The average investor does not know the difference between investing for cash flow and investing for capital gains. Most investors invest for capital gains, hoping and praying the price of their stock or home goes up. As long as you have more cash flowing in than flowing out, your investment is a good investment.
Keep in mind that it’s not the asset class that makes a person rich or poor.
Five Different Levels of Investors
There are five types or levels of investors found in the I quadrant.
Level 1: The Zero-Financial-Intelligence Level
Sadly, in America, once the richest country in the world, over 50 percent of the U.S. population is at the bottom level of the I quadrant. Simply said, they have nothing to invest.
There are many people who make a lot of money who fall into this category. They earn a lot — and spend more than they earn.
I have a friend who looks very rich. He has a good job as a real estate broker, a beautiful wife, and three kids in private school. He and his wife drive expensive European cars. When his son and daughters were old enough, they too drove expensive cars. They looked rich, but what they had was bad debt. They looked rich, but were poorer than most poor people.
Now, they are homeless. When the real estate market crashed, they crashed. They were no longer able to pay the interest on all the debt they had accumulated.
When we were younger, this same friend made a lot of money. Unfortunately, it was his low financial-intelligence level — zero — that caused him be a zero over the long run. In fact, he is so deeply in debt that he is really a sub-zero investor.
Like many people, everything he buys loses values or costs him money. Nothing he buys makes him richer.
Level 2: The Savers-Are-Losers Level
Many people believe it is smart to save money. The problem is that today, “money” is no longer money. Today, people are saving counterfeit dollars, money that can be created at the speed of light.
Remember that savers, bondholders, and most people who save money in a retirement plan, are people who park their money, investing for the long term, while professional investors move their money.
Professional investors invest their money in an asset, get their money back without selling the asset, and move their money on to buy more assets. That is why savers who park their money are the biggest losers.
Level 3: The I’m-Too-Busy Level
This is the investor that is too busy to learn about investing. Many investors at this level are highly educated people who are simply too busy with their careers, family, other interests, and vacations. Hence, they prefer to remain financially naïve and turn their money over to someone else to manage for them.
The problem with the Level-3 investor, the I’m-too-busy investor, is that the person learns nothing if they lose their money. They have no experience except a bad experience. All they can do is blame their advisor, the market, or the government. It is hard to learn from one’s mistakes if the person does not know what mistakes were made.
Level 4: The I’m-a-Professional Level
This investor may buy and sell a few stocks, often from a discount broker. After all, why should they pay a stockbroker’s higher commissions when they can do their own research and make their own decisions?
Obviously, those who also invest in their ongoing financial education, taking classes regularly and hiring a coach to enhance their performance, will outpace those who just do it on their own.
Level 5: The Capitalist Level
So, the question is: Who do level- 5 investors get their money from? The answer is: They get their money from Level-2 and Level-3 investors who save their money in banks and pension plans.
This Article is taken from Rich Dad Cashflow
Written by Arshad. A