All investors are in it for profits, but this does not mean that all investors take the same approach to growing their capital.
Nor do they approach risk in the same way, perhaps the single biggest difference between contrasting investor profiles.
Of course, there will always be those who blur the lines between two or more different types of investors. Some also shift and adapt their investment activities to reflect their preferences, priorities and financial circumstances at the time.
When it comes to approaches to risk, the vast majority of financial investors fall into one of the following four brackets:
Risk Mitigation
This is the type of investor who does not avoid risk outright, but does everything within their power to reduce risk to the absolute minimum. They make investment decisions on the basis of extensive research and their own knowledge. In doing so, they seek out the best investment opportunities, with the potential to generate decent returns.
Most newcomers to investments are risk mitigators, with the exception of those who already have significant capital and can afford to take bigger risks.
Risk Avoider
You could argue that this is not technically a category of investor, given how all investments involve a certain amount of risk. Risk avoiders are those who will not pump any money into anything that puts their money at risk. The worst case scenario with their investment decisions is a low annual interest payment, such as that of a conventional savings account.
They invest their money by definition, but will not take the risks associated with conventional investments. In return, they have no realistic possibility of generating significant profits, but rather modest guaranteed returns.
Risk Embracer
At the opposite end of the scale, you have those who see risk as an invaluable opportunity to make money. They never jump in at the deep end without careful forethought, instead basing their decisions on detailed research. They perform due diligence, though will still happily back something that attaches a high level of risk. Assuming, of course, their calculations indicate it will pay off.
This is also the type of investor who likes to dig deep to find the kinds of investment opportunities others overlook such as investing in property bonds. Not to mention, the type that knows exactly when to call it quits and walk away, if and when things go wrong.
Risk Manager
The risk manager lies somewhere between the mitigator and embracer; they conduct detailed research, they hedge their bets accordingly and they base their decisions on in-depth knowledge. The difference with the risk manager being that high-risk investments are generally off the cards, side-lined for those of a more moderate, manageable nature.
They are not afraid to occasionally dabble in something volatile. Just as long as the risk of capital loss is relatively low, they will happily invest large sums into something that does not technically guarantee a healthy return.
