Rich Dad / Robert Kiyosaki Blog

May 7, 2009

Rich Dad Gold

Filed under: Rich Dad Gold — Tags: — ~ @ 1:34 pm : Create Your Own Fort Knox

I always get a little bit worried that RichDad Company will pull this off the web one day (they have), so I decided to create a spare copy (just in case…). I guess it was the right thing to do!

Anyway check out our other Rich Dad Gold and Silver PostsHere
Or check out our real estate section or the whole blog : Create Your Own Fort Knox

In the fifth grade, in Mr. Ely’s class, I began to study the great explorers of the world. It was the first time I was truly interested in a subject taught in school. At the age of 10, I read about Francisco Pizarro c. 1476-1541, the conqueror of Peru; Vasco Nunez de Balboa c. 1475-1519 the discoverer of the Pacific Ocean for Spain; Ferdinand Magellan, c 1480-1521, leader of the first expedition to circumnavigate the world, proving it was round, Ponce de Leon, c. 1460-1521, discoveror of Florida, searcher of the Fountain of Youth, Vasco da Gama c. 1469-1524, a Portuguese navigator who was the first European to sail to India, and of course, Christopher Columbus, c. 1451-1506, born in Italy, studied sailing in Portugal, and was backed by monarchs Ferdinand and Isabella of Spain to sail on October 12, 1492 to seek a route to India. Instead of India, he found the New World and the rest is history.

My final exam on this subject was my first, and one of my few, As I ever received in all my years of school. The subject of the early explorers, the story of wooden ships and iron men fascinated me. I studied intensely. My score on the final exam was 99%, which I argued back to 100% after I pointed out to Mr. Ely that his textbook was inaccurate. The question he believed I missed was, “What was the name of Christopher Columbus’ flagship?” The answer he was looking for was “The Santa Maria.” My answer was, “On which part of the voyage and on which voyage?” The reason I could not answer that question was because the Santa Maria was lost when it went aground and did not return to Spain. The flag was then transferred to either the Pinta or Nina. The crew that was left behind with the Santa Maria never returned. The angry natives ate them. The question was also ambiguous because Columbus made several voyages and he did not specify which voyage the question applied to.

Simultaneously, my Godfather, Dr. Robert Clopton, a professor of Education at the University of Hawaii, gave me a book entitled, Carry On Mr. Bowditch, by Jean Latham. It was the first book I ever read from cover to cover. The book was about Nathaniel Bowditch, born in Salem, Massachusetts, in 1773 and died in 1838. It is a story of a young man who dropped out of school at age 10 to go to sea. Bowditch ultimately became famous by authoring The American Practical Navigator, which has been the bible for men of the sea for two centuries.

At the age of ten, little did I know how much my thoughts had been affected and that the direction of my life’s path had been revealed to me. Little did I realize how much the romance of the sea, the travel to far away lands in search of natural resources and business opportunities would affect my thinking. Seven years later, I received my Congressional appointment to the United State Merchant Marine Academy, beginning my apprenticeship and study of commerce on the high seas. In the Summer of 1965, I was marched into Bowditch Auditorium to begin my four year education. At the Academy, I studied the same subjects the great explorers before me had studied. Subjects such as Celestial Navigation, Practical Seamanship, Astronomy, Meteorology, Naval Architecture, Admiralty Law, Global Economics, Ship Handling, Marine Engineering, as well as the usual college subjects such as math, english, and science.

One of the unique highlights of the U.S. Merchant Marine Academy is that each student spends a year at sea as an apprentice on board merchant ships. Ships such as cargo ships, tankers, tug boats, and passenger liners. That year at sea was a time for growing up, a time to see the best and the worst of the world. For me, it was a year following in the footsteps of the great explorers I read about in Mr. Ely’s fifth grade class. Forty years after Mr. Ely’s class, I continue to do the same things I dreamed about doing. Although I no longer use ships to travel, my business ventures are still in beautiful and far away places. In countries such as Australia, Canada, China, Portugal, England, Singapore, New Zealand, Columbia, Argentina, Peru, Mexico, Korea, Taiwan, Greece, Poland, and other countries. Today, the life of the great explorers I dreamed of as a little boy of 10, I continue to live as grown man. I suspect I will spend the rest of my life traveling the world, living the life I read about at the age of 10.

But this is not a story about world commerce or world travel. This is a story about gold and investing in it. I tell you the story of the great explorers because gold played such an important role in world exploration as well as exploitation. The story of almost every explorer is a story involving gold.

My rich dad was a gold bug. He loved gold. He was fascinated by it. Even in the years when it was illegal for an American to possess gold, he always had some around him. He always had a gold coin in his pocket, wore a solid gold watch, and made sure his wife wore at least 18 carat gold around her neck, on her wrists, or on her ears. He was not flashy or ridiculous about it. In fact, it was hardly noticeable but he always had it near him.

When he found out that I was going to be traveling the world by sea, he was thrilled and had one request. And that request was, “Whenever you arrive in a country that produces gold, I want you to visit its gold fields. If you can buy some gold from those fields, buy some and bring it home for me.” Because of his request, I have over the years, visited some of the most famous and historic sites on earth. I have seen the ancient mines of the Incas in the Peruvian Andes, the mines of the Aztecs, mines in Mexico, Vietnam, China, Australia, Canada, SE Asia, and the U.S. It is because of these visits to gold mines throughout the world, that I began to understand why rich dad invested in gold.

One day while showing rich dad pictures of my travels, I began to realize something I had not noticed before. While showing rich dad pictures of ancient mines in China, Vietnam, and in South America, I realized that the mines looked exactly the same. It did not make any difference if one mine was in China or one in Peru. The picture was virtually the same. It was dawning on me that humans have been burrowing little holes in the ground in search of gold for thousands of years in very remote parts of the world. Without any outside communication, humans instinctively have been drawn to gold. Humans have sought it, valued it, and almost worshiped it. No one got on the phone and told them to look for it. No one told them it was valuable. No one told them to treasure it. For thousands of years, humans have instinctively known that gold was special. Looking at my colored photos, I began to sense that there was more to human’s fascination with gold than I had been aware of.

Rich dad noticed that I was deep in thought, as my gaze went from picture to picture. “What do you see?” he asked.

“I don’t really know.” I replied. “I just know my mind is trying to tell me something that my eyes cannot see. Could it be that there is more to these pictures than simply holes in the side of hills.”

“So what is puzzling you about those pictures?” he asked.

I thought for a while before replying. “My pictures come from very remote parts of the world. Yet the pictures look the same. These mines, these tiny holes in the ground are thousands of years old.” I said slowly. “This means that human beings have been searching for gold without anyone telling them that it was a precious metal. All over the world, humans have dug for gold. So I think my question is, “Do humans instinctively know that gold is precious or did someone tell them that it was precious? Does gold have some hypnotic power over people?”

Rich dad laughed out loud. “I’m not certain I can answer your question, but yes, you are correct. Humans throughout the world have treasured gold. Long before there was a world market for gold, humans in isolated areas somehow knew that gold was important.”

Rich dad then went on to explain something that I have always remembered. “Humans instinctively know what is real and what is not real. This money we accept as money is not really money. It is simply pieces of paper backed up by the power of the government. If the government loses power, so does the paper money. Countries with strong governments have strong currencies and weak countries have weak currencies. But gold is gold. It is strong and welcomed in any country.”

I then asked rich dad what he meant by humans instinctively know what is real money. Rich dad went on to explain Gresham’s Law. Gresham’s law is the law of economics, which establishes the principle that bad money drives good money out of circulation.

“What do you mean bad money drives good money out of circulation?” I asked.

To better answer my question, rich dad went back into ancient Roman history. “Back in 54 A.D. the roman coin was called a denarius and it was 94% silver. By 218 A.D. it was down to 43% silver and only fifty years later it was less than 1%. In 1965, the U.S. government began doing the same thing. In 1964, our half-dollar was 90% silver. By 1969, it was down to 40% silver and today it contains no silver at all.”

“So coins without any precious metals in it is what you refer to “bad money?”

“That is correct,” said rich dad. “And the moment a government begins filling the money supply with bad money, good money goes into hiding.”

“You mean people start to save the good money. They pull the real money out of circulation.” I stated.

“Yes. That is exactly what I mean,” said rich dad. “In 1965, Gresham’s Law starting working in the U.S. just as it did in ancient Rome. People stopped trusting their money.”

“Why did the Romans and the U.S. do that?” I asked.

“It was a way for the government to avoid raising taxes,” said rich dad. “People hate higher and higher taxes, so the government simply prints or counterfeits more money so it can have more money to spend.”

“So instead of raising taxes, they lower the value of money?” I asked.

Rich dad nodded his head.

“But isn’t that phony manipulation eventually going to catch up with them?” I asked.

Again rich dad nodded his head. “It was one of the events that lead to the fall of the Roman Empire,” said rich dad. “It wasn’t long before inflation was rampant, people stopped working and spent more time spending money. Giant arenas called coliseums were built to keep the new idle rich occupied. The same thing is happening in America today. Today, entertainment is a bigger business than manufacturing, which is why rock stars, movie stars, and sports stars make more money than the hard working people who pay to watch them.”

“Will the same thing happen to America?” I asked.

“It has every great civilization,” was all rich dad said. “Money, people, and government all have a way of winding up doing the same things. Many wise economists claim that our systems of checks and balances will not let what happen to prior civilizations happen to us, but history does seem to repeat. And that is why I wanted you to go and look at the gold fields of the world. Gold is real money. What we call money is fiat money, or money that is forced upon us by law.”

“What do you mean by fiat money?” I asked. “And what do you mean that it is forced upon us by law?” “Let me briefly explain,” said rich dad. “In ancient times, merchants used gold as a means of exchange. Anyone and everyone accepted gold. But there was one big problem. As a merchant traveled between the ancient city-states, they were always afraid of being robbed. So instead of carrying gold, they carried certificates of gold that could be exchanged. And those certificates were the original forms of paper money. It was not that long ago that we also had money backed by precious metals.

Today, precious metals do not back our money. The laws of the government back our money today, not precious metals. As long as we have confidence in our government, and the pieces of paper are accepted, things will be fine. That is why our money today is called fiat money, not real money, which is money backed by precious metals.” “And what happens if we do not accept the money?” I asked.

“Good question,” said rich dad. “Let’s say a person owes you $1,000 and they attempt to re-pay you with fiat money but you refuse. You say instead, “I want real money.” At that moment, the laws of the government states that the debt of $1,000 is paid in full, because you refused to accept the government’s money. That is the basis of fiat money. It’s money backed by laws and not precious metals.”

“You mean if I refuse to accept his payment, then his debt is paid in full?”

“That’s correct,” said rich dad. “That is why people accept it. They accept fiat money because they are required by law to accept it.”

“And that is why Gresham’s Law is in place,” I added. “When people know that the money is not real, they hide real money.”

“If they have any real money,” said rich dad. “Remember that only a few years ago it was also illegal to own gold.”

“So what you are saying is that many of us do not know of anything but fiat money. Many people born after 1965 do not know what real money is.”

“That’s correct,” said rich dad. “But even though they may not know what real money is, most people suspect something is wrong. Especially hard working people. People who work harder only to have their money buy less and less. They know something is wrong, they just cannot say what exactly is wrong. It was Nikolai Lenin, one of America’s so called enemies that said, “The best way to destroy the capitalist system is to debase the currency.” And that is what we did. Not the Russians or communists. Our own government debased our currency.”

“Is that why the savings rate is so low in America?” I asked.

“Very astute,” said rich dad. “Many economists and politicians blame the people for not saving enough money. Yet, I think people know that saving money is foolish, especially if the government prints it faster than they can save it. As you saw from you pictures of gold fields throughout the world, people know what real money is and they know what is counterfeit. That is why people are putting money into mutual funds rather than banks.

“So are you saying I should invest in gold?” I asked. “Should I invest in gold as a hedge against the government coming apart as it did in ancient Rome?”

“No,” said rich dad. “We will most probably always have paper money from now on. Without fake money, our economy would not grow as fast, so there are some advantages to fake money. But I think you should always have some real gold near you.”

“Why is that?” I asked.

“Because gold attracts wealth,” said rich dad. “Gold is an antennae for other forms of money. That is why the richest countries have large vaults filled with gold. The U.S. has one of the largest stockpiles of gold, which is reportedly held in Fort Knox. Another country with large gold stockpiles is Switzerland. Currently, both these countries have strong currencies.”

“So are you saying that we as individuals should do the same?” I asked.

Rich dad nodded his head and then proceeded to tell me a story. “Years ago, while I was a young man traveling in Europe, I came across a wise old man. He was a follower of a little known religious group. His dedication to his faith and his purity of spirit attracted me to him. Since I had more time than money, in those days, I jumped at the chance to stay with he and his family for a few days. It was during this stay with him, that he told me the story of the magical power of gold.”

“And what did he say?” I asked. “He said that gold was placed here on earth by God. He said that gold was a reflection of the soul of God. And that is why whenever human beings found gold, they were mesmerized by it, attracted to it, and cherished it.”

“Did you believe him?” I asked.

“Well, not fully, yet I did not doubt his sincerity. He was a man who spent his life studying religious scriptures. He said that he found truth in religious scriptures rather than history books, which are really books written by politicians promoting their point of view of history. That is why the English say they won the war and the American’s claim to have won the same war. It all depends on who is in charge of the history books. So that is why he preferred to study religious documents rather than history books. It was in his study of ancient religious scriptures, that he often found this repeated reference to gold being a reflection of the soul of God. That is the way he explained it to me, years and years ago. So I did not doubt his sincerity, but I did have a few questions about the story.”

“And is that why you wanted me to visit the famous gold fields while I traveled the world?”

“Exactly,” replied rich dad. “I wanted to see if you would come to a similar conclusion about humans attraction to gold.”

I nodded my head slowly letting the idea sink in. I wondered if that is what I found intriguing in my pictures of ancient gold fields. Finally I had to admit that there was more to the pictures than I first noticed. Slowly I replied by saying, “Yes I did notice something mystical. It seemed strange that a metal would hold such attractive power over humans in different parts of the world. As I looked at the pictures, I was also remembering that ancient explorers risked their lives searching for gold. Not only did they risk their lives, they murdered many people taking their gold. I began to remember that kings and queens would underwrite these risky voyages to search for the precious golden metal. I was also remembering that when ancient civilizations had gold, their civilizations were strong and flourished. And when they lost their gold or they debased their currency, they lost their power. So there were many different thoughts, from different periods in my life, all converging upon the pictures I was showing you.”

“So do you think there might be something to the story this religious wise man told me?”

I nodded my head. “I don’t necessarily believe the whole story, but there does seem to be some unexplained power to this metal called gold.”

“I came to the same conclusion years and years ago,” said rich dad. “Long before you were born. And because I decided to trust this wise man’s story, he gave me one of the best pieces of financial advice I have ever received. It was his simple piece of advice that I believe has made me richer than most people. It was his simple piece of advice that has allowed me to hold on to my wealth, while so many other people have made and lost theirs.”

“And what was that advice?” I asked. “Simple,” said rich dad. “Before I left his home, he handed me this old gold coin.” Rich dad then reached into his pocket and showed me the coin he had received as a young man. “He told me to keep it with me and allow it to attract to me other forms of God’s wealth.”

“Is that it?” I asked. “Is that all there is to his advice?” “No there is more.” Said rich dad. “He also said, “Keep increasing the gold you have and your income will go up.”

“What?” I asked. “Please explain that one a little further.”

“What he meant was that for every dollar I wanted per month, I should have in my possession an equal amount of gold to attract that money. In other words, if I wanted to have $1000.00 a month in steady income, I should have $1,000 in gold. The key being what I wanted per month.”

“So if I wanted $3,000 dollars a month, or $36,000 a year in steady income, all I needed to have was $3,000 in gold?” I asked seeking greater clarification.

Rich dad nodded his head. “In very simplistic terms, that was his advice to me.”

“And you’re saying that that advice is what made you rich?”

“That advice and lots of hard work,” said rich dad. “But just as you noticed something mystical in your pictures, I would say that there is something to his advice. I can’t explain it, or prove it. It just seems to have worked for me. Will it work for everyone else? That I do not know.”

“So are you saying that every time you wanted to increase your income, you first increased the gold you had?”

“Exactly,” said rich dad. “It didn’t work immediately, but I just followed his advice. So whenever I felt I needed more money, I would first go out and acquire some gold and put it in a safe deposit box at the bank and forget about it. Then a few months later, I would often note that something would change and my income would increase. Some people called it luck, yet I called it taking ancient advice.”

“And how much gold do you have now?” I asked.

“A lot,” was all rich dad said. “The bigger my stock pile of gold, the more wealth seems to be attracted to me. As I said, gold is an antennae to other forms of god’s money.”

It was then that rich dad said something that made a little more sense to me. It made more sense when he said, “You see gold is God’s asset. When you put gold in your asset column, it acts as a magnet to all the other forms of manmade assets. And because it is a magnet, you have a better chance of holding on to your wealth. You have a better chance of keeping your wealth because you have a magnet in the middle of your asset column.”

Convert Bad Money for Good Money

I am not saying that rich dad’s story of the wise man is true. And I do not know that gold is a reflection from the soul of God. All I do know is that having gold, as a magnet, in my asset column does seem to work for my wife and me.

In the seminars I teach, when the question of investing in gold comes up, I will often tell the story my rich dad told me a long time ago. I also tell them of the habit my wife and I have, and that habit being the changing of bad money for good money. Kim and I have piggy banks all over our house. Whenever we come home, we immediately empty our pockets or wallets of coins, or bad money. Into these piggy banks go pennies, nickels, dimes, quarters, and occasionally half-dollars. Of course if they are real coins, which are coins that are made of silver, we keep those coins aside. Once every other month, we empty out our piggy banks and put the coins in coin wrappers, which you can get from the bank. But instead of taking our coins to a bank, we take our coins, all neatly wrapped to a coin dealer who sells gold and silver coins. There we swap bad money for good money. In other words, we obey Gresham’s law. It is always surprising to find out how much bad money it takes to buy good money. It is also surprising to feel how much bad money weighs in comparison to good money.

Today, my wife and I often comment on how much our wealth continues to go up, as we continue to increase our stock pile of gold, which we keep in a safety deposit box at the bank. When we first got married, we could hide the few gold coins in our home but as our stockpile got bigger, it got harder to hide so we finally moved it to the bank. That safety deposit box is our own little Fort Knox. Simply by continuing this habit of exchanging bad money for good money, we find we feel more and more financially secure and our monthly income continues to go up.

As a word of clarification, our income does not go up immediately, so we recommend just convert and forget it. There seems to be a delay between when we acquire the gold and when the income increases. Also, the income does not always come as direct income. It often comes in as good fortune in business, a stock price goes up, or income from real estate takes a turn for the better.

To anyone who is struggling financially, I often say “Start by converting your pocket change, your bad money, for good money. And make it a habit. If your goal is $3,000 a month in steady income, then set a goal to convert your pocket change into $3,000 in gold coins and then put it in a very safe place and forget about it. If you want more income, simply speed up the conversion of bad money for good money. Human beings have intuitively known the difference between real money and bad money. One of the first steps to acquiring great wealth is to stop doing what the masses are doing which is working hard for bad money, begin to trust your natural instincts, and start bringing home real money instead of bad money.”

Rich Dad’s Way of Investing

So that is the way my rich dad advised me to begin investing in gold. Gold is special and it goes by different investment techniques and strategies. I recommend the same thing my rich dad recommended to me. And that is to use gold as a magnet in your asset column. If you want to speculate with the price of gold, then buy shares in gold mining companies but always keep some real gold in your asset column. My wife and I have our own Fort Knox of real gold and we also own many shares of gold mining companies. I learned to appreciate the power of gold so much, after talking to my rich dad, that one of the companies I helped found is a gold mining company.

For my wife and me coins or bars are items we simply acquire slowly and regularly. I am often asked, “Where is the measurable return on the investment?” To which I reply, “It is not measurable.” Yet, if you think about it, the return is excellent. For every $1000 I have, my return is 12 times that annually and for as long as I hold that amount in gold. So if the myth is true, that means that each coin produces a 1200% return annually. But that is only if you find the myth to be true.

In summary, if you want to $10,000 in month income, then begin acquiring $10,000 in gold coins. If you want more income, first increase the dollar amount you have in gold. If the price of gold goes down, then you need to buy more gold, because it means you can trade expensive bad money for cheap good money. And if the price of gold goes up, buy more gold because it means your bad money is getting worse. Remember the world always wants you to work hard for bad money. It is your job to take some of that bad money and turn it into real money. If you keep doing that, your wealth should keep going up regardless of what the price of gold is.

NOTE #1 There are two kinds of gold and silver coins. There are coins that are only worth their metal content. Those are the kinds of coins I buy. And there are coins that are collector’s coins. Those are often rare or old coins, which are valued for their numismatic value. If you should decide to acquire coins for their collector’s value, I suggest you first study the subject of collecting numismatic coins. Collecting rare coins can be profitable if you know what you are doing, and very expensive if you don’t.

NOTE #2 Holding precious metal coins is not an excuse to not work. Coins are not lucky rabbit’s feet. I believe you still have to be smart, be wise, and take calculated risks. To me, the coins seem to attract wealth and good fortune, yet I still must do something about what comes my way.

The End


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