Tony Robbins Financial Independent http://www.youtube.com/watch?v=kMcwoX9u3Tg
The more you can cultivate that sense of wealth, that sense of abundance, the more you can feel that sense of joy, the easier it's going to be for you financially. Because you are not going to be in this scarce, fearful mode. Now that's not enough by itself, you can have this great sense of abundance and do the wrong mechanics and be a disaster. But if this is the area to get started with, you want to have emotional and psychological strength because that is going to carry you when the mechanics are boring or frustrating, or when things aren't working out.
People that are pessimists are much more realistic/ more accurate. If you give them a test and you ask them to look at something and give a size measurement of it, or to evaluate their own success or failure at a task. Pessimists are 10X more accurate. Optimists always see themselves better than how they did. They basically B.S. themselves. The researcher found put that the pessimists who were accurate never pushed themselves because they knew it was never going to work anyway, the optimist sees it better than it is, so they keep doing it because they have the illusion they did well, "well I'll do even better next time." And because of that optimism, they did it more often, so optimists succeed at a 4-5 fold depending on the task, but the result ultimately is that they go beyond what a pessimist would do even though they are not as accurate!
So if you can develop a psychology of resilience in yourself, you don't have to be optimistic or fake, you can be real. And realness is when you show up, you can be larger than anything that can happen to you. You are larger than any financial challenge you can face. The gratitude can put you in that sense of wealth.
The Fijians are wealthy. Whenever I bring someone over, we have 325 acres and miles of ocean frontage, but when you go up to these two villages, my friends would say, "look at these houses, look at these people, they don't really have electricity, and this and that," but they don't feel poor. It's your identity, the way you define wealth that determines whether you are wealthy or not. Are there enough things for you knowing that 2/3 of the planet lives off of $2 a day, that you can really get yourself to feel grateful? Yes of course!
How much of your life do you get today that you never had to create? Think about it, the roads you ride on, the library, the books you didn't have to write, the internet that you can access in seconds and get the answer to just about anything, the people in your life that you didn't have to raise, but are there for you. Think about all the different aspects of your life. If you want to be wealthy all you have to do is associate. So before we do the financial part, because financial independence is different than wealth. Wealth is being in that state of mind, financial independence is being in that state of position where you don't ever have to work again, that you work because you really want to. I'll give you a clue: if you don't work and you are financially independent you will be miserable.
I can't tell you how many friends that I have that have made over 50 million dollars, one man made almost a billion dollars and was really excited for a while, but after a while, it was like bored. His vehicle of his business was always giving him contribution, and he was always growing, figuring out how to solve problems and all the people he was connected to in the business, all the employees all the friends and associates, it was significant because it was worth doing, and he also had this certainty because he knew the business, and he had this variety because it was always changing. Now he just had this money. So the real secret is to be financially independent, financially free you want to get to where you never have to work again, but you do, because you want to. That's where life gets very cool. Where you don't have to work again, but you want to, you have to work harder. I enjoy my life today, I don't have to work but I do, that's one of the most killer experiences in life. I'm not just saying this as some positive thinking technique, I'm telling you that this is the secret: to shift it inside of you and to add the real value. Most people are trying to pursue something in the future that they already have. I want you to think about what you it is you think you want to be wealthy or financially free. What do you want from financial freedom? How will you know when you are wealthy?
Audience member: "When my husband is no longer stressed about finances."
Then you are probably never going to be free
"I know I need to find out for me what that definition is… but do I guide him?"
First of all has she defined this game in a way she has control over? No. So the chances of her truly feeling financially free or wealthy are slim to none. Have you made more money, how long have you been with your husband? Do you love him? does he love you? Are you a rich woman?
"33 years. I love him so much. He loves me, I'm the most wealthy woman in the world."
Give her a hand for starters! Now notice that if she associates to that part of her wealth can she get to where she feels rich inside? Yes! And in that place she can say, "isn't it amazing that I have a man who cares so much and so deeply for us, that he really wants to make sure we are doing well in this area. And all his worry is demonstrating is that he loves me and he wants to take care of me and our family. How lucky am I? How incredibly rich am I to have a man who cares that much? Would that be a different meaning? Would it feel different? Yes. But if her view is that he has to give up his worry, she can't control him #1, and #2 he may think that worry is the way to demonstrate love to himself and other people and you can get financially free by defining the game in a winnable way. A certain amount of money that we meet and that covers what we are going to call financial security.
This will entail your housing, your cars, your food, and basic entertainment. How many of you would feel rich if the income from your investments alone would those four items for the rest of your life? By the way, that number is way smaller than what most of you think of when you think of financial independence, which is where you don't have to work and everything is covered without working. So let's get the first one down pat, and you're going to know exactly what that number is for you and what it's going to take for that number so that you don't have to work to meet it. Then we look at financial independence where you don't have to work and everything is covered. Then we go to financial freedom and everything you can think of is covered. Anything you want to do for yourself or others, that's a different level isn't it? And most people think of this gigantic number, but if you ever figure out everything you could want it's nowhere near as big as you think. Because it's so big, you never even start the journey. You don't even talk about, you hope their is going to be some big hit sometime with your business or something, but you never get going. So the first thing you've got to do is shift from your well-being to how he thinks and feels. If you can do that, that might give him the space to be able to see that you are happy. Give her a big hand!
Somebody else, how do you know when you are financially wealthy, financially free?
Audience member: "When I have enough money to keep everyone around me fullfilling their dreams."
So when I have enough money to fulfill everyone's dreams around me, how many have learned that when people create a dream, they usually create a new one? So that means basically, you better not stop anything. So why does it take that to make you feel wealthy?
"I feel sometimes that I feel luckier than those around me."
So guilt is part of your motivation?
Coming from guilt that's an abundant place (*sarcasm*), haha. So she can never abundant because she has a belief system inside of her that is a limitation says, "if I have more than others, there is something wrong," and many people have a thing where they have to give it all away. That puts you in more stress because then you have to figure out how to do it again. But the most powerful way we impact other people is by example. So don't get me wrong, I hope you know that I help feed millions of people a year, I do projects in Jerusalem, I get to do projects all around the world, I love what I get to do with my life, big into contribution, gigantic. Not just with my words, but my time, not just my money, but my time and energy. But I also learned the balance I didn't know before. Because I used to think that I earned love by giving everything. And if I have to give you something to get you to love me, then I've just made a trade. That's not love, that's horsetrading. Or there are more direct terms for what that can be called. What do you call a person who loves you only when you give them something, like money, a whore!
But that's what it is isn't it? So if you were to make that shift, you could also say, "if I try to make everyone else’s dream happen, then I can get the joy of it." Like when I was a kid and had no money, I made sure I bought lunch for someone, I found a way. Up until my early 20s this was my way of feeling that I was a giver and not a taker which made me feel good about myself. But one time I went to dinner with this wealthy man who had 10X more money than I did. But I wanted to make sure that I was able to pay and I still have the basic nature, but here's the balance in me now, I don't have to. Because what happened is this guy grabbed my wrist and he took the check from me and said, "are you going to cheat me from the joy I'm going to have of buying you lunch? Are you that selfish?" He got my full attention. So I don't think that pattern of being a giver is going to leave you, and I don't think it's a bad pattern, it's just out of balance. She doesn't think she's wealthy unless there is a trade. If you are coming from abundance and not guilt you can say, "wow there are people that I can help make a difference here, let me help this person and these people," not because you have to but because you want to, then you are rich. Giver her a big hand! Thank you very much!
Audience member: "Wealth for me would be when I have reached a point where I am somebody that I look up to in this area, a role model in the financial area."
Ok I've got a question for you, are you a role model right now for somebody else?
"uh...hmmm haha, possibly."
Yes you could be? Yes, so you've already achieved that but you're still not wealthy.
"Well I'm not my own role model."
But would you be the role model you would have had years ago? Would you be an example of what you wanted years ago.
"no, financially not, but in other areas of my life definitely."
Ok so what he's saying is that, “my definition has to be something that somebody looks up to,” in other words, “I need to be significant,” is the need he wants (in financial terms and meeting other people's lives). And if you were significant in other people's lives what would that do for you?
“Well I meant I want to be a role model for myself.”
But when you get there you won't look to yourself anymore. When you get there you’ll just be at another level and you'll be thinking about getting to some other level that you need to get to so that you can respect yourself.
"That's a good point. He always makes good points, do you notice that haha!"
So what you are doing is playing a game: No amount of money will ever make you wealthy. Because as soon as you get there, you will raise the game. Now here's what's great about that: to continue growing in all areas of your life. If you can grow emotionally should you? yes. If you could give more should you? yes. If you could grow intellectually should you? yes. If you could give more love should you? yes. If you could grow more financially should you? yes because growth is life. But having to grow in order to feel significant enough means you will always be poor. It's a game that never ends.
So here's a story. Listen carefully: There is this great king. He perceives himself to want to be greater than all other kings because he wants to do good. So he doesn't just want to have one kingdom, many kings have one kingdom. He wants two kingdoms, two palaces because after all you do need to locations to move to. So he builds a second kingdom and for a while he's pretty excited. For about a week or a month people come to see his second palace and they say, "you have two palaces, you are unbelievable." And the king says, "yes, I know, I am a role model for myself." But it doesn't seem to last because after a while he says, "maybe I need a third kingdom. I've been to both of those and they're getting kind of boring." It's a lot of work to keep the two kingdoms going, but he doesn't notice that. He doesn't have much time to notice anything else, he's just busy spending too much time doing the kingdom thing. And one day he gets the answer. One day he hears about this amazing monk. This monk has a loincloth and he just goes from city to city sharing what his knowledge of God, and his happiness. And people gather around him, while most pass him on the street. He is given food from people because he is always adding value, so he doesn't worry, he eats and does well. He has no fear. And he perceives himself to be a very wealthy man. He has one item that was given to him by his family - it's a little lamp that he can use for a little heat or to read at night. The king hears that when you rub this lamp and ask for something, unlike Aladdin's lamp where it just gives it to you, it gives you twice as much as what you ask for. And the king gets excited. He says "bring me this man. He doesn't need this lamp, I can be a role model for myself and others, I can be significant." The monk comes to the king and bows to him saying, "you are such an amazing role model. These two palaces are beautiful, they're amazing, I'm so grateful to be here." The king asks "I'm fascinated with you, how do you survive living on the street?" The monk says, "Well I love people and I share with people my ideas, and when you love people you tend to do ok." The king really wants the magical lamp and offers to trade for a “better, lighter lamp.” The monk doesn't want to trade his lamp for a new one, "no please sir, this lamp was given to me by my family and I just value it because of the gift of what it represents." The monk then leaves the palace in all due respect. The king though goes in to rage: "how dare he deny me what I want, how dare he deny me twice as much! Think of the role model I can be! He doesn't even use it!"
So he gets the lamp by force and locks himself in his bedroom chamber. He asks the lamp, "oh great lamp, give me 100 peices of gold." The lamp responds, "Oh great king why not have 200." The king gets excited and says, "fine give me 200." This escalates and then he starts asking for 100 beautiful women, (why not 200?) and it gets more and more intense because the lamp is expanding his point of view. And the king is saying, "god I'm thinking so small." And this goes on for three days and nights. He won't let anyone in. Just him and his lamp. And he starves to death and dies. And that's the end of the story (21:15).
"I guess really what it amounts to is being able to contribute, help and influence in a positive way." Yes, but what to take you away from is waiting to become wealthy. Because are there other people in this world, if I took you to Africa, if I took you to plenty of parts of this country, if I took you right now to the Tenderloins district here in San Francisco, is there someone there that you could mentor, is there someone there that you could mentor and change their life financially, psychologically, physically, emotionally with what you already know beyond anything they could imagine? "yes." Then don't wait to be wealthy, start rich and then get financially free as well. Give him a hand!
By the way is this making sense to you? I don't want you to go away and make more money and still not be happy, and still not be fullfilled. Until you define the game in winnable ways, you never win. And you chase it, and you die chasing it. That is not to say you should take your life to a whole other level and be able to give gifts, but don't wait. If you can own that you are already wealthy I can promise you you'll get to a richness financially 10X faster than with the identity you have of limitation. That's the essence of what I'm talking about here.
Now let's talk about money. If you've really grasped what we have, we're not talking about verbalization, but you can really feel it. You really feel abundant. From that place, what does it take mechanically to get to financial independence? Wealth is a product of the mind. Again there is no amount of money that you ever achieve will make you feel wealthy. Only gratitude will as well as living a life where you know you're contributing and adding value will. Where you are a giver not a taker. That doesn't mean that you don't receive, but someone who is always looking at what am I getting out of every single thing they do is always poor. Because they live in scarcity.
But financial independence means you never have to work again in order to live your life. You work just because you want not because you have to. How do we get there? The lesson is going to be so simple that you will sarcastically remark: "thank you for the fantastic thought" but even though you may know this intellectually, focusing on this is the difference. Can you be a person who is honest in your values and not honest in the moment? Can you be a loving person but not be loving in this moment? Yes, Why? Because whatever you focus on, where focus goes energy flows. So I don't care how sophisticated you are if you are going to focus on what we are giving you right now, even if you know it cognitively, you haven't linked enough emotion to it consistently or if you are here, it's because you want to do it more and better.
The formula for financial independence is so simple. You can't achieve financial abundance unless you apply this not only in a cognitive sense, but consistently in your life. And that is: Spend less than you earn. Most people spend more than they earn. What do you do with the money you don't spend? you invest the difference. I want you to create a money machine. So while you're sleeping, it's still making you money. So you are no longer trading the most valuable resource for money (time for money). Now you are trading money for money. You want money to go to work so that it's making a difference. You want to create a machine. You want it to feed you so you don't have to work. That's what the money machine is.
Now if you spend less than you earn and you don't invest it, you aren't going to get much value. The second secret to this is that you've got to reinvest your returns for compounded growth. How many of you have taken a big hit and taken the money and spent it on something? There's nothing wrong with that, but you have to make sure you reinvest your returns so that you get compounded growth. It is the most basic principal in the world and we all know it intellectually. But are you emotionally associated enough that you are utilizing it to the maximum capability? If you don't, you're not going to get financially free. You will never get financially independent by your earnings alone. There are three areas in life that you don't wnat to go to an expert. An expert can coach you, but you want to make the decisions. #1 is your kids. If you're going to be the screw up you should be the screwup, not someone else in this area. Because at least if you screw up you knew you gave your all. And if you give your all you learn from your screw up and can still make a difference.
But letting someone else tell you how to raise your children is insane, to think that they know more than you do about your own child. They can coach you, you can learn from them, but you've got to make those decisions. What's another area like that? Physical health. If you don't learn this area because you think it's too complex, that I'm going to give this decision to somebody else, that someone else may be totally sincere and sincerely wrong. I'm not lecturing you on what to do, I'm lecturing you to inform yourself and make the decision. Because if you let someone else make the decision, the consequences are too great for your children and for your health. And I'll tell you another area that's really important. Your psychology, having someone else give you a label, telling you what to do, same thing with ending up with a challenge in your body. The last area that's is crucial to money. A lot of people say, "I don't have time for this, I don't understand this, I need to go to an expert for this." I'm not here to sell you some financial investment or plan because if I did that then I would have a self interest process and that's not going to serve you. That doesn't mean that someone can't sell you something, it just means that I'm coming here to advise you on how to make better decisions, not tell you that you should do this individual thing. Because what individually you need to do changes. And by the way, even if you have the best intent can you be wrong? yes. So I'm not here as a registered investment advisor, I'm not here to sell you a stock or a bond, I'm here to teach you a better way of evaluating so you can make better choices more of the time. Because when you get to the financial area, when you meet somebody, the old phrase "when a person with experience and knowledge meets a person with money, what happens? The person with the money ends up with experience and the person with the experience ends up with the money. And even if the intent is purely positive, if this person screws up, no one is going to care about as much about your financial world as you. No matter how much they care, no matter how much they're committed, because it's your life. And if they make a mistake and they are sincere, they get the learning. Which will make them better in the future. But if you make the mistake and you have this concern, you can have the learning.
And there is value in that. Every one of you is going to lose money. There is no way you won't! One of the top 10 financial traders in the history of the world who I work with is not even right half the time. How can you make billions of dollars if you aren't even right half the time? I'm going to show you: it's called asset allocation. It's the way you invest, it's what you do. So the first step is spend less than you earn and invest the difference. Second step is reinvest your returns for compounded growth until you reach the home run, the money machine, until you reach the critical mass of investment capital that creates the annual income you want. Whether you are investing in cars, stocks, bonds, real estate, financial instruments, what are you investing for? You are not investing for returns. That illusion will keep you from getting to the end game. If you are wealthy, here is what makes you wealthy, income! Not assets. Assets you can buy and they can change in value all the time, you need income. Some people are very wealthy on paper and they have no liquid assets and if something happens to those assets, they are in deep stuff. So you need income. Ultimately if you are trying to build a money machine, you will invest in an antique car but you won't ever be willing to sell it, it's not an investment, it's an acquisition. Because what you are really wanting is this car, not building to create your critical mass so that you have a money machine so you don't have to work. When you spend less than you earn invest the difference, and as you get compounded growth you reinvest the difference for more compounded growth, you're going to eventually get to a mountain of money that is enough that without working, the interest on that money alone in that secure environment will give you the income so that you never have to work again. Then you have a money machine. That's different than having X amount of assets on your net worth. By the way, these can change in an instant. If the market changes the feel about real estate, the companies that you've invested in, that can all change within an instant.
The only reason to invest: to have income for life without working. And to do that you've got to get a critical mass of capital where the interest on it alone you can live on that income and you can live the life you want without working. And the only way to do that is to do those first two steps: spend less than what you earn, invest the difference and reinvest it until you hit that critical mass. And we are going to show you ways to make it happen. Everyone's goal then is: I'm building a money machine. And it's purpose is to give me income for life without working, hallelujah!
How to do that is actually a lot simpler than you think. You've got to think of this as your target. Now you're on track if you are spending less than you earn, investing the difference, reinvesting for compounded growth, and working to attain that critical mass to get you free, and do you even know what that number is? Because if it’s a general giant number and you keep moving the number, you'll never get there. You have to define, "this is what it is." Think of this as a bottom line: you must pick out a minimum financial goal for yourself and you've got to pick out a specific percentage of income to invest periodically no matter what. A specific percentage of your income. If you don't do that, then you can forget this course. You can make a whole bunch of money, but you won't be practicing the fundamentals, and eventually you'll make a mistake and you'll lose it. If you're going to change things, you really need to put yourself in a position where you say, "this is what I'm going to invest, this percentage of my income, where you pay the investments first before you pay all the other bills." Because if you pay the investments first, and you keep doing it and it's a pure discipline (and by the way the best way I know about doing this is to have that money taken straight out of your account as soon as it gets there. You can do it automatically and then put it into a money market. Think about this: success in life comes when you make good judgement. When you make good decisions in your relationships, your body, with your family, and with your finances, with everything you get success. So if success in life comes from good judgement and good decisions, judgement often comes from experience. And experience often comes from bad judgement. That's the secret. That's why 80% of psychology comes back to when I make the mistake: "oh my god, my numbers come down and I'm not making progress!" Instead of saying, "I can never get there!" it's about redoubling your efforts.
And it really helps to have a role model as this man pointed out. I was shortly with Michael Milton shortly after he came out of prison. Michael was the junk bond dealer who made billions of dollars from himself and other people the 1980s. He funded Ted Turner, he gave him his start, he gave all kinds of companies their start. But he also did some things that put him in jail. by the way, in jail how wealthy do you think he felt? Not very. He was able to keep a significant amount of his money, he paid fines, he spent a period of his life there, and when he got out of jail, he developed something called cancer. So what good is the money? So he spent his life trying to figure out how to change and even though he had a lot of money, he felt like he was starting over in terms of his identity, in terms of his respect for the way people look at him, so he began by trying to do good works, but he was really feeling defeated until he met an interesting guy, a guy named Carl Eller. I was talking to Michael later on, he actually wanted to have one of my companies into his group, he wanted a piece of it, but the deal was not the right deal for me and looking back on it, it was the right choice not to do it even though he is a very bright man. But he had the experience, and I had the company and the money, and I realized that when I worked out the investment deal, I made an intelligent choice moving forward fortunately. But what I got out of that meeting was more than the investment we could have made together. What I'd like to give you is a role model who still guides me. What this man, Carl Eller, did was in 1952 he was a man who got involved in outdoor advertising. He went to work for a company and he worked there ten years for that company. Then in about 1962 he found himself in a position where he had learned enough and had enough compounded experience, (10 years working for someone else, learning the business, learning to make intelligent choices), he said, "I'm going to use a little of my own money, I'm going to leverage it, and I'm going to buy my own company in the outdoor advertising business. And he did that in Arizona. Then his next 6 years of his life he builds that company up and about 6 years later he builds it up enough that all of a sudden he looks at his life and says, "I can merge this and get more value. I can work with someone else, I can see what those guys did at that other company that I worked for, they didn't just work, they merged with other companies." So he follows the model he learned. And sure enough he merges with a local radio and television station there in Arizona. And the value of that company grew immensely. So now he's got another 10 years and he's got 16-17 years into this business now, you think you can compound things over 17 years if you compound things and you are smart? yes. Do you think all the decisions he made were good ones? no. Did everything he do make money? no. He failed at many things but he had this psychology that said, "if it didn't work, that's experience and we're going to learn from it and make a better decision."
So over the next 15-16 years he basically moves into the position where this company has some real value and he sells it with his partners to Gannett, the company that owns USA Today, a really large firm. 1980 he becomes chairman of Columbia Pictures. And in a short time from 1980-83 taking what he's learned form the advertising business, he grows Columbia pictures and he helps them to merge with Coca-Cola. so by 1983 this man has been working since 1952 (that's how long I've been doing that I've been doing, that's how long the person accumulated 70 million dollars, just by investing in other peoples stuff, not by having to do it. You don't have to be a great entrepreneur to make money. You can invest in a great entrepreneur. You can look at someone like Bill Gates and say, I'm going to own a piece of him, I don't have to work around the clock, let him. There are a lot of ways to make money that are easier than running your own business and this man Carl loved running his own business.)
So by 1983 he's accumulated a net worth of 500 million dollars. It's certainly worth a billion dollars today. So what's he going to do, he's in his late 50s at this stage of his career, so he's got all this money and he doesn't have to work, so he doesn't for a while. But he starts to go crazy. He says,” I've got to do something with my life,” you can only go to so many beaches, you can only go through so many Dacquiris. I want to do something productive. So he comes up with the idea that he is going to take over a company called Circle K. At that stage the company was doing about 700 million dollars in sales, so he goes into partners and goes in and puts up virtually all his money to make this deal happen. He thinks he is going to turn this company around and he does. He turns Circle K in roughly 5 years into the 2nd largest convenience store in the world behind 7/11. He's got like 4,5000 stores in the US, 15-1600 over seas in over a hundred countries, just an amazing growth record. He takes the company from 700 million in gross sales to over 7.5 billion in that short period of time. So now in the early 1990s he's looking pretty good. Then in 2 years the entire company reverses it's fortunes and goes bankrupt and he loses 500 million dollars, everything he's accumulated in 62 years of his life. He has nothing, Not only does he have nothing, he owes 100 million dollars at 62. How many of you have thought you were in bad financial trouble and it wasn't that bad? Pretty much everybody!
So you thought, "oh I lost my job, I lost my income, my investment went terrible, or the house I bought wasn't worth as much, or I bought a stock and I lost it, or I went through a divorce and it was terrible and I lost half my money," trust me, this experience makes yours look like nothing. Now what do you do after working for roughly 40 years of your life, your 62, everyone respects you, you are really well known, and now you are a total failure and you owe 100 million dollars, 99% of the planet would go bankrupt obviously. But he decided that there was still time. That was psychology, not mechanics. What did I tell you? 80% of financial freedom, financial independence and all of wealth is psychology, 20% is mechanics. At 62, he had the guts to say, all I've got to do is to get a small amount of money, I've got to get into compounding money again, I've got to make better choices, which at this stage will not be difficult. What took me roughly 40 years to develop I lost in 3 years, but if I didn't lose the 38 years of experience, of what I've learned, of what who I am, so he didn't say I'm starting over, he said, "I'm going back to what I know." And at 63, he went back to Phoenix, Arizona nad he leverage people in how much he thought he could get and he got a small outdoor advertising company and he started "over" but he didn't call it that, he said, "I'm going back to what I know, so that I can make some better intelligent choices." So what happens? In less than 5 years he build that company up, compounds it in 25 cities, and he builds himself to where at age 68 years old, he now is a billionaire again, he sold his company to Clear Channel. He wasn't even a billionaire after 40 years.
So this is a lesson in one thing: psychology. But it's also important in the next most important mechanic you need to know, because everybody's going to make some bad choices and they're going to cost you seemingly everything. Or you may even make a conscious choice, you're going to make something, changing a relationship can cost more than half your money depending on how your life is structured financially, but it may be worth it. How do you not be destroyed by that? You have to be strong psychologically but you also have to avoid it. If he was here today and you were going to ask him, besides your psychology, what was the biggest mistake you made? He would say one thing to you and I want you to hear it now and even though you may have understood it intellectually, you don't associate enough emotion to it because my guess is that is why you are in this room. That mistake was asset allocation. This is not sexy, this is not completely new for some of you, but you need to be fully associated, (when you are green you grow, when you are ripe, you rot) you've got to get back to being a beginner on asset allocation. Because what happens is that when you become a sophisticated investor, you tend to look at: "where can I put my money to where I can get the largest return?" And that's the biggest mistake you can make in your life. It's counter intuitive. But asset allocation is the single most important decision you are going to make in your financial future. You screw this up, and you can do everything else well and end up empty financially. Not unwealthy if you stay associated to your financial strength, but you are certainly not going to be financially free. And this was the mistake he made.
What does asset allocation mean? It means you are going to make the wrong decisions at times: you're going to get the best advice, you're going to study the past, the market shows there is an upward trend, the real estate market is trending upward, gold is trending upward, or something is trending upward and you feel like you are missing out if you don't get in. And so sure enough you get this piece in you where the fear starts to happen and you don't want to miss out and everyone is telling you it's looking like the right thing, it looks like the right thing, and it should be the right thing, and your timing is wrong. Can you do the right thing at the wrong time? Yes. Let me tell you another secret to life: if you do the right thing at the wrong time, you get pain. If you plant in the winter, I don't care how hard you work, I don't care if you work day and night, you work to the bone and you plant your seeds in the middle of the winter, what's going to happen when Fall comes, are you going to be rewarded? No! So if you don't understand that the seasons are changing, you're in trouble. But even if you do everything right, you can think it's Spring time can't you?! And be wrong. So how do we protect ourselves? The answer is Asset allocation: it is the secret you must give yourself and I can promise you in two days all of you will forget what I'm saying right now. Because many of you who will be making momentum investments, and some of you in this room will make $3000 in the last four hours and they're going to make a trade, some will make $100, some $500, but someone else is going to lose $1000 or $500. And what everyone is going to focus on is the person who made $3000 and they're going to put all their money in this momentum investment where supposedly they will make 10%-20% on this investment today!
Every part of you goes, "that's how I get my money machine! I want to get my compounded interest, I want to get the best return I possibly can!" so they put all their money into there and the wrost thing that can happen to you is like Las Vegas, you win. It's the worst thing that could possible happen to you, because
When I was a kid I was not into throwing my money away because didn't have much money. I was not into gambling. I wanted to give it, share it, do something fun, get people to light up, but I ended up going to Vegas with friends of mine. And they all bet, and I just said, "I'm going to hang out with you guys, go to the shows, watch." So I sat there and watch and didn't bet anything until the last day. On the last day I thought, "well I'll play a little bit of blackjack, it's simple, you can anticipate the logic of it, you rationalize the whole thing, and I won $1800 and that was like an unbelievable amount of money because I started out with $300. Worst thing that can ever happen! Because once you get that jackpot, what do you always think? I'm going to get it again. That's how they make money in Vegas, because they set up the compounding on their side. They know what the ratio of results are and they know all they need to do is to get you to keep doing this because eventually the house is going to win because the house has the economic advantage. The longer you go, the greater the chance you are going to leave empty handed. That's how they can build a hotel that costs 2.2 billion dollars! How can you afford that? You have large margins in profits! And what does that come from, people who got the big jackpot. So the worst thing that can happen is that you make investments and you get a homerun. And the homerun gets you to start thinking you are really smart, and maybe you are really sophisticated, but there is a day when the whole game changes and it's difficult to predict that sometimes because it's impossible.
What is asset allocation: out of the money you invest, we're going to create 3 buckets, a really simple way to think of it from now on (it's help you understand where you are going to put your money into investments every year). If you don't spend less than you earn, you're going to have nothing to invest. If you spend less than you earn, you're going to have something to invest. Do you need to come up with a specific number, a percentage that you are going to invest every year? Yes. Where are you going to put that money? Whether it's $10, $100, $1000, $10000, $100000, a million $ a year, a million $ a month, it doesn't matter. You're going to put it if you're smart into these three buckets of asset allocation.
The first bucket is the security bucket. When you think about investing, there are two types of investments. There are fixed income investments (a guaranteed rate of return assuming they deliver). IS there risk in any investment? yes. So there are ratios of risk, and as we know, no risk, no reward. So if you don't invest you're going to lose a few than if you invest at times, and if you don't invest you are never going to have a money machine, and you are never going to be financially free. So fixed income investments are going to get you a guaranteed return, a bond. A bond: the company says "I guarantee you, you give me your money, I will deliver at this time at this date, this percentage of return to you. So it's fairly secure.
The second type of investment you can make is something that's growth driven. And growth investments are where you probably have a greater potential for growth, which means you have a greater return if you are successful, but if you aren't successful, do you have a guaranteed rate of return? no, growth investment you have the potential of greater return, but the risk of greater loss. There is no guarantee in a gross investment, no matter how long it's been going that way, there is no guarantee. We start to get the illusion that it's always going to go up, but it isn't necessarily. So where do you put your money if you are thinking security vs. not security? You security bucket is where you want to put investments that are secure by nature. Because they are secure, is this going to give you a huge compounded return per year? No. But can it give you a huge compounded return even if the number is small and you do it long enough. Yes! So what we want to do is your first investments have to be in your security bucket. Everyone wants to do the opposite. Because why would you want to go and put some money into something where you are only getting 5%-8% on, when you can go do something else where you know you can make 20% on? Because the 5-8% is totally guaranteed by that promise, government, company, or whatever that situation may be. And if you screw up in your growth investments you've got how much? ZERO.
What did Eller do? He put everything into his growth bucket. He went, "why would I put my money in my security bucket? I've got $500 million dollars, I can do all these different things, if I can leverage here I can make my goal of a billion dollars. I wouldn't have to worry about putting money into my security bucket." You might say, "well it worked out well for him!" But how many Ellers are there in the world? Most people when they face what looks like financial ruin they say, "it's over. I can't start over again at 40, 50, or 60, much less 63." Very few people would do that. And even though he did he had to make some good choices and have a little bit of luck. And you get really lucky when you work for 50 years your guts out. Right? And you won't persist, you won't give up, you have this incredible psychology, you figure out how to create value. But most people won't recover from that. If there's anything he'd do, he wouldn't have billions of dollars and all that stress, if all he'd done if he had put a certain percentage in his security bucket. The question becomes, "what percentage goes into your security bucket?" IF you don't have 2-6 months of cash that covers your overhead, you're in deep trouble. And today, it's amazing, people with enormous incomes spend when they don't have 6 months of cash on the side. And if something happened where they lost their job or something happened if they lost their job, or the economy got hit, or a terrorist attack occurred and everything got locked up, they'd be in huge trouble.
The first step to getting financially secure, not financially independent is to make sure you've got enough cash so that if something happens you can go for six months, you've got freedom. This has got to be a basic financial goal, but nobody wants to do that because it's not sexy! And you're saying, "I can be using this for compounded growth!" Yes, but you could lose and then you could start with nothing. How much should go in the security bucket: 6 or more months, a year, it depends on your psychology, but whatever is going to make you feel secure is individual for everybody. It's different for everybody. This is where you've got to know the truth of who you are, not what you project. And some people are more certainty driven, some are more security driven than other people, some need to have more security drive right now in order to keep their life balanced. You will also put in your IRA investment, insurance investment (which is protecting you), your home investment (don't think of your home as an investment, because for most of you, you're eventually not going to sell that home and get income off of it. Some of you may be accumulating the same homes and buy that smaller home and take that critical mass and it's going to take care of you for life. If you're doing that great. But the place to put your home in terms of leverage is your security bucket.
(56:21) Because if you don't have a home you're going to be very stressed out. So I've got to think of my compounded interest outside of my home. Fixed income investments all fit in this category.
There are a few ways you are going to learn about growth: the buy and own strategy, which is the strategy as the owner. And by the way, the buying and holding is less risky to some extent than momentum because of the timing, but it can be just as risky. What is momentum trading? That's when you are no longer an owner, you are a trader. Everyone is a financial trader. Most of you are trading time for your money. Here you are trading money for money.