Unshakeable by Tony Robbins Flashcards
(379 cards)
1
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Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. —AYN RAND
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2
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never forget about these two ferocious foes of stock market success: fear and fees.
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3
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Five out of the six index cards addressed the topic of how to invest your savings, and each gave the same simple advice: invest in index funds.
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The gross return of the market minus the cost of investing equals the net return to investors. This “cost matters hypothesis” is all you need to know to understand the benefits of index investing. Over an investment lifetime, this annual difference really adds up.
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By buying low-cost, broad-market index funds (and holding them “forever”), you can guarantee that you will receive your fair share of whatever returns the financial markets provide over the long term.
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When you’re truly unshakeable, you have unwavering confidence even amidst the storm.
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7
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you don’t have to predict the future to win this game.
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you have to focus on what you can control, not on what you can’t.
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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.
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10
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decisions are the ultimate power. Decisions equal destiny.
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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.
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12
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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.
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execution trumps knowledge every day of the week.
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14
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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.
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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.
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Creative Planning, at www.getasecondopinion.com.
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17
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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.”
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18
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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.
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19
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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).
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If you overpay by 1% a year, it will cost you 10 years’ worth of retirement income.II
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“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.”
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22
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most people find it really hard to sit tight and stay in the market when everything is going haywire.
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23
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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.
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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!
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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.
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the snake you fear is really just a rope.
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you can’t win this game unless you have the emotional fortitude to get in it and stay in it for the long term.
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The key to making money in equities is not to get scared out of them. —PETER LYNCH,
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Our gift for pattern recognition literally changed the course of human history.
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we’re not rewarded when we do the right thing at the wrong time.
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Buffett: “My wealth has come from a combination of living in America, some lucky genes, and compound interest.”
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he has $1.86 million more than Bob because he started investing 8 years earlier. That’s the awesome power of compounding. Over time this force can turn a modest sum of money into a massive fortune.
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they continue to believe that they can earn their way to riches. It’s a common misperception—this belief that, if your earned income is big enough, you’ll become financially free.
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You’re 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 that it compounds over many years. That’s how you become wealthy while you sleep.
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the number you should really aim for is 20 times your income. So, if you currently earn $100,000, you’ll need $2 million.
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Pay yourself first by taking a percentage of your income and having it deducted automatically from your paycheck or bank account.
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In an era of compressed interest rates, you earn nothing when you keep your cash in a savings account.
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when we look back at the stock market over an entire century, we discover this extraordinary fact: financial winter comes, on average, every year.
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when you stick with an effective approach over many years, your probability of success increases massively.
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What separates the money masters from the crowd is this ability to find a winning strategy and stick with it, so the odds are always strongly in their favor.
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When any market falls by at least 10% from its peak, it’s called a correction—a
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When a market falls by at least 20% from its peak, it’s called a bear market.
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Freedom Fact 1: On Average, Corrections Have Occurred About Once a Year Since 1900
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corrections are just a routine part of the game.
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Historically, the average correction has lasted only 54 days—less than two months!
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Freedom Fact 2: Less Than 20% of All Corrections Turn Into a Bear Market
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Freedom Fact 3: Nobody Can Predict Consistently Whether the Market Will Rise or Fall
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a man with a broken watch can tell you the correct time twice a day.
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physicist Niels Bohr: “Prediction is very difficult, especially about the future.”
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nobody can consistently predict whether markets will rise or fall.
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Jack Bogle, the founder of Vanguard, which has more than $3 trillion in assets under management, has said, “Sure, it would be great to get out of the stock market at the high and back in at the low, but in 65 years in the business, I not only have never met anybody that knew how to do it, I’ve never met anybody who had met anybody that knew how to do it.”
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Warren Buffett has said, “The only value of stock forecasters is to make fortune-tellers look good.”
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Freedom Fact 4: The Stock Market Rises over Time Despite Many Short-Term Setbacks
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Despite a 14.2% average drop within each year, the US market ended up with a positive return in 27 of the last 36 years.
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the market generally rises over the long run—even
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“For 240 years, it’s been a terrible mistake to bet against America, and now is no time to start.”
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Freedom Fact 5: Historically, Bear Markets Have Happened Every Three to Five Years
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“History doesn’t repeat itself, but it rhymes.”
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historically, the S&P 500 has dropped by an average of 33% during bear markets. In more than a third of bear markets, the index plunged by more than 40%.
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bear markets don’t last.
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They varied widely in duration, from a month and a half (45 days) to nearly 2 years (694 days). On average, they lasted about a year.
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“The best opportunities come in times of maximum pessimism.”
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Freedom Fact 6: Bear Markets Become Bull Markets, and Pessimism Becomes Optimism
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the market finally hit rock bottom on March 9, 2009. And do you know what happened next? The S&P 500 index surged by 69.5% over the next 12 months.
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the pattern of bear markets suddenly giving way to bull markets has repeated itself again and again in America over the last 75 years.
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the stock market isn’t looking at today. The market always looks to tomorrow. What matters most isn’t where the economy is right now but where it’s headed.
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every single bear market in US history has been followed by a bull market, without exception.
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The stock market is a device for transferring money from the impatient to the patient. —WARREN BUFFETT
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the US market hits an all-time high on approximately 5% of all trading days. On average, that’s once a month.
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Freedom Fact 7: The Greatest Danger Is Being out of the Market
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Jack Bogle once said, “The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible.”
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sitting on the sidelines even for short periods of time may be the costliest mistake of all.
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From 1996 through 2015, the S&P 500 returned an average of 8.2% a year. But if you missed out on the top 10 trading days during those 20 years, your returns dwindled to just 4.5% a year. Can you believe it? Your returns would have been cut almost in half just by missing the 10 best trading days in 20 years!
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If you missed out on the top 20 trading days, your returns dropped from 8.2% a year to a paltry 2.1%.
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6 of the 10 best days in the market over the last 20 years occurred within two weeks of the 10 worst days.
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the greatest danger to your financial health isn’t a market crash; it’s being out of the market.
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one of the most fundamental rules for achieving long-term financial success is that you need to get in the market and stay in it, so you can capture all of its gains.
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investors—let’s call her Ms. Perfect—invested her money on the best possible day each year: the day when the market hit its exact low point for that year. This mythical investor, who perfectly timed the market for 20 years running, ended up with $87,004. The investor with the worst timing—let’s call him Mr. Hapless—invested all of his money on the worst possible day each year: the day when the market hit its exact high point for that year. The result? He ended up with $72,487.
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If you stay in the market long enough, compounding works its magic, and you end up with a healthy return—even if your timing was hopelessly unlucky.
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The worst-performing investor wasn’t the unlucky one, but the one who stayed on the bench, the one in cash: he ended up with only $51,291.
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Most people never take responsibility. They prefer to blame the market for whatever happens to them. But the market never took a dime from anyone! If you lose money in the market, it’s because of a decision you made—and if you make money in the market, it’s because of a decision you made.
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AARP published a report in which it found that 71% of Americans believe that they pay no fees at all to have a 401(k) plan. That’s right: 7 out of 10 people are entirely unaware that they’re even being charged a fee!
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excessive fees can destroy two-thirds of your nest egg!
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professionals aren’t really any better at predicting the future than the rest of us. The truth is, humans are generally pretty lousy at making predictions!
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it’s much better to be the one who collects the tolls than the one who pays them!
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For investors in an actively managed fund, this combination of hefty transaction costs and taxes is a silent killer, quietly eating away at the fund’s returns!
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the largest expense in your life is taxes, and paying more than you need to pay is insane—especially when it’s absolutely avoidable!
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just holding the market (via an index fund) outperformed more than 80% of market-timing strategies.
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“What the hell am I really getting when I invest in an actively managed fund?” Well, most likely you’re buying this toxic brew of human error, high fees, and nasty tax bills!
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A typical fund that invests in stocks might have an expense ratio of 1% to 1.5%.
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If the fund is held in a nontaxable account like a 401(k), you’re looking at total costs of 3.17% a year! If it’s in a taxable account, the total costs amount to a staggering 4.17% a year!
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an actively managed fund that charges you 3% a year is 60 times more expensive than an index fund that charges you 0.05%!
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96% of these actively managed funds failed to add any value at all over 15 years!
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today’s winners are almost always tomorrow’s losers.
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Mutual fund companies are notorious for opening lots of funds in hopes that a few of them might outperform. They can then quietly close all the funds that did badly and heavily market the few that did well.
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When I asked Ray how hard it is to beat the market over the long run, he didn’t pull his punches. “You’re not going to beat the market,” he told me. “Competing in the markets is more difficult than winning in the Olympics.
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nearly 90 million Americans participate in 401(k) plans. To put that in perspective, only 75 million Americans own a home. With more than $6 trillion currently invested in 401(k)s, this is the single most important vehicle for the financial security of the US population.
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Many of the funds you get to choose from in your 401(k) plan are on the list only because the fund company paid the provider to include them!
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most providers make index funds available only if the plan has a high level of assets. Why? Because index funds aren’t sufficiently lucrative for the provider. So they prefer to exclude them from the menu,
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free online Fee Checker tool at www.ShowMeTheFees.com.
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It is difficult to get a man to understand something when his salary depends on his not understanding it. —UPTON SINCLAIR
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more than 40% of Americans now use an advisor. And the more money you have, the more likely you are to seek out advice: 81% of people with more than $5 million have an advisor.
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Congress currently has a dismal 20% approval rating,II but just 10% of Americans surveyed trust financial institutions.
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they work in a system that’s beyond their control—a system that has tremendously powerful financial incentives to focus on maximizing profits above all else.
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Regardless of the title, what you really need to know is that 90% of the roughly 310,000 financial advisors in America are actually just brokers. In other words, they’re paid to sell financial products to customers like you and me in return for a fee. Why does this matter? Because brokers have a vested interest in hawking expensive products,
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all financial advisors fall into just one of three categories. What you really need to know is whether your advisor is: • a broker, • an independent advisor, or • a dually registered advisor.
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90% of all financial advisors in America are brokers, regardless of the title on their business card. They’re paid a fee or commission for selling products.
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Brokers don’t have to recommend the best product for you.
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no matter how much you may like your broker, “Your broker is not your friend.”
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Of 308,937 financial advisors in the United States, only 31,000—approximately 10%—are registered investment advisorsIV (also known as RIAs or independent advisors). Like doctors and lawyers, they have a fiduciary duty and a legal obligation to act in their clients’ best interests at all times.
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RIAs don’t accept sales commissions. Instead, they typically charge a flat fee for financial advice, or a percentage of their clients’ assets under management.
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the vast majority of independent advisors are registered as both fiduciaries and brokers.
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90% of financial advisors are really just brokers in disguise. You know that they don’t have to put your interests first.
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The Poison of Proprietary Funds Brokers routinely sell proprietary funds created by their own firm.
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If an advisor charges a money management fee for selecting investments, that should be it. End of story. Why should they be able to add another fee for pooling those investments together?
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“I Can’t Accept a Commission, So Let’s Just Call It a ‘Consulting Fee!’ ” Some independent advisors make private deals with investment firms that enable the advisor to earn commissions without you knowing it.
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If you’re looking for planning help, make sure the advisor has a certified financial planner (CFP) on the team. If you’re looking for legal help, make sure there are estate planning attorneys on the team. Looking for tax advice? Make sure there are CPAs on the team.
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in an anonymous survey, the Journal of Financial Planning found that 46% of advisors had no retirement plan of their own!
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1. Are You a Registered Investment Advisor?
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2. Are You (or Your Firm) Affiliated with a Broker-Dealer? If the answer is yes, you’re dealing with someone who can act as a broker and usually has an incentive to steer you to specific investments.
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3. Does Your Firm Offer Proprietary Mutual Funds or Separately Managed Accounts? You want the answer to be an emphatic no.
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4. Do You or Your Firm Receive Any Third-Party Compensation for Recommending Particular Investments?
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5. What’s Your Philosophy When It Comes to Investing?
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6. What Financial Planning Services Do You Offer Beyond Investment Strategy and Portfolio Management?
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7. Where Will My Money Be Held?
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You then sign a limited power of attorney that gives the advisor the right to manage the money but never to make withdrawals.
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What I’ve found over almost four decades of studying success is that the most successful people in any field aren’t just lucky. They have a different set of beliefs. They have a different strategy. They do things differently than everyone else.
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complexity being the enemy of execution?
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these principles must be obsessions.
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CORE PRINCIPLE 1: DON’T LOSE
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the best investors are obsessed with avoiding losses. Why? Because they understand a simple but profound fact: the more money you lose, the harder it is to get back to where you started.
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Warren Buffett’s famous line about his first two rules of investing: “Rule number one: never lose money. Rule number two: never forget rule number one.”
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Paul Tudor Jones told me, “The most important thing for me is that defense is 10 times more important than offense. . . . You have to be very focused on protecting the downside at all times.”
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we have to design an asset allocation that ensures we’ll “still be okay,” even when we’re wrong.
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Asset allocation is simply a matter of establishing the right mix of different types of investments, diversifying among them in such a way that you reduce your risks and maximize your rewards.
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I don’t look to jump over seven-foot bars: I look around for one-foot bars that I can step over. —WARREN BUFFETT
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How do I apply the “Do Not Lose” principle in my own life? I’m so obsessed with this idea of not losing that I now tell all my advisors, “Don’t even bring me an investment idea unless you first tell me how we can protect against or minimize the downside.”
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CORE PRINCIPLE 2: ASYMMETRIC RISK/REWARD
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According to conventional wisdom, you need to take big risks to achieve big returns. But the best investors don’t fall for this high-risk, high-return myth. Instead, they hunt for investment opportunities that offer what they call asymmetric risk/reward: a fancy way of saying that the rewards should vastly outweigh the risks. In other words, these winning investors always seek to risk as little as possible to make as much as possible. That’s the investor’s equivalent of nirvana.
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Paul Tudor Jones, who uses a “five-to-one rule” to guide his investment decisions. “I’m risking one dollar in the expectation that I’ll make five,”
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“If you want to be a millionaire, start with a billion dollars and launch a new airline!”
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corrections and bear markets can be among the greatest financial gifts of your life.
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winter is always followed by springtime, and sometimes the seasons turn much quicker than you’d ever guess. This 97-cent stock shot to $5 within five months, giving investors a 500% return. That’s why “value” investors like Warren Buffett lick their chops during bear markets. The turmoil enables them to invest in beaten-up stocks at such low prices that the downside is limited and the upside is spectacular.
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CORE PRINCIPLE 3: TAX EFFICIENCY
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taxes can easily wipe out 30% or more of your investment returns if you’re not careful.
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In investing, self-delusion is an expensive habit.
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if you hold most investments for a year or more, you’ll pay long-term capital gains tax when you sell. The current rate is 20%, which is way lower than the rate you pay on your ordinary income. Simply by being smart about your holding period, you’re saving up to 30% on taxes.
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it’s not what they earn that counts. It’s what they keep. That’s real money,
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one benefit of index funds is that they keep trading to a minimum, which means “your tax bill is going to be lower. This is huge.
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“You should maximize your contributions if you’ve got a 401(k), or a 403(b) if you work for a nonprofit. You should take every opportunity to invest in a tax-deferred way.”
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tax-advantaged vehicles such as 401(k)s, Roth IRAs, traditional IRAs, private placement life insurance (or PPLI, the “rich man’s Roth”), and 529 plans (for college savings) can help us reach our goals quicker.
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you ideally want to partner with a firm that has CPAs on staff,
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I don’t start with taxes. That would be a severe mistake. I always start with a focus on not losing money and on getting asymmetric risk/reward. Then, before making any investment, I make a point of asking, “How tax efficient is this going to be? And is there any way we could make it more tax efficient?”
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But the pretax figure is phony, whereas the net number doesn’t lie. Your goal, and mine, is always to maximize the net.
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master limited partnerships (MLPs)
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Tax Efficiency. But here’s the best part: the US government needs to promote domestic energy production and distribution, so it has given MLPs preferential tax treatment. As a result, most of the income you receive is offset by depreciation, which means that roughly 80% of your income is tax free. So if you make a 10% return, you’re netting 8% annually.
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CORE PRINCIPLE 4: DIVERSIFICATION
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1. Diversify Across Different Asset Classes. Avoid putting all your money in real estate, stocks, bonds, or any single investment class.
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2. Diversify Within Asset Classes. Don’t put all your money in a favorite stock such as Apple, or a single MLP,
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3. Diversify Across Markets, Countries, and Currencies Around the World. We live in a global economy, so don’t make the mistake of investing solely in your own country.
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4. Diversify Across Time. You’re never going to know the right time to buy anything. But if you keep adding to your investments systematically over months and years (in other words, dollar-cost averaging), you’ll reduce your risk and increase your returns over time.
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Every Hall of Fame investor I’ve ever interviewed is obsessed with the question of how best to diversify in order to maximize returns and minimize risks.
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diversification does its job in the worst of seasons.
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Ray Dalio warned me, “It’s almost certain that whatever [asset class] you’re going to put your money in, there will come a day when you will lose 50%–70%.”
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individual investors can diversify by owning low-cost index funds that invest in six “really important” asset classes: US stocks, international stocks, emerging-market stocks, real estate investment trusts (REITs), long-term US Treasuries, and Treasury inflation-protected securities (TIPS).
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everything comes down to owning an array of attractive assets that don’t move in tandem.
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I learned that courage was not the absence of fear, but the triumph over it. The brave man is not he who does not feel afraid, but he who conquers that fear. —NELSON MANDELA
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“The butcher wants to butcher, the baker wants to bake, the surgeon wants to cut, and I want to drug you!”
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We all like to do whatever we know best in order to achieve certainty.
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When it comes to the areas of your life that matter most—your family, your faith, your health, your finances—you can’t rely on anybody else to tell you what to do. It’s great to get coaching from experts in the field, but you can’t outsource the final decision. You can’t give another person control over your destiny, no matter how sincere or skilled he or she may be.
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If you want to be certain that you’ll never lose money in the financial markets, you can keep your savings in cash—but then you’ll never stand a chance of achieving financial freedom. As Warren Buffett says, “We pay a high price for certainty.”
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Shakespeare wrote four centuries ago, “Cowards die many times before their deaths; the valiant never taste of death but once.”
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You can never know what the stock market will do. But that uncertainty isn’t an excuse for inaction.
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Warren Buffett says, “Risk comes from not knowing what you’re doing.”
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while others live in terror of bear markets, you’ll discover in this chapter that they are the single greatest opportunity for building wealth in your lifetime. Why? Because that’s when everything goes on sale!
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A simple rule dictates my buying: be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread. —WARREN BUFFETT IN OCTOBER 2008, explaining why he was buying stocks as the market crashed
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bear markets are either the best of times or the worst of times, depending on your decisions.
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You’ll even learn to welcome bear markets because of the unparalleled opportunities they create for coolheaded bargain hunters.
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you need to be positioned conservatively enough (with some income set aside for a very rainy day), so that you won’t be forced to sell while stocks are down.
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Sir John Templeton’s famous remark: “The four most expensive words in investing are ‘This time it’s different.’ ” In the midst of a market meltdown, people always think this time is different!
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he liked to invest at “the point of maximum pessimism,” when bargains were everywhere.
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There are only two potential outcomes: the end of America as we know it or a recovery. Every time investors have bet on the former, they have lost.”
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The goal? To balance the return you need to achieve with the risk you’re comfortable taking. The beauty of diversification is that it can allow you to achieve a higher return without exposing yourself to greater risk.
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different asset classes don’t usually move in tandem.
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Historically, the stock market has returned an average of 9% to 10% a year over more than a century.
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It’s not unusual for the market to fall 20% to 50% every few years. On average, the market is down about one in every four years.
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In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
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“Over the long term, the stock market news will be good.” If you truly understand this, it will help you to be patient, unshakeable, and ultimately rich.
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When you buy a bond, you’re making a loan to a government, a company, or some other entity.
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Bonds are loans. When you lend money to the federal government, it’s called a Treasury bond. When you lend money to a city, state, or county, it’s a municipal bond. When you lend money to a company such as Microsoft, it’s a corporate bond. And when you lend money to a less dependable company, it’s called a high-yield bond or a junk bond.
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Why do people want to own bonds? For a start, they’re much safer than stocks. That’s because the borrower is legally required to repay you. If you hold a bond to maturity, you’ll receive all of your original loan back, plus the interest payments—unless the bond issuer goes bankrupt. As an asset class, bonds deliver positive calendar-year returns approximately 85% of the time.
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we sold some of our clients’ bonds and invested the proceeds in the stock market, snapping up once-in-a-lifetime bargains.
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Any investments other than stocks, bonds, and cash are defined as alternatives.
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real estate investment trusts (REITs). They provide a no-hassle, low-cost way to diversify broadly, both geographically and across different types of property.
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Private equity firms use pooled money to buy all or part of an operating company.
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Master Limited Partnerships. I’m a big fan of MLPs, which are publicly traded partnerships that typically invest in energy infrastructure, including oil and gas pipelines.
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My view? Gold produces no income and is not a critical resource. As Warren Buffett said once, “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility.
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Hedge Funds. At Creative Planning, we have no place for hedge funds in our portfolios. Why not? A few of these private partnerships have performed brilliantly over many years, but it’s a minuscule minority—and the very best of them tend to be closed to new investors.
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One common—but misguided—approach involves using a person’s age to determine the percentage of bonds in his or her portfolio. For example, if you’re 55, you’d have 55% of your assets allocated to bonds. To me, that’s crazily simplistic. In reality, the type of assets you own should be matched to what you personally need to accomplish.
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What asset classes will give you the highest probability of getting from where you are today to where you need to be? In other words, the design of your portfolio must be based on your specific needs.
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your needs determine your asset allocation, not your age.
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deciding on the right balance of stocks, bonds, and alternatives is the most important investment decision you’ll ever make.
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never bet your future on one country or one asset class.
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Use Index Funds for the Core of Your Portfolio.
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“Core and Explore.” The core component of our clients’ portfolios is invested in US and international stocks. We use index funds because they give you broad diversification in a low-cost, tax-efficient way, and they beat almost all actively managed funds over the long run.
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Always Have a Cushion. You never want to be in a position where you’re forced to sell your stock market investments at the worst moment.
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We make sure our clients have an appropriate amount of income-producing investments such as bonds, REITs, MLPs, and dividend-paying stocks.
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If stocks crash, we can sell some of those income-producing investments (ideally bonds, since they are liquid) and use the proceeds to invest in the stock market at low prices. This puts us in a strong position where we can view the bear as a friend rather than a fearsome enemy.
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The Rule of Seven. Ideally, we like our clients to have seven years of income set aside in income-producing investments such as bonds and MLPs. If stocks crash, we can tap these income-producing assets to meet our clients’ short-term needs.
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Theodore Johnson, a UPS worker who never earned more than $14,000 a year. He saved 20% of every paycheck, plus every bonus, and invested in his company’s stock. By age 90, he’d accumulated $70 million! The lesson: never underestimate the awesome power of disciplined saving combined with long-term compounding.
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Rebalance. I’m a big believer in “rebalancing,” which entails bringing your portfolio back to your original asset allocation on a regular basis—say, once a year.
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One benefit of rebalancing, says Malkiel, is that it “makes you do the opposite,” forcing you to buy assets when they’re out of favor and undervalued. You’ll profit richly when they recover.
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The single biggest threat to your financial well-being is your own brain.
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The problem is that our brains are wired to avoid pain and seek pleasure. Instinctively, we yearn for whatever feels likely to be immediately rewarding.
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Neuroscientists have found that the parts of the brain that process financial losses are the same parts that respond to mortal threats.
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you may know that the smartest move in a market crash is to buy more stocks while they’re on sale. But your brain is telling you to sell everything,
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what counts is not reality, but rather our beliefs about it.
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Our beliefs are what deliver direct commands to our nervous system. Beliefs are nothing but feelings of absolute certainty governing our behavior.
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all that’s really required is a set of system solutions—a simple system of checks and balances—to neutralize or minimize the harmful effects of our faulty Flintstone wiring. There has to be a kind of internal control checklist since knowing is not enough. You need the systemic ability to execute every time.
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investors also need simple systems, rules, and procedures to protect us from ourselves.
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a simple set of questions that he uses to examine his beliefs and look at the situation more objectively.
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“Is this truly the hard trade? Does it really have asymmetric risk/reward? Is it a five-to-one or a three-to-one? What’s the entry point? Where are your stops?”
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they weren’t allowed to trade in the middle of the day.
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80% of success is psychology and 20% is mechanics.
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Mistake 1: Seeking Confirmation of Your Beliefs Why the Best Investors Welcome Opinions That Contradict Their Own
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“confirmation bias,” which is the human tendency to seek out and value information that confirms our own preconceptions and beliefs. This tendency also leads us to avoid, undervalue, or disregard any information that conflicts with our beliefs.
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emotional bias called the “endowment effect,” in which investors place greater value on something they already own, regardless of its objective value!
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“Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”
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“Where could I be wrong? What am I not seeing? What’s the downside? What am I failing to anticipate? And who else should I speak with to deepen my knowledge?”
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Mistake 2: Mistaking Recent Events for Ongoing Trends
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Warren Buffett says: “Investors project out into the future what they have most recently been seeing. That is their unshakeable habit.”
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psychological habit. It’s called “recency bias.” This is just a posh way of saying that recent experiences carry more weight in our minds when we’re evaluating the odds of something happening in the future.
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Great things are not accomplished by those who yield to trends and fads and popular opinion. —JACK KEROUAC
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“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 further—and sell when the market is going down on the assumption that it’s going to go down further.”
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this is part of a much broader pattern of believing that current investment trends are bound to continue.
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Investors tend to arrive just as the party is winding down. They miss out on all of the gains and participate fully in all of the losses.
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Don’t Sell Out. Rebalance.
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What the best investors in the world do is create a list of simple rules to guide them so that when things get emotional, they stay the course and remain on-target long term.
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The beauty of rebalancing, says Harry, is that it effectively forces you to “buy low and sell high.”
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Mistake 3: Overconfidence Get Real: Overestimating Our Abilities and Our Knowledge Is a Recipe for Disaster!
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humans have a perilous tendency to believe that they’re better (or smarter) than they really are. Again, there’s a technical term for this psychological bias: it’s called “overconfidence.”
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we consistently overestimate our abilities, our knowledge, and our future prospects.
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93% of student drivers believe they are above average. In another study, 94% of college professors considered themselves above average in the classroom. There was even a finding that 79% of students believed their character was better than most, despite the fact that 60% admitted they had cheated on an exam in the previous year.
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men are especially prone to overconfidence when it comes to investing! In fact, men traded 45% more than women, reducing their net returns by 2.65% a year!
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We all have a tendency to want the biggest and best results as fast as possible, rather than focusing on small, incremental changes that compound over time.
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The best way to win the game of investing is to achieve sustainable long-term returns. But it’s enormously tempting to swing for home runs, especially when you think other people are getting rich faster than you!
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the desire to gamble is built into us. The gaming industry knows this well and ingeniously exploits our physiology and psychology: when we’re winning, our bodies release chemicals called endorphins, so we feel euphoric and don’t want to stop; when we’re losing, we don’t want to stop either, since we crave those endorphins and also want to avoid the emotional pain of losses.
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Speculators are doomed to fail, while disciplined investors who stay in the market through thick and thin set themselves up for victory, thanks to the power of compounding over time.
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you win by patiently staying in the game for decades. Remember, as Warren Buffett says, “The stock market is a device for transferring money from the impatient to the patient.”
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The Solution: It’s a Marathon, Not a Sprint
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one of the biggest barriers to success for most investors is that they get distracted by all the short-term noise on Wall Street.
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Humans have a natural tendency to stay within their comfort zone.
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people also tend to stick with whatever they know best, preferring to trust what’s most familiar. This is known as “home bias.” It’s a psychological bias that leads people to invest disproportionately in their own country’s markets—and sometimes to invest too heavily in their employer’s stock and their own industry.
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Mistake 6: Negativity and Loss Aversion Your Brain Wants You to Be Fearful in Times of Turmoil—Don’t Listen to It!
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Human beings have a natural tendency to recall negative experiences more vividly than they do positive ones. This is known as “negativity bias.”
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psychologists Daniel Kahneman and Amos Tversky also demonstrated that financial losses cause people twice as much pain as the pleasure they receive from financial gains. The term used to describe this mental phenomenon is “loss aversion.” The trouble is, losing money causes investors so much pain that they tend to act irrationally just to avoid this possibility!
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Many investors lose faith because they’re so focused on the short term. But when the going gets tough, you’ll be able to look over these notes and remind yourself why you own each asset and how it serves your long-term goals.
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investing is a game of inches. If your returns improve by, say, 2 or 3 percentage points a year, the cumulative impact over decades is astounding, thanks to the power of compounding.
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if you harness the power of compounding, stay in the market for the long term, diversify intelligently, and keep your expenses and taxes as low as possible, your odds of attaining financial freedom are extremely high.
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When people dream of becoming rich, they’re not fantasizing about owning millions of pieces of paper with pictures of dead people on them! What we really want are the emotions we associate with money: for example, the sense of freedom, security, or comfort we believe money will give us, or the joy that comes from sharing our wealth. In other words, it’s the feelings we’re after, not the money itself.
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real wealth is about so much more than money. Real wealth is emotional, psychological, and spiritual.
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Every culture has different beliefs and values, yet there are fundamental needs and desires that all human beings share. What I’ve found wherever I go is that we all crave an extraordinary quality of life.
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it’s not about living somebody else’s dream. It’s about living a magnificent life on your own terms.
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The First Step to Achieving Anything You Want Is Focus.
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wherever your focus goes, your energy flows.
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a part of your brain called the reticular activating system is activated by your desire, and this mechanism draws your attention to whatever can help you achieve your goal.
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The Second Step Is to Go Beyond Hunger, Drive, and Desire, and to Consistently Take Massive Action.
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A lot of people dream big but never get started! To succeed, you need to take massive action. But you also need to find the most effective execution strategy, which means changing your approach until you find what works best.
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the more you acknowledge grace in your life, the more you seem to have it!
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if you master the external world without mastering the internal world, how can you be truly and sustainably happy?
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You Must Keep Growing. Everything in life either grows or dies.
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You Have to Give. If you don’t give, there’s only so much you can feel inside, and you’ll never feel fully alive.
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Winston Churchill said, “You make a living by what you get. You make a life by what you give.”
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The true nature of human beings isn’t selfish. We’re driven by our desire to contribute. If we stop feeling that deep sense of contribution, we can never feel truly fulfilled.
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money doesn’t change people. It just magnifies who they already are:
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I truly believe that success without fulfillment is the ultimate failure.
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one simple lesson: if you’re not fulfilled, you have nothing.
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A man is but the product of his thoughts. What he thinks, he becomes. —MAHATMA GANDHI
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high-energy state that could also be described as a “beautiful state.” Or you’re in a low-energy state (often characterized by internal pain) that could also be described as a “suffering state.” He told me that his spiritual vision was to live in a beautiful state no matter what happened in his life.
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We can’t control all the events in our lives, but we can control what those events mean to us—and thus what we feel and experience every day of our lives! By consciously choosing and committing to live in a beautiful state,
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the human brain isn’t designed to make us happy and fulfilled. It’s designed to make us survive. This two-million-year-old organ is always looking for what’s wrong, for whatever can hurt us, so that we can either fight it or take flight from it.
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This was the path I chose. I decided that I would no longer live in a suffering state. I decided that I would do everything in my power to live in a beautiful state for the rest of my life and to become an example of what’s humanly possible!
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A Beautiful State. When you feel love, joy, gratitude, awe, playfulness, ease, creativity, drive, caring, growth, curiosity, or appreciation, you’re in a beautiful state.
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A Suffering State. When you’re feeling stressed out, worried, frustrated, angry, depressed, irritable, overwhelmed, resentful, or fearful, you’re in a suffering state.
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in reality, the mental and emotional state in which you live is ultimately the result of where you choose to focus your thoughts.
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Isn’t it ridiculous how jaded we are and how upset we allow ourselves to become? When it rains on our parade, when we don’t get what we want or expect, we’re so quick to give up our happiness and sink into a state of suffering.
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Everyone has his or her own flavor of suffering. So here’s my question for you: What’s your favorite flavor of suffering? Which energy-sapping emotion do you indulge in most?
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all this suffering is really just the result of an undirected mind that’s hell-bent on looking for problems!
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1. Suffering trigger is “Loss.” When you focus on loss, you become convinced that a particular problem has caused or will cause you to lose something you value.
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2. Suffering trigger is “Less.” When you focus on the idea that you have less or will have less, you will suffer.
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3. Suffering trigger is “Never.” When you focus on the idea or become consumed by a belief that you’ll never have something you value—such
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the mind is always trying to trick us into a survival mindset! So never say never!
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It doesn’t even matter if the problem is real or not! Whatever we focus on, we feel—regardless of what actually happened.
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Notice, too, that most, if not all, of our suffering is caused by focusing or obsessing about ourselves and what we might lose, have less of, or never have.
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Either you master your mind or it masters you. The secret of living an extraordinary life is to take control of the mind, since this alone will determine whether you live in a suffering state or a beautiful state.
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Our lives are shaped not by our conditions, but by our decisions.
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the single most important decision in life is this: Are you committed to being happy, no matter what happens to you?
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will you commit to enjoying life not only when everything goes your way but also when everything goes against you, when injustice happens, when someone screws you over, when you lose something or someone you love, or when nobody seems to understand or appreciate you? Unless we make this definitive decision to stop suffering and live in a beautiful state, our survival minds will create suffering whenever our desires, expectations, or preferences are not met. What a waste of so much of our lives!
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“I’m done with suffering. I’m going to live every day to the fullest and find juice in every moment, including the ones I don’t like, BECAUSE LIFE IS JUST TOO SHORT TO SUFFER.”
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All you have to do to change your life forever is commit in your heart and soul to find something to appreciate in every moment.
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The first tool is what I call “the 90-second rule.” Whenever I start to suffer, I give myself 90 seconds to stop it so that I can return to living in a beautiful state.
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As soon as I feel the tension rising in my body, I catch myself. And the way that I catch myself is really simple: I gently breathe and slow things down. I step out of the situation and start to distance myself from all those stressful thoughts that my brain is generating.
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When you slow down, you realize that you don’t have to believe these thoughts or identify with them. You can step back and say to yourself, “Wow, look at that crazy thought go by! There goes that crazy mind again!”
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It doesn’t matter what you appreciate. What matters is that by shifting your focus to appreciation, you slow down your survival mechanism. Love, joy, and giving, will all trigger the same positive transformation.
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I’ve found that it really helps when I catch myself quickly, instead of letting those negative thoughts linger for longer than 90 seconds. Why? Because the best time to kill any monster is when it’s little.
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freedom from all those destructive emotions that used to rob me of my joy and peace of mind.
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To overcome fear, the best thing is to be overwhelmingly grateful. —SIR JOHN TEMPLETON
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you can’t be grateful and angry at the same time.
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I believe that life is always happening for us, not to us!
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appreciation, enjoyment, and love are nothing less than the antidotes to suffering. It’s all about shifting your focus away from the illusion of loss, less, or never, and engaging your gratitude, appreciation, and love for what you already have in your life!
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Take all of your negative thoughts and all of your negative emotions, trade them for appreciation, and your whole life changes in an instant.
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Some people are experts on posttraumatic stress. But I’ve spent a lifetime focusing on the miracle of posttraumatic growth.
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It’s your choice whether to live in a suffering state or a beautiful state. You have the capability to become a master of enjoyment, to fill your mind with appreciation, to be happy no matter what. Best of all, the joy in you will affect everyone around you.
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This is the ultimate game changer. Find something to serve, a cause you can be passionate about that’s greater than yourself, and this will make you wealthy. Nothing enriches us as much as helping others.
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People often say they’ll give when they’re rich. But the truth is, you can start giving even when you have very little. If a person won’t give a dime out of a dollar they will never give $100,000 out of $1 million!
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The main point of probate is to give your creditors time to seek payment of the money you owe them and your executor time to collect money owed to you. Probate involves payment of taxes and debts, and the distribution of what is left under court supervision.
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trusts should be a centerpiece of estate planning for people with more modest assets as well. They don’t need to be expensive or complex to set up!
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For most people, estate taxes are not and will never be a concern. Why? The IRS will allow you to give away up to $5.45 million over your lifetime or at your death without paying any taxes; this is referred to as your lifetime exemption. Think of it as a onetime coupon.VI Married couples get to combine their lifetime-exemption amounts, so estate taxes are due only if their combined net worth exceeds $10.9 million.
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If you are one of the wealthy that has more than $5.45 million to bestow upon your death, you will be paying an estate tax of 40%.
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The IRS allows you to give away $14,000 per year to whomever you choose without counting against this lifetime exemption limit; this is referred to as your annual exclusion. Any amount over $14,000 is taxed at the gift rate of 40%. This means that you could give away $14,000 per person to all of your friends and family every year and still give away $5.45 million when you die, paying no gift or estate taxes on any of it.
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Most people don’t realize that you can use part of your annual gift of $14,000 to fund a 529 college savings plan for your kids or grandchildren. You may even get a state income tax deduction for the gift as well. If the student is already attending college, tuition payments can be made directly to the school.
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• Instead of Waiting to Pass On Your Wealth After You Die, You Can Give $14,000 per Year Tax Free Directly to Each of Your Family Members.
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• Pay for Medical Expenses. You can pay for the medical expenses of friends or family members without counting against your annual gifting limit, so long as the payments are made directly to the care provider.
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• Charitable Giving. Any money you give to charitable organizations does not count toward the estate tax calculation either.
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the secret is to own nothing and control everything. This can be done through an irrevocable trust. It is considered to be a separate legal entity, so the assets inside it are not subject to estate tax when you die.
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Sheltering life insurance through the use of irrevocable trusts has become so common that this type of trust has acquired its own acronym: the ILIT, which stands for irrevocable life insurance trust.
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you take the $14,000 annual gift ($14,000 per kid, per grandkid, if you want to contribute more) and use it to fund life insurance within an irrevocable trust, which allows your children or grandchildren to receive the life insurance payout completely tax free!
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Many of the scenarios that can take you down financially can be covered with insurance.
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But you can do everything right—hire a fiduciary, reduce fees and taxes, construct an awesome portfolio—and in the blink of an eye, your efforts will be wiped out if you aren’t prepared for a catastrophic loss.
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If you have insurance on your cell phone but not on your life, we need to talk.
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Term insurance is the most appropriate type of life insurance for nearly all Americans; however, term insurance is not often recommended by insurance agents, because selling it results in the lowest commission.
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With a term insurance policy, you’re insuring your life for a specific period of time (usually 10, 15, 20, or 30 years). At the end of the term, the policy ends, and you no longer have the coverage.
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Permanent Insurance. As the name implies, you have this type of insurance for your entire life; thus, it’s much more expensive because the insurance company is expecting to pay a death benefit at some point in the future.
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if you leave a traditional IRA valued at $100,000 to your children and a piece of land valued at $100,000 to a charity, your children will have to pay taxes on the distributions from the IRA. If, instead, you leave the IRA to a charity and the land to your children, the charity can cash out the IRA with no tax consequences, and your children can sell the property at your death without paying taxes either.
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• Establish a Private Foundation. For ultra-high-net-worth individuals, creating your own private foundation can be a great way to create a multigenerational charitable legacy.
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“Has anyone else ever experienced X?” This is a great one to show people they are not alone in their struggle.
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“If you have an apple and I have an apple and we exchange these apples then you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas then each of us will have two ideas.” —GEORGE BERNARD SHAW
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“The Code of Conduct is as follows: be kind and considerate, play full out, take notes, keep an open mind, and don’t sugar-coat. Confidentiality is a must. Do not share anything outside the group without full consent of the person who shared.”
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“The Master Mind Principle: Two or more people actively engaged in the pursuit of a definite purpose with a positive mental attitude, constitute an unbeatable force.” —NAPOLEON HILL
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“What are the elements of your environment that need to shift in order to support your best habits most consistently?”
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“What is this costing you?”
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“What’s the one thing that if you focused on it, would go the farthest and cause the most good?”
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“Who would you need to be for this to be a piece of cake?”
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A great mastermind participant—and definitely a great mastermind facilitator—will end up with a network which is vast, relationships which are deep, and the experience to add 6-7 figures to your business in record time through warm connections.
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A problem well-stated and understood is half-solved.
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At the end of their share and time, I like to check in and ask a golden question: “Do you feel supported right now?”
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Beliefs that we hold on to irrationally that ultimately do not serve us do more harm than a fire ever could.
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CASTLE (Clarity, Accountability, Support, Trust, Leverage and Engagement) are the six parts of an effective mastermind,
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CLARITY is the number one most important thing in the mastermind. When everyone present is clear on the problem, then solutions are natural and easy.
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Extreme Ownership[2] is a great book
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Human Needs Psychology, the only way to have all your needs met is a high-level focus on growth and contribution.
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I call the 200% rule: Promise 90% less and deliver 110% of what you promise. You can never go wrong.
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I have seen the process work so many times that it’s a foregone conclusion that it will solve any problem with clarity, accountability, support, and trust.
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I’ll also tease them and say something like, “So your challenge if I’m hearing you correctly is that you have no challenges and are bored?
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I’ve easily got 10,000 hours of masterminding under my belt now and have honed my process to a razor's edge.
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If I had a dollar for every time I met a “coach” who had zero qualifications to do that job, I would be a much richer man indeed.
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If I had to throw out every other method of becoming successful, I would keep masterminds.
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if you’re ever feeling overwhelmed, remember, clarity is the key to everything.
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It never gets easier; you just get better.
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it’s helping people come to the right awareness level to make the shift that’s sometimes obvious to everyone, except them,
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Leadership is intrusive and uncomfortable, because all growth happens outside your comfort zone.
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Life will kick you, hard, and you always have a choice about how to respond. And each time, as you reach another level, you will have to face another devil.
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masterminds are the number one tool in my entrepreneurial toolkit. Everything I have accomplished has been a function of the teams I’ve built, mostly due to the mastermind networks of which I’ve been a part:
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Masterminds will help you solve any problem whatsoever,
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People who can accurately diagnose and solve problems are the very best mastermind leaders and the most valuable people in any business, period.
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presenting problem (or PP for short).
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reciprocity is one of the core laws of influence, and it works at every single level of play in this game called life. When you give wholeheartedly, it opens you up for receiving wholeheartedly.
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Remember, everyone is fighting a battle that you know nothing about,
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the ABCs of interpersonal dealings: Create Agreements, not expectations. Set clear Boundaries and give people a second chance if they make an honest mistake with positive intent. And finally, don’t forget to Communicate at every interval along the way.
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The best way to get something done is the mechanize it and make sure someone is paid to always be feeding that machine, with regular checks and balances in place along the way at specified (and sometimes surprise) intervals where there is a reporting and reviewing structure in place.
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THE INDIVIDUAL HAS NO POWER Only when we join forces can we effect change on a massive scale. Never has anyone achieved anything of note without the participation or at least the passive consent of others somewhere along the way.
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The intention for each mastermind meetup is co-creation. We want a space where conscious co-creators (entrepreneurs) can come together and collaborate, creating more for everyone instead of just competing with one another. We want members helping one another crush challenges and achieving their goals through the CASTLE of characters they show up as: Clarity Accountability Support Trust Leverage Engagement
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The key distinction is not to push, not to even pull, but to lead the group in a process that works, to facilitate their transformation by getting them in the room and having them stick to the program.
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The whole goal in business is to get off the time-for-money wheel as soon as humanly possible and get a machine in place to add value to the marketplace in exchange for money whether you’re there to turn the crank or feed the machine or not. That’s how you become an owner, not an operator. That’s how you start having the ability to work ON the business and not IN the business. You are no longer a bottleneck through which anything needs to pass or any cog in any part of it.
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there be dragons on this path were walking.
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We are going to help you help yourself so you aren't held back by your current limitations. We are going to help you to be the best version of yourself and learn a framework through which anything becomes truly possible.
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We create the world we perceive as the result of our trades whether we know or realize or care. Once we wake up to this fact, accepting the risk and responsibility, we can truly be free to design a life we love to live.
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what’s the difference between running a mastermind and just coaching a group?”
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You must be willing to give what you want to get.
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