Who is the investor?
A modern person is provided with a large selection of earning methods. If you are focused on receiving money regularly, you can find a job or start your own business, but there is another option – using alternative ways to generate income. One of the most popular today is considered to be investing. The investor profession is popular and promising nowadays, and anyone can master it.
Any individual or company, as well as the state, can become an investor. All of them invest free capital in something that can give a profit in the future. As a rule, investments are accompanied by certain risks that need to be considered. Conditionally, financial investors are divided into the following categories – active and passive.
The stock exchange is now considered the best way to generate income. If you look at the company’s previous financial performance indicators, you can make predictions about how they will behave in the near future. Of course, you can’t be 100% sure about the accuracy of forecasts, but they help you choose a strategy for certain securities. Thanks to the strategy of active and passive investing, you can calculate an approximate return based on the parameters of a previously known risk.
Who is an active investor?
An investor is a person who devotes all his free time to finding new opportunities to invest financial resources in order to generate income. Moreover, it does not pursue a ghostly profit from investments in the future, but the one that they can give at the moment.
The investment period of an active investor can last several minutes or several weeks. It doesn’t matter to an investor what characteristics the company whose shares they purchase has. An active investor expects that the price will start moving in a certain time period, and he will be able to make a trade. If he is lucky, he will be able to raise a tangible profit. As a rule, it can be 10-20% per week of the investment volume.
Active investors are better known as traders. In Russian, this category of people is simply called “speculators”, their task is to find them cheaper and sell them more expensive. If earlier in the Soviet Union such people were punished for speculative actions, now it is already a profession, and even a very profitable one.
An active investor constantly sits at a computer and monitors stock quotes, reviews statistics and the most important economic news. This, in fact, is his job. His income depends entirely on the number of successful transactions. As a rule, the trader’s work schedule is the same as that of the MICEX exchange or other foreign platforms. Some traders work with several platforms at once. If you take into account the difference in time zones, then on average they spend 12-16 hours a day at the computer. However, this is an extreme limit, usually a trader devotes no more than 10 hours a day to this activity.
The goal of active investing is to get income as early as possible. A trader’s investment can take several minutes and take up to several months. This means that the investor can earn a lot of money in a shorter period of time.
Incorrect forecasting, as well as choosing the wrong strategy, can lead to losses. Traders set themselves the task of outperforming the market, which is represented by the index, or moving towards the goal.
Active and passive investing: features and nuances
In the field of investing, as in any other, there are some subtleties. A trader needs to decide on the direction of movement before taking any active actions. If the trader is a beginner, it will be useful for him to know what types of investment exist.
A passive investor is guided by a long-term perspective. In other words, it does not attempt to beat the market, and operates in accordance with the “buy and hold”principle. An indisputable advantage of passive investing is a stable income that can be earned throughout life.
Active investing differs from passive investing in that it is performed in compliance with the following provisions::
- opening deals is best done after careful analysis.The investor should have a clear understanding of what events are taking place in multipliers and within the company;
- an active investor keeps track of opportunities to beat the market and hit a big jackpot on every trade;
- the trader can reduce the volume of active trades at any time and choose longer-term options, including passive investments.
In order for trades to be profitable, the trader must take into account some aspects when monitoring. These include:
- growth perspective;
- undervaluation of the issuer’s multipliers;
- dividends and their payment schedule;
- corporate processes;
- changes in financial statements;
- industry events.
Active and passive investments
The goal of any investor is to generate income. The only difference is that the trader considers himself smarter and smarter than the market. He plunges headlong into the market and applies all the tools available for speculation.
Passive investments are::
- stocks and bonds;
- bank deposits;
- real estate objects;
- mutual funds and ETFs.
According to the passive investor, money is bound to make money, and this whole process should be accompanied by minimal time costs. As we have already said, the passive investor buys and holds. As a rule, he is not interested in short-term increases or decreases in the quotations of purchased assets. It is important for him to be able to increase prices in the future, as well as get a stable passive income. He is not afraid of temporary declines in stock prices, as the decline will sooner or later stop, and growth will begin again. Passive investors do not sell their assets even in times of crisis, when the price of shares is significantly reduced, on the contrary, they begin to buy cheaper securities at a tempting price.
Passive investment strategies involve portfolio diversification or risk reduction. As a rule, their investment portfolio contains the largest number of securities. This solution helps to provide maximum protection for assets from financial market shocks.
If you invest all your money in one company’s shares, and they eventually fall in price by 30%, then this means that your losses are also 30%. If the share of shares in one company is 5%, then a 30% reduction in the price of one share will not affect the value of your assets. Only one share will fall in price, while others may rise. As a result, you will still be in the black.
There are many options for passive investments, and their choice depends on the goals that the investor wants to achieve.
Bonds are a way to generate moderate income over the long term. As a rule, they have almost no risk. Currently, the bonds have a yield of 12-14% per annum. If you choose an AIS, the yield on bonds can reach 20% per annum. Investors prefer long-term bonds with a maturity of 10-15 years. Their income consists of coupon payments that are issued every 3 or 6 months.
Investors form their own portfolio, then periodically monitor its condition. This is usually done once a year. Revenue is collected in two ways. The first is associated with an increase in the value of shares, and the second is dividends. Since the interest for a passive investor is a constant profit, he will buy securities based on dividends.
Mutual funds and ETFs are an opportunity to invest in entire industries. This solution allows you to protect your investments as much as possible from various force majeure events. This option is chosen by those investors who do not want to delve into market analytics, company securities, etc. They rely on professionals who have been doing this job for years.
Active investors are constantly looking for opportunities to make profitable investments. Revenue depends entirely on the availability of active trades, otherwise there will be no revenue. Passive investors do not worry about this, because they have money working for them, and not vice versa.
Maximum diversification of the investment portfolio is a guarantee of peace of mind for a passive investor. With long-term investments, the risks of being in the red are almost zero. For traders, the opposite is true. They risk their investments constantly, often they lose the lion’s share of capital due to the fact that they do not comply with the principles of money management.
The main advantage of passive investments is that they allow you to constantly make a profit. It may be small, but it is stable. Active investors can’t boast about this, but they can get 30-40% of income in one month, and in another they can get nothing or even suffer losses.
Active investing gives traders a lot of opportunities for successful placement of capital. As statistics show, the use of short-term trends allows you to get a good income. In this regard, often the income of active traders exceeds the income of their passive counterparts.
If you look closely at large businesses, financial corporations, banks, or management companies, they are all passive investors. All their investments are placed for a long time, but this does not prevent them from developing and expanding.
If you are new to investing, first of all you need to decide whether you will be an active or passive investor. Ways to earn money depend on your decision.