The following has been excerpted from Robert Kiyosaki and Donald Trump's new book, Why We Want You to Be Rich: Two Men--One Message.
There are three types of investors in the world. They are:
- People who do not invest at all
- People who invest not to lose
- People who invest to win
People who do not invest at all expect their family, the company they work for or their government to take care of them once their working days are over.
People who invest not to lose generally invest in what they think are safe investments. This is the vast majority of investors. These people have the saver's mentality when it comes to investing.
People who invest to win are willing to study more, want more control and invest for higher returns.
Interestingly, all three investor types have the potential to become very rich, even those who expect someone else to take care of them. For example, the CEO of Exxon recently retired and was paid nearly half a billion dollars as a going-away present.
There Is a Difference Between Savers and Investors
Many people invest in mutual funds. When I talk about not being a saver, many of them respond, "But I am investing. I have a portfolio of mutual funds. I have a 401(k). I also own stocks and bonds. Isn't that investing?"
I take a step back and explain myself a bit more, "Yes, saving is a form of investing. So when you buy mutual funds or stocks or bonds, you are sort of investing, but it is more from a saver's point of view and a saver's set of values."
Let's look at the passive investor philosophy. Once again, most financial planners will advise you to
- Work hard
- Save money
- Get out of debt
- Invest for the long term (primarily in mutual funds)
Putting this in financial planners' language, it often sounds like this. "Work hard. Make sure the company you work for has a matching 401(k) program. Be sure to maximize your contribution. After all, it's tax-free money. If you own a home, pay off that mortgage quickly. If you have credit cards, pay them off. Also, have a balanced portfolio of growth funds, a few small cap funds, some tech funds, a fund for foreign equities, and when you get older, shift into bond funds for steady income. Of course, diversify, diversify and diversify. It's not smart to keep all of your eggs in one basket."
While not exact, I am sure this sales pitch, disguised as financial advice, has a familiar ring to you.
Donald Trump and I are not saying everyone should change and stop doing this. It is good advice for a certain group of people--people who have a saver's philosophy or are passive investors.
In today's environment, I believe it to be the riskiest of all financial advice. To the financially unsophisticated, it sounds like safe and intelligent advice.
Getting back to the difference between a saver and an investor, there is one word that separates them, and that word is leverage. One definition of leverage is the ability to do more with less.
Most savers do not use financial leverage. And you should not use leverage unless you have the financial education or financial training to apply it. But let me explain further. Let's look at this standard advice from the viewpoint of a saver and then an investor.
Let's start with the advice "work hard."
When most people think about the words "work hard," they think only about themselves working hard. There is very little leverage in you working hard. When Donald and I think about working hard, while we both work hard individually, we mostly think about other people working hard for us to help make us rich. That's leverage. It's sometimes known as other people's time.
While I covered saving money in the last chapter, there are a few other points that are worth mentioning.
The problem with saving money is that the current economic system needs debtors, not savers, to expand.
Let me explain with the following diagram, as originally described in Rich Dad Poor Dad:
Take a moment to study this diagram. Your savings are a liability to the bank even though those same savings are an asset to you. On the other hand, your debt is an asset to the bank, but it is your liability.
For our current economic system to keep growing, it needs smart borrowers . people who can borrow money and get richer, not people who borrow money and get poorer. Once again, the 90/10 rule of money applies--10 percent of the borrowers in the world use debt to get richer--90 percent use debt to get poorer.
Donald Trump and I use debt to get richer. Our bankers love us. Our bankers want us to borrow as much money as we can because borrowers make them richer. This is called other people's money (OPM). Donald and I recommend more financial education for you because we want you to be smarter when it comes to the use of debt. If we have more debtors, our nation's economy will grow. If we have more savers, our economy will shrink. If you can understand that debt can be good, and carefully learn to use debt as leverage, you will gain an advantage over most savers.