Blog | Personal Finance
Why most people don’t invest in real assets and how fake assets can get in the way of your future’s security.
Robert Kiyosaki
April 12, 2022
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In a previous post of mine, I shared this image:
This chart shows that over the last nearly four decades, the rich have gotten massively richer while the poor and the middle class have gotten much poorer.
How could this happen?
The answer lies in fake assets.
What are fake assets?
When I was young, the conventional financial advice given by people like my poor dad was, “Go to a good school, get a good job, save money, buy a house, and invest in a balanced portfolio of stocks, bonds, and mutual funds.” It’s likely you were given this advice as well.
My rich dad didn’t buy into this advice because he knew something had changed. Nixon took the dollar off the gold standard in 1971. After that, our money was toxic. It became debt.
After realizing what the government was up to, rich dad came up with his #1 lesson, which is: “The rich do not work for money.” Rich dad realized money was toxic, designed to steal the wealth of anyone who worked for money, saved money, or invested money in government sponsored investments such as 401(k)s, IRAs, stocks, mutual funds, and ETFs.
In 1997, I shared my rich dad’s advice with the world in my book, “Rich Dad Poor Dad.” In that book I shared truths like the following:
Your house is not an asset.
Savers are losers.
The rich do not work for money.
The so-called financial experts howled. To them, this was heresy. The publishers would not publish my book. “You don’t know what you’re talking about,” they said. Unfortunately, I did. And many recessions that have wiped out the wealth of millions proves so. Also, unfortunately, even though “Rich Dad Poor Dad” is the best-selling personal finance book of all time with over 32 million copies sold, millions upon millions more have never read the book and are suffering financially today.
In that book, I shared my rich dad’s simple formula for assets versus liabilities.
“An asset puts money in your pocket,” said rich dad. “A liability takes money out of your pocket,” rich dad continued.
The simple definition of a fake asset is one that promises to make you richer but in actuality robs you blind.
Types of fake assets
A 401(k) is a fake asset because cash keeps flowing out of your pocket... for years. An Individual Retirement Account, or IRA, is a fake asset because it takes money out of your pocket... for years.
A government pension is a fake asset because it is taking money out of your pocket... also for years.
A house that is a primary residence is a fake asset because it is taking money out of your pocket in the form of a mortgage for 30 or more years. You also have to pay for all the repairs and taxes, out of pocket.
A mutual fund is a fake asset. So are stocks, bonds, ETFs, and savings. They are all derivatives. Mutual funds are loaded with fees - fees that make the rich richer, and you poorer. Insiders know, mutual fund investors put up 100 percent of the money, take 100 percent of the risk, yet gain less than 20 percent of the profits.
Remember: Assets put money in your pocket. Liabilities take money from your pocket. By following this simple formula, you can always tell the difference between a fake and a real asset.
What’s the problem with fake assets?
As I mentioned at the beginning of this post, the rich have gotten massively richer while the poor and the middle class have suffered over the last nearly four decades.
The way in which the rich are getting so incredibly rich is by using fake assets to steal the wealth of the poor and the middle class.
That is the problem with fake assets. And it’s a growing one. But first a quick history lesson.
1974, the year I left the Marine Corps, was also the year the Employee Retirement Income Security Act, which protected employees’ company pensions, went into effect. Four years later, 401(k), another financially engineered retirement program, got its beginnings.
There was a problem with this. Suddenly non-investors, men and women without any financial education, were expected to become investors. That was the start of a massive financial rip-off by “too big to fail” banks, the U.S. government, and Wall Street.
The institution of the 401K gave birth to an entire industry of so-called financial planners who are really professional salespeople trained to sell paper assets like stocks, bonds, and mutual funds for commission. To be clear, these are not investments. They are products that banks, the U.S. government, and Wall Street want to sell to become rich. They do so through fees, and they prop up growth by selling more products. If that sounds like a Ponzi scheme to you, you’re on to something.
Yet, despite a massive industry of financial planners, rising stock markets, and millions of people investing in instruments like 401K’s and IRA’s, as we see, the rich are getting richer and the poor and the middle class are getting poorer.
That is the problem with fake assets.
The Coming Collapse of the US Dollar
If you’ve read my book, Conspiracy of the Rich: The 8 New Rules of Money, you know that while many people think of the dollar as money, but since Nixon moved the dollar from the gold standard, the dollar is no longer money - it’s a currency. This is the reason we’ve had so many wild economic swings in the last four decades.
The dollar is no longer an asset that can be considered a safe-haven for investors in times of uncertainty. Because it’s a currency, it’s affected by the wild swings of the market just like any other asset class. In the last year alone, the dollar has swung from $1.51 versus the Euro to its recent low against the Euro of $1.23. Because the dollar is a tradable currency, it’s subject to huge gains—and drops—in value based on market whims. As such, it gains and loses value all the time.
Scrambling for safety?
I was surprised to hear once on a major radio program a so-called expert on the economy explain how investors spooked by the recent crisis in Greece are “scrambling for safety” into the dollar and into gold. What surprised me was not that people were dumping the Euro for the dollar and gold. I was surprised that gold and the dollar were grouped together as safe assets in times of crisis.
I was even more surprised to hear the analyst quote my good friend, Richard Duncan, saying, “Because governments around the world have run up such large budget deficits, and the central banks have been creating so much paper money, gold very likely will continue to appreciate very substantially over time.”
I couldn’t understand how anyone could consider the dollar a safe asset given this quote by Richard. Yet, in the same radio spot featuring this quote, the dollar was touted as a safe investment in times of crisis.
Why would anyone consider the dollar safe when the Fed has been fighting deflation with inflation, pumping billions upon billions of dollars into the economy? Don’t investors know that each time a new dollar is pumped into the already bloated money supply, existing dollars are devalued, and the bubble gets closer and closer to popping?
Why would anyone bank on the dollar when the US government is running up record debts today even though they have no way to pay for the coming crisis of Social Security and Medicare when the Baby Boomers retire?
The only answer I can think of is financial ignorance.
US deficit spending
In 2021, the $2.77 trillion more than it collected.
To the average person, this is insane. You and I know what happens when you spend more than you earn for years, your creditors come knocking on your door and people refuse to believe you when you say you'll pay them back.
Today, investors are saying they don't believe that the US can pay back their creditors. That is why they're ditching the dollar.
US foreign debt
As of January 2022, The United States owes China approximately $1.06 trillion. Japan has the top spot among foreign creditors - $1.3 trillion - which is 4.3% of total U.S. debt. These numbers indicate that we’re much more indebted to the rising global economic power of China that the layman may have previously thought. The US is the biggest debtor nation in the world, and we're indebted most to a country that has expressed continued and stronger criticism of the dollar. If China decides to collect on its debt, the dollar would completely collapse.
This is another reason why investors are ditching the dollar.
Living on borrowed time
In the past, I’ve written about the types of depressions—US-style deflation and German-style hyperinflation. I believe we’re in for both types of depression if things continue as they are. That means the dollar may gain strength for a little while, but ultimately it’s toast.
As the old saying goes, all currencies eventually go to zero.
There is no currency in the history of the world that hasn’t eventually crashed under the burdens of debt that its government heaped upon it. The dollar will be no exception. It’s just a matter of time—and I believe that time will be sooner rather than later. Those who are betting on the dollar are living on borrowed time.
The dollar is not a safe asset. Eventually, once the crisis has seemingly subsided, all those dollars that have been pumped into the economy by the Fed will flood into the market and cause severe inflation. The middle-class will likely be devastated as years and years worth of savings lose value. When that happens, the last thing you want to be holding is dollars.
So, What Is Safe?
All of this begs the question, if the dollar isn't safe, what is?
The short answer is cash flowing assets.
The investment philosophy for Kim and I is the same as it's always been. We invest in assets that cash flow and hedge against inflation, things like businesses, real estate, oil wells, and more.
Additionally, we keep our liquid investments in gold and silver instead of dollars. This is because gold and silver rise when the dollar falls. This has worked well for us over the last decade.
For you, what Kim and I do may not be safe. Our investing takes a high level of financial education. You have to decide for yourself where your safe harbor is.
What you can do
The rich do not invest in fake assets and they do not work for money. Rather they know the rules of the game now that money is debt. Their financial knowledge and intelligence allow them to invest in real assets that put money in their pockets each month and make them richer.
If you want to get off the hamster wheel of giving your money away to the rich through fake assets, you must first start with financial education. You must increase your financial intelligence to invest in real assets that provide cash flow and understand the following:
How to use taxes to acquire assets.
How to use debt to acquire assets.
How to reinvest gains without paying taxes.
Why it makes sense to save gold and silver, not fake money.
By increasing your financial education and knowledge, you too will be able to invest like the rich and easily spot fake assets when you see them…and invest in real assets like a pro.
Original publish date: April 30, 2019
