Wisdom of Rich Dad

In recent years, there has been a tectonic shift as Wall Street brokers leave their big firms to set up shop on their own. Generally speaking, such a move is bad news for the biggest clients as they are able to participate in hot IPOs and other transactions, and they may lose that access when a broker jumps ship. But for the rest of us, this transition is good news, as the newly independent broker can simply focus on your needs and not the big brokerage’s needs. Big firms won’t always act in their client’s interests. As we recently saw with Goldman Sachs (NYSE: GS), when there is a conflict of interest, the house always wins.

To make sure your broker is watching your back, keep an eye out for these pitches.

1. “My analyst loves this stock.”

If your broker is pushing a stock idea on you, it’s at least a few days old, and perhaps a lot longer than that. The best ideas are first shared discreetly among the firm’s most favored clients, and even more egregiously, with the firm’s proprietary trading desk. Ever wonder how these internal trading operations seem to make money, even when their clients lost money? Now you know. And sometimes, a firm decides that its traders hold too much of a certain stock. And guess who has been told to help get rid of those shares? The broker. The solution: work with folks who have zero conflicts of interest.

2. “We got this stock at a great price for you.”

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Over the weekend, I got five of my friends together to play this game that’s like Monopoly.  The game Cashflow was developed by Robert Kiyosaki, author of Rich Dad Poor Dad.  It teaches people financial intelligence. 

How can anyone learn financial IQ from a board game right?  I was skeptical in the beginning also.  But I was a fan of his book so I wanted to see what it was about.  It’s now my fourth time playing and I definitely picked up a thing or two.

At my first time playing, I did not land on an opportunity square for the last hour and half of playing.  I was getting shorted even though the odds of my landing on an opportunity is extremely high.  It’s every other spot!  But in life, that happens.  But you can either decide that’s your fate or you can just keep fighting. 

By the fourth time playing, I realized you could BUY other people’s opportunities.  This meant that whenever someone landed on one, they could either use it themselves or sell it to someone else.  Sometimes, that person can’t afford it because they don’t have the necessary capital.  The analogy in real life is like having a really good financial adviser who can suggest opportunities for you.  All you have to do is shell out the money.

More People Knowing The Market = More opportunities for you

Because the Market card came up so rarely, it helped when there were more players in the game.  And the Market card was the only one that can shake things up both good and bad.  So for us in real life, we need to surround ourselves with people that know the market very well.  Only then we will be able to make the right decision to make a gain or to avert a lost.

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It’s true that it’s easier for the rich to get richer. That first million is by far the toughest to make. But once you’re there, it gets much easier to make the next million.

When you already have money working for you, each percent of return adds more to your worth. Earning 10% on $10,000 gives you $1,000. Making 10% on $1,000,000 gives you $100,000. 

 Let’s look at what it takes to accumulate your first million. Assume you regularly invest a monthly amount at a given return. Using the power of compounding, the table below shows you how many years it will take you to reach your first million. We’ll assume you’re starting from zero.

You might wonder why I chose $1,375 as the last monthly contribution. That number happens to be the maximum amount an individual can contribute to their 401k in 2010, divided by 12 months.

As we’ve already mentioned, after you reach your first million it takes less time to make your second. When you start from $1 million, you can take advantage of the effect of compounding on that first $1 million. 

If you consistently put away as much as you can afford, it is possible to have $2 million in 26 years if you contribute the maximum to your 401(k) and achieve a 10% return. Even better, some companies will match some of your contribution, helping you reach your million-dollar goal even faster.

The taxman even wants to help.  He’ll give you a break when you save in tax deferred accounts like 401(k)s and IRAs. If you are in the 25% marginal tax bracket and you contribute $200, your out of pocket cost is only $150. Now you have a little more money to contribute to help you become a millionaire even sooner.

The most difficult part is getting started. Once you begin, it becomes easier. So, what are you waiting for? Sign up today to have that monthly allotment taken out of your paycheck. Then increase it ever so slightly every six months until you reach the maximum contribution level. Before you know it, you will be well along your way to your first million.

When your children are little, you purchase things for them that they may need or want. Once they hit the teenage years, that’s a different story. As the parent of a teenager, you need to have a plan for teaching teens to save money. When you child hits the teenage years the things they want seem to increase and so does the price. They still seem to think you have all the money in the world and you can and should buy them whatever they want.

Once they hit 16, they should get a job. But it can start earlier than that if you want it to. They can mow lawns, shovel sidewalks, or babysit. Working hard and making money will teach them the value of a dollar. Once they start making money they will probably want to spend quickly too. Teaching teens to save money may be difficult at first, but you need to do it.

Teaching teens to save money is important for their future. They need to know why they should save and how to do it. You may need to learn yourself so you can teach your teens to save money, but it will be a valuable lesson for you as well. The first thing you need to do is take them to the bank and set up a savings account for them.

Once you do this you need to set them up on a budget. Teaching teens to save money through a budget is one way to make this happen. You need to gather all their bills and their pay checks. Their checks will be different since they are probably not guaranteed the same number of hours each week.

You need to teach your teens the reasons why they need to save money. These reasons can include saving for a car, a special date, new clothes, or college. Teens want expensive things and when it gets to a point where they have their own money, you should consider making them pay for most of those things.

Teaching teens to save money can be a very difficult thing to do. You need to stand your ground when they try to tell you they have no need to save money. It may be hard for you, but you can do it and you will thank yourself for it in the future.

Your teen will thank you when they have a major repair that is needed on their car, or if they have to buy tires for it, or they find a new pair of shoes they “must” have. They will also be thankful when they are grown, married, and have their own kids and need money to buy their first house.

There are many reasons why teaching teens to save money is so important. Showing them how to save money will not only help them now, but in the future as well. They will be so happy you taught them these things later in life when they have a family and retirement to think about.

A stock’s yield is calculated by dividing the per-share dividend by the purchase price, not the market price.

Price and yield move in opposite directions. As stock prices rise, dividend yields go down. As stock prices fall, dividend yields rise.

Let’s look at an example: A fictitious stock trades for $100 a share and pays a $5 dividend. You don’t even need a calculator to determine its yield: It’s 5%.

Conventional thinking is that if the price of this mythical company rises, say to $200, then its dividend yield will fall. And indeed it will — it will be cut in half. $5 / $200 = 2.5%. But that only applies to investors who bought the shares at the new price. The investor who bought at $100 is still earning a 5% yield.

But here’s where things get interesting — and profitable. If the share price moves in the other direction, down, and it drops to $50, then the dividend yield will rise: $5 / $50 = 10%.

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I was surprised to hear over the weekend on a major radio program a so-called expert on the economy explain how investors spooked by the recent crisis in Greece are “scrambling for safety” into the dollar and into gold. What surprised me was not that people were dumping the Euro for the dollar and gold. I was surprised that gold and the dollar were grouped together as safe assets in times of crisis.

I was even more surprised to hear the analyst quote my good friend, Richard Duncan, saying, “Because governments around the world have run up such large budget deficits, and the central banks have been creating so much paper money, gold very likely will continue to appreciate very substantially over time.”

I couldn’t understand how anyone could consider the dollar a safe asset given this quote by Richard. Yet, in the same radio spot featuring this quote, the dollar was touted as a safe investment in times of crisis.

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