Who is a Personal Investor?
Investors operate in different ways. As an investor you can operate in the market in your own name, whereby you buy and sell assets of various classes in your personal name. People who operate this way are referred to as personal investors. Notwithstanding this major characteristic of operating with a personal name, an investor may also choose to register a company or business entity of any form to hold his/her investments.
However, this idea of investing through an entity still will not take away the personal nature of the business. The investor at all times still buys and sell stocks for himself and not for and on behalf of other investors. He/she is not acting as a fund manager or as an intermediary in the market. The operator may adopt either active passive approach, but as a personal trader or long term focused investor.
Therefore, a personal investor can be defined as an individual who invests or carries out investing activities on their own, which could occur through any form in the marketplace. Their investments can be in any asset class such as bonds issued by governments and corporations, individual company stocks, index funds, ETFs or even mutual funds.
They do not claim to be professional investors, no matter how actively they participate in the market. They are only in the market to grow their personal wealth by seeking higher returns than what is usually ordinarily available through the traditional banking operations. Personal investors approach the market to seek more rewarding investment vehicles such as the stock market.
Unique Opportunities for Personal Investors?
First, we must reorganize why people come to the market as personal investors – they are in search of opportunities to grow their wealth. They are seeking for something much more that what their banks are offering them as interests for the fund they deposit with these banks. Banks takes deposits from account holders – their customers (certificates of deposit or savings accounts), with which they do business and earn more profits that they pay out to their customers.
These original fund owners (bank customers) are no longer satisfied with this approach. They are now seeking for opportunities to earn more with their cash. They want their money to do more for them, and a possible way to do this is to take away the middlemen – the banks. They wish to deal directly with the businesses that need their cash, and incidentally these businesses are also ready to deal – so need meets opportunity as follows:
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Angel Investing
Angel investing simply put is the act of nursing a startup from nothing to something. An angel investor is an individual who provides the seed funding that gives a startup its first life, nurturing if form cradle to maturity. As the name implies is an angel investor is indeed an entrepreneurs best friends, and usually their first point of call when what may eventually grow into a business behemoth currently only exists in the founder`s head alone.
The tech companies that today rule the world was once a mere idea, which their founders incubated and nurtured to survival. At inception, most lenders such as banks and venture capitalist may have turned them down believing that investing in them may too risky. Angel investors tend to operate with high-risk appetite, believing it will pay off, and, when it does pay, it pays very big. They are also called business angels or seed angels.
Angel investing is a game played only by high-net-worth private investors with deep pocket. They provide the required finance for founders with good business ideas to startup their business. They provide the seed funding even when no venture capital companies or traditional banks are not willing to do so. They do it in exchange for equity ownership in the startup, not as interest based loan. If and when they startup succeeds, their share in the company multiplies in great value.
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P2P Lending
Peer to Peer lending (P2P Lending) is another investment opportunity for private investors. It provides yet another opportunity for individuals with spare cash to loan it to businesses directly and earn interest on the loan. The P2P lender earns higher interest more than banks pay for certificates of deposit or savings accounts.
Peer-to-peer lenders help finance small businesses and make funding more easily accessible to small businesses, who are not subjected to much of the bureaucratic bottlenecks from the traditional lenders such as banks. In addition, even though the lenders make more money from the interest they earn on the loan, the interests are actually lower than what banks will charge to provide the same fund to the small businesses.
Note that private investors are also very active in the equity market in many other ways. Actively or passively, investors take positions in the market by investing in individual stocks, mutual funds, ETFs, hedge funds and other forms of investment vehicles available in the market place.
What is Institutional Investor?
Institutional investors are investors who are playing the market in a large scale. They corporate persons/registered companies unlike private investors who may operate in their own individual names. They operate in the market as a professional investors, own and operate investment brokerage company with which they buy and sell assets on behalf of their clients.
Their clients can be private investors or other institutional investors who are investing in their products and unique investment vehicles. Institutional investors invest for themselves and also for others. They run investment brokerage companies behind multiple types of investment vehicles we hear about today, such as mutual funds and index funds, which invests in stocks, bonds, ETFs, hedge funds, pension funds, options, etc.
All investors (private and institutional investors) operate in the same market, but their impact defers. Institutional investors are the market movers and able to determine the fate of a particular stock within a very short period of time. They are able to do this because of the powers they wield by virtue of their higher capacity to do deals, which the private investors lack the capacity to do.
