There are dozens of ways to invest, and thousands of types of investments. But once you get past the stocks and bonds, mutual funds, and other investment options, you realize that many investors have similar tendencies regarding how they invest. You can usually boil down types of investors to three main investor types: active investors, low maintenance investors, and hands-off investors, or those who like to set their investments on auto pilot.
Which Type of Investor Are You?
Let’s take a quick look at different types of investors, the common bonds they share (pun slightly intended!), and some tools for various types of investors. In addition, Mint.com recently released a new tool to help investors find the right tools for them – you can see it in action at Mint’s Ways to Invest page.
The Active Investor
An active Investor is someone who wants to be involved in every aspect of the investing experience – they may be an active day trader who has an account at one or more online brokerages, or they may be someone who actively follows the stock markets, even if they don’t execute dozens of trades each month. Active investors usually take a more hands on approach with their investments than the average person, and may participate in advanced investments such as options trading or Forex (foreign currency exchange).
Active investing has its pros and cons – frequent trading can rack up the commissions, and can be risky. But the rewards can be larger than you might see with other styles of investing. The key is a combination of investing knowledge and cost mitigation.
Tools for active investors: Mutual fund account (such as Vanguard, Fidelity, T. Rowe Price, etc.), discount brokerage accounts, 401k, IRA, investment newsletters, stock trading tools, stock alerts, stock trading clubs, and more. Online money management tools such as Morningstar or Personal Capital are excellent tools for monitoring asset allocation.
Low Maintenance Investor
The Low Maintenance Investor is probably the most prominent type of investor. They are active in their portfolio management and understand different types of investments and investment risks. Low maintenance investors maintain the majority of their portfolio in traditional investments such as stocks, bonds, mutual funds and index funds, ETFs, REITs, and similar style investments. Low maintenance investors are generally more proactive when selecting their investments and more proactive when it comes to portfolio balancing and maintenance. Low maintenance investors usually hold the majority of their investments in low maintenance funds, but many choose to keep a small stock portfolio as well, where they may be willing to take a little more risk. Popular investment options include dividend paying stocks and other income generating investments.
Tools for Low Maintenance Investors: Mutual fund account (such as Vanguard, Fidelity, T. Rowe Price, etc.), discount brokerage accounts, 401k plan, IRAs, mainstream news, financial advisor, etc.
The Hands Off Investor
The Hands Off Investor is the type of investor who wants to set it and forget it. At most they may want to do an annual rebalancing of their portfolio. Types of investments for Hands Off Investors include target date funds, mutual funds, ETFs, CDs, Savings Accounts, and similar investments. They may hold a few dividend paying stocks, but probably don’t have too much exposure to individual stocks outside of that.
Many hands-off investors prefer to invest in a solution or an investment plan, rather than invest in many different places and balance their own portfolio. Target date funds offer one of the easiest solutions for hands-off investors, as do all in one solutions like Betterment, which is a new way to invest – investors simply choose their preferred asset allocation, and Betterment will adjust your portfolio accordingly. Many people also prefer to hand everything over to a financial planner to manage their investment portfolio.
Tools for Hands Off Investors: Mutual fund account (such as Vanguard, Fidelity, T. Rowe Price, etc.), discount brokerage accounts, 401k plan, IRAs, target date funds, all-in-one investment products, financial advisor, etc.
Your responsibilities as an investor
Regardless of which type of investor you are, it is essential that you understand how your money is invested and the associated risks and costs of your investments. Whether you are an active investor who oversees every aspect of your investment portfolio, or whether you hand everything over to a financial planner, you need to have a good idea of how much money you have, how much your investments cost, and if there are better options available for your investing needs.
Looking for investment tools for your needs? Check out Ways to Invest, from Mint. com. This is a new tool designed to help investors assess their investment needs and find the right investment tools to fit those needs. Simply choose your investment style and Mint.com will recommend tools to fit your needs.
Graphics courtesy of Mint.com.