What type of investor are you?

Investing Basics

When you start investing, it is good to know what type of investor you are. Are you someone who wants to maintain stable capital, or do you like taking risks to achieve a higher return? By mapping out your preferences, you will find out what kind of investor you are. In this module, you will learn what passive and active investing is and discover which type suits you best.

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Saving or investing?

Many people have a savings pot for unexpected expenses and future goals, which provides financial security. Yet, more and more people are deciding to invest a portion of their savings to grow their wealth. Why? Because inflation decreases the value of your money. Investing offers the chance of a higher return than the interest on your savings account. But be aware, only invest with money you can afford to lose, as investing involves risks.

What types of investors are there?

Roughly speaking, there are two types of investors: passive investors and active investors. Both strategies have their own advantages and are suitable for different financial goals and risk profiles. Let’s look at both types of investors.

What is passive investing?

Passive investing is a strategy where you invest in a basket of stocks and/or bonds from dozens to hundreds of companies that track an index. You do this via index funds and Exchange-Traded Funds (ETFs).

The characteristics of a passive investor

• Costs: A major advantage of passive investing is the often lower costs. Because your basket follows the market, you do not pay high management and transaction fees for researching and analysing individual stocks or bonds.
• Characteristics: You diversify your money across multiple stocks and/or bonds, spreading the risk, and you do not need to constantly monitor your investments yourself.
• Time: Passive investing requires less time and effort, making it ideal if you do not want to deal with your investments daily. You invest for the long term.

Passive investing might be the right choice for you if you are a beginner investor looking for an easy way to invest without too much risk. However, please note that there is always a chance you could lose your investment.

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What is active investing?

Active investing is the opposite of passive investing. It is a strategy where you actively look for investment products that you believe will be profitable compared to the market average. These can be stocks and bonds, but also mutual funds that are actively managed by a fund manager.

The characteristics of an active investor

• Costs: You typically pay more costs with active investing. This is due to management and transaction fees resulting from the research and analysis done by analysts and portfolio managers to achieve a higher return.
• Characteristics: You have more knowledge of the market and use techniques to determine which investments have the most potential, such as fundamental analysis. Additionally, you are continuously active in the market to buy and sell investment products to achieve a higher return than a passive investor.
• Time: Active investing requires a lot of time, knowledge, and the willingness to take risks. You often invest for the short term.

Active investing is primarily suitable for experienced investors who are willing to invest time and more money into their investments.

Passive vs active investing: an overview

The main difference between passive and active investing lies in the way you invest. Below you will find a handy overview of the differences between both investor types.

Passive and active investing is not black and white

Passive and active investing are not extremes, but two different approaches to the market. For example, you might think the AI market will achieve high returns and actively decide to invest in this sector via a passive fund.

Which type of investor are you? Important considerations

Do you want to start investing and choose your investor type? Then it is important to take a number of points into account, namely:

• Goal: What do you want to achieve? do you want to maintain your capital or grow it quickly? Are you investing for the long term or do you want to benefit from short-term trends? Your goal determines which strategy suits you best.
• Risk: How do you handle risk? If your portfolio unexpectedly drops, do you remain calm or do you panic? For beginner investors, it may be wise to start with a fund so you get to know the market better. And keep in mind: investing involves risks. Only invest with money you can afford to lose.
• Costs: How much are you willing to pay for managing your investments? Passive investing is often cheaper because you do not have high management and transaction fees. Active investing, on the other hand, requires higher costs due to more frequent transactions and management.
• Time commitment: Do you have time to actively monitor your investments? If you have little time, passive investing is ideal. But if you are willing to invest time in analysing and monitoring the market, then active investing might suit you better.
• Return: Set realistic expectations for your return. Active investing offers the possibility of higher returns but also brings more risk. Passive investing can be more stable and is intended to grow with the market over the long term.

Is there an ultimate type of investor?

No, there is no such thing as an ultimate type of investor. It all depends on your personal situation, your financial goals, and your willingness to take risks. What works is different for every investor. So whether you want to invest passively or actively, the most important thing is that you stay consistent and have patience.

Are you ready to learn more? Go quickly to the next module.

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Investing involves risks. You can lose your investment.

All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.