The 7 Level of Investors
Level 0: THOSE WITH NOTHING TO INVEST
Level 1: BORROWERS
Level 2: SAVERS
Level 3: SMART INVESTORS
Level 3-A: " I CAN'T BE BOTHERED GROUP. "
Level 3-B: " CYNIC "
Level 3-C: " GAMBLER "
Level 4: LONG-TERM INVESTORS
Level 5: SOPHISTICATED INVESTORS
Level 6: CAPITALISTS
Level 0: THOSE WITH NOTHING TO INVEST
These people have no money to invest. They either spend everything they make or spend more than they make. There are many " rich " people who would fall into this category because they spend as much, or more than they make. Unfortunately this zero level is where about 50% of the adult population would be categorized.
Level 1: BORROWERS
These people solve financial problems by borrowing money. Often they even invest with borrowed money. Their idea of financial planning is robbing Peter to pay Paul. They live their financial lives with their head in the sand like an ostrich, hoping and praying that everything will work out. While they may have a few assets, the reality is that their level of debt is simply too high. For the most part, they are not conscious about money and their spending habits.
Anything they own of value has debt attached to it. They use credit cards impulsively and then roll that debt into a long-term equity loan so they can clean up their credit cards and then start charging again.They often purchase depreciating toys such as boats, swimming pools, vacation and cars, they list these depreciating toys as assets. Shopping is their favorite form of exercise.
This level of investor can often look rich. They may have big houses and flashy cars... but if you check, they buy on borrowed money. They may also make a lot of money, but they are one professional accident away from financial ruin.
Level 2: SAVERS
These people put aside a " small " amount of money on a regular basis. The money is in a low-risk, low-return vehicle such as a money market checking account or certificate of deposit (CD). They often save to consume rather than to invest (e.g. they save for a new TV, car, vacation, etc.). They believe in paying in cash. They afraid of credit and debt. Instead, they like thw " SECURITY " of money in the bank.
Even when shown that in today's economic environment savings give a negative return ( AFTER INFLATION AND TAXES), they are stilling unwilling to take on much risk. Instead of trying to save pennies, they could have put that time into learning how to invest.
To hold your money in the bank earning 5% while others are getting 15% and more is not a wise investment strategy. Yet, if you are unwilling to study investing and you live in constant fear of financial risk, then saving is a better choice than investing.
Yes, if you are unwilling to study investing and live in constant fear of financial risk, then saving is a better choice than investing. You don't have to think as much if you just keep the money in the bank, and your bankers will love you. Why shouldn't they The bank lends $10 - $20 for every $1 you have in savings and charges up to 19% interest, then turns around and pays you less than 5%. We should all be BANKERS.
Level 3: " SMART " INVESTORS
This level of inverstor is aware of the need to invest. Sometimes they even have outside investments in mutual funds, stocks, bonds or limited partnerships.
Generally they are intelligent people who have a solid education. They make up the two-thirds of the country we call the " middle class ". However, when it comes to investing, they are often not educated or lack what the investment industry calls " sophistication ". Rarely will they read a company annual report or company prospectus. How could they? They were not trained to read financial reports. They lack financial literacy. They may have advanced college degrees, and may be doctors or even accountants, but few have ever been formally trained and educated in the win/lose world of investing.
They are often smart people who are well educated and often make substantial incomes, and they do invest.
These are 3 main categories in this level.
Level 3-A: People in this level make up the " I CAN'T BE BOTHERED " group. They convinced themselves they don't undertstand money and never will. They say things like
" I'm just not very good with numbers. "
" I'll never undertstand how investing works. "
" I'm just too busy. "
" Investing is too risky. "
" It's just too copmlicated. "
" I prefer to leave the money decision to the professionals. "
" It's too much of a hassle. "
" My wife husband/wife handles the investments for our family. "
These people just let the money sit and do little in their retirement plan or turn it over to a financial planner who recommends " diversification. " They block their financial future out of their minds, work hard day to day, and they to themselves, " At least i have a retirement plan. "
Level 3-B: " CYNIC "
These people know all the reasons why an investment will not work. They often sound intelligent, speak with authority, are successful in their chosen field, but are really cowards under their intellectual exterior. They can tell you exactly how and why you " swindled " with every investment known to man.
Yet strangely, these same cynics often follow the market like a sheep. At work they're always reading the financial pages or the " Wall Street Journal ". They read the paper and then tell everyone else what they know at the coffee break. Their language is filled with the latest investment jargon and technical terms. They talk about the big deals, but are never in them. They look for stocks that make the front page and if the report is favorable, they often buy. The problem is they buy late because if you get your news from the newspaper, it is too late. The truly smart investors have bought way before it makes the news. The cynic does not know that.
When bad news come, they criticize and say things like "I knew it." They think they're in the game, but they are really only spectator standing on the sidelines. They often want to get into the game, but deep down they are terribly afraid of getting hurt. SECURITY si more important than fun.
Cynics are often what the professional traders call " pigs ". They squeal a lot and then run to their own slaughter. They are smart, but are terrified of taking risks and making mistakes, so they study harder, get smarter. The more they know, the more risk they see, so they study even harder. Their cynical cauition case them to wait until it's too late. They come to market when greed finally overpower their fear.
When comes to investing, they can tell you why things won't work, but they cant't tell you how it could work. They love hearing about financial disaster or wrong doings so they can " spread the word." Yet, rarely do they have anything good to say about financial success. A cynic finds it easy to discover what is wrong. It is their way of protecting themselves from revealing their lack of knowledge - or lack of courage.
Level 3-C: " GAMBLERS "
This group is called " Pigs " by professional traders. But while they cynic is overly cautious, this group is not cautious enough. They look at the stock market, or any investment market, about the same way they look at Las Vegas craps table. It's just luck. Throw the dice and pray.
This group has no set trading rules or principles. They want to act like the " Big Boys," so they fake it until they make it or lose it at all. They are searching for the " Secret " to investing, or the " Holy Grail." They are always looking for new and exciting ways to invest. Instead of long-term diligence and study and understanding, they seek " tips ' or " shortcuts. "
They jump into the " game " without knowing who the players are and who makes up the rules.
These people are the worst investors the planet has ever known. They always try to hit a " home run. " They usually " strike out. "This type of investor loses money over 90% of the time. They never discuss their losses. They only remember the " killing " they made six years ago. They think they were smart and fail to recognize they were merely lucky. They think that all they need is " the one big deal " and then they'll be on easy street. Society calls this person an " incurable gambler. " Deep down, they are simply lazy when it comes to investing money.
Level 4: LONG-TERM INVESTORS
These investors are clearly aware of the need to invest. They are actively involved in their own investment decisions. They have clearly laid out long-term plan that they will allow them to reach their financial objectives. They invest in their education before actually buying an investment. They take advantage of periodic investing and, whenever possible, invest in a atx-advantaged way. Most importanly they seek out advice from competent financial planners.
If you're not a long term investor, get yourself there as fast as you can. What does this means?
> This means that you sit down and map out a plan.
> Get control of your spending habits.
> Minimize your debts and liabilities
> Live within your means and then increase your means.
Find out how much invested per month for how many months at a realistic rate of return it will take to reach your goals. Goals such as: AT WHAT age do you plan to stop working? HOW MUCH money will you need per month?
Simply having a long-term plan that reduces your consumer debt while putting away a small amount of money (on a periodic basis) into a top mutual fund will give you a head start on retiring wealthy, if you start early enough and keep an eye on what you're doing.
At this level, keep it simple. Don't get fancy. Forget the sophisticated investments. Just do solid stock and mutual fund investments. Learn how to buy closed-end mutual fund soon, if you haven't already. Don't try to outsmart the market. Use insurance vehicles wisely .
Stop wating for the " big deal. " Get into the " game " with small deals. Don't worry about being right or wrong at first, just start. You'll learn a lot more once you put some money down, just a little to start. Remember, small deals often lead to bigger deals, but you must start.
Start today, don't wait. Sit down with your loved ones and work out a plan, call a financial planner or go to the library and read about financial planning and start putting money for yourself. The longer you wait, the more you waste one of your most precious assets.... the intangible and priceless asset time.
An interesting note. Level 4 is where most of the millionaires in America come from. They study or informed about investing, have a plan, and invest for the long term. They are truly conservative and their well-balanced financial habits are what make them rich successful over the long haul.
Level 5: SOPHISTICATED INVESTORS
These investors can " afford " to seek more aggressive or risky investment strategies. Why because they have good money habits, a solid foundation of money and also investment savvy. They are not new to the game. They are focused, not usually diversified. They have a long track record of winning on a consistent basis, and they have had enough losses that give them the wisdom that only comes from making mistakes and learning from them.
What determines whether people are " sophisticated? " They have a financial base that is sound, from their profession, business or retirement income, or have a base of solid, conservative investments. These people have their personal debts/equity ratios in control, which means have much more income than expenses. They are well educated in the world of investing and actively seek new information. They are cautious, yet not cynical, always keeping an open mind.
If they lost, they will look at the loss as a lesson, learn from it, and get back into the game to learn more, knowing that failure is part of the process of success. Losing inspires them to move forward, to learn, rather than to dive into their emotional cave and call their attorney.
These investors know that bad economic times or markets offer them the best opportunities for success. They get into markets when others are getting out. They usually know when to get out. At this level, an exit strategy is more important tan entry into the market.
Level 6: CAPITALISTS
Few people in the world reach this level of investment excellence.
A capitalist's purpose is to make more money by synergistically orchestrating other people's money, other people's talents, and other people's time. Often they are the " movers and shakers " that allow a country and other great countries to become great financial powers.
True capitalists, on the other hand, create investments for themselves and others by using the talents and finances of other people. True capitalists create investments and sell them to the market. True capitalists do not need money to make money simply because they know how to use other people's money and othes people's time..
They often make other people rich, create jobs, and make things happen. In good economic times, true capitalists do well. In bad economic times, true capitalists get even richer. CAPITALISTS know that economic chaos means new opportunities. A true capitalist is going in while most people are saying, " Stay Away. That country, or that business, is in turmoil. It's too risky. "
When studying most of the people at this level, you often find they are generous to their friends, family, churches and to education. These people founded foundation and our well known institution of learning. So contrary to what many of the intellectual cynics and critics in our schools, goverment, churches and our media may say, true capitalists have contributed in more ways than just being captains of industry, providing jobs and making a lot of money. To create a better world, we need more capitalists.
Source: Cashflow Quadrant by Robert Kiyosaki
" From the given choices and information, why don't we ponder just for a short while and examine our financial status. By so doing, ask ourselves What really type of investors are we? That short while, just be true to ourselves, for nobody knows better ourselves than our truest selves. Where really are we?
Many of us would like to be a capitalists or at least the Level 4: LONG-TERM INVESTORS, but reality check many of us are at level 0 to level 3 investors category, and worst at Level 1: BORROWERS.
We're so overwhelmed with too much comfortability and luxuries of life to the point that we spend too much, live beyond our means and forgot the source of all these comforts and luxuries we have - that is PERSISTENT SAVING WITH INTELLIGENCE AND SIMPLICITY. "
