Stock Market

And I don't think Social Security is the only Ponzi scheme still in operation today. I found it amusing that during George W. Bush's presidential term he pushed legislation for younger workers to put money into the stock market rather than Social Security. I think he wanted younger workers to put their money into one of the biggest Ponzi schemes of all: the stock market. In the stock market, investors only make money as long as stock prices rise— as long as new money is being pumped into the market. If money is pulled out of the marker, stock prices fall and investors lose their money.

This is why knowing the difference between capital gains and cash flow is important. All Ponzi schemes are based on capital gains. For prices to go up, new money must come in. That is why I consider the stock market to be a Ponzi scheme. If no new money comes in, the market crashes. The same is true with real estate or the bond markets. As long as cash flows in, the Ponzi scheme of capital gains keeps the boats floating. But if people want their cash back, prices drop, and there is not enough to pay everyone back.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

A stock investor also understands the power of cash flow, or dividend yields, as cash flow is called in the stock market. The higher the dividend yield, the better the value of a stock. For example, a dividend yield of 5 percent of the stock's price signals a great stock at a great price. A dividend yield of less than 3 percent of the stock price means the stock is priced too high and will probably fall in value.

In October 2007, the stock market hit an all-time high of 14,164. Suckers jumped into the market, betting on stocks going higher (capital gains). The problem was that the Dow had a dividend yield of only 1.8 percent of its total value, which means that stocks were too expensive, and professional investors began to sell.

In March 2009, the Dow hit a low of 6,547, and many people jumped back into the market, thinking the worst was over. The problem was that the dividend yield was still only 1.9 percent, which to a professional investor meant the price of stocks was still too high and the stock market would probably go lower and long-term investors would probably lose even more of their money as cash flowed out of the market.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich