Diversify” “Diversify” “Invest for the long term” “In the long run you win if you hold” Said most every stock and investment broker ever. But, if keeping your money invested made me more money, I’d probably have the same advice. That is till I started growing my financial IQ and realized what is actually occurring. Many long term investing is tied up in 401k’s and IRA’s but some people do manage their own portfolio as well. One of the main vehicles used to invest the money from these accounts is mutual funds. Tony Robbins has a lot to say about this in “Unshakeable” and “Money, Mastering the Game” and Robert Kiyosaki hits them multiple times in his videos, books, and live lectures. Mutual funds are assets for the brokerage more than anyone else. We the investors put up 100% of the money (no leverage here), we take 100% of the risk, and we usually only get back 20% (Robert Kiyosaki) to 33% (Tony Robbins: “Money”) of the gains whereas the brokerage keeps 67-80% in fees and commissions. I did the math on my own account and of my 5.7% return over the course of 2 crashes, my actual return was close to 2%. Where did all that other money go? The second problem is what if you want your mutual fund to purchase a company you think is really hot? Can you get them to buy that company into the fund? No. When you invest in any paper asset you lose control of your money (Think Enron share holders). Control over your money should be important to you and it definitely is to the rich. So, in order to prevent you from flushing all your money and risk on one company’s stock, they say “diversify” and invest the fund money in to many varied companies’ stocks. As Warren Buffet, one of the greatest investors of our time, would say, diversification is to protect you from ignorance. In Robert Kiyosaki’s “Cashflow Quadrants” he writes that Buffet himself promotes a concentrated investment strategy with lots of research and know-how. So this diversification actually holds back the earnings available because you never win big but sure can lose a lot. Ironically, 401k’s and mutual funds don’t typically have insurance but my rental properties do… Truly, what diversification means is diversify into the four main assets! Not diversify within stock which is only a type of asset. The four types of assets are: businesses, real estate, paper assets like stock, and commodities like gold and silver. So instead of worrying about the crash that will happen to everyone more than once, diversify outside of stock or just real estate or just gold. That is protecting your assets.
So now what?
After debunking those Industrial Age mentalities that won’t cut it in the Information Age, where do we go now? As Robert Kiyosaki says, “Money starts in your head.” In the Industrial Age it was the other way around, “Money starts with your hands.” With that in mind, we need to focus on our minds and learn what our Industrial Age school system was equipped to do – grow our financial intelligence. Robert speaks of 5 elements of financial intelligence. 1. History – what has happened to money and how that affects us today. 2. Taxes – learn them and how to best position yourself as to not pay more than you should. 3. Financial Vocabulary – It is a whole new vocabulary but the whole world speaks it, get familiar with terms. 4. Wealth Protection – In the end it’s not how much you make but how much you keep and for how long! 5. There are 2 sides to every coin – learn to see both sides so you can prosper and understand.
If you are interested in learning more about investing and how to grow your financial intelligence, please check out my website with its recommended reading list, investor book club library, and Cashflow meetup. If you aren’t near me, check out meetup.com for local Cashflow meetups or free resources like www.BiggerPockets.com or Rich Dad Radio podcasts. “Education is a process” as Robert Kiyosaki reminds us, so grow, read, listen, and invest!