Many of you may know Tony Robbins as a motivational speaker who travels around the world giving advice to others. But Tony has also authored books around financial literacy. He’s given talks about how to manage money and even created a podcast around the subject.
The book that has had the biggest influence on my financial journey is called Unshakeable. In the book, Tony Robbins goes through how the financial industry works, the myths of professional financial management, and action plans you can implement to improve your financial well-being.
Here are five important lessons that Tony Robbins offers on how to create your path to financial freedom.
Lesson 1
Focus on things you can control rather than things you can’t control. Nobody can predict consistently whether the market will rise or fall.
When your investments are doing well and growing nicely, you feel great that your expert decision making has led to your success. However, when things go sour like they have in 2020, we like to blame external factors.
While we can certainly blame COVID-19 for major losses in our portfolio today, we can’t blame market downturns for how we react to the situation.
If you panic and sell your investments at a loss during high periods of high market volatility, you lock in those losses and lose money. Similarly, if you purchase stocks at low prices and sell them for a profit, you’ve cemented some gains.
If you do nothing, the market will eventually correct itself and you can continue to expect steady gains as long as you are invested in the market. Your actions have a direct effect on whether you can make money or lose money in the markets.
The point here is to focus on what you can do to protect and grow your investments rather than spend time on economic forces you can’t change.
Lesson 2
You are never going to earn your way to financial freedom. The real route to riches is to set aside a portion of your money and invest it, so it compounds over many years. That’s how you become wealthy while you sleep.
Let’s be honest, many of us wish we had more money. We want to have a bigger house or a fancier car and take exotic trips all around the world. The pursuit of money for good or bad is something that drives our world.
But can each of us really earn that much more money to gain the sort of lifestyle we think we want?
By saving portions of your income on a regular basis, you can invest the money into your retirement funds and watch the money grow over the span of your investing lifetime.
This is due to the power of compound interest. This idea is not quick or even very sexy, but it does work.
If you want to be comfortable when you retire, make sure to invest early and often. Automate these savings through your employer or on your own. This is the concept of paying yourself first. By doing this, you can guarantee that your money will grow over time.
Lesson 3
Excessive Fees can destroy two thirds of your nest egg.
Most of us use financial advisors to invest our money. There are often high fees associated with this type of management. The fees can be upwards of 2% of your assets.
This amount does not seem like much, but if you were pay 2% of a $100,000 portfolio each year for someone to manage your money, you would be giving up $2000 each year.
Fast forward 30 years and that 2% fee will have increased as your assets gained value. Overall, due to compound interest, you may have given up almost half your retirement nest-egg lost to fees. Why do you lose so much money with your investments?
The biggest reason is how your money is invested. The data is very clear that actively managed investments fair poorer in returns than do passively managed funds.
Active investments like mutual funds seek to beat the overall stock market returns by buying and selling investments regularly. You are probably invested in mutual funds right now without even knowing it.
This triggers a sales charge to you every time a transaction has occurred. These are the investment funds that banks use most often to invest your money. Your employer sponsored pension plan probably also uses mutual fund companies to invest your retirement funds.
However, it turns out that passively managed index funds outperform mutual funds the vast majority of the time. Because index funds only seek to match the returns of the stock market by passively following major stock market indexes like the S&P 500, they keep their fees low.
When you invest in actively managed funds, you pay extra for that management. In reality, you see less returns on your investments due to high management fees.
Lesson 4
Follow these best practices from famous investors.
Some of the most successful investors of our time follow some very simple rules that even a beginner can follow. People like Warren Buffett, Jack Bogle, and Ray Dalio have touted their financial prowess by recommending the average investor do the following:
Don’t lose money– this is an obvious one I agree. But the fact that every investor needs to know is that much of your investment portfolio can be lost through a variety of ways like panic selling in an economic downturn and high mutual fund fees.
We all want to ensure that we are growing our investments, but we have to make sure that in the pursuit of that goal, we don’t lose sight of minimizing the risks we take with our money.
Sticking with a plan and revisiting it regularly can help mitigate losses and make sure you are on the right track.
Rule #1: Never lose money.
Rule #2: Never forget Rule #1.”
Warren Buffett
Tax efficiency– We all gripe about how much we are taxed in our everyday lives. One of the best ways to ensure that you minimize the taxes paid on your investments is to make sure that you are investing into your registered accounts like the TFSA, RRSP, and RESP first.
While each of these three big registered accounts operate differently, they ensure that your money is allowed to grow tax free until you need them. Investments outside these accounts will always be subject to taxes. Try to maximize your contributions to these plans before looking elsewhere.
Diversification– don’t keep all your eggs in one basket. Simple enough. Make sure that when you invest your money that you don’t concentrate it all in one sector. Make sure that you are spreading it out in a variety of areas. That way, when one sector takes a hit (and it will), the effect on your other investments can be minimized.
This could as simple as investing in low cost index funds in Canada and the United States. Then taking an approach of having some bond funds and foreign equities in developing or emerging markets.
Lesson 5
Don’t make these common investing mistakes.
Seeking confirmation of your beliefs
Human beings will often try to confirm only what they believe to be true to validate their thinking. This is called the confirmation bias.
Without trying to find evidence to the contrary, an investor might overlook important aspects when making financial decisions. This may involve only watching certain financial news programs, social media feeds, or relying on friends and family for advice.
Tony recommends trying to find people that disagree with your investment approach to get a different perspective. That doesn’t mean you get advice from just anywhere. Make sure the person who you consult with has the skill and track record to give you an educated opinion.
Even if you do not end up changing your decisions, it’s always good to make sure that you are looking at your money from multiple angles to make sure you haven’t overlooked anything.
Mistaking recent events for ongoing trends
Especially when we are experiencing one of the biggest market downturns in modern history, one should not look at recent events as the be-all and end-all of market operation. The coronavirus pandemic, while terribly devastating, will not be the last time the market will experience major disruptions.
In fact, Tony shows that economic downturns occur every three to five years, but gets very little attention from the media outlets. Markets crashes are only temporary.
Yes, the effects may be felt for years to come, but things will return to a certain level of normalcy. Tony’s solution is not to sell out, but rebalance your portfolio. As well, decide in advance how you are going to diversify your portfolio in stocks, bonds, and alternative investments.
This may mean selling certain investments and buying others to make sure your portfolio is in proper balance based on your level of risk.
When things get emotional, make a plan for the long term. If need be, share your plan with your financial advisor like a co-pilot to make sure that your plan is sound.
Avoid home country bias investing
When it comes to investing, people often stick with what is familiar. There is a psychological bias that leads people to disproportionally invest in their own country’s markets.
Tony recommends making sure that you are not overexposed to any country, even it’s the one you live in. Ben Felix expertly covers this topic below.
In the United States, the average investor had almost 75% of their total equity invested in the US stock market at the end of 2013. Even though the United States only accounted for about 49% of the global equity market. That means they were overweighted in the US market and underexposed to foreign markets like Europe and Asia.
The solution is to diversify your money not just in asset classes (stocks, bonds, commodities, etc), but different countries. Make sure that the percentage of your assets invested outside your country fits with your plan. By diversifying internationally, you can reduce your overall risk and increase your returns.
Conclusion
Unshakeable is very easy read that you can rip through in a few hours. Tony Robbins speaks clearly in a way that everyone can understand without getting stuck on fancy financial terminology.
The book cuts to the core of how the financial world works and what steps you can do to help yourself become more knowledgeable about your investments. I chose five important lessons on money from this book that you should know about.
1. Earning your way to financial freedom can be hard. Using the power of compound interest by investing regularly throughout your life can make you wealthy.
2. Tony stresses that while there are things that you cannot control like the stock market, you can control your own behavior and by educating yourself about how your money is being managed, you can ensure that your investments will grow.
3. High investment fees can reduce your returns by almost two thirds. By investing in index funds, you will earn your fair share of market returns and pay lower fees.
4. Follow in the footsteps of legendary investors who advocate that the average investor be aware of losing money in the markets, using tax-efficient methods to invest, and diversifying their portfolio.
5. You must also make sure not to fall victim to some very common investing mistakes. Seeking confirmation of your beliefs, mistaking recent events for ongoing trends, and avoiding the pitfall of the home country investing bias.
I would highly recommend that you take a look at this short read. It changed my financial world and I hope it would do the same for you.