Limited Time Offer: Save 10% on all 2022 Premium Study Packages with promo code: BLOG10

Types of Investors

Types of Investors

The needs of investment clients vary widely but we can group investors into two broad categories – individual investors and institutional investors. Different investors will have varying investment time horizons, tolerance for portfolio risk, income and liquidity needs.

Individual Investors

Individual investors may be investing either for short-term or long-term goals. A short-term investment goal may be their children’s education or the purchase of a house. Long-term investment goals revolve around providing income for retirement. Thes implication of this is that some investors are focused on capital growth and look for those investments with potential for capital appreciation while retirees will want income-producing assets. The structuring of a portfolio for an investor will also be dependent on their financial circumstances such as home-ownership, employment prospects, and other financial obligations.

Institutional Investors 

There are many different types of institutional investors. Indeed, institutional assets constitute a major portion of investment market. Pension funds, endowments, charities, banks, insurance companies, investment funds and Sovereign Wealth Funds (SWF) are all classified as institutional investors. These institutional investors also have different financial objectives.

Endowments and Foundations

The typical objective of an endowment or foundation is to maintain the real (inflation-adjusted) capital value of the fund in perpetuity as well as generate income to provide financial support for their beneficiaries.


Banks hold deposits and make loans which can lead to excess reserves – in this case, a bank holds more deposits than the loans it has extended. Banks can invest these reserves which typically have to be held in conservative and liquid assets like fixed-income and money market instruments. The objective of the bank is to earn a rate of return in excess to the rate of interest it pays on its deposits.

Insurance Companies

Insurance companies receive premiums from the insurance policies they write. They need to invest these premiums to ensure there are sufficient funds available to pay for insurance claims when these arise. As such, their investments are also often conservative in nature and cognizant of the investment time frame over which claims may arise.

Investment Companies

Investment companies manage mutual funds which are pooled investment vehicles. Mutual funds are seen as an efficient way for individual investors to gain access to a diversified portfolio and benefit from the skills of a professional investment manager. Mutual funds are managed according to the limits and restrictions of their investment mandates.

Sovereign Wealth Funds

SWFs are government-owned investment funds. Some governments operate with the objective of investing the revenues from the natural resources of the country (e.g. oil) for the benefit of future generations while others manage the assets of the state.


Excess reserves held by banking institutions are usually invested in:

A. Emerging market equities and other high-growth stocks

B. Money-market and fixed income instruments

C. Real estate and other tangible assets


The correct answer is B.

Banks invest their excess reserves in conservative and liquid assets such as fixed income and money-market instruments.

Shop CFA® Exam Prep

Offered by AnalystPrep

Featured Shop FRM® Exam Prep Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Shop Actuarial Exams Prep Shop GMAT® Exam Prep

    Sergio Torrico
    Sergio Torrico
    Excelente para el FRM 2 Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
    So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts. The fun light-hearted analogies are also a welcome break to some very dry content. I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
    Kriti Dhawan
    Kriti Dhawan
    A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them. Thank you ! Grateful I saw this at the right time for my CFA prep.
    nikhil kumar
    nikhil kumar
    Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
    Great support throughout the course by the team, did not feel neglected
    Benjamin anonymous
    Benjamin anonymous
    I loved using AnalystPrep for FRM. QBank is huge, videos are great. Would recommend to a friend
    Daniel Glyn
    Daniel Glyn
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.