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For the Swedish investment company, see Investor AB.

An investor allocates capital with the expectation of a future financial return.[1] Types of investments include: equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, futures, forwards, etc. This definition makes no distinction between those in the primary and secondary markets. That is, someone who provides a business with capital and someone who buys a stock are both investors. An investor who owns a stock is a shareholder.

Essential quality[edit]

The assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss. The term "speculation" implies that a business or investment risk can be analyzed and measured, and its distinction from the term "investment" is one of degree of risk. It differs from gambling, which is based on random outcomes.[2][full citation needed]

Investors can include stock traders but with this distinguishing characteristic: investors are owners of a company which entails responsibilities.[3]

Types of investors[edit]

There are two types of investors, retail investors and institutional investors:

Retail investor[edit]

  • Individuals gambling in games of chance.
  • Individual investors (including trusts on behalf of individuals, and umbrella companies formed by two or more to pool investment funds)
  • Collectors of art, antiques, and other things of value
  • Angel investors (individuals and groups)
  • Sweat equity investor

Institutional investor[edit]

Investors might also be classified according to their styles. In this respect, an important distinctive investor psychology trait is risk attitude.

Investor protection[edit]

The term "investor protection" defines the entity of efforts and activities to observe, safeguard and enforce the rights and claims of a person in his role as an investor. This includes advice and legal action. The assumption of a need of protection is based on the experience that financial investors are usually structurally inferior to providers of financial services and products due to lack of professional knowledge, information or experience. Countries with stronger investor protections tend to grow faster than those with poor investor protections. Investor protection includes accurate financial reporting by public companies so the investors can make an informed decision. Investor protection also includes fairness of the market which means all participants in the market have access to the same information.

Through government[edit]

Investor protection through government is regulations and enforcements by government agencies to ensure that market is fair and fraudulent activities are eliminated. An example of a government agency that provides protection to investors is the U.S. Securities and Exchange Commission (SEC), which works to protect reasonable investors in America.[1]

As individuals[edit]

Investor protection through individual is the strategy that one utilizes to minimize loss. Individual investors can protect themselves by purchasing only shares of businesses that they understand, or only those that remain calm through market volatility.

An individual investor may be protected by the strategy he uses in investment. The strategy includes an appropriate price of the stocks or assets in the right time he enters. It's hard to fix what "an appropriate price" is, and when it is appropriate because no one makes a purchase or a sale absolutely in his most favorable situation. However, determination may be made when the price of such share or assets are "undervalued" comparing to its potentiality. This is called the margin of safety where an investor can feel at ease when the price of the stocks is alarmingly down.

Understand the investor plan[edit]

In various instances, the term "investor" is associated with a means of getting rich quickly. Historically, the road to successful investment is founded on preparation, with various short-term goals that help smooth the journey to the ultimate and determined financial achievement. To be successful, authorities such as Investopedia advise that an investment plan must include a defined objective, a determined period of time for completion, and the resources needed. A planned investment structure would be dependent on the desired investment target.

Knowledge, related to the various aspects of the investment process, and the optimization of portfolios, is emphasized by the need for diversification, which influences the investment procedure towards the fundamentals of finance. For an investor, understanding the influencing factors related to finance is a valuable asset which can be gained from various sources. A financial awareness will help any investor learn and understand the mechanism of the investment marketplace, with the rules and guidelines that can prove successful. Warren Buffett, an established and recognized expert on the subject of successful investing, has a simple philosophy; "If I cannot understand it, I will not invest in it."

Various researches conducted support the approach of Warren Buffett, with the most favorable results related to investment portfolios being achieved by the individual investor who has a developed analytical behavior pattern and confidence. Investment success is achievable with the appropriate strategy and core assets being managed with systematic and disciplined methods.

Investment tax structures[edit]

While a tax structure may change, it is generally accepted by Marketwatch that long-term capital gains will maintain their position of providing an advantage to investors. This is countered by the opinion that after-tax returns should be considered, especially during retirement, on the basis that allocation to equities is in general, lower, than any returns and should be maximized, to the most lucrative extent. In the current circumstances, long-term capital gains offer one of the best opportunities in the United States tax structure.

It is made easier for investors to generate long-term capital gains by the employment of exchange-traded funds (ETFs); the process if investment in broad-based index funds, without required indicators. Although some outlandish ETFs could provide investors with the opportunity to venture into previously inaccessible markets and employ different strategies, the unpredictable nature of these holdings frequently result in short-term transactions, surprising tax equations and general performance results issues. Marketwatch believes that it is not necessary for any retiree to become involved in this aspect of investment.

Company dividends are paid from after-tax profits, with the tax already deducted. Therefore, shareholders are given some respite with a preferential tax rate of 15% on "qualified dividends" in the event of the company being domiciled in the United States. Alternatively, in another country having a double-taxation treaty with the USA, accepted by the IRS;. Non-qualified dividends paid by other foreign companies or entities; for example, those receiving income derived from interest on bonds held by a mutual fund, are taxed at the regular and generally higher rate of income tax. When applied to 2013, this is on a sliding scale up to 39.6%, with an additional 3.8% surtax for high-income taxpayers ($200,000 for singles, $250,000 for married couples).[4]


A disciplined and structured investment plan prevents emotional investing which can be related to impulsive buying. This factor can be utilized to counteract the sentiments of a marketplace, which is often reflective of the emotional state of an entire population. Short-term activity in stock prices or the broader markets can frequently be compared to impulsive actions. This is seen in the term "bull run" which can induce investors to leap into an investment, as opposed to a "bearish market" that could influence a "sell-off". It is these types of market scenarios that can cause investors to abandon their investment strategies. Investor discipline is the ability to maintain an investment strategy even in the most tempting, or extreme conditions in the marketplace.

An established and popular method for stock market investors is Systematic Investment Plans (SIPs) especially for those who have a regular, monthly surplus income. The provision for reaping maximum benefits from these plans is that a disciplined strategy is maintained, one of the foremost advantages for a successful investor.

According to Marketwatch, consistency is closely associated with an investment strategy and can be related to various, adopted, proven techniques; for example, predicting outperforming funds, valuation, or a technical strategy. A strategic advantage that meets the required consistency is long-term investment, which in turn, offers investors long-term capital gains tax advantages. While many investors try to exercise a long-term disciplined approach, the investment marketplace can provide various, tempting options; for instance, a sudden drop in the marketplace, or a pending worldwide event. This is particularly prevalent for retired investors, who are preserving their capital with care.

Disciplined investment strategies say Marketwatch should be maintained in any eventuality, including taking advantage of available, favorable opportunities, such as, following a downturn in the market or the ability to remain steady in times of severe market fluctuations.

Constant advantage for retirees[edit]

In general, core indexes remain constant making it unnecessary for investors to move from one to another. Although an investor could transfer holdings; despite a maturation of the companies and their markets; a large-cap exchange-traded fund would never require being switched for a similar holding. A large-cap ETF will always remain so and an investor will usually want to retain at least a part allocation to large-cap equities in their portfolio.

It is consistency that is a significant advantage for ETF investors and one that makes it convenient to retain investment positions and benefit from long-term capital gains tax. Despite a potential reduction in the capital gains tax advantage, it is an advantage that should continue to provide some positive benefits in producing after-tax returns. This is a factor that could become an important issue in the future as taxes increase, affecting the lifestyles of retirees. It can be added to by additional taxes generated in short-term trading, exacerbating the situation, due to normal income-tax rates increases.

Specific investors' guidelines[edit]

Specific investment practices are suggested to maintain an ethical behaviour based on principles universally accepted.[5]

See also[edit]


  1. ^ a b Lin, Tom C.W. (2015). "Reasonable Investor(s)". Boston University Law Review. 95 (461): 466. 
  2. ^ Barron's
  3. ^ "Looking at Corporate Governance from the Investor's Perspective". April 21, 2014. Retrieved 22 April 2014. 
  4. ^ "Investment Tax Basics for All Investors". Retrieved 30 December 2014. 
  5. ^