Investing Is a Plan, Not a
Product or Procedure
I am often asked questions like, “I have $10,000 to invest. What do you
recommend I invest in?”
And my standard reply is, “Do you have a plan?”
A few months ago, I was on a radio station in San Francisco. The program was
on investing and was hosted by a very popular local stockbroker. A call came in
from a listener wanting some investment advice. “I am 42 years old, I have a good
job, but I have no money. My mother has a house with a lot of equity in it. Her
home is worth about $800,000 and she owes only $100,000 on it. She said she
would let me borrow some of the equity out so I could begin investing. What do
you think I should invest in? Should it be stocks or real estate?”
Againmy reply was, “Do you have a plan?”
“I don’t need a plan,” was the reply. “I just want you to tell me what to invest
in. I want to know if you think the real estate market is better or the stock market.”
“I know that is what you want to know . . . but do you have a plan?” I again
asked as politely as possible.
“I told you I don’t need a plan,” said the caller. “I told you my mother will
give me the money. So I have money. That’s why I don’t need a plan. I’m ready to
invest. I just want to know which market you think is better, the stock market or
the real estate market. I also want to know how much of my mom’s money I
should spend on my own home. Prices are going up so fast here in the Bay Area
that I don’t want to wait any longer.”
Deciding to take another tack, I asked, “If you’re 42 years old and have a good
job, why is that you have no money? And if you lose your mother’s equity money
from her home, can she continue to afford the home with the added debt? And if
you lose your job or the market crashes, can you continue to afford a new house if
you can’t sell it for what you paid for it?”
To an estimated 400,000 listeners came his answer. “That is none of your
business. I thought you were an investor. You don’t need to dig into my private
life to give me tips on investing. And leave my mother out of this. All I want is
investment advice, not personal advice.”
Investment Advice Is Personal Advice
One of the most important lessons I learned from my rich dad was that
“Investing is a plan, not a product or procedure.” He went on to say, “Investing is
a very personal plan.”
During one of my lessons on investing, he asked, “Do you know why there are
somany different types of cars and trucks?”
I thought about the question for a while, finally replying, “I guess because
there are so many different types of people and people have different needs. A
single person may not need a large nine-passenger station wagon but a family with
five kids would need one. And a farmer would rather have a pickup truck than a
two-seater sports car.”
“That’s correct,” said rich dad. “And that is why investment products are often
called ‘investment vehicles.’”
“They’re called ‘vehicles’?” I repeated. “Why investment vehicles?”
“Because that is all they are,” said rich dad. “There are many different
investment products, or vehicles, because there are many different people with
many different needs, just as a family with five children has different needs than a
single person or a farmer.”
“But why the word ‘vehicles’?” I again asked.
“Because all a vehicle does is get you from point A to point B,” said rich dad.
“An investment product or vehicle simply takes you from where you are
financially to where you want to be, sometime in the future, financially.”
“And that is why investing is a plan,” I said nodding my head quietly. I was
beginning to understand.
“Investing is like planning a trip, let’s say from Hawaii to New York.
Obviously, you know that for the first leg of your trip, a bicycle or car will not do.
That means you will need a boat or a plane to get across the ocean,” said rich dad.
“And once I reach land, I can walk, ride a bike, travel by car, train, bus, or fly
to New York,” I added. “All are different vehicles.”
Rich dad nodded his head. “And one is not necessarily better than the other. If
you have a lot of time and really want to see the country, then walking or riding a
bike would be the best. Not only that, you will be much healthier at the end of the
trip. But if you need to be in New York tomorrow, then obviously flying from
Hawaii to New York is your best and only choice if you want tomake it on time.”
“So many people focus on a product, let’s say stocks, and then a procedure,
let’s say trading, but they don’t really have a plan. Is that what you are saying?” I
asked.
Rich dad nodded. “Most people are trying to make money by what they think
is investing. But trading is not investing.”
“What is it, if it is not investing?” I asked.
“It’s trading,” said rich dad. “And trading is a procedure or technique. A
person trading stocks is not much different than a person who buys a house, fixes
it up, and sells it for a higher profit. One trades stocks; the other trades real estate.
It’s still trading. In reality, trading is centuries old. Camels carried exotic wares
across the desert to consumers in Europe. So a retailer is also a trader in a sense.
And trading is a profession. But it is not what I call investing.”
“And to you, investing is a plan, a plan to get you from where you are to
where you want to be,” I said, doing my best to understand rich dad’s distinctions.
Rich dad nodded and said, “I know it’s picky and seems a minor detail. Yet, I
want to do my best to reduce the confusion around this subject of investing. Every
day, I meet people who think they’re investing, but financially they’re going
nowhere. They might as well be pushing a wheelbarrow in a circle.”
It Takes More Than One Vehicle
In the previous chapter, I listed a few of the different types of investment
products and procedures available. More are being created every day because so
many people have so many different needs. When people are not clear on their
own personal financial plans, all these different products and procedures become
overwhelming and confusing.
Rich dad used the wheelbarrow as his vehicle of choice when describing many
investors. “Too many so-called investors get attached to one investment product
and one investment procedure. For example, a person may invest only in stocks or
a person may invest only in real estate. The person becomes attached to the vehicle
and then fails to see all the other investment vehicles and procedures available.
The person becomes an expert at that one wheelbarrow and pushes it in a circle
forever.”
One day when he was laughing about investors and their wheelbarrows, I had
to ask for further clarification. His response was, “Some people become experts at
one type of product and one procedure. That is what I mean by becoming attached
to the wheelbarrow. The wheelbarrow works; it hauls a lot of cash around, but it is
still a wheelbarrow. A true investor does not become attached to the vehicles or
the procedures. A true investor has a plan and has multiple options as to
investment vehicles and procedures. All a true investor wants to do is get from
point A to point B safely and within a desired time frame. That person doesn’t
want to own or push the wheelbarrow.”
Still confused, I asked for greater clarification. “Look,” he said, becoming a
little frustrated, “if I want to go from Hawaii to New York, I have a choice of
many vehicles. I don’t really want to own them. I just want to use them. When I
climb on a 747, I don’t want to fly it. I don’t want to fall in love with it. I just want
to get from where I am to where I am going. When I land at Kennedy Airport, I
want to use the taxi to get from the airport to my hotel. Once I arrive at the hotel,
the porter uses a handcart to move my bags from the curb to the room. I don’t want
to own or push that handcart.”
“So what is the difference?” I asked.
“Many people who think they are investors get attached to the investment
vehicle. They think they have to like stocks or like real estate to use them as
investment vehicles. So they look for investments they like and fail to put together
a plan. These are the investors who wind up traveling in circles, never getting from
financial point A to financial point B.”
“So you don’t necessarily fall in love with the 747 you fly on, just as you
don’t necessarily fall in love with your stocks, bonds, mutual funds, or office
buildings. They are all simply vehicles,” I stated, “vehicles to take you to where
you want to go.”
Rich dad nodded. “I appreciate those vehicles, I trust that people take care of
those vehicles, I just don’t get attached to the vehicles . . . nor do I necessarily
want to own or spend my time driving them.”
“What happens when people get attached to their investment vehicles?” I
asked.
“They think that their investment vehicle is the only vehicle, or it is the best
vehicle. I know people who invest only in stocks as well as people who invest only
in mutual funds or real estate. That is what I mean by getting attached to the
wheelbarrow. There is not anything necessarily wrong with that type of thinking.
It’s just that they often focus on the vehicle rather than their plan. So even though
they may make a lot of money buying, holding, and selling investment products,
that money may not take them to where they want to go.”
“So I need a plan,” I said. “And my plan will then determine the different
types of investment vehicles I will need.”
Rich dad nodded, saying, “In fact, don’t invest until you have a plan. Always
remember that investing is a plan . . . not a product or procedure. That is a very
important lesson.”
Mental Attitude Quiz
Before a person builds a house, he or she usually calls in an architect to draw
up the plans. Could you imagine what could happen if someone just called in
some people and began to build a house without a plan? Well, that is what
happens to many people’s financial houses.
Rich dad guided me in writing out financial plans. It was not necessarily an
easy process, nor did it make sense at first. But after a while, I became very
clear on where I was financially, and where I wanted to go. Once I knew that,
the planning process became easier. In other words, for me, the hardest part
was figuring out what I wanted. So the mental attitude questions are:
Are you willing to invest the time to find out where you are
financially today and where you want to be financially, and are you
willing to spell out how you plan to get there? In addition, always
remember that a plan is not really a plan until it is in writing and you
can show it to someone else.
Yes ____ No ____
Are you willing to meet with at least one professional financial
advisor and find out how his or her services may help you with your
long term investment plans?
Yes ____ No ___.
You may want to meet with two or three financial advisors just to find out the
differences in their approach to financial planning.
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