What Are the Different Investor Types?
Introduction | Types of Investors
Types of Investors: Know the Secrets of the Rich! (Rich Dad Poor Dad). According to Rich Dad, being any type of investor gives you different investment opportunities such as initial public offerings of stock (IPOs), private placements, and other corporate securities. Most of the richest people in the world are investors – these people are the 10 percent of the population who control 90 percent of the money.
The rationale of this blog post is to elaborate on the definitions of various types of investors, which investor category you fall under, and which category you might want to aim to be in the long-term. Now let us dive deeper into the different types of investors.
Read these separate blog posts about Rich Dad Poor Dad summary and the concept of cashflow quadrant.
Overview on the Different Types of Investors
- Accredited Investor: Earns a lot of money and/or has a high net worth
- Qualified Investor: Knows fundamental and technical investing
- Sophisticated Investor: Understands investing in the law
- Inside Investor: Creates the investment
- Ultimate Investor: Becomes the selling shareholder
Accredited Investor
- Accredited Investor definition: A long-term investor who has chosen to invest for security and comfort may very well qualify as an accredited investor. In America, less than 3% of the population meet the qualifications of an accredited investor.
- These are the accredited investor requirements according to SEC:
- $200,000 or more annual income for an individual
- $300,000 or more for a couple, or
- $1 million net worth
- If you are a qualified accredited investor, you will have access to investments that the majority do not. However, financial education is still key in order to be successful in choosing your investments. If you do not have time to invest in your financial education, you should ask competent financial advisors to assist you with your investment decisions. In this case, they can also handle your money for you.
Qualified Investor
- This type of investor understands how to analyze publicly traded stock. This investor would be considered an “outside” investor as opposed to an “inside” investor.
- A qualified investor has money and knowledge on fundamental and technical investing.
- Fundamental Investing: Looking at a company’s value and growth through financial statements. The future earnings potential of the company should be highly considered.
- Technical Investing: This means investing your money based on market trends/patterns – in short, emotions of the market. Supply and demand is key in technical investing.
- Generally, stock traders and analysts fall under this category.
Sophisticated Investor
- Being a sophisticated investor means you understand the world of investing – you utilize the tax, corporate, and securities law to maximize your earnings and to protect the underlying capital.
- In short, this investor typically has all of Rich Dad’s three E’s – Education, Experience, and Excess Cash.
Inside Investor
- The ultimate goal of this investor is to build a successful business. They typically fall under the B quadrant of the Cashflow quadrant mentioned below, and they know how to create and build assets.
- Here’s a quote from Rich Dad Poor Dad: “The rich invent money. After you learn to make your first million, the next ten will be easy.” –Rich Dad
Ultimate Investor
- The goal of the ultimate investor is to become the selling shareholder. This investor owns a successful business in which he sells ownership interest to the public through IPOs.
Now that you understand the different types of investors and the strategic ways they make their fortunes, take a minute to ask yourself these questions:
- Do you fall under any of these investor categories?
- If yes, what type of investor are you?
- Which investor category do you want to be in the long run?
By reading this blog post, you basically now know the operating philosophies of some the wealthiest people in the world, and why they are part of the 10 percent of the population who control 90 percent of the money!
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