In this article, you will understand what it means to be a moderate investor, as well as the types of assets that best fit this classification. Keep reading to find out more!
What is the moderate investor?
The moderate investor profile is one who seeks a balance between security and profitability, combining prudence and growth in investments . This person seeks consistent gains, but accepts moderate risks to achieve returns higher than those of fixed income.
Generally, the moderate investor combines other mixes, including stocks and bonds, to achieve diversification and more stable investment. The choice toward this combination reflects the financial growth aspiration without too much exposure toward extreme market fluctuation.
This profile is suitable for economic contexts where volatility can be too high. Even so, the moderate investor understands that some level of risk is necessary to obtain good returns on their finances.
With ongoing financial education and monitoring of market conditions, the moderate investor adapts as the economic scenario changes. Thus, he seeks to stay up to date and improve his strategies to ensure security and growth.
Characteristics of the moderate investor
The moderate investor profile is usually observed in people who seek a balance between security and growth in their investments.
Discover the main characteristics of this group below!
Balance between security and profitability
The moderate investor prefers safety and some scope for returns better than very conservative investments. He is willing to undertake some risks, but never at the cost of financial stability.
Protection strategy: diversification
One of the most important strategies for a moderate investor is diversification of your portfolio. The general idea is to invest in other types of assets, such as investing both in stocks and fixed income, hoping that losses in one sector will affect fewer investments.
Medium and long term
The moderate investor tends to hold his investments for longer periods because he knows that this approach helps to make effects of shocks or short-lived market downturns less painful.
Focus on medium to long terms will significantly aid in achieving bigger goals, such as buying a home or retirement.
Is it worth being a moderate investor?
The best way to understand what the balance sought by the moderate investor consists of is by analyzing its main characteristics. See below what the components of this classification are!
Balanced combination of risks and rewards
Moderate investors achieve a good combination of return and security, without having to take on major risks. This balance allows them to achieve better results than with very conservative strategies, especially in uncertain scenarios.
Furthermore, they have the advantage of protecting against large fluctuations, offering greater stability in the long term.
Limitation on returns
Compared to other investor profiles , the moderate investor may miss out on opportunities for significant gains during periods of market growth. This moderation in risk choices often prevents him from taking full advantage of periods of strong economic growth.
A profile like this limits the chances of high returns, which can be frustrating for those who want to increase their wealth more quickly.
Diversified portfolio
The moderate profile investor would invest his funds in various types of assets, such as fixed and variable income. The diversification strategy lowers the dent of loss in a specific area, thereby making the portfolio stable.
With this attitude, he can survive any phase of economy and capture the gains of particular areas.
Lower utilization in high phases
During economic upturns, moderate investors generally have lower returns compared to those who take more risks. This is because, even in a positive scenario, moderate investors keep part of their resources in safe assets.
As a result, they may not take advantage of the market’s full growth potential, falling behind in performance.
Less vulnerability to crises
By keeping part of their investments in safer assets, the moderate investor is less vulnerable to drastic losses in times of crisis.
This security provides greater peace of mind, as even in times of uncertainty, the portfolio maintains a protective base. This way, the investor can plan their financial future with greater confidence.
Slower response times
A moderate strategy can lead to a delay in adapting to major market movements. This lack of agility can be detrimental in highly volatile situations when quick decisions are required.
Thus, the moderate investor may miss opportunities to profit or protect his capital at specific times, becoming vulnerable to sudden market fluctuations.
How to be a moderate investor?
If these are some characteristics that define you, the moderate investor, then that is a path to follow in managing your finances.
Learn here the steps you have to undertake to embrace this strategy in your portfolio!
1. Acquire financial education
You have to earmark some time for financial education in your schedule before investing. This means learning about safer securities and also about investments that can potentially offer higher returns but have more associated risk.
Education in these investments will boost your confidence in making the right decisions.
2. Perform a risk tolerance test
Step one to being a moderate investor is taking the risk tolerance test. It identifies your risk tolerance and determines the financial goals and time frame that you plan to invest.
Knowing this information provides a good basis for defining the best way you can allocate your investments to fit your profile in their operations.
3. Build a diversified portfolio
Diversification is a key strategy for the moderate investor. A balanced portfolio typically includes a higher percentage of fixed income, which provides security, and a smaller portion in stocks, which can provide growth.
For example, allocating around 60% in fixed income and 40% in variable income may be a good strategy, but it is important to adjust these percentages according to your comfort level with risk.
4. Monitor and adjust the portfolio
Since financial markets are always in a state of flux, reviewing your investment portfolio periodically is prudent, so that it keeps pace with the evolution of your goals and risk appetite over the years.
Change in your personal circumstances or financial goals may necessitate portfolio adjustments to maintain the desired balance.