Identify Your Investor Type: Navigating the Different Types of Investors for Optimal Portfolio Strategy
The 7 different investor types
When I started researching types of investors, I was horrified to realise which category I sat in! (Read on and see if you recognise yourself in the list!)
The truth is I have not thought much about investing. Like many of my colleagues and counterparts, it was never on the radar, never taught in school or by parents or even mentors.
I had no understanding of how investing could get me to my goals faster if I put in a little work and put in a little effort.
Now I know better.
What I wish I’d known | Investing is not all high risk; if investments are chosen with caution, they can yield higher returns than any savings account or even real estate.
If you were an investor, what kind of an investor would you be?
A lot of investing depends on our risk profile.
Everyone has a different comfort level when it comes to risk. No one type of profile is better than another. It is merely useful in determining the types of investment you need to make.
Understand your risk profile | Take the survey now
The best overview I found was The Seven Levels of Investors according to Robert Kiyosaki, Rich Dad, Poor Dad Author.
Though he buckets 3 types in level 3, there is a lot of sense to this breakdown as it follows our life journey in many ways. Here is a synopsis along with my thoughts.
LIFE JOURNEY: EARNING
Level 0: Those with Nothing to Invest
As it implies, these people have no money to invest. This is the majority of people who are starting to work or living paycheque to paycheque.
Nearly two-thirds of consumers (64%) reported living paycheck to paycheck in December 2023, according to a report from LendingClub. This was an increase from 61% a year earlier.
When I was younger, this was the only way to survive. I left home at 16, so I had to pay rent on minimum wage. There were no leftover funds to consider saving or spending, for that matter!
What does this mean? This means we borrow to sustain our lives, bringing us to Level 1…
What I wish I’d known | Investing is not all high risk; if investments are chosen with caution, they can yield higher returns than any savings account or even real estate.
LIFE JOURNEY: SPENDING
Level 1: Borrowers
What kind of borrower are you? Credit cards for purchases you know you don’t need? Or borrowing to invest?
With social media so pervasive, it can be tempting to look rich and not be rich to keep up with so-called influencers.
As you know, owning expensive things does not necessarily mean the person is rich, it might mean they are highly illiquid, spending every cent they have! While some might have assets, it does not mean they are not reliant on active income.
For example, I owned a property in Canada and loved it, but when I crunched the numbers, I realised I was putting approximately 70% of my paycheck into the property! What was I meant to live on?
Then I left Canada and rented it out, and realised that it was not actually covering its costs, and I had to send money to put into the property. I was not an asset any more, it was a stressor. I found myself borrowing to invest in the property. This was not sustainable.
So I sold it, and then I thought about how to save that money…
What I wish I’d known | Investing is not all high risk; if investments are chosen with caution, they can yield higher returns than any savings account or even real estate.
LIFE JOURNEY: SAVING
Level 2: Savers (low risk, low return)
Now general rule of thumb is that we are spenders or savers. Very few are both!
But are those savers maximising their funds? Usually, they put the savings in a savings account or a low-risk investment like a term deposit.
While they don’t like being in debt, which is good, they do not necessarily maximise their investment potential either.
This means they are working hard for their money but their money is not working hard for them.
I was a saver. I thought I’d open a savings account, and as long as I had some funds in there, I was doing okay! But I never would have thought that “savers are losers” – Robert Kiyosaki.
This is not the way to build wealth or ensure financial freedom, so into investing…
What I wish I’d known | Investing is not all high risk; if investments are chosen with caution, they can yield higher returns than any savings account or even real estate.
LIFE JOURNEY: INVESTING
Level 3: “Smart” Investors
And here is where I fit in. Smart but not smart when it comes to investing! Yes, we can be highly intelligent but if we lack investing knowledge then we are not making our money work for us.
There are three types of Smart Investors that Robert speaks about.
Level 3a: “I Can’t Be Bothered” type
Summed up with two works “given up.” Here we don’t understand investing and never will. This is a corporate worker in a nutshell. Working for the money and spending their lives waiting for retirement from that company. This is where baby boomers often fit in.
You can hire someone to know, but you have to be proactive in realising the retirement plan likely won’t keep you in the lifestyle you have become accustomed to!
Level 3b: “Cynic” type
Oh boy, I invested in Bitcoin and I got so much flack from non-believers. My argument was that if Ray Dalio is investing a % in it, it can’t be wrong, a balanced portfolio is the goal. Let’s face it the market has not always been reliable but here I trust in values and a value system that dictates the types of investments that make sense.
When the financial crisis happened, the bank I worked for was not exposed to the subprime mortgages but all banks were going to feel the hit. This bank had employees who believed in leadership, leadership was transparent and honest about what was happening as best they could be, so when the stock crashed, what do you think happened?
The employees saw it as an opportunity to buy shares in the company with full trust that they would turn it around. And they did, within a year. Faith paid off!
Don’t be cynical or afraid to learn and execute your investing strategy.
Level 3c: “Gamblers” type
Opposite of cynics, gamblers don’t make informed choices but literally gamble their earnings. I hate to admit it but I fell into this one, the one time I took a risk on a stock that everyone said could not go wrong, and I lost money, hard-earned money. So I stopped gambling like I was in a casino and decided to take a more informed path!
What I wish I’d known | Investing is not all high risk; if investments are chosen with caution, they can yield higher returns than any savings account or even real estate.
Level 4: Long-term Investors
Okay, we are all told to create a vision board and plan ahead for the life we want and dream of, but is a financial plan a part of that? Even if you are a long-term “conservative” investor and you have a balanced view of investment, you still need a plan!
We are told as women to budget and save but never to make a financial plan that we can execute. Sure, you can hire someone, but that is usually expensive and finding one you trust can also be difficult sometimes.
This is the level of being the most savvy financial investor and it cannot be skipped because it is about the necessary learning that is required to reach the next states.
It’s about learning to make wise decisions, when it comes to debt, saving, living within your means, and increasing assets. The only thing not done at this level is complicated investments.
What I wish I’d known | Investing is not all high risk; if investments are chosen with caution, they can yield higher returns than any savings account or even real estate.
Now the thing that motivated me to search further was the idea that this level is good for you and your family but if you want to give back to the community, nay the world, you have to go one step further….
Level 5: Sophisticated Investors
Now this is where it gets really serious when it comes to investing. I am not quite at this level but am starting to learn about the importance of becoming a sophisticated investor.
This requires knowledge and understanding of the more aggressive investment strategies.
As an entrepreneur, we are advised to have multiple streams of income, active and passive, passive of course being better so we are not selling time for money.
Investing is the same.
Having a diversified portfolio is what I think of. With multiple sources of income, earning more than we spend and investing at a higher rate. It is about being a continuous learner and being cautious but informed about where you invest.
What I wish I’d known | Investing is not all high risk; if investments are chosen with caution, they can yield higher returns than any savings account or even real estate.
I always say that habits are key to a happy life and it turns out they are also the key to money and building wealth. Start with small increments and then build up as you gain confidence. Meditation is much the same. Start with 10 minutes and build up your ability to sit still with yourself.
Level 6: Capitalists (create investments and leverage resources)
This is apparently the highest level on Robert Kiyosaki’s investment definitions. The top of the mountain so to speak. It is the level many people struggle to reach, but to be honest I am not even sure it’s a level I seek to attain.
Primarily it is about making money on other people’s money, time, and talent. Business, investments, selling on the market. Maybe as an entrepreneur, the idea of getting investment for the business is exactly this level, but these are the Warren Buffet or Richard Branson’s of the world. Seems like a lot of pressure and work no?
What I wish I’d known | Investing is not all high risk; if investments are chosen with caution, they can yield higher returns than any savings account or even real estate.
Level 7 or rather every Level: Philanthropists
(From me, my definition of financial freedom!)
Yes, you are right we have already covered the seven levels from Robert Kiyosaki, but I felt that this one needed a level of its own.
Sure some capitalists are also philanthropists but not all of them and not enough. I think we can all give back no matter what level of saving and investing we are at or have attained and that is why this level is here.
So where do you rank?
And more importantly, where do you want to be?
Important Disclaimer: This content is for entertainment and educational purposes only. Nothing in the content materials shall be considered legal, financial, or actuarial advice. Raj Hayer is not liable or responsible for any actions, inaction, or direct or indirect result of your choices and actions.
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