Tony Robbins, the high-energy performance coach who sells out arenas for his seminars, has made it his primary mission the past few years to spread personal finance literacy.
Starting with his client of nearly 30 years, the billionaire investor Paul Tudor Jones, Robbins interviewed 50 of the top financial minds in the United States to break down complex ideas for the average person.
One of these people was Ray Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund with $US150 billion in assets under management. Robbins writes in his new book “Unshakeable” that,”I’ve met a lot of extraordinary people over the years, but I’ve never met anyone smarter than Ray.”
Robbins recently came by Business Insider’s New York office for a Facebook Live Q&A where he discussed “Unshakeable,” a much slimmer version of his 2014 book “Money: Master the Game,” with additional insights from Peter Mallouk, who was rated the No. 1 wealth adviser in the US by Barron’s three times, and who brought Robbins into his firm Creative Planning in 2016.
Robbins told the audience that Dalio explained to him the importance of diversification and having sound investor psychology. We’ll break down these lessons using Robbins’ comments from the Q&A as well as his book.
You won’t beat the market.
Unless you’re one of the greatest investors on the planet, who also happens to be very lucky, you’re not going to craft a portfolio that brings you a higher return than had you just tracked the market’s longterm growth with an index fund.
“Before you try to beat the market, recognise that your likelihood of being successful is extremely small and ask yourself if you spent the time to train and prepare to be one of the few who actually wins,” Dalio told Robbins.
“If you know your limitations, you can adapt and succeed,” Dalio said. “If you don’t know them, you’re going to get hurt.”
Which leads to the next point.
In the Facebook Live Q&A, Robbins said that Dalio told him that “people tend to invest in what heard about, what they read about, or what their family did” — and that’s a mistake.
“The problem is, every single asset class that you love will have a day where it drops 50 to 70% in a day,” Robbins said. “Dalio showed me this statistically on every asset you can look at. And he said, Tony, if it’s later in life, you have no time to make up for it.”
In “Unshakeable,” Robbins also includes four principles from the renowned economist Burton Malkiel, who told him:
- “Diversify across different asset classes. Avoid putting all your money in real estate, stocks, bonds, or any single investment class.”
- “Diversify within asset classes. Don’t put all your money in a favourite stock such as Apple, or a single MLP [a publicly traded partnership], or one piece of waterfront real estate that could be washed away in a storm.”
- “Diversify across markets, countries, and currencies around the world. We live in a global economy, so don’t make the mistake of investing solely in your own country.”
- “Diversify across time. You’re never going to know the right time to buy anything. But if you keep adding to your investments systematically over months and years … you’ll reduce your risk and increase your returns over time.”
For the average investor, it’s best to work with a fiduciary, a financial adviser who has pledged to value your interests over their own, to determine the best portfolio for your needs.
A good place to start on your own, however, is investing in an index fund, which allocates money across companies in an index, essentially giving you representative ownership of that market — which, again, will grow over time regardless of short-term performance.
Dalio told Robbins that in 1971, when President Richard Nixon took the US off the gold standard, he logically believed that stocks would plummet, but they skyrocketed. “What I realised is nobody knows and nobody ever will,” Dalio said. “So I have to design an asset allocation that, even if I’m wrong, I’ll still be ok.”
You can watch the full Facebook Live Q&A with Robbins below.