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In Defense of Robert Kiyosaki: Increase Your Financial IQ

By: Steve Johnson

5/8/2008 - 64 Comments

JD Roth is the author of the popular financial blog, Get Rich Slowly.  Yesterday JD wrote a review of Robert Kiyosaki’s new book, “Increase Your Financial IQ”.

In the review, (which you can read here) JD does a great job outlining the five points of the book and then goes on to explain what he disagrees with.  JD’s primary disagreement with Robert is Roberts’s advice NOT to invest in mutual funds, as Robert argues that mutual funds are obsolete.

In Defense of Robert

I happen to agree with Robert and believe that mutual funds are obsolete in today's world with a global economy that is based on the world reserve currency (the dollar) that is losing value.  A decade ago, an investor could get away with mutual funds, but today’s investor needs to have a much better understanding of the global currency market and realize that all dollar based assets are losing value.

Robert is 100% correct when he says, “It is not real estate, stocks, mutual funds, businesses, or money that makes a person rich.  It is information, knowledge, wisdom, and know-how, a.k.a. financial intelligence, that makes one wealthy.”

JD’s Rub

JD is a strong supporter of diversification and says, “Kiyosaki does not believe in diversification. He spends a lot of time criticizing financial experts who recommend a well-diversified portfolio of mutual funds.” “It’s stuff like this that prevents me from recommending Kiyosaki’s books without reservation. Diversification isn’t a hoax. It isn’t a scam. Other than Kiyosaki, it’s embraced by almost every financial author I’ve ever read. Diversification is a central tenet of modern portfolio theory. It’s backed by facts, not opinions.” “The richest investor in the world, Warren Buffett, does not diversify,” Kiyosaki says. His implication is that you should not diversify either.”

I think JD is misinterpreting Roberts’s advice

The reason Robert can say Warren Buffett does not diversify, is because Warren only invests in what he has created a system for finding good investments with. Nobody else has the system the Warren has developed. It only works for Warren and Warren never invests in something that is outside of his system - which is based on his market knowledge.

Robert says, “You need to find the style and method that is best suited for you. While it is important to learn from people like Warren and Donald, it is also important to find your own formula.” Robert only invests in what he understands and only uses his proven system. That’s why he says, everyone needs to find their own system and once you find a system - focus on it and it alone.

FOCUS

Robert has found that the best way for him to get ahead is to focus. He uses the acronym, FOCUS= Follow One Course Until Successful.

I agree with Robert, and I disagree with investing in mutual funds as suggested by most financial advisers. The reason people invest in mutual funds is because they don’t know enough about any one industry or market to make a good decision. They don’t have a proven system to make their investment decisions with, and therefore all they can do is spread their money around and hope for an average return.

It’s not that diversification is a bad thing. It’s just not as good as investing in your own system or your own business that you have developed and has historically beat the market.  Investing in your own business where you have control and a deep understanding of the market is better than diversifying into other markets that you know little about.

Robert’s advice to create a system that produces a positive cash-flow is the cornerstone of his legacy and the best advice he could give. He believes that the tax advantages of real-estate provide him leverage to create a system of cash-flow, but acknowledges that everyone needs to find their own system. 

Robert is not the only one to make such a suggestion.  Michael Gerber (author of E-Myth Mastery) also suggests a focused approach with lots of practice is the key to an entrepreneur’s success.  Robert is not an investor, he is an entrepreneur. Therefore his point of view is always from an entrepreneur’s perspective.

Robert has some of the best advice; you just have to understand what he is saying. His advice to invest in commodities is also underrated as the dollar is losing value very fast. Now is a good time to sell your mutual funds and buy gold and silver.

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