The 9010 Rule of Money

My rich dad appreciated Italian economist, Vilfredo Pareto's discovery of the 80/20 rule, also known as the Principle of Least Effort. Yet when it came to money, rich dad was more aware of the 90/10 rule which meant that 10% of the people always made 90% of the money.

The September 13, 1999, issue of The Wall Street Journal ran an article supporting my rich dad's point of view on the 90/10 rule of money. A section of the article read:

"For all the talk of mutual funds for the masses, of barbers and shoe shine boys giving investment tips, the stock market has remained the privilege of a relatively elite group. Only 43.3% of all households owned any stock in 1997, the most recent year for which data is available, according to New York University economist Edward Wolf. Of those, many portfolios were relatively small. Nearly 90% of all shares were held by the wealthiest 10% of households. The bottom line: That top 10% held 73% of the country's net worth in 1997, up from 68% in 1983."

In other words, even though more people are investing today, the rich continue to get richer. When it comes to stocks, the 90/10 rule of money holds true.

Personally I am concerned because more and more families are counting on their investments to support them in the future. The problem is that while more people are investing very few of them are well educated investors. If or when the market crashes, what will happen to all these new investors? The federal government of the United States insures our savings from catastrophic loss but it does not insure our investments. That is why when I ask my rich dad, "What advice would you give the average investor?" His reply was, "Don't be average."

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