Mr. Kiyosaki’s Bad Advice

6 responses so far ↓

• 1 Required // Dec 27, 2005 at 2:51 pm

  No man, don’t stop. This Kiyosaki character needs to be stopped! Check out some of his archived columns on Yahoo!. I love how he thinks Americans got screwed over when the tax laws changed in the 40s. Classic stuff.

• 2 Canadian Capitalist // Dec 28, 2005 at 4:42 pm

  No kidding. Check out his post titled “Savers are Losers”, when he really means “Savers who Stuff their Cash into a Mattress are Losers”. Financial advisors get a bad rap (well deserved in many cases), but no expert I know of has ever suggested that course of action.

• 3 Mike W. // Jan 2, 2006 at 6:19 pm

  You must understand that in the first place, these yf articles are simply slightly changed (by one of his employees) old excerpts from his books.

  Second, RK’s strategies are very aggresive and uncommon, especially for the average person.

  However, I have read a couple of his books and it makes sense what he says.

  He believes in “fast money”. In other words, buying, then selling for a profit in both real estate and stocks.

  His advice is not for people who want average results. If you want above average results, have an open mind and borrow one of his books from the library. That’s what I do and it’s helped my investment decisions.

• 4 Doug P // Jan 28, 2006 at 8:25 pm

  Mike W. is right – Kiyosaki is trying not to have “average” results, since these rarely lead to real wealth (the kind Kiyosaki is talking about).

  In defense of RK – many “investment gurus” suggest that a passive “diversified” stock fund is adequate protection against loss. If you followed this advice, you found yourself with a 35% drawdown between 2000-2003, which, if you retired in 2000, might be impossible to overcome, depending on your circumstances. It would take years of above average returns just to get you back to where you started. This is why Buffett says that the first rule of investing is ‘don’t lose money’. Kiyosaki was making a case for looking at assets differently than most people do. You need to control your downside.

  he is also right that “savers are loosers”, as savers focus on investing with equity, which leads to much lower returns. If there is significant devaluation of the currency, e.g. through inflation or trade imbalances (I live in hte US and we have both), most savers will find themselves treading water.

  he is right about the tax laws. Taxes on income (instead of consumption) are a very new phenomenon, dating to only 1913. The government understands the time value of money, which is why it passed the current tax act of 1943, and took the money from your paycheck at the time it was earned.

• 5 Dylan N. // Feb 7, 2006 at 9:11 pm

  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.

• 6 Kane // Feb 23, 2009 at 5:16 am

  I guess it’s different views. But you know, the book doesn’t say “How to be rich.” It says “Why we want you to be rich.” So the book is not a ‘how-to’ book and I think most reviewers are missing the point here.

  I think the point Robert and Donald are trying to make is that you can’t just be in your ‘comfort zones.” The middle class will fall, separating to either being rich or poor.

  So if you’re already rich, look for reinforcements and if you’re not so rich, you should think of ways.

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