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Diversification is for Amateurs

This article was written by in Investing. 9 comments.


Kiyosaki’s rich dad told him not to diversify — rather, seek out “the best” investments. The author attempts to use anecdotal evidence (“I knew a guy who… therefore everyone…”) to villify the financial planning industry.

Suddenly, people without much financial education became “professional financial advisors.” School teachers, used car salesmen, housewives, and insurance agents found new careers as financial advisors selling investments to people just like themselves… When one retired pilot was asked what he was going to do now that his pension had been cut from $11,000 a month to $2,300 a month, the 62-year-old pilot said, “I’m going to become a financial planner.”

The 62-year old pilot could have become a participant in any number of professions. I hope that when Kiyosaki is 62, he doesn’t plan on learning any new skills as it would go against his view of human cognitive ability. Moreover, the sentiment that teachers and housewives, etc. are less intelligent breeds is quite offensive. Anyone can learn to become a financial planner. Cedrtainly it takes time and effort to become moderately adept, but it’s not rocket science.

Kiyosaki’s not in the real estate investing business, he’s in the authorship and seminar business.

Regardless of his attitude, I could agree to a degree with some of his statements about diversification. Kiyosaki’s reasons for justifying diversification: First, it’s a good plan for passive investors — those who don’t want to or can’t put in the effort to researching good investments. Second, if one cannot focus on research, diversification helps manage risk.

Updated February 7, 2012 and originally published November 30, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 9 comments }

avatar klauss

I found this to be one of the worst articles by one of the new Yahoo columnists. I find it true that you can create more welth by not diversifying, but you can lose more wealth too. I like how he puts himself and Buffet in the same category for choosing wize investments to concentrate on, while implying that stocks and bonds are somehow not as good. His books are so blatent common sense, it is hard how someone can get more out of them by actually opening the book than by reading the summary on the back. Save, don’t spend, don’t overpay taxes to the man.

avatar Dave

I also posted a criticism of Kiyosaki’s article that you might be interested in. Looks like he’s not making any friends. Great site by the way, got it on my blog roll.

avatar Alex Givant

There is a thing called “Survival Bias” – we know about successfull businessmen and decide what they did is right for everybody. It was right for them, on each case of success there are 100 cases of failure that we’re not aware of.

avatar Loi Tran

I’ve also read that article and thought Kiyosaki had given bad advice. The title to the article is really bad. He should have called it focusing on your investment efforts. He did not talk about the risks of not diversifying. Even though you pick investments that you think are the “best investments”, when you are wrong, let’s not hope you have all your money in that investment. People make mistakes, no matter how smart they are. It’s minimizing the mistakes that is important. Overdiversifying is also bad. Diversifying works up to a point, then there’s diminishing returns on each investment until there is no extra benefit on each additional investment.

avatar thc

I have to take issue with your comment that anyone can learn to become a financial planner. I would urge you to look into what it takes to become a CFP. It’s not rocket science but some of it’s pretty darn close.

avatar Luke Landes ♦127,380 (Platinum)

I’ve looked into it… in the last few years it was something I was considering for a career change. It’s a lot of studying for certification exams, sure, and one gets better with experience, but it’s a profession that’s within the means of any dedicated, intelligent person. (I admit, not “anyone,” as I said before, would meet those qualifications.) But I suggest you take a look at rocket science. :>

I’m not intending to take anything away from anyone who has worked hard at becoming great at what they do.

Kiyosaki’s assertion that 62-year-old retirees, teachers, and housewives shouldn’t get into financial planning if they desire to do so is ludicrous, irresponsible, and unacceptable. While one might stereotype by saying old geezers start to lose their cognitive ability by a certain age, you can’t make a blanket statement about who is qualified to learn a profession and who is not.

avatar Brian

I think Loi Tran has hit the nail on the head…it is a shame that Kiyosaki did not address the positives of diversification and the dangers that can come without it.

Kiyosaki is and has always been sensationalistic. Though I find his writing entertaining, I am always concerned with the fact that many might be adversely affected by his teachings.

avatar Kiyosaki skeptic

I’m a bit skeptical of Kiyosaki’s advice, since apparently his “rich dad” is a figment of his imagination. Granted, it’s a great hook for selling books, but it doesn’t make me confident in his ability to do anything other than sell lots of books.

As far as diversification goes, it is good for passive investors, especially those who don’t really know what they’re doing yet (like myself). However, if you do know what you’re doing, by all means don’t diversify.

avatar Loi Tran

I read this website about Kiyosaki a couple of days ago. http://www.johntreed.com/Kiyosaki.html
John T. Reed did a thorough analysis of Kiyosaki and his book Rich Dad Poor Dad. It’s a good read, check it out.

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