Wisdom of Rich Dad

When I start talking to people about building a passive income business by following the teachings of financial freedom guru Robert Kiyosaki, I immediately hear about people’s plans for buying real estate.

Anyone who has read the book Rich Dad, Poor Dad thinks that Robert Kiyosaki is all about investing real estate and buying rental or commercial property in order to achieve the financial freedom of their dreams. So, they instantly start putting all their money into real estate.

Reality check: That’s not book’s message. I try to listen patiently (after all I also believe that real estate can be a great investment vehicle), but the reality is you need a solid plan to achieve financial freedom, not a one off strategy.

Authors Robert Allen, Robert Kiyosaki, David Bach, and many, many talk about building multiple streams of passive income, that means having more than one investment vehicle, and making sure all those vehicles deliver passive income.

For beginners: passive income is income that comes in day in day out without you having to work to get it. Put simply, you are not trading hours for dollars. A true passive income business is one that if you were to leave it alone for a period of time, such as a year, you could return and find it more profitable (or at least generating the same level of income) as before you left. Passive income investments are the true path to financial freedom.

So what is the principle that Rich Dad truly talks about. He calls it the Power Investing Principle.

1 – Start a part-time business for the cashflow & tax advantages.

2 – When the market is right invest in real estate. (Now is not the time.)

3 – Invest your excess cash from the real estate in paper assets.

Unfortunately, a lot of people jump into step 2, real estate, without a lot of background knowledge about how to make that investment a lucrative one.

Here’s a clue, the property needs to generate passive income (that means it should be putting money into your pocket not taking money out). Capital gains (betting on an increase in value) should be a bonus not your sole reason for buying.

One of the first steps in building a solid passive income plan is to identify how you plan to generate passive income. The plan should include a number of sources including businesses, real estate and paper assets. The reason for this is to create a stable platform on which to build financial freedom you need all the elements.

Now, lets go back to the power investing formula and look at number 1: Build a business. Why do you want to build a business first? Simple: businesses provide the financial backing (cashflow) to support real estate investing. Makes sense right?

While there are only three steps in the power investing principle, you need to take the time to understand the systems behind each one. For example, master the business building system then move on to the system for residential real estate investing.

Taking it step by step will lead to prosperity and reduce your risks along the way.

When interest rates hover near historic lows for extended periods of time, it becomes easy to forget that what goes down will eventually come back up. However, rates will generally begin to rise as an economy rebounds. When this happens, both short- and long-term fixed-income investors who are caught unprepared may miss out on an easy opportunity to increase their monthly incomes. Therefore, now is the time to begin preparing for this shift in the interest rate environment. This article explores some of the basic, time-tested strategies that any investor or trader can use to profit in a rising interest rate environment.

Look to Stocks
Not all strategies that profit from rising rates pertain to fixed-income securities. Investors looking to cash in when rates should consider purchasing stocks of major consumers of raw materials. The price of raw materials often remains stable or declines when rates rise. The companies using these materials to produce a finished good - or simply in their day-to-day operations – will see a corresponding increase in their profit margins as their costs drop. For this reason, these companies are generally viewed as a hedge against inflation.

Rising interest rates are also good news for the real estate sector, so companies that profit from homebuilding and construction may be good plays as well. Poultry and beef producers may also see an increase in demand when rates rise, due to increased consumer spending and lower costs.

Get Your Ladder Ready
Of course, the most common strategy that financial planners and investment advisors recommend to clients is the bond ladder. A bond ladder is a series of bonds that mature at regular intervals, such as every three, six, nine or 12 months. As rates rise, each of these bonds is then reinvested at the new, higher rate. The same process works for CD laddering. The following example illustrates this process:

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