Excerpt from Rich Dad's Guide to Investing by Robert Kiyosaki, Sharon L. Lechter, plus links to reviews, author biography & more

"What is the difference?" I asked.

"Well, did you see the headlines in yesterday’s newspaper about the Hollywood movie star who lost millions in an investment scam?" asked rich dad.

I nodded my head saying, "Yes I did. Not only did he lose millions, he had to pay the tax department for untaxed income that went into that deal."

"Well, that is an example of an accredited or qualified investor," rich dad continued. "But just because you have money does not mean you’re a sophisticated investor. This is why we often hear of so many high-income people such as doctors, lawyers, rock stars, and professional athletes losing money in less-than-sound investments. They have the money but they lack the sophistication. They have money but don’t know how to invest it safely and for high returns. All the deals look the same to them. They can’t tell a good investment from a bad one. People like them should stay only in sanitized investments or hire a professional money manager they trust to invest for them."

"So what is your definition of a sophisticated investor?" I asked.

"A sophisticated investor knows the 3-Es," said rich dad.

"The 3-Es," I repeated. "What are the 3-Es?"

Rich dad then turned over the private placement memorandum we were looking at and wrote the following on the back of one of the pages.

1. Education

2. Experience

3. Excessive cash

"Those are the 3-Es," he said, looking up from the page. "Achieve those three items and you will be a sophisticated investor."

Looking at the three items, I said, "So the movie star had excessive cash, but he lacked the first two items."

Rich dad nodded. "And there are many people with the right education but they lack the experience, and without real life experience, they often lack the excessive cash."

"People like that often say, ‘I know’ when you explain things to them, but they do not do what they know," added Mike. "Our banker always says, ‘I know’ to what dad and I do, but for some reason, he does not do what he claims he knows."

"And that is why your banker lacks the excessive cash," I said.

Rich dad and Mike nodded.

Again, the room went silent as the conversation ended. All three of us were deep in our own private thoughts. Rich dad signaled the maid for more coffee and Mike began putting the three-ring binder away. I sat with my arms crossed, gazing out upon the deep blue Pacific Ocean at Mike’s beautiful home and contemplating my next direction in life. I had finished college as my parents had wished, my military obligation would soon be over, and then I would be free to choose the path that was best for me.

"What are you thinking about?" asked rich dad, sipping from his fresh cup of coffee.

"I’m thinking about what I want to become now that I have grown up," I replied.

"And what is that?" asked Mike.

"I’m thinking that maybe I should become a sophisticated investor," I replied quietly. "Whatever that is."

"That would be a wise choice," said rich dad. You’ve got a pretty good start, a financial education foundation. Now it’s time to get some experience."

"And how will I know when I have enough of both?" I asked.

"When you have excessive cash," smiled rich dad.

With that, the three of us laughed and raised our water glasses, toasting, "To excessive cash."

Rich dad then toasted, "And to being a sophisticated investor."

"To being a sophisticated investor and to excessive cash," I repeated again silently to myself. I liked the ring of those words in my head.

Mike’s limousine driver was summoned and I returned to my dingy bachelor officers quarters to think about what I was going to do with the rest of my life. I was an adult and I had fulfilled my parents’ expectations... expectations such as getting a college education and serving my country during a time of war. It was now time for me to decide what I wanted to do for myself. The thought of studying to become a sophisticated investor appealed to me. I could continue my education with rich dad as I gained the experience I needed. This time, my rich dad would be guiding me as an adult.

Copyright © 2000 by Robert T. Kiyosaki and Sharon L. Lechter