Wisdom of Rich Dad

Robert Kiyosaki

I am often asked, “What advice do you have for the average investor?” My reply is, “Don’t be average.”

Most of us know of the 80/20 rule. That rule is a good rule for averages. And in the world of money, the rule is 90/10. This means 90 percent of the people make 10 percent of the money and 10 percent of the people make 90 percent of the money.

This 90/10 rule holds true in almost anything financial. Take the game of golf, for example. Ten percent of the professional golfers make 90 percent of the money.

Taking the ratio to the next level, the top 10 percent of professional golfers make 90 percent of the money. Just look at Tiger Woods. When you compare his winnings plus endorsements, he is in a league unto himself.

Last year, my wife Kim was invited to play in a pro-am as part of a professional Tour event in New York. (No, they did not invite me…) Kim is pretty good and was the only woman in a field of around 300 golfers. I was a proud husband as she confidently walked alone to the women’s tee. Without hesitation, she placed her ball on the tee, took a clean back swing, and swung her club.

She out-drove two of the men in her five-some. Bruce Vaughn, the professional golfer in the group, rushed up to congratulate her. The men amateurs were also complimentary. I could tell they were relived to have a much better than average “woman golfer” in their group. Kim hits her drives longer than most men, myself included.

Tough Way to Earn a Living

The tournament was the first time I got to see the real life of a professional golfer. It is a tough life. It is not the glamour I thought it was. If a professional did not make the cut, they simply moved on to the next tournament in some faraway city…and teed up again. They do not stay for the tournament. They pay for their own transportation, lodging, food, and fees. They are on the road, away from their families for months at a time. Even those who make the cut and play on the weekend have no guarantee of enough earnings to offset expenses. It’s a tough way to earn a living.

Like professional golfers, who live and die by the ‘money list,’ money is how I keep score. It’s my score card, my report card as an investor. It’s how I tell how well — or how poorly — I’m doing. My rich dad said, ‘Making money is my game.’ It’s my game, too. And that’s why I have so much respect for professional golfers… their livelihood depends upon how well they play the game — as professionals.

In the world of golf there are average and professional golfers. The same is true with investors. The problem with being an average golfer or investor is that average people rarely make any money. Many average investors are in financial trouble today because they are simply that: average. They never turned pro.

When the financial crisis began in 2007, the professional investors were already out (or getting out) of the market. The average investors did as they were told, which is to invest for the long-term, hanging on tight as the Dow plunged from 14,000 to below 7,000, a 50 percent loss in value. Many real estate flippers and homeowners enjoyed the same wild ride.

Tragedy of the Average Investor

The tragedy is that many amateur investors are still clinging to their losses. They hope the market will bounce back. Amateurs are still following the advice of “invest for the long term in a well-diversified portfolio of stocks, bonds, and mutual funds.” Or they continue to believe “your home is your biggest investment.” That is subprime advice for subprime investors.

It seems to me that more people keep track of their golf scores than keep track of their money… their ‘financial’ scores. That’s why they’re amateurs… in the money game.

Even after the crash, the same subprime financial advice continues to be dished out in magazines, newspapers, and on television. Subprime advice continues to flow from real estate and stock market professionals who are not professional investors. They are professional sales people. They live on commissions — not ROI, the returns on their investments. If they do not sell, they do not eat.

If you’re going to turn pro, you will need to upgrade your financial advice. Why continue to invest for the long term while the market is crashing? Why continue to diversify when diversification did not protect investors from the crash?

In 1974, as I was leaving the Marine Corps, I decided I wanted to become an entrepreneur and investor. In other words, I did not want a job with a 401(k). That meant I had to become street smart, rather than school smart. It meant I needed a different set of life skills and better financial mentors if I were to survive on the street.
Just like the life of the pro golfers, there were long stretches of losses, no wins, no money or security.

In early 1985, things got so bad that Kim and I were temporarily homeless. I still remember leaving her in San Diego with only $2 for the week, while I traveled to Australia to put a deal together. Somehow we survived the year. In December of 1985 we finally made $1,500 after a year’s worth of losses. That year was a great qualifying school. Today, even in this tough economy, our investments continue to grow. This crisis is a good time for professionals and a bad time for amateurs.

Not Good Enough

Years ago, I asked my rich dad, “What is the difference between a professional and an amateur?” His reply was, “Professionals know their best is not good enough. They always want to do better.” He paused before continuing and said, “When someone says, ‘I’ll do my best’ or ‘I’ll give it my best shot’ or ‘I’ll try,’ they’ve already lost. Those are not words of a winner.”

In the world of ‘the best,’ your best is never good enough. If you’re going to be a winner in life, you have to constantly go beyond your best. Most people are happy being average. Most are happy being faceless in a sea of faces. That’s why 10 percent always win 90 percent of the rewards. I get up every day, grateful for what I have accomplished, yet looking forward to doing better. I want do better than my (previous) best everyday. It’s not about the money anymore. I have enough money. I just love the game of making money.

Today I give most of my money away…but I will not give up the game of money. I play the game because the game is always better than me…and my best will never be good enough. I continue to work hard to become better at a game I love.

I once read a book on golf that said, “People say amateurs play for the love of the game and professionals play for money. That is not true. Amateurs are amateurs because they do not love the game enough. When it is cold and rainy, a professional golfer will play. The amateur will not. When they are sick, the professional will play. The amateur stays in bed. When they are losing, the professional will practice harder and enter more tournaments. The amateur will quit and take up tennis.”

It matters little if the game is golf, tennis, or money. Ten percent of the people will always make 90 percent of the money. When the markets began crashing in 2007, the money did not disappear. Ninety percent of the money went to 10 percent of the investors.

A financial crisis is a great time for professional investors and a horrible time for average ones. If you’re going to invest, don’t be average. It’s time to turn pro… or take up tennis.

These new interactive Web sites give you advice — some better than others — to help you reach goals.

Online financial-planning tools are getting more personal. Plenty of Web sites crank out cookie-cutter plans, but three recent entrants give users more detailed advice. Voyant, SimpliFi and ESPlannerBasic provide something more than a quick-and-dirty look at your financial state of affairs — for free.

These three sites cannot replace the personalized service of a financial planner, but they are helpful to most investors. You can use them to get a general idea of your finances and benchmark your progress without shelling out thousands of dollars for a session with an adviser. Those who use an adviser can treat the sites as a way to double-check their adviser’s plans.

Voyant

Pros: Voyant is the best of the bunch. Its slick interface lets you map your financial goals, such as buying a home or saving for your kids’ college, along an interactive timeline. It takes less than five minutes to enter the information needed to create a graphic display of your expected income and retirement savings.

You can test what-if scenarios quickly without entering much new information. For example, you can easily adjust the growth-rate assumptions of your investment portfolio with a sliding bar on the right side of the planning tool. Most calculators make you plug in a different rate each time you want to test a new scenario. Voyant also supplies a menu of events, such as starting a business or having a child, to see how those decisions will affect your finances.

Cons: But some of Voyant’s premade options are a little too cute. For instance, you click on an icon of a sports car to “plan” a midlife crisis. (If you could prepare for such a scenario, it wouldn’t be a crisis.)

No Web site would be complete nowadays without an attempt at social networking — in this case, a feeble one. Voyant lets you communicate with other users on the site’s forums. A button on the tool lets you contact financial advisers who use Voyant’s planning software. (The site is still struggling to sign up advisers. When I pushed the button, I was told “financial professionals” in my area — Washington D.C. — were not available for an online chat.)

Simplifi

Pros: As the name suggests, SimpliFi is not complicated. The site does a decent job at the broad strokes of financial planning. Spend a couple of minutes entering your data and you get a snapshot of how your goals match up with your savings and investments. An animated guide named Sophie grades your financial well-being from A to F. SimpliFi provides a suggested investment mix for your portfolio and a to-do list for other financial tasks, such as paying down debt or buying insurance.

Cons: SimpliFi’s advice is spotty in some areas. The site makes a big deal about its status as an investment adviser registered with the Securities and Exchange Commission, but its investing guidance is generic. Plus, it recommended that my wife and I buy term life insurance even though we have no children, no debt and more than enough savings to cover a funeral if one of us meets an untimely end.

ESPlannerBasic

Pros: ESPlannerBasic tackles financial planning from a different direction than the other sites. Instead of letting you set your own goals and working backward, the site asks you a series of questions to determine how much you can spend each year without compromising your lifestyle in retirement. The questionnaire takes about 30 minutes to complete. The site then generates annual spending, savings and life-insurance recommendations.

Cons: ESPlannerBasic’s drab interface, similar to Microsoft Excel’s, makes using this tool a chore. Plus, you have to estimate obscure statistics on your own, such as your salary in the year before retirement. (How many Gen Xers know that figure?) Granted, ESPlannerBasic is the bare-bones free version — the advanced copy has more features, including Monte Carlo simulations to forecast various investment scenarios. But after slogging through the basic tool, I don’t want to pay $149 for ESPlanner.

by Thomas M. Anderson

The second wealthiest man in America, and the most famous investor in America, Warren Buffett, did an interview with ABC in which we was asked what were his top 3 piece of investment advice he had for average Americans. 

Let’s first start off with what he did NOT say.  He did not say “Buy And Hold”, he did not say “Invest for the Long Term”, he did not say “Diversify”, he did not say “Dollar Cost Averaging”, he did not say “Be Patient – Don’t Panic”, he did not say “Stocks Are on Sale”, and he didn’t mention anything about a 401k. 

But why not?  Every professionally certified ”Investment Advisor” out there says those things, why wouldn’t the most successful investor in America say at least one or two of those?  The fact that none of those pieces of “advice” made Buffett’s top 3 pieces of investment advice further shows that those mantras are not advice, they are sales slogans and advertising slogans for the financial advisory industry.

So let’s get to what Buffett did say.  #1 – “If it seems too good to be true, it probably is”. 

Think Bernard Madoff’s and Allen Stanford’s victims wish they had followed that advice?  I sure wish I had followed that advice with Auction Rate Securities.  I think Buffett is saying here to always have a healthy amount of skepticism when considering an investment opportunity.  This is especially the case right now, as we are moving into a very uncertain, unknown economic period in which we are sailing through uncharted waters on many different fronts. 

The period of 1983 – 2007 was one of the greatest 25-year economic booms in American history, if not the greatest, and the period of 1988-2000 was likely the greatest bull market the U.S. stock market has ever seen.  We may not see things like that for many, many years to come.  This goes for stocks, bonds, real estate, just about everything.  Be skeptical, do your homework, get second and third opinions, and remember it is always much better to miss out on gains than to lose money.

Buffett’s # 2 piece of advice – “Always look at how much the other guy’s making when he is trying to sell you something”. 

WOW, is Buffett taking a shot here against the financial advisory industry?  It kind of sounds like it to me.  Maybe not, but when I hear this, the first thing I think of is Certified Financial Planners, Investment Advisors, and stock brokers. 

As we have discussed here many times before, today’s Investment Advisors/Financial Planners are really just mutual fund sales representatives.  They are simply sales representatives that make money off selling mutual funds, bond funds, and money market funds. 

 Because of this, their investment “advice” really isn’t advice at all and is extremely biased towards the stock market, because that’s really the only investment type they can sell you that they can make money on.  This is why they are always negative on CD’s, savings accounts, physical real estate, physical commodities, and foreign currencies, because they can’t make any money selling those. 

They all have more sales training than they do investment and financial training.  So, as Buffett says, always remember what your Financial Planner makes money on when he gives you investment “advice”.

Finally, # 3 – “Stay away from leverage.  Nobody ever goes broke that doesn’t owe money.” 

AMEN Warren!  THANK YOU for saying this and I hope Wall Street, and the U.S. Government, is listening.  He goes farther in the video interview and says that a friend of his once told him regarding leverage “If you’re smart you don’t need it, and if you’re dumb, you’ve got no business using it”.  Again – AMEN sir! 

Our economy has been built on debt and leverage, at every level, over the last 15-20 years.  Individual consumer, household, corporation, federal government.  Every level of our economy is based on and dependent upon debt.  Unfortunately, as Buffett just said, many of the people (at every level) using leverage had no business using it, which is why we’re in the mess we are today. 

This is a lot of why there is such a Commercial Real Estate mess right now, as we discussed yesterday.  So, stay out of debt, save money like there’s no tomorrow, and stay away from investing with borrowed money (leverage).  That is true, credible, solid financial and investment advice from the country’s greatest investor.  Thank you Warren for sharing this advice with us and I hope America is listening!

One more thing that Buffett mentioned, in passing, is that he feels that the value of the U.S. Dollar may well decline, and “could become worth far less” over time.  This is due to the “huge deficits” that the U.S. government has run up, as Buffett said in passing talking about investing in yourself. 

We all need to seriously, seriously listen to this and consider the implications for this.  If Warren Buffett truly feels we may be headed for inflation, even hyperinflation, we better listen and start preparing for that possibility.  We will keep a very close eye on this topic here at Investor Rebellion and make the safest possible investment recommendations accordingly.

In a survey I conducted of 200 individuals, who stated they wanted to make the transition from corporate to business owner, the top two things they indicated stopped them were:

• Inability to replace current income
• Not having a stable income

What can you do to counter these top two fears? How can you make it possible to have a stable income that replaces your current corporate salary? Below are the four areas to focus on in order to set these fears aside:

1. What do you really want to do with your income: replace, upgrade or down grade? There are many people who would be content earning less if it meant they could do what they loved. Others may want to keep their current level of income or even gain more. Getting specific with what you truly want and need is essential to be able to create your customized financial plan.
2. Based on what you want to do, how much money can you make? This includes considering tax breaks that may yield you more income than you thought. Even if you can generate enough money to give you what you need, I highly suggest you find other ways to supplement your income. There are many ways of increasing your income streams, the key here is to increase your financial IQ and then find the investment(s) that will work for you.
3. Put together your personal financial plan. Consider things like the consistency of your business and make sure that you are accounting for any fluctuation. What are your short and long term expenses? Talk to someone who’s got a similar business to determine what these might be for you. Once you’ve got this figured out it will help you see what changes need to be made to your business plan in order to pay yourself the salary you desire while investing in your business. This is also an area that supplemental income streams can come in handy.
4. Invest in your nest egg. As your business grows, and other income streams grow, the more money you can put away as a nest egg and the more income you can be generating. The number one piece of advice the most successful entrepreneurs suggest, think Donald Trump, Sir Richard Branson and Robert Kiyosaki, make your money work for you. Build up your nest egg and then have it work for you by providing you the passive income you need to live.

The financial fears you may have now, will dissipate once you develop and execute on a plan to create the income you need. The important thing is to think through what you really need and then get creative on how to make it happen.

Academics are not the only thing you should worry about as you grind through the horrendous prison that is college — parties, booze, spring break — oh, the horror!

According to a recent study by Sallie Mae, the average college student will graduate with $4,100 worth of credit card debt, a staggering amount in addition to what they’re already owing from their student loan and other college related expenses.

If starting a new life after graduation with unnecessary debt isn’t your idea of awesomeness, here’s a list of 11 ways you can fail financially while you’re in college: avoid the actions listed below and you just might come out financially ahead when you graduate!

Taking an Excessive Long Time to Finish School

“I’m on the special six-years program,” my friend will often say as people ask him whether if he was a junior or senior in college. While some people will often joke about being a “super senior,” many times there are negative financial consequences if you prolong your stay in college.

Although its perfectly reasonable to switch major as you discover your true passion, lingering while in college can increase your overall tuition cost and prevent you from stepping into your “wage earning years.”  For those that are juggling multiple projects or part/full-time jobs while in college, this can especially be a problem as you try and balance between work and academics.

Signing Up for Unnecessary Credit Card Accounts

The Sallie Mae study revealed that on average, college students have 4.6 credit cards, and half of college students had four or more credit cards.  The number of cards a student carry also dramatically increases as a student progress through the years in college.

Keep it simple and avoid tackling on additional debts by sticking with one credit card through your college years.  If you’re unsure of your ability to properly and wisely use credit, consider opting for a debit card instead — you get the same conveniences, and if your debit/check card is from a major national bank, you get the same level of fraud protection from a credit card.

Doing a Poor Job in Managing Your Financial Accounts

One reason to avoid carrying an excessive amount of credit cards — beyond the risk of increasing your credit card debt — is that managing financial accounts are simply not one of the major priorities for most college students.  You can keep the organization simple by using online account access that are provided by most major banking institutions.  Many of these online accounts offer bill alerts via email or SMS; they also offer online bill pay along with automatic bill payment — two modern conveniences that should make paying your bill late obsolete.   The more you avoid overdue bills, the less late fees you’ll pay, the more reasonable your interest rate will stay and the better your credit history will look.

Letting Your Vices Consume Your Money and Time

Beyond alcohols and other nefarious substances, your vices can be anything that consumes an unhealthy amount of your money or time: massive multiplayer online games,  gambling — heck, maybe even your significant other (yeah we said it).  Your college life certainly doesn’t have to be 100% about school work, but when 90% of your time is spent solely on one particular activity, you may be doing yourself a disservice that not only threatens your financial outlook but potentially your very own well-being.

Failing Academically While on Scholarship

Although looking like a stash of colorful curtain when you graduate will certainly make your parents proud, not everyone needs to graduate cum laude.  You should, however, do well academically especially if you’re on scholarship or grants.  Remember that you’ve earned the scholarship or grants due to hard work — don’t let the free money slip away by neglecting your studies.  Even if you’re not on an academic scholarship of sorts, you should still keep academic probation at bay, simply because it will eat up more of your time and money.

Choosing Expensive Out-of-Campus / Away-from-Home Housing

Fact is, some college dorm rooms are just out right horrible.  We understand that.  But college is also a time where you need to keep the belt tight and the wallet even tighter.  Many people make the mistake of taking out additional student loans in order to live in more upscale neighborhoods or housings.  Some even move out of the house even though the school may be less than an hour drive away.  Being able to find independence is all fine and well, but having to go back to your parents to help with your loans because of your college housing choice probably won’t be a good first step toward independence.

Opting for a Brand New Car Instead of Cheaper Alternatives

Everyone loves a new ride.  The soothing chemicals from a new car smell… ahhh.  Problem is, new cars are a known depreciating asset.  The minute you drive it off the lot, a good percentage of its value disappears into the misty air.  Many time it will be practical just to purchase a reliable use car over a brand new car.  You can do one step better by grabbing an out-right beater or skipping a vehicle altogether if you attend a college with plenty of public transportations.

Attempt to Keep Up with Peers on Materialistic Possessions

It can get easy to get carried away when you get in the “Keeping up with the Joneses” mentality, especially in our younger years when image may be important. But spending the time and money in order to keep up with your peers on materialistic possessions will only rack up the credit card debt. If you find yourself constantly feeling like you need to buy certain products or apparel just to feel like you belong to a crowd, it may be time to start seeking friends that value you beyond your possessions!

Using Your Student Loans Excessively on Other Purposes

The majority of your student loans should be spent on your tuition and tution related expenses: housing for college, books, transportation and food.  Your student loan shouldn’t be spent on a lavish spring break trip to the carribeans, nor should it be spent on a set of snowboard along with snowboard racks for the car.  The minute you start allocating your student loan for purchases that are far from daily necessity, you will head down a slippery slope of debt accumulation.

Living it Up (Beyond the Means of a College Student)

Everyone can probably agree that college life is more than just academics; after all, if you subject yourself to hours and hours of studies without taking the occasional break to enjoy life, college can quickly become a tiresome experience.  But enjoying life should be met with some sensible amount of balance.  Just because you know an acquaintance that frequently take trips to Europe during spring break doesn’t mean you should do the same.  Living beyond your means is always a bad idea, living beyond your means when you’re a poor college student?  Even worse of an idea.

Borrowing Too Much in Student Loans

It is a known fact that the cost of college tutition has been increasing at a rapid pace in recent years.  A problem many college student face today when graduating is that they grossly overestimate their expected starting salary, often finding themselves not earning enough to pay their costly student loans.  Here’s a good rule of thumb: if your total student loan debt exceeds your expected starting salary for your first year in your career, you’re borrowing too much.  Be realistic with your expected salary and plan ahead on how you’ll cover the cost of college.

~ BillShrink Guy

According to the Labor Department, the June unemployment rate for those 55 and older hit 7%–the highest on record. That’s bad news for seniors who are out of work or being forced to re-enter the work force to make ends meet. The Dolans have some job hunting tips for the 55+ crowd, including good news about some advantages you may have over the younger competition.

Dear Ken and Daria:

Thanks to the investment losses I’ve suffered, I have to come out of retirement and go back to work. Do you have some job hunting tips for seniors?

–Maureen