More Stuff From Kiyosaki
I saw Yahoo Finance posted a new column from Robert Kiyosaki today. With an open mind, I decided to read it, thinking perhaps he has something positive to say. I wasn’t planning on commenting about the article until I read the third and fourth paragraphs. He’s trying so hard to sell his point of view that he’s willing to leave out important details that conflict with his reasoning, hoping readers will overlook the gap in logic.
Here we go! Paragraph 3:
I have been highly critical of the standard financial planning advice — “work hard, save money, get out of debt, invest for the long term, and diversify” — for a long time. Such guidance is often more a financial advisor’s (subway rider’s) sales pitch than a solid investment guide.
I understand Kiyosaki here. Everyone has a sales pitch and is looking out for their own interest, not the customers’. In some cases, one could argue it is in the advisor’s best interest to retain customers, and one way to accomplish that is to give solid advice. Moving on:
But while I think it’s courageous that Spitzer slaps millions in fines on a few Wall Street firms for their bad investment guidance, I believe the investors who accepted that unsound advice have some responsibility, too. Isn’t knowing the difference between good and bad advice part of knowing what you’re doing?
Also, I can agree with the idea that responsibility should be shared, for the most part. (Can a patient share the blame when a medical doctor misdiagnoses a problem? It depends.) Here’s the problem. In less than one hundred words, Kiyosaki linked, albeit surreptitiously, the buy-and-hold strategy in paragraph 3 with the bad advice that garnered Eliot Spitzer’s fines, mentioned in paragraph 4. That is deceptive and misleading. The bad advice according to Spitzer is advice that involves conflicts of interest, advisors selling specific securities that create the best kickbacks for the advisor, and other related charges.
Skimming the rest of the article, the only items of “evidence” Kiyosaki cites are previous articles he has written for his Yahoo Finance column recently. I had to stop reading this newest article, even after beginning with an open mind (I promise). Kiyosaki’s digestive system is upside-down, if you know what I mean.
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I read RDPD and picked up exactly one point I could not dispute: Don’t let fear paralyze you into inaction. Other than that, it was hot wind and dubious fact. Though I did love the bit where he discloses that his business partner, whom he lists in contracts as having right of refusal as an escape clause, is actually his cat. I’d like to read Kiyosaki’s cat’s book.
I’d choose “The Millionaire Next Door” over RDPD, though some find it a bit dry due to its more academic approach.
Mr. Kiyosaki’s columns are dreadful.
First, he doesn’t offer any concrete advice in his columns. Most of them are puff-pieces touting his own experience. Here’s an example:
“Recently, I bought 10 acres of land for $100,000. Since the land is already zoned for mobile homes, my plan is to simply subdivide the property into approximately 50 lots and sell each lot for $25,000. Do the math, and you’ll see that the 10 acres are worth a gross of $1.25 million, which is not a bad return on a $100,000 initial investment. The legal advantage is the mobile-home zoning, an advantage all the other land in the area does not have.” (Yahoo – February 7, 2006)
First, has not provided us with his actual return, only his “plan”. Second, I work as an appraiser (albeit business appraising, not real estate) and it is very, very, very rare to find an investment that will give an 1150% return in the real estate market. The market is too efficient to allow for these types of returns.
In the same column he writes: “With paper assets, you have very little control over your greatest expense — taxes. When investing in a business or real estate, you can gain a legal, competitive advantage by paying less in taxes, which increases your return on investment.”
If I invest in a Roth IRA (sorry, I’m American) I pay NO taxes…ever. If I invest in my 401k I get to deduct my investment from my current income. Lastly, even if I invest in a regular, taxable brokerage account. I control all of the tax decisions. I can match my gains with my losses to minimize capital gains taxes. I can use the wash-sale rule to reduce my basis.
If I invest in real estate, I have to pay property taxes every year. I also have to pay taxes on the net income from the propety. I live in the state of Washington, which has no income tax and no intangible taxes. I can hold my stocks for 50 years and never pay taxes if I so choose.
He also writes: “When I invest in real estate, I have lots of insurance. If a building burns or a tenant falls, I have insurance to cover those risks. A mutual fund has no insurance. That is why $7 trillion to $9 trillion were lost when the market crashed in 2000. Today, in spite of not having any insurance against losses, millions of employees happily deposit their money in their 401(k).”
This statement is totally misleading as he is not comparing the same type of risk for each investment. He says that he is covered against the risk of losing money by being sued, but he says nothing about being covered against a fall in the value of his real estate.
He only has insurance on his real estate to cover a loss should an unforseen accident (are there any other kind) occur. He has no insurance should the VALUE of his real estate drop. In fact, real estate is harder to hedge against a downturn in value than a stock investment as it is impossible to buy a put option on an apartment building, while I can buy a put option for my stocks with the click of a mouse. The insurance he has against being sued is a requirement for investing in real estate. I do not need any insurance policy for investing in stocks. Thus, I save some money by not having to pay insurance premiums.
RK’s advice is very misleading. He frequently mixes types of risk (as in the previous example) and gives “puffy” advice about “knowing smart people and doing your homework”. Well, it’s always good to know smart people and to do my homework, but by comparing the risk in a decline in an investment’s value with the risk of being sued by someone he is misleading the investing public and does not appear to understand how to compare apples to apples and oranges to oranges.
For the record, I am not an investment advisor. I am a Chartered Financial Analyst (which is the most stringent designation in the financial community) and have an MBA in Finance. The CFA insitute’s website at http://www.cfainstitute.org can tell you more about the CFA designation if you’re interested.
I’ve read a bunch of Kiyosaki’s stuff, just to try to find out what has kept Rich Dad, Poor Dad on the top ten list of business books for so long. I think he is a pathological liar, narcisisstic, and 90% of the advice he dispenses is worthless and dangerous to the average person. The good 10% is his point that the rich and poor/middle classes have different investment and work habits, and that there is a profound lack of financial education in this country, as well as the rest of the world. If he would just stick to this in his books, I would have no problems with him. However, like nearly all of the multi-level marketing, real estate speculating “investors” out there, he finds stories of past financial success to be irresistable. Also, the whole Rich Dad, Poor Dad is a fictional account passed off as being factual.
In conclusion, with regards to Kiyosaki, caveat emptor.
I have read “Rich Dad, Poor Dad” in addition to all of Kiyosaki’s Yahoo columns and have come to the conclusion that he’s a complete idiot. I searched the internet to find out more about him and found this interesting article that I would recommend to anyone who is at all interested in Kiyosaki:
http://www.johntreed.com/Kiyosaki.html
The ability to inspire doesn’t matter if the inspiration is misguided.
In my view people often miss the mark in their criticism of Kiyosaki. His value as a writer is not in the technical advice he gives out, much of which is factually incorrect, or as Jason has pointed out, inconsistent. Kiyosaki’s great value as a writer is his ability to inspire.
Thats something most writers never achieve.
I have a friend who is part of the RK cult, and he purchased the board game as well as spent $20k+ to have a RK-sanctioned personal financial advisor for the last few years.
The board game incorporates many of the leaps of logic that you mention above. It has 2 phases: you start out in the “rat race” – this game is much like Monopoly, where you accumulate assets and deal with the bad cards that life deals you. If you accumulate a certain amount of wealth (I think $1 million), you move to the other game and your starting income is 10x what your assets were in the first phase. It’s very arbitrary – why would your passive income suddenly increase tenfold? The game itself is fun, but I think it would be hard to create an unengaging board game.
My friend bought 2 condos at the peak of the bubble and also bought 2 businesses on the advice of the RK counselor. He’s always telling me I’m missing the boat and I should re-read RDPD (I read it and thought it was so-so, but definitely not my financial Bible).
I have to agree with Flexo. Kiyosaki’s writing is all over the map, and much of it conflicts with itself. For example, in a recent Yahoo article, he touts cash flow by investing in quality dividend paying stocks. He says investing in stocks for growth is “a risky game he does not play.”
Yet, his popular cash flow 101 game clearly touts a strategy of purchasing stocks in hopes that their value will go up rapidly to build large wealth.
His two main concepts in Rich Dad, Poor Dad of purchasing assets and the cash flow quadrant are excellent and always needed in our highly consumer culture. As for the rest of his advice from there, stay away from it!
After reading his book, I conclude that RK is a brillant man. I believe he understands the finance issues. Whether the reader understands it is another story. Many will blame RK for their own inability to make money from his advice. RK’s advice is somewhat abstract, and many will not be able to follow it, but for the most part it is solid. In part, RK sells dreams. Often, people themselves turn dreams turn into nightmares. Just look to lottery winners who kill themselves with the money they won. I wouldn’t blame RK for their someone’s own failures.
Retireat30, you almost had me there!
RK makes me laugh. I read RDPD, like the lemming that I am, a few years back and was very disappointed. I grimace whenever someone recommends the book.
Retire@30
I need to get my hands on one of those a boardgames! I enjoyed your analysis. Had my forhead in a wrinkle for a moment.
Thanks for the analysis. I often get a bad taste in my mouth when i read Kiyosaki, that somewhere along the line he pulled a fast one.
Kiyosaki investment advice seems to follow this line of logic:
Three men check into a hotel and each pay $10 for a total of $30. The manager realizes he over charged for the room by $5 and sends the money with a bellboy to return it to the men. Realizing that $5 would be difficult to split three ways the bellboy pockets $2 and only returns $3. They have now each paid $9 for a total of $27. That plus the bellboy’s $2 = $29. Ergo, the traditional financial plan comes up $1 short every time. And the bellboy played a fast one on the guests, so don’t go to school.
Article respectfully submited – R. Kiyosaki
p.s. buy my $200 boardgames.
This guy is a beauty. I especially love the part where he talked about everyone missing the boat on oil, real estate, gold. Amazingly this guy times markets with spectacular forsite. Hindsite is 20/20 Kiyosaki. If you had taken the advice of invest for the long term, you would have earned a nominal rate of 13% annualized return in the stock market ( source: Ibbotson Associates). With compounding the results are outstanding. That number is contested, but it would be close. I would say 10% if you factor in commisions, fees, expenses. No day trading here, buy and hold. That is not bad. No tenents, no repairs, no workshops, all with one meeting with an advisor. That is solid advice. Buy and hold.
You’re too quick! Originally, this entry had a word other than “stuff” in the title, and that version of the entry was accidentally published via RSS. Oops.
As a song once said:
“Naughty, naughty, mouth full of potty.”
You really should watch your language — the children may hear! 😉
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