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Dear Robert Kiyosaki print this page email this page 
by Benjamin B. Taylor  
May 9, 2005  
   
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Dear Robert Kiyosaki,

I've read a few of your books. I must say that when I first read Rich Dad, Poor Dad I loved the general premise of “become financially literate”. That made sense to me. But I must tell you, my feeling on all the subsequent books that have come out of the Rich Dad camp has been that the books (as well as your advice) have become more and more absurd. For instance, what's up with the figures in your book, Who Took My Money?.

In the book you urge investors not to leave their money sitting idle. According to you, fast money is how to get rich. The velocity of money you call it. I took this as another way of saying “have your money work for you”. Ok, Rob, I'm with you on that. But then you go on and give me return figures that a) do not make any sense and b) are not even achievable. A primary example of what I mean is illustrated on pages 117-118 of Who Took My Money?. You give an example of increasing the velocity of money. I'm sure you know the example but for the sake of being thorough, I'll tell you what you wrote:

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Suppose you have $20,000 to invest. The following are three choices that you have.

Choice 1: Invest $20,000 in a mutual fund that earns 5 percent a year. After seven years: your $20,000 should have grown to $28,152 assuming no fluctuations.

Choice 2: Invest $20,000 and borrow $180,000 for the bank for a $200,000 rental property and let your equity compound. Assume rental income only breaks even with expenses and the property appreciates at a rate of 5 percent a year. After seven years: the property will be worth $281,000 and your equity is now $101,420, assuming no market fluctuations.

Choice 3: Invest $20,000 and borrow $180,000 from the bank for a $200,000 rental property. Rather than letting the equity compound, you borrow out the appreciation every two years and invest it in a new property at 10 percent down. After seven years: the total of your properties will be worth $2,022,218 and your net equity is $273,198, assuming not market fluctuations.

Summary of a $20,000 investment:

 

Net Equity

Average Annual Return of $20,000 Investment

Choice 1

$28,142

5.8%

Choice 2

$101,420

58.2%

Choice 3

$273,198

180.9%

 

Choices 1 and 2 are examples of people who park their money and choice 3 is an example of people that increase the velocity of their money.

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C'mon Rob. C'mon man. How in the world are you coming up with these figures? On the surface, these figures seem straight forward enough. According to my trusty HP 12C, a $20,000 initial investment does become $28,142 in seven years if invested at 5% as in choice 1. But then you go on to say that the average annual rate of return here is 5.8%. Huh? Well, I thought, maybe it's rounding.

But my confusion doesn't stop there. If we follow the instructions in choice 2, we will indeed have an equity stake in an investment property of about $101,420 at the end of seven years. However, by my calculations, this is an annual rate of return of 26.1%, not the 58.2% you say it is. What gives my man?

Now, if choices 1 and 2 weren't bad enough, choice 3 takes the cake. In attempting to recreate your figures in choice 3, I tried every which way I could. Ultimately I could not get to the net equity figure of $273,198 you came up with. But let's simply say that is my failing, not yours. But that is not really the figure that makes me scratch my head. It's the annual rate of return figure you come with. You tell us that choice 3 represents an average annual return of 181%! Are you serious?

When I saw that figure I put away my HP 12C and opened up my Excel spreadsheet and tried to get to the 181%. No matter what I did, a $20,000 investment which becomes $273,198 over seven years gave me an annual rate of return of 45.3%. Not even close to your figure. Am I missing something?

Well, maybe I am. And if so, please forgive me. I'm not even upset with you. I understand. Numbers and math, being what they are, are more art than science. (Tongue squarely in cheek.) What really gets my goat however is how those unsophisticated investors out there seem to be eating up every word you spew, no matter how far-fetched.

They don't seem to care that your “Rich Dad” is actually a fictional character. They don't seem to care that nearly all your wealth is generated from your book sales, not those real estate investments. They don't seem to care that you've never produced any verifiable return figures for your investments. Even though you tout real estate over stocks, they don't seem to care that stock market returns have trounced real estate returns over the past quarter century. You've even gone as far to say that return figures don't exist for the real estate market. Well, I won't call you a liar. But maybe you just don't know that those figures have existed for quite sometime. Check for yourself at the National Council for Real Estate Investment Fiduciaries’ (http://www.ncreif.org) website. And finally, they don't seem to care that long term returns of over 20% are almost unheard of, let alone returns of 50%, 100% and 200%.

If any of your adoring fans were to read your books with a little more skepticism they'd begin to see that the emperor has no clothes. Let's take for instance the example return figures you gave above. Throughout Who Took My Money?, you suggest that simply by heeding your advice, an investor can achieve returns of 180% per year. Forgetting, that we don't know how you came up with that figure, let's look at what an annualized return of 180% would mean.

Let's say a 25 year old has $20,000 to invest and is able to receive an annualized 180% return over his investment lifetime – about 50 years. At that rate of return, and at the end of that period that 75 year old would have a comfortable nestegg of…drum roll please…

$455,965,058,160,294,000,000,000,000!

This is not a misprint. That investor, by investing in single family homes, would be a SEPTILLIONAIRE 455 times over. Now, Rob, are you really telling me that I can be 455 quadrillion times richer than someone who is a mere billionaire? Seriously? If you are, I just have to say that that seems a little far fetched to me. Especially when you consider that, according to the Federal Reserve's 2001 Survey of Consumer Finances, there was only $44 trillion dollars of wealth in the U.S. that year. If we applied an extraordinary rate of growth of 5% to that $44 trillion, in 50 years total U.S. wealth would reach,

$502,905,811,102,164.

Now Rob, are you telling me that by following the investment program you lay out in your book, that in 50 years, with one $20,000 investment, I can be 907 billion times richer that the entire U.S. population? I have to say Rob, I'm not buying this. But I'm sure this letter is falling on deaf ears. However, if the New York Times Bestseller list is any indication, a lot of people are buying it.

Sincerely,
Benjamin B. Taylor

 

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