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What is an Investor?

2016-12-08T13:48:24+00:00

The term 'Investor' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Strictly speaking, an investor is any person or entity that makes an investment. In the past, the word investors has acquired a far more specific meaning. In the world of business and finance, investors has come to characterize those individuals or companies that routinely buy debt instruments like bonds, or equity issues like stocks in an attempt to make financial profits. They hope to realize such gains in return for financing or providing capital to a company that is looking to expand.

Investors also relates to other types of individuals, businesses, or parties that put money into different types of investments. Although this is a less commonly used version of the word investors, it can relate to those engaging in currency, real estate, commodities, derivatives, or other personal property investments like art or antiques. An example of this would be a real estate investor. They purchase a piece of property or a house with the hopes of selling it for a greater amount of money than for what they purchased it. Similarly, commodities’ investors are hoping to buy contracts or options on hard assets like gold, oil, or lumber cheaply to sell them later more dearly.

Investors are commonly buying such stocks, bonds, or other types of assets and holding on to them with the goal of realizing one of two types of returns, or in some unusual cases both types. These are capital gains or cash flow investments. Investors who are interested in capital gains are simply looking to sell an instrument or asset that they obtained at one price for a greater amount. When they do this, they realize a capital gain. Should they sell the investment for less than they purchased it, they would instead realize a capital loss. Capital gains can only be realized one time on an investment, as the investors will have sold the investment and have to look for another investment to begin the process anew once again.

Cash flow investors are alternatively looking for a repetitive income stream. They hope to achieve regular, smaller sums of passive income just from holding their investment. Dividends on a stock, royalties on an oil or gas investment, and rents from a residential or commercial realty property are all examples of cash flow investments and returns. So long as the investor owns the cash flow investment, he or she should be able to continuously count on a regular income stream.

The word investor commonly gives the connotation of a person who acquires these assets for the longer term. This stands in contrast to a day trader or even short term investor. Investors can be professional or self taught amateurs.

Investors also represent many entities other than individuals or even traditional businesses. They can be investment groups like clubs, venture capital investors who provide money to start up companies, investment banks, investment trusts such as REIT Real Estate Investment Trusts, hedge funds and mutual funds, and even sovereign wealth funds that invest on behalf of their respective nations.

The term 'Investor' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.