Investor
An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest).[1][2] Through this allocated capital most of the time the investor purchases some species of property.[3] Types of investments include equity, debt, securities, real estate, infrastructure, currency, commodity, token, derivatives such as put and call options, futures, forwards, etc. This definition makes no distinction between the investors in the primary and secondary markets. That is, someone who provides a business with capital and someone who buys a stock are both investors. An investor who owns a stock is a shareholder.
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Types of investors
There are two types of investors: retail investors and institutional investors.[4]
Retail investor
- Individual investors (including trusts on behalf of individuals, and umbrella companies formed by two or more to pool investment funds)
- Angel investors (individuals and groups)
- Sweat equity investor[5]
Institutional investor
- Pension plans making investments on behalf of employees
- Businesses that make investments, either directly or via a captive fund
- Endowment funds used by universities, churches, etc.
- Mutual funds, hedge funds, and other funds, ownership of which may or may not be publicly traded (these funds typically pool money raised from their owner-subscribers to invest in securities)
- Sovereign wealth funds
- Large money managers[6]
Investors might also be classified according to their styles. In this respect, an important distinctive investor psychology trait is risk attitude.
Investor protection
The term "investor protection" defines the entity of efforts and activities to observe, safeguard and enforce the rights and claims of a person in his role as an investor. This includes advice and legal action. The assumption of a need of protection is based on the experience that financial investors are usually structurally inferior to providers of financial services and products due to lack of professional knowledge, information or experience. Countries with stronger investor protections tend to grow faster than those with poor investor protections. Investor protection includes accurate financial reporting by public companies so the investors can make an informed decision. Investor protection also includes fairness of the market which means all participants in the market have access to the same information.
Through government
Investor protection through government involve regulations and enforcement by government agencies to ensure that market is fair and fraudulent activities are eliminated. An example of a government agency that provides protection to investors is the U.S. Securities and Exchange Commission (SEC), which works to protect reasonable investors in America.[1]
Investment tax structures
While a tax structure may change, it is generally accepted that long-term capital gains will maintain their position of providing an advantage to investors. This is countered by the opinion that after-tax returns should be considered, especially during retirement, on the basis that allocation to equities is in general, lower, than any returns and should be maximized, to the most lucrative extent. In the current circumstances, long-term capital gains offer one of the best opportunities in the United States tax structure.
It is made easier for investors to generate long-term capital gains by the employment of exchange-traded funds (ETFs), the process of investment in broad-based index funds, without required indicators. Although some outlandish ETFs could provide investors with the opportunity to venture into previously inaccessible markets and employ different strategies, the unpredictable nature of these holdings frequently result in short-term transactions, surprising tax equations and general performance results issues.
Company dividends are paid from after-tax profits, with the tax already deducted. Therefore, shareholders are given some respite with a preferential tax rate of 15% on "qualified dividends" in the event of the company being domiciled in the United States. Alternatively, in another country having a double-taxation treaty with the US, accepted by the IRS;. Non-qualified dividends paid by other foreign companies or entities; for example, those receiving income derived from interest on bonds held by a mutual fund, are taxed at the regular and generally higher rate of income tax. When applied to 2013, this is on a sliding scale up to 39.6%, with an additional 3.8% surtax for high-income taxpayers ($200,000 for singles, $250,000 for married couples).[7]
Role of the financier
A financier (/fɪnənˈsɪər, fə-, -ˈnæn-/)[8][9] is a person whose primary occupation is either facilitating or directly providing investments to up-and-coming or established companies and businesses, typically involving large sums of money and usually involving private equity and venture capital, mergers and acquisitions, leveraged buyouts, corporate finance, investment banking, or large-scale asset management. A financier makes money through this process when his or her investment is paid back with interest,[10] from part of the company's equity awarded to them as specified by the business deal, or a financier can generate income through commission, performance, and management fees. A financier can also promote the success of a financed business by allowing the business to take advantage of the financier's reputation.[11] The more experienced and capable the financier is, the more the financier will be able to contribute to the success of the financed entity, and the greater reward the financier will reap.[12] The term, financier, is French, and derives from finance or payment.
Financier is someone who handles money. Certain financier avenues require degrees and licenses including venture capitalists, hedge fund managers, trust fund managers, accountants, stockbrokers, financial advisors, or even public treasurers. Personal investing on the other hand, has no requirements and is open to all by means of the stock market or by word of mouth requests for money. A financier "will be a specialized financial intermediary in the sense that it has experience in liquidating the type of firm it is lending to".[10]
Perceptions
Economist Edmund Phelps has argued that the financier plays a role in directing capital to investments that governments and social organizations are constrained from playing:
[T]he pluralism of experience that the financiers bring to bear in their decisions gives a wide range of entrepreneurial ideas a chance of insightful evaluation. And, importantly, the financier and the entrepreneur do not need the approval of the state or of social partners. Nor are they accountable later on to such social bodies if the project goes badly, not even to the financier's investors. So projects can be undertaken that would be too opaque and uncertain for the state or social partners to endorse.[13]
The concept of the financier has been distinguished from that of a mere capitalist based on the asserted higher level of judgment required of the financier.[14] However, financiers have also been mocked for their perceived tendency to generate wealth at the expense of others, and without engaging in tangible labor. For example, humorist George Helgesen Fitch described the financier as "a man who can make two dollars grow for himself where one grew for some one else before".[15]
See also
- Business magnate
- Businessperson
- Compound interest
- Corporate finance
- Crowd funding
- Financial literacy
- Growth capital
- Investor profile
- Model audit
- Philanthropy
- Real estate investor
- Saving account
- Securities market participants (United States)
- Securities offering
- Socially responsible investing
- Stock investor
- Time value of money
- Usury
Further reading
- Josephson, Matthew (1972). The Money Lords: The Great Finance Capitalists, 1925–1950. New York: Weybright and Talley.
- Graham, Benjamin; Zweig, Jason (February 21, 2006) [1949]. The Intelligent Investor: The Definitive Book on Value Investing (Revised ed.). HarperCollins. ISBN 0-06-055566-1.
References
- Lin, Tom C.W. (2015). "Reasonable Investor(s)". Boston University Law Review. 95 (461): 466.
- "Investor". Cambridge English Dictionary. Cambridge University Press. Retrieved 2019-11-29.
- Fisher, Jonathan; Bewsey, Jane; Waters, Malcolm; Ovey, Elizabeth (2003). The Law of Investor Protection (2nd ed.). London: Sweet & Maxwell.
- Palmer, Barclay. "Institutional vs. Retail Investors: What's the Difference?". Investopedia.
- Hayes, Adam. "Retail Investor Definition". Investopedia. Retrieved 2020-12-17.
- "Institutional Investor - Overview, Types, Investing Risks". Corporate Finance Institute. Retrieved 2020-12-17.
- "Investment Tax Basics for All Investors". Investopedia.com. Retrieved 30 December 2014.
- "financier". The American Heritage Dictionary. Houghton Mifflin Harcourt Publishing Company.
- "financier | meaning of financier". Longman Dictionary of Contemporary English.
- Xavier Freixas, Jean-Charles Rochet, Microeconomics of Banking (2008), p. 227.
- Landström, Hans (2007). Handbook of Research on Venture Capital. p. 202.
- Neave, Edwin H. (2009). Modern Financial Systems: Theory and Applications. p. 8.
- Phelps, Edmund S. (October 10, 2006). "Dynamic Capitalism" (PDF). Europa-Institut.
- Sterling Elliott, ed., Good Roads: Devoted to the Construction and Maintenance of Roads (1896), Vol. 24, p. 366.
- Fitch, George (1916). Vest Pocket Essays. p. 123.
External links
Media related to Investors at Wikimedia Commons