Money Master the Game, by Tony Robbins
To begin investing money, you first need to have money. To get money, you need to develop a skill that adds value to the marketplace and then practice saving. Once you have money, the first and most important thing to do with it is to be unselfish – give it away. Money is something that you should acquire as a result of hard work and your ability to add value to the lives of the people around you. Your life should not be about earning money; instead your life should be focused on helping other people – by adding value with your skillset and giving away your money. Tony gives a fun example of somebody who did not understand this concept. While attending a play with his family, Tony noticed three empty seats next to him. Since they were sitting in very expensive seats, Tony found it unusual that somebody would pay for those seats and then not attend the play. Eventually, a very fat man sat down in the middle empty seat, and owing to his excessive girth, this man also occupied the seat on either side of him. Thus, the three previously empty seats were for one single person. During the performance, the fat man wheezed and coughed continually. Clearly, he was not in a comfortable state of being. This man, who happened to be one of the wealthiest people in Canada, had sacrificed his personal health for personal wealth. This is not a good trade – this man did not have a good quality of life. Money, and the accumulation of money, is not the most important thing in this world.
What are some of the important concepts that I gained from this book? First, the biggest recommendation is asset allocation. Spread your investments across a variety of asset classes and diversify as much as possible. Diversify, diversify, diversify! In addition to spreading your investments across many asset classes, use dollar-cost averaging, which is the act of investing your money across time. This means consistently and periodically investing money, instead of investing a single large chunk of money at once. Do not hesitate to have the “best strategy” before you begin investing in the marketplace, and remember to re-balance your portfolio every 6 to 12 months. Oh, and have a “Dream Bucket” to keep yourself motivated! Maybe that’s a nice house or an exotic trip, but make sure that you set aside some of your money for personal pleasure.
Some of the big themes included:
Invest in low-cost index funds
Diversify your assets
Asymmetric risk/reward. Risk a little to gain a lot
Make sure you DON’T LOSE
Avoid actively managed mutual funds
Utilize tax advantaged accounts (401(k), IRA, Roth)
Give your money away
The future is exciting!
Lots of the concepts in this book were new to me, and since Tony provided many specific examples, I decided to crunch some of the numbers myself and see if I could duplicate his calculations. The benefit here was to confirm that I understand the concepts and to gain confidence in the author’s work (there is always a chance that he is wrong).
First, I calculated what your total savings would be over the course of many decades if you simply saved 15% of your income and earned 5.0% per year. This was a very simple calculation, and there were no surprises in my result. Save a part of your salary, invest wisely, and over your lifetime you will acquire a sizable nest egg.
Next, I plotted the same investment over time, assuming different fees. The point of this plot is to demonstrate that the “small” fees charged by active fund managers actually steals 50-60% of your wealth over time. Thus, minimize your fees with low-cost investments (such as Vanguard Index Fund).
My third plot demonstrates the value of time dollar-cost averaging, i.e., investing over time. In reality, we live in a volatile market that is going to see many ups and downs. Even if the volatile market drops 4 years out of every 5, we will still make money through dollar-cost averaging. In this example using our strategy of investing continually and incrementally over time, our investment performs 12.5% better in the volatile market than it does in the steadily increasing market.
In my last set of calculations, I made an amortization table to understand how mortgage companies make money and how much money you can save by making additional monthly payments towards your principal. In this example, if you pay an additional $270 every month towards the principal, then you will pay off your $270,000 house 9 years ahead of schedule (assuming a 30-year mortgage).
Finally, once you have acquired wealth, the next step is to ensure that you get the most out of it. There is no point in accumulating money if you cannot use it. Therefore, Tony spends a few pages talking about annuities and how to use annuities to guarantee that you get your money in the most efficient way possible. Personally, I do not need to worry about this topic for many more years. It is more applicable for people nearing retirement age.
At the end of the book, Tony included portions of select manuscripts from his interviews. He spoke with hundreds, if not thousands of people, over the course of 4 years, to create this book. A quick summary of the individuals selected at the end of his book is included here.
In general, options for investing include:
US Stocks
US Bonds
US TIPS (treasury inflation protected securities)
Foreign Stocks (aka equities)
REITS (real estate investment trusts)
Commodities
Carl Icahn: Owner of Icahn Enterprises. He buys underperforming companies and then replaces their CEO and upper management with more competent management personnel.
David Swensen: Chief investment officer for Yale University. He focuses most of his portfolio, and also Yale’s portfolio, on equities, with less of a focus on bonds and commodities. His portfolio:
US Stocks: 30%
Emerging Markets: 10%
Foreign Stocks: 15%
REITS: 15%
US Bonds: 15%
US TIPS: 15%
Jack Bogle: Founder and former CEO of Vanguard. He is also responsible for creating index funds. His portfolio:
Bonds: as much as your age
Equities: can be as much as 100% for a young person
Vanguard’s Stock Index Funds: 60%
Vanguard’s Bond Market Index Fund: 20%
Vanguard’s Municipal Bonds Fund: 20%
Warren Buffet: CEO of Berkshire Hathaway. His portfolio recommendation:
Low-cost index funds: 90%
US Government Bonds: 10%
Paul Tudor Jones: Skillful trader and hedge fund manager. His recommendations are to never be a contrarian investor (always follow the trend) and pursue asymmetric risks/rewards (risking one dollar to earn five dollars).
Ray Dalio: Founder of Bridgewater Associates and the most successful investor in the world. His portfolio served as the backbone for Tony’s book:
Stocks: 30% (index funds)
Intermediate US Bonds: 15% (7-10 years)
Long-Term US Bonds: 40% (20-25 years)
Gold: 7.5%
Commodities: 7.5%
Mary Callahan Erdoes: CEO of J.P. Morgan’s Asset Management Division. Her recommendation is to make sure that you balance your professional work life with taking care of your family, friends, body, and mind.
T. Boone Pickens: CEO of BP Capital Management. He focuses entirely on the direction of the energy industry and its markets, specifically oil. His recommendations are to live life on your own terms, always be honest, develop a strong work ethic, and make tough decisions (aim & fire instead of just aim, aim, aim).
Kyle Bass: Hedge fund manager and founder of Hayman Capital Management. Most well-known for his successful bet against the US mortgage crisis in 2008.
Marc Faber: Publisher of the “Gloom, Boom & Doom” report and known for his eccentricity and consumption of nightlife. His portfolio recommendation:
Stocks: 25%
Gold: 25%
Bonds: 25%
Real estate: 25%
Charles Schwab: Founder of Charles Schwab Corporation. He focuses on his clients first. Recommendation for clients is passive investing through low-cost index funds, be curious, and give up your car and vacation so that you have money to invest with.
Sir John Templeton: Founder of Templeton Mutual Funds and has a strong faith in God. Decided to buy $100 worth of every stock valued at $1 or less (104 total companies, only 4 lost money). You only sell an asset when you think that you’ve fond another that is a 50% better bargain.
William Bernstein: Financial theorist who believes that all equities should be allocated between asset classes, rather than individual stock selections. Good book list on his website. His portfolio:
US Stock Market: 33% (index funds)
International Stock Market: 33% (index funds)
US Bonds: 33% (index funds)