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Rich Dads Categories of Investors
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This book is an educational story about rich dad guiding me from having no money and no job when I left the Marines to well down my path to becoming the ultimate investor—a person who becomes a selling shareholder rather than a buying shareholder , a person who is on the inside of the investment rather than on the outside. Other investment vehicles in which the rich invest that the poor and middle class do not include initial public offerings of stock (IPOs ), private

placements, and other corporate securities. Whether you are on the inside of an investment or on the outside, it is important to understand the basics of the securities regulations.

By reading Rich Dad Poor Dad, you have learned about financial literacy, which is imperative for a successful investor. From reading CASHFLOW Quadrant, you have learned about the four different quadrants and the ways people make money as well as how the different tax laws affect the different quadrants. By just reading the first two books and possibly playing our educational board game CASHFLOW, you already know more about the fundamentals of investing than many people who actively invest.

Once you understand the fundamentals of investing, you can better understand rich dad's categories of investors and the ten investor controls he said were important to all investors:

The Ten Investor Controls

1. The control over yourself

2. The control over income/expense asset/liability ratios

4. The control over taxes

5. The control over when you buy and when you sell

6. The control over brokerage transactions

7. The control over the ETC (entity, timing, and characteristics)

8. The control over the terms and conditions of the agreements

9. The control over access to information

10. The control over giving it back, philanthropy, redistribution of wealth

Rich dad often said, “Investing is not risky, not being in control is risky. ” Many people find investing risky because they are not in control of one or more of these ten investor controls. This book will not go into all of these controls. As you read this book, however, you may gain some insights on how you can gain greater control as an investor—especially control number 7, the control over entity,

timing, and characteristics. This is where many investors lack control, need more control, or simply lack any basic understanding about investing. The first phase of this book was dedicated to rich dad's most important investor control—CONTROL OVER YOURSELF. If you are not mentally prepared and committed to becoming a successful investor, you should turn your money over to a professional financial advisor or team trained to help you choose your investments.

I Was More Than Ready

At this point in my financial education, rich dad knew I had made the choice:

I was mentally prepared to become an investor.

I wanted to become a very successful investor.

I knew I was mentally prepared and that I wanted to be rich. However, rich dad now asked me, “What kind of investor do you want to become?” “A rich investor ” was my answer. This is when rich dad brought out his yellow pad again and wrote down the following categories of investors:

1. The accredited investor

2. The qualified investor

3. The sophisticated investor

4. The inside investor

“What is the difference?” I asked.

Rich dad added a description to each type of investor:

1. The accredited investor earns a lot of money and/or has a high net worth.

2. The qualified investor knows fundamental and technical investing.

3. The sophisticated investor understands investing and the law.

4. The inside investor creates the investment.

5. The ultimate investor becomes the selling shareholder.

When I read the definition of the accredited investor , I felt pretty hopeless. I had no money and no job.

Rich dad saw my reaction, took the yellow pad back, and circled inside investor.

Start As an Insider

“This is where you'll start, Robert, ” rich dad said as he pointed to inside investor.

“Even if you have very little money and very little experience, it is possible to start at the inside level of investing,” rich dad continued. “You need to start small and keep learning. It does not take money to make money.”

At this point, he listed his three Es on the tablet:

1. Education

2. Experience

3. Excessive cash

“Once you have all three Es, you will have become a successful investor ,” rich dad said. “You've done well with your financial education, but now you need the experience. When you have the right experience combined with good financial literacy, the excessive cash will come.”

“But you have inside investor listed fourth. How can I start as an inside investor?” I said, still confused.

Rich dad wanted me to start as an insider because he wanted me to be a person who created assets that eventually bought other assets.

“I am going to teach you the fundamentals of building a successful business, ” rich dad continued. “If you can learn to build a successful B quadrant business, your business will generate excessive cash. Then you can use the skills you learned becoming a successful B to analyze investments as an I.”

“It is like coming in through the back door, isn't it?” I asked.

“Well, I would rather say it is the opportunity of a lifetime! ” rich dad replied. “Once you learn to make your first million, the next ten are easy!” “OK, so how do I get started?” I asked impatiently.

“First let me tell you about the different categories of investors,” rich dad answered, “so you can understand what I'm saying.”

Overview—You Get to Choose

In this phase of Rich Dad's Guide to Investing, I share rich dad's descriptions of each one of his categories of investors. The following mini-chapters explain the distinctions (the advantages and disadvantages) of each category because the path I chose may not be the right path for you.

The Accredited Investor

The accredited investor is someone with high income or high net worth. I knew I could not qualify as an accredited investor.

A long-term investor who has chosen to invest for security and comfort may very well qualify as an accredited investor. There are many Es and Ss who are very content with their financial position. They recognized early on the need to provide for their financial future through the I quadrant and adopted a plan for investing with their income earned as Es and Ss. Their financial plans, whether to be secure or comfortable, have been met.

In CASHFLOW Quadrant, we discussed this “two-legged” approach to

building financial security. I applaud these individuals for their foresight and discipline in developing a financial plan and providing for their financial future. For them, the path I took will sound like either an impossible mission or a lot of hard work.

There are also many highly paid Es and Ss who qualify as accredited investors based on their income alone.

If you can qualify as an accredited investor, you will have access to investments that most people do not. To be successful in choosing your investments, however , you still need financial education. If you choose not to invest your time in your financial education, you should turn your money over to competent financial advisors who can assist you with your investment decisions.

Aa a statistic of interest, in America today there are reportedly just 6 million people who meet the qualifications of an Accredited Investor. In a country of approximately 250 million people, and if this number is true, then there are only

2.4% of the population that meet this minimum requirement. If this statistic is true, then there are even fewer people who will meet the following levels of investors. This means there are many unqualified investors investing in high risk speculative investments they should not be investing in.

Again, the SEC definition of an Accredited Investor today is:

1. $200,000 or more annual income for an individual

2. $300,000 or more for a couple, or

3. 1 million dollars net worth.

Realizing that there are only 6 million people who qualify as Accredited Investors indicates to me that working hard for money is a very difficult way to qualify to invest in the investments of the rich. As I sit and ponder the idea of needing a $200,000 minimum income, I realize that my dad, the person I call my poor dad, would never have come close to qualifying, no matter how hard he worked and how many pay raises his government job provided.

If you have played CASHFLOW 101, you may note that the Fast Track of the game is the track that represents where the Accredited Investor meets the minimum requirements as an investor. In other words, technically, less than 2.4% of the U .S. population meets the requirements to invest in the investments found on the game's Fast Track. That means 97% of the population invests in the Rat Race.

The Qualified Investor

The qualified investor understands how to analyze publicly traded stock. This investor would be considered an “outside” investor as opposed to an “inside” investor. Generally, qualified investors include stock traders and analysts.

The Sophisticated Investor

The sophisticated investor typically has all three of rich dad's “three Es.” In addition, the sophisticated investor understands the world of investing. He or she utilizes the tax, corporate, and securities laws to maximize both earnings and to protect the underlying capital.

If you want to become a successful investor but do not wish to build your own business to do so, your goal should be to become a sophisticated investor . From the sophisticated investor on, these investors know that there are two sides of the coin. They know that on one side of the coin, the world is a world of black and white and they also know that the other side of the coin is a world of different shades of gray. It is a world where you definitely do not want to do things on your own. On the black and white side of the coin, some investors can invest on their own. On the gray side of the coin, an investor must enter with their team.

The Inside Investor

To build a successful business is the goal of the inside investor . The business may be a single piece of rental real estate or a multi-million-dollar retail company. A successful B knows how to create and build assets. Rich dad would say, “The rich invent money. After you learn to make your first million, the next ten will be easy.”

A successful B will also learn the skills needed to analyze companies for investment from the outside. Therefore, a successful inside investor can learn to become a successful sophisticated investor.

The Ultimate Investor

To become the selling shareholder is the goal of the ultimate investor. The ultimate investor owns a successful business in which he or she sells ownership interest to the public; hence, he or she is a selling shareholder . This is my goal. Although I have not achieved it yet, I continue to educate myself and learn from my experiences, and I have committed to doing so until I can become a selling shareholder.

Which Investor Are You?

The next few chapters will go into each type of investor in greater detail. After you have studied each type of investor , you may be better prepared to choose your own goal for investing.

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