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It's no use paying your debts. It's better to take even more loans and invest. It's no use paying heed to advisors as only original ideas can make your rich. These are just some tips from famous investors Robert Kiyosaki and Donald Trump taken from their book entitled 'Why We Want You to Be Rich?'.
"International Herald Tribune" reprinted an expert from it. We found its coverage in Entrepreneur.com.
The book deals with investing. According to the authors, who question all common sense dogmas, there are three types of people:
1. The ones who do not invest at all
2. The ones who invest in order not to lose
3. The ones who invest to win
People in the first group expect their family, employer or government to look after them when they retire.
People in the second group think about safety. Here fall most of investors. They do not so much invest as save.
Trump and Kiyosaki, both of whom earned millions investing in real estates, are ardent adversaries of mutual funds. A lot of people who have been withdrawing their money from these funds in the last few weeks may be willing to agree with them.
People who invest in order to win, want the rate of return to be as high as possible. At the same time they're willing to learn and want to have more control over their investments.
Money is for everyone
Interestingly all types of investors may get rich. Even the ones who want others to take care of them. A chairperson at a large company doesn't have to worry about the future. Even if he loses his well paid post he can expect a lavish leaving allowance.
In an exerpt quoted in 'IHT' Robert and Donald discuss differences between saving and investing.
Accoriding to them investing in mutual funds is as a matter of fact saving. Kiyosaki gives a short summary of passive investor's philosophy:
Work hard. Make sure your company has a 401(k) program and pay highest possible rates. If you bought a house, pay off the morgage as soon as possible. Pay off your credit cards. Have a balanced portfolio of stock funds and when you grow older shift into bond funds in order to have a steady income.
Sounds familiar, doesn't it? Just what I heard from my financial advisor yesterday. It's quite a good strategy for the ones who want to save or passive investors. If you've got no clue about finances it's just about perfect solution. Although in today's conditions with market turmoil, financial crisis and recesion close at hand it may turn out to be pretty risky.
Therefore the authors avail themselves of the bad situation to point out all disadvantages of traditional approach. Their main assumption is the fact that such investing doesn't use leverage 'the possiblity to do more with less' at all.
1. Work hard
True, but not on your own. Working alone you won't use leverage. You've got to consider using other people's work. Work hard and at the same time employ other people to help you earn money.
2. Save money
Not necessarily. Saving destroys financial system. You've got to take loans, but smart loans that will help you get richer. Trump and Kiyosaki take lots of them. Thanks to them they can earn even more. Still you can't disregard the fact that only 10% of people take loans to earn money while 90% take loans to lose it.
If you realize a credit can be good, and can be used as a leverage, you'll gain an advantage over savers.
3. Get out of debt
Majority of savers think debt is a bad thing and you should pay it off as soon as possible. And it's often the case. Still you can use debt as a leverage for further investment.
Savers investing in funds can't use leverage. Bankers do not lend money on fund investments. Why? They find them to risky, and prefer real estate as more stable.
In our financial system with permanent inflation, savers lose and debtors win.
4. Invest for the long term
It's financial advisors' cliche. What does it mean to Kiyosaki and Trump?
Gimme your money for a long time, and I'll charge you a fee every month. Seller wants you as a loyal long term client.
It's like selling your house, paying commission to the agent, and then renting that very house and paying commission every month as long as you stay there.
Funds are less efficient than other forms of investment, since you lose your money on fund management fees. So why spending more on an investment that's less efficient?
5. Diversify
According to Warren Buffet diversification is a protection against ignorance. If you know what you're doing it doesn't make any sense. So the big question is: whose ignorance do you need protection from? Your own or your financial advisor's?
Kiyosaki believes it's much better to focus your assets. Diversification is a defenssive tool and doesn't allow you to use leverage.
Leverage is the key
According to the authors the most important thing is to use your brains. Learn nuts and bolts of the financial system and try to do more with the assets you have. The best way to get rich is to use debt and other people's work, shun unncecessary fees and focus on investments that yield high rate of return.