Last week we looked at several investor personalities which Robert Kiyosaki describes in his best-selling investing book, CASHFLOW Quadrant. While examining the attitudes and actions of different types of investors, he explains that most of them will only achieve minimal success because they lack the financial intelligence required to become wealthy.
Kiyosaki outlines three investor types that will become successful with money. The first is the long-term investor that is actively involved in making investment decisions. He explains that these persons invest in their own financial education before they buy an investment, so that they can fully understand how to make appropriate choices with their money.
These investors are financially disciplined; they live within their means and minimise their liabilities. Once they have identified their goals, they find out how much they need to invest to attain their objectives and create realistic action plans. They seek advice from competent financial advisors, are usually conservative, and avoid complex investing options.
Sophisticated investors actively look out for more aggressive investments, because they are financially secure and confident about their investing abilities. Kiyosaki points out that these persons have a long track record of investing success, and have learnt priceless lessons from past mistakes.
With a solid financial base, they have the income and time to afford to take on more speculative ventures. They utilise a professional team of expert advisors who can help them to make the right decisions and even create their own investment deals. Savvy investors update themselves daily about the markets and actively manage their investments.
The final designation, which Kiyosaki calls the capitalists, is only attained by a small percentage of investors. These persons are usually successful in both business and investing, and know how to make money by “orchestrating other people’s money, other people’s talents and other people’s time.”
Kiyosaki notes that true capitalists invest not only for themselves, but create investments and sell them to the market. He affirms that they provide jobs and products that can make other persons wealthy and countries prosperous. These investors are often excellent stewards of money and give generously to worthy causes.
What do successful investors know?
Successful investors understand how to assess an opportunity to determine if it will be a good investment. “It’s not what your eyes see,” Kiyosaki explains, “but it’s what you cannot see that is important.” Instead of only focusing on the visible attributes of a piece of real estate or a stock, astute investors examine cash flow, risk factors, the market, and other key considerations.
Average investors look at surface details about an investment such as the name of a stock or the location of a property. They also make decisions based on what their broker recommends or after hearing a ‘hot tip’ from a friend. Kiyosaki believes that nine out of ten investors merely break even because they invest with their eyes and emotions instead of with their minds.
Kiyosaki insists that to become a wealthy investor, you have to train your mind to ‘see’ how to create money. This requires learning how to be financially literate, so that you can understand both the language and numbers of investing. It is also important to learn how to properly assess investing risk. “Investing is not risky,” he maintains. “Being uneducated is risky.”
While it’s important to accept financial advice, Kiyosaki admits, you have to know the difference between facts and opinions. Smart investors use their financial intelligence to differentiate between good and bad advice. When you are highly educated about investing, you can also receive more sophisticated guidance from competent advisors.
Learning about investing
How do you get the training required to become financially intelligent? Unfortunately, investor education is not readily available in our school system, so you have to make an effort to find sources of quality information. Attending public seminars, buying books and CDs, and tuning in to television and radio shows that cover investing topics can give you useful advice.
You can get more detailed instruction from websites such as www.investopedia.com which provides comprehensive investing tutorials. Games can also help you to learn technical aspects of financial management. Kiyosaki’s Rich Dad Company produced the CASHFLOW 101 educational board game to teach finance and investing in an entertaining way.
However, while you can amass knowledge from outside sources, you can only get to the next level by direct involvement. The best way to really learn how to invest is to commit some of your own money into an investment. As you develop your investing skills, sometimes you may not get the positive result you desire, so it’s important to invest only what you can afford to lose.
Many people never succeed in investing because they are afraid to try something new and fail. However, Kiyosaki counsels that getting a negative result is part of the growth and learning process, as “it’s from our mistakes that we learn the most.” He confirms that investing wisdom develops when you take action, make mistakes and then correct them.
Copyright © 2011 Cherryl Hanson Simpson. No reproduction without written consent.
Originally published in The Daily Observer, July 21, 2011
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Cherryl is a financial consultant and coach, founder of Financially S.M.A.R.T. Services. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl