Read an Excerpt
Rich Dad's Guide to Investing
By Robert T. Kiyosaki Sharon L. Lechter
Warner BooksCopyright © 2000 Robert T. Kiyosaki and Sharon L. Lechter
All right reserved.
Chapter OneWhat Should I Invest In?
In 1973, I returned home from my tour of Vietnam. I felt fortunate to have been assigned to a base in Hawaii near home rather than to a base on the East Coast. After settling in at the Marine Corps Air Station, I called my friend Mike and we set up a time to have lunch together with his dad, the man I call my rich dad. Mike was anxious to show me his new baby and his new home so we agreed to have lunch at his house the following Saturday. When Mike's limousine came to pick me up at the drab gray base BOQ, the Bachelor Officers' Quarters, I began to realize how much had changed since we had graduated together from high school in 1965.
"Welcome home," Mike said as I walked into the foyer of his beautiful home with marble floors. Mike was beaming from ear to ear as he held his seven-month-old son. "Glad you made it back in one piece."
"So am I," I replied as I looked past Mike at the shimmering blue Pacific Ocean, which touched the white sand in front of his home. The home was spectacular. It was a tropical one-level mansion with all the grace and charm of old and new Hawaiian living. There were beautiful Persian carpets, tall dark green potted plants, and a large pool that was surrounded on three sides by his home, with the ocean on the fourth side. It was very open, breezy, and the model of gracious island living with the finest of detail. The home fit my fantasies of living the luxurious life in Hawaii.
"Meet my son James," said Mike.
"Oh," I said in a startled voice. My jaw must have been hanging open as I had slipped into a trance taking in the stunning beauty of this home. "What a cute kid." I replied as any person should reply when looking at a new baby. But as I stood there waving and making faces at a baby blankly staring back at me, my mind was still in shock at how much had changed in eight years. I was living on a military base in old barracks, sharing a room with three other messy beer-drinking young pilots, while Mike was living in a multi-million-dollar estate with his gorgeous wife and newborn baby.
"Come on in," Mike continued. "Dad and Connie are waiting for us on the patio."
The lunch was spectacular and served by their full-time maid. I sat there enjoying the meal, the scenery, and the company when I thought about my three roommates who were probably dining at the officer's mess hall at that very moment. Since it was Saturday, lunch on the base was probably a sub sandwich and a bowl of soup.
After the pleasantries and catching up on old times was over, rich dad said, "As you can see, Mike has done an excellent job investing the profits from the business. We have made more money in the last two years than I made in the first twenty. There is a lot of truth to the statement that the first million is the hardest."
"So business has been good?" I asked, encouraging further disclosure on how their fortunes had jumped so radically.
"Business is excellent," said rich dad. "These new 747s bring so many tourists from all over the world to Hawaii that business cannot help but keep growing. But our real success is from our investments more than our business. And Mike is in charge of the investments."
"Congratulations," I said to Mike. "Well done."
"Thank you," said Mike. "But I can't take all the credit. It's dad's investment formula that is really working. I'm just doing exactly what he has been teaching us about business and investing for all these years."
"It must be paying off," I said. "I can't believe you live here in the richest neighborhood in the city. Do you remember when we were poor kids, running with our surfboards between houses trying to get to the beach?"
Mike laughed. "Yes I do. And I remember being chased by all those mean old rich guys. Now I'm the mean old rich guy who is chasing those kids away. Who would have ever thought that you and I would be living ...?"
Mike suddenly stopped talking once he realized what he was saying. He realized that while he was living here, I was living on the other side of the island in drab military barracks.
"I'm sorry," he said. "I ... didn't mean to ..."
"No apologies necessary," I said with a grin. "I'm happy for you. I'm glad you're so wealthy and successful. You deserve it because you took the time to learn to run the business. I'll be out of the barracks in a couple of years as soon as my contract with the Marine Corps is done."
Rich dad, sensing the tension between Mike and me, broke in and said, "And he's done a better job than I have. I'm very proud of him. I'm proud of both my son and his wife. They are a great team and have earned everything they have. Now that you're back from the war, it's your turn Robert."
May I Invest With You?
"I'd love to invest with you," I eagerly replied. "I saved nearly $3,000 while I was in Vietnam and I'd like to invest it before I spend it. Can I invest with you?"
"Well, I'll give you the name of a good stockbroker," rich dad said. "I'm sure he'll give you some good advice, maybe even a hot tip or two."
"No, no, no," I said. "I want to invest in what you are investing in. Come on. You know how long I've known you two. I know you've always got something that you're working on or investing in. I don't want to go to a stockbroker. I want to be in a deal with you guys."
The room went silent as I waited for rich dad or Mike to respond. The silence grew into tension.
"Did I say something wrong?" I asked finally.
"No," said Mike. "Dad and I are investing in a couple of new projects that are exciting but I think it is best you call one of our stockbrokers first and begin investing with him."
Again there was silence, punctuated only by the clinking of the dishes and glasses as the maid cleared the table. Mike's wife Connie excused herself and took the baby to another room.
"I don't understand," I said. Turning to rich dad more than Mike, I continued, "All these years I've worked right along side the two of you building your business. I've worked for close to nothing. I went to college as you advised and I fought for my country as you said a young man should. Now that I'm old enough and I finally have a few dollars to invest, you seem to hesitate when I say I want to invest in what you invest in. I don't understand. Why the cold shoulder-are you trying to snub me or push me away? Don't you want me to get rich like you?"
"It's not a cold shoulder," Mike replied. "And we would never snub you or not wish you to attain great wealth. It's that things are different now."
Rich dad nodded his head in slow and silent agreement.
"We'd love to have you invest in what we invest in," rich dad finally said. "But it would be against the law."
"Against the law?" I echoed in loud disbelief. "Are you two doing something illegal?"
"No, no," said rich dad with a chuckle. "We would never do anything illegal. It's too easy to get rich legally to ever risk going to jail for something illegal."
"And it is because we want to always remain on the right side of the law that we say it would be illegal for you to invest with us," said Mike.
"It's not illegal for Mike and me to invest in what we invest in. But it would be illegal for you," rich dad tried to summarize.
"Why?" I asked.
"Because you're not rich," said Mike softly and gently. "What we invest in is for rich people only."
Mike's words went straight through me. Since he was my best friend, I knew they were difficult words for him to say to me. And although he said them as gently as possible, they still hurt and cut like a knife through my heart. I was beginning to sense how wide the financial gap between us was. While his dad and my dad both started out with nothing, he and his dad had achieved great wealth. My dad and I were still from the other side of the tracks, as they say. I could sense that this big house with the lovely white-sand beach was still far away for me, and the distance was measured in more than miles. Leaning back in my chair and crossing my arms in introspective thought, I sat there nodding quietly as I summarized that moment in our lives. We were both 25 years old but in many ways, Mike was 25 years ahead of me financially. My own dad had just been more or less fired from his government job and he was starting over with nothing at age 52. I had not even begun.
"Are you OK?" asked rich dad gently.
"Yeah, I'm OK," I replied, doing my best to hide the hurt that came from feeling sorry for myself and for my family. "I'm just doing some deep thinking and some soul searching," I said, mustering a brave grin.
The room was silent as we listened to the waves and as the cool breeze blew through the beautiful home. Mike, rich dad, and I sat there while I came to terms with the message and its reality.
"So I can't invest with you because I'm not rich," I finally said as I came out of my trance. "And if I did invest in what you invest in, it would be against the law?"
Rich dad and Mike nodded. "In some instances," Mike added.
"And who made this law?" I asked.
"The federal government," Mike replied.
"The SEC," rich dad added.
"The SEC?" I asked. "What is the SEC?"
"The Securities and Exchange Commission," rich dad responded. "It was created in the 1930s under the direction of Joseph Kennedy, father of our late President John Kennedy."
"Why was it created?" I asked.
Rich dad laughed. "It was created to protect the public from wild unscrupulous dealmakers, businessmen, brokers, and investors."
"Why do you laugh?" I asked. "It seems like that would be a good thing to do."
"Yes, it is a very good thing," rich dad replied, still chuckling a little. "Prior to the stock market crash of 1929, many shady, slippery, and shoddy investments were being sold to the public. A lot of lying and misinformation was being put forth. So the SEC was formed to be the watchdog. It is the agency that helps make-as well as enforce-the rules. It serves a very important role. Without the SEC, there would be chaos."
"So why do you laugh?" I persisted.
"Because while it protects the public from the bad investments, it also keeps the public out of the best investments," replied rich dad in a more serious tone.
"So if the SEC protects the public from the worst investments and from the best investments, what does the public invest in?" I asked.
"The sanitized investments," rich dad replied. "The investments that follow the guidelines of the SEC."
"Well, what is wrong with that?" I asked.
"Nothing," said rich dad. "I think it's a good idea. We must have rules and enforce the rules. The SEC does that."
"But why the chuckle?" I asked. "I've known you too many years and I know you are holding back something that is causing you to laugh."
"I've already told you," said rich dad. "I chuckle because in protecting the public from the bad investments, the SEC also protects the public from the best investments."
"Which is one of the reasons the rich get richer?" I asked tenuously.
"You got it," said rich dad. "I chuckle because I see the irony in the big picture. People invest because they want to get rich. But because they're not rich, they're not allowed to invest in the investments that could make them rich. Only if you're rich can you invest in a rich person's investments. And so the rich get richer. To me, that is ironic."
"But why is it done this way?" I asked. "Is it to protect the poor and middle class from the rich?"
"No, not necessarily," Mike responded. "I think it is really to protect the poor and the middle class from themselves."
"Why do you say that?" I asked.
"Because there are many more bad deals than good deals. If a person is not aware, all deals-good and bad-look the same. It takes a great deal of education and experience to sort the more sophisticated investments into good and bad investments. To be sophisticated means you have the ability to know what makes one investment good and the others dangerous. And most people simply do not have that education and experience," said rich dad. "Mike, why don't you bring out the latest deal we are considering?"
Mike left the table for his office and returned with a three-ring binder that was about two inches thick filled with pages, pictures, figures, and maps.
"This is an example of something we would consider investing in," said Mike as he sat down. "It is known as a non-registered security. This particular investment is sometimes called a private placement memorandum."
My mind went numb as Mike flipped though the pages and showed me the graphs, charts, maps, and pages of written text that described the risks and rewards of the investment. I felt drowsy as Mike explained what he was looking at and why he thought it was such a great investment opportunity.
Rich dad, seeing me begin to fade away with the overload of unfamiliar information, stopped Mike and said, "This is what I wanted Robert to see."
Rich dad then pointed to a small paragraph at the front of the book that read "Exemptions from the Securities Act of 1933."
"This is what I want you to understand," he said.
I leaned forward to be better able to read the fine print his finger was pointing to. The fine print said, "This investment is for accredited investors only. An accredited investor is generally accepted to be someone who:
has a net worth of $1 million or more; or
has had an annual income of $200,000 or more in each of the most recent years (or $300,000 jointly with a spouse) and who has a reasonable expectation of reaching the same income level in the current year."
Leaning back in my chair, I said, "This is why you say I cannot invest in what you invest in. This investment is for rich people only."
"Or people with high incomes," said Mike.
"Not only are these guidelines tough, but the minimum amount you can invest in this investment is $35,000. That is how much each investment-unit,' as it is called, costs."
"$35,000!" I said with a gasp. "That is a lot of money and a lot of risk. You mean that is the least someone can invest in this deal?"
Rich dad nodded. "How much does the government pay you as a Marine Corps pilot?"
"I was earning about $12,000 a year with flight pay and combat pay in Vietnam. I really don't know what my pay will be here now that I am stationed in Hawaii. I might get some COLA, cost of living allowance, but it sure isn't going to be much, and it certainly will not cover the cost of living in Hawaii."
"So for you to have saved $3,000 was quite an accomplishment," said rich dad, doing his best to cheer me up. "You saved nearly 25% of your gross income."
I nodded yet silently I realized how very, very far behind I was from becoming a so-called accredited investor. I realized that even if I became a General in the Marine Corps, I would probably not earn enough money to be considered an accredited investor. Not even the president of the United States, unless he or she were already rich, could qualify on salary alone.
"So what should I do?" I finally asked.
Excerpted from Rich Dad's Guide to Investing by Robert T. Kiyosaki Sharon L. Lechter Copyright © 2000 by Robert T. Kiyosaki and Sharon L. Lechter. Excerpted by permission.
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