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Savers
Savers are those people who spend the majority of their life slowly growing their nest egg in order to ensure a comfortable retirement. Savers explicitly choose not to focus their time on investing or investment strategy; they either entrust others to dictate their investments (money managers or financial planners) or they simply diversify their investments across a number of different asset classes (they create a diversified portfolio). For those who create a diversified portfolio, their primary investing strategy is to hedge each of their investments with other non-correlated investments, and ultimately generate a consistent annual return in the range of 3-8% (after adjusting for inflation). Those who entrust their money to professional money managers generally get the same level of diversification, and the same 3-8% returns (minus the management fees). Savers seek low-risk growth of their capital, and in return, are willing to accept a relatively low rate of return. While there is certainly nothing wrong with striving for consistent returns, what the Saver is doing is really no different than putting their money in a Certificate of Deposit, albeit with slightly higher returns. The bulk of Savers are investing for long-term financial security and retirement. They start saving in their 20s and 30s by putting money in 401(k) accounts, mutual funds, and other diversified investments, and in 30 or 40 years, they have enough to retire on. Savers rely in a single force to grow their capital: time. Because their rate of return is generally consistent, a Savers primary mechanism to achieve wealth is to invest and wait. In fact, Savers often use The Rule of 72 to calculate long-term investment growth and plan their retirement. While passive investing is an almost surefire path to a comfortable retirement, it also generally means 30-50 years of work to get to that point.
Speculators
Unlike Savers, Speculators choose to take control of their investments, and not rely solely on time to get to the point of financial independence. Speculators are happy to forgo the relatively low returns of a diversified portfolio in order to try to achieve the much higher returns of targeted investments. Instead of just spreading their money across stock funds, bonds, real estate funds, and a variety of other asset categories, Speculators are always looking for an investing edge. Perhaps they get a hot stock tip and try to cash in on the next Google. Or perhaps they hear about all the real estate investors who have made a bundle flipping houses, so they go out and buy the first run-down house they see. Speculators recognize that they can have higher returns than Savers, and are willing to do or try anything to get those returns. Theyre not scared to throw some money in an Options account and try their hand at derivatives trading; or run out and buy a bunch of inventory from a wholesaler they know and open up an eBay selling account. Speculators are always looking for the next great investment; for them, its all about being in the right place at the right time, and taking a chance on getting rich. If todays investment doesnt work out, there will always be another one tomorrow. While the Speculator recognizes the potential gains from smart investing, he doesnt always invest smart. He is very much a gambler, and while sometimes those gambles pay off, often times they dont. And just like a gambler, the Active Investors biggest rival is the vigorish, the commissions and fees he pays to enter and exit all his investments. While the Speculator may have enough luck and skill to be a successful investor, he may show little or no profit after paying brokerage commissions, and other investing fees.
Specialists
The third type of investor is the Specialist. Like the Speculator, the Specialist realizes that there is a more powerful investing strategy than just diversifying across a range of asset classes. But, unlike the Speculator, the Specialist understands that the key to successful investing isnt luck, hot tips, or being in the right place at the right time; its education and experience. The Specialist recognizes that investing is no different than any other competitive endeavor there will be winners and there will be losers, and the winners will generally be those who are most prepared. The Specialist generally picks a single investing area, and becomes an expert in that area. Some Specialists deal in paper assets, some deal in real estate, and some start businesses. Unlike the Speculator who looks for the next hot investing area and the next hot market, the Specialist can make money in his chosen investment area during any market hot, cold, or in-between. The Specialist knows his investment area inside and out, and instead of just entering and exiting investments, the Specialist has a plan. In fact, having a plan is the key difference between the Specialist and either the Saver or the Speculator. The plan is the blueprint for achieve investment success, and with it, the Specialist can achieve huge returns with relatively low risk.
Institutional investors
are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets. They can also include operating companies which decide to invest their profits to some degree in these types of assets. Types of typical investors include banks, insurance companies, retirement or pension funds, hedge funds, investment advisors and mutual funds. Their role in the economy is to act as highly specialized investors on behalf of others. For instance, an ordinary person will have a pension from his employer. The employer gives that person's pension contributions to a fund. The fund will buy shares in a company, or some other financial product. Funds are useful because they will hold a broad portfolio of investments in many companies. This spreads risk, so if one company fails, it will be only a small part of the whole fund's investment. Institutional investors will have a lot of influence in the management of corporations because they will be entitled to exercise the voting rights in a company. They can actively engage in corporate governance. Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a large part in which companies stay solvent, and which go under. Influencing the conduct of listed companies, and providing them with capital are all part of the job of investment management.
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