
| Top Earners | $176,000 | $85 |
| 75th Percentile | $134,500 | $65 |
| Average | $101,099 | $49 |
| 25th Percentile | $62,000 | $30 |
Distributions received by an investor depend on the type of investment or venture but may include dividends, interest, rents, rights, benefits, or other cash flows received by an investor.
What do you do as an investor? ›
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.
Does the average investor make money? ›
The average stock market return is about 10% per year, as measured by the S&P 500 index, but that 10% average rate is reduced by inflation. Investors can expect to lose purchasing power of 2% to 3% every year due to inflation. » Learn about purchasing power with the inflation calculator.
How much money do investors usually give? ›
A fair percentage for an investor will depend on a variety of factors, including the type of investment, the level of risk, and the expected return. For equity investments, a fair percentage for an investor is typically between 10% and 25%.
