Home' Trinidad and Tobago Guardian : July 26th 2015 Contents JULY 26 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
PERSONAL FINANCE | SBG5
The Sunday BG asked two financial advisers---
NICHOLAS DEAN and IAN NARINE---who both
write columns for the Business Guardian, their
opinions on the personal finance advice Kiyosaki
gives and how applicable it is in a local context.
Nicholas Dean, author of the Ask Nick columns, on the influence
of the Rich Dad, Poor Dad on his life:
I read Rich Dad Poor Dad while still in the banking sector over 15 years
ago. Both the book and the Cashflow game completely shifted my paradigm
about the importance of financial literacy, self employment and real estate.
As an employee, I paid a lot of taxes, but from the time I became a
business owner, much of what was lost in taxes stayed in my pocket, fast-
tracking my financial progress. Employees are taxed first then spend what
is left. Business owners spend first, then are taxed on what is left. This
is why business people are often richer than employed people.
As an employee, promotion came from a supervisor or manager and
internal and external politics were the order of the day. As a business
owner, promotion came from satisfied clients. The more value I delivered,
the more I progressed.
Kiyosaki also said selling and communication were key to building
wealth. Because of this, I chose one of the most difficult jobs in the world:
selling insurance. This helped me transform from a shy introverted type
to being a brave and confident person.
He also introduced the concept of the value of real estate and how
wealth grows faster for property owners by virtue of capital appreciation
and passive (rental) income. In fact, rental income shifts the burden of
the mortgage from the owner s shoulders to the tenant, setting one s
wealth on autopilot.
The only caveat I have with Kiyosaki s work is to remember that he is
neither a financial adviser nor an accountant. The reader must be a careful
as not everything is applicable to T&T.
As a qualified, local financial adviser, I can say that some things are
oversimplified, such as the challenges with property acquisition. Kiyosaki
advocates stock market investments as the primary way to initially build
capital to buy property. That may be workable in the US but not so much
in T&T. He also doesn t say much about life insurance and the risk that
accompanies stock market investing.
Kiyosaki also does not champion the critical importance of education
and getting a stable job. He even goes as far as implying that if you want
to get rich, don t go to school, which I believe is a title of one of his books.
Contrary to what Kiyosaki says, I think a good education and a stable
career are sometimes the best platforms to launch into saving and investing.
In fact, sometimes these are the only assets a person has in the changing
fortunes of time. What you know can always be converted into cash flow.
Overall it s a great read but I strongly recommend to consult a professional
and continue following the business sections of your local newspaper.
Ian Narine, independent financial consultant, gives his view on
whether Kiyosaki s advice is practible in T&T.
On a home is not an asset, but a liability:
This is actually true in terms of how a home is normally financed. I
wrote on this topic a few years ago during the financial crisis and got quite
a few disagreeing emails from real estate agents. My stance is that your
home is not an asset, it is the place where you live.
If you borrow money to purchase a home, then you have a liability
equivalent to the amount that you borrowed. It is only when that loan
is paid off you can turn that home into an asset. Even then, it is not totally
clear cut, since, if you were to sell that asset at that time, you would still
need to find a place to live so part of those proceeds would have to go
into finding alternative accommodation.
Let s say you take out a mortgage for $1,000,000 for 30 years at an
interest rate of seven per cent. You will end up making approximately $2.4
million in payments on this loan. In addition to which, you have to factor
in insurance and the cost of maintenance.
A lot can happen in 30 years. You are effectively counting on retaining
stable employment and increasing your earning capacity so the mortgage
payments take up a smaller portion of your income, leaving you with
enough funds to adequately maintain the property so it retains its value
as well as save for retirement and your children s education.
Additionally, a typical mortgage is issued at a variable rate, so if interest
rates rise, then the cost of servicing your mortgage will also rise.
Sometimes it works out, sometimes it does not.
This in large part depends on the state of the economy during the period
of your mortgage.
The reason home ownership is seen as an asset in T&T today, is in large
part due to what I would call the mismanagement of our economy. Gov-
ernments should seek to provide economic growth with low inflation but
during the period 2004 to 2008 we got economic growth yes but inflation
eventually reached double digits which saw home prices rise significantly.
Property prices began to rise significantly from 2004 to 2008, at the
same time we were boasting of strong economic growth, and have tapered
off to some extent since then as the economy has slowed down. The period
2004 to 2008 saw heightened construction activity which drove up the
cost of labour and materials.
Heightened levels of government spending also pushed increasing
amounts of money into the economy. Those funds eventually found their
way to those who benefited from government s spending and they, in turn,
bought property as assets. The combination of the explosive demand for
property, plus the increased cost of construction and maintenance, meant
that property prices increased significantly.
As property prices increased, rents also increased, but what did not
increase at the same rate was the income of the salaried worker. Renting
became unaffordable for many and so the way out was to seek a home
from State housing programmes. In a sense the misguided economic
policies of that time only served to make those who did not own property
more dependent on the State. This can be observed quite clearly today.
Meanwhile, those who did own property during and prior to that period
were able to see exponential increases in the value of their property. If
you were fortunate to own multiple properties, the effect was magnified
further. These were the people who were able to utilise the gains from
this appreciation to go into business, get into property development,
purchase property in the US and Canada when their property market
For the average person looking on, the impressions conveyed is that
owning a home is the pathway to similar riches. It is quite likely that the
experience of 2004 to 2008 was a one time event.
Today, with most properties going for upwards of $1 million, unless you
can make a significant downpayment, you are likely to be carrying around
a significant debt and also have to hope that the economy remains stable,
despite the fall off in oil prices and the production levels of oil and natural
On Kiyosaki s stance against
mainstream financial advice,
such as diversifying your (tra-
ditional) investment portfolio
and mutual funds
Kiyosaki s point of view on this
one is similar to that of others
such as Warren Buffet. There is
a case for diversification if your
concern is about the volatility of
your portfolio at a particular point
in time. If risk is measured as the
degree of volatility (the value of
your portfolio changing up or
down) a less volatile portfolio is
considered less risky.
Diversifying into uncorrelated
assets reduces volatility and so
reduces the risk of a portfolio.
Mutual funds can assist the aver-
age investor in achieving diver-
The alternative view is that an
investor should take the time to
know and understand what they
are investing in.
If they take the time to know
the details of a particular com-
pany and understand the drivers
of its performance then a highly
concentrated portfolio of five to
10 companies that you understand
well and manage closely is a better
proposition than parking your
money in a mutual fund and not
having a clue as to what is taking
place, especially when you get
reports long after the end of the
Ultimately, it comes down to
how much work and time you are
prepared to put into your financial
wellbeing. Many are content to
outsource to a mutual fund man-
ager. For this, they pay significant
amount of fees.
In another time, when returns
were in the order of five to 10 per
cent, a two per cent management
fee was not a big deal. However,
today, in a zero interest rate envi-
ronment, those fees are signifi-
cant. Take a close look at any
investment product that is on
Add the fees and commissions
that are being charged and com-
pare that to the rate of return that
you are being offered. It is quite
likely that you will find the biggest
slice of the returns on the funds
you provide are actually going to
pay management fees and com-
missions, and probably, less than
50 per cent of the return is being
paid out to you as an investment
This discussion more than
makes the case for discussing your
financial affairs with a financial
or investment advisor since there
are many nuances to this issue
and each situation is different.
*Passive income is that
derived from rental properties
and businesses that one is not
actively a participant in as
opposed to salary/wage income.
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