What Level of Investor Should We Be?

Learn the 7 levels of Investors

Master Investor
April 04, 2024

Summary:

There are numerous reasons why the people go broke. Choose the right level of investor to build true wealth.
Improve the B.E.A.R. framework as is the ultimate cause of remaining in the poor mindset or shift into the wealthy mindset.
Having money does not make us wealthy. Knowing what to do with it is the key to true wealth.
Master basic rules of investing.

Financial planning and the B.E.A.R. Trap.

1- B - Beliefs are the underlying thoughts that underpin all our actions. These are nearly entirely subconscious. Our beliefs serve as a framework for how we think and act. However, our beliefs are not always facts; they are our views about what we feel to be true. These opinions have a significant impact on our activities.

2- E - Excuses, which are things we say because we believe they are true, such as "I don't have enough time.” Excuses create a cycle that return us back to our beliefs, no matter how flawed or inaccurate they are, and we rely on our built-in excuses (based on our beliefs) to keep us rooted in the same poor habits.

3- A - Actions are decisions we make based on our beliefs and excuses. Excuses eventually lead to bad decisions, which become our actions.

4- R - Results are the natural consequences of our beliefs, excuses, and actions. Just desserts.

Using the B.E.A.R. wealthy framework:

BELIEFS: Adopt the wealth beliefs about money.
REASONS: Have a strong and meaningful WHYs for what we are doing.
ACTIONS: We must be active investors to get the experience to be a master investor (inside investor).
RESULTS: Seeing, analyzing and improving results.

Not all investors are created equally. We see it in their investment strategy and, more significantly, in their results. Some investors strive to achieve more than their schooling has equipped them for, while others allow themselves to plateau.

Understanding the various tiers of investors can help you determine the type of investor we are or will become. WE will learn what our ambitions will require of you. We have folks contacting us for financial advice, but we can tell by the questions they ask that their expertise level does not fit the investment they are looking for. It's as if they're trying to race in the Tour de France while still riding on training wheels.

Don't invest if we are concerned it'll be too complicated. If we are eager to study, beginning with this eBook, we can guarantee all that everything is possible. Even if we don't comprehend everything, we will know more about investing than many people who are already investing. To understand where we are headed, we must first determine where we are.

This is why understanding the seven levels of investors is critical. Knowing the levels allows us to tailor our education to our investment. It also helps we plan for what is ahead. It allows us to identify the skills we will need to become the best investor we can be.

There are numerous possibilities accessible for people of all levels of expertise, but many people may never take advantage of them because they let fear to stand in the way of progress. If we want to improve our life and begin our journey to financial freedom, spend a few minutes to be honest with ourselves and identify our investor level.

Don't be average. Whether we invest to be secure, comfortable, or wealthy, we should have a plan for each level. In the information era, our financial education and investing expertise are critical.

Level 1: The "Lottery Winner"

Level One investors are considered "lottery winners." These are the unconscious incompetents who don't realize what they don't know. This category of investor has spent little time, if any, learning about money and investing. They rely on other people's advice, which is typically harmful.

We refer to the level one investor as a "lottery winner" since approximately 70% of lottery winners become insolvent within seven years, and nearly one-third declare bankruptcy, leaving them worse off than before they struck the "jackpot." They've found themselves with a huge sum of money, and due to a lack of financial understanding, they fall victim to financial consultants who are more concerned with making money than with a client's financial health.

Many individuals believe that investing is hazardous, like gambling. The poor person thinks so. The wealthy, on the other hand, saw the poor mindset’s proposal as dangerous. The poor. mindset valued comfort, stability, and a solid career. The poor mindset valued a plan that prioritized savings over spending. The poor mindset simply lacks financial education. Because the poor mindset didn't understand investing, they believed investing it is riskier than saving.

Investing is not risky; nevertheless, a lack of education is.

Our suggestion: Getting educated is the simplest way to prevent becoming a Level One investor.

Without a financial education, we won't know what to look for to identify higher-performance assets, and wee may fall victim to so-called financial planners who will cost the uneducated investor a lot of money.

Level 2: The Borrowers

Borrowers are considered level two investors. Instead of investing, these individuals address their financial issues by borrowing more money. These are the people who believe that refinancing their home will help them pay off their credit card debt. They convert their high interest short-term debt to low interest long-term debt. They think this makes sense because they believe the government will give them a tax break if they have debt on their home. This is how a borrower addresses their financial troubles. These people also utilize credit cards and spread their debt.

Nowadays, consumers transfer their credit card debt from one firm to another.

These individuals are the obsessive shoppers. They always have debt. They do not know how to stop. Borrowers are the ones who appear rich. They have the biggest house, gorgeous Mercedes, SUVs, and go on lavish holidays. They appear to be in fine shape, but a closer glance at their financial statements reveals financial disease.

Our suggestion: To avoid becoming a Level Two investor, first quit wasting hard-earned money on frivolous purchases. We must understand that anything that takes money out of our pocket is bad debt or a liability. With this investing thinking and conduct, we will never achieve our financial goals. We must take control of cash flow and put ti to work.

Level 3: The Saver

Level Three is the person I refer to as the saver. These people save a tiny bit of money every month rather than investing it. They believe that by placing their money in a 401k, they are investing it, however a 401k is primarily a savings plan. That is why 401ks are so enticing to them. It gives them the impression of investing while feeling safe like saving. But astute investors understand that a 401k is a savings plan. A savvy investor seeks higher profits while maintaining their equity or capital. Savers are those who work hard to save money. We are afraid that majority of people will fall into this group.

Many in this level will go from grocery to supermarket, spending thousands to save pennies. She not only spent money on petrol, but she also lost time attempting to save money.

Many shops appeal to this type of individual by saying, "Come in here, shop like crazy, and save money, because things are on sale." The word "save" has the power to entice people. They are actually wasting money or purchasing unnecessary items, but they rationalize it in their minds because they believe they are saving money. They are saving money on liabilities, or doodads, as I call them, rather than actual assets.

In the investment sector, it's like a grocery store having a half-price sale on toilet paper. Customers rush in to purchase as much as possible. If the stock market experiences a sale, often known as a market collapse, and there are blue chip companies half price or real estate below market value, the ordinary consumer will not rush in to acquire more.

The usual person will run away with their possessions. That is one of the mental and emotional distinctions between the wealthy and the impoverished. When the market is high, professional investors use the "stand aside mode" strategy. We aren't in the market.

We are waiting for a "sale" in the market to take advantage of bargains offered by sellers. There are spiritual, emotional, and mental differences when it comes to money. Most investors now need to save. Most financial advisers recommend that individuals have at least six months' worth of monthly spending on hand. For example, if your total monthly expenses are $2,000, they advocate saving $12,000, not much more. You should maintain the remainder in the market.

If you don't feel confident in the market, expand it to twelve months or purchase insurance. If you do not have enough savings, insurance is a must-have. In other words, if you are a young couple just starting out and do not have much in savings, life insurance can help because for a few dollars, if you die unexpectedly, the insurance will cover the difference between what you have and what you have not yet accumulated. When I speak with folks about money.

Insurance is an extremely significant paper vehicle. Always be aware that there are insurance options for the poor, wealthy, and middle class. Each performs differently, therefore insurance is a vital asset as well. Understanding the various types of paper assets is a key step in the seven stages of investing.

Our suggestion: Money advice, as mentioned above, can create a negative outlook towards money. For example, finding deals such as coupons, sales, and cheap gift cards takes a significant amount of time and effort. Do you save money? Yes but lose time on the other hand which is more valuable than money. Is your financial intelligence growing? No.

The only knowledge that grows is how to save more money rather than making more money. Identify what our financial goals are, and then seek financial education to help us attain them.

Level 4: The Smart Investor

Level Four is a savvy investor. The smart investor is someone who understands the importance of investing. They fully participate in 401ks and mutual funds. They have a decent financial education. They are frequently middle-class, yet have limited financial knowledge. They are skilled at allocating and budgeting. They stored the money in "safe" areas. They take a long-term view of investment and are quite reliable.

For most people, becoming a Level Four investor would be a lofty goal. Unfortunately, at least 50% of the population falls below that threshold, which concerns me. The smart investor is someone who does not gamble.

They do not speculate. They avoid initial public offerings. They do not buy derivatives, day trade, or engage in other similar activities. They're really solid. The Millionaire Next Door focuses on the level four investor.

Our Suggestion: The Smart Investor should collaborate with or recruit people who are smarter than them. A lack of financial knowledge may be forcing the savvy investor to leave money on the table. When seeking assistance, make sure to chose your consultants carefully.

At the end of the day, knowledge is your most valuable asset. What we don't know is our biggest risk. Rather of avoiding danger, learn to manage it effectively.

Invest in our financial education so that we can eventually become a wealthy investor through innovative investing.

Level 5: The Long-Term Investor.

Level Five is for long-term investors. From Level Five forward, we're talking about professional investors. They're what I'd consider insiders. When someone inquires, "How do you become an inside investor?" we suggest, "Start with real estate” or acquire or build a business that become a brand such as a “digital business.” The reason for this is that if they buy stock in IBM or Microsoft, they will never become insiders. They are so far removed from the decision-making processes of IBM and Microsoft. However, purchasing real estate and businesses requires financial literacy. We must grasp financial statements, pro formas, and due diligence reports, and our level of sophistication increases. They actively invest. They made their own deals.

A Level Five investor is becoming increasingly sophisticated.

They're making their own arrangements. They bargain, so when people ask, "Well, how do you find these good deals?" a large part of the answer is being able to read a financial statement and negotiate the buy/sell price. A Level 5 investor is someone who is relatively sophisticated and invests on their own.

We learned to prioritize safety, security, and comfort as a Level Four before venturing into real estate. The wealthy mindset then referred levels 4-5 to what is known as a business broker. At that moment, we would approach someone selling their business. we were not going in there to buy anything because we didn't have enough money.

We were going in there to investigate the transaction. We are reading financial reports, assessing companies, and looking for what we call "the twist." In other words, is there something the owner of this company doesn't perceive that we can take advantage of and profit from? This demands financial knowledge. We must be able to read financial statements.

Level Five investors are those who desire to close their own deals and start their own enterprises. In other words, they strike deals for themselves. It's a higher level of sophistication. An insider rather than an outsider, which is the case for the majority of Level 4 and lower employees.

To become a Level Five, we must master a critical talent known as "negotiation," but the wealthy mindset referred to it as "knowing how to sell." Selling is the ability to persuade someone to alter their decision in a peaceful, courteous manner, because every seller wants the greatest price and every buyer wants the lowest price. We must eventually come to a point of discussion. That is why the ability to negotiate points, throw red herrings, and persuade others to change their minds is a valuable skill.

Even if our first businesses we purchased was a small laundromat. Let’s say that it does not pay well, but we learnt a lot by negotiating the sale, researching the company, determining what price to pay, what we could sell it for, and what terms we could get.

Our profit comes from buying, not selling." This is a crucial lesson for those who purchase real estate with the intention of selling it once it increases in value. That is gamble or speculation. That is a really unsophisticated method to invest.

Level 6: The Sophisticated Investor

We're now on Level Six. Level Six refers to sophisticated investors. A competent investor can afford to pursue riskier investment techniques. They can accomplish this because they have strong cash flow management skills. A knowledgeable investor doesn't diversify. He or she is really concentrated. A sophisticated investor understands tax, corporate, and business rules. Many people are unaware that the majority of their income is generated through what the layperson refers to as a "loophole."

The sophisticated investor understands how real money is made. They can read financial statements and have an excellent staff of accountants and attorneys.

They understand how to structure the transaction such that they maximize their profits. The average investor frequently claims, "He or she is going to buy a stock at $50, and it's going to go up to $100, so he or she will make $50." A knowledgeable investor isn't concerned about capital gains. They are interested with cash flow and how much of that money can be transferred from the investment into his or her pocket with as little taxation as feasible. These are some of the things a savvy investor understands that other investors do not.

This type of investor also recognizes the market's unpredictability. In other words, if stock prices rise, they are pleased.

They are also pleased when stock and real estate values fall. For example, if a stock is trading at $100 and they are scared it will fall to $50, they may short it. This is what drives most typical investors nuts. An average investor will ask, "What do you mean, short a stock?" A short sale is when you sell shares you do not own.

Here we are, with no money in the market. XYZ stock is priced at $100. We go to our broker and ask, "Would you mind shorting that stock for me?" This means they take someone else's stock and sell a thousand shares for $100.

We now have $100,000 in our account and owe the broker 1,000 shares. If the stock price drops to $50, we purchase back those shares with $100,000 and return the thousand shares to the broker for $50,000. We retain the difference. We are literally making money from nothing. When people remark, "It takes money to make money." We respond, "Well, that's because they poor mindset does not know how to play the game."

Now have shorted a stock, and it's gone up. That was one of the most difficult days of our lives since we had to buy it back with money we didn't even have.

We assure all, that learning experience was invaluable since it truly woke us up and inspired us to learn more.

To summarize a savvy investor, they have excellent personal cash flow management and fundamental skills. They also understand how to deal with market volatility by employing shorts, calls, straddles, put options, and other strategies. The main distinction is that they will not diversify. Diversification is an average investment approach.

To get wealthy, we must be wiser than the ordinary investor. It's a game of winners and losers out there, and being second best means you're the loser. That's why we need to recognize whether we are playing the game to get wealthy or investing to become secure and comfortable. Diversification is acceptable as long as it is safe and pleasant. In fact, it is recommended that we diversify.

However, in order to get wealthy, you must be intelligent, focused, and have a very narrow perspective on the marketplace.

We know people who represents the 10% in fifteen city blocks. In other words, he discovered fifteen city blocks and owns 90% of the real estate within that region. That is why diversification among the five asset closest is essential. Diversifying only in one asset class is risky. But if we want to be wealthy, we must focus and diversify among the five asset lasses one the execs of cash flow begins to pour in from our businesses. Starbucks, for example, focuses on a single cup of coffee and is the greatest in the world. McDonald's is the best in terms of average hamburger quality. That is why, to be wealthy, we must be in the top 10%, which requires focus.

That is how we take 90 percent of the money. This is one of the financial principles.

Regardless of our industry, we can currently discover a place as a businessman or businesswoman. For example: “We have a specialty in some of the tiniest oil firms, mining companies, and real estate companies, and we are growing them.” That's our specialty. We take a little niche and make it big. That is the reason why we say, "We dream big, start small, think big, take daily steps, have good fundamentals, and make it grow in to a huge asset."

Our Suggestion: When it comes to wealth, there is the 90/10 rule.

That guideline states that we must be in the 10% to make 90% of the money. The 90/10 rule applies virtually universally. 10% of golfers earn 90% of the money. Ten percent of movie actors earn 90 percent of the money. Ten percent of network marketers get ninety percent of the money. Ten percent of investors make ninety percent of the money. If we want to play the game, we must focus. To win the game, you must place in the top 10% to earn 90% of the money, which is why we advise, "Dream big, but start small."

Level 7: The Capitalist

The seventh and last level of investors is known as the capitalist, and this is our favorite. The wealthy mindset encouraged me to pursue a career as a capitalist. What is the distinction between a capitalist and everyone else? Simply said, a capitalist excels at what he or she does to the point where people pay them to do it. In other words, Warren Buffet is such an excellent investor that people will willingly give him their money to invest. That is why we cringe when people say it takes money to make money. This has not been my experience.

When someone has a hot hand, they do not need money. People would throw money at them to make deals with them.

The ultimate goal of financial literacy is to be able to avoid using your own money. In fact, all you have to do is create and think, and people will pay you to accomplish stuff. For example, when we announce that we are starting another business, people practically come up to give us money since we have a track record. This doesn't imply we always make money. The same applies when we write a book. Many people have asked, "What is the secret to becoming a great author?"

We tell them, "I am a capitalist." We don't consider ourselves an author just because we own a company that produces financial education and write books. We consider writing a book as a business entrepreneur.

Why would I create a book if I didn't believe I could make money from it? Again, the truth is that 10% of authors earn 90% of the money. The reason is an attitude. It distinguishes between being an author (i.e., an employee) and a business owner. A capitalist is so competent at what he or she does that they can use other people's time and money. They can either hire or have individuals volunteer to work for them.

Capitalists have one primary skill: the capacity to take money and make more money from it.

If WE know how to take money and grow it, we will attract even more money. That is known as good stewardship. The higher our financial intelligence, the easier it is to make and attract more money. Many people now believe that the word "capitalist" is as offensive as the word "communist" to others. However, let me clarify the two systems. A communist system is basically free of capitalism. A capitalist understands business ownership and financial success.

The communist believes that capitalists are bad. So they ban capitalists, and the government constructs all of the houses and regulates all industries. And everyone knows what happened to communism. It's practically failed. Communism was a system aimed to avoid exploiting workers, which was a wonderful idea in theory. The difficulty was that most bureaucrats don't know how to run a company because those uncharge are professionals and not inside investor (master investor aka capitalist).

What Kind of Investor Would We Like to Be?

After seeing the poor mindset person struggle and the wealthy mindset person seek the next investment opportunity, we made up our mind. We are mentally prepared to become an inside investor or known as the capitalist, and we hoped all partners in our community here at masterinvestor to chose this level 7 of investor.

What kind of investor do we want to be?

If we are a true inside investor, it makes no difference whether the markets are rising or falling. A true inside investor does well in every market environment. In other words, our success depends on us rather than the market.

As we can see, everyone fits into one of seven investment tiers. Some levels keep the poor and middle class where they are, while others help people becoming affluent. Our intention is not to argue one level is superior to another. It is up to us to decide where we want to be. Our argument is that our determination to obtain the financial education required to succeed will determine the type of investor we become. We have recently learned about the first two aspects of obtaining our own financial education.

Our intention is not to argue one level is superior to another. It is up to each of us to decide where we want to be. Our argument is that our determination to obtain the financial education required to succeed will determine the type of investor we become.

Know the Six Basic Rules of Investing.

Learning the fundamentals of any subject is essential, regardless of age. People who play golf have most certainly taken a golf lesson to understand the fundamentals. I'm sure Michael Phelps had a swimming lesson before becoming a world champion swimmer. Unfortunately, most people do not learn the fundamentals of investing before investing their hard-earned money.

Rule #1: Determine the type of income we are investing for.

Most people simply think about making money. They do not comprehend that there are several types of money to work for. For years, the masterinvestor has taught us that there are three types of income. There are three types of earned income: ordinary or earned income, capital gains income, and passive income.

"If we want to be wealth, work for passive income."

Rule #2: Convert ordinary income to passive income.

The majority of people begin their lives as employees earning average wages. The path to wealth creation begins with recognizing the many sorts of revenue and then turning your earned income into other types of income as efficiently as feasible.

Rule #3: The investor is either the asset or the liability.

The investor is often more at risk than the investment. As previously stated, a lack of financial education increases the investor's risk of making costly mistakes that they would not have made if they were financially literate.

Rule #4: Be Prepared.

Most people try to foresee what and when events will occur. A true investor is prepared for anything that could happen.

Rule 5: Good bargains attract money.

One of my primary concerns as a new investor was how I would raise funds if I discovered a good deal. Getting money is the simple part. The difficult part was finding a good deal.

Rule #6: Learn how to evaluate risk and reward.

To become a good investor, we must learn to balance risk and return. Investing is not equivalent to gambling. Gambling is the act of foolishly turning over our money to someone else to invest it for us. Good cash flow investments are built on financial education.

Conclusion

We have made a crucial investment simply by taking the time to read this article, whether we agree or disagree. In today's environment, the most important thing we can do is invest in ourselves and our financial education. The investor's success or failure, money or poverty, is entirely determined by his or her intelligence. A master investor (inside investor aka capitalist) will make millions. Uneducated will lose millions.

Once we have decided on the style of investment that interests us, there are numerous options for furthering our education. We can take online classes, participate in local workshops, or attend seminars. Reach out to industry professionals and pick their minds.

We all had to start somewhere and ask for support from mentors. If they are excellent people and have the time, they will be pleased to talk with us about getting started.

The next step in financial education is to take action. We have the freedom to choose our classes, lecturers, mentors, and seminars. Our education will never be completely effective unless we use what we have learnt. Get out there and check out the deals. Make offers. Sign the deal. Only then will our education actually begin.