The rich are different from you and me, says author Robert Kiyosaki:They teach their children how to be rich.
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Credit Suisse First Boston's
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Mellon Private Wealth Management's H. Vernon Winters
These get-rich techniques include investing with leverage, protecting one's investments withinsurance, taking advantage of tax laws, and perhaps most controversially,staying away from mutual funds and 401(k)'s, which Kiyosaki says are way toorisky.
Kiyosaki has parlayed these basic strategies intoa series of bestselling books, starting in 1997 with
Rich Dad, PoorDad,
which stayed on
The New York Times
bestseller list for over70 weeks. He recently published his fifth book,
Retire Young, RetireRich,
and all told, his books have sold over 11 million copies in 40different languages.
Here the former Marine and Xerox salesman talks about how he's appliedhis philosophies to his own life, in the process achieving an estimated networth of around $50 million.
TSC: What's the basic "Rich Dad, Poor Dad" idea?
True story. I had both a rich dad and a poor dad. My own dad was head of education on the big island in Hawaii, with a Ph.D. Because of the way the school districts were drawn, I got to attend a school where all the rich kids went, and I became best friends with another guy who also wasn't rich, but whose father was an entrepreneur, who later became rich.
My dad, the socialist, didn't like his dad, the capitalist, but he did tell me to listen to him; my "rich dad," he beat me over the head. He told me to wise up.
TSC: Your new book, your fifth, is entitled
Retire Young, Retire Rich
. It's a nice idea, but realistically speaking, how likely is it that us working stiffs are going to be able to retire young and rich, let alone with enough to get us by in our golden years?
I hate that term "working stiff." This is America. This is the land of opportunity. But it is not the land of guarantees. So, it's possible but it depends upon the individual's desire, drive and dreams. It comes down to tenacity.
I am very concerned, personally, about the number of people
who will never be able to retire in their lifetime. Because these 401(k)'s and mutual funds ... are so risky, I don't think people will be able to retire on them. And that's really sad. There are investors, perhaps 20% of them, typically the wealthier,
whose investments are managed well. But most people don't have a prayer -- because there's no Social Security and these mutual funds are
TSC: But Americans have nearly $7 trillion invested in mutual funds. They're the principal way most Americans are saving for retirement.
I know, but I was able to retire at age 47, after just nine years of putting my money to work in businesses, real estate and options, all without owning a single share of a stock or a mutual fund.
All I am saying is that, if mutual funds work for you, good. But if you want some new answers and some new ideas, I am the guy that provides it.
TSC: Being anti-401(k) and antimutual funds is a bit heretical, wouldn't you admit?
Oh yeah, but it's not that
am saying it; it's the tax law that says it. There's three different types of income in the world: earned, portfolio and passive, with earned income coming from your job, portfolio income coming from capital gains, generally from stocks and bonds, and passive income from real estate.
Passive income can be taxed at 0%. Portfolio income is taxed at 20% or more. And earned income, once you factor in Social Security and income taxes, actually is taxed at 50%. People look at
federal income taxes of 30%, but when you tack on
state, Social Security and other cumulative taxes of 15%, it's up there. That means that any savings you put away is taxed at 50%. So, why would you do that?
TSC: Let's get right to the heart of some of these atypical investing solutions of yours. What
the answers to being able to retire young and rich, if it's not the 401(k)'s, the mutual funds, the annuities and the stocks that everyone else is so keen on?
As I said, those vehicles are only good for about 20% of the population, people making $100,000 or more.
TSC: Why is it only good for them?
I hate to tell you this, but over the last several months, mutual funds have lost
amounts of money. It's going to happen again. I mean, look, the reason I write
about all this is this: I don't invest without insurance, and mutual funds have got no insurance from a stock market crash. To me, that's sad, and I am concerned.
TSC: So, how do you invest with insurance?
In real estate, my banker requires me to have insurance from catastrophic losses. When I invest in paper assets, whether it be a stock or something, I either put a trailing stop order in, which costs me zero, or I buy an option.
TSC: With regard to the trailing stop orders, what percentage loss will you tolerate before you direct your broker to sell your holdings?
It depends upon the volatility of the day and how badly I want to keep the stock. The point I'm making here, and I don't want to get too complex, is that I would never invest without insurance, and that includes my stocks. The average person thinks hedge funds, Long Term Capital Management being a base in point, are risky. But the real point is that the average person thinks that mutual funds are safe, and they are actually the riskiest things going. I would
invest in one.
TSC: The burning question here, then, is where do
have your investments if it's not where the rest of us have put our money?
There are three assets classes: paper assets, which
cover very, very well. But that's a very sophisticated person
who can play that market. And the losses are
for the average person.
The second asset class is a business. The reason most people cannot invest that much is because their single greatest expense is taxes. Let's say you start a little home-based business. At that moment, you start getting the tax advantages of the rich.
And the third point here is real estate, and the reason I like real estate is that I use my banker's money, so I get leveraged.
So the three factors are: 1) hedging and insurance, 2) minimizing taxes, and 3) using other people's money. In a 401(k) you are primarily using your own money; my banker will not let me borrow money to buy mutual funds because they are too risky. But my banker will lend me money -- because I have good financials -- for real estate, with loan terms of 30 years at a fixed percent.
TSC: So within these three categories, can you give us some further detail about your holdings?
In terms of stock holdings, I don't own any stocks or even mutual funds. I use options, which I hold anywhere between six months to two years. Right now, I'm writing naked puts on gold stocks.
I have controlling interest, but not ownership (because if you own a company you can be sued), in three C corporations headquartered in Nevada, due to its tax and legal protections: an oil company, a silver company and a publishing holding company for my
Rich Dad, Poor Dad
In real estate, I like the commercial and residential income, and I own 10 rental buildings in Miami, Austin and Phoenix. It's passive income, I get depreciation and I use my bankers' money, so I get leverage. Plus, the best part is, tens of thousands of dollars pour in every month.
Basically, I make high finance very simple.
TSC: How much would you say you're worth?
Anywhere between $50 million and $100 million, depending on the day
. ... In fact, I have a problem with
much money. ... I can't reinvest it fast enough, and because I reinvest it, more money comes in. Yes, the rich do get richer.
TSC: One of your main tenets is that people should put their money to work for them, as opposed to squandering it on luxury items like a Mercedes, thousand-dollar suits or vacations to St. Croix. But certainly with your current level of wealth, you must have broken down and gone on some sort of a shopping spree, no?
Well, I own a fleet of Porsches, although they're second-hand. I travel the world. But I've never been back to Hawaii.
TSC: Did you ever expect to have this kind of success for the
Heavens, no. Never did I expect to appear on
or to have
Rich Dad, Poor Dad
hit No. 6 on
The New York Times
paperback bestseller list, for 30 weeks or something. Today, it's sold over 11 million copies in 40 different languages.
TSC: In closing, I have to ask, what kind of "retirement" is this, if you are traversing the country promoting your book and your views on investing?
I had retired in 1994, but because I am very concerned about all these people invested in mutual funds, I felt a compelling desire to write these books, to leave behind a record of how my wife and I became multimillionaires in nine short years. We used these ideas as the pretext for a financial plan, after my hard-core, heavy-metal rock licensing business went belly-up in 1985, leaving me bankrupt and homeless at age 37.
We'd had a fabulously successful business licensing T-shirts and the like for big heavy-metal banks like Motley Crue, but when the taste in music changed in the mid-80's, with soft rock from the likes of Michael Jackson taking over, it took it all out from under us.
I figured it was time to stop with the rock n' roll and grow up.