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Your Financial Freedom Playbook
Table of Contents
About The Book
Transform your financial life and accelerate your path to financial freedom with this step-by-step playbook to achieving your financial goals from the #1 New York Times bestseller of Money: Master the Game, Tony Robbins.
Robbins, who has coached more than fifty million people from 100 countries, is the world’s #1 life and business strategist. In this book, he teams up with Peter Mallouk, the only man in history to be ranked the #1 financial advisor in the US for three consecutive years by Barron’s. Together they reveal how to become unshakeable—someone who can not only maintain true peace of mind in a world of immense uncertainty, economic volatility, and unprecedented change, but who can profit from the fear that immobilizes so many.
In these pages, through plain English and inspiring stories, you’ll discover…
-How to put together a simple, actionable plan that will deliver true financial freedom.
-Strategies from the world’s top investors on how to protect yourself and your family and maximize profit from the inevitable crashes and corrections to come.
-How a few simple steps can add a decade or more of additional retirement income by discovering what your 401(k) provider doesn’t want you to know.
-The core four principles that most of the world’s greatest financial minds utilize so that you can maximize upside and minimize downside.
-The fastest way to put money back in your pocket: uncover the hidden fees and half truths of Wall Street—how the biggest firms keep you overpaying for underperformance.
-Master the mindset of true wealth and experience the fulfillment you deserve today.
No matter your salary, your stage of life, or when you started, this book will provide the tools to help you achieve your financial goals more rapidly than you ever thought possible.
An unwavering and undisputed confidence;
a steadfast commitment to the truth;
presence, peace of mind, and a calm amidst the storm
What would it feel like to know in your mind, in your heart, and in the very depth of your soul that you’ll always be prosperous? To know with absolute certainty that no matter what happens in the economy, stock market, or real estate, you’ll have financial security for the rest of your life? To know that you’ll possess an abundance that will enable you not only to take care of your family’s needs but also to delight in the joy of helping others?
We all dream of achieving that tremendous inner peace, that comfort, that independence, that freedom. In short, we all dream of being unshakeable.
But what does it really mean to be unshakeable?
It’s not just a matter of money. It’s a state of mind. When you’re truly unshakeable, you have unwavering confidence even amidst the storm. It’s not that nothing upsets you. We can all get hooked. But you don’t stay there. Nothing rattles you for any length of time. You don’t allow fear to take you over. If you’re knocked off balance, you find your center quickly and regain your inner calm. When others are afraid, you have the presence of mind to take advantage of the turmoil swirling all around you. This state of mind allows you to be a leader, not a follower. To be the chess player, not the chess piece. To be one of the few who do, not one of the many who merely talk!
But is it even possible to become unshakeable in these crazy times? Or is it just a pipe dream?
Do you remember how you felt in 2008 when the financial crisis savaged the global economy? Do you remember the fear, the anxiety, the uncertainty that gripped us all when the world seemed to be falling apart? The stock market collapsed, maybe crushing your 401(k). The property market was beaten to a pulp, maybe wrecking the value of your home or that of someone you love. Big banks fell over like toy soldiers. Millions of good, hardworking people lost their jobs.
I can tell you right now, I’ll never forget the suffering and terror I witnessed all around me. I saw people lose their life savings, get kicked out of their homes, and not have the money to send their kids to college. My barber told me that his business was in tatters because people didn’t even want to spend money getting their hair cut. Even some of my billionaire clients called me in a panic because their cash was all tied up, the credit markets had frozen, and it suddenly looked like they might be in danger of losing everything. Fear was like a virus, spreading everywhere. It began to take over people’s lives, infecting millions with a sense of total uncertainty.
Wouldn’t it be wonderful if all that uncertainty had ended in 2008? Didn’t you think the world would be back to normal by now? That the global economy would be back on track and growing dynamically again?
But the truth is, we’re still living in a crazy world. All these years later, central bankers are still fighting an epic battle to revive economic growth. They’re still experimenting with radical policies that we’ve never seen in the entire history of the global economy.
You think I’m exaggerating? Well, think again. First-world countries such as Switzerland, Sweden, Germany, Denmark, and Japan now have “negative” interest rates. You know how insane that is? The whole purpose of the banking system is for you to make a profit by loaning money to banks, so they can lend it out to others. But people around the world now have to pay banks to accept their hard-earned savings. The Wall Street Journal wanted to discover when the world last experienced a period of negative yields. So the newspaper called an economic historian. You know what he told them? It’s the first time this has happened in 5,000 years of banking history.
That’s how far we’ve come from living in a normal world: borrowers get paid to borrow, and savers get punished for saving. In this upside-down environment, “safe” investments such as high-quality bonds offer such terrible returns that you wonder if someone’s having a laugh at your expense. I recently learned that the finance arm of Toyota had issued a three-year bond that yields just 0.001%. At that rate, it would take you 69,300 years to double your money!
If you’re struggling to make sense of what all this means for the future of the global economy, join the club. Howard Marks, a legendary investor who oversees nearly $100 billion in assets, recently told me, “If you’re not confused, you don’t understand what’s going on.”
You know we’re living in strange times when even the greatest financial minds admit to being confused. For me, this reality was driven home emphatically last year when I arranged a meeting of my Platinum Partners: an intimate group of friends and clients who gather once a year to gain financial insights from the best of the best.
We had already listened to the opinions of seven self-made billionaires. But now it was time to hear from a man who, for two decades, had wielded more economic power than anyone else alive. I was seated in one of two leather wingback chairs on a stage in a conference room at the Four Seasons hotel in Whistler, British Columbia. Outside the snow was falling gently. The man sitting across from me was none other than Alan Greenspan, former chairman of the US Federal Reserve. Appointed by President Ronald Reagan in 1987, Greenspan ultimately served as the Fed chief to four presidents before retiring in 2006. We could hardly have asked for a more experienced insider to cut through the confusion and shed light on the future of the economy.
As our two-hour conversation drew to a close, I had one final question for this man who had seen it all, who had guided the US economy through thick and thin for 19 years. “Alan, you’ve had 90 years on this planet and have seen incredible changes in the world economy,” I began. “So, in this world of intense volatility and insane central banking policies around the globe, what is the one thing you would do if you were still the Fed chairman today?”
Greenspan paused for a while. Finally, he leaned forward and said: “Resign!”
HOW TO FIND CERTAINTY IN AN UNCERTAIN TIME
What are you supposed to do when even an economic icon of Alan Green-span’s stature is tempted to throw up his hands in dismay, unable to make sense of what’s going on or guess where it will end? If he can’t figure it out, how on earth can you and I predict what will happen?
If you’re feeling stressed and confused, I understand. But let me tell you the good news: there are a few people who do have the answers—a few brilliant financial minds that have figured out how to make money in good times and bad. After spending seven years interviewing these masters of the financial game, I’m going to bring you their answers, their insights, their secrets, so you can understand how to win even in these incredibly uncertain times.
And I’ll tell you this: one of the greatest lessons I’ve learned from these money masters is that you don’t have to predict the future to win this game. Etch that idea into your big, beautiful brain, because it’s important. Really important.
Here’s what you do have to do: you have to focus on what you can control, not on what you can’t. You can’t control where the economy is headed and whether the stock market will soar or plunge. But that doesn’t matter! The winners of the financial game know that they can’t control the future, either. They know their predictions will often be wrong because the world is just too complex and fast changing for anybody to foresee the future. But, as you’ll learn in the pages to come, they focus so intently on what they can control that they’ll thrive no matter what happens to the economy or the financial markets. And with the help of their insights, you’ll thrive, too.
Control what you can control. That’s the trick. And this book will show you exactly how to do it. Above all, you’ll finish the book with a strategic plan that provides you the tools to help you win the game.
We all know that we’re not going to become unshakeable through wishful thinking, or by lying to ourselves, or by merely thinking positive, or by putting photos of exotic cars on our “vision boards.” It’s not enough to believe. You need the insights, the tools, the skills, the expertise, and the specific strategies that will empower you to achieve true and lasting prosperity. You need to learn the rules of the financial game, who the players are, what their agendas are, where you can get hurt, and how you can win. This knowledge can set you free.
The big purpose of this small book is to provide you with that essential knowledge. It will give you a complete playbook for financial success, so that you and your family won’t ever again have to live in fear and uncertainty but can enjoy the journey with true peace of mind.
Many people just dabble in and out when it comes to their financial lives, and they pay an enormous price for it. That’s not because they don’t care. It’s because they get swamped by all the stresses and strains of their daily lives. Plus, they don’t have expertise in this area, so it seems intimidating, confusing, and overwhelming. None of us likes putting effort into things that make us feel unsuccessful and out of our depth! When people are forced to make financial decisions, they often act out of fear—and any decision made in a state of fear is likely to be wrong.
But my commitment here is to be your coach, to guide you and help you, so you can put together an action plan that gets you from where you are today to where you want to be. Maybe you’re a baby boomer who worries that you can’t get to financial security because you started too late. Maybe you’re a millennial who thinks, “I’ve got so much debt, I’ll never be free.” Maybe you’re a sophisticated investor who’s looking for an edge so you can build a legacy that benefits generations to come. Whoever you are and whatever stage of life you’re at, I’m here to show you that there is a way.
If you commit to stay with me through the pages of this book, I promise to provide you with the knowledge and tools you need to get the job done. Once you absorb this information and put your plan in place, it will likely take you only an hour or two each year to keep things on target.
This is an area of life that requires commitment. But if you’re committed to understanding and harnessing the insights in this book, the rewards will be incredible. How much stronger and more confident will you feel when you know the rules that govern the financial world? When you have that knowledge, that mastery, then you can make smart financial decisions based on real understanding. And decisions are the ultimate power. Decisions equal destiny. The decisions you will be equipped to make after reading this short book can bring you a whole new level of inner peace, fulfillment, comfort, and financial freedom that most humans only dream of achieving. I know that sounds like hyperbole. But as you’ll discover for yourself, it’s not.
MEET THE MONEY MASTERS
My life’s obsession is to help people create the life of their dreams. My greatest pleasure is to show them how to rise from pain to power. I can’t bear to see others suffer, because I know how it feels. I grew up dirt poor, with four different fathers over the years, and with a mother who was an alcoholic. I often went to bed hungry, not knowing if there’d be anything to eat the next day. We had so little money that I bought T-shirts for 25 cents at the thrift store and went to high school in Levi’s cords that were four inches too short for me. To support myself, I worked as a janitor at two banks in the middle of the night, and then caught a bus home and slept for roughly four to five hours before dragging myself back to school each morning.
Today I’m blessed with financial success. But I can tell you right now, I’ll never forget what it was like to live in that state of constant anxiety about the future. In those days, I was trapped by my circumstances and filled with uncertainty. So when I saw what happened to people during the 2008–09 financial crisis, there was no way I could turn my back on them.
What drove me crazy was that much of that economic mayhem had been caused by the reckless ways of a small minority of bad actors on Wall Street. Yet nobody in a position of power and privilege seemed to pay any price for the pain that was created. Nobody went to jail. Nobody addressed the systemic issues that had made the economy so vulnerable in the first place. Nobody seemed to be looking out for the regular people who bore the brunt of this financial chaos. I saw them getting used and abused every day, and I couldn’t take it anymore.
That launched me on a quest to figure out how I could help people to gain control over their financial lives so they’d never again be passive victims of a game they didn’t understand. I had one key advantage: personal access to many of the giants of the financial world. It helped that I’ve coached Paul Tudor Jones, one of the greatest traders of all time. Paul, an extraordinary philanthropist, a brilliant thinker, and a dear friend, helped to open a lot of doors for me.
Over seven years, I interviewed more than 50 masters of the financial universe. Their names may mean nothing to you. But in the financial world, these guys have the star power and the name recognition of celebrities such as LeBron James, Robert De Niro, Jay Z, and Beyoncé!
The list of legends who ended up sharing their insights with me includes Ray Dalio, the most successful hedge fund manager in history; Jack Bogle, the founder of Vanguard and the revered pioneer of index funds; Mary Callahan Erdoes, who oversees $2.4 trillion in assets at JPMorgan Chase & Co.; T. Boone Pickens, the billionaire oil tycoon; Carl Icahn, America’s most formidable “activist” investor; David Swensen, whose financial wizardry transformed Yale into one of the world’s wealthiest universities; John Paulson, a hedge fund manager who personally earned $4.9 billion in 2010; and Warren Buffett, the most celebrated investor ever to walk the earth.
If you don’t know these names, you’re not alone. Unless you work in finance, you’re probably more aware of how your fantasy football team is doing or what’s in your Net-a-Porter shopping cart. But you’re really going to want these financial titans to be on your radar, too, because they can literally change your life.
The result of all that research was my 670-page behemoth of a book, Money: Master the Game. To my delight, it skyrocketed to number one on the New York Times Business Best Sellers list and has sold more than a million copies since its publication in 2014. The book has also received an extraordinary array of endorsements from the financial elite. Carl Icahn, not an easy man to win over, declared, “Every investor will find this book extremely interesting and illuminating.” Jack Bogle wrote, “This book will enlighten you and reinforce your understanding of how to master the money game and, in the long run, earn your financial freedom.” Steve Forbes wrote, “If there were a Pulitzer Prize for investment books, this one would win, hands down.”
I’d like to think this praise was a testament to my literary brilliance! But the success of Money: Master the Game really reflects the generosity of all those financial giants in sitting down with me for hours on end and sharing their knowledge. Anyone who takes the time to study and apply what they told me should attain huge financial rewards that can last a lifetime.
So why bother to write a second book on how to achieve your financial ambitions? After all, there are plenty of easier and more painless ways to spend my time than writing books. Like, say, selling my organs on the black market. But, my goal is to empower you, the reader, while also making a difference for millions of forgotten people who are in desperate need.
I’ve donated all my profits from Money: Master the Game and now for this book, Unshakeable, to provide free meals for the hungry through my partnership with Feeding America, the nation’s most effective charity for feeding the hungry. So far, between these books and the additional personal donations I’ve made over the last two years, we’ve provided over 250 million free meals to families in need. In the next eight years, I plan to bring that total to a billion meals. If you’re holding this book, you’ve contributed to that cause. Thanks! And feel free to buy copies for all your friends and family!
Beyond that mission, I have three urgent reasons for writing Unshakeable. First, I want to reach as many people as possible by writing a short book that you can read in a couple of evenings or a weekend. If you want to go deeper, I hope you’ll also read Money: Master the Game, but I understand if that big monster seems intimidating. Unshakeable is designed to be a concise companion that contains all of the essential facts and strategies you need to transform your financial life.
In writing a short book that’s quick and easy to read, I’m looking to increase the likelihood that you’ll not only master this material but also act on it. People love to say that knowledge is power. But the truth is that knowledge is only potential power. You and I both know that it’s useless if you don’t act on it. This book gives you a power-packed action plan that you can put into effect immediately—because execution trumps knowledge every day of the week.
My second reason for writing Unshakeable is that I see so much fear around me today. How are you and I going to make smart, rational financial decisions if we’re full of fear? Even if you know what to do, fear keeps you from doing it. I’m concerned that you might make the wrong moves if you’re fearful, damaging yourself and your family in ways that I believe are entirely avoidable. Step-by-step, this book will enable you to systematically free yourself from that fear.
BABY, IT’S COLD OUTSIDE!
As I write this, the stock market has risen for seven and a half years in a row, making this the second-longest bull market in US history. There’s a widespread sense that we’re due for a fall, that what goes up must come down, that winter is coming. By the time you read this, the market may already have tumbled. But, as we’ll discuss in the next chapter, the truth is that nobody—I repeat, nobody—can accurately predict with any consistency where the financial markets are headed. That includes all those smooth-talking TV pundits, those Wall Street economists in pinstripe suits, and all those other high-paid purveyors of snake oil.
We all know that winter is coming, that the stock market will fall again. But none of us knows when winter is coming or how severe it will be. Does that mean we’re powerless? Not at all. Unshakeable will show you how the masters of the financial world prepare themselves—how they profit by anticipating winter instead of just reacting to it. As a result, you’ll be able to benefit from the very thing that harms those who are unprepared. Ask yourself this: When an ice storm comes, do you want to be the one who’s stuck outside, freezing in the bitter cold? Or do you want to be the one who’s wrapped up warmly by the fire, toasting marshmallows?
Let me give you a recent example of how it pays to be prepared. In January 2016 the stock market plummeted. In a matter of days, $2.3 trillion went up in smoke. For investors, it was the worst ten-day start to a year in history. The world was freaking out, convinced that the Big One was finally here! But Ray Dalio, the most successful hedge fund manager of all time, had done something priceless in Money: Master the Game: he’d shared with me a unique investment portfolio that could prosper in “all seasons.”
In the middle of this market nosedive, Ray was in Davos, Switzerland, where the global elite gather each year to discuss the state of the world. He went on TV, appearing against the backdrop of a snow-covered mountain, to explain how people could protect themselves from this terrifying turmoil. His advice? They should pick up a copy of my book, Money: Master The Game. “Tony Robbins did the layman’s version of this all-weather portfolio,” he explained. “That might be helpful for people.”
So what would have happened if you’d followed Ray’s advice and built the all-weather portfolio described in my book? While the Standard & Poor’s (S&P) 500 stock index (a list of the top five hundred companies in the United States) dropped 10% in the first few days of 2016, you would have actually made a small profit (just under 1%). This portfolio is not meant to be one-size-fits-all, nor is it intended to be the greatest performer. It’s meant to provide a smoother ride for those unable to stomach the volatility of a portfolio with a higher percentage of stocks (which can also lead to higher returns).
But what’s really amazing is that this portfolio for all seasons would have made money 85% of the time over the last 75 years. That’s the power of having the right strategy—a strategy that comes directly from one of the best in the world.
AVOID THE SHARKS
My third reason for writing this book is that I want to show you how to avoid getting eaten by sharks. As we’ll discuss later, one of the biggest obstacles to achieving financial success is the difficulty of figuring out who you can and cannot trust.
There are plenty of fantastic human beings working in the financial field—people who always remember their mom’s birthday, who are kind to dogs, and who have impeccable personal hygiene. But they’re not necessarily looking out for your best interests. Most people who you think are providing unbiased financial “advice” are actually brokers, even if they prefer to go by other titles. They make hefty commissions by selling products, whether it’s stocks, bonds, mutual funds, retirement accounts, insurance, or whatever else might pay for their next trip to the Bahamas. As you’ll soon learn, only a tiny subset of advisors is legally required to put your best interests ahead of its own.
After writing Money: Master the Game, I saw once again how easy it is to get fooled by Wall Street. Peter Mallouk, a certified financial planner and attorney whom I respect tremendously, arranged a meeting with me to share what he cryptically described as “some crucial information.” The investment magazine Barron’s rated Peter and his company, Creative Planning, the number one independent financial advisor in America in 2013, 2014, and 2015, while Forbes named it the top investment advisor in the United States in 2016 (based on 10-year growth), and CNBC ranked it as the number one US wealth management firm in 2014 and 2015. When someone with Peter’s expertise and reputation reaches out to me, I know that I’ll learn something of real value.
Peter flew specially from his home in Kansas to meet me in Los Angeles, where I was conducting an Unleash the Power Within event. It was there that he dropped the bomb, explaining how some financial “advisors” who market themselves as straight shooters were actually exploiting a grey area in the law to sell products that benefited themselves. They claimed to be fiduciaries: a small minority of advisors who are legally obligated to put their clients’ interests first. In reality, they were unscrupulous salespeople who profited by misrepresenting themselves. Unshakeable will give you all the information you need to protect yourself from wolves in sheep’s clothing. Equally important, we’ll give you the tools and criteria to help you identify honest, conflict-free advisors who will truly look out for your best interests.
That meeting formed the basis of a close friendship with Peter and led to his becoming the coauthor of this book. You couldn’t ask for a more knowledgeable, honest, or straight-talking guide for this journey. He tells it like it is, and he knows where the bodies are buried!
Peter’s firm, which manages $22 billion in assets, is unique. Many billionaires have what’s called a “family office”: an in-house team that provides them with sophisticated advice on everything from investing and insurance to tax preparation and estate planning. Peter offers this same level of comprehensive advice to clients with assets of $500,000 or more: doctors, dentists, lawyers, small business owners. They’re the heartbeat of the American economy, and he believes they deserve no less care and attention than the ultrarich.
I was so impressed with Peter’s vision in creating a “family office for all” that I joined the board of Creative Planning, became its chief of investor psychology, and engaged the firm to manage my investments and financial planning. I then approached Peter with a radical idea: Would he be willing to create a division that provides the same type of comprehensive service to clients who are early in their wealth-building journey—those with as little as $100,000 in total assets? Peter, who shares my commitment to helping as many people as possible, has done exactly that.
I’m happy to tell you that if you have $100,000 or more in investable assets, his company will provide a complimentary review of your current portfolio and give you specific feedback as it relates to your goals. You may decide that you’d prefer to handle your finances alone. But if you ever decide that it might be helpful to get a second opinion from the top-ranked firm in the country, you’re welcome to reach out to Creative Planning, at www.getasecondopinion.com.
THE ROAD AHEAD
Before we go any further, I want to quickly show you a map of the road ahead, so you can see for yourself how the chapters that follow will help you. Unshakeable is divided into three sections. The first is your Rule Book for Wealth & Financial Success. Why start with a rule book? Because if you don’t know the rules of the game, how can you expect to win?
What holds many of us back is a feeling that we’re in over our heads. It doesn’t help that the financial world seems overwhelmingly complex. There are more than 40,000 stocks to choose from in the world today, including 3,700 on various US stock exchanges. By the end of 2015, there were more than 9,500 mutual funds in America alone, which means there are far more funds here than stocks! How ridiculous is that? Add to that nearly 1,600 exchange-traded funds, and you’re faced with so many different investment choices that your head starts to spin. Can you imagine standing at an ice-cream counter and having to choose from 50,000 flavors?
You and I need some robust rules so that we can bring order to this chaos. As you’ll discover in chapter 3, one of the simplest yet most important rules is this: fees matter.
The vast majority of mutual funds are actively managed, which means they’re run by people who attempt to pick the best investments at the best time. Their goal is to “beat the market.” For example, they’ll attempt to outperform an unmanaged basket of leading stocks such as the S&P 500 index, which is just one of many different indexes that track specific markets throughout the world. But the difference is, actively managed mutual fund companies charge fat fees in return for this service. Sounds fair enough, right?
The problem is, most funds do a terrific job of charging high fees but a terrible job of picking successful investments. One study showed that 96% of mutual funds failed to beat the market over a 15-year period.I The result? You overpay for underperformance. It’s like paying for a Ferrari and then driving home from the dealership in a beaten-up tractor splattered with mud.
HEDGE FUNDS VS. MUTUAL FUNDS VS. INDEX FUNDS
For those unfamiliar, a hedge fund is a private fund available only to high-net-worth investors. The managers have complete flexibility to bet on both directions of the market (up or down). They charge hefty management fees (typically 2%) and share in the profits (typically 20% of profits go to the manager). A mutual fund is a public fund available to anyone. In most cases, they are actively managed by a team who assembles a portfolio of stocks, bonds, or other assets and continually trades their holdings in hopes to beat the “market.” An index fund is also a public fund but requires no “active” managers. The fund simply owns all the stocks in the index (for example, they would own all 500 stocks in the S&P 500 index).
Even worse, those fees add up massively over time. If you overpay by 1% a year, it will cost you 10 years’ worth of retirement income.II Once we’ve shown you how to avoid funds that overcharge and underperform, you could easily save yourself as much as 20 years of income.
If that’s all you learn from the first section of this book, it will transform your future. But there’s much more. As we mentioned earlier, we’ll also show you how to avoid salespeople who provide self-serving “advice” that’s hazardous to your financial health, and how to find sophisticated advisors who aren’t conflicted. As the saying goes, “When a person with experience meets a person with money, the person with experience ends up with the money; and the person with money ends up with an experience.” We’ll show you how to navigate this game so you’ll never get taken again.
The second section of Unshakeable is a financial playbook. It will show you exactly what to do so you can put your action plan in place right now. Most important, you’ll learn the “Core Four”: a set of simple yet powerful principles that are derived from my interviews with more than 50 of the world’s greatest investors. Though they have many different ways of making money, I’ve observed that they all share these fundamental decision-making principles. I’ve found the Core Four transformational in my own financial life, and I’m excited to make this knowledge available to you, too.
Next, you’ll learn to “slay the bear”: in other words, to build a diversified portfolio so that your nest egg won’t be destroyed when a bear market finally comes. In fact, you’ll learn to profit massively from the opportunities that fear and turmoil create. What most people don’t realize is that investment success is largely a matter of smart “asset allocation”—of knowing precisely how much of your money to put in different asset classes such as stocks, bonds, real estate, gold, and cash. The great news is that you’ll learn to do this from money masters like Ray Dalio, David Swensen, and our very own Peter Mallouk.
If you already know a bit about investing, you may be wondering—as one financial journalist asked me recently—“Isn’t it just a simple matter of buying and holding index funds?” Well, Dalio, Swensen, Warren Buffett, and Jack Bogle all told me that indexing is the smartest strategy for regular people like you and me.III One reason why is that index funds are designed to match the returns of the market. Unless you’re a superstar like Warren or Ray, you’re better off capturing that market return instead of trying—and almost certainly failing—to beat the market. Even better, index funds charge minuscule fees, saving you a fortune over the long run.
I wish it were that simple, though. As a lifelong student of human behavior, I can tell you this: most people find it really hard to sit tight and stay in the market when everything is going haywire. Buy and hold tends to go out the window. If you have nerves of steel like Buffett or Bogle, that’s great. But if you want to know how the majority of people behave under stress, just check out a study by Dalbar, one of the financial industry’s leading research firms.
Dalbar revealed the gigantic discrepancy between the market’s returns and the returns that people actually achieve. For instance, the S&P 500 returned an average of 10.28% a year from 1985 to 2015. At this rate, your money doubles every seven years. Thanks to the power of compounding, you’d have made a killing just by owning an index fund that tracked the S&P 500 over those 30 years. Let’s say you’d invested $50,000 in 1985. How much would it have been worth by 2015? The answer: $941,613.61. That’s right. Almost a million bucks!
But while the market returned 10.28% per year, Dalbar found that the average investor made only 3.66% a year over those three decades! At that rate, your money doubles only every 20 years. The result? Instead of that million-dollar windfall, you ended up with only $146,996.
What explains this massive performance gap? In part, it’s the disastrous effect of excessive management fees, outrageous brokerage commissions, and other hidden costs that we’ll discuss in chapter 3. These expenses are a constant drain on your returns—the equivalent of a merciless vampire sucking your blood each night while you’re asleep.
But there’s another culprit, too: human nature. As you and I know, we’re emotional creatures with a gift for doing crazy stuff under the influence of emotions such as fear and greed. As the legendary Princeton University economist Burton Malkiel told me: “Emotions get ahold of us, and we, as investors, tend to do very stupid things.” For example, “we tend to put money into the market and take it out at exactly the wrong time.” You probably know people who got carried away during a bull market and took reckless risks with money they couldn’t afford to lose. You may also know people who got scared and sold all their stocks in 2008, only to miss out on huge gains when the market rebounded in 2009.
I’ve spent almost four decades teaching the psychology of wealth. So, in the third section of Unshakeable, I’ll show you how to adjust your behavior and avoid common mistakes that are driven by emotion. Why is this so important? Because you can’t apply the winning strategies in this book unless you learn to “silence the enemy within.”
Then, together we’ll answer what may be the most important questions of all. What are you really after? How do you achieve the ultimate level of happiness you desire in your life? Is it really money you’re chasing, or is it the feelings that you think money can create? Many of us believe—or fantasize—that money will bring us to a point where we finally feel free, secure, excited, empowered, alive, and joyful. But the truth is, you can achieve that beautiful state right now, regardless of your level of material wealth. So why wait to be happy?
Finally, in the appendix, we’ve included an invaluable road map to use with your financial advisors and attorney. These four checklists will guide you in protecting your assets, building your financial legacy, and insuring against the unknown. Plus, you’ll discover even more ways to save on taxes!
THE SNAKE AND THE ROPE
But first I want to tell you about the very next chapter, because I’m convinced that it will change your financial life. In fact, even if you read only chapter 2 and ignore everything else in this book, you’re getting on track to reap amazing rewards!
As I mentioned earlier, this is a time of tremendous uncertainty for most people. The global economy is still limping along after all these years. Middle-class salaries have stagnated for decades. Technology is disrupting so many industries that we don’t even know what jobs will exist in the future. And then there’s that nagging feeling that a bear market is overdue after years of strong returns. I don’t know about you, but all this uncertainty is making many people fearful—and this prevents them from building wealth by investing in the financial markets and becoming long-term owners of this economy, not just consumers.
The next chapter is the antidote to that fear. We’ll walk you through seven specific facts that will transform your understanding of how the market works, and of the economic and emotional patterns driving it. You’ll learn that corrections and crashes occur with surprising regularity but never last. The best investors prepare for this volatility—these dramatic ups and downs—and turn it to their advantage. Once you understand these patterns, you can act without fear, not because you’re in denial but because you have the knowledge and clarity of mind to make the right decisions.
This reminds me of an old story you may remember about a Buddhist monk traveling home one night on a rural path. He catches sight of a poisonous snake blocking his way, panics, and runs for dear life in the opposite direction. The next morning, he returns to this scene of terror. But now, in the brightness of day, he realizes that the coiled snake in his path was just a harmless piece of rope.
Chapter 2 will show you that your own anxiety is equally unfounded—that the snake you fear is really just a rope. Why does this matter so much? Because you can’t win this game unless you have the emotional fortitude to get in it and stay in it for the long term. Once you realize that there’s no snake blocking your way, you can walk calmly and confidently on the path to financial freedom.
Are you ready? Then let’s begin!
THE MOBILE APP AND PODCAST
There are a couple of additional resources to accelerate your journey. First, we created a mobile app containing videos, planning tools, and a personalized calculator that will help you discover how much you need to accumulate in order to achieve different levels of financial security and freedom. Second is the Unshakeable podcast. Peter Mallouk and I recorded a series of brief conversations around the core principles of becoming Unshakeable.
I. Industry expert Robert Arnott, founder of Research Affiliates, studied the performance over 15 years of all 203 actively managed mutual funds that had at least $100 million under management.
II. This assumes two investors with a starting investment of $100,000, equal returns of 8% over 30 years, but with 1% fees and 2% fees, respectively. Assuming an equal withdrawal amount at retirement, the investor paying 2% in fees will run out of money 10 years sooner.
III. According to the financial website Investopedia: “Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold, and sell. The opposite of active management is called passive management, better known as ‘indexing.’?”
- Publisher: Simon & Schuster (February 28, 2017)
- Length: 256 pages
- ISBN13: 9781501164583
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