Chapter Two all assets. It is through classes on paper assets, especially technical analysis and options trading, that I have learned how to be a better businessperson, real estate investor, and predictor of the future. One disadvantage of paper assets in the United States is the inability to defer taxes on capital gains. Years ago, it was possible to 1031-exchange stocks and to defer capital-gains taxes. That tax loophole was closed for paper assets but kept open for U.S. real estate investors. Professional Answer from Tom Wheelwright In 1986, when I was working in Washington D.C. in the national tax office of a large accounting firm, Congress decided to change this rule and only allow real estate investors and business owners to avoid taxes through a 1031 exchange. Since then, paper-asset investors do not enjoy the same advantages as real estate investors and business owners. Mutual-fund investors can actually end up paying tax in a year when the mutual fund goes down in value. That’s a significant disadvantage to a lack of financial education.
Passive Income For Kim and me, our objective is always cash flow, aka passive income, which is why we named our game CASHFLOW. To us, cash flow for life is our financial freedom. Passive income allowed us to retire early and get on with our lives. Ironically, passive income is also the least taxed of all three incomes. My book, Rich Dad Poor Dad, is about the differences between assets and liabilities. Tragically, most people struggle financially because they refer to liabilities (such as their home, car, boat, and household effects) as “assets.” To make matters worse, when they think about investing, they think in terms of capital gains, which is why they think their net worth is important. The problem is that they base their net worth on liabilities, such as their home, car, boat, household goods, and retirement plans. That is why rich dad often said, “Net worth is worth less.” Kim and I do not know what our net worth is, but we do know how much cash flow we receive every month. 76
by Rich Dad, Robert Kiyosaki