A few weeks ago, Robert Kiyosaki wrote an extraordinarily stupid article entitled "Playing the Mutual Fund Lottery". Kiyosaki tried to argue that buying mutual funds was akin to playing the lottery. Recently, the hapless son of rich dad disowned the article; now he claims that it was a joke written by a friend. Regrettably, the rest of the world lacked his subtle sense of humour, and couldn't pick up on his joke.
However, his most recent article shows an almost equal lack of understanding about the world of finance. This week, he tells us about another financial piece of wisdom, passed on to him by his mythical rich dad - the investor food chain. At the top of this chain we find the capitalists, followed by the bankers, then the bondholders, stockholders and mutual funds, with the workers sitting at the bottom. It is a perspective that Lenin and Marx would have endorsed; happy rich guy at the top, miserable worker at the bottom. The key question Kiyosaki poses is "where on the food chain are you?".
Kiyosaki uses this dubious line of thinking to argue against mutual funds. He points out that "mutual fund investors are just above the bottom" and therefore inferior to banks and bondholders. In his uniquely clueless and incoherent way, Kiyosaki seems to be telling his readers that if they can't be capitalists, they shouldn't invest in equity but should choose fixed-income instead. He talks of the "power of debt in contrast to equity" and that "debt holds a higher position than equity, and bankers and bondholders are in debt positions. Preferred stocks, stocks, and mutual funds are in equity positions". Hopefully, most investors, even the amateur ones that Kiyosaki so contemptuously derides, know the difference between equity and debt.
If only it were as easy as Kiyosaki suggests. The problem, however, is that the returns of fixed-income assets haven't been that impressive in the last five or so years. Certainly, the risks associated with fixed-income assets have been low, but returns have barely kept up with inflation. Until comparatively recently, equity hasn't done much better. Meanwhile some mutual funds have done well, while others have done badly.
I love reading Kiyosaki's articles. His advice is so painful and so self-evident that it is hilarious Obviously, he understands real estate investing when housing prices are in the midst of a bubble. He runs into serious problems when the bubble bursts, and it's obvious to the whole world that real estate investing is a certain money loser. The housing crash has forced him to write about the more complex and wider world of investing. However, his lack of understanding is cruelly exposed. What he knows, everybody knows, and it is hardly worth saying. Keep reading his column, you will learn nothing useful about investing, but it will give you a unique insight into how the amateur property developer reconciles himself to a world of crashing real estate prices.
Kiyosaki is a fraud.
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