Learn to invest in businesses that generate CASH FLOW!

I got hold of Robert Kiyosaki's Rick Dad's Conspiracy of the Rich: The 8 New Rules of Money a couple of years back.  I spent one month reading the first few chapters and it bored me to death.  It talked all about history and stuff that I really didn't get a grasp on.  A few days ago, I decided that since it was taking me a decade to finish this book, I might as well return it to the owner already.  I was giving up.  I told myself this book wasn't for me.  And to prove my point, I browsed through the content one more time just to be sure.  It was then  that I caught a glimpse of the second part of the book which offered ideas that I have never encountered before. In a way, it was very enlightening as most of what Robert Kiyosaki was preaching was in contradiction to some of the contents we've written here on our site. Read on to know more about these contradictions. 

Cash Flow vs. Capital Gains

According to Robert Kiyosaki, 90 percent of all money is earned by only 10 percent of the population.  And that the people in this group knows how to invest for Cash Flow rather than for Capital Gains.  The main difference between Cash flow and Capital Gains is the time frame.  When one invests for Cash Flow, one is expected to receive a certain amount of money over a period of time.  As oppose to investing for capital gains where in you only get a sum of money once.  Sadly, in a way, investing in the stock market with a buy-low-sell-high attitude is one example of investing for Capital Gains.  While some stocks do give out dividends, and that these dividends can be considered a form of cash flow, the amount of dividend to be given out is greatly dependent on the economy and how well the company is doing as well.

Cash flow for average people includes Savings, Stocks, Pensions, and Annuities.  

A Note on Diversification

Most financial planners would say that you are diversified when you invest in different sectors.  In stocks, you may invest in the financial, property, and mining sectors and call your portfolio diversified.  It you invest in mutual funds, you might invest in fixed term instruments, equity-based funds, and global funds and call your portfolio diversified.  One point that Mr. Kiyosaki wrote that left a mark was the fact that these are all paper assets! And when a financial crisis like that in 2007 happens again, all these assets will lose value regardless which sector or type of fund you invested in.  In essence, this is false diversification.

A sophisticated investor therefore must learn to invest in these four basic categories: Businesses (providing passive income), Income-producing investment real estate (ex: rental income), Paper assets (stocks, bonds, savings, annuities, insurance, and mutual funds), and Commodities (gold, silver, oil, platinum, etc.).  Quite similar to the Money Mountains as mentioned by Robert Allen in his book Multiple Streams of Income.

The Secret of Success: Sell

Growing up we have been inculcated a few ideas which Mr. Kiyosaki considered as Financial Fairy Tales.  These are common ideas shared by our parents, relatives, friends, and even financial planners and bloggers alike.  

For one we always here people telling us to "Live below our means."  According to the author this doesn't send a good message as it tells people not to desire the finer things in life.  In effect, it is telling us that we can't have what we want.  Rather that leave below our means, the author encourages us to learn how to sell, earn more, and go for our dreams.  

Secondly, your parents might have told you to "Go to school so you can get a secure job."  Remember that the more security you crave, the less freedom you actually have.  Selling yourself or a skill that you possess only allows you to generate one source of cash flow and that source can be easily taken away from you.

Lastly, the third financial fairy tale which we might not know about is "Social Security and the Stock Market." Robert Kiyosaki related both the Social Security and the Stock Market to a Ponzi scheme.  For Social Secutiry to survive, new graduates must be encouraged to join the work force so that new funds can come in and support the older population.  While in the stock market, new money must come in in order for prices to go up.  When the money runs out, that's when the market crashes.

In conclusion, Robert Kiyosaki wrote "if you want to get out of the Rat Race and move onto the Fast Track to living a rich life, you have to overcome your fear of rejection and learn the valuable skill of selling.  Remember: Focus more on selling rather on buying.  If you want to be rich, you must sell much more than you buy."

Some interesting insights from one of the bestselling investment and finance authors in the world.  If you would like to know which investments Mr. Kiyosaki is involved in, he wrote that he engages in Businesses, Real Estate, Oil drilling, and Royalties (book publishing, game boards, etc.)

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