Are You An Average Investor?
Why traditional investing advice is risky
Have you heard people say things like this before?
“I bought my house for $500,000 and today it’s worth $750,000. My house is my biggest investment.”
“My retirement account is worth $1 million today. It will be worth $3 million when I retire.”
“The stock market on average has been going up 8 percent every year since 1974, and real estate over time has averaged over 4 percent per year for the last 20 years.”
These statements are evidence of investors who count their chickens before they’re hatched.
Each statement above relies on the word of others and the future unfolding as we hope it will be rather than on facts.
And that is why my rich dad said the average investor does not make much money in the market. “The average investor has a count-your-chickens-before-they-hatch mentality. They buy items that cost them money each month, yet call them assets based upon opinions. They count on their house and stock portfolio going up in value in the future. Because of this, they lose control over their personal finances. To me that is risky.
The biggest risk
Rich dad said, “The biggest risk of all is a person who has no control over his or her personal financial statement. The riskiest of all investors are those who have nothing but liabilities that they think are assets, who have as much in expenses as they have in income, and whose only source of income is their labor. They are risky because they are often desperate investors.”
Averages are for the average
I meet many investors who are new to the world of investing. They have been investing for less than 20 years. Most have never been through a market crash or owned real estate worth much less than they paid for it. These new investors come up to me and spout off industry averages.
As rich dad said, “Averages are for average investors. A professional investor wants control. And that control begins with yourself, your financial education, your sources of information, and your own cash flow.”
That is why rich dad’s advice to average investors was, “Don’t be average.” To him, being an average investor was being a risky investor.
If you want to be rich, you must take control over your financial education as well as your personal cash flow. There is nothing wrong with hoping the price of something goes up in the future, as long as you don’t lose control of your finances today.
The sophisticated investor knows that being financially educated gives you more control today and, if you keep studying, greater financial control tomorrow.
Don’t be an average investor any longer. Invest in your financial education today and start building a tomorrow where you have control over your investments and your cash flow.
— Gain control with our FREE eBooks and tools!