Unshakeable: Your Financial Freedom Playbook

by Anthony Robbins

Any investments other than stocks, bonds, and cash are defined as alternatives.

First, a word of warning: many alternatives are illiquid (in other words, hard to sell), tax inefficient, and laden with high expenses. That said, they have two attractive attributes: they can (sometimes) generate superior returns; and they may be uncorrelated to the stock and bond markets, which means they can help to diversify your portfolio and reduce overall risk.

Real Estate Investment Trusts. I’m sure you know people who’ve done well by investing directly in residential property. But most of us can’t afford to diversify by owning a slew of houses or apartments. That’s one reason why I like to invest in publicly traded real estate investment trusts (REITs).

Private Equity Funds. Private equity firms use pooled money to buy all or part of an operating company. They can then add value by, say, restructuring the business, cutting costs, and minimizing taxes. Ultimately, they attempt to resell the company for a much higher price. The upside: a private equity fund that’s run with true expertise can make outsized profits while also adding diversification to your portfolio by operating in the private market.

Master Limited Partnerships. I’m a big fan of MLPs, which are publicly traded partnerships that typically invest in energy infrastructure, including oil and gas pipelines.

Historically, stocks, bonds, energy commodities, and real estate have outperformed gold. So count me out.

problem is, hedge funds start with a huge disadvantage in every major category: fees, taxes, risk management, transparency, and liquidity.

As I see it, hedge funds are handmade for suckers or for speculators looking to roll the dice on a big bet. They’ll make someone rich, but it ain’t likely to be you or me.

In reality, the type of assets you own should be matched to what you personally need to accomplish.

So how should you approach the challenge of asset allocation? As I see it, the real question that you and your financial advisor have to answer is this: What asset classes will give you the highest probability of getting from where you are today to where you need to be? In other words, the design of your portfolio must be based on your specific needs.

The point is, you want an advisor with the skills to tailor your portfolio to suit your specific needs. A one-size-fits-all approach to asset allocation can be disastrous.

Asset Allocation Drives Returns. Let’s start with the fundamental understanding that your asset allocation will be the biggest factor in determining your investment returns. So, deciding on the right balance of stocks, bonds, and alternatives is the most important investment decision you’ll ever make.

diversify globally across multiple asset classes.

never bet your future on one country or one asset class.

Use Index Funds for the Core of Your Portfolio. At Creative Planning, we use an approach to asset allocation that we call “Core and Explore.” The core component of our clients’ portfolios is invested in US and international stocks. We use index funds because they give you broad diversification in a low-cost, tax-efficient way, and they beat almost all actively managed funds over the long run.

exposure to stocks of all sizes: large-cap, midcap, small...

Always Have a Cushion. You never want to be in a position where you’re forced to sell your stock market investments at the worst moment. So it makes sense to maintain a financial cushion, if at all possible. We make sure our clients have an appropriate amount of income-producing investments such as bonds, REITs, MLPs, and dividend-paying stocks.

The Rule of Seven. Ideally, we like our clients to have seven years of income set aside in income-producing investments such as bonds and MLPs.

If stocks crash, we can tap these income-producing assets to meet our clients’ short-term needs.

never underestimate the awesome power of disciplined saving combined with long-term compounding.

Explore. The core of our clients’ portfolios is invested in index funds that simply match the market’s return. But at the margins, it can make sense to explore additional strategies that offer a reasonable chance of outperformance. For example, a wealthy investor might add a high-risk, high-return investment in a private equity fund.

Berkshire Hathaway.

Rebalance. I’m a big believer in “rebalancing,” which entails bringing your portfolio back to your original asset

As Princeton professor Burton Malkiel told Tony, unsuccessful investors tend to “buy the thing that’s gone up and sell the thing that’s gone down.” One benefit of rebalancing, says Malkiel, is that it “makes you do the opposite,” forcing you to buy assets when they’re out of favor and undervalued. You’ll profit richly when they recover.

there’s no need to fear bear markets, either. In fact, they provide the best opportunity to buy the bargains of a lifetime, so you can leapfrog to a whole new level of wealth. The bear is your gift—one that comes, on average, once every three years! These aren’t just times to survive. These are times to thrive.

Neuroscientists have found that the parts of the brain that process financial losses are the same parts that respond to mortal threats.

Mistake 1: Seeking Confirmation of Your Beliefs Why the Best Investors Welcome Opinions That Contradict Their Own

“confirmation bias,” which is the human tendency to seek out and value information that confirms our own preconceptions and beliefs.

This tendency also leads us to avoid, undervalue, or disregard any information that conflicts with our beliefs.

“endowment effect,” in which investors place greater value on something they already own, regardless of its objective value! This makes it much harder to part ways and buy something superior. The truth is, it’s never wise to fall in love with an investment. As the saying goes, love is blind! Don’t get swept off your financial feet.

actively seek out qualified opinions that differ from your own. Of course, you don’t want just anyone with a different opinion, but rather someone who has the skill, track record, and intelligence to give another educated perspective. All opinions are not created equal.

Mistake 2: Mistaking Recent Events for Ongoing Trends Why Most Investors Buy the Wrong Thing at Exactly the Wrong Moment

“recency bias.” This is just a posh way of saying that recent experiences carry more weight in our minds when we’re evaluating the odds of something happening in the future.

“The biggest mistake that the small investor makes is to buy when the market is going up on the assumption that the market will go up further—and sell when the market is going down on the assumption that it’s going to go down further.”

The Solution: Don’t Sell Out. Rebalance.

An important component of these investment rules is deciding in advance how you’re going to diversify by allocating a specific percentage of your portfolio to stocks, bonds, and alternative investments.

regularly rebalance your portfolio once a year.

The beauty of rebalancing, says Harry, is that it effectively forces you to “buy low and sell high.”

Mistake 3: Overconfidence Get Real: Overestimating Our Abilities and Our Knowledge Is a Recipe for Disaster!

humans have a perilous tendency to believe that they’re better (or smarter) than they really are. Again, there’s a technical term for this psychological bias: it’s called “overconfidence.” To put it simply, we consistently overestimate our abilities, our knowledge, and our future prospects.

invest in a portfolio of low-cost index funds, and then hold them through thick and thin.

“If you can’t add value, if you can’t create an asymmetry, then the best thing you can do is minimize your costs,” says Howard. In other words, “Just invest in an index.”

Mistake 4: Greed, Gambling, and the Quest for Home Runs It’s Tempting to Swing for the Fences, but Victory Goes to the Steady Survivors

The financial media reinforces the sense that the markets are just one giant casino—an intoxicating get-rich-quick scheme for speculators! It’s easy to get sucked in, which is why so many people lose their shirts by betting on the hottest stocks, trading options, and moving in and out of the market. All this activity is motivated by the gambler’s desire to hit the jackpot!

staying in the game for decades. Remember, as Warren Buffett says, “The stock market is a device for transferring money from the impatient to the patient.”

Guy suggests checking your portfolio only once a year. He recommends avoiding financial TV entirely.

Guy recommends creating “a more wholesome information diet” by studying the wisdom of ultrapatient investors such as Warren Buffett and Jack Bogle. The result? “You’re feeding your mind thoughts that will make it much easier for you to think and act long term.”

“home bias.” It’s a psychological bias that leads people to invest disproportionately in their own country’s markets—and sometimes to invest too heavily in their employer’s stock and their own industry.

Now, you and I both know that the best investors relish corrections and bear markets because that’s when everything goes on sale.

financial losses cause people twice as much pain as the pleasure they receive from financial gains. The term used to describe this mental phenomenon is “loss aversion.”