Understand This

Robert Kiyosaki is dead on the money. Now, some may have qualms about his various marketing machinations: selling books, seminars, and whatnot, but I'll tell you that when I read Rich Dad, Poor Dad, I thought it was a fresh and brilliant book for educating the financially illiterate.

So how can I say that the market is crashing even if it continues to go up? To see the true crash, educated investors need to compare apples to oranges, not apples to apples.

When you compare the Dow to the Dow, or the S&P 500 to the S&P 500, that's comparing apples to apples. The Dow at 12,000 appears better than the Dow at 9,000, just as an apple at $1 a pound looks better than at $1.50 a pound, even though it's still the same apple. All that's happened is the price per pound of the apple has gone up -- the apple hasn't changed.

Years ago, my rich dad taught me to be a comparison shopper, especially when it comes to investments. He said, "You need to understand value more than price. Just because the price of something goes up doesn't necessarily mean the value has gone up."

He also told me, "If prices go up without a corresponding increase in value, it means the value of the asset has actually gone down." This holds true for all assets, including stocks, bonds, and real estate.

For example, when the price of a house goes up it doesn't mean that the house is more valuable. And prices going up may mean that something else is going down in value. In today's global markets, what's going down is the purchasing power of the U.S. dollar.

Bingo. Do you know what? When your S&P loaded fund gives you 11% in a year, and taxes reduce that to 8%%, guess what? You're about 7% in the hole, because that's what's happening to the dollar since about 2000. Its devaluation is unprecedented in recent history.