While most financial advisors advocate their clients put much of their assets in equities, Robert Kiyosaki eschews stocks. And mutual funds, And ETFs. And bonds. And even savings!
The author of Rich Dad Poor Dad explains his investing method to MoneyTips readers below.
I stay away from paper assets such as stocks, bonds, mutual funds, ETFs, and savings. To me, this asset class is too risky because I do not “control” the asset. Every now and I then I will invest in “paper assets.” So far, I have not made much money in that asset class — and I’ve paid too high a percentage in taxes when I did.
Allow me to explain.… As an entrepreneur and investor, I love the word “control.” Control is the opposite of risk. For example, driving a car is not risky, as long as you have controls such as a steering wheel, a gas pedal, and brakes. The reason most people say, “Investing is risky,” is because they have little to no control over their investment. As an entrepreneur and investor, I want control over the following:
I do not diversify. I buy the best asset I can find. People who diversify buy a lot of both good and bad, rather than the best.
I know personally who my partners are. I know who works for my partners, and their key employees. If key employees are not good people, chances are the entrepreneur is not a good person. For example: the team around Donald Trump is magnificent.
I do not like using my own money. I want to use OPM, Other People’s Money, as much as possible.
I do not like paying taxes. By investing in businesses and real estate, and using OPM financing, I legally gain maximum tax advantages. The people who pay the highest percentages in taxes are employees, who save money and invest in a 401(k).
All markets boom and bust. My assets must do well in a market boom — and better when markets bust.
How fast do I get my money back without selling the asset? My job is to invest my money to acquire assets, get my money back without selling the asset, and continue to acquire more assets.
This is the formula my rich dad taught me and a formula I continue to follow today. This is why I do not flip real estate or trade stocks. My job is to acquire assets that put money in my pocket every month, get my money back out of the asset, move that money to acquire more assets that put more money in my pocket every month… and pay as little in taxes as legally possible.
In other words, I do not “park” my money. My money is always moving. It is a term known as the “velocity of money.” The average person’s money has no velocity.
This is not my formula; it’s the formula of the rich. It’s why the rich get richer, the poor get poorer, and the middle class struggles, working harder and harder and paying more and more in taxes. Those who know me know that I am an outspoken advocate for financial education.
Today I ask the same question that I asked my teachers when I was nine years old: Why aren’t we taught about money in school?
Thanks, Robert. We at MoneyTips agree that people need more education when it comes to money, so we are striving to teach our readers the basics about investment, savings and more — including entrepreneurship, which you write about so eloquently here. And if they have more questions about retiring, insurance, or other money matters, we’re happy to have our experts answer them!