Tony
Robbins, the performance coach best known for his high-energy seminars, has
dedicated himself to spreading personal finance literacy over the last few
years.
He's
conducted interviews with 50 of the top investors in the United States,
including Bridgewater Associates founder Ray Dalio, Vanguard founder Jack
Bogle, and JP Morgan Asset Management CEO Mary Callahan Erdoes.
Robbins'
project has always been intended for a wide, general audience, but he found
that millennials who entered the workforce during or around the recession,
often with a heap of student loans, especially needed some guidance.
Robbins
recently came by Business Insider's New York office for a Facebook Live Q&A
where he discussed his latest book based on these interviews,
"Unshakeable," a much slimmer version of his 2014 book "Money:
Master the Game," with additional insights from Peter Mallouk, who was
rated the No. 1 wealth adviser in the US by Barron's three times, and who
brought Robbins into his firm Creative Planning in 2016.
Many viewers
were interested in how someone with little or no assets could get a strong
start to their finances, even if they happened to be saddled with debt. Robbins
noted that before you begin to invest, you need to establish an emergency
savings account with enough cash to cover a minimum of three months of
expenses. This will give you a safety net for the life-shaking events that
often come out of nowhere — like getting laid off, or suffering an injury with
a large hospital bill.
Here's what
Robbins said:
1. Make use
of compounding interest as early as possible
After he was
asked how a millennial with little money could start investing, Robbins
mentioned his interview with renowned economist Burton Malkiel. "I said,
'You've been around a long time, what's the biggest mistake that people are
making today?'" Robbins said. "And he said, 'Tony, it's that they do
not tap into the power of compounding interest.' We all know about it
intellectually, but it is a force that will make you wealthy."
Compounding
interest is the interest that accrues on top of the principal and interest from
previous periods.
In
"Unshakeable," Robbins uses a hypothetical example to illustrate the
mathematics. There are two friends that are the same age, Joe and Bob. Joe
begins investing $300 in the stock market every month from age 19 to 27, saving
a total of $28,000. Bob does the same, but from age 27 to 65, for a total of
$140,000. The stock market in this example grows 10% annually, a number chosen
for its simplicity. By age 65, Joe has $1,863,287 and Bob has $1,589,733.
Again,
that's an example using simple math just to show that even though Joe invested
for less time than Bob, he made more money because he started earlier. Warren
Buffett, for example, says you should expect a 6-7% average return from the
stock market in the long term (10 or more years).
The market
can be erratic in the short term, but over the last 200 years it has grown on a
macro scale. Buffett, in his latest letter to Berkshire Hathaway shareholders,
announced that he was on his way to winning this year the $1 million bet he
made in 2007: that his investment in an S&P 500 index fund would outperform
five hedge funds over a decade.
2. Diversify
"You
have to diversify. You can't put all of it in one place," Robbins said.
In
"Unshakeable," Mallouk writes that he recommends to his clients a mix
of stocks, bonds, and alternative investments like real estate investment
trusts. For the average investor, it's best to work with a fiduciary to
determine the best portfolio for your needs.
A good place
to start on your own, however, is investing in an index fund, which allocates
money across companies in an index, essentially giving you representative
ownership of that market — which, again, will grow over time regardless of
short-term performance.
3. Automate
your investments
Finally,
Robbins said, it's necessary to make investing for your future a habit that you
don't have to think about.
Make use of
the 401k your company offers, if it does, and determine a percentage of your
paychecks (5%, 10%, 15% — whatever works for you at that point in your life)
that will automatically go to your investments every month.
Robbins said
that he understands the initial steps require an adjustment in your mental and
physical relationship to money, but that it is very much worth the effort.
"It's
hard to do, but if you start to automate it, and you do it regularly, oh, my
God, you will have financial freedom that most people never have," he
said. "More importantly ...[you'll have] peace of mind, you'll have inner
strength. You'll know that you've mastered this area of your life. And it's not
complex."
No comments:
Post a Comment