Robert Kiyosaki is the popular but sometimes controversial creator of the “Rich Dad” series of financial products. Kiyosaki is known for endorsing real assets, like precious metals and real estate, over financial assets, like stocks and bonds, and he doubled down on this concept in early 2023.
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In a YouTube video with author Peter Grandich broadcast on Jan. 25, 2023, Kiyosaki discussed how investors should be careful with their 401(k) investments and instead consider other options. Here are the highlights of the points made by Grandich and Kiyosaki, along with an analysis of how their advice may or may not apply to you personally.
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Fake Money vs. Real Money
One of Kiyosaki’s core beliefs is that assets like gold and silver are “real” money, whereas the U.S. dollar and shares of stock are “fake money.” Kiyosaki has long preached to investors that they should only own things that they can touch, as fiat currencies like the U.S. dollar aren’t backed by any hard assets, only by faith in the U.S. government.
Given skyrocketing deficits and what Kiyosaki perceives as fiscal mismanagement, he believes the dollar and the stock market in particular are vulnerable to crashes as more investors lose faith in their value.
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How Does This Relate to 401(k) Plans?
Kiyosaki’s broadcast in January 2023 came right after a rough year in the stock market, during which the S&P 500 lost 18.11%. This was a major blow for most 401(k) investors, as an 18% loss requires a 22% gain just to break even. At the time of the YouTube video, both Kiyosaki and Grandich believed that further losses were coming, with Kiyosaki in particular calling for a big market crash for years.
While Kiyosaki doesn’t specifically find fault with 401(k) plans in and of themselves, he does worry about investors who have them loaded up with stocks only.
Part of Kiyosaki’s premonition and reasoning actually came true for the bulk of the year, as high interest rates hurt valuations of everything from the housing market to individual share prices. However, by the end of 2023, stock markets overall had bounced back smartly.
What Is the Real Message Here?
Kiyosaki acknowledged that he can’t predict the day-to-day movement of the stock market. But his point is that the valuations of paper assets like stock shares and the U.S. dollar are supported only by faith in those institutions.
Kiyosaki believes that as economic reality sets in, the value of those paper assets must fall. He fears that rising deficits, high interest rates and inflation are all enemies of “fake money” and will eventually take a dramatic toll on its valuation. For this reason, he cautioned investors who are relying on 401(k) assets to finance their retirements to instead own some hard assets, like precious metals and income-generating real estate.
The Value of Diversification
Whether or not you support Kiyosaki’s rejection of paper assets, most traditional financial advisors will agree with the concept that you shouldn’t have all of your money in any single asset. Diversification helps smooth out the ups and downs of a portfolio and can protect you from a major crash in the value of any particular asset class.
However, you can diversify while still keeping the bulk of your retirement savings in your 401(k). Most plans, for example, will allow you the ability to invest in everything from large-cap U.S. stocks to international bonds, emerging market stocks, foreign currencies, real estate investment trusts and precious metals.
These asset classes don’t move in perfect synchrony with one another, so investing in a diverse portfolio of high-quality investments can help protect your overall portfolio.
Caveats to Kiyosaki’s Approach
It’s important to note that Kiyosaki’s warnings about the stock market in early 2023 didn’t come to be, with the S&P 500 finishing up more than 20% for the year. Kiyosaki has actually made dire predictions about the stock market for years, and the S&P 500 has continually gone on to rally from lows and make new highs.
This doesn’t mean that he’s wrong about the value of “real” assets vs. paper ones, but thus far, the stock market has proven resilient. Predicting the day-to-day or even annual return of the stock market is impossible, but some of the obstacles that Kiyosaki highlights, such as high interest rates and inflation, have been subsiding throughout 2023.
How Can You Save More for Retirement?
As markets can be unpredictable, the best course of action to secure a well-funded retirement is to save as much as you can. Your 401(k) plan offers a great combination of high contribution limits, pre-tax contributions and employer matching, making it a good place to save money. If you want to incorporate Kiyosaki’s investment strategy into your 401(k) plan, see if your company offers alternative options, such as commodities and real estate, rather than simply stocks and bonds.
Another option is to beef up your investments outside of your 401(k) account. Kiyosaki would recommend owning hard assets like gold and silver, which you can physically touch and represent actual items of value. Kiyosaki also believes in owning income-generating real estate, such as rental properties.
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This article originally appeared on GOBankingRates.com: ‘Rich Dad’ Robert Kiyosaki Says To Do This Instead of Investing in a 401(k)
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