Saturday, March 04, 2006

Another "Great" Rich Dad Article

I have had problems in the past with the writing of Robert Kiyosaki (the Rich Dad, Poor Dad guy)...for instance, I previously wrote about my dislike of his article saying that passive investors have no control over their investments. Now I have a problem with his latest article. This one, Why Many Aren't Securing Their Financial Future, sounds like it could be a good article on how people are not saving and investing enough and what they need to do to be financially secure. Nope...not from Robert "I write articles for people that are already rich" Kiyosaki.

The article starts out good in the first paragraph.
Most people know they should invest, just as most people know they should watch their diet and exercise. Nonetheless, millions of people -- I estimate that 80 percent to 85 percent of Americans -- don't invest at all. What I mean by this is that these people aren't active investors.
OK, so far so good. I would tend to agree that most people don't invest as much as they should (80% - 85% seems really high though). Here is where it goes wrong for me.
An active investor is someone who actually lives off their investments as opposed to wages from a job. My investments deliver a stream of cash flow every month, and I, like other professional investors, don't need a job.
So, basically people that are already rich. If you call yourself a professional investor, isn't that your job? I wonder about the demographics of Yahoo! Finance...my guess is that it is more likely to be the 80% of the world that are regular people just trying to save a little extra money for retirement, not the few rich people that are able to live off their investments. Then he continues his assault on the way that the majority of people invest (I wonder what he would say about all the people that are living paycheck to paycheck and not even being passive investors...he probably hates them).

The sad thing is: Many people think they're investors when they're not. Lots of people think their 401(k)s and IRAs, which have stock, bond, or mutual fund holdings, are investments, but I consider them savings plans. People with such retirement plans are what I call passive investors. They're simply "saving" for retirement.

Similarly, if you own your home and live in it, I don't consider it an investment. Without cash inflow monthly (and with money going out each month for mortgage payments, utilities, property taxes, insurance, and maintenance), your house is a liability, not an asset. It might become as asset -- if you rent it out for income each month that exceeds your expenses on it, or when you sell it and realize a capital gain.
Kiyosaki says that an active investor is able to live off their investments as opposed to the wages from their job...my argument would be that at the point where you can live off your investments, it has probably become your job. I believe that you need (at least) some special knowledge/training to be able to spot these cash flow investments, that makes it difficult for most people to take part in. I don't think that it is as easy as he always makes it sound in his articles.

I do agree with him that investing for cash flow is a good strategy if you can do it, but it is nowhere near as accessible to the masses as what he calls passive investments (stocks, bonds, etc.). Most people cannot just go out and start a business or buy some rental properties for the cash flow. I guess I am going to have to go get "Rich Dad, Poor Dad" to try to get a little more of his perspective, to see where he is coming from and what he is suggesting regular people do to invest.
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4 Comments:

Anonymous Phil said...

I feel the same way about him. There was another article where he was basically said that, unless you're doing multi-million dollar limited partnership real estate deals, then you're a bad investor. His entire thing is that if you're not already rich, you're just stupid or lazy. He's just a jerk.

3/04/2006 1:35 PM  
Anonymous bjk said...

I also agree. RDPD was one of the first books I read, and I did like it. Looking back on it, and reading the articles that he spits out, I can see that he can be a little offensive and bullheaded about his "my way is the only way" plan.

btw, I've loaned RDPD to someone for about a year now, so if I can get it back, I'll let you borrow it. Don't make him $19.95 richer.

3/09/2006 9:05 AM  
Anonymous Anonymous said...

You should read this website that questions many of the "facts" in Rich Dad, Poor Dad.

http://www.johntreed.com/Kiyosaki.html

3/16/2006 5:38 PM  
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