Mastering the game of money is truly like walking through an
uncharted jungle, and there are lots of things that are trying to kill you, or, well ... your bank account.
Fees
Brokers
Volatility
Taxes and
Hubris
In MONEY: Mastered the Game,
Tony Robbins has interviewed many of the best investors of our time, and condensed their best advice into this book.
Tony Robbins is a firm believer that, in order to succeed in, well, anything, you need the right role models.
And who better to guide you through this dangerous jungle than legends such as Carl Icahn, Paul Tudor Jones,
Kyle Bass, and last but not least Ray Dalio?
Tony Robbins interviewed all of them before making this book. Let's see what he now suggests after learning from these masters.
Takeaway number 1: Climb the mountain of financial freedom
Picture your financial journey as a mountain climb.
Much like climbing a mountain,
there are two different phases in acquiring wealth: the accumulation phase,
in which are putting away money and investing it in order to build a critical mass.
And decumulation phase during which you're withdrawing money.
There are five levels of financial freedom.
Imagine the peak of the mountain as the absolute pinnacle of wealth building, and the other ones as base camps along the way.
For instance ..
"Financial security" is achieved when you've built a critical mass, or in other words, a portfolio, which can support and pay for all the necessities
in your life, such as food, housing and utilities.
"Financial independence" is reached when your passive income can support your current lifestyle, and the pinnacle,
"absolute financial freedom", is reached when your ultimate dream lifestyle is supported by investment income.
I encourage you to calculate how much you would need to accumulate in order, for example, to reach financial independence.
Clarity is power.
When your brain knows a real number,
your conscious mind will find a way to take you there, as stated in Napoleon Hill's Think and Grow Rich.
Multiply your current monthly expenses by 12, and then multiply that number by 20, and
you'll get a rough estimate of how much money you need to reach financial independence.
Now, we need a plan.
Reaching this number won't happen by accident.
"The man on top of the mountain, didn't fall there."
Takeaway number 2: Speeding it up reaching the peak faster
To start your financial journey, you must make the decision to no longer be only a consumer.
You must also be an owner, or an investor.
This is how anyone with the right guidance can climb that mountain mentioned before.
Here are five advice on how to speed up your climb.
1. Save more. We've heard it all before ...
The most important part to reach financial freedom is to "pay yourself first".
It's not about what you earn, it's about what you keep.
Tony Robbins suggests that the best way to save is when you don't see the money in the first place.
With every increase in earnings that you get, save a pre-defined slice of that.
This way you'll never get accustomed to the additional income.
2. Earn more. On the other hand, there's always a limit to how much you can save.
But the upside ... it is limitless!
The secret to earning more is to do more for others than anyone else is doing.
You don't get paid for your time, you get paid for how much value you contribute with (with some exceptions, apparently).
A McDonald's crew member in Sweden is paid approximately$12 per hour,
while one of the more well-paid in Sweden last year, Stefan Persson, earned a guesstimated $240,000
per hour, from the dividends of his company H&M, alone.
3. Reduce fees and taxes
Fees and taxes are like making the ascent to the top with a huge and heavy backpack.
You think that small percentages don't make much of a difference, but over time, they really do.
To reduce fees, invest in products that are passively managed, primarily.
You are obliged to pay your taxes, but no one says that you've got to leave a tip.
So minimize this expense. In general, use
tax deferred accounts such as a Roth IRA and tax harvesting.
4. Get better returns
Among the investors that Tony Robbins talked to when writing MONEY: Master the Game, four principles were dominant.
Don't lose. Risk a little to make a lot.
Diversify & Never stop learning.
For more of a deep dive on how to get better returns, watch my summary of, for instance, Common Stocks and Uncommon Profits.
5. Change your life and lifestyle
Compared to this one major decision, every saving effort is kind of like being penny-wise and pound-foolish.
It's the decision of where to live. If you are a US citizen,
income taxes between states can differ A LOT.
But consider what living in another country would cost as well.
According to wolrddata.info, living in Sweden, for example, he is 5% more expensive than living in the US.
While, living in the Philippines is about 60% cheaper.
And living in India costs only about 1/3 of what it does in the US.
Takeaway number 3: The All-Seasons portfolio
Complexity is the enemy of execution, and
execution trump's knowledge every day of the week.
Therefore, most investors need an asset allocation in their portfolio that is simple to understand, as well as simple to implement.
The All-Seasons portfolio by Ray Dalio, fulfills this.
Not only does it protect you from any potential economic environment, but it also protects you from yourself.
When Tony Robbins team of analysts back-tested this portfolio between 1984 and
2013, they got the following results:
9.72% annual returns, net of fees.
Made money in 86% of the years.
The worst drawdown, which was in 2008, was -3.93%.
I think most people can stick to an asset allocation strategy that lost only 3.93%,
maximum, during one year.
Now, how does it work?
According to Ray Dalio, there are four different types of economic climates, depending on the growth of the economy, and the current inflation.
Different assets perform relatively better during different conditions.
We can't anticipate what will happen in the future in the market,
but if we invest so that 25% of the risk of our portfolio belongs in each of these quadrants,
we don't really care what the future holds for us, because we will thrive no matter what.
To achieve this allocation, Ray Dalio suggests:
40% long term US bonds
30% stocks
15% intermediate US bonds
7.5% gold
7.5% commodities
The All-Seasons portfolio gives you one of the highest probabilities of having a smooth climb to the top of the financial freedom mountain.
Takeaway number 4: Income is the outcome
All-in Anthony
has been investing 100% of his savings into stocks during the last decade, and he's now reached the age of
65, and is about to retire.
He's been able to save $500,000, which is a little bit more than he'll need to retire comfortably,
especially if the market keeps advancing in his favor.
Unfortunately, for All-in Anthony, it's the end of the year 2000.
Just two years and a half into retirement, All-in Anthony has already lost more than half of the value of his retirement portfolio, and
withdrawing money while the market has been down, has increased the damage done.
Unfortunately, the bills of Anthony don't seem to respect that.
Here's an issue that most people will face when retirement is closing in.
They've advanced to a certain level on the mountain of freedom, probably financial independence,
but when it's time to put on the skis and enjoy the slope on the way back down,
market fluctuations will have a significant impact on their ride.
On the way back down, it's not assets, but income, that is of the greatest importance.
Therefore, Tony Robbins suggests that if you want a smooth ride,
you may want to consider a product such as an "annuity".
An "annuity" is a risk management tool, not an investment.
It's simply an agreement between an insurance company and yourself that you pay them a lump sum, in
Anthony's case it would be the $500,000, and in return, they'll pay you an income.
Often until you die.
What are the pros of an annuity?
It pays a steady income stream, and it's higher than you can expect from any fixed income security.
You'll retire comfortably with a known and guaranteed income.
It lasts until you die. You can't outlive this income.
Now, what are the cons?
A guarantee is never better than the guarantor, you may want to diversify across several insurance companies.
If you die early you've made a "bad deal",
so to speak, as any payments that you miss out on will go to the insurance company.
This is also the reason why the income stream can be so high.
Essentially, the insurance company is pooling your annuity together with other's, and betting on an average mortality rate.
But since you are dead anyways, that doesn't really matter, does it?
Takeaway number 5: Three ways to buy happiness
All right, no, that is probably not how it works.
However, here are three ways to spend your money that have been scientifically proven according to the book
"Happy Money, the Science of Smarter Spending", to improve well-being.
1. Investing in experiences. Rather than acquiring more possessions, go travel or learn a new skill.
2. Buying time for yourself
Money can transform how we spend our time, from doing tasks that we may dread, to pursuing our passions.
3. Investing in others
Giving money away actually makes us happier, and
moreover, it creates the feeling of abundance. which may,
ironically, have a net positive effect on how much money that you'll accumulate in the end.
Note that it's not necessarily the amount of money that you spend that matters here, but rather HOW you decide to spend it.
So ....
Calculate your numbers, and start climbing towards your financial freedom goals.
Speed up the ascent by, among other things,
Saving a part of every salary increase,
creating more value, and managing fees and taxes.
The All-Seasons portfolio will give you a smooth climb.
Annuities will give you a smooth ride.
Money can buy happiness, but it's a matter of how you spend it, not necessarily how much of it that you spend.
Cheers!