Which of These 5 Types of Investors Are You?
What it takes to be the ultimate investor
When I was young, I made up my mind. I was mentally prepared to become an investor, and I wanted to become a very successful one.
My rich dad asked me, “What kind of investor do you want to be?”
“A rich one,” I replied.
This is when rich dad brought out a yellow pad of paper and wrote down the following categories of investors.
The Accredited Investor
The accredited investor is someone with a high income or high net worth. The SEC definition of an accredited investor is:
$200,000 or more annual income for an individual
$300,000 or more for a couple, or
$1 million net worth
If you can qualify as an accredited investor, you will have access to investments that most people do not. To be successful in choosing your investments, however, you still need financial education. If you choose to not invest your time in your financial education, you should plan on marginal returns on your money – if you don’t lose it all.
Reportedly, less than three percent of the population qualifies as an accredited investor. As I sit and ponder the idea of needing $200,000 minimum income, I realize that my dad, the person I call my poor dad, would never have come close to qualifying, no matter how hard he worked and how many raises his government job required.
And, it looks like it may only get harder for the average person to qualify as an accredited investor in the near future.
The Qualified Investor
The qualified investor understands how to analyze publically-traded stock. This investor would be considered an “outside” investor as opposed to an “inside” investor. Generally, qualified investors include stock traders and analysts.
The Sophisticated Investor
The sophisticated investor typically has all three of rich dad’s three Es: education, experience, and excess cash. In addition, the sophisticated investor understands the world of investing. He or she utilizes the tax, corporate, and securities laws to maximize earnings and to protect the underlying capital.
If you want to become a successful investor but do not wish to build your own business to do so, your goal should be to become a sophisticated investor.
The Inside Investor
I’m not talking about the inside investors who participate in illegal activities in order to make a quick buck on a trade. Rather I’m talking about investors who build their own businesses to create wealth to then invest outside.
To build a successful business is the goal of the inside investor. The business may be a single piece of real estate or a multimillion-dollar retail company. The successful inside investor knows how to create and build assets, and has the skills necessary to analyze companies for investments from the outside.
The Ultimate Investor
To become the selling shareholder is the goal of the ultimate investor. The ultimate investor owns a successful business in which he or she sells ownership interest to the public. Hence, he or she is a selling shareholder.
1. The accredited investor earns a lot of money and/or has a high net worth
2. The qualified investor knows fundamental and technical investing
3. The sophisticated investor understands investing and the law
4. The inside investor creates the investment
5. The ultimate investor becomes the selling shareholder
The question is, “Which are you?”
The further question is, “Which do you want to be?”
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