Unfair Advantage -The Power of Financial Education by Robert T. Kiyosaki

Author:Robert T. Kiyosaki [Kiyosaki, Robert T.]
Language: eng
Format: mobi
Tags: unfair advantage, Personal Finance, financial education, rich dad, robert kiyosaki
Publisher: Plata Publishing
Published: 2011-03-22T04:00:00+00:00

Most people who believe they have a diversified portfolio are not diversified because they are primarily in only one asset class: paper assets.

Paper assets are made up of stocks, bonds, mutual funds, ETFs, insurance, annuities, and savings.

Again, they are not diversified, they are de-worsified. Even more hideous, mutual funds by definition are diversified, made up of a basket of different stocks, bonds, and paper assets. When a person has a diversified portfolio of mutual funds, he or she is beyond diversified.

When the stock market crashes as it did in 2007, most of the paper assets crash in unison. This is why even Warren Buffett’s mutual fund, Berkshire Hathaway crashed in the crash.

As Buffett himself says, “Diversification is protection against ignorance. (It) makes very little sense for those who know what they’re doing.”

Jim Cramer, a very smart investor and an expert on the stock market, often runs a segment on his TV program called “Am I diversified?” During that segment, viewers call in and rattle off the stocks they are holding in their portfolios. For example, a

viewer may say, “I have shares of Exxon, GE, IBM, Procter and Gamble, and Bank of America. I also have an emerging market fund, money market fund, a gold ETF, a bond fund, a REIT, an S&P 500 index fund, and I just bought an index fund for large

cap dividends. Am I diversified?”

Jim Cramer then evaluates the viewer’s diversified portfolio.

In my opinion, the above portfolio is not diversified. It is de worsified. It is less worse, but not diversified, because it is filled with only one class of assets: paper assets. If the stock market crashes, which it will, diversification will not protect him.

If the crash is severe, as it was in 1929 and 2007, the stock market may not recover for years, again destroying the portfolios for capital-gains investors.

Today, there are more mutual-fund companies than there are publicly traded companies. This is how insane diversification has become.

In 2007 when markets began to crash, everything crashed, even real estate. Diversification did not save millions of people from their lack of financial education.

For most people, their diversified portfolio is an oxymoron. It is a de-worsified portfolio, a portfolio made less worse, but not less risky.

Why Are Investors Losing?

FAQ

Why are uneducated investors losing so much?

Short Answer

They invest without insurance.

Explanation

You do not drive a car without insurance. You do not buy a house without insurance. Yet when most investors invest, they invest without insurance. When the stock market crashed, they lost because they had no insurance.

When I invest in real estate I have insurance. If the building burns down, my losses are covered. Even my loss of income is insured.

The biggest losers in the last crash were investors who had their money, uninsured, in retirement plans, plans like the 401(k) in the United States. That is beyond risky. That is foolish.

We all know the markets will crash again, yet most investors invest without insurance.

FAQ

How long did the Great Depression last?

Short Answer

25 years.

Explanation

In 1929 the Dow hit an all-time high of 381.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.