Investors are not the same. Differences among individual investors usually vary depending on personal and financial goals, current life situation, and risk tolerance. Investors usually seek investments that not only generate good returns, but also fulfill personal needs and provide financial security for the future time horizon.
The type of investor an individual is (investment style), tends to influence the investment decisions made. Investors are often classified based on risk tolerance. Using this measure, the four main investor classifications frequently used include conservative, moderately conservative, moderately aggressive, and aggressive.
Conservative investors tend to be risk averse. They seek to preserve their principal investment by avoiding risky investments. Therefore investments such as government securities and bonds that promise a constant income stream is preferred over stocks (with high returns but high risk of loss).
Moderately conservative investors are willing to take on some amount of risk but usually seek to balance this risk with assets that preserve the principal investment. This means that these investors may invest in stocks but also seek a constant income stream by investing in government securities, real estate and bonds.
Moderately aggressive investors usually have similar investment objectives as aggressive investors. However, they are characterized by a lower risk tolerance than aggressive investors. As such, the preference may be for equities (or mutual funds) and a mix of moderate investments such as unit trusts and bonds.
Aggressive investors tend to be risk lovers. They are willing to embrace risky investments as their objective is to maximize returns in the long run. These investors seeks above average returns by focusing investment in stocks and certain types of mutual funds.