A Guide to Understanding Your Investment Style

When you consider investing as a way of increasing you wealth whether that be for the short term or the long term it is important to understand what type of investor you are. In broad terms there are four different types of investing styles; the saver, the investor, the trader, and the speculator. If you can match you personality and goals more accurately with one of the styles then the more chance you will have at succeeding.

Before you approach any new form of investing think about securing your present financial situation by putting aside three to six months gross salary. This financial nest egg is a great way of securing you and possibly your family should unforeseen unemployment or worse occur. There is also the secondary benefit of freeing you from the idea that you are gambling with money that you cannot afford to lose.

Now be honest with yourself about your present situation and investing goals. Maybe you are just out of college or perhaps at the peak of your earning potential or even in you pre-retirement years. These are important factors to consider when looking at investing as each style has its own risk associated with it and a time line as to when the investment may or may not bear fruit.

The Saver is the most risk-adverse style of investing. Typically money is laid away in a savings account that can be linked to financial vehicles such as mortgage interest rates. If those rates increase then so does the interest paid to your account, and if those rates decrease so does the interest paid to you account. In ninety nine percent of savings account the capital is guaranteed.

The Investor will buy assets for the long term. These assets can be anything from stocks to real estate to precious metals. The investor will look to invest wisely when the markets are low and sell when the markets are high. These assets can take many years to mature.

The Trader is looking to make money over the short term and is perhaps the riskiest of investing strategies. The term “day trader” become synonymous with easy internet access and the dot com boom and bust if the late 1990s. Traders look to invest in stocks, spread bet, and trade in foreign exchange markets. Not for the feint hearted.

Finally the Speculator, although often confused with the Trader, looks to buy and sell assets over the period of a few months. Typically speculators invest in futures and options although company stocks are popular too.

Understanding your nature is key to mapping yourself to a particular investment style and strategy is key to success. Indeed a mix of styles can often work where a percentage of your investments are exposed to risk and the greater percentage secured in something like a savings account. If you are unsure it is always prudent to discuss you situation with an independent financial advisor.

Author:

Gary Young

A Guide to Understanding Your Investment Style

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