Hi friends,
Today, I will be talking about the third finance book I have read - Money: Master the Game by Tony Robbins. This book offers quite a comprehensive guide to basic financial planning while taking a look at the common financial planning pitfalls that you may encounter in your journey (like how your financial planner may not have your best interest in mind, myths about actively-managed funds, how fees can negatively affect your returns in the long run). Furthermore, the author has used very specific examples with proper data to back up what he is saying, which is something that I value when we talk about finance.
Without further ado, let us look at the content of the book chapter by chapter:
Chapter 1 (Laying the groundwork):
1.1 "It's your money! It's your life! Take control"
In this part, Robbins started with a broad look at finance. He invokes this desire of money in the reader by asking them to imagine what it will be like to be financially free. Then, Robbins mentioned the disadvantages normal people like us faced when it comes to investing (Like High-Frequency-Trading, technical financial jargon designed to confuse us). He mentioned financial giants like John Bogle, Ray Dalio, Carl Icahn, which he interviewed in later chapters and lure the reader to keep reading to find out what they have to say to the average investors to allow them to have good returns regardless of what economic situation we are in.
Honestly, it sounds a lot like what I always preach on this blog, that we should take our money matters into our own hands and not let anyone take control of it for us. And what I wish to do is to educate my readers such that they can be financially savvy enough (you only need about 3 months) to make their own financial decisions without being influenced by external information.
1.2 "The 7 simple steps to financial freedom: Create an income for life"
For this part, Robbins has started to shine a light on the reality that we will face in the future. That our current way of living and saving is inadequate to fund our lives for retirement. He then used comprehensive data to tell us how our lives will be affected if we were to rely on social support structures to support our retirement. He also illustrated the importance of compounding when it comes to investing.
He then elaborated on some financial mindset things that I skipped over because they aren't that interesting to me and gave an outline of the entire book for the audience. Singapore is also mentioned in the book. Our average household spends $4000 a year on the lottery, imagine investing that amount every year. :')
1.3 "Tap the power: Make the most important financial decision of your life"
Robbins further elaborated on the power of compounding in this part and talked about the importance of saving money. He gave examples like Michael Jackson, Mike Tyson, who managed to spend all of the money that they earned. He started to talk about the idea of passive income, where we do not trade our time for money (like a job), but there will be money coming in whether we are working or sleeping.
He then gave very good examples of people with low income but yet, by saving their income (paying ourselves first) and relying on compounding interest, they made a great impact on the money they have. He also stated another important concept; Lifestyle Inflation, how it is important for us to maintain our lifestyle when our income increase so that we can save more.
1.4 "Money Mastery: It's time to breakthrough"
We read about the importance of not letting our money define who we are. But rather, what we do with our money is more important. Robbins reinforced this idea by contrasting between Adolf Merckle and Chuck Feeney. He emphasized the need for us to give back when we are capable, and this would give us the proper significance in our lives.
Chapter 2 "Becoming the Insider: Know the rules before you get in the game"
2.0 "Break Free: Shattering the 9 financial myths"
This is one of my most favourite chapters, I really like how Robbins used data and stats in debunking those financial myths that we often hear from financial planners/insurance agents. Furthermore, he has stated the inherent misalignment in interest between the planner and the consumer. A large part of the financial planning business is based on sales and the planner’s salary (his interest) would be based on selling you (like endowment, ILPs, etc). Hence, if you are someone who does not know anything, you might very well be buying products that you do not need or inferior products.
He has split the 9 myths into different sections. I will just be listing them out.
1. 13 trillion dollars can’t be wrong “Invest with us, We’ll beat the Market!”
2. “Our fees? They’re a Small Price to Pay!”
3. “Our returns? What you see is what you get!”
4. “I’m your broker, I’m here to help”
5. “Your Retirement is just a 401(k) away”
6. Target-Date Funds: “Just set it and forget it”
7. “I hate Annuities and you should too”
8. “You gotta take huge risks to get big rewards
9.“The lies we tell ourselves”
Allow me to elaborate on each point, starting with Myth 1: “We’ll beat the Market”:
As I have frequently emphasised, studies have shown that active funds managers consistently underperformed the market index when it comes to long-term performance. Robbins has used a specific timeframe in his examples: From 1984 – 1998, only 8 out of 200 fund managers beat the Vanguard 500 Index. Also, from 1993 to 2013, the S&P 500 returned 9.28% on average annually, but the average active fund manager made just 2.54% annually.
He then balanced out the argument by listing out the small number of investors that outperformed the market. However, they do not accept new investors and honestly, no one can reliably predict which fund manager can do better than the market consistently.
Myth 2: “Our fees? They are a small price to pay!”
This is something that is close to my heart. Most mutual fund investors are not told about the fees associated with the mutual funds or told the lie that the fees are really low (Without being informed about the lower fees of other investment instruments). Furthermore, mutual funds seem to purposely hide their fees through a lot of technical jargon (like platform fees, account management fees, advisory fees, distribution cost, bookkeeping fees, redemption fees), which makes the calculation of the fees extremely confusing and frustrating. He used an example of Robert Hiltonsmith (He has a PhD in economics, and he could not understand the 17 types of fees charged to him). He also gave a list of all the fees associated with 401(k) management; you can take a look at them for reference for your mutual funds
In this part, Robbins has given an average cost of mutual funds; 3.17% a year. This means that, for your investment to not lose money, it must return 3.17% every year consistently. Compare that with an ETF, which is in the 0.4% range (He stated 0.14% in the book). He equated it to paying 30 times more for a Toyota when your neighbor is driving a Ferrari. The example below is for a 30 years’ time horizon
He then recommends some websites that will help you estimate your cost of investment. But I am not going to link it here. If you are interested, approach me by number or email.
Myth 3: “Our returns? What you see is what you get”
Definitely, the returns that we see on the fund’s product summary is not accurately reflective of the true returns. The returns on the summary are based on time-weighted returns, which is wrong according to Robbins. He has said that the money/dollar-weighted returns would be a more appropriate reflection of our investment returns.
Myth 4: “I’m your broker, and I’m here to help!”
As we have established at the beginning of chapter 2, we are paying a lot more money (fees) to receive returns that are a lot lesser than the market returns over a long period of time. Your broker is not here to help, he is here to sell a product so that he can receive that salary in terms of commission for himself. Robbins has also shared that 49% of mutual fund managers do not own a stake in the fund that they manage. Hence, you can see that there is no inherent interest for them to maximise your returns. Furthermore, a large portion of the remaining 51% of mutual fund managers do not have a significant stake in the funds they manage.
Furthermore, in the financial planning industry, your financial planner only needs to sell you a product that is “suitable”. Note: Suitable, not the best product that caters specifically to your need. Example: You mentioned that you want to invest, you might be sold an investment plan, simply because it is suitable to your need, not because it is the best product. This is where Robbins came in with the idea of a fiduciary financial planner, where it will be in his interest to make you money – By taking commissions out of the equation. They charge on a case basis.
I have skipped myth 5,6,7,8,9 as it is not that applicable to the Singapore context and my context.
Chapter 3 what’s the price of your dreams? Make the game winnable
3.1 Calculating the exact number of your dreams
In this section, Robbins talked about the different level of financial achievement and the readers are encouraged to calculate out the magical number that helps him to retire off the yearly returns (dividends, capital growth, coupons) of his investments :
1. Financial Security
At this stage, security would mean that the returns of your investment (roughly 4-6%) would cover your mortgage, food, utilities, transport, and insurance. Robbins estimated these expenses account for about 65% of a household’s monthly expenses.
2. Financial Vitality
Vitality would mean that the returns covers for everything in Financial security + some form of luxury (half of clothing cost, half of dining and entertainment cost, and indulgence cost like gyms or manicure or gaming accessories).
Having this amount of investment would mean that half of your wants in life would be covered by your money that is working hard to bring you more money without you working.
3. Financial Independence
At this stage, your yearly returns are the same as your yearly expenses at the current lifestyle (all wants, needs, emergency). You no longer need a job to sustain your lifestyle
4. Financial Freedom
At this stage, your yearly returns would allow you to contribute to causes that you believe in, like the annual donations to charity, having a yearly vacation to an exotic island
5. Absolute Financial Freedom
It is the same as financial freedom, but you can do all those things as and when you want, which is provided by the returns of your investment.
3.2 What is your plan
In this section, we can read about the specific steps that we can take to achieve the different levels of financial achievement. These can be stuff like paying off our debt, lowering our taxes, using tax – efficient low-cost investment vehicles. Robbins has challenged the readers to make the decision to start working towards achieving their financial dreams.
3.3 Speeding up the process of achieving
1. Saving money and investing the difference
Robbins challenged the readers in this section by asking them what are the things that they can afford to save – What are the needs and wants in our lives? Also, he advocated for an automated savings/investing method starting at 3% of your annual income. You are supposed to increase this amount every time you receive a pay raise. This method would be useful for people that claims that they cannot save money (Just start with 3%.)
Also, he gave an example that I like – Buying expensive cars or coffee or clothes that you must have, do you really need it? He encouraged the reader to think of daily little expenses that can accumulate to a big amount over a year.
2. Earning more and investing the difference
The second way is to earn more money. He challenged the reader to get that pay raise by being more valuable at work by increasing the values that they bring to their job (Something he learned from his mentor – Jim Rohn). Essentially, invest in your skills or yourself so that you can demand a higher salary. He then gave some examples that for high-income earners, when unemployment strikes the market, they are not as affected as the lower-income earners. So yes, keep upgrading yourself, learn more so that you can contribute more to the company then demand that higher pay
3. Reduce fees and taxes and investing the difference
Look at the investment fees that you are paying, are there alternatives that you can go to so that you can lower that fee (from 2% to 0.5%)? The differences in fees, when compounded over a long period of time, would add up. Are there grants in our taxes that we are not utilising to drop down to the next tax bracket? Learn about how to do your taxes so that you can benefit and invest the savings.
4. Get better returns and speed your way to victory
This is done through asset allocation that are optimised for your financial objective, risk appetite, and time horizon. Robbins mentioned about Ray Dalio’s all-weather portfolio and how it is has a back-test result of more consistent returns compared to a pure-stock portfolio. He also mentioned about the rule of 72, which 72 divided by your rate of returns would be roughly the number of years for your investment to double.
5. Change your life and lifestyle for the better (moving to better places to take advantage of better tax and lower cost of living)
In this portion, Robbins challenged the reader to consider living in places that have better tax advantages, lower cost of livings without compromising much on the income. This would accelerate your journey in reaching your financial goal in the long run.
Chapter 4 Make the most important investment decision
of your life
4.1 The ultimate bucket list: asset allocation
The reader is introduced to the importance of asset allocation – Which affects our long-term returns (Which is essentially diversification across different financial instruments) Robbins has introduced different financial instruments.
The security/ peace of mind bucket instruments are Cash/cash equivalent, Bonds, Compound Deposits, Homes, Pension, Annuities, Life Insurance policies, Structured notes
4.2 Playing to win: The Risk/Growth Bucket
The Risk/Growth markets are Equities (ETFs or individual stocks), High-yield bonds, Real estates (or REITs), Commodities, Currencies (Forex), Collectibles (Exotic things like cars, painting), Structured notes
Robbins then introduced Yale’s portfolio, which is 20% in US stocks, 20% in international stocks, 10% in Emerging market stocks, 20% in REITs, 15% in Long-term Treasuries, and 15% in Treasury inflation-protected securities. 70% are inequities (For long-term growth), 30% in defensive financial instruments (Downside protections) It has an annual return of 7.86% between 1997-2014, while the S&P 500 dropped 51%. During periods of loss, from 2000-2002, the S&P 500 dropped almost 50%, but the Yale portfolio only loses 4.572% over the same period.
4.3 The dream bucket
In this section, Robbins drew our attention back to the reason for amassing wealth/ generating returns. Wealth is supposed to improve our quality of life or to improve the lives of others.
4.4 Timing is everything?
Robbins introduced another concept of investing; Dollar-Cost-Averaging, which helps to prevent emotions from taking over in our investing and would give better returns in the long run and of course rebalanced annually. He wrote it in a very easy summary – Diversification between asset classes, markets, and time.
Chapter 5
5.1 Invincible, unsinkable, unconquerable: The All Seasons Strategy
In this chapter, we are given more elaboration on the history of Ray Dalio, and his flagship fund – Pure Alpha, which consistently outperformed the market or continues to profit when the market is in a downturn. (An average of 21% return annually and 17% in 2008)
Robbins then asked Ray in an interview to give a portfolio that would perform consistently in any market, in which, Ray replied that a balanced portfolio is not a 50/50 stock/bond allocation (in a 50/50 portfolio, stocks would account for 95% of the total risk of the portfolio). He stated that a balanced portfolio that would do well regardless of any economic conditions would be equally distributed in terms of risk.
Ray Dalio then talked about the specific asset allocation:
1. US Stocks (30%)
2. Long-term US government bonds (40%)
3. Intermediate US government bonds (15%)
4. Gold (7.5%)
5. Commodities (7.5%)]
5.2 It’s time to thrive: Storm-Proof returns and unrivaled results
Robbins then backtested this portfolio for 75 years and all the way till 1928. Here are the results:
From 1928 -2013
Returns in each market downturns
5.3 Freedom: Creating your lifetime income plan
For 5.3,5.4,5.5, Robbins talked about annuities as a possible instrument for retirement planning. Which is something that I have no interests in as the types of annuities that he talked about are also not that available in Singapore and only for the accredited investor.
5.4 Time to win: Your income is the outcome
5.5 Secrets of the ultrawealthy
Chapter 6
6.0 Meeting the Masters
We are introduced to some of the people Robbins has interviewed for this book, they specialized in different markets, different investment approaches, and different financial instruments. But Robbins has summed up the things that they have in common in this section:
1. Don’t lose (Control the amount of money that you can lose, cut your downsides
2. Risk a little to make a lot (Find opportunities to receive an asymmetric risk/reward
3. Anticipate and Diversify (After finding these opportunities, anticipate the failures and diversify your risks)
4. You’re never done (A lot of the people that he has interviewed do not stop growing, learning, giving. They do not stop even though they have a huge amount of wealth and even after they are advanced in age)
6.1 - 6.12 Transcripts with the Masters
These are the people Robbins have interviewed and published the transcript of the interview:
1. Carl Icahn (Corporate Raider/ Activist Investor, championing to maximise value returned to shareholders or to install better management in the company)
2. David Swensen (Chief Investment Officer of Yale’s Endowment, turned Yale’s investment from $1 billion to $23.9 billion with a 13.9% annual returns, teaches a class in portfolio construction)
3. John C. Bogle (Creator of the index fund, Founder and former CEO of Vanguard Group – The second-largest mutual fund company on earth. Critic of the shady practices of the mutual fund industry)
4. Warren Buffett (CEO of Berkshire Hathaway, 3rd richest person on earth, nicknamed as “The Oracle of Omaha”, most famous value investor)
5. Paul Tudor Jones (Founder of Robin Hood Foundation and Tudor Investment Corporation, 28 consecutive years of not making any loss in trading)
6. Ray Dalio (Found, Co-Chief Investment Officer of Bridgewater Associates, the largest Hedge Fund. There is an entire chapter that talked about the All-Season portfolio)
7. Mary Callahan Erdoes (CEO of J.P. Morgan Asset Management Division, a believer in the value that managers can bring to their clients, increase AUM of the division by 30%, overseeing $2.5 trillion dollars)
8. T. Boone Pickens (Chairman, CEO of BP Capital Management, made $4 billion, gave $1 billion away in charity, champions for energy independence for the U.S)
9. Kyle Bass (Founder of Hayman Capital Management, a hedge fund, shorted the housing market in 2008, Greece, and Ireland as well.)
10. Marc Faber (Director of Marc Faber Limited, one of the leading experts on Asia’s growth)
11. Charles Schwab (Founder and Chairman of Charles Schwab Corporation, created one of the first discount brokerages. Charles Schwab grew to be the largest discount brokerage, allowed for the public to invest without a costly middleman. Advocated for 98% of people to go into index funds)
12. Sir John Templeton (Founder of Templeton Mutual Funds, Creator of 1 million Templeton Prize which funds research in science, technology, and spiritual achievements. He invested in maximum pessimism and sell at peak of optimism. He was named the greatest global stock picker for the 20th century)
I am not going to put up the transcript and this post is getting a bit too long, so let me move on to the next chapter.
Note: I have skipped the entire chapter 7 as Robbins switched gear and talked about giving, finding meaning to life and that self-fulfilment stuffs. If you are interested, you can definitely go and take a look. But I am not interested.
With that,
I end today's topic
Stay vested, Stay frugal my friends,
Dionysius
