Rich Dad's Daughter

Many people are turned off by investment risk.

When I was growing up, that was my poor dad. Because he valued comfort and security, he felt that, instead of investing, smart people got a good job and saved their money.

My rich dad, on the other hand, felt that my poor dad’s way of thinking was risky instead.

He aspired to own his own businesses and to invest his money rather than save it.

My poor and rich dads’ opposing views of the world are best explained by the CASHFLOW Quadrant, or ESBI.

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I studied the lives of both men. I wanted to understand why my poor dad thought there was risk in investing, and why my rich dad didn’t fear investment risk at all.

Along the way, I learned three key reasons why my poor dad really thought investing was risky – and why investment risk was a reality for him and others like him…

• Lack of Training
• Lack of Control
• Lack of knowledge

Investment Risk #1

Investment Risk #1: Lack of Training

I’ve written before about the three types of education: academic, professional, and financial.

Most people go to school to be trained on how to be an employee or self-employed through academic and professional education.

School teaches us things like reading, writing, and arithmetic, all good things and useful for the work world.

It teaches us how to execute on orders from our superiors and be where we’re told to be at the right time – the mindset of an employee.

Some people go on to higher education and train to be in high-paid professions like medicine, law, or accounting.

But at the end of the day, they’re just higher-paid employees or self-employed.

Few people who focus on academic or professional education make the leap from the left side of the CASHFLOW Quadrant to the right side.

Unfortunately, school doesn’t teach how money works, or how to have it work for you.

It doesn’t teach you the skills necessary to become a business owner or an investor.

Those are skills that you must seek out and teach YOURSELF, starting with the four foundations of financial literacy.

As a result, most people simply lack the training necessary to know how to mitigate investment risk.

And without training and knowledge, investing is indeed risky.

Thankfully, Rich Dad exists to help you increase your financial intelligence through our books, games, classes, and coaching.

Investment Risk #2

Investment Risk #2: Lack of Control

During the last Great Recession, I’m sure that many people came to believe that investing was risky as they watched their stock portfolios tumble.

And again, most recently, I’m sure many people were decimated during the global coronavirus pandemic.

The reality is that most people don’t have a true investment plan.

Instead, they work hard and hand over their money to an “expert” who invests it in various mutual funds, stocks, and bonds.

The problem is that these types of investments increase investment risk.

You have no control. You’re at the mercy of the markets and managers.

That is a position of risk.

Successful investors, on the other hand, strive for as much control as possible in order to minimize investment risk.

That’s why I invest in businesses where I have decision-making power.

It’s also why I love real estate where I can lock in cash flow for long periods of time.

In both cases, I have a lot of control over what happens with my investment.

Investment Risk #3

Investment Risk #3: Lack of Knowledge

Most of us know intuitively that if you want a real deal, you need to be on the inside.

You often hear someone say, “I have a friend in the business.” It doesn’t matter what the business is.

It could be to buy a car, tickets to a play, or a new dress. We all know that “on the inside” is where the deals are made.

The investment world is no different. As Gordon Gekko, the villainous character played by Michael Douglas in the movie Wall Street, said, “If you’re not on the inside, you’re outside.”

Employees and self-employed people generally invest from the outside, where the investment risk is high.

They have limited – or total lack of – knowledge of what they’re actually investing in.

Those who operate as business owners and professional investors have detailed knowledge of what’s going on inside of their business or their investments.

They’re the drivers of the business or investment, and the insider knowledge makes their investment risk much smaller.

Finally…

The first step to minimizing your investment risk is to actively work to change your mindset to move from the left side of the CASHFLOW Quadrant to the right side.

That’s not to say that you can’t invest on the left side, but it’s much harder as there are many forces acting against you; mainly it’s very hard to have any control, even if you do have training and knowledge.

Also, because those on the left side sell their time, they rarely have the availability needed to manage their investments the way someone on the right side does.

Moving to the right side of the quadrant means getting the right training and knowledge, and putting it to use so that you can be in a position of control.

This means increasing your financial IQ daily through things like coaching and seminars.

Ultimately, however, you must take that knowledge and put it to use.

Nothing teaches us better than trying, failing, and trying again.

Moving from a position of risk to a position of security when it comes to investing takes financial education and practice.

Today, I encourage you to take an honest look at your investment position and to take the steps necessary to gain training, control, and knowledge.

It will be one of the wisest decisions you can make.

Regards from Rich Dad’s Daughter 🤗