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The Seven levels of investor

The Seven levels of investor

There are seven levels of investor. I learned this from Robert Kiyosaki. But over the years I’ve changed it a little bit to kind of put my own spin to it. Now, during my in-depth study of money I made a shocking discovery. Despite the many and varied personality types in the world, there are only really seven types of or seven levels of investors. How many?  Seven – And while it’s common for an individual to drift a little from one investor type to another, most people stay fixed at one level for their entire lives.

So, seven levels of investors have nothing to do with the income, rather it relates to what you do with your income. Now how much money you make, has nothing to do with the income, but what you do with your income.

It’s not how much money you make, but how much money you keep

And what you do with it.

Types of Investors OR Levels of investors

Level Zero: The Non-Existent

The very first level is level zero I call that the non-existent. The non what? Existent the non-existent. They essentially have no investments or savings. They are completely unconscious or oblivious of money matters in general and their spending habits in particular. They usually complain “I don’t make enough money” “That if I just make more money everything would be okay” How many heard of people like that before? I don’t make enough money; I make more money everything would be okay. The problem is not necessarily the income or lack of but rather their money management habits.

Let me tell you about the sad story of Mike Tyson. During the 20 year span of his career Tyson’s income exceeded four hundred million dollars. Not 40, four hundred million dollars. In his 20 years. Yet in 2004, before his 39th birthday, he was thirty-eight million dollars in debt. So he blew, four hundred million. On top of that another thirty million. Now you can say, well but again Tyson at the time he made millions of dollars a fight.

A guy who can make millions of dollars a fight can’t be broke. Well, his financial statement says otherwise.

Doesn’t matter how much money he makes. You look at the financial statement; he has the cash flow pattern of a poor person. In fact, it’s worse than poor because if your net worth is zero, you’re thirty-eight million richer than him. His is thirty-eight million in debt. Follow me? It’s not how much money you make.

Level One: The borrower

Now the borrower is often in a far worse financial position than the non-existent though his or her potential for change may be great because usually, they make a little bit more money. The borrower often has very high debt, the borrower spends all they make and more, they know how to consume, and they know how to buy stuff.

Their idea of financial planning is to get a new visa or MasterCard. Okay! Borrowers, here’s the thing; usually they live in complete financial denial. They often come to believe that the situation is hopeless and they kind of just give up, they say “Oh, it’s just the way it is a man” and when they feel depressed, what do they go out and? Buy more. Because it gets them out of their funk. I’m depressed, I spend more, into more debt and then I go back depressed and I spend more money and it becomes this cycle.

Level Two: The saver

The saver usually put aside a small amount of money, on a regular basis. Now the money is generally deposited into a very low-risk low returning vehicle such as a term deposit or money market account. So savers usually save to consume rather than invest. So they saved up the money and then they’ll go on vacation they save the money they will buy a car, they save the money they might buy a big TV.

They are afraid of financial matters and are unwilling to take any risk. They’re just safe, you can see. They are the ones who drive many hours to save a few dollars. They are the ones who will line up on Boxing Day and fight and wait for 10 hours to try to save their item.

ve a clear out written long-term plan that will enable them to reach their financial objectives.

Level Three: The Passive Investor

What kind of investor?   Passive – The passive investor

So these investors are aware of the need to invest and usually, you know, add to the RSP or 401k in the US by making employee contributions and sometimes they even have outside investments such as maybe a mutual fund or shares, stocks or bonds. They make up two-thirds of the population that we call the middle class.

They’re called what?  Middle class – Middle class and however, when it comes to investing they are financially illiterate. They’re just kind alike, put that aside and that’s the mentality and these are very common things they might say; “Well I’m not very good with numbers” “I’m not very good with numbers” “I never understand how this wheels to investment work or how this stock investing stuff works” “I’m just too busy to follow everything, It’s just too complicated” “Well I just prefer to leave the money decisions to the professional” Oh here’s a good one, I love this one. “I have the best financial planner in town, I don’t need to understand everything that’s going on he’s a great guy, he’s a nice guy” He’s a great guy.

They have very little idea where the money’s invested or why. Now here’s the thing, these investors blindly follow the market like sheep and then squeal a lot like pigs before running to their own slaughter. They also believe the high rates of return of investment are impossible and probably illegal. You tell them oh this thing can get 15, 20 per cent return they say oh, that’s too risky, that’s impossible. They don’t do that oh no-no-no. That’s how they are. It’s also common for these people to whine and complain about missing out, so at the same time you tell them about these investments potential and you can make these returns.

Seven levels of investor at level 3rd

“Oh oh oh that’s too risky I don’t want to do that” and suddenly they see people making money. Oh shit! I should have gone into that, I should have jumped into that I missed out. And they’re the ones that will follow the newspaper suddenly the news is saying oh the markets crashing, sell sell sell sell sell. Oh no no no I need to buy and the broker is happy to take their call because everything they buy and sell they make a commission. Okay!

So passive investor, so those are the first few right? You have the non-existent, the borrower, the saver, the passive investor. Now if I go into the other ones let me give you three minutes to remind those ones first who do you know that belongs to what category? Or maybe what level you are in. Time, to be honest, time to be fucking honest.

Now, the passive investor, they do not like a risk at the same time they very much love to use what I call sophisticated investment techniques such as margins, short cord, puts, calls without proper knowledge of exactly what is this they are committing to or the real risk. Now, passive investors lose money more than 90% of the time they lose money more than 90% of the time because they like to speculate. They will never discuss their losses but will always blowhard their big win. You don’t hear about when they lose money.

Oh yeah, I bought this stock, it went up I double my money. You only hear about those stories. They believe all they need is one big hit, and they will be on easy street. They are gamblers. They’re basically gamblers. They like to gamble. Okay. And unfortunately I’ve seen entrepreneurs, they work very, listen to me. I’ve seen entrepreneurs who work very very hard their entire lives. They make and accumulate quite a bit of money. But they listen to their friends, they listen to something, “Hey man, the sure-fire thing man, put some money into it” And what took them 10 years to accumulate because they are not a good investor level 3, what took them 10 years they can lose it in one year. Everything. And now it takes them another whatever how many years but here’s the thing. Entrepreneurs, nature it’s in our nature, we can work hard. And then we’re like let’s rebuild this shit. And we do.

And then next time, they’re smarter next time. But the unfortunate thing is they lost a lot of time. Lost 10, 15, 20 years. I see that so often.

So my hope you are, don’t follow that path. Make the money, put aside some money, get yourself educated, invest in what you know, don’t follow that path. It’s painful. Fortunately, with me, it didn’t take me 10 years. I put in the money, now one with I was smart, when I was investing, I wasn’t greedy. I wasn’t trying to you know what I’m going to put all my money into this.

You know even all the tech companies I only put a percentage of my money. So even when I lost all that money, it is still okay but, if I was greedy and say I put more because I know how to cut my losses. That’s one thing. I know the tech company I invest in, an entrepreneur, a young guy and you know talk about burn rate he burned the money in three months. I’m like okay… I need more money, fine I write the cheque right I write a cheque and man you know a few months later come back to me then I need more money and I say you know what this is the last time I write a cheque one last time.

If it doesn’t go, we don’t get the traction I’m done. So I wrote that cheque, of course, lost that money and that was it. So I wasn’t trying to save it trying to rescue and trying you know what it’s gonna win, it’s like a gambler, right? They lose money and they go to the casino, “I’m gonna win this time man, I’m gonna win” and they borrow money and they’re “I’m gonna win next time” So one thing I did do right is, I minimized my losses although I lost quite a bit of money. But still, my nest egg it’s okay. But at the same time, I never stop increasing my improving my high-income skills.

So I still have a lot of cash coming in. That’s what gives me stability. Make sense? So it was okay, it was okay!

 Level Four: The Automatic Investor

 Automatic investors are clearly aware of the need to invest, however unlike passive investors they are actively involved in their investments, they’re actively involved in the investment decisions. Let me ask you a question. With the wealth triangle, is that a plan that you can follow yes – Yeah it’s a very clear very simple plan? They do not get fancy, here’s the thing, they don’t use options or margin accounts or any of the other stuff sophisticated money managers use. They buy good shares, proven manage funds or solid investments and hold them for the long term.

Such as Warren Buffet, right automatic investor like I said you can have high-income skills and if you’re smart and be an automatic investor you do well. You can do very well.

Level Five: Active Investor

It’s what I call what about equal because you only invest a certain percentage, you’re looking at it, and you’re learning about it but you see the differentiation between automatic and active. So just put aside money automatically and you just invest.

Seven levels of investor at 5th level

When I first started out investing in my 20’s I were a passive investor and I always know a banker that look good in their suits, right. So whatever they said, I said yes let’s do it. But in my 30’s I realized that was not going to make me wealthy right and I lost in one trade a quarter-million dollars. In one stock trade so that was a big wakeup call and a big lesson that I needed to learn.

Not just trust other people with my money, I have to learn to manage my own money so, but yes but now I am a completely active investor. I do work in finance; I can safely say conservatively that 97% of mutual funds don’t work. Only 3% of work, there are 5000 funds in Canada. 3% of work and those funds change all the time. So if you have a good financial planner who studies the markets as I do, then you know what that 3 % is right Otherwise 97% of them don’t work, so that’s the reality of it.

Level number 5 is the active investor, and this is where I’m at. So the top two levels of investor are reached by only a tiny percentage of the people on planet earth. Active investors understand that to move to this level they must become very clear on two things. Their investing principles what is it? Investing principles what is it? Investing principles – and the rules of investing. The what? rules of investing.

Their vehicle of choice might be real estate; it could be discounted paper businesses or shares and they also know how to grow your business. It could be even private companies. They actively what’s the word?   Actively participate in the management of their investments, they don’t just put aside their money and hopefully they would do a good job. They are looking, they are monitoring, and they can see how they can add value. The active investor consistently strives to optimize performance while minimizing risk.

It’s not they just put aside money. So automatic investor they just put aside money they don’t look at it. They should look at. I mean not they don’t look at it, they are not super active. They are not super active. They invest automatically but they are not super active. It’s normal for active investors to have long term annual returns of 20 to even 100 per cent. They intimately understand money and how it works. Okay! The main focus is on increasing their assets thus their cash flow. Their net worth Build their net worth so their money philosophy is very dramatically from the poor or the middle class.

Rather than investing what is left of their money here’s the key, after spending, they believe in spending what is left of their money after investing. That’s the differentiation. That is it. When I make the money, I invest in companies, real estate, when that throws off cash flow I spend whatever the hell I want. I can buy a nice place; I can buy a sports car because it’s an asset that’s paying for my luxuries.

Not my work. So I could, let me ask you this. Can I take my high-income skills and my income and just go spend? Yes – Let’s not do that. Let’s take the money, go through the filter first. Manage my money, put into the investments, whatever is left spend all you want. Because of this machine, these assets will keep cranking out cash flow for me. Now I enjoy my life however I want with this. Does that make sense? So yeah it’s just the only difference is the order. That is the order. After investing

Level Six: The Capitalist

Few people in the world ever reach this level of investment excellence and fewer stay to manage to remain there. These are the Rockefeller’s the Kennedy’s the Ford’s, Carnegie’s, Bill Gates, and The Buffet of course. Capitalists have two principals, motivations, with regard to investing to be a good manager of their money, while they are living.

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While they are alive and leave a legacy to continue after they are gone. Bill Gates gives a lot of a big chunk of the wealth. The same thing with Warren Buffet, their legacy give away a big chunk of their wealth. That’s the capitalist. That’s the capitalist.

Let’s Take two minutes for discuss the rest of the levels.

So, what have you learned from my talk? What does it mean to you and how you going to take direct action? Comment below, and share with me your thoughts.

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