Investor

An investor is someone who invests money to make a financial profit from it. Investors create retirement funds, finance college education, and accumulate wealth over time through various financial instruments (stocks, bonds, commodities, mutual funds, exchange-traded funds, options, futures, currencies, gold, silver, retirement plans, real estate, and others).

Investors care about minimizing risk and maximizing return, so they analyze opportunities from multiple perspectives.

An investor is different from a trader. An investor's purpose is to invest money for future returns (years and decades from now). A trader's purpose is to make a quick profit by trading securities. For example, there are swing traders holding positions for a few days or a few weeks, and scalp traders holding positions for a few seconds.

Investor profits usually come from equity or debt investments. Equity investments are the ownership of shares in a company that pay dividends. Debt investments are lending money to others, giving loans, buying government or corporate bonds to get a payout in interest (coupons).

Understanding Investors

Different investors have different degrees of risk, different capital, different styles, preferences, and timing. Some investors prefer consistent low returns and low risk (certificates of deposit, bonds). Some investors are ready to take a lot of risk in order to get a large return (currencies, stocks).

Institutional investors (financial firms or mutual funds) have much more market power and influence over markets than individual retail investors. They combine and pool money from several small investors to create larger investments. This is how they create significant portfolios of stocks and other financial instruments.

Passive and active Investors

Active investors are guided by fundamental analysis of corporate financial statements and financial ratios in choosing stocks to invest in. Active investors can include "value" investors (buy stocks at a low price compared to their book value) and "growth" investors (make long-term investments even in loss-making stocks that are rapidly growing and have future potential).

Passive investors buy and hold components of various market indexes. For example, they can optimize the weights of some asset distributions by the MPT (Modern Portfolio Theory) average variance optimization rule. Passive investing is becoming more popular.