We would all feel more secure knowing that we have a consistent income every single month. Cash flow that shows up on our bank account like clockwork. Imagine the relief of never having to worry about having enough money to make it through the month. However if you lack income, stress and struggle is inevitable. A lack of income is an unacceptable outcome for you. To put it simple, income is freedom. I will share methods from the most brilliant minds of investing, that has all reached financial freedom in their lives through their investments. And they’ve done so with minimal risk.
In order to become financially independent, there are certain rules and steps to follow. The first and most important tip comes from the one and only Warren Buffett. Don’t lose money. I think that’s it for this vid, let’s wrap up (crowd applause). If you lose 50% of all investments, it will take 100% to get back to even. This is why it’s important to be overly protective of the money. And to protect your money, you need to make sure you make decisions that allow you to stay on the winning side of the game. Make sure to watch till the end because I will show you exactly how much and what to invest in for maximum reward and minimal risk.
Tony Robbins interviewed 50 of the most successful investors of our time, in his book Money – Master the game. And these are the most common tips and patterns on how to invest your money.
- Invest in indexes such as the S&P 500
This was something that was constantly recommended throughout the book, and even Warren Buffett gave the advice to invest 90% of his future family’s money in indexes such as the S&P 500, and the other 10% in short term government bonds. S&P 500 contains all the 500 largest companies on the stock market in the U.S. Instead of picking stocks individually, you can now own a piece of all of them.
- Don’t invest in mutual funds
Imagine if someone walks up to you and offers the following: They want you to put all of the money and take all of the risk. If your investment makes money, they want 60% or more of the upside. However, if you lose money on the investment, you lose, and they still get paid! Are you willing to accept this offer? This is how a mutual fund is operated.
Investing in mutual funds is a big mistake, because the hidden fees of having a mutual fund manager will eat the profits. 50% of mutual fund managers doesn’t even invest in their own funds. There are 17 hidden fees when investing in a mutual fund, and those fees can sometimes go up to over 4%. This is comparative of trying to win a horse race with a 300 pound jockey.
- Rebalance your portfolio quarterly
To reduce risk in the portfolio, a rebalance should be made quarterly. Stick to the percentages you put in the portfolio originally for most efficient growth and security. This is why you should sell percentages of areas in the portfolio that is doing well and has gone up a lot recently; these areas is likely to go down soon and the money should be reinvested in other parts of the portfolio that are likely to go up, in order to keep the balance.
- “Don’t trust anyone who says they will beat the market!”
Beating the market is close to impossible, and 96% of actively managed mutual funds fails to beat the market over any sustained period of time. “The market” is referring to a stock index, such as the S&P 500. Again, the wisest thing to do is to invest in an index, don’t try to beat it.
Asset allocation is the one thing that every investment professional said is the key factor in where you end up financially. It’s the most important skill, and it’s the one most investors know little about. Asset allocation means dividing up your money among different classes, or types of investments (such as stocks, bonds, commodities, gold, or real estate) and in specific proportions.
When you diversify your investment portfolio, the point is to diversify your risk, which in the context of investment is just another word for variability. Different asset classes , have different levels of variability. Therefore, since stocks are riskier than bonds, if you want a balanced portfolio where the risk is equal on both sides, you have to have more bonds than stocks. It is the risk you are balancing, not the assets attached to the risk. If you follow this logic, you will understand that the traditional method of allocation is completely nonsensical. Having that said, let’s get into the numbers and what Tony Robbins calls the holy grail for investing.
The holy grail for investing
One of the most successful investors of our time, Ray Dalio, decided to reveal his secrets for the all weather portfolio. Ray Dalio has a net worth of $14 billion and produces annual returns of more than 21% for his clients and investors. The core principles of this portfolio is to never lose money in any of the four financial seasons: Inflation, deflation, rising economic growth, and declining economic growth. The average return with this portfolio is 9,8%, and during the recession when the market was down 40%, this portfolio was only down 3,9%. Here is the all weather portfolio.
40% Long term US bonds
30% Stocks (Index)
15% Intermediate bonds
This portfolio and its asset allocation is, after thorough testing and with Tony Robbins own words, “invincible, unsinkable and unconquerable”. Make this asset allocation your foundation in your portfolio, and you will on your way towards financial freedom with minimal risk.
Speed the process up
If you want to speed the process up, the first strategy of reaching financial freedom is to save more and invest the difference. Change your habits and make space for more savings that can go to investments. Your habits ultimately determines your future, and I’ve made a video on how to make your habits stick, that you can watch here.
The second strategy is to unleash your creativity and focus, and become obsessed with finding a way to do more for others than anyone else. Jim Rohn said “To have more you have to become more. Don’t wish it was easier, wish you were better.” And “For things to change, you have to change. For things to get better, you have to get better.” This is how you shift to the fast lane to freedom. The secret to economic success is to understand how to become more valuable to the market.
These tips and investment strategies were taken from Tony Robbins book Money – Master the game. You can get the book from Amazon here.