In this article, I share 10 important investment lessons I learned from Tony Robbins.
In brief, the top investment lessons are:
Bear markets are your best friends;
Watch fees, charges and tax like a hawk;
Think about potential loss before you think about potential gain;
Master the ‘asymmetry of risk/reward’ rule and use it all the time; and
Stay for the long run even when it is bumpy.
Investing is easy, you may think. Why do I need investment lessons?
Not so fast, friend. Investing is easy; masterful investing so that you win never mind what (except major catastrophes, of course, like war and the end of the world) not so. For masterful investing, you need investment lessons.
In this blog post, I’ll share with you ten important lessons for masterful investing I learned from a Master: Tony Robbins.
Tony Robbins is not everyone’s cup of tea; he happens to be my very special tequila shot. I enjoy his dedication to mastery and his unbounded enthusiasm; this guy lives his life with greedy joy that I find contagious. Must say that I’m not that convinced by his more general self-help books but like the ones about money.
I’m talking about Money Master the Game: 7 Simple Steps to Financial Independence and Unshakeable: Your Guide to Financial Freedom. My take away after reading Money Master the Game, was mainly about the different degrees of financial independence.
My take away from Unshakable is more about investment lessons. Frankly, I’m not sure whether this is about the nature of the books or my sensitivities now. I do worry about the level of volatility in the economy, financial markets and our lives and have been researching ways to make our finances if not ‘unshakeable’ than able to withstand high magnitude of shake up.
I believe that the investing lessons from Tony Robins I share here, can be helpful to two groups of people:
- People who can see the need to invest but are worried about the risks this entails; and
- People who already invest and are puzzling over the changes in their portfolios that will give the peace of mind.
Here are the ten investing lessons from Tony Robins (in no particular order of importance).
#1. Market corrections come regularly and often
The other day I was talking to my niece and nephew-in-law who have quite a bit of money in a savings account; telling them about the different investing options open to them.
“But the market can go down and you can lose this money.” – my nephew-in-law said.
They keep their money in a savings account and lose between 2-4% annually guaranteed (exactly how much they lose depends on the level of inflation.)
Are you worried about losing your money if you invest in the market?
It is a natural worry – I was worried until I learned that:
Market corrections of up to 15% occur at least once per year; and always have done so. Bear market (this is a correction of 40% and over) comes around every three to four years (we are long overdue one).
(And for the record, ‘correction’ is an acceptable way to refer to loss.)
Good news is that the market always recovers. Don’t believe me?
Have a look at this:
Market corrections should be expected. Don’t sell; sit them out. Your investment will recover and make gains. (Most likely.)
#2. Buy during drop in market value
Our natural inclination is to see drops in the market as a threat to our long term financial security and to fear the loss of our hard-earned cash.
Please get this out of your mind and let’s think rationally.
We know that market corrections should be expected.
We know that the market has always recovered and gained (historically speaking).
Market corrections are like the bargains you hunt at the Christmas sales!
Buy more stock during market corrections because this is your best chance to end up with some great bargains (you still must be clever about selecting).
#3. Bear markets are the greatest investment opportunity ever
See the previous lesson. It is just that buying bargains during a bear market is like picking a priceless diamond at a car-boot sale for a tenner.
Really can’t beat this one.
Don’t dread bear markets. See them for the incredible investment opportunity they are.
#4. Keep money for opportunities
This lesson follows immediately and directly from the previous one. Things are simple:
You are not going to be able to take advantage of the stocks and shares deals that come up during market corrections and bear markets if you are fully invested in stocks and shares.
Make sure that you always keep:
- Easy access cash in a standard savings account;
- Money invested in very conservative investment instruments like bonds;
- Any other easy access cash you can think off (gold coins, easy to sell objects etc.)
(Note: Having a cash reserve is not a bad idea more generally. After our adventures with paying off debt, I never go below a certain amount of cash.)
Always keep easily accessible cash for opportunities. What form you keep your cash in is not important if you could cash it within 24 hours.
#5. Watch these fees
Investing comes with fees. Sometimes these fees are hefty and sometimes they look light but there are a lot of hidden charges.
Fees and charges erode your investment to a degree that may the difference between a healthy return and prosperous future, and virtually no return (or even loss) and misery in all senses.
Watch the fees and charges you incur when putting your money in managed investment funds, pension funds and investment platforms. Make sure you read the small script and that you do your arithmetic.
Make it part of your ‘due diligence’ routine to check all fees and charges and to make your calculations.
#6. Optimise your tax
I’m the first to say that my dream is to pay a lot of tax. Sounds silly, I know; but only at first. Think about it: paying a lot of tax means that you make a lot of money and that you are contributing your fair share to the services in your country/region/city.
This investment lesson in not about avoiding tax; it is about optimising your tax. Translated, this means that you shouldn’t pay more tax than necessary.
Tax rules on investment gains are different in different countries. One constant is that there are investment instruments that are exempt from tax. In the UK, ISAs are such an instrument (here is how to select the best ISA for your needs).
Check the tax regulation regarding investment in your country and make sure that you optimise the tax you pay. If you need help to do that, ask a professional financial planner.
#7. Be aware of the potential loss
Most people in personal finance will tell you to look for high potential gain.
What I learned from Tony Robbins is that highly successful investors, without exception, look at the potential loss before they look at the gain.
It makes sense in a weird kind of way: you make money by minimising your losses.
For instance, when I do some of my more wild investments – like buying a rally car – I always consider the worst outcome (the potential for loss). If it looks like the worst outcome is recovered capital or a small profit, it is a no brainer. If it is a large loss, I won’t go for it – large potential loss and large potential gain is what you get in gambling, not investing.
Before you commit to an investment, look at the potential loss first.
#8. Know the potential gain
This is rather obvious.
Indeed, I doubt that anyone would argue with the need to know (and assess) the potential gain.
What I learned from Tony Robbins is the notion of ‘asymmetric risk/reward’. This is a fancy way to say that the estimated rewards of an investment should vastly outweigh the estimated risks (losses).
Some investors use a ‘five-to-one’ ration: they risk one dollar in the expectation they’ll make five dollars. This also means that you can be wrong in your estimates 80% of the time and will still turn profit.
Make a realistic estimate of your potential gain because this will help you decide whether to invest. Perfect the ‘asymmetric risk/reward’ rule and apply it every time.
#9. Keep diversified
Did your mother ever mention the saying ‘never put all your eggs in the same basket’?
Keeping ‘your eggs’ in different baskets is particularly important in investing.
You should be diversified across:
Investment vehicles (e.g. stocks and shares, bonds, property, precious metals, ETFs, businesses etc.)
Locations (developed markets, emerging markets etc.);
Okay, you get it I suppose. Don’t over complicate it but keep diversified.
Diversification is what ultimately makes your investments more stable.
#10. Stay in the market
What is the first thought that enters your head when you check your investments and their value has gone down?
Yes, I also think that I should sell out and keep my money under the mattress. Or, sell out and go on a trip around the world flying first class and sleeping in five star hotels (if my investments stretch that far).
Don’t. I know it is hard but history tells us that the market has recovered and prospered every time.
You’ll only lose if you get out of the market on a low; so, stay in the market.
Don’t mistake fear for intuition. Use your rationality and when corrections occur stay in the market.
Do you know why I decided to tell you what are the 10 important investment lessons I learned from Tony Robbins?
Because if someone told me these investment lessons when I was thinking about starting to invest (or even after I finally took the plunge) I would have felt more confident and avoided some rookie mistakes.
Do you know which ones of these investment lessons surprised me?
These should be the counter-intuitive ones about buying when markets go down and thinking much more carefully about potential loss.
Which of these investment lessons do you find surprising?
photo credit: bass_nroll upHill via photopin (license)
How to invest money is something that has fascinated me for some time now.
I never thought I’ll be doing any of it.
Oh, there are so many reasons for that.
First, I come (originally) from a part of the world where investing money was a dirty word; a bit like swearing or telling anti-communist jokes. Thinking too much about how to invest money got you either at the wrong end of your friends’ jokes or in much more serious trouble.
Who wants to be branded a ‘lumpen’, after all (and if you don’t know what this means, you can Google it.)
Next, I spent too long worrying about money and survival; I should have recognised sooner that I’m not broke but just plain irresponsible. This is water under the bridge and now how to invest money is what keeps me awake at night.
And last, but not less important, for a long time I gazed at the long tables in the Financial Times not being able to make heads or tails out of them.
I tried to do what I’ve always done: read about investing (in stocks and shares) and educate myself.
You know what? I soon realised that most of what is written about how to invest money is written by men for men. It is full of jargon, formulae and graphs that will confuse Albert Einstein.
So, I started thinking about ways to put some order in all this investing money lark and, if and where possible, simplify it.
Here is what I came up with.
#1. Thirteen basic rules of how to invest money
- Rule 1: Don’t be blinded by the maths and graphs: investing is as much an art and a gamble as it is science.
- Rule 2: Leave your certainty at the threshold when investing: you may win or you may lose but it will be interesting.
- Rule 3: Don’t borrow to invest.
- Rule 4: Don’t invest money you’d need soon; or money you’d miss terribly if thing go wrong.
- Rule 5: Keep it simple use Nutmeg investment platform, or similar, if you can’t be bothered to learn.
- Rule 6: Start a self-directed portfolio only if you are ready to learn, dedicated to persist and disciplined enough to manage it.
- Rule 7: Buy shares only in sound companies.
- Rule 8: In the stock market you still make money when you buy, not when you sell (buy when shares are under-valued).
- Rule 9: Use your common sense when buying shares; look beyond accounting.
- Rule 10: Use information sources you trust.
- Rule 11: Every challenge can be turned into an opportunity.
- Rule 12: Stocks and shares are not the only possible investments.
- Rule 13: No, your house is not an investment.
#2. This is where you can invest your money
Remember Rule 12 of investing?
When we think of investing, we usually think about stocks and shares. However, this is by far not your only investing option.
Here are some other possibilities (albeit, some of them are not as sexy as discussing shares and drawing graphs of prices).
Let me also remind you that every time you spend money on something that could potentially make you more money, you’ve made an investment (I did warn you, my reader, that I’ve made it my mission to keep this simple).
Starting from this definition, here are some ‘traditional’ investing possibilities that are open to you:
- Bonds. Simply put, bonds are the way of governments (and others) to borrow money from us.
- Stocks and shares. This is the way to buy a (small) part of a company.
- Options, futures etc. Sorry, not even going to go there – these are fairly speculative and you need to really know what you are doing to get anywhere. Even then…
- Art, wine, jewellery. In principle, investing in the ‘finer things in life’ is fun. In practice, it needs a lot of specialised knowledge because every time you buy a piece of art you are betting that its value will increase. Only people who understand art have the eye.
- Mutual funds. These are investment strategies that allow you to pull your funds together with other investors and purchase a basket of stocks, shares, bonds and other investment instruments.
- Exchange Traded Funds (ETFs). A basket investment instrument.
I have to tell you, friend, that of all these I only recently started a stocks and shares portfolio; and it is a big experiment the progress of which I’d share with you.
Why not dabble with the rest?
Because, I believe that ‘traditional’ investments share the following problems:
- High entry costs: there are different costs involved in traditional investing but the main would be knowledge and capital.
- Volatility and unpredictability: Well, I don’t need to tell you much about this one. Only in the last five years, the stock market crashed twice and the property market once.
- Returns depend on cycle: If you were in your thirties when the stock market crashed last you’d be fine; but if you needed to draw your pension then, you are truly and royally screwed.
This is why I favour a bit less ‘traditional’ forms of investing. These include:
- Our Nutmeg investment. Although my account is not doing much at the moment it is still over what I put in; John’s Nutmeg ISA account is still approximately 6% in profit. (He’s promised to analyse why this happened and we’d let you know.)
- Our investing experiment in The House Crowd: this is a way to invest in property without the bother of owning houses and dealing with tenants. And it returns better as well!
- Buying internet businesses. Yep, I did this one and when the time if right I’ll probably do a bit more of it.
- Investing directly in local businesses: I’ve already told you about this one in other posts. But I’m not sure that you’ve heard the latest: we are the proud co-owners of a car maintenance garage. And I have very high hopes for this one.
- Investing in self: I know this one sounds a bit naff. Still, I count this as a very important investment and it includes attending courses, buying books and using time to learn.
And before you ask, an investing genius I’m not. Some of my investments work out and some fail rather spectacularly. For example, my shares in Tesla are doing great (and I did buy them at the end of February which was just in time); my shares in SolarCity are dragging my whole portfolio down.
But you know what?
When my investments work I’m pleased because my money has made me a bit of money. When they fail I’m truly happy because this is my chance to learn; so, my money will make me a lot of money.
You just have to remember that investing is no rocket science and the main thing, as with life, is to be open minded and ready to learn.
#3. Helpful resources
Investing may be a unique mixture of science, art and gambling but when making decision you still need to know a lot.
Even when you are keeping it simple by investing with Nutmeg (or Betterment which is its US cousin) or The House Crowd you need to do your homework. But this is easy: just visit their websites and read all that is on them. Oh, and you can Google them and see what else is knocking about.
Investing in local businesses needs local knowledge. You may hear about opportunities in the local bar, or from your friends. What you need to know here is what the features of a promising business are and how to know it from a failing one. You may also start learning about turning failing businesses around; which means that you either have to understand the business or ‘get in’ with someone who does and whom you trust. (I know nothing cars; it takes me a year to work out where to put the fuel. This is why, the garage is 50:50 venture with someone who knows everything about cars.)
The situation is very different when you start investing in stocks and shares. It took me quite a bit of reading and looking around to come up with the four key, in my opinion, resources:
- Investopedia: this site does exactly what it ‘says on the tin’ – it educates the word about finances. At it spans educational levels as well so you can use it even as a beginner.
- The Motley Fool: I love The Motley Fool and the readable investing articles it publishes. One definite advantage of this site, as compared to others, is the way in which their stock picking advice is organised: you can select the ‘package’ that is best suited to you and your needs. I, for instance, have joined the Rule Breakers (best stay true to my nature, I thought).
- This is Money: another favourite of mine. It goes much broader than investing and has this messy, disorganised feel about it (which I really like). Their analysis is usually spot on and their knowledge of all things money undisputed.
- Modest Money Stock Wizard: my friends at Modest Money not only publish interesting and well informed articles on investing and analysis of specific stock but have also developed a potentially very useful tool. I’m still playing with it and learning what it can do but why don’t you join me? You can surely find the stock you are interested in, and a wealth of information about it, very fast; and in four different markets.
#4. Select an investing platform
This is what you should do when your mind is set on giving the stock market a go.
Sound trivial but I’d guess that not knowing what to do is stopping a lot of people (if I were a bit braver, I’d say ‘a lot of women’).
I selected the investment platform I use – TD Direct Investing – by using this resource to compare what’s on offer.
Please make sure that you look at several platforms and select the one you feel comfortable with (I selected TD Direct Investing because of relatively low fees and being able to trade US stocks as well as UK and European).
You know, friends, my investing at the moment is just like my running: I’m not very good but I’m very keen.
Which tells me that I’ll probably improve dramatically over the next several months.
But whether I improve is not really the point here. I’ve decided that I’ll use The Money Principle to write more about investing in a way that is fun and easy to understand.
How to invest money shouldn’t be shrouded in formulae and mystery; it should be discussed so that as many people as possible can achieve mastery.
Now, please share your investing experience. And I’d love to hear about your failures: how otherwise we’ll learn?
photo credit: un petit écureuil via photopin (license)
Couple of months ago I was invited by TD Direct Investing to take part in a debate on investor confidence. Of course, I accepted; after all following our hunter’s focus on debt our sight has moved to how to invest money. Having said that, we do believe that the principles of sound money management are the very similar irrespective of whether one is paying off debt or investing – in both cases you build wealth. But I seem to be digressing a bit.
We had a debate and we recorded a video; here is the link to the video but I’d rather you don’t watch it; or at least if you decide to watch the debate (it is rather long, I warn you) please do close your eyes so you don’t get destructed by the way I look. Just listen to the smart things I have to say (this is a joke btw).
One of the questions we were asked during the debate was:
What is the single biggest challenge for investors?
On camera my answer was short and succinct:
The single biggest challenge investors currently face is the volatility of the markets.
So far there is nothing interesting and/or original about this but bare with me: the interesting part is in the reasons why I think that this is the single biggest challenge to investors.
I believe that volatility is such a challenge because it changes the relationship between the three faces of investing, namely science, art and gaming. Investing has always been, or has been presented, as a unique combination between the three; it also requires an unique blend of knowledge, intuition and awareness of risk and probability.
Probably the best example of investing as science is provided by the Boggleheads’ philosophy: this is all about well informed choice. It may be choice of lifestyle, choice of investment instruments etc. Interestingly, approaching investment as science and research features both a particular stage of learning about it and specific investment instruments. I believe that research is absolutely essential to be able to choose risky stock to buy; and that this research should be rather broad (learn most there is to know about the product, the company, the key people in the company and the others who have similar product).
Next, is investment as an art form. This, I believe, kicks in when one is shaping and re-shaping their portfolio – what investment portfolios look like is not a matter of science and research but of feeling and balance.
The aspect of investment that fascinates me most is the gaming part of it. This applies to specific investment instruments like some options, exchange-traded funds (ETFs), CFD trading (Contract for difference) and different forms of financial spread betting. These are all rather speculative investments. CFD trading, for instance, is an equity derivative used by traders (investors) to speculate on the share price of particular shares without actually holding any of these shares; the contract between the two parties is about paying the difference between the current price of the share and its value within certain time frame. High risk but can be potentially very rewarding.
A less discussed aspect of investing as gaming is the gamble that one necessarily takes. Different investments carry different level of risk, true. But because of the level of complexity of financial markets and the stock market, there is always an element of risk we have no awareness or control over, risk that can’t be calculated.
In relatively stable markets these three elements mostly coexist and if any of them took a bit of precedence these was the scientific, predictable and ‘safe’ element.
The situation is somewhat different in volatile, fast changing markets. In such cases the face of investing that can become dominant is the gaming/gambling one. It is no longer possible to present investing as scientific and/or artful activity with mostly predictable and positive outcome.
At the moment investing in the stock market is to a large degree a gamble; and as every half competent gambler knows you take to the table only what you really can afford to lose.
It seems to me that making the transition from seeing the stock market as a viable long-term investment prospect to viewing it as potentially expensive game is a challenge. Another challenge is to workout alternative investment strategies.
What do you think is the single biggest challenge to investors?
photo credit: Mariano Kamp via photopin cc