Investor Lesson #4:
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.”

Investor Lesson #8:
Decide Now What You Want to Be When You Grow Up

In Investor Lesson #1, which was the importance of choice, there were three
financial core value choices offered. They were:
1. To be secure
2. To be comfortable
3. To be rich

These are very important personal choices and should not be taken lightly.

In 1973, when I returned from the Vietnam War, I was faced with these
choices. When rich dad discussed my option of taking a job with the airlines as a
pilot, he said, “A job with the airlines may not be that secure. I suspect that they
will be having a rough time in the next few years. Yet, if you keep your record
clean, you might find job security in that profession…if that is what you really
want.”

He then asked me if I wanted to get my job back with Standard Oil of
California, a job I held for only five months . . . the five months before I went to
flight school for the Marine Corps. “Didn’t you receive a letter saying that
Standard Oil would take you back as an employee once your military duty was
over?”

“They said they would be happy to have me reapply,” I replied. “But they
guaranteed nothing.”

“But wouldn’t that be a good company to work for? Wasn’t the pay pretty
good?” asked rich dad.

“Very good,” I said. “It was an excellent company to work for, but I don’t
want to go back. I want to move on.”

“And what do you want most?” asked rich dad as he pointed to the three
choices. “Do you want security, comfort, or to be rich the most?”

From deep inside me, the answer was a loud “To be rich.” It had not changed
in years, although that desire and core value was pushed down quite a bit in my
family, a family where job and financial security was the highest priority and rich
people were considered evil, uneducated, and greedy. I grew up in a family where
money was not discussed at the table because it was an unclean subject, a subject
not worthy of intellectual discussion. But now that I was 25 years old, I could let
my personal truth out. I knew the priority of core values of security and comfort
were not first on my list. To be rich was core value number one for me.

My rich dad then had me list my core financial priorities. My list went in this
order:
1. To be rich
2. To be comfortable
3. To be secure
Rich dad looked at my list and said, “OK. Step one is to write out a financial
plan to be financially secure.”

“What?” I asked. “I just told you I wanted to be rich. Why should I bother
with a plan to be secure?”

Rich dad laughed. “Just as I thought,” he said. “The world is filled with guys
like you who only want to be rich. The problem is, most guys like you don’t make
it because you don’t understand being secure, or being comfortable financially.

While a few people like you do make it, the reality is, the road to wealth is littered
with wrecked lives . . . wrecked lives of reckless people…people just like you.”

I sat there ready to scream. All my life, I had lived with my poor dad, a man
who valued security above all. Now, I’m finally old enough to be outside of my
poor dad’s values and now my rich dad is saying the same thing. I was ready to
scream. I was ready to get rich, not be secure.

It was three weeks before I could talk to rich dad again. I was very upset.
Everything I had done my best to get away from he put back in my face. Finally I
calmed down and called him for another lesson.

“Are you ready to listen?” rich dad asked when we met again.
I nodded, saying, “I’m ready but not really willing.”

“Step one,” rich dad started. “Call my financial advisor. Say, ‘I want a written
financial plan for lifetime financial security.’”

“OK,” I said.

“Step two,” said rich dad. “After you have a written plan for basic financial
security, call me and we’ll go over it. Lesson is over. Goodbye.”

It was a month before I called him. I had my plan and I showed it to him.

“Good” was all he said. “Are you going to follow it?”

“I don’t think so,” I said. “It’s just too boring and automatic.”

“That is what it is supposed to be,” said rich dad. “It’s supposed to be
mechanical, automatic, and boring. But I can’t make you follow it, although I do
recommend you do.”

I was calming down as I said, “Now what?”

“Now you find your own advisor and you write a plan on how to be
financially comfortable,” said rich dad.

“You mean a long-term financial plan that is little bit more aggressive?” I
asked.

“That is correct,” said rich dad.

“That is more exciting,” I said. “That one I can get into.”

“Good,” said rich dad. “Call me when you have that one ready.”

It was four months before I could meet with rich dad again. This plan was not
that easy…or as easy as I thought it would be. I checked in by phone with rich dad
every so often, but the plan was still taking longer than I wanted. Yet the process
was extremely valuable because I learned a tremendous amount talking to different
financial advisors. I was gaining a better understanding of the concepts rich dad
was trying to teach me. The lesson I learned was that unless I am clear, it is hard
for the advisor to be clear and able to help me.

Finally, I was able to meet with rich dad and show him my plan. “Good” was
all he said for a while. He sat there looking at the plan and then asked, “So what
did you learn about yourself?”

“I learned that it is not that easy to really define what it is I want from my life
because today we have so many choices . . . and so many of them look exciting.”

“Very good,” he said. “And that is why so many people today go from job to
job or from business to business . . . but never really get to where they want to go
financially. So they often spend their most precious asset, their time, and wander
through life without much of a plan. They might be happy doing what they are
doing, but they really do not know what they are missing out on.”

“Exactly,” I agreed. “This time, instead of just being secure, I really had to
think what I wanted to do with my life . . . and surprisingly, I had to explore ideas
that would never have occurred to me before.”

“Like what?” asked rich dad.

“Well, if I really wanted to be comfortable with my life, then I had to think
about what I wanted to have in my life. Things like travel to far away lands, fancy
cars, expensive vacations, nice clothes, big houses, etc. I really had to expand my
thoughts into the future and find out what I wanted for my life.”

“And what did you find out?” asked rich dad.

“I found out that security was so easy because I was planning on being secure
only. I did not know what true comfort meant. So security was easy, defining
comfort was more difficult, and I now cannot wait to define what rich means and
how I plan to achieve great wealth.”

“That’s good,” said rich dad. “Very good.” He then continued on by saying,
“So many people have been conditioned to ‘live below their means’ or ‘save for a
rainy day’ that they never know what could be possible for their lives. So people
splurge, get into debt by taking the annual vacation or buying a nice car, then feel
guilty. They never take the time to figure out what could be financially possible if
only they had a good financial plan . . . and that is a waste.”

“That is exactly what happened,” I said. “By meeting with advisors and
discussing what was possible, I learned a lot. I learned that I was really selling
myself short. In fact, I felt like I have been walking in a house with a low ceiling
for years, trying to scrimp, save, be secure, and live below my means. Now that I
have a plan of what is possible relative to being comfortable, I am now excited
about defining what the word ‘rich’ means.”

“Good,” said rich dad with a smile. “The key to staying young is to decide
what you want to be when you grow up, and then keep growing up. Nothing is
more tragic than to see people who have sold themselves short on what is possible
for their lives. They try to live frugally, scrimping and saving, and they think that
is being financially smart. In reality, it is financially limiting . . . and it shows up
in their faces and in their attitude in life the older they get. Most people spend
their lives mentally caged in financial ignorance. They begin to look like wild
lions trapped in small cages at the zoo. They just pace back and forth wondering
what happened to the life they once knew. One of the most important discoveries
people can make by taking the time to learn how to plan is to find out what is
financially possible for their lives . . . and that is priceless.

“The continual planning process also keeps me young. I am often asked why I
spend my time building more businesses, investing, and making more money. The
reason is I feel good doing it.While I make a lot of money doing what I do, I do it
because making money keeps me young and alive. You wouldn’t ask a great
painter to stop painting once he or she was successful, so why should I stop
building businesses, investing, and making more money? That is what I do, just as
painting is what artists do to keep their spirits young and alive, even though the
body ages.”

“So the reason you asked me to take the time to plan at different levels is for
me to find out what is financially possible for my life?” I asked.

“That’s it,” said rich dad. “That is why you want to plan. The more you find
out what might be possible for this tremendous gift called life, the younger at heart
you remain. People who plan only for security or who say, ‘My income will go
down when I retire’ are planning for a life of less, not a life of more. If our maker
has created a life of unlimited abundance, why should you plan on limiting
yourself to having less?”

“Maybe that is what they were taught to think,” I said.

“And that is tragic,” rich dad replied. “Very tragic.”

As rich dad and I sat there, my mind and heart drifted to my poor dad. I knew
he was hurting and struggling to start his life over again. Many times I had sat
down with him and attempted to show him a few of the things I knew about
money. However, we usually got into an argument. I think there is often that kind
of breakdown in communication when two parties communicate from two
different core values, one of security and the other of being rich. As much as I
loved my dad, the subject of money, wealth, and abundance was not a subject we
could communicate about. Finally, I decided to let him live his life and I would
focus on living mine. If he ever wanted to know about money, I would let him ask,
rather than trying to help when my help had not been requested. He never asked.

Instead of trying to help him financially, I decided to just love him for his
strengths and not get into what I thought were his weaknesses. After all, love and
respect are far more important than money.