Tony Robbins is a force of nature! This is actually one of the quotes on the book cover but it is true. Tony, realizing that a number of people were disheartened from the 2008 financial crash went out to interview the top financial advisors, billionaire investors, hedge fund owners, etc. to understand how the average joe could invest their money to achieve financial freedom. He compiled all of this research and advice into a huge book called Money: Master the Game.

I can’t say that I have had the chance to read Money: Master the Game but his next book (this book) is called Unshakeable which, I’d like to think, is a boiled down version of Money: Master the Game. In it, he shares some great advice that anybody (though it is more US-focused) can use to achieve financial freedom. Here is what I learned and some of the things that I am doing already to work towards financial freedom:

The single best place for investments? Index funds

A friend and co-worker recently told me that he has a few thousand dollars sitting around in his savings account getting maybe 1% interest and he asked me where I have some of my funds invested. I told him that the single best investment is index funds and I told him about a few of the services that I use: WealthSimple, WealthBar and Questrade (though out of the three, WealthSimple has provided me with the best returns in the limited time that I have used it and disclaimer, I have used it the longest out of the three).

While this isn’t a recommendation, if you are interested in signing up for WealthSimple, please use my referral link where we will both get $10,000 managed for free.

The reason for index funds is simple: it invests in the top companies in the S&P 500, has low fees, is diversified (because it invests in the top companies which can be in different industries and sectors), and is low maintenance. You will see why index funds are so great in a few of the other takeaways I learned from Tony.

What about active fund managers?

I don’t want to speak ill of active fund managers, financial investors or mutual fund managers. They, like all of us, need to make money somehow. The problem is that they charge fees for investing your money – you put up 100% of the money, get 100% of the risk, but only make a percentage of the profits because of their fees (is that weird?). I do not want to copy paste from the book but even a small percentage of fees can erode your net profits on investments (and that’s even before all the tax implications come into place). In short, if you invest in index funds, fees are usually 0.5% (lower because there is nobody actively managing the fund) and you also pay less transaction fees (the fees that are charged whenever you buy or sell stocks, which happens a lot when you have an active fund).

Another point about financial investors – a lot of them recommend products where they get kickbacks or incentives for recommending the product to their customers. These products are sometimes but not always in your best interest. And while some of them can be fiduciaries (that is, by law, required to keep your best interest in mind), most of them are not OR even worse, are fiduciaries and brokers at the same time so may play one role in keeping your best interest in mind and play another role, whenever they want, to sell you products where they get incentives for recommending those products.

Warren Buffett famously bet a large investment company $1,000,000 on who, out of its active fund managers, could beat an index fund over a period of 10 years. The index fund has generated about 60% in returns whereas the best active fund managers have only achieved 20% in returns over 8 years so the competition is not over yet but you can probably see where this is going.

How likely is it that you are going to get a phenomenal active fund manager that has your best interests at heart? Yes exactly.

Four core principles for investing

Okay, maybe you only have a passing interest in investing or you really do not want to spend your time actively keeping track of stocks and managing your investments. What do you really need to know?

1. Whatever you do, do not lose money

Losing money is the worse thing that could happen – you not only lose time but you have to generate significantly higher returns in order to get back the money that you lost (and then some). Imagine that you started out with $100k and you lost 50% due to some bad investments. In order to get back to your initial investment, you would have to generate 100% returns (not 50% because that would only get you to $75k).

How do you not lose money? Diversify. Diversification helps you reduce risk while also generating better returns (because dips in one market or industry or fund may mean increases in the other). Ray Dalio, one of the most famous billionaire investors, found that if you had 15 un-related investments (that is, completely independent of one another), you could reduce your risk by 80% while generating better returns. It’s good advice not to keep all of your eggs in one basket.

2. Look for asymmetric risk / reward

The top investors do not just invest in high risk / high reward investments, they look for investments where there is a low risk but high reward. If you invest in something that has a 5 to 1 return, you can be wrong 80% of the time and still come out ahead (but who is really wrong 80% of the time anyway).

Another note on this – any time there are bear markets (where markets are down such as the 2008 financial crises), you can purchase investments that you know will definitely bounce back later on. The one sure thing about stock markets is that no matter how low the overall stock market gets, the stock market will bounce back.

3. Tax efficiency

These principles are actually in order of priority – look to not lose money first, then look for asymmetric risk / reward investments, and then finally, if the investment meets the first two criteria, look for whether the investment can be made more tax efficient.

It is awesome if you get 100% returns on your investment, but if 50% of that goes to taxes, you have actually only made 50% returns.

4. Diversification

Related to core principle number 1 – there are actually four different ways to diversify: you can diversify across different asset classes (e.g., bonds, stocks, real estate), you can diversify within asset classes (e.g., do not just invest in Apple but also Apple, Facebook, Google, etc.), you can diversify across geographic locations (e.g., US, China, Europe) and finally, you can diversify across time (i.e., invest the same amount over a long period of time – you will never know when the best time to invest is so purchase when the market is up and purchase when the market is down, i.e., all the time).

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