investor controls

What Makes an Investor Sophisticated? Pt. 2

The final five investor controls for maximum investment success

Rich dad often spoke of the sophisticated investor. “A sophisticated investor is an investor who understands each of the ten investor controls,” he said. He considered these ten controls the key to making huge sums of money in the markets.

Last week, I shared with you the first five controls for maximum investment success . This week, I want to share with you the final five.

Investor control #6: Control over brokerage transactions

Sophisticated investors who have inside influence can direct how the investment is sold or expanded.

As outside investors in other companies, sophisticated investors carefully track the performance of their investments and direct their broker to buy or sell appropriately.

Many investors today rely on their brokers to know when to buy and sell. That is not sophisticated. It's foolish.

Investor control #7: Control over the E-T-C (Entity, Timing, Characteristics)

“Next to control over yourself, the control over the E-T-C is the most important control,” said rich dad. To have control over the entity, timing, and characteristics of your income, you need to understand corporate, security, and tax law.

Rich dad truly understood the benefits offered through choosing the right entity with the right year-end and converting as much ordinary income into passive and portfolio income as possible. This strategy combined with the ability to read financial statements helped rich dad build his financial empire more quickly.

Investor control #8: Control over the terms and conditions agreement

The sophisticated investor is in control of the terms and conditions of the agreements he or she makes when on the inside of the investment. For instance, when I rolled over the sale of several of my small houses into a small apartment building, I used a Section 1031 exchange (U.S. law), which allowed me to roll over the gain. I didn’t have to pay taxes on the sale because I controlled the terms and conditions of the agreement.

Investor Control #9: Control over access to information

As an inside investor, the sophisticated investor again has control over access to information. This is where the investor needs to understand the legal requirements of insiders imposed by the SEC in the United States (other countries have similar oversight organizations).

Investor control #10: Control over giving it back

The sophisticated investor recognizes the social responsibility that comes with wealth and gives back to society. This may be through charitable giving and philanthropy. Some of it will be through capitalism, by creating jobs and expanding the economy.

Are you ready to become a sophisticated investor? It starts with financial education and good coaching. Start today.

Original publish date: June 23, 2015

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