GuidesInvesting

How To Know Your Investor Type

3 Mins read

When you open Cowrywise you’re spoiled for choice. There are many mutual funds to invest in. In fact, it’s the largest collection of mutual funds in Nigeria! How do you get started with investing given the beautiful choices you have? This is where knowing about the various types of investment for investors comes in.

In this guide, we will cover:

1. Who are the common types of investors?
2. How to determine your investor type

Who are the common types of investors?

The first step to investing is understanding your risk tolerance. This is what helps determine what type of investor you are. Drawing from this, we have three broad categories of investors:

1. Low-risk investors
2. Medium-risk investors
3. High-risk investors

1. Low-risk investors

These are investors who are not willing to take risks with their capital. The priority for low-risk investors is to preserve their capital regardless of potential returns.  Hence, they go after low-risk investment offers. If you’re a beginner investor, you’ll most likely fall into this category of investors.

Get low-risk investments on Cowrywise with our money market funds

These funds are professionally managed by fund managers licensed by the Securities and Exchange Commission (SEC). They invest in financial instruments like treasury bills, commercial papers and bank deposits. These financial instruments ensure that the chances of losing the principal capital invested are very low. Similarly, the investments are usually liquid, meaning that you can have access to the investment anytime you want.

A good example of how to utilize the money market fund is to build an emergency fund with it.

A typical money market fund is invested in treasury bills and bank instruments. Below is an example of a particular mutual fund on Cowrywise.

types of investment
Afrinvest Plutus (Money Market) Fund Mix

2. Medium-risk investors

When approaching investments, medium-risk investors are much more confident than low-risk investors. They are open to taking a few risks with their capital. However, they are also careful to ensure that while their capital may be impacted, it does not result in very high losses.

Usually, medium-risk investments like balanced mutual funds and our dollar fund are invested in a mix of high risk and low-risk financial instruments. These include stocks, bonds and treasury bills (money market). This type of composition ensures that the low-risk components of the fund balance out the high-risk components.

Hence, the chances of losing capital are lower than what is obtainable for high-risk investments. Here is an example of the composition of a typical medium-risk (balanced) mutual fund:

types of investment
United Capital Balanced Fund

3. High-risk investors

High-risk investors have the appetite to take risks. This simply means that they have the capacity to lose the invested capital if the investment expectations are not met. They are open to taking high-level risks with the expectation of high returns. Bear in mind that we are focusing on professionally managed and regulated investment. So investing in a Ponzi scheme doesn’t qualify. 

Typical high-risk investments like equity mutual funds invest predominantly in stocks of selected companies. For example, there are a couple of equity mutual funds on Cowrywise that are managed by different fund managers licensed by the SEC.

These equity funds invest in stocks of the largest publicly listed companies in Nigeria including Dangote Cement, GTbank, MTN, Nestle, Total, Access Bank, among others.

These equity funds invest in stocks of the largest publicly listed companies in Nigeria including Dangote Cement, GTbank, MTN, Nestle, Total, Access Bank, among others

The primary attraction of high-risk investment is the possibility of high return over time. However, there is also the possibility of losing the invested capital due to the up-and-down movement in the prices of stocks. Hence, we usually recommend that you take a long-term perspective while investing in equity mutual funds. Here is a typical composition of an equity mutual fund:

types of investment
Meristem Equity Fund

How do you determine the type of investor you are?

We’ve understood the types of investors, here is how you can determine what type of investor you are. We have developed a simple risk assessment tool that allows you to establish fairly accurately what type of investor you are, at every point in time.

Once you finish interacting with this tool, you will be classified as either a conservative investor (low-risk), moderate investor (medium-risk) or aggressive investor (high-risk). On this basis, we will automatically recommend different mutual funds that match your risk profile. That way, you are not just investing blindly. Isn’t that cool?

To know your investor type and get immediate access to investments that match your type, follow these steps:

1. Create a free account on Cowrywise
2. Select “Invest in Mutual Funds”.
3. Proceed to take the Risk Assessment.

We made sure that your journey to building your wealth is super easy and seamless. Start investing today.

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