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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25318  
Subject: Re: Questioning Qualified Plans Date: 5/28/2004 9:45 PM
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corner,

You wrote, I just have to add another section from the book "Rich Dad's Prophecy", by Robert Kiyosaki. I hope it will invite some in 401(k) and other qualified plan land to question some assumptions and maybe to do some reading. I highly recommend all of Robert Kiyosaki's books.
I copy from pages 86 & 87:
"The other day, I was at an investment conference and I was talking to a young man who told me he was an investor. I then asked him what he was invested in. He reply was, 'I have a company 401(k) plan that has a well-diversified portfolio of large cap, small cap, a few sector funds, and of course a bond fund.'
As I nodded my head, I silently said to myself, 'Wall Street has done a good job educating this lifelong customer.' Not wanting to burst his bubble, I asked, 'How much income do you receive a month from your investments?'
'Income?' he replied. 'Why none. I don't have any income. Each month I send a portion of income, through payroll deduction, to these mutual fund companies.'
'And when do you expect to receive some income from these investments?' I asked.
'Oh, I'm twenty-seven now. I plan on letting my money grow tax free until I retire, hopefully by age sixty. Then I'll switch my portfolio to a self-directed account and live off my investments. You see, I'm investing for the long term.'
'Congratulations,' I said, shaking his hand. 'Keep on investing.'
The point is, this young man may be investing, but I would not call him an investor . . . at least not from the definition rich dad used when referring to the Cashflow Quadrant. According to rich dad, investors receive money from their investments on a regular basis. Until you begin receiving money, you may be investing . . . but you are not an investor. To prove to rich dad that I was an investor, I had to prove to him that money was flowing in . . .and had stopped flowing out."


So Robert Kiyosaki recounts an experience where he mentally scoffs at and belittles a young man for doing the best he knows how?

Besides, the proper definition of investor is: \In*vest"or\, n. One who invests.

Since the man is investing, I think Mr. Kiyosaki is wrong. I'm sure Mr. Kiyosaki has some other meaning in mind; but belittling someone for their efforts to save for retirement is no way to convince me of anything – even if his real intent was only to disparage Wall Street. If anything, I would become irritated at the author and more skeptical of his opinions.

In theory the income from an investment is irrelevant. All that ultimately matters is total return. Of course Mr. Kiyosaki does hit on an interesting point. Investments that produce an ongoing yield tend to be more stable and often more productive investments.

For instance, corporations that do not declare dividends tend to suffer more from corruption and mismanagement as well as share dilution through inappropriate compensation packages. Dividend payments tend to help align management's interest with the interests of shareholders. And in general, dividend-paying large cap securities do tend to slightly out-perform their non-dividend paying peers over time as a group, so income from an investment is desirable for less than obvious reasons…

Finally, I am still questioning qualfied plans. Is anyone else? I personally am looking for better ways. As I mentioned before the concept of becoming your own banker is one "better way" strategy. Robert Kiyosaki offers other good strategies and suggestions.

I too have issues with qualified plans. For instance, not all corporate 401(k) plans offer worthwhile investment (or savings) choices. Many people would be better off investing in a [Roth] IRA or even a taxable account. But most people don't have the knowledge to assess the quality of their investments; so overcoming that key limitation is probably a more important issue to solve.

BTW: I know that Mr. Kiyosaki made a bundle in a booming Hawaiian real estate market; but doesn't referring to him as rich dad seem kind of pretentious?

- Joel
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