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Trying to become financially literate seems just about hopeless sometimes, doesn’t it? You begin to speak with a financial advisor and as soon as their mouth opens, your head starts spinning and you become even more overwhelmed than you were 5 minutes ago thinking about this stuff.
To make it even worse, over 90% of active managers have lost to the market in the last 15 years. And about 66% percent of large-cap active managers failed to top the S&P 500 index in 2016.
So how the heck are you supposed to hold your own?!
But what if I told you, all it took was a little curiosity just to get started in the right direction. There’s no pressure, only in that, you’re reading the right material.
The first book I ever read on personal finance was Tony Robbins’ Money Master the Game. Because it reads at a 5th-grade level, with a little patience, I was able to understand everything in the book even with zero background or previous knowledge about managing my finances. I devoured the book in 2 and a half weeks and soon realized how simple this esoteric idea of investing and personal finance really is.
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Here are the top 8 lessons I learned from Money: Master the Game:
Index funds are the best way to go
Index funds were created by Jack Bogle, the founder of Vanguard, back in 1975, a year after he founded the company. They are by and large the greatest service that has ever been created for the common investor.
An index fund holds a portion of each stock in a given index. For example, there is the famous S&P 500 index. This index holds a piece of 500 of the best companies in America.
If you invested $10,000 in an index fund in 1942 if they existed then, you would have $51 million now if dividends were reinvested. You hardly would have had to do anything! If you don’t want to be bothered with learning more about investing and want to sleep soundly, invest in an S&P 500 index fund and forget about it until retirement.
Fees make a huge difference in your net worth
Up close, it doesn’t feel like a 1% difference in fees could be the difference between you being able to retire or not. But the reality is, fees play a bigger part in preventing our hard-earned cash from growing faster than it could.
$100,000 invested for 40 years with an average 10% rate of return gives you $4,525,925.56. If you’re getting charged 1% in fees, that diminishes the total return to $ 3,140,942.01. Over $1 million was forfeited because of a measly 1% charge in fees.
When I realized my financial advisor had my money invested in mutual funds that were no kidding charging me up to 2.15% in fees, I immediately sold them and put all my money in an S&P 500 index fund.
The financial jargon is not as difficult to understand as you think
You don’t need to know what swaps, options, calls, strikes or puts are. Wall Street uses this language to confuse you and to give them the aura of knowing more than you’ll ever be able to comprehend when it comes to managing your finances.
But the reality is after I read Tony Robbins' book, I realized it’s not even remotely as complicated as everyone makes it seem. The trick is to find the right material to learn from; it gives you confidence in yourself to keep going, to keep learning. A great place to get started is my recommendations page with investing books that helped give me a solid foundation.
Reading every day is the best way to make progress
Warren Buffett says he spends 80% of his day reading. Bill Gates says he reads 50 books a year. Elon Musk says he learned how to build rockets from reading books. And Mark Cuban says he reads 3 hours a day.
It’s not a secret that the most successful, wealthiest people read a lot. Reading Money: Master the Game opened the floodgates for me. After I realized how much I could learn on my own from reading, I began reading a book every week by taking advantage of my above-average commute to and from work.
Before I knew it, here I am 100+ books later since I started. I’ve learned a TON and wouldn’t be here now if Tony Robbins’ book didn’t give me the confidence to take on learning something that I thought was completely out of my realm.
Honestly, I’ve learned a thousand times more from these books than I did spending 4 years and $260,000+ in undergrad classes and courses. And this is coming from someone who used to hate reading and only read half of The Great Gatsby in high school. The rest of the reading was Spark Notes.
Compound interest is your best friend
If you started with $0, and you add $5,000 to an S&P 500 index fund for 50 years, you will end up with $6,401,496.91 not including reinvesting dividends. Even if it was an average of 7% instead of 10%, you would still end up with $2,174,929.77 without dividends even being considered. That’s literally just a little over $96 a week you would have to save. The sooner you begin, the easier your financial life will be. It’s just so cool how it works for you when you do nothing but let the money sit there.
There are too many options to choose from
You’ll get analysis paralysis trying to pick and choose from all of the options out there. Between all of the mutual funds and even more ETFs, it’s ridiculous how many choices are available to you.
Keep it simple and stick with index funds.
There's no need to spread your investments all over the place like in real estate, gold, cash, annuities, etc. even though Tony Robbins advises to do so. When you do that, you significantly diminish the positive effect your holdings in index funds could have on your portfolio. And don’t buy gold either. If Warren Buffett doesn’t recommend it, it’s probably not a good investment.
Time is the greatest asset we have
And it’s because time is on your side that you don't need to spread your money all over the place. An S&P 500 index fund owns a piece of 500 individual stocks; that’s spread out enough, you are already well diversified within the index fund despite what people tell you.
When you’re in your 20s, 30s, even 40s, you still have years ahead of you. Who cares if everyone is predicting there’s going to be a bear market in 2020? If you’re retiring in 20, 30, 40 years, it’ll be a blip on your radar on your net worth. Stay in the stock market for the long haul and you will be fine.
Create your own mentors through books and podcasts and learn from them
Tony Robbins always says one of the best pieces of advice he ever received from his mentor Jim Rohn was you are the average of the 5 people you associate yourself with. If you can’t literally surround yourself with the people you want to be most like, read about them.
Read, listen to podcasts, do whatever it takes to learn from the people you want to be like, who you want to receive advice from. When I’m on the subway, I read all kinds of books: investing books highly recommended by Warren Buffett, biographies, business books, some Tim Ferriss books, Ray Dalio’s Principles, etc.
When I’m walking from the subway to my job I listen to podcasts. Like right now I’m listening to This Week in Startups with Jason Calacanis, one of the best venture capitalists in Silicon Valley right now. He interviews people who are working on the cutting edge of technology, from lab grown meat to 3D printing startups, to AR (augmented reality) and VR (virtual reality) being implemented into everyday life. I find it fascinating. It gives you an inside look at the direction the world is moving, keeping you highly informed on what's going on in businesses today.
My thing is, as long as I make an effort to learn each day through books and podcasts, I'll be okay.
So far it has singlehandedly been the best habit I've formed. Without making the effort to learn every day for a couple of hours, I'd never feel comfortable enough to manage my finances on my own, and I owe it all to Tony Robbins.
If anyone has any questions or comments, let me know!
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