GuruWatch

Golbguru from Money, Matter and More Musings wonders if David Bach’s math is misleading. The author’s simplification of leverage glosses over the finer points, and Golbguru explains how Bach ignores payments on the mortgage one must make. this should be considered part of the cost of investment if you’re talking about a property in which you live. If you’re renting the property to tenants, that cost can be offset by rental income.

A quick calculation using a generic mortgage calculator shows that by the end of five years, a $200,000 mortgage (at a reasonable 6% rate of interest) would cost about $58,000 in interest alone (plus some amount of principal is paid back too … Shouldn’t such costs be taken into account before making claims about doubling money?

More problems with Bach’s logic:

What if you put down only $25,000 instead of $50,000? With his calculation that would give a 200% rate or return. For $10,000 down payment that would be a 500% rate of return. Man..isn’t buying a house really profitable?! At this rate, Bach could easily tell you that if you don’t put anything down you get $50,000 on a $0 investment…

The doubling money argument totally ignores any kind of interest rates (his logic is applicable only when you borrow money at 0% interest rate and don’t make any payments for five years… For someone who is trying to explain potential gains using leverage, this isn’t a good sign. Profitable financial leverage cannot be explained without explaining the difference between the rate imposed on borrowed money and the rate of return that you get when you invest the borrowed money.

Are these arguments legitimate? David Bach in this section of The Automatic Millionaire is trying to sell the idea of homeownership, which has paid off for many people in the last decade or so.

Leverage is a very important concept and is a way to achieve a better return on investment, but this applies best to properties purchased with the intent of leasing to tenants. When you’re making the mortgage payments and paying for home repairs, your property is cash-flow negative and should not be considered a wealth-building investment. You’re hoping that any value appreciation offsets your negative cash flow, which is a losing proposition.

Dave Ramsey is a guru with a loyal throng of fans. Either you love him or you hate him. JLP from AllFinancialMatters made his opinion known, although his post didn’t say much. Any attack on Ramsey, no matter how brief, attracts vitriliolic comments from both lovers and haters. Here are a few of those comments.

• People who charge an arm and a leg for financial organization tools drive me nuts… So maybe you do have to spend money to save money, but why not go for something less extortionate?
• Seems like Ramsey is looking after his own “personal” finance.
• That stuff is pretty valuable information for people not knowing how to get out from under financial pressure.
• Not to sound like his biggest fan or anything but the stuff that you get is pretty good.
• it’s a rock-solid program that the most overwhelmed can understand. i give him kudos for making the tidal wave of personal finance a bite-by-bite program that affords those who don’t have the wherewithal to make something positive from their mess.
• Good call. Save your money and pay off your debt [rather than buy Ramsey’s products].

A Penny Saved is impressed with Ramsey’s book, and he is inspired:

[The book is] sound and isnt a get rich quick or eliminate your debt in 30 days kind of program. It’s a life long commitment to living a sound financial life. I’m fairly sure that we will have begun our own Total Money Makeover soon.

Now, Dave Ramsey often invokes God in his message. But one religious individual shows some of Ramsey’s reasoning conflicts with some biblical teachings. Ariah explains why he (she?) ditched Dave Ramsey (and once again, the cultists are back en force to eagerly defend. You’re better off ignoring most of the 100+ comments, but this is from Ariah’s post:

The thing that bothers me is the second half of the “live like no one else.” statement. The idea is that once you’ve paid off your debt and saved your money you can spend it on what you want to. Now most folks want to hear that and so they are happy to listen and hear what Dave has to say. I have trouble cause my Bible (and I’m pretty sure it’s the same one) seems to say we are to be sacrificial in our lives, regardless of how well we’ve saved, etc. And that we should be good stewards, and wise consumers no matter what income/debt we have.

Here is the piece of bad advice that Ramsey gave that set Ariah over the edge:

A lady called in yesterday with a question. It was quite simple, her husband and her are debt free. The question was which is better: their current minivan or trading it for an SUV of equal value?… Dave’s Response: This is a silly question that you should not fret over… She’s being a “tight-wad…”

Ariah explained that the difference lies in the better gas mileage of the current minivan, and the Bible requires its adherents to be wise stewards.

Cap from StopBuyingCrap.com is assembling a list of gurus he hates and a few he doesn’t hate. Check out what he has to say about Trump and Kiyosaki.

The real reason why Kiyosaki is on this list though, is because of his irresponsible recommendations and suggestions on achieving financial independence. Many other personal finance bloggers have frequently mention his ill-considered financial advice as a Yahoo Finance columnist, which mostly consist of the same advices mentioned above.

Read Cap’s full analysis of Donald Trump, Robert Kiyosaki, Dave Ramsey, and others.

GolbGuru from Money, Matter, and More Musings ran the numbers and pointed out a major flaw with Dave Ramsey’s Drive Free, Retire Rich philosophy.

Dave Ramsey says:

You want a brand new sports car that would normally cost you $475 a month. The car you are driving now is worth $1,500.

If you take that $475 and pay yourself instead of paying the dealer, you’ll have $4750 in just ten months. Add that to the $1,500 you can get for your current car, and you can pay cash for a used $6250 car. That’s a major upgrade in car in just 10 months-without owing the bank a dime!

But let’s keep going. If you kept saving at that rate, you’d have another $4750 in another ten months. Chances are, less than a year later, you could sell your $6250 car for about what you paid for it. This means that you can step up again-with-cash-into an excellent $11,000 used car just twenty months from today! Not Bad!

GolbGuru rebuts:

Yeah..not bad…but not feasible either! Especially, this part: “Chances are, less than a year later, you could sell your $6250 car for about what you paid for it.”

Check out GolbGuru’s numbers here.

Suze Orman will be speaking at The Bushnell in Hartford, Connecticut on Wednesday, January 24 at 7:30 pm. Tickets cost between $30 and $55 or you can pay a little more, $125, to be a VIP for the evening and meet Suze. The basic seats can be purchased online, but the VIP tickets must be purchased by calling the box office.

This speaking engagement is right in front of the February 27 release of Suze’s new book, Women & Money: Owning the Power to Control Your Destiny. After the release, Suze will be embarking on a book signing tour, so look for her soon in your town… if you’re interested.

Robert Kiyosaki, on his latest article for Yahoo! Finance’s “Why The Rich Get Richer?” column, wants people to stay away from financial predators. He names notable people from financial scandals such as Ken Lay, Jeff Skilling, Dick Grasso. Kiyosaki even cites examples from G.E. and AOL’s past with Jack Welch and Steve Case.

You won’t find me disagreeing with Kiyosaki about his rogue gallery roster. (Did I just write that?) Especially his point that these wealthy white-collar crimminals have not seen a day of jail time. And just like Donald Trump, the co-author of Kiyosaki’s latest book, Kiyosaki doesn’t believe that jailing Martha Stewart while not touching the others displayed any commitment on the system’s part to weed out its abusers. I’ll also agree to this observation, but… (and there’s always a but with Kiyosaki)

Read the rest of this entry »

GuruWatch wasn’t mean to focus so much on one person, but Robert Kiyosaki seems to be an easy target lately, thanks to his visibility in the press surrounding his new book.

I’d like to point out a great rebuttal from Byrne Hobart to Kiyosaki’s recent Yahoo Finance column on the value of the US dollar.

Hobart takes Kiyosaki’s article and breaks it down point by point. He gives credit to Kiyosaki when it is due, but that doesn’t happen too often in this case.

Suze Orman’s advice is to avoid piggyback mortgage loans. It’s a better option to pay private mortgage insurance (PMI) up front and roll it into a lower rate than borrow at a higher rate. Here’s a clip from her show, in which she only slightly berates the caller, Michael from McMurray, Pennsylvania. (Or is that Michael McMurray, from Pennsylvania?)

I haven’t gotten my hands on the new book by Robert Kiyosaki and Donald Trump, Why We Want You to be Rich. Judging from Kiyosaki’s Yahoo column, which I don’t like, and Trump’s multiple bankruptcies, I think I’ll be looking for my financial education elsewhere.

Note: I’ve been adding review excerpts as I find them, so keep checking back. Here’s what some people are saying about the new book:

NEW! Thomas M. Anderson, Kiplinger’s Personal Finance: Trump and Kiyosaki Say They Want You to be Rich

Impressive resumes. Alas, unimpressive book. Why We Want You to Be Rich is a thinly veiled infomercial for more financial-advice products from Kiyosaki, Trump and their minions. They sell positive thinking and can-do haziness — specific details cost extra…

To be fair, the book’s introduction tells readers this is not a how-to book. A disclaimer on the cover would be more appropriate. Why We Want You to Be Rich pretends to explain why the rich are different and to outline the benefits of wealth. The Great Gatsby by F. Scott Fitzgerald does a better job.

Jonathan Clements, Wall Street Journal: Rich Men, Poor Advice: Their Book Is Hot, But Their Financial Tips Aren’t

Mr. Trump offers up a mix of inspirational thoughts (”Think bigger!”) and ruminations about The Donald (”I’m still evolving, so I’m pleased to be considered operatic, although sitting through an opera is something I just can’t do”). Indeed, the book is short on specific advice — but what’s there can found in Mr. Kiyosaki’s sections. He plugs rental real estate, silver, gold, and oil and gas partnerships. He also promotes the idea of starting your own business.

Mr. Kiyosaki stresses that mutual funds are risky, while building your own business can be a predictable path to prosperity. Yet he also notes that 90% of start-up businesses fail within the first five years. When I ask Mr. Kiyosaki about this apparent contradiction, he responds that starting a business isn’t risky if you know what you’re doing.

Steve Braun: Jonathan Clements on Kiyosaki

In the late 1990’s when Rich Dad Poor Dad was originally published, the hot investments were IPOs, especially small startup technology and internet companies… Silver, gold, oil, and gas were dirt cheap and totally out of favor as investments. Thus, Kiyosaki made a big deal out of what was hot then (small company IPOs) so he could look like a wealthy genius and be hip.

Fast forward to 2006. Silver, gold, oil, and gas have had a tremendous 5 year runup and are the talk of the investing world. Small company IPOs (other than Google) are not exactly in vogue like they were in 1999. Plus we had the great plunge in the NASDAQ from 2000 to 2002 that burst the bubble of many of those once high-flying small company startups. So now Kiyosaki trumpets “silver, gold, and oil and gas partnerships.”

Jim, Amazon.com reviewer: Excellent book!

Most books on money are full of gimmicks written by those who do not know how to produce wealth. This book contains real life strategies that can be used by anyone. The dynamics of the two totally different authors, with totally different backgrounds, was refreshing, entertaining, and very informative…

I felt like the information was discussed in a down to earth manner. I’m sure these two wealth powerhouses could talk down to us, rather they seemed to talk to us. It was almost like I was sitting in the same room with them.

Free Money Finance: Trump and Kiyosaki Write Useless Personal Finance Book

Just what we all need — a sales-related personal finance book. Sheesh!… So, from the authors’ own mouths, there appears to be no compelling reason why I would want to read this. Is this really the best these two can do? (BTW, Trump’s advice is ok, but Kiyosaki’s seems quite useless.)

NEW! BloggingStocks: Why Trump and “Rich Dad” Really Want You to be Rich

On my way home [from the book’s release party], much to my surprise, I found myself enjoying the book immensely. I was actually laughing out loud at points, perhaps not necessarily in the way the authors intended, but having a grand old time just the same… It’s not exactly magic, but it is entertaining…

What I found so funny, and what any regular reader of the financial and investing press will find amusing, is just how much Kiyosaki and Trump manage to place themselves at the center of the book, without actually offering much usable financial advice… Then it dawned on me: It was an infomercial. Lively, entertaining, campy even. But pure marketing at its core.

Found any other reviews? Link to them in the comments below. Want to see what other personal finance bloggers are writing? Search pfblogs.org.

Note: We’ve already gotten a number of emails defending Kiyosaki, Trump, and their book. None of us on the GuruWatch blogging team is posting an opinion on the book; I haven’t read it. We’re just sharing the reviews we’ve found.

Robert Kiyosaki’s latest column, Learn to Invest Like a Pro, is now online at Yahoo Finance. This week’s column is surprisingly a lot tamer than most of his recent articles. His point is simple: invest in products that generate income now, like rental properties, rather than those that will generate income later, like mutual funds.

First, Kiyosaki tells a story about his possibly-fictional rich dad, driving up his word count, but eventually coming around to the point. The author uses the rich dad’s voice to call those who invest in the stock market lacking “financial intellgience.”

The article continues without saying much else. Kiyosaki is big on stories but small on details. He even says, “Once [my wife] learned to spot an investment that made money, she was part of a world very few people ever see. Today, she makes tens of thousands of dollars a month from her investments.” This may be true, but Kiyosaki provides no details whatsoever. I’m not asking for an excessively long article, but if we cut the bull about his “rich dad” and add some supporting details, Kiyosaki would have a more convincing argument.

Kiyosaki’s philosophy will work for some people. Others simply don’t want to stress of finding and managing real estate investments. Kiyosaki also does not address any of the downsides of investing in real estate, implying in this article that the right property will be a perfect investment. Real estate involves major expenses, brokers that take a 6% commission whenever you sell, and major headaches. The real estate market does not always go up, and you run high risks if you’re not diversified. (By the way, Kiyosaki hates diversification.) After taxes, expenses, and sweat, index mutual funds often come out on top.