Noah and the Ark
My rich dad often said, “If you want to be a rich business owner or investor, you need to understand the story of Noah and the Ark.” Although rich dad did not see himself as a prophet, he did work diligently on improving his ability to see the future. In training his son and me to be business owners and investors who could also see the future, he would often say, “Do you realize how much faith it took for Noah to go to his family and say, ‘God told me there is a great flood coming, so we need to build an ark.’” He would then chuckle and say, “Can you imagine what his wife, kids, and investors must have said to him? They might have said, ‘But, Noah, this is a desert we live in. It does not rain here. In fact, we are in the middle of a drought. Are you sure God told you to build an ark? It’s going to be tough to raise capital for a boat-building company in the middle of a desert. Wouldn’t building a hotel, spa, and golf course make more sense than an ark?’” For nearly thirty years, starting when we were just nine years old, rich dad trained his son and me to be business owners and investors. Since we were kids, he regularly used very simple teaching tools, such as the game of Monopoly, to teach us the principles of investing. Rich dad also used common everyday fables such as the story of the Three Little Pigs to convey the importance of building financial houses, houses made out of bricks rather than straw or sticks. He also used stories from the Old Testament, stories such as David and Goliath, to teach his son and me the power of leverage, in this case the leverage represented by David’s slingshot, as the lesson of how a little guy can beat a big guy. In teaching us the importance of having a vision of the future, rich dad would often say, “Always remember that Noah had vision . . . but more than vision he had the faith and courage to take action on his vision. Many people have vision, but not everyone has the sustainable faith and courage as Noah did . . . the faith and courage to take action on their vision . . . so their vision of the future is the same as their vision of today.” In other words, people without faith, courage, and vision of-ten do not see the changes that are coming . . . until it is too late. My rich dad was very concerned about a 1974 law known as ERISA. He said, “At the time of its passage, most people were not even aware of ERISA. Even today, many people have never even heard of this act passed by Congress and signed into law by President Nixon. The full impact of this law change will not be felt for twenty-five to fifty years . . . long after I am gone. I wish I could tell them to prepare now . . . but how do I tell them about the future?” In January of 2002, the people of the United States, still reeling from the events of September 11, 2001, began hearing of the bankruptcy of one of the biggest blue chip companies in America. But more than the bankruptcy, the news that sent chills through many people of my generation, the baby-boom generation, the generation born between 1946 and 1964, was the realization that many of the employees of Enron had lost their entire retirement savings. For the first time, millions of baby boomers began to realize that a 401(k), IRA, and other such plans, filled with mutual funds and company stock, were not as safe as they thought or had been told by their financial planner. Millions of baby boomers shared something in common with the thousands of people who worked for Enron. The demise of Enron was sounding a personal alarm, a fear, a realization that their own retirement might not be as secure as they may have once thought. Rich dad’s prophecy was coming true. A local television station called me and asked if I would come in and comment on the impact of the bankruptcy of Enron, a onetime oil and gas industry leader. The attractive young TV commentator asked me, “Is this Enron bankruptcy an isolated event?” My reply was, “The Enron bankruptcy is an extreme case—but not an isolated case.” Continuing, I said, “I am surprised that the media is not mentioning Cisco, Viacom, Motorola, and other giants. Although not as dramatic as Enron, there are many companies similar to Enron where employees have a significant percentage of their retirement tied up in their employer company’s stock.” “What do you mean?” asked the TV host. “I mean this Enron disaster should be a wake-up call for people. A wake-up call letting them knows that their 401(k) is not bulletproof . . . that it is possible to lose everything just before you retire . . . that mutual funds are not safe . . . even if you do diversify.” “What do you mean mutual funds are not safe? Even if you diversify?” she asked with a hint of shocked anger. I sensed that I was now stepping on her toes even though she did not work for Enron. Rather than getting into a debate on mutual funds and diversification, I said, “I retired at the age of forty-seven without a single share of stock or mutual fund. To me, mutual funds and stocks are too risky, even if you do diversify. There are better ways to invest for your retirement.” “Are you saying not to invest in stocks, mutual funds, and to diversify?” she asked. “No,” I replied. “I am not telling anyone to do anything. I am simply saying that I retired early in life without a single share of stock or mutual fund— or diversification within funds. If you want to invest in stocks and mutual funds and diversify, that might be right for you . . . but not for me.” “We need to go to a commercial break,” said the young woman. “Thank you for being a guest on our show.” She shook my hand and quickly turned to the camera and began talking about the advantages of a new wrinkle cream. The interview was over earlier than expected. It seemed that when the interview strayed from Enron to the likely personal investment strategies of the TV hostess, wrinkle cream became a more pleasant subject to discuss not only for the TV host but also for the thousands of viewers. The subject of re- tirement was not a comfortable one. One of the intended results of ERISA was to encourage individuals to save for their own retirement. This would encourage a three-pronged approach to retirement funding:
1. Social Security
2. A worker’s own savings
3. A company pension plan paid out of money the company set aside for a defined pension plan for their employees On May 5, 2002, an article in the Washington Post entitled “Pension Changes Pose Challenges” compared this three-pronged approach to a three- legged stool: Last time we looked, the first leg, Social Security, was still standing, though shuddering a bit as its guarantees are pecked away at—ever-increasing taxable income, a raised retirement age, taxation of some benefits and so forth. . . All the lettered and numbered savings plans blessed by Congress—the 401(k)s, 403(b)s, IRAs, SEP-IRAs, Keoghs—were arguably intended to bolster the second leg, workers’ savings, needed to meet an ever longer and ever more expensive retirement. READ MORE
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