Who are the Different Types of Investors? Everything You Need to Know!
Abstract: You may have heard and wondered about the types of investors and various types of investment when you're new to the investment space in Nigeria. However, it's not as complicated as it might sound. In this article, we'll cover everything about investment and the different types of investors in Nigeria.
When one tries to understand the business world and economy in Nigeria, one factor that stands out is the investments, along with the investors.
To learn more about the business sector, it's critical to know more about the types of investors, who they are, and what roles they play. If you want to understand the various aspects of business, the markets, the economy, and the various types of investments in Nigeria, you need to learn about the diversity of investors.
To that end, let's explore investments, types of investors, and their working methods in Nigeria.
What is an Investor?
Before covering the types of investors, it's best to understand what an investor is.
The term ‘investor’ refers to a single person or a company that uses its monetary capital and invests it in currencies, commodities, or businesses to generate a stable income and high returns in the coming future. A firm or a mutual fund is also known as an ‘investor.’
The primary point of being an investor is to use capital to provide money to a business, commodity, or market to get a higher amount than the investment.
While the types of investors depend on the investment type, broadly speaking, the objective and methodology adopted by all investors are similar to some extent.
For instance, there are different types of investors in the stock market, share market, forex market, etc. They use their capital to invest in securities to get spectacular returns.
Similarly, there are different types of investors in the commodities market who understand the ups and downs of the said market and place bets on high-growth commodities.
Investors will put in money via several markets and financial modes that will help them direct their coffers toward a single objective: to gain more wealth as time passes.
There are several reasons why an investor will put their money into a commodity or a business. For some, it's a passion, while for others, it’s a job. But the primary objective of all investors is the same - to make profits.
Investment is a method that will help them make more money over time, which will aid them in the future when they are in a financial crisis or need a huge sum of money.
All types of investors look for the best opportunity to make more returns, such as from commodities, stocks, ETFs, mutual funds, and real estate in Nigeria. These are also some of the common types of investments.
The best investor will look for the most appropriate investment opportunity and choose the one which will provide the highest profit with minimal risk of losses.
Passive Investors vs Active Investors - A Ready Reckoner
Broadly speaking, all types of investors in Nigeria can be classified as active or passive investors. Before investors are classified into subtypes, these are the 2 primary categories.
- Active investors constantly check and track the market for the best investment opportunity, and investment becomes an essential aspect of their lives. For instance, different types of investors in the stock market investors fall into this category. These investors take necessary steps and consider the market conditions to make the anticipated profit from commodities, stocks, etc. You can find active investors hooked to their computer or smartphone screen to track real-time price movements and place pin-point bets.
- Passive investors make investments for the long term with a low initial value. However, as time passes, their investment usually becomes quite valuable. Investors investing in real estate and mutual funds typically fall into the category of passive investors. Passive investments are steadily becoming popular in Nigeria. A common example of passive income is renting a property and collecting monthly rentals. Here, the investor will not have to work or get involved to earn returns.
What Are the Different Types of Investors in Nigeria?
Here are the sub-categories and types of investors you can find in Nigeria:
1. Angel Investors
An ‘angel investor’ has acquired massive wealth and revenues and wants to use it to fund small businesses.
The net worth of an angel investor is always found to be in the millions. They are also one of the types of investors who can be found in any sector.
Angel investors usually invest their money in first-time business startups and firms by purchasing a significant share of the business. They can offer the financial injection once or on a regular basis.
They usually offer capital or investment in the early stage of the business, when the risk is at its highest. Riskier investments might typically involve cash.
Angel investors invest their capital either in the form of loans or stock purchases. They advise and guide the business in growing more significantly. There are wide varieties of angel investors who specialize in a particular company or industry.
2. Venture Capitalists
Venture capitalists, or VCs, are significant types of investors who invest in a company or business only if the business has a high probability of growth.
If a startup shows good growth signs initially, venture capitalists will be the first to invest a decent sum of money or capital in the business and purchase the equity stake.
Getting the stake equity for the investment helps them nurture the company's growth and sell the stake when a corporation makes any advancement for higher profit.
Venture capitalists govern public money to make various types of investments primarily to support the growth of businesses in specific industries and regions.
It's good for a business if it qualifies to receive VC funds. The more evidence a company provides to the VC, the better its chances of securing the funds.
3. P2P Lending
P2P lenders are either investor groups or individuals who prefer to help startups or small businesses.
P2P lenders are specialists in this investment type, and in case a company needs financial assistance, they will have to appeal to P2P lenders personally.
If they're fond of the business's ideas and think it has potential, they fund the company and buy their shares.
4. Institutional Investors
Institutional investors are companies that invest other people's money. Mutual funds, hedge funds, exchange-traded funds, and pension funds are prime examples of institutional investors.
Since these types of investors put up large sums of money collected from multiple investors, they can purchase comprehensive assets such as large stock blocks.
Institutional investors can potentially affect asset prices. They're typically sophisticated and large.
5. Retail Investors
These are individuals who invest their own money in many forms.
Generally, personal or retail investors put their own capital in mutual funds, stocks, bonds, and ETFs. They invest across the board in different types of assets based on their financial goals. They're not professional investors but look for higher returns than investment instruments like saving accounts or deposit certificates.
Retail investors must undergo rigorous paperwork to invest in any business.
Banks are also considered one of the types of investors, but how they invest differs from personal/retail investors.
Banks offer businesses, individuals, and companies loans, which are investments. This type of investment will generate a monthly income, also better known as the interest the banks charge.
Getting loans from banks is the best option if a corporation wants finances through borrowing.
7. Corporate Investors
Big companies benefit greatly when they invest their resources in a budding business.
This usually consists of development support, asset diversification, talent, and innovation distinguishment, which can help businesses tackle market changes and generate significant ROIs.
Most corporate investors launch accelerators and incubator schemes. They also build the environment to help businesses get more opportunities.
Corporate investors can be a great help for businesses to get to the next level since they provide a unique experience. Any collaboration and integration on the sales system, channels, and customer bases should have tolerance.
Corporate investors have different styles and perspectives. It's essential to figure out how to perceive one another for maximum profits and returns.
Investors vs Traders - The Top Differences
Other than the types of investors, some people also trade items. Trading and investment are different methods of making money in the financial sector. Both traders and investors look for profits via market participation.
Generally, investors look for larger returns in the long term, and traders benefit from both the rising and falling of the market by entering and exiting positions. They take less time and make smaller, more frequent profits.
Investment refers to building wealth over an extended time by purchasing and holding a stock portfolio, stock baskets, bonds, mutual funds, and other investments. Investments are usually for years or decades. Investors benefit from perks like dividends, interests, and stock splits.
While the market has ups and downs, investors are efficient in riding out the downtrends by anticipating the outlay to get to their initial state and recover any losses incurred. Investors are usually concerned about the market's fundamentals, such as management forecasts and price-to-earning ratios.
Since the goal of an investor is usually to make a retirement account in decades, the general market fluctuations are irrelevant to the constant growth in the long run.
Trading consists of frequent transactions such as purchasing and selling commodities, stocks, forex, and other instruments.
The purpose of trading is to make returns that will be better than buy-and-hold investments. While investors are typically okay with 10-15% returns in a year, traders usually look for a monthly return of 10%.
The profit from trading is generated by purchasing assets at lower prices and selling them at higher prices quickly and vice versa. Trading profits also occur by selling assets at an increased price and buying them at a lower price to make money in the falling market.
Traders want to make profits within the specified time and usually use the protective stop-loss order to close the losing positions at the determined price.
Traders benefit from many technical analysis tools and oscillators to find higher probability set-ups of trading. Technical analysis tools and oscillators enable traders to identify support and resistance levels of stocks and predict future direction based on present price action.
An investor uses their or others' capital with the expectation of getting back a better return. Investors are either individuals who purchase stocks with their personal funds or companies that invest billions.
The goal is always the same regardless of the types of investors - they invest in assets to gain profit and increase their wealth.
Investors invest their capital in several investment vehicles like bonds, real estate, stocks, mutual funds, hedge funds, commodities, and businesses. They tackle the risk when investing capital and balance risk and return management.
We hope you've understood the various types of investment and the types of investors, including the top 3 types of investors.
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How Do Investors Make Money?
There are two ways in which investors make money: income and appreciation.
Income is generated when a fund leads to payments from the returns of their asset investments, such as in bond or the stock market. Income might be periodical or regular.
In contrast, appreciation happens when the value of the asset increases in the market. Different types of investors in the stock market purchase stocks with the expectation that the value of their asset will grow so that they can sell it at a higher price than their initial purchase.
What Qualities Make A Good Investor?
Successful investors need to have certain skill sets and temperaments, including patience and diligence. They are well-versed in portfolio diversification and risk management. Moreover, they have the financial literacy needed to pinpoint bets and profit from them.