Too many people live out their lives without setting financial goals or thinking of ways to get ahead in life. Like the ancient Arabic saying, “He who knows not, and knows not he knows not, is a fool,” they are dangerously unconscious about the importance of creating and carrying out a plan of action to become financially secure and successful.

One of the strategies that can help you to finance your dreams and achieve your objectives is investing. Investing is simply the act of putting your money to work in some type of endeavour with the expectation of making profit. The idea is that you are actively trying to increase the value of your initial investment and/or earn an income from your efforts.

While investing can be a key component in creating wealth, persons who decide to invest may receive vastly different results than they had expected. Although it may be relatively easy to put your money into some type of investment, it is not a given that you will make a profit.

The level of success you obtain will be largely dependent on your investing expertise.

In the CASHFLOW Quadrant, entrepreneur Robert Kiyosaki outlines different types of investor mentalities, and explains how each group’s attitudes towards investing can contribute to their results. Firstly, he describes three personality types that make little use of the power of putting money to work through investing.

Do you recognise yourself in any of these categories?

You have nothing to invest

Ironically, this type of ‘investor’ actually doesn’t invest at all. According to Kiyosaki, persons in this group either spend everything they make, or spend more than they make. It’s not only the poor that are challenged in this way, as many so-called rich people who earn a lot, end up spending all of their money on consumables. Kiyosaki claims that about 50 per cent of adults fall in this category.

You borrow excessively

Persons in this category try to solve their financial problems by borrowing money. They don’t practice proper money management habits, and usually spend impulsively. Even if they own a few assets, the debt attached to their property is too high to maintain. While this type of investor can often look rich, Kiyosaki reveals that because their assets are bought with borrowed money, “they are one professional accident away from financial ruin.”

You prefer the ‘safety’ of savings

Savers are very consistent in putting aside money into low-risk accounts, and value the perceived security of having money in the bank. While is advisable to save up at least six months’ worth of your living expenses, Kiyosaki declares that the rest of your money should be directed into investments. Persons in this category are unwilling to learn about investing as they fear taking on any risk, so they end up sacrificing receiving a worthwhile return on their money.

Kiyosaki asserts that many persons who actually decide to invest their money are not aware of the importance of being properly educated about investing. They lack sophistication as they don’t understand the intricacies of choosing the right investments. He identifies three groups of investors who lack financial intelligence, and explains why they often never fully actualise their goals.

Are you one of these types?

You leave investing decisions to the ‘experts’

This category covers persons who choose to abdicate their investing responsibility, preferring to depend solely on the advice of financial advisors. While getting expert help is important, Kiyosaki explains that these investors believe that they don’t have to capacity to comprehend how investing works. Unfortunately, they may miss out on excellent opportunities to invest, as they usually accept whatever plan their advisor recommends.

You are cynical about investing options

Kiyosaki notes that persons in this group believe they know all the reasons why an investment will not work. While they sound intelligent and speak with authority about investing, he reveals that they are “really cowards under their intellectual exterior.” Deep down they are afraid of investing, and enjoy expressing their negative views with others. They invest when their greed overcomes their fear, and end up making the wrong investing decisions and losing money.

You gamble with investing

While cynics are overly cautious with investing, Kiyosaki explains that these investors make unwise gambles with their investments. They think that their success is determined by luck, and depend on tips and shortcuts instead of doing their due diligence to assess an opportunity. He maintains that these persons lose money about 90 per cent of the time, because they are too lazy to learn how to play a winning game.

These six investor types rarely become wealthy, as they lack the attributes and attitudes of successful investors. Next week we will look at the final three categories outlined by Kiyosaki, and explain what it takes to get to the next level of investing.

Copyright © 2011 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, July 14, 2011

Read another article about Types of Investors:

Investors: The Sceptical, the Gullible and the Greedy

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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