Best Money Advice You Can’t Ignore
I’m going to do something different this month and share with you with the most valuable money advice I know.
And it comes from Tony Robbin’s new book Unshakeable.
It’s a GREAT book
and if you’re looking to learn about investing, it’s by far the best book to learn about it in one place.
I’m not going to waste any time…
Let’s get into it:
The Core Four Principles of Money
Rule #1: Don’t Lose
The more money you lose, the harder it is to get back to where you started.
Rule number one: never lose money.
Rule number two: never forget rule number one.
Expect the unexpected.
Invest in ways that help you protect from nasty surprises.
Rule #2: Asymmetric Risk/Reward
Rewards should vastly outweigh the risks.
Follow a 5 to 1 reward to risk equation. Limited downsize and huge upside.
Rule #3: Tax Efficiency
Don’t ignore the impact of taxes.
It’s not about what you earn that counts, it’s what you keep.
Rule #4: Diversification
Don’t put all your eggs in one basket.
Four ways to diversify: across different asset classes, within asset classes, across markets, countries and currencies, and across time.
The single most important thing you can do is diversify your portfolio.
Why diversification is so critical is that it protects us from a natural human tendency to stick to whatever we feel we know.
Diversification is your insurance policy against your worst nightmare.
If you would like to learn about about how to invest your money —
I’m not an expert but I’ll be happy to share with you the rest of my notes from the book below…
All the best,
Unshakeable Book Notes
Summary: Invest in well diversified portfolio of index funds. Actively managed mutual funds are bad. Index funds give you broad diversification in a low-cost, tax-efficient way, and they bear almost all actively managed funds over the long run.
If you live in fear, you’ve lost respect game before it even begins. How can you achieve anything if you’re too scared to take a risk? You can never know what the stock market will do. But that certainty isn’t an excuse for inaction.
Bear markets are the ultimate gift for opportunistic investors with a long-term perspective.
Diversify by owning low-cost index funds in 6 asset classes:
- US stocks
- International stocks
- Emerging-market stocks
- Real estate investment trusts (REIT)
- Long term US treasuries
- Treasury inflation-protected securities (TIPS)
Invest in 15 or more good, but they don’t have to be great, uncorrelated bets. Everything comes down to owning an array of attractive assets that don’t move in tandem. Invest in stocks, bonds, gold, commodities, real estate, and other alternatives. Owning 15 uncorrelated investments, you can reduce your overall risk by about 80% and you’ll increase the return-to-risk ratio by a favor of five. So your return is five times greater by reducing that risk.
The Core Four Principles
- Don’t Lose. The more money you lose, the harder it is to get back to where you started. Rule number one: never lose money. Rule number two: never forget rule number one. Expect the unexpected. Invest in ways that help you protect from nasty surprises.
- Asymmetric Risk/Reward. Rewards should vastly outweigh the risks. Follow a 5 to 1 reward to risk equation. Limited downsize and huge upside.
- Tax Efficiency. Don’t ignore the impact of taxes. It’s not about what you earn that counts, it’s what you keep.
- Diversification. Don’t put all your eggs in one basket. Four ways to diversify: across different asset classes, within asset classes, across markets, countries and currencies, and across time. The single most important thing you can do is diversify your portfolio. Why diversification is so critical is that it protects us from a natural human tendency to stick to whatever we feel we know. Diversification is your insurance policy against your worst nightmare.
How to Diversify Your Investment
- Stocks — 9% to 10% return a year. On average, the market is down 1 in every 4 years. Market makes money 3 out of 4 years. In short term stocks is entirely unpredictable. Over the long term, the stock market news will be good. The challenge is to stay in the market long enough to enjoy these gains.
- Bonds — when you buy a bond, you’re making a loan to a government (treasury), city (municipal), company (corporate), or some other less dependable company (high-yield or junk). They’re much, much safer than stocks. Conservative investors who can’t tolerate the volatility of stocks might to choose in bonds. It’s hard to be enthusiastic about bonds in today’s weird economic environment.
- Real Estate Investment Trusts (REITs) — low-cost way to diversify broadly, both geographically and across different types of property.
- Private Equity Funds — pooled money used to buy a part of an operating company. If it’s run with with true expertise, it can make outsized profits while also adding diversification by operating in the private market. However, these funds are illiquid, risky, and charge high fees. These funds have high minimum investments and are more for wealthy people.
- Master Limited Partnerships (MLPs) — publicly traded partnerships that typically invest in energy infrastructure, including oil and gas pipelines. The upside is that they pay out a lot of income in a tax-efficient way. These don’t make sense if you’re young or have your money in an IRA but they can be great for an investor who is over 50 and has a large taxable account.
- Gold — (not recommended) produces no income and is not a critical resource. Even if gold prices soar occasionally, every time, without exception; the price has ultimately collapsed. Historically, stocks, bonds, energy commodities, and real estate have outperformed gold. Not recommended.
- Hedge Funds — (not recommended) few perform well. The very best are closed to new investors. Disadvantages: fees, taxes, risk management, transparency, and liquidity. Most charge 2% a year plus 20% of their investor’s profits. Not recommended.
How to Determine Asset Allocation
Ask yourself, “What asset classes will give you the highest probability of getting from where you are today to where you need to be?” The design of your portfolio must be based on your specific needs. Get a clear picture of where you are today (your starting point), how much you’re willing and able to save, how much money you’ll need, and when you’ll need it (your ending point). Remember: your needs determine your asset allocation, not your age. Another priority is to create a customized game plan that minimizes your tax liabilities. Make sure to diversify globally across multiple asset classes. Decide in advance how you’re going to diversify by allocating a specific percentage of your portfolio to stocks, bonds, and alternative investments. What will your ration be? If you don’t lock it down, circumstances will change and your mood will change with them. Regularly rebalance your portfolio once a year.
The Biggest Mistake Investors Make
The biggest mistake that the small investor makes is to buy when the market is going up on the assumption that the market will go up farther, and sell when the market is going down on the assimilation that it’s going to go down further. This is part of a much broader pattern of believing that current trends are bound to continue. Investors repeatedly fall into the trap of buying what’s not, whether it’s a high-flying stock like Tesla or the latest five-star mutual fund, and abandoning what’s not. However; today’s winners tend to be tomorrow’s losers. People tend to buy funds that have good performance. And they chase returns. And then when funds perform poorly; they sell and so they end up buying high and selling low. And that’s a bad way to make money.
Hope you found this information useful!
-Sam Mollaei, Esq. (email@example.com)