One of the main priorities in my life recently has been improving my financial situation and ultimately taking the first few steps towards achieving financial freedom. This week I have been listening to the audio version of Tony Robbin’s new book “Unshakeable”. A book full of practical advice on how you can achieve financial freedom.
The book lays the ground for building and maintaining an effective investment portfolio in both bull and bear markets.
In this post, I want to outline the five most important concepts that Tony discusses in the book. The aim here is to give you a condensed version of Unshakeable so you can internalise the knowledge in a short amount of time and start applying what you have learnt immediately.
1) Invest in Index Funds
The point that is hammered home on multiple occasions throughout the book that most people should investing in index funds. I had never even heard of index funds before I read this book – not that I had much financial knowledge.
The basic idea with index funds is that your money is spread to match a market index (like the S&P 500). You are investing in a wide range of stocks and are essentially waging your money on the success of the market rather than individual stocks.
One of the main advantages of investing heavily in these funds is that you are more far more protected from fluctuations because you are investing in such a diverse range of stocks.
Another huge advantage of investing in index funds is that there is minimal trading with your money (it’s more of a buy and hold approach) meaning that the fees and taxes that you would be forced to pay in other types of funds are dramatically reduced.
There is much discussion in the book about the hidden fees and taxes in many people’s investment portfolios which are shredding a large percentage of their potential earnings. The long and short of it is that these hidden expenses are bad news and make it much harder to reach the goal of financial freedom. The main reason for this is that these hidden costs reduce the power of compounding. Which brings me onto the next point…
2) The Power of Compounding
Investing money early in life and adding to it on a consistent basis can pay back dramatically over time – this is due to the power of compounding.
Here’s the example of compounding provided in Unshakeable:
If you invest 300 dollars per month from the age of 19 to 25 and then leave this amount to compound. You would have over 1.5 million dollars by the time you were 65.
The key here is to begin investing early and on a regular basis. If you can do this, you will easily achieve financial freedom by retirement age.
However, the only way a compounding strategy can be successful is if you stay in the market regardless of the economic conditions which are bound to fluctuate over a such a long period of time.
3) Stay in the Market
You need to stay invested in the market.
Having your wealth in cash not only means that you are not utilising the power of compounding but you will also be losing wealth due to inflation.
This is easier said than done as it takes discipline to stay in the market in time of economic downturn
The important thing to remember is that the bad times never last for ever and pulling money out of the markets as they are crashing is the worst thing you can do. The reason for this is that you will make a loss and when the markets inevitably rebounds you will have no chance of getting back in. The best strategy is to hold and ride it out.
Diversification is a key strategy for making yourself financially unshakeable. If you diversify correctly you will give yourself the security to ride out any dip in the market.
Diversification basically boils down to spreading out of your wealth into a variety of different types of assets rather than bundling them all in one place where they are vulnerable. As we talked about in point one, investing heavily in an index fund is a good starting point. Some other ways to diversify your wealth includes investing in a variety of different markets, countries and currencies.
5) Invest in time of Gloom
‘Be Fearful When Others Are Greedy and Greedy When Others Are Fearful’
One of the main points made in Unshakeable is that you should be willing not only to keep your money in the market when the value is plummeting but you should buy more stocks when it hits rock bottom.
Investing in stocks in a time of gloom and fear is a huge money-making opportunity. At this time, stocks are going to be at an ultra-low bargain price. When the price inevitable rises again you can make a fortune off these well-timed purchases.
The key here is to have some of your portfolio invested somewhere where it can’t be touched by an economic crash, such as low risk government bonds. When the market plummets, you can use the money you have stashed in bonds to buy these bargain priced stocks.
I agree with Tony that investing early is important but I do believe that you need to take your own situation into account. If you are in a similar financial situation to myself and have very little money to your name, investing may not be the best first step for you.
Instead of investing right away, you should focus all your attention on increasing your income. This could be done by improving your position in your current job, or by creating alternate streams of income or possibly both.
I do think that the internet is a great place to start when looking to increase your income in creative ways. Consider what value you can personally bring to the market and come up with a way to deliver this value to the right people. Your income will increase from there.
Once you are at a comfortable income level, investing becomes far more practical and lucrative and you can use the five tips above to become financially unshakeable.
You can buy Unshakeable by Tony Robbins here.
Also published on Medium.