In today’s show, I want to discuss with you the five levels of investing, a framework that I have created to help you understand where you are on your journey and to help you make sure you reach the top level as a successful investor.

Then I’m going to share some interesting information with you about the tsunami of wealth Baby Boomers are expected to leave their children.

Do you understand the Five Levels of Investing?

If you want to become a successful property investor, you really need to understand the five levels of investing. I’ve created a model to explain the progression most investors take in their path to developing financial freedom.

Level 0 – The Spender

Level 0 are really not investors – they tend to be spenders and borrowers and as a result, end up with a high level of debt.

A large part of our adult population falls into this category and they will never become wealthy unless they do something radically different.

Level 1 – The Saver

Most people who are not spenders will generally be what I call savers.

Their main investment is their home, which they aim to pay off over time.

Sometimes they save a little, squirreling away a few dollars of what’s left over after paying tax but in general, they save to consume, not to invest.

They will get the most leverage by investing in themselves and getting a quality financial education and beginning to build a network of peers whom they can make the journey with.

Level 2 – The Passive Investor

Level 2 investors have become aware of the need to invest.

They realize their superannuation won’t get them through retirement, so they learn about investment and accumulate assets.

While they are generally intelligent people, they are still what I would call financially illiterate – they don’t really understand the rules of money.

They must unlearn the flawed, incorrect, and misguided lessons they have learned about money and wealth from unqualified teachers.

Level 3 –The Active Investor

Level 3 investors realize that they must take responsibility for their financial future and become actively involved in their investment decisions.

They become financially literate by building a knowledge base of investment strategies and techniques.

Level 3 investors usually leverage the time and expertise of a network of industry professionals as they realize that they can’t do it all themselves.

They also upgrade their network of advisors and peers, often joining a Mastermind group of like-minded people.

Level 4 – The Professional Investor

A very small group of investors move to the top rung of the ladder and become a Level 4 “professional” investor who has built and now manages a true investment business.

A Level 4 investors’ property investment business has a substantial asset base that generates sufficient recurring passive income to pay for their lifestyle costs. They keep growing their investment portfolio whether or not they work in a real job.

These professional investors don’t hand control of their investments over to others; they retain control whilst employing a proficient team: accountants, finance brokers, property managers, solicitors, and property strategists who have great systems that achieve repeated and consistent results, which are reliable and predictable.

This gives Level 4 investors the freedom to choose whether they get up in the morning and go to work or not.

Asset Growth first, then income stage

It’s important to understand that the first stage in becoming financially free is to educate yourself; the next stage is that of asset accumulation – your job as a Level 3 investor is to build a sufficiently large asset base to fuel your “cash machine”.

Then, only when you have grown a substantial asset base, do you transition into the cash flow (income) stage of your life as a level 4 investor.

What is your Level of Wealth?

Now it’s time for some home truths. How far up the Wealth Pyramid are you? Where do you currently sit in this hierarchy of investors?

Everyone starts at the bottom – at Level 0 – but not everyone makes it to Level 4. In fact, few do.

But you can once you understand why the rich keep getting richer.

What I want you to understand is that the “active” income you make (the pay packet you work for every day) has nothing to do with what level of investor you are and in fact is one of the worst predictors of wealth.

One great thing about freedom is the freedom to choose to live the life you want to live.

Links and Resources:

Michael Yardney

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Shownotes plus more here: Do you understand the 5 levels of investing?

Some of our favourite quotes from the show:

“Savers tend to be afraid of financial matters. They’re generally unwilling to take risks.” – Michael Yardney

“You’ve got to go through the various stages to become financially independent.” – Michael Yardney

“Continue to work more on yourself than you do on your job so you become more valuable to your employer, which will help you earn more and also help you as an investor.” – Michael Yardney

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