Wouldn’t it be lov-er-ly to be rich (but not necessarily famous?) YES. But how do you travel to the financial mountain top and stake your claim, when the mountain is craggy, steep and you have no gear and no helicopter or the like? Tony Robbins, in his new 616 page book, MONEY Master the Game: 7 Simple Steps to Financial Freedom, wants to help you answer that query.
But first, some editorial housekeeping…
I learned that good writing utilizes exclamation points very sparingly, so am surprised that both Tony Robbins and Richard Branson excessively use exclamation points in their recent books. Tony defends his writing style saying it’s not a mistake, but a “technique designed to mark out key ideas and to build knowledge into your mind, body, and spirit so that action becomes automatic.” (p.43) Instead of absorbing the points, however, I focused on the irritating writing style.
WHY DO YOU INVEST?
Most people do not understand why they invest in the first place, according to Tony. They have vague ideas, for example: invest for retirement or invest to build assets. However, those reasons lack focus and oomph. No wonder we don't make investing a priority.
1) Become an Investor, not a Consumer: Automate your saving by taking a percentage of your paycheck (ideally 10% or more, but you can start with as little as 3 and ½ percent), and systematically invest it in a low-cost index fund, like Vanguard’s S&P 500 (also known as dollar cost averaging ;)
2) Become an Insider on Investing; Apprise yourself of the rules of the money game; i.e. understand how mutual funds operate, because, 401(k)’s sink your contributions into them, and most of the world invests in mutual funds;
For the book, Tony cajoled Ray into giving investment advice for the masses. The simplified version of Ray’s stratagem, for readers of Money Master the Game, consists of an investment portfolio with: 7.5% Commodities, 7.5% Gold, 30% Stocks, 40% Long Term US Bonds, 15% Intermittent US Bonds. Accumulating and proactively rebalancing such a portfolio may require a fiduciary financial advisor to optimize results. Because, as Tony admits, who has time to learn all this stuff when we have a life, job, kids? We need help!
5) Create a Lifetime Income Plan: Once your investments reach a threshold amount, which can accommodate the lifestyle you want to maintain, plan to extract an income from that nest egg you built. Tony suggests a fixed annuity with a lifetime income rider (which guarantees a minimum withdrawal benefit.) Lifetimeincome.com offers an annual income annuity calculator. (pg 437)
Since Tony targets mutual funds throughout most of the book, I have detailed the 9 myths related to investing that he presents in Section 2:
1) Actively managed funds beat the market.
Well, 4% of them do, and it’s not the same funds either, so good luck finding “the one;”
2) Managed funds’ fees are a small price to pay.
Turns out, that the average fees (around 3.17% to own a managed mutual fund, versus 0.14% to own an Index Fund like S&P 500) add up to quite a tidy sum for the mutual fund company—not you. Example: One million dollars, invested at 8% annualized return over 30 years, grows to $7,612,256, with a 1% annual fee. That same one million dollars only grows to $4,321,943, with a larger 3% annual fee. You lose almost HALF your investment monies with only a tiny, 2% fee increase.)
3) Transparent returns in mutual funds.
NOT! The reported returns by mutual funds are not actually earned by investors, according to Jack Bogle, founder of Vanguard. (p. 116) The mutual fund advertises a specific return; however, they advertise time-weighted returns based upon putting all your money in at once, which is not what people really do; because contributions come out of every paycheck throughout the year. Real returns are called “dollar-weighted returns."
4) I’m Your Broker, and I’m here to Help.
Well sort of—Brokers who work on commission help themselves to your money. Brokers are accountable to the Fund, not you. UNLESS your financial advisor is a fee-only based fiduciary, financial advisors sell products for commission, and they sell it to you.
5) Your Retirement is just a 401(k) Away.
But for the excessive fees that eat away your portfolio and add years to reaching your retirement goals.
6) “Just set it and Forget it.”
You must take full responsibility for your financial health.
7) Annuities suck.
Many do, however, the annuity industry is becoming more transparent and accessible to those with fewer funds to invest. The book identifies a few annuity options.
8) “You Gotta Take Huge Risks to Get Big Rewards!”
Always protect your downside in order to mitigate risk/reward ratio. The book gives detailed examples of how some experts evaluate an investment and protect the downside.
9) “The Lies We Tell Ourselves.”
Get your head out of the sand and take action regarding your financial health.
1) A fee calculator at Personalfund.com analyzes investors’ current plan administration fees (p.111)
It’s in the offing: Star Trek comes to life for us all. We'd better be financially prepared and fully stifle the greatest fear amongst retirees: it's not death; it's outliving one's money.