I recently took issue with some of the arguments of Robert Kiyosaki, author of the Rich Dad, Poor Dad books. I was then reminded of how many fans (and foes) he has, because I received numerous emails telling me either that I went too easy on him, or that I don't know what I'm talking about.
One of the latter responses triggered today's article. Permit me to now share the thoughts of reader J.S., along with my own responses. (I'll put J.S.'s words in italics.)
What [Kiyosaki] says about mutual funds is right on the dot.
Just as background info, here are a few things Kiyosaki has said about mutual funds: "Because these 401(k)s and mutual funds ... are so risky, I don't think people will be able to retire on them. And that's really sad. ... But most people don't have a prayer -- because there's no Social Security and these mutual funds are so risky." Got it?
The "downfalls" of mutual funds
There are two major downfalls of mutual funds, the first being that there is much that is out of your control. When you buy a business or real estate, you have much more control about your returns. You don't have control of what the market does as far as appreciation in real estate, but you do have control [over] when you buy real estate. [True investors] make their money in real estate when they buy, not when they sell.
Well, yes, you're not in complete control of your mutual fund's investments. But to me, that's kind of the whole point of mutual funds. If you're skilled and interested enough to pick your own stocks, bonds, and other investments, and you have the time to do so, then by all means hop to it.
But many of us don't have the time or the skills or the interest to do so. This big chunk of humanity would do well to just stick with simple index funds. And those who want to try for even better returns can invest in some carefully selected mutual funds with terrific track records and prospects.
Furthermore, J.S. posited that people who buy businesses or real estate have a lot more control. While that's true in some ways, it's not in others. You can generally sell a stock or mutual fund very quickly, should you want to. If you want out of a property you own, that might take a while.
You'll never get rich?
On to J.S.'s next point:
The second thing about mutual funds is that you will never get RICH buying mutual funds.
I disagree, again. Take a look at these funds, as examples:
Legg Mason Value Trust
(FUND:LMVTX), currently invested in the likes of Sprint Nextel (NYSE:S), Tyco International (NYSE:TYC), and Google (NASDAQ:GOOG), has gained an annual average of about 13% over the past decade. That's enough to have turned a $25,000 investment into nearly $85,000.
Third Avenue Value, currently invested in the likes of Posco
(NYSE:PKX), Legg Mason (NYSE:LM), and AVX (NYSE:AVX), has gained an annual average of roughly 14% over the past 10 years, turning $25,000 into $95,000.
The bottom line
It sure looks to me like you can get rich in mutual funds. You just need to find some great ones. If you'd like some help doing just that, try our Champion Funds newsletter for free, and you'll be able to see a long list of recommended funds. The picks are currently topping their benchmarks by an average of 17% to 10%.
And while J.S. and I agree on some points, give me a great mutual fund and I'll not only make money, but also go to sleep smiling.
Longtime Fool contributor Selena Maranjian does not own shares of any company mentioned. For more about Selena, view her bio and her profile. Third Avenue Value is a Champion Funds recommendation. Tyco is an Inside Value recommendation. Posco is an Income Investor recommendation. The Motley Fool isFools writing for Fools.