What Type of Investor Are You?

I was disappointed (and oftentimes wondering) why other people were not interested in investing in businesses or projects. Investments that I had made money from, and also investments that I had not made money from (yet). I understood if it was because of the latter reason, because ... who am I, after all? But the former?

I was enlightened after reading Robert Kiyosaki's Cashflow Quadrant. It appears that there are many kinds of investors in this world. Interesting. Can you identify which kind you are (see below)?

The first kind can be categorised as the "Nothing" investor. De nada. No money to invest. All your income is spent. For some, even the ones who 'look rich', they spend more than their income!

One of my friends told me that he had a neighbour (a senior government servant) who always borrowed $50 cash from him at the end of the month. He always ran out of cash to give his school going kids their school allowance, before the montly salary is received!

Another senior government officer bought a $60,000 car by taking a bank loan (with a higher interest rate of 6%) instead of the government loan (at 4% reducing balance rate) because the government loan was only $45,000 and he had no savings to pay the difference.

It seems that 50% of adults are in this "Nothing" category. It doesn't include you, of course.

The second category is the "Borrower". As the name indicates, you are in this category if you borrow your way through life. You borrow money from your credit card for your marriage expenses (yes, a true story!). Two babies later, your credit card loan still has not been paid.

Your favourite exercise? Shopping! Girls are usually in this category. They just can't help it when the shoes, handbags, watches etc are at 70% discount. Sometimes even without discounts (I mean, the shoes and the handbags need to be colour-coordinated, right?)

I remember a friend. He had just successfully obtained a $2 million loan from the bank for a new business. With the money from the bank, he immediately (but not wisely?) bought a Mercedes for himself, and a Honda for his wife. One year down the road, the business was not going on as planned (especially the financials). Now you understand how some 'rich' people lose their Mercs overnight? One day the Mercs is in the car porch, the next day it's missing.

Another friend bought a $360,000 condo one day. From a bank loan. Two years down the road, there was a 'professional accident'. His company closed down. He lost his job. Anyone would like a condo for sale?

The problem if you are a borrower, is not the amount of money that you have as an income. It's just that you have poor money habits. Poor habits lead to poor actions, which lead to poor results.

The third category is the "Saver". You are a saver if you save a little money every month, and keep it in a savings, or Fixed deposit (FD), or Certificate of Deposit(CD), account.

Many save not to invest. But to consume (a vacation, a TV, a $15,000 bicycle). They like cash, not credit or debt.

The only problem with saving money this way is that it gives only very low returns. Frequently, it is a negative return (after inflation and tax).

You should of course have savings like the above. Some financial experts recommend that you should have about two years of your salary as savings. So that you can maintain your present standard of living for two years, if you have no income (because of retrenchment). Or you can survive for four years at 50% of your normal standard of living.

But anything above the amount needed for an emergency situation, should be better invested at 10-15% in other safe investments. You need to study, and look out for, such investments.

The fourth category is the "Apathetic". I was in this category. I thought that "I was busy".

So I turned over my retirement fund money to a 'mutual fund' lady "to manage". For the first 3 years it was losing money (the selling price was lower than my buying price). After the fourth year, I sold out when the price was at the price that I bought. I lost the dividend amount (5% annually for 4 years), if I had just kept it in the retirement fund.

The fifth category is the "Cynic". Or the Smart Aleck. You are in this category if you know all the reasons why an investment will not succeed. It appears that cynicism is the result of fear combined with ignorance, which leads to arrogance. Wowww! What an enlightening revelation!

Cynics are therefore best avoided. They infect people with fear, disguised as intelligence. Robert Kiyosaki wrote, "The worlds of academia, government, religion and media are filled with these people".

No wonder almost all of my office colleagues are in this category. I guess if you are an employee, you will be in this category.

Unless you have the entrepreneurial streak. Such as being involved in the network marketing industry (recommended by Robert Kiyosaki, Donald Trump, and T Harv Eker).

Cynics often buy high and sell low. And then blame the market for 'swindling' them.

The sixth category is the "Gambler". The gambler thinks that life is all about 'luck'.

You know a gambler when he asks you, "Got any tips on which stock to buy?". Just as a horse racing gambler will ask you which horse to bet on.

The seventh category is the "Long-Term Investor". You are in this category if you learn, often through training seminars, before investing. You know about the power of compound interest.

You are actively pursuing your financial goals. With the appropriate planning. You know your expenses. Your debts and liabilities. How much to invest per month. You are not 'flashy'.

My friend's husband drives a 10 year-old Volvo. Stayed in the same double storey terrace house for the last 30 years. But all their four children were sent to overseas universities. $30,000-50,000 per year per kid. He is, of course, a millionaire (through property development).

The eight category is the "Sophisticated Investor". You are here, if you create your own deals. With at least 25% return-on-investment (ROI).

You are financially savvy. You know how to manage risk. You are focused. Once you have one investment 'running on automatic', then only you diversify.

Bad times do not deter you. You can see opportunities, whether in good markets or bad.

The property market in the United States is extremely bad. Prices are going down every month. House foreclosures are increasing monthly. You see the opportunity to invest. To make 19-26% returns. To be a 'banker'. You can consider yourself a sophisticated investor if you can arrange the deals, and organise the investments.

The ninth category is the "Capitalist". You organise other people's money, talents and time. You get paid for results. For creating a new company. A new organisation. Returns of at least 100% is expected.

A guy in his mid-thirties forms a new company. To market an existing product. From an existing multinational.

He will create millionaires in the process. He will also become a millionaire in the process. He used an idea to become a millionaire. The idea of how to create (and capture) a bigger market for an existing company.

A person bought a rubber plantation (not using his money, but the bank's) and turned it into an exclusive housing enclave. He now has his own plane. He is a capitalist.

Olden day capitalists include Henry Ford. Present day capitalists include Richard Branson.

The moral of the story? What type of investor you are, will determine where you will be. Decide what you want to be, and take the necessary action (or inaction).

It also means that, if you are looking for an investor for your project, do not be easily disappointed. Not many people out there are true investors (category 7, 8 and 9). Be thankful when you find them.

I wish you Success in your undertakings, and Good Health and Wealth to you and your family. Take care!