Tuesday, June 27, 2006

Robert Kiyosaki Has Written Another Flimsy Article For Yahoo Finance

Robert Kiyosaki has once again written an article for his Yahoo Finance column that has gotten me all riled up. (See my previous post - "Robert Kiyosaki Is A Blowhard.") This one is entitled “Why Mutual Funds Are Lousy Long-Term Investments.”

He basically attempts to argue that mutual funds are wastes of money because of the fees they charge. He borrows quite a bit from an interview given by Vanguard founder John Bogle in which Bogle mentioned that mutual funds charging high fees are doing a disservice to most investors because the investors take 100% of the risk, put up 100% of the amount to be invested, but over time make quite a bit of money for the companies offering the mutual funds.

That’s fine and I do not disagree with that allegation. Bogle thinks that actively managed funs generally charge too much and that most investors would instead be better served investing in index-tracking funds. I also agree with Bogle on that point.

However, after spending about half of his “article” directly quoting Bogle, Kiyosaki mentions that he dislikes index funds because “[m]ost index funds think a 10 percent to 25 percent return is a good rate.” Kiyosaki also writes “[a]ctive investors can regularly beat those gains, especially if they stay away from traditional investments such as savings, stocks, bonds, and index and mutual funds.”

I don’t know what Kiyosaki is talking about, because as far as I know, there are only a handful of top money managers capable of providing consistent returns greater than 10-25% annually, and Kiyosaki is not one of them. The vast majority of investors (including yours truly) would be very happy to own a portfolio of mutual funds returning 10-25% per year.

Kiyosaki has a tendency to trump certain investing styles after they have already come into fashion and then mention that he has been investing in them and recommending them for years without any corresponding documentation. It is always the same with this guy – he’s a salesman, and based on his book sales he’s a good salesman at that, but he’s not the big-time investor he attempts to make himself out to be.

Although he has previously stated that the “rich dad” discussed in his books is a real person with was his financial mentor when growing up, he has never providing that individual’s name, and nobody has ever been able to find even a scintilla of evidence that this alleged “rich dad” even exists outside of Kioysaki’s mind.

Also, I know that he’s been trumpeting precious metals and energy stocks lately, but was he really buying them en mass in 2002 when money managers shunned them and they sat at historically low valuations? I certainly doubt it.

His column and books may be entertaining but take everything he writes with a grain of salt, as 90% of the personal stories in them are almost certainly fabricated, as discussed on this website.


makingourway said...

good call. he's more of a cheerleader than a true investor. in fact, he prays on the uneducated. in his eyes, very little other than real estate is worth investing in - especially pre-boom. then again, how do you know when you're pre-boom?

aficianada said...

It is true: Robert Kiyosaki's life is not something I have any empirical evidence for--whatever it may be or not be. That said, his books have had a profound impact on me...I follow the pattern finacial education yields financial experience yields excessive cash, the 3 'E's as he calls them. My slow money gets about 50%...I should be very disapointed if I paid someone to manage money for me and they consistantly got me less than 25% with such a low degree of control like no guarantee or recourse. The only explanation I can come up with to justify these fund managers incompetance is that they are not investors, but doing their day job with a few more zeros in play. I have had mutual funds and started business...some of which failed. But the lessons learned from my failed business have made me more money then the business costs or than mutual fund returns...which don't seem to teach much.