About two weeks before reading Fake by Robert Kiyosaki, who also wrote Rich Dad, Poor Dad, I had sold my KrugerRands to pay for the installation of solar panels for my home and office.
I had reason to question my decision as the first section of Kiyosaki’s book is about why you should buy lots of gold and silver. Kiyosaki’s point ‒ in fact the whole point of the book which is about fake money, teachers and assets ‒ is that he believes that the financial system is going to collapse.
This is not a new idea and he quotes many authors who have warned that the crash of 2008 did not eradicate the unsavoury and unsustainable practices in the financial industry around the creation of “fake assets” and the inflation of the prices of these assets which have simply allowed the financial industry to make more money.
“Rather than creating new businesses, new products, more jobs, and rebuilding the US economy, they created exotic and risky financial instruments, including derivatives and credit default swaps, that produced sugar highs of immediate profits but separated those taking the risks from those who would bear the consequences,” he writes.
Kiyosaki calls gold and silver “God’s money.” It has been the primary medium of exchange for thousands of years. He argues, as do many gold bugs, that the decision to de-link the US dollar from the gold standard in 1971 has allowed the US government to print money to solve their trade deficit problems, introduced inflation into the system, and started the long-term decline of the US dollar.
Gold is not an investment
He is clear that gold is not an investment. It is not something that he intends to make a profit from, despite holding “millions and millions” of dollars’ worth of the precious metal which is privately guarded outside the US. For him it is purely an insurance policy against a financial meltdown. “I do not own gold and silver to make money. They are insurance, a hedge against the stupidity of the elites…and myself,” he says.
Kiyosaki still remains a firm believer in property for investment returns. He covers some of the basics from his original Rich Dad, Poor Dad book.
I found his book, which includes some of his spiritual beliefs as well as his financial philosophy, disjointed and repetitive, and at times contradictory. However, after having interviewed him, I got a better idea of his overall investment philosophy.
He told me at the outset that he is “a different category of investor.” This is an important point. Kiyosaki has made his money through real estate and the business behind the Rich Dad, Poor Dad franchise. His investment choices are not necessarily available to the average person and would not necessarily fit their financial needs. Kiyosaki puts all his money into gold because he doesn’t need it to generate income or to grow. It is effectively excess money. As he explained to me, “I would rather save in KrugerRands than in rands.” But that should not be mistaken with investing in KrugerRands.
His book is very dismissive of “paper assets” which include stocks, bonds, unit trusts and ETFs. He argues that these paper assets are just derivates of the actual asset and he would rather own the actual asset. This is a good argument if you have millions, but what if you wanted to invest in infrastructure, for example, as an average investor? You couldn’t afford to to finance an entire infrastructure project or buy a whole company. The “paper” allows you to own a portion of it and have some exposure to its profits. Kiyosaki acknowledges this in his book as “paper assets are easy to get into and get out of.”
When I asked him about Warren Buffet, who has made all his money through paper assets (shares), he responded, “I am not anti-businesses, I’m just an educator and love real estate.”
Making money from debt and tax breaks
He explained that his real business model is not real estate but debt and taxes. He finances his assets and thereby benefits from the tax breaks that are offered for financed real estate. During the financial crisis when property prices crashed and interest rates in the US dropped, he leveraged – borrowing $300 million at lower interest rates and bought property at bargain prices. “When the markets did crash in 2008, Kim and I made millions,” he writes in the book.
He acknowledged that the same was true of people who bought up shares at bargain prices during the same period. “People did the same thing in the stock market – all markets go up and go down,” he said. In his book he writes: “when markets crash, the rich simply borrow money and buy back workers’ shares at bargin-basement prices.”
So, the key financial principle for Kiyosaki is to use debt to purchase assets and benefit from the tax breaks. He prefers real estate as he can own the underlying asset directly as opposed to “paper”. He is very clear that not paying tax, legally, is one of the keys to making money. When I asked him how he feels about the growing anger that the rich do not pay their fair percentage of taxes, he argued that the poor are only angry because they were not taught at school how to invest and avoid taxes.
In summary, the book is an attack on the establishment and status quo. It certainly highlights the need for alternative assets, but I would argue that that doesn’t just mean gold and property.
Reflecting on my decision to swop my KrugerRands for solar panels, if the world is facing an even bigger crisis than 2008, having electricity security is going to provide me with more insurance than my gold coins. Unlike gold it also generates a return, which is an important factor considering I am not in the position of Kiyosaki and need my investments to grow or generate an income.
There certainly needs to a broader discussion around alternative asset classes such as farming, alternative energy and infrastructure ‒ these are all assets humans actually need and use. Some you can purchase directly, even through crowdfunding platforms like Fedgroup Impact Farming and LivestockWealth, but in many cases you have to buy ‘paper assets’ to access them. It is all about the price you pay and the cashflow (interest, dividends) they produce.
In terms of gold as investment, Kiyosaki sums it up well when he writes that some predict gold will reach $10 000 an ounce, but others predict that gold will drop to $400 an ounce. “What you do will depend on what you believe. I do not care. As I said, I buy gold and silver and will never sell for the seven reasons I have just explained.”
The book is worth a read if you want to expose yourself to different ways of thinking, but understand the position of the author as being in a different category of investor which may not be blueprint for your own finances.
Wise words – Kiyosaki quotes
- Poor people say, “I’m not interested in money.” Rich people say, “If you are not interested in money, money is not interested in you.”
- Assets put money in your pocket, liabilities take money from your pockets.
- Your house is your bank’s asset, not yours.
This article first appeared in City Press.