Before I get going, allow me to say that I am a very big fan of Robert Kiyosaki and his Rich Dad Poor Dad books.
I first heard of him many years ago, in an infomercial on US TV.
What he was saying at that time made perfect sense to me and when I got back to the UK, I went on to Amazon and bought his first book, Rich Dad Poor Dad.
I read it from cover to cover and it changed my life.
And as an Englishman, I don’t use that phrase lightly!
Having said all that, I don’t agree with everything that Robert Kiyosaki says and there is one thing in particular that I think he is wrong about.
Unfortunately for him…and YOU if you do exactly as he says…getting this wrong could cost you thousands of pounds (or dollars, etc.) over your lifetime.
If you want to know what I’m talking about, then keep reading…
Who Is Robert Kiyosaki?
Robert Kiyosaki is famous for the Rich Dad Poor Dad book series, which all started with his first book of the same name.
He uses the story of his Dad (poor dad) and his friend Mike’s Dad (rich dad) and the contrast between how they both think about and manage their money to explain the subject of financial literacy in a simple and effective way.
He tells his story of how he followed the advice of his “Rich Dad” and became financially free as a result.
Indeed, if you want to become financially free yourself, then buying his Rich Dad Poor Dad book on Amazon like I did many years ago could be your ticket to financial freedom.
Rich Dad’s Prophecy
Since writing Rich Dad Poor Dad, Robert Kiyosaki has published a number of follow-up books, including one called Rich Dad’s Prophecy.
The central premise of this book is that in 2016, “baby boomers” in the United States will start reaching the age of 70.5 years and therefore start cashing in their 401(k) retirement plans.
As these plans are invested in the stock market, Robert Kiyosaki reasons that this will drain cash out of the stock market like never before resulting in a huge stock market crash.
His answer to protecting your wealth is therefore to move your cash out of the stock market (and presumably your 401(k) plans) before 2016 and invest it into property or your own business instead.
On the face of it, Robert Kiyosaki makes a reasonable argument and indeed, when the population bulge of “baby boomers” are forced to cash in their retirement plans, shares will need to be sold to create that cash.
But what then happens to the cash?
Not only that, but is Robert Kiyosaki right to assume that property will be safe from a sell off?
Why I Think Robert Kiyosaki Has Got It Wrong
Economics does not work in the way that Robert Kiyosaki seems to think it does.
Just because some stock market shares are being sold to create cash, that does not mean that the cash will disappear.
The cash has to go somewhere.
In other words, cash is being transferred from one asset type to another.
Essentially, when a retirement plan or pension is “cashed in” the cash is used to buy an annuity.
These annuities are provided by the same financial services companies as provided the retirement plans in the first place.
In other words, the financial service companies are now investing the same cash for their own needs (to support the annuity payouts to retirees) rather than to grow a pension pot for those same retirees.
To my mind this is nowhere near as dramatic a change as Robert Kiyosaki is trying to make out.
Now let’s look at property.
There are more people owning their own property than have a 401(k) retirement plan.
Whilst baby boomers are obviously not forced to sell their property when they reach the age of 70.5 years, they will “sell” it eventually, either because they need the cash to fund their retirement or they pass it on to their family or the Government when they die.
The population bulge of baby boomers selling their properties creates a greater supply of properties onto the market and thus a fall in property prices.
Compared to company shares, selling a property has much higher sales transaction costs and takes a lot longer to sell, especially if the property market is depressed at the time you want to sell it.
And when property markets fall, they don’t bounce back quickly like stock markets do.
To my mind, having your cash in an inflexible, illiquid investment like property is a much higher risk strategy than having it invested in a variety of company shares.
Especially if those company shares are large blue-chip global companies that don’t rely on the US population for their earnings.
Property Is Not The Answer
I speak at length in my other posts on this site about why shares are a better investment than property.
Not only that but investing in a diversified portfolio of company shares on a recognised stock market produces higher long-term returns than property.
If you think differently and you’d like to leave me a comment then I’d love to hear from you – just drop me a comment in the section at the bottom of this page.
Alternatively, if this post has captured your interest and you’d like to know how to get started investing in shares then you might wish to consider applying for a FREE Stock Market Success Breakthrough Session?
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