What is an Investor?

An investor is an entity that commits money to a venture with an expectation of generating a return. The type of commitment made can be in many forms, such as a guarantee to pay creditors , a loan , an equity investment, tangible assets , or even the contribution of labor. An investor typically makes a commitment in exchange for either a fixed return (such as dividends or interest ) or the prospect of being able to sell its investment to a third party at a later date for a higher price than the amount of the original investment.

An investor can be an individual or a corporate entity. For example, a corporation could contribute funds to a joint venture , in which case the corporation is an investor in the joint venture.

Types of Investors

There are several types of investors. The following designations are based on the investment characteristics of an investing party:

• Active investor . An active investor investigates individual securities and selectively makes investments based on the outcome of that research.

• Growth investor . A growth investor seeks out businesses that are more likely to grow rapidly over time, so that they can profit from a run-up in the stock price.

• Income investor . An income investor buys securities that dependably return a certain amount of dividends or interest; they are especially interested in those issuers that have gradually increased their dividend payments over a long period of time, on the assumption that they will continue to do so.

• Passive investor . A passive investor does not investigate individual securities, preferring instead to invest in market indexes, since this eliminates their investigative chores.

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Passive Investors vs. Active Investors

A passive investor purchases the securities offered within a market index, with the intent of profiting from broad swings in the returns generated by all entities contained within that index. They are not concerned with stock-picking, being more interested in a hands-off approach that involves making an investment and then holding it for a long period of time.

Active investors research specific securities and their issuers in order to discern any cases in which value has not been fully realized by the market, and from which they might profit. This involves a detailed analysis of an issuer’s financial statements , as well as an industry analysis for the industry in which the issuer is located.