Robert T. Kiyosaki
The biggest problem will come from those employees who have diligently put money into their retirement accounts. Those who have faithfully put money into their retirement plans will cause the biggest stock-market crash in history.” (Location 507)
“The resulting impact started by ERISA is not only leaving millions of people without a retirement plan, but it is also forcing people to trust their financial future to the stock market. And we all know that all markets go up and all markets go down.” (Location 518)
When the big crash begins, I believe they will react as most untrained investors react. They will panic and begin selling to save their lives and protect their future.” (Location 522)
Rich dad went on to explain that a DB, or defined benefit, pension plan was a retirement plan that defined the benefit or the dollar amount a retired person would receive. For example, if an employee worked for 40 years for a company and retired at 65, a defined benefit might pay that employee, let’s say, $1,000 a month for as long as he or she lived. (Location 590)
Social Security is a government DB plan. (Location 594)
Subsequent changes to ERISA will allow companies to switch to DC, or defined contribution, plans. The difference between a DB and DC plan is found in the difference between the definitions of the words benefit and contribution. A DB plan defines the benefit. A DC plan defines the contribution. In other words, a worker’s retirement is only as good as the contribution—if there is a contribution. (Location 595)
Rich dad often asked this question of his son and me: “If you had nothing—no money, no work, no food, no shelter—what would you do?” If we answered with, “I’d go find a job to make a few dollars,” rich dad would say, “You boys are programmed to be employees.” If we answered with, “I’d look for a business opportunity and build or buy a business,” rich dad would say, “You boys are programmed to be entrepreneurs.” (Location 743)
Mutual funds can fall all the way to zero in a market crash. Sometime in the future, your generation will get the wake-up call that their DC retirement is not safe and their retirement sanctuary is at risk. Once your generation realizes that, they will begin to get out of the market, a panic will set in, and the market will crash. If the panic is large, the crash will be the biggest in the world. (Location 868)
“Yes, most of your generation. I would say at least 80 percent of your generation will not have enough money to retire on. And millions will be out of money and out of support after the year 2020, after this massive stock-market crash occurs. The U.S. government will not be able to afford over 150 million people needing government support just for financial and medical survival.” (Location 874)
People who seek security are very, very different from those who seek freedom. (Location 928)
Millions of people are now putting money into their defined-contribution plans, into mutual funds, and other investments that they hope will ensure their security. Boy, are they in for a rude awakening in the future. “That is why I am so concerned about ERISA. (Location 929)
A major stock-market crash will wipe out most mutual funds. As we have seen, the stock market is not a place for people who seek security. The stock market is a place for those who seek freedom. (Location 1006)
The point of this book is to give you some ideas on how to be prepared and do well, regardless if the real-world stock market goes up or the real-world market comes crashing down. The point is to be prepared for whatever happens in the real world outside the sanctuaries of home, school, and business. Just as Noah built an ark in the desert, it may be time for you to begin building an ark in your mind while you have the time to build it. (Location 1010)
One of the flaws that rich dad noticed 20 years earlier was the requirement that the retiree must begin withdrawing from the market by selling shares monthly at age seventy and a half. Now that may not sound like a big deal, but as most of us know, it’s the little things that count. In other words, as the years go on, more and more people will, by law, be required to withdraw by selling shares, while younger workers are required to buy shares. (Location 1071)
The question is: What happens when millions of baby boomers are required to begin withdrawing money from the stock market? Will the stock market still go up by 10 percent, 20 percent, or 30 percent each year as it did in the 1990s? If you were born after 1946 and have a DC pension plan filled with stocks, bonds, and mutual funds, for your sake, I hope the market keeps going up and never stops. But history is against that fantasy. (Location 1087)
But by the year 2016, when the first of the 75 million baby boomers begin to turn 70 years of age, many of them will have DC pension plans. Each year, more and more will be added to that list. (Location 1091)
Within the next few years, but most certainly by 2016 if they haven’t already figured it out, people will begin to understand that stock markets do not always go up by 20 percent per year as they did in the 1990s. Unfortunately, millions of employees will not exit their 401(k) or IRA plans or may only exit after it is too late. (Location 1103)
You tip those who make you poor and hesitate to tip those who can make you rich. I have several friends like that. The point is, as an investor, you may want to become better educated and find advisors you can trust. (Location 1232)
Two Flaws In closing, let’s review the two flaws in pension reform. The first is that the law requires participants to begin selling once they hit seventy and a half years of age. Within the next few years, we will see the panic begin. (Location 1237)
The second flaw rich dad saw was that financial education was left up to those who make more money if the investor is less educated. Hence, financial education today is really a sales pitch. (Location 1243)
He said, “Any food or investment that is too easy to buy, overly advertised, wrapped in convenient attractive packages with sales offices and salespeople on every corner, is probably not good for you.” (Location 1341)
With most retirement plans loaded with mutual funds, a person is spinning a cylinder with only three chambers, and two out of three chambers are loaded.” In other words, your chances of losing are two out of three. Talk about risky! (Location 1402)
The law has a mandatory withdrawal mechanism. This flaw will cause major problems around the year 2016 when it is estimated that more than two million baby boomers will turn 70 years of age in America. (Location 1415)
Some people have referred to ERISA as a modified Ponzi scheme. (Location 1509)
ERISA required employees to become investors. (Location 1566)
My friends who are hard-core investors consider that line sacred. They know investing money does not necessarily mean the investment will return the money. For my circle of friends, an investment is not real until the invested money comes back. Once the money comes back, that investment should have more money flowing in. (Location 1614)
People in the B and I quadrants work to build or acquire assets. (Location 1631)
The following are the three real reasons why rich dad saw the coming of the biggest stock-market crash in history. 1. There will be a market sell-off caused by baby boomers converting to cash. (Location 1647)
At the same time, Japan’s banks are bursting with money because most Japanese are employees and savers. In fact, Japan has the highest savings rate in the world. (Location 1677)
The market crash will take place because people were encouraged under law to invest, but they never learned to become investors. Remember, investors love assets. Savers love cash. That is why you hear so many people say, ‘Safe as money in the bank.’” (Location 1727)
Rich dad’s definition of a financial panic is “an irrational conversion of financial assets back to cash.” In other words, people suddenly wake up and realize that what they bought is not worth what they paid, and they want their money back. It’s often called “buyer’s remorse.” (Location 1736)
Looking up at me, he said, “Every one of us invests in one way or another. We simply invest in different things and in different ways.” He then wrote the following after each class: (Location 1772)
“So the rich build businesses and invest in larger pieces of real estate,” I said. “Or they invest in private-equity funds or hedge funds, while the middle class has mutual funds.” (Location 1816)
He continued by pointing out to me the importance of family, home, and a retirement plan. He said, “Many people try to get rich without those pillars of support, and that is very risky. (Location 1829)
“Look, I’m just making a point about how little financial intelligence most people have. (Location 1887)
RICH Good financial education Build businesses Large real estate investments Private-equity funds Hedge funds Personal money manager Private placements Limited partnerships (Location 1896)
That is why the middle class focuses on saving money while the rich focus on investing money. That is why the middle class often puts so much money into their home instead of investment real estate. The difference is financial education. If they had a better financial education, they would understand why owning a home and saving money are really risky, and why investing in investment real estate is more intelligent.” (Location 1918)
A large market crash only frightens people with a limited financial education. A large market crash is the best time to get rich for those with a strong financial education. As rich dad often said, “If you have a strong financial education, you are not worried about markets going up or down. You’re just happy they are going up and down.” (Location 1929)
By 2016, according to the commission’s report, Social Security will collect less money in tax revenues than it pays out. In other words, there will be too many people at the back door. If you remember from an earlier chapter, 2016 is the same year that the first of the baby-boom generation turns 70—a jump of 700,000 people turning 70 in that year alone. The number of people over 70 years of age will continue to increase with each subsequent year. That is what I call a perfect storm brewing. (Location 1952)
Rich dad said, “A businessperson is a person who solves financial problems. If they do not solve their financial problems, they are out of business. If a government bureaucrat cannot solve a problem, a bureaucrat can afford to push the problem forward.” (Location 1967)
The problem is too big to be pushed forward anymore. This book is meant to be a call to action. The baby boomers still have time to solve this problem if we will address the problem honestly and truthfully. (Location 2103)
The DB pension plan is an Industrial-Age pension plan and the DC pension plan is an Information-Age pension plan. (Location 2120)
today, I forecast that the full force of this storm will hit around 2025, some 50 years after the act was put into law. By 2025 we will have millions of baby boomers entering their eighties who will be out of money, nearly out of time, and needing the most medical care of their lives. Without government programs such as Social Security and Medicare, which will probably be financially bankrupt, an aged and poor population will be a financial challenge for the generations following the baby boomers. (Location 2140)
The reason I say that this event was predicted is because there is a book entitled The Great Reckoning by James Dale Davidson and Lord William Rees-Mogg that I recommend people read. (Location 2154)
One of Japan’s problems is that its people have been on the island, more or less isolated, for thousands of years so its cultural roots take longer to change. (Location 2202)
Japan has not done that. For years, their banks have hung on to real estate they loaned too much money for, refusing to admit they made a mistake, continuing to save face, and hoping that the price of real estate in their portfolios will increase in value. (Location 2219)
In their attempt to save face, the Japanese banks, its politicians, and people have become a worldwide disgrace. The need to save face has destroyed an economy of well-educated, hardworking people—everything everyone in the world should all strive to be. (Location 2222)
A true investor has very little loyalty to any investment. If the investment turns and begins to go bad, they cut their losses and go looking for a good investment. I have seen many average investors do exactly what the Japanese have been doing. They refuse to admit they made a mistake and hang on until all the money is gone. (Location 2229)
If you want to be a professional investor, you need to learn from the American example of cutting losses quickly rather than following the Japanese example of death being preferable to disgrace. (Location 2239)
“Losers cut their winners and hang on to their losers. Winners cut their losers and hang on to their winners.” (Location 2243)
I have also seen so many people violate that golden rule by hanging on to losing jobs, losing businesses, losing marriages, losing friends, losing investments, and losing ideas—just to avoid admitting they may not be right or they made a mistake. (Location 2245)
Take control of your own financial ark and buy or build assets that generate cash flow. Include real estate, businesses, and paper assets. As soon as your income from your assets (money working for you) exceeds your expenses, you are financially free. (Location 2494)
The rich know that buying or building assets that generate passive income is the real foundation needed for a rich ark. (Location 2521)
For example, in February 2002, by having my stockbroker watch the market, Kim and I were able to find a tax-free government bond paying 7.75 percent. Since they are tax free, that is the equivalent of earning 12 percent taxable interest. (Location 2534)
In reality, as a professional investor, I like a minimum of 40 percent cash-on-cash return from my investments, which is why I do not save money. (Location 2558)
Our last real estate investment rental property yields a 45-percent return, cash-on-cash, most of it tax free. This 45 percent is actually received in two parts. We receive a cash-on-cash return of 15 percent, which means that our net rental income exceeds the amount of cash we invested each year by 15 percent. (Location 2560)
So a 7.75 percent tax-free interest return is interesting, but not particularly exciting. We use that rate simply to park excess money for periods of six months or more, while we work on putting the next investment together. (Location 2565)
One of the reasons Kim and I use real estate is because, with proper planning, we can reduce our taxes to zero percent from our real estate income. That is why the rich either made their money in real estate or hold their money in real estate. (Location 2584)
Most people who aspire to higher income levels are not aware that, as their income grows, they will lose the benefits of their itemized deductions, including their home mortgage interest. A big house, the dream of the middle class, is not a write-off if you are rich. In America, if you earn less than approximately $137,300 in 2002, you are allowed by the tax code to write off some of your mortgage interest as a deduction from your taxes. But if you are rich, you lose that interest deduction. (Location 2587)
I wrote in Rich Dad Poor Dad that rich dad said the most important word in business is cash flow. In Retire Young Retire Rich (book number five in the Rich Dad series), I wrote that the second most important word is leverage,—the ability to do more and more with less and less. Although rich dad never directly said it, if there were a third most important word in his vocabulary, I believe it would be the word control. Here are a few observations about the word control as it relates to cash flow. (Location 2641)
He also hires the best people he can find to be skippers of his arks. He does that because he wants them to run the ark, not him. He says, “If they need my help to manage the enterprise, we’re probably both in trouble.” Rich dad had the same style of ownership and management. That is why both men could manage many arks. It is a style of management that comes from the B and I quadrants, rather than the hands-on approach that many people from the E and S quadrants envision. (Location 2669)
Many people from the E and S quadrants think they have to do everything, rather than learn to find smarter people to build, load, and sail their arks. So the word control does not necessarily mean you have to do it all by yourself. (Location 2674)
If you are going to take control of your ark and maybe build a rich ark, you must make it a habit to have at least monthly income statements and balance sheets, the two documents that make up the basic financial statement. (Location 2737)
The most important financial statement of all, if you are going to be in control of your ark, is your own personal financial statement. (Location 2742)
This is an example of an asset buying our liability and helping us with our early retirement. Since we no longer have any money in the investment and we still receive our $2,000 a month, what is our new ROI (return on investment)? Infinite. (Location 3369)
Kim and I invest in one or two of these types of PREPs a year. Our average returns are 15 percent to 25 percent cash-on-cash returns, plus the offsetting depreciation deductions, which are not really losses but phantom cash flow. This can easily put our returns in the 50 percent-or-more range. Try doing that with most mutual funds. (Location 3371)
We like these investments because the risk is shared with other investors, we use our banker’s money, the investment is secured to real estate, we receive monthly cash flow, there is a strong potential for capital gains if the property goes up in value, the income is tax-advantaged, and the capital gains are tax-advantaged at the time of sale. (Location 3373)
The latest PREP Kim and I invested in was a 240-unit apartment building that pays a 15 percent tax-advantaged return, which is comparable to a 30 percent taxable return, with capital gains potential. We are in this partnership with three other investors. (Location 3377)
Triple Net Leases A similar big deal, but a slightly different investment, is called a triple net lease. Kim and I like these investments (Location 3382)
• The tenant is responsible for everything. Triple net means that, in addition to their lease payment, the tenant pays for the maintenance of the building, the insurance, the taxes, and structural repairs. (Location 3388)
In these types of investments, the steady cash flow is excellent, the risk is low, and the tax advantages are great. But the main reason Kim and I invest in such properties is to own the land at the corner of the intersection. Once the lease is up in 15 to 20 years, that corner land at the busy intersection should have increased tremendously in value. (Location 3392)
At the end of 20 years, he will own a great piece of real estate he can pass on to his children and grandchildren. While 8.5 percent is not a great return to me, for him it is a smart and secure return. (Location 3402)
There are two issues with triple-net-lease purchases. One is that they usually require a substantial down payment. The second problem is that most financial planners who sell mutual funds and insurance do not recommend them because they do not make a commission on such investments. (Location 3411)
To invest in triple-net-lease investments, you will need to find an experienced commercial real estate broker with at least five years of experience. (Location 3414)
A point to remember here is that both Kim and I started with small deals. As our wealth grew, so did our experience and hence the size of the investments, the security, and the higher returns. (Location 3436)
Kim and I tend to add two such investments to our ark each year so our passive income increases each year. (Location 3438)
If you can do just five of these big deals in your lifetime, you could easily earn over $1 million a year for as long as you live. (Location 3441)
Rarely have I ever invested in a piece of property when I had enough money. And I often have credit problems because I always want to borrow as much as possible when I find a great real estate investment.” (Location 3601)
Athens, I always stop and look at properties. Regardless of how busy I am, I always look. I’m always looking for a good deal to put into my assets column. I’m looking at the same time I’m running my businesses and leading a normal life.” (Location 3607)
Every time I looked at a property, even if only from a sales information sheet, I would analyze the deal to see how I could turn this piece of real estate into an asset that put money in my pocket. That is what made me rich. Money did not make me rich. Investing time when I had no time and investing money when I had very little money are what made me rich.” (Location 3618)
Finding a good deal is almost a psychic experience. Many times, I have intuitively known without much research that a certain property was a great deal. Something just goes off inside me, and I become like a bloodhound on the trail. But this sixth sense would not have been developed if I had allowed my excuses to run my life. (Location 3628)
The same things have happened to me and I have behaved in the same way, sometimes even worse. Many times, things did not go as expected on several real estate deals and on my first two major business ventures. (Location 3646)
In 1994 at the age of 47, I started my options-trading education after I was financially stable. I have made a lot of money, but I have also lost a lot of money. (Location 3659)
The point is, too many people give up too early. If they are disappointed, lose a few dollars, or have their feelings hurt, most people retreat back to the world of the lower mind. I believe this is one of the primary reasons why so few people attain great wealth, even in the richest country in the world. I also believe it is the reason why so many people choose security over freedom. (Location 3664)
At the academy, in flight school, and in the real world of business and investing, one of the most important lessons for me to learn was to remain calm, think from my higher mind, and focus on the mission—regardless what is happening with the ship. (Location 3676)
If they want doodads, they first buy assets that will generate the cash flow to pay for the doodads. After they pay for the doodad, they still own the asset which continues to generate additional cash flow each month. (Location 3717)
One way for you to see the future is by watching things getting too big. Then watch for something small or invisible to replace it. (Location 3821)
The government is trying to collect taxes and define borders for the invisible economy of the Information Age. This problem for governments will grow if the invisible economy becomes too big, and government cannot collect taxes or define borders. (Location 3841)
If inflation sets in, anything of questionable value will lose value, while things of value—assets such as real estate, gold, silver, and utility stocks—may greatly increase in value. (Location 3882)
Governments do five basic economic things: 1. Collect taxes 2. Print money 3. Spend money 4. Push problems they cannot solve forward into the future 5. Control the economy through interest rates (Location 3884)
During the 1990s, two reasons stock prices went so high were low inflation and low interest rates. When inflation goes up, the government often counters it by raising interest rates. When interest rates go up, stock markets usually come down. So during periods of high inflation and high interest rates, mutual funds generally take a beating or fail to increase in value. (Location 3892)
Sometime around 2016, all this pushing the string forward is about to come to a head. Pay close attention to how the growing problem is handled. If governments begin raising taxes excessively, be prepared for anything, and be prepared to act quickly. (Location 3902)
After this learning experience, rich dad said, “Always remember that you are the entrepreneur, the visionary, and the leader. Never let your advisors run your business. When business begins to slow down, spend a lot of money on promotion. After business has picked up, then you can cut back and pay off some of the bills that came from the promotion.” (Location 4327)
One of the hardest lessons I had to learn is to listen to my advisors, trust my instincts, and live with my decision, right or wrong, good or bad. (Location 4359)
All the attorneys could do was focus on what was wrong with each other, rather than what was right for the deal. The strong positive points of the investment had been forgotten. The investment objectives—cash flow, appreciation, depreciation, and tax-free gains—were not important to the attorneys. Being right was more important to them. Two months of time and tens of thousands of dollars were lost because I let my advisor run the ship. I could hear rich dad saying, “Just because someone is smart and went to a good school does not mean they know anything about the real world of business or investing.” (Location 4367)
Rich dad surrounded himself with very smart people. He was an active listener and treated each advisor with respect. Yet at the end of the day, he always remembered that he was still the captain of his ship. The final decision was still up to him. (Location 4371)
He said, “The number-one skill of a business owner is the ability to sell.” He also said, “When I find a business that is struggling financially, it is often because the owner cannot sell.” (Location 4409)
“I make my money in my business. I keep my money in real estate.” (Location 4425)
Today I am financially free because of what I did in my spare time, rather than what I did at work. Today, if you are working hard on somebody else’s ark, you may want to set aside some spare time to build your own ark. (Location 4427)
company. They both love their work and make a lot of money, but neither of them has anything to fall back on. When they asked for advice, one of the first questions I asked them was, “How much can you sell your job for?” Both replied, “Nothing. (Location 4433)
“I cannot believe how fast a person can make money from their investments. Why would anyone want to put money in mutual funds and hope for a 10 percent-per-year taxable return? Why would anyone want to take the risk of having their mutual funds wiped out in a market crash? Why not learn how to make money when the market is going up as well as coming down? (Location 4465)
on your investment, it takes you approximately 20 years to get your initial investment back. If your money earns 50 percent per year, you get your investment back in two years. (Location 4471)
Four Kinds of People There are four kinds of people. 1. People who must be right 2. People who must win 3. People who must be liked People who must be comfortable (Location 4489)
estate. I learned to love these assets and skills because I first invested time into educating my middle mind and then invested time in teaching my higher mind to love the assets. (Location 4506)
When he asked me for some advice, I said, “Why don’t you take your $30,000, buy three rental houses for $100,000 each, and let your tenants pay down your mortgage as well as give you income? By the time you’re 65, you should have a steady stream of income, if you have invested wisely.” (Location 4511)
The federal government has loan programs, if you qualify, that allow individuals to only put 5 percent down on certain properties.” (Location 4514)
“What about people who live in expensive cities such as New York or San Francisco? Won’t it be hard for them to find inexpensive rental properties?” “In the heart of the city, yes, it would be hard. But if you go an hour out of most cities, you can find affordable properties. All you have to do is find an area that is going up in value. Over time, your property should appreciate. If inflation hits, you can raise your rents. (Location 4518)
“But what if everyone begins to invest in rental real estate?” he asked. “Then we help the government provide housing at lower prices and hopefully raise the standard of living for those who cannot afford to buy a house. If there is more supply, then rents come down. If there are more owners competing for tenants, then competition will improve the quality of housing.” (Location 4525)
Mutual funds often lose value during periods of high inflation and high interest rates, but a good property can increase in value during the same period. If you have purchased your real estate early enough and have a fixed interest rate, you have greater control over your investments as long as you do not invest in cities with rent control. (Location 4539)
The same is true if you understand how stock options work. If inflation goes up, and stock prices fall, you can make more money on the way down, while those in most mutual funds will be losing money and losing time.” (Location 4542)
He doesn’t believe that if you love somebody, the way to do him good is to give him something he’s not entitled to.” (Location 4667)
In the Information Age, we will need two professions. One profession is how we make our money. The second profession is how we invest our money. In order to have the second profession, financial literacy is mandatory. (Location 4767)