Why Do Company’s Really Match 401k Contributions?

The average person, if they even have a retirement account, have a 401k which is investing in mutual funds. Don’t be average. Take responsibility and have some control 🙂 – Josh

There’s No Such Thing As Free Money

Posted on: Tuesday, January 31, 2012|Written by: Robert Kiyosaki

Get a Financial Education and Stop Thinking Like an Employee

Years ago I had a conversation with a young man about 401(k)s. “I have a question for you,” he said. “I’ve read that you say 401(k)s are the worst investments, but I don’t understand why you say that.”

“What is it that you don’t understand?” I asked.

“Well,” said the young man. “Most employers match your contribution. For instance, my employer matches up to four percent of my salary. Isn’t that a hundred percent return? Why is that a bad investment?”

“It’s a bad investment,” I said, “because it’s your money to begin with.”

He looked puzzled and perplexed.

“Listen,” I said, “if it weren’t for 401(k)s, your employer would have to pay you that money as part of your salary. As it is, they still pay it, but only if you give up four percent of your existing salary in to a retirement account where you have no control. And if you don’t, well the employer comes out ahead. It’s your money, but they’re in control.”

Thinking like an employee

The young man still didn’t look convinced, but I could tell he was thinking hard about it. The reason this young man and many others don’t understand my reasoning is that they only think like employees. As an employer, I know that if it weren’t for 401(k)s, I’d have to pay that money to employees in their salary in order to be competitive.

For me, as an employer, a 401(k) is an advantage because I don’t have to pay the money unless an employee opts in, and if they leave my company too early, I don’t have to pay because they aren’t vested.

A recent study confirms what I’m saying and should help those of you who still find this logic confusing or not convincing.

A 401(k) steals your money

A recent study confirms what I’m saying and should help those of you who still find this logic confusing or not convincing. According to Steven Gandel, a study issued by the Center for Retirement Research indicates that, “All else being equal…workers at companies that contributed to their employees’ 401(k) accounts tended to have lower salaries than those at companies that gave no retirement contribution…In fact, for many employees, the salary dip was roughly equal to the size of their employer’s potential contribution.”

Translation, companies that don’t offer 401(k)s must pay a higher salary to compete with companies that do. Those company’s employees simply get their money as part of their salary rather than having to match it and save it in a tax-deferred retirement plan where they have no control and have high fees.

No financial intelligence? Stick with the 401(k)

Control is an important aspect of investing. As I mentioned, with a 401(k), you have no control over your investments as you generally invest in funds and indexes controlled by brokers, who are controlled by bankers, who invest in companies that are controlled by boards — all of which you have no control over.

If you want to be rich, you must have a financial education and control over your money and your investments. This is why I like to invest in my own business, purchase real estate and create products. I have a lot of control over those investments. Generally a good matrix is the more control you have, the higher your potential return. The less control you have, the lower your potential return.

Of course, it takes high financial intelligence to invest in things where you have control because you have to make a lot of important decisions. This is why being forced into a 401(k) probably isn’t a bad thing for most people. This is because most people have little-to-no financial education and wouldn’t know what to do with the extra money other than save it or spend it.

But I expect the average Rich Dad reader to be head and shoulders above the average person in terms of financial intelligence. The reality is that if you’re investing in a 401(k), you’re not making a return on your employer’s match. You’re simply getting what is owed you by your employer.

For some, this might be the first time you’ve ever thought of this. For others, I’m probably preaching to the choir.

Some questions for the Rich Dad community

If you’ve avoided the 401(k) trap, what ways are you using that money to build your wealth outside of a 401(k)?

Federal Reserve Says Economy Will Suck Through 2014

Written by: Joshua Gayman

Last week the World seemed to take a break from worrying about Europe and focused their attention back to the United States and the meeting of the Federal Reserve AKA the Fed. The proof? The Euro rised big against the Dollar.

Ironically, the United States’ problems far surpass the debt problems of the European Union. The difference? We have a Central Bank that can print our currency out of nothing!

The Fed introduced an “Inflation Target,” which they set at 2%. This is something that has never been done before! Last year’s inflation numbers were closer to 3.5-4%, but given that the outlook for coming months is to drop significantly, expectations point to a drop under 2%, at which time would be a perfect scenario for the Fed to come out and unveil a 3rd round of quantitative easing AKA QE3.

The Fed also said they will keep short term rates(“over-night rates”) at all time lows through 2014. The Federal Reserve has never stated a policy that would last 3 years! What’s more crazy, is that debt is the only product the Central Bank sells. Can you imagine if a large company came out and said, “We are going to sell our one and only product at all time lows for the next 3 years.”? I am thinking we’d question whether they could survive another 3 years. The same should be true for the Fed, but I doubt it will. People are still so blinded by the illusion that they actually produce something..

The monetary policy by the Fed to keep rates low KILLS savers. This included anyone who has money in checking, savings, any type of deposit account, IRA, 401k, mutual funds, pensions, etc. If you have your money in one of these places, don’t expect a return for…YEARS.

So where do you see the economy going in the next few years? Well, if the statement by the Fed is any indication, I would say a strong recovery is not on the horizon.

I really don’t see these long term low rates benefiting the masses. I do see it benefiting small business owners who rely on short term loans. I also see it benefiting those who have Adjustable Rate Mortgages AKA “ARMS.” And the group I see being benefiting most by this are those savvy entrepreneurs who will use this cheap money to buy cash flow producing assets.

So what’s the bottom line?

The bottom line is that nothing is free. Money is no exception. There is a “cost for capital.” This means that there is a cost for borrowing money. DUH! The problem is that the cost of capital would be much higher if it weren’t for the Federal Reserve who can set the interest rate anywhere they want. By the Fed placing interest rates under the cost for capital, mal investment is brought into our economy by people who are getting loans for things they shouldn’t. It is because of this that I think the Fed needs to back off and let the market find it’s true equilibrium. This would allow for the smart money to come back into the marketplace. The smart money will stand on the sidelines as long as the Fed holds interest rates low. Investors can’t compete with the Fed when the Fed gets it’s capital by printing it out of thin air! Because the Fed simply “prints” their “capital,” they can hold interest rates at all time lows as long as they need to. Of course this is terrible for the economy as it means we are at their mercy.

If stimulating more debt would help us recover, I think it’s safe to say we’d have recovered by now. The reality is that pushing more debt into the system will not make our problems go away. It won’t slow the foreclosures, it won’t add jobs, and it won’t make life cost less money.

Like any private company, the Federal Reserve exists for one main purpose….PROFIT. The Federal Reserve can’t profit if it doesn’t exits. And it wouldn’t exist if people realized they don’t create anything of real value.

An indebted society is not a healthy one. Look at Greece.. If it weren’t for the US being able to print money, we’d be no better off than them.

Are You Living On Financial Edge?

             Are You Living on the Edge without a Financial Education?

Posted on: Tuesday, January 24, 2012|Written by: Robert Kiyosaki

When I was a young boy, the path to retirement was simpler. For the most part, if you saved your money regularly, paid your mortgage off, and lived modestly, you could retire well. This was partly because inflation was low since the dollar was pegged to gold and also because most employees could expect a company pension and health benefits until the day they died. It did not take much intelligence to have a secure, financial future.

Today, we live in a world that requires an extremely high, financial intelligence to retire well.

It is no longer enough to save money, as higher inflation and taxes wipe out your earnings. You can’t rely on a company pension because most companies don’t offer one. Instead, it is expected that you contribute to a 401(k) plan that may or may not provide you a secure retirement and that is simply a glorified, tax-deferred savings account that benefits the rich, not you.

These changes are because of two actions by the U.S. government that I’ve written extensively about, most notably in my book Conspiracy of the Rich. In 1971, Nixon took the dollar off the gold standard, making the dollar a currency instead of money. And in 1974, the Employee Retirement Income Security Act was passed, paving the way for 401(k) plans, forcing uneducated workers into the stock market, and creating the financial services industry.

It’s taken about three decades, but we’re seeing the devastating effects of those actions today as individuals and countries are living on the edge of financial disaster.

On an individual level, take for instance a young friend of mine’s father whose dad worked his whole life in an old-world industrial plant. Every time my friend talked with his dad, his dad would mention how long it was until his retirement, where he’d collect a pension and health benefits and enjoy golf a few times a week and sports on TV. There were no savings to speak of, some stock options decimated by the economic downturn, much debt, and no other plan. Unfortunately, only a few months before my friend’s dad hit the minimum retirement age, the plant went for sale, found no buyers, and closed. Now he, along with hundreds of others at that plant, cannot find a new job, have no savings, and are looking at a very insecure, financial future. For him, it may be too late.

On a national level, look at the Euro Zone. According to The Wall Street Journal, “The global economy faces a depression-era collapse in demand if Europe doesn’t quickly act to dramatically boost the size of its debt-crisis firewall, implement pro-growth policies and further integrate the euro zone, the head of the International Monetary Fund warned Monday.”

As IMF Managing Director Christine Lagarde remarked over the weekend, the Euro Zone’s efforts to stymie debt problems “is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand… A moment, ultimately, leading to a downward spiral that could engulf the entire world.” If Europe collapses, the world goes down with it — and the jury is still out on what will happen. But the world’s financial experts are sending out the warning cry.

As you read these stories above, they probably sound vaguely familiar, have little emotional impact on you, and you may have even skipped over them.

Why?

These stories echo stories that have been shared for many years now. The news is filled with stories of people living in countries on the edge of financial collapse, and then buffered by good news here and there to keep us all from falling into complete despair.

The reality is that we have become used to living on the edge, and we’re forgetting what it means to live comfortably inland. This is not all bad, if you have the right mindset.

Living on the Edge Requires a Financial Education

Living on the edge requires alertness and intelligence, you cannot give up or be lulled or else you will fall. Each step must be calculated and taken carefully, but confidently, to get to safety. The only other option is to do nothing and hope someone will save you —which is akin to suicide.

It’s for times like these that the Rich Dad Company was formed. This website, our books and DVDs, our coaching, and financial education all exist to help equip you for the perils of our modern economy so that you can be sure to have the knowledge and practical application required to survive and thrive while others fail and fall.

For many, there is no choice about living on the edge. The die has been cast for us by people much more powerful and influential than us. But we can control our actions on the edge. It’s my hope you’ll step forward confidently and smartly, equipped with as much financial knowledge and courage as you can gain and muster. It sure beats the alternative.

To increase your financial education now, click here to find out about our free resources and online community.

Gold Value from 1935 to 2011

Here is a graph of gold from 1935 to 2011 me discussing the trend it shows and why it is doing what it is doing.

BS: “The Recession is Over.”

By Joshua Gamen

Sure. I recall a lot of hype last summer that the real estate market had hit bottom too.. Try telling that it has hit bottom to the millions of Americans who have lost their home to foreclosure this year. Or to their neighbors, who continue to throw their money at their sinking ship home while the foreclosures around them sink it’s value, and any hope for a return in their lifetime.

Who is the recession over for? The millions of unemployed people? The business owners who don’t have any customers? The guy trying to sell his home? The elderly lady trying to retire? The young adult trying to start his business? TELL ME, WHO IS THE FREAKING RECESSION OVER FOR?!

Let’s look at housing numbers:

  • Almost $6 trillion in housing wealth has been lost since 2005
  • Home values have dropped 30 percent
  • Existing home sales dropped 27 percent over the previous month
  • Housing inventories stand at 12.5 months(some part of the country, 24-36 months), over twice what’s considered healthy

What about Income, or Unemployment?

  • The unemployment rate is officially at 9.6%. It is a lot higher unofficially, because many unemployed Americans have been without a job for too long for the government to consider counting them.
  • Americans with jobs have seen their income fall over 4% between ’07-’09, and the % of Americans living BELOW the poverty level rose to 14.3%!
  • The gap is widening largely between the rich and the poor. Furthermore, the gap between the rich and the middle class is growing rapidly, as is the pace.(The top 20% of households now account for over 50% of all pre-tax income in the country = bye bye middle class.)

To quote the great educator/businessman/investor, Robert Kiyosaki:

“Maybe when the NBER says the recession is over, they mean it’s over for the ultra-rich. After all, many corporations are now posting better than expected earnings reports and balance sheets are getting healthier. For instance, FedEx recently announced that their earnings more than doubled. They also announced that they’re firing 1,700 people. Why? I believe it’s because they know what you already know, the recession may be “officially” over—but it’s not really over. Is the recession over for housing? Not according to the numbers. Thanks to high unemployment, new home orders are down 15 percent over last year, foreclosures are still rising, and pricing is not recovering. People are predicting that the housing inventory, which is more than double healthy levels, will take up to three years to work through. There will be no recovery until that happens.”

MORE COMING!

I wish I could post some stats to show that the market is taking a positive direction, but that would be covering up the truth with illusions. There are plenty of illusions out there to hide behind, but let’s be real..

Unemployment is still rising, and without jobs, nothing can get done. Business owners can’t provide jobs if they don’t have customers. And there aren’t any customers if there isn’t any money to spend. Sure, more money can be printed, but it will only become worth less as they print more and more, and they are..

MASSIVE government printing of US Currency. I call it currency, because it is just that-it’s not money! In 1971 President Nixon took the US off of the gold standard, meaning that the dollar was no longer attached to anything of value. It is simply a piece of paper that is backed by the good faith of the citizens of the United States.(See US dollar bill) They can print as much of this paper as they want, but the problem is, supply and demand will always work their course. Too much supply brings the equilibrium price down, and with the rate they have been running the printing presses the past few years, the market will soon be flooded with worthless pieces of green paper. –

If you study the history of currencies, since the earliest recorded times, every civilization that has had a currency not attached to something of value(ie: gold or silver), has gone to 0. That means, as more and more of the currency comes into existence, the existing currency is devalued, until the currency is no longer worth anything. Sound like pennies? Soon this will be nickels, then dimes, then quarters. Even the metal in them won’t be worth much, since they haven’t been made from silver since the late 60’s.(Weird how the government stopped using real silver and snatched it out of the money supply just a few short years prior to 1971 when our currency was removed from it’s tie to gold. Conspiracy?? 😉

In 1974, the government passed a law called ERISA. This made it so that people’s retirement was up to themselves, not the employer. It gave birth to plans like the 401k, and mutual funds, plans that were devised so that you could “invest for your retirement.” When this happened the American citizens turned to mutual funds, stocks and 401k’s for retirement plans. What they were actually doing was handing their money to wall street to play with until they retire, and expecting that wall street would automatically grow their money for them.

As we saw with the recent stock market crash, Wall Street is not looking out for the mutual funds or 401k accounts, Wall Street is looking out for their FAT KATS. What’s worse is, regardless of your opinion on the stock market, it doesn’t take a lot of intelligence to see that when the largest demographic of citizens(Baby Boomers) start to retire, money will flow out of the stock market like never before. This will be a the second dip of this what I believe to be, double dip recession.

Foreclosures can’t slow down, not yet. Go to google and type in mortgage resets. You will see graphs that will show you the largest mortgage product ever sold – the 5/1 Adjustable Rate Mortgage(ARM), and when these loans will adjust. These loans were primarily written in 2006 and 2007, right at the end of the real estate bubble, and will be resetting over the next 2 years. This will cause another HUGE drop in real estate values, as the number of foreclosures will sky higher, and at a more rapid pace than current.

Good News??

There is good news…

When markets bubble and then pop, the money doesn’t disappear, it just flows into another asset class. It moves.. The money is going somewhere, so where is it going? Well, take a look at the value of gold, or silver. Go to Google, and type in “gold spot.” Examine the value of gold as it has climbed over the past week, month, year, 5 years, or further. Then check out the same for silver. Since forever, gold and silver have always been used for exchange, hence making it the real money of the world. Until the rich figure out where they can put their money to make more money, they are holding it in the form of real money, gold and silver. It’s catching on quick, think of how many places you see driving to work and back that say, “WE BUY GOLD.” It is the next major bubble, but we’re still early to the trend. Gold just went over $1,300 an ounce today, but we will see gold hit $13,000 per ounce, and in the not too far future.

Assets are cheap. Real estate, businesses, etc. Now is a good time to gather as many assets as you can, that will reward you as the economy turns around. Buy investments for what they will provide you in cash flow, do not worry about selling for a profit. That is speculation. Whatever you grow your asset and sell it for later should be the gravy. Now is an excellent time to pickup businesses for cheap, cut out the expenses, make the systems more efficient, and get the asset as profitable as possible. Now is an amazing time to buy real estate that will cash flow for you as well.(Rental income exceeding the loan you are paying to own the property.)

So…

The recession is not over. We are in a new economy, the old one is not coming back. We are in a shift from the industrial era to the information age. In this new economy, knowledge is money. You can print your own money just like the the Fed does. Financial IQ is the way out of the paycheck chasing. Get real, get right, and get assets! Financial knowledge, is the greatest asset you have, so acquire as much of it as you can!

~Josh