An investor is an individual or an organization that gives money to another person or organization hoping to see a future profit. Technically, anyone can be an investor: If you invest money into something, you are an investor. However, there is a difference between putting $20 in bitcoin and investing $5 million in a startup.
In this guide, we’ll go over:
- What Do Investors Do?
- Types of Investors
- Investor Salaries
- How Do You Become an Investor?
- Top Skills for Investors
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What Do Investors Do?
Investors put money into something with the hope of getting more money back down the road. Investors can be individual people buying and selling stocks for their personal wealth-building plans. However, an investor can also be an organization, such as a private equity firm or a mutual fund.
The goals of investors are as varied as their investments. For some personal investors, the goal may be to grow a retirement fund, while larger institutional investors may try to build wealth for future business ventures.
Every investment has its own rate of return, or how much money you get back on top of the money you put in. Different types of investments also carry different levels of risk — not every investment will pay off, and not every investor will see returns on their investment.
What Do Investors Invest In?
In both the public and private financial spaces, a variety of investment options are available for investors. Each investment type has its level of liquidity, or how easily it can be converted to cash. While some investors prefer more liquid investments, such as stocks, others like longer-term investments, like real estate.
Some typical investment options include:
- Stocks (such as common stocks)
- Mutual funds
- Real estate
Types of Investors
Every investor is different — some, like banks, may have high levels of capital at their disposal to invest in expensive, large-scale projects. Others, like personal investors, may not have the ability to take on high-risk investments. Some of the most common types of investors are:
An accredited investor is an organization or an individual that is granted special investment privileges by the U.S. Securities and Exchange Commission (SEC). Accredited investors are considered to be investment-savvy enough that they can trade securities (stocks, bonds, etc.) without all of the protections offered by the SEC. These securities they trade are often “unregistered” meaning they don’t have many of the normal disclosure requirements that registered securities have.
Accredited investors must meet certain criteria to gain accreditation — high annual income (over $200K) or working as part of a company in the financial industry.
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An angel investor is someone with a high net worth who uses their wealth to invest in entrepreneurs and start-up companies. Typically, angel investors invest in exchange for equity in the company, meaning they have partial ownership — if the company succeeds, the angel investor succeeds, too.
Banks are the typical type of investor for most businesses — they offer both small business and personal loans to help fund entrepreneurs. Even big banks, like large investment banking companies, are investors on a larger scale, often funding expensive projects, buying and selling companies, and helping governments and organizations raise capital.
An institutional investor is any organization or company that invests money on someone else’s behalf. For example, a mutual fund is an institutional investor — mutual funds are invested in by individual investors and they use that capital to invest in bigger, higher-return investments to increase all individual investors’ capital.
Peer-to-peer lenders are a special classification of individuals or groups that aid small businesses. An investment from a peer-to-peer lender is typically similar to a personal loan: The peer-to-peer individual or group gives money in exchange for payments with interest.
A personal investor can be basically anyone. Small businesses and entrepreneurs may use personal investors, like friends or family members, to help fund their goals. Personal investors can also be anyone investing in the stock market for personal financial goals.
Venture capitalists are similar to angel investors, but they specifically look for early-stage companies with high-growth potential. A venture capitalist may be part of a group of investors and together they offer guidance to the company they invest in to promote strategic growth. Venture capitalists typically receive equity in the company in exchange for their investment.
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Ultimately, there is no set salary for an investor. People who work in the finance industry, like investment bankers or venture capitalists, may see salaries in the six figures. However, personal investors, or individuals who just casually invest in the stock market exchange, can have practically any level of income. An investor’s salary from investing depends entirely on how well they invest — smart investing choices can lead to high returns, while poor decision-making can lead to bankruptcy.
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How Do You Become an Investor?
There is no single path to becoming an investor. For many types of investors, the key is just having a high net worth. But that isn’t even as necessary anymore. With the access to investing tools available online today, it is possible for almost anyone to become an investor. According to a recent study by Schwab, 15% of investors in the U.S. Stock Market began investing in 2020 — 16% of those were Generation Z and 51% were millenials.
Some people may choose to become an investor after years of experience in one industry or another. For example, if you work in real estate for a few years and accrue enough capital to invest, it is possible to transition into real estate investing — buying and selling properties purely for profit.
Working with investments themselves is a different story, though. To become a finance professional who works directly with investments typically means becoming an investment banker, personal finance advisor, or private equity professional. For careers like this, you often need a degree in finance and a strong interest in the financial field.
Explore these investing-focused career paths:
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- Is investment banking a good career path?
- Is mergers and acquisitions a good career path?
- Is commercial banking a good career path?
Top Skills for Investors
The most important skill for investors to have is good money management. But, beyond that, being a successful investor requires strong people skills in addition to skills like:
- Attention to detail
- Communication skills
- Relationship-building skills
- Interpersonal skills
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