7:34 AM
AGHA
Some invest their money to gain a certain return and other put their money just to hedge as a protection against rising inflation or some uncertainty. Or maybe they just gamble? Who knows....
Everybody knows that there are certain risks in every assets, instruments, or business operations. By knowing your motivation of investing, you should be able to reduce the risks. You'll have the best choice of assets to invest that fit you as well. In this post, we'll give you three possibilities of investor's nature according to its potential risk. We'll also provide you a chart to make it clearer.
1. HEDGER
To hedge is a way of protecting, controlling or limiting something (Cambridge Advanced Learner's Dictionary).
Clearly, a hedger (Can I call an investor who is hedging "Hedger"?) has a good sense of investing. Some say that people hedge to avoid the loss of the value of their money, they avoid the potency of rising inflation. Yes, we can describe that hedger will always try to reduce the risk carefully at certain rate of return.
Hedgers always figure out what result they expect. Let's just say that a hedger use long term trend to make a financial decision, whether to buy or to sell. A fundamental analysis is the main tool to analyze the price movement. Hedger analyze Economic policies such as rate, inflation, the number of unemployment, geopolitics condition, etc.
Hedger tends to like a fixed return and sometimes capital gain is considered as a hedger's main target. Gold, Fixed rate Bond, or even land or property are good instrument investment for hedgers. Some also invest in stock. To put money into a deposit account for a certain term is also considerably an act to hedge.
Since hedgers are best known for their good planning, they'll consider how much interest they will earn and for how long they'll keep the asset.
2. SPECULATOR
A speculator is a person who buys goods, property, money, etc. in the hope of selling them at a profit (Cambridge Advanced Learner's Dictionary).
Short term trend are often used to make a decision. This short term meaning is quite relative but it surely has a narrower time frame than long term does. As an example, when Non Farm Payroll (NFP) result is announced on every first Friday of month, speculator will be ready to set a position in order to gain profit as much as possible.
Foreign Exchange (forex), stock, float rate bond, or other short term debt instruments offer the best choice for speculator.
3. GAMBLER
someone who often bets (= risks money on the result) money, for example in a game or on a horse race (Cambridge Advanced Learner's Dictionary). There is no certain trend for a gambler to analyse. There is no certain news for a gambler to read.
To be honest, gambler never count the risk and occasionally blinded by the profit expectation. By the time the trend moves up, gambler sets long position. Forex, derivative instruments such as option, futures, swap agreement fit most of gambler's nature.
I'd like to draw a chart describing three types of investor above. This chart is based on a risk in each types. With a good planning, hedger has the least risk but often has the least return though. On the contrary, Gambler has the highest return (if lucky) and the highest risk of course, the possibility will likely lead to a loss more than a profit.
We hope you can understand what your motive is before investing to know the risk you'll face. Having a plan to buy a car, house, do some business,or even plan how you receive your pension, need a right investment decision.
