What's wrong with being average?

Yahoo finance has their own list of guest columnists that write opinion pieces on money and investing. They vary greatly in quality, by far the worst is "Rich Dad, Poor Dad" Author Robert Kiyosaki. Mr. Kiyosaki's mendacity is pretty well documented, so I won't comment on it here.

What is abundantly clear from his July 7 article is that Mr. Kiyosaki hasn't the faintest understanding of statistics. He tells investors "not to be average" as if average investors chose mediocrity.

No one chooses to be average.

If you try to make money from your investments, you are most likely to obtain average returns. This is because the average return is calculated based on the returns of people just like you. They're all shooting for the big returns, but most of them end up being average. Even worse, approximately as many of those few who get big returns instead get big losses.

Being a pro is no protection against average returns either. How many "pros" have lost so big that they're in a pickle now?

Why fight average returns anyways? You can, with a minimum of effort, obtain average returns from a well diversified portfolio. It has low transaction costs, low taxes, and typically does better than a non-diversified portfolio. It did far better during our current crisis unless you were one of the lucky few pros or amateurs to be in the right asset class at the right time.

Average returns, because they're a more likely result, are something you can plan around. You can plan your future on them, including knowing how much money to save and how to invest it. Not so for big returns - they're far less likely.

If you want to be above average, you could instead follow Kiyosaki's advice and work like a dog for those above average returns. Most likely, you'll still get average returns. You'll pay higher taxes and transaction costs, and depending on your strategy, have none of the benefits of diversification.

In his article, Kiyosaki talks about how his greater than average strategy led him to be homeless and broke in 1985. He left his wife with $2 while he went off to Australia on a business trip. His net income that year was $1500. I have no idea why anyone would want to replicate such a life. An average person will make more from average returns based on average savings from an average salary, without the homelessness and bone-crushing stress that comes with it.

One way you can become "above average" is to invest more than the average amount. You'll make more money because you're getting an average return from an above-average sized investment.