Investing: Assets That Are Lifeboats in a Shaky Future

Filed under: Robert Kiyosaki - Admin @ 11:17 am

As retirement nears, millions of Baby Boomers are scrambling for deck chairs on the Titanic. For about 30 years now I have been watching a major financial disaster developing.

Its contributing factors include the shaky financial foundations of Social Security and Medicare, compounded by most Americans’ lack of financial education and entitlement mentality.
As a result, my investment strategy is to get out of anything that’s "paper with ink on it." I explain what this means and what investments I favor later in this article.

Speed and Agility Will Win the Day

But first, let me discuss the iceberg known as Financial Excess, which I believe lies before the SS U.S.A. In the last three decades, we as a nation have only increased our excesses, accelerated our mistakes, and mismanaged America’s wealth. Turning the ship’s wheel at this time — hard left or hard right — will do no good. It’s too late.

So it’s not a good time to be captain of SS U.S.A., or the skipper of SS Big Mutual Fund or SS Pension Plan. In the coming years, I believe big will not be better.

Instead, for many of us, it’s better to be a small, disciplined investor. I believe speed, financial education, and maneuverability will prove to be better than size. It’ll be far better to be in a well-stocked lifeboat than be treading water with millions of pensioners and laid-off workers, many with their party hats still on.

Why so pessimistic? Well, I would rather be known as a realist. Most of us are aware of the problems ahead. Some are:

1. A pervasive entitlement mentality.
It’s not just the poor who are expecting a government hand out. Everyone from senators to farmers and retirees expect it, too. Unfortunately, this problem is not an issue for my generation, the Baby Boomers, but will fall squarely on the shoulders of the children and grandchildren of Baby Boomers.

2. Social Security is a small problem when compared to Medicare.
As of 2004, Social Security was a $10 trillion off-balance-sheet liability. Medicare is a $64 trillion liability. The Social Security fund will begin to run in the red around 2015. The Medicare fund is already operating in the red, a situation that started in 1992. The combined $74 trillion off-balance sheet IOU to Americans is more money than is available in all the stock and bond markets of the world. This means life or death will be determined by your wallet, not your doctor.

3. A lack of financial education.
Many people do not know such basic realities as:

• A 401(k) is not a retirement plan (it’s a savings plan).
• Bonds aren’t safe.
• Saving money is risky.
• Why mutual funds have such low returns.
• What is inflation.
• Why workers are taxed more than owners.
• Why pensions are disappearing — legally.

People know there’s a problem, yet they continue to do the same things. Today millions of people have trillions of dollars riding in the stock market, their homes, savings plans, and bonds — financial assets that worked in the past but probably won’t work when the SS U.S.A. hits the iceberg.

Investing in Tangible Value

As an investor, I’m investing against the U.S. dollar. Let me be clear: I’m not investing against the U.S. — America is a rich, productive country. But our dollar is toast. Those who have followed my articles know that in 1971, our dollar stopped being money and became a currency, a piece of paper with ink on it (see "Why Savers Are Losers").

In my opinion, that means getting out of anything else that’s "paper with ink on it" — anything backed by the full faith and confidence of the SS U.S.A. That means I’m very suspicious of stocks, bonds, savings, and mutual funds, especially if they’re U.S. dependent. Although I love real estate, I’m suspicious of any piece of property that doesn’t generate cash flow today. I don’t invest in future appreciation of real estate — not today, at least.

Today, I invest in assets with tangible value, especially assets that go up in price as the dollar’s purchasing power sinks. Today, I have large positions in gold, silver, and oil.

For the small investor, I believe buying silver coins is a safe bet. As the dollar drops, silver will hold its value or go up. I don’t recommend buying coins for numismatic value (rarity). A friend has his son buy one silver dollar a week instead of saving money in the bank. As I write this, that’s worth about $12 a week. He keeps the coins in a safe-deposit box. It’s not big investing — but it’s a great habit.

In today’s economic environment, it’s better to save silver than to save paper with ink on it, and that includes cash, mutual funds, stocks, and bonds. If it seems unpatriotic to short the dollar and other forms of U.S. paper, then buy a few U.S. silver and gold coins. While I’m bullish on America, I’ve been very bearish on our dollar for years.

How Fast is Your Money Moving ?

by Robert Kiyosaki

For years, I choked when I heard such a question. I choked because I was at a loss for words. I was at a loss for words because such a simple question does not have a simple answer.

So the answer I came up with was, "It depends."

I tried this answer for awhile and soon noticed that this answer was unsatisfactory not only to the person asking the question - but also to me…

Looking for a new answer, I came up with, "If you do not know what to do with your money, put it in a bank far away from you, with instructions not to let you touch it." I would add, "If you do not know what to do with your money, and you announce publicly that you are an idiot with money, many people will call and tell you what to do with your money…which is to give your money to them." This new answer was not a satisfactory answer, yet it was better than "It depends."

Today, I am happy to announce that I have a new answer to the same question and that answer is, "Read my latest book, Who Took My Money?" After years of frustration and unsatisfactory short answers, the answer to that simple question is now in a book and I am very proud of this book. I am proud of this book because it takes the time to answer the question, "What should I do with $10,000?"

The reason the answer to such a simple question is complex is because what a person should do with the money depends upon who the person is. For example, if the person has a limited financial IQ, then the person should definitely put it in a bank and keep the money secret and far away so no one; including that person, can touch it. If the person has a higher financial IQ, then he or she can invest, leverage, and speed up their money to achieve far higher returns than most people think possible.

In my new book, Who Took My Money, there are three different examples of investing $20,000. Using exactly the same parameters of 5% interest, and a 7-year period:

Choice #1: a mutual fund $28,142 5.8%
Choice #2: real estate $101,420 58.2%
Choice #3: real estate $273,198 180.9%

The difference between real estate in choice #2 and choice #3 is that financial velocity is added to choice 3. If you would like further clarification on the causes of the differences, you can find this example on page 118 of the book. 

The point of this article is that a higher financial IQ does definitely pay off and that variable is why I have had a difficult time answering such a simple question. If a person has a very low financial IQ then, obviously, they should put the $20,000 in the bank. At 1% interest, the $20,000 would have grown to approximately $22,000. While not great, it is better than losing the nest egg.

One of the purposes of The Rich Dad Company is to continually improve a person’s financial IQ and this is an example of the pay off of a higher IQ. So keep learning and soon you will find your wealth increasing - not because you are working harder but because your money is moving faster. 

Robert Kiyosaki
Robert Kiyosaki is an investor, businessman and best-selling author. His book, Rich Dad Poor Dad, reveals what the rich teach their kids about money that the poor and middle class do not.
Retiring at the age of 47, Robert continued with his love of investing. It was during his "retirement", he wrote Rich Dad Poor Dad, the #1 New York Times bestseller. Robert followed with Rich Dad’s CASHFLOW Quadrant and Rich Dad’s Guide to Investing - all 3 books have been on the top 10 best-seller lists simultaneously on The Wall Street Journal, USA Today and The New York Times. In January 2001 Robert Kiyosaki launched Rich Kid Smart Kid.

Investments That Pay Today -- and Tomorrow

by Robert Kiyosaki

Words have the power to make you rich -- or keep you poor. For example, you have to know the difference between an "asset" and a "liability." An asset is something that puts money in your pocket, and a liability takes money from it.

Take your house, for example.

"Our house is an asset," my poor dad would say.

But, my rich dad saw things differently. "Your house is not an asset, but a liability," he said.

You see, even though my poor dad thought of his house as an asset, the fact is that every month it took money from his pocket via mortgage payments, utilities, and upkeep.

Now my rich dad owned several houses. But instead of depleting his wallet, those homes were rented out. They generated enough income to cover his expenses -- with money left over. That's a true asset.

Now or Later?

In addition to "asset" and "liability," there are two other very important concepts you need to understand: "Cash flow" and "capital gains."

One of the reasons I was able to retire at age 47, and my wife, Kim, at 37, was simply because we had enough cash flow coming in (primarily from our real estate investments). It wasn't much -- about $10,000 a month -- but we only had about $3,000 in monthly expenses. That left us with $7,000 a month to do with as we pleased.

On the other hand, capital gains are when you buy a stock for a dollar, and it goes up to $10 so you make $9 a share. Or, you buy a house for $100,000, and it appreciates to $150,000. You sell it and make $50,000.

One of the reasons people do not become financially free is because most of them are focusing on capital gains rather than cash flow. Chasing capital gains alone is gambling -- not investing. Want proof? You don't have to go back very far to find it: Between 2000 and 2003, millions of investors lost trillions of dollars in the stock market.

"When you invest for cash flow," my rich dad said, "you're investing in a money-back guarantee. 

If you invest for capital gains, you invest in hope. The biggest thief of all is hope."

Most retirement plans are based on hope and promises stretched over many years. That makes very little sense to me, yet it seems to make a lot of sense to the millions of investors who are hoping the money they expect will be there at age 65.

There's nothing wrong with capital gains. I would like my properties and stocks to go up in value, but I don't play this game that much. My primary focus, like that of most successful investors, is cash flow -- not capital gains.

Powerful Combo
The key to financial intelligence is how to use both cash flow and capital gains to grow wealthy. So many people are not successful, because they're generally focusing on only one of the two. The majority is focusing on capital gains.

In my opinion, one of the primary reasons people invest in tomorrow, rather than today, is simply because they think they cannot find or afford an investment that pays them today. As a result, they often become believers in tomorrow. These are the people who often fall prey to financial predators selling dreams of the future.

As my rich dad said, "An investment needs to make money today and tomorrow."