🎦Different Types of Stock Investing Income🎦Rich Dad Radio Show 2022

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This is the Rich Dad stock cast with Andy Tanner the show that kicks 401ks in The asphalt and teaches you to be the Master of your own Stock Investing Domain And here's your host Greg Arthur all Right welcome to the show but before we Bring on Andy Tanner I really really Want to Appeal to you guys to tell us what you Want us to talk about tell us what you Want to learn so that that we can help You better serve you better and uh you Know so Andy can be way more powerful Okay but let's talk about this show So Robert is always teaching that there Are three types of incomes there's the Earned income that's if you have a job And you receive a paycheck Um then there's portfolio income and That's when you um you acquire your in Income through exchanging time for money Or or uh through capital gains and then The last one he talks about is passive Income that's Robert's favorite and That's income that comes from like Dividends rent Um cash flow from a business and why Robert like said is it's tax so much Lower than um especially earned income But here's where where I personally am Confused Andy I'll go ahead and talk directly to You one of your favorite strategies is

To use options to create monthly cash Flow so You're not an earned income it's not a Job And I don't think it's portfolio income Because it's not capital gains But it's not passive income because your Main strategy isn't dividends so I understand you like to use the option Strategies on stocks with dividends but That's not the major source of income so What are you what type of income are you Creating with your cash flowing strategy I cannot figure it out Gee you know that's why I have to have Tom wheelwright because he has to help Me figure it out too Tom is uh Roberts And and Rich dad's Tax Advisor and yeah You know the uh the tax code is uh about 5 000 pages long I think And the uh you know the the case law That they use to interpret the tax code I think it's about a hundred thousand Pages or something like that no big deal You know we're bigger and so you know we Can we're gonna talk I think I think the Way I would attack this question is in Two ways a tax standpoint and what I Would call a lifestyle standpoint Um because if I talk about passive Income that can mean two things and I Think that's why it gets kind of Confusing because anytime you get the IRS involved we're going to be confused

Absolutely Um for example Um You know income on options is taxed as Ordinary income except when it isn't Right I have no I have no idea what that Dividends are taxes ordinary income Except when they're not and qualified Dividends or you know capital gains Unless they're not and so we'll talk a Little bit about see if we can clear up Some of that muddiness and confusion by Talking about it first from a tax Standpoint And then we'll talk about it which is Much more important and I think much More interesting to viewers and Listeners is a lifestyle standpoint I Agree I got to tell you uh taxes I mean I pay them I hate him not not an Exciting topic so good luck Those tax checks are some of the Toughest ones uh I'm glad I get to Contribute to the common defense and a Few things but the efficiencies in which Those taxes are used uh and the amount They take seems to be a little uh a Little out you know I I've often thought This that the amount of Freedom you have Can be measured by the amount of your Stuff you get to keep okay is someone Bigger and stronger more powerful says Okay what is yours is now Mine by law Well that tells you how much Freedom you

Got anyway I'm Gonna Leave a lot of the Tax stuff up to Tom will ride I don't Like speaking outside of my Arab Expertise but uh maybe I can create some Great questions for you know Rich Dad Advisor Tom wilright and that's why you Have a team that's why you have a an Accountant So As you said there's there's three Buckets of of income there's active Income or what's often called ordinary Income you know job income passive Income like a rental property or Um you know maybe someone has a uh a Licensing agreement where they license Their brand or license their name uh Would be a an example of passive income And then there's portfolio income which Is basically stuff that you bought and Put in your portfolio and then when you Sell it you make some money and and you Pay what's called a capital gain and all Of these are taxed at different rates Your ordinary income tax might be very Low or very high depending on how much Money you make if you're a professional Like a doctor or dentist you probably Paying a lot of taxes and so let's talk About this from uh from a lifestyle Standpoint as well Um If you you know when I read Rich Dad Poor Dad

I can't remember what page it on Somewhere in the 30s you know 38 or Something for the first time I saw That financial statement and for me It's my opinion that that is the most Important page in that book I think That's why that I think that particular Page Is why it became the the most successful Personal finance book of all time Because I realized the difference Visually that I had a job bringing come In or I could have an asset bringing Income in And you know when we talk about passive Income we talk about income from a Lifestyle standpoint that requires zero Or maybe just the smallest amount of Work and Tom and I that's why dividends Come up or rent comes yeah because Generally you don't do a lot of work in Fact you don't do any work when you have Yeah you get a dividend and and so just Because it might be taxed differently You know from a lifestyle standpoint Whether I'm receiving a check from rent Or whether I'm receiving a deposit my Account from a dividend it's still money That came to me because of something That I own right and uh you know it's Basically profits from a business If you have uh a rental property you Probably don't have your own name you Probably have a business called an LLC

And the rent is the income and the uh The insurance and the taxes and the the Payment is the out and the maintenance Is the outflow and then what you have Left is is income that you know you Didn't have to do a lot of work for and And we debate this a lot uh Tom well we Don't debate it we discuss it a lot Because we feel the same way That passive income you know if I have a Rental portfolio I still am going to Have dialogue with my property manager Uh if I don't I'm probably not very Smart there's still enough dialogue with My accountant about it I'm still going To have dialogue with my attorneys about It and so you know is can I just buy a Property and never lift a finger again I'll be communicating with my team And so is that totally passive you know Um Warren Buffett so your point being There there's a little bit of work even With yeah I mean massive real estate you Know I I look at uh I I remember Robert Some of the best advice he ever gave me Says Andy you got to write a book And I'm like well I don't know how to Write books I I barely got through high School and he says no if you have things To share I write a book and if people Find it valuable they'll buy it And I thought well I have some things I Think I could share I'm not perfect but I have a little bit of experience and I

Think I could you know give some Clues To people so I wrote a book well that is Uh probably considered a passive income Right you write it once but what I found Is is then people say well go promote it So you get you know you go on the Circuit to promote your book or whatever And you or you advertise or you do a Facebook ad or whatever so there's There's there's you know the idea of of Lifestyle is really important So when I look at at cash flow from Stocks Let's talk about this in a couple ways I Think it was Bob Dylan once said that a Man is successful if between getting up In the morning and going to bed now he Does what he likes to do And so you want to decide you know what Do you like to do I very much like Income from stocks in two ways Number one I like incomings from stocks From dividends as we just talked about It is that's the most passive you can Probably get is that I think it is uh in The stock market I think it is I think You could buy a share of Coca-Cola or Buy a share of uh ATT or you know any Dividend Apple any dividend stock and That stock sits there and the price goes Up and down but for decades okay Possibly for some even centuries you Could never lift another freaking finger For centuries

And just get that that income in you Know Warren Buffett has bought his Coca-Cola back in 1983 84-ish so I don't know how many Years ago that is you know 40 30 plus Years almost 40 years ago And he does not have to do anything Uh Coke is run by its CEO Coke is run by The board uh all the advertisers that he Doesn't touch it so in my mind From a lifestyle standpoint that's a Very passive activity if we if we take The term passive literally where we just Sit around and money comes uh because of What we own that would be like the Ultimate stock market cash flow agreed And if you have a cost basis That is very very low like Warren Buffett does he bought his Coke at about Three dollars and 25 cents And the dividend on coke right now is About a dollar sixty years so that's a 50 Roi Every year Uh from now on and I believe that Inflation will cause the price of coke To go up I personally would would Speculate it's it's very possible that That dividend could get not only just Come but grow and get larger decade After decade after decade to where it Would not surprise me even in my Lifetime for Coke to pay a 3.25 dividend Which would give that cost basis a

Hundred percent return every year That to me is is fabulous now I that's Going to be slower uh than real estate That's going to be slower than owning a Business it's going to be less of a Percentage Roi at first and so you know You have that compounding formula money Rate and time and times an issue on that Sure but but that's a very small part of Your strategy but yeah it's it's a small Part of what I that is well it's a large Part of my strategy but it's a very Small part of what I actually do okay Because once you've done it you don't Have to do it anymore so strategy wise I Think it's the foundation Of of what I would want to do I would Love to have I would love to be in Warren Buffett's shoes he's kind of a Model I like to follow is I see how many You know he's got a couple gross stocks Like snow but most of his stocks and I Believe you know he he I I have some Stocks that don't pay a dividend like First Solar is a stock I own that Doesn't make a dividend but I bought it Because they have boatloads of cash on Their balance sheet and the pressure for Them to become a dividend stock is huge And and sooner or later those Shareholders are going to say hey when Are we going to start getting some of This cash you guys are hoarding just Same thing happened to Apple right when

Are you getting okay we'll start paying A dividend well if I bought First Solar Cheap that's a a passive income at a Lower cost basis so I'm not I yeah I get Excited when First Solar price goes up But not nearly as excited as I'd be if They announced the dividend because my My cost basis would be lower than the Johnny come lately used to buy it when They get a dividend so that's an example Of passive and and with your early Conversation about taxes that would be The lowest Uh tax form you can get well you know Ordinary Dividends are tax disordered Their income qualified dividends or Taxes capital gains And you get to talk to your accountant About which is which let's let's now Shift in fact this is a good segue let's Talk about option income Because depending on how you invest uh Depends on how you're taxed It's so important To have an accountant on your team for Example my wife is a real estate Professional she has a real estate License she does not go out and have a Website somewhere she says let me sell Your house for you she doesn't want a Job but she does spend an inordinate Amount of time on looking for deals Getting deals ready managing deals you Know all that stuff like that and so

Being a real estate professional Actually puts her in a different tax Situation and since we filed jointly it Actually puts me just because I'm Married to a real estate professional And we pool our income as filing jointly That puts me in a different tax Situation against what I do and some of The income that might have been counted As ordinary might become passive now or Might become a portfolio now and so Another example of taxes is let's say I Trade a lot of options now that's Something I do do I trade a lot of Options well if you were to trade you Know a whole bunch of options and spend Again an inordinate amount of time Trading options investing time and doing It which is less hot this is crazy Because it's less passive in your Lifestyle but it might be taxed more That way in the tax world so it gets Really really screwy that way because You can do what's called actor Traders Active Trader status okay that's my Question do you have to get a title or Some sort of yeah you you talk to your You like my wife files as a real estate Professional you know an options Trader Who's insanely active my my file as an Active Trader and say hey this is kind Of what I do for a living and I trade a Lot in a certain amount of my income Comes from it that's large or a certain

Amount of time I spend is large Then all of a sudden those out those Those options that used to be taxed at Ordinary income rates might be now taxed To capital gain rates so I I take all That tax stuff and I say Tom will write Here you tell me what to do I'm just Going to do the things I like for my Lifestyle and so if that kind of helps People separate the government's muddies The Waters of passive portfolio and Ordinary income just depending on how You earn it and what's your status and How you file and how much time you put In there's an insane amount of rules to Figure that out for the viewer and The Listener here what I'd invite you to do Is say how do I how do I want to live my Life so uh is my income from options Passive well let me give an example Yesterday Um was uh or excuse me no not yesterday Yesterday was inauguration Uh At the end of options expiration Uh once a month I usually write my Auctions monthly some people can write Them daily some people can write them Weekly depending on which expirations They choose I generally as a rule you Know guideline prefer monthly uh one to Two months out okay so In theory here you're saying It's pretty passive because you're

Really only looking at it once a month Yeah it's not going to be taxed as Passive It would be though if you but but enough Right if you were big enough actually It's it's almost always portfolio it's Almost always capital gain uh is the Best you can do it's either ordinary Income or capital gain now if it's in a Roth It's not taxed at all So there you go so again think of it With a lifestyle Approach Um yesterday my son and I Zach he he Does this with me now uh starting this Year we do my uh portfolio which is Larger than his uh significantly larger Uh but he has one that he's growing as Well and so once a month Uh we'll write some options And we'll sell some options I I'm an Auction seller Um sometimes I'll buy uh an option and Do an auction strategy but but I love Time Decay strategies which is another Podcast right time Decay strategies That's another podcast but but generally Um what I do is I make a promise Of some kind to either buy a stock or Sell a stock And I see at the end of the month Whether or not I have to or want to keep That promise And most of the promises I make I'd like

To keep And if things change during the month Where I no longer want to keep that Promise I have to make an adjustment so Basically we set it up once a month and Go through things and sell our options Once a month make our little tweaks and Then I check it every day and that takes About for me all 15 minutes uh 20 Minutes I have alerts to alert me of the Stuff that goes out out of bounds I say Ah that needs my attention uh most days Quite truthfully we check it and say Yeah it looks good and it's and it's Kind of like being an anesthesiologist I Think you know a really boring job knock Them out wake them up knock them out Wake them up but you have those Intermittent moments of Terror where Their heart stops beating and that's Where you probably earn your money and That's a lot about you know a lot how I Feel is you know check the stock okay Great check the stock like today I Looked at it before our our podcast and Nothing to adjust you know sit another Day of time Decay you know so Andy There's two things here one you're Sounding a little lazy Hugely so and two I totally want to be You sounds awesome you don't want to be Me I uh I do work hard I work I I think My favorite asset class is business You know I'm a good salesman I like

Selling stuff and I love creating things That help other people So I spend a ton of time promoting the Cash flow Academy you know doing sales Uh you know stuff like this Um you know we don't we don't consider I Mean I don't say hey send me a check for Doing this podcast that's not how rich Dad advisors work okay but but I I love Being active you know I I I keep a full Schedule and if people were to think That I sit around with a on the beach All day with some with an umbrella in it And that's all Andy does that's totally Incorrect I keep a schedule I spend a Huge amount of time uh with my kids Massive amounts of time in their Development in their basketball and Their piano and their education and Their schooling uh I I stay active but As far as the the stock portion of my Income goes Um yeah I spend about 15 minutes each Day and a little bit longer if we have a Problem to figure out an adjustment to Make Uh people can kind of see we have a lot Of people follow us in our Mentor Club Where every Monday we do a virtual Portfolio and that one's much more Active uh because people like to see More fancy stuff from NOAA my you know Trainer Um but they get an idea of that that's

Kind of what it's like so do you get Entirely passive I suppose you could I Mean I know that Robert has the Rich Dad Company they sell cash flow games And I imagine uh they could you know Take take you and Rob and say go run This and leave for 10 years and come Back and it would probably be just as Big or bigger than when they left but When you own a business you tend to mind Your own business you tend to want to Have meetings want to have updates and Want to give suggestions and uh you know Your if your mission as a teacher you Know you're going to love to teach Robert and I teach a tremendous amount Um I love teaching so I spend time Teaching so you know what is passive and What is active I think you look at your Lifestyle and what you want to do if you Want to do absolutely nothing Buy stocks Um let the dividend get higher and do The Warren Buffett thing and let Compounding do its work find some solid Companies if you want to be more active Now sell some options once a month if You want to be more active uh become a Day trader if you love it and you love The adrenaline rush then sit at computer Screen all day long and day trade uh and Make your money actively that's fine You're still having money work for you You're still compounding so the I'll say

That there's also times Where I will speculate and those are the Trades that take the most time Uh I like I'm doing a little bit of Speculation right now simply because the Market's so high Putting money into new stocks for the Long term is I just I just think the Price is like Tesla right now has a PE Of uh 1600. okay that means it's got to Grow a lot to justify that price got you Yeah so I'd rather trade like so for Example I'd rather speculate and sell a Put option on Tesla to buy it at four Hundred dollars you know half price or Whatever it is and get paid a nice Premium you'll probably get a dollar Contract on there and so you want to Make a thousand dollars promise to buy a You know a half a million dollars worth Of Tesla at Half Price Right Um whatever you want to do so very Important though the more active you get The more financial education you want to Have the more uh option strategies you Engage in the more you want to learn how To hedge and how to protect because the Market can get away from you if you want To be an option seller better be willing To keep those promises you make or know How to adjust and position size for Those you don't And so it it always on this podcast you Know seems to land in the same place

That if you'd like to have money work For you in some way Um then uh you know education is a is a Core probably the most important Distinction we can make Greg on this Particular episode Is to to talk about income we work for At a job as ordinary And then income that you would buy low And sell high on is buying stuff and Selling stuff which is capital gain and Then income that would come continually Because you had something so let's give An example both in real to finish up Let's give an example of each one both In real estate and stocks Of income that's involved in both of Those asset classes we'll send the tax Ramifications to our accountant and Let's just talk about our lifestyle okay Let's start with real estate So my wife's uh has a real estate License And she could go work for Remax or for Century 21 or Berkshire Hathaway and she Could get up in the morning and put on a Suit a business attire and she could go Out and spend her time selling houses For people and buying houses for people Earned some tips six commit six percent Commission on those and earn a living That's an active income in my mind uh How it would be taxed we'll leave that To the accounts but that's an active

Income where we're working for money Basically right we're out there working Ordinary income yeah we're working for Money okay in real estate Okay the second thing she should she Could do is she could flip homes And Um she could go out and raise money from Private lenders buy houses Renovate those houses sell them at a Profit pay back the private lender with Profit and collect money and pay a Capital gains tax that's buying low and Selling High Kenny hates that that's right now Robert Hates that he hates buying law and Selling High however I would say this I Know people that well think about this There's a company where I live in Utah Called Ivory Homes And you know what they do they find an Empty law they're a developer they find An empty set of land and they they get It zoned and they buy it and they Plummet and they get the sewage there And the electricity there and then they Build all these houses and they sell Them brand new and there's model homes And they just have development after Development that's their business well The guy that owns that business He might not even come into the office Anymore You know it might be just like Robert

You know it comes in the office once in A while but he has guys that run it for Him well that's a developer well a Redeveloper is a flipper Um I know people that flip over a Hundred houses a year But have a passive income lifestyle Because they have a business That does the same thing Ivory Holmes Does except they buy existing homes put A bunch of money and fix them up and Sell them at a higher price okay so We're doing two things here the original Just uh everyday single family home Flipper that's portfolio but then if you Own a company that does that and that Company is based on systems so the owner Doesn't really have to be there yes yeah Systems can be technology they could Also be people yeah but the point being The owner doesn't really have to be There that then is passive income yeah And it and the taxes wind up however the Taxes wind up depending on what they do With their accountant but you know how Much time in your lifestyle do you spend Well if you I know one guy in Salt Lake That's a flipper and he flips about 16 Homes a year Um but he doesn't you know he skis every Day and he has some nice systems that Buy low and sell high like a redeveloper Would now he has risks in doing that Right and there's tax ramifications it's

Hard to 1031 those all the time so Kenny's preference is look the third one And that's where we'll talk about Kenny Is raise a bunch of capital So you you have no none of your online The deal I use Robert's money is how Kenny does it and then uh buy a a large Or it doesn't have to be large it could Be one home wouldn't matter and then Keep it and your goal there this is very Important you're selling something other Than the asset this is very important Listen to me very carefully you're Selling something other than the Underlying asset You're using the asset to produce value So rent Is different than the sale of the home Isn't it collecting rent is a different Is different than the sale of the home Absolutely and so that would be in my Mind Um an ideal scenario you know I do we Put some work in we have a property from I don't have a large rental portfolio in Comparison to Kenny and Robert's not Even close but we have a property Management company that sends us you Know they collect the rent and if There's a problem they send the Maintenance people over and they you Know whatever we need we just get the Check from them they take a percentage But for us it's worth it not to do the

Work right absolutely or we don't have To think about it as much still got to Think about it but not as much Okay let's talk about stocks I could go and get a series 65 or a Series 7 or a series 4 and and depending On what I want to do and I can start a Hedge fund or I could uh go work at a Brokerage I'd be active income I get up Go to my suit go to the work call my Clients sell stocks make transactions You know there you go try to get money In The Firm you know there you go Uh that'd be active income in stocks uh Pass more more of a passive idea would Be a dividend you know where I where I Buy it and uh hold it get the dividend In right another thing could be is I Could be a day trader I could buy lower Sell high in a swing Trader I could buy Loans so high that's like the flipper Isn't right it's just like a flipper or I could hire a team of people that are Really good like like Jim Simons did now Becomes a business So when as you think about stocks think About your lifestyle Uh whether you like Learning about companies whether you Like I think it's very similar to any Other business really it's just the Thing that's nice about stocks is Someone's already running the business And you get to say do I want to buy into

Something that's existing rather start My own Or you know you do the same thing if you Send your money to Kenny in a Syndication well you found a business Owner that can run it well and you're Gonna hand your money to them and say I Want to be a part of it great Um it's whatever you want to do but to Do that having an understanding of of How to evaluate the company before you Buy it is a big deal so I don't know if That muddied the water is worse for Everyone or helped them get clarity on Hmm how much time do I want to spend Doing something Um is do I enjoy that thing that I'm Doing I think Kenny loves the game I Think Kenny Works look Kenny can take a Vacation anytime he wants he often does But he's got an office you know a home Office he he's on conference calls he's Doing stuff Um I used to think that passive income There's this rule says well I can't do Anything I can't lift a finger well There's certainly you know if I buy a Stock and get a dividend that that would Be the case but I if you were on the Beach every day with an umbrella drink That believe it or not somebody say oh That'd never get old for me yeah I would Yeah Um Robert Robert is what 70 something

Yep uh he'll never retire Does he likes what he does he likes to Teach so he'll never say I'm done I'm Just going to go you know but if he Wants to go hunting in Africa he'll go And he has the freedom to do it I think That's the big thing having the freedom To do it Um I feel very good you know if I I Don't think I could leave my business For five years and come back and have it Bigger I don't know maybe it'd be bigger If I got out of it and had the my team Run it but you know if I needed to take Off for three months I feel pretty good About that all right we gotta end this Show so let me summarize In the stock world you can have any kind Of income you can have ordinary you can Have portfolio and you can have passive And it's really up to you how you want To treat the stocks and how much Activity you want to put into it Then there's one other thing two other Things you said you had written a book Yeah the truth is you've written three Books that I know stock stock market Cash flow 401ks and you have um escape The rat race which I don't know if you Know this but it we put that in the Comments so people can read it I I appreciate the plug that's it yeah No they can read this book so yeah I Want to make sure that's kind of like

You mentioned earlier that as Rich Dad Advisor you don't get paid so so maybe That'll help a little bit Yeah I Appreciate that well absolutely that's a Great way to get paid if I can sell an Asset that's pretty passive you didn't Even know that fact that'd be great yeah Well Andy thanks again man I appreciate It love and appreciate you guys and uh I Hope that didn't matter the waters too Much I hope it gave people some clarity On lifestyle categorization versus the The tax situation absolutely I think we Got it thanks Andy all right bye [Music] Foreign [Music] Foreign foreign [Music] [Music] Foreign [Music] Thank you [Music] Foreign [Music] [Applause] [Music] The Sun Here [Music] Foreign [Music]

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