Unshakeable by Tony Robbins
Robbins explains how to grow your wealth with 3 building blocks: index funds, compound interest and diversification, and how to avoid the biggest enemies of beginner investors: fear and fees.
The Right Mindset
You don’t have to predict the future to win. Focus on what you can control.
We’re not rewarded when we do the right thing at the wrong time. If you plant in winter, you’ll get nothing but pain, no matter how hard you work. To survive and thrive, you have to do the right thing at the right time.
It’s not enough to know what to do. You also need to do what you know.
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.
The last thing you want is to make fear-based financial decisions. If you live in fear, you’ve lost the game before it even begins. Always keep these 7 freedom facts in mind when you are dealing with the stock market.
On average, corrections have occurred about once a year since 1900.
Less than 20% of all corrections turn into a bear market.
Nobody can predict consistently whether the market will rise or fall.
The stock market rises over time despite many short-term setbacks.
Historically, bear markets have happened every three to five years.
Bear markets become bull markets, and pessimism becomes optimism.
The greatest danger is being out of the market.
History doesn't repeat itself but it rhymes.
Market turmoil isn’t something to fear. It’s the greatest opportunity for you to leapfrog to financial freedom. You can’t win by sitting on the bench. You have to be in the game. In other words, fear isn’t rewarded, courage is.
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 it compounds over many years. That’s how you become wealthy while you sleep. That’s how you make money your slave instead of being a slave to money. That’s how you achieve true financial freedom.
Save and invest—become an owner, not just a consumer. Pay yourself first by taking a percentage of your income and having it deducted automatically from your paycheck or bank account.
You never want to be in a position where you’re forced to sell your stock market investment at the worst moment. So it makes sense to maintain a financial cushion. This puts us in a strong position where we can view the bear as a friend rather than a fearsome enemy.
The earlier you start, the better. By starting earlier, the compound interest you earn on your investment adds more value to your account than you could ever add on your own. Never underestimate the awesome power of disciplined saving combined with long-term compounding.
Asset allocation refers to the process of establishing the right mix of different type of investments, diversifying among them in such a way that you reduce your risks and maximize your rewards. It's the most important investment decision you’ll ever make.
Use index funds for the core of your portfolio 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.
The stock market is forward-looking: what matters most isn’t where the economy is right now but where it’s headed. And when everything seems terrible, the pendulum eventually swings in the other direction. Every bear market in US history has been followed by a bull market, no exception.
"The stock market is a device for transferring money from the impatient to the patient." — Warren Buffett
None of us knows when a bear market will come, how bad it will be, or how long it will last. 90% of surviving a bear market comes down to preparation. And the other 10% is all about how you react emotionally in the midst of the storm.
Never bet your future on one country or asset class. There are 4 ways to diversify effectively:
Diversify across different asset classes
Diversify within asset classes
Diversify across market, countries, and currencies around the world
Diversify across time.
The best investors don’t fall for the high-risk, high-return myth. Instead, they hunt for investment opportunities that offer asymmetric risk/reward: rewards should vastly outweigh the risks.
Fees are often ignored but they represent a huge cost and you should try to minimize them. Because index funds take a passive approach, their fees are very low.
The majority of experts in the financial have good intentions but they work in bad system with incentives to focus on maximizing profit above all else. No matter how much you may like your broker, your broker is not your friend because his profit is your cost. The more fees you pay, the more profit the system makes. Remember, people can be sincere—and sincerely wrong.
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.
The best investors know that it’s not what they earn (gross) that counts. It’s what they keep (net) after fees and taxes.
Psychology of Wealth
Start with an achievable goal and keep raising the bar as you progress. For example, you might start with a goal of saving three or six months of income, and then work your way—over many years—toward the ultimate goal of setting aside seven years of income.
The single biggest threat to your financial well-being is your own brain. The human brain is perfectly designed to make dumb decisions when it comes to investing. You can do everything right but if you fail to master your own psychology, you may ultimately become the victim of a costly form of financial self-sabotage.
The problem is that our brains are wired to avoid pain and seek pleasure. Instinctively, we yearn for whatever feels like to be immediately rewarding. Needless to say, this isn’t always the best recipe for smart decision making.
Beliefs are nothing but feelings of absolute certainty governing our behavior. Handled effectively, beliefs can be the most powerful force for creating good, but our beliefs can also limit our choices and hamstring our actions severely.
The best investors know they’re vulnerable to confirmation bias and, accordingly, do everything they can to counter this tendency. The key is to actively seek out qualified opinions that differ from your own.
One of the most common and dangerous investing mistakes is the belief that the current trend will continue. And when investors’ expectations aren’t met, they often overreact, leading to a dramatic reversal of the trend that previously seemed inevitable and unstoppable.
"The biggest mistake small investors make 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." — Harry Markowitz
Humans have a perilous tendency to believe that they’re better or smarter than they really are and it’s called “overconfidence.” To put it simply, we consistently overestimate our abilities, our knowledge, and our future prospects.
By admitting to yourself that you have no special advantage, you give yourself an enormous advantage! How come? Because you’ll do so much better than all those overconfident investors who delude themselves into believing they can outperform.
Greed and impatience are dangerous traits when it comes to investing. We all have the tendency to want the biggest and best results as fast as possible, rather than focusing on small, incremental changes that compound over time.
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.
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. In other words, it’s the feelings we’re after, not the money itself. Real wealth is emotional, psychological, and spiritual.
The first principle of fulfillment is that you must keep growing. If you don’t, you’ll become frustrated and miserable, no matter how many millions you have in the bank. The second principle is that you have to give. We’re driven by our desire to contribute. If we stop feeling that deep sense of contribution, we can never feel truly fulfilled.
Money doesn’t change people, it just magnifies who they already are: if you have a lot of money and you’re mean, then you have more to be mean with; if you have a lot of money and you’re generous, you’ll naturally give more.