3 Types of Investors
One of the biggest secrets my rich dad taught me was this: If you want to acquire great wealth quickly, take on great financial problems.
Many laws are written against people stuck in the rat race. In the world of business and investing, I find it shocking how little the middle class knows when it comes to where its tax dollars are going.
Although tax dollars are going to many worthwhile causes, many of the larger tax breaks, incentives, and payments are going to the rich. And the middle class pays for them.
For example, insufficient low-income housing in America is a huge problem and a political hot potato. To help solve this problem, cities, states, and the federal government offer substantial tax credits, tax breaks, and subsidized rents to people who finance and build low-income housing. Just by knowing the laws, financiers and builders become wealthier by having taxpayers subsidize their investments in low-income housing.
I know it’s unfair, and I understand both sides of the story but I say it’s much easier to simply mind your own business, take control of your cash flow, find your own financial Fast Track, and get rich. It is easier to change yourself than to change the political system.
The Three Types of Investors
As I’ve written before there are different levels of investors based on your financial education. There are also different types of investors — much like different personalities — and those are:
- Type A: Investors who seek problems.
- Type B: Investors who seek answers.
- Type C: Investors who seek an “expert” to tell them what to do.
Type-C investors are financially uneducated and look for people to tell them what to invest in. People in the E and S quadrants have been forced into the investing game because of changes in retirement plans. They have little interest in investing in their education so they can become better investors. They know nothing, which means they have to rely on the advice of other so-called experts.
What’s the chance of the Type-C investor getting rich? About as much chance as winning the lottery.
Type-B investors seek answers. They often ask questions like:
- “What do you recommend I invest in?”
- “Do you think I should buy real estate?”
- “What stocks are good for me?
- “I talked to my broker, and he recommended I diversify.”
- “My parents gave me a few shares of stock. Should I sell them?”
Type-B investors should interview several tax advisors, attorneys, stockbrokers and real estate agents, choose carefully and start implementing their advice.
They should find advisors who practice what they preach and run fast from anyone who is selling investment advice and getting rich on commissions and fees alone. Type-B investors should look for investment advisors who make money investing in the same investments they are selling.
I often find that many high-income E’s and S’s fall into the Type-B investor category because they are busy and have little time to look for investment opportunities or learn about the right side of the CASHFLOW Quadrant. Hence, they want somebody to give them the answers instead of gaining knowledge for themselves. This group often buys what the Type-A investor calls “retail investments,” which are investments that have been packaged for sale to the masses.
Type-A investors look for problems. In particular, they look for problems caused by those who get into financial trouble. Investors who are good at solving problems expect to make returns of 25% to infinity on their money. They possess the skills necessary to succeed as business owners and investors, and they use those skills to solve problems caused by people who lack such skills.
For example, when I first started investing with only $18,000, I focused on small condominiums and houses that were in foreclosure because of problems created by investors who did not manage their cash flow well and ran out of money.
After a few years, I was still looking for problems, but this time, the numbers were bigger. Several years ago, I was working on acquiring a $30 million mining company in Peru. While the problem and numbers were bigger, the process was the same.
Can You Be All Three Types of Investors?
In reality, I operate as all three types of investors. I am a Type-C investor when it comes to mutual funds. When I am asked, “What mutual funds do you recommend?” I tell the person, “I have no idea.”
As a Type-B investor, I seek professional answers to my financial problems. I seek answers from my advisors, including tax and wealth strategists, stockbrokers, bankers, and real estate brokers. When you find good ones, these professionals provide a wealth of information many people do not personally have the time to acquire.
The advice from my financial advisors is valuable because they know trusts, wills, and insurance far better than I ever will. They are also closer to the market and more up-to-date with any changes in the laws and how that might affect the markets. There is much more to investing than simply buying and selling.
I also give my money to other investors to invest for me. These are individuals I know and trust. If they choose to invest in an area I know nothing about, such as low-income housing or large office buildings, I may choose to give my money to them because I know they are good at what they do and I trust their knowledge.
How to Get on the Fast Track Faster
If you start small and learn to solve problems, you will gain immense wealth as you become better and better at solving problems.
For those who wish to acquire assets faster, I again emphasize the need to first learn the skills of the B and I quadrants.
I recommend learning how to build a business first because it provides a vital educational experience, improves personal skills, provides cash flow to soften the ups and downs of the marketplace, and provides free time. It is the cash flow from my business that bought me the free time to begin looking for financial problems to solve.
Play it smart,
Editor, Rich Dad Poor Dad Daily