Monday, March 27, 2017

Rich Dad Poor Dad author on Real Estate

Real estate investing, even on a very small scale, remains a tried and true means of building an individual's cash flow and wealth.

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.

Wednesday, March 22, 2017

Robots could take away your job

If you’re a real estate investor, you may be scratching your head right now. How in the world do robots relate to investing in property?

It’s simple, really. Once statistic I mention is as follows: it’s estimated that robots “will take the place of 40 to 50 percent of all McDonald’s employees.” What does that mean? It means that many jobs will be eliminated by the rise of robots and AI. And it won’t be just McDonald’s jobs either. According to The Guardian, 6% of all jobs could be lost to automation by the year 2021. That’s just a few years away. And that’s just the beginning.

But again, what does this have to do with investing? As I write in my ebook, “I’m keeping an eye on the robot phenomenon because real estate is based on only one thing: jobs. That’s it. If there are no jobs, there’s no real estate.”

Does this mean that real estate is a bad investment? The answer is only if you buy it wrong. As I point out, it is an illiquid investment. You can’t just back out. So you need to be confident you’re making the right projections based on what is happening in the market. If you get too sunny, you might get burnt.

Employees are screwed in the age of robots

But the rise of robots, as scary is it might be to some folks who made poor investments, is even scarier to those whose jobs will be replaced.

When I was growing up, my poor dad would always tell me that I should go to a good school so that I could get a good job. To him, financial security meant building a career at a big company that paid well.

As I got older and wiser about money, I realized that my poor dad was wrong. Rather than having a good job being the most secure place financially, I learned that it was the least secure.

Why? Because you had no control. You could be fired or let go at the drop of the hat. If the company you work for is mismanaged, you can do little about it. And you pay the most in taxes. The entire employment system is build to benefit the owners and investors and to minimize the power and security of employees. That, for instance, is why a company like Snap can offer an IPO with shares where no one can vote. And because people do not have financial intelligence, they eat it up.

Today, more than ever, being an employee is the least secure position to be in financially. This is precisely because of the rise of automation and AI. Most employees, however, have no idea that their job could be in jeopardy. Many experts are likening the coming wave of robots to the Industrial Revolution.

And as Tyler Cowen, writing for BloombergView points out, the economic impact of the Industrial Revolution was staggering. As he writes:

By the estimates of Gregory Clark, economic historian at the University of California at Davis, English real wages may have fallen about 10 percent from 1770 to 1810, a 40-year period. Clark also estimates that it took 60 to 70 years of transition, after the onset of industrialization, for English workers to see sustained real wage gains at all.

If we imagine the contemporary U.S. experiencing similar wage patterns, most of us would expect political trouble, and hardly anyone would call that a successful transition. Yet that may be the track we are on. Median household income is down since 1999, and by some accounts median male wages were higher in 1969 than today. The more pessimistic of those estimates are the subject of contentious debate (are we really adjusting for inflation properly?), but the very fact that the numbers are capable of yielding such gloomy results suggests transition costs are higher than many economists like to think.
But whose jobs will be affected, really?

Most people would rather not focus on these unpleasant facts. And if I were a betting man, I’d wager that most employees, if polled, would say they do not believe that robots could do their jobs. But they’d be wrong. According to an article in Wired, “Oxford University researchers have estimated that 47 percent of U.S. jobs could be automated within the next two decades.”

And as Martin Ford, the author of “Rise of Robots,” says in the same article:
I see the advances happening in technology and it’s becoming evident that computers, machines, robots, and algorithms are going to be able to do most of the routine, repetitive types of jobs. That’s the essence of what machine learning is all about. What types of jobs are on some level fundamentally predictable? A lot of different skill levels fall into that category. It’s not just about lower-skilled jobs either. People with college degrees, even professional degrees, people like lawyers are doing things that ultimately are predictable. A lot of those jobs are going to be susceptible over time.

In short, we’re not just talking about flipping hamburgers at McDonald’s. 

So what’s the solution?

Many experts, including Ford, believe the answer to all these lost jobs lies in some form of universal basic income.

Personally, I don’t know if such a system could work. If history is any indication, it won’t. Generally, when given handouts by governments, people are less incentivized to work than they were before.

So, what is the solution? To me, it is an increase in financial education that encourages entrepreneurial thinking.

As I mentioned earlier, my poor dad thought having a good job was the most secure thing you could do financially. Conversely, my rich dad, who was my best friend’s father, taught me that being an entrepreneur was the most secure thing you could do.

Many people balk when they hear this since the cultural mythos around entrepreneurship is that it is inherently risky. But my rich dad taught me that for those with the right financial IQ, it was not. The reason for this is that you have more control, pay less in taxes, and aren’t at the mercy of others.

This is why I’ve advocated for years for true financial education in the school system (not just classes on how to put money into a 401(k) and balance a checkbook). 

In a near future where robots will take many jobs, I believe that entrepreneurship is the key to financial security. At its core, entrepreneurship is based in innovation—finding ways to make money solving problems both large and small. This is difficult to automate because it is not predictable. In the future, the highest-paid people will be those who don’t do predicable tasks like lawyers and accountants but instead will be those who create new solutions and opportunities. That will be our entrepreneurs.

At Rich Dad, our goal is to help as many people thrive while others struggle to survive. The robots are coming. If you want to thrive, increase your financial IQ starting today, and start building a future where you kiss being an employee goodbye and can become an entrepreneur. Your financial security might just depend on it.

Tuesday, March 14, 2017

This is how I paid for my new Bentley car

Everyone loves to buy nice things. Those that say they don't…well, they're liars who can't afford nice things.

From before we can even talk, we're wired to follow after the next shiny things. We're also wired to consume as much as we can. It's the principle of scarcity that we've inherited from our hunter-gatherer days. You never know when you won't have what you need, so you better consume as much as you can today.

This explains why so many people have a hard time controlling their spending. And it explains why consumer debt is dangerously close to what it was prior to the 2008 Great Recession. According to CNN Money, in 2016, "household debt ballooned by $460 billion-the largest increase in almost a decade." According to the article, total household debt is now $12.58 trillion-yes, trillion-as of the end of 2016.

It seems that we never learn…and that we're doomed to repeat our mistakes.

Riding high

As it stands today, there is a euphoria going on in the markets that defies fundamentals. Just last week, the Dow Jones Industrial Average surpassed a record 21,000. It's being dubbed the "Trump Bump," with stocks rising 5% since he took office. Apparently, the markets are feeling very good about President Trump's policy agenda…and are banking on it being implemented.

How great are they feeling?

Well according to the Wall Street Journal, "Sales of vehicles made by Volkswagen AG's Bentley, Ferrari SpA, Fiat Automobiles NV's Maserati, Porsche AG and BMW AG's Rolls-Royce jumped an estimated 18% since the Nov. 8 U.S. presidential election through January, compared with the same period in 2016, according to Autodata Corp. That far outpaces the gains these upscale brands had been notching through the prior 10 months."

In the WSJ article, "What Do You Buy When Trump Wins? A Bentley," writer Chester Dawson explains this bump in luxury car sales, "Dubbed the 'wealth effect' by economists, perceived gains in portfolio values can prompt ultrahigh net worth buyers to splurge on hard assets such as fine art, real estate and luxury cars. Some in the auto industry also are seeing a 'Trump bump' based on expectations of fiscal stimulus and potential tax cuts under the new administration that will boost corporate profits and keep stocks on the ascent."

High Net Worth does not equal high financial intelligence

This goes to prove that "ultrahigh net worth" does not equal ultra-high financial intelligence. Buying luxury goods because the market is overheating is the very definition of counting your eggs before they hatch.

In most cases, the folks who are buying these luxury goods aren't doing so because they are actually wealthier. They are doing so because they look wealthier on paper. They have not sold their stocks. They simply hold stocks that, for now, have higher value. But one only has to look at the dot come bubble burst of the early 2000's and the real estate crash of the late 2000's to realize that wealth on paper and true wealth are two different things.

The story in the WSJ about luxury cars caught my attention because it is a good parallel to another story I like to tell about when I wanted a Bentley (whose sales are up 10.8% according to the WSJ since Trump, coincidentally).
How to buy a Bentley

Some years ago, I talked with my wife, Kim, about my desire to purchase a new Bentley. We both agreed that it would be easy for me to pay for the car in cash. We had the money. But having the money wasn't the issue. As big believers in mindset-and delayed gratification-we both agreed there was a better way for me to get in the driver's seat of this new dream.

Both Kim and I sat down and determined what it would cost for the new car on a monthly basis-what our cash outflow would be. We then, together-and this was fun, went shopping not for a new Bentley but instead for a new asset that would pay for the Bentley.

Kim and I found a great asset, and after six months we had enough cash flow from the asset to pay for the monthly costs of my new car-and some. The best part of the whole exercise is not only did I have my new Bentley but I also had a cash-flowing asset that actually increased my wealth, not just made me look richer on paper.
Two ways to view wealth

This is a simple story, but an important one. There are two ways to view wealth. One is on paper. That is how most news outlets, and frankly, most CPAs view it. The traditional balance sheet is smoke and mirrors, accounting tricks to look wealthier than you are.

The other way to view wealth is the Rich Dad way. It is much simpler. It's based on this one important truth. An asset is anything that puts money in your pocket. A liability is anything that takes money out.

Given this definition of wealth, paper assets that grow in value while providing no cash flow are not assets. They are actually liabilities since you had to pay out of pocket for them. They only become assets when you sell them. But that isn't advantageous because then you only have the cash on hand. And cash, like electricity, is a currency. It must move somewhere else to have value. Otherwise it dies. In the case of electricity, it dies quickly. In the case of cash, it dies slowly, eroded over time by inflation.

The ultra-rich who are buying new Porches, Maseraties, and Bentleys in this market bull run are those who are spending wealth they don't truly have. I hope it works out for them. But if history is any indicator, it won't. But, they have good attorneys to bail them out.

What's scarier is when the middle class starts following suit. They are the ones that always get wiped out. And when the middle class starts spending like the rich-running up consumer debt like 2008 levels-it's time to watch out. The markets are ready to crash.

I think the biggest stock market crash is yet to come. The question is, will you be a victim-or will you be ready to thrive?

Sunday, March 12, 2017

Australian housing bubble

It's pretty bad when the Australian property market is making news all over the world.

Foreign investors are queuing up to buy anything they can get their hands on. This is causing average Australian punters to think they need to start buying now. It has created a bubble.

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.