Rich Dad’s Guide to Investing

Robert Kiyosaki tells us how to become a skilled financial investor in his book “Rich Dad's Guide to Investing” and how the wealthy think about investment emotionally, technically, and as an entrepreneur.

Robert Kiyosaki frequently refers to his “rich dad” in this book. This “rich dad” is not his biological father; instead, he is the father of one of his friends, who provided him with invaluable financial literacy advice.

This “rich dad” is the same as the one described in “Rich Dad, Poor Dad” another book by the same author.

The author made this promise in his book, “By reading this book from start to finish, you’ll know more about investing than many investment advisers who get paid to offer their advice.”

The book content was split into four different phases, two of which will be summarised here.

Phase One of Rich Dad’s Guide to Investing: Are You Mentally Prepared to Become an Investor?

1. What should I Invest in?

“Only rich people can invest in the same way as rich people. And that’s why the rich get richer.”

Certain types of investments may be available to accredited investors. They must earn more than $200,000 per year or have a net worth of more than $1 million to be certified.

However, this does not imply that they are sophisticated investors. Education, experience, and excess capital are the three E's of sophisticated investors.

“You cannot teach someone to be a sophisticated investor. But a person can learn to become a sophisticated investor. It’s like learning to ride a bicycle. I cannot teach you to ride a bicycle, but you can learn to ride a bicycle.

Learning to ride a bicycle requires risk, trial and error, and proper guidance. The same is true with investing. If you do not want to take risks, then you’re saying you do not want to learn. And if you do not want to learn, then I cannot teach you.”

2. Pouring a Foundation of Wealth

“The only reason I built businesses was so I could invest in the investments of the rich. The only reason you build a business is so that your business can buy your assets. Without my businesses, I could not afford to invest in the investments of the rich.”

Everyone will gravitate toward a particular professional path based on their emotional needs: those seeking security will likely work for someone else, while others seeking more independence will start their own small business.

On the other side of the CASHFLOW quadrant. Wealth is created by becoming the owner of a huge company or an investor.

The investment process begins internally, in your mind, with a simple decision.

“Most investments are too expensive when you purchase them as an employee. But they are much more affordable if my business buys them for me”

“Learn to build businesses and invest through your businesses.”

3. The Choice

“When it comes to money and investing, people have three fundamental reasons or choices for investing—to be: secure, comfortable, or rich.”

The majority of individuals prioritize the first (security), while the last (rich) is hardly considered.

When Robert Kiyosaki was young and about to leave the military, he made "rich" his first choice.

“All three choices are important. The difference in one’s life occurs when the choices are prioritized.”

“Most people dream of becoming rich, but it is not their first choice. Only three out of a hundred people in America are rich because of this priority of choices. For most people, if becoming rich disturbs their comfort or makes them feel insecure, they will forsake becoming rich.”

4. What kind of World do You See?

“Whatever your reality is about money inside of you is the reality of money outside of you. You cannot change your outside reality until you first change your inside reality about money.”

Kiyosaki's poor dad instilled in him the need to be careful and secure. His rich dad encouraged him to be inventive and develop new skills.

People are less able to identify certain chances as they search for security, and they live in a world of scarcity.

“Don’t worry about money. If we do the right things, there will always be plenty of money. Don’t let not having money be an excuse for not getting what you want”

“A person who suddenly comes into a lot of money and goes broke, goes broke because they still see only one side of the coin. In other words, they handle the money in the same way they always did, which is the reason they were poor or struggled in the first place.

They see only a world of not enough money. The safest thing that person can do is just put money in the bank and live off the interest only. People who can see the other side of the coin would take that money and multiply it rapidly and safely.

They can do that because they see the other side of the coin where there is a world of too much money.

They use their money to get to the other side faster while everyone else uses money to become poorer faster”

Phase Two of Rich Dad’s Guide to Investing: What Type of Investor Do You Want to Become?

1. Solving the 90/10 Riddle

“There are investors who buy assets and there are investors who create assets.”

It is not enough to have a good idea; it must be translated into a corporate structure that allows the idea to make money.

The majority of people will resist such ideas, perhaps because they are unable to do so or because they do not comprehend them.

“If you want to solve the 90/10 riddle for yourself, you need to be both types of

investors. You need to be a person who knows how to create assets, as well as a person who knows how to buy assets.

The average investor is not generally aware of the different processes and is not good at either process of investing. The average investor usually does not even have a formally written plan.”

2. Categories of Investors

The accredited investor: This investor earns a lot of money and/or has a high net worth.

The qualified investor: This investor knows fundamental and technical investing.

The sophisticated investor: This investor understands investing and the law.

The inside investor: This investor creates the investment.

The ultimate investor: This investor becomes the selling shareholder.

In this chapter, ten investor controls were also listed which are:

1. Yourself.

2. Income/expense ratios and asset/liability ratios.

3. Management of the investment.

4. Taxes.

5. When you buy and when you sell.

6. Brokerage transactions.

7. ETC (entity, timing, and characteristics).

8. Terms and conditions of the agreements.

9. Access to information.

10. Giving it back, philanthropy, and redistribution of wealth.

3. How to Get Rich Slowly

“Always remember that we may live in a free country, but everybody does not live by the same laws. If you want to be rich, you had best follow the same laws the rich use.”

The laws for the different quadrants of CASH FLOW are not the same. Before getting their paycheck, the employee must always pay taxes to the government. Before paying taxes, the business owner can invest.

“Ever since the signing of the Magna Carta, the rich have been making the rules.

The spiritual golden rule is: “Do unto others as you would have them do unto you.” 

The financial golden rule is: “He who has the gold makes the rules.”

However, I think the real financial golden rule is: “He who makes the rules gets the gold.”

4. Keep Your Day Job and Still Become Rich

“Rule number one in becoming an entrepreneur is to never take a job for money. Take a job only for the long-term skills you will learn.”

The first stage is to secure a source of income. The most successful businesses began as a side project.

Starting a part-time business helps you to gain expertise in a variety of sectors, including sales, communication, leadership, tax and corporate law, and so on.

“Most people do not get ahead financially because when they need more money, they take a part-time job. If they really want to get ahead, they need to keep their day job and start a part-time business.”

“The world is filled with great ideas for new products. The world is also filled with great products. But the world is short of great businesspeople. The primary reason to start a business part-time is not so much to make a great product.

The real reason for starting a part-time business is to make yourself a great business person. Great products are a dime a dozen. But great business people are rare and rich.”

One key point noted here in this chapter is this: “The education you receive in school is important, but the education you receive on the street is even better.”

More from the Book

The book can definitely not be exhausted here but it sure has a lot of proven principles and offers genuine guides to those who want to become solid investors.

It offers a road map for the journey into investing and if you are still thinking of how to get into the world of investing, you should read more. Perhaps you are in already and you seem lost, then you can find your way out with this guide by Robert Kiyosaki.