THINGS THAT MAKE INVESTORS MOVE
It is way impossible to compare all investors because of differences in financial goals, time horizon, investing style, and risk tolerance, among others. Nevertheless, this article will discuss the things that make investors tick.
Before anything else, let us review the different kinds of individual investors, as identified by the Bailard, Biehl, and Kaiser (BB&K) model: adventurer, celebrity, guardian, individualist, and straight. Financial advisors and planners always ask lengthy questions to collate details to come up with a suitable investment technique for every client. However, behavioral finance has some loopholes. Investors are humans, so they change. Investors evolve in their investing life cycles and can modify their strategies over time. For instance, if he begins as a celebrity, he may become an adventurer in the long run.
Risk is what separates individual and institutional investors. Individual investors tend to anchor their risk solely on the amount of money lost, while institutional investors measure risk quantitatively. This idea adds a qualitative view to risk appetite, making risk into losses. On the other hand, when an investor generates a significant amount of money within a short time period, he will normally dismiss the same risk connected to gains in the portfolio.
Aside from risk, investment horizon differentiates all types of investors. For institutional investors, their time horizon can be immeasurable. Conversely, the timeframe of individual investors is longer. At the very least, it is as long as a person’s expected lifespan, which can be longer when taking into account the horizon of his estate. They also have one of the most difficult concepts to comprehend since it may either pertain to the length of time an individual works for an entity with 401(k) assets or as a retirement date.
It is possible to classify individual investors, but not human nature. Investors are human, so it is natural for them to improve and become more knowledgeable (and less risk averse) because of market fluctuation and wealth levels.
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