Today IÂ talk to famous motivational speaker Tony Robbins about his new book Money: Master the Game. Tony and I talk about what he learned after interviewing the world’s most successful investors, and how average joes can apply those insights in their own life.Â Money: Master the GameÂ isn’t your typical “Think and Grow Rich” personal finance book. This is the first major book Mr. Robbins has written in two decades, and the sucker is huge and gets into the nitty gritty of investing and wealth protection. It’s truly oneÂ of the more useful personal finance books I’ve read in a long time.
- Why Tony decided to come back with a book on the intricacies of financial investing after 20 years since his last book
- The sobering statistics on how much the average Baby Boomer has saved for retirement
- The myths about money that get people in financial trouble
- Why you shouldn’t invest in actively managed mutual funds, and where you should invest your money instead. (Hint: We’ve talked about it before.)
- How to build an investment portfolio that can weather the sometimes violent ebbs and flows of the market
- The most common characteristics between the most successful investors in the world
- Why being generous with your money is vital to maintaining a healthy relationship with it
- And much more!
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Special thanks toÂ Keelan Oâ€™HaraÂ for editing the podcast!
Brett McKay here. Welcome to another edition of The Art of Manliness podcast. Many of you probably know who Tony Robbins is. He’s the famous motivational speaker. He wrote Awakening the Giant Within. Whenever we’ve written posts a few times we’ve pulled Tony Robbins up. It’s been twenty years since his last book and he’s just come out with a new one. It’s called Money: Master the Game. In this book Tony Robbins interviews some of the world’s most richest, wealthiest, successful investors to find out what average Joes can do and learn from them to invest their money so they can be set up for success.
This book, Money: Master the Game, isn’t your typical think and grow rich type thing where you just [inaudible 02:40] the facts and money will just magically appear. Tony gets really detailed on what you can do to set yourself up for financial success and it’s really boring stuff; things like using index funds, having a balanced portfolio, taking care of insurance so you can protect yourself in case of an emergency, having an emergency fund. But what makes this book different from other personal finance books that I’ve read, it just gets in the nitty-gritty, like super detailed. It’s a big thick old book.
Anyway, today on the podcast we’re going to discuss what pissed Tony off so much that made him want to write this book, the mistakes and myths that many Americans believe that put them in financial peril, why baby boomers are ill-prepared for retirement, why you shouldn’t invest your money in actively managed mutual funds and what you should do instead, and then also what you can do to maintain a healthy relationship with money so that sure, you can focus on building a stable financial life, but you don’t want money to become the sole pursuit and let it to [inaudible 03:39]. We’re going to talk about that as well. So all in all, a very fascinating and just a lot of actual takeaways from this podcast, so let’s get on with it.
Tony Robbins, welcome to the show.
Tony Robbins: Â Thanks for having me on.
Brett McKay: Â OK, so your new book is called Money: Master the Game. But before we get into it, this is your first book you’ve written in twenty years. What have you been doing and why did you come back after all this time with a book about investing and financial instruments?
Tony Robbins: Â I got a few day jobs. I’m on a plane about every four or five days. I go to fifteen countries with my events. I might see two hundred thousand or two hundred and fifty thousand people a year, and I have a series of other companies. But what pushed me over the edge to finally write a book was in 2008 when I saw so many people suffer. I grew up really; it was a pretty tough environment financially where there was no money for food at times. So when I saw people losing their homes and losing half of their net worth and I knew it had been manipulated it made me crazy. I thought the government for sure was going to do something.
When they didn’t two years later I was kind of obsessed with every article, every documentary that showed how this occurred. I watched a documentary called Inside Job, which later won the Academy Award. At the end of this thing you saw step-by-step how a small number of people destroyed our whole economy and then the punishment they received was for us to bail them out, but worse than that we put them in charge of the recovery so they could make more money.
You watch something and at the end you’re either really pissed off and angry or you’re really depressed because there are no solutions. I thought to myself there’s got to be a solution and this book was that solution. I said, you know I have access. I have a gift that most people don’t have. Most people who know me or know of me don’t know that I’ve coaching one of the top ten financial traders in the world for twenty-one years. His name is Paul Tudor Jones and Paul has not lost money in twenty-one years.
I’m talking about the 2000 Stock Market crash, he made a ton. In 1987 he made a ton. Back in 2008 when the market was down fifty percent he made twenty-eight percent positive. I’ve been with him shoulder-to-shoulder through all of that and I figured, my God, I’ve learned so much but what if I interviewed fifty of the most brilliant financial minds in the world, people that started with nothing and became multi-millionaires. What about top hedge fund guys? What about the [inaudible 06:00] lawyers out there? I looked at that side of the table.
When I was done I figured OK, now if I can simplify this I can now teach people things that nobody’s ever taught them before. I can teach the average investor and show him how to really win. It’s like leveling the playing field and taking the best of Wall Street to Main Street.
Brett McKay: Â Fantastic. You talked about some of what got you angry, like people just losing their homes, losing their retirement savings, and the statistics about how ill-prepared people are for retirement, particularly baby boomers. You talk about that in your book. It’s really sobering. Did these individuals make mistakes or did they believe myths that were out there about how you plan for your retirement or how you plan your financial life? What happened there?
Tony Robbins: Â There’s a couple things. One is there’s been a change in our society in the last generation and that is it used to be prior to you and I getting into the workforce that you worked your tail off, you went to school, you went to work for a big company and you moved up in the organization by adding value, and eventually you retired and you had a thing called a pension. Unless you work for the Federal Government it’s probably not something you’ve heard of recently because a pension is an income for life for however long you live.
That’s since gone. We’ve replaced it with a 401K, which was never designed to be a pension. A 401K was designed for wealthy people to be able to set aside a little extra money. What happened is, you know, companies couldn’t afford the sizes and demands of a pension anymore in the competitive world we’re dealing with and so we moved to a 401K de facto strategy, and of course the challenge is one out of three baby boomers today have a thousand dollars saved for retirement. It’s insane. The rest of their money is in a 401K and they don’t know how to run that 401K. They don’t even know what’s in that 401K. If they aren’t in a 401K, they put their money in a mutual fund.
Here’s the first big myth. You know, you think of an individual mutual fund, obviously that’s the professional manager. I work for a living. I don’t manage money so obviously they’ll do a better job. The truth of the matter is that the statistics show; and I got this from everybody; from Warren Buffett to the people in the university studies, is that nobody beats the market. There’s a few unicorns like [inaudible 08:06] or Warren Buffett or Paul Tudor Jones. There might be six or seven people that actually beat the market consistently, but they’re not available to the general public.
So a mutual fund is a failure. Ninety-six percent of the time they fail to even match the market. The four percent that make it, I’m going to find them. You’re not going to find them by going to Morningstar, which a few people might do. Whoever is a five star in Morningstar doesn’t say a five star.
I try to explain to people by giving them a metaphor. If you’ve ever played blackjack, you know the goal is to get to twenty-one but if you’re over twenty-one you lose. Closest to twenty-one wins. So you get two face cards and you got twenty, is your inner idiot going to say hit me with the weird chance that maybe you get the ace and win? If you do say hit me, you have an eight percent chance of getting an ace. You only have a four percent chance of getting a mutual fund.
What has happened to these people is two things. The world has gotten so complex in the financial world people are fearful because markets have become extremely volatile all around the world, and so what’s happened is a significant number of people never get in the game. They think I have to have a bunch of money and I got to make a bunch of money to make money, and that is the single biggest mistake. I’m sure you’ve seen and all of your listeners have people that win the lottery and they’re broke five years later, seven years later, eight years later.
Or all these athletes who make these huge fortunes and they end up with nothing. Or movie stars. I mean Kim Basinger when I was growing up, she was the top actress in the field. She was getting ten million dollars a picture. She bought a twenty million dollar town in Texas. Bankrupt. You can look over and see somebody; Mike Tyson, the guy made a half a billion dollars in income and went bankrupt. Michael Jackson was virtually bankrupt right before he passed away and died.
It doesn’t matter how much money you earn. Contrast that to Theodore Johnson. Theodore Johnson is a guy that worked for UPS, started out as a driver, never made more than fourteen thousand dollars a year in his life; never more than fourteen grand, but in his senior years he’s worth seventy million dollars. Now how the hell did he do that with fourteen grand? The answer is really simple. You ask Warren Buffett, “Warren, why are you rich?” He says, “Three things. One, I’m rich because I grew up in America where there’s opportunity. Two, I’ve got great genes and I’ve lived a long time. Three, compound interest.” This kid; this man, Theodore Johnson, just took compound interest. He did the first thing I teach, which is stop thinking you need a billion dollar dollars and take a percentage of what you earn today, as little as it may be, and automate it so you never see it.
He had twenty percent taken out of his check and put in an investment account. That sounds huge. Most guys can’t take ten percent. But even if you save five percent and you go to your employer and say every raise that I get in the future take out three percent and don’t let me ever see it, research shows that if you do that over a [inaudible 10:51]period of time you’ll be saving fifteen percent before you know it. If you’ve been saving fifteen percent financial problems are not going to be yours moving forward, especially for your audience.
Your audience has got time to certainly become financially wealthy. That’s the very first step and it’s really what most people fail to do.
Brett McKay: Â OK. So you mentioned mutual funds is where a lot of people go. I think people go there because that’s where the market; you watch the TV commercials, right, or you read the pamphlets and say God, this sounds great, but they don’t perform well. Where should people put there money in then if actively managed mutual funds aren’t the place to go?
Tony Robbins: Â You’ve used the right language, active. If you’re hiring somebody and they’re having to decide which funds to put together, which stocks to put together into a fund they just don’t meet the market. What you want to do is own the market excess. In the world we live in today that’s called an index fund. In fact, I interviewed Jack [Vogel 11:42], who is the creator of index funds. He’s now eighty-five years old. He’s been in the stock market for sixty-three years and he wanted to create a way for the average investor, anybody, to take a tiny amount of money and get a piece of all the biggest companies in the stock market.
He has the Vanguard 500. It’s like the S&P 500. It’s the biggest companies. There’s Coca-Cola, Exxon and these companies. What happens is you get a little piece of all of them, but here’s the real secret. Why would you do that versus the mutual fund, because the mutual fund, first of all, doesn’t beat the market. It’s some mix. It’s not all 500. It’s a mix of what they think will make sense, which it never does long term. Also, number two, it’s the cost. When you have that manager make those decisions, they bury huge costs. When you ask somebody how much does your mutual fund cost you, many of the people that I’ve asked; I’ve asked during this whole media tour, I’ve had one person think they knew the number. The rest had no clue. The one who thought they knew the number, they were dead wrong.
Here’s why. Most people if they think they know they’ll say it’s about one percent. That’s what most money managers will throw around. One percent is called the expense ratio. That is like the beginning of the sticker shock. If you read that actual fifty-page prospectus that comes with your mutual fund, which nobody does, you’ll find there’s seventeen other costs. They may not call them fees, but they’re costs. They come off the top. You don’t get any money until that’s handled.
Forbes did an article and they said the average mutual fund today costs three point one percent. You lose your readers, like who gives a shit about three percent? You got to remember, just the same way that fourteen thousand was compounded to seventy millions, fees compound also. It’s called the tyranny of compounding fees. For every one percent you give up over the lifetime of your investing, that’s twenty percent of all you’re ever going to earn. So if you give up three percent, you’re giving up sixty percent. Try this on for size. If I said to you here’s an investment I want you to make. I want you to put up all the money, I want you to take all the risks, I’m going to put up no money, I’m going to put up no risk. If you lose, I still get paid and if you win I get paid more. In fact, I get sixty percent of your total return. Would you make the deal? People would say are you crazy? That’s what thirteen trillion dollars of the mutual funds are based on.
So actively managed; you want to go non-active; you want to go passive. Passive means you just buy the market. Here’s the perfect metaphor for it. Right now you can buy the Vanguard 500. You get a piece of all the five hundred companies in the stock market from Vanguard. .17 is your cost. That’s less than two-tenths of a percent, as opposed to 3.17.
So you understand what that value means, if you found out you paid three hundred and fifty thousand dollars for a Honda Accord and your neighbor got the same car for twenty thousand, which is the equivalent number; .17 versus 3.17, that’s the difference. Twenty grand versus three hundred and fifty grand.
Another way of putting it would be if you had two people and they both invest and they get the same return; say you start out with a hundred thousand dollars and at thirty-five years old they had put that money aside and they forget about it and they grow it seven percent a year. They never add anything else. They do it for thirty years until they’re sixty-five, so that’s a hundred grand with no other help. If it grows at seven percent it would be worth five hundred and seventy-four thousand dollars by the time you’re sixty-five, thirty years from now.
But if you pay three percent in fees, it’s not worth five seventy-four, it’s not worth five hundred, it’s not worth four hundred. It’s worth three hundred and twenty-four thousand. A quarter of a million less, or a better way of describing it is seventy-seven percent less money and you got the same return. The only difference was the fees.
I show people how to protect themselves. Most people, you’re the chess piece. I want to make you the chess player. I want to make you the insider so this never happens to you, so all that money goes in your pocket.
Brett McKay: So set aside money early and often and focus on index funds as opposed to actively managed mutual funds?
Tony Robbins: Â That’s one approach. As I wrote in the book, and you got to remember I interviewed [inaudible 16:48]. Let’s talk about Ray for a second. Most people don’t even know Ray’s name, right? But in the investment world the President of the United States knows Ray. Janet Yellen, the head of the Fed, knows Ray. The Premier of China knows Ray. In fact, the Premier reached out and wanted some coaching. He manages money for countries. A large hedge fund where rich people will tend to put their money might be fifteen billion dollars, B. Ray is a hundred and sixty billion, ten times larger than the largest hedge fund.
I went to sit down with him. This is a man, to give you perspective, that in order to give him any money ten years ago you had to have a five billion dollar net worth and have a hundred million dollars. Ten years ago he stopped taking money, so now it doesn’t matter what you got, he won’t take it.
I spent three hours with him. As I’m doing it I said to him; I asked him questions that I asked all of the people that I interviewed and that was if you couldn’t give your money to your children and all you could give them was the strategy, a set of rules, a portfolio if you will, what would it be if you were trying to help them start with nothing and build the financial freedom and also not allow that crazy ups and downs of the market? Is there a way to do it?
Ray said to me there’s absolutely a way to do it. I spent ten years of my life putting it together. It’s called the all weather strategy. Literally you make money no matter what the weather, whether the market is going up or the market is going down, whether gold is going up or down, whether you’re in a place where you see things going up or down; it doesn’t matter.
I said explain it to me and he laid it all out for me. I said this is brilliant. We spent, I don’t know, thirty minutes talking about it. I said the problem is the average person just doesn’t have any time and you’ve been telling me the average person is never going to make money going to a wealth manager or to a money manager or to a mutual fund so I said what you told me is great but it’s not going to help somebody because they need to know the percentages.
You told me make the best chocolate cake but here’s what you do. Use some chocolate, use some sugar; I need to know the percentage of each of those. That’s where the secret is. He goes well, Tony, that’s my secret sauce. I said why? He said I can’t give you that, and he went through the whole hundred billion, five billion, hundred million thing. I said you’re one of the most generous human beings I’ve ever met. I said you’re giving away half your net worth eventually. Why don’t you help the average person out right now? You know what, it’s really complex. I said I can make things simple. I’m pretty smart at that. He said well, there’s leverage. I said why don’t you design one without leverage?
So he designed something. It’s not the all weather strategy. It’s slightly different but it’s based on the same principal. It’s called all seasons. If you take this strategy and you apply it, if you back test it and not make up something, what you think the future will be, but if you back test it not for a year or five or ten, but for seventy-five years, the modern period of investing, you find out he’s been successful and he managed eighty-five percent of the time and the little times it lost money its average loss was 1.6 percent. In fact, the largest loss; think about it; the last ten years there have been two fifty percent ups and downs in the market; 2000 and 2008 you lost half of all you have, think about how [inaudible 19:54] in seventy-five years. In seventy-five years, the most he’s ever lost is four percent; not even four, minus 3.95 percent. And the average return has been just under ten.
It is the smoothest ride anybody I’ve ever shown it to has seen in their life, and he gave it for free. You can go get my book and you can go apply this yourself fifteen minutes a year and you’re done. Or you can have somebody else do it for you. This is just one of many strategies.
I’ve also got David Swenson. David Swenson is from Yale. He took one billion dollars in funds of Yale and turned it into twenty-three point nine billion; twenty-four billion in two decades, almost a billion a year if you can imagine that. He gave me his exact portfolio and what he would suggest for somebody who wants to build.
The book is not just index funds. That’s interesting and some people already know that. If you’re going to invest in the market alone, then index funds [inaudible 20:44]. But if you’re really looking to maximize your return and reduce your risks, then you’ve got to look at what the best investors in the world talk about. That’s why the principle is invest like the .001%, not the 1%, the .001% of the people I interviewed. I interviewed fifty and I put twelve interviews; shortened versions of those interviews, massively shortened, in the book, because the interviews were three hours long, so seventy-five pages of notes for each interview.
I did about twelve pages of some of the core principals for each of twelve of the best investors on Earth.
Brett McKay: Â Yeah. I thought it was interesting, a common thread through all of them was their strategy was don’t lose money. That was their top priority. Making money came in later.
Tony Robbins: Â You know what’s interesting? They’re all different. Carl Icahn goes and [inaudible 21:30] and threatens if you don’t maximize this business I’m going to throw you out. Then you go to somebody like Jack Mogul who says live the index. Then you go to somebody like Paul Tudor who’s a math load trader. They all do different things, but the one thing they all have in common is these two obsessions. One, as you said, they don’t lose. The reason they don’t lose is because they know if I lose fifty percent I’ve got to make a hundred percent to get even. That could take years. That could take a decade. That could take an enormous amount of time, energy and risk.
On the other hand though, they know they’re going to be long, so they have a plan to protect themselves. The one thing that they do to protect themselves and make money is they live for what’s called asymmetrical risk reward. Asymmetrical risk reward simply means most people think these wealthy people take huge risks and they heap huge rewards. The truth is they take the least amount of risk possible for the maximum amount of upside.
Paul Tudor Jones, for example, his strategy is I want to risk a dollar because I believe I can make five. I know I may be wrong some of the time, so if I risk a dollar and lose five, now I risk another dollar, I’ve risked two now and make five, I’m still doing great. I can risk four out of five times and still be in great shape, and he’s not wrong four out of five times.
Or another example, Kyle [inaudible 22:39]. Kyle took thirty million dollars and turned it into two billion dollars from thirty million in two years in the middle of the worse economic crisis we had in eighty years. How did he do it? He did it because he never risked more than six cents to make a dollar. Think about that. If you risk six cents to make a dollar, you said say I’ll risk twelve cents to make a dollar. If he’s wrong four times, that’s twenty-four cents to make a dollar. He could be wrong fifteen times and still make money, and he wasn’t wrong fifteen times.
That’s one of the biggest things people learn in the book. How do I get asymmetrical risk reward? Listen, my friend, they’re taking me out of here for my next meeting. You have one last question.
Brett McKay: Â Yeah, one last question. We talked about all this how to make money. How do you maintain a healthy relationship with money while you’re trying to get your financial house in order so it doesn’t canker your sore and let it become your obsession?
Tony Robbins: I think the fastest way is to disavow yourself of the false belief that people have that money changes you. Money will make you more of what you are. If you’re mean, you have more to be mean with. If you’re loving and giving, you’ll be more loving and giving with it. It’s a total story that you’re going to become [inaudible 23:50] unless you’ve already screwed up, in which case you should go to work on yourself.
The vast majority of people, what they’ll find when they have more abundance is that they’ll be more of who they are. They’ll be a bit more relaxed. People are still afraid to be judged. It’s not what money does to you. It’s your fear that other people are judging you. We live in a society where money is a reflection of power. If people have money, some people are embarrassed that they have it. Some people are humiliated if they don’t have it.
It’s like a shape shifter. It’s like a canvas. Whatever you project on it, that’s what it is to you. Ultimately it’s portable power. You can use money to save a life. You can use money to put out a life. It can create or it can destroy. You can start a business or you can put somebody out of business.
I really look at it this way. I say look, it’s a tool, a tool you need to master. If you don’t master money, it’s going to master you. Stop all the stories in your head about all the emotion about it. The emotion is your own normal emotion. You have it about other things too. All it is is that money is something that people identify with, and so often if someone is doing well rather than say they’re doing it well and I’d like to really learn from them, which is a little scary because what if I try it and fail, instead we have to subscribe some negative motivation to them. They don’t give a shit about anybody.
In my book, I’m donating all the money to this charity and then some. I was fed when I was eleven years old and that’s changed my life. I’ve been feeding people ever since, starting with two then four then eight families. I’ve built it over the years until I’ve fed forty-two million people. So when I was working on this book I said OK, I’m going to donate the money. I’m donating fifty million meals and I got people writing me going oh, you’re just in it for money and you’re an asshole. My book will never sell fifty million meals. I’ve written a big check way beyond what I got out of this book.
People don’t want to get confused of the facts. If you’re going to try to please everybody else, you have no life. The only way not to be criticized is do nothing, say nothing and be nothing and I’m not willing to do that. Neither was Aristotle and neither should you.
Brett McKay: Awesome. Tony Robbins, thank you so much for your time. It’s been a pleasure.
Tony Robbins: Thank you very much. Take care.
Brett McKayÂ Our guest today was Tony Robbins. He is the author of the book Money: Master the Game, Seven Simple Steps to Financial Freedom. You can find that on amazon.com and books everywhere. You can also go to moneymasterthegame.com for more information and for some free resources.
Well, that wraps up another edition of The Art of Manliness podcast. For more manly tips and advice, make sure to check out The Art of Manliness podcast at artofmanliness.com.
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Until next time, this is Brett McKay telling you to stay manly.