If you’ve been reading my site for the past few years, you probably know that I’m not a huge fan of Robert Kiyosaki. Granted, he’s very successful, and has inspired many people, but I don’t feel his advice is very well-suited for the masses. I’ve talked about him in the past, and back in March of 2007 before the stock market really started to crumble, he said that people shouldn’t invest in the stock market if they want to save for retirement. But today, he wrote something over at Yahoo Finance that I do agree with.
A Little Background
In hindsight, a lot of people would say he was right. He called it… or did he? In that Yahoo article, he was saying the market has been crashing for years even though it was going up, and that things like gold and oil were where you wanted to be. While he may have alluded to the stock market heading down, what about his safe alternatives he was suggesting? Well for one, oil did skyrocket in 2008. But it’s actually lower than the $65 or so a barrel when he wrote that article. Now, it’s hovering around the $40 mark. That’s a 38% loss. Not a much worse than the stock market.Then you have gold. There was a pretty solid gain from 2007 to current levels of around 25%. Of course, just like oil, it’s off from it’s peak in 2008 — down 13%.
Anyone can be right part of the time. If you throw a bunch of asset classes out there and make a few predictions, you’re bound to be correct with some. So, the stock market went down, and he suggested it probably would. Great. But being on the oil bandwagon would have ended up just as bad. And gold was certainly a better place to be, but even that has been extremely volatile in the past few years, so your timing could make or break that investment.
Don’t Forget Real Estate
One of Robert Kiyosaki’s primary teachings is in real estate. That’s where he made his money, and how he suggests others to make money. Now, real estate can be a great investment, and also a way of generating income. There’s no denying that. Just like any other type of asset, you can purchase real estate, and after it increases in value, you can sell it for a profit. In addition, you can buy real esate and rent it out to generate income.
But with the allure of real estate, what’s really happened in the past few years? If you look at some markets, in just two years, property values have dropped upwards of 50%. If you bought a property a few years ago with the intention of selling for a profit, you’re out of luck in most cases. Why doesn’t Kiyosaki talk about how much value has been lost in the real estate market? He’s quick to point out that billions and trillions of dollars that were lost in declines in the stock market, but what about the trillions that have been lost in real estate values?
Why I Still Agree With Him
I’m actually not writing this to point out flaws or try to convince people that he’s wrong. In fact, I’ve agreed with him in the past. He talks about a lack of financial education, and I can’t argue with that. This is something I’ve talked about on numerous occasions, and it isn’t that people are intentionaly making poor decisions with their money, it’s just that most don’t know any better. Most people have to learn by mistakes they make, but unfortunately, these mistakes can be very costly.
So today, when I saw Kiyosaki had a new column titled Paying a High Price for Bad Advice, I had to see what he was up to since I usually think his advice is bad for most people. I was actually a bit surprised and found a number of comments that I completely agreed with. Of course, he starts off by criticizing the financial community, 401(k) plans, and most advice out there. But, I’ve come to expect that from him. But if you get through that, you’ll find this:
So my advice is, be very careful whom you take financial advice from — and that includes me. My guidance, after all, does not work for 80 percent of the people.
My advice is for people who are entrepreneurs or professional investors.
This couldn’t be more true. And I’m really glad he pointed out that his advice isn’t for everyone. In fact, it’s only for a few types of people. While he says his advice is only suitable for about 20% of the population, I’d say that’s being a bit generous. Even so, it’s great that he actually comes out and says this instead of preaching like his way is the best way for anyone. Yes, if you are the right kind of person with the apetite for risk, his methods can be very profitable. But they clearly aren’t for the majority of working Americans.
But it was the final part of the article that really made the most important point:
I am not actually recommending gold, silver, or real estate. Assets do not make you rich. Assets can make you poor if you are not careful. In 1980 gold and silver hit all-time highs, gold hitting $800 an ounce and silver $50 an ounce. So the suckers jumped in and were slaughtered. The same thing happened with real estate in 2004.
If you do not know what you are doing, no asset can make you rich. Ultimately, what makes you rich is your financial intelligence. Your greatest asset is your brain — so take care of it and protect it from bad advice.
This hits the nail on the head. Assets don’t make you rich. You can invest in real estate and find yourself living on the street with ruined credit. You can invest in the wrong stocks and lose everything. You can invest in commodities and find your precious metals virtually worthless. It isn’t what you invest in as much as it’s knowing how and why you’re investing.
People spend so much time trying to predict what the next good investment will be, or proclaim they have the secret to getting rich, but in reality, it’s little more than a crap shoot. Some assets will always have periods where they outperform, and will always have periods of underperformance. Whether it’s gold, silver, oil, real estate or stocks, it’s easy to look back on history and say, “oh, if I would have invested in X, I’d be in much better shape.” History lessons don’t make you rich. Educating yourself, and making the right choices for you and your own money will.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
Timing is everything but the main thing is that you have to be "Financially educated" as he said and know the reason why you are investing in something for that particular time period. For e.g. now is not a good time to invest in shares or stocks but it is a good time to invest in precious metals. Of course knowing when to sell them is also very important. One wants to make the maximum of profits for themselves after all, and not lose out.
Some good points made. He wrote another book called retire young, retire rich. He advocates leverage as a great way to make wealth through property. While he does make some cautionary points the average reader would be left with the impression that the way to retire young and rich is to borrow as much as you can and buy property. This strategy is obviously a disaster in the current environment. He has to take some responsibility for the property bust. Leverage is a dangerous thing in the wrong hands, just ask the guys at Lehman and Bear.
Couldn't agree more Jeremy. I seriously doubt however whether Kiyosaki has ever made a dime in real estate. I strongly believe that he made his money selling books. Anyways, I still found his ideas to try to purchase income producing asssets ( dividend stocks, rental real estate etc) instrumental for my wealth being :-)
Well, this kind of raises a question. Who do you consider to be an authority in the finanace industry? Warren Buffett? The Gardner brothers? Suze oreman? (heeh)
"Looking forward to his 80% disclaimer appearing on the RDPR Amazon’s page or on the back cover of the book itself . . . or not."
hahaha. Yeah, my advice only applies to a few people, but please, everyone buy my books, buy my game, and attend my seminars!
Great post Jeremy. Illiteracy in any field is a killer. Financial literacy is our respective passion here, but education helps more than anything.
Looking forward to his 80% disclaimer appearing on the RDPR Amazon's page or on the back cover of the book itself . . . or not.
As a huge proponent of education, financial or otherwise, I couldn't agree more. I think the biggest takeaway from when I read "Rich Dad, Poor Dad" is that most of that stuff is fairly straightforward stuff...we tend to get bogged down in complexities and if there's anything the financial collapse has shown me, is that there are still a lot of very smart people who don't understand the full picture. Here's to taking care of your brain and to Occam's razor.
Yeah - I only read Kiyosaki's first introductory book "rich dad poor dad", and found it one of those "cherry picker" type writings, where there was some good stuff in there but also a lot of fluff. I do agree with you that he does have a good point about assets not always making one rich - I think his term was, an asset can quickly become liability - or at least that's how I remember it. *especially* when one borrows money to acquire said asset.
Totally with you on that Miranda, I don't think anyone would be against an investing strategy that seeks to preserve an investment portfolio's value by investing in lower risk securities such as fixed-income and money market securities, and often blue-chip or large-cap equities. (AKA conservative investing)
I agree that it is important to do what works in your individual situation -- and to be careful of what advice you follow. I'm all about conservative investing and following sound financial principles. I may never hit the jackpot with the "next big thing", but I'm pretty sure I'll be able to live in comfort, with little worry with regard to when it will all collapse on me.