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The following are the three types of investors : #1. Savers
Savers are those people who spend the majority of their life slowly growing their “nest egg” in order to ensure a comfortable retirement. Savers explicitly choose not to focus their time on investing or investment strategy; they either entrust others to dictate their investments (money managers or financial planners) or they simply diversify their investments across a number of different asset classes (they create “a diversified portfolio”).
investing strategy is to hedge each of their investments with other “non- correlated” investments, and ultimately generate a consistent annual return in the range of 3-8% (after adjusting for inflation). Those who entrust their money to professional money managers generally get the same level of diversification, and the same 3-8% returns (minus the management fees).
Savers seek low-risk growth of their capital, and in return, are willing to accept a relatively low rate of return. While there is certainly nothing wrong with striving for consistent returns, what the Saver is doing is really no different than putting their money in a Certificate of Deposit.
Savers rely in a single force to grow their capital: time. Because their rate of return is generally consistent, a Saver’s primary mechanism to achieve wealth is to invest and wait. In fact, Savers often use The Rule of 72 to calculate long-term investment growth and plan their retirement. While passive investing is an almost surefire path to a comfortable retirement, it also generally means 30-50 years of work to get to that point.
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Three types of investors // 2ND. Speculators
Unlike Savers, Speculators choose to take control of their investments, and not rely solely on “time” to get to the point of financial
independence.
Speculators are happy to forgo the relatively low returns of a diversified portfolio in order to try to achieve the much higher returns of
targeted investments. == CONTINUE READING BELOW...
Three types of investors // #2 Continue: Speculators
Instead of just spreading their money across stock funds, bonds, real estate funds, and a variety of other asset categories, Speculators
are always looking for an investing edge. Perhaps they get a hot stock tip and try to cash in on the next Google. Or perhaps they hear
about all the real estate investors who have made a bundle flipping houses, so they go out and buy the first run-down house they see.
Speculators recognize that they can have higher returns than Savers, and are willing to do or try anything to get those returns.
They’re not scared to throw some money in an Options account and try their hand at derivatives trading; or run out and buy a bunch of
inventory from a wholesaler they know and open up an eBay selling account. Speculators are always looking for the next great
investment. == CONTINUE READING BELOW...
Three types of investors // #2 Continue: Speculators..
for them, it’s all about being in the right place at the right time, and taking a chance on getting rich. If today’s investment doesn’t work out,
there will always be another one tomorrow.
While the Speculator recognizes the potential gains from smart investing, he doesn’t always invest smart. He is very much a gambler, and
while sometimes those gambles pay off, often times they don’t.
And just like a gambler, the Active Investor’s biggest rival is the “vigorish,” the commissions and fees he pays to enter and exit all his
investments. While the Speculator may have enough luck and skill to be a successful investor
Three types of investors // #3. The Specialists...
Specialists // The third type of investor is the Specialist. Like the
Speculator, the Specialist realizes that there is a more powerful investing strategy than just
diversifying across a range of asset classes.
But, unlike the Speculator, the Specialist understands that the key to successful investing isn’t
luck, “hot tips”, or “being in the right place at the right time”; it’s education and experience. The
Specialist recognizes that investing is no different than any other competitive endeavor — there
will be winners and there will be losers, and the winners will generally be those who are most
prepared.
The Specialist generally picks a single investing area, and becomes an expert in that area. Some
Specialists deal in paper assets, some deal in real estate, and some start businesses.
Unlike the Speculator who looks for the next “hot” investing area and the next hot market, the
Specialist can make money in his chosen investment area during any market — hot, cold, or in-
between. The Specialist knows his investment area inside and out, and instead of just entering and
exiting investments, the Specialist has a plan.
In fact, having a plan is the key difference between the Specialist and either the Saver or the
Speculator. The plan is the blueprint for achieve investment success, and with it, the Specialist can
achieve huge returns with relatively low risk.
The plan is the blueprint for achieve investment success, and with it, the Specialist can achieve
huge returns with relatively low risk.
Each of the three investing types clearly has its advantages and disadvantages…
Now, Here Are The 3 Types of Income
First, we’re going to try to help you change the way you think about money; before you can achieve wealth, you must truly believe you can.
Second, we’re going to provide you the information you need to understand how the rich got to be that way; knowledge is power.
Third, we are going to provide you the resources to achieve your financial dreams; we won’t have all the answers, but we’ll certainly help you find
them.
Only you can define your personal path to financial success, but we hope we can provide you the tools and knowledge to help you create that
path and start on your journey.
'' Earned Income = '' Portfolio Income = '' Passive Income '''
Earned Income
Earned income is any income that is generated by working. Your salary or money made from hourly employment (regardless of whether that
salary or hourly income came from working for someone else or from your own “consulting”) is considered earned income.
Some activities that generate earned income include:
Working a job = Owning a small business = Consulting = Gambling
Any other activity that pays based on time/effort spent
While earned income is the most common mechanism for making money, its obvious downside is that once you stop working, you stop
making money.
Additionally, because the amount of money that is made through earned income is directly proportional to the time and effort you spend
working, it’s difficult for someone to make more earned income without either learning a new (or more valuable) skill or working longer hours.
Additionally, earned income is taxed at a higher rate than any other type of income.
One huge benefit of earned income over the other income types is that you generally don’t need any startup capital in order to make earned
income, which explains why most people rely on earned income from the start of their working life.
In fact, earned income is a great way to start your investing career, as it allows you to save up cash that will help you generate the other two
types of income…
Portfolio Income
Portfolio income is any income generated by selling an investment at a higher price than you paid for it. Some people refer to portfolio
income as “capital gains,” because that’s how the money is taxed by the federal government.
Some activities that generate portfolio income include:
Trading (buying/selling) Paper Assets — Paper assets refer to things like stocks, bonds, mutual funds, ETFs, CDs, T-bills, currencies or
other types of futures/derivatives. Stock market investing is the most common generator of portfolio income
Buying and Selling Real Estate (specifically the profit from the sale)
Buying and Selling of any other Assets — Antiques or cars, for example, or other types of collectibles that have appreciated in value
There are a number of downsides to portfolio income; for example:
It often takes a good bit of knowledge and experience to learn how to make money trading paper assets. Unless you have inside knowledge
of the companies you’re trading, you must learn to read financial statements or how to analyze market trends if you hope to beat the market
You often have little control over your investments, other than your ability to buy or sell. For example, buying stock in a company still
affords you no day-to-day control over the operation of the company, and therefore little day-to-day control over your investment
Generating portfolio income generally requires you to have money to invest upfront. Even large gains are inconsequential when the
investing amounts are very small
Portfolio income is often taxed at very high rates — equivalent to earned income in many cases
Portfolio income certainly has some advantages over earned income. Once you have the knowledge and experience to generate portfolio
income on a consistent basis, you can continually reap the benefits (compound your return) by reinvesting after each sale. Additionally, any
portfolio assets held long-term are generally taxed at a lower rate.
Passive Income
Passive income is money you get from assets you have purchased or created. For example, if you were to buy a house and rent it out for
more money than it costs you to pay your mortgage and other expenses, the profit you make would be considered passive income.
As another example, if you owned a business that could operate independently of your working for it, any money that you make from the
business would be considered passive income (of course, if the businesses success was limited by the number of hours you worked,
the income you made would be considered “earned income”).
Some activities that generate passive income include: // Rental Income or Note Income from Real Estate
Business Income (assuming it’s not earned based on amount of time/effort spent — that would be Earned Income)
Creating and Selling Intellectual Property — Books, Patents, Internet Content, etc
Affiliate or Multi-Level Marketing
There are some major benefits to passive income over the other two types of income:
Passive income is generally recurring income; once the investment is made, and assuming it is a good investment, the income will
continue to come in month-after-month or year-after-year, with little additional work by you. This means that you can essentially “retire”
and still continue to grow your net worth
Investments that generate passive income usually allow the owners active control over the investment. For example, if you owned an
apartment building or a corporation, you would have say in the day-to-day operations that would ultimately impact the success of your
investment
Passive income investments often allow for the most favorable tax treatment. Corporations can use profits to invest in other passive
investments (real estate, for example), and take tax deductions in the process. And real estate can be “traded” for larger real estate, with
taxes deferred indefinitely
Because it is generally possible to closely approximate the return (or at least the risk) you can expect from passive investments, these
investments can often be funded using borrowed money. For example, a good business plan can attract angel funding or venture capital
money. And real estate can often be acquired with a small down payment (20% or less in some cases) with the majority of the money
borrowed
As you might suspect from the above overview, many people consider passive income the holy grail of investing, and the key to long-
term wealth.
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