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What Type Of Investor Are You?

Essentially there are two types of investors – active and passive. It basically boils down to how much time you want to spend on your investments.

Ultra-Passive Investor

This type of investor often invests for the long term primarily in an RRSP, group sponsored RRSP or defined contribution plan.

They don’t want to do any research and they don’t have a brokerage account.  They mainly invest in the same mutual funds that were set up at the start of the plan.

They plan to hold on to whatever they buy for a long time. They check their statements once or twice a year and trust that they will earn money over the long haul.

Passive Investor

This group has a cursory understanding of financial markets but usually hires a profession financial advisor.  This way they can focus on their main business, occupation or other interest.

They check their accounts every so often, read some financial news or watch a financial program and talk to their advisor at least once a quarter.

It is the advisor that does the investing and monitoring to ensure they reach their financial goals.

Active Investor

Active investors really want to get involved in investing.  They are willing to spend three to ten hours (or more) a week in reviewing their portfolios, looking for new investments and doing further research.

They read financial newspapers, magazines and blogs to get ideas for possible investments that may help increase the value of their portfolios.

This group may buy and sell more often.  They don’t want to leave the decision of what investments are in their portfolios to their money managers.

Active investors want to be involved, have more of an interest in money management and are willing to devote a greater amount of time to it.

Super-Active Investor

This investor is likely not working full time at another job and is willing to devote a considerable amount of time to his (her) investments.  They are not day traders.

They are not as likely to buy-and-hold although they will hold on to an investment they believe in.  They are more likely to buy for growth and regularly take profits.  These investors may derive most of their income from their investments.

It’s Your Money, You Decide

Some people want to invest in the market because they believe it’s easy to make money quickly.  Their attitude changes soon enough when their money is on the line and they have to decide what to do.

Decide whether you have the time and interest to devote to your investments.  You don’t want to set yourself up for failure.  Don’t hand off your money to someone else and not pay attention to how that person is investing and managing it.  It’s your money and you don’t want to lose it – so don’t ignore it.

What type of investor are you?

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10 Comments

  1. The Investment Blogger on June 7, 2011 at 5:58 am

    Very interesting definitions, but I’m not sure where I fit under your categories. I would think I am either an active or super active investor?

    Active Investor – I am really involved in investing. Although I am willing to spend more than a few hours a week in reviewing my investments or performing research, I seldom need to do so. I usually spend very little time looking at my portfolio or investments themselves. I can close my eyes and walk away from my portfolio for months without much change. I sleep easy at night, but some of my holdings experience large price volatility. If and when I do spend a few hours, its usually on research. I do read newspapers, but mainly to keep on top of news & developments related to my investments or potential investments. It also helps me the psychology of investors. I don’t buy or sell too often, probably less than the average investor. But when I do, I do it in larger chunks and usually concentrated during a certain period. I believe that is attributed to when investments I’m interested in are at a discount, usually a group of them are experiencing a discount at the same time.

    Super-Active Investor – I do work a full time job. I devote a considerable amount of time to thinking about my investments, but not necessarily doing anything to them. I am not a day trader. As a value investor I buy and hold, until investments reach their intrinsic value. That being said I do hold onto investments that continue to generate and produce value for shareholders (thus increasing their intrinsic value). I derive a considerable amount of my wealth from my investments.

    Not sure where you would put me? I’m curious to see what style would you or others see this as (other than value investing)?

    • Boomer on June 10, 2011 at 10:01 am

      @The Investment Blogger:
      No one ever fits neatly into any category – most are a combination of two or even three. I spend a fair amount of time reading financial news but I don’t necessarily review or act on my portfolio that often, probably only three or four times a year.
      You have a very credible approach.

  2. Michael James on June 7, 2011 at 7:55 am

    By the usual more technical definitions of active and passive investing, all of your categories are active investors. By these definitions, an investor is passive if he or she has a portfolio mix close to one or more indexes. Active investors try to beat the index. In your examples, some investors try to beat the index themselves and some invest in mutual funds run by managers who try to beat the index, but all of these investors are technically active. A passive investor is one who invests in index funds.

  3. Echo on June 7, 2011 at 9:04 am

    Rather than describing a technical definition of active vs. passive, I think the point of the article was to define what kind of investor you want to be, whether it’s completely hands-off, do-it-yourself, or somewhere in-between.

  4. krantcents on June 7, 2011 at 9:08 am

    I see myself as a combination of traits. I do research with every one of my investment choices whether it is a stock, mutual fund or ETF. I monitor my performance probably too often, although I only re-balance my portfolio annually. My portfolio fits my asset allocation and there is no significant reason to mess with it.

  5. The Passive Income Earner on June 7, 2011 at 10:44 am

    I too didn’t feel the categories were appropriate description. The ones you just mentioned in your comments were better like hands-off and so forth.

    I am personally active but I don’t trade actively and beating the index isn’t really my goal although it’s nice to see how I compare. I also have index funds but that doesn’t make me a passive investor 🙂 Income generation is my goal!

  6. My University Money on June 7, 2011 at 4:19 pm

    I would consider myself an active investor that knows the value of passive investing;)

  7. Potato on June 7, 2011 at 10:47 pm

    “I think the point of the article was to define what kind of investor you want to be, whether it’s completely hands-off, do-it-yourself, or somewhere in-between.”

    Echo, I see your point, but I have to agree with Michael James: Boomer’s giving definitions to words that already have different meanings when it comes to investing.

    In your comment you’ve used better labels: “completely hands off” “do-it-yourself” etc.

    • Boomer on June 10, 2011 at 9:56 am

      @Michael James
      @Passive Income Earner
      @Potato

      Wow! I didn’t think people would be so attached to labels. Echo knows how I think (most times) and his definitions are correct. How much time do you actively spend on reading about, reviewing and revising your portfolio? None, most of the time, or somewhere in between?

  8. Echo on June 7, 2011 at 11:18 pm

    I don’t want to speak for my mom, she’s out of town for a few days so we’ll have to wait and see.

    It appears that the passive investors are very protective over their labels 😉

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