The 5 Categories Of Investors
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| Categories Of Investors |
Investment is a broad concept and phenomenon such that no one person is abreast with it all. Investors all over are classified or categorized based on their level of investment, income or net worth, business ownership etc. In His Book "Rich Dad's Guide To Investing", Robert Kiyosaki outlined the following five (5) categories of Investors;
1. The Accredited Investor
The accredited investor is someone with high income or high net worth. A long-term investor who has chosen to invest for security and comfort may very well qualify as an accredited investor.
If you can qualify as an accredited investor, you will have access to investments that most people do not.
An accredited investor is simply a person who earns significantly more money than the average person. It does not necessarily mean the person is rich or knows anything about investing.
The accredited investor is someone with high income or high net worth. A long-term investor who has chosen to invest for security and comfort may very well qualify as an accredited investor.
If you can qualify as an accredited investor, you will have access to investments that most people do not.
An accredited investor is simply a person who earns significantly more money than the average person. It does not necessarily mean the person is rich or knows anything about investing.
You may be an accredited investor, but you still may not get the opportunity to invest in the best investments. To do that requires a completely different type of investor with the right knowledge and access to the information about new investment opportunities.
An accredited investor, without financial education, has no investor control. This is because an accredited investor might have a lot of money but usually didn’t know what to do with it.
There are many highly paid Employees who qualify as accredited investors based on their income alone. To be successful in choosing your investments, however, you still need financial education. If you choose not to invest your time in your financial education, you should turn your money over to competent financial advisors who can assist you with your investment decisions.
2. The Qualified Investor
The qualified investor understands how to analyze publicly 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 qualified investor is a person who has money as well as some knowledge about investing. A qualified investor is usually an accredited investor who has also invested in financial education. As it relates to the stock market, for example, qualified investors would include most professional stock traders. Through their education, they have learned and understand the difference between fundamental investing and technical investing.
3. The Sophisticated Investor
The sophisticated investor typically has three main attributes, thus “ Excessive Cash, Education and Experience.” In addition, the sophisticated investor understands the world of investing. He or she utilizes the tax, corporate, and securities laws to maximize both 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.
From the sophisticated investor on, these investors know that there are two sides of the coin. They know that on one side of the coin, the world is a world of black and white and they also know that the other side of the coin is a world of different shades of gray. It is a world where you definitely do not want to do things on your own. On the black and white side of the coin, some investors can invest on their own. On the gray side of the coin, an investor must enter with their team.
The sophisticated investor knows as much as the qualified investor but has also studied the advantages available through the legal system. He/She knows what the qualified investor knows and is familiar with the following specialties of law:
i. Tax law
ii. Corporate law
iii. Securities law
While not a lawyer, the sophisticated investor may base as much of his or her investment strategy on the law as well as the investment product and potential returns. The sophisticated investor often gains higher returns with very low risk by using the different disciplines of law.
4. The Inside Investor
To build a successful business is the goal of the inside investor. The business may be a single piece of rental real estate or a multi-million-dollar retail company. A successful Business Owner knows how to create and build assets.
i. Tax law
ii. Corporate law
iii. Securities law
While not a lawyer, the sophisticated investor may base as much of his or her investment strategy on the law as well as the investment product and potential returns. The sophisticated investor often gains higher returns with very low risk by using the different disciplines of law.
4. The Inside Investor
To build a successful business is the goal of the inside investor. The business may be a single piece of rental real estate or a multi-million-dollar retail company. A successful Business Owner knows how to create and build assets.
The inside investor is someone who is on the inside of the investment and has some degree of management control.
You don’t need to have a lot of income or net worth to be considered an inside investor. An officer, director, or owner of 10% or more of the outstanding shares of the corporation is an inside investor.
In the real world, there is legal inside investment activity as well as illegal insider activity. Inside investment is one very important way to reduce risk and increase returns. Someone with the financial education but not the financial resources of an accredited investor can still become an inside investor. This is where many people enter the world of investing today. By building their own companies, inside investors are building assets that they can run, sell, or take public.
The rich technically invent money. After you learn to make your first million, the next ten will be easy. A successful Business Owner will also learn the skills needed to analyze companies for investment from the outside. Therefore, a successful inside investor can learn to become a successful sophisticated investor.
5. 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.
The ultimate investor is a person who creates an asset that becomes so valuable that the asset they created is worth literally billions of money to millions of people. These investors build giant companies that other investors want to invest in.
It is probably not likely that many of us will ever build such huge multi-million companies, but we all have the possibility of building a smaller business and becoming wealthy by selling it privately or selling it publicly.
Some people build houses to sell; others build cars, but the ultimate is to build a business that millions of people want to own a share of.
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