The Book in Three Sentences
In this summary, Tony Robbins teaches you to become unshakeable. This is a step-by-step playbook to improve your financial life. Written by business strategist Tony Robbins with the help of Peter Mallouk, this book can help you achieve financial freedom.
Section I: Wealth: The Rule Book
Chapter 1: Unshakeable
We all want to be unshakeable, a principle that the author describes as the certainty you’ll always have the financial security to take care of your family and help others. Money gives you inner peace, comfort, independence, and freedom. The best thing about being unshakeable is that it gives you confidence when there’s chaos around you. This state of mind makes you a leader and someone who takes action, especially in a world that’s going through uncertainty and confusion. Despite what most people believe, winning the financial game doesn’t require you to predict the future. Instead of focusing on what you can’t control, focus on what you can. That involves learning the rules, who the players are, how to win, and so on.
Here are some basic terms from investing that we need to familiarize ourselves with before moving on to more advanced chapters:
- A hedge fund is a private fund only high-net-worth investors have access to. They charge management fees and share the profits.
- A mutual fund is public and anyone has access to it, They are managed by a team that has a portfolio and trades their holdings looking to win the market.
- An index fund is a public fund with no managers. They own all the stocks in the index.
To win this game, you have to be emotionally strong and committed to staying in the long term.
Chapter 2: Winter Is Coming… But When?
Over time, humans have evolved to recognize patterns and use them to their advantage. We also learned that there’s no reward unless you do the right thing at the right time. By recognizing patterns in the financial markets, you can benefit.
Compounding is a key concept in the financial world. Recognizing and using compounding to your advantage is life-changing. The secret to compounding is to start early and given enough time, you can turn a modest amount of money into a fortune.
You can’t earn your financial freedom. To become rich, you invest your money as early as possible and wait for it to compound. By doing this, you let your money work for you instead of working for your money. To be financially secure, you should aim to have twenty times your current income. Once you get to that number, you’ve built enough momentum to get the remaining 40% you need for ultimate financial independence.
To do this, you pay yourself first and you take a percentage of your income to build a Freedom Fund, a source of income you create so that you don’t have to work ever again. Once you’ve saved enough money, you invest in the stock market. Financial winter comes every year. This is one of the many patterns you have to learn to recognize. The authors describe seven facts that teach you how the markets work so that you’ll learn some patterns, just understand that nothing’s certain and once you find a winning strategy, you have to stick to it.
The best thing about the facts is that they release you from a vicious circle of anxiety. You adopt a strategy and you don’t change it no matter what happens. Robbins calls these Freedom Facts. You have to learn to invest without fear because fear is paralyzing.
Here are some important concepts to clarify before the actual facts. A correction is when a market falls 10% or more, and a bear market is when a market falls 20% or more. That said, the worst thing that can happen isn’t a correction or a bear market, is being out of the market completely.
- Freedom Fact 1: Corrections happen every year and they are part of the game. On average, corrections last 54 days.
- Freedom Fact 2: Less than one in five corrections turns into a bear market. Don’t panic during a correction.
- Freedom Fact 3: Nobody can predict if the market is going to rise or fall.
- Freedom Fact 4: The stock market rises over time despite many short-term setbacks. Most markets achieve positive returns, even when there are drops here and there.
- Freedom Fact 5: You have to be a long-term investor in the stock market, not a short-term trader because corrections happen on a regular basis and they are impossible to predict and even when they happen, the market soon recovers. Bear markets are terrible, but they don’t last.
- Freedom Fact 6: Bear markets become bull markets, and pessimism soon becomes optimism. The mood can change from pessimism to optimism quickly. These are the perfect moments to invest because you aren’t looking at the economy as it’s today, you’re looking at where it’s headed. When everything looks bad, that means the situation is about to improve.
- Freedom Fact 7: The greatest danger is being out of the market. See market instability not as something to fear, but as an opportunity. To win, you have to be part of the game. Compounding works if you stay in the market long enough regardless of when you invest. Over time, you’ll make a profit even if you invest at the worst possible time.
Chapter 3: Hidden Fees and Half-Truths
More than anything else, people want freedom. This is the ability to do what you want, whenever you want, with whoever you want. Unfortunately, the financial industry charges hidden fees, so to take control, you have to minimize such fees. Buying individual stocks isn’t smart. Mutual funds are a simple alternative, but there are thousands to choose from and there are so many because it’s lucrative for Wall Street, not consumers.
Fund managers try to predict the companies that will perform better in the future. The problem is that the human element (in this case, the managers themselves) are bad at making predictions. In the world of investments, two people trade a stock, one wins and another one loses. This means that the winner has to win by such a margin that they can cover the transaction costs. Also, if the stock goes up, they have to pay taxes on the profits when they decide to sell. This means the fund managers have to win really big margins and this isn’t easy. Taxes are the largest expense in life and you should avoid them whenever possible.
In comparison, index funds are more passive and eliminate trading. Pay close attention to fees and taxes when it comes to active fund managers, you overpay for underperformance. Another issue is that people own five or four-star funds because they have performed well in the past which means that they are less likely to perform well in the future.
Chapter 4: Rescuing Our Retirement Plans
The 401(k) plan allowed people to make money over time by making tax-deductible contributions to a retirement account from their paychecks. Financial firms in charge of people’s retirement money took advantage of the situation for years and to a certain extent, they still are. There are many hidden charges most people are unaware of.
The 401(k) plan might have a lot of funds, but they are usually actively managed which means they are expensive and don’t perform well. In some cases, people might be forced to invest in funds with high fees.
Chapter 5: Who Can You Really Trust?
It’s now common to hire a financial advisor, but finding someone you can trust can take time. Some of those people are smart and well-intended, but they work in a system they can’t control. Most American financial advisors are brokers which means they make money selling financial products to people.
A financial advisor is one of these three:
- A broker
- An independent advisor
- A dually register advisor
Brokers receive a commission after selling a product. In America, they don’t have to recommend you the best product which means they can recommend something that makes them more money instead.
Most independent advisors are both fiduciaries and brokers which makes them dually registered advisors. This allows them to change the rules of the game according to their interests. Here are some tips to deal with independent advisors:
- They sell proprietary funds created by their firms
- They add hidden fees in exchange for nothing
- They make private deals with investment firms, earning hidden commissions in the process
The best option is to hire an independent advisor who’s also a fiduciary and who meets the following criteria:
- See their credentials
- Get someone that lets you design your investment strategy, as well as someone who saves you money on the mortgage, insurance, and taxes
- Their track record should prove they’ve worked with people like you
- Make sure you and your advisor have similar beliefs
- You and your advisor should relate on a personal level
Section 2: The Unshakeable Playbook
Chapter 6: The Core Four
The most successful people in finance aren’t lucky, they simply do things differently than everyone else. To do this well, you must recognize successful patterns and use them to guide your decisions. Identifying those patterns is difficult because there are different ways to achieve success. Nevertheless, the author realized there are four major principles all successful investors use, he calls these the Core Four. The principles are simple, but knowing them is half the battle, putting them into practice is even more important. These principles are so important they should become obsessions and they are the core foundation of everything else.
Core Principle 1: Don’t Lose
Making money is important, but figuring out how not to lose that money is even more important. Avoid losses at all costs because the more money you lose, the harder it is to get back to the starting point. Recuperating losses can take years. To avoid losing money, accept the financial markets are unpredictable. Once you know this, you can protect yourself against unexpected events. Regardless of how smart you are, the market is so unpredictable that it’ll outsmart you. The market can defy logic by doing the opposite of what’s supposed to happen, so expect to be wrong and establish asset allocation to be fine even when you make mistakes. Asset allocation means diversifying your investments to reduce risk.
Core Principle 2: Asymmetric Risk/Reward
Asymmetric risk/reward means that the rewards should be much greater than the risks. In other words, risk as little as you can to obtain as much as possible.
Core Principle 3: Tax Efficiency
The net amount you get to keep is the only number that matters. Never ignore the impact of taxes, and invest in a tax-efficient manner. Reduce your taxes as much as possible. What you earn isn’t as important as what you get to keep. That’s the only “real” money because you can use it, spend it, reinvest, or give it away.
Core Principle 4: Diversification
There are four ways of diversifying:
- Diversify across different asset classes. Don’t put all your money in real estate, stocks, or bonds.
- Diversify within asset classes. Don’t put all your money in one stock.
- Diversify across markets, countries, and currencies.
- Diversify across time. You’ll never know the perfect time to buy or invest.
Diversify your portfolio which means investing in more than one area. Since everything is cyclical, what’s profitable today might not be profitable tomorrow. Diversification is an insurance policy when an asset is doing poorly.
Chapter 7: Slay the Bear
Life’s uncertain, you can’t rely on someone else to make decisions for you. You are in control of your own life. The financial markets are uncertain and risking your money is the price you have to pay to get financial freedom. You can’t be afraid of the risk if you want to win the game. Uncertainty isn’t an excuse for inaction, you should study to take informed decisions and the financial markets and then invest.
In terms of finance, making the wrong decisions can be catastrophic, and making the right decision lets you live without fear. To prepare for financial uncertainty, invest in different assets (stocks, bonds, real estate, and so on), and have income set aside for potential catastrophes. Surviving a bear market is about preparation and remaining calm amid the chaos. The stock market always recovers and not everyone can invest during pessimistic times.
This is how to prepare for a bear market by creating a diversified portfolio:
The higher the reward, the higher the risk, this is called a risk premium. To allocate their assets experts evaluate the risk premium for each of those assets. The investors demand bigger rewards from assets the riskier they are. So first, you must determine the risk you’re comfortable with depending on the return you need. Luckily, different assets move separately, so while one falls, the others can rise or vice versa.
With that in mind, the author analyzes the different assets:
- Stocks: buying a stock means becoming part owner of a business and as such, you get a percentage of its earnings.
- Bonds: bonds are loans to a government or company. Lending money to the federal government is called a treasury bond. Lending money to a city, state, or county is a municipal bond. Lending money to a corporation is a corporate bond. Lending money to a less dependable company is called a high-yield bond or junk bond. Bonds are safer than stocks because the borrower has to repay you. The downside is that while bonds provide some income, it’s usually really low. Alternatively, keeping your money in cash earns you nothing, so you might as well invest it in bonds.
- Alternative investments: alternative investments include assets that aren’t stocks, bonds, and cash. Examples include paintings, wine, vintage cars, jewels, and real estate. A lot of these alternative investments are called illiquid, which means they are hard to sell. The author recommends real estate investment trusts, private equity funds, and master limited partnerships. He doesn’t recommend gold and hedge funds.
Those are the different parts, but what’s the best way to combine them? The assets you own should what you want to accomplish. You should design your portfolio according to your specific needs.
The author suggests a series of principles that can help you in both good and bad situations:
- Asset allocation drives returns: this refers to finding the right balance of stocks, bonds, and alternative investments. Diversify, so never invest in the same country or asset type.
- Use index funds for the core of your portfolio.
- Always have a cushion
- The rule of seven: gave seven years of income set aside
- Rebalance: bring back your portfolio to your original asset allocation once a year
Section 3: The Psychology of Wealth
Chapter 8: Silencing the Enemy Within
The biggest threat to your finance is you. You can do everything right, but you have to master your psychology to maintain financial freedom. Investors need simple rules to avoid common mistakes. 80% of success is psychology and 20% is mechanics.
Mistake 1: Your brain wants to show proof of your intelligence, so you are more likely to repeat investments, not because they were smart, but because you want to prove you were right. Be aware of this and be prepared to change your perspective and admit mistakes. Accept options that contradict your beliefs.
The solution: Look for educated opinions that are different than yours
Mistake 2: A trend is exactly that, momentary. When we evaluate a future situation, recent experiences have more importance for us, but try to ignore this.
The solution: Instead of selling out, rebalance. Consult decisions with a financial advisor. Set a percentage of your own portfolio to stock, bonds, and alternative investments. Be consistent with your decisions over time and rebalance once a year. Hopefully, this will allow you to buy low and sell high.
Mistake 3: Humans think they are better and smarter than they really are. This is called overconfidence. Men are more likely to be overconfident than women when it comes to investing.
The solution: Be honest and admit you have no special advantage. Invest in an index.
Mistake 4: Greed and impatience are a curse.
The solution: Investing is a marathon, not a sprint. Silence the speculator in you and become a patient investor who’s in it in the long run instead.
Mistake 5: Investing locally.
The solution: Ignore your personal preferences and bias, get out of your comfort zone, abandon the familiarity of what you know, and invest in foreign markets. Diversify in different countries.
Mistake 6: Don’t listen to negativity. We are more likely to remember negative experiences than positive ones and this phenomenon is called negativity bias. Don’t hate corrections and bear markets because the funds and stocks you own dropped, relish them because that’s when everything goes on sale. Don’t see a market crash as a terrible moment but as an opportunity to amass wealth instead. This is extremely difficult to do because financial losses cause more pain than the pleasure we get from financial gains (this is called loss aversion). By taking advantage of market crashes and ignoring your natural tendency to have an exaggerated reaction, you might become a better investor.
The solution: Be prepared for financial crashes by having the right asset allocation, focusing on the long term, and hiring a financial advisor.
Chapter 9: Real Wealth
Anyone can make money, but money isn’t enough to lead an extraordinary life. Financial wealth has nothing to do with being a wealthy person. You can have all the money in the world and still be unhappy. People who dream of being rich are enamored with the emotions they associate with money: freedom, security, and comfort. What we want are the feelings money produces, not the money itself. The author firmly believes that wealth is emotional, psychological, and spiritual.
We all desire a great life and to have one, we need two skills.
The first skill is achievement which is a three-step process:
- Focus: What you focus on is what matters to you
- Take massive action: Study role models and figure out the best execution strategy
- Grace: A sense of gratitude brings you more grace into your life
The second skill is fulfillment. While achievement is external, fulfillment is internal. Therefore, fulfillment is more important than achievement because you need to master the internal world to be happy. Each person has different needs and desires but there are some patterns that are common to almost everyone.
- The first principle: you must keep going. Life areas such as business and relationships must grow or else they’ll die. You can have all the money in the world, but if you don’t keep growing where it matters, you’ll be miserable. The secret to happiness is progress.
- The second principle: you have to give. Sharing with others can be incredibly fulfilling. Money won’t change you, but it’ll magnify who you already are. Success without fulfillment should be considered a failure. Never forget that to be able to help others, you first have to help yourself.
Living stressed is easy because this is the path to least resistance. This is also called the suffering state. There’s an alternative path where you direct your thoughts to do the right things. This is called the beautiful state. The state you’re in depends on where you focus your thoughts and this is an internal process. Suffering is the result of an unfocused mind that’s always looking for problems.
There are three triggers for suffering:
- Loss: A problem caused you to lose something
- Less: The idea of having less leads to suffering
- Never: You believe you’ll never have something of value
Our decisions shape our lives. According to the author, the biggest decision you can make right now is being committed to happiness regardless of what happens. To stay on course, Robbins suggests two techniques. The first one is called the 90-second rule. When you suffer, you give yourself 90 seconds to stop and go back to a beautiful state. To accomplish this, breathe, slow down, distance yourself from your problem, and appreciate what you have. At first, this technique will take a long time, but you’ll learn how to use this skill more effectively, the more time you use it. The best gift you can give someone is the abundance of joy.
The second technique is a two-minute gratitude meditation.
- Step 1: Pick an aspect of your life that feels unfinished and brings you stress and anxiety
- Step 2: Place both hands on your heart. Close your eyes and breathe deeply.
- Step 3: Feel grateful for your heart
- Step 4: As you feel your heartbeat, think of three experiences you’re grateful about
- Step 5: Relive those experiences one by one
- Step 6: Think of an experience that was a coincidence and brought you joy. Give thanks to the universe, god, or what you believe in for that experience.
- Step 7: Go back to the situation that was upsetting you in the first place. Unfilter your reaction to that experience.
In the end, appreciation, enjoyment, and love cure suffering. Loss, less, and never are an illusion. Replace negative thoughts with positive ones.
Don’t forget to give. Give money, time, talent, love, compassion, and your heart.
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