Monday, May 8, 2017

Tax advantaged investments make more sense than a 401k

In 1966, at the age of 19, I was a junior officer on board Standard Oil tankers sailing up and down the California coast. It was then that I became interested in oil. In the 1970s, I worked for an independent investment banker packaging and selling oil and gas tax shelters to wealthy clients. Today, Kim and I continue to invest in oil and gas projects.

We do not invest in stocks or mutual funds of oil companies such as BP or Exxon. We invest in oil exploration and development partnerships, which means we partner with oil entrepreneurs in specific projects, primarily in Texas, Oklahoma, and Louisiana, coincidently where many of our apartment houses are located. If successful, we receive a percentage of income from the sale of oil and natural gas, aka cash flow with tax advantages.

Oil and natural gas are essential for transportation, food, heating, plastics, and fertilizers. If you look around your kitchen, oil is in use everywhere, even in the foods you eat. The reason the government offers huge tax incentives is because drilling for oil is very risky and oil is essential for life, our economy, and our standard of living.

The beauty of some oil and gas partnerships is the ROI, return on investment. The moment Kim and I invested our $100,000 in the Texas project, we received a 70 percent tax deduction. At my ordinary-income tax rate of 40 percent, that is $28,000 cash back. That is a guaranteed 28 percent ROI in the first year, money the government technically gives back to me because they want me to invest in oil.

I mention this $28,000 return on my $100,000 investment because I receive so many calls, especially from stockbrokers saying, “I can get you a 10 percent return.” Why in the world would I want a 10 percent capital-gains return with so much market risk? I’d rather have a 28 percent guaranteed return from the government in real cash flow, and not have to gamble on fictitious possible returns on capital gains.

To me, this type of tax-advantaged investment makes more sense than investing in my 401(k) for forty years, buying, holding, and praying that I have enough money to last the rest of my life.

A Word of Caution: Drilling for oil is an extremely risky venture and that is why such investments are, by law, available only to accredited investors, investors who have the money and knowledge.



Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.