A moderate investor is an investor with a risk profile that sits between an aggressive risk profile and a conservative risk profile. Hence, true to the label, this investor holds moderate views with regard to the amount of capital to invest, the choices of asset classes or securities, and expected returns. All moderate investors essentially strike a careful balance between the thrill of high returns and the security of low-risk investments.
The Mindful Investor: Key Characteristics of a Moderate Investor
A moderate investor is not aggressive and would avoid high-risk investments that can result in significant losses but is also not conservative because he or she still wants to earn a considerable amount of returns. In other words, unlike aggressive investors who chase lofty gains, and conservative investors who prioritize safety above all else, all investors with a moderate risk profile seek a steady, sustainable growth of their wealth. The subsequent discussions enumerate and describe the key characteristics of a moderate investor based on psychological traits, financial characteristics, and investment behavior.
Behavioral Mindset
The mind of a moderate investor is tamed. He or she is a pragmatic who values security as much as growth. This comes from an understanding that while the allure of high returns is tempting, the potential for significant losses is an unbearable risk. The following are the common psychological traits or behavioral mindset of a moderate investor:
• Balance Adherence: One of the defining characteristics of a moderate investor is his or her balanced perspective. This investor sits in the middle of two extremes. He or she avoids extremes and seeks a middle ground between risks and returns.
• Realistic Grounding: This investor also has realistic expectations. He or she recognizes that the performance of his or her investments will vary because investing always comes with risks. This investor also avoids unrealistic goals.
• Long-Term Focused: A moderate investor has a clear investment horizon because he or she prioritizes long-term growth over short-term windfalls. He or she is not influenced by market noise, popular sentiments, and short-term trends.
• Judiciously Cautious: This investor is reasonably cautious. His or her moderate level of risk aversion is based on his or her adherence to balance and realistic expectations. Caution is necessary to meet his or her long-term investment horizon.
Financial Position
Most moderate investors do not have excess levels of income and disposable cash. Their investable cash is limited. A lot of these investors also have different financial priorities. Some have high living expenses relative to their income. Others do not prioritize investing. These are the reasons why they cannot afford to take high risks. Take note of the following:
• Young-Aged to Mid-Aged: Some moderate investors are young adults who have adopted a moderate approach to investing because of their income level. Most are middle-aged adults who are looking for long-term wealth accumulation.
• Moderate Income Level: Another defining characteristic of a moderate investor is his or her moderate level of income. This investor earns enough to cover all of his or her expenses and still has disposable cash for saving and investing.
• Owns Some Existing Assets: This investor has also accumulated some assets. These may include some cash in the bank, a real estate property, an automotive vehicle, and valuable personal effects like luxury fashion accessories.
• Has Financial Protection: A moderate investor has also some degree of financial security or protection against financial risks. This comes from having an emergency fund, different insurance policies, and security of tenure at work.
Investment Preferences
Moderate investors are often in the accumulation phase of their personal finance journey or earlier stages of wealth creation. Their goals and objectives center on growing their wealth over time through a balanced investment approach for future big-ticket expenses. Below are the following investment preferences of an aggressive investor:
• Investment Diversification: A moderate investor balances between stocks, bonds, and potentially other asset classes or securities. He or she might also prefer investing in pooled funds or a basket of funds composed of diverse asset classes.
• Mid-Term To Long-Term: The investment horizon of this investor often spans at least 10 years to 30 years. This provides a suitable amount of time to weather through market fluctuations and is intended for specific future expenses.
• Future Big-Ticket Expenses: Another characteristic of a moderate investor is that his or her goals and objectives in investing center on creating wealth for future big-ticket expenses like college education of children and retirement.
• Moderate Risk Tolerance: This investor is comfortable with some level of market volatility and strives to balance between safer capital accumulation and assured capital preservation through regular review and rebalancing.