WHAT THE WORLD ’S GREATEST FINANCIAL LEADERS ARE SAYING ABOUT MONEY MASTERAY TONY ROBBIN'S . . . complete book pdf..

 WHAT THE WORLD ’S GREATEST FINANCIAL LEADERS ARE SAYING ABOUT MONEY MASTERAY TONY ROBBIN S . . .

“H e has a great gift. H e has the gift to inspire.”

—Bill C linton, former president of the U nited States

“T ony Robbins is a human locksmith—he knows how to open your mind to larger possibilities. U sing his unique insights into human nature, he’s found a way to simplify the strategies of the world’s greatest investors and create a simple 7-step system that anyone can use on the path to the financial freedom they deserve.”

—Paul T udor Jones II, founder, T udor Investment

Corporation, and legendary trader with 28 consecutive years of positive returns for his investors

“T ony Robbins has influenced millions of people’s lives, including my own. In this book he offers you insights and strategies from the world’s greatest investors. D on’t miss the opportunity to experience the life-changing value of this book.”

—K yle Bass, founder of H ayman Capital Management and investor who turned $30 million into $2 billion in the middle of the subprime crisis

“In this book, T ony Robbins brings his unique talent for making the complex simple as he distills the concepts of the best investors in the world into practical lessons that will benefit both naïve investors and skilled professionals.”

—Ray D alio, founder and co–chief investment officer,

Bridgewater Associates, #1 largest hedge fund in the world

“Money: Master the Game will be a huge help to investors . . . T ony Robbins dropped by my office for a 40-minute appointment that lasted for four hours. It was the most provocative, probing interview of my long career, a reaction shared, I’m sure, by the other souls with strong investment values and sharp financial minds who populate this fine book. T his book will enlighten you and reinforce your understanding of how to master the money game and, in the long run, earn your financial freedom.”

—John C . Bogle, founder, the Vanguard Group and the

Vanguard index funds, #1 largest mutual funds in the world

“T his book is not the typical financial book in any way. It is packed with wisdom and vital philosophies to enrich your life. A lot of books out there have more sizzle than steak to offer. T ony’s is different. T his book will change your life.”

—D r. D avid Babbel, professor of finance, Wharton School of the U niversity of Pennsylvania

“In this book, T ony masterfully weaves anecdote and expertise to simplify the process of investing for readers —priming their financial education and helping them effectively plan for their future.”

—Mary C allahan E rdoes, CE O, J .P. Morgan Asset

Management, $2.5 trillion in assets under management

“T ony Robbins needs no introduction. H e is committed to helping make life better for every investor. E very investor will find this book extremely interesting and illuminating.”

—C arl Icahn, Billionaire Activist and Investor

“A gold mine of moneymaking information!”

—Steve Forbes, publisher of Forbes magazine and CE O of Forbes, Inc.

“I have spoken at T ony’s financial events several times in the last few years, for which he pays me a fee. But upon closer reflection, I should be the one who pays him a fee. H e has the incredible talent of taking complex knowledge from leading financial experts and converting it into simple steps that the average man can apply to achieve financial security and freedom.”

—Marc Faber, winner of Barron’s Roundtable and publisher of the G loom, Boom & D oom report

“Y ou can’t meet T ony Robbins, and listen to his words, without being inspired to act. T his book will give you the strategies to create financial freedom for yourself and your family.”

—T . Boone Pickens, founder, chairman, and CE O at BP

Capital and T BP; predicted oil prices accurately 18 out of 21 times on CNBC

“Robbins’s unrelenting commitment to finding the real answers to financial security and independence, and his passion for bringing the insights of the ultrawealthy to the average man, is truly inspiring. T his book could truly change your life.”

—D avid Pottruck, former CE O of Charles Schwab and bestselling author of Stacking the D eck

"If you’re looking for answers and you’re committed to creating financial freedom for yourself and your family, then T ony Robbins is your man. G et this book, change your life.”

—Farnoosh T orabi, award-winning author of W hen She Makes More: 10 Rules for Breadwinning W omen

“Sitting in the back of Financial D estiny nearly twenty years ago, I was a student of T ony Robbins’s who had a dream to help teach and empower one million women to be smarter with money. T hanks to T ony, a year later I would be speaking on stage at his events, writing Smart Women Finish Rich, and ultimately creating a program that would reach millions of women worldwide. T oday there are more than seven million copies of my Finish Rich books in print, translated into 19 languages. T ony changes lives, and he will change yours. I, like you, will be reading MONE Y cover to cover, and sharing it with my friends.”

—D avid Bach, nine-time N ew Y ork T imes–bestselling author; titles include T he Automatic Millionaire, Start

L ate, Finish Rich, Smart W omen Finish Rich, and Smart

C ouples Finish Rich; founder of FinishRich.com

“W e’ve been selected by Forbes as the most innovative company in the world for four consecutive years. Our revenues are now over $5 billion annually. W ithout

access to T ony and his teachings, Salesforce.com wouldn’t exist today.”

—Marc Benioff, founder, chairman, and CE O of

Salesforce.com

“T ony’s power is superhuman . . . H e is a catalyst for getting people to change. I came away with: It’s not about motivation as much as it is allowing people to tap into what’s already there.”

—Oprah W infrey, E mmy Award–winning media magnate

“T ony Robbins’s coaching has made a remarkable difference in my life both on and off the court. H e’s helped me discover what I’m really made of, and I’ve taken my tennis game—and my life—to a whole new level!”

—Serena W illiams, 18-time Grand Slam tennis champion and Olympic gold medalist

“I was afraid that my success would take something away from my family. T ony was able to turn it around and show me that I’ve helped millions of people. Probably the most intense feelings I’ve ever had.”

—Melissa E theridge, two-time Grammy Award–winning singer and songwriter

“N o matter who you are, no matter how successful, no matter how happy, T ony has something to offer you.”

—H ugh Jackman, E mmy– and T ony Award–winning actor, producer

“If you want to change your state, if you want to change your results, this is where you do it; T ony is the man.”

—U sher, Grammy Award–winning singer, songwriter, entrepreneur

“W orking with T ony Robbins, I felt unstoppable. From that moment on, there was zero doubt in my mind about what I wanted and how I was going to achieve it. I was so clear about what I wanted that I made it happen: I became world champion.”

—D erek H ough, dancer, choreographer, and five-time winner of ABC’s D ancing with the Stars

“T ony Robbins is a genius . . . H is ability to strategically guide people through any challenge is unparalleled.”

—Steve W ynn, CE O and founder of Wynn Resorts

“Before T ony, I had allowed myself to be put in a position of fear. After meeting T ony, I made a decision not to be afraid anymore. It was an absolutely gamechanging, life-altering experience. I’m so excited and thankful for T ony Robbins and the incredible gift that he gave me.”

—Maria Menounos, actress, journalist, and T V personality

“W hat T ony really gave me, a kid sitting on Venice Beach selling T -shirts, was to take risks, take action, and really become something. I’m telling you as someone who has lived with these strategies for 25 years: I’ll come back for more again, and again, and again.”

—Mark Burnett, five-time E mmy Award–winning television producer

“W hat does this man have that everyone wants? H e is a

6'7" phenomenon!”

—D iane Sawyer, former ABC W orld N ews and G ood

Morning America anchor

“T ony Robbins helps you take that first step to making real change in your life. I have a pretty good life, but all

of us have aspects of our lives that we want to make greater. It’s life changing. It really is.”

—Justin T uck, defensive end, Oakland Raiders, and twotime Super Bowl champion

“T ony Robbins knows the rhythm of success. H e is an incredible source of inspiration, and his methods have improved the quality of my life. I only work with the best, and T ony is the best.”

—Quincy Jones, Grammy Award–winning musician, producer

“T ony Robbins provides an amazing vehicle for looking at your life, mapping out a mission, and determining what’s holding you back and what you need to move forward.”

—D onna K aran, legendary fashion designer, founder

D KNY

 

C O N T E N T S

E pigraph

Foreword by E lliot Weissbluth, founder and CE O of

H ighT ower

Introduction by Marc Benioff, founder and CE O of Salesforce.com

SE C T IO N 1

W E L C O ME T O T H E JU N G L E : T H E JO U R N E Y BE G IN S

W IT H T H IS F IR ST ST E P

C hapter 1.1: It’s Y our Money! It’s Y our L ife! T ake C ontrol

C hapter 1.2: T he 7 Simple Steps to Financial Freedom: C reate an Income for L ife

C hapter 1.3: T ap the Power: Make the Most Important

Financial D ecision of Y our L ife

C hapter 1.4: Money Mastery: It’s T ime to Break T hrough

SE C T IO N 2

BE C O ME T H E IN SID E R : K N O W T H E R U L E S BE F O R E Y O U G E T IN T H E G AME

C hapter 2.0: Break Free: Shattering the 9 Financial

Myths

C hapter 2.1: Myth 1: T he $13T L ie: “Invest with U s. W e’ll Beat the Market!”

C hapter 2.2: Myth 2: “Our Fees? T hey’re a Small Price to Pay!”

C hapter 2.3: Myth 3: “Our Returns? W hat Y ou See Is

W hat Y ou G et”

C hapter 2.4: Myth 4: “I’m Y our Broker, and I’m H ere to H elp”

C hapter 2.5: Myth 5: “Y our Retirement Is Just a 401(k) Away”

C hapter 2.6: Myth 6: T arget-D ate Funds: “Just Set It and Forget It”

C hapter 2.7: Myth 7: “I H ate Annuities, and Y ou Should T oo”

C hapter 2.8: Myth 8: “Y ou G otta T ake H uge Risks to

G et Big Rewards!”

C hapter 2.9: Myth 9: “T he L ies W e T ell Ourselves”

SE C T IO N 3

W H AT ’S T H E PR IC E O F Y O U R D R E AMS? MAK E T H E G AME W IN N ABL E

C hapter 3.1: W hat’s the Price of Y our D reams?: Make the G ame W innable

C hapter 3.2: W hat’s Your Plan?

C hapter 3.3: Speed It U p: 1. Save More and Invest the D ifference

C hapter 3.4: Speed It U p: 2. E arn More and Invest the D ifference

C hapter 3.5: Speed It U p: 3. Reduce Fees and T axes (and Invest the D ifference)

C hapter 3.6: Speed It U p: 4. G et Better Returns and

Speed Y our W ay to Victory

C hapter 3.7: Speed It U p: 5. C hange Y our L ife—and L ifestyle—for the Better

SE C T IO N 4

MAK E T H E MO ST IMPO R T AN T INV E ST ME NT D E C ISIO N O F Y O U R L IF E

C hapter 4.1: T he U ltimate Bucket L ist: Asset Allocation

C hapter 4.2: Playing to W in: T he Risk/G rowth Bucket C hapter 4.3: T he D ream Bucket

C hapter 4.4: T iming Is E verything?

SE C T IO N 5

U PSID E W IT H O U T T H E D O W N SID E : C R E AT E A

L IF E T IME IN C O ME PL AN

C hapter 5.1: Invincible, U nsinkable, U nconquerable:

T he All Seasons Strategy

C hapter 5.2: It’s T ime to T hrive: Storm-Proof Returns and U nrivaled Results

C hapter 5.3: Freedom: C reating Y our L ifetime Income Plan

C hapter 5.4: T ime to W in: Y our Income Is the

Outcome

C hapter 5.5: Secrets of the U ltrawealthy (T hat Y ou C an U se T oo!)

SE C T IO N 6

IN V E ST L IK E T H E .001% : T H E BIL L IO N AIR E ’S PL AY BO O K

C hapter 6.0: Meet the Masters

C hapter 6.1: C arl Icahn: Master of the U niverse

C hapter 6.2: D avid Swensen: A $23.9 Billion L abor of L ove

C hapter 6.3: John C . Bogle: T he Vanguard of Investing

C hapter 6.4: W arren Buffett: T he Oracle of Omaha

C hapter 6.5: Paul T udor Jones: A Modern-D ay Robin

H ood

C hapter 6.6: Ray D alio: A Man for All Seasons

C hapter 6.7: Mary C allahan E rdoes: T he T rillion-D ollar

W oman

C hapter 6.8: T . Boone Pickens: Made to Be Rich, Made to G ive

C hapter 6.9: K yle Bass: T he Master of Risk

C   hapter 6.10: Marc Faber: T he Billionaire T hey C all D r.

D  oom

C hapter 6.11: C harles Schwab: T alking to C huck, the People’s Broker

C hapter 6.12: Sir John T empleton: T he G reatest Investor of the 20th C entury?

SE C T IO N 7

JU ST D O IT , E N JO Y IT , AN D SH AR E IT !

C hapter 7.1: T he Future Is Brighter T han Y ou T hink

C hapter 7.2: T he W ealth of Passion C hapter 7.3: T he Final Secret

7 Simple Steps: Your Checklist for Success Acknowledgments

Anthony Robbins Companies

About the Author

A Note on Sources

Index

Permissions

T o those souls who will never settle for less than they can be, do, share, and give

T he future has many names. For the weak, it’s unattainable. For the fearful, it’s

unknown. For the bold, it’s ideal.

— V IC T O R H U G O

T o avoid criticism, say nothing, do nothing, be nothing.

— AR IST O T L E

FO RE W O RD

As a former litigator with years of experience working around W all Street firms, it’s fair to say that a few liars, crooks, and con artists have crossed my path. Since both the legal and financial fields cultivate their share of professional hustlers, I’ve learned to quickly separate the good actors from the bad.

I am also a skeptic by nature. So when T ony Robbins sought me out for this project because of the company I founded in 2007, H ighT ower, I was curious but wary. Is there really anything new to say about personal finance and investing? And is T ony Robbins the man to say it?

I was, of course, aware of T ony’s tremendous reputation as America’s number one life and business strategist. And like many, I knew that he has worked with everyone from U S presidents to billionaire entrepreneurs, transforming their personal and professional lives along the way.

But what I didn’t know until we met was that T ony Robbins is the real thing. T he man lives up to the hype of the brand. H is authenticity was evident, and his passion was contagious. Rather than rehash the sins of the financial industry, T ony came to this project with the goal of democratizing financial services and offering tactics and solutions that had previously been appreciated and used by only the wealthiest investors.

T ony and I hit it off right away because we share a mission of helping empower people to make better, more informed financial decisions. T hat’s the heart of my company, and it’s what drives me personally. W hile the financial crisis of 2008 brought to light the conflicts and injustices inherent in the financial system, few people could come up with real-world, practical solutions that would actually make a difference for individuals and families.

W hy? Because there’s an inherent conflict in the system. T he largest financial institutions are set up to make a profit for themselves, not their clients. Investors may think they are paying fees for high-quality, unbiased advice. Instead, they are all too often paying for the privilege of being offered a small sample of “suitable” investment products and services that are in constant conflict with improving the firm’s bottom line.

H ighT ower is a solution to these problems, and that’s why T ony originally came to interview me for this book. W e offer only investment advice, and we have a platform of leading technology, products, and solutions that meet advisors’ and investors’ needs. W e do not engage in the many toxic activities that create conflicts of interest within the major banks. W e brought together some of the nation’s best financial advisors. Simply put, we built a better model for transparent financial advice.

T ony’s mission is to organize and bring to the masses the most honest and practical financial solutions—some of them are even “secrets.” H e understands that people need more than knowledge—they need a clear road map to a financially secure future.

T he guidance provided within these pages is the result of unprecedented access to the leading minds in the financial world. I don’t know of anyone other than T ony who could pull off such a feat. Only T ony, with his wide range of client relationships, his contagious enthusiasm, and his unrelenting passion could have convinced these individuals—among the best in the industry—to share their knowledge and experience.

L ike me, these people trust T ony to capture their thinking and simplify it for a broad audience. And because T ony’s passion lies in empowering people, he is able to take these conversations from theory to reality, offering tools that nearly anyone can use to improve his or her financial situation.

T ony challenged me to look at the solutions we had created for wealthy investors and figure out a way to make them available and applicable to the general public. I’m proud to say that we are deeply engaged in a variety of projects, and we are excited about the positive impact that together we will have on so many people.

T rue to his calling, T ony is using this book to empower individual investors while simultaneously helping those who have slipped through the cracks or been left behind by society. W hile two-thirds of Americans are concerned they won’t have enough to retire, two million people have lost access to food stamps in the past year. Many of these individuals don’t know where their next meal will come from.

T ony has stepped in to help fill the gap. H e’s spoken openly about his own experience with homelessness and hunger, and is committed to improving the lives of these often-forgotten populations. T ony is personally committed to feeding 50 million people this year, and is working to double that effort—feeding 100 million people—through matching contributions for next year and in the years ahead.

T ony has also partnered with Simon & Schuster to donate copies of his bestselling guide Notes from a Friend: A Quick and Simple Guide to T aking Charge of Your L ife to those who are in need and just starting to embark on a new path of empowerment. H is goal is to feed minds and bodies.

I am honored, humbled, and grateful to be a part of this project and eager to see the change we can enact together. I’m excited for you, the reader. Y ou’re about to meet the force of nature that is T ony Robbins and go on a journey that will truly be life changing.

— E L L IO T W E ISSBL U T H , founder and C E O, H ighT ower

IN T RO D U C T IO N

I first met T ony Robbins 25 years ago inside a cassette tape. After watching an infomercial on late-night T V, I took the plunge and bought his 30-day self-improvement program Personal Power. I listened to his tapes every day during my one-hour commute to and from Oracle C orporation, back and forth between my home in San Francisco and our office in Redwood Shores. I was so moved by T ony’s words that one weekend I stayed home and did nothing else but listen again to all 30 days in just two days, and I quickly understood that T ony was truly an amazing person, and his ideas were unlike anything I had ever experienced before. T ony transformed me.

At the age of 25, as the youngest vice president at Oracle, I was massively successful—or so I thought. I was making more than $1 million a year and driving a brandnew Ferrari. Y es, I had what I thought was success: a great home and an incredible car and social life. Y et I still knew I was missing something; I just didn’t know what. T ony helped me to bring awareness to where I was, and helped me start defining where I really wanted to go and the deeper meaning of what I wanted my life to be about. It wasn’t long before I went to T ony’s special intensive weekend program called U nleash the Power W ithin.

T hat’s where I really refined my vision and committed to a new level of massive action. W ith that, I dove deeper into T ony Robbins’s work and launched full-force on my journey to create and build Salesforce.com.

I applied T ony’s insights and strategies and built an amazing tool called V2MOM, which stands for vision, values, methods, obstacles, and measurement. I used it to focus my work, and ultimately my life, on what I really wanted. T he V2MOM program took five of T ony’s questions:

1.   W hat do I really want? (Vision.)

2.   W hat is important about it? (Values.)

3.   H ow will I get it? (Methods.)

4.   W hat is preventing me from having it? (Obstacles.)

5.   H ow will I know I am successful? (Measurements.)

T ony said to me that the quality of my life was the quality of my questions. I soon began to model everything in my life, my work, and my future simply by asking these basic questions and recording my answers. W hat happened was amazing.

On March 8, 1999, the first day that we started Salesforce.com, we wrote a V2MOM, and today all of our 15,000 employees are required to do the same thing. It creates alignment, awareness, and communication, and it’s all based on what T ony has taught me over the last two decades. T ony says repetition is the mother of skill— that’s where mastery comes from—and so we keep writing and improving our V2MOMs. It’s one of the reasons Forbes magazine just named Salesforce.com the “W orld’s Most Innovative C ompany” for the fourth year in a row, and Fortune magazine says we are the “W orld’s Most Admired” software company, as well as the seventh “Best Place to W ork” in 2014. T oday we produce $5 billion a year in revenue, and we continue to grow.

I can truly say that there would be no Salesforce.com without T ony R obbins and his teachings.

T his book you are about to read, with its 7 Simple Steps to Financial Freedom, has the potential to do the same thing for you that T ony Robbins’s Personal Power audio program did for me. It is going to bring T ony’s wisdom into your life (along with the wisdom of 50 of the most brilliant financial minds in the world!) and give you the tools you need to make your life even better. As you read Master the Game, I am sure you will translate what T ony is saying into your own life, and create your own methods to achieve success and realize freedom.

W hen T ony told me the title of this book, the first thing I said was, “T ony, you’re not about money! Y ou’re about helping people create an extraordinary quality of life!”

I soon discovered this book really isn’t about money, it is about creating the life you want, and part of that is deciding what role you want money to play in it. W e all have money in our lives; what matters is that you master money and it doesn’t master you. T hen you are free to live life on your own terms.

One of my closest mentors, G eneral C olin Powell, former secretary of state and chairman of the Joint C hiefs of Staff, said this about money: “L ook for something you love to do and you do well. G o for it. It will give you satisfaction in life. It could mean money, but it may not. It could mean a lot of titles, but it may not. But it will give you satisfaction.” G eneral Powell and T ony Robbins are saying the same thing. T he real joy in life comes from finding your true purpose and aligning it with what you do every single day.

G eneral Powell also urged me to consider the role of money as I pursued my vision of creating a software company that would change the world. H e told me that the business of business was not just to make a profit but also to do good—to do good while doing well. T ony Robbins’s focus on contribution, even 25 years ago, also made a strong impression on me and influenced my thinking. W hen I started Salesforce.com, I aimed to do three things: (1) create a new computing model for enterprises now called “cloud computing”; (2) create a new business model for enterprise software based on subscriptions; and (3) create a new philanthropic model that tightly integrates the success of a company with its ability to give back.

W hat has resulted over the last 15 years is a company that today has completely transformed the software industry and achieved a market capitalization of more than $35 billion. H owever, the best decision I ever made was putting 1% of our equity, 1% of our profit, and 1% of our employees’ time into a philanthropic pursuit called Salesforce Foundation. It has resulted in more than $60 million in grants to nonprofits all over the world, more than 20,000 nonprofits using our product for free, and our employees contributing more than 500,000 volunteer hours to their communities. All of this happened once T ony helped me build the tools to gain clarity about what I really wanted to build, give, and become. And nothing has made me happier or brought me more satisfaction and joy in my life.

T hat’s also why I have joined T ony in his quest with the nonprofit Swipeout program to provide meals to more than 100 million people a year; provide clean, disease-free water to more than 3 million families a day; and to work to free both children and adults from slavery.

I’ve sent my parents, my closest friends, and my most important executives to T ony’s seminars to study his work, and they have all said the same thing: “T ony Robbins is one of a kind, and we are lucky to have him in our lives.” N ow, with Money: Master the Game, T ony will open the same door for you that he opened for me. I am confident that with him as your coach, you too will transform your life and find a path to gain everything you really want!

— MAR C BE N IO F F ,

founder and C E O of Salesforce.com

SE C T ION 1

W EL C OME T O T H E JUN GL E:

T H E JOURN EY BEGIN S W IT H T H IS FIRST ST EP

C HAPT E R 1.1

IT ’S Y O U R MO N E Y ! IT ’S Y O U R L IFE ! T AK E C O N T RO L

Money is a good servant but a bad master.

— SIR F R AN C IS BAC O N

Money.

Few words have the power to provoke such extreme human emotions.

A lot of us refuse to even talk about money! L ike religion, sex, or politics, the topic is taboo at the dinner table and often off-limits in the workplace. W e might discuss wealth in polite company, but money is explicit. It’s raw. It’s garish. It’s intensely personal and highly charged. It can make people feel guilty when they have it —or ashamed when they don’t.

But what does it really mean?

For some of us, money is vital and crucial but not paramount. It’s simply a tool, a source of power used in service of others and a life well lived. Others are consumed with such a hunger for money that it destroys them and everyone around them. Some are even willing to give up things that are far more valuable to get it: their health, their time, their family, their self-worth, and, in some cases, even their integrity.

At its core, money is about power.

W e’ve all seen how money can have the power to create or the power to destroy. It can fund a dream or start a war. Y ou can provide money as a gift or wield it as a weapon. It can be used as an expression of your spirit, your creativity, your ideas—or your frustration, your anger, your hate. It can be used to influence governments and individuals. Some marry for it—and then find out its real price.

But we all know that on some level it’s an illusion. Money isn’t even gold or paper today, it’s zeros and ones in banking computers. W hat is it? It’s like a shape-shifter or a canvas, assuming whatever meaning or emotion we project on it.

In the end, money isn’t what we’re after . . . is it? W hat we’re really after are the feelings, the emotions, we think money can create:

that feeling of empowerment, of freedom, of security, of helping those we love and those in need, of having a choice, and of feeling alive.

Money is certainly one of the ways we can turn the dreams we have into the reality we live.

But even if money is just a perception—an abstract concept—it doesn’t feel that way if you don’t have enough of it! And one thing is for sure: you either use it, or it uses you. Y ou either master money, or, on some level, money masters you!

H ow you deal with money reflects how you deal with power. Is it an affliction or a blessing? A game or a burden?

W hen I was choosing the title of this book, a few people were actually outraged at the suggestion that money could be a game. H ow could I use such a frivolous term for such a serious topic! But, hey, let’s get real. As you’ll see in the pages to come, the best way to change your life is to find people who’ve already achieved what you want and then model their behavior. W ant to master your finances? Find a financial master and imitate how he or she deals with money, and you will have found a pathway to power.

I can tell you right now, I have interviewed many of the wealthiest people in the world, and most of them do think of money as a game. W hy else would anyone work ten or 12 hours a day after they’ve made billions of dollars? And remember, not all games are frivolous. G ames are a reflection of life. Some people sit on the sidelines, and some play to win. H ow do you play? I want to remind you, this is a game that you and your family can’t afford to lose.

My promise to you is this: if you will stay with me and follow the 7 Simple Steps in this book— the steps that have been distilled from the world’s most successful financial players—you and your family will win this game. And you can win big!

But to win, you have to know the rules and learn the best strategies for success from those who have already mastered the game.

T he good news is that you can save years of time— and in a few minutes—by simply learning the pitfalls to avoid and the shortcuts to experiencing lasting success. T he financial industry often works to make this topic feel incredibly complex, but in reality, once you get past the jargon, it’s relatively simple. T his book is your opportunity to stop being the chess piece and become the chess player in the game of money. I think you’re going to be very surprised at how, with an insider’s understanding, you can easily transform your financial life and enjoy the freedom you deserve.

So let’s get to it. Just imagine what life would be like if you had mastered this game already.

W hat if money didn’t matter?

H ow would you feel if you didn’t have to worry about going to an office every morning, or paying the bills, or funding your retirement? W hat would it be like to live your life on your own terms? W hat would it mean to know you had the opportunity to start your own business, or that you could afford to buy a home for your parents and send your kids to college, or have the freedom to travel the world?

H ow would you live your life if you could wake up each day knowing there was enough money coming in to cover not only your basic needs but also your goals and dreams?

T he truth is, a lot of us would keep working, because that’s the way we’re wired. But we’d do it from a place of joy and abundance. Our work would continue, but the rat race would end. W e’d work because we want to, not because we have to.

T hat’s financial freedom.

But is it a pipe dream? Is it really possible for the average person—more importantly, for you— to make this dream a reality?

W hether you want to live like the 1% or just have the peace of mind from knowing that you won’t outlive your savings, the truth is you can always find a way to make the money you need. H ow? T he secret to wealth is simple: Find a way to do more for others than anyone else does. Become more valuable. D o more. G ive more. Be more. Serve more. And you will have the opportunity to earn more—whether you own the best food truck in Austin, T exas, or you’re the top salesperson at your company or even the founder of Instagram.

But this book isn’t just about adding value—it’s really about how to go from where you are today to where you truly want to be, whether that’s financially secure, independent, or free. It’s about increasing the quality of your life today by developing the one fundamental skill that the vast majority of Americans have never developed: the mastery of money. In fact, 77% of Americans—three of every four people—say they have financial worries, but only 40% report having any kind of spending or investment plan. O ne in three baby boomers have less than $1,000 saved! Polls show that fewer than one in four trust the financial system— with good reason! And stock ownership has been hitting record lows, particularly among young people. But the truth is, you don’t earn your way to freedom. As you’ll see later in this book, even multimillion-dollar earners such as Godfather director Francis Ford C oppola, boxer Mike T yson, and actress K im Basinger lost it all because they didn’t apply the fundamentals that you’ll soon be learning. Y ou have to be able to not only hold on to a portion of what you earn for your family, but, more importantly, multiply what you earn—making money while you sleep. Y ou have to make the shift from being a consumer in the economy to becoming an owner—and you do it by becoming an investor.

Actually, a lot of us are already investors. Maybe you first got into the game when G randma bought you a few shares of her favorite stock just for being born, or perhaps your employer auto-enrolled you in the company’s 401(k), or maybe you first became an investor when a friend told you to forget the K indle and buy Amazon stock instead.

But is this enough? If you’re reading this now, my guess is that you know the answer: no way! I don’t have to tell you it’s not your parents’ and grandparents’ investment world. T he plan used to be so simple: go to college, get a job, work your butt off, and then maybe get a better job with a bigger corporation. After that, the key was to find a way to add value, move up the ladder, invest in company stock, and retire with a pension. Remember pensions? A promise of a never-ending income for life? T hey’ve become relics.

Y ou and I both know that world is over. W e live longer now on less money. N ew technologies keep coming online, stoking a system that often seems designed to separate us from our money instead of helping us grow it. As I write these words, interest rates on our savings hover near zero, while the markets rise and fall like corks on the ocean. Meanwhile, we’re faced with a financial system of limitless choices and mindboggling complexity. T oday there are more than 10,000 mutual funds, 1,400 different E T F s, and hundreds of global stock exchanges to choose from. It seems like every day we’re pitched more and more complex investment “instruments” with an alphabet soup of acronyms: C D Os, RE IT s, MBSs, ML Ps, C D Ss, C E T Fs . . .

W T F?

H ow about H FT ? T hat’s short for high-frequency trading, where 50% to 70% of the tens of millions of trades that churn through the market each day are now generated by high-speed machines. W hat does that mean for you? It takes only a half second, or about 500 milliseconds, to click your mouse to complete your E *T rade order. In that short time, the big boys with the supercomputers will have bought and sold thousands of shares of the same stock hundreds of times over, making microprofits with each transaction. Michael L ewis, bestselling author of the H FT exposé Flash Boys: A Wall Street Revolt, told 60 Minutes, “T he U nited States stock market, the most iconic market in global capitalism, is rigged . . . by a combination of the stock exchanges, the big W all Street banks, and high-frequency traders . . . T hey’re able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price!” H ow fast are these guys? One H FT firm spent a quarter of a billion dollars to straighten the fiber-optic cables between C hicago and

N ew Y ork, reconstructing the landscape and literally terraforming the earth to shave 1.4 milliseconds off its transmission time! But even that’s not fast enough. Some trades already take place in microseconds—that’s a millionth of a second. Soon H FT technology will allow these trades to happen in nanoseconds—a billionth of a second. Meanwhile, they’re laying cable on the ocean floor, and there’s even talk of solar-powered drones acting as microwave relay stations to connect exchanges in N ew Y ork and L ondon.

If all of this leaves you reeling, I’m with you. W hat are your chances of competing with flying robots trading at the speed of light? W here do you turn to find a path through this high-tech, high-risk maze of choices?

An expert is an ordinary man away from home giving advice.

— O SC AR W IL D E

T he problem is, when it comes to money (and investing), everybody has an opinion. E verybody’s got a tip. E verybody has an answer. But I’ll give you a hint: they rarely have one that will really help you. H ave you noticed how beliefs around money are like religion and politics? C onversations can get intense and emotional. E specially online, where people without any real knowledge or mastery will promote their own theories and criticize others’ strategies with such vehemence, even though they have no proven track record. It’s like a psychologist on Prozac telling you how you can have a fulfilled life. Or an obese person telling you how to get thin and fit. I tend to separate pundits into those who talk the talk and those who walk the walk. I don’t know about you, but I’m sick and tired of hearing from all these “experts” who tell us what to do, but haven’t produced results in their own lives.

If you thought you were going to hear from another investment guru making crazy promises, you came to the wrong place. I’ll leave that to the financial entertainers who scream at you about buying the hottest stock, or implore you to save your money and put it in some mythical mutual fund. Y ou know the one, where they promise you’ll continuously compound your money with 12% annual growth. T hey dole out advice that too often has no basis in reality, and often they don’t even invest in the products they push. Some of them might sincerely think they’re helping, but people can be sincere and be sincerely wrong.

I want you to know I’m not one of those “positive thinkers” who’s going to pump you up with a false view of the world. I believe in intelligence. Y ou have to see things as they really are but not worse than they are— that view of life only gives you the excuse to do nothing.

Y ou may know me as the “smiling guy with the big teeth” on T V, but I’m not here to tell you to do a bunch of affirmations—I’m the guy who’s focused on helping you dig deep, solve real problems, and take your life to the next level.

For 38 years, I’ve been obsessed with finding strategies and tools that can immediately change the quality of people’s lives. I have proven their effectiveness by producing measurable results where others have failed. So far I’ve reached more than 50 million people from 100 different countries through my books, videos, and audio programs, and another 4 million in live events.

W hat I’ve known from the beginning is that success leaves clues. People who succeed at the highest level are not lucky; they’re doing something differently than everyone else does. I’m interested in those people: those who have a relentless hunger to learn and grow and achieve. D on’t get me wrong. I’m not deluded. I’m aware there are very few people in the world who are fit and healthy and who sustain it. Most people don’t have decades of sustained love and passion in their intimate relationships, nor do they experience ongoing gratitude and joy. T here are very few people who maximize their business opportunities. And there are even fewer who start with little or nothing and become financially free.

But a few do! A few do have great relationships, great joy, great wealth, and endless gratitude. I have studied the few who do versus the many who talk. If you want to look for obstacles, what’s wrong is always available. But so is what’s right! I am a hunter of human excellence. I seek out those individuals who break the norms and demonstrate to all of us what’s really possible. I learn what those few extraordinary individuals do that’s different from everybody else, and then emulate them. I find out what works, and then I clarify it, simplify it, and systematize it in a way to help people move forward.

E ver since the dark days of 2008, when the global financial system nearly melted down, I’ve been obsessed with finding a way to help everyday people take control of their money and fight back against a system that’s often been rigged against them. T he fix has been in for years, and it hasn’t gotten a whole lot better with all those so-called reforms on C apitol H ill. In some areas, it’s gotten worse. T o find answers, I interviewed 50 of the most brilliant, influential players in the world of money. In this book, you won’t get talking heads, and you won’t get my opinions, either. Y ou’ll hear it straight from the masters of the game: self-made billionaires, N obel laureates, and financial titans. H ere’s just a sampling of a few of the masters of money that you will be learning from in the pages ahead:

•    John C . Bogle, the 85-year-old sage with 64 years ofstock market history and the founder of the Vanguard

G roup, the number one mutual fund company in the world;

•    Ray D alio, founder of the largest hedge fund on theplanet, with $160 billion in assets;

•    D avid Swensen, one of the greatest institutional investors of all time, who grew Y ale U niversity’s endowment from $1 billion to more than $23.9 billion in less than two decades;

•    K yle Bass, a man who turned $30 million in investments into $2 billion in two years during the subprime crisis;

•    C arl Icahn, who has outperformed W arren Buffett, themarket, and virtually everyone else in the last one-, five-, and ten-year cycles;

•    Mary C allahan E rdoes, whom many consider to be themost powerful woman in finance. She oversees more than $2.5 trillion as C E O of J.P. Morgan Asset Management; and

•    C harles Schwab, who led a revolution to open up W allStreet to individual investors, and whose iconic company now has $2.38 trillion under management.

I’ll put you in the room with these and many other superstars who get consistent results, decade after decade, in up markets and down, booms and busts. T ogether we will uncover the core secrets to their investment success and see how to apply them even to the smallest amount of money.

And here is the key: I wrote this book based on timeless wisdom of the most successful investors in the world. After all, none of us knows which way the economy will be headed by the time you’re reading this book. W ill there be inflation or deflation? A bull market or a bear? T he idea is to know how to survive and thrive in any market condition. T hese real experts will explain how. Plus, they’ll be opening their portfolios to show you the mix of investments that they rely on to weather every storm. And they’ll answer this question: If you couldn’t pass on any of your financial wealth to your children, but only a set of principles, what would they be? T hat could be the greatest inheritance of all, and you don’t have to be one of their kids to get it!

T he secret of getting ahead is getting started.

— MAR K T W AIN

G et ready, because together we’re about to go on a journey through 7 Simple Steps to financial security, independence and freedom! W hether you’re a millennial just starting out, a baby boomer facing retirement, or a sophisticated investor looking to keep your edge, this book will offer you a practical blueprint for setting and achieving your financial goals and help you break free from whatever limiting behaviors might be holding you back from true abundance. W e’ll explore the psychology of wealth, something I’ve studied and taught for nearly four decades. W e’ll tackle the money mistakes people make, zeroing in on what keeps them from following through on their best-laid plans. And to make sure you get the results you desire, I’ve gone to the best behavioral economists on earth to find solutions that really work—small, simple adjustments that automatically trigger you to do what others need discipline to maintain; strategies that can make the difference between retiring comfortably or dying broke.

L et’s face it: so many smart and accomplished people have put aside this area of money because it seems so complicated and overwhelming. One of the first people I gave this manuscript to to review is a brilliant friend named Angela who has accomplished mastery in many areas of her life—but never in the area of money. She told me that people thought she was amazing because she’d sailed 20,000 miles of ocean in some of the roughest seas on small sailboats. But she knew she neglected her finances, and it embarrassed her. “It seemed so confusing, and I couldn’t be competent. I already felt defeated, so I gave up, even though it’s not in my nature.” But she found that by following the 7 Simple Steps in this book, she could finally get control of her finances, and it was easy and painless! “G osh, I could save for my future just by cutting a few things that don’t give me joy,” she told me. Once she started thinking about saving, she was able to set up an automatic investment account, and by chapter 2.8, she had already transformed her life.

A few days later, she came in to see me and said, “I got my first-ever brand-new car.”

I asked her, “H ow did you do it?”

She said, “I began to realize that I was spending more money on my old car for repairs and gas than it cost me to finance a brand-new car!” Y ou should have seen the look on her face when she pulled up in a shiny new pearlescent white Jeep W rangler.

So I want you to know that this book is not just about how to have a comfortable retirement, but also about how to have the quality of life you desire and deserve today. Y ou can live life on your own terms while you simultaneously lock in your future quality of life as well! T he feeling of empowerment and inner strength and certainty that you experience when you master this area of your life will spill into everything else: your career, your health, your emotions, and your relationships! W hen you lack confidence about money, it unconsciously affects your confidence in other areas too. But when you take charge of your finances, it empowers you and excites you to take on other challenges!

W hat holds us back from getting started on the road to financial freedom? For a lot of us, like my friend Angela, it’s the feeling that we’re in over our heads. W e’ve been taught to think, “T his is too complex” or “T his is not my field.” Frankly, the system is designed to be confusing, so that you’ll give up control to the “professionals” who reap enormous fees by keeping you in the dark. Y ou’re going to learn in the chapters ahead how to prevent that from happening, and, most importantly, I’m going to show you that investing your way to freedom isn’t confusing at all.

One reason people succeed is that they have knowledge other people don’t. Y ou pay your lawyer or your doctor for the knowledge and skills you don’t have. T hey also have their own special language that can at times keep them insulated from the rest of us.

For example, in the medical world, you might hear that 225,000 people have died “iatrogenic deaths” in the past year. According to the J ournal of the American Medical Association (J AMA), it’s the third largest cause of death in the U nited States. Iatrogenic. H ow’s that for a hundred-dollar word? It sounds important, but what does it even mean? Is it a rare tropical disease? A genetic mutation? N o, iatrogenic actually refers to an inadvertent death caused by a doctor, or a hospital, or an incorrect or unnecessary medical procedure.

W hy don’t they just come out and say so? Because it doesn’t serve a medical institution’s interests to put it in plain language a layperson can understand. T he financial world has its own jargon too, with special words for things that are really additional fees disguised in language that would make it impossible for you to realize it is taking much more of your money than you would ever imagine.

I hope you’ll let me be your translator as well as your guide on this journey. T ogether we’ll break the code and cut through the complexity that keeps most of us feeling like outsiders in the world of finance.

T oday there is so much information that even the most sophisticated investors can feel overloaded. E specially when we realize what’s being pushed on us often has nothing to do with our needs. Say you’re having some mild chest pains, and you G oogle the word heart. W hat do you see? It’s not something about the heart attack you might want to deal with right now. Instead, you get H eart, the music group that hasn’t had a hit in 20 years. H ow does that help you?

My plan is to serve you by becoming your personal financial search engine—a smart search engine, one that will filter through all the superfluous, even harmful financial information out there to deliver simple, clear solutions.

Before you know it, you’ll be an insider too. Y ou’ll learn why chasing returns never works, why nobody beats the market long-term,¹ and why the vast majority of financial experts don’t have a legal responsibility to serve your best interests. C razy, right? Y ou’ll learn why the returns advertised by mutual funds are not the returns you actually earn. Y ou’ll find solutions that could add literally millions of dollars to your lifetime of investing returns—statistical studies show that you can save between $150,000 and $450,000 just by reading and applying the principles of section 2 of this book! Y ou’ll be putting money back in your own pocket, not the “fee factories.” Y ou’ll also learn about a proven way of growing your money with 100% principal protection, and tax free to boot (IRS-approved). T his vehicle is finally available to individual investors like you.

And here’s what truly sets this book apart: I don’t just tell you about investment strategies that the ultrawealthy have and that you can’t afford or access; I’ve found ways to make them affordable and accessible for you! W hy should the privileged few be the only ones to tap into extraordinary opportunities? Isn’t it time that we level the playing field?

Remember, it’s your money, and it’s time for you to take control.

A moment’s insight is sometimes worth a life’s experience.

— O L IV E R W E N D E L L H O L ME S, SR .

Before we go on, let me tell you what moved me to write this book. If you’ve watched any of the coverage of my work over the years, or if you’ve read any of my previous books, you probably know my track record for creating massive and measurable change—helping people lose 30 to 300 pounds, turning around relationships that seem to be at their end, helping business owners grow their companies 30% to 130% in a year. I also help people overcome enormous tragedies—from couples who’ve lost a child, to soldiers coming back from Afghanistan with post-traumatic stress disorder. My passion is helping people create real breakthroughs in their relationships, their emotions, their health, their careers, and their finances.

For nearly four decades, I’ve had the privilege of coaching people from every walk of life, including some of the most powerful men and women on the planet. I’ve worked with presidents of the U nited States as well as presidents of small businesses. I’ve coached and helped transform the performance of sports stars, from the early days with hockey great W ayne G retzky to today’s superstar Serena W illiams. I’ve had the privilege to work with award-winning actors with the coolness of L eonardo D iC aprio and the warmth of H ugh Jackman. My work has touched the lives and performances of top entertainers from Aerosmith to G reen D ay, U sher to Pitbull to L L C ool J. And billionaire business leaders as well, such as the casino magnate Steve W ynn and the internet wizard Marc Benioff. In fact, Marc quit his job at Oracle and began building Salesforce.com after attending one of my U nleash the Power W ithin seminars in 1999. T oday it’s a $5 billion enterprise and has been named the

“W orld’s    Most    Innovative    C ompany”    by    Forbes

magazine for the last four consecutive years. So obviously my clients don’t come to me for motivation. T hey have plenty of that already. W hat they get from me are strategies that help them hit the next level and keep them at the top of their game.

In the financial arena, since 1993 I’ve had the honor to coach Paul T udor Jones, one of the top ten financial traders in history. Paul predicted the October 1987 Black Monday crash—still the largest single-day U S stock market decline (by percentage) ever. W hile markets plummeted around the world and everyone else was losing his shirt, Paul as much as doubled his investors’ money in 1987. H e did it again in 2008, bringing his investors nearly a 30% positive return while the market plummeted 50% ! My job working with Paul is to capture the principles that guide all his decisions. T hen I put them into a system that he uses daily and, most importantly, at critical times. I’m not a positive-thinking coach. Quite the opposite: I’m a prepare-for-anything coach. I’ve been in touch with Paul, tracking his trading every day through a roller coaster of market conditions. From the tech bubble of the late 1990s to 9/11. From the growth in real estate and the collapse of the subprime market to the financial meltdown of 2008. I’ve been there during the subsequent E uropean debt crisis as well as the largest one-day percentage crash in gold prices in three decades in 2013.

In spite of the diversity of these financial challenges, in 28 full consecutive years, Paul has never had a single losing year. I’ve been working with Paul for the last 21 of those years. H e is truly unmatched in his ability to find the way to victory. I’ve had the privilege of being shoulder-to-shoulder with him while he made money consistently, no matter how volatile the market. T hrough him, I’ve learned more about the real world of investing and how decisions are made in tough times than I could get from a hundred MBA courses.

I’m also incredibly blessed to not only work with Paul during this time but also consider him one of my dearest friends. W hat I love and respect about Paul is that he not only creates financial results for himself but also is one of the most extraordinary philanthropists in the world. Over the years, I’ve watched him grow the Robin H ood Foundation from the simple idea of harnessing the power of free markets to alleviate poverty in N ew Y ork into what Fortune magazine has called “one of the most innovative and influential philanthropic organizations of our time.” So far Robin H ood has distributed more than $1.45 billion in grants and initiatives, changing millions of lives in the process.

I’ve also learned my own lessons along the way, some through the pain of my own trials and errors—which this book is designed to help you avoid as much as possible. I’ve earned my own scars on W all Street. I took a company public when I was 39 years old and watched my personal net worth soar to over $400 million in a few weeks—and then plunge back to earth with the dot-com crash of 2000!

But that stock market “correction” was nothing compared with what we’ve all been through in recent years. T he meltdown of 2008–09 was the worst economic crisis since the G reat D epression. D o you remember how it felt when it looked like our financial world was coming to an end? T he D ow Jones Industrial Average plunged 50% , dragging down your 401(k) with it. T he bottom fell out in real estate, and the price of your home may have plummeted by 40% or more. Millions of people lost the gains from a lifetime of hard work, and millions more lost their jobs. D uring those terrible months, I received more phone calls from a greater variety of people needing help than ever before. I heard from barbers and billionaires. People would tell me they were losing their homes, their savings were gone, their children couldn’t go to college. It just killed me because I know what that feels like.

I’ve worked hard and been blessed with financial success, but it wasn’t always that way. I grew up with four different fathers in C alifornia’s dusty San G abriel Valley. I can vividly remember, as a kid, not picking up the phone or answering the door because I knew who was there—it was the bill collector, and we had no money to pay him. As a teenager, I was embarrassed to have to wear school clothes we bought for 25 cents at the thrift shop. And kids can be pretty brutal when you are not “hip.” T oday the thrift-store shopping would be a sign of coolness—go figure! And when I finally got my first car, a beat-up 1960 Volkswagen bug, the car had no reverse, so I parked on a hill, and there was never enough money for gas. T hankfully, I didn’t buy the theory that this is just how life is. I found a way to overcome my circumstances. Because of my own experiences, I can’t stand to see anybody suffer. It makes me crazy. And 2008 brought more needless economic suffering than I had seen in my lifetime.

In the immediate aftermath of the stock market crash, everybody agreed that something had to be done to fix the system. I kept waiting for those promised changes to happen, but years later it was still business as usual. And the more I learned about the roots of the financial crisis, the angrier I got. My personal tipping point came after I watched an Academy Award–winning documentary called Inside J ob, narrated by Matt D amon, about the W all Street gunslingers who took crazy risks with our money and nearly toppled the economy. And their penalty? W e the taxpayers bailed them out, and somehow the same cast of characters was put in charge of the recovery. By the end of the film, I was seething with frustration, but I converted my anger into a question: “W hat can I do?” T his book was the answer.

T here is no friend as loyal as a book.

— E R N E ST H E MIN G W AY

It wasn’t an easy decision. I haven’t written a major book in almost 20 years. L ast year, on average, I was on a plane once out of every four days traveling to more than 15 countries. I run a dozen companies and a nonprofit. I have four children, an amazing wife, and a mission I love and live. T o say my life is full would be an understatement. Both U nlimited Power and Awaken the Giant Within were international bestsellers, and that was enormously gratifying, but I haven’t felt compelled to write again until now. W hy? I love live events! I love the total-immersion experience, the immediacy and flexibility of communicating with 5,000 to 10,000 people at a time, going deep and keeping their focused attention for 50 hours in a weekend. And that in a day and age when most people won’t sit for a three-hour movie that someone spent $300 million to make. I can remember vividly Oprah telling me that she couldn’t stay for more than two hours—and 12 hours later she was standing on a chair and shouting to the camera, “T his is one of the greatest experiences of my life!” U sher told me he loved my work, but certainly he wouldn’t last through an entire weekend. Just like Oprah, he ended up having the time of his life. Fifty hours later he said to me, “T his is like going to one of the greatest concerts of my life! I was writing notes like crazy, and you made me laugh my ass off!”

My live-event experience is filled with so much emotion, music, excitement, and profound insights that people are moved to take massive action. T hey don’t just think, they don’t just feel, they change, they transform. And my body language and my voice are essential to my style of teaching. So, I’ve got to confess, when I sit down to write words on a page, I feel like there’s a gag over my mouth and one hand tied behind my back! H eck, I found that I could reach more than ten million people through one T E D T alk alone.

So what made me change my mind?

T he financial crisis caused tremendous pain, but it also made us reevaluate what’s most important in our lives— things that have nothing to do with money. It was a time to get back to basics, to the values that have sustained us through troubled times before. For me, it made me remember the days when I was sleeping in my car homeless and searching for a way to change my life. H ow did I do it? Books! T hey helped to establish me. I’ve always been a voracious reader: as a young man, I decided I was going to read a book a day. I figured leaders are readers. I took a speed-reading course. I didn’t quite read a book a day, but over seven years, I did read more than 700 books to find the answers to help myself and others. Books on psychology, time management, history, philosophy, physiology. I wanted to know about anything that could immediately change the quality of my life and anyone else’s.

But the books I read as a child made the deepest impression. T hey were my ticket out of a world of pain: a world with no compelling future. T hey transported me to a realm of limitless possibilities. I can remember Ralph W aldo E merson’s essay on self-reliance, and the lines “T here is a time in every man’s education when he arrives at the conviction that envy is ignorance; that imitation is suicide; that he must take himself for better, for worse, as his portion.” Another was a book by the philosopher James Allen, As a Man T hinketh, echoing the biblical proverb “As a man thinketh, so his heart will be.” It came to me at a time when my mind was a battlefield filled with fear. H e taught me that everything we create in our lives starts with thought.

I devoured biographies of great leaders, great thinkers, great doers, like Abraham L incoln, Andrew C arnegie, John F. K ennedy, and Viktor Frankl. I realized that the great men and women of the world had experienced pain and suffering much greater than my own. T hey weren’t just lucky, or even fortunate; somehow there was something in them, an invisible force that would not let them settle for less than they could do, or be, or give. I realized that biography is not destiny; that my past was not equal to my future.

Another favorite was an American classic from 1937, N apoleon H ill’s T hink and Grow Rich. H ill spent two decades in the early 20th century interviewing 500 of the world’s most accomplished individuals, from Andrew C arnegie, to H enry Ford, to T heodore Roosevelt, to T homas E dison, finding out what made them tick. H e discovered that they all shared a relentless focus on their goals, and a combination of burning desire, faith, and persistence to achieve them. H ill’s message that ordinary people could overcome any obstacle to success gave hope to a generation of readers struggling through the G reat D epression. T hink and Grow Rich became one of the bestselling books of all time.

N apoleon H ill’s quest has been an inspiration to me. L ike his classic, this book is modeled on seeking out the best of the best in the world, from W arren Buffett to Sir Richard Branson—and including the man that experts in the field have called the E dison of our day: Ray K urzweil, who invented the first digital music synthesizers, the first software to translate text into speech; he’s the man behind Siri on your iPhone. H e developed a device that allows the blind to walk the streets and read road signs and order from any menu. T oday Ray is head of engineering development for G oogle. But I wanted to write a book that went beyond the psychology and science of achievement to come up with a real plan, with real tools that you could use to build a better future for yourself and your family. It would be a handbook, a blueprint, an owner’s manual for the new economy.

As I began to reassociate to the power of a book, I thought, “I need to put these answers in a form that’s available to anyone.” And with today’s technology, this book has a few great advantages to help push you along the way. It has electronic segments where you can go online to see some of the men and women I interviewed and hear their words. W e have an app that’s designed to trigger you to walk through the 7 Simple Steps so you don’t just learn the ideas but follow through and get the financial freedom you truly deserve.

By the way, when I began this adventure, people told me I was crazy. Many so-called experts—and even friends!—warned me I was nuts to try to bring the complex world of finance to a wide audience. E ven my publisher begged me to write about anything else.

But I knew I could pull it off if I found the best voices to guide the way. Most of the people I’ve interviewed here do not give interviews, or if they do them, they’re extremely rare. T hey might speak in D avos, Switzerland, at the W orld E conomic Forum, or for the C ouncil on Foreign Relations, but bringing their knowledge to the general population, in their voices, has never been done before. Sharing their critical insights in a way that anyone could act on became the mission of this book.

I’ve been honored to have great relationships with some of the most influential people in the world: friends in high places who were willing to make a few calls on my behalf. Before long I found doors opening to me, and I was getting access to the masters of the game.

W elcome to the jungle . . .

— “W E L C O ME T O T H E JU N G L E ,” G uns N ’ R oses

So where do I start? I decided to start with a person who most people have never even heard of, even though he’s been called the Steve Jobs of investing. But ask any of the world’s financial leaders, whether they’re the chairwoman of the Federal Reserve, the head of an investment bank, or the president of the U nited States, and they all know about Ray D alio. T hey read his weekly briefing. W hy? Because governments call to ask him what to do, and he invests their money. Same with pension funds and insurance companies. H e’s the founder of Bridgewater Associates, the world’s largest hedge fund, with $160 billion in assets under management (AU M) at a time when a large hedge fund might manage $15 billion. It used to take a net worth of $5 billion and an initial $100 million investment just to get in the door. But don’t bother trying; he won’t take your money—or anybody else’s—at this point.

Ray D alio came from an unlikely background, born in Queens, N ew Y ork, to a jazz musician father and a homemaker mother. H e started as a caddy who picked up his first stock tips at the local golf course. N ow he’s worth about $14 billion and is the 31st richest man in the U nited States. H ow did he do it? I had to find out! H ere’s a man whose Pure Alpha fund, according to Barron’s, has lost money only three times in 20 years, and in 2010 he produced 40% returns for his key clients. Over the life of the fund (since launching in 1991), he’s produced a 21% compounded annual return (before fees). If there’s anyone I wanted to ask, “C an the average investor still make money in this crazy, volatile market?” it was Ray. So when he told me, “T here’s no question you can still win,” I was all ears! H ow about you?

It’s not that easy to get access to Ray D alio. But as it turns out, Ray already knew who I was, and he was a fan of my work. One afternoon I sat down with him in his surprisingly modest house on a wooded island off the C onnecticut coast. H e got right to the point, telling me that individual investors like you can win—but only if you don’t try to beat the pros at their own game.

“W hat they gotta know, T ony, is you can win,” he said. “But you can’t do it by trying to beat the system. Y ou don’t want to try. I have fifteen hundred employees and forty years of experience, and it’s a tough game for me. T his is poker with the best poker players on earth.”

Ray is 65 years old, speaks with a soft N ew Y ork accent, and uses his hands like a conductor when he talks. H e reminded me that poker, like playing the markets, is a zero-sum game. For every winner, there has to be a loser. “As soon as you’re in that game, you’re not just playing poker against the guys across the table. It’s a world game, and only a small percentage of people make real money in it. T hey make a lot. T hey may take money away from those who are not as good at the game,” he said. “So I would say to your investors, the average guy: you don’t want to be in that game.”

I asked Ray, “If you’re telling people they can’t compete in this game, should they be thinking twice about letting someone else play for them? W hat about the brokers and mutual fund managers who say they can get you better returns?”

“Y ou think you’re going to a doctor, but they’re not doctors,” he told me. W e’re trained to throw our total faith into doctors and do whatever they tell us without thinking, hoping they have all the answers. But Ray D alio says that typical money managers are not going to help you win because they don’t have the skills or resources to play in the big game, either. “If they did, you wouldn’t have access to them.

“T he Olympics is easy compared with what we do,” Ray continued. “T his is more competitive. Y ou can go to your broker-dealer, and you think you have to say, ‘Is that a smart guy?’ H e might be smart. H e might care about you. But you’ve got to ask, ‘H ow many gold medals has he won?’ Y ou have to be very, very careful, because there are so many people who’d give you advice, but they have to be good enough to be able to

take it away from the best in the game.” So what’s the answer?

“Instead of trying to compete, you’ve gotta learn there is a passive way to win. T here’s a way to not put all your eggs in one basket. It’s a system to protect yourself against all downsides, because the best investors know they’re going to be wrong, no matter how smart they are.”

W ait a second! Ray D alio, who gets a compounded return of 21% , can still be wrong?

“T hat’s right, T ony, I’m gonna be wrong,” he said. “W e’re all gonna be wrong. So we gotta set up a system that protects us from that.”

So, at the end of nearly three hours together, it was time for the big question: “Ray, what is that system?” And Ray said to me, “T ony, the last time I took money, you had to have a five-billion-dollar net worth to get access to my knowledge and the minimum investment was one hundred million. It’s really complex, and it changes a lot.”

I said, “C ’mon, Ray. Y ou just told me that nobody new can get access to you anyway. I know how much you care about people. If you couldn’t pass on your money to your children, and you could pass on only a set of principles or a portfolio—a system that will allow them to make money in good times and bad like you have—tell me what that would look like for the average investor?”

W e went back and forth a bit, and in the end, guess what? H e walked me through the sample ideal portfolio, the exact investment mix that would help you maximize returns with the least amount of downside volatility in any market.

W hat’s a portfolio? If you’re not familiar with the term, it’s just a collection of diverse investments that you put together to try to maximize your financial returns. Ray revealed a simple system of what to invest in and in what percentages and amounts. And when we looked back in history, we found that by using his strategy, you would have made money 85% of the time over the last 30 years (1984 through 2013)! T hat’s only four losing years in the last 30 years (1984 through 2013)—with a maximum loss of 3.93% in a year (and an average negative year of just 1.9% ). And one of those four down years was just 0.03% , which most would chalk up to a breakeven. In 2008 you would have been down just

3.93% when the rest of the market lost 51% (from peak to trough)—all by just doing what Ray has shared with us. T he plan he shared here has averaged a return of just under 10% per year (net of fees), and it’s an investment plan that you can easily set up for yourself! And it’s only one of the systems from the world’s greatest investors that you’ll learn when you get to section 6, “Invest L ike the .001% : T he Billionaire’s Playbook.”

N ow, I know you want to jump ahead right now and look up the portfolio, but I want to remind you, there are 7 Simple Steps you have to follow to make this work. If you haven’t figured out where you’re going to get the money to invest, you haven’t figured out what your goals are, and you don’t know what the rules of the game are, then access to the best portfolio in the world will be worthless. So stay with me, and let’s stay in sequence. T here’s a method to my madness!

H ow valuable is that information from Ray D alio? If others have to have $5 billion to get access, and it cost you only the price of this book, then it’s not a bad return on investment!

As exciting as it was to learn his investment system, what I found most interesting about Ray is how he looks at the world. H e sees it as a jungle, and his life as a constant, exhilarating battle.

“T he way I look at life, T ony, we all have something we want, something that represents a greater quality of life. But to get there, you have to go through a jungle filled with challenge. If you pass through it, you get to the life you desire. It’s like I’m on one side of the jungle,” he told me. “And you could have a terrific job, a terrific life if you can cross that jungle. But there are all of these dangerous things and they can all kill you. So, do you stay on one side and have a safe life, or do you go into the jungle? H ow do you approach that problem?”

Ray goes into the jungle with very smart and trusted friends by his side, always asking, “What don’t I know?” “T his is the key thing,” he said. “W hat has been very successful for me through my whole life is to not be arrogant about knowing, but to embrace the fact that I have weaknesses; that I don’t know a lot about this, that, and the other thing. T he more you learn, the more you realize you don’t know.”

Is that ever the truth! And I was a living example. I went into this book thinking I knew what I was doing. After all, I’d had decades of experience. But during my four-year quest to meet the best investors on earth, I’ve been humbled over and over again by how much I didn’t know. And I found that unlike the talking heads who claim to have all the answers, the best are essentially humble. L ike Ray D alio, they’ll tell you what they think and then admit they could be wrong.

Riches are not an end of life, but an instrument of life.

— H E N R Y W AR D BE E C H E R

As my journey continued, I found my mission was evolving. At each stop along the way, I was discovering tools, opportunities, and investment products available to ultrawealthy people that the average person never hears about. And ironically, some of the best ones have very little risk, or they have limited risk with what they call asymmetric risk/reward—which means the investors get a big upside potential for very little downside exposure. And that’s what the “smart money” lives for.

It was exciting for me to find out about these opportunities and take advantage of some of them, because at this stage of my life, I’m old enough, fortunate enough, and well off enough financially to have those choices. But my sons and my daughter don’t, and some of my dearest friends don’t, and, most important, likely neither do you (unless you’ve got tens of millions stashed away and you’re just reading this to see where Ray D alio puts his money).

So I changed from being just a passive information gatherer in the world of investing to becoming a

passionate advocate for my friends and readers. I wasn’t just going to tell you about something that wealthy people get to do; I wanted to open up these opportunities for everyone. So I looked for companies that have focused exclusively on the ultrawealthy and then worked to convince them to create new opportunities for investors at any economic level or any age level. I’ve worked to highlight their services, and in some cases, I’ve gone all in and partnered with them to help create new products that will be available to you for the first time. But what I’m most proud of is that I’ve persuaded many of them to open up their services for people who are not wealthy—for free! In the pages that follow, you’ll learn about a revolutionary strategic venture between Stronghold W ealth Management and

H ighT ower, the fifth largest investment advisory firm in the U nited States, which provides transparent, conflictfree advice to the ultrawealthy. It will now provide some of the same extraordinary planning services at no charge to you, regardless of how much you have to invest. Y ou will learn how to access a complimentary online platform that will allow you to test-drive your broker and see if you’re truly overpaying for underperformance. I’m hoping this could be the beginning of a sea change in the world of personal finance, a real leveling of the playing field for the first time.

W hy in the world do they do this? First, it’s the right thing to do. People need to know what they are truly paying for. Second, they know that people with lots of money didn’t always start out with lots of money. It’s the secret to wealth, remember? D o more for others than anybody else does. And if H ighT ower does this for you at this stage of your life, they’re betting you won’t forget them in the future. Y ou’ll become a raving fan and a loyal client forever.

Y ou get the help you need today for no money and H ighT ower gets a future client. T hat’s financial synergy. An opportunity to create the elusive win-win that rarely shows up in the world of W all Street.

K indness in words creates confidence.

K indness in thinking creates profoundness.

K indness in giving creates love.

— L AO -T Z U

One of the great gifts of “mastering the game” is not only being able to win but to have enough to make a difference for others. N o matter how difficult our situation may be, there are always people who are suffering more. W hen someone creates wealth, it’s his or her privilege, and, I believe, his or her responsibility, to give back to those who are just beginning the journey or those who have experienced tragedies that have knocked them off the path. As I will share with you later, my family was the recipient of a simple act of kindness when we literally had no food, and that changed my entire perspective on people and life. It helped shape who I am today.

So for decades I have worked to give back by feeding more than 2 million people a year through my Anthony Robbins Foundation, and for the last few years, my wife and I have personally matched all their contributions.

T oday I’m proud to say that a kid who started with no food personally helps 4 million people a year to feel cared for and fed. In total, over 38 years, I’ve had the honor to feed 42 million people.

I want to use this book as a vehicle to help you develop enough wealth—both physical and emotional— so that you can be a force for good through your economic contributions as well as your time. I will tell you, though, if you won’t give a dime out of a dollar, you won’t give $1 million out of $10 million. T he time to give is now! W hen I had nothing, I began this process. T he reward is that if you give, even at the times when you think you have very little, you’ll teach your brain that there is more than enough. Y ou can leave scarcity behind and move toward a world of abundance.

So I’d like to get you started on this path. As you read this book, know that you are not only helping yourself create a new financial future, but you are helping those 17 million American families who face hunger every day.²

H ow? I decided to do more in one year than I have in my entire lifetime. In the name of my readers, at the time of this publication, I am donating 50 million meals to the men, women, and children in this country who suffer from hunger. Y ou’d be surprised who these people are. Y es, some have been scarred by memories of serving in war and some are mentally or physically challenged. But millions are people just like you and me who had a normal life and then the loss of a job, a health problem, or a family loss pushed them over the edge to where they could not meet their financial obligations. Most Americans are only a few lost paychecks away from insolvency. So together let’s reach out to help.

As I was writing this book, C ongress slashed $8.7 billion from the food stamp budget. I witnessed firsthand the devastating impact this had on the volunteers and nonprofit organizations that work in the fight against hunger. T hat’s why I put up 50 million meals, and I’m using my influence to get matching funds so that we can provide 100 million meals to feed the hungry. Y ou’re welcome to join in and help, but know this: because you bought the book, the one you are holding in your hand or reading on your iPad, you’re personally feeding 50 people. My hope is that by the end of this book, you’ll be inspired to make a small direct donation on your own as well. I have information in the last chapter on how you can use your “spare change to help change the world.” T here are so many simple and enjoyable ways in which you can give and create a legacy you can feel truly proud of.

—

W hew, this has been quite a full chapter! I know it’s a lot, but hopefully it doesn’t feel long! D o I have you hooked on what’s really possible for your life now? C an you imagine what it will feel like to take yourself from where you are today to where you really want to be? W hat would it be like to have your experience of money no longer be a source of stress but rather a feeling of excitement and pride? I promise you the feelings you will have as you conquer this area of your life will create a new momentum not only with financial success but also in other areas of life that matter even more! Are you ready?

One final note, if you’ve read this far, I want to compliment you because, unfortunately, you’re in the top 10% of people who buy a nonfiction book. T hat’s right: statistics show that fewer than 10% of people who buy a book ever read past the first chapter. H ow insane is that? I wrote this book to be simple but also to give you the opportunity to go deep—to master the game, to arm you with the skills to master your financial world once and for all. It’s not meant to be a “little red book of investing.” So I want to invite you now, and challenge you, to commit to take the full journey with me through these pages. I promise you the rewards you will reap will last for decades to come.

So turn the page and let me first give you a quick overview of what it will take to have an income for life—a paycheck that gives you the life you have (or the lifestyle you desire) without ever having to work again. Once you achieve this, you will work only if and because you want to. L et’s grab an outline of the road ahead and discover the 7 Simple Steps to Financial Freedom.

1.  E xcept for a few “unicorns,” a tiny and exclusive group of “financial wizards” that the general population does not have access to, but I’ll introduce you to in the chapters ahead.

2.  F eedingamerica.org

C HAPT E R 1.2

T H E 7 SIMPL E ST E PS T O FIN AN C IAL

FRE E D O M: C RE AT E AN IN C O ME FO R

L IFE

A journey of a thousand miles begins with a single step.

— L AO -T Z U

T                   ell me something: H ave you ever had that experience,you know . . . the completely humiliating experience of playing a video game against a child? W ho always wins? T he child, of course! But how does she do it? Is she smarter, quicker, stronger?

H      ere’s how it works. Y ou’re visiting your niece or nephew, and she or he will say, “C ome play it with me,

U                 ncle T ony!”

Y ou immediately protest, “N o, no, I don’t know this game. Y ou go ahead and play.”

And they say, “C ’mon, it’s easy! Just let me just show you.” T hen they shoot a few bad guys when they pop up on the screen. Y ou still resist, so they start pleading. “C ’mon! C ’mon! Please, please, please!” Y ou love this kid, so you give in. T hen she says the simple words that tell you you’re being set up: “Y ou go first.”

So you decide you’re gonna make it happen! Y ou’re going to show this kid a thing or two. And then what? Bam! Bam! Bam! In 3.4 seconds, you’re dead. Shot in the side of the head. Smoked.

T hen the kid takes the gun, and suddenly it’s bambam-bam-bam-bam! T he bad guys are dropping from the sky and whizzing around every corner in hyperspeed. T he kid is anticipating every move and picking them off —and about 45 minutes later, you get your second turn.

N ow you’re ticked off, and even more committed. T his time you last a full five seconds. And she goes another 45 minutes. Y ou know the drill.

So why do these kids always win? Is it because they have better reflexes? Is it because they’re faster? N o! It’s because they’ve played the game before.

T hey already have one of the greatest secrets to wealth and success in life: they can anticipate the road ahead.

R emember this: anticipation is the ultimate power. L osers react; leaders anticipate. And in the following pages, you’ll learn to anticipate from the best of the best: the Ray D alios and the Paul T udor Joneses and the army of 50 other extraordinary financial leaders who know the road ahead. T hey’re here to help you anticipate the problems and challenges on the path to financial freedom so you don’t get hurt along the way. L ike Ray D alio says, it’s a jungle out there, full of things that can kill you financially, and you need trusted guides to help you get through it. W ith their help, we’re going to lay out a plan that will help you anticipate the challenges, avoid unnecessary stress, and arrive at your ideal financial destination.

I          want to give a quick overview of where we’re goingand how this book is set up, so you can make the best use of it. But before we do that, let’s be clear about our true purpose. T his book is committed to one primary outcome: to set you up so you have an income for life without ever having to work again. R eal financial freedom! And the good news is, it can be achieved by anyone. E ven if you’re starting out in debt, deep in the hole—no exaggeration—with a little bit of time, consistent focus, and the right strategies applied, you can get to financial security or even independence in a few years.

Before we walk through the steps, let’s first take a look at why being financially secure used to seem so simple. W hat’s changed? And what do we need to do?

L et’s start with a little history lesson.

Y ou can be young without money, but you can’t be old without it.

— T E N N E SSE E W IL L IAMS

E verything about your financial life seems so much harder these days, doesn’t it? I’m sure you’ve wondered why it is so difficult to save money and retire comfortably. W e’ve come to treat retirement as a given in our society; a sacrosanct stage of life. But let’s not forget that retirement is a relatively new concept. T he idea has really served only a generation or two—for most of us, our parents and grandparents. Before their time, folks generally worked until they couldn’t.

U ntil they died.

D o you remember your history? W hen was Social

Security invented? It was created under Franklin D elano Roosevelt during the G reat D epression, when there was no social safety net for old and sick people. And “old” was a different concept back then. T he average life expectancy in the U nited States was 62 years. T hat’s all! And Social Security retirement benefits were supposed to kick in at age 65, so not everybody was expected to collect, or at least not for very long. In fact, Roosevelt himself didn’t live long enough to cash in on his benefits (not that he would have needed them). H e died at the age of 63.

T he Social Security Act eased the suffering of millions of Americans during a time of crisis, but it was never intended to become a replacement for retirement savings —just a supplement to cover the most basic needs. And the system wasn’t designed for the world we live in today.

H ere’s the new reality:

T here’s a 50% chance that, among married couples, at least one spouse will live to the age of 92 and a 25% chance that one will live to 97.

W ow! W e are closing in on a life expectancy of age 100 pretty damn quick.

And with longer lives, we expect longer—much longer—years for our retirement. Fifty years ago, the average retirement was 12 years. Someone retiring today at age 65 is expected to live to 85 or longer. T hat’s 20plus years of retirement. And that’s the average. Many will live longer and have 30 years of retirement!

It is not realistic to finance a 30-year retirement with 30 years of work. Y ou can’t expect to put 10% of your income aside and then finance a retirement that’s just as long.

— JO H N SH O V E N , Stanford U niversity professor of economics

H ow long do you expect to live? All the breakthroughs we’re seeing in medical technology might add years to your life—decades, even. From stem cell technology, to 3-D printing of organs, to cellular regeneration, technologies are exploding onto the scene. Y ou’ll hear about them in chapter 7.1, “T he Future Is Brighter T han Y ou T hink.” It’s a blessing, but are you ready?

Many of us are not.

A recent survey conducted by Mass Mutual asked baby boomers to name their number one fear.

W hat do you think it was? D eath? T errorism? Pestilence?

N o, the number one fear of baby boomers was outliving their savings.

(D eath, by the way, checked in a distant second.)

T he baby boomers have a right to be scared, and so do millennials. According to an E rnst and Y oung study, 75% of Americans can expect to see their assets disappear before they die. And the Social Security safety net—if it survives into the next generation—won’t provide a reasonable standard of living on its own. T he current average benefit is $1,294 per month. H ow far do you think that will stretch if you live in N ew Y ork, L os Angeles, C hicago, or Miami? Or how long will the equivalent system work in your country if you live in L ondon, Sydney, Rome, T okyo, H ong K ong, or N ew D elhi? N o matter where you live, if you don’t have another source of income, you could end up the best-dressed greeter at W al-Mart.

It’s obvious that we’ll need to stretch our retirement income longer than ever before—smack in the middle of a flat economy at a time when many are struggling to recover lost ground.

H ow have we responded to this growing emergency? A lot of us find the problem so painful and overwhelming that we just block it out and hope it goes away. According to E BRI, the E mployee Benefit Research Institute, 48% of all working Americans haven’t even calculated how much money they’ll need to retire. Y ep, 48% ! T hat’s an astounding number: almost half of us have yet to take one of the first steps toward planning for our financial futures—and our time of reckoning is coming.

So what’s the solution? It starts with taking Step 1: make the most important financial decision of your life. By the time you finish this book, you’ll not only have an automated plan for saving and investing, but also you’ll know how to create income without having to work.

W ait a second! T hat’s too good to be true, you’re thinking. And anything that sounds too good to be true probably is, right?

Y et I’m sure you know there are some exceptions to the rule. W hat would you say if I told you that today there are financial instruments that will let you make money when the markets go up and not lose a penny when they go down? T wenty years ago, it would have been impossible for ordinary investors to imagine such a thing. But investors using these tools in 2008 didn’t lose a dime or even a night’s sleep. I have this kind of security and freedom for my family. It’s an amazing feeling to know you’ll never run out of income. And I want to make sure you have it for yourself and your family as well. In this book, I will show you how to create a guaranteed lifetime income stream.

A paycheck for life without ever having to work again.

W ouldn’t it be great to open up your mail at the end of the month, and instead of finding a statement with an account balance you’re hoping hasn’t gone down, you find a check in its place? Imagine this happening every month. T hat’s income for life, and there’s a way to get it.

In section 2, we’ll show you how to build your investments into a sizeable nest egg—what I call a critical mass—that will enable you to make money even while you sleep! W ith a few simple strategies, you’ll be able to create a guaranteed income stream, allowing you to build, manage, and enjoy your own personal “pension” on your own terms.

It’s probably hard for you to imagine that there’s a structure available today that can deliver for you:

•    100% principal protection, meaning that you can’t loseyour investment.

•    T he returns in your account are directly linked to theupside of the stock market (for example, the S&P 500). So if the stock market goes up, you get to participate in the gains. But if the market goes down, you don’t lose!

•    Y ou also have the ability to convert your account balance to a guaranteed income that you’ll never outlive.

Y ou can stop imagining—it’s here! It’s one of the opportunities that’s now available for investors like you.

(And you will find out about it in chapter 5.3.)

T o be clear, I’m not suggesting here that, even with income for life, you’ll want to stop working when you reach the traditional retirement age. C hances are you won’t. Studies show that the more money you earn, the more likely you are to keep working. It used to be that the goal was to get rich and retire by the age of 40. N ow the goal is to get rich and work until you’re 90. N early half of all individuals who earn $750,000 per year or more say they will never retire, or if they do, the earliest they would consider it is age 70.

H ow about the Rolling Stones and Mick Jagger at age 71—still rockin’ the world?

Or think of business moguls like Steve W ynn at 72.

W arren Buffett at 84.

Rupert Murdoch at 83.

Sumner Redstone at 91.

At those ages they were all still running their businesses and crushing it. (Probably still are.) Maybe you will be, too.

But what happens if we can’t work, or don’t want to work anymore? Social Security alone is not going to be much of a cushion for our retirement. W ith 10,000 baby boomers turning 65 every day and the ratio of old to young getting more and more lopsided, it may not even be around, at least as we know it. In 1950 there were 16.5 workers paying into the Social Security system to support one person getting benefits. N ow it’s 2.9 workers per recipient.

D oes this ratio sound sustainable to you?

In an article titled “It’s a 401(k) W orld,” T homas Friedman, the New York T imes columnist and bestselling author, wrote, “If you are self-motivated, wow, this world is tailored for you. T he boundaries are all gone. But if you’re not self-motivated, this world will be a challenge because the walls, ceilings and floors that protected people are also disappearing. . . . T here will be fewer limits, but also fewer guarantees. Y our specific contribution will define your specific benefits much more. Just showing up will not cut it.”

As for those sweet employee pensions our parents and grandparents counted on in retirement, they too are going the way of blacksmiths and telephone operators. O nly about half of America’s private sector workforce is covered by any kind of retirement plan at all, and most of those are now do-ityourself, take-all-the-risk models.

If you’re a municipal, state, or federal employee, you might still enjoy a government-backed pension, but with every passing day, there are more folks, like those from D etroit to San Bernardino, wondering if that money will be there when it’s their time to collect.

So what’s your retirement plan? D o you have a pension? A 401(k)? An IRA? T oday about 60 million Americans participate in 401(k) plans, totaling over $3.5 trillion. But they can be a bad, even disastrous deal for you if you’re in one of the high-fee plans that dominate the market. T hat’s why, if you are in a 401(k) plan, you’ve got to read chapter 2.5, “Myth 5: ‘Y our Retirement Is Just a 401(k) Away.’ ” W hat you’ll learn and the simple changes you can make could transform your life—giving you peace of mind and the certainty you need today—and mean the difference between retiring early and not being able to retire at all.

D E AT H AN D T AX E S: T H E ON L Y C ON ST AN T S

N ot to be outdone by volatile markets (moving faster than the speed of light, literally), exorbitant (and hidden) fees, and an outdated pension system, let’s not forget about our good old friend the tax man. Oh, the tax man. H e’ll take up to 50% (or more!), thank you very much— on everything you earn. If you thought hidden fees were the only drag on accumulating wealth, you’ve missed the biggest culprit of all.

W e all know the drag of taxes, to some degree, but few realize just how big a bite taxes take from our ability to achieve financial freedom. Sophisticated investors have always known this: it’s not what you earn, it’s what you keep that matters.

T he greatest investors in the world understand the importance of tax efficiency. Just how destructive can taxes be when compounded over time?

L et’s try a metaphor: say you’ve got one dollar, and somehow you’re able to double it every year for 20 years. W e all know this game. It’s called compounding, right?

After year one, you’ve doubled your dollar to $2.

Y ear two: $4.

Y ear three: $8.

Y ear four: $16. Y ear five: $32.

If you had to guess, what do you think your dollar has grown to by year 20?

D on’t cheat and peek ahead. T ake a moment and guess.

T hrough the magic of compounding, in just two decades your dollar turns into (drumroll, please): $1,048,576! T hat’s the incredible power of compounding!

As investors, we want to tap into this power. But, of course, the game is not that simple. In the real world, C aesar wants to be paid first. T he tax man is looking for his piece. So what’s the impact of taxes on the same scenario? Once again, take a guess. If you’re fortunate enough to pay only 33% in taxes per year, what do you think your dollar has now grown to after taxes in 20 years?

Again, take a moment and really guess.

W ell, if the tax-free number was $1,048,576 . . . hmmm. W ith 33% tax, would that be about $750,000? Or even $500,000? T hink again, K emosabe.

N ow let’s look at the next column and see the incredible dollar-draining power when we take out money for our taxes each year before compounding— doubling our account. Assuming an annual tax rate of 33% , at the end of those same 20 years, the actual net amount you’ll end up with is just over $28,000!

T hat’s right, $28,000! A difference of over $1 million—and that doesn’t even account for state taxes! In some states, such as C alifornia, N ew Y ork, and N ew Jersey, you can expect the total to be significantly smaller still.

Sure, this dollar-doubling, dollar-draining scenario is based on returns you’ll never see in the real world—but it illustrates what can happen when we neglect to consider the impact of taxes in our financial planning.

G iven the way things are going in W ashington, do you think taxes are going to be higher or lower in the coming years?

(Y ou don’t even have to answer that one!)

In section 5, I’m going to give you the “in” that until now was available only to sophisticated investors or ultrahigh-net-worth individuals. I’m going to show you what the smartest investors already do—how to take taxes out of the equation, using what the New York T imes calls “the insider’s secret for the affluent.” It’s an IRSapproved method to grow your money tax free, and you don’t have to be rich or famous to take advantage of it. It could literally help you achieve your financial independence 25% to 50% faster, depending upon your tax bracket.

N o person is free who is not master of himself.

— E PIC T E T U S

But plan or no plan, the future is coming on fast. According to the C enter for Retirement Research, 53% of American households are “at risk” for not having enough money in retirement to maintain their living standards. T hat’s more than half! And remember, more than a third of workers have less than $1,000 saved up for retirement (not including pensions and the price of their home), while 60% have less than $25,000.

H ow can this be? W e can’t blame it all on the economy. T he savings crisis started long before the recent crash. In 2005 the personal savings rate was 1.5% in the U nited States. In 2013 it was 2.2% (after topping 5.5% at the height of the meltdown). W hat’s wrong with this picture? W e don’t live in isolation. W e know we need to save more and invest. So why don’t we do it? W hat’s holding us back?

L et’s start by admitting that human beings don’t always act rationally. Some of us spend money on lottery tickets even if we know the odds of winning the Powerball jackpot are 1 in 175 million, and that we are 251 times more likely to be hit by lightning. In fact, here’s a statistic that will blow your mind: the average American household spends $1,000 a year on lotteries. N ow, my first reaction when I heard this from my friend Shlomo Benartzi, the celebrated professor of behavioral finance at U C L A, was, “T hat’s not possible!” In fact, I was recently at a seminar and asked the audience how many had bought a lottery ticket. In a room of 5,000 people, fewer than 50 raised their hands. If only 50 people out of 5,000 are doing it and the average is $1,000, then there are plenty of people buying way more. By the way, the record is held by Singapore, where the average household spends $4,000 a year. D o you have any idea what $1,000, $2,000, $3,000, $4,000 set aside and compounded over time could be worth to you? In the next chapter, you’re going to discover how little money it takes to have a half million to one million dollars or more in retirement that requires almost no time to manage.

So let’s turn to behavioral economics and see if we can’t find some little tricks that could make the difference between poverty and wealth. Behavioral economists try to figure out why we make the financial mistakes we do and how to correct them without even our conscious awareness. Pretty cool, huh?

D an Ariely, renowned professor of behavioral economics at D uke U niversity, studies how our brains fool us regularly. H uman beings evolved to depend on our sight, and a huge part of our brain is dedicated to vision. But how often do our eyes deceive us? H ave a look at the two tables below.

If I asked you which table is longer, the narrow one on the left or the fat one on the right, most people would naturally pick the one on the left. And if you were one of them, you’d be wrong. T he lengths of both tables are exactly the same (go on, measure them if you don’t believe me). Okay, let’s try it again.

W hich table is longer this time? W ouldn’t you bet anything that the one on the left is still longer? Y ou know the answer, and yet your brain continues to deceive you. T he one on the left still looks longer. Y our eyes haven’t caught up with your brain. “Our intuition is fooling us in a repeatable, predictable, consistent way,” Ariely said at a memorable T E D T alk. “And there is almost nothing we can do about it.”

So if we make these mistakes with vision, which in theory we’re decent at, what’s the chance that we don’t make even more mistakes in areas we’re not as good at— financial decision making, for example? W hether or not we think we make good financial decisions, or poor ones, we assume we’re in control of the decisions we do make. Science would suggest we’re not.

Just like the visual illusions we’re susceptible to, Ariely told me later in an interview that he chalks up many of our decision-making mistakes to “cognitive illusions.” A case in point: If you were to walk into your local D epartment of Motor Vehicles tomorrow and be asked the question “D o you want to donate your organs?” what do you think you would say? Some of us would immediately say yes, and think ourselves selfless and noble. Others might pause or balk or be turned off by the gruesomeness of the question and decline. Or maybe you’d punt and say you need time to think about it. Regardless, you’d assume that your decision is based on free will. Y ou are a competent and capable adult, qualified to determine whether or not to donate your organs to save a life.

But here’s the thing: a lot of it depends on where you live. If you are in G ermany, there’s about a one-in-eight chance you’ll donate your organs—about 12% of the population does. W hereas in Austria, G ermany’s nextdoor neighbor, 99% of people donate their organs. In Sweden, 89% donate, but in D enmark, the rate is only 4% . W hat gives? W hy such a disparity?

C      ould it be about religion, or a fear factor? Is it basedon culture? It turns out the answer is none of the above. T he huge disparity in donor rates has absolutely nothing to do with you personally or your cultural heritage. It has everything to do with the wording on the form at the

D      MV.

In countries with the lowest donor rates, like D enmark, there is a small box that says, “C heck here if you want to participate in the organ donor program.” In countries with the highest rates, like Sweden, the form says, “C heck here if you don’t want to participate in the organ donor program.”

T hat’s the secret! N obody likes to check boxes. It’s not that we don’t want to donate our organs. T hat little bit of inertia makes all the difference in the world!

If a problem is too overwhelming, we tend to just freeze and do nothing. Or we do what’s been decided for us. It’s not our fault. It’s the way we’re wired. T he problem with organ donation is not that people don’t care, it’s that they care so much. T he decision is difficult and complicated, and many of us don’t know what to do. “And because we have no idea what to do, we just stick with whatever is chosen for us,” says Ariely.

T his same sense of inertia, or picking what has been chosen for us, helps explain why only a third of American workers ever take advantage of available retirement plans. It explains why so few of us have made a financial plan for our futures. It seems complicated. W e’re not sure what to do, so we punt, or we do nothing at all.

Ariely told me that when it comes to the physical world, we understand our limitations and build around them. W e use steps, ramps, and elevators. “But for some reason, when we design things like health care and retirement and stock markets, we somehow forget the idea that we are limited,” he said. “I think that if we understood our cognitive limitations in the same way that we understand our physical limitations, even though they don’t stare us in the face in the same way, we could design a better world.”

Remember what Ray D alio said about going into the jungle, that the first thing he asked himself was, “What don’t I know?” If you know your limitations, you can adapt and succeed. If you don’t know them, you’re going to get hurt.

My goal in this book is to wake people up and give them the knowledge and the tools to take immediate control of their financial lives. So I’ve created a plan that won’t trip you up because it’s too complex, or too hard, or time intensive. W hy? Because, as we’ve seen from those D MV forms, complexity is the enemy of execution. T hat’s why I’ve divided this plan into 7 Simple Steps and created a powerful new smart phone app, completely free, to guide you through them. Y ou can download it right now by going to

www.tonyrobbins.com/masterthegame. Y ou can check off your progress as you go, and celebrate your victories along the way. T he app will support you, answer your questions, and even give you a nudge when you need it.

Because you’re going to get excited and have the best intentions, and then a few distractions or an attack of inertia can knock you off target. T his automated system is designed to prevent that. And guess what? O nce you’re done, you’re done. After your plan is in place, you’ll have to spend only an hour or so once or twice a year to make sure you’re on

course. So there’s no excuse not to stay on the path to a lifetime of financial security, independence, and freedom —and have plenty of time to enjoy the things that really matter to you!

H opefully, by now your mind is churning. I know I’ve given you a lot to think about so far, but I’m committed to creating lasting breakthroughs in your financial life, and I want you to get a clear picture of the road ahead. So let’s take a quick walk through the 7 Simple Steps to Financial Freedom.

If you belong to a generation raised on blogs and tweets, my guess is that you’re saying: “W hy don’t you just put these 7 Steps—and, for that matter, the whole book!—in one paragraph for me, or even an infographic?” I could do that. But knowing information is not the same as owning it and following through. Information without execution is poverty. Remember: we’re drowning in information, but we’re starving for wisdom.

So I want to prepare your mind for each of the steps that are coming. In this way, you’ll be ready to take the necessary actions that will guarantee that your path to financial freedom is realized.

T his book is designed to give you mastery over a subject that torments most people because they’ve never taken the time to master the fundamentals that would set them free. And mastery means going deep. Anyone can read something, remember it, and feel like he or she has learned something. But true mastery requires three levels.

T he first is cognitive understanding. It’s your ability to understand the concept. Any of us can get it. And many of us already have a cognitive understanding of personal finance and investing. But that and $3 will almost buy you a cup of coffee at Starbucks! W hat I mean is that information by itself is not valuable. It’s only the first step.

Y ou start getting real value when you reach the second step: emotional mastery. T hat’s where you have heard something with enough repetition, and it’s stimulated enough feelings inside you—desires, hungers, fears, concerns—that now you become conscious and capable of consistently using what you’ve learned.

But the ultimate mastery is physical mastery.

T hat means you don’t have to think about what you do; your actions are second nature. And the only way to get it is through consistent repetition. My great teacher, Jim Rohn, taught me that repetition is the mother of skill.

I’ll give you a perfect example of where I fell short in this area. In my early twenties, I decided I wanted to get a black belt in martial arts, and I had the privilege of meeting and becoming dear friends with the grand master Jhoon Rhee. H e’s the man who brought T ae K won D o to this country and who trained both Bruce L ee and Muhammad Ali in the art. I told him I wanted to gain my black belt in the shortest time in history, and I was willing to do whatever it took in terms of practice, commitment, and discipline to break the record. H e agreed to travel on the road with me to complete my training. It was brutal! I’d often finish a seminar and arrive at one o’clock in the morning for my training, and then work with the master for another three or four hours. I would have to get by on four hours of sleep at most.

One night, after a particularly long period of practicing the same exact move at least 300 times, I finally turned to my teacher and asked, “Master, when can we go on to the next move?” H e looked at me sternly and said, “Oh, grasshopper, this is the next move. T he fact that you can’t tell the difference between the move you made this time and the one you did before shows you are still a dabbler. T hose fine distinctions are the difference between a master and an amateur. And mastery requires this level of repetition. W ith each repetition you must learn more,” he said with a smile.

D o you see my point? T his book was not designed for you to skim through in an afternoon.

As you read, you’ll notice that this book is unlike anything you’ve encountered before because it reflects my unique style of teaching. Y ou’ll be asked a lot of questions, and you’ll sometimes see facts and phrases that you’ve read before. T here will be a lot of exclamation points! T his isn’t an editing mistake! It’s a technique designed to mark out key ideas and to build knowledge into your mind, body, and spirit so that action becomes automatic. T hat’s when you’ll start seeing results and reaping the rewards that you desire and deserve. Are you up for the challenge?

And remember: this is not just a book, it’s a blueprint. E ach section is designed to help you understand exactly where you are in financial terms and help you close the gap between where you are now and where you truly want to be. T his work is designed to arm you, not just for today but for the rest of your life. I know you’ll come back at different stages to take things to the next level.

SE C T ION 1:

W E L C OME T O T H E JU N G L E : T H E JOU RN E Y

BE G IN S W IT H T H IS FIRST ST E P

L ike all great adventurers, we’ll start by getting oriented for the trip. In chapter 1.4, you’ll learn more about the psychology of wealth, what holds us back, and some simple cures. Y ou’ll uncover what it is you’re really investing for, and unleash the power of the best financial breakthrough strategies. T hen, in the next chapter, we blast off. H ere you’ll take the first of the 7 Simple Steps and make the most important financial decision of your life. T his chapter is a must read. Y ou’ll learn how, with even the smallest amount of money combined with the miracle power of compounding, you can absolutely become financially independent in your life without ever having to make a fortune in annual income. Y ou’ll activate this system by deciding on a portion of your income to save and invest for compounded interest. Y ou’ll become not just a consumer in the economy but also an owner—an investor with a stake in the future. Y ou’ll learn how to build your own automated “money machine,” a system that will generate income for you for a lifetime while you sleep.

SE C T ION 2:

BE C OME T H E IN SID E R: K N OW T H E RU L E S BE FORE Y OU G E T IN T H E G AME

Maybe you’ve heard that old expression, “W hen a man with money meets a man with experience, the man with the experience ends up with the money, and the man with the money ends up with the experience.” N ow that you’ve decided to become an investor, this section explains the critical rules of the game so that you don’t fall prey to those players with all the experience. T his road map shows the way through the investment jungle that Ray D alio was talking about, with the worst danger zones marked with big red X s. T hese are the marketing myths—some people call them investment lies—that are often designed to systematically separate you from your money. Y ou’ll learn why the returns the mutual funds advertise are not the returns that you actually receive. I know it sounds crazy, but the 1% fee that you think is the total cost you’re paying is really only one of more than ten potential fees, and that your average mutual fund might be eating up 60% of your potential returns over time! Remember, in this short section alone, you’ll save between $250,000 and $450,000 minimum, back in your pocket without getting any better returns over your investment lifetime! And you’ll see that this amount is all documented—based on studies, not based on my opinion or funny math. W e’ll also discuss the deceptions that can be a part of target-date funds and noload funds, and arm you with a real understanding of how to protect yourself from firms that often tailor these products and strategies for their maximum profit—not yours! By the end of this section you’ll have taken your second step, and even if you only have a small amount of money, you’ll be investing it like an insider.

SE C T ION 3:

W H AT ’S T H E PRIC E OF Y OU R D RE AMS? MAK E T H E G AME W IN N ABL E

T ogether we’ll explore your financial dreams, and set some realistic goals that will make the game truly winnable. Most people have no idea how much money they’ll need to achieve financial security, independence, and freedom. Or the giant numbers they have in their heads are so intimidating that they never even start a plan to get there. But in chapter 3.1, you’ll figure out what you really want, and it’s going to be exciting— especially when you realize that your dreams may be closer than you think. Y ou’ll not only dream, but you’ll turn those dreams into reality—a plan—in chapter 3.2. It’s going to be different for everyone, and we have the software to customize it for you. Y ou can do it online or on your app, where you can keep it and change it as many times as you want until you find a realistic and achievable plan. And if you’re not getting to your dreams fast enough, we’re going to show you five ways to speed it up in section 3. By the time you’ve taken Step 3, you’ll not only know how to build wealth for your future retirement, but how to enjoy it along the way.

SE C T ION 4:

MAK E T H E MOST IMPORT AN T INVE ST ME NT D E C ISION OF Y OU R L IFE

N ow that you’re thinking like an insider, you know the rules of the game, and you’ve learned how to make the game winnable, it’s time to make the most important investment decision of your life: W here do you put your money and in what proportions? Asset allocation is what every N obel Prize winner, every hedge fund manager, every top institutional investor, bar none, told me was the key to successful investing—yet virtually 99% of Americans know little or nothing about it. W hy? Maybe it seems too complicated. But in chapter 4.1, I’m going to make it simple and also show you where to go to have an expert assist you online. Proper asset allocation means dividing up what you’re investing into buckets that are secure and give you peace of mind, versus buckets that are riskier but may have greater potential for growth. It’s the ultimate bucket list! And when you complete Step 4, you’ll not only know how to become wealthy, but how to stay wealthy.

U PSID E W IT H OU T T H E D OW N SID E : C RE AT E A L IFE T IME IN C OME PL AN

W hat good is investing if you don’t have any money to spend? Most people have been so conditioned to focus on putting more money in a 401(k) plan or building their retirement account they forget that they’ll need to draw it down as income some day. And since account balances fluctuate (remember, they don’t just go up!), we must create and protect our income plan. Remember 2008? H ow do you protect yourself from the next crash? H ow do you set up a portfolio that avoids getting whipsawed? H ow do you know you won’t end up outliving your money, which is so many people’s number one fear? Y ou may be blessed with a long life, but it may not feel like a blessing if you run out of money. In this section we’ll offer specific insights into one of the best-kept secrets in the financial community and help you develop a guaranteed lifetime income plan—a certain revenue stream that can form the foundation for true financial peace of mind. W e’ll explore creative ways you can stop or drastically limit losses and increase your gains—using the investment vehicles favored by banks, large corporations, and some of the world’s wealthiest individuals. W hat do they know that you don’t know? It’s how to have the upside without the downside, and to make sure your gains aren’t eaten away by taxes.

IN VE ST L IK E T H E .001% : T H E BIL L ION AIRE ’S

PL AY BOOK

W e’ll hear what’s good and what’s challenging about the state of the global economy—how we got here and what may be coming next—from some of the clearest and most influential thinkers in the financial world. T hen you’ll meet the masters of the game, 12 of the most colorful and brilliant minds in finance, and learn what has guided them through every economic condition. W e’ll ask Paul T udor Jones how he made a 60% monthly return in 1987 by predicting the Black Monday crash, when the market was burning down around him. And how, 21 years later, he was able to make nearly 30% when the market lost nearly 50% and the world seemed to be falling apart again. Plus we’ll look at how he has avoided losses and managed to have 28 straight profitable years in every conceivable market, never losing a dime. Some of the people you’ll be meeting in our “Billionaire’s Playbook,” such as C harles Schwab, C arl Icahn, T . Boone Pickens, R ay D alio, and Jack Bogle, struggled when they were growing up—they weren’t born with a silver spoon in their mouth. So how did they make it to the top? W e’ll ask what money means to them, and we’ll peek into their actual portfolios. By the time you’ve finished Step 6, you’ll know how the .001% invests.

JU ST D O IT , E N JOY IT , AN D SH ARE IT

H  ere we’ll come up with an action plan to help you live abetter, fuller, richer, more joyful life. And we’ll talk about what to do to stay on target. I guarantee we’ll blow your mind with some of the breathtaking new technologies that will make even the near future better than you think. T his is the opposite of what most people believe. According to an N BC –Wall Street J ournal poll, 76% of Americans—an all-time record—think that their children’s lives will be worse off than their own! But you’re going to get an insider’s look at what’s coming from some of the most brilliant minds of our time. W e’ll hear from my friends Ray K urzweil, the E dison of our age, and Peter D iamandis, creator of the X Prize, about new technologies coming online: 3-D printers that will transform your personal computer into a manufacturing plant, self-driving cars, exoskeletons that enable paraplegics to walk, artificial limbs grown from single cells—innovations that will dramatically change our lives for the better in the very near future. I’m hoping this will inspire you, and also show you that even if you somehow screw up and don’t get your financial act together, you’ll still have a better quality of life. And for those with the resources, you’re looking at a future of limitless possibilities.

W e’ll wrap up with the simple fact that the secret to living is giving: sharing with others not only gives you a greater quality of life but also brings you a greater experience of joy. And you’ll learn about new technologies that make giving painless and fun. As you feed your mind and build your own wealth, my hope is that you’ll do well enough to help others. And remember, you’re my partner in giving now. And as you’re reading, someone in need is being fed.

I     don’t believe people are looking for themeaning of life as much as they are looking for the experience of being alive.

— JO SE PH C AMPBE L L

I’ve made these 7 Simple Steps to Financial Freedom as clear and simple as possible for you. N ow it’s up to you to take action and follow through each of the seven steps, one at a time, to get the job done.

W hat do you need to see it through? W hat works best for you? L et’s create a simple plan together now. Some of you might sit down and read the whole book over a long weekend—and if you do, then you’re as crazy and as obsessed as I am, a brother or sister on the path! If you don’t have a weekend to spare, consider taking a chapter a day or a section a week. Immerse yourself a little bit at a time for a few weeks and you’ll get it done. W hatever it takes.

T his is a journey of a lifetime, a journey worth mastering! If you’re with me, let the journey begin!

C HAPT E R 1.3

T AP T H E PO W E R: MAK E T H E MO ST

IMPO RT AN T FIN AN CIAL D E C ISIO N O F

Y O U R L IFE

My wealth has come from a combination of living in America, some lucky genes, and compound interest.

— W AR R E N BU F F E T T

L et’s kick it in gear now. It’s time to begin our journey by tapping the power that can create real wealth for anyone. It’s not some get-rich-quick scheme, and it’s not what most people think will make them financially free or wealthy. Most people are looking to make some “big score”—a financial windfall—and then they think they’ll be set.

But let’s face it, we’re not about to earn our way to wealth. T hat’s a mistake millions of Americans make. W e think that if we work harder, smarter, longer, we’ll achieve our financial dreams, but our paycheck alone— no matter how big—isn’t the answer.

I was reminded of this fundamental truth on a recent visit with the noted economist Burton Malkiel, author of one of the classic books on finance, A Random Walk D own Wall Street. I went to see Malkiel in his office at Princeton U niversity because I admired not just his track record but also his no-nonsense style. In his books and interviews, he comes across as a straight shooter—and the day I met him was no exception. I wanted to get his insights on some of the pitfalls facing people at all stages of their investment lives. After all, this was the guy who helped create and develop the concept of index funds—a way for the average investor to match, or mimic, the markets; a way that anyone, even with a small amount of money, can own a piece of the entire stock market and have true portfolio diversity instead of being stuck with the ability to buy only a small number of shares of stock in one or two companies. T oday this category of investments accounts for over $7 trillion in assets! Of all the people I’d planned to interview for this book, he was one of the best-qualified to help me cut through the clutter and doublespeak of W all Street and assess our current investment landscape.

W hat’s the biggest misstep most of us make right from the start? Malkiel didn’t even hesitate when I asked him. H e said the majority of investors fail to take full advantage of the incredible power of compounding—the multiplying power of growth times growth.

C ompound interest is such a powerful tool that Albert E instein once called it the most important invention in all of human history. But if it’s so awesome, I wondered, why do so few of us take full advantage of it? T o illustrate the exponential power of compounding, Malkiel shared with me the story of twin brothers W illiam and James, with investment strategies that couldn’t have been more different. H e gives this example in one of his books, so I was familiar with it, but to hear him tell it live was an incredible experience—a little like hearing an 81-year old Bruce Springsteen play an acoustic version of “Born to Run” in his living room. T he story supposes that W illiam and James have just turned 65—the traditional retirement age. W illiam got a jump-start on his brother, opening a retirement account at the age of 20 and investing $4,000 annually for the next 20 years. At 40, he stopped funding the account but left the money to grow in a tax-free environment at the rate of 10% each year.

James didn’t start saving for retirement until the ripe old age of 40, just as his brother W illiam stopped making his own contributions. L ike his brother, James invested $4,000 annually, also with a 10% return, tax free, but he kept at it until he was 65—25 years in all.

In sum, W illiam, the early starter, invested a total of $80,000 ($4,000 per year × 20 years at 10% ), while James, the late bloomer, invested $100,000 ($4,000 per year × 25 years at 10% ).

So which brother had more money in his account at the age of retirement?

I knew where Malkiel was going with this, but he told the story with such joy and passion that it’s like he was sharing it for the very first time. T he answer, of course, was the brother who’d started sooner and invested the least money. H ow much more did he have in his account? G et this: 600% more!

N ow, step back for a moment and put these numbers in context. If you’re a millennial, a G en X er, or even a baby boomer, pay close attention to this message—and know that this advice applies to you, no matter where you are on your personal timeline. If you’re 35 years old and you suddenly grasp the power of compounding, you’ll wish you got started on it at 25. If you’re 45, you’ll wish you were 35. If you’re in your 60s or 70s, you’ll think back to the pile of money you could have built and saved if only you’d gotten started on all that building and saving when you were in your 50s and 60s. And on and on.

In Malkiel’s example, it was W illiam, the brother who’d gotten the early start and stopped saving before his brother had even begun, who ended up with almost $2.5 million. And it was James, who’d saved all the way until the age of 65, who had less than $400,000. T hat’s a gap of over $2 million! All because W illiam was able to tap into the awesome power of compounding for an additional 20 years, giving him an insurmountable edge—and saddling him with the family dinner checks for the rest of his life.

T he man on top of the mountain didn’t fall there.

— V IN C E L O MBAR D I

N ot convinced that compound interest, over time, is the only sure way to grow your seed of money into the bumper crop of financial security you’ll need to meet your future needs? Malkiel shared another favorite story to bring home his point—and this one’s from our history books. W hen Benjamin Franklin died in 1790, he left about $1,000 each to the cities of Boston and Philadelphia. H is bequests came with some strings attached: specifically, the money was to be invested and could not be touched for 100 years. At that point, each city could withdraw up to $500,000 for designated public works projects. Any remaining money in the account could not be touched for another 100 years. Finally, 200 years after Franklin’s death, a period of time that had seen stocks grow at an average compounded rate of 8% , each city would receive the balance—which in 1990 amounted to approximately $6.5 million. Imagine that $1,000 grows to $6.5 million, with no money added over all those years.

H ow did it grow? T hrough the power of compounding!

Y es, 200 years is a long, long time—but a 3,000% rate of return can be worth the wait.

Malkiel’s examples show us what we already know in our hearts to be true: that for most of us, our earned income will never bridge the gap between where we are and where we really want to be. Because earned income can never compare to the power of compounding!

Money is better than poverty, if only for financial reasons.

— W O O D Y AL L E N

Still think you can earn your way to financial freedom? L et’s take a quick look at how it’s worked out for some of the highest-paid people in the world:

L egendary baseball pitcher C urt Schilling earned more than $100 million in an incredible career that included not one but two W orld Series championships for the Boston Red Sox. But then he poured his savings into a videogame startup that went bankrupt—and brought Schilling down with it. “I never believed that you could beat me,” Schilling told E SPN . “I lost.” N ow he’s $50 million in debt.

K im Basinger was one of the most sought-after actresses of her generation, torching the big screen with indelible roles in such films as 91/₂ Weeks, Batman, and L .A. Confidential, which earned her an Academy Award as best supporting actress. At the height of her A-list popularity, she earned more than $10 million per picture —enough to spend $20 million to buy a whole town in G eorgia.

Basinger ended up bankrupt.

Marvin G aye, W illie N elson, M.C . H ammer, Meat L oaf—they sold millions of albums and filled stadiums with adoring fans. Francis Ford C oppola? H e packed theaters as the director of T he Godfather, one of the greatest American films, which—at least for a while— held the all-time box office record with gross ticket sales of $129 million.

All had near-brushes with bankruptcy—C oppola, three times!

E ven Michael Jackson, the “K ing of Pop,” who reportedly signed a recording contract worth almost $1 billion and sold more than 750 million records, was forced to the brink of bankruptcy in 2007, when he was unable to pay back a $25 million loan on his N everland Ranch. J ackson spent money like he would never run out —until he finally did. At his death two years later, he reportedly owed more than $300 million.

D o you think any of these ultra-megastars imagined a day when the money would stop flowing? D o you think they even considered preparing for such a day?

H ave you ever noticed that no matter how much you earn, you find a way to spend it? By these examples, it’s clear to see that you and I are not alone. W e all seem to have a way of living up to our means—and some of us, I’m afraid, find a way to live beyond our means. W e see this most of all in the stars who take the biggest falls—like the rich-beyond-theirdreams prizefighters who hit the canvas with a thud. Just look at the up-and-down-and-out career of former heavyweight champ Mike T yson, who made more money in his time than any other boxer in history —nearly a half billion dollars—and went bankrupt.

But five-division world champion Floyd “Money” Mayweather Jr. is about to beat Iron Mike’s earning record. L ike T yson, Mayweather fought his way up from hardscrabble beginnings. In September 2013 he scored a guaranteed purse of $41.5 million for his bout against Saúl “C anelo” Álvarez—a record amount that grew to more than $80 million based on pay-per-view totals. And that was just for one fight! Before this giant payday, he’d already topped the Sports Illustrated “Fortunate 50” list ranking the richest athletes in the U nited States. I love Mayweather personally. H e’s an extraordinarily gifted athlete—with a work ethic like few alive. H e’s also incredibly generous with his friends. T here is a lot to appreciate in this man! But Mayweather had fought his way to the top of this list before, only to lose his fortune to wild spending sprees and bad investments. H e is reported to spend so recklessly, he’s known to carry around a backpack filled with $1 million in cash—just in case he needs to make an emergency donation to L ouis Vuitton.

L ike so many achievers, the champ is smart as a whip, and my hope is that he is following better investment practices today, but according to no less an authority on money than 50 C ent, Mayweather’s former business partner, the champ has no income outside of fighting. T he rapper summed up the boxer’s financial strategy in plain terms: “It’s fight, get the money, spend the money, fight. Fight, get the money, spend the money, fight.”

Sound like a ridiculous strategy? U nfortunately, we can all relate at some level. Work, get the money, spend the money, work—it’s the American way!

Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give.

— W IL L IAM A. W AR D

H            ere’s the $41.5 million question: If these individualscouldn’t build on their talents and blessings and earn their way to financial freedom, how can you expect to earn your way?

Y ou can’t.

But what you can do is make a simple change in strategy and embrace a whole new mind-set. Y ou have to take control and harness the exponential power of compounding. It will change your life! Y ou have to move from just working for money to a world where money works for you.

It’s time to get off the sidelines and get into the game —because, ultimately, we must all become investors if we want to be financially free.

Y ou’re already a financial trader. Y ou might not think of it in just this way, but if you work for a living, you’re trading your time for money. F rankly, it’s just about the worst trade you can make. W hy? Y ou can always get more money, but you can’t get more time.

I               don’t want to sound like one of those tearjerker MasterC ard commercials, but we all know that life is made up of priceless moments. Moments that you’ll miss if you’re trading your time for money.

Sure, from time to time, we all need to miss a dance recital or a date night when duty calls, but our precious memories aren’t always there for the taking.

Miss too many of them, and you might start to wonder what it is you’re really working for, after all.

T H E U L T IMAT E AT M

So where do you go if you need money and you’re not a world champion fighter with a backpack of large bills? W hat kind of AT M do you need to complete that transaction?

Right now, I’m betting, the primary “money machine” in your life is you. Y ou might have some investments, but let’s say you haven’t set them up with income in mind. If you stop working, the machine stops, the cash flow stops, your income stops—basically, your financial world comes to a grinding halt. It’s a zero-sum game, meaning that you get back just what you put into it.

L ook at it this way: you’re an AT M of another kind— only in your case, the acronym might remind you of that lousy “time-for-money” trade. Y ou’ve become an Anti– T ime Machine. It might sound like the stuff of science fiction, but for many of you, it’s reality. Y ou’ve set things up so that you give away what you value most (time) in exchange for what you need most (income)—and if you recognize yourself in this description, trust me, you’re getting the short end of the deal.

Are we clear on this? If you stop working, you stop making money. So let’s take you out of the equation and look for an alternative approach. L et’s build a money machine to take your place—and, let’s set it up in such a way that it makes money while you sleep. T hink of it like a second business, with no employees, no payroll, no overhead. Its only “inventory” is the money you put into it. Its only product? A lifetime income stream that will never run dry—even if you live to be 100. Its mission? T o provide a life of financial freedom for you and your family—or future family, if you don’t have one yet.

Sounds pretty great, doesn’t it? If you set up this metaphorical machine and maintain it properly, it will hold the power of a thousand generators. It will run around the clock, 365 days a year, with an extra day during leap years—and on the Fourth of July, too.

T ake a look at the accompanying graphic, and you’ll get a better idea how it works.

As you can see, the “machine” can’t start working until you make the most important financial decision of your life. T he decision? W hat portion of your paycheck you get to keep. H ow much will you pay yourself—off the top, before you spend a single dollar on your day-to-day living expenses? H ow much of your paycheck can you (or, more importantly, will you) leave untouched, no matter what else is going on in your life? I really want you to think about this number, because the rest of your life will be determined by your decision to keep a percentage of your income today in order to always have money for yourself in your future.

T he goal here is to enable you to step off the nine-tofive conveyor belt and walk the path to financial freedom. T he way to start off on that path is to make this simple decision and begin to tap into the unmatched power of compounding. And the great thing about this decision is that you get to make it. You! N o one else!

I can’t afford to waste my time making money.

— JE AN L O U IS AG ASSIZ

L et’s spend some time on this idea, because the money you set aside for savings will become the core of your entire financial plan. D on’t even think of it as savings! I call it your F reedom F und, because freedom is what it’s going to buy you, now and in the future. U nderstand, this money represents just a portion of what you earn. It’s for you and your family. Save a fixed percentage each pay period, and then invest it intelligently, and over time you’ll start living a life where your money works for you instead of you working for your money. And you don’t have to wait for the process to start working its magic.

Y ou might say, “But T ony, where do I come up with the money to save? I’m already spending all the money I have.” W e’ll talk about a simple yet extraordinary technique to make saving money painless. But in the meantime, let me remind you of my friend Angela, the one who realized she could drive a new car for half the money she was spending on her old car. W ell, guess what she did with 50% of the money she was paying out? She put it toward her Freedom Fund—her investment for life. W hen we started, she thought she couldn’t save anything; the next thing you know she was saving 10% . T hen she even added an additional 8% from her savings on the cost of the car for short-term goals as well! But she never touches the 10% of her income that is locked in for her future!

In the end, it doesn’t matter how much money you earn. As we have seen, if you don’t set aside some of it, you can lose it all. But here you won’t just set it aside stuffed under your mattress. Y ou’ll accumulate it in an environment you feel certain is safe but still offers the opportunity for it to grow. Y ou’ll invest it—and, if you follow the Money Power Principles covered in these pages, you’ll watch it grow to a kind of tipping point, where it can begin to generate enough in interest to provide the income you need for the rest of your life.

Y ou might have heard some financial advisors call this pile of money a nest egg. It is a nest egg, but I call it your money machine because if you continue to feed it and manage it carefully, it will grow into a critical mass: a safe, secure pile of assets invested in a risk-protected, taxefficient environment that earns enough money to meet your day-to-day expenses, your rainy-day emergency needs, and your sunset days of retirement spending.

Sound complicated? It’s actually pretty simple. H ere’s an easy way to picture it: imagine a box you’ll fill with your investment savings. Y ou’ll put money into it every pay period—a set percentage that you get to determine. W hatever that number is, you’ve got to stick to it.

In good times and bad. N o matter what. W hy? Because the laws of compounding punish even one missed contribution. D on’t think of it in terms of what you can afford to set aside—that’s a sure way to sell yourself short. And don’t put yourself in a position where you can suspend (or even invade) your savings if your income slows to a trickle some months and money is tight.

W hat percentage works for you? Is it 10% ? O r

15% ? Maybe 20% ? T here’s no right answer here —only your answer. W hat does your gut tell you? W hat about your heart?

If you’re looking for guidance on this, experts say you should plan to save at least a minimum of 10% of your income, although in today’s economy many agree 15% is a far better number, especially if you’re over the age of

40. (Y ou’ll find out why in section 3!)

C an anybody remember when the times were not hard and money not scarce?

— R AL PH W AL D O E ME R SO N

By now you might be saying, “T his all sounds great in theory, T ony, but I’m spread thin enough as it is! E very penny is accounted for.” And you wouldn’t be alone. Most people don’t think they can afford to save. But frankly, we can’t afford not to save. Believe me, all of us can find that extra money if we really have to have it right now for a real emergency! T he problem is in coming up with money for our future selves, because our future selves just don’t seem real. W hich is why it’s still so hard to save even when we know that saving can make the difference between retiring comfortably in our own homes or dying broke with a tiny bit of financial support from the government.

W e’ve already learned how behavioral economists have studied the way we fool ourselves about money, and later in this chapter I’ll share some of the ways we can trick ourselves into doing the right thing automatically! But here’s the key to success: you have to make your savings automatic. As Burton Malkiel told me during our visit, “T he best way to save is when you don’t see the money in the first place.” It’s true. Once you don’t even see that money coming in, you’ll be surprised how many ways you find to adjust your spending.

In a few moments I’ll show you some great, easy ways to automate your savings so that the money gets redirected before it even reaches your wallet or your checking account. But first, let’s look at some real examples of people living from paycheck to paycheck who managed to save and build real wealth even when the odds were against them.

D E L IVE RIN G MIL L ION S

T heodore Johnson, whose first job was with the newly formed U nited Parcel Service in 1924, worked hard and moved his way up in the company. H e never made more than $14,000 a year, but here’s the magic formula: he set aside 20% of every paycheck he received and every C hristmas bonus, and put it into company stock. H e had a number in his head, a percentage of income he believed he needed to save for his family—just as you will by the end of this chapter— and he committed to it.

T hrough stock splits and good old-fashioned patience,

T heodore Johnson eventually saw the value of his U PS stock soar to over $70 million by the time he was 90 years old.

Pretty incredible, don’t you think? And the most incredible part is that he wasn’t a gifted athlete like Mike T yson or a brilliant director like Francis Ford C oppola— or even a lofty corporate executive. H e ran the personnel department. But he understood the power of compounding at such an early age that it made a profound impact in his life—and, as it turned out, in the lives of countless others. H e had a family to support, and monthly expenses to meet, but to T heodore Johnson, no bill in his mailbox was more important than the promise of his future. H e always paid his Freedom Fund first.

At the end of his life, Johnson was able to do some beautiful, meaningful things with all that money. H e donated over $36 million to a variety of educational causes, including $3.6 million in grants to two schools for the deaf, because he’d been hard of hearing since the 1940s. H e also set up a college scholarship fund at U PS for the children of employees.

—

H ave you heard the story of Oseola McC arty from H attiesburg, Mississippi—a hardworking woman with just a sixth-grade education who toiled for 75 years washing and ironing clothes? She lived simply and was always careful to set aside a portion of her earnings. “I put it in savings,” she explained of her investment philosophy. “I never would take any of it out. I just put it in. It just accumulated.”

Oh, boy, did this woman’s money accumulate. At 87 years old, McC arty made national news when she donated $150,000 to the U niversity of Southern Mississippi to start a scholarship fund. T his woman didn’t have the compelling screen presence of a K im Basinger or the distinctive musical talent of a W illie N elson, but she worked hard and knew enough to see that her money worked hard, too.

“I want to help somebody’s child go to college,” she said—and she was able to do just that, on the back of her good diligence. T here was even a little left over for a small luxury item: she bought an air conditioner for her house.

All the way at the other end of the spectrum, we see the rousing example of Sir John T empleton, one of my personal role models and one of the greatest investors of all time. I had the privilege of meeting John and interviewing him several times over the years, and I’m including our last interview in our “Billionaire’s Playbook.” H ere’s a little background. H e didn’t start out as “Sir John.” H e came from humble beginnings in T ennessee. John had to drop out of college because he couldn’t afford the tuition, but even as a young man, he recognized the incremental power of compounded savings. H e committed to setting aside 50% of what he earned, and then he took his savings and put it to work in a big way. H e studied history and noticed a clear pattern.

“T ony, you find the bargains at the point of maximum pessimism,” he told me. “T here’s nothing —nothing—that will make the price of a share go down except the pressure of selling.” T hink about it. W hen things are going well in the economy, you might get multiple offers on your house and you’ll hold out for the highest price. In bull markets, it’s hard for investors to get a good deal. W hy? W hen things are going well, it’s human nature to think they’re going to continue going well forever! But when there’s a meltdown, people run for the hills. T hey’ll give away their homes, their stocks, their businesses for next to nothing. By going against the grain, John, a man who started with practically nothing, became a multibillionaire.

H      ow did he do it? Just when G ermany was invadingPoland in 1939, plunging E urope into W orld W ar II and paralyzing the world with fear and despair, he scraped together $10,000 to invest in the N ew Y ork stock market. H e bought 100 shares of every company trading under $1, including those considered nearly bankrupt. But he knew what so many people forget: that night is not forever. Financial winter is a season, and it’s followed by spring.

After W W II ended in 1945, the U S economy surged, and T empleton’s shares exploded into a multibilliondollar portfolio! W e saw the same kind of growth happen as the stock market soared from the lows of March 2009 to more than 142% growth by the end of 2013. But most people missed it. W hy? W hen things are going down, we think they’re going to go down forever—pessimism takes over. I’ll show you in chapter 4.4, “T iming Is E verything?,” a system that can help you keep your head and continue to invest when everyone else is afraid. It’s in these short, volatile periods that astronomical returns really become available.

I          took those insights to my Platinum Partners, an exclusive mastermind group I’d started to support my foundation, and shared with them some of the potential opportunities in front of them. T ake the L as V egas

Sands C orp. listed on the N ew Y ork Stock E xchange. O n March 9, 2009, its stock price had dropped to $2.28 a share. And today it’s $67.41— a 3,000% return on your money!

T hat’s the power of learning to invest when everyone else is afraid.

So what can we learn from Sir John T empleton? It’s amazing what research, faith, and action can do if you don’t let everybody else’s fears paralyze you. T his is a good lesson to remember if, as you’re reading these pages, we’re going through more tough financial times.

H istory proves that those “down and scary times” are the times of greatest opportunities to invest and win.

H e knew if he could set aside half of his meager earnings, he’d stake himself to where he could take full advantage of any investment opportunities. But even more important, he became one of the world’s leading philanthropists, and after he became a British citizen, the Queen of E ngland knighted him for his efforts. E ven in death, his legacy of giving continues: each year, the John T empleton Foundation gives away more money in grants “to advance human progress through breakthrough discoveries”—about $70 million—than the N obel Prize C ommission awards in a decade.

And what’s the great takeaway of T heodore Johnson’s story? Y ou don’t have to be a financial genius to be financially free.

T he lesson of Oseola McC arty’s life? E ven a day laborer can pinch enough pennies to make a meaningful difference.

T he lesson of these three wise investors? By committing to a simple but steady code of savings, by drawing down on your income each pay period and paying yourself first, there’s a way to tap the power of compound savings and let it take you to unimaginable heights.

T he most difficult thing is the decision to act, the rest is merely tenacity.

–AME L IA E AR H AR T

So how much will you commit to set aside? For

T heodore Johnson, that number was 20% . For John T empleton, it was 50% . For Oseola McC arty, it was simply a case of penny wisdom: putting those pennies in an interest-bearing account and letting them grow.

W hat about you? G ot a number in mind? G reat! It’s time to decide, it’s time to commit. It’s time to take the first of the 7 Simple Steps to your F inancial F reedom! T he most important financial decision of your life needs to be made right now! It’s time for you to decide to become an investor, not just a consumer. T o do this, you simply have to decide what percentage of your income you will set aside for you and your family and no one else.

Once again, this money is for you. For your family.

For your future. It doesn’t go to the G ap or to K ate Spade. It doesn’t go to expensive restaurants or a new car to replace the one that’s still got 50,000 miles to go on the odometer. T ry not to think of it in terms of the purchases you’re not making today. Focus instead on the returns you’ll reap tomorrow. Instead of going out for dinner with friends—at a cost, say, of $50—why not order in a couple pizzas and beers and split the cost among your group? T rade one good time for another, save yourself about $40 each time out, and you’ll be way ahead of the game.

W hat’s that, you say? F orty dollars doesn’t sound like much? W ell, you’re right about that, but do this once a week, and put those savings to work, and you could take years off your retirement time horizon. D o the math: you’re not just saving $40 a week, but this one small shift in your spending can save you approximately $2,000 each year—and with what you now know, that $2,000 can help to harness the power of compounding and help you to realize big, big gains over time. H ow big? H ow about $500,000 big? T hat’s right: a half million dollars! H ow? If you had Benjamin Franklin’s advisors, they’d tell you to put your money in the market, and if you too generate an 8% compounded return over 40 years, that $40 weekly savings ($2,080 per year) will net you $581,944! More than enough to order an extra pizza— with everything on it!

Are you starting to see how the power of compounding can work for you, even with just a few small, consistent actions? And what if you found some more aggressive savings than $40 a week? E ven $100 could mean a $1 million difference at the time you would need it most!

Remember, you can’t begin to tap into the awesome power of compounding until you commit to this allimportant savings piece. After all, you can’t become an investor until you have something to invest! It’s basic: the foundation for creating wealth, the difference between being a wage earner and an investor, and it starts with setting aside a portion of your income that you lock away automatically and keep for yourself and your family.

So what will it be? 10% ? 12% ? 15% ? 20% ?

Find your threshold and circle it.

H ighlight it.

C lick on it.

Commit to it.

Make it happen.

And automate it!

H ow do you automate it? Y ou can start by

downloading        our    free   app    from www.tonyrobbins.com/masterthegame. It’s a great way to begin your journey by setting in place automatic reminders to capture your commitments and make sure you implement your new plan! If you haven’t done it yet, do it now! It will help guide you through the following easy steps:

•    If you get a regular paycheck, you’ll most likely be ableto set up an automated plan with a call to the human resources department, instructing it to send a specific percentage of your paycheck—that you and you alone choose—directly to your retirement account.

•    If you already have automatic deductions going into your 401(k), you can increase the amount to the percentage you’ve chosen. (And in the following sections of this book, I’ll show you how to make sure your retirement plan is set up in such a way that you can actually “win” this game, to make sure you’re not paying hidden fees and that your money is free to grow in a compounded environment—ideally, tax-deferred

or tax free for maximum growth.)

G ot that taken care of? Outstanding!

•    But what about if you’re self-employed, or if you ownyour own business or work on commission? N o problem. Just set up an automatic transfer from your checking account.

W hat if you don’t have a retirement account—a place to put your dedicated savings? Simple: stop right now, jump online, and open up a savings or retirement account with a bank or financial institution. Y ou can check out this link with lots of choices to help you locate one that’s a good fit for you (www.tdameritrade.com or www.schwab.com), or you can find one on our app. Or, if you’re feeling low-tech and looking to roll up your sleeves and get started in a hands-on way, simply walk down the street and visit your banker.

W hen’s a good time to get started on this? W ould now be a good time?

G o ahead, I’ll wait . . .

If you don’t want to work, you have to work to earn enough money so that you won’t have to work.

— O G D E N N ASH

G reat, you’re back. Y ou got it done. C ongratulations! Y ou’ve just made the most important financial decision of your life—the first of the 7 Simple Steps to Financial Freedom. N ow you’re on your way to converting your dreams into reality.

In the pages ahead, I’ll share with you some of the safest, most certain strategies to grow your money—in a tax-advantaged way! But for now let’s just lock down this basic savings piece, because your financial future will flow from your ability to save systematically. Most of you probably know this, on some level. But if you know it, and you’re still not doing anything about it —well, then you just don’t know it. C ontrary to popular wisdom, knowledge is not power—it’s potential power. K nowledge is not mastery.

E xecution is mastery. E xecution will trump knowledge every day of the week.

I hate losing more than I even want to win.

— BR AD PIT T as O akland A’s general manager Billy Beane in Moneyball

W hat if, after everything you’ve just learned, you still haven’t taken that first step to set aside a percentage of your earnings to save for compounded interest? Is there something holding you back? W hat’s really going on? C ould it be that you’re not systematically saving money because it feels like a sacrifice—a loss—instead of a gift to yourself today and in the future? In my search for answers, I met with Shlomo Benartzi of the U C L A Anderson School of Management. H e said, “T ony, the problem is people feel like the future is not real. So it’s hard to save for the future.” Benartzi and his colleague, Richard T haler of the U niversity of C hicago, came up with an amazing solution called Save More T omorrow (SMarT ) with a simple but powerful premise: if it hurts too much to save more money now—just wait until your next pay raise.

H ow did they come up with it? First, Shlomo told me, they had to address the challenge of immediate gratification, or what scientists call “present bias.” H e gave me an example: when he asked a group of students whether they wanted a banana or some chocolate for a snack when they met again in two weeks, a full 75% said they wanted a banana. But two weeks later, with the choices in front of them, 80% picked the chocolate! “Self-control in the future is not a problem,” said Shlomo. It’s the same with saving, he told me. “W e know we should be saving. W e know we’ll do it next year. But today we go and spend.”

As a species, we’re not only wired to choose today over tomorrow, but also we hate to feel like we’re losing out on something. T o illustrate the point, Shlomo told me about a study in which monkeys—our not-so-distant cousins—were given an apple while scientists measured their physiological responses. E normous excitement! T hen another group of monkeys was given two apples. T hey also displayed enormous excitement. And then one change was made: the monkeys that were given two apples had one taken away from them. T hey still had one apple, but what do you think happened? Y ou guessed it. T hey were angry as hell! (Scientifically speaking.) T hink this happens with people, too? In fact, how often does this happen with the average person? W e forget what we already have, don’t we? Remember this study when I tell you the story of a billionaire named Adolf Merckle in the next chapter. Y ou’ll have a flash of insight.

T he bottom line is, if we feel like we’re losing something, we avoid it; we won’t do it. T hat’s why so many people don’t save and invest. Saving sounds like you’re giving something up, you’re losing something today. But you’re not. It’s giving yourself a gift today of peace of mind, of certainty, of the large fortune in your future.

So how did Benartzi and T haler get around these challenges? T hey came up with a simple system to make saving feel painless. It aligns with our natures. As Shlomo said in a T E D T alk, “Save More T omorrow invites employees to save more maybe next year— sometime in the future when we can imagine ourselves eating bananas, volunteering more in the community, exercising more, and doing all the right things on the planet.”

H ere’s how it works: you agree to automatically save a small amount of your salary—10% , 5% , or even as little as 3% . (T his is a number so small you won’t even notice the difference!) T hen you commit to saving more in the future—but only when you get an increase in pay. W ith each pay raise, the percentage saved would automatically get a little larger, but you wouldn’t feel it as a loss, because you never had it in the first place!

Benartzi and T haler first tested the Save More T omorrow plan almost 20 years ago at a company in the Midwest where the blue-collar workers said they couldn’t afford to squeeze another dime out of their paychecks. But the researchers persuaded them to let their employer automatically divert 3% of their salaries into a retirement account, and then add 3% more every time they got a pay raise. T he results were amazing! After just five years and three pay raises, those employees who thought they couldn’t afford to save were setting aside just under a whopping 14% of their paychecks! And 65% of them were actually saving an average of 19% of their salaries.

W hen you get to 19% , you’re approaching the kinds of numbers that made T heodore Johnson, the U PS man, incredibly wealthy. It’s painless, and it works. It’s been proven time and again.

L et me show you the chart that Shlomo uses to illustrate the impact that each increase in savings will have on an employee’s lifestyle.

At 3% , there’s an image of a pair of sneakers— because that’s all you’ll be able to afford if you save only 3% ! At 4% , there’s a bicycle. It goes all the way up to 14% , where there’s a luxury car and the clear message that life is great! T hat’s a big difference!

N ow 60% of larger companies are offering plans like Save More T omorrow. Find out if yours does, and if not, show this book to the H R department and see if you can get one put in place.

Of course, you’ll still need to go out and actually “earn” your raise—your boss isn’t likely to hand it to you just because you’ve asked nicely. But once you do, you’re free to earmark the full amount of the raise, or just a portion, depending on your circumstances. In some cases, if you work for a matching company, your employer will help to effectively double your contribution—and you’ll be well on your way soon enough. In fact, below is a link to an online Save More T omorrow calculator that will allow you to see the impact on your own financial future:

www.nytimes.com/interactive/2010/03/24/yourmoney/one-pct-more-calculator.html.

If your employer doesn’t offer the plan, you can set one up with America’s Best 401k, and many other 401(k) systems. Y ou could start out with 5% (although I would encourage you to start with no less than 10% , if at all feasible) automatically going into your Freedom Fund, and then commit to 3% more every time you get a raise. G o online or make one phone call, and it will be happening for you. Y ou could do this today and lock in your future in the most painless way possible. T here’s no excuse for you not to do it! Y ou can even go to our app, where we’ve prewritten an email that you can send to your boss or head of H R so you can put this process to work for you right away. H ow’s that for easy? D o it right now!

But what if you’re self-employed? W hat if you own your own business, and you feel like you need to put every cent into it? Believe me, you’ll find a way. W hat if there was a new tax that came out, and you had to pay 10% more, or even 15% more to the government? Y ou’d hate it! Y ou’d scream bloody murder! But you’d find a way to pay it. So think of this percentage as a tax you “get to pay”—because the money doesn’t go to U ncle Sam but to your family and future self! Or think of yourself as a vendor who’s got to be paid first. If it has to be done, you’ll do it. But in this case, it’s something you’re setting aside that is yours and your family’s to keep forever, right? And remember, you want to automate it. T hat’s the whole secret: earn more, spend less, and automate it.

L IK E L E T T E RS OF FIRE AC ROSS T H E SK Y

As a young man, I came across G eorge Samuel C lason’s classic 1926 book T he Richest Man in Babylon, which offered commonsense financial advice told through ancient parables. I recommend it to everyone. Over the years, one passage has stayed with me: “ ‘A part of all I earn is mine to keep.’ Say it in the morning when you first arise. Say it at noon. Say it at night. Say it each hour of every day. Say it to yourself until the words stand out like letters of fire across the sky. Impress yourself with the idea. Fill yourself with the thought. T hen take whatever portion seems wise. L et it be not less than onetenth and lay it by. Arrange your other expenditures to do this if necessary. But lay that portion first.”

N o one would have remembered the G ood Samaritan if he’d only had good intentions.

H e had money as well.

— MAR G AR E T T H AT C H E R

L ay that portion first, my friend. And then act on it! It doesn’t matter what the number is, just get started. Ideally, it shouldn’t be less than 10% . But as time goes by, make the number mean something.

T H E N E X T ST E P

N ow that you’ve set up an automated investment plan— your Freedom Fund, your new money machine—there may be two questions burning in your mind: First, where do I put this money? And second, how much am I going to need to achieve financial security or freedom? W e’re going to answer both of those questions clearly. And the answers are going to come from the best financial achievers in the world.

But first we need to understand what you’re really investing for. W hat’s behind your personal desire for financial freedom? And what does wealth really mean to you? W hat are you really after? So let’s take a quick moment—just a few pages—to look at how you are going to master money.

C HAPT E R 1.4

MO N E Y MAST E RY : IT ’S T IME T O BRE AK T H RO U G H

G ratitude is the sign of noble souls.

— AE SO P

Money is one of the ways we can turn the dreams we have into the reality we live. W ithout enough money, or a true scarcity of it, life can feel miserable. But when you

have money in your pocket, does everything automatically get better? I think we all know the answer.

Money can’t change who we are. All it does is magnify our true natures. If you’re mean and selfish, you have more to be mean and selfish with. If you’re grateful and loving, you have more to appreciate and give.

T ake a moment and think back to the financial meltdown of 2008. T rillions of dollars of stock and home values evaporated into thin air. Millions of jobs were lost in a matter of months. W hat did you experience? H ow did it hit you? H ow did it affect your family? H ow about your friends? Some of us reacted with fear, some with anger, some with resignation, some with resolve. All these responses were not about money but about us. T hese events shined a light on what money really means to us. W hat power we give it. W hether we let money control us, or whether we take control of it.

Y OU R MON E Y OR Y OU R L IFE

One of the most powerful examples I know from that time is a gentleman named Adolf Merckle. In 2007 he was the 94th richest man in the world, and the richest man in G ermany, with a net worth of $12 billion. H e owned the largest pharmaceutical company in E urope, and then he expanded his empire into manufacturing and construction. H e was proud of what he’d accomplished. H e was also something of a speculator.

In 2008 he decided to make a bet in the stock market. H e was so certain that Volkswagen was going down, he decided to short the company. Just one problem: Porsche made a move to buy Volkswagen, and the stock price shot up, not down. Almost overnight, Merckle lost nearly three-quarters of a billion dollars on that single gamble.

T o make matters worse, he desperately needed some cash to pay off a huge loan. But in 2008, banks weren’t loaning money to anyone: not you, not me, not billionaires—not even other banks.

So what did Merckle do? Search for new financing? C ut his expenses? Sell some companies at a loss? N o. W hen he realized he’d lost a total of $3 billion and was no longer the richest man in G ermany, that he had failed his family, he wrote a suicide note and walked in front of a speeding train.

T hat’s right. H e killed himself.

In a tragic irony, his family discovered only a few days later that the loans he sought had come through, and his companies were saved.

D id Adolf Merckle die because of money? Or did he die because of what money meant to him? For Merckle, money was an identity. It was a source of significance. T he loss of his status as the richest man in G ermany was too much to bear, and he felt like a failure—even though there was still $9 billion left in his pocket!

Y ou might be thinking, “What a waste.” But it may be a little too easy for us to judge this man. H ow often have we attached our identity—or our future prospects—to money at some level? Probably more than we’d all like to admit.

T H E BIL L ION AIRE W H O W AN T S T O D IE

BROK E

On the other hand, there are people like C huck Feeney, an Irish-American from E lizabeth, N ew Jersey, and a self-made billionaire. H ave you ever tried to get through an airport, anywhere in the world, and found yourself lured into a room full of shiny bottles of liquor and perfume and other tax-free luxury items? D uty Free Shopping (D FS). T hat’s C huck Feeney’s idea. H e started with nothing in 1960 and ended up with a sales empire worth $7.5 billion.

At one point, Forbes had listed him, like Merckle, as one of the richest men in the world. But Feeney was so humble, you would never have known it. Most of his life, he didn’t own a car or a home. H e flew coach and wore a plastic watch. L ike Merckle, his bank account was dwindling—right now he’s in his 80s, and Feeney has just over $1 million left to his name. But the big difference between him and Merckle is that instead of trying to hold on to every last penny, C huck Feeney gave away all his money.

T his is a guy who, for the last 30 years, has made it his mission to take this vehicle called money and use it to change lives everywhere. H is philanthropy reaches all over the world, from helping to create peace in N orthern Ireland, to fighting AID S in South Africa, to educating kids in C hicago.

T he most amazing thing about Feeney is that he did it all anonymously. Feeney wanted no credit. In fact, only recently has word gotten out that he’s the man behind all these incredible projects. And he’s still going! C huck Feeney says his goal is to bounce the last check he writes.

Obviously money meant very different things for Adolf Merckle and C huck Feeney. W hat does money really mean to you? D o you use money, or does money use you? L ike I’ve said from the beginning: if you don’t master money, at some level, it’s going to master you.

T H E U L T IMAT E G OAL : G IVIN G BAC K

For me, money was always out of reach as a child. It was always a source of stress because there was never enough of it. I remember having to knock on the neighbor’s door to ask for food for my brother and sister and me.

T hen, on T hanksgiving D ay when I was 11 years old, something happened that changed my life forever. As usual, there was no food in the house, and my parents were fighting. T hen I heard someone knocking at the front door. I opened it a crack and saw a man standing on the steps with grocery bags filled with enough food for a big T hanksgiving dinner. I could hardly believe it.

My father always said that nobody gave a damn about anybody. But all of a sudden someone I didn’t know, who wasn’t asking for anything in return, was looking out for us. It made me think, “D oes this mean that strangers care?” And I decided that if strangers care about me and my family, I care about them! “W hat am I going to do?” I promised myself that day, I was going to find a way, somehow, someday, to give back and pay it forward. So, when I was 17, I saved my money from working nights as a janitor and went out on T hanksgiving and fed two families. It was one of the most moving experiences of my life. It lifted my spirit to see faces turned from despair to joy. T ruly, it was as much a gift to me as it was to them. I didn’t tell anybody what I was doing, but the next year, I fed four families. T hen eight. I wasn’t doing it for Brownie points, but after eight, I thought, “Man, I could use some help.” So I enlisted some friends, and they got into it too. It grew and grew. N ow my foundation feeds 2 million people every year in 36 countries, through our International Basket Brigades. W ould I have known the joy of giving if it wasn’t for that terrible T hanksgiving when I was 11? W ho knows? Some would call it luck or fate or plain old good fortune. I see the hand of G od in it; I call it grace.

H ere’s what I know: I learned the joy of giving, and it had nothing to do with money. Money is simply a vehicle for trying to meet our needs, and not just our financial needs. Much of our life is guided by the beliefs we develop over the course of time; the story we create about what life’s about, how we’re supposed to be, what we’re supposed to do or give. U ltimately, what’s going to make us happy or fulfilled. E veryone has a different “happy.” Some people find happiness pleasing others, while others find happiness in power and domination. Others define their happy as a billion dollars. Some think the way to happiness and a meaningful life is to get closer to G od and give up everything material. Still others think the ultimate idea of happiness is freedom.

W hatever emotion you’re after, whatever vehicle you pursue—building a business, getting married, raising a family, traveling the world— whatever you think your nirvana is, I have found it’s only an attempt by your brain to meet one or more of six human needs.

T hese six basic needs make us tick. T hey drive all human behavior and are universal. T hey are the force behind the crazy things (other) people do and the great things we do. W e all have the same six needs, but how we value those needs, and in what order, determines the direction of our life.

W hy are the six human needs so important to understand? W ell, if you’re going to build wealth, you’ve got to know what you’re really after—what you’re building it for. Are you looking for wealth to feel certain and secure? Are you chasing wealth to feel special and unique? Or are you looking to have a sense of contribution—you want to do things for others in a way you’ve never been able to do before? Or maybe all of the above?

If you value certainty as the most important need in your life, you’re going to move in a very different direction, act differently in relationships, in business and finance, than if love is your number one need. If we get underneath what you’re really after, it’s not money at all.

W hat you’re really after is what you think money is going to give you. U ltimately, it’s a set of feelings. And beneath those feelings are needs.

N E E D 1:

C E RT AIN T Y /C OMFORT

T      he first human need is the need for C ertainty.It’s our need to feel in control and to know what’s coming next so we can feel secure. It’s the need for basic comfort, the need to avoid pain and stress, and also to create pleasure. D oes this make sense? Our need for certainty is a survival mechanism. It affects how much risk we’re willing to take in life—in our jobs, in our investments, and in our relationships. T he higher the need for certainty, the less risk you’ll be willing to take or emotionally bear. By the way, this is where your real “risk tolerance” comes from.

But what if you’re totally certain all the time? If you knew what was going to happen, when it was going to happen, how it was going to happen. Y ou knew what people were going to say before they said it. H ow would you feel? At first you’d feel extraordinary, but eventually you’d be what? Bored out of your mind!

N E E D 2:

U     N C E RT AIN T Y /VARIE T Y

So, G od, in H er infinite wisdom, gave us a second human need, which is U ncertainty. W e need variety.

W e need surprise.

L et me ask you a question: D o you like surprises?

If you answered “yes,” you’re kidding yourself! Y ou like the surprises you want. T he ones you don’t want you call problems! But you still need them to put some muscle in your life. Y ou can’t grow muscle—or character—unless you have something to push back against.

N E E D 3:

SIG N IFIC AN C E

T he third is Significance, that basic human need that drove Adolf Merckle. W e all need to feel important, special, unique, or needed. So how do some of us get significance? Y ou can get it by earning billions of dollars or collecting academic degrees—distinguishing yourself with a master’s or a PhD . Y ou can build a giant T witter following. Or you can go on T he Bachelor or become one of the next Real H ousewives of Orange County. Some do it by putting tattoos and piercings all over themselves and in places we don’t want to know about. Y ou can get significance by having more or bigger problems than anybody else. “You think your husband’s a dirtbag? T ake mine for a day!” Of course, you can also get it by being more spiritual (or pretending to be). U nfortunately, one of the fastest ways to get significance—that costs no money and requires no education—is through violence. If someone puts a gun to your head, in that instant he becomes the most significant thing in your life, right?

Spending a lot of money can make you feel significant, and so can spending very little. W e all know people who constantly brag about their bargains, or who feel special because they heat their homes with cow manure and sunlight. Some very wealthy people gain significance by hiding their wealth. L ike the late Sam W alton, the founder of W al-Mart and for a time the richest man in America, who drove around Bentonville, Arkansas, in his old pickup, demonstrating he didn’t need a Bentley—but, of course, he did have his own private fleet of jets standing by.

Significance is also a moneymaker—that’s where my dear friend Steve W ynn has made his fortune. T he man who made L as Vegas what it is today knows people will pay for anything they believe is “the best”—anything that makes them feel special, unique, or important; anything that makes them stand out from the crowd. H e provides the most exclusive, luxurious experiences imaginable in his casinos and hotels—they are truly magnificent and unmatched in the world. H e’s got a nightclub called X S (what else?) that is the hottest spot in L as Vegas. E ven on a weeknight, it has a line out the door. Once you’re in, you have the privilege of purchasing an ordinary bottle of champagne for $700, or if you want to step up and show everyone you’re a player, you can spend $10,000 for a special “Ono cocktail” of rare vintage cognac and fresh orange juice that comes with a white-gold necklace. H ey, it comes to your table with a sparkler, just so everybody knows you’re significant (and out of your mind).

N E E D 4:

L OVE AN D C ON N E C T ION

T he fourth basic need is L ove and C onnection. L ove is the oxygen of life; it’s what we all want and need most. W hen we love completely, we feel alive, but when we lose love, the pain is so great that most people settle on connection, the crumbs of love. Y ou can get that sense of connection or love through intimacy, or friendship, or prayer, or walking in nature. If nothing else works, you can get a dog.

T hese first four needs are what I call the needs of the personality. W e all find ways to meet these: whether by working harder, coming up with a big problem, or creating stories to rationalize them. T he last two are the needs of the spirit. T hese are more rare—not everyone meets these. W hen these needs are met, we truly feel fulfilled.

N E E D 5:

G ROW T H

N umber five is G rowth. If you’re not growing, you’re what? Y ou’re dying. If a relationship is not growing, if a business is not growing, if you’re not growing, it doesn’t matter how much money you have in the bank, how many friends you have, how many people love you— you’re not going to experience real fulfillment. And the reason we grow, I believe, is so we have something of value to give.

N E E D 6:

C ON T RIBU T ION

T hat’s because the sixth need is C ontribution. C orny as it may sound, the secret to living is giving. L ife’s not about me; it’s about we. T hink about it: W hat’s the first thing you do when you get good or exciting news? Y ou call somebody you love and share it. Sharing enhances everything you experience.

L ife is really about creating meaning. And meaning does not come from what you get, it comes from what you give. U ltimately, what you get will never make you happy long term. But who you become and what you contribute will.

N ow, since this is a book about your money, think about how money can fulfill the six human needs. C an money give us certainty? Y ou bet. Variety? C heck. Obviously it can make us feel important or significant. But what about connection and love? In the immortal words of the Beatles, money can’t buy you love. But it can buy you that dog! And it can, unfortunately, give you a false sense of connection because it attracts relationships, although not always the most fulfilling kind. H ow about growth? Money can fuel growth in business and in learning. And the more money you have, the more you can contribute financially.

But here’s what I truly believe: if you value Significance above all else, money will always leave you empty unless it comes from a contribution you’ve made. And if you’re looking for significance from money, it’s a high price to pay. Y ou’re looking for big numbers, but it’s unlikely you’ll find big fulfillment.

T he ultimate significance in life comes not from something external but from something internal. It comes from a sense of esteem for ourselves, which is not something we can ever get from someone else. People can tell you you’re beautiful, smart, intelligent, the best, or they can tell you that you are the most horrible human being on earth—but what matters is what you think about yourself. W hether or not you believe that deep inside you are continuing to grow and push yourself, to do and give more than was comfortable or you even thought possible.

T here is nothing more significant than growing and giving. So while money is an extraordinary vehicle to meet many of our six needs, it’s not the only one. W hen you are pursuing money, don’t forget why you are pursuing it. Y ou’re trying to meet some emotional and psychological desires. U nderneath those emotions are the needs that must be fulfilled for your life to be extraordinary.

W hen the astronauts went to walk on the moon, imagine the journey they went on. From being a small child dreaming of someday flying to outer space, to the day when Buzz Aldrin and N eil Armstrong stood on the moon, looking back at that extraordinary view of planet E arth that we’ve all seen only in pictures. T hey were the first human beings to do it in the entire history of the species—how incredibly significant.

W hat happened next? T icker-tape parades. Shaking the president’s hand. T hey were heroes. And then what? W hat do you do after you’ve walked on the moon, and you’re only 39 years old? If you’ve studied the history of the astronauts, or read their biographies, you’ll know that many of them became extremely depressed. W hy? Because the only way they could find adventure was by traveling into space or all the way to the moon. T hey forgot how to find adventure in a simple smile.

I’m not going to preach to you anymore, but I wanted to take this short time to say that while it’s time to master your money, don’t wait to master yourself. T he fastest way to feel connection, a sense of how significant your life is, a deep sense of certainty and variety, and put yourself in a state where you can give to others, is to find a way each day to appreciate more and expect less. T he wealthiest person on earth is one who appreciates.

I interviewed Sir John T empleton for the first time when I was 33 years old. Remember, he was the

multibillionaire who started with nothing and made all of his money when everyone else was afraid, during the worst times in history: W W II, Japan after the war, and in the late 1980s and early 1990s when massive inflation hit parts of South America. W hen others were fearful, he went out and invested. I asked him, “W hat’s the secret to wealth?” And he said, “T ony, you know it, and you know it well. Y ou teach it to everyone. It’s gratitude.” W hen you’re grateful, there is no fear; when you’re grateful, there is no anger. Sir John was one of the happiest and most fulfilled human beings I have ever known. E ven though he passed in 2008, all these years later his life continues to inspire others.

If you want to be rich, start rich. W hat can you be grateful for today? W ho can you be grateful for today? C ould you even be grateful for some of the problems and the pain that you’ve been through in your life? W hat if you took on the new belief that everything in life happens for a reason and a purpose, and it serves you? W hat if you believed in your heart of hearts that life doesn’t happen to you, it happens for you? T hat every step along the way is helping strengthen you so that you can become more, enjoy more, and give more. If you’ll start from that place, money won’t be the source of your pleasure or your pain. Making money will just be a fun journey of mastery, and wealth a great vehicle to achieve what matters most in life.

But as long as money is such a part of our lives, let’s get right back on the money track. As heartfelt as this chapter has been, not all the people you’ll meet along the financial path will be operating from the benevolent place of G rowth and C ontribution! Y ou’re going to be entering a world that is filled with people and organizations that too often will be looking to take advantage of your lack of experience and understanding. So I want to prepare you for what’s ahead. Before we discuss where to put your money and what to look for, I have to show you what to look out for.

T here’s a reason why most investors do not make money over time. I want to arm you with the knowledge that will both protect you and allow you to maximize the growth of your investments so you can achieve true F inancial F reedom faster than you can imagine. T he peace of mind you deserve will soon be yours. T urn the page . . .

SE C T ION 2

BEC OME T H E IN SID ER: K N OW

T H E RUL ES BEFORE YOU GET IN T H E GAME

C HAPT E R 2.0

BRE AK FRE E : SH AT T E RIN G T H E 9 FIN AN C IAL MY T H S

Remember the golden rule: he who has the gold makes the rules.

— U N K N O W N

Y ou have to learn the rules of the game, and then you have to play better than anyone else.

— AL BE R T E IN ST E IN

I know that you want to jump right in and learn where to put your money to obtain financial freedom. And I want to dive in and show you! I absolutely light up when I see someone really “get it” and come to understand and embrace that the game is truly winnable. But it’s not enough to just save your money, get a great return, and reduce your risk. Y ou have to know that there are a lot of people looking to take a piece of your wealth. T he system is riddled with loopholes—what I would call landmines—that can blow up your financial future. So in this section, we’re going to go through 9 Myths—you might call them lies—that have been marketed to you over the years. And if you aren’t aware of them—if you don’t see them coming—they will systematically destroy your financial future.

T his next section is where this book starts to pay off! In fact, if you have the average American salary of $50,000 per year, and currently save 10% of your income and invest that money over time, you’ll save $250,000 over your investment lifetime by just part of what you will learn in this section. T hat’s five years of your current lifestyle, at your current income, without having to work a single day! And that is statistically proven, not a number I’m pulling out of a hat. If you make only $30,000 per year and save just 5% of your income each year, you’ll still save $150,000 over your investment lifetime. T hat’s a half decade’s worth of your current income without having to work for it. If you’re in the $100,000-plus category, this section could put $500,000 to $1 million back in your pocket over your lifetime. Sounds like a massive promise, huh!? I will let the numbers do the talking in the pages ahead.

It’s a short section, so pay attention because you’re going to want to take immediate action. By shattering these myths, you will be able to immediately “stop the bleeding” in areas where you never thought you needed to. K nowing these 9 Myths will protect you and insure that you get to the level of financial freedom that you’re truly committed to. L et’s begin!

W E L C OME T O T H E JU N G L E

W hether you are a seasoned investor or just beginning to see yourself as an investor, the jungle that Ray D alio so vividly described holds the same dangers for all of us. But most of the danger lies in the fact that what you don’t know can hurt you.

T H E OFFE R

I want you to imagine that someone comes to you with the following investment opportunity: he wants you to put up 100% of the capital and take 100% of the risk, and if it makes money, he wants 60% or more of the upside to come to him in fees. Oh, and by the way, if it loses money, you lose, and he still gets paid!

Are you in?

I’m sure you don’t need any time to think this through. It’s a no-brainer. Y our gut response has to be, “T here’s no way I’m doing this. H ow absurd!” T he only problem is that if you’re like 90% of American investors, you’ve invested in a typical mutual fund, and, believe it or not, these are the terms to which you’ve already agreed.

T hat’s right, there is $13 trillion in actively managed mutual funds³ with 265 million account holders around the world.

H ow in the world do you convince 92 million

Americans to participate in a strategy where they willingly give up 60% or more of their potential lifetime investment upside with no guaranteed return? T o solve this riddle, I sat down with the 85-year-old investment guru Jack Bogle, the founder of Vanguard, whose 64 years on W all Street have made him uniquely qualified to shed light on this financial phenomenon. H is answer?

“Marketing!

“T ony, it’s simple. Most people don’t do the math, and the fees are hidden. T ry this: if you made a onetime investment of $10,000 at age twenty, and, assuming 7% annual growth over time, you would have $574,464 by the time you’re nearly my age [eighty]. But, if you paid 2.5% in total management fees and other expenses, your ending account balance would only be $140,274 over the same period.”

“L et’s see if we’ve got this straight: you provided all the capital, you took all the risk, you got to keep $140,274, but you gave up $439,190 to an active manager!? T hey take 77% of your potential returns? For what?”

“E xactly.”

Money Power Principle 1. D on’t get in the game unless you know the rules! Millions of investors worldwide are systematically marketed a set of myths— investment lies—that guide their decision making. T his “conventional wisdom” is often designed to keep you in the dark. W hen it comes to your money, what you don’t know can—and likely will—hurt you. Ignorance is not bliss. Ignorance is pain, ignorance is struggle, ignorance is giving your fortune away to someone who hasn’t earned it.

A FAIL E D E X PE RIME N T

It’s not just high-cost mutual funds that are the problem. T he example above is just a peek under the sheets at a system designed to separate you from your money.

W ithout exception, every expert I have interviewed for this book (from the top hedge funds managers to N obel Prize winners) agrees that the game has changed. Our parents didn’t have a fraction of the complexity or dangers to deal with that we have today. W hy? T hey had a pension—a guaranteed income for life! T hey had C D s that paid conservative but reasonable rates—not the 0.22% you would be paid at the time of this writing, which won’t even keep up with inflation. And some had the privilege of putting small investments into blue-chip stocks that paid steady dividends.

T hat ship has sailed.

T he new system, which really got rolling in the early ’80s with the introduction of the 401(k), is an experiment that’s now been conducted for the most part on the single largest generation in U S history: the baby boomers. H ow is this experiment working?

“T his do-it-yourself pension system has failed,” said T eresa G hilarducci, a nationally recognized expert in retirement security at the N ew School for Social Research and an outspoken critic of the system as we know it. “It has failed because it expects individuals without investment expertise to reap the same results as professional investors and money managers. W hat results would you expect if you were asked to pull your own teeth or do your own electrical wiring?”

W hat’s changed? W e exchanged our guaranteed retirement pensions with an intentionally complex and often extremely dangerous system, filled with hidden fees, which gave us “freedom of choice.” And somehow, in the midst of working your tail off, providing for your family, staying in shape, and taking care of the important relationships in your life, you are supposed to become an investment professional? Y ou’re supposed to be able to navigate this labyrinth of products, services, and unending risk of your hard-earned money? It’s near impossible. T hat’s why most people give their money to a “professional,” often a broker. A broker who by definition works for a company that is not required by law to do what’s in your best interest (more on this baffling concept in Myth 4). A broker who gets paid to funnel your money to the products that may be the most profitable for him and/or his firm.

N ow, let me be clear: this is not another bash-W allStreet-book. Many of the large financial institutions have pioneered some extraordinary products that we will explore and advocate throughout this book. And the vast majority of people in the financial services industry care intensely for their clients, and more often than not, they are doing what they believe to be the best thing. U nfortunately, many don’t also understand how the “house” reaps profits whether the client wins or not. T hey are doing the best they can for their clients with the knowledge (training) and the tools (products) they have been provided. But the system isn’t set up for your broker to have endless options and complete autonomy in finding what’s best for you. And this could prove costly.

G      iving up a disproportionate amount of your potentialreturns to fees is just one of the pitfalls you must avoid if you plan on winning the game. And here is the best news yet:

T H E G AME IS ST IL L W IN N ABL E !

In fact, it’s more than winnable—it’s exciting as hell! Y es, there are major challenges and more pitfalls you must avoid, but consider how far we have come. T oday, with the click of a button and a minimal charge, you can invest in just about anything you want anywhere in the world you want. “It’s easier than it’s ever been to do pretty well,” said James C loonan in a recent Wall Street J ournal article. C loonan is founder of the nonprofit American Association of Individual Investors. “Y ou just have to decide to do the right thing.”

H      eck, just 35 years ago “you had to spend hours in apublic library or write away to a company just to see its financial statements. Brokerage costs and mutual-fund fees were outlandish; tax rates were larcenous,” wrote Jason Z weig in his Wall Street J ournal article “E ven

W hen    Stocks    Make   Y ou   N ervous,   C ount    Y our

Blessings.”

Aside from high-frequency traders, technology has made the world of investing a much more efficient space for all of us. And this fits perfectly with the millennial generation, which wouldn’t accept anything less. “For us, it’s all about convenience!” exclaimed E mily, my personal assistant, who is a “straight-down-the-fairway” millennial. “T here is no tolerance for slow or inefficient. W e truly want everything to be at the touch of a button. W e order everything on Amazon; we lift one finger, and it’s done. I can stream a movie on N etflix. I can get a car registration online. I can buy stocks online. I can do my presentation online. T his morning I took a picture of my check and had it in my bank account by six—I didn’t even have to get out of my pajamas.”

T H E H OU SE H AS T H E E D G E

Steve W ynn, the billionaire gambling mogul credited with transforming L as Vegas into the entertainment capital of the world, is one of my dearest friends. T he casinos he’s built are considered to be some of the most magnificent playgrounds in the world. T hrough it all, he’s made his fortune from one simple truth: the house has the edge. But by no means does he have a guaranteed victory! On any given night, a high-rolling gambler can take millions out of Steve’s pocket. And they can also leave if his “house” doesn’t completely captivate them. On the other hand, nearly all mutual fund companies have a stacked deck. T hey are the ultimate casino. T hey’ve captured you, you’re going nowhere, and they are guaranteed revenue whether you win or not.

T W IC E BU RN E D

After 2008, when the U S stock market lost more than 37% , the financial world was completely changed for most Americans. E ven five years later, a survey from Prudential Financial showed that 44% of American investors still say they would never put their money in the stock market again, while 58% say they lost faith in the market. But the insiders are still in the game. W hy? Because they know better. T hey know the “right” way to play the game. T hey know that today there are powerful tools and strategies that have never existed before. G et this:

T oday you can use a tool, issued and backed by one of the largest banks in the world, that will give you 100% principal protection guaranteed by its balance sheet and allow you to participate in 75% to 90% of the upside of the market (the S&P 500) without being capped! T hat is not a misprint. Y ou can participate in up to 90% of the upside, but if the market collapses, you still get back 100% of your money! Sounds too good to be true? And if a product like this did exist, you would have already heard of it, right? W rong. T he reason? In the past, to even hear about this, you had to be in the top 1% of the 1% . T hese are not “retail” solutions, where they sit on the shelf. T hese are custom designed for those with enough money to partake.

T his is just one example of how, as an insider, you’ll soon know the new rules of how to achieve wealth with minimal risk.

Risk comes from not knowing what you’re doing.

— W AR R E N BU F F E T T

T H E ROAD L E SS T RAVE L E D

T he journey ahead is one that requires your full participation. T ogether we are going to climb this mountain called Financial Freedom. It’s your personal Mount E verest. It won’t be easy, and it will require preparation. Y ou don’t head up E verest without a very clear understanding of the dangers that lie ahead. Some are known, and some could sneak up on you like a violent storm. So before we set foot on the mountain, we must fully grasp what’s on the path before us. One false step could mean the difference between wondering how you will pay next month’s mortgage and an abundant life, free of financial stress. W e can’t ask someone to climb it for us, but we also can’t do it alone. W e need a guide who has our best interests at heart.

T H E PIN N AC L E

T he core concept of successful investing is simple: G row your savings to a point at which the interest from your investments will generate enough income to support your lifestyle without having to work. E ventually you reach a “tipping point” at which your savings will hit a critical mass. T his simply means that you don’t have to work anymore—unless you choose to—because the interest and growth being generated by your account gives you the income you need for your life. T his is the pinnacle we are climbing toward. T he great news is that if you become an insider, today there are new and unique solutions and strategies that will accelerate your climb and even protect you from sliding backward. But before we explore these solutions in more depth, let’s map out our journey with more clarity.

T here are two phases to your investing game: the accumulation phase, in which you are socking away money for growth, and the decumulation, during which you are withdrawing income. T he journey up the mountain will represent our accumulation phase with the goal of reaching the pinnacle, or critical mass. T he goal is to stay on top of the mountain as long as we can. T o take in the views and breathe in the fresh air of freedom and accomplishment. T here will be many hurdles, obstacles, and, if you’re not alert, even lies, that will prevent you from reaching the peak. T o ensure our best chance of success, we will flush these out in the pages to come.

And when we enter the second act of our life, when it’s time to enjoy what we made, we will have the freedom to work only if we want to. At this stage we will ski down the mountain and enjoy ourselves. Spending time with the ones we love, building our legacy, and making a difference. It’s during this phase that we will eliminate the number one fear of baby boomers: the fear of outliving our money. T his second phase is rarely discussed by the asset management industry, which is focused on keeping money invested.

“It’s not about having some arbitrary amount of money in your account on some given day,” exclaimed D r. Jeffrey Brown, professor of finance at the U niversity of Illinois and consultant to the U S T reasury and the W orld Bank. “I think a lot of people are going to get to retirement and suddenly wake up and realize, ‘Y ou know what? I did a fairly good job. I have all this money sitting here, but I don’t know how long I am going to live, and I don’t know what my investment returns are going to be, and I don’t know what inflation is going to be. W hat do I do?’ ”

After I read one of his recent Forbes columns, I called D r. Brown to see if he would be willing to sit down and share specific solutions for investors of all shapes and sizes. (W e’ll hear from D r. Brown on how to create income for life and even how to make it tax free in his interview in section 5, “U pside W ithout the D ownside: C reate a L ifetime Income Plan.”) And who better to outline the solution than the man who is not only a top academic expert but was also one of only seven people appointed by the president of the U nited States to the Social Security Advisory Board.

BRE AK T H E C H AIN S

In the words of D avid Swensen, one of the most successful institutional investors of our time, to have unconventional success, you can’t be guided by conventional wisdom. L et’s shatter the top nine financial myths that misguide the masses, and, more importantly, uncover the new rules of money, the truths that will set you financially free.

L et’s start with the biggest myth of all. . . .

3. According to the website Investopedia: “Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold, and sell. T he opposite of active management is called passive management, better known as ‘indexing.’ ”

C HAPT E R 2.1

MY T H 1: T H E $13T L IE : “IN V E ST

W IT H U S. W E ’L L BE AT T H E MARK E T !”

T he goal of the nonprofessional should not be to pick winners—neither he nor his “helpers” can do that—but should rather be to own a cross section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.

— W AR R E N BU F F E T T , 2013 letter to shareholders

W hen you look at the results on an afterfee, after-tax basis, over reasonably long

periods of time, there’s almost no chance

that you end up beating the index fund.

— D AV ID SW E N SE N , author of U nconventional Success and manager of Y ale U niversity’s more than $23.9 billion endowment

FIN AN C IAL E N T E RT AIN ME N T

W hen you turn on the financial news today, you can see that it is less “news” and more sensationalism. T alking heads debate with zeal. Stock pickers scream their hot picks of the day while sound effects smash, crash, and

“kaching!” through our living room speakers. Reporters film “live on the scene” directly from the trenches of the exchange floor. T he system, paid for by advertisers, breeds the feeling that maybe we are missing out! If only we had a hot tip. If only we knew the next “must-own” mutual fund that would surely be the “5 star” comet. (Mutual funds are rated between 1 and 5 stars by rating authority Morningstar.)

C hasing returns is big business. Personal finance writer Jane Bryant Quinn once referred to this sensational hype as “financial porn.” L uring us into glossy pages where the centerfolds are swapped with fivestar ratings and promises of carefree walks on the beach and fishing off the dock with our grandkids. T he bottom line is that advertisers are fighting to get a grasp on our money. T he war for your assets rages on!

So where do you put your money? W ho can you trust? W ho will protect you and get you the best return on your investment?

T hese are the immediate questions that are sure to come to mind now that you’ve committed to becoming an investor—now that you’ve committed to socking away a percentage of your income. So where do most people put their money for the long haul? U sually the stock market.

And the stock market has indeed been the best longterm investment over the past 100 years. As Steve Forbes pointed out at one of my financial events in Sun Valley, Idaho, in 2014, “$1 million invested in stocks in 1935 is worth $2.4 billion today (if you held on).”

But the moment you open an IRA or participate in your 401(k) plan at work, there will be a jolly salesman (or sales process) telling you to park your money in a mutual fund. And by buying an actively managed mutual fund, what exactly are you buying? Y ou are buying into the fund manager in hopes that his or her stock-picking abilities will be better than yours. A completely natural assumption, since we have insanely busy lives, and our method of picking stocks would be the equivalent of throwing darts!

So we hand over our money to a “five-star” actively managed mutual fund manager who by definition is “actively” trying to beat the market by being a better stock picker than the next guy. But few firms will discuss what is sometimes called the $13 trillion lie. (T hat’s how much money is in mutual funds.) Are you ready for this?

An incredible 96% of actively managed mutual funds fail to beat the market over any sustained period of time!

So let’s be clear. W hen we say “beat the market” as a whole, we are generally referring to a stock index. W hat’s an index, you ask? Some of you might know, but I don’t want to risk leaving anyone in the dark, so let’s shed a little light. An index is simply a basket or list of stocks. T he S&P 500 is an index. It’s a list of the top companies (by market capitalization) in the U nited States, as selected by Standard & Poor’s. C ompanies like Apple, E xxon, and Amazon make up the list. E ach day, they measure how all 500 stocks performed, as an aggregate, and when you turn on the news at night, you hear if the market (all the stocks on the list collectively) was either up or down.

So instead of buying all the stocks individually, or trying to pick the next highflyer, you can diversify and own a piece of all 500 top stocks simply by investing in a low-cost index fund that tracks or mimics the index. One single investment buys you a piece of the strength of “American capitalism.” In a way, you are buying into the fact that over the past 100 years, the top-tier companies have always shown incredible resiliency. E ven through depressions, recessions, and world wars, they have continued to find ways to add value, grow, and drive increasing revenues. And if a company fails to keep making the grade, it falls off the list and is replaced with another top performer.

T he point here is that by investing in the index, you don’t have to pay a professional to try picking which stocks in the index you should own. It’s effectively been done for you because Standard & Poor’s has selected the top 500 already. By the way, there are number of different indexes out there. Many of us have heard of the D ow Jones index, for example, and we will explore others soon.

T E N T H OU SAN D OPT ION S

T here are 7,707 different mutual funds in the U nited States (but only 4,900 individual stocks), all vying for a chance to help you beat the market. But the statistic is worth repeating: 96% will fail to match or beat the market over any extended period. Is this groundbreaking news? N o, not to insiders. N ot to the smart money. As Ray D alio told me emphatically, “Y ou’re not going to beat the market. N o one does! Only a few gold medalists.” H e just happens to be one of those medalists honest enough to issue the warning “D on’t try this at home.”

E ven W arren Buffett, known for his incredibly unique ability to find undervalued stocks, says that the average investor should never attempt to pick stocks or time the market. In his famous 2014 letter to his shareholders, he explained that when he passes away, the money in a trust for his wife should be invested only in indexes so that she minimizes her cost and maximizes her upside.

Buffett is so sure that professional stock pickers can’t win over time that he was more than happy to put his money where his mouth is. In January 2008 Buffett made a $1 million wager against N ew Y ork–based Protégé Partners, with the winnings going to charity. T he bet? C an Protégé pick five top hedge fund managers who will collectively beat the S&P 500 index over a ten-year period? As of February 2014, the S&P 500 is up 43.8% , while the five hedge funds are up 12.5% . T here are still a few years left, but the lead looks like the world’s fastest man, U sain Bolt, running against a pack of Boy Scouts. (N ote: for those unfamiliar with what a hedge fund is, it is essentially a private “closed-door” fund for only highnet-worth investors. T he managers can have total flexibility to bet “for” the market and make money when it goes up, or “against” the market, and make money when it goes down.)

T H E FAC T S ARE T H E FAC T S ARE T H E FAC T S

Industry expert Robert Arnott, founder of Research Affiliates, spent two decades studying the top 200 actively managed mutual funds that had at least $100 million under management. T he results are startling:

F rom 1984 to 1998, a full 15 years, only eight out of 200 fund managers beat the V anguard 500 Index. (T he Vanguard 500, put together by founder J ack Bogle, is a mirror image of the S& P 500 index.)

T hat’s less than 4% odds that you pick a winner. If you’ve ever played blackjack, you know the goal is to get as close to 21 without going over, or “busting.” According to D an and C hip H eath in their Fast Company article “Made to Stick: T he Myth of Mutual Funds,” “by way of comparison, if you get dealt two face cards in blackjack (each face card is worth 10, so now your total is 20), and your inner idiot shouts, ‘H it me!’ you have about an 8% chance of winning!”

Just how badly does chasing performance hurt us? O ver a 20-year period, D ecember 31, 1993, through D ecember 31, 2013, the S& P 500 returned an average annual return of 9.28% . But the average mutual fund investor made just over 2.54% , according to D albar, one of the leading industry research firms. O uch! A nearly 80% difference.

In real life, this can mean the difference between financial freedom and financial despair. Said another way, if you were the person who simply owned the S&P 500, you would have turned your $10,000 into $55,916! W hereas the mutual fund investor, who was sold on the illusion that he or she could outperform the market, ended up with only $16,386.

W hy the huge performance gap?

Because we buy high and sell low. W e follow our emotions (or our broker’s recommendations) and jump from fund to fund. Always looking for an edge. But when the market falls, when we can’t take the emotional pain any longer, we sell. And when the market is up, we buy more. As a famous money manager named Barton Biggs observed, “A bull market is like sex. It feels best just before it ends.”

W ISD OM OF AG E S

At 82 years young, Burt Malkiel has lived through every conceivable market cycle and new marketing fad. W hen he wrote A Random Walk D own Wall Street in 1973, he had no idea it would become one of the classic investment books in history. T he core thesis of his book is that market timing is a loser’s game. In section 4, we will sit down and you’ll hear from Burt but for now what you need to know is that he was the first guy to come up with the rationale of an index fund, which, again, does not to try to beat the market but simply “mimics,” or matches, the market.

Among investors, this strategy is called indexing or passive investing. T his style is contrary to active investing, in which you pay a mutual fund manger to actively make choices about which stocks to buy or sell. T he manager is trading stocks—“actively” working with hopes of beating the market.

Jack Bogle, founder of the behemoth Vanguard, subsequently bet the future direction of his company on this idea by creating the first index fund. W hen I sat down with Jack for this book, he echoed why Vanguard has become the largest index mutual fund manager in the world. H is best single rant: “maximum diversification, minimal cost, and maximum tax efficiency, low turnover [trading], and low turnover cost, and no sales loads.” H ow’s that for an elevator pitch!

SH ORT C U T

N ow, you might be thinking that there must be some people who can beat the market. W hy else would there be $13 trillion in actively managed mutual funds? Mutual fund managers certainly have streaks where they do, in fact, beat the market. T he question is whether or not they can sustain that advantage over time. But as Jack Bogle said, it all comes down to “marketing!” It’s our human nature to strive to be faster, better, smarter than the next guy. And thus, selling a hot fund is not difficult to do. It sells itself. And when it inevitably turns cold, there will be another hot one ready to serve up.

As for the 4% that do beat the market, they aren’t the same 4% the next time around. Jack shared me with what he says is the funniest way to get this point across. “T ony, if you pack 1,024 gorillas into a gymnasium, and teach them each to flip a coin, one of them will flip heads ten times in a row. Most would call that luck, but when that happens in the fund business we call him a genius!” And what are the odds it’s the same gorilla after the next ten flips?

T o quote a study from D imensional Fund Advisors, run by 2013 N obel Prize–winning economist E ugene Fama, “So who still believes markets don’t work? Apparently it is only the North Koreans, the Cubans, and the active managers.”⁴

T his part of the book is where anyone reading who works in the financial services industry will either nod in agreement or figure out which door they will prop open with these 600 pages! Some will even be gathering the troops to mount an attack. It’s a polarizing issue, without a doubt. W e all want to believe that by hiring the smartest and most talented mutual fund manager, we will achieve financial freedom more quickly. After all, who doesn’t want a shortcut up the mountain? And here is the crazy thing:

As much as everyone is entitled to his own opinion, nobody is entitled to his own facts!

Sure, some mutual fund managers will say, “W e may not outperform on the upside but when the market goes down, we can take active measures to protect you so you won’t lose as much.”

T hat might be comforting if it were true.

T he goal in investing is to get the maximum net return for a given amount of risk (and, ideally, the lowest cost). So let’s see how the fund managers did when the market was down. And 2008 is as good a place to start as any.

Between 2008 and early 2009, the market had its worst one-year slide since the G reat D epression (51% from top to bottom, to be exact). T he managers had plenty of time to make “defensive” moves. Maybe when the market was down 15% , or 25% , or 35% , they would have taken “appropriate measures.” Once again, the facts speak for themselves.

W hether the fund manager was trying to beat the S&P G rowth Index, made up of companies such as Microsoft, Qualcomm, and G oogle, or trying to beat the S&P Small C ap Index, made up of smaller companies such as Y elp, once again, the stock pickers fell short. According to a 2012 report titled S&P Indices Versus

Active Funds Scorecard—SPIVA, for short—the S&P 500 G rowth Index outperformed 89.9% of large-cap growth mutual funds, while the S&P 500 Small C ap 600 G rowth Index outperformed 95.5% of small-cap growth managers.

T H E U N IC ORN S

N ow, having made it clear that almost nobody beats the market over time, I will give one caveat. T here is a tiny group of hedge fund managers who do the seemingly impossible by beating the market consistently. But they are the “unicorns,” the rarest of the rare. T he “magicians.” T he “market wizards.” L ike D avid E inhorn of G reenlight C apital, who is up 2,287% (no, that’s not a typo!) since launching his fund in 1996 and has only one negative year on his track record. But unfortunately, it doesn’t do the average investor any good to know they are out there, because their doors are closed to new investors. Ray D alio’s fund, Bridgewater, hasn’t accepted new investors in over ten years, but when it did, it required a minimum investment of $100 million and $5 billion in investable assets. G ulp.

Paul T udor Jones, who hasn’t lost money in over 28 years, called his investors recently and sent back $2 billion. W hen a hedge fund gets too big, it’s harder to get in and get out of the market—harder to buy and sell its investments quickly and easily. And being slow means lower returns.

—

Before you begin to think this is a glowing report on hedge funds, let me be clear. For the fifth year in a row, ending in 2012, the vast majority of hedge fund managers have underperformed the S&P 500. According to the financial news site Z ero H edge, in 2012 the average fund returned 8% as opposed to 16% for the S&P 500. In 2013 hedge funds returned an average of 7.4% , while the S&P 500 soared 29.6% , its best year since 1997. I am sure their wealthy clients weren’t too pleased. And to add insult to injury, they usually charge 2% per year for management, take 20% of the overall profits, and the gains you do receive are often taxed at the highest ordinary income tax rates. Painful.

T H E BIG G E ST BAN K IN T H E W ORL D

N o matter what aspect of life, I am always looking for the exception to the rule, as that’s where outstanding tends to live. Mary C allahan E rdoes fits that bill. In an industry dominated by men, she has risen to the top of the financial world. W all Street is a place where performance speaks louder than words, and E rdoes’s performance has been extraordinary. H er consistent breakthrough results have led her to become the C E O of J.P. Morgan Asset Management, and she now oversees portfolios that total more than $2.5 trillion—yes, trillion with a t!

W e had a fantastic interview for this book, and she shared some profound wisdom, which we will cover in section 6. But when I brought up the studies that no manager beats the market over time, she was quick to point out that many of J.P. Morgan’s fund managers have beaten the market (in their respective classes) over the past ten years. W hy? T he examples she provided didn’t lose as much as the market when the market went down. T his difference, she says, is what provided the edge they needed to stay ahead. E rdoes and many industry experts agree that certain less-developed, or emerging, markets provide opportunities for active managers to get “an edge.” T hey have the opportunity to gain an even greater advantage in frontier markets— places such as K enya and Vietnam—where information isn’t as transparent and doesn’t travel as fast. E rdoes says this is where a firm such as J.P. Morgan has massive reach and resources, and can use its on-the-ground contacts in the community to give it valuable insights in real time.

According to Jack Bogle, there is no empirical basis to show that active management is more effective for all the major asset classes: large-cap growth, value, core, mid-cap growth, and so on. But it does appear that these frontier markets present opportunities for active management to sometimes outperform. W ill they continue to outperform going forward? Only time will tell. W e do know that every active manager, from Ray D alio to J.P. Morgan, will be wrong at some point in their attempt to outperform. T herefore, developing a system and a proper asset allocation is crucial. W e will address this in Section 4. It will be up to you to evaluate them for yourself, and don’t forget to take into account the fees and the taxes (which we will discuss in the next chapter).

AL L W E AT H E R

Y ou might be reading this book in a bull market, a bear market, or a sideways market. W ho knows? T he point is that you need to have your investments set up to stand the test of time. An “All W eather” portfolio. T he people I have interviewed have done well in both good times and bad. And we can all count on ups and downs in the future. L ife isn’t about waiting for the storm to pass; it’s about learning to dance in the rain. It’s about removing the fear in this area of your life so you can focus on what matters most.

W H E N , W H E RE , AN D H OW ?

So what does the All W eather portfolio look like?

“W here do I put my money, T ony?!”

First, you don’t have to waste your time trying to pick stocks yourself or pick the best mutual fund. A portfolio of low-cost index funds is the best approach for a percentage of your investments because we don’t know what stocks will be “best” going forward. And how cool to know that by “passively” owning the market, you are beating 96% of the world’s “expert” mutual fund managers and nearly as many hedge fund managers. It’s time to free yourself from the burden of trying to pick the winner of the race. As Jack Bogle told me, in investing it feels counterintuitive. T he secret: “D on’t do something, just stand there!” And by becoming the market and not trying to beat it, you are on the side of progress, growth, and expansion.

So far we have referred many times to “the market” or the S&P 500. But remember that the S&P 500 is only one of many indexes or markets. Most have heard of the D ow Jones Industrial Average. T here are others, such as a commodities index, a real estate index, a short-term bond index, a long-term bond index, a gold index, and so on. H ow much of each to buy is critical and something we will get to in section 4. In fact, how would you like to have Ray D alio tell you what his ideal allocation would be? T he strategy he shares in the pages ahead has produced just under 10% annually and made money more than 85% of the time in the last 30 years (between 1984 and 2013)! In fact, when the market was down 37% in 2008, his portfolio model was down only 3.93% ! I sure wish I had known this back then!

Or how about D avid Swensen, the man who took Y ale’s endowment from $1 billion to more than $23.9 billion while averaging 14% annually? H e too shared his ideal allocation for you in the pages ahead. Priceless information all captured in section 6, “Invest L ike the

.001% : T he Billionaire’s Playbook.”

So if you look at these experts’ models without fully understanding asset allocation, it’s like building a house on a weak foundation. Or if you focus on asset allocation before knowing your goals, it will be a complete waste of time. And maybe most importantly, if we don’t protect you from the people looking to take a good chunk of your wealth, all is lost. T hat’s why we are uncovering the 9 Myths—Step 2 in our 7 Simple Steps to Financial Freedom—so that you become an “insider.” So that you will know the truth. And the truth will set you free.

IT PAY S T O BE A ST AR

E ven after everything we have showed you about actively managed mutual funds, there are undoubtedly those who will say, “T ony, I have done my research, and not to worry. I only invest in five-star funds, nothing less.” Oh, really?

According to Morningstar, over the decade ending

D ecember 2009, roughly 72% of all fund deposits (about $2 trillion) flowed to four- and five-star funds. For those who aren’t familiar, Morningstar is the most popular and thorough service for evaluating mutual funds, and they apply a five-star ranking system to their past performance. Brokers are starry-eyed as they share with you the next hot fund.

D avid Swensen told me that “the stars are so important that mutual fund companies are quick to eliminate funds which fall below the four-star threshold. For the five-year period ending in 2012, 27% of domestic equity funds and 23% of international equity funds were either merged or liquidated; a common practice to eliminate a poor track record from a family of funds.”

It’s routine for mutual fund companies to set up multiple new funds to see which one is hot and euthanize the others. As Jack Bogle explains, “A firm will go out and start five incubation funds, and they will try and shoot the lights out with all five of them. And of course they don’t with four of them, but they do with one. So they drop the other four and take the one that did very well public with a great track record and sell that track record.”

Imagine we could adopt this practice in our own investing life? W hat if you could pick 5 stocks and if four went down and only one went up, you could pretend all your losers didn’t happen? And then tell your friends that you are the hottest stock picker since W arren Buffett.

In addition, the lackluster performance of these fourand five-star supernovas (dying stars) is well researched in a Wall Street J ournal article entitled “Investors C aught with Stars in T heir E yes.” A study was done in which the researchers went back to 1999 and studied the ten-year subsequent performance of those who bought five-star funds. T heir findings? “Of the 248 mutual stock funds with five-star ratings at the start of the period, just four still kept that rank after 10 years.”

H ow many times have you picked a shooting star only to watch it burn out? W e all have at some point. And here we see that it’s because we had less than 2% odds that the shooting star wouldn’t fizzle into darkness. W e all want the guy with the hot hand, but history tells us that it’s the hot hand that will inevitably turn cold. Isn’t that why Vegas always wins!?

An “insider” knows that chasing the highflyer is chasing the wind. But it’s human nature to chase performance. It’s almost irresistible. Y et the “herd” mentality quite literally results in financial destruction for millions of families, and I know that if you are reading this book, you are not willing to fall victim any longer. Y ou’re becoming an insider now! And what other cool strategies do “insiders” use? L et’s find out.

U PSID E W IT H PROT E C T ION

In the past 100 years, the market was up approximately 70% of the time. But that leaves 30% of the time that the market was down. So while investing in the indexes is a great solution for a portion of your money, it shouldn’t be for all of your money. Markets are volatile at times so it only makes sense that you will want to protect a portion of your portfolio if or when the markets take another big dive. H eck, there have been two 50% hits since 2000.

One exciting strategy we will introduce allows us to make money when the market (index) goes up, yet it simultaneously guarantees that we will not lose our original investment if the market goes down. T he catch? Y ou don’t get to capture or participate in all of the gains.

Most are in disbelief when I explain that there are tools out there that can guarantee that you don’t lose while still giving you the ability to participate in market “wins.” W hy haven’t you heard of them? Because they are typically reserved for high-net-worth clients. I will show you one of the only places where the average investor can access these. Imagine your friends with their baffled and even suspicious looks when you tell them you make money when the market goes up but don’t lose money when it goes down. T his strategy alone can completely change the way you feel about investing. It’s your safety rope while climbing the mountain when everyone else is “white knuckling” it with hope. Imagine the feeling of certainty, of peace of mind, knowing that you aren’t at risk. H ow would this change your life? H ow would you feel when you open up your monthly statements? W ould you be gritting your teeth or feel calm and collected?

W e’ve only scratched the surface of the incredible insights and tools that lay ahead, so you must stay tuned. But for now, we can remember the following:

•    Stocks have by far been the best place to be for long-term growth over time.

•    Stocks are volatile. In the pages ahead, you will learnfrom the “market masters” how to “smooth out the ride” by investing in and diversifying across multiple different indexes.

•    D on’t be sold that someone is going to beat the market. Instead, align yourself with the market! Once you put your indexing plan in place (which we will do step by step), you won’t have to spend your time trying to pick which stock to buy because the index will have done it for you. T his will save you a tremendous amount of time and angst in trying to pick a winner.

•    Begin to think like an insider! N ever again will youtolerate the “herd” mentality in your own life.

FE E S ON FE E S

By tapping into the power of indexing, by passively owning the market, you are also combatting our second myth. N early every person I ask doesn’t know exactly how much he or she pays in fees. I’ll admit, I also didn’t know at one stage in my life. T he fee factories have become masterful at either hiding the fees or making them appear negligible. “N o big deal.” N othing could be further from the truth. W hen climbing the mountain of financial freedom you will need every bit of forward progress to succeed. Y ou can’t afford to take two steps forward and one step back by letting excessive fees drain your account. So the real question is: Are you funding your retirement or someone else’s? T urn the page now and find out!

4. Active managers rely on their own judgment and experience in making investment decisions on what stocks or bonds to buy, hold, and sell. T hey believe its possible to outperform the market with this approach.

C HAPT E R 2.2

MY T H 2: “O U R FE E S? T H E Y ’RE A

SMAL L PRIC E T O PAY !”

T he mutual fund industry is now the world’s largest skimming operation, a $7 trillion trough from which fund managers, brokers, and other insiders are steadily siphoning off an excessive slice of the nation’s household, college, and retirement savings.”

— SE N AT O R PE T E R F IT Z G E R AL D , cosponsor of the Mutual F und R eform Act of 2004 (killed by the Senate Banking C ommittee)

IN SU L T T O IN JU RY

N othing is more infuriating than to be told one price but then realize that you are paying another. Y ou agree on the price of a new car, but when it comes down to signing the documents, a couple thousand in fees magically appear. Or you check out of a hotel and discover an additional resort fee, a tourism tax, a wireless internet fee, fees for towels—you get the point.

It’s frustrating. W e feel trapped. W e feel snowed. Strong-armed or simply deceived into paying more than we should. W ith the help of fine print, the $13 trillion mutual fund industry is hands down the most masterful in the craft of hiding fees.

In a Forbes article entitled “T he Real C ost of Owning a Mutual Fund,” T y Bernicke peels back the layers to dissect the actual cost and arrives at a heart-stopping total:

T he average cost of owning a mutual fund is

3.17% per year!

If 3.17% doesn’t sound like a big number to you, think of it in light of what we just learned about becoming or owning the market. For example, you can “own” the entire market (let’s say all 500 stocks in the S&P 500) for as little as 0.14% —or as the investment world calls it, 14 basis points (bps). T hat’s just 14 cents for every $100 you invest. (Just a quick FY I for you insiders: there are 100 basis points in 1% , so 50 basis points is 0.5% and so on.)

Owning the entire market is accomplished through a low-cost index fund such as those offered through Vanguard or D imensional Fund Advisors. And we already know that owning the market beats 96% of all the mutual fund “stock pickers” over a sustained period. Sure, you might be willing to pay 3% to an extraordinary hedge fund manager like Ray D alio, who has a 21% annualized return (before fees) since launching his fund!

But with most mutual funds, we are paying nearly 30 times, or 3,000% , more in fees, and for what? Inferior performance!!! C an you imagine paying 30 times more for the same type of car your neighbor owns, and it goes only 25 mph to boot!

T his is exactly what is happening today. T wo neighbors are both invested in the market, but one is shelling out fistfuls of cash each year, while the other is paying pennies on the dollar.

SAME RE T U RN S, D IFFE RE N T RE SU L T S—T H E C OST OF IG N ORAN C E

T hree childhood friends, Jason, Matthew, and T aylor, at age 35, all have $100,000 to invest. E ach selects a different mutual fund, and all three are lucky enough to have equal performance in the market of 7% annually. At age 65, they get together to compare account balances. O n deeper inspection, they realize that the fees they have been paying are drastically different from one another. T hey are paying annual fees of 1% , 2% , and 3% respectively.

Below is the impact of fees on their ending account balance:

Jason: $100,000 growing at 7% (minus 3% in annual fees) = $324,340;

Matthew: $100,000 growing at 7% (minus 2% in annual fees) = $432,194; and

T aylor: $100,000 growing at 7% (minus 1% in annual fees) = $574,349.

Same investment amount, same returns, and T aylor has nearly twice as much money as her friend Jason. W hich horse do you bet on? T he one with the 100-pound jockey or the 300-pound jockey?

“Just” 1% here, 1% there. D oesn’t sound like much, but compounded over time, it could be the difference between your money lasting your entire life or surviving on government or family assistance. It’s the difference between teeth-clenching anxiety about your bills or peace of mind to live as you wish and enjoy life. Practically, it can often mean working a full decade longer before you can have the freedom to quit working if you choose to. As Jack Bogle has shown us, by paying excessive fees, you are giving up 50% to 70% of your future nest egg.

N ow, the example above is hypothetical, so let’s get a bit more real. Between January 1, 2000, and D ecember 31, 2012, the S&P 500 was flat. N o returns. T his period includes what is often called the “lost decade” because most people made no progress but still endured massive volatility with the run-up through 2007, the free fall in 2008, and the bull market run that began in 2009. So let’s say you had your life savings of $100,000 invested. And if you simply owned, or “mimicked,” the market during this 12-year period, your account was flat and your fees were minimal. But if you paid the 3.1% in average annual fees, and assuming your mutual fund manager could even match the market, you would have paid over $30,000 in fees!!! So your account was down 40% (only $60,000 left), but the market was flat. Y ou put up the capital, you took all the risk, and they made money no matter what happened.

I AM SMART E R T H AN T H AT

N ow, you might be reading along and thinking, “T ony, I am smarter than that. I looked at the ‘expense ratio’ of my mutual fund(s), and it’s only one percent. H eck, I even have some ‘no load’ mutual funds!” W ell, I have some swampland in Florida to sell you! In all seriousness, this is the exact conclusion they want you to arrive at. L ike the sleight-of-hand magician, the mutual fund companies use the oldest trick in the book: misdirection. T hey want us to focus on the wrong object while they subtly remove our watch! T he expense ratio is the “sticker price” most commonly reported in the marketing materials. But it certainly doesn’t tell the whole story . . .

And let me be the first to confess that at one stage in my life, I thought I was investing intelligently, and I owned my share of the “top” five-star actively managed mutual funds. I had done my homework. L ooked at the expense ratios. C onsulted a broker. But like you, I am busy making a living and taking care of my family. I didn’t have the time to sit down and read 50 pages of disclosures. T he laundry list of fees is shrouded within the fine print. It takes a PhD in economics to figure it out.

PhD IN FE E S

Just after the 2008 crash, Robert H iltonsmith graduated with a PhD in economics and decided to take a job with policy think tank D eēmos. And like all of us, nothing he learned in college would prepare him for how to create a successful investment strategy.

So, like most, he started making dutiful contributions to his 401(k). But even though the market was rising, his account would rarely rise with it. H e knew something was wrong, so he decided to take it on as a research project for work. First, he started by reading the 50-pluspage prospectus of each of the 20 funds he invested in. Incredibly boring and dry legalese designed to be, in H iltonsmith’s words, “very opaque.”⁵ T here was language he couldn’t decipher, acronyms he hadn’t a clue what they stood for, and, most importantly, a catalogue of 17 different fees that were being charged. T here were also additional costs that weren’t direct fees per se but were passed onto and paid for by the investors nonetheless.

T o better shroud the fees, W all Street and the vast majority of 401(k) plan providers have come up with some pretty diverse and confusing terminology. Asset management fees, 12b-1 fees/marketing fees, trading costs (brokerage commissions, spread costs, market impact costs), soft-dollar costs, redemption fees, account fees, purchase fees, record-keeping fees, plan administrative fees, and on and on. C all them what you want. T hey all cost you money! T hey all pull you backward down the mountain.

After a solid month of research, H iltonsmith came to the conclusion that there wasn’t a chance in hell that his 401(k) account would flourish with these excessive and hidden fees acting as a hole in his boat. In his report, titled T he Retirement Savings D rain: T he H idden & E xcessive Costs of 401(k)s, he calculated that the average worker will lose $154,794 to 401(k) fees over his lifetime (based on annual income of approximately $30,000 per year and saving 5% of his income each year). A higherincome worker, making approximately $90,000 per year, will lose upward of $277,000 in fees in his/her lifetime! H iltonsmith and D eēmos have done a great social good in exposing the tyranny of compounding costs.

D E AT H BY A T H OU SAN D C U T S

In ancient C hina, death by a thousand cuts was the cruelest form of torture because of how long the process took to kill the victim. T oday the victim is the American investor, and the proverbial blade is the excessive fees that slowly but surely bleed the investor dry.

D avid Swensen is the chief investment officer of Y ale’s endowment. H e has grown the fund from $1 billion to more than $23.9 billion, and he is considered to be the W arren Buffett of institutional investing. W hen I sat down with him in his Y ale office, I was enlightened yet angered when he shared the real truth regarding the “fee factories” that are slaughtering Americans. D avid shared, “Overwhelmingly, mutual funds extract enormous sums from investors in exchange for providing a shocking disservice.” L ater in the book, we will sit down and look over D avid’s shoulder at his portfolio recommendations, but it doesn’t matter how great your strategy is if excessive fees are eroding the path beneath your feet.

T he “asset gathering” complex and the actively managed mutual funds they peddle are, for the most part, a disastrous social experiment that began with the advent of the 401(k) in the early ’80s. T he 401(k) was not a “bad” concept. It was a good idea for those who wanted to put extra money away. But it was just meant to be a supplement to a traditional pension plan. T oday there is over $13 trillion in managed mutual funds, much of which is held in retirement accounts such as 401(k)s and IRAs. T hey were supposed to get us to our retirement goals. T hey were supposed to beat the market. But not only do they rarely beat the market, a significant majority are charging astronomical fees for their mediocrity. T he aggregate of these fees will ultimately cost tens of millions of people their quality of life and could very well be the number one danger and destroyer of your financial freedom. Sound like an overstatement?

Jack Bogle, founder of Vanguard, says, “I think high costs [eroding already lower returns] are as much of a risk for investors as the [economic situation] in E urope or C hina.”

IT G E T S W ORSE

So let’s recap. N ot only will the vast majority (96% ) of actively managed mutual funds not beat the market, they are going to charge us an arm and leg, and extract up to two-thirds of our potential nest egg in fees. But here is the kicker: they are going to have the nerve to look you in the eye and tell you that they truly have your best interests at heart while simultaneously lobbying C ongress to make sure that is never the case.

T H E T RU T H /SOL U T ION

First, you need to know how much you are paying! I recommend visiting the investment software website Personal Fund (www.PersonalFund.com) for its cost calculator, which analyzes each of your funds and looks beyond just the expense ratio to the additional costs as well.

K eep in mind, these calculators can only estimate the fees. T hey can’t take into account other costs such as taxes because each person’s tax bracket may differ. Y ou may also own the mutual fund inside your 401(k), in which you won’t be paying taxes on the growth but instead will be paying a “plan administrator.” Some 401(k) plans are low-cost, while others are hefty with expenses. T he average plan administrator charges 1.3% to 1.5% annually (according to the nonpartisan G overnment Accountability Office). T hat’s $1,300 for every $100,000 just to participate in the 401(k). So when you add this 1.3% for the plan administration to the total mutual fund costs of 3.17% , it can actually be more expensive to own a fund in a tax-free account when compared with a taxable account (a whopping total of 4.47% to 4.67% per year)!!!

T hink about it: you are saving 10% , but half of it is being paid in fees. H ow insane is that? But as you’ll learn here, you don’t have to be caught in this trap. By becoming an insider, you can put a stop to this thievery today. Fees this high are the equivalent of climbing E verest in flip-flops and a tank top. Y ou were dead before you got started.

AD D ’E M U P

Nontaxable Account                                T axable Account

E xpense ratio, 0.90%        E xpense ratio, 0.90%

T ransaction costs, 1.44%  T ransaction costs, 1.44%

C ash drag, 0.83%               C ash drag, 0.83%

—                                        T ax cost, 1.00%

T otal costs, 3.17%              T otal costs, 4.17%

“T he R eal C ost of O wning a Mutual F und,” Forbes, April 4, 2011

E SC APE

T o escape the fee factories, you must lower your total annual fees and associated investment costs to 1.25% or less, on average. T his means the cost of the advice (a registered investment advisor to help you allocate appropriately, rebalance your portfolio periodically, and so on) plus the cost of the investments should ideally be 1.25% or less. For example, you might be paying 1% or less to the registered investment advisor and 0.20% for low-cost index funds like those offered through Vanguard (for a total of 1.2% ). And the 1% paid to the advisor as a fee can be tax deductible. W hich means your “net” out-of-pocket cost is close to half, depending on your tax bracket. Most Americans use a typical broker where the commissions aren’t deductible, nor are those expensive fees the mutual fund charges. (W e will discuss the difference between a broker and a registered investment advisor shortly. Y ou don’t want to miss this one!)

In section 3, we will show you step by step how to dramatically reduce your fees and legally reduce your taxes. And all that money you save will accelerate your path to financial freedom.

N E VE R AG AIN

N ow that you know how the game is played, now that you have looked behind the curtain, make the decision that you will never be taken advantage of again. R esolve right now that you’ll never again be one of the many. Y ou’re becoming an insider now. Y ou are the chess player, not the chess piece. K nowledge is power, but execution trumps knowledge, so it’s what you do from here that will matter. Y es, I will show you exactly how to reduce your fees, but you must decide to take the necessary action. Y ou must declare that you will never again pay insane fees for subpar performance. And if this book can save you 2% to 3% per year in unnecessary fees, we just put hundreds of thousands of dollars, maybe even millions, back in your pocket. Said another way, this could get you to your goal that much quicker and save you 5 to 15 years of accumulation time so that you can retire sooner if you so choose.

By simply removing expensive mutual funds from your life and replacing them with low-cost index funds you will have made a major step in recouping up to 70% of your potential future nest egg! H ow exciting! W hat will that mean for you and your family? Vanguard has an entire suite of low-cost index funds (across multiple different types of asset classes) that range between 0.05% and 0.25% per year in total “all-in” costs. D imensional Funds is another great low-cost index fund provider. If you don’t have access to these low-cost providers in your 401(k), we will show you how to make that happen. And while low-cost index funds are crucial, determining how much of each index fund to buy, and how to manage the entire portfolio over time, are the keys to success. W e will cover that in the pages ahead.

N ow that you have resolved to take action, to whom do you turn? W ho do you trust as a guide? G oing back to your broker to help you save on fees is like going to your pharmacist to help you get off meds. H ow do you find conflict-free advice? And how do you know that the guidance you’re getting isn’t in the best interest of the person on the other side of the desk? T urn the page to uncover Myth 3, and let’s get answers to these pressing questions. . . .

BRE AK IT D OW N

If you really want to know how badly you’re being abused through hidden fees, take a moment and review a sample list below of some of the core fees and costs that impact your mutual fund investments:

BRE AK OU T OF FE E S

1.     E xpense R atio. T his expense is the main “price tag”—the number they want us focused on. But it certainly doesn’t tell the whole story. According to Morningstar, U S stock funds pay an average of 1.31% of assets each year to the fund company for portfolio management and operating expenses such as marketing (12b-1 fees), distribution, and administration. Many of the larger funds have realized that a 1% ballpark expense ratio is where they want to come in so that investors don’t flinch and brokers have a good story to sell—I mean, tell.

2.     T ransaction C osts. T ransaction costs are a broad, sweeping category and can be broken down further into categories such as brokerage commissions, market impact costs (the cost of moving the market as mutual funds trade massive market-moving positions), and spread costs (the difference between the bid-and-ask or the buyand-sell price of a stock). A 2006 study by business school professors Roger E delen, Richard E vans, and G regory K adlec found that U S stock mutual funds average 1.44% in transaction costs per year. T his means that these transaction costs are perhaps the most expensive component of owning a mutual fund, but the industry has deemed it too tough to quantify, and thus it goes unreported in the brochures.

3.     T ax C osts (or 401[k] C osts). Many people are excited about the “tax-deferred” treatment of their 401(k), but for most employees, the tax cost has been swapped out with “plan administrative” fees. T hese are charged in addition to the fees paid to the underlying mutual funds, and according to the nonpartisan G AO (G overnment Accountability Office), the average plan administrator charges

1.13% per year! If you own a mutual fund in a taxable account, the average tax cost is between 1.0% and 1.2% annually, according to

Morningstar.

4.     Soft-D ollar C osts. Soft-dollar trading is a quid pro quo arrangement whereby mutual fund managers choose to pay inflated trading costs so that the outside firm executing their trades will then rebate the additional cost back to the fund manager. It’s a rewards program for using a particular vendor. T he frequent flier miles of W all Street. T he fund manager can use these funds to pay for certain expenses such as research and reports. T hese are costs the fund manager would otherwise have to pay, so the net result is that you and I pay! T hese are simply well-disguised increases in management revenue that hit the bottom line. T hey’re unreported and nearly impossible to quantify, so we aren’t able to include them in our equation below, but make no mistake, it’s a cost.

5.     C ash D rag. Mutual fund managers must maintain a cash position to provide daily liquidity and satisfy any redemptions (selling). Since cash is not invested, it doesn’t generate a return and thus hurts performance. According to a study titled “D ealing with the Active,” authored by W illiam

O’Rielly, C FA, and Michael Preisano, C FA, the

 

average cost from cash drag on large-cap stock mutual funds over a ten-year time horizon was 0.83% per year. It may not be a direct fee, but it’s a cost that takes away from your performance. 6.            R edemption F ee. If you want to sell your fund position, you may pay a redemption fee. T his fee is paid to the fund company directly and the U S Securities and E xchange C ommission (SE C ) limits the redemption fee to 2% . L ike the world’s most expensive AT M, it could cost you $2,000 to get back your $100,000! 7.            E xchange F ee. Some funds charge a fee to move or exchange from one fund to another within the same family of funds. 8.            Account F ee. Some funds charge a maintenance fee just to have an account. 9.            Purchase F ee. A purchase fee, not to be confused with a front-end sales load (commission), is a charge to purchase the fund that goes directly to the fund company. 10.       Sales C harge (L oad) or D eferred Sales C harge. T his charge, typically paid to a broker, either comes out when you purchase the fund (so a smaller amount of your initial deposit is used to buy shares in the fund) or you pay the charge when you exit the fund and redeem your shares.

5. R obert H iltonsmith and his research were featured on a terrific Frontline documentary called T he Retirement G amble, which first aired on PBS on April 23, 2013.

C HAPT E R 2.3

MY T H 3: “O U R RE T U RN S? W H AT Y O U SE E IS W H AT Y O U G E T ”

Surprise, the returns reported by mutual funds aren’t actually earned by investors.

— JAC K BO G L E , founder of V anguard

Most people are familiar with the boilerplate disclaimer that past performance doesn’t

guarantee future results. Far fewer are aware of how past performance numbers themselves can be misleading.

— “H O W F U N D S MASSAG E N U MBE R S, L E G AL L Y ,” W all Street J ournal, March 31, 2013

L IPST IC K ON A PIG

In 2002 C harles Schwab ran a clever T V ad where a typical W all Street sales manager is giving a morning pep talk to his boiler room. “T ell your clients it’s red hot! E n fuego! Just don’t mention the fundamentals—they stink.” H e wraps up his morning sermon by dangling courtside tickets to the K nicks for the winning salesman and gives his final send-off: “L et’s put some lipstick on this pig!”

G E T MY G OOD SID E

In 1954 D arrell H uff authored a book entitled H ow to L ie with Statistics. H e points to the “countless number of dodges which are used to fool rather than to inform.” T oday the mutual fund industry has been able to use a tricky method to calculate and publish returns that are, as

Jack Bogle says, “not actually earned by the investors.” But before we explain this masterful “sleight of pencil” magic, let’s first understand the illusion of average returns.

Below is a chart showing a hypothetical market that is up and down like a roller coaster. U p 50% , down 50% , up 50% , and down 50% . T his produces an average return of 0% . And like you, I would expect that a 0% return would mean that I didn’t lose any money. And we would both be wrong!

As you can see by the chart, if you start with an actual dollar amount (let’s use $100,000), at the end of the fouryear period, you are actually down $43,750, or 43.75% ! Y ou thought you were even, but instead you’re down 43.75% ! W ould you ever have guessed this? N ow that you’re an insider, beware! Average returns have a built-in illusion, spinning a performance enhancement that doesn’t exist.

In a Fox Business article titled “Solving the Myth of Rate of Return,” E rik K rom explains how this discrepancy applies to the real world: “Another way to look at it is to review the D ow Jones since 1930. If you add up every number and divide it by 81 years, the return ‘averages’ 6.31% ; however, if you do the math, you get an ‘actual’ return of 4.31% . W hy is this so important? If you invested $1,000 back in 1930 at 6.31% , you would have $142,000, at 4.31% you would only have $30,000.”

T H E SC AL E S ARE W E IG H T E D

N ow that we see that average returns aren’t a true representation of what we earn, sit back and relax because the grand illusion isn’t over yet. T he math magicians on W all Street have managed to calculate their returns to look even better. H ow so?

In short, when the mutual fund advertises a specific return, it’s not, as Jack Bogle says, “the return you actually earn.” W hy? Because the returns you see in the brochure are known as time-weighted returns. Sounds complicated, but it’s not. (H owever, feel free to use that to look brilliant at your next cocktail party!)

T he mutual fund manager says if we have $1 at the beginning of the year and $1.20 at the end of the year, we are up 20% . “Fire up the marketing department and take out those full-page ads!” But in reality, investors rarely have all their money in the fund at the beginning of the year. W e typically make contributions throughout the year—that is, out of every paycheck into our 401(k). And if we contribute more during times of the year when the fund is performing well (a common theme, we learned, as investors chase performance) and less during times when it’s not performing, we are going to have a much different return from what is advertised. So if we were to sit down at the end of the year and take into account the “real world” of making ongoing contributions and withdrawals, we would find out how much we really made (or lost). And this real-world approach is called the dollar-weighted return. D ollarweighted returns are what we actually get to keep whereas time-weighted returns are what fund managers use to fuel advertising.

Jack Bogle has been a continual proponent of changing this rule. H e believes that investors should see how much they actually earned (or lost) based on their own personal situation (contributions and withdrawals included). Sounds like common sense, right? But it’s no surprise why mutual funds are resistant. Bogle says: “W e’ve compared returns earned by mutual fund investors—dollar-weighted returns—with the returns earned by the fund themselves, or time-weighted returns, and the investors seem to lag the fund themselves by three percent per year.” W ow! So if the fund advertises a 6% return, its investors achieved closer to 3% .

T H E T RU T H AN D T H E SOL U T ION

Average returns are like profile photos for online dating. T hey paint a better portrait than the reality! If you know the amount you started with in your investment and you know how much you have now, you can go to a website such as Moneychimp

(www.moneychimp.com/calculator/discount_rate_calculat and it will show you exactly what the actual return is on your money over that period of time.

Y ou must also remember that the returns reported by mutual funds are based on a theoretical person who invested all his money on D ay 1. T his just isn’t true for most so we can’t delude ourselves into believing that the glossy brochure returns are the same as what we have actually received in our account.

T H E PAT H IS C L E AR

N obody said climbing a mountain would be easy. But it’s a heck of a lot easier when you have a machete called “truth” to hack away the lies and grant a clear view of the path ahead. As an insider, you are no longer flying blind.

Y ou now know that stock-picking mutual funds don’t beat the market over any sustained period (especially after you account for fees and taxes).

Y ou also know that fees do matter. And that by lowering your fees, you can get back as much as 60% to 70% of your future potential nest egg. H ow will this awesome truth impact your future?

And finally, you know that average returns don’t paint the real picture. Actual returns matter. And you now have the simple tools to calculate them.

—

Y our journey to financial freedom has more than begun.

Y ou are hitting your stride, and the truths you have learned so far will separate you from being one of the “sheeple.”

FL Y IN G SOL O

As I have taught people these tools, I often notice that people feel as though they can no longer trust anyone. In a sense, they feel betrayed, as they become enlightened and start to understand the real rules of the game. T hey think they must now handle everything on their own and become an island unto themselves because “nobody can be trusted.” T his just isn’t true. T here are a number of incredible financial professionals who are full of integrity and committed to their clients’ futures. I have an amazing advisor whom I trust implicitly to act in my best interests, and together we review and manage my investments. L ike you, I am insanely busy and don’t have the time or desire to spend my days managing the details of my portfolio. In reality, if done properly, a brief quarterly or twice-a-year review is all that is needed to go over your objectives and rebalance the portfolio.

So how do you know the difference between a salesman and a trusted advisor? Between a broker and a guide? Myth 4 will help us quickly determine if the person on the other side of the desk is working for you or the name on their company’s letterhead. As “D eep T hroat” from the W atergate scandal said:

“Follow the money. Always follow the money.”

C HAPT E R 2.4

MY T H 4: “I’M Y O U R BRO K E R, AN D I’M

H E RE T O H E L P”

“It is difficult to get a man to understand something, when his salary depends on his

not understanding it.”

— U PT O N SIN C L AIR

L E T ME G E T T H IS ST RAIG H T

So let us recap:

T he mutual funds sold to me are charging me astronomical fees that could strip me of up to 70% of my future nest egg.

Over any sustained period of time, 96% of actively managed mutual funds are underperforming the market (or their benchmarks).

I am being charged 10 to 30 times what it would cost me to own a low-cost index fund and “become,” or mimic, the market.

T he returns the mutual funds are selling are typically way better than the returns I actually receive since they are marketed as time-weighted returns, not dollarweighted returns. D ollar-weighted returns are what we actually get to keep/spend, whereas time-weighted returns are what fund managers use to fuel advertising.

And as the grand finale, your broker will look you in the eye and tell you that he has your best interests at heart. Because more than likely, he sincerely believes he is helping you. H e doesn’t understand, nor has he even been educated about the impact of what we described above. H eck, he is probably following the same advice he is giving you for his own personal finances.

C H OMP! C H OMP!

H ow in the world can the vast majority of Americans be dying the death of a thousand cuts but not rise up, vote with their pocketbooks, and take their hard-earned money elsewhere? T he answer is, they’ve been kept in the dark for decades. Most people I talk to are highly suspicious of the financial services industry as a whole and its desire to “help” you succeed. T hey’ve been burned before. Y et in the face of a constant barrage of conflicting information and marketing hype, they quickly become overwhelmed. N ot to mention the demands of daily life. Many have put their financial lives on autopilot and have accepted being part of the herd. “H ope” has become their strategy.

T here’s a social comfort in knowing that you’re not alone. It reminds me of watching the D iscovery C hannel and the wildebeest that cautiously approaches the crocodile-infested water for a drink just minutes after the jaws of a croc clamped down on his buddy! Is the animal stupid? N o! T he animal knows that without water it will die in the blistering African sun so it takes a calculated risk. Most of us feel the same way. W e know we can’t sit on the sidelines, on the edge of the riverbank, because inflation will destroy us if we just sit on our cash. So, alongside our neighbors and colleagues, we journey down to the water with trepidation, and when we least expect it: chomp!

A Black Monday. A dot-com bubble. Another 2008.

All the while, the brokerage firm with which we entrusted our family’s quality of life is taking no risk and reaping record compensation year after year.

As I write this in early 2014, the market prices have continued to grow. From 2009 through the end of 2013, the market was up 131% (including dividend

reinvestment). T hat’s the fifth largest bull market in history. People are seeing their account balances rise and are getting comfortable again. Mutual fund managers and executives are raking it in. But the crocs are still feeding.

PROT E C T ION FROM W H OM?

In late 2009 Representatives Barney Frank and C hris

D odd submitted proposed regulation called the “D odd-

Frank W all Street Reform and C onsumer Protection

Act. One year later, after intense lobbying by the financial services community, a version of the bill passed with far less teeth than the original. But nobody stopped to ask the obvious question: From whom or what exactly do we need protection?

From the people we trust to manage our financial future? From the brokers who sell us expensive mutual funds? From the managers themselves, who play legal but shady games to line their pockets? From the highfrequency traders who are “front running” the market and pinching millions one penny at a time? In the last couple years alone, we have seen rogue traders cause billions in losses for banks; large firms such as MF G lobal misappropriate client funds and ultimately declare bankruptcy; insider trading convictions from one of the

world’s largest hedge funds; and bank traders criminally prosecuted for rigging L IBOR (L ondon Interbank Offered Rates), the world’s most widely used benchmark for short-term interest rates.

T H E C H E F D OE SN ’T E AT H IS OW N C OOK IN G

W e are continually sold and influenced by those who “do as I say, not as I do.” In a sobering 2009 study released by Morningstar, in tracking over 4,300 actively managed mutual funds, it was found that 49% of the managers owned no shares in the fund they manage. T hat’s right. T he chef doesn’t eat his own cooking.

Of the remaining 51% , most own a token amount of their funds when compared with their compensation and total net worth. Remember, these guys earn millions, sometimes tens of millions, for their skills:

•    2,126 own no shares in the fund they manage.

•    159 managers had invested between $1 and $10,000 intheir own fund.

•    393 managers invested between $10,001 and $50,000.

•    285 managers invested between $50,001 and $100,000.

•    679 managers invested between $100,001 and $500,000.

•    197 managers invested between $500,001 and $999,999.

•    413 managers invested more than $1 million.

So the obvious question is, if the people who manage the fund aren’t investing in the fund they run, why in the world would I? G ood question!!!

T he chef doesn’t eat his own cooking if the ingredients are bad or if he knows what the kitchen really looks and smells like. T hese fund managers are smart— they work under the hood.

W H E RE ARE T H E C U ST OME RS’ Y AC H T S?

Fred Schwed Jr. was a professional trader who quit W all

Street after losing a lot of his money in the crash of 1929. In 1940 he wrote the investment classic Where Are the Customers’ Yachts?, or A Good H ard L ook at Wall Street. T he joke behind the title has been retold many different ways over the years, but in Schwed’s version, a successful W all Street broker named W illiam T ravers is admiring the many beautiful yachts while on vacation in N ewport, Rhode Island. E ach yacht he inquires about happens to belong to a broker, banker, or trader.

H e asks, “W here are the customers’ yachts?”

N early 75 years have passed since this story was first published, but it could have been written yesterday!

W H OM T O T RU ST

W e have all seen numerous variations of the same commercial. T he husband and wife, looking concerned, sit across the desk from their financial advisor. And with the wisdom of a grandfather and the look of a man who has weathered many storms, the hired actor assures them that with his help, they will be just fine. “D on’t worry, we’ve got your back. W e’ll get your kids through college. W e’ll get you that sailboat. W e’ll get you that vacation home.” T he insinuation is loud and clear: “Y our goals are our goals. W e’re here to help.” But the real question is:

Are your interests really aligned?

D oes the person with whom you trust to plan you and your family’s future have every incentive to operate in your best interest? Most would think “yes”—and most would be wrong. And the answer to this question may be the difference between failing or succeeding in your journey to Financial Freedom. W hen climbing the mountain, how would you feel if your guide was more concerned about his own survival than yours? As D avid Swensen reminded me, “Y our broker is not your friend.”

T H E SU IT ABIL IT Y ST AN D ARD

And here is the truth: the financial services industry has many caring people of the highest integrity who truly want to do what’s in the best interest of their clients. U nfortunately, many are operating in a “closed-circuit” environment in which the tools at their disposal are preengineered to be in the best interests of the “house.” T he system is designed to reward them for selling, not for providing conflict-free advice. And the product or fund they sell you doesn’t necessarily have to be the best available, or even in your best interest. By legal definition, all they have to do is provide you with a product that is “suitable.”

W hat kind of standard is “suitable”? D o you want a suitable partner for life? “H oney, how was it for you tonight?” “E h . . . the sex was suitable.” Are you going to be promoted for doing suitable work? D o you fly the airline with a “suitable” safety record? Or better yet,

“L et’s go to lunch here; I hear the food is suitable.”

Y et, according to D avid K arp, a registered investment advisor, the suitability standard essentially says, “It doesn’t matter who benefits more, the client or advisor. As long as an investment is suitable [meets the general direction of your goals and objectives] at the time it was placed for the client, the advisor is held free of liability.”

T H E G OL D ST AN D ARD

T o receive conflict-free advice, we must align ourselves with a fiduciary. A fiduciary is a legal standard adopted by a relatively small but growing segment of independent financial professionals who have abandoned their big-box firms, relinquished their broker status, and made the decision to become a registered investment advisor. T hese professionals get paid for financial advice and, by law, must remove any potential conflicts of interest (or, at a minimum, disclose them) and put the client’s needs above their own.

By way of example, if a registered investment advisor tells a client to buy IBM and later that day he buys IBM in his own personal account for a better price, he must give the client his stock at the lower price trade.

Imagine having investment advice where you knew that the law protected you from your advisor steering you in a specific direction or to a specific fund to make more money off of you.

One huge additional advantage? T he fee you pay a fiduciary for advice may be tax deductible, depending on your tax bracket. So a 1% advisory fee could really be closer to 0.5% when you take into account the deduction. C ontrast this with the 2% or more you pay to a mutual fund manager, none of which is tax deductible.

FIN D IN G A FID U C IARY

If there is one single step you can take today to solidify your position as insider, it’s to align yourself with a fiduciary; an independent registered investment advisor (RIA for short).

Most people I ask don’t know whether “their investment guy/gal” is a broker or a legal fiduciary, but nearly everyone believes that his investment person should have his best interests at heart. And as I mentioned before, they typically do have his clients’ interests in mind but they are operating within a framework that rewards them for selling. And, by the way, you’ll never hear them referred to as “brokers.” T hey are called registered representatives, financial advisors, wealth advisors, vice president of this, that, or the other thing. In fact, the Wall Street J ournal reported finding in excess of two hundred different professional designations for financial advisors—more than half of which are not tracked by the Financial Industry Regulatory Authority (FIN RA), which oversees how investments are pitched to investors. Many of these financial service “credentials” are pure window dressing and do not impart a fiduciary duty.

N OT AL L AD VIC E IS G OOD AD VIC E

Aligning yourself with a fiduciary is, by all accounts, a great place to start. But this does not necessarily mean that the professional you select is going to provide good or even fairly priced advice. And like any industry, not all professionals have equal skill or experience. In fact, 46% of financial planners have no retirement plan! T hat’s right. T he cobbler’s kid has no shoes! Over 2,400 financial planners were surveyed anonymously in a 2013 study by the Financial Planning Association, and close to half don’t practice what they preach. H eck, I can’t believe they admitted it!!! T ruth is, we are living in uncharted territory. W ith endless complexity, central banks printing money like crazy, and even some governments defaulting on their own debt, only the elite advisors of the planning industry know how to navigate these waters.

T H E BU T C H E R AN D T H E D IE T IT IAN

A good friend of mine recently forwarded me a Y ouT ube video entitled T he Butcher vs. the D ietitian, a two-minute cartoon that effectively and succinctly highlighted the major difference between a broker and a legal fiduciary. T he video made the glaringly obvious point that when you walk into a butcher shop, you are always encouraged to buy meat. Ask a butcher what’s for dinner, and the answer is always “Meat!” But a dietitian, on the other hand, will advise you to eat what’s best for your health. She has no interest in selling you meat if fish is better for you. Brokers are butchers, while fiduciaries are dietitians. T hey have no “dog in the race” to sell you a specific product or fund. T his simple distinction gives you a position of power! Insiders know the difference.

I did a little digging, and the man behind the video was E lliot W eissbluth, a former litigator who 15 years ago became incensed by the conflicts of interest in the investment industry and made it his mission to provide an alternative to the brightest and most successful advisors and independent firms. In other words, choosing independence should not mean a sacrifice in sophistication and access to the best solutions. H is great idea caught fire, and H ighT ower is now one of the largest independent registered investment advisors in the country, with nearly $30 billion in assets and 13th on Inc. magazine’s list of fastest-growing companies. T he explosive growth of H ighT ower shows that clients want a dietitian. T hey are sick of being sold meat and then realizing that their health is in jeopardy.

I interviewed E lliot for this book and we have since developed a great friendship. I didn’t have to twist E lliot’s arm to leave frigid C hicago and join me for a day of 78-degree weather at my home in Palm Beach.

AN AU D AC IOU S PROPOSAL

T ogether we sat on my back lawn overlooking the ocean and had a long conversation about the myths being marketed and injustices being done to the average investor. E lliot has a unique passion, a fervency, to serve investors by eliminating the self-interest and inherent conflicts that have become the norm in big firms. From D ay One, he made the commitment to full disclosure, full transparency, and conflict-free advice in every aspect of the business. And by not accepting payments or kickbacks for selling a product or service, his firm stands in a position of true power and integrity. Firms compete to work with H ighT ower, and all of the benefits are passed down to the client. W hat’s really powerful is how E lliot grew the business. First, he built a unique platform that no one thought was possible. T hen he recruited the best “corner office” advisors from the biggest firms and gave them the path to the moral high ground—the opportunity to quit working for the house and work only for the client. And by giving them the freedom not to have to serve two masters, they could do whatever was in the client’s best interest, at all times, in all transactions.

T here was only one problem:

H ighT ower was built to service only the wealthiest Americans.

In fact, all of the top advisors in the industry are focused on the wealthy. Makes sense, right? If you manage money, you want to manage fewer clients who have more money. T his arrangement maximizes your own profitability. T oo many small accounts means lots of overhead and cost. It’s just not an efficient way to do business.

In spite of all that, I decided to drop a challenge on

E lliot . . .

L E T ’S BL AZ E A T RAIL

“E lliot, I want you to figure out a way to deliver the same fully transparent, conflict-free advice to anyone who wants the service, not just the wealthy. T here has to be a way, E lliot,” I said, leaning forward on the edge of my chair. “Y ou care so passionately about justice and fairness that your own mission calls you to do this for everyone.” E lliot sat back in his chair. H e expected a simple interview and was now being asked to deploy some serious resources! And perhaps more importantly, I challenged him to figure out how to deliver some of the solutions that are normally reserved for folks with ultrahigh net worth. It was quite a challenge. T o democratize the best investment advice coupled with the best available solutions. “Oh, and one more thing, E lliot: I think you should make a complimentary review service that is entirely free! People need to know how they are being treated!” E lliot took a few deep breaths. “G eez, T ony! I know you think big, but to gear up and make this available to everyone, at no charge? C ome on!” I just smiled and said, “Y es, crazy, isn’t it! N o one else is going to do this. N obody is showing how people are overpaying for underperformance. My guess is that we could show them using technology! Y ou have the resources and the will to make this happen if you commit yourself!” I let the conversation end by simply asking him to take some time to think about the impact of what this could mean for people’s lives and to get back in touch once he had fully thought it through.

IT ’S D OABL E

E lliot returned to C hicago and gathered his troops. After much deliberation, and with a deep determination to find a way, E lliot called me back. After his team reviewed some patented technology we could utilize, he was convinced this could be a game changer. But he had one request. H e would want to partner with an extraordinary chief investment officer. One with decades of experience and the values to match. A captain of the ship not afraid of uncharted waters. I knew just the man . . .

Ajay G upta is the founder and chief investment officer of Stronghold W ealth Management, a firm that provides “white-glove” service for those of ultrahigh net worth. H e is also my registered investment advisor and has been managing my family’s money for over seven years. H e spent almost two decades within the world’s largest brokerage firms as the classic corner-office success story. Ajay came to the proverbial fork in the road. H is choice? E ither leave the brokerage world behind and carry the fiduciary flag or continue to walk the line of trying to be a dietitian within the walls of a butcher shop. I asked Ajay what was the pivotal moment of decision. “It came as a result of total frustration,” he confessed. “T here were investments that I knew were best for my client, but the firm wouldn’t allow me to access them because they weren’t ‘approved.’ I didn’t want to steer my client to an inferior investment just so I could earn more. I treat my clients as my family, and I realized that no longer could I make choices by the constraints imposed by someone in a far-off ivory tower.” Ajay’s commitment was not just in words. H e gave up a seven-figure bonus to leave and start his own firm. N ot surprisingly, his entire team and client base followed him. After years of extraordinary performance and service, Ajay’s departure from the brokerage world earned him the notice of C harles Schwab (a major service provider to independent investment advisors). H e received a surprise call from the C harles Schwab headquarters letting him know that C huck had selected him to represent the face of the more than 10,000 independent RIAs in Schwab’s national media campaign. Subsequently, Ajay arranged for C huck and me to meet, as he agreed to be one of the 50 financial moguls interviewed for this book.

W hen I introduced Ajay and his team at Stronghold to E lliot, it was an incredible alignment of values. W hat was amazing was how the sum of the whole was drastically greater than its parts. T hey began a monumental collaborative effort. For nearly a year, Ajay and E lliot worked together with a common goal: to democratize the best investment advice and help Americans wake up to their right to, first, know what they have been sold and then make the switch to receive transparent advice. And Stronghold Financial (a new division of Stronghold W ealth Management) was born. So in addition to serving those of high net worth, Stronghold now serves everyone regardless of how much he or she has to invest.

L OOK U N D E R T H E H OOD —FOR FRE E !

My biggest “ask” from Ajay and E lliot was to make it possible for anyone, not just the wealthy, to be able to tap into top-tier advice, research, and planning. But I wanted them to do it for free!!!!

Most financial planners charge $1,000 or more to analyze your current investment assets, assess how much risk you’re taking, quantify your true fees, and put together a new asset allocation. Stronghold’s patented system accomplishes this in just five minutes—and it’s completely free! H ere is a bit more how it works:

W hen you visit the website, www.StrongholdFinancial.com, the system will allow you to “link” all of your accounts (even your 401[k] and accounts you have scattered at multiple firms). It will then analyze every holding you own, every fee you are paying, every risk you are taking. It will give you a comprehensive analysis and a new asset allocation. It will also reveal some of the unique strategies we will review in section 5 and compare them to your current approach. Y ou can take this complimentary info and implement it on your own (and the company doesn’t charge a dime). Or, if you decide to move forward, with the click of a button, you can transfer your accounts and have Stronghold manage your wealth, so long as you meet the minimum account size. For those who become clients, there is a team of fiduciary advisors that are available by phone to guide you in your journey and answer any questions you may have. T here are no commissions, just a fee, which is based on your total portfolio value. So whether you have $2,500 or $25 million doesn’t matter. Advice that was previously reserved for those of high net worth is now at your fingertips! And if you would prefer to work with someone in your local area, Stronghold has a network of independent advisors in all 50 states who are aligned with the same principles and have access to some of the unique solutions we will review in the pages ahead.

I am extremely proud of what E lliot, Ajay, and I have worked together to create: a complimentary service that can impact the entire population! And, quite frankly, it exists only because we were so frustrated by a system that often uses deceit and manipulation as weapons against investors. It’s time for a changing of the guard. So while I am not currently an owner in Stronghold, at the time of publication we are in conversations about how I can become a partner and align further with its mission of serving investors with extraordinary advice and investment solutions.

FIN D IN G A FID U C IARY

I don’t want you to get the impression that Stronghold is the only fiduciary. T here are thousands out there, and many of them are outstanding, so I would like to give you five key criteria for finding your own fiduciary. Below you will also find a link to the N ational Association of Personal Financial Advisors (N APFA). T his will allow you to search the country for any fee-only advisor you choose. One caveat: just because they are on the list doesn’t mean they are skilled. L ike any profession, be it a doctor or a teacher, there is a wide range of competency. In addition, in the world of independent fiduciaries, size does matter, so many smaller firms may not have the same level of access to certain investments and/or competitive pricing.

D IRE C T ORY OF FE E -BASE D AD VISORS

http://findanadvisor.napfa.org/home.aspx

So, if you choose to find your own fiduciary, below are five key initial criteria you may want to consider when selecting an advisor:

1.     Make sure the advisor is registered with the state orthe SE C as a registered investment advisor or is an investment advisor representative (IAR) of a registered investment advisor (RIA).

2.     Make sure the registered investment advisor is compensated on a percentage of your assets under management, not for buying mutual funds. Make sure this fee is the only fee and is completely transparent. Be sure there are no 12b-1 fees or “pay-to-play” fees being paid as compensation.

3.     Make sure the registered investment advisor does not receive compensation for trading stocks or bonds.

4.     Make sure the registered investment advisor does not have an affiliation with a broker-dealer. T his is sometimes the worst offense when a fiduciary also sells products and gets investment commission as well!

5.     W ith an advisor, you don’t want to just give them yourmoney directly. Y ou want to make sure that your money is held with a reputable third-party custodian, such as Fidelity, Schwab, or T D Ameritrade, which offers 24/7 online account access and sends the monthly statements directly to you.

For those who are willing, have the time, and are brushed up on proper asset allocation (more on this in section 4), investing on your own (without a fiduciary) may be a viable option, which could also result in additional cost savings. T he added cost of a fiduciary may only be justifiable if they are adding value such as taxefficient management, retirement income planning, and greater access to alternative investments beyond index funds.

BU Y E N RON !

An extremely competent fiduciary in your life will do more than provide transparent advice and investment solutions. T hey should protect you from the marketing “noise” because history shows us that the noise from a conflicted broker, or the firm he works for, can be extremely dangerous. L et me share an example from recent history.

Remember E nron? T he energy giant with $101

billion in annual revenue (in 2000) that decided to cook the books in hopes of keeping shareholders happy. T he big brokers and the mutual funds that owned the majority of E nron shares were big fans of the energy giant. My dear friend and business mastermind, K eith C unningham, is a straight shooter with a classic T exas drawl. W hen he speaks at my Business Mastery event, he pulls no punches when showing how brokers, with no vested interest in how their clients fare, will pour on bad advice even when the situation is dire. W hen he shared with me the breakdown of how brokers promoted E nron during its collapse, I was astonished!

In March 2001, just nine months before declaring bankruptcy, E nron signaled that it was having trouble. “Anyone who was willing to look at the cash flow statement could see that they were hemorrhaging cash in spite of what they said its profits were!” K eith shouted to my audience of close to 1,000. “But that didn’t stop the big W all Street firms from recommending the stock.” Below is a chart showing the recommendations of the big-brand firms in the nine months leading up to the E nron C hapter 11. N otice how the recommendation to buy or hold was made until there was literally nothing left to hold—because the stock had no value; the company was bankrupt!

N eedless to say, if you are getting advice from a broker, you can expect that the inherent conflicts will show up in one way or another.

L OBBY IN G FOR PROFIT S

Putting client interests first may seem like a simple concept, but it’s causing an uproar on W all Street.

— “W H AT ’S N O . 1 F O R BR O K E R S?,” W all Street J ournal, D ecember 5, 2010

So why hasn’t the status quo changed? U nder D oddFrank, the SE C was required to conduct a study on a “universal fiduciary standard” across all investment firms. Y ou heard me right. T he politicians wanted to conduct a study to determine if acting in the client’s best interest is a good idea. It’s a tragicomedy played out on C apitol H ill. In my interview with D r. Jeffrey Brown, I asked about his opinion on fiduciary standards. W ho better to ask than the guy who not only advised the E xecutive Office of the President but was also brought in by C hina to advise its Social Security program. “I think anybody that is managing money for someone else—it’s very, very important that they have a legal and an ethical responsibility for doing the right thing and looking out for other people’s money. I mean, these are really people’s lives we’re talking about here at the end of the day, right?”

T he industry backlash has been nothing less than intense. Y ou can hear the gears of the lobbying machine spinning at full speed as it reminds C apitol H ill of the generous campaign contributions.

T H E T RU T H AN D T H E SOL U T ION

So now that you know the rules of the game, what’s an investor to do?

Above you have the five steps of how to evaluate and find a fiduciary if you choose to find your own. As I mentioned,   you    can    visit   Stronghold

(www.StrongholdFinancial.com), which has a patented online system which, in just five minutes, will provide you with the following:

•    W ithin seconds, the system will pull in and review yourcurrent holdings (stocks, bonds, and mutual funds) from all your accounts, including your 401(k).

•    T he system will show how much you are really paying and how much less you will have at retirement if you don’t minimize fees. Remember the effect of compounding fees we reviewed in chapter 2.3!?

•    T he system will show your risk exposure. In other words, how well did your portfolio hold up in 2008 and other market downturns?

•    T he system will provide conflict-free advice and introduce you to a number of portfolio options.

•    T he system will take into account your current tax situation and recommend a more tax-efficient allocation.

•    If you decide to move forward, you can quickly andautomatically transfer your accounts to one of the recommended third-party custodians (such as T D Ameritrade, Fidelity, or Schwab). From there, the team will implement the recommendations and provide ongoing account management and service.

•    If you have more than $1 million in investable assets,you will have access to the Private W ealth D ivision, which has greater access to investments that are limited to accredited investors.

At any time you can also pick up the phone and speak with a member of the team who is a registered fiduciary advisor to answer any questions regarding your personal situation. Or you can ask to be connected to one of the partners in your local area.

SO W H AT ’S T H E PL AN ?

W ow, we have come a long way! T he myths we have already exposed at this point remain unknown by the vast majority of investors. In fact, even many high-net-worth individuals aren’t privy to this insider info. And now that we are gaining an unobstructed view, we need to start to look at the actual strategies we are currently using to see if they align with our goals. L et’s start with the 401(k). T hat little piece of tax code that changed the financial world forever! Should we use it or lose it? L et’s find out.

T hough the fiduciary issue is hotly contested among some groups, surveys conducted on behalf of the SE C showed a majority of investors don’t understand what fiduciary means nor do they realize brokers and investment advisors offer different levels of care.

— “T H E BAT T L E O V E R BR O K E R S’ D U T Y T O

T H E IR C L IE N T S R E AC H E S A ST AN D ST IL L ,”

W all Street J ournal, January 24, 2012

BROK E R	IND E PE ND E NT FID U C IARY
Paying commissions for selling funds	Paying flat fee for advice
N ondeductible commissions	Advisory fees (may be deductible)
Paid to sell	L egally bound to provide advice with disclosure of any conflicts
Suitability standard	Fiduciary standard
Offers broad array of products and services that must be approved by the employer and includes those which are proprietary	Ability to access all products and services
C onstrained by employer	Independent
Acts as custodian of investments	U ses third-party custodian

C HAPT E R 2.5

MY T H 5: “Y O U R RE T IRE ME N T IS JU ST

A 401(K ) AW AY ”

Baby boomers have been the primary mice used in the great 401(k) retirement experiment.

— D O U G W AR R E N , author of T he Synergy E ffect

Many ideas or inventions start off with great intentions. N uclear fusion opened the door to free energy for mankind and now can be used to provide electricity to an entire city. By contrast, if stuffed into a warhead, it can level an entire city.

It is often with a dash of man’s greed and ingenuity that we can turn something great into something that can cause more damage than good. Such is the 401(k). A great little piece of tax code that, if used right, can power our retirement for years to come. But if used as it is in most of today’s plans, it can damage our chances for financial freedom.

And since the 401(k) is the only retirement account most people will ever have, this chapter could be the most important one in this book. In the pages ahead, we will show how to use the 401(k) system and not let the system use you. Y ou will discover how to implement much of what we have learned thus far so that your 401(k) becomes a great retirement plan for you (not a retirement plan for the broker or the mutual fund managers). But first a bit of backstory is important.

H OW D ID W E G E T H E RE ?

T he 401(k), given to us in 1984, gave us the opportunity to participate in the stock market. T o own a piece of American capitalism. And we could save on our taxes by making tax-deductible contributions from our paychecks.

But the 401(k) was never meant to be the sole retirement plan for Americans. I reached out to John Shoven, professor of economics at Stanford. H e made it perfectly clear when we spoke by phone: “T ony, you can’t save just three percent of your income for thirty years and expect to live another thirty years in retirement with the same income you had when you were working!”

And let’s not forget that this social experiment is only a few decades old. W e are only now starting to see a generation where the majority will attempt to retire having used only a 401(k) during their lifetime.

W hen we look back at history, what started out as a loophole for highly paid executives to sock away more cash became a boon for companies that decided to eliminate the cost and obligation of traditional pensions and shift all the risk and expense to the employee. T hat’s not to say that pensions didn’t have their own problems: for instance, you couldn’t move them from job to job.

Interestingly, employees didn’t mind taking on this new responsibility because at the time, stocks were soaring. W ho wants boring guaranteed pensions when stocks could make us rich?

Money then flowed into the market like never before. All that new money being deposited means lots of buying, which is what fueled the bull markets of the ’80s and ’90s. W ith trillions up for grabs, mutual fund companies began an unprecedented war to manage your money. T he stock market was no longer just a place where companies turned to the public to exchange cash for ownership. It was no longer a place for only high-networth investors and sophisticated institutions. It became every man’s savings vehicle.

W E L C OME , C APT AIN

W hen the 401(k) came to be, it represented freedom. Freedom that often gave us the illusion of control. And with markets on the rise, we sometimes mistake luck for being a “good investor.”

D r. Alicia Munnell, the director of the C enter for Retirement Research at Boston C ollege, is one of the top retirement experts in the country. W e spoke for nearly two hours regarding the retirement crises facing the vast majority of Americans. In her view, “W e went from a system of defined benefits—where people had a pension; they had an income for life—to the idea of the 401(k), which was obviously cheaper for employers. And on the surface, it seemed like it was beneficial to individuals because they had more control of their own investment decisions.” But even Alicia, a former employee of the Federal Reserve and member of the president’s C ouncil of E conomic Advisers, made some serious missteps when it came to her own retirement. “So, I have a defined benefit plan [guaranteed lifetime income] from the Federal Reserve Bank of Boston. W hen I was at the T reasury, one of my colleagues said, ‘Oh! T ake it early.

Y ou can invest that money much better than the Federal

Reserve can.’ T hat money is long gone.”

Being solely responsible for your investment decisions is a scary thought for most (especially before reading this book). As captain of your financial ship, you must navigate all the available investment choices, generate returns sufficient enough to support your retirement, be a part-time investment expert, and do it all while holding down a full-time job or business and raising a family.

T eresa G hilarducci of the N ew School for Social

Research authored a brilliant article in the New York

T imes titled “Our Ridiculous Approach to Retirement.” In it she managed to pack all the challenges we face into a single paragraph:

N ot yet convinced that failure is baked into the voluntary, self-directed, commercially run retirement plans system? C onsider what would have to happen for it to work for you. First, figure out when you and your spouse will be laid off or be too sick to work. Second, figure out when you will die. T hird, understand that you need to save 7% of every dollar you earn. (D idn’t start doing that when you were 25, and you are 55 now? Just save 30% of every dollar.) Fourth, earn at least 3% above inflation on your investments, every year. (E asy. Just find the best funds for the lowest price and have them optimally allocated.) Fifth, do not withdraw any funds when you lose your job, have a health problem, get divorced, buy a house, or send a kid to college. Sixth, time your retirement account withdrawals so the last cent is spent the day you die.

Y es, the system needs to be fixed, and yes, it will take time and some major progress on both C apitol H ill and W all Street. But the good news is that for those of you who are informed, you will be able to navigate it. Y ou can use the system as an insider would, and let it work to your advantage.

C OME AG AIN ?

So let’s do a little recap. W e now know that actively managed stock-picking mutual funds don’t beat the market. And this is exactly what you find in the vast majority of 401(k) plans (but not all). W e also know that these expensive funds charge hefty fees, which can erode 50% to 70% of our potential retirement nest egg. D epending on your age today, think of how much you have already left on the table to this point? Is it $10,000? $25,000? $100,000? Scary, huh?

N ow, stick those expensive mutual funds inside a name-brand 401(k) plan, usually offered by a payroll or insurance company, and it will charge you a whole host of additional costs. (See box on following page.) T he sum of all these costs forms an insurmountable headwind. W ith the vast majority of plans out there, the odds of you winning the 401(k) game are slim to none.

401(k) plans receive the benefit of tax deferral, but most are loaded with up to 17 different fees and costs between the underlying investments and the plan administration.

C OMMU NIC AT ION E X PE NSE S

•   E nrollment (materials)

•   Ongoing (materials)

•   E nrollment (meetings)

•   Investment advice

RE C ORD -K E E PING AND AD MINIST RAT IV E E X PE NSE S

•   Base fee

•   Per participant fee

•    Per-eligible employee fee •    D istributions •    L oans origination •    L oans maintenance •    Semiannual discrimination testing •    5500 filing package •    Other expenses INV E ST ME NT E X PE NSE S •    Base fee •    Individual (mutual) fund expenses •    Manager/advisor fee •    Other    asset fees   (revenue administration, and so on) T RU ST E E E X PE NSE S •   Base fee •   Per-participant fee •   Asset charge

sharing,

wrap,

But now the good news! W ith the right 401(k), one that is lean, mean, and doesn’t take your green, you can turn the headwind into a tailwind. Y ou can gain momentum by taking advantage of what the government gave us.

AME RIC A’S “BE ST ” 401(K )? OK AY , PROVE IT !

Once I truly grasped what Jack Bogle calls the “tyranny of compounding costs,” and realized the destructive power of excessive fees, I immediately called the head of my human resources department to find out the specifics of our own company 401(k) plan. I wanted to know if my employees, who I care about like my own family, were being taken to the cleaners. Sure enough, we were using a high-cost name-brand plan loaded with expensive funds and excessive administration and broker fees. T he broker assured me that the plan was top notch, lean on fees, and right on track. Sure it was! Right on track to make his BMW lease payment.

C onvinced that there had to be a better plan out there, my team and I began to do some research. After a frustrating process of looking at a bunch of garbage plans, a good friend of mine referred me to a firm called America’s Best 401k. T hat’s a bold name. I called the owner, T om Z gainer, and said, “Prove it!”

In the first five minutes of meeting T om in person, it’s obvious he has immense passion about helping people get free from crappy, fee-loaded 401(k) plans. H e calls the 401(k) industry “the largest dark pool of assets where nobody really knows how or whose hands are getting greased.” A pretty grim diagnosis of his own industry. “G et this, T ony, the industry has been around for three decades now, and only in 2012 did service providers become required by law to disclose fees on statements. But in spite of the disclosure, over half of all employees still don’t know how much they’re paying!” In fact, 67% of people enrolled in 401(k)s think there are no fees, and, of course, nothing could be further from the truth.

“H ow are you different, T om? H ow is America’s Best truly the ‘best,’ as you say?” H aving been burned once, I felt like Papa Bear looking after his cubs because I knew this decision would directly impact my employees and their kids. T hey had already been paying excessive fees for years, and I couldn’t allow that to happen again. I came to find out that, as the owner of the company, I am also the plan sponsor, and I discovered it is my legal duty to make sure they aren’t getting taken advantage of. (More in the pages ahead.)

T om explained, “T ony, America’s Best 401(k) only allows extremely low-cost index funds [such as Vanguard and D imensional Funds], and we don’t get paid a dime by mutual funds to sell their products.” I had just interviewed Jack Bogle, and he confirmed that Vanguard does not participate in paying to play, a common practice where mutual funds share in their revenues to get “shelf space” in a 401(k) plan. By the way, what this means to you is that the so-called choices on your 401(k) plan are not the best available choices. T hey are the ones that pay the most to be offered up on the menu of available funds. And guess how they recoup their cost to be on the list? H igh fees, of course. So not only are you failing to get the best performing funds, but also you are typically paying higher fees for inferior performance.

“Okay, T om. W hat about the other plan fees? I want to see full disclosure and transparency on every single possible fee!”

T om proudly produced an itemized spreadsheet and handed it across the coffee table. “T he total cost, including the investment options, investment management services, and record-keeping fees, is only

0.75% annually.”

“T hat’s it? N o hidden fees or other pop-up-out-ofnowhere fees?”

W e cut our total fees from well over 2.5% to just 0.75% (a 70% reduction!). As you recall from earlier in chapter 2, when compounded over time, these fee savings equate to hundreds of thousands of dollars—even millions—that will end up in the hands of my employees and their families. T hat makes me feel so great! Below is a simple chart showing a sample 401(k), similar to the one my company used to use, versus America’s Best 401k, and how those savings compound directly into my employees’ accounts.

Assumptions: $1 million beginning plan balance, $100,000 in annual contributions, 5% growth rate.

Over $1.2 million going back to my family and my staff by making a simple switch! And by the way, this calculation is based only on fees and doesn’t take into account that we are beating 96% of mutual fund managers because we are using low-cost marketmimicking mutual funds.

ME G APH ON E

My staff and I were so impressed that six months after T om and his team installed my company’s plan (and after I had referred him to a ton of my good friends), I decided to partner with America’s Best 401k and help it get the word out. I knew this story had to be told in this book. And because the company charges so little, it can’t afford to run Super Bowl ads or have its sales reps take you golfing. T om’s grassroots efforts are gaining momentum, and I hope to amplify his voice.

N OW IT ’S T IME T O PU L L BAC K T H E C U RT AIN

T om and his team have built a powerful online “Fee C hecker” that can pull up your company’s plan (from the company’s tax return filing), and within seconds, it will show how your company’s plan stacks up against others and what you are really paying in fees. And like the table above, it will show you what the cost savings means to you over time. It’s not uncommon to uncover hundreds of thousands of dollars in potential savings! Visit the Fee C hecker on the following website: http://americasbest401k.com/401k-fee-checker.

N E E D E X T RA MOT IVAT ION ?

As if high fees destroying your retirement weren’t enough of a motivation, business owners should be very concerned and employees should be “armed with the truth.” W hy? Because the U S D epartment of L abor (D OL ) is out in full force to defend employees against high-fee plans. And who is liable? T he business owner! T hat’s right. N ot the mutual fund managers. N ot the broker. N ot the administrator of the crappy 401(k) plan. It’s the business owner who can get in serious hot water.

According to the CFO D aily News, in 2013 “[s]eventy-five percent of the 401(k)s audited by the D O L last year resulted in plan sponsors being fined, penalized or forced to make

reimbursements for plan errors. And those fines and penalties weren’t cheap. In fact, the average fine last year was $600,000 per plan. T hat’s a jump of nearly $150K from four years ago.”

And the D OL just hired another 1,000 enforcement officers in 2014, so we can all expect 401(k) plan audits to increase. I don’t know about you, but this certainly got my attention.

T hanks to class action attorneys, numerous corporations are being sued by their own employees. C aterpillar, G eneral D ynamics, and Bank of America, just to name a few. E ven F idelity, one of the largest

401(k) providers in the industry, recently settled two class-action lawsuits for $12 million after being sued by its own employees over excessive fees in its plan. Sure, these are big companies with a lot to lose, but it’s really the small business owners who are at greater risk because smaller plans (those with less than $10 million in plan assets) have the highest fees of all.

So W hat D o Y ou D o as a Business O wner? First, it’s the law that you have your plan “benchmarked” annually against other plans. T he new law began in 2012, so it might be news to you. Once a year, the D OL requires that you compare your plan against other “comparable” plans to make sure your plan has reasonable fees. N early every business owner I ask has no clue about this! I sure didn’t. D o you think the person who sold you that expensive plan is going to call you about it? Of course not!

America’s Best 401k will not only provide you with a free fee analysis but also provide this complimentary benchmark. If the D OL walks into your office on a Friday afternoon, don’t let it ruin your weekend by standing there like a deer in the headlights. Y ou want to be able to confidently hand over your plan benchmark.

W H O T O H OL D T O T H E FIRE ?

T he D OL is on a rampage and can hold the business owner over the fire. I had no idea that as a business owner, and plan sponsor, I am the legal fiduciary for the 401(k) plan. T here are numerous cases where business owners have become personally liable for an egregious 401(k) plan. By your using a firm like America’s Best 401k, it will “install” a professional fiduciary, which will dramatically alleviate your liability (and yes, this is included in the 0.75% annual fee). And it provides ongoing benchmarking as a free service.

W hat to D o If Y ou Are an E mployee. First, visit the

Fee C hecker on the America’s Best 401k website (http://americasbest401k.com/401k-fee-checker) and forward the report to the owner (or upper management). T ruth is, the highest income earners in any business tend to have the highest account balances, so they too have a lot to lose. Y ou are doing your entire company a wonderful service by educating management on its own plan. H igh fees are a drain on everyone’s hard-earned cash, and a possible change will affect everyone’s chances of financial freedom. Remember, we all need a tailwind, not a headwind.

Y ou can also march down to the H R department and make certain they read this chapter. If fees aren’t a motivator, remind them that they are the fiduciary to you and your fellow colleagues. T hey legally owe it to you to make sure they have a plan that is competitive and in your best interests. T hat should grab their attention!

If your employer does not switch to a low-cost option and to the extent that your employer isn’t matching your contributions, it may make sense to opt out.

If you decide to opt out but still plan on staying with the company, a good plan will allow for an in-service distribution, allowing you to roll your current 401(k) account into an individual retirement account. Just check with your H R department. An IRA is simply a retirement account held in your name alone, but you will have much more freedom to choose the investments. And from there you can implement some of the solutions we will review in section 3. Also, your personal fiduciary can review this account and explain your best options.

N ow that we know how to free ourselves from highcost plans riddled with underperforming mutual funds, how do we best utilize a low-cost plan and the tax benefits that the government gives us?

U N C ON VE N T ION AL W ISD OM

If you haven’t noticed, our government has a spending problem. L ike an out-of-control teenager with a Platinum Amex, U ncle Sam has racked up over $17.3 trillion in debt and close to $100 trillion in unfunded (not paid for yet!) liabilities with Social Security and Medicare. So do you think taxes will be higher or lower in the future? D id you know that following the G reat D epression, the highest income tax bracket was over 90% ?! T he truth is, you can tax every wealthy individual and corporation at 100% of its income/profits and still fall way short of the government’s promises. T ake a look at this video I made for an eye-opening presentation: http://training.tonyrobbins.com/exclusive-video-tonyrobbins-deconstructs-the-national-debt.

C onventional logic, as most C PAs will attest, is to maximize your 401(k) (or IRA) contributions for tax purposes because each dollar is deductible. W hich simply means you don’t have to pay tax on that dollar today but will defer the tax to a later day. But here is the problem: nobody knows what tax rates are going to be in the future, and therefore you have no idea how much of your money will be left over to actually spend.

I met recently with one of my senior executives on this topic, and I asked him how much he had in his 401(k). H e said he was approaching $1 million and felt comfortable that he could live off of this amount if needed. I asked him in a different way:

“H ow much of the million dollars in your 401(k) is yours?”

“All of it, of course,” he replied.

“H alf, my friend! H alf! Between state and federal income taxes, you will be spending only half that amount.”

T he truth sank in. H e sat back realizing that $500,000 is not his. It’s U ncle Sam’s. H e was simply investing the government’s money alongside his own.

But then I asked, “H ow much is yours if the tax bracket goes up to sixty percent?” A little mental math, and he replied, “Only four hundred thousand dollars, or forty percent, of the million will be mine.” Ouch. But that’s not possible, is it? If you look at tax rates on the wealthiest Americans over the last 20 years (between 1990 and 2010), they are near the lowest they have ever been. T he average for the three decades from the 1930s through the 1950s was 70% ! W hen taxes were raised by Bill C linton, he raised them on all wage earners, not just the wealthy. W ith the record-breaking levels of debt we have accumulated, many experts say taxes will likely be raised on everyone over the course of time. In short, the percentage of your 401(k) balance that will actually be yours to spend is a complete unknown. And if taxes go up from here, the slice of the pie you get to eat gets smaller. And it’s a spiraling effect because the less you get to keep and spend, the more you have to withdraw. T he more you withdraw, the quicker you run out.

SE N AT OR W IL L IAM ROT H : T H E BE ST L E G AL T AX H AVE N ?

A R oth IR A—and more recently the addition of the R oth 401(k)—is often overlooked, but it is one of the best and yet legal “tax havens” in the face of rising future tax rates. And we owe a big tip of the cap to Senator W illiam Roth for their introduction back in 1997. L et’s look at how they work.

If you were a farmer, would you rather pay tax on the seed of your crop or on the entire harvest once you have grown it? Most people seem to get this question wrong. W e are conditioned to not want to pay tax today (and thus defer into the future). T hey think it’s best to pay tax on the harvest. But in reality, if we first pay tax on the seed, that’s when the value of what’s being taxed is smallest. A big harvest means a big tax! If we pay our taxes now on the seed, then whatever we have come harvest time is ours to keep! A Roth account works this way. W e pay our tax today, deposit the after-tax amount, and then never have to pay tax again! N ot on the growth and not on the withdrawals. T his arrangement protects your pie from the government’s insatiable appetite for more tax revenues and, most importantly, allows you to plan with certainty how much you actually have to spend when you take withdrawals.

And here is an incredibly exciting piece of news!

W ith your 401(k) contributions being Roth-eligible (by checking the box), you can pay tax today and let your growth and withdrawals be free from the IRS’s grabby paws. And you can give substantially more because while a R oth IR A is limited to $5,500 annually, the R oth 401(k) allows for $17,500 per year. (And you can do both simultaneously).⁶

And for the high-income earner (making more than $122,000 per year), although you can’t use a Roth IRA, there are no income limitations on the Roth 401(k). Anyone can participate. T his is a relatively recent change in our tax code and can provide quite a benefit for higher-income earners.

SAVE MORE T OMORROW

So the secret to the 401(k) is simple: you have to do it. But you have to do it within a cost-efficient plan and take advantage of the Roth 401(k) (especially if you believe taxes will go up for you in the future). And if you take advantage of one the greatest breakthroughs in finance: the system we covered earlier called Save More T omorrow. Most people won’t make the commitment to save more today, but they will make the commitment to save more tomorrow. So in essence, you are agreeing in advance that your savings rate will increase each year. For example, let’s say today you save 3% of your salary. T hen next year you agree to go up 1% (for a total of 4% ). And then you keep “auto-escalating” your savings amount until you reach a certain cap. America’s Best 401k has this auto-escalation feature built into the system. So not only do you have the lowest possible fees, but you also have an opportunity to set yourself on an accelerated path to financial freedom.

BU L L ’S-E Y E !

N ow we have a chance to combine all we have learned! By now you have decided to set aside a percentage of your income, and that may very well be in your 401(k). Y ou want to make absolutely sure that your 401(k) has the lowest possible fees and low-cost index funds. Y ou can see how your company plan fares by using the Fee C hecker on America’s Best 401k (http://americasbest401k.com/401k-fee-checker). Once again, if you are an employee, you should make the company owner (or management) aware of their legal responsibility to provide the most efficient plan available and that they are at risk of getting into major hot water with the D epartment of L abor. If you are a business owner, you are legally required to get the plan benchmarked annually, and America’s Best will provide a

complimentary benchmark; simply take two minutes to fill out this online form: http://americasbest401k.com/request-a-proposal. H ere is the great news: the typical small plan will save $20,000 per year in fees alone. Bigger plans will save hundreds of thousands, even millions, over the life of the plan, all of which goes directly back to the employees and the owner’s personal retirement plan as well.

SE VE N FRE QU E N T L Y ASK E D QU E ST ION S

Stick with me here. W e’re about to start putting ideas into action. T hese are the seven most common questions that come up in the context of 401(k) plans and IRAs and how to best utilize them. H ere we go!

1. SH OU L D I PART IC IPAT E IN MY 401(k)?

T o the extent that your employer matches your contributions, you should certainly take advantage of your 401(k), as the company is essentially covering the taxes for you. And if you think taxes are going up, checking the box so that your contributions receive R oth tax treatment is the way to go. (A quick side note: the 401(k) plan itself might be insanely expensive and the investment options poor. If that is the case, you may not want to participate at all! T o determine how your company’s plan stacks up, go to http://americasbest401k.com/401k-fee-checker and click on Fee C hecker to assess your company’s plan.)

Just to be clear, if you check the box to make your contributions Roth-eligible, you will still be investing in the same investment options (or list of funds), with the only difference being that you will pay taxes on the income today. But your future nest egg will be completely tax free when you withdraw. Retirement expert D r. Jeffrey Brown of the U niversity of Illinois gave me his take on his own personal finances. “I’d take advantage of every Roth opportunity I can because . . . I’ve spent a lot of time looking at the long-term fiscal outlook for the U nited States, and you know I am a pretty optimistic guy, on the whole. But I have to tell you that I cannot envision any situation in which our need for tax revenue in the future is not going to be higher than it is today.”

T aking it one step further, D r. Brown has personal guidance for his younger students: “Absolutely pour as much money as you can into that Roth because you’re going to be paying little or no taxes on it, and then someday you could have the greatest income ever.”

If you are one of the few that thinks taxes in future will be lower, you could be in for a huge surprise. “C onventional wisdom” says we should be in a lower tax bracket when it comes time to retire, as we won’t be earning as much. But in reality, our home is often paid off (so we don’t have any mortgage deductions), and the kids are long gone (so we don’t have any dependents).

F inally, you might be self-employed and think that all this 401(k) talk is irrelevant. N ot so! Y ou can start a Solo 401(k), which is a 401(k) for an individual business owner and his or her spouse.

2. WH AT IS A ROT H 401(k), AND H OW C AN I U SE IT T O MY AD V ANT AG E ?

I said it before, but it’s worth repeating: most of today’s 401(k) plans allow you to simply “check a box,” and your contributions will receive the Roth tax treatment. T his decision means you pay tax today, but you never pay tax again!

3.  SH OU L D I SE T U P A ROT H IRA?

Yes!! Y ou can set up a Roth IRA account and contribute $5,500 per year ($6,500 if you’re 50 or older). Y ou can even do so if you are already maxing out your 401(k) contributions. Opening a Roth IRA is as simple as opening a bank account. T D Ameritrade, Fidelity, and Schwab are three firms that make the process incredibly simple. Y ou can do it online in less than ten minutes.

4.  BU T WH AT IF I MAK E T OO MU C H MONE Y FOR A ROT HIRA?

Sadly, you cannot contribute to a Roth IRA if your annual income is over $114,000 as an individual or more than $191,000 for a married couple (for 2014). But don’t fret, regardless of how much you make, you can still participate in a Roth 401(k). And if you have an IRA, you might want to consider converting your IRA into a Roth IRA, but know that you will have to pay tax today on all the gains.

5.  SH OU L D I C ONV E RT MY T RAD IT IONAL IRA T O A ROT HIRA?

L et’s say you have an IRA with $10,000. T he government will allow you to pay the tax today (because it needs the money), and you will never have to pay tax again. T his process is called a Roth conversion. So if you are in the 40% bracket, you would pay $4,000 today, and your remaining $6,000 will grow without tax, and all withdrawals will be tax free. Some people cringe at the idea of paying tax today because they view it as “their” money. It’s not! It’s the government’s. By paying the tax today, you are giving U ncle Sam his money back earlier. And by doing so, you are protecting yourself and your nest egg from taxes being higher in the future. If you don’t think taxes will be higher, you shouldn’t convert. Y ou have to decide, but all evidence points to the hard fact that W ashington will need more tax revenue, and the biggest well to dip into is the trillions in retirement accounts.

6.                  WH AT ABOU T MY OL D 401(k) PL AN(S) WIT H PASTE MPL OY E RS?

Older plans can either be left with a previous employer or “rolled over” into an IRA. One would leave it with an old employer only if the plan itself was low cost and had favorable investment options. By rolling over the plan into an IRA (it takes about ten minutes online to move the funds from your former plan to a third-party IRA custodian like T D

Ameritrade, Schwab, or Fidelity), you will have greater control. Y ou can invest in nearly any investment, not just a limited menu it offers. And with this great control, you will be able to hire a fiduciary advisor and implement some exciting strategies and solutions we will review in section 3. W ith a fiduciary advisor, you don’t pay commissions. Y ou pay for advice. And it’s typically 1% or less of your invested assets, and remember, you might be able to deduct it from your taxes.

Second, by rolling over your old 401(k) into an IRA, you will then have the option to convert an IRA into a Roth IRA.

7.                  WH AT E L SE C AN I D O IF I AM MAX ING OU T MY PL ANSAND WOU L D L IK E AD D IT IONAL OPT IONS T O SAV E ? Small business owners that are making a lot of money and want to reduce their taxes today can benefit greatly from the addition of a cashbalance plan on top of their 401(k) plan. C ashbalance (C B) plans are the fastest growing of the defined benefit pension plans and could overtake 401(k) plans within the next few years, according to researchers at Sage Advisory Services, a registered investment advisory firm headquartered in Austin, T exas. In fact, over one third of Fortune 100 companies have adopted a cash-balance plan. So what is it? A cash-balance plan is basically a pension plan. In other words, the amounts deposited are earmarked to provide the business owner with future retirement income. So what’s the biggest draw? For a highincome business owner, not only can she max out her 401(k) and a profit-sharing plan, but she can also add a cash-balance plan, which creates some very large, fully deductible contributions. On page 156 is a table showing the possible deductions.

Money Power Principle 2. O ne of the most important Money Power Principles is “Y ou get what you tolerate.” D on’t tolerate having your money in a plan that is siphoning off fees to the benefit of someone else. And we have to remember that the 401(k) is only as good as what’s inside it. T urn the page and discover the next myth. Because the most popular place for people to put their 401(k) money is one of the most misunderstood investments of our time.

6. T here are different rules for a R oth IR A and a R oth 401(k). According to the IR S: “If you were age 50 or older before 2014, and contributions on your behalf were made only to R oth IR As, your contribution limit for 2013 will generally be the lesser of: $6,500, or your taxable compensation for the year.” See “Publication 590 (2013), Individual R etirement Arrangements (IR As),” “R oth IR As,” www.irs.gov/publications/p590/ch02.html#en_U S_2013_publink100

C HAPT E R 2.6

MY T H 6: T ARG E T -D AT E FU N D S: “JU ST SE T IT AN D FO RG E T IT ”

I am increasingly nervous about target-date funds with each passing day.

— JAC K BO G L E , founder of investor-owned V anguard

W hen you are looking at your 401(k) investment options, do you ever wonder just how they came up with that list? Or why your spouse or best friend who works across town has an entirely different menu of choices? As the saying goes, always follow the money.

Y OU G OT T A PAY T O PL AY

In the world of mutual funds, the common practice of sharing in revenues is known as pay-to-play fees. According to the W atson T owers worldwide consulting firm, approximately 90% of 401(k) plans require pay-toplay fees in exchange for placing a mutual fund as an available option on your plan’s menu. T hese pay-to-play fees virtually guarantee that the client (you and me) gets a limited selection and will end up owning a fund that proves profitable for the distributors (the broker, the firm, and the mutual fund company). Said another way, the “choices” you have in your 401(k) plan are carefully crafted and selected to maximize profits for the vendors, brokers, and managers. If one has to pay to play, they are going to want to maximize their profits to recoup their cost. And target-date funds, sometimes called lifecycle funds, may just be the most expensive and widely marketed creation to make their way into your plan’s investment options (with the exception being Vanguard’s ultra-low-cost versions).

D O T ARG E T -D AT E FU N D S MISS T H E MARK ?

D espite being the fastest-growing segment of the mutual fund industry, target-date funds (T D Fs) may completely miss the mark.

T he pitch goes like this: “Just pick the date/year in which you will retire, and we will allocate your portfolio accordingly [the G olden Y ears 2035 fund, for example]. T he closer you get to retirement, the more conservative the portfolio will become.” I am sure you have seen these options in your 401(k), and statistics would say that you are likely invested in one.

H ere is a bit more about how they actually work.

T he fund manager decides upon a “glide path,” which is the fancy way of describing its schedule for decreasing the stock holdings (more risky) and ramping up the bond holdings (traditionally less risky) in an attempt to be more conservative as your retirement nears. N ever mind that each manager can pick his own “glide path,” and there is no uniform standard. Sounds more like a

“slippery slope” to me. T hen again, this is all built on two giant presuppositions:

1.   Bonds are safe.

2.   Bonds move in the opposite direction of stocks, so thatif stocks fall, your bonds will be there to protect you.

As W arren Buffett says, “Bonds should come with a warning label.” And since bond prices fall when interest rates go up, we could see bond prices plummet (and bond mutual fund prices, too) if or when interest rates go up. In addition, numerous independent studies show how bonds have strong “correlation” in bad times. T ranslation: stocks and bonds don’t always move in opposite directions. Just look at 2008, when bonds and stocks both fell hard!

T he marketing message for target-date funds is seductive. Pick the date, and you don’t have to look at it ever again. “Set it and forget it.” Just trust us! W e’ve got you covered. But do they?

ON E G IG AN T IC MISU N D E RST AN D IN G

A survey conducted by Behavioral Research Associates for the investment consulting firm E nvestnet found that employees who invested in T D Fs had some jawdropping misconceptions:

•    57% of those surveyed thought they wouldn’t lose money over a ten-year period. T here are no facts to support that perception!

•    30% thought a T D F provided a guaranteed rate of return. T D Fs do not give you any guarantee of anything, much less a rate of return!

•    62% thought they would be able to retire when the year, or “target date,” of the fund arrives. U nfortunately, this false perception is the cruelest of all. T he date you set is your retirement year “goal.” T D Fs are not a plan to get you to your goals, but rather just an asset allocation that should become less risky as you get closer to retirement.

C onsidering that there are trillions of dollars in T D Fs, a huge percentage of Americans are in for a shocking surprise.

So what are you really buying with a T D F? Y ou are simply buying into a fund that handles your asset allocation for you. It’s as simple as that. Instead of picking from the list of fund options, you buy one fund, and voilà! It’s “all handled for you.”

SORRY , SH E N O L ON G E R W ORK S H E RE

After graduating college, D avid Babbel decided he wanted to work for the W orld Bank. It would no doubt be an interesting place to work, but for those fortunate enough to be employed there, they also pay no taxes! Smart man. W hen he applied they turned him away, saying he needed a postgraduate education in one of six categories to land a job. N ot one to risk being denied a position, he decided to go get all six. H e has a degree in economics, an MBA in international finance, a PhD in finance, a PhD minor in food and resource economics, a PhD certificate in tropical agriculture, and a PhD certificate in L atin American studies. W hen he returned with his fistful of diplomas, they told him they weren’t hiring Americans due to the recent reduction of financial support from W ashington to the W orld Bank. It was a punch in the gut for him. N ot knowing where to turn, he responded to a newspaper ad from U C Berkeley. After they hired him as a professor, he later found out that they ran the ad to comply with affirmative action, but had no intention of getting qualified candidates to respond.

Y ears later he moved on to W harton to teach multiple subjects related to finance. But he isn’t just a bookworm. A paper he had written on how to reduce risk in bond portfolios caught the attention of G oldman Sachs. H e took a leave of absence and spent seven years running the risk management and insurance division at G oldman Sachs (while still holding down a part-time professorship at W harton). L ater he finally had a chance to work at the W orld Bank. H e has also consulted for both the U nited

States T reasury and the Federal Reserve. But when the D epartment of L abor asked him to do a counterstudy on whether target-date funds were the best default retirement option, he had no idea the path that lay ahead. On the other side of the proverbial aisle was the Investment C ompany Institute (the lobbying arm for the mutual fund industry), which “had paid two million dollars for a study and got exactly what they wanted. A study that said [T D Fs] are the best thing since sliced bread.” K eep in mind that at this point, T D Fs were just a concept. A glimmer in the eye of the industry.

In his study for the D epartment of L abor, conducted with two other professors, one of whom was trained by two N obel laureates, Babbel compared T D Fs to stable value funds. Stable value funds are ultraconservative, “don’t have losses and historically have yields [returns] at two percent to three percent greater than money market funds.” According to Babbel, the industry-sponsored study, which painted T D Fs in the best possible light, was riddled with flaws. T o make T D Fs look better than stable value funds, they pumped out more fiction than W alt D isney. For example, they made an assumption that stocks and bonds have no correlation. Wrong. Bonds and stocks do indeed move in step to a degree and they move even closer during tough times. (Bonds and stocks had 80% correlation in 2008.)

Babbel and his team reviewed the study and picked it apart. T hey had mathematically dissected the report’s fictional findings and were prepared to show its ridiculous assumptions that made T D Fs look so superior.

W hen he showed up on the day to present his conclusion, the economists behind the table, chosen by the D epartment of L abor to judge both studies, “thought he had some great points that needed further review.” But the secretary of labor “had already made her decision and then quit. She didn’t even show up at the meeting she had scheduled with him.” D r. Babbel heard that it was prewired. T he industry has bought the seal of approval it needed to write its own “fat” check.

Fast-forward, and by the end of 2013, T D Fs were used by 41% of 401(k) participants, to the tune of trillions! N ot a bad return for the investment community for a $2 million investment in a study D r. Babbel and his esteemed economist colleagues called “heavily flawed.”

A 2006 federal law paved the way for target-date funds to become the “default” retirement option of choice. E mployers can’t be held liable for sticking employee money in target-date funds. T oday well over half of all employers “auto-enroll” their employees into their 401(k). According to research from Fidelity, over 96% of large employers use these target-date mutual funds as the default investment of choice.

Y OU N E VE R K N OW W H O’S SW IMMIN G N AK E D U N T IL T H E T ID E G OE S OU T

Imagine that it is early 2008, and you are closing in on your retirement. Y ou have worked the grind for over 40 years to provide for your family; you are looking forward to more time with the grandkids, more time traveling, and just . . . more time. By all accounts your 401(k) balance is looking healthy. Y our “2010 target-date funds” are performing nicely, and you trust that since you are only two years away from retirement, your funds are invested very conservatively. Millions of Americans felt this way before 2008 wiped out their hopes for retirement, or at least the quality of retirement they had expected. T he list on page 162 shows the top 20 targetdate funds (by size) and their gut-wrenching 2008 performances. Remember that these are 2010 target-date funds, so retirement was now only two years away for their investors. N otice the high percentage that certain funds chose to put into stocks (more risky) even though they were supposed to be in the “final stretch” and thus most conservative. T o be fair, even if you are retiring, you must have some exposure to stocks, but at the same time, this type of loss could have devastated or at least delayed your plans for retirement.

L E SSE R OF T W O E VIL S

W hen I sat down to interview many of the top academic minds in the field of retirement research, I was surprised to learn that they were all in favor of target-date funds.

W ait a second. H ow could that be!?

I shared with each of them much of what you have just read, and while they didn’t disagree that there are issues with T D Fs, they pointed to the time before T D Fs existed, when people were given the choice to allocate as they wished. T his arrangement led to more confusion and, quite frankly, really poor decision making. T he data certainly supports their point.

In my interview with D r. Jeffrey Brown, one of the smartest minds in the country, he explained, “If you go back prior to these things [T D Fs], we had a lot of people who were investing in their own employer’s stock. W ay overconcentrated in their own employer’s stock.” H e reminded me of E nron, where many employees put 100% of their savings in E nron stock, and overnight that money was gone.

W hen people had 15 different mutual fund options from which to choose, they would divide the money up equally (1/15th in each one), which is not a good strategy. Or they would get nervous if the market dropped (or sell when the market was down) and sit entirely on cash for years on end. C ash isn’t always a bad position for a portion of your money, but within a 401(k), when you are paying fees for the plan itself, you are losing money to both fees and inflation when you hold on to cash. In short, I can see D r. Brown’s point.

If the concept of a target-date fund is appealing, D r. Brown recommends a low-cost target-date fund such as those offered by Vanguard. T his could be a good approach for someone with minimal amounts to invest, a very simple situation, and the need for an advisor might be overkill. But if you don’t want to use a target-date fund and instead have access to a list of low-cost index funds from which to choose, you might implement one of the asset allocation models you will learn later in this book. Asset allocation, where to park your money and how to divide it up, is the single most important skill of a successful investor. And as we will learn from the masters, it’s not that complicated! L ow-cost T D Fs might be great for the average investor, but you are not average if you are reading this book!

If you want to take immediate action to minimize fees and have an advisor assist you in allocating your 401(k) fund choices, you can use the service at Stronghold (www.strongholdfinancial.com), which, with the click of a button will automatically “peer into” your 401(k) and provide a complimentary asset allocation.

In addition, many people think there aren’t many alternatives to T D Fs, but in section 5, you’ll learn a specific asset allocation from hedge fund guru Ray D alio that has produced extraordinary returns with minimal downside. W hen a team of analysts back-tested the portfolio, the worst loss was just 3.93% in the last 75 years. In contrast, according to MarketW atch, “the most conservative target-date retirement funds—those designed to produce income—fell on average 17% in 2008, and the riskiest target-date retirement funds— designed for those retiring in 2055—fell on average a whopping 39.8% , according to a recent report from Ibbotson Associates.”

AN OT H E R ON E BIT E S T H E D U ST

W e have exposed and conquered yet another myth together. I hope by now you are seeing that ignorance is not bliss. Ignorance is pain and poverty in the financial world. T he knowledge you have acquired in these first chapters will be the fuel you will need to say “N ever again! N ever again will I be taken advantage of.”

Soon we will begin to explore the exciting opportunities, strategies, and vehicles for creating financial freedom, but first we have just a couple more myths to free you from.

C HAPT E R 2.7

MY T H 7: “I H AT E AN N U IT IE S, AN D Y O U SH O U L D T O O ”

T he Fed chief’s largest assets last year were two annuities.

— “F ed C hairman Bernanke’s Personal F inances Are N o F rills,” U SA T oday, July 21, 2008

L OVE ’E M OR H AT E ’E M?

I came across an online ad that read “I hate annuities and you should too.” T he typical internet “hook” promoted a free report on how annuities are terrible investments and that a strategy using stocks and bonds is a much better approach for long-term growth and security. Of course, the advertiser was readily available to sell you his expert stock pickings for a fee. W hat’s not mentioned in the bold print of the ad is that the advertiser is an activeapproach stock picker. And as we’ve already learned from experts W arren Buffett, Jack Bogle, Ray D alio, and D avid Swenson—as well as academic research results— active management is ineffective in beating the market on a consistent basis. T heir results are inferior to a simple index, which usually has fees that are 500% to

3,000%       cheaper,     with greater       performance.       T his marketing strategy often works, though, doesn’t it? C ompare yourself with what’s perceived as a terrible product, and suddenly yours doesn’t look so bad.

But not everybody hates annuities . . .

On the flip side, I was blown away to find that the former Federal Reserve chairman Ben Bernanke, arguably the most influential man in finance at one point, certainly appreciates the use of annuities in his personal finance plan. Bernanke had to disclose his investments before becoming chairman of the Fed. T he disclosure showed that he held a relatively low amount of stocks and bonds, while his annuities were his two largest holdings. My immediate thought was, “W hat does he know that I don’t?”

So which is it?

Are annuities the best thing since sliced bread or just a deal that is good for the insurance company and brokers selling them? T he answer? It really depends on the type of annuity you own and the fees the insurance company will charge you. L et’s explore.

D uring the process of writing this book, I was searching for the world’s most respected minds to explore the best ways for readers to lock in a guaranteed lifetime income stream; a paycheck for life without having to work. After all, isn’t this why we invest in the first place? As I conducted my interviews, D r. D avid

Babbel was a name that was continually “rising to the top” during my research. If you recall from the last chapter, he is the W harton professor with multiple PhD s who advised the secretary of labor on two studies on target-date funds.

In early 2013 he presented his own personal story in a report on how he debunked the advice of his W all Street buddies, who encouraged him to let his investments ride and hope for more growth, and created a lifetime income plan. So instead of risking a penny in stocks or bonds, he used a series of guaranteed income annuities, staggered over time, to give him the safe and secure retirement he wants and deserves—a lifetime income plan. T he annuities he used also gave him a 100% guarantee of his principal, so he didn’t lose in 2000 or in 2008 when the market crashed. Instead, he was comfortably enjoying his life, his wife, and his grandkids with complete peace of mind that he will never run out of money.

I flew to Philadelphia to meet with D r. Babbel for a “one-hour” interview, which turned into four hours. H is strategy, which we will highlight in the “C reate an Income for L ife” chapter, was powerful yet simple. And the “peace of mind” factor really came through, as I could see the freedom his strategy afforded him. I left with a completely different view on annuities! Or at least certain kinds of annuities.

H e was very clear that “not all annuities are created equal.” T here are many different types, each with its own unique benefits and drawbacks. T here are ones you should indeed “hate,” but to lump all annuities into one category is to thoughtlessly discriminate against the only financial tool that has stood the test of time for over 2,000 years.

T H E JU L IU S C AE SAR IN SU RAN C E C OMPAN Y

T he first lifetime income annuities date back 2,000 years to the Roman E mpire. C itizens and soldiers would deposit money into a pool. T hose who lived longest would get increasing income payments, and those who weren’t so lucky passed on; the government would take a small cut, of course. One must render to C aesar what is C aesar’s!

T he L atin word annua is where we get our word annual, because the original Romans got their income payment annually. And, of course, that’s where the word annuity comes from! H ow’s that for “exciting” water cooler trivia?

In the 1600s, E uropean governments used the same annuity concept (called a tontine), to finance wars and public projects (again keeping a cut of the total deposits). In the modern world, the math and underpinnings of these products are still the same, except governments have been replaced by some of the highest-rated insurance companies, including many that have been in business for well over 100 years; insurance companies that stood the test of time through depressions, recessions, world wars, and the latest credit crisis.

But we must be careful when it comes to the different types of annuities. Annuities were pretty much the same over those last 2,000 years. T here was just one version: the C oca-C ola C lassic of financial solutions. It was a simple contract between you and an insurance company. Y ou gave them your money, and they promised you a guaranteed income or return on your money. And after you made your contribution, you got to decide when to start receiving income payments. T he longer you waited, the higher your income payments. And the day you bought it, you had a schedule that showed the exact payment, so there was no guessing.

IS IT PROG RE SS OR JU ST C H AN G E ?

Over the last 50 years, annuities have evolved into many different types compared with the original ones offered by C aesar. Sometimes evolution is a good thing. Other times we end up a mutant!

It’s safe to say that there are more poor products out there than good ones. As Jack Bogle says, “I remain a recommender of the annuity conceptually, but you’d better look at the details before you do anything.” So let’s cut to the chase. W hich should you avoid?

VARIABL E AN N U IT IE S ARE IN VARIABL Y BAD

In 2012 over $150 billion worth of variable annuities were sold. T o put that in perspective, $150 billion is just a hair below Apple’s gross revenue for 2012. Variable annuities have evolved into the commission darling of many large brokerage firms. So what the heck is a variable annuity? In short, it’s an insurance contract where all of the underlying deposits are invested in mutual funds (also known as sub accounts). Y ep. T he same mutual funds that underperform the market and charge insanely high fees. But this time the investor buys them inside of an annuity “wrapper.” W hy would anyone want to invest in mutual funds through an annuity? Because annuity products have special tax benefits, and the money inside can grow tax-deferred, just like a 401(k) or IRA. T his arrangement is especially attractive, the pitch goes, if you have already maxed out your 401(k) or IRA limits and have extra capital to invest. But now, instead of just paying excessive fees for underperforming mutual funds, there are additional fees for the annuity itself.

FE E S ON T OP OF FE E S

So what’s the appeal? W hy would someone buy mutual funds wrapped inside an annuity just to avoid taxes? Most variable annuities guarantee that even if the account goes down, your beneficiaries will receive at least the total amount you invested originally. So if you put in $100,000, and the mutual funds drop in value to $20,000, your children would still get $100,000 when you die. T hat doesn’t sound like such a bad deal until you realize that you just bought the most expensive form of life insurance available.

E arlier, in chapter 2.2, we outlined the laundry list of fees you will pay to own an actively managed mutual fund and how these fees can dramatically drag down your performance. T o recap, the total of all the fees (expense ratio, transaction costs, soft-dollar costs, cash drag, sales charges) will average approximately 3.1% per year, according to F orbes (if held in a tax-deferred account such as a 401[k], IRA, or variable annuity).

T hat’s $3,100 per year for every $100,000.

But we ain’t done yet.

W hen you buy a variable annuity, not only are you paying the fees listed above but also you have additional fees paid to the insurance company. T here is a “mortality expense,”⁷ which according to Morningstar averages 1.35% per year, as well as administrative charges that can run somewhere between 0.10% and 0.50% per year. L et’s add ’em up:

Average mutual fund costs = 3.1% (according to

Forbes article),

Mortality and expense = 1.35% (average), Administrative cost = 0.25% (average).

A grand total of 4.7% per year, or $4,700 for every $100,000 you invest! And this money comes off the top before you make a dime. Said another way, if the fund returns 4.7% , you didn’t make anything! All of these additional fees all to avoid tax on the gains? H eck, after all the fees, you probably won’t have much gain, if any, to pay taxes on!

PAIN T E D IN T O A C ORN E R

E ven though most people lose money in these variable annuities, they feel locked in and afraid to pull out their money because of the death benefit guarantee (the guarantee that their heirs will get back the original deposit amount). And there are usually heavy surrender charges, so the insurance company might charge you for leaving the party early.

Are there any exceptions to the rule? Only two that experts tell me are worth considering in so far as one needs the tax efficiency. Vanguard and T IAA-C RE F

both offer extremely low-cost variable annuities with a list of low-cost index funds to choose from. T hey do not charge commissions, so there are no surrender charges if you want to cash in.

N OT Y OU R G RAN D PA’S AN N U IT IE S

In chapters 5.3 and 5.4 of this book, “Freedom: C reating

Y our L ifetime Income Plan” and “T ime to W in: Y our Income Is the Outcome,” we will clearly examine traditional income annuities as well as a relatively new type of annuity (the fixed indexed annuity) that provides some of the highest and most compelling income guarantees of any financial product, while also providing 100% principal protection. By the time you are done with this book, you can have the certainty and peace of mind of knowing that every month when you walk to your mailbox, you will be receiving a paycheck (that you won’t have to work for). And we can accelerate your path to financial freedom if we can eliminate taxes on your lifetime income payments. H ow, you ask?

By taking a portion of our money and combining the power of a Roth IRA with the power of a lifetime income annuity. T his means that no matter what the government does with tax rates, you can rest assured that the entire amount you receive is spendable income. T hat’s right: a legal and secure tax-free lifetime income, with no moving parts or worries about market volatility.

T he purpose of this chapter is not only to tell you what to avoid but also to warn you about getting sucked into the marketing myth that all annuities are bad. T he only reason why I’m not going into more detail on the power of annuities is because you first need to understand where to put your money: asset allocation. And understanding asset allocation will help you know when and where annuities make sense for you.

T H E SOL U T ION

If you have an annuity, regardless of what type, it’s always beneficial to get a review by an annuity specialist. Y ou can reach out to an annuity specialist at L ifetime Income (www.lifetimeincome.com), and he or she will perform a complimentary review, which will help you:

•    discover the pros and cons of your current annuity,

•    determine the actual fees you are paying,

•    assess whether or not the guarantees are the highestavailable, and

•    decide whether to keep it or get out of your currentannuity and “exchange” for a different type of annuity.

If you have an annuity that you find is not great, there is a feature called a 1035 exchange. It requires some simple paperwork to move a cash balance from one insurance company to another without being hit with a tax penalty. But you must be aware that your current annuity might have “surrender charges” if you haven’t owned the annuity for long enough. It may make sense to postpone an exchange until there are low or no surrender charges. Also, you may be forfeiting the death benefit guarantee.

Stick with me here, as there is just one more truth we must uncover! T he last and final illusion is one that insiders are most aware of: the myth that you have to take exorbitant risks to make great returns.

L et’s unmask Myth 8. . . .

7. F ees, included in certain annuity or insurance products, that serve to compensate the insurance company for various risks it assumes under the annuity contract.

C HAPT E R 2.8

MY T H 8: “Y O U G O T T A T AK E H U G E

RISK S T O G E T BIG RE W ARD S!”

An investment operation is one which, upon thorough analysis, promises safety of

principal and an adequate return. Operations not meeting these requirements are speculative.

— BE N JAMIN G R AH AM, T he Intelligent Investor

H AVIN G Y OU R C AK E AN D E AT IN G IT T OO

Superficially, I think it looks like entrepreneurs have a high tolerance for risk.

But one of the most important phrases in my life is “protect the downside.”

— R IC H AR D BR AN SO N , founder of V irgin

My friend Richard Branson, the founder of Virgin and its many incredible brands, decided to launch Virgin Airways in 1984. In true D avid-versus-G oliath fashion, the master of marketing knew that he could “out market” anyone including the behemoth competitor British Airways. T o outsiders, it seemed like a huge gamble. But

Richard, like most smart investors, was more concerned about hedging his downside than hitting a home run. So in a brilliant move, he bought his first five planes but managed to negotiate the deal of a lifetime: if it didn’t work out, he could give back the planes! A money-back guarantee! If he failed, he didn’t lose. But if he won, he won big. T he rest is history.

N ot unlike the business world, the investment world will tell you, directly or more subtly, that if you want to win big, you’ve got to take some serious risk. Or more frighteningly, if you ever want financial freedom, you have to risk your freedom to get there.

N othing could be further from the truth.

If there is one common denominator of successful insiders, it’s that they don’t speculate with their hardearned savings, they strategize. R emember W arren Buffett’s top two rules of investing? R ule 1: don’t lose money! R ule 2: see rule 1. W hether it’s the world’s top hedge fund traders like Ray D alio and Paul T udor Jones or entrepreneurs like Salesforce founder Marc Benioff and Richard Branson of Virgin, without exception, these billionaire insiders look for opportunities that provide asymmetric risk/reward. T his is a fancy way of saying that the reward is drastically disproportionate to the risk.

R isk a little, make a lot.

T he best example of risking very little to make a lot is the high-frequency traders (H FT ) who use the latest technologies (yes, even flying robots and microwave towers that are faster than the speed of light) to save 1/1000 of a second! W hat would you guess is their risk/reward while generating 70% of all trading volume in the stock market? I will give you a clue. Virtu Financial, one of the largest H FT firms, was about to go public, a process that requires it to disclose its business model and profitability. Over the past five years, Virtu has lost money only one day! T hat’s right. One single trading day out of thousands! And what is its risk? Investing in faster computers, I suppose.

T W O N IC K E L S T O RU B T OG E T H E R

My friend and hedge fund guru J. K yle Bass is best known for turning a $30 million investment into $2 billion in just two short years. C onventional wisdom would say that he must have taken a big risk for returns of that magnitude. N ot so. K yle made a very calculated bet against the housing bubble that was expanding like the kid in Willy Wonka & the Chocolate Factory. It was bound to burst sooner rather than later. Remember those days? W hen ravenous, unqualified mortgage shoppers were enticed to buy whatever they could get their hands on. And with no money down or so much as any proof they could afford it. L enders were lining up to provide loans knowing they could package them up and sell them off to investors who really didn’t understand them. T his bubble was easy to spot so long as you were on the outside looking in. But K yle’s brilliance, which he reveals in his interview in section 6, is that he only risked 3 cents for every dollar of upside. H ow’s that for taking a tiny risk and reaping giant rewards?

W hen I spoke with K yle recently, he shared the details of another asymmetric risk/reward opportunity he had found for himself and his investors. T he terms? H e had a 95% guarantee of his investment, but if or when the company went public, he had unlimited upside (and he expected massive returns!). But if it all went south, he lost only 5% .

K yle, like all great investors, takes small risks for big rewards. T aking a swing for the fence with no downside protection is a recipe for disaster.

“K yle, how do I get this point across to my readers

?”

“T ony, I will tell you how I taught my two boys: we bought nickels.”

“W hat was that, K yle?” Maybe the phone was breaking up. “I could have sworn you just said you bought nickels.”

“Y ou heard me right. I was literally standing in the shower one day thinking, ‘W here can I get a riskless return?’ ”

Most experts wouldn’t even dream to think of such a thing. In their mind, “riskless return” is an oxymoron. Insiders like K yle think differently from the herd. And by defying conventional wisdom, he always looks for small investments to return disproportionate rewards. T he famed hedge fund guru, with one of the biggest wins of the last century, used his hard-earned money to buy . . . well, money: $2 million in nickels—enough to fill up a small room. W hat gives?

W hile a nickel’s value fluctuates, at the time of this interview K yle told me, “T ony, the U S nickel is worth about 6.8 cents today in its ‘melt value.’ T hat means 5 cents is really worth 6.8 cents [36% more] in its true metal value.” C razy to think we live in a world where the government will spend nearly 9 cents in total (including raw materials and manufacturing costs) to make a 5-cent coin. Is anyone paying attention up there on C apitol H ill? C learly this isn’t sustainable, and one day C ongress will wake up and change the “ingredients” that make up the nickel. “Maybe the next one will be tin or steel. T hey did this identical thing with the penny when copper became too expensive in the early eighties.” From 1909 to 1982, the penny was made up of 95% copper. T oday it’s mostly zinc with only 2.5% copper. T oday one of those older pennies is worth 2 cents! (N ot in melt value; that’s the price coin collectors would pay!) T hat’s 100% more than its face value. If you had invested in pennies way back when, you would have doubled your money with no risk, and you didn’t even have to melt the pennies!

I admit it sounded gimmicky at first, but K yle was dead serious. “If I could take my entire cash balance of my net worth and press a button and turn it into nickels, I would do it right this second,” he exclaimed. “Because then you don’t have to worry about how much money they print. T he nickel will always be worth a nickel.” And his cash would be worth 36% more—and like pennies, likely 100% more in the future, as soon as the government inevitably cheapens the nickel’s recipe.

K yle was more than an enthusiast. “W here else can I get a thirty-six-percent risk-free return! If I am wrong, I still have what I started with.” Sure, it’s illegal to melt down your nickels (for now), but the point is, “I won’t need to melt it down because once they change the way they make the nickel, the old nickels become even more valuable than before because scarcity sets in as they begin to remove them from circulation.”

N eedless to say, his boys got the lesson as well as a good workout moving boxes of coins into their storage unit!

N ow, you might be thinking, “W ell, that’s great for K yle Bass, who has millions or even billions just to throw around, but how does that apply to me?” Surely it can’t be possible for normal investors to have upside without the downside—to have a protection of principal with major upside potential.

T hink again.

T he same level of financial creativity that has propelled high-frequency trading (H FT ) from nonexistent into a dominant force in just ten years has touched other areas of finance as well. Following the 2008 crash, when people didn’t have much of an appetite for stocks, some very innovative minds at the world’s largest banks figured out a way to do the seemingly impossible: allow you and me to participate in the gains of the stock market without risking any of our principal!

Before you write this notion off as crazy, I personally have a note, issued and backed by one of the world’s largest banks, that gives me 100% principal protection, and if the market goes up, I get to keep a significant chunk of the gains in the market (without dividends). But if the market collapses, I get all my money back. I don’t know about you, but I am more than happy to give up a percentage of the upside in exchange for protecting myself from stomach-wrenching losses on a portion of my investment portfolio.

But I am getting ahead of myself.

W e have come to a point in the U nited States where most of us feel that the only option for us to grow our wealth involves taking huge risks. T hat our only available option is to white knuckle it through the rolling waves of the stock market. And we somehow take solace in the fact that everyone is in the same boat. W ell, guess what? It’s not true! N ot everyone is in the same boat!

T here are much more comfortable boats out on the water that are anchored in the proverbial safe harbor, while others are getting pounded in the waves of volatility and taking on water quick.

So who owns the boats in the harbor? T he insiders. T he wealthy. T he 1% . T hose not willing to speculate with their hard-earned money. But make no mistake: you don’t have to be in the .001% to strategize like the .001% .

W H O D OE SN ’T W AN T T O E AT T H E C AK E T OO?

In the investment world, having your cake and eating it too would be making money when the market goes up but not losing a dime if the market drops. W e get to ride the elevator up but not down. T his too-good-to-be-true concept is so important that I have devoted an entire section of this book to it: “U pside W ithout the D ownside: C reate a L ifetime Income Plan.” But for now, this brief appetizer below is designed to dislodge your preconceived notions that you and all of your money must endure the endless waves of volatility. Below are three proven strategies (explored in more depth in section 5) for achieving strong returns while anchored firmly in calmer waters.

1.     Structured N otes. T hese are perhaps one of the more exciting tools available today, but, unfortunately, they are rarely offered to the general public because the high-net-worth investors gobble them up like pigeon seed in C entral Park. L uckily, the right fiduciary is able to grant access for individuals even without large sums of investment capital. So listen up.

A structured note is simply a loan to a bank (and typically the largest banks in the world). T he bank issues you a note in exchange for lending it your money. At the end of the time period (also called the term), the bank guarantees to pay you the greater of: 100% of your deposit back or a certain percentage of the upside of the market gains (minus the dividends).

T hat’s right. I get all my money back if the market is down from the day I bought the note, but if the market goes up during the term, I get to participate in the upside. I call these notes “engineered safety.” T he catch? I typically don’t get to keep all of the upside. So you have to ask yourself if you’re willing to give up part of the upside for downside protection. Many people would say yes. T hese solutions become especially valuable when you come to that point in your life, close to or during retirement, where you can’t afford to take any big losses. W hen you can’t afford or even survive another 2008.

For those looking to take a bit more risk, some notes will allow for even greater upside if you are willing to take more risk on the downside. F or example, a note available today will give you a 25% downside-protection “airbag.” So the market has to go down more than 25% for you to lose. And in exchange for taking more risk, it will give you more than 100% of the upside. O ne note available right now offers 140% of the upside if you are willing to absorb a loss beyond 25% . So if the market was up 10% over the term, you would get 14% in return.

So what are the downsides of structured notes? First, a guarantee is only as good as the backer! So it’s important to choose one of the strongest/largest banks (issuers) in the world with a very strong balance sheet. (N ote: L ehman Brothers was a very strong bank until it wasn’t! T his is why many experts utilize C anadian banks, since they tend to have the strongest financials.)

N ext challenge? Y our timing could be way off. L et’s say you owned a note with a five-year term, and for the first four years, the market was up. Y ou would be feeling pretty good at that point. But if the market collapses in the fifth year, you will still get your money back, but you didn’t get to capture any of those gains. Y ou also might have limited liquidity if you need to sell the note before the end of the term.

It’s also important to note that not all structured notes are created equal. L ike all financial products, there are good versions and bad versions. Most big retail firms sell you notes that have substantial commissions, underwriting fees, and distributions fees; all of these will take away from your potential upside. Accessing structured notes through a

sophisticated, expert fiduciary (a registered investment advisor) will typically have those fees removed because a fiduciary charges a flat advisory fee. And by stripping out those fees, performance goes up. A fiduciary will also help you make sure you own the note in the most tax-efficient way since the tax ramifications can vary.

2.     Market-L inked C D s. First things first: these are not your grandpa’s C D s. In today’s day and age, with interest rates so low, traditional C D s can’t even keep pace with inflation. T his has earned them the nickname “certificates of death” because your purchasing power is being slowly killed. As I write this, the average one-year C D pays 0.23% (or 23 basis points). C an you imagine investing $1,000 dollars for a year and getting back $2.30? T he average investor walks into a bank and is willing to lay down and accept

23 bps. But the wealthy investor, an insider, would laugh and tell them to go to hell. T hat’s not enough to buy a latte! Oh, and you still have to pay taxes on that $2.30 return—an even higher ordinary income tax rate (as opposed to the investment tax rate), which historically is significantly lower!

T raditional C D s are very profitable for the banks because they can turn around and lend your money at 10 to 20 times the interest rate they are paying you. Another version of the insider’s game.

Market-linked C D s are similar to structured notes, but they include insurance from the F ederal D eposit Insurance C orporation (F D IC ).

H ere is how they work.

Market-linked C D s, like traditional versions, give you some small guaranteed return (a coupon) if the market goes up, but you also get to participate in the upside. But if the market falls, you get back your investment (plus your small return), and you had FD IC insurance the entire time. T ypically, your money is tied up for one or two years (whereas structured notes can be as long as five to seven years).

T o give you a real-life example, today there is a market-linked C D that pays the exact same interest rate as a traditional C D (0.28% ) but also allows you to participate in up to 5% of the market gains. So if the market is up 8% total, you get to keep 5% . In this example, you earned over 20 times the return of a traditional C D with the same FD IC protection! But again, if the market goes down you lose nothing. K eep in mind that rates are constantly changing in this field. Rates may be more attractive at certain times than at others. In 2008, when banks were struggling and looking for deposits, they had a sweetheart deal that my buddy Ajay G upta, who is also my personal registered investment advisor, couldn’t pass up. T he note had 100% principal protection with FD IC insurance. T he value was linked to a balanced portfolio of stocks and bonds, and when all was said and done, he averaged 8% per year with no risk!

I must warn you again, however, that accessing these directly from a bank will often incur a host of charges and fees. C onversely, accessing these solutions through a fiduciary advisor will typically remove all the commissions and fees that a retail firm may charge, and thus the performance/terms will be better for you.

3. F ixed Indexed Annuities. L et me be the first to say that there are a lot of crappy annuity products on the market. But in my research and interviews with some of the top experts in the country, I discovered that other types of annuities are used by insiders as yet another tool to create upside without the downside.

Fixed indexed annuities (FIA) are a type of annuity that has been around since the mid-’90s but have only recently exploded in popularity. A properly structured fixed indexed annuity offers the following characteristics:

•    100% principal protection, guaranteed by the insurance company. T his is why we have to pick an insurance company with a high rating and a long history of making good on its promises—often a century or more!

•    U pside without downside—like structured notes andmarket-linked C D s, a fixed indexed annuity allows you to participate when the market goes up but not lose if the market goes down. All gains are tax deferred, or if it’s owned within a Roth IRA, you won’t pay taxes on the returns.

•    L astly, and probably most importantly, some fixedindexed annuities offer the ability to create an income stream that you can’t outlive. A paycheck for life! T hink of this investment as your own personal pension. For every dollar you deposit, the insurance company guarantees you a certain monthly income payment when you decide to trigger, or turn on, your lifetime income stream. Insurance companies have been doing this work successfully for 200 years. W e will explore this strategy in depth in section 5, “U pside W ithout the D ownside: C reate a

L ifetime Income Plan.”

A W ORD OF W ARN IN G

Before we move on, let me be very clear on one point: this does not imply that all versions of these products and strategies are great. Some have high fees, high commissions, hidden charges, and on and on. T he last thing I want is some salesman using these few pages to sell you something that’s not in your best interest. And when we dive into these solutions in section 5, I will give you a specific list of pitfalls you must avoid as well as a list of things you absolutely want to make sure you receive when utilizing these solutions.

Y OU G E T W H AT Y OU T OL E RAT E

T he point of this chapter is to begin to show you ways in which you can have your cake and eat it too. Sometimes, when you have endured the choppy waters for so long, you begin to believe that there is no other option. T his tendency is called “learned helplessness.” But that’s not the way insiders think. From Buffett to Branson, they all look for asymmetric risk/reward. Insiders are not helpless, nor are you. In every area of life, you get what you tolerate. And it’s time to raise the standard.

H OW FAR W E H AVE C OME

W e have made some serious progress! L et’s recap the myths we have shattered and the truths we have uncovered thus far:

•    W e have learned that nobody beats the market (exceptfor a handful of “unicorns”)! And by using low-cost market-mimicking index funds, we can outperform 96% of mutual funds and nearly as many hedge funds. W elcome to the front of the performance pack!

Since stock-picking mutual funds are charging us extremely high fees (over 3% , on average), we can drop our investment fees by 80% or even 90% . Y ou

 

•    could have more than twice as much money when you retire or cut years off the time it will take you to get to financial freedom. L et that soak in for a second!

•    W e have learned the difference between a butcher anda dietitian—between a broker and a fiduciary. And now we know where to go to get transparent advice (that may also be tax-deductible).

•    W e learned how to drastically reduce our 401(k) fees by using a low-cost provider like America’s Best 401k. Y ou can see how your plan stacks up by using the industry’s first fee checker

(http://americasbest401k.com/401k-fee-checker). Again, these cost savings will compound our total account balance and put money back in our family’s pocket. (For business owners, we showed how you can get yourself compliant with the law and drastically reduce your liability.)

•    W e learned about the Roth 401(k) and how we canprotect against rising taxes by paying the tax today and never paying tax again (not on the growth or the withdrawals).

•    W e learned that target-date funds (T D Fs) are not onlyexpensive but also may be more aggressive or volatile than you think. And if you want to use a T D F, you should stick with a low-cost provider like Vanguard. L ater, in the “Billionaire’s Playbook,” you will also learn how to put together your own asset allocation instead of paying a T D F to do it for you.

•    W e learned that variable annuities are a mutant evolution of a 2,000-year-old financial product but that other more traditional (fixed) annuities can provide what no other product can: a guaranteed lifetime income stream!

•    And finally, we learned that wealth without risk is apossibility. Sure, there is risk in everything, but we learned that certain structures will allow us to participate when the market goes up and not lose when it falls!

Are your eyes beginning to open? H as the blindfold been removed? H ow will your life be different now that you know the truth? Shattering these myths is the groundwork for creating true financial freedom. I want you to see, hear, feel, and know that the game is winnable. If these myths are unsettling, good! T hey were for me when I first discovered the truth. L et them drive you forward to make financial freedom a must in your life, and to declare that you will never be taken advantage of again.

W e will take it up a notch and have some fun in section 3. It’s here where we will make our dreams become more of a reality by putting in place a plan that is both doable and exciting. And if it’s not happening fast enough for you, we will show you how to speed it up and bring it closer into your future.

But first, the last and final myth must be put to death. But unlike the others, it’s not one that someone else has sold you. It’s the story you have sold yourself. It’s whatever myth or lie has kept you from taking action in the past. It’s time for a breakthrough! L et’s shatter your limits by discovering the lies we tell ourselves.

C HAPT E R 2.9

MY T H 9: “T H E L IE S W E T E L L O U RSE L V E S”

Seek truth and you will find a path.

— F R AN K SL AU G H T E R

Okay, let’s get real here. W e’ve just gone through all of the marketing and investment myths that have been promoted for years, at great expense to us, and to the benefit of big institutions. And my bet is that right now you’re probably shocked, but you feel incredibly empowered. Y ou now know what to avoid and what to do to succeed.

But there’s one final myth to tackle. T he myth that says the reason we’re not succeeding, not achieving, not growing is because of someone or something else beyond our control. Or the alternative thought that somehow we just aren’t made of the stuff that can help us master this area of our life. But here’s the truth: the ultimate thing that stops most of us from making significant progress in our lives is not somebody else’s limitations, but rather our own limiting perceptions or beliefs. N o matter how successful we are as human beings, no matter how high we reach personally, professionally, spiritually, emotionally, there’s always another level. And to get there, we have to be honest with ourselves; honest about our unconscious fears. W hat do I mean?

E verybody has a fear of failure at some level; at times we’ve all been fearful that perhaps we are not enough. E ven when we know what to do, our fear can keep us from executing our plans. As a result, rather than face our natural fears, what do we do? W e come up with stories. Stories about why we’re not where we want to be. W hy we’re not smart enough, successful enough, thin enough, rich enough, loved or loving enough. Our stories almost always relate to something outside our control, or our lack of some natural talent or ability. But talent and skill are two key elements to success attainable by anyone who is truly committed. Y ou can get the skill if you can get beyond the mental limits of how hard, difficult, or “impossible” it may be to master something.

Y ou’ve made the single most important financial decision of your life by deciding precisely how much you’re going to save to build your Freedom Fund—so you can tap into that and create a money machine that makes money while you sleep. And we’ve taken the time to look through all of the marketing myths that can trip you up along the way. So what’s left? T he last thing out there standing in our way is often our own story, our own limitations, our own fears. T he final obstacle to face is ourselves. T hat’s why, for 38 years, my passion has been helping people to break through from what holds them back—to help them get from where they are now to where they want to be, and faster. My whole life has been committed to helping people create breakthroughs. And frankly, while lots of people make this step complex, I’ve found there are only three elements that make the difference between success and failure in the long run––between whether you stay where you are, or you move forward. W hether you make excuses about what you don’t have or whether you get to enjoy the life you deserve.

BRE AK T H ROU G H S

So what is a breakthrough? A breakthrough is a moment in time when the impossible becomes possible—when you don’t just talk about something, but you finally take massive action and do whatever it takes to make it happen. Y ou make a move to truly change and improve your world.

Often it’s frustration, anger, or stress that triggers a breakthrough. W e hit our threshold: a point where we say, “N ever again and no more.” Or inspiration strikes: we meet someone who inspires us and that makes us see how life can be so much greater than we ever dreamed possible. Y ou meet someone who enjoys life fully, has a great relationship, is physically fit or financially free, and you decide, “I’m as smart as he or she is. I’m going to find a way.” W hat was acceptable before no longer is. T here’s no going back now. It’s amazing what you can do when you decide to draw a line in the sand, commit to a new goal, and set a new standard.

Most people say, “It took me ten years to make this change.” But the truth is, it didn’t take ten years for a breakthrough. T rue transformation happens in a moment. It may have taken you ten years to get to the point where you were ready, or open, or maybe even provoked. But we’ve all had breakthroughs in our lives, and those breakthroughs happened in a single moment. W e struggle with something for years—a job or a career, our weight or a relationship. W e’re miserable until one

day a trigger goes off. Suddenly, “T hat’s it.”

“I love you!”

“I quit!”

“I’m in!”

“L et’s begin!”

N ot within a day or an hour, but in that moment your life changes—and it changes forever.

H ave you ever stayed in a relationship way too long, even though you knew you were unhappy, and so was your partner? Y ou came to the edge of dealing with it, and then the fear of the unknown, of change, of being alone, stopped you. T he fear of loss and uncertainty kept you from taking action, and you settled.

W hatever you struggle with, I know there’s a place where you’ve had a breakthrough before. T ake a moment to think of one. W hat’s an area you used to struggle with—daily, weekly, monthly, for years or even a decade or more, until one day you hit your threshold? Y ou became inspired, or fed up, enough to finally make a real decision to change this area once and for all! And you took massive and immediate action to make a change. Y ou got it done. Y ou finally kicked the habit and quit smoking. Or you left a job that made you miserable and started your own business. Or maybe you finally decided to start exercising and change your body or get yourself out of that bad relationship.

I want you to own that breakthrough. T here was a time when things seemed like they couldn’t change, but you did it—you made it happen. Y ou do have the ability to change everything in your life. N o matter how long it’s been this way, you can change it all in a moment, a moment of real decision, a decision that is acted upon. T hat’s a breakthrough, and one is waiting for you right now.

T H RE E ST E PS T O C RE AT IN G Y OU R BRE AK T H ROU G H

T here are three steps to creating a breakthrough: three forces that, together, can massively change any and every aspect of your life. Any one on its own can work, but if you put all three together, you will absolutely change the aspect of your life that you choose to focus on.

W hat are the three biggest challenges people face in America? W hat are the three areas that show up over and over again, causing pain in people’s lives? Our finances, our relationships, and our bodies. H ow many people do you know who struggle with money, who can’t save, who don’t earn enough, who spend too much, or who can’t figure out what to do next with their career? And what about relationships? Men and women, we are wired so differently—if we don’t understand each other, it can take so much work to maintain healthy intimate relationships, to understand what our partner really needs and wants, to communicate in a loving and supportive way. And then there are our bodies. W e live in a time where the majority of people in the W estern world are massively overweight. In the U nited States, nearly seven in ten Americans are either overweight (defined by the C enters for D isease C ontrol and Prevention as having a body mass index of 25.0 to 29.9) or obese (having a BMI of 30.0 or higher). Our struggle with fitness and health has become a national crisis, and it’s spreading around the world as developing countries adopt some of our lifestyle and eating patterns.

W hy do I bring this all up? W hat do relationship challenges and unhealthy eating habits have to do with your ability to achieve financial freedom? W ell, whatever area you want to create a breakthrough in, whether it’s your body, your relationships, or this book’s focus, money, there are only three things that you need to look at. And they are the same three things no matter what kind of breakthrough you’re hoping to achieve. If you want to change your life you have to change your strategy, you have to change your story, and you have to change your state. L et’s begin with strategy, because that’s where most people start.

T H E RIG H T ST RAT E G Y

If you’re with me here now, reading this book, you’re in search of answers, of strategies, to take control of your money and secure your financial future. I live for finding strategies to improve every area of our lives. I’ve spent the past 38 years relentlessly focusing on finding strategies and tools to immediately change the quality of people’s lives. I’ve been successful and impacted over 50 million people in 100 countries because I’m obsessed with finding simple strategies that quickly lead to breakthroughs—breakthroughs in relationships, in finances, in careers, in growing businesses, in mind, body, and soul.

I’ve always believed the best way to get a result, the fastest way, is to find someone who has already accomplished what you’re after, and model his or her behavior. If you know someone who used to be overweight but has kept himself fit and healthy for a decade, model that person! Y ou have a friend who used to be miserable in her relationship and now is passionate and in love for ten years going? Model her. Y ou meet someone who started with nothing and has developed wealth and sustained it through time? L earn from those strategies! T hese people aren’t lucky. T hey’re simply doing something different than you are in this area of life.

I’ve spent my entire life as a hunter of human excellence. So to find a strategy that works, you go to the best; those who have proven results for the long term. And if you follow their strategies—if you sow the same seeds, then you’ll reap the same rewards. T his is the essence of what I mean when I say, “Success leaves clues.” And this book is filled with strategies modeled from the very best.

T he other thing the right strategy can do is save you the most valuable resource of all: time. If you start with a proven plan, the right strategy, you can literally convert decades of struggle into days of achievement. Y ou can avoid the inevitable frustration that comes with learning something for the first time by trial and error. Instead, you can get results in days, instead of years, by learning from people who have achieved success already. W hy reinvent the wheel?

So now there’s the question about the power of strategy. And if you read this book, you’ll have the best financial strategies that exist in the world today. I promise you that: because they’re not my strategies, they’re the strategies of the most successful investors in history. But as obsessed as I am with strategy, I know that strategy alone isn’t enough.

W hy not? T here are two key challenges to thinking that strategy alone can change your life. First, too often people have the wrong strategy, which inevitably ends in disappointment. Y ou’re trying to lose weight by eating 500 calories a day—which, of course, isn’t sustainable. Or you’re sure you’re going to get rich off one hot stock— highly unlikely.

W here do most people go to learn strategy? W here do we look for advice and guidance? T oo often from someone who isn’t successful in the very area we want to improve! H ow often do people get relationship advice from friends who are in lousy relationships themselves? Or fitness advice from a friend who struggles with his weight, too? H ow many people hear the message reinforced that they can’t change their body? W hy that message? Because they’re surrounded by friends or family who aren’t fit. T he same is true for financial advice. L ooking to someone who has not developed real wealth is a recipe for disaster. It simply reinforces the belief that nothing will work. It’s not that nothing will work—it’s that these strategies won’t work.

H owever beautiful the strategy, you should occasionally look at the results.

— W IN ST O N C H U R C H IL L

T H E POW E R OF ST ORY

L et’s go back to our biggest challenges: our relationships, our bodies, and our finances. In each of these areas, we get stuck for one of three reasons. First, as we showed above, we lack the right strategy. W e all know a couple where the guy doesn’t communicate or the woman never stops talking. N either of them understands the needs of his or her partner, much less meets those needs. And what about the friend who goes on fad diets constantly or is always looking out for a magical way to make a million bucks—telling himself that without it he’ll never be financially free. W ithout the right strategy, you will fail. And when you fail, you develop a lousy story: “My wife will never be satisfied.” “I’ll never lose the weight.” “T he only people who make money are the ones who already have money.” T hose limiting stories keep us from finding the right strategies, or, even if we have the right strategies, from executing them.

D o you know anyone like that? Y ou put the answer right in front of their very eyes, and they still say, “N o, that will never work because . . .” T hey’ll tell you a million reasons why it won’t work—they’ve got every excuse in the book. So if the right strategies are there in front of us, why aren’t people using them? W hy are they still not achieving their goals? W hy is it so hard to maintain a passionate relationship or lose the weight once and for all? Are 70% of Americans overweight because the strategy for becoming thin, fit, and healthy is really so complex? Is the information hidden and only available to the 1% , or incredibly expensive? H ell, no. T he answers are available everywhere: T here’s a gym with someone who can instruct you within a short drive. (G od forbid we were to walk there.) T here are trainers all over the world, some of which will coach you online, wherever you are! T he web is filled with free advice, and, of course, there are thousands of books on fitness and weight loss available for you to download right now to your iPad or smartphone. Y ou have to work to avoid finding the strategies for becoming fit, strong, and healthy.

So what’s the real problem? T he answer is: we have to bring in the human factor. I always say that 80% of success in life is psychology and 20% is mechanics. H ow else do you explain how someone can know what he needs to do, wants to do it, has the right strategy to get it done, and still not take action? T o solve this riddle we have to delve into the psychology of individuals: the values, beliefs, and emotions that drive us.

W hen someone has the right strategy in front of her, and she still doesn’t succeed, it’s because she’s missing the second key to a breakthrough: the power of story. If you’re not taking action and the answer is sitting there in front of you, there’s only one reason: you’ve created a set of beliefs that you’ve tied into a story—a story about why it won’t work, why it can’t work, why it only works for other people. It’s only for the rich, the thin, the lucky, the happy in relationships. It’s easy to come up with a limiting story.

So why bother to take action on a strategy that you “know” will fail? W ell, strategy here isn’t the problem. Y our story is. A half-hearted approach that says, “It might work, or it might not . . .”—of course it won’t! T hat belief becomes a self-fulfilling prophecy. W ith a disempowering story, failure is nothing less than guaranteed. W hich, of course, only reinforces your belief that nothing will work. And so the cycle continues.

But the people who make change happen, who get stuff done, who accomplish, who shift, who grow, who learn, they take their strategy and attach a new story to it: a story of empowerment, a story of “I can and I will” instead of “I can’t and I won’t.” It goes from being a story of limitation to a story of empowerment: “I will not be one of the many who can’t, I will be one of the few who do.”

T here was a time when I was 38 pounds overweight, and my story was, “I’m big-boned.” W hich I am. But I was also fat. Stories can be true, but if they don’t help us, if they’re stopping us from having the life we desire and deserve, we have to change them. W e’ve all had lousy stories in our lives.

I don’t make enough.

I can’t save more.

I’ll never read. I’ve got dyslexia.

My friend Sir Richard Branson, chairman of the Virgin empire, has dyslexia, but it certainly hasn’t limited his life in any way. W hy? Because his belief or story about dyslexia was empowering, not limiting. H is story wasn’t “I’ll never read,” it was “I have dyslexia, so I have to work harder to make everything happen—and I will.” Y ou can use your story, or your story can use you. E verybody has got an empowering story if he or she wants to find it. W hat’s wrong with your life is just as easy to find as what’s right with your life, when your story changes. If your relationship isn’t working out, all the good guys are gone, or they’re gay and you’re not. Or you’re gay and they’re not. T here’s always a story, right? Stories control our emotions, and emotions drive all of our behavior and actions.

L et me ask you a question: D o you worry about money? D oes it keep you up at night, stress you out thinking about your next paycheck, your car payment, your kids’ college tuition, or whether or not you’ll ever have enough money to be able to retire? W hat’s your financial stress really like? According to the American Institute of C ertified Public Accountants (AIC PA), 44% of Americans, nearly half of us, report “high levels” of financial stress. H ave you ever thought to yourself, “All this stress just might kill me?”

K elly McG onigal, a health psychologist at Stanford U niversity, warned about the dangers of stress for a full decade before she realized that maybe it was her advice, rather than stress itself, that was sending people to their graves faster. “I’m converting a stimulus [stress] that could be strengthening people into a source of disease.” W ith a breakthrough in her thinking, and some powerful new research, McG onigal made a complete turnaround.

T urns out, stress might just be our friend. Just as you put stress on a muscle to make it stronger (by lifting weights or running), emotional stress can make us physically and psychologically stronger too. McG onigal now highlights new research showing that when you change your mind about stress, you can literally change your body’s physical reaction to it. In an eight-year study, adults who experienced a “lot of stress” and who believed stress was harmful to their health had a 43% increase in their risk of dying. (T hat sure stressed me out.) H owever, people who experienced an equal amount of stress but did not view stress as harmful were no more likely to die! McG onigal says that physical signs of stress (a pounding heart, faster breathing, breaking out in a sweat) aren’t necessarily physical evidence of anxiety or signs that we aren’t coping well with pressure. Instead, we can interpret them as indications that our body is energized and preparing us to meet the next challenge. T he bottom line is, science has now proven that how you think about stress matters—the story you attach to stress. T elling yourself it’s good for you instead of harmful could mean the difference between a stress-induced heart attack at 50 or living well into your 90s.

Success is my only mofo option, failure’s not.

— “L O SE Y O U R SE L F ,” E minem

So what story have you been telling yourself about money? W hat’s stopping you from achieving your financial dreams? Are you telling yourself that it’s too early to start saving? Or too late to start rebuilding your investments? Y ou’re not making enough salary to put anything aside? Or the system is rigged against you, so why bother trying? Maybe your story is, “T he government has saddled us with debt, the financial system is in shambles,” or “I’m just not good with numbers.” G reat news: you don’t have to be! If you’ve got a phone and a calculator or can download our app on your phone, to answer six simple questions about where you are today, where you want to go, and what you’re willing to do to get a financial plan that you’ll clearly understand about how to be financially free.

Maybe your story is “It takes money to make money.” One of the first people I shared an early version of this book with had a core belief of “I will never be financially free unless I have a way to make a lot of money. People who start with a lot of money can make millions, but not me.” After she read the chapter on building your own money machine with T heodore Johnson—who never made more than $14,000 a year yet turned it into $70 million over his lifetime—her story went out the window. T heodore wasn’t lucky. H e used a simple system, the same one you’re about to learn.

H ere’s her new story, and it could be yours: “If I just happen to use this simple system of compounding, I can make a lot of money, I can go wherever I want, I can live however I truly want, I can be financially free. T here are no limits except the ones I impose on myself.”

One of my own financial breakthroughs happened with an important change in story. G rowing up poor, I always associated a lack of money with pain for everyone in the family. I swore to myself early on I would never have a child until I was truly financially successful. I swore that someday I would be so successful financially that my family would never ever experience the humiliation, frustration, and pain of my childhood years of not being able to pay the bills or put food on the table.

And I made good on my promise. By the time I was 18 years old, I was earning as much as $10,000 a month, which at the time seemed like a huge amount of money. It still is. I was so excited, I ran back to my friends from my community, the guys I had grown up poor with, and said, “L et’s go have a blast: let’s fly to E gypt and race camels between the pyramids!” I had had this dream as a little boy. And I could now share this dream with my friends. But the response was hardly what I was expecting: “E asy for you, Mr. Rich Man.” T he level of disdain I got from guys I considered to be friends shook me to my core. I wasn’t flaunting my money. I simply wanted to share my abundance with my friends and create an experience of real adventure. But I had to reevaluate. I created a new story: a belief that said you can do well but only so well, or else people will judge you. If you stand out and do too well financially, people won’t like you.

So for years, I did well in my life and businesses, but my income didn’t grow significantly. U ntil I finally hit a tipping point, a stage in my life where I thought, “T his is ridiculous. If I could expand my intelligence, should I?” My answer was, “Of course!” If I could experience and give more love, should I? Of course! If I could expand my ability to give, should I? Of course. If I could earn more and expand my financial wealth, should I? And the answer was, “Of course!” For the first time, I felt hesitancy. W hy was it that in every other area of my life it seemed natural to expand and become more, but when the issue came to money, suddenly it was different? W hy? It made no sense.

But I knew the truth. I had a deep, unconscious fear that people would judge me because I had expanded in this area as well. I wanted to please everyone, I wanted to be loved so badly that subconsciously I not only made doing well financially something wrong but also subconsciously sabotaged my own success. L ike so many people, I told myself that money was not spiritual. H ow crazy is that? Anyone who’s become truly wealthy knows the truth—the only way to become wealthy, and stay wealthy, is to find a way to do more for others than anyone else is doing in an area that people really value. If you become a blessing in other people’s lives, you too will be blessed. Money is only one of those blessings, but it is a blessing. It’s simply another form of freedom and abundance.

Money is nothing more than a reflection of your creativity, your capacity to focus, and your ability to add value and receive back. If you can find a way to create value—that is, add value for a massive number of people—you will have an opportunity to have a massive amount of economic abundance in your life.

I had to hit that threshold where I was tired of living that way and where I saw the absurdity of trying to fit in. It’s true: if you do well financially, you may be looked at as “the 1% .” In my life, as a kid, being a part of the 1% was something that was aspirational. I came from the 99% , I just wasn’t willing to settle for that, for my family or for my life. But staying there just to fit in—well, that didn’t make any sense. I decided I was tired of blaming others for my lack of financial progress. T he story I had of my financial limitations had to go. I would love others, but I would not spend my life trying to please them— especially knowing that to please them I would have to play small. I don’t believe in my heart that our creator made us for that. It was time for me to find a way to earn more in the same way I strove to give more, contribute more, love more, and expand my intellectual, emotional, and spiritual capacity.

W ith that shift in belief, suddenly—when it was clear that this was not a should to conquer this area, but a must —along with the relational areas of life, strategies started showing up in front of me; they’d probably been there all along, but because of my mind-set, I was blind to them. Y our whole world changes when you change your story.

C hange your story, change your life. D ivorce the story of limitation and marry the story of the truth, and everything changes. I can tell you: when you get rid of the limiting stories, take massive action, and find the strategies that work, the results you can create are truly miraculous.

L et me give you one final example. A dear friend of mine, Julie, a successful screenwriter who gets paid top dollar for her work, could never seem to make any financial headway. By the time she and her husband were in their 50s, they had a modest mortgage on a nice home, but only about $100,000 in an IRA—way, way short of what they’d need to retire. And their money was invested in a “socially responsible” mutual fund that charged high fees and ate up most of their returns.

Julie’s husband, C olin, wanted to invest more aggressively, but Julie wouldn’t even talk about finances with him. She told him she hated W all Street and everything it stood for. In fact, the whole idea of money made her uncomfortable. T o her, money was evil.

But then a breakthrough happened. Julie attended my seminar U nleash the Power W ithin (U PW ), where we use the power of Strategy, Story, and changing the State of your mind, body, and emotions to create breakthroughs in every area of people’s lives. U PW is intense: I use music, dynamic movement, humor, and a host of other tools to put the audience in a peak state— and that’s when breakthroughs happen.

Julie’s goal that weekend was to turn her financial life around. H ow did she do it? First, she recognized that something had to change, or she and C olin were looking forward to some very painful “golden years.” It finally hit her that her negative beliefs about money were creating constant pain in her marriage and in her future, and she asked herself, “W here did this story come from?” And then Julie did something really important: she dug down deep and asked herself, “Is this what I really believe? W e are not born believing money is good or evil. So where did this belief come from?”

She didn’t have to go very far to find the answer. Both of Julie’s parents grew up during the G reat D epression. H er mother never got the chance to go to college even though her academic scores were off the charts. Instead, she worked as a department store clerk for $9 a week, and didn’t dare complain about the low wages or long hours on her feet. Julie grew up hearing the stories over and over: how the rich exploit the poor, how banks and W all Street stockbrokers destroyed the economy, how you can’t trust the stock market. So Julie made the association in her brain: “If I become a wealthy investor, I’ll be a bad person, and my mother won’t love me.”

Julie realized that the story she’d been telling herself about the evils of wealth wasn’t her story after all; it was her mother’s story. “Money is the root of all evil,” was her mother’s mantra, not hers. T his realization jolted her. T he truth set her free, and those words lost all of their power over her. (In fact, when she did her homework on the biblical phrase, she found that it’s not “Money is the root of all evil,” but “the love of money” above all else—love, relationships, contribution—that’s the recipe for surefire disaster.)

It was an amazing transformation. Once Julie got past her limiting story, she could sit down with her husband for the first time to talk about their finances. H e was thrilled they could be partners in taking back control of their financial life. Imagine how hard it is to build wealth when your core belief is that money is evil. T hey dumped their high-cost mutual funds and transferred their IRA to a diverse portfolio of index funds with Vanguard. T hen they put in place a long-term financial plan, like the one you’ll be reading about in these pages, to finally put them on the road to financial freedom.

Julie and C olin shifted their story. And what happened? T hey learned how to play the game and win, they learned how to create an income for life—just like you’re going to do in chapter 5.2. Julie and C olin learned how to put an extra $150,000 to $250,000 into their pockets over their investment lifetime just by getting out of those expensive mutual funds. H ow great do those golden years look now!

R emember, you know the answer, and the secret is simple: change your story, change your life. D ivorce your story of limitation and marry the truth. Y ou can make anything happen.

Y OU R ST AT E

It’s hard to change your story when you’re in a lousy state. If you feel like hell, you don’t think to yourself, “L ife is beautiful!” H ave you ever been really angry with somebody, and suddenly you remembered every freaking thing that person ever did to irritate or annoy you? W hen you go into an angry state, it switches on the part of your brain that supports that state, and the story that keeps you there quickly appears.

By contrast, if you’ve ever fallen head over heels in love, can you remember how the world looked? It was like looking through rose-colored lenses: everything was wonderful, right? Rude clerks didn’t bother you; crying babies seemed cute. T hat’s how a positive state can change your outlook—your story.

Y our mental and emotional state colors your perception and experience of everything in life. W hen I work with anyone—from world-class athletes to highpowered executives—we change his or her state first. T here’s a part of you that, when it’s turned on, can make anything happen; but when it’s turned off, the world is dead. Y ou know what I’m talking about, don’t you? Y ou know when you get on a roll, and everything flows just perfectly without your even having to think about it? Y ou ace the tennis shot. Y ou say exactly the right thing in the meeting or walk out of the negotiation with exactly what you wanted. On the other hand, we’ve also all experienced the opposite: we couldn’t remember our home address, the name of our dinner host, or spell the word the. I call that the stupid state. But a few minutes later, it comes back to you: you remember the answer because you get in a different state.

T he purpose of this book is not to try teaching you how to change your state—that’s the basis of many of my other books and audios, programs, and live events. But in a nutshell, you can immediately and radically change how you feel (and not just hope you feel good) by learning that by changing your body first, you can change your mind.

I teach many ways to create immediate change in your state, but one of the simplest ways is to change what I call your physiology. Y ou can change the way you think by changing the way you move and breathe. E motion is created by motion. Massive action is the cure to all fear. T hink about it, fear is physical. Y ou feel it in your mouth, in your body, in your stomach. So is courage, and you can move from one to another in a matter of milliseconds if you learn to make radical shifts in the way you move, breathe, speak, and use your physical body. I’ve used these insights for almost four decades to turn around some of the world’s greatest peak-performance athletes, financial traders, and business and political leaders. L ast year, H arvard U niversity did a scientific study that proved the validity of this approach.

Social psychologist and H arvard professor Amy C uddy offered a “no-tech life hack” in her famous 2012 T E D T alk when she asked the audience to change their posture for two minutes. C uddy’s research showed that just assuming “power poses” or postures of high power (think W onder W oman with her hands on her hips and legs firmly planted on the ground; or the guy in your office leaning back in his chair, hands clasped behind his head, elbows out wide—you know the one) increased testosterone (the dominance hormone) by 20% , while simultaneously reducing cortisol (the major stress hormone) by 25% . T he impact of this biochemical change immediately transforms your willingness to face fears and take risks. All within just two minutes of changing your body. In C uddy’s study, 86 percent of the power posers reported feeling more likely to take chances. But when the second set of volunteers were asked to stand or sit for two minutes in more passive poses, with their legs and arms crossed tightly, their testosterone levels dropped by 10 percent, and the stress hormone rose by 15 percent. Far fewer of these men and women, only 60 percent, behaved assertively. Remember, these weren’t just psychological changes but actual biochemical changes, hormonal changes. W hat I have taught for 38 years and what all of my students knew was true through experience was now validated by science. W hat does this mean? It means, basically, you rock. Y ou’ve got some swagger in your step, you’re ready to put yourself on the line, to take the necessary risks and shape your world. T wo minutes of posing can lead to the changes that either configure your brain to be assertive, confident, and comfortable, or really stress reactive. Our bodies are able to change our minds!

T here was a time in my life when I was overweight and depressed, living in a studio apartment in Venice, C alifornia, staring at the empty furniture and listening to N eil D iamond records. Pretty scary, huh? One day a friend who hadn’t seen me in a long time stopped by. H e took one look at me and said, “Man, what happened to you?” It snapped me out of my trance. I decided then and there to break the pattern.

So I put on my running shoes and grabbed my Sony W alkman. (Y es, I’m ancient enough to have owned one of those.) And in those days, you had to be committed to your music: you had one album to listen to, not 10,000 songs to choose from. I turned to the legendary rock band H eart, put on the song “Barracuda,” and let the beat ignite me. I took off running with the determination that I was going to run as hard and as fast as I had ever run in my life, and I wasn’t going to stop until I spit up blood. T o say I was determined to push myself beyond my limits would be a serious understatement.

I’m sure it must have been a hilarious sight, given my excess 38 pounds and my beer belly flopping back and forth in the wind as I ran like a banshee. W hen I literally couldn’t breathe an ounce more of air, I collapsed on the beach and grabbed a journal I had brought with me. And in that state of absolute conviction, determination, exhilaration, and exhaustion, I sat and wrote down everything in my life I would no longer tolerate. T he way my body was, my laziness, my shallow intimate relationship, and my disastrous finances. Right across from it, I wrote what I was now committed to creating in my life—and in that pumped-up, invigorated state, I felt certain I could find the way.

W ith a strong enough state, you will develop a strong story. My story was: “T his ends here and now; my new life begins today.” And I meant it with every ounce of my being. I discovered that when you change your state and your story, you find or create the right strategy to get what you’re absolutely committed to. T hat’s how you create a real breakthrough—a new state with a new story and a proven strategy.

I went on to lose 30 pounds in the next 30 days, and 38 pounds total in a little more than six weeks. I was maniacal in my commitment. I set a new standard that day about who I was and what I stood for. It has not waned in the 30-plus years since that day (and my weight has never returned to that level either).

I went from earning less than $38,000 a year to more than $1 million a year just a little more than a year later. It was a level of change I couldn’t even imagine creating at the time. More importantly, I regained my emotional and psychological fitness—the two forces that truly change how someone’s life turns out. D etermination, faith, and courage began to be the forces that guided my every action going forward.

G reat strategies can surround you but they will be invisible to you unless you put yourself in a strong, determined, and empowered state. A state that will automatically breed the beliefs and stories that you can, must, and will achieve—and that you are committed to. W ith state and story combined, you’ll not only find the strategies that work, you will execute them and experience the rewards you desire and deserve. D o I have your full attention? If there’s any area of your life that you’re living that is far less than the life you desire, it’s time to change one or more of these elements.

Remember: we all get what we tolerate. So stop tolerating excuses within yourself, limiting beliefs of the past, or half-assed or fearful states. U se your body as a tool to snap yourself into a place of sheer will, determination, and commitment. Face your challenges head on with the core belief that problems are just speed bumps on the road to your dreams. And from that place, when you take massive action—with an effective and proven strategy—you will rewrite your history.

It’s time to no longer be one of the many but to become one of the few. One of the few who step up, own your true capability financially and in every area of your life. Most people start out with high aspirations but settle for a life and lifestyle far beneath their true capabilities. T hey let disappointments destroy them. D isappointment is inevitable when you are attempting to do anything of great scale. Instead, let your disappointments drive you to find new answers; discipline your disappointments. L earn from every failure, act on those learnings, and success becomes inevitable.

So next time you come up with a reason why you can’t do something, when you know in your heart that your spirit is unlimited, call bullshit on yourself. C hange your state. C hange your focus. C ome back to the truth. Adjust your approach and go after what you really want.

Okay, deep breath. Or loud scream. G et up and shake and move. W ith these 9 Myths—these past limitations— now out of our way, it’s time to move on to Step 3 on our 7-Step path to Financial Freedom. W e’re going to make the game winnable by coming up with a specific number —a number that reflects your exact financial dreams realized. T hen we’ll create a plan, improve that plan, and find ways to speed it up so you can achieve your financial dreams sooner than you may have ever imagined.

SE C T ION 3

W H AT ’S T H E PRIC E OF YOUR

D REAMS? MAK E T H E GAME W IN N ABL E

C HAPT E R 3.1

W H AT ’S T H E PRIC E O F Y O U R

D RE AMS? MAK E T H E G AME W IN N ABL E

All men dream, but not equally.

— T . E . L AW R E N C E

I usually kick off my financial seminars with a question: “W hat’s the price of your dreams?” T hen I invite people to stand up and tell me what it’s going to take for them to be financially secure, independent, or free. Most of them don’t have a clue. T here’s a lot of shuffling and squirming in the room, and then maybe a few hands shoot up. In hundreds of seminars with hundreds of thousands of people from all walks of life, I’ve heard just about every number imaginable.

So let me ask you personally now: H ow much money will you need to be financially secure, independent, or free? Just take a guess. Y ou don’t have to be right—or even logical. Is it $1 million? $5 million? $500 million? T ake a second right now, go with your gut, and write down the number, either in the margin of this book, in a notebook app, or just on a scrap of paper. It’s important to write it down, because writing it anchors it and makes it real.

D id you get it done? Soon you’ll see why this step is an important first action.

N ow, my experience tells me that if you’re like most people, that number probably feels a bit large to you right now, doesn’t it? W ell, keep reading, because we’re going to do a few easy exercises to help you tame that number. And I’ll bet you’ll find out that it can be made

much smaller than you ever imagined. In fact, you’re going to learn there’s not just one “magic number,” because there are five different levels of financial dreams that will set you free. And no matter if you’re just starting out or getting ready to retire, no matter how solid or shaky your balance sheet is right now, I guarantee you that at least one or two of those dreams will be within your reach. H ow? It starts with understanding what you truly need.

Recently, at one of my high-end programs, a young man in the back of the room stood up to name the price of his dreams. H e threw back his shoulders and announced, “A billion dollars.”

T here were a lot of ooohs and aaahs from the crowd. T his person was in his 20s, one of the younger participants at the conference, and he probably hadn’t earned his first million yet. So I asked him to consider what that number really meant.

Remember in chapter 1.4, “Money Mastery: It’s T ime to Break T hrough,” when we talked about how everything people do, they do for a reason? Just as a reminder, there are 6 Basic H uman N eeds: C ertainty, U ncertainty/Variety, Significance, C onnection/L ove, G rowth, and C ontribution. So why did this young man want a billion dollars? W hich of these needs was he trying to meet? C ertainty? Y ou can get C ertainty in your life for a lot less than a billion dollars! H ow about Variety? Y ou can get plenty of Variety with a million dollars, or much less, right? C onnection and L ove?

H ardly. If he gets a billion dollars, there will be a lot of people who want to be in his life, just like lottery winners who suddenly discover dozens of relatives and “friends” they never knew they had. W ith that kind of money, he’ll get connection, all right, but not the connections he wants and needs! G rowth and C ontribution? By his demeanor, I doubt these were at the top of this young man’s list when he named his number.

So when you look at the human needs, which one do you think drives him the most? C learly, it’s Significance. As he said, with a billion dollars, people would take him seriously; he would matter. T his might be true. But the problem is when he gets a billion, it still won’t be enough —because when you seek Significance, you’re always comparing yourself with someone else. And there’s always someone bigger, taller, stronger, faster, richer, funnier, younger, more handsome, more beautiful, with a bigger yacht, a nicer car, a nicer home. So while there’s nothing wrong with significance, if you make it your number one need, you’ll never be fulfilled.

But rather than lecture him, I decided to show him he could feel significant with a lot less money—which would make his life a lot easier. After all, he was just picking his number out of the sky. Saying he needed $1 billion made him feel like he was going after an important goal. But the problem is, when you have this huge goal in your head—if in your gut you don’t believe it’s going to happen—your brain rejects it. It’s like living a lie. H ave you ever done this? C ome up with some ginormous goal, and then a voice in your head pops up to say, “W ho are you kidding?” T he truth is, you’ll never make it happen until it sinks deep into your subconscious —the part of your mind so powerful that it makes your heart beat 100,000 times a day without your ever having to think about it.

H ave you ever been driving your car and gotten lost in thought and then suddenly looked up and realized, “H oly sh*t, who’s been driving my car for the last five minutes?!” T hankfully, it was the amazing protector of life, your subconscious mind.

T o get an idea of how this process works, take a look at the image below. Imagine your brain divided into an upper half and a lower half; the upper half is the conscious mind, while the lower half is your subconscious.

Ideas keep trying to lodge in your head, such as “I’m going to make ten million dollars!” or “I’m going to be financially free by the time I’m forty!” But your upper, conscious brain goes, “Screw you! T here’s no way in hell that will happen!” It quickly rejects the big idea and bounces it back out into space like a tennis ball. But if you resolve within yourself the sense of absolute certainty that “I’m going to do this!” and then you start to build a plan—something extraordinary happens. Y ou begin to develop the certainty you can actually achieve it. And with newfound confidence, you suddenly see there is a way to get it done. Y ou’ll find a role model who’s already achieving what you’re after, and you’ll take massive

action. T he goal seeps down into your subconscious, and it goes to work to make your dream a reality. T hat’s when the magic happens!

N ow, I doubt that you think you need $1 billion to fulfill your financial dreams. But I’d be willing to bet that the number you chose to feel financially secure or independent is pretty intimidating. Almost everybody makes that number bigger than it needs to be, because he or she doesn’t take the time to calculate what it really costs to live at different lifestyle levels. And that’s why so many never begin to work toward it. T hey talk a good game, get excited about it, they tell people their big dream, but they never act on it. W hy? Because psychologically they don’t have Certainty that they can do it. And C ertainty is the first human need that influences our behavior or actions. Fact. If you’ve failed to act in your financial world, it’s partly because you’re uncertain, you’re unsure as to what is right or wrong and which approach will succeed or fail. Or you’re feeling overwhelmed by the complexity of the system that no one has taken the time to walk you through with clarity.

W ith uncertainty, we default to doing nothing or at least procrastinating. W e put off until tomorrow what we need to do today.

T o help my would-be billionaire friend identify the real price of his dreams, so that they could lodge in his unconscious and become real, I asked him some questions. T hey’re the same kinds of questions I’ll be asking you in a moment to guide you on your path.

I started by asking my young friend what his lifestyle would be like if he had a billion dollars. H e thought for a moment and then said, “I’d have my own G ulfstream!”

“Y our own jet!” I said. “W here will you fly to?”

H      e said, “W ell, I live in N ew Y ork. I’d probably flydown to the Bahamas. And I’d probably fly to L A for some meetings.”

I          had him write down how many times he’d fly in ayear, and he figured it was probably a maximum of 12 flights. And how much would a jet cost him? W e looked it up, and a long-distance G ulfstream G 650 would cost him about $65 million; a slightly used G ulfstream IV would only set him back about $10 million. N ot including fuel, maintenance, and crew. T hen we looked up the cost of chartering a private jet instead of owning one: a midsize jet was all he really needed for himself and three family members to fly, and that’s around $2,500 an hour. H e would be flying for maybe 100 hours a year for a grand total of $250,000 per year, or around $5,000 per hour; or $500,000 if he wanted to fly by G ulfstream on every flight—still far less than the annual price of maintenance on many jets, and at a cost that would be less than 1% of the cost of buying that G ulfstream. E ven from the stage, I could see his eyes lighting up and his mind working.

“So what else would you buy with your billion dollars?” I asked.

“A private island!”

T hat was something I could relate to. I own a small island paradise in the country of Fiji. It was a wild dream I had early in my life to find an escape someday where I could take my family and friends and live. In my early 20s, I traveled to islands all over the world searching for my Shangri-L a. W hen I arrived in Fiji, I found it. A place with not only magnificent beauty but beautiful souls as well. I couldn’t afford it at the time, but I bought a piece of a little backpacker resort with 125 acres on the island. I really didn’t have the money, and it probably wasn’t the best investment at first. But it was part of what I call my D ream Bucket—something you’ll learn about later in this book. Still, I made it happen, and I’m proud to say that over the years, I’ve purchased and converted it into a protected ecological preserve with over 500 acres of land and nearly three miles of ocean frontage. I’ve turned N amale Resort and Spa into the number one resort in Fiji for the last decade, and it’s consistently rated among the top ten resorts in the South Pacific. But how often do I visit this paradise? W ith my crazy schedule, maybe four to six weeks a year. So my dream has come true: everybody else has a great time there!

I told my young friend, “If you want to enjoy your own island, you might not want to be in the hotel business. And trust me, you’re only going to be there a few weeks a year at the most.” W e looked up the costs and found out he could buy an island in the Bahamas for $10 or so—and then he would have to spend $30 million to $40 million to build a small resort! Or he could rent my friend Richard Branson’s N ecker Island resort for a week and bring all his friends and family for less than $350,000, with a staff of 50 people to take care of them all. If he did that every year for a decade, it would only cost $3.5 million versus $30 million to $40 million, with no work to maintain the property.

W e worked through his list, and guess how much it would take to have the lifestyle he wants for the rest of his life? W hen we added up the real cost of even his wildest dreams, not just his needs, it came to a grand total of not $1 billion, not $500 million, not $100 million, not $50 million, but $10 million to have everything he dreamed of having in his lifestyle and never have to work to pay for it—and his dreams were gigantic! T he difference between $10 million and $1 billion is astronomical. T hese numbers exist in different universes.

T he challenge is, when we get to really big numbers, people’s minds don’t fathom what they really mean. T here’s a radical difference between a million, a billion, and a trillion. E ven President Obama uses the terms millionaires and billionaires in the same breath, as if they’re in any way related—they’re not. L et me prove it to you. I’m going to give you a little test. I want you to think and make a first guess as to the answer. T his exercise will help you gain perspective on a million versus a billion versus the figure the government now uses so often: a trillion. In fact, in W ashington, a trillion is the new billion, as they say.

My first question is: H ow long ago was one million seconds ago? T ake a moment, even if you don’t know— what do you guess?

T he answer is: 12 days ago! H ow close were you? D on’t feel bad, most people have no clue. If you got it, congratulations. N ow we’re going to up the ante. Since you now have a perspective of what a million is (a million seconds being 12 days ago), how long ago was a billion seconds ago? Stay with me, come on; make a guess, commit to a number. T he answer is: 32 years ago! H ow close were you? For most people, they’re pretty far off. T hat’s the difference between a millionaire and a billionaire: 12 days or 32 years! D o you see what I mean by saying they live in “different universes”? Y ou can never say “millionaires” and “billionaires” in the same breath and be talking about the same thing.

Just to complete the thought: W hen you hear the U S government has $17 trillion in debt, how much is a trillion? W ell, if a billion seconds was 32 years ago, how long ago was a trillion seconds? T he answer: nearly 32,000 years ago (31,689, to be exact)! W hen humans were not even called humans! T he point of this exercise is to get you to realize that we blur large numbers, and if you get down to the facts, an extraordinary lifestyle probably costs less than you think it does.

But back to our would-be billionaire. N ow, don’t get me wrong: $10 million is still a hefty sum but probably within reach for this young entrepreneur over the course of his career. W ho knows? H e might actually end up with a billion—if he invents the next Instagram. But what if he doesn’t? H e could still live the extraordinary life he was dreaming of for 99% less money than he thought he needed. H e wouldn’t need to be a billionaire to live like one.

I’ll be willing to bet that once you find out the real price of your dreams, the number it would take for you to really get where you want to be is a lot less than you think! And always remember the ultimate truth: life is not about money, it’s about emotion. T he real goal is to have the lifestyle you want, not the things. W hen you die, someone else gets those things anyway. T hey’re not yours. I have no illusions: as much as I cherish and enjoy “my” resort in Fiji, I know I’m just the caretaker. Someday someone else will own this property. But I love that I have nurtured it into a destination where people from all over the world come to experience joy, romance, and adventure. It’s part of my legacy—and that’s what gives me joy. Attaining possessions is not the goal. Money itself is not the goal. Our worth is not measured by the weight of our bank accounts but, rather, by the weight of our souls. T he path to money, the places money can take us, the time and freedom and opportunity money can bring—these are what we’re really after.

Y ou can have it all. Just not all at once.

— O PR AH W IN F R E Y

T ake a moment now and think about what you really want your money to buy. N ot everybody wants to live like D onald T rump or Floyd “Money” Mayweather! Is your dream to travel the globe, exploring ancient cities or photographing lions in the Serengeti? Is it owning your own beach house in the Bahamas or a penthouse in N ew Y ork? Is it starting your own business—the next Snapchat, or creating an extraordinary contribution to humanity like the next C harity W ater? Is it something as simple as sending your kids to college and having enough left over for a house in the country with a big vegetable garden? Or is your dream just peace of mind— knowing you can be free forever from debt and worry? W herever your dreams may take you, I’m going to show you a path to get there. E ven if you don’t get all the way to the summit, you can reach the dreams that matter most to you and celebrate your victories along the way. Because money is a game of emotions, and we’re going to come up with some numbers that will ring your bells and make you say, “I’m certain! I promise myself I can get there!”

L ike all journeys, before you get started, you’ll need

to take stock of where you are. W e’ll work together on a few simple calculations. If you’ve never taken the time to figure out exactly what it’s going to take to achieve your financial goals, you’re not alone. Often, many of those who have earned millions of dollars haven’t developed a plan to sustain their lifestyle without having to work at least some of the time. And as we’ve already said, more than half of Americans haven’t even tried to calculate how much money they’ll need to retire, including 46% of all financial planners! W hy don’t we know our basic financial picture? T he number one reason I’ve found, after hearing from hundreds of thousands of people from a hundred different countries, is that people are afraid to know.

It’s like stepping on the scale. Y ou know you’ve gained weight, but you don’t want to know how much. It’s a form of denial; a way to put off making a change. H igh school wrestlers and professional boxers step on that thing every day, so that if they’re off target on their weight, they’ll know right away and can do something about it. Y ou can’t manage your health if you can’t measure it. And the same goes for your finances. Y ou can’t reach your financial dreams unless you know precisely how much it will take to get there. I’m here to help you set yourself apart from the masses who hide their heads in the sand when it comes to their money. In a minute, we’ll do some quick, easy number crunching to find out where you are and where you need to be. (If adding a few figures is a challenge for you, remember that there’s a calculator on your phone! And you can also go to our app, which will ask you the questions and calculate the numbers for you automatically. See www.tonyrobbins.com/masterthegame.)

But first let’s look at those five financial dreams. W hen I say the words “financial security,” “financial vitality,” “financial independence,” “financial freedom,” and “absolute financial freedom,” do those sound like the exact same thing to you? D o they bring up emotions that feel different in your body when you say them out loud? G ive it a try. W hich one feels higher: security or vitality? H ow about vitality or independence? Independence or freedom? W hat about absolute freedom? E ach of these five financial dreams is incrementally bigger, isn’t it? And the numbers needed to reach them would be different.

Of these five dreams, you may discover that you are committed to only two or three of them. For some people, financial security alone is life changing and gives them enormous freedom. And so, in designing this exercise, I’ve included these dreams as steps along the road to absolute financial freedom. Or, if you remember that mountain earlier in this book, as base camps along the climb to the summit. And remember, not all of us need or want to go all the way to the peak of E verest. For some of us, financial vitality would be a blessing, and independence would put us over the moon! N ot all of these dreams are “musts” for everybody.

I’m going to invite you to read the five and pick the three that matter to you most—what I call the T hree to T hrive. Y ou’ll have three targets: short-, medium-, and long-term goals. It’s set up this way because we don’t build on failure; we build only on success. If you’re just shooting for the big number in the distance, it might feel too far off, or even overwhelming, and as a result, you may never truly begin the journey. W e need a target close enough that we can feel certain it’s achievable, and in the relatively near future. T hat’s what gets you to take action and turn a short-term goal into reality. And remember to claim your victories along the way. W hy wait until you’re financially independent to celebrate? W hy not win at different stages? T hat’s what encourages you, excites you, and gives you momentum.

It takes as much energy to wish as it does to plan.

— E L E AN O R R O O SE V E L T

D RE AM 1:

FIN AN C IAL SE C U RIT Y

W hat does security mean? Instead of telling you what it is, let me ask you: H ow amazing would you feel if these five things were paid for as long as you live, without ever having to work to pay for them again?

1.     Y our home mortgage, for as long as you live—paid forever. You never have to work again to pay for your house!

2.     Y our utilities for the home—paid forever. Y ou never have to work to pay your phone bill or to keep the lights on.

3.     All the food for your family—paid forever.

4.     Y our basic transportation needs,

5.     Y our basic insurance costs—all of them paid for without your ever working another day in your life.

I’d bet that your quality of life would be pretty fulfilling, wouldn’t it? Y ou’d feel pretty secure if you knew these things were covered.

N ow for some good news: Remember that number you wrote down earlier—the amount you thought it would take to be financially secure and free? It was probably not as extreme as my billion-dollar friend’s number but probably felt pretty large, didn’t it? W ell, I’ll bet when you figure these numbers out, you’re going to be surprised that the dream of Financial Security is probably a lot closer than you think. Or if you’re one of the rare few who underestimate, you’ll have a reality check, and you’ll know the precise number it will take to realize your financial dreams.

If you haven’t downloaded our free app already, do it now. Or use the worksheet below and jot down what you pay for these five items on a monthly basis. It’s really simple: W hat’s your current mortgage payment? (If you’re in an early stage of your life where you don’t own a home yet, put your monthly rent here. Or you can estimate or check online what your mortgage payment would be on something that may not be your ideal home, but more like a starter home.) If you have your records, great. N ext, what’s your utility bill each month? T hird, what do you spend on food? K eep going, and if you don’t have the numbers, take a guess—you can always go back and change them later, but you don’t want to lose momentum. L et’s really get a number down that’s reasonable. Or pick up your bank book or go online and get your numbers. Just to keep the momentum for you right now in case those aren’t easily accessible, let me give you an example.

D o you remember my friend Angela, who I introduced to you in the first chapter? She’s 48 years old and single. She’s trying to figure out what it would take to be financially secure. H er first guess was $3 million. C ould that be right? Or even in the ballpark? So I asked her to go through this exercise, and write down her five basic monthly expenses. As it turned out, her numbers were almost identical to the national averages, which you’ll see in the list here.

1.   Rent or mortgage payment:        $____ per month

(Angela’s Average:

$1,060)

2.   Food, household:     $____ per month

(Angela’s Average:

$511)

3.   G as, electric, water, phone: $____ per month (Angela’s Average:

$289)

4.   T ransportation:       $____ per month

(Angela’s Average:

$729)

5.   Insurance payments: $____ per month

(Angela’s Average: $300)

           $____ per month T otal (Angela’s Average:

$2,889)

T otal basic monthly expenses: _______ × 12 =

__________ per year

(U S average basic annual expenses: $34,668)

W hen she was done, I had her add it up and multiply the monthly total by 12. T hat shows the annual income she’ll need to cover these items for life—without working—to be financially secure. As you can see, her number of $34,000 is virtually identical to the number for the average American.

N ow, how would Angela be able to have $34,000 a year without working? Remember, she’s going to build a money machine. She’s automated her savings of 10% of her income. She’s putting it in a Roth 401(k), where it’s being invested in low-fee index funds with an estimated growth rate of 6% . (T his is the percent that Jack Bogle estimates the markets will return over the next decade. H owever, the average stock market return has been 9.2% over the last 20 years.) W e ran it through the wealth calculator, which you’ll do in the next chapter, and she found out that instead of the $3 million she thought it would take to achieve financial security, she would need to accumulate only $640,000 in her Freedom Fund to have that $34,000 a year for the rest of her life—less than a quarter of the amount she thought she needed!

At first she was shocked. She asked me in disbelief, “T hat’s all it would take for me to have this? I’d still have to work, right?” I told her of course she would, but not to pay for her home, food, utilities, transportation, or basic health care! By the way, these five items, on average, represent 65% of most people’s expenses. So Angela now had a way to pay for 65% of her overhead without working. And remember, most of us want to do something meaningful. W ithout work, we’re a little crazy. W e just don’t want to have to work! She could work part-time to pay for the rest of her expenses or fulltime and have all that income for other things. I asked her how that would make her feel if everything from her home to transportation was paid for without her working for the rest of her life. “E xtraordinary!” she said. “T hat’s an achievable goal. T hat’s something I could figure out how to make happen.” I said, “E xactly!” And what you could see in her eyes was a sense of certainty, and because she was certain, she had a reason to act.

I reminded her, “By the way, this doesn’t have to be your ultimate goal. It might be your short-term goal.” For some people, all they want is financial security, like someone in a later stage of life who may have taken a hit in 2008. For someone who is middle-aged or young, you’ll blow through this goal—as long as you know what your number is and you act upon the seven steps of this book.

If you’re wondering, by the way, how long it would take to accumulate whatever your security number is, take heart. Y ou don’t have to do this calculation. W e’ll do it in the next chapter, “W hat’s Y our Plan?,” and if you want, the app will calculate the number for you. T ogether we’ll create three plans: a conservative plan, a moderate plan, and an aggressive plan. And you’ll decide which of these plans are most manageable and achievable.

Remember the aspiring billionaire? H is annual income for financial security was a mere $79,000. A far cry from the billionaire neighborhood. Y our number might be higher or lower. All you need to know now is the annual income you need to achieve financial security. If you haven’t already done it, calculate the numbers on the app or do it right here now.

1. Rent or mortgage payment:	$____ per month
2. Food, household:	$____ per month
3. G as, electric, water, phone:	$____ per month
4. T ransportation:	$____ per month
5. Insurance payments:	$____ per month
6. T otal	$____ per month

7. T otal basic monthly expenses: _______ × 12 =

__________ per year

By the way, we can’t go on to the next goal without talking about something that’s a simple requirement, not a dream. And it’s something almost everybody should be able to achieve relatively quickly, though few people have it in place: an emergency/protection fund. According to a Princeton U niversity–U niversity of C hicago study in 2014, 40% of Americans say they couldn’t come up with $2,000 if they needed it. Y ikes! T hat’s terrifying! W hy do we need to have an emergency supply of cash on hand? W hat if there’s an unexpected interruption in your income flow? It happens in almost everybody’s life at some point. An interruption can be a health problem, it can be a problem with your business, it can mean being displaced from a job. So you need some money to cover yourself for somewhere between three to 12 months. But for most people, three months is too short a time, while 12 months may seem like a lot. So perhaps you start by putting aside a few months’ overhead, and gradually build toward six or 12 months’ worth. W ouldn’t it be wonderful to know that if something happened, you had a year to be able to get yourself back on track? Y ou’d still have a roof overhead, food in the cupboard, and the bills would get paid.

Again, this goal is not for an annual income for life. Once you have that, you’re set. T his goal is just emergency cash to protect you until you develop a large enough nest egg to take care of yourself every year for the rest of your life without working, no matter what happens.

H ow much do you need? W ell, you know what your monthly overhead is. So write down that number and memorize it. Again, you can do this exercise on the app, and the number will be saved for you and always available at a glance in your pocket. My friend Angela, who set aside 10% of her salary to build her money machine, started looking into her spending patterns to find more savings. Remember how she realized it was cheaper to buy a brand-new car than to keep fixing her old one? W ell, she also found a way to set aside an additional 8% to build her emergency protection fund. She completed her goal, and now she sleeps much better at night! If you haven’t already, it’s crucial you set up an emergency fund. (And I guarantee you’ll have some great new ideas on how to do this after reading chapters 3.3 and 3.4, “Speed It U p.”) K eep that amount in cash or in a safe place like an FD IC -insured bank account.

N ow let’s move on to the next level of dreams. W ith security achieved, let’s look at:

D RE AM 2:

FIN AN C IAL VIT AL IT Y

W hat do I mean by vitality? T his goal is a mile marker on your path to Financial Independence and Freedom. Y ou’re not all the way there yet, but it’s the place where you can be secure and also have some extras thrown in that you can enjoy without having to work.

W hat do you pay for clothing every month? Is it

$100? $500? $1,000? H ow about for entertainment (cable T V, movies, concert tickets)? H ow about going out for dinner? Is it C hili’s or N obu tonight? So for food and entertainment, are you shelling out $200 a month or $2,000 plus? H ow about small indulgences or little luxuries like a gym membership, a manicure or massage, or monthly golf dues? Is it $50, $500, or $1,000 plus? W hatever it is for you, how would it feel if half of those costs were already covered without having to work, for the rest of your life? T hat’s what happens when you reach Financial Vitality. Sounds like something worth celebrating, doesn’t it?

H ere’s how to calculate your Financial Vitality:

1. H alf of your current monthly clothing costs		$____ per month
2. H alf of your current monthly dining and entertainment costs		$____ per month
3. H alf of your current small indulgence or little luxury costs	$____ per month
4.   T otal additional monthly income forvitality 5.   Y ou already know your monthly	$____ per month
Financial Security number (line 6 from page 216), so add that here	$____ per month
6. T otal monthly income necessary for Vitality	$____ per month
7. N ow multiply that by 12 and you’ll have the annual amount you need for financial vitality:	$____ × 12 = __________ per year

Again, just type in these figures, and all of this math will be done for you on the app.

D RE AM 3:

FIN AN C IAL IN D E PE N D E N C E

Pop the champagne, because when you’ve reached Financial Independence, you no longer have to work to have the same lifestyle you have today! T he annual interest earned on the return from your savings and investments (your Freedom Fund) will provide you with the income that you need—while you sleep. Y ou are now truly financially independent; that is, independent of work.

H ow amazing would that feel? W hat kind of peace of mind would that bring you and your family?

Financial Independence means that money is now your slave—you are not the slave to money. Money works for you; you don’t work for it. If you don’t like your job, you can tell your boss to shove it. Or you can keep right on working with a smile on your face and a song in your heart, knowing that you’re working because you want to, not because you have to.

So let’s figure out how much money it would take to maintain your current lifestyle. T his number might be really easy to calculate because, unfortunately, most people spend as much as they earn! Or sometimes more than they earn! If you made $100,000 and you spent $100,000 that year (including paying your taxes) just to maintain your lifestyle, your financial independence is $100,000. If you spend less than you earn, congratulations! U nfortunately, you are the exception, not the rule. So if it costs you only $80,000 to live, on a $100,000 salary, then $80,000 a year is what you need to be independent.

So what’s your Financial Independence number? G o to the app or write it here now: $_______.

Remember, clarity is power. W hen your brain knows a real number, your conscious mind will figure out a way to get there. Y ou now know the income you need to be financially secure, vital, and independent. So let’s see what happens when your dreams get bigger.

D are to live the dreams you have dreamed for yourself.

— R AL PH W AL D O E ME R SO N

L et me tell you the story of Ron and Michelle, a couple I met at one of the seminars I hold every year at my resort in Fiji. T hey were in their mid-30s, with two small children. Successful people, they owned a small business in C olorado. Ron was great at running their business, but neither of them paid attention to their household finances. (T hat’s why he was in Fiji attending my Business Mastery event, to grow his business 30% to 130% .) T heir accountant drew up personal financial statements for them every month, but they never bothered to look at them! N o wonder they were having trouble envisioning the life that they wanted—which turned out to be a life of contribution.

W hen I asked Ron what he needed to be financially set, as I asked the young would-be billionaire, his number was $20 million. I wanted to prove to him it could be a lot lower than that and still have an extraordinary quality of life for him and his family, so I walked the couple through what they actually spent every month. (Bear in mind that, as business owners, Ron and Michelle’s annual household income is clearly higher than the average American’s.)

First we started with Financial Security, and he told me his five numbers:

Mortgage on their main home	$6,000 per month
U tilities	$1,500 per month
T ransportation	$1,200 per month
Food	$2,000 per month
Insurance	$ 750 per month
T otal	$11,450 × 12 = $137,400 per year

So for Financial Security, all they needed was $137,400 in income per year. W ell within their reach! By the way, if Ron wanted to know how much he would need to accumulate in his nest egg or his Freedom Fund, most financial planners would tell him to multiply his annual income number by 10, or even 15. But today, with such low returns on safe, secure investments, that’s not realistic. Remember, on the way up the mountain (the accumulation phase), you might put your investments in an aggressive portfolio that could give you 7% to 10% . On the way back down the mountain (the decumulation phase), you will want your investments in a secure and less volatile environment, where by nature you would likely get smaller returns. So it might be smarter to use 5% as a more conservative assumption. T en times your income assumes a 10% return. T wenty times your income assumes a 5% return.

Ron discovered that financial security would be within reach—20 × $137,400 = $2,748,000—a number far less than the $20 million he’d projected.

For Financial Independence, they figured they needed $350,000 a year to maintain their lifestyle at the current level, because they had a second home and a lot of toys. Michelle was fond of things with L ouis Vuitton labels on them. So, conservatively, they needed $7 million ($350,000 × 20) in their critical mass to live that way without working. Ron was amazed to realize that this number was almost two-thirds less than the $20 million he thought it would take! And he’s going to get there a lot sooner than he imagined, having to save $13 million less than he’d previously estimated!

D RE AM 4:

FIN AN C IAL FRE E D OM

Once you’ve freed yourself from the need to work for the rest of your life, how about freeing up your lifestyle?

F inancial F reedom would mean you’re independent, you’ve got everything you have today, plus two or three significant luxuries you want in the future, and you don’t have to work to pay for them either. T o get there you need to ask yourself, “W hat annual income would I need to have the lifestyle I want and deserve?” W hat do you want the money for? Is it for the freedom to travel? T o own a bigger home or a second vacation home? Maybe you’ve always wanted a boat or a luxury car? Or do you want to contribute more to your community or church?

L et’s go back to Ron and Michelle. T hey were already living the lifestyle they wanted for $350,000 a year. So, I asked, what would make them feel financially free? W ould it be a bigger home? A condo in Aspen? A boat?

Y ou know what Ron said? H e’d feel financially free if he could donate $100,000 a year to their church—and maybe throw in a small Bass fishing boat and a ski vacation condo in Steamboat Springs for his family.

It was an awesome answer. I was so moved by his goal to contribute, I couldn’t wait to help them find a way to make it happen. I pointed out that Ron made about $500,000 a year in income, and spent only $350,000—he could already set aside that kind of money for the church if he really wanted to. But how great would it feel if he and Michelle could make that kind of contribution without working? Just from investment income alone?

After adding the costs of financing the boat and condo, along with his contribution, for Financial

Freedom they would have to add $165,000 a year to their number for Financial Independence. In other words, they would need $515,000 a year (× 20), or $10.2 million in their money machine. But remember, this number represents an even better lifestyle than he has today! It’s a lot, but still roughly half of what Ron had thought they needed just to be independent.

T he world that Ron and Michelle wanted was so close —they just didn’t know it. But once you figure out the price of your dreams, there are ways you can get there faster and for less money than you ever imagined.

W hat would it take for you to be financially free?

W hat items would you add to your total: A sports car?

A second home? Or a big donation, like Ron and Michelle? W hatever they are, write them down, and add the cost to your total for Independence. T hat’s the price of Financial Freedom. And if it seems too steep, just wait. Y ou’ll learn how to tame that number in the coming chapters.

H ere’s how Ron calculated his Financial Freedom numbers:

1. Monthly donation to church	$8,333 per month
2. 20' Bass fishing boat costing $50,000 financed at 5% = monthly payment of	$530 per month

3. Family ski condo mortgage costing

$800,000 at 4.5% = monthly payment

 

of	$4,880 per month
4. Monthly income for Financial Independence	$29,167 per month
5. T otal monthly income number for Freedom	$42,910 per month
6. N ow multiply that by 12, and you’ll have the annual amount you need for Financial Freedom What are your numbers?	$42,910 × 12 = $514,920 per year
1. L uxury item #1 per month	____ $____ per month
2. L uxury item #2 per month	____ $____ per month
3. D onation per month	____ $____ per month
4. Monthly income for Financial Independence (W hatever number you calculated annually divided by 12)	$____ per month

5.   T otal monthly income number for       $____

         Financial Freedom                                                    per

month

6.   N ow multiply that by 12, and you’ll havethe annual amount you need for Financial $____

        Freedom                                                           per year

D RE AM 5:

ABSOL U T E FIN AN C IAL FRE E D OM

H            ow about Absolute Financial Freedom? W hat would it be like if you could do anything you wanted, anytime you wanted? H ow would it feel if you and your family never had to want for anything again? If you were able to give freely and live completely on your own terms—not anybody else’s—and all without ever having to work to pay for it. T he money you make while you sleep—your investment income—would provide for your unlimited lifestyle. Maybe you would buy your parents the home of their dreams, or set up a foundation to feed the hungry or help clean up the ocean. Just picture what you could do.

I               asked Ron and Michelle to tell me the biggest dreams they could dream. W hat would Absolute

Financial Freedom look like for them? Once again, I was deeply moved when Michelle told me her paramount dream was to buy a ranch and turn it into a church camp. W hat would it cost? Ron figured about $2 million to buy it, and $1 million more for improvements.

I could see the excitement build in them when we ran through the numbers.

If they borrowed the money to buy the ranch, they would need about $120,000 ($3 million at 4% ) a year to service the debt. And that was already within reach!

So what else? Ron loved adventure and travel, and owning his own plane was an ultimate dream. So I walked him through the same exercise I did with my young would-be billionaire friend, and convinced him that renting a jet would give him a lot of the same convenience and satisfaction at a fraction of the cost of owning and maintaining a G ulfstream or a C essna C itation. D o you follow me? Y ou don’t have to own the jet to have the lifestyle. Y ou don’t have to own the sports team to sit in the sky box. And you don’t have to pay for the whole team to be an owner—you can be a partial owner and get all the privileges. T hat’s what my friend Magic Johnson did when he was part of the group that purchased the L os Angeles D odgers, along with my friend Peter G uber and several other partners in G uggenheim Baseball Management, which spent $2.15 billion to get the team and stadium. I can promise you Magic didn’t put in $2.15 billion—but he still gets all the joy, the pride, the excitement, the influence, and the fun of being an owner.

T his thinking can create the quality of life you want for yourself and those you love. W hat makes most people just dreamers versus those who live the dream is that dreamers have never figured out the price of their dreams. T hey make the number so big they never begin the journey. T here isn’t a dream you can’t realize if you’re committed enough and creative enough, and if you’re willing to find a way to add more value to other people’s lives than anybody else.

N ow, as you can tell, for most people, this category is mostly for fun. In my seminars, I do this exercise only with people who have really big dreams and want to know the price of them. I understand that most people will never achieve Absolute Financial Freedom, but there’s power in dreaming and unleashing your desires. Some of these high-octane dreams might excite you and make you want to earn more, and help you reach your goals faster. But there’s another reason to do this exercise. Y ou might achieve financial security without working, and then by working part-time at something you enjoy, you could be financially independent. Or it’s possible you could achieve Financial Independence through your investment income and part-time work, allowing yourself to experience the luxuries of Financial Freedom with that income.

So go for it! W rite down what you would put on this list or in your app. Y ou never know what you could create if your desires were truly unleashed!

H ere’s how Ron calculated his Absolute Financial Freedom numbers:

1.       A ranch for church camp that costs $3 million, financed at 4% = monthly payment of $10,000 per month

2.       A Beechcraft Bonanza plane that costs $300,000 financed at 5% = monthly payment of $3,181 per month

3.       Monthly income number for Financial Freedom:

$42,910 per month

4.       T otal monthly income for Absolute Financial Freedom: $56,091 per month

5.       N ow multiply that by 12, and you’ll have the annualamount you need for Absolute Financial Freedom: $673,092 per year.

So for a 20-foot fishing boat, a $100,000 yearly donation to their church, a ski vacation condo, a plane, and turning a ranch into a church camp, plus the lifestyle they have today without having to work, Ron and Michelle would need an income of $673,092 per year. Multiplied by 20, they would need to achieve a critical mass of $13.5 million. Still a third less than the number they thought they needed for mere security or independence!

What are your numbers?

1. L uxury item #1 per month	____ $____ per month
2. L uxury item #2 per month	____ $____ per month
3.   L uxury item #3 per month 4.   Monthly income for Financial	____ $____ per month
Freedom (page 222)	$____ per month

5.   T otal monthly income numberfor Absolute Financial

Freedom

$____ per month

6.   N ow multiply that by 12, andyou’ll have the annual amount you need for Absolute

         Financial Freedom                                 $____ per year

T here is only one thing that makes a dream impossible to achieve: the fear of failure.

— PAU L O C O E L H O

H            ow do all those numbers you’ve written down look toyou now? I hope that you’ve seen how the price of your financial dreams can be much smaller than you ever thought, and that you’ve picked out three to aim for, including at least one short-term goal and one long-term goal. W hich of these dreams are your T hree to T hrive? T he most important for most people—the most common “musts”—are Security, Vitality, and Independence. Or for those who want to reach higher, it’s Security, Independence, and Freedom. If you haven’t already done it, pick three and write them down. Make them real and put them in your app; key reminder messages will be sent to keep you on target.

If you’re a baby boomer who’s had a tough time since the meltdown of 2008, which one of these dreams is the absolute must for you? Security, right? H ere’s the good news: you may not have as many years to build your savings and investments to a critical mass, but you can absolutely have Financial Security, and I’ll show you how. Maybe you’ll never get to Independence, but maybe you will if you make it a “must.” If you’re starting younger, you’re way ahead. Y ou might be able to go for Freedom or even Absolute Freedom and not even be stressed about it. But it’s important to decide what matters most to you and know your numbers. W hy? Because in a few moments, we’re moving on to the next chapter, where you’ll be able to calculate how many years it will take for you to achieve these dreams based on how much you are saving at a reasonable average annual rate of return. And then we’ll make a plan to get there. T his is where the rubber meets the road. I’m going to walk you through each step, and everything will be automated for you. It’s absolutely critical that you keep moving forward.

I               want you to feel empowered and excited by the journey you’re on.

I want you to know that you’re the creator of your life, not just a manager. Sometimes we forget how much we’ve really created in our lives. I don’t care who you are, I know there are aspects of your life today that once were just a dream or a goal, or seemed impossible. It could have been a job or higher-level position you wanted that at the time seemed beyond your reach, or a car that you were obsessed with, or a place that you always wanted to visit. Maybe you even live there now. Maybe there was somebody in your life, someone you never thought might even go out with you, and now you’re married to them. Instead of being back in those days of dreaming, wondering if this person would ever make love to you, perhaps they are beside you now. If so, reach over and give them a kiss right now and remember this relationship once seemed impossible, and you created it.

W hat’s in your life today that was once a dream? W hat was a desire you had in the past that at the time seemed difficult or impossible to achieve—but now it’s in your life today? If you’re going to remember that you’re the creator of your life and not just the manager of your life’s circumstances, first, you must reconnect to the things you have created consciously. T ake a moment and jot down three or four of those things. And take note, your list does not need to be made up of all giant accomplishments. Sometimes the little things that seem difficult or impossible, when conquered or realized, provide us with essential lessons on how to achieve the big things. Also, there may be some things in your life today that once seemed difficult or impossible, and now you have them, but you take them for granted. T he law of familiarity says that if we are around anything (or anyone) long enough, we tend to take things just a little bit for granted. So awaken to your appreciation, and jot down your list now.

Second, you have to review what steps you took to turn that dream into your reality. T ake a moment right now. Select one of the things you have achieved. W hat were some of the first actions you took? Jot them down now.

I’ve interviewed literally tens of thousands of people about how they’ve taken something that seemed impossible and woven it into their life. H ow did they create it? H ow did you? T here’s a process we all go through. It’s a matter of three steps.

Step 1: U nleash Y our H unger and D esire, and Awaken L aser-like F ocus. Something happens within you: either you become inspired by something that excites you so much that your desire is completely unleashed—you become completely obsessed with it— and you focus on the object of your desire with laser-like intensity! Y our imagination is ignited. Or you hit a wall, a threshold, a place inside yourself, and affirm that you will no longer settle for life as it has been. Y ou make a decision never to go back, and you become ferociously focused on the new life or object you desire. It could be a job change, a relationship change, a lifestyle change. Y ou unleash your hunger for it—and wherever focus goes, energy flows.

H ave you ever experienced this? Y ou bought an outfit, or you bought a car, and suddenly you saw that car or outfit everywhere? H ow did that happen? Because part of your subconscious mind, called the reticular activating system, knows this is important now, so it notices anything that relates to it. T hose cars and outfits were always around you, but now you’re noticing them because your subconscious makes you aware of the very things you were not seeing before.

T hat’s what’s going to happen as you’re reading this book. Y ou’re going to start noticing the fees charged by mutual funds and hearing about asset allocation. Y ou’re going to start hearing things you’ve never heard before —high-frequency trading! dollar-cost-averaging!—and they are going to come to life for you because now your brain knows they’re important. Anything that’s important, anything that’s focused on, energy flows into it. And when you have that level of hunger, desire, and focus, step 2 starts to happen.

Step 2: Y ou T ake Massive and E ffective Action. If your desire is truly unleashed and you are obsessively focused on what you want, you will be called to do whatever it takes to make your dream a reality. T here are no limits to the energy and flexibility you’ll have in the pursuit of what you want. In your heart, you know massive action is the cure-all. If you’re willing to put in the effort, you’ll get there. Y ou’ve done it before, right? Maybe there was a time when you just had to see the girl you loved, so you borrowed a car and drove all night through a snowstorm to visit her at college. Maybe you moved heaven and earth to get your child into the best school to suit her needs. If it’s a “must” and not just a “should,” you’ll find a way.

But there’s one caveat, of course: you need to put effective execution behind all that effort, right? W hat if you drove through that snowstorm without a map and ended up in the wrong city? Y ou can throw all your effort into saving for the future, but put your money in a 401(k) loaded with high fees and poorly performing mutual funds, and you’ll get nowhere. Or you can invest everything in one company and watch the stock drop 40% in a day. So if you’re willing to do whatever it takes, you still have to execute your plan carefully, and keep adapting your approach. Because effort with effective execution creates magic. T his book is your map, your blueprint to take you from where you are today to where you want to be financially. By consistently taking massive and effective action, and adapting your approach whenever it doesn’t work and trying something new, you will move toward your dream, but there’s one final, extraordinary element that plays an important role in whether your dream becomes a reality or not.

Step 3: G race! Some call it luck, coincidence, fate, or G od’s hand. I call it grace: the acknowledgment that there’s more in this world than just ourselves, and that perhaps a higher power gives us both the privilege of this life as well as the gifts of insight and guidance when we’re open to them. It’s amazing how, when you take care of the first two steps, G od or the universe or grace— whatever you like to call it—tends to step in and support what you’re doing. T hings flow to you when you do your part first. W e’ve all experienced the phenomenon of serendipity. Something happens that defies explanation, so we call it a coincidence. W e miss a train and meet the person we end up marrying. W e fill in for a friend, and it leads us to the job of our dreams. W e didn’t figure it out in advance, didn’t earn it—it just happened. T o me, that’s grace. And the more you acknowledge and appreciate the grace that’s already in your life, the more you experience the gifts that are beyond what you’ve created. I’ve had it happen many times in my life, and I know it’s real. I also know that gratitude connects you to grace, and when you’re grateful, there is no anger. W hen you are grateful, there is no fear.

So, are you ready to become the creator of your life, not just the manager of your circumstances? D o you know what you’re really investing for? An income for life! Are your dreams becoming a part of you, a “must” that your unconscious mind focuses on night and day? Are you willing to do what it takes to make them a reality? T hen it’s time to turn the page and do what so many others fail to do.

It’s time to make a plan. . . .

C HAPT E R 3.2

W H AT ’S YOU R PL AN ?

If you don’t know where you are going, every road will get you nowhere.

— H E N R Y K ISSIN G E R

C ongratulations, you’ve come a long way! Y ou’ve taken three huge steps toward Financial Freedom. Y ou’ve made the most important financial decision of your life. Y ou’ve become an investor by committing or expanding the percentage of your income that automatically goes into your Freedom Fund, and you’ve begun to build your money machine that will set you free. Y ou’ve also learned how to protect yourself from the biggest lies designed to separate you from your money. Finally, you have put a price on your dreams: you know how much income it will take to be financially secure and independent. N ow we’re going to take what you’ve learned about the power of compounding and put those Money Power Principles to work. W e’re going to work together to create a plan for you and your family that is absolutely attainable and within reach, no matter what level of financial dream you’re         shooting     for:    security,          vitality,       or independence.

T here’s one more thing before we start. If you’re like most people, you hate talking about money. But hey, it’s just us, anyway. N o one else will see these numbers unless you decide to share them. W hat’s most important is that you be honest with yourself. N o rounding up here. N o bending the truth. N o looking at your “numbers” with a rosy lens and making your finances look a little better than they are. And by the same token, don’t sandbag yourself either by making the plan so conservative that you feel like it’s impossible to achieve. Just level with yourself and commit to taking a candid picture of where you are now. T hat’s how to make this plan really work.

Y OU C AN PL AY ON L Y Y OU R OW N H AN D

A good friend of mine recently had a reunion with a group of his boyhood pals near my home in Palm Beach. T hey all gathered to celebrate their 50th birthdays. T hey had gone to nursery school together and lived down the street from one another throughout high school in a L evitt community of tract homes on L ong Island, N ew Y ork. T heir fathers were all professionals, or owned their own businesses, their mothers were all housewives; and their household income levels tracked together closely. W hat struck me most about these lifelong friendships were the demographics. D uring their formative years, the lives of these friends were in synch, but once they went away to college, the young men splintered in different directions:

One went to work for a leading financial institution on W all Street.

One became a photographer, opening a frame shop in Manhattan.

One built homes across the mid-Atlantic states.

One started a business as an importer of fine wines and craft beers.

One trained as an engineer and worked on a civil servant’s salary in South Florida.

W hen they got together, these lifelong friends compared notes. D espite the gap in income levels and bank accounts, they were all happy—not happy in precisely the same ways, of course, but happy. T heir needs were met. Many of their hopes and dreams as well.

My friend shared the concepts from an early manuscript of this book with his buddies. After a few beers, the conversation turned to money, and they asked one another the same question you answered in the last chapter: H ow much money would it take to reach financial security or fund their retirements? T he W all Streeter thought he had to save at least $20 million to maintain his present lifestyle without having to work. T he Manhattan photographer thought $10 million would do the trick. T he real estate developer thought he could manage on $5 million, especially now that his kids were out of college. T he wine merchant had recently remarried. In spite of welcoming a new baby, he was counting on a nest egg of $2 million. And the civil servant, the one who’d been conditioned to live within his means and to look ahead to a steady pension for the rest of his life, thought he could live worry free once his pension kicked in and he started collecting Social Security benefits.

W hich one of these friends was closest to achieving his goal? W ho had the right number and the right plan in place to help him get there? It’s a trick question, of course. T he answer isn’t driven by money. Y ou don’t “win” the race of life by amassing the biggest pile of cash or accumulating the most things. And you don’t win by grabbing a quick lead and coasting to the finish line.

H ow do you win? Y ou win by living on your own terms—as well and as fully as you can, for as long as you can.

Y ou create a plan that meets your needs, that works for you, and you stick to it. T hat’s success, plain and simple. If you’re scrambling, constantly competing with others’ views of success or financial independence and trying to achieve an elusive goal, you’re going to fall behind and become frustrated. If you’re chasing someone else’s goal, you also lose. It doesn’t matter how much your neighbor has, what kind of car he or she drives, or the vacation he or she takes. T his plan is about you, only you, and no one else.

T he day you stop racing is the day you win the race.

— BO B MAR L E Y

T H E IL L U SION OF AD VAN T AG E

E ver watch track-and-field events in the Olympics? It’s easy to stare at the track just before the starting gun fires and wonder how the runner positioned all the way out in front in the outer lane of the track doesn’t have a huge advantage. Intellectually, we know that all the runners must run the same distance, but visually our eyes seem to deceive us. T hat so-called lead is called a stagger, and it’s meant to even the distance on an oval track. In a 400meter race, there’s a gap of about six meters separating each runner.

But, of course, everyone knows that there’s no advantage, physically, to being all the way out in front on the outside of the track, or all the way in the back on the inside. Y ou have to run the same distance either way. Y et the appearance of advantage can be a powerful psychological edge. D oes the guy out in front think he’s got the lead? D oes that give him a boost of confidence, or perhaps take away the tiniest fraction of his drive? D oes the guy all the way “in back” feel like the underdog—and then run just a little bit faster to compensate?

L et’s go back to our five friends, from the outsidelooking-in perspective. It might feel like the civil servant is all the way in the back, lagging behind the field, and it might seem like the W all Street executive has set himself up for a strong finish, but that’s the illusion, not the reality. N o one is ahead.

T here’s no first place or last place here. L ife is not a competition. Often people use money and the acquisition of things to measure where they stand: who’s got the nicer house, the fancier car, the summer home in the H amptons. But the truth is, we can’t predict how long we’ll live or the state of our health as we age. T he reality is, it doesn’t matter where we start. It’s how we finish that counts. H ere it seemed that all of these lifelong friends were headed in the right direction—each on his own terms, in his own time. T hat’s one of the reasons they felt so happy with their lives. W ith a little discipline and foresight, they all had a shot at winning the race they’d started together, all the way back in nursery school.

T he same can happen for you. It doesn’t matter where you stand in relation to your friends, your family, your colleagues, or clients. All that matters is your personal journey. It’s tempting to look at others as a yardstick and convince yourself that you’re all the way out in front, with the appearance of a lead, or resign yourself to the back of the pack. But that’s not the point. T he race of life is a marathon, not a sprint. T he only thing to do is focus on the path in front of you. L ook ahead. E stablish your own pace. K eep moving forward. And then create that plan.

T he only person you should try to be better than is the person you were yesterday.

— AN O N Y MO U S

Y OU R PL AN

N ow that you know that your only competition is yourself, it’s time to come up with a plan and create a financial blueprint. T he good news is, all you have to do is answer six questions in the It’s Y our Money app. U sing this wealth calculator, you’ll have a first version of your

plan within seconds. If you haven’t already downloaded the app, here’s the link: www.tonyrobbins.com/masterthegame.

T       he six questions are related to two areas: where youare now and what you are committed to creating going forward. T he few numbers you need to answer you can pull from your records, or perhaps off the top of your head. Y ou may have to do a little bit of homework, but most of these numbers should be close at hand—and, if you can’t come up with them right now, it’s okay to use a round-number estimate just to get you started to keep the momentum going.

U      sing these numbers, the app will build a plan tailored just for you, based on variables you get to determine: like how much you expect your income to grow, how much you’re determined to save, and what rate of return you expect to get on your investments. Y ou can be conservative or aggressive with your estimates—or you can run the numbers both ways and decide on some middle ground. And the beauty here is, once you capture these numbers, the app will do all the work for you. Y ou’ll have a true blueprint for your financial future, a clear plan to follow.

C H OOSE Y OU R OW N AD VE N T U RE

T he wealth calculator in the app you’ve just downloaded is a device I’ve used for more than three decades in my workshops and seminars. It’s simple and flexible, and it’s helped millions of people create financial plans that work for them. It’s built on a series of conservative assumptions, but you’re free to go in and change those assumptions if you’d like. Y ou can make them more conservative or more aggressive. Y ou’re in control, so put in numbers that fit with your lifestyle, your current reality, and your future dreams. If you don’t like the picture that comes back to you, you can play with your numbers and choose a different path to financial freedom. In the rest of this section, we’ll work together to get you specific steps to speed up your plan and insure its success. T he first plan you come up with is just that: your first bite of the apple. T hen we’re going to take it and improve upon it significantly in the pages ahead . . .

A few things to keep in mind before we start:

One of the biggest factors will be our tax rate, which is radically different for each one of us. T his book is read by people all over the world, so rather than make it complex, we’ve made it very simple. W herever you live, in the pages ahead you’ll learn to utilize the tools in your country that give you the greatest tax efficiency. W herever possible, you want to use tax-advantaged accounts to accumulate your wealth to generate a greater net rate of return.

T his calculator will then show you three potential scenarios, with different annual rates of return for each plan: 4% , 5.5% , and 7% . A conservative plan, a moderate plan, and an aggressive plan. T hese rates are after-tax rates of return. Some might find these numbers too conservative, or too aggressive; again, you can adjust them to any numbers you like.

H ow did we get to those numbers? On the high end, if you look at the standard set by the C harles Schwab organization, it will tell you an aggressive return is 10% .

Our app’s aggressive return is 7% . W hy the three-point difference? Schwab has shown that over the past 40 years, from 1972 to 2012, the market has averaged 10% . But our calculator is assuming approximately 30% in taxes, which brings the number to just under 7% . In the U nited States, long-term investment tax rates are only 20% , not 30% —so our app is being aggressive on the tax side. Also, remember that if you are investing through a tax-deferred vehicle like a 401(k), IRA, or annuity, you are deferring taxes. So if you had a 10% return (as in the Schwab example), you would continue to compound at 10% —with no tax deducted until withdrawal. W e are using our lower returns of 4% , 5.5% , and 7% to provide a buffer for mistakes or future returns failing to hit the aggressive mark you had hoped for.⁸

On the low end, or conservative side, if you look at Vanguard, it uses a 4% return after taxes. But we’re looking at things a little differently. Most Americans who have money to invest do it through their 401(k), IRA, or

401(k) Roth. W hat’s the best option? W e recommend that you go with a Roth (or your country’s equivalent), unless you truly are certain your taxes are going to be lower in the future. (L ucky you!) G overnments all around the world, and especially the U nited States, have spent money they do not have. H ow are they going to pay it back? By raising taxes. So while no one knows for certain whether taxes will go up or down, my bet here is they’re going up. In a Roth, your returns are 100% yours, meaning that if you’ve got a 7% return, you keep all 7% —no cut to the tax man ever on the growth of your investments. If you get a 10% return, you keep all 10% .

T his is why we built the wealth calculator this way. It gives the flexibility to think about returns in a net (aftertax) approach. Y ou design the plan with what you believe is most appropriate for your planning purposes.

T his wealth calculator is designed to quickly give you a sense of how different choices will impact how long it will take you to achieve Financial Security, Vitality, or Independence. After you come up with a basic plan you like, you can also get precision too. As I mentioned earlier, Stronghold (www.StrongholdFinancial.com) has a technology platform to link all of your investment accounts. It will give you immediate feedback on what your actual rate of return has been on your investments in the past. (Most people have no clue!) It will show your best performing years, your worst performing years, and in how many years you have taken a loss. It will also show you how much you are really paying in fees, so you’ll know the true impact on your future savings. G o there, if you like, after you have your basic plan completed on the app.

Of course, with the app, the numbers and your plans are completely secure and remain accessible to you wherever you go, on any device. Y ou can change your returns at any time, change how much you’re willing to save, and see the impact in moments.

O ne of the most powerful ways to accelerate the pace at which you achieve your financial goals—and the most painless way I know—is to implement the Save More T omorrow plan, which has helped over 10 million Americans grow their savings in ways they never thought possible. D o you remember how it works from chapter 7.4, “Y our Money Machine”? Y ou commit to automatically taking a percentage of any raise you receive in the future and adding that to your Freedom Fund.

So, for example, let’s say you’re saving 10% of your current income toward your Freedom Fund: you’re investing, but you want to find a way to speed up your plan. By committing to the Save More T omorrow plan, the next time you get a 10% raise, 3% would go toward your Freedom Fund and the other additional 7% would be available for your improved lifestyle today. D o this three times in the next decade, and you could be saving up to 19% —almost double what you are putting away today—and at no loss to you, because it’s all based on additional future income. T his will make a huge difference in the speed with which you can achieve your financial dreams.

T o take advantage, just click on the Save More T omorrow option in the app. One final note: I’ve also taken out the value of your home from the equation. N ow, hold on, before you scream and yell. Y es, I know, for many of you, it’s the largest investment you have. If you want to add it back in, you can, but I’ve taken it out so you have yet another conservative cushion. W hy? Because you’ll always need a home to live in. I don’t want you to run these numbers and generate a plan that relies on the value of your home to generate income. Y ou may sell your home in ten years and realize a significant gain. Or you may stay in your home for the rest of your life, or you might need to downsize and take some money off the table to help pay off an unanticipated expense. N o matter what happens, your plan is designed to keep you afloat no matter what your living situation holds.

Why all these buffers built into the system? Because I want these numbers to be real for you—not just real in this moment, but real over time, against any number of real-world events that could set you back. I want to soften the blow in case you veer off course. But I also want you to exceed your own expectations. Most of all, I want you to know with absolute clarity and certainty that the projections we generate together are truly within reach.

Ready to dive in? Open your app!

W hen I look into the future, it’s so bright it burns my eyes.

— O PR AH W IN F R E Y

D RU MROL L , PL E ASE . . .

N ow, I know you are going to want to dive right in, hit E nter, and sit back while the app tells you how the rest of your life will play out. But that’s actually not the point. T he true value of this next step is to show you what’s out there: what’s realistic, what’s possible, what’s worth dreaming and fighting for. It lets you try on different outcomes, and play with some of the variables if you want to create a different picture or produce a different result. In the near term, it gives you a true plan you can follow —a blueprint for your financial future.

T hink of it as your personal financial trainer. It takes your “real” numbers—your savings, your income—and calculates what they’ll be worth based on a series of anticipated outcomes. D on’t worry about specific investment strategies just yet. W e’ll cover these in section 4, but it’s important to get some idea of how your money can grow once it starts to work for you.

Remember, the focus is not on where or how you’ll invest your money. T his exercise is an opportunity to forecast—to look into the crystal ball of what’s possible. W hat would your future look like if you could realize a 6% return on your investments? H ow about 7% or more? H ow much money would you have after 10 years? After 20? W hat if you somehow managed to hit the jackpot and found a way to generate gains of 9% or 10% ? Remember, just one of the asset allocation portfolios you will learn in chapter 5.1, “Invincible, U nsinkable, U nconquerable: T he All Seasons Strategy,” has produced an average rate of just under 10% over the last 33 years, and lost money only four times (and one of the losses was only 0.03% )! So there are many possibilities once you educate yourself as to how the top investors on earth conduct themselves.

So play around until you find a number that feels right to you—one that you have a healthy dose of confidence in. Just a few minutes of your time, and you’ll know what your savings, with the power of compounding, at different rates of return, will bring you.

It is only the first step that is difficult.

— MAR IE D E V IC H Y -C H AMR O N D

C ongratulations on running your first plan. Are you excited about the results? C oncerned? Frustrated? Or encouraged? Over the years, working with countless people from all over the world, I’ve noticed their results tend to place them in roughly one of three categories:

1.     T hose who are young and in debt, wondering howthey’re ever going to get to financial security. W hat’s beautiful is that they find out they can!

2.     T hose who think they are decades away from financialsecurity, and are surprised—or, frankly, shocked—to learn they are only a stone’s throw away: five, seven, ten years max. In fact, some are already there but had no idea.

3.     T hose who started late and are fearful of never beingable to make up for lost ground.

L et me share with you some examples of other people I’ve worked with in similar situations and show you how their plans played out—how they achieved Financial Security, Vitality; even Independence and Freedom.

AL L G ROW N U P BU T ST IL L PAY IN G OFF ST U D E N T L OAN S . . .

L et’s start with someone young and in debt. L ike a lot of millennials today, Marco graduated with a big chunk of debt. As a 33-year-old engineer earning a respectable $75,000 a year, he was still paying off $20,000 in student loans. L ike so many Americans, Marco felt like his debt was consuming his life—he thought he’d be paying it off forever (and probably would be, had he paid only the minimum payments). Marco did, however, expect his salary to grow, slowly but steadily with expected raises of about 3% to 5% per year. After working together on a new plan for Marco, we allocated 5% of his income to paying off his student loans. And Marco committed 3% of any and all future raises to his Freedom Fund.

W hat did this new plan give him? H ow about a debt-free life in seven years! On top of that, Marco was going to be able to take that 5% , once he was debt free, and redirect it toward his savings to grow and compound his Freedom Fund. W ith this savings and investing plan, Marco could reach F inancial Security in 20 years. T hat may sound like a long time, but he’ll still be only 53 years old. And just seven years later, at 60, Marco could reach F inancial Independence—a full five years before he’d ever dreamed of retiring, with more annual income than he ever imagined! Marco went from worrying about never paying off his student loans to looking at a future of real financial independence. E ven better, within five years, by age 65, with all of his growth and the boost of Social Security added, Marco would actually experience his definition of Financial Freedom— a prospect entirely unfathomable to him before running his new plan. Remember, he began this journey with no assets and nothing but debt!

IF IT L OOK S T OO G OOD T O BE T RU E . . . IT MIG H T AC T U AL L Y BE T RU E

T hen there’s our second category of people: those who take a look at their plan and think something must be wrong. T heir calculator is not working! T hey see that F inancial V itality or Independence is popping up far too quickly.

“T here’s no way I can get there that fast,” they think. “I can’t achieve Financial Independence in five, seven, or eight years. T hat’s crazy!” In their minds, they’ve got a good 20 or 30 years of hard work and nose-to-thegrindstone days ahead of them.

W here’s the disconnect? H ow is that possible?

It’s possible because the number they had in their head—that $10 million or $20 million or $30 million price tag—was totally off base. It had nothing to do with reality. It was simply a pie-in-the-sky number representing what they thought they needed to be financially independent, not what they actually needed.

K atherine, a woman who attended one of my W ealth Mastery seminars, is a great example. She was a savvy businesswoman who needed $100,000 a year to be financially secure—a large number by many people’s standards, but not by her own. T o achieve Financial Independence, she’d need $175,000 to maintain her current lifestyle without working. K atherine assumed it was going to take more than 20 years to get there.

W ant to know what happened when she ran her numbers with my team? T he first thing they uncovered was that her current business was earning more than $300,000 a year in net profits and growing at nearly 20% per year. W ith my team’s help and a little bit of research, she found that she could sell her business today for six times her current profits, or a total of $1.8 million. W hat does this mean?

W ell, if she sold her business for $1.8 million and then received a 5% return, her annual investment income would be $90,000 per year. She had other investments already that were providing more than $10,000 per year, so with a $100,000 annual income, guess what: K atherine is financially secure right now!

K atherine was blown away—but also confused. She said, “But T ony, I don’t want to sell my business right now!” I told her that I wasn’t encouraging her to, nor did she have to. But she should declare victory and realize that she is financially secure today. W hy? Because she has the assets to produce the income she needs right now. E ven more exciting, at her business’s current growth rate of 20% per year, she would double her business in the next three and a half years. And even if her current growth rate was cut in half to only 10% per year, in seven years her business would be worth $3.6 million. If she sells at that point ($3.6 million × 5% = $180,000 per year in income without working), in three and a half to seven years, K atherine will be financially independent. N ot 20 years! And this was without making any other investments whatsoever!

By the way, one of the things I show business owners in my Business Mastery program is a little-known set of strategies that allows you to sell a portion (or even a significant majority) of your business and yet still run, control, direct, and profit from it. T his allows you to get a large cash-flow bump to secure your Financial Freedom today, while still having the enjoyment and fulfillment of growing the business you love.

Y OU C AN BE L AT E T O T H E PART Y AN D ST IL L W IN

L et’s go back to my friend Angela’s story. Angela is anything but average, but from a financial perspective, she represents the average American. Angela is 48 years old. H aving lived a free-spirited life, traveling and sailing around the world, she had never saved or invested in her entire life. After finishing section 1, she’s now committed to saving 10% , but she’s still got a major challenge: she’s beginning late in the game. (As she said, “I’m almost fifty!”) She has less time to tap into the power of compounding.

W hen Angela first calculated the amount of income she’d need for Financial Security, her number came to $34,000 a year. F or F inancial Independence, she’d need $50,000. At first glance, her numbers excited her. T hey didn’t have seven zeros, and they were numbers she could get her arms around. H owever, the timing of those numbers brought her back down to earth. Starting late in life and saving only 10% of her income was a plan that would take Angela 24 years to get to F inancial Security—if she was 41 years old, that would be a great win. She would achieve it by 65, but since she was starting later, Angela would be 72 years old when she achieved Financial Security. It was certainly a more compelling future than if she hadn’t run the plan, and she was glad to know she could get there. But she wasn’t terribly excited by the long, slow road ahead.

So what could we do to speed up that goal? H ow could Angela get to F inancial Security faster? One way would be to increase her savings and invest it. She was saving 10% already. N ever having saved before, 10% seemed like a huge number, but by committing to the Save More T omorrow plan, she could painlessly save more when she received raises and accelerate her plan. Another way to speed things up was to take a little more risk and increase her rate of return to 7% or more. Of course, that heightened risk could bring about more losses too. But it turned out there was an even simpler insight we had overlooked.

L ucky for Angela, she still had one more round in her arsenal. She had left out a huge piece of future earnings, one that many people neglect to include in their financial planning: Social Security.

Angela, already 48, was only 14 years away from taking Social Security at a reduced rate and 17 years away from capturing her full benefit. She stood to take home $1,250 per month once she turned 62, or about $15,000 a year. So that $34,000 a year in income she needed for Financial Security suddenly dropped down to $19,000. N ow when we reviewed the numbers in the app, she shaved a full decade off her timeline. Instead of getting to F inancial Security at 72, she was going to get there at 62! Angela was going to be financially secure in 14 years, and she was thrilled. She now would have enough income never to have to work again to pay for her mortgage, her utilities, her food, her transportation, and her basic health insurance—a real sense of freedom for Angela.

T he impossible became possible. And guess what else happened? Once Angela realized financial security was in view, she took that emotion, that excitement, that momentum, and she said, “H ey, let’s kick it up a notch. If I can get to Financial Security by sixty-two, let’s take a look at Financial Independence. I’m going to figure out a way to become financially independent, not in my seventies or eighties but in my sixties!” And her number to reach Financial Independence? It was $50,000—only $16,000 more a year in income than she’d need for Financial Security.

Angela took one more step. After reading chapter 3.6, “G et Better Returns and Speed Y our W ay to Victory,” she found yet another way to accelerate her plan. Angela was always extremely interested in owning incomeproducing real estate, and she learned some simple ways to invest in senior housing (or assisted living facilities) that are available through public and private real estate investment trusts. (T hese are covered in section 4.) W e will highlight more details later in the book, but in short, senior housing facilities are a way to own incomeproducing real estate that is also tied to what I call a “demographic inevitability”: a wave of 76 million baby boomers who are aging and will require the use of these facilities. By investing $438 per month (or $5,265 per year) for the next 20 years, and assuming that she reinvests the income for compound growth, she will have accumulated $228,572. (N ote: this assumes a 7% income/dividend payment, which is the current rate on multiple senior housing real estate investment trusts.)

T he amount she accumulates will generate $16,000 of income (assuming a 7% income payment), and she won’t have to tap into her principal unless she wants to! One last huge benefit? Angela doesn’t have to pay income tax on the entire income payment due to the tax deductions for depreciation.

Marco, K atherine, and Angela are real people just like you and me. Y our plan is within reach too, and just like them, you might be able to get there sooner than you think. D on’t let the first plan you’ve run on the app be the end-all. T hink of it as your starting point to make your dreams happen. In the next chapters, we’re going to show you five ways to speed it up and get there even faster.

K ites rise highest against the wind, not with

it.

— W IN ST O N C H U R C H IL L

W hether you’re excited about the numbers your plan threw back at you or you’re disappointed about the long haul ahead, take heart—disappointment isn’t always bad. It often serves as a great kick in the pants that pushes you

to create massive change. R emember, it’s not conditions but decisions that determine our lives. D isappointment can drive us, or it can defeat us. I choose to be driven by it—and I’m hoping you take the same view. Most people don’t even get to this point in their planning, because they don’t want the letdown they’re afraid they’ll experience once they run their numbers. But you’ve taken on the challenge and the promise of this book, so you’re not like most people. Y ou’ve chosen to be one of the few, not the many.

I vividly remember a Fourth of July trip I took more than 20 years ago with my dear friend Peter G uber and a group of top movie executives through N antucket and Martha’s Vineyard. W e were on Peter’s private yacht, and a couple of these moguls were throwing around how they had earned $20 million and $25 million on a single film that year. My jaw dropped—that number simply astonished me. H ere at 30 years old, I thought I was doing pretty well—that is, until I hung out on deck with a bunch of movie tycoons. T hese guys had an insane lifestyle, and it didn’t take long for me to get seduced by the idea of it all.

T his experience jolted me, but it also made me ask a different question: W hat did I really want to create in my life? And could I possibly ever get there? At that time, I didn’t see any way I could add enough value to other human beings through my core skill of coaching to ever create that level of Financial Freedom.

Of course, I was being totally unfair, comparing myself and my level of accomplishment to these men. I was 30 years old; Peter and his movie-producing friends were all in their early to late 50s. Peter was in the prime of his career; I was just beginning mine. H e had 52 Academy Award nominations and a slew of H ollywood hits to his name. Sure, I was making a name for myself and running a successful business—and changing lives— but financial success for Peter and his friends and financial success for me were light-years apart. And so, as I compared myself to those guys on the boat, I did what so many people do unfairly: I beat myself up for not being at the same level of accomplishment.

But the beauty of that moment, that day, was that it put me in a new and strange environment, and something inside me shifted. I was so far outside of my comfort zone. I felt like I didn’t belong—like I didn’t deserve to be there. H ave you ever felt like this? It’s amazing what our minds will do to us if we don’t consciously direct them.

And yet contrast is a beautiful thing. W hen you get around people who are playing the game of life at a higher level, you either get depressed, pissed off, or inspired. T hat day, I realized I didn’t want a yacht, but I was inspired to sharpen my game. I realized there was so much more I could do, give, and be. T he best was yet to come. I also realized how incredibly valuable it was for me to get uncomfortable at that point in my life; to put myself in an environment where I didn’t feel on top or superior.

Of course, Peter had none of these thoughts. H e was just bringing dear friends on a Fourth of July trip as a gift of love! But what he had really done was show me a world of unlimited possibilities. T hat experience helped awaken the truth in me. It became clear that I did have the capability to create anything I could envision. Maybe I didn’t want to have those same grown-up toys, but I sure as hell wanted to have the same types of choices for my family. T oday, in my early 50s, those impossible visions have become a simple reflection of the reality I now live. And I still don’t want a yacht!

L et’s be clear. It isn’t about the money. It’s about choice; about freedom. It’s about being able to live life on your terms, not anybody else’s.

D on’t complain.

D on’t say you can’t.

D on’t make up a story.

Instead, make a decision now!

Find your gift and deliver it to as many people as possible.

If you become stronger, smarter, more compassionate, or more skilled, then your goal is a worthwhile one.

One of my earliest mentors, Jim Rohn, always taught me, “W hat you get will never make you happy; who you become will make you very happy or very sad.” If each day you make just a little progress, you will feel the joy that comes with personal growth. And that leads to perhaps one of the most important lessons I have learned about big goals and achievement.

Most people overestimate what they can do in a year, and they massively underestimate what they can accomplish in a decade or two.

T he fact is: you are not a manager of circumstance, you’re the architect of your life’s experience. Just because something isn’t in the foreground or isn’t within striking distance, don’t underestimate the power of the right actions taken relentlessly.

W ith the power of compounding, what seems impossible becomes possible. Right now, whether you love your financial plan or hate it, or whether you’re excited or afraid, let’s make it stronger together. L et’s accelerate it by looking at the five elements that can speed it up.

8. At this time of this writing, interest rates have been repressed for an extended period of time. H owever, the app will be updated if and when interest rates rise. Y ou are also welcome at any time to put in any rate of return that best suits your circumstances and realistic investment return objectives.

C HAPT E R 3.3

SPE E D IT U P: 1. SAV E MO RE AN D IN V E ST T H E D IFFE RE N C E

If everything seems under control, you’re not going fast enough.

— MAR IO AN D R E T T I

C ongratulations: you’ve just taken a huge step toward F inancial F reedom! Most people don’t take the time to consider their complete financial picture and create a plan. And for those who do, it often stirs up all kinds of emotions. It’s big, it’s scary. I’ve been there, I get it. But now that you’ve done it, take a moment to savor your victory. And ask yourself this: H ow do you really feel about your plan? D o you feel good about your or your family’s future—are you excited to realize that your financial dreams are closer than you imagined? Or is it terrifying to think you might never get to where you’d like to be—are you so deep in debt you’re starting to wonder if you’ll ever dig your way out of the money pit?

W herever you are, it’s okay. Y ou’ve come a long way, you’ve made huge strides and there’s no turning back now. And now that you’ve learned to walk, so to speak, let’s teach you how to run. T he goal of these next minichapters is to get you thinking about how to make your financial dreams come true faster than you ever thought possible. D ream big. Make it happen. And then speed it up. H ave you ever had a crazy busy day, worked your tail off, raced against the clock, and then, against all odds, finished early? T hat extra hour or two of life that you reclaim is an absolute gift—a bonus that makes you feel like the world is on your side. Y ou hit the gym and go for a run, head out for cocktails with friends, or race home to tuck the little ones into bed.

I travel like mad; I’m in different countries, on different continents, crossing time zones and flying around the world like the business equivalent of a H arlem G lobetrotter. If I arrive somewhere early, if I’ve got an extra window in my week to refocus my energies or spend time with my wife or my family, I’m energized and excited. I just found some extra time!

W hat if that extra time could last more than just an hour or two? W hat if you could find not just an extra hour in your day, but, financially, find two years of savings in your life? Or five years? Maybe even a decade of life where you have the freedom of not having to work to support your lifestyle? T hat’s the promise of these pages. E ven if your current plan doesn’t look like it can get you there, these chapters can show you how to shift your plan and find that opening in your life—that extra money, that extra time, that ultimate freedom.

H e who gains time gains everything.

— BE N JAMIN D ISR AE L I

If you’re going to speed things up, there are five core strategies. Y ou can do any or all of them—it’s your choice. Any one of them by itself can significantly speed up the tempo with which you achieve your dreams of financial security, independence, or freedom. Put a couple of them together, and you’ll be unstoppable.

Y ou can be rich by having more than you need, or by needing less than you have.

— JIM MO T T

ST RAT E G Y 1: SAVE MORE AN D IN VE ST T H E

D IFFE RE N C E

T he first way to speed up your plan is to save more and invest those savings for compound growth. I know, I know, that’s not what you want to hear. Maybe you’re even thinking, “T ony, I’m spending every dime I have. T here’s no way I can possibly save more under any circumstances.” If that’s true, before we talk about anything else, let’s remember the most fundamental strategy you learned back in chapter 2.9, “Myth 9: T he L ies W e T ell Ourselves”: the best strategy to get around your belief system is to develop a new belief! Y ou can’t squeeze water from a rock, but you can change your story.

E ven if you’re convinced you have no room to save,

Richard T haler showed us that we can all Save More T omorrow. Remember those blue-collar workers who said they could never save? And just five years and three pay raises later, they were saving 14% . And 65% of them were saving as much as 19% ! Y ou can do this, and you can make it painless if you use that strategy. L et’s attack some fresh strategies right now.

W hat if—in one fell swoop, in one single move —you could save a huge chunk of money toward your F inancial F reedom, and it wouldn’t cost you a dime more? D o you like that idea? L et’s take a look at one of the biggest investments in your life: your home. If you’re like millions of Americans, home ownership is important, something you either aspire to or currently take great pride in. W hether you live in Portland, Maine, or Portland, Oregon, your house probably takes the biggest bite out of your monthly apple.

H ow would you feel if you could save an extra $250,000, $500,000, or even $1 million, from your home? Sound impossible? N o, I’m not talking about refinancing your mortgage at a lower rate, although that is one painless way to save hundreds or even thousands of dollars a month.

T H E BAN K E R’S SE C RE T

Y ou don’t have to wait for a market downtick to save money on your mortgage. By the time you’re reading this, rates may be on their way back up anyway. Y ou can still cut your mortgage payments in half, however, starting as soon as next month, without involving the bank or changing the terms of your loan. H ow? L et me ask you a simple question. L et’s say you’re applying for a home loan, which would you prefer?

Option 1: 80% of your combined mortgage payments goes toward interest; or

Option 2: a 30-year fixed rate mortgage at 6% .

G o ahead and think about it for a moment. W hat do you think? Are you tempted by option 2? D oes option 1 sound crazy? D id you follow the crowd and choose option 2? Or did you outsmart us all and choose option 1?

T he answer: it doesn’t matter. T hey’re identical. W hen you sign your name on the dotted line and take on that 30-year fixed-rate mortgage at 6% , fully 80% of your mortgage payments will go toward interest. D idn’t see that one coming, did you? H ow much does that interest expense wind up costing you over the course of your loan? Is it 30% more? 40% more? 50% more? L ife should be so good. Y ou want to know the banker’s secret? Y our interest payments will tack on an additional 100% or more to your loan value. T hat half-million-dollar home you buy actually ends up costing you a million dollars after interest payments. If you buy a $1 million home? T hat costs over $2 million once interest payments are added in! T ake a look at the chart below to see the impact of interest expense on your home purchase. T he example is a $1 million home, but no matter what price you pay for your home, the ratio of impact is the same. Interest payments will double the cost over time.

For most people, their mortgage is the single largest expense, and with the vast majority of your payment going toward interest, I bet you’re not surprised to learn that the average American, when you add in credit cards and auto loans, spends 34.5% of every take-home dollar on interest expense. And that’s just the average—many people spend more!

So how can you cut down that enormous interest payment? H ow can you decrease the interest expense you rack up over time—and take that money and funnel it to your Freedom Fund? T he answer is so simple it might surprise you.

If you have a traditional fixed-rate mortgage, all you have to do is make early principal payments over the life of the loan. Prepay your next month’s principal, and you could pay off a 30-year mortgage in 15 years in many cases! D oes that mean double your monthly payments? N o, not even close! H ere’s the key:

Money Power Principle 3. C ut your mortgage payments in half! T he next time you write your monthly mortgage check, write a second check for the principal-only portion of next month’s payment.

It’s money you’ll have to pay anyway the following month, so why not take it out of your pocket a couple of weeks early and enjoy some serious savings down the road? Fully 80% to 90% , and in some cases even more, of your early payments will be interest expense anyway. And on average, most Americans either move or refinance within five to seven years (and then start the insanity all over again with a new home mortgage).

“It’s a pity,” mortgage expert Marc E isenson, author of T he Banker’s Secret, told the New York T imes. “T here are millions of people out there who faithfully make their regular mortgage payments because they don’t understand . . . the benefits of pocket-change prepayments.”

L et’s take a look at an example (in the table on page 252). T he average American home is $270,000—but this strategy works whether your home costs $500,000 or $2 million. A 30-year loan on $270,000 at 6% requires an initial monthly payment of $1,618. W ith this technique, you would also write a second check for an extra $270— next month’s principal balance—a very small number, relatively speaking. T hat second check of $270 is money you’ll never pay interest on. T o be clear, you’re not paying extra money; you’re simply prepaying next month’s principal a touch sooner.

H old yourself to this pay-it-forward strategy each month, and, again, you’ll be able to pay off a 30-year mortgage in just 15 years—cutting the total cost of your home by close to 50% . W hy not prepay that $270, and cut the life of your mortgage in half? So if you have a million-dollar home, that’s a half million dollars back in your pocket! H ow much would that accelerate your journey to Financial Freedom?!

BABY , Y OU C AN D RIVE MY C AR

It’s not just our homes where we can save big bucks. One of my sons was dying for a BMW . After years of coveting the “ultimate driving machine,” he finally went out and leased a brand-new Beemer with all the performance options. H e was thrilled with his purchase. H e loved that car: he loved the way it drove, what it said about him, what it represented. It was a point of pride and aspiration, and it announced his arrival—in his own mind, at least.

On the flipside, that BMW cost him a fortune! H e could have made a monthly house payment with what he was paying for that car. A year or two later, the car got a little dinged up, and, no surprise, lost some of its luster.

At 30, and newly engaged, he decided he wanted to look for a home for him and his future wife. W hen he did the math, he almost croaked. T hat $1,200 payment for his BMW X 6 (with a twin turbo V8) could have literally covered an entire house payment.

H e realized he no longer needed the same ego stroke that came from driving a luxury car. It was just transportation, after all. H e saw that he could put himself in a Volkswagen Passat or a Mini C ooper, and it might even be nicer, newer, more fuel efficient.

On top of that, much of the joy that he got from driving that car also disappeared. H e found joy elsewhere: in the idea of building a new life, putting down roots with the woman he loved, and buying a home. G etting rid of the BMW was no longer a sacrifice; instead, it became a conscious decision to spend his money elsewhere and start building a financially secure future.

N ow, if you’re a car aficionado and love cars (as I do), I’m not telling you to go out and drive a Volkswagen. For many guys, that shiny black Ferrari, Porsche, or the new T esla is just too much to resist. And if your plan is getting you to where you want to be financially, by all means, drive whatever car you want. But if you’re not getting there, or you’re not getting there fast enough, then maybe it’s time to rethink your wheels and see if you can find some meaningful savings to put into your Freedom Fund.

Remember Angela? She read an early copy of this manuscript and came home with a new car—her first brand–new car ever! T ake a look at her numbers: she was able to trade in her old car and save $400 a month, or almost $5,000 a year, to put toward her savings and start compounding right away.

W H AT E L SE C AN Y OU D O?

H ouses and cars aren’t the only places where we can save. W here else can you work at axing expenses in your life that no longer give you value? I know the idea of living on a budget is totally unappealing to most people. I don’t want to be put on a budget and my guess is you don’t either. But what I do believe in is a spending plan. I like the idea of planning how to spend my money so that it gives me the most joy and happiness but also ensures my financial freedom long term.

N ow, to be fair, if you’re one of those people who says, “Screw it, I’m not going to save; I’m just going to focus on earning more,” then you can just go ahead and skip right over to the next minichapter on earning more and adding value. If the idea of saving just completely exhausts or bores you, you’ve got four other strategies to help you speed things up, and I don’t want you to miss them because saving isn’t for you. But if you do, stay with me. I promise you that little things can make a big difference long term—they add up to surprisingly giant numbers.

T o be fair, Amazon and brick-and-mortar bookstores have entire sections filled with books on how to save more money. D ave R amsey is a very caring man with several books in this area, and Suze O rman is another author worth investigating if you are looking to find savings. But we’re going to take a few pages here to highlight the best simple strategies now.

One thing is for sure: you can create a spending plan that helps you decide in advance how and where to spend your money to give you the greatest returns today and in the future.

Remember chapter 1.3, “T ap the Power,” where we looked at how ordering in pizza with friends instead of going out to dinner could save you $40 a week, or $2,080 a year? At an 8% return, that turns into more than $500,000 over 40 years. A half million dollars! T hat’s a whole different retirement picture than most Americans have today. T hat kind of money, on its own or added to our 401(k), can certainly help make us rethink our daily G rande skim latte with a shot of vanilla.

Financial expert D avid Bach is a good friend of mine who got his start by attending one of my financial seminars more than 20 years ago. H e made a decision to pursue his dream of helping people become financially independent, and just a few years later, I hired him for his first paid speech. T oday, through his passion and dedication, he’s helped educate over four million people through his bestselling book T he Automatic Millionaire: A Powerful One-Step Plan to L ive and Finish Rich, which includes the concept of creating wealth through finding what he calls your “L atte Factor.” And it’s not just about coffee: the L atte Factor is simply a metaphor for all those small purchases that we don’t even consider—things we wind up wasting our money on without even realizing it. But if you are a coffee fiend, how much is that addiction costing you? L et’s say you’re a casual “user”: at $4 a day, you’re effectively giving up almost $56,500 of savings at 6% interest over 20 years. For a single drink! But let’s be real: the Starbucks loyalist doesn’t go just once a day. W hat about the real evangelists who are there two or three times a day? T ake your $4 habit and boost it to $10 a day, and now you’re drinking away over $141,250 in savings over 20 years. T hat’s the cost of a four-year college education!

W hat if you’re a purist? Y ou don’t binge on caffeine; your body is a temple. But bottled water is your thing. G ot any Fiji or E vian enthusiasts out there? Or frankly, even if you just stock up on Poland Spring at C ostco, how much are you spending on bottled water every year? A young woman I work with, whom I adore and who considers herself very socially conscious, is about to get married to a guy who regularly buys 12-packs of 1.5-liter bottles of Smartwater. H ow smart is that? H e buys them three at a time, 36 big bottles in total, which lasts him about two weeks and sets him back $75. H e’s spending $150 a month on water, almost $1,800 a year—on something he could get free from the tap, or filter with a Brita water filter system and a few N algene bottles for $50 to $60 a year. Forget that he’s killing our planet; he’s also killing his wallet. I know her fiancé would be much happier if that $1,800 a year was going into their savings account and compounding annually. At 8% over 40 years, that’s $503,605 being pissed away—literally.

I’m not saying you have to give up bottled water or stop getting coffee, but the savings are there somewhere. Isn’t it time to find them?

And finally, let’s not forget about our impulse purchases: you know, the ones that feel great in the moment, like the pricey work bag or the beautiful H ermès tie. L isa, a young mom from N ashville, has a taste for the finer things in life. She drives her husband batty with her impulse purchases. She’ll come home with a great new dress or an amazing pair of boots, and her husband will invariably ask, “W ere they on sale?” or “D id you check online to see if you could get them cheaper?” After several spats, L isa and her husband agreed on a new plan. W hen L isa found herself unexpectedly at Saks Fifth Avenue or Jimmy C hoo, she’d take a photo of her next “must-have” and send it to her husband. H e had two weeks to find her a better price online; otherwise she’d order her purchase over the phone at full retail. But as L isa sheepishly admitted to me, over 80% of the time, he did find whatever she was looking for—at often at 20% or 30% cheaper.

So take a page from L isa and her husband and check out all the online rewards programs that can save you real money. U promise.com helps you earn cash back for college from your everyday spending, from online purchases to dining out and booking travel. Y ou can put those savings toward a student loan, savings account, or 529 college savings plan, a tax-deferred savings plan set up by parents for their kids’ college tuition. And if college has passed or it’s not a priority, but cash is, there are hundreds of other cash-back websites out there— E xtrabux, E bates, Mr. Rebates—all of which can save you 10% to 30% on purchases at thousands of online stores. As for L isa and her husband, they put all their savings back into their U promise account, and now everyone feels better about that pair of stilettos.

At the end of the day, the question to ask yourself is this: D o my expenses, big and small, bring me the thrill they once did? It’s not about depriving yourself; it’s about adjusting your spending habits to mirror your core values and indulge only the experiences that truly matter to you. T hat deliberate spending allows you to invest in a quality of life that is sustainable and brings you joy. W hether you’ve got 20, 30, or 40 years to invest, no matter where you are, how much you can save, or how many years you’ve got to do it, you can take advantage of the unparalleled power of compounding. Financial security, financial independence—whatever your goals, you will get there a whole lot faster when you put your money to work for you.

It’s not about lifestyle, it’s about timing. W hy not make simple changes today to insure you have more than enough down the road to continue to fund your lifestyle and your dreams? Y ou can still enjoy life’s finer pleasures —but you’re in control now. Y ou get to choose how to allocate your funds and where to get the biggest bang for your buck. W hether you’re going to tackle your mortgage expense or trade in those fancy wheels, make your online purchases work for you or do a little better on your everyday expenses—it’s in there. Real, meaningful savings, to the tune of hundreds of thousands of dollars to a million dollars or more are there for you to find and to reinvest.

N ow let’s turn the page and uncover the fastest way I know to speed up your plan and achieve financial independence faster. L et’s learn to earn more.

MIN D FU L SAVIN G S

H ere’s a quick-and-easy six-step exercise to get you thinking more aggressively—more purposefully—about saving:

1.     Brainstorm about all the recurring expenditures thatyou could eliminate or reduce to cut your expenses. C ar insurance, cell-phone bills, lunch money, movie tickets. T hink about where you can make changes.

2.     H ow much do these items or activities cost? H ighlightthe most significant of these expenditures and make a note of the associated costs. N ext, calculate how many times per week you indulge in this expense and take a reality-check snapshot.

3.     N ow, on a scale from 0 to 10 (with 0 representing none and 10 representing extremely pleasurable), how much joy do you get from each of the items above? Attach a number to each activity or item to help you associate these costs to your life.

4.     N ext, think of what it would feel like to have AbsoluteFinancial Freedom. Remember how you responded to that concept back in chapter 3.1: “W hat’s the Price of

        Y our    D reams?    Make    the    G ame   W innable”?

Remember how it made you feel? But at the same time, remember that this was a feeling you experienced in the abstract, in theory. H ere it’s close enough to taste. W hat would you be able to enjoy, have, do, be, or give if you were absolutely financially free?

5.     D ecide which is more important to you: the joy youreceive from the recurring expenditures on your list or the feeling of Absolute Financial Freedom.

Remember that life is a balance. Y ou don’t have to cut out everything from your list to move the needle on that feeling of freedom.

6.     W rite down at least three expenditures you are resolved to eliminate. C alculate how much money this will save you over the course of the next year.

C HAPT E R 3.4

SPE E D IT U P: 2. E ARN MO RE AN D

IN V E ST T H E D IFFE RE N C E

T ry not to become a man of success, but rather try to become a man of value.

— AL BE R T E IN ST E IN

Okay, let’s kick into second gear. If saving is one way to speed up your plan, there is an even faster way that literally has no limits—if you unleash your creativity and focus, and become obsessed with finding a way to do more for others than anyone else. T hat’s how you earn more and shift into the fast lane to freedom.

D RIVIN G A T RU C K T O FIN AN C IAL FRE E D OM?

W hen I was growing up, my mother had a great plan for me. She wanted me to become a truck driver. She had seen these ads on television, over and over, for T ruckmaster truck driving education school. She told me that with a little training, I could qualify as a truck driver and make up to $24,000 a year. W ow, $24,000! T hat was twice what my dad was earning as a parking attendant in downtown L A. She thought that this would provide a great future for me. She worked into her sales pitch that I’d have the freedom to be on the open road and drive. It actually appealed to me on a certain level: the idea that I could just turn on my music and go—kind of a cool thought for a 14-year-old kid who wasn’t even driving yet. I’d have the opportunity to get up and go instead of being stuck in an underground parking garage for 30plus years.

But after all of the misery I had witnessed, all of the shame associated with four different fathers, of never having enough money for clothing or food, I realized I could never drive a truck long enough or far enough to allow me to escape the pain of that situation. In my head, I decided that there was no way in my lifetime I would have a family that would suffer this way. On top of that, I wanted to use my mind and my heart. I wanted to get in the game of life at a different level.

I looked around and wondered how other people’s lives could be so vastly different from my own. W hy were we struggling constantly to make ends meet, to stay ahead of the bill collector—choosing between canned beans or spaghetti with ketchup because we couldn’t afford tomato sauce? And yet, in the same city, not far from us, kids I went to high school with were taking fancy vacations and studying on picture-perfect college campuses—living a life well beyond my wildest dreams— a life so obviously different from the one we would ever experience. W hat did they know that we didn’t know?

W hat were they doing differently from my father and mother?

I became obsessed. H ow was it possible that someone could earn twice as much money in the same amount of time? T hree times as much? T en times as much? It seemed crazy! F rom my perspective, it was an unsolvable riddle.

IN VE ST IN Y OU RSE L F

I was working as a janitor, and I needed extra money. A man my parents knew, and whom my father had called a “loser,” had become quite successful in a short period of time, at least in financial terms. H e was buying, fixing, and flipping real estate in Southern C alifornia and needed a kid on the weekend to help him move furniture. T hat chance encounter, that fateful weekend of working my tail off, led to an opening that would change my life forever. H is name was Jim H annah. H e took notice of my hustle and drive. W hen I had a moment, I asked him, “H ow did you turn your life around? H ow did you become so successful?”

“I did it,” he said, “by going to a seminar by a man named Jim Rohn.” “W hat’s a seminar?” I asked. “It’s a place where a man takes ten or twenty years of his life and all he’s learned and he condenses it into a few hours so that you can compress years of learning into days,” he answered. W ow, that sounded pretty awesome. “H ow much does it cost?” “T hirty-five dollars,” he told me. What!? I was making $40 a week as a part-time janitor while going to high school. “C an you get me in?” I asked. “Sure!” he said. “But I won’t—because you wouldn’t value it if you didn’t pay for it.” I stood there, disheartened. H ow could I ever afford $35 for three hours with this expert? “W ell, if you don’t think you’re worth the investment, don’t make it,” he finally shrugged. I struggled and struggled with that one—but ultimately decided to go for it. It turned out to be one of the most important investments of my life. I took a week’s pay and went to a seminar where I met Jim Rohn —the man who became my life’s first mentor.

I sat in an Irvine, C alifornia, hotel ballroom listening to Jim, riveted. T his silver-haired man literally echoed the questions that had been burning in my mind. H e, too, had grown up poor, wondering, even though his father was a good man, why his father struggled so hard only to suffer while others around him prospered. And then, suddenly, he answered the question I had been asking myself literally for years.

“W hat’s the secret to economic success? T he key,” he said, “is to understand how to become more valuable in the marketplace.

“T o have more, you simply have to become more.

“D on’t wish it was easier; wish you were better.

“For things to change, you have to change.

“For things to get better, you have to get better!

“W e get paid for bringing value to the marketplace. It takes time . . . but we don’t get paid for time, we get paid for value. America is unique. It’s a ladder to climb. It starts down here, at what? About $2.30 an hour. W hat was the top income last year? T he guy who runs D isney —$52 million! W ould a company pay somebody $52 million a year? T he answer is: of course! If you help a company make a billion dollars, would they pay you $52 million? Of course! It’s chicken feed! It’s not that much money.

“Is it really possible to become that valuable? T he answer is: of course!” And then he let me in on the ultimate secret. “H ow do you truly become more valuable? L earn to work harder on yourself than you do on your job.

“So can you personally become twice as valuable and make twice as much money in the same time? Is it possible to become ten times as valuable and make ten times as much money in the same time? Is that possible? Of course!” And then he paused and looked directly in my eyes and said, “All you have to do to earn more money in the same amount of time is simply become more valuable.”

And there it was! T here was my answer. Once I got that, it turned my life around. T hat clarity, that simplicity, the wisdom of those words—they hit me like a 100-pound brick. T hose are the exact words I’ve heard Jim Rohn speak probably a hundred times. I have carried them in my heart every day since, including the day that I spoke at his funeral in 2009.

T hat man, that seminar, that day—what Jim Rohn did was put me back in control of my own future. H e made me stop focusing on what was outside of my control—my past, the poverty, other people’s expectations, the state of the economy—and taught me to focus instead on what I could control. I could improve myself; I could find a way to serve, a way to do more, a way to become better, a way to add value to the marketplace. I became obsessed with finding ways to do more for others than anyone else was doing, in less time. T hat began a never-ending process that continues to this day! At its most basic level, it provided a pathway to progress that continues to drive and lead every single decision I make and action I take.

In the Bible, there is a simple tenet that says there’s nothing wrong with wanting to be great.⁹ If you wish to become great, learn to become the servant of many. If you can find a way to serve many people, you can earn more. Find a way to serve millions of people, you can earn millions. It’s the law of added value.

And if the gospel of W arren Buffett is more your thing than biblical verse, the O racle of O maha is famous for saying that the most powerful investment he ever made in his life, and that anyone can make, is an investment in himself. H e talks about investing in personal development books, in educating himself, and how a D ale C arnegie course completely changed his life. Buffett once told me this story himself when we were on the T oday show together. I laughed and asked him to keep telling that story. “It’s good for business,” I said, grinning.

I took Jim Rohn’s message to heart and became obsessed—I would never stop growing, never stop giving, never stop trying to expand my influence or my capacity to give and do good. And as a result, over the years, I’ve become more valuable in the marketplace. T o the point that I’m extremely fortunate enough today that finances are no longer an issue in my life. I’m not unique. Anyone can do the same—if you let go of your stories about the past, and break through your stories about the present and its limits. Problems are always available, but so is opportunity.

W hat does the American income ladder look like today? My bet is Jim Rohn couldn’t have imagined that in 2013, the low end of the ladder would be $7.25 an hour ($15,080 annually) and that the high-end earner of the year would be Appaloosa Management founder and hedge fund leader D avid T epper, who earned $3.5 billion in personal income. H ow could any human being make even $1 billion a year, much less $3.5 billion? W hy such an incredibly low income for some people and such a high-income opportunity for others? T he answer is the marketplace puts very little value on being a cashier at McD onald’s ($7.77 an hour) because it requires a skill that can be learned in a few hours by almost anyone. H owever, successfully expanding people’s financial returns in a significant way is a much more rare and valued set of skills. W hen most Americans are getting less than 33 basis points (a third of 1% ) annually as a return on their money from the bank, D avid T epper delivered a 42% return for his investors in the same time! H ow valuable were his contributions to their economic lives? If he got them a 1% return, he would have been 300% more valuable. A 42% return means he added 12,627% more economic value to their lives!

So how about you? W hat are you going to do to add more value to the marketplace? H ow are you going to ensure abundance rather than struggle? If we’re going to make a radical shift and take you from where you are today to where you want be—to financial freedom—then this path is the most powerful one I know to get you there.

N ow, before you start your rallying cry of objections, let me just say: I know that things are different today. I know it’s a challenging time for the economy. I know we’ve lost two million jobs since 2008, and the ones that are coming back are mostly service or low-paying jobs. And yes, I realize that incomes have been stagnant since the 1990s.

G uess what interest rates and unemployment looked like in 1978, when I started my career? W ithin two years, interest rates had skyrocketed! My first investment, a fourplex in L ong Beach, C alifornia, had an 18% mortgage. C an you imagine interest rates at 18% today to buy a home? W e’d have a revolt on the W hite H ouse lawn. But history is circular—always has been, always will be. Y es, incomes are stagnant, if you don’t find a way to geometrically add more value. But if you find a way to add value, incomes move in one direction, and that’s always up.

D      uring the G reat Recession, 8.8 million jobs were lost. In 2008, 2.3 million jobs were lost in that year alone! U nemployment peaked at 10% . But remember, that 10% unemployment rate is an average. Some portions of the population had unemployment levels over 25% , but for those making $100,000 per year or more, what would you guess was their unemployment rate? T he answer: close to 1% ! T he lesson? If you truly develop skills that are needed in the current marketplace —if you constantly improve and become more valuable— someone will employ you or you’ll employ yourself, regardless of the economy. And if you employ yourself, your raise becomes effective when you are!

E       ven today, it’s a totally different story in Silicon Valley, where jobs are for the taking. T echnology companies can’t fill their openings fast enough; they can’t find enough qualified people. Jobs are out there, but you and I need to retool our skill sets—retool ourselves—so that we become valuable in the new marketplace. I can promise you this: most of those “old jobs” aren’t coming back.

L et’s look at history. In the 1860s, 80% of Americans were farmers. T oday 2% of the U S population work in farming and agriculture, and we feed the entire world. N ew technology disrupted everything—suddenly one farmer could do the work of 500. Many people struggled, many lost their jobs. For those who didn’t adapt, the industrial revolution was an incredibly painful time. But that very same technology that brought along steam power and machine tools, which displaced people in the short term, made the quality of life of everyone around them exponentially better and provided more jobs at a higher level of income.

T oday’s new technologies are causing massive disruption once again. Oxford researchers say that almost half of America’s occupations are at risk of becoming automated (translation: replaced) within the next 20 years! Y ou and I have to retool to a different level. I promise you, 150 years ago, no one could have fathomed a day when there would be jobs called social media marketer, stem cell scientist, and robotics engineer. N o one could imagine that an electrician or a plumber would make $150,000 a year, or that a factory worker could learn how to use a computer to automate a machine and earn $100,000 in the process. But just because people couldn’t imagine it, didn’t mean it wouldn’t happen.

I meet people everyday who tell me the job market is frozen, or they’ve been laid off and fear they’ll never find work again. But I’m here to tell you it’s not the market, it’s you. Y ou can increase your earnings potential— anyone can. Y ou can add value to the marketplace. Y ou can learn new skills, you can master your own mind-set, you can grow and change and develop, and you can find the job and economic opportunity that you need and deserve.

But if your job is going to be obsolete in the next five or ten years, it’s time to think about making a pivot and trying something new. A pivot is what Silicon Valley calls it when you go from one business to another, usually after a colossal failure.

If you’re reading this book right now, you’re a person who looks for answers, for solutions, for a better way. T here are hundreds of ways you can retool your skill set. Y ou can do it by going after a college education, a trade education, or self-education. Y ou can earn $100,000 to millions a year, and not by just going and spending a boatload of money on a four-year college degree (that can put you $100,000 or more in debt). Millions of jobs are available in this country, but there is also a major skills gap. According to Mike Rowe, host of D iscovery C hannel’s D irty J obs, there are about 3.5 million jobs available right now, and only 10% of them require a four-year degree. T hat means that the other 90% of them require something else: training, skill, or a willingness to get dirty, perhaps, but mostly a willingness to learn a new and useful trade. According to Rowe, “T hat’s always been for sale, but it’s kind of fallen out of [our country’s] narrative.”

Retooling is both exciting and scary. E xciting because of the opportunity to learn, grow, create, and change. E xciting once you realize “I’m valuable; I have a contribution to make; I’m worth more.” Scary because you think, “H ow am I going to do this?” Remember Jim Rohn’s words: “For things to change, you have to change. F or things to get better, you have to get better.” Retool or be the fool. G et rid of your story of limitation and shift into high gear.

People often say to me, “T ony, that’s great if you have your own business or you work in a company where it’s growing. But what if you’re in a traditionally lowpaying job, and you love what you do? W hat if you’re a teacher, what then?” L et’s step outside our own limiting thinking, and let me give you a perfect example of a schoolteacher who used to struggle, but because of his passion and his desire to help more students, he found a way to add more value and earn more than most teachers ever dream about. T he real limitation in our earnings is never our job—it’s our creativity, our focus, and our contribution.

C RE AT IVIT Y , C ON T RIBU T ION , AN D T H E

K ORE AN ROC K ST AR

If you ever had a third-grade teacher who inspired you to try something new, or an eighth-grade teacher who believed in your own child beyond measure, you know the power of a single role model in the life of a child. Our teachers are one of our greatest yet most underappreciated and underpaid assets. So what do you do if you’re a teacher, or you have a similar job where your upside potential seems to be limited? As a teacher, how can one think about adding value to more than just 30 students in the classroom? Is there a way you might be able to add value to hundreds of students, thousands of students, even millions?

T       here are plenty of schoolteachers who think, “I’ll never make enough money doing what I love.” T here is broad agreement that we as society don’t value teachers in the way that we should. But as we now know, that limiting belief holds people back. K im K i-hoon is a teacher in South K orea who refused to buy into that story.

U      nlike most teachers, K im K i-hoon is known as a “rock star” in South K orea. K im is one of the most successful teachers in his country. H ow did he become so successful? H e worked harder on himself, on his ability to teach, than he did on his job.

Sixty years ago, according to the Wall Street J ournal, the majority of South K oreans were illiterate. T he country realized it needed to take massive and dramatic action. T oday teachers there are constantly encouraged to study, to innovate, to teach the same class in a new way every day. T hey’re taught to learn from one another, mentor one another—find the best techniques to add more value. T he result? T oday 15-year-olds in South K orea rank second in reading, and with a 93% graduation rate—compared with just 77% in the U nited States.

K i-hoon took that model and ran with it. H e put enormous time into finding the best teachers, studying their patterns, learning how to create breakthroughs. H e found a way to help his students learn faster, better, smarter—and not just his students but also students all across the country. W hy focus on just helping 30 students? he thought, W hy not help as many as I can? W ith the advent of technology, he realized he could put his classes online and make his passion for teaching and learning available to everyone.

T oday K i-hoon works about 60 hours a week, but only three hours of those are for giving lectures. T he other 57 hours are spent researching, innovating, developing curriculum, and responding to students. “T he harder I work, the more I make,” he says. And he works hardest to become better for the people he serves. K i-hoon records his classes on video, and circulates them on the internet, where students log on at the rate of $4 an hour. H ow does he know it works? H ow does he know he’s adding more value than anyone else? T he marketplace always tells you your true worth or value. G uess how many people buy his classes? L ast year, his annual earnings topped $4 million! T he more value K i-hoon offers via online classes and tutorials, the more students sign up. And, it follows, more students means more money—in this case, a lot more.

A teacher earning $4 million. H ow does that compare to the best schoolteacher you know? K i-hoon’s story shatters the belief that our profession limits us. H e’s part of the 1% not because he’s lucky, not because he was in the right place at the right time, not because he chose a lucrative profession. N o, K i-hoon is a wealthy man, part of the 1% , because he has never stopped learning, never stopped growing, never stopped investing in himself.

T H E U L T IMAT E MU L T IT ASK E R

But what if you’re not an entrepreneur? W hat if you have absolutely no interest in hanging up your own shingle? W hat if you work in corporate America or even for a small business? C an you still figure out a way to add more value and increase your earning potential? L et me tell you about a young woman. D aniela worked in a marketing department doing art design and didn’t see any clear path toward moving up in her company. She was extremely talented, but more importantly, she was hungry. She was constantly looking to do more and give more; it was just her nature. And so she often helped her colleagues with visual arts. And then she wanted to learn about marketing, so she started studying marketing and offered to help. And then, of course, she realized she didn’t really know anything about social media—but the opportunities there seemed huge, so she decided to educate herself on social media as well.

After a few years, D aniela was doing many of the jobs of her coworkers. And they forgot that she was offering a gift, and they started to take her for granted. A new pattern emerged where, at five o’clock, when jobs with key deadlines were still not done, she worked alone at her desk as her associates slipped out the door. She didn’t want to stay late, but she wasn’t going to let the company and their clients down. W hen it was clear her colleagues were actually taking advantage of her drive and ambition, she reached her limit. “I’m doing three people’s jobs plus my own!” But instead of getting angry, D aniela decided it was an opportunity.

W hat did she do? D aniela approached her C E O and laid it on the line: “Right now I’m doing the work of four people. I’ve gone to courses, I’ve learned and taught myself about visual arts, marketing, and social media. I’m not here to throw anybody under the bus, but I can save you fifty percent of your marketing cost right now and eliminate three people by taking on their jobs myself. And I’ll do a better job, too. I don’t need you to trust me on this: let me prove myself to you. L et them keep doing their jobs for six months, and I’ll do my assignments and theirs, so you’ll have two different examples to pick from. Y ou decide what’s best.”

All D aniela asked was that if she did a better job, after six months, her boss would give her more responsibility and double her pay. And guess what? She did it: she proved herself on the visual art and marketing fronts, with great copywriting and a successful social media campaign. D aniela showed that not only could she handle the extra work, but also she could run circles around the competition—she could outperform them all. She added enough value that the company realized it could pay one person twice as much money, and still cut its costs in half. T he marketplace had spoken.

H appiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.

— F R AN K L IN D . R O O SE V E L T

OPPORT U N IT Y IS E VE RY W H E RE

H ow are you going to add more value to the world? H ow are you going to contribute more, earn more, and increase your impact? T here are hundreds, if not thousands, of stories of average individuals who saw a problem, looked at things just a little bit differently, and went on to transform entire industries or create entirely new markets. T hey weren’t entrepreneurs; they were just people like you and me, people who wouldn’t settle. In the world we live in today, no industry or product is immune: the intersection of all things digital—the internet, social media, and technology—the interconnectedness of every person and everything on earth. T hat means that even the biggest companies and the most mature or stable businesses are ripe for disruption. E nter N ick W oodman.

RID IN G T H E W AVE

W ho would have predicted that K odak, the corporate titan that dominated the world of photography in the 20th century, would be caught flatfooted when digital imaging came on the scene? K odak invented digital photography. And yet after 124 years in business, the company filed for bankruptcy in 2012—a move that had a disastrous ripple effect on the economy in and around Rochester, N ew Y ork, where over 50,000 jobs were lost.

But those same massive technological and cultural changes that killed K odak provided a huge opportunity for a C alifornia surfer named N ick W oodman. W oodman was obsessed with surfing. H is absolute love of and devotion to the sport, along with his drive and his hunger, enabled him to find a way to add value.

C hances are you’ve never heard of W oodman, but he had the brilliant idea to strap a waterproof camera to his wrist while riding the waves. All W oodman set out to do was find a way to enjoy his surfing after it happened. W ith digital photography coming out, he started to tinker with cameras to see if he could make them more waterproof and capture better-quality video. And as technology changed, he continued to tinker. And tinker. H e ended up inventing the G oPro, a tiny, broadcastquality, clip-on-and-take-anywhere digital camera.

T his cool little device is now on the head of every extreme sports person in the world. W hether you’re riding a bike, paddling through rapids, snowboarding, or catching the waves, the G oPro allows you to capture the magic of your adrenaline rush and share it with everyone you love. W oodman’s timing couldn’t have been better: he began marketing the G oPro just as people started uploading their videos to Y ouT ube and Facebook. H e created a product he wanted to use and figured he couldn’t be the only guy needing one. W oodman figured out how to add value to millions of lives by making the new technology convenient, fun, and affordable. U ltimately, W oodman got in front of a trend. T hat trend was actively sharing digitally whatever was there. O ne of the key secrets if you really want to become wealthy: get in front of a trend. T oday the surfer from San D iego, C alifornia, is worth over $1 billion.

A N E W “C AT E G ORY ” IS BORN

Back in 2010, Matt L auer invited me to join him for a special roundtable discussion about where the economy was headed. I was joining W arren Buffett and the world’s youngest female self-made billionaire: a woman named Sara Blakely. Any opportunity to discuss the economy with W arren Buffett was a huge privilege, but what I didn’t bank on was being totally blown away by Sara’s story.

Blakely didn’t disrupt an industry so much as create an entirely new one. A former W alt D isney W orld employee, Sara was getting ready for a party when she realized she didn’t have the right underwear for a pair of fitted white pants. Rather than go commando, she decided to take matters into her own hands. Armed with nothing more than a pair of scissors and a whole lot of sass, she cut the feet off her control-top pantyhose, and, voila, a new industry was born.

Of course, it didn’t happen overnight, and it didn’t happen easily. Sara shared with me that one of the most important secrets to her success was that from an early age, her father actually encouraged her to “fail!”

But he defined failure not as failure to achieve a result . . . but failure to try. Around the dinner table, he would ask if she had failed today, and he was truly excited if she had —because he knew that meant she was on the path to success. “T ony, it just took away my fear of trying,” she told me.

D own and out in a dead-end office-products sales job, Blakely invested all the money she had in the world, $5,000, and set out to create body wear that would work for her. “I must have heard ‘no’ a thousand times,” she said. But she didn’t listen. In addition to the $5,000 she invested, she saved $3,000 (which she didn’t have) on legal fees by writing her own patent from a textbook.

U ltimately, the company she founded, Spanx, created an entirely new category of products called “shapewear” and has inspired a cultlike following among women worldwide. According to my wife, put on a pair to pull in all your “its and bits,” and you’ll take three inches off your waistline immediately.

W ith Oprah W infrey’s blessing, Spanx turned from a small business into a worldwide sensation. T oday Spanx is worth over a billion dollars, and the brand now includes over 200 products that help women look and feel great. E ver the optimist, Sara tried to work her magic on me: she tried to get me to wear a pair of her new Spanx for men when we were together on the T oday show. I thanked her and mentioned gently that perhaps she didn’t understand the male market as well as the female market. But I remain inspired by her example. In the end, Spanx for men has also taken off—no thanks to me. T oday Blakely owns 100% of her company, has zero debt, and has never taken on outside investment. In 2012 T ime magazine named her one of its “100 Most Influential People in the W orld.”

L ike N ick W oodman, she saw a need and moved to fill it. She refused to be limited by her own story and found a way to add value.

Y ou can too! Y ou don’t have to start a billion-dollar company, disrupt an entire category, or make $4 million as a teacher online. Y ou don’t even have to take on four jobs at once. But if these people are capable of doing that, couldn’t you find a way to make an extra $500 or $1,000 a month? Or maybe even an extra $20,000, $50,000, or even $100,000 or more a year? C ouldn’t you figure out how to unleash your own creativity, contribution, and focus to add more value to the marketplace and put that money in your Freedom Fund? Y ou can. T he time to begin is now. . . .

Find a way to earn or save an extra $500 per month, or $6,000 a year. If it is invested at an 8% return over 40 years, it is worth $1.5 million—remember our pizza example. If you find a way to earn $1,000 per month, or $12,000 a year, that’s worth $3 million in your nest egg. If you find a way to earn $3,000 per month, or $36,000 a year, that’s worth $9 million in your nest egg. W hat’s the lesson? G o add value, earn more, and invest your earnings, and you can create any level of financial freedom you truly desire.

9. “Instead, whoever wants to become great among you, must be your servant,” Matthew 20:26, N ew International V ersion.

C HAPT E R 3.5

SPE E D IT U P: 3. RE D U C E FE E S AN D

T AX E S (AN D IN V E ST T H E D IFFE RE N C E )

W e have what it takes to take what you have.

— SU G G E ST E D IR S MO T T O

“Y ou must pay taxes. But there’s no law that says you gotta leave a tip.”

— MO R G AN ST AN L E Y AD V E R T ISE ME N T

So now you’re rocking and rolling—you’re speeding up your path to financial freedom by saving more and earning more! W hat’s left? D oesn’t that cover it? Actually, no. Y ou now know as an insider that it’s not what you earn that matters, it’s what you keep. Our third strategy for speeding things up is to get more money out of your investments by reducing your fees and taxes, and reinvesting the difference.

Remember our three childhood friends from chapter

2.2, “Myth 2: ‘Our Fees? T hey’re a Small Price to Pay!’ ”? T hey all invested $100,000 at the age of 35 and earned a 7% return on their investment. But each one was subject to a different set of fees—and the difference between the 1% , 2% , and 3% fees came out to hundreds of thousands of dollars. T aylor, who paid just 1% in fees, accumulated almost twice as much money as her friend Jason, who paid 3% in fees. H er investment grew to $574,349, while he was left with only $324,340!

Remember, those hidden fees on mutual funds average an astronomical 3.17% . T he difference between owning high-cost, fee-laden mutual funds versus low-cost index funds could literally cost you a decade’s worth of your life’s work—talk about slowing you down on your path to Financial Freedom! And to add insult to injury, studies show that the high fees that come along with those mutual funds almost never lead to increased performance.

So stay away from excessive fees. Run for the hills. Find low-cost index funds to invest in and heed the warning of Jack Bogle, who showed us that paying through-the-nose fees can eat up as much as 50% to 70% of your future nest egg! T he mantra is simple: take the money you save on fees and reinvest it for compounded growth. T his strategy is another fast lane to freedom.

And what about an even bigger bite of your savings? D o you know what the single largest bite to come out of your nest egg is? Survey says: taxes!

Over the course of our lives, the average American pays more than half of his or her income to an assortment of taxes: income tax, property tax, sales tax, tax at the pump, and so on. (According to what many experts estimate, currently, that’s 54.25 cents per dollar.) G ood ol’ U ncle Sam. And we’re not done yet.

After 54.25% has been lopped off for the tax man, you can also say good-bye to another 17.25% of each dollar you earn in interest and fees. G ot a car, a house, any credit card or student loan debt? In April 2014 the average U S household had credit card debt of over $15,000; student loan debt of over $33,000; and mortgage debt of over $150,000. As a nation, we are up to our eyeballs in debt.

T he fact is, on average, approximately one-third of the income you have left after taxes will be spent on paying down interest!

T hat leaves you with (drumroll, please) a whopping 28.5% of your hard-earned income left over to pay for everything else in life: food, clothing, shelter, education, health care, travel, entertainment, and anything else you happen to stumble upon at the mall or on Amazon! Plus, out of this same number, you have to find a way to save and invest for F inancial F reedom, or at least some form of retirement income!

Becoming more efficient with your taxes is one way to get back some of that 54% you’ve given away. K eep more of your hard-earned income, and that’s money that you could invest and compound to achieve your vision of Financial Freedom quicker.

In fact, if you’re a high-income earner, living in a high-income state like C alifornia (as I used to), your total tax bill (including income, investment, payroll, O bamacare, and Social Security) clocks in at 62% . W hich means that unless you have an efficient tax strategy, you get to keep only 38 cents out of every dollar you earn.

T here’s no good reason to pay more than you have to

—in fact, it’s your right as an American not to pay more than you have to. As Billings L earned H and, one of the most influential judges of all time, stated:

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the T reasury. T here is not even a patriotic duty to increase one’s taxes. Over and over again the C ourts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. E veryone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

I follow Judge H and’s wisdom. I don’t believe in paying any more than I absolutely have to, and neither should you. I continually look for legal, ethical ways to lower my tax bill, and I do my best to make use of government initiatives that allow me to build my nest egg in a tax-free environment. I learned from those I interviewed that tax efficiency is one of the most direct pathways to shorten the time it takes to get from where you are now to where you want to be financially.

I am proud to be paying taxes in the U nited

States. T he only thing is, I could be just as proud for half of the money.

— AR T H U R G O D F R E Y

L et’s be clear: I’m a patriot. I love America. I am one of millions of examples of the American D ream, and I’m happy (well, perhaps not happy, but proud) to pay my taxes. Y et I pay millions of dollars in taxes every year. My tax bill is more than I ever thought I’d earn in a lifetime, much less in a year. But I know from Y ale’s D avid Swensen that there are only three forces that can help you achieve the greatest returns:

1. Asset allocation, 2. D iversification,

3. T ax efficiency.

It helps, of course, that D avid runs a nonprofit organization, but for the rest of us, even with current tax laws, there are ways to maximize investment returns and minimize your tax bill.

Money Power Principle 4. T ax efficiency is one of the simplest ways to continuously increase the real returns on your portfolio. T ax efficiency equals faster financial freedom.

(Reader alert: If your brain is going to blur as I talk about taxes, I get it! T hen simply jump immediately to the next chapter so you don’t lose momentum. But be sure to schedule a time to sit down with your fiduciary and/or a tax expert to learn how to be most tax efficient with your investments. If you’re willing to go for it, the next four pages offer some simple tax distinctions that, when understood, will allow you to keep more of your invested income and achieve your financial dreams

faster.)

PIC K Y OU R T AX !

W hat if you realized that a small amount of tax knowledge could save you from needlessly paying 30% of what you earned to the tax man? H ow much faster could you achieve your financial goals?

Y ou need to pay close attention to three types of taxes as an investor:

1.   Ordinary Income T ax.

As stated, if you’re a high-income earner, your combined federal and state income taxes are nearing or exceeding 50% .

2.   L ong-T erm C apital G ains.

T       his is a tax on investments, which is only 20% if you hold your investment for longer than one year before you sell.

3.   Short-T erm C apital G ains.

T       his is a tax on investment gains if the investment issold before you have held it for a minimum of one year. T oday the rates are currently the same as ordinary income taxes. Ouch!

N ow that you know the power of compounding, I’m sure you realize how compounding your growth after taking a 50% tax bite as opposed to a 20% tax bite can mean the difference between arriving at your financial goals a decade early or never getting there at all. Want to understand the real impact of this?

•    If you’re getting an 8% gross return on your mutualfund, you’re paying as much as 3% in fees on average —let’s call it 2% , conservatively.

•    So now your 8% return nets you 6% after fees. Butwe’re not done yet.

•    If you’re a high-income earner from C alifornia or N ewY ork with a 50% federal and state ordinary income tax, you’re left with closer to 3% on your investment after all these fees and taxes.

R emember you get to spend only what you keep; if you invest with a 3% net return, it takes 24 years to double your money.

If you made the same investment in an index fund, your 8% return would have fees in the range of 10 to 50 basis points (or 0.10% to 0.50% ). W e’ll go for the larger number just to be conservative. T hat means you have a

7.5% return (8% - 0.5% = 7.5% ), but since the index is not trading constantly, you defer all tax, and so your net return for the year is 7.5% . T hat means you can reinvest those returns and tap into the incredible power of compounding without the tax man interfering.

If you conscientiously manage your investments for tax efficiency, your 7.5% allows you to double your investments in 9.6 years instead of 24 years! N ow do you see the importance of both tax and fee efficiency?

So how do you lower your tax bill and keep more of your earnings so you can compound your investments and achieve your idea of F inancial F reedom faster?

•    Make sure that wherever possible, you invest in a waythat allows you to defer your taxes (401[k], IRA, annuity, defined benefit plan) so that you compound tax free and pay tax only at the time you sell the investment. Or set up a future tax-free environment by growing your investments in a Roth.

•    W hen you do sell any investment held outside of a tax-deferred account (like an IRA), make sure you hold for a minimum of a year and a day in order to qualify for the lower long-term capital gains rate (again, at the time of this writing the rate is 20% ).

ON E MORE T H IN G : BE W ARE OF MU T U AL

FU N D S

For most people, a home sale is usually a once- or twicea-decade thing, and your accountant or tax expert can easily explain how to do this most tax-efficiently. But let’s take a look at mutual funds. D o you know what those mutual fund managers of yours are doing every day? T hey’re trading. T hey are buying and selling stocks and bonds on a daily, monthly, or quarterly basis. T his is what the industry calls “turnover.”

According to C harlie F arrell of C BS MarketW atch, “So although their marketing material encourages investors to buy and hold, the managers certainly don’t practice what they preach. W hat they really mean is buy and hold

their      mutual      fund,     while     they     trade      your

retirement savings like crazy.”

E xperts say that the vast majority of mutual funds do not hold on to their investments for a full year. W hy else would you buy them other than hoping they can trade their way to better performance? And you know what that means? U nless you’re holding all of your mutual funds inside your 401(k), you’re typically paying ordinary income taxes on any gains.¹⁰

In short, there’s a good chance you’re being charged 35% , 45% , or up to 50% or more in income tax, depending on what state you live in and your income level. All this tax, and you didn’t even sell your mutual fund! So instead of keeping all your gains and having them continue to compound tax deferred, you are taking a devastating hit to your compounding ability that is completely avoidable if you understand tax efficiency.

E ven if you’ve maxed out your 401(k) and IRA, you can still make investments in a form that allows you to defer taxes. Index funds do not constantly trade individual companies; they usually hold a fixed basket of companies that changes only if the index that the fund tracks actually changes—which is rare.

As a result, if you’re investing in an index long term, you’re not taking the tax bite each year; instead, you’re deferring the taxes, since you haven’t sold anything. T hat money can remain in the fund and continue to compound earnings to its owner: you!

Y our fiduciary or a great tax expert can help you understand all the ways you can produce more net growth in your F reedom F und so that your compounding process is maximized. R emember, this can save you years or even decades!

And finally, in section 5, there is a strategy that you’ll learn about in the “Secrets of the U ltrawealthy” chapter that you can use, too: an IRS-approved method that will make a huge difference by allowing you to compound your investments and help you keep your nest egg tax free. T his could allow you to achieve your financial goals up to 25% to 50% faster without taking any greater investment risks!

H ave I got your attention? I hope so. Because it’s your money and it’s your life! D on’t let anyone take it or waste it! So you now have three fast-track strategies to speed up the pace and win the money game:

1.   Save more and invest the difference.

2.   E arn more (add value) and invest the difference.

3.   Reduce fees and taxes and invest the difference.

N ow it’s time to turn on the juice and take a quick look at some of the ways you can increase what your investments earn. . . .

10. H owever, in certain situations, the gains may be long-term if the fund held the position for an extended period.

C HAPT E R 3.6

SPE E D IT U P: 4. G E T BE T T E R

RE T U RN S AN D SPE E D Y O U R W AY T O

V IC T O RY

If you’re prepared, and you know what it takes, it’s not a risk. Y ou just have to figure out how to get there. T here is always a way to get there.

— MAR K C U BAN

H ow do you get a greater return while still reducing risk? Most people think that in order to get high returns, you have to take huge risks. But the greatest investors know that’s simply not the case. Remember K yle Bass from chapter 2.8, “Y ou G otta T ake H uge Risks to G et Big Rewards”? H e blew the high-risk, high-return myth out of the water with something called asymmetric risk/reward.

T       hat’s a fancy term for a pretty simple concept. H owdo you explain it? K yle turned $30 million into $2 billion by finding an investment opportunity where he risked only 3 cents for the opportunity to make $1—more accurately, $3 million for a $100 million upside—and expanded that risk/reward ratio into billions. Remember how he taught his sons to make “riskless” investments with significant upside by buying nickels? T he upside (reward) is way bigger than the downside (risk) on this deal, which makes it asymmetric.

One of Paul T udor Jones’s greatest successes is that he knows he can be wrong and still be successful, because he uses asymmetric risk/reward to guide his investment decisions. H e’s always looking for what he calls a 5:1 investment—where if he risks $1, he believes he can make $5.

Jones is willing to risk $1 million when his research shows he’s likely to make $5 million. Of course, he could be wrong. But if he uses the same 5:1 formula on his next investment, and he’s successful, he will have made $5 million, minus the first investment loss of $1 million, for a net investment gain of $4 million.

U      sing this formula of constantly investing where hehas the opportunity for asymmetric rewards for the risk he’s taking, Paul could be wrong four out of five times and break even. If he loses $1 million four times in a row trying to make $5 million, he’ll have lost a total of $4 million. But when the fifth decision is a success, with a single home run he’s earned back his total $5 million investment. T he greatest investors in history know how to maximize their returns—they know how to set the game up to win.

Y ou’ll learn more about what Paul teaches in section 6, “Invest L ike the .001% : T he Billionaire’s Playbook,” and in my interview with him. H e is going to share with you his “$100,000 MBA,” or the most important things he’s learned about investing—one of which is how to be wrong and still win!

So asymmetric risk/reward is the first way to get higher returns. T he second way? Y ou’ll learn more about this in chapter 4.1 on asset allocation, but for now, just know that if real estate’s mantra is “L ocation! L ocation! L ocation!” then the mantra for getting better returns while reducing risk is “D iversification! D iversification! D iversification!” E ffective diversification not only reduces your risk but also offers you the opportunity to maximize your returns.

Asset allocation is the one thing that every investment professional I’ve talked to, the best in the world, has said is the key factor in where you end up financially. It’s the most important skill, and it’s the one most investors know little about. So in chapter 4.1, “T he U ltimate Bucket L ist: Asset Allocation,” you’re going to learn the power of asset allocation and be able to implement its gifts to benefit you and your family for the rest of your life. On top of that, you’re going to see in section 6 the exact asset allocation of some of the most successful investors in the world who have consistently produced the highest returns.

Y es, you read that right: you’ll be able to model the exact strategies of the best investors on the planet. Y ou’ll have Ray D alio’s asset allocation! Obviously, past performance doesn’t guarantee future performance, but in the case of Ray D alio, your strategy is coming from one of the greatest investors of all time, and his focus is getting you the greatest return with the least amount of risk. D alio has been estimating every type of market and finding what the best ratio is through asset allocation for over 20 years. H e has more than $160 billion in assets under management and a record of only three losing years out of the last 22. After reading this book, you will learn a strategy that is based on Ray’s groundbreaking approach for the world’s wealthiest individuals, institutions, and governments.

H OW FAST C AN Y OU G O?

It’s probably pretty obvious that we’d all like better returns. But what’s less obvious is the massive impact that better returns have on your time horizon for investing. T he “rule of 72” says that it takes 72 years to double your money at a 1% compounded rate. So if you’ve got $10,000 to invest at 1% compounded, you may not be around to see that money double. Y ou can cut that timeline in half by doubling your rate to 2% , and in half again by doubling that rate to 4% ! So what’s the difference between a 10% return and a 4% return? A 10% return doubles every 7.2 years; a 4% return doubles every 18 years! If you want to radically change your plan and get to financial freedom in seven years versus 18 years, you can. Or 14 years instead of 36! T hose are the types of differences that are possible when you learn how to get better returns. And the most important thing is to get these greater returns without taking significantly greater risks wherever possible. Y ou’re looking for that asymmetric risk/reward that all great investors seek. It’s elusive, but it’s out there, and this is just one more way that you can speed up your approach to realizing your dreams. (T ake a look at the table on page 284 to see how fast—or slow

—your money will double.)

Y our next question is likely, “W here do I start looking for my own asymmetric risk/reward opportunities?” Sometimes they turn up in the unlikeliest places. For me —maybe because I grew up in Southern C alifornia—I’ve always believed in including real estate as a key component of my portfolio. If you ever turn on the news, it’s hard not to notice the demographic shift that’s taking place in this country right now, with 10,000 people turning 65 every day. T he boomers are hitting retirement in droves. In the back of my mind, I always knew there had to be a way to provide some of my capital to help expand quality facilities for people entering this stage of life, while providing a profit for me. But it wasn’t until I visited my wife’s grandmother in Vancouver, British C olumbia, that I connected the dots for a future investment in retirement communities.

My wife, my Bonnie Pearl—my “Sage”—is the love of my life. H er family is my family. H er grandma H ilda was my grandma. I loved her dearly. After being married for 58 years, her husband died, and we all watched as she suffered. For ten years, H ilda cried herself to sleep at night. She was living on her own, proud and independent, but heart-achingly lonely, missing her life partner. W e didn’t have the heart to put her in a home, yet with H ilda’s dementia worsening, Bonnie Pearl’s mom, Sharon, was determined to find her a home with the best possible care.

W e had heard that some retirement communities were pretty spectacular, and after weeks of looking, Sharon finally found a community that gave the Four Seasons a run for its money—this place is amazing. I always said I’d stay there, and I don’t say that about many places.

So guess what happened to G randmom after moving into her new digs? Forget that she traded up to a beautiful new apartment with modern amenities and 24hour care. T hat was just the tip of the iceberg. More amazing than that, she began a second life! At 88 years old, she transformed into a new woman and fell in love again. A 92-year-old Italian captured her heart. (“I don’t let him under my shirt yet, but he tries all the time,” she said with a grin.) T hey had four beautiful years together before he passed away, and I kid you not, at his funeral, she met her next beau. H er last decade was filled with a quality of life she never could have envisioned. She found happiness, joy, love, and friendship again. It was an unexpected last chapter of her life and a reminder that love is the ultimate wealth. It can show up unexpected anytime, anywhere—and it is never too late.

G           randmom’s story opened up the realization that there was a real need for retirement communities that were effectively staffed and beautiful just like hers. H ow could I find a way to invest in an opportunity like that? Obviously just walking into a home and asking to invest is probably not the most effective strategy. So I went to my personal advisor, Ajay G upta at Stronghold, and told him what I believed in and what I was looking for. H e found an opportunity where my investment not only stood to make a great return but also aligned with my values and beliefs and with a broader trend in the market. Many experts look at this category as a “demographic inevitability” because the 75-year-old age segment will grow by 84% between 2010 and 2030. D emand will be greater than supply!

Ajay found an investment company run by an amazing entrepreneur who builds, invests, and manages high-end senior living facilities. H e started with nothing and has built it into a $3 billion enterprise. H e finds the sites, puts up as much as half the money himself, and then rounds up a small group of investors to put up the rest.

H            ere’s what I get in exchange: I get a preferred returnon my money (which are income payments each month) based on the profitability of the facility. T his can range 6% to 8% per year, and because it’s real estate, I also get the tax benefit of depreciation, which means I don’t have to pay income tax on the entire income payment. Plus, I own a piece of the real estate, which, over the long term, I believe will increase in value. I get to participate in the exit strategy when the investor group eventually sells the facility. T o be clear, this specific investment is limited to investors who are accredited¹¹ and meet certain net worth/income requirements. But don’t fret! For those who are nonaccredited, there are publicly traded RE IT s (real estate investment trusts) that focus solely on owning a basket of properties around the country. T hese can be purchased for as little as $25 a share at the time of this writing and offer dividend (income) payments each quarter. D o your homework and/or have a fiduciary advisor help you find the best available.

If senior housing seems out of reach, another strategy in real estate is lending your money with a first trust deed as security. In the chapter on asset allocation, I’ll describe to you an example of how investors who need money will take short-term loans at high rates—for example, a oneyear loan for 8% or 10% , and you get the first trust deed as collateral. W hen done effectively, you can loan, say, $50,000 on a $100,000 home, or $500,000 on a $1 million home, and the property could drop 50% , and you’d still be in good shape. W hile others are collecting 3% and 4% returns, you’re getting 8% to 10% .

Once you start focusing passionately on ways to save more, earn more, reduce fees and taxes, and find better returns with even less risk, you’ll be amazed at how many new opportunities you’ll discover. Again, a great fiduciary advisor won’t just guide you; he or she can also help you to find investment opportunities with that magical asymmetric risk/reward that all successful investors seek.

Okay, we’re coming to the home stretch of this section. T his final step can massively increase the speed at which you achieve your most important financial goals. Plus, it’s fun to dream and explore. Y ou’re going to love the journey of this next chapter. L et’s discover . . .

11. F or an individual to be considered an accredited investor, he must have a net worth of at least U S$1 million, not including the value of his primary residence; or have income of at least $200,000 each year for the last two years (or $300,000 together with a spouse if married).

C HAPT E R 3.7

SPE E D IT U P: 5. C H AN G E Y O U R L IFE — AN D L IFE ST Y L E —FO R T H E BE T T E R

My favorite things in life don’t cost any money. It’s really clear that the most precious resource we all have is time.

— ST E V E JO BS

W hat would happen if, for just a moment, you considered making a change? A big change, like picking up and moving to another city? Y ou could be living large in Boulder, C olorado, for what you’re paying just in rent in N ew Y ork C ity or San Francisco. T he cost of homes, food, taxes, and so on differ wildly depending on where you live. Our country—our world—is one of boundless opportunity waiting for you to explore. So why not take off the blinders just for a moment to consider what life could be like if you lived in a new city or town?

Are you freezing your butt off in the Midwest winters, or battling the heat of the summer in Atlanta, wondering year after year why you don’t hoof it to a better climate? As a native son of Southern C alifornia, I’m always amazed by people who spend their lives freezing to death in the Arctic tundra of Minneapolis or C hicago. And even if you don’t care about the weather, you’ve got to care about your cost of living. A million-dollar home in W ashington, D C , costs a fraction of that in Raleigh, N orth C arolina—a city rated as the third best place for business and careers by Forbes, not to mention a hightech and educational hub (that also has great weather). Or what about something more local: a move from San Francisco to San D iego? Y ou can stay in the great state of C alifornia and still cut your housing costs by 32% .

It’s one thing to be tax-efficient in your investments; it’s another to be tax-efficient in your life. Y ou’re trying to save 5% here, 10% there. W hat about saving 10% or 15% or more in everything you do by moving to a less expensive city or a tax-friendly state? T hink about all the additional money you’d have to invest, share, donate if it

didn’t go straight to rent, food, or transportation. O ne

single move could give you a 10% to 30%

increase in your income. If you’re already saving 10% , with a move you now can save 20% to 40% without spending an additional dime. T his change in your savings rate will put some rocket fuel in your money machine that will massively improve the pace at which you achieve financial freedom.

I know what you’re going to say: “Move to a new city? Y ou’ve got to be crazy, T ony. I can’t just pick up and move! I have a job, I have family, I have friends; I’ve lived my whole life in D allas.” (Or Seattle or Miami or D enver.) But if you saw that you could save ten years of your investing life, reach your Financial Freedom goals a decade sooner or even more, might it be worth it?

G enerations of Americans have looked at retirement as a time to pick up and move to a warmer climate, a less expensive city, or to a beautiful, low-key place like Boise, Idaho, or G reenville, South C arolina, to breathe clean air

and enjoy the outdoors. But why wait until retirement? W hy not change your zip code today? W hy not find a place to raise your family that allows you to reduce your cost of living and

elevate your quality of life at the same time, while you’re young enough for both you and your children to reap the rewards?

If you’re still shaking your head no, I get it. I was with you on this one, actually—until recently. I grew up in C alifornia and never imagined living anywhere else. E ven when I started traveling extensively and buying homes and properties all over the world, C alifornia was always my home base.

T hen in 2012 C alifornia raised taxes on the highest income earners by more than 30% , to 13.3% . After a lifetime of paying through the nose on state income taxes (historically among the most punishing in the country), the tax situation got even worse. My effective tax rate— after federal and state income taxes, Social Security, investment taxes, payroll taxes, and the Obamacare tax— shot up to 62% . T hat meant I was left with 38 cents on every dollar. Just 38 cents! And on top of that, the new state income tax increase was made retroactive, meaning that I was going to have to pay additional tax on income I had already earned that year. T hey changed the rules of the game after the fact! I had reached my limit—this was outrageous. Because of my travel and the time I spent in my other homes, I was living in C alifornia for only 90 days out of the year! Just 90 days for literally a multimillion-dollar state tax bill? C alifornia was no longer sustainable for me—I’d had enough!

I had played by the rules, and the rules had come back to bite me. But instead of feeling sorry for myself, I voted with my conscience—or with my feet, I should say. Along with thousands of others, Sage and I realized we were no longer welcome in C alifornia. So we decided to take the plunge and look for a new place to live. (In fact, C alifornia has lost over $30 billion in annual income tax revenue over the last two decades to states such as N evada, Arizona, T exas, and W isconsin. If you want to see how big this trend is and how many people are moving from high-tax to low-tax states, go to www.howmoneywalks.com.)

W e turned it into a kind of treasure hunt. W e looked at places like L ake T ahoe, where we really liked the mountains, the mix of seasons, and the small-town vibe; and Austin, T exas, where music, energy, and high tech come together to create the fabric of an innovative and connected community.

W e looked at Florida too, reluctantly. All I knew of Florida were alligators and old people. But that’s the stereotype, not the reality. W hat we found instead was a paradise in Palm Beach. After looking at 88 properties in three states in just three weeks (I told you I’m a massiveaction guy), we found the only brand-new home on the water in Palm Beach. T wo acres, nearly 200 feet of ocean frontage on one side, and the Atlantic Intracoastal W aterway on the other, with a 50-foot boat dock. I feel like I’m back in my home in Fiji—it’s extraordinary. Sage has everything she wants close by: world-class restaurants, shopping, easy access to the entire E ast C oast, and all the privacy and serenity of living on an island right here in the U nited States.

Of course, the price tag was way higher than I ever wanted or imagined paying for a home. But Florida has no state income tax. W e went from 13.3% state income tax in C alifornia to nothing—nada, zip. So here’s the kicker: with the state taxes we’re saving every year, we are literally paying off our entire new home in six years! D id you catch that? W e’re paying for our entire home out of the tax savings we now get as residents of the Sunshine State instead of the G olden State. K ind of makes you think we should have done it sooner, huh?

Better late than never.

And if that weren’t enough (which it is!), we’ve massively improved our quality of life in the bargain. E very day we pinch ourselves as we wake up with magnificent weather: 78 degrees with a cool breeze off the ocean and water you can melt into, it’s so warm. In fact, Sage and I have become almost evangelical in our enthusiasm for our new home; we tell friends and family to think about moving down to Palm Beach to join us. My youngest son has already moved here. T wo of my dearest friends in the world are on their way down from C onnecticut and N ew Y ork, and they’re here to stay. And, of course, even if they’d decided not to move here, we would have happily taken our tax savings and flown them all out here to visit us in paradise anyway!

So whether or not you decide to join us in Palm Beach, there’s a new zip code out there that might be just right for you. Y ou don’t have to wait for retirement to get there. From N ashville, T ennessee, to Portland, Oregon, and from Augusta, Maine, to Ann Arbor, Michigan, there are hundreds of affordable havens for young and old alike: retirees looking to stretch their savings and continue to enjoy a rich, rewarding lifestyle; and young professionals looking to jump-start or reimagine their careers. C heck out U .S. News & World

Report’s feature on the best places to live for as little as

$75                                       a                                        day

(http://money.usnews.com/money/retirement/articles/201 best-places-to-retire-on-75-a-day). Also seriously consider the seven states where there’s no state income tax at all: Alaska, Florida, N evada, South D akota, T exas, W ashington, and W yoming. Or try T ennessee and N ew H ampshire, where only your dividend and interest income are taxed at the state level. T he Memphis and N ashville music scenes and more money in your pocket —how bad does that sound?

G IVE Y OU R G L OBE A SPIN

And while we’re at it, why not think all the way outside the box on this one? Forget just a 10% to 20% increase in your spending power, how about cutting your cost of living by a third, or in half? G et out your globe and give it a spin—and think about some of the beautiful (and beautifully affordable) places you could live if only you expanded your horizons.

T here are huge opportunities all over the world to improve your lifestyle and lower your expenses, in places such as Bali, Fiji, U ruguay, C osta Rica—if you have the courage and the freedom to go for it! Y ou can rent an extraordinary apartment in the mountains outside of Buenos Aires, Argentina, for a fraction of what it would cost for a studio walk-up in a major U S city. Y ou can move to the C zech Republic and find a room just off W enceslas Square in Prague’s N ew T own area, the heart of the city’s cultural community.

Remember my BMW -loving son? After he traded in his fancy wheels for a chance at a better lifestyle, he decided to think really big. H e went down to C osta Rica for a couple of days and was completely blown away by the extraordinary culture. T urns out there is a huge E nglish-speaking community in C osta Rica—tons of expats who discovered their money went a lot further down there, their days were a little richer, their nights more exciting. And C osta Rica isn’t just a place to relax and unwind. Some of our leading companies have established important bases of operations there. Procter & G amble, H einz, Microsoft, Intel—the list goes on and on, which means there are countless career opportunities available.

L ife can be an adventure. T ake a trip and explore a foreign city with an eye toward moving there. T urn your next vacation into a fact-finding expedition, where the endgame is to try on a whole new way of life. Y ou don’t have to live in a box and go through the same motions each and every day. Y ou don’t have to worry about making your rent or covering your basic expenses if you open yourself up to the idea of massive change. L ift yourself from your comfort zone and spend 60% , 70% , even 80% less money, getting you to your goal of financial freedom that much faster. And while you’re at it, improve the quality of your life in an exponential way.

E ven if a move across the world seems too radical now, think about this option over the long term—a fiveyear plan or a ten-year plan, or maybe a retirement plan. W hy not at least open yourself to the idea that there’s a beautiful and affordable place out there waiting to be discovered? Our world is dynamic—it’s changing constantly. T he idea that a move would be bad for your kids is a thing of the past. W e live in a global economy; what an amazing experience to give your kids an opportunity to see the world, learn a new language, adapt to a new culture. Y ou can make a family decision about creating a better quality of life for everyone.

L ife is like a bicycle. T o keep your balance, you must keep moving.

— AL BE R T E IN ST E IN

At the end of the day, it’s all about being more efficient and more effective with your earnings and your savings and speeding up your path to Financial Freedom. Y ou can find a way to improve the quality of your life while reducing your cost of living simultaneously. It’s the ultimate win-win. At the end of the day, the best investment you can make is the one you make in yourself and your lifestyle.

W ow, you’ve taken three giant steps toward Financial Freedom:

Step 1. Y ou’ve made the most important financial decision of your life.

Y ou’ve decided to become an investor, not merely a consumer. Y ou’ve committed a percentage of your income to save and invest in your Freedom Fund, and you’ve automated it.

Step 2. Y ou’ve become an insider who knows the rules of the game.

Y ou’ve debunked the 9 Myths, and you’ll never be taken advantage of again.

Step 3. Y ou’ve made the game winnable.

•    Y ou know exactly how much money it will take for you to achieve F inancial Security, Independence, or F reedom. Y ou know your T hree to T hrive: your short-term, medium-term, and long-term goals.

•    Y ou’ve come up with an initial financial plan and a timeline for achievement. Y ou’ve used the app to calculate approximately how long it will take you to meet financial goals you’re most committed to.

•    Y ou’ve reviewed the five ways to speed up your plan. Ideally, you’ve begun to brainstorm ways to apply these insights to sock away more money or keep more money in your financial Freedom Fund. T his can help you reach your cherished financial goals even quicker.

So what’s next? Step 4 answers the obvious question that’s probably burning in your mind: “W here do I put my money? W hat specific investments will maximize my upside and protect me against the downside?” It’s time to make the most important investment decision of your life. It’s time to learn the power of asset allocation . . .

SE C T ION 4

MAK E T H E MOST IMPORT AN T

INVEST MENT D EC ISION OF YOUR L IFE

C HAPT E R 4 .1

T H E U L T IMAT E BU C K E T L IST : ASSE T

AL L O C AT IO N

N ever test the depth of the river with both feet.

— W AR R E N BU F F E T T

Say you’ve got your money machine cranking: your boss just gave you an unexpected $10,000 bonus, or perhaps you suddenly came into a $100,000 inheritance. W hat would you do with it? W ould you put it in your savings account or your IRA? Invest in a virtual pocketful of Bitcoin? Bid on a case of vintage wine on eBay? Fly to

Vegas and bet it all on a roll of the dice? Or maybe buy 100 shares of Apple stock? W ould you put it all in one place or spread it around?

T he answer to that last question is the key to your financial future.

Asset allocation is the most important investment decision of your lifetime, more important than any single investment you’re going to make in stocks, bonds, real estate, or anything else. W hat’s the difference? W ell, the financial decisions you’ve already made—to automatically invest a percentage of your income for compound returns—gets you in the game. But once you decide to get in the game, now you’ve got to stay in the game—for the long term! Y ou can lose it all if you aren’t careful about where you put your money. Anybody can become wealthy; asset allocation is how you stay wealthy.

But don’t just take it from me. L isten to D avid Swensen, the rock star of institutional investing. Remember, he’s the guy who grew Y ale’s portfolio from

$1 billion to more than $23.9 billion by achieving a 13.9% average annual return across three decades of bear and bull markets. N obody does it better. W hen I sat down with him in his office in N ew H aven, C onnecticut, I asked, “W hat are the most important insights investors must have to achieve financial freedom?” H e told me that there are only three tools for reducing your risk and increasing your potential for financial success:

1.     Security selection—stock picking;

2.     Market timing—short-term bets on the direction of the market; and

3.     Asset allocation—your long-term strategy for diversified investing.

Before I could even ask about the first two, he made one thing perfectly clear: “Overwhelmingly, the most important of the three is asset allocation,” he said. “It actually explains more than a hundred percent of returns in the investment world.” W ait a second: H ow could it be more than 100% ? Because those fees, taxes, and losses that come along with stock picking and market timing put a drag on your profits.

Asset allocation is more than diversification. It means dividing up your money among different classes, or types, of investments (such as stocks, bonds, commodities, or real estate) and in specific proportions that you decide in advance, according to your goals or needs, risk tolerance, and stage of life.

W ow, that’s a mouthful, isn’t it?

Y et it’s the key to success or failure for the world’s best financial players, including every single one of the investors and traders I interviewed for this book. Paul T udor Jones swears by it. Mary C allahan E rdoes, perhaps the most powerful woman on W all Street, leads 22,000 financial professionals whose livelihoods depends on it. Ray D alio, who founded the largest hedge fund in the world and is now worth $14 billion personally, lives it.

T his chapter takes a complex subject and makes it simple enough for you to act on and positively affect your investment returns for the rest of your life, so give it your full commitment and focus! It doesn’t matter if you have only $1,000 that you’re going to save and invest or $1 million. T he principles you’re about to learn are critical to start applying immediately. If you think you know them already, it’s time to take them to the next level.

L et’s talk about why asset allocation is so crucial to your investment plan, and how you can start making it work for you today.

Anyone who thinks there’s safety in numbers hasn’t looked at the stock market pages.

— IR E N E PE T E R

H            ow many times have you picked what looks like thefastest line at the grocery store, but it turns out to be the slowest? Or how often do you switch to the fast lane in a traffic jam and watch the cars in the slow lane whiz past you? Y ou think you’re getting there faster, and then you’re wrong. And what about intimate relationships? In spite of how much you know about yourself and what you believe and value, have you ever chosen the “wrong” partner? W e all know that decision can have an extraordinary impact on the quality of your life!

T he same thing can happen with your investments. E xcept that when you make mistakes with your nest egg, if it’s too big a mistake, it’s all over. It can mean losing your home. Or still looking for work when you’re 70. Or having no money for your children’s education. T hat’s why this chapter is so important.

Asset allocation is the one key skill that can set you apart from 99% of all investors. And guess what? It won’t cost you a dime. D avid Swensen likes to quote H arry Markowitz, the N obel Prize–winning father of modern portfolio theory, to whom I also reached out to interview for this book. H e said famously, “D iversification is the only free lunch.” W hy? Because spreading your money across different investments decreases your risk, increases your upside returns over time, and doesn’t cost you anything.

W e’ve all heard the old adage “D on’t put all your eggs in one basket.” W ell, asset allocation protects you from making that financial mistake. It sounds like such a basic rule, but how many people do you know who violate it?

I               have a friend who got so excited about Apple that heput all his money in the company. For a while, it was the most successful stock in the world—until it dropped by 40% in a matter of weeks. Ouch. T hen there’s another friend who was in her 30s when she quit her job as a television executive, sold her house in L os Angeles at the height of the real estate market boom, and used the money to open a rustic diner in W yoming. She invested what was left in high-risk stocks and junk bonds, thinking the interest would provide enough income to support her. And it did for a while. But the stock market crash of 2008 wiped out her entire savings. She had to fold up her teepee and go back to work as a freelancer for a fraction of what she used to make.

W e’ve all heard horror stories from the economic meltdown. Maybe you know some baby boomers who had all their money tied up in real estate before the bottom fell out. Or a couple who were ready to retire with their 401(k) full and their target-date funds about to mature. T hey had the RV picked out, the boat in the driveway, the itinerary drawn up with visits to the grandkids marked out. T hen the financial world unraveled. T heir net worth was cut nearly in half, and their dream of retirement turned into 20 more years of work.

T hese stories are heartbreaking, and I want to make sure nothing like that ever happens to you. And the good news is, it never has to. T hat’s why I wrote this chapter: so that you’ll not only be protected but also can grow your nest egg faster.

W hat’s the simple and core investment lesson here? W hat goes up will come down! Ray D alio told me point-blank that in your lifetime “it’s almost certain that whatever you’re going to put your money in, there will come a day when you will lose fifty percent to seventy percent.” Y ikes! T hat means any investment you pick is going to lose half to two-thirds or more of its value! And don’t most people typically favor one type of investment because they feel they “know” more about that area, or because it’s currently providing a “hot” return? Some people tend to put all their money in real estate, others in stocks, bonds, or commodities. If you don’t diversify enough, you stand to lose your shirt! Are you hearing me? N o matter how well you plan, there will be a day of reckoning for every type of asset. So, diversify or die.

But if you diversify well, you’ll win!

By now I’m sure you’re crystal clear about the consequences of not diversifying! N ow would you like to hear about the incredible impact of the right diversification? It’s almost like having a license to print money. I know that’s an exaggeration, but imagine what it would feel like if you knew you were making money while you sleep, and that your diversification gave you true peace of mind regardless of the economic climate.

H ere’s a real example. H ow would you feel if, in that D efcon environment of 2008, when stock markets were losing more than $2 trillion, bonds were tanking, and real estate was falling through the floor, you could have had an asset allocation where your maximum loss was just 3.93% ? T his example is not a fantasy. T his is the power of asset allocation that I’ve mentioned several times in this book, and I’m going to demonstrate it to you shortly. Better yet, what if in the last 30 years of your life (between 1984 and 2013), your asset allocation was so powerful that you lost money only four times, with an average loss of just 1.9% , and never more than 3.93% ? Remember, everyone else during those three decades was riding the wild wave of inflation and deflation. In the last decade alone, we had two market drops of nearly 50% , yet you would have coasted through the storm without a single gut check and still averaged a compounded annual return of just under 10% . I’m not describing a hypothetical situation. W hat I’m describing to you is an actual portfolio, a specific asset allocation, designed by Ray D alio. Soon I’ll show you the exact formula that has produced these mind-blowing results. But before you can use it, you have to understand the core principles laid out in this chapter.

Rule 1: don’t lose money.

Rule 2: see Rule 1.

— W AR R E N BU F F E T T ’S R U L E S O F IN V E ST IN G

I can’t say it enough: good people often fail because they do the right thing at the wrong time. Buying a house—is it the right thing to do? Most experts would say yes. But in 2006, it was the wrong time! So the question is: If we’re all going to be wrong some of the time, where do we put our money? T hat’s where asset allocation comes in.

H ere’s another way to think about it: when you’re trying to build a winning team in sports, you have to know the capabilities of each player. Y ou have to know his strengths and weaknesses. Y ou have to decide who you can count on in different situations. N ow, say your portfolio is the team, and your investment choices are the players. Asset allocation helps you choose who starts and at which positions. U ltimately, it’s the right mix at the right time that brings you victory.

Asset allocation offers you a set of guiding principles: a philosophy of investing to help you decide where to put Freedom Fund money or your nest egg and in what proportions.

T hink of it as taking chunks of your money and putting them into two separate investment buckets with different levels of risk and reward. One of these first two buckets is a safe environment for your money, but it’s not going to grow very fast there. Y ou might get bored with it, but it’s secure, so that when you need it, it’s there. T he second bucket is sexier because it can give you the opportunity for much quicker growth, but it’s risky. In fact, you have to be prepared to lose everything you put in here!

So how much goes in each bucket? It depends on how much time you’ve got to grow your investments and how much risk you’re willing to take. Y ou’ve got to ask yourself, “H ow much risk can I afford to take at my stage in life?” But remember, you’re not diversifying just to protect yourself. Y ou want to enhance your results: to find the ideal blend of investments that will make you thrive, not just survive!

But, hey, if we’re willing to admit it, many people have more than enough stress in their daily lives without adding a ton of anxiety worrying about their investments day and night. A significant part of financial security or even freedom is peace of mind, that feeling that you don’t have to think about money. T he first bucket will give you certainty in your life, which, after all, is the first basic human need. And that’s why I call it the Security/Peace of Mind Bucket. It’s where you want to keep the part of your nest egg you can’t afford to lose

—or even imagine losing without waking up in a cold sweat! It’s a sanctuary of safe investments that you lock up tight—and then hide the key.

I don’t gamble, because winning a hundred dollars doesn’t give me great pleasure. But losing a hundred dollars pisses me off.

— AL E X T R E BE K , host of J eopardy!

T aking a financial hit not only lightens our wallets but also can steal the joy from our lives. Remember that behavioral economics study with the monkeys and the apples? A monkey was happy if he was given an apple. But if he was given two apples, and then one was taken away, he freaked out—even though, in the end, he still had an apple. H umans are the same way. Research on human emotion shows that the majority of people around the world underestimate how badly they feel when they lose. T he pleasure of our victories is dwarfed by the pain of our failures and our losses. So we all have to set up a Security/Peace of Mind Bucket to protect ourselves from taking the kind of hits that will not only set us back financially but also will make us miserable.

T o familiarize you with the kind of investments that are considered a bit more secure, let’s look at eight basic types of assets (investment options or resources) that might belong in this Security Bucket. T his is just a sampling. It’s not meant to be everything that would fit in this bucket. But as you read, you will notice a pattern: none of these types of investments tends to have extreme volatility—meaning that its value doesn’t tend to fluctuate much—especially compared with things you’ll see later in the Risk/G rowth Bucket. (Although, as we’ve all experienced, there are short periods in history where virtually all investments have increased volatility. L ater Ray D alio will show us how to prepare for this as well!) But this quick list is designed to get you to think about your investments in the future, and give you a feel for what might go here. Ask yourself, “Before I invest, is this putting me at risk? Is this something I’d be better off having in my R isk/G rowth Bucket or in my Security Bucket?”

So let’s take a look at what this is all about, starting with the first and perhaps the most important place to put a portion of your money: the Security/Peace of Mind Bucket. W hat assets would you want to put in here? Remember, this bucket is the slow but steady contender, like the turtle in the race to financial freedom. Because the turtle often wins! And you have to treat it like your sacred temple of savings and investments— because what goes in here doesn’t come out.

And before you go on, bear in mind that the beginning of this chapter has some fundamentals: the blocking and tackling of asset allocation. If you’re a sophisticated investor, you can scan through the list of investment options because you probably already know what they are, and you can save yourself some time. But I didn’t want to leave out anyone. Besides, you might find a distinction or two that you’ll find valuable. So let’s dive in.

1. C ash/C ash E quivalents. At some time in our lives, every one of us will need a cushion to cover our needs in case of an emergency or a sudden loss of income. N o matter your income level, you need some liquidity —or instant access to cash. Is it possible to be rich in assets and feel poor because you don’t have cash or liquidity? A lot of people were caught short in 2008 when the banks froze up and stopped lending (even to one another), and real estate seemed impossible to sell. In fact, according to a 2011 study, half of all Americans would struggle to come up with $2,000 in a crisis such as an unexpected medical bill, legal cost, or home or car repair. So you need some cash to make sure that doesn’t happen to you. T hink about it: it wouldn’t take a lot of focus or a lot of savings for you to be better off than more than half of America!

But once you’ve decided how much cash you need to have on hand, where do you keep it? Most of us choose bank accounts that are insured by the FD IC for balances of up to $250,000. U nfortunately, brickand-mortar banks pay almost no interest these days— the last time I checked, some were as low as 0.01% !— while online banks have been offering slightly higher rates. Maybe not ideal, but at least we know the money is safe and available. Y ou also may want to keep some of that cash in a safe place or for safety near your home—you know, “under your mattress”— in a hidden safe in case there’s an earthquake or hurricane or some other kind of emergency, and the AT Ms stop working.

Other tools for cash equivalents include money market funds—there are three types, and if you want to learn more, see the box for details.

For larger amounts of money that we need to keep safe and liquid, you can buy into ultra-short-term investments called cash equivalents. T he most well-known are good old money market funds. Y ou may even already own one. T hese are basically mutual funds made up of low-risk, extremely shortterm bonds and other kinds of debt (which you’ll learn more about in a moment). T hey can be great because you get a somewhat higher rate of return than a boring old bank account, but you still get immediate access to your cash 24 hours a day—and there are some that even let you write checks.

By the way, most banks offer money market deposit accounts, which are not the same as money market funds. T hese are like savings accounts where the banks are allowed to invest your money in short-term debt, and they pay you a slightly better interest rate in return. T here’s usually a minimum deposit required or other restrictions, low rates, and penalties if your balance falls too low. But they are insured by the FD IC , which is a good thing. And that sets them apart from money market funds, which are not guaranteed and could potentially drop in value.

But if you want to keep your money safe, liquid, and earning interest, one option is a U S T reasury money market fund with checking privileges. T rue, these funds aren’t insured by the FD IC , but because they are tied only to U S government debt and not to any corporations or banks that might default, the only way you can lose your money is if the government fails to pay its short-term obligations. If that happens, there is no U S government, and all bets are off anyway!

2.     Bonds. W e all know what a bond is, right? W hen I give you my bond, I give you my word. My promise. W hen I buy a bond, you give me your word—your promise—to return my money with a specific rate of interest after X period of time (the maturity date). T hat’s why bonds are called “fixed-income investments.” T he income—or return—you’ll get from them is fixed at the time you buy them, depending on the length of time you agree to hold them. And sometimes you can use those regular interest payments (dividends) as income while the bond matures. So it’s like a simple IOU with benefits, right? But there are zillions of bonds and bond funds out there; not all but many are rated by various agencies according to their levels of risk. At the end of this chapter, you’ll find a quick bond briefing to find out when they can be hazardous to your financial health, and when they can be useful— even great!—investments.

Bonds can also be kind of confusing. L ike a seesaw, they increase in value when interest rates go down, and decrease in value when rates go up.

After all, who wants to buy an old low-interest-rate bond when a shiny new bond with a higher interest rate comes on the market? But one way to avoid worrying so much about price fluctuations in bonds is to diversify and buy into a low-cost bond index fund.

And just remember, not all bonds are equal. G reece’s bonds are not going to be as strong as G ermany’s. D etroit’s municipal bonds are not going to be as strong as the U S T reasury’s. In fact, some investment advisors say the only completely safe bond is one backed by the full faith and credit of the U nited States. And you can actually buy U S bonds called T reasury inflation-protected securities, or T IPS, that rise in value to keep up with inflation through the consumer price index. Again, we’ll cover all of this in the bond briefing. And later I’ll be showing you an amazing portfolio that uses bond funds in a totally unique way. But meanwhile, let’s consider another fixed-income investment that might belong in your Security Bucket.

3.     C D s. Remember them? W ith certificates of deposit, you’re the one loaning the money to the bank. It takes your cash for a fixed rate of interest, and then returns it—along with your earnings—after a set amount of time. Because C D s are insured by the FD IC , they’re as safe as savings accounts, and—at the time of this writing—just about as exciting. But I wrote this book for every season, and seasons keep changing. I don’t know what season you’re in now, but I can tell you this story: in 1981, when I was 21 years old, you could buy a six-month C D for . . . wait for it . . . 17% interest! But you don’t have to go that far back to see how some types of C D s, in the right environment, can give you quality returns. Remember the story of how my Stronghold advisor got a small fixed rate on a C D in 2009, but it was a market-linked C D , which was attached to the growth of the stock market, and he averaged 8% interest over time! T hat was an unusually good deal, but there are still ways to get more bang for your buck (without risking your principal) by investing in these market-linked C D s. (Y ou can go back to chapter 2.8 for a recap about how they work.)

So how’s our team of assets doing so far? C D s, cash, money market funds, and bonds would be obvious players for your Security Bucket. But when do you put them in the game? Some players will do well in some environments and poorly in others. W hat’s the advantage of the cash player? T he cash player can jump into the game any time. Y ou can keep your money safe and ready to deploy when the right investment comes along. On the other hand, if you hold too much money in cash, your spending power is not growing. In fact, it’s shrinking due to inflation each year. But in deflationary times, like 2008, your cash will buy you more. If you had cash in 2008 and had the stomach to do it, you could have bought a home for almost 40% less than that same house cost the year before. (By the way, that’s what many hedge funds did. T hey bought tens of thousands of homes during the down time, fixed them up and rented them, and then sold them between 2011 and 2014 for a big profit.) Many stocks could be bought at a similar or even greater discount in 2008.

W                      hat’s the advantage of the bond player? D epending on the type of bond, you’ve got a guaranteed rate of return that gives you security when other asset class prices might be dropping. Regular C D s, as I’m writing this in 2014, probably don’t interest you at all, and they don’t interest me either. But that player can do well in high-interest-rate environments. And while market-linked C D s excel when the stock indexes are hot, they’re rock solid in every environment because you don’t lose principal. H ere is the downside of bonds: if you want to sell bonds before their maturity date (when you receive your full investment plus interest), and interest rates have risen significantly and new bonds provide a higher rate of return, you will have to unload them at a discount.

If all this seems incredibly complex, here’s the good news. Ray D alio has created a strategy called All Seasons, which will show you how to succeed with the right mix of bonds, equities, commodities, and gold in any economic season. W e’ll learn more about that later.

First, understand that because secure bonds offer a promised or stated rate of return and a return of principal, they are more secure than investments that do not guarantee either the rate of return or the principal. But the promise is only as good as the bond issuer. T he point here is that you need the right player for the right season in the right proportions and at the right time.

N ow let’s take a look at a few other assets for your Security Bucket team you might not have thought of:

4.     Y our home goes in here, too. W hy? Because it’s a sacred sanctuary. W e shouldn’t be “spending our home”! Americans have learned a hard lesson in recent years about the dangers of house flipping and using their homes like AT Ms. A home, if it’s your primary residence, shouldn’t be seen as an investment to leverage, and it shouldn’t be counted on to produce a gigantic return. But wait, haven’t we always been told that your home is your best investment because it always goes up in value?

In my search for answers, I sat down with the N obel Prize–winning economist R obert Shiller, the leading expert on real estate markets, and creator of the C ase-Shiller home price index of housing prices. H is breakthrough insights were used to create the following chart. Shiller found that when he adjusted for inflation, U S housing prices have been nearly flat for a century! H e exploded one of the biggest myths of our time: that home prices keep going up and up. “U nless there’s a bubble,” he told me. And we all know what eventually happens to bubbles.

On the other hand, owning your home with a fixedrate mortgage is a hedge against inflation, and there’s a tax advantage. W hat’s more, if you own a home outright, and you rent out all or part of it, it can be a safe way to earn some income. Also, as you’ll soon learn, there are some great ways to invest in real estate—like first trust deeds, RE IT s (real estate investment trusts), senior housing, income-producing properties, and so on. So nobody’s suggesting that you give up on real estate investments if that’s what you like to do! But it’s probably a good rule of thumb to put them in the next bucket we’re going to talk about: the Risk/G rowth Bucket.

Meanwhile, what other assets might belong in Security?

5.     Y our Pension. G ot one? T his bucket is the place to keep it if you’re one of the lucky few. Remember the example of D r. Alicia Munnell, director of the C enter of Retirement Research at Boston C ollege? She liquidated her pension and took an early payout, thinking she could invest and get a higher return than her past employer, the Federal Reserve. She learned the hard way that you don’t want to risk your lifetime income plan, and now she shares her story as a warning to others.

6.     Annuities. If you’re young, and you hear this word, you may think this doesn’t have any value for you. In the past, they took a lot of money, and you had to be a certain age in order to tap into these investment tools. But as you’ll learn in chapter 5.3, “Freedom: C reating Y our L ifetime Income Plan,” there are some new tools you can arm yourself with. Remember, these investments are insurance products that can give you a guaranteed income for life. T hey’re like private pensions if they’re done right. But as we’ve discussed, most annuities out there are terrible investments with high fees and ridiculous penalties. Most variable annuities should come with more warnings than a Viagra commercial! But you can find a few select annuities—which you will learn about in section 5—that are so safe and affordable that many experts call them the H oly G rail of retirement income solutions. H ow’s that? T hey can give the kind of returns you enjoy in your R isk/G rowth Bucket within the safety of your Security Bucket. A guaranteed income that will last your lifetime and never go down in value!

7.     At least one life insurance policy belongs in your Security Bucket, and you don’t mess with it. W hy? G ot a family? If you die, your family will be taken care of. T erm life will suffice for most people. H owever, another type of life insurance policy, described in section 5, can provide you with an income for life, tax free, while you’re still alive! And if structured correctly, it can also provide enormous tax efficiency. T he largest corporations and the ultrawealthy have been using this IRS-sanctioned approach for decades. Be sure to check out chapter 5.5 for details on how to use this tool to perhaps cut the time it takes to get to your financial goals by 25% to 50% depending on your tax bracket.

8.     Structured N otes. T hese products have been called “engineered safety” for investors. Structured notes are like market-linked C D s, but they aren’t covered by FD IC insurance. H ow do they work? Y ou lend money to a bank—usually one of the biggest banks in the world—and the bank promises to give you back the money after a specified period of time, plus a percentage of whatever gains accumulate in a particular index (say, the S&P 500—minus the dividends—commodities, gold, RE IT s, or a

combination). For example, at the time of this writing, J.P. Morgan has a seven-year structured note with 100% downside protection, meaning you’ll never lose your original investment, plus it gives you 90% of the upside gain of the S& P 500. N o wonder, as you learned in chapter 2.8, the ultrawealthy often use this tool to invest. T he right kind of structured note can be a great way to participate in the upside of the market without worrying about the downside—especially at a stage of life when you can’t afford to take such volatility risks.

W                      hen I sat down with Mary C allahan E rdoes,

C E O of J.P. Morgan Asset Management, with $2.5 trillion under management, she told me structured notes can be good investment choices, particularly for people afraid to put their money in anything after the financial meltdown of 2008. And they’re not a gimmick. “A lot of times, people will look at a structured note and say, ‘T hat looks too good to be true,’ ” she told me. “But you need to understand the product from start to finish. T here are no gimmicks, there are no gadgets; it’s just math in the markets . . . T he longer you don’t need liquidity, the more the market will pay you for that. If you’re going to put your money away for seven years, you should be able to get that much upside.”

So do structured notes belong in your Security Bucket? T he structured note is only as secure as the bank that issues it. E rdoes made it clear that J.P. Morgan was the largest bank in the world. Some fiduciaries will recommend the Royal Bank of C anada or other C anadian banks, since they have been rated as some of the best and safest in the world. (T he U nited States saw more than 9,400 banks collapse during the G reat D epression and almost 500 in the recent G reat Recession. Not one bank failed in Canada!) So, as always, you have to weigh the benefits against the risk and make your own decision. Also, watch out for fees and complicated contracts. As we said in chapter 2.8, structured notes can be a terrible product, just like mutual funds, if there are too many fees attached. If the issuer is fiscally strong, you won’t lose your money. But if the timing is off, you won’t make any money in that time period. So this is more of a secure protection strategy. It’s best to talk over this investment with your fiduciary advisor before jumping in.

T IME IS ON Y OU R SID E

W hew! T hat was a lot. But remember, if your head is exploding with all these choices, you’re not in this alone. Y ou can have your complimentary asset allocation (and full portfolio review) done for you online at www.strongholdfinancial.com or by your own fiduciary advisor.

But it’s important to understand the concept of asset allocation and which investments are available for each of these buckets so that your overall portfolio—your group of investments—reflects your goals and level of risk tolerance. T hat way you’re still running the show! At every decision point, you’ll be thinking, “H ow much am I risking and how much am I keeping secure?” T hat’s where the game is won or lost!

And, as you’ve already seen, the biggest challenge for your Security Bucket today is: What is really secure? W e know the world has changed, and even conservative savers have been forced into riskier and riskier investments by crazy-low interest rates. It’s tempting to shoot for bigger returns, especially when the stock market is galloping. Y ou may start thinking, “I’ll never get where I need to go from here.” But you can if you’re willing to play the long game. (And especially if you find some investments that guarantee returns without risking principal—which you’ll learn about soon.)

Just like in that old Rolling Stones song, time is on your side when it comes to growing your wealth. And time is certainly the greatest asset for the Security Bucket —even if you start later in life. After all, more and more of us are living into our 80s and 90s, so our investments can mature along with us. And if you’re G eneration X , Y , or Z —yes, there is a G eneration Z , the postmillennials! —you’re way ahead of the game! Y ou can start with a tiny amount and let the magic of compounding get you where you want to go so much easier.

W hat happens to the money in your Security Bucket reminds me of an old gambler’s trick on the golf course. T he gambler tells his mark, “Y ou play golf? I just started playing, and I’m no good. Y ou want to play ten cents a hole?” So the guy says, “Sure, great!” On the way to the first hole, the gambler says, “Y ou know, ten cents is kind of boring. Just to make it more fun, why don’t we just double the bet every hole?” T he first hole is 10 cents, the second hole is 20 cents, the third hole is 40. By the time they get to the fifth hole, it’s $1.60. T he sixth hole is $3.20, and they’re only one-third of the way through 18 holes. By the time they get to the 18th hole, how much are they playing for? H ow about $13,107! T hat’s a steep golf bet, even for D onald T rump. And that’s the magic of compounding in action.

It’s also what happens when you’re investing in your Security Bucket over the long haul. Y ou reinvest the interest you make, and, for a long time, there seems to be no progress at all. But you get to the 13th hole, and then the 14th, and then the 16th, and then it explodes.

T ake a look at the chart on page 312. T hat’s the exponential progression that will work for you.

Of course, sitting tight is a challenge for this generation! As a society, we’re wired for instant rewards, and waiting for the assets in our Security Bucket to increase in value can initially feel like watching grass grow. And that’s why we get tempted into putting too much of our money into the next bucket, Risk/G rowth. But not everything in your Security Bucket has to be dull as dishwater. If you have a talented and connected fiduciary advisor, he or she can show you how to take some of these boring security tools and eke out a more reasonable return, or even a significant return if you find the right environment.

H ere’s just one example of what my Stronghold advisor found for me—and it’s an asset that most people wouldn’t normally put in their Security Bucket: a residential real estate loan!

It starts with a guy building a house in Indian W ells, C alifornia, who ran into some financial trouble and had to sell it to a group of investors. E ver hear of Indian W ells? It’s like the Beverly H ills of Palm Springs, which is one of the highest-income environments per capita in the U nited States. T he city is beautiful, with extraordinary weather, surrounded by golf courses and resorts—an amazing place to own a home or a vacation home. T he investment company that bought the guy’s house buys up dozens of properties, so it needs a lot of cash—but the company doesn’t need it for long because it fixes up and resells the houses quickly. T o keep the money flowing, the company needs investors to give it short-term loans in exchange for first deeds of trust on the properties it holds.

E ver hear about first trust deeds? If you own a home and have a mortgage, a financial institution loaned you the money to buy your house, and you gave it your bond to pay it back at a certain rate of return. H owever, if you don’t keep your word and fail to keep up the payments, the entity that owns the mortgage, or trust deed, has the right to force you to sell—and it continues to receive interest until a new owner takes over. As an investor, I look for ways to get maximum rewards in a secure environment—a first trust deed structured properly can be perfect for this purpose.

My advisor and I found out that the real estate investment company was offering the first deed of trust on that house in Indian W ells as collateral on a $1 million loan, which would pay 10% interest for one year.

It was willing to have one investor take this on, or as many as 25, each contributing $40,000. In the end, I decided to invest in the full $1 million myself. Y ou might say, “W ow, that’s a great deal! Y ou get a hundredthousand-dollar profit to tie up your money for just one year. But T ony, what’s your risk?” T hat’s exactly why we did a lot of research. T he home, we learned after two qualified appraisals, was worth $2 million in its current state. So if I’m loaning $1 million, that loan has a 50% loan-to-value ratio, right? E ven if the company defaults, my $1 million is secure because the value of the property is $2 million.

T his was a pretty great deal, but I’ve also bought deeds of trust on smaller homes. Say I’d found a starter home in the Midwest that was worth $80,000. If I could get the mortgage for $40,000, at 50% loan to value, I might make the loan. T he Indian W ells deal was similar, only on a larger scale. So I decided to go for it, and I put that investment in my Security Bucket.

Okay, I can already hear you saying, “W ait a minute, T ony! W hat if the market drops? D oesn’t that investment belong in your Risk/G rowth Bucket?”

T hat’s a great question, because we’ve just been through one of the worst real estate crashes in history! And on the surface, it looks like you’d probably put this in your Risk Bucket. But here’s why I think it’s a safe investment: in 2008, when the real estate market just went through the floor, and the world was upside down, the prices of houses in most parts of the U nited States dropped 30% to 40% , max. T here were a few exceptions, such as some parts of L as Vegas, Phoenix, and Miami, where the prices dropped more than 50% . But all of those places had massive price growth right before the bubble burst. T he Indian W ells area didn’t experience that size of bubble—and while prices dropped 31% from 2008 to 2010 (far below the 50% mark), the biggest loss in a single year was only 13.6% (from 2008 to 2009). And remember, we’re loaning for only one year. So if residential real estate didn’t take anything close to a 50% hit in Indian W ells in 2008, it’s not likely to happen this year.

T hat’s why I decided to move forward with this as the investment to put in my Security Bucket. It’s the place where you have to be cautious. But it doesn’t have to be totally boring. And sometimes the returns can be very nice (8% to 10% , whereas many people typically settle for 1% to 4% returns in the Security Bucket) if you do your homework!

It is my contention that Aesop was writing for the tortoise market. H ares have no time to read.

— AN IT A BR O O K N E R

Boredom comes from a boring mind.

— “T H E ST R U G G L E W IT H IN ,” Metallica

N ow, what if that same company offered me a 12% return to invest in that $2 million property—but for the better rate, it wanted me to loan it $1.5 million instead of $1 million? T hat would make the loan-to-value ratio 75% —obviously I’d get a greater return by taking a greater risk. It means if the market dropped by 25% or more, I might lose some of my investment. N ot likely, but possible. So if I was willing to take the extra risk for an increase in returns, it might be something I’d consider. But I would not put this investment in my Security Bucket. It belongs in the next bucket you’re about to discover: the one that should be wrapped in yellow caution tape and handled with oven mitts, because if you approach it the wrong way, I guarantee you’re going to get burned! But handled effectively, it can speed up your journey to Financial Freedom.

By now you can see why asset allocation is an art, not a science. T he idea of security is totally subjective. Some people think nothing is safe! Others can live with a tiny bit of risk and still feel secure. So you’ve got to look at each investment on an individual basis.

T he real payoff of asset allocation comes when you figure out the right mix of how much of your money you keep safe and how much you’re willing to risk to get greater rewards and have the potential to grow faster. In investing, that’s where you live or die, succeed or fail. So what percentage do you think you should put in your Security Bucket—in safe investments? One-third? H alf? T wo-thirds? Failure to secure a significant portion of your hard-earned money in safe investments can spell financial disaster. C onversely, putting too much in this bucket can significantly slow your growth. H ow do we find the right balance? T hat’s what we’ve been working toward. And now that we’ve locked down the foundation for security, it’s time to really get in the game. It’s time to play to win.

As a quick note, bonds can be such a potentially important investment for your Security Bucket that I wanted to give you a quick bond briefing that might be well worth your review. If now’s not the right time, remember this is here as a reference for you, and skip over to the next chapter. K eep up the momentum! W e’re on our way to bigger risks and potentially bigger rewards.

A FE W W ORD S ABOU T BON D S G entlemen prefer bonds. — AN D R E W ME L L O N , founder of the Bank of N ew Y ork Mellon N ot that long ago, bonds were supposed to be the safest, most reliable form of investment. T hey were the big guns in the portfolios of the ultrawealthy, and

the bedrock of your Security/Peace of Mind Bucket for the average investor. But bonds have taken a bad rap in recent years, and for good reason. W ith the U S government keeping interest rates insanely low, and some of the companies, cities, and even nations that issue bonds teetering on the brink—or even going bankrupt—they don’t seem like such a great deal to everyone anymore.

But most experts still think bonds are an important part of your investment mix. (In fact, they’re the foundation of the mind-blowing portfolio that works in all economic climates, which you’ll learn about in chapter 5.1.) So let’s look at the basic kinds of bonds out there to see what can be great about them—and also what to watch out for.

• U S T reasury Bonds. Many investment experts, including Y ale’s asset allocation wizard D avid Swensen, feel that the safest bonds are good old U S T reasuries, because they are backed by the full faith and credit of the government. D avid told me, “T reasury bonds are really there as an anchor for the portfolio.” But because these bonds are so safe from default, they have smaller returns. And like other, less secure bonds, they can fluctuate in price based on outside events—particularly how much inflation or deflation is happening at the moment.

So suddenly what you thought was a bomb-proof investment can blow up in your face!

T reasuries come in four different types (and they have different names for how long they last to maturity).

1.     T -bills: T hese T reasury bills are government debt obligations that come due in less than 12 months. T hey are the basis for most short-term bond index funds and money market funds.

2.     T -notes: T reasury notes mature in one to ten years, and offer a fixed interest rate (known as “the coupon”). Y ou get interest payments on these every six months.

3.     T -bonds: Same as T -notes, but T reasury bonds mature in ten to 30 years.

4.     T IPS: First created in 1997, these T reasury inflation-protected securities protect you against spikes in inflation. W hen you buy T IPS, the principal (or “par value”) of your bond goes up or down when the consumer price index on inflation changes—and so does your semiannual interest payment. So if you buy $10,000 worth of

T IPS at 1.5% interest, and the C PI doesn’t change in six months, the “par value” of your bond stays the same, and you get a $150 interest payment. But—and here’s the beauty of T IPS!— if the cost of living goes up 2% , your bond is now worth $10,200, and your semiannual payment is $153. If you own a lot of T IPS, and there’s a lot of inflation, that money can add up! H ere’s a chart that shows you how it works:

N otice that the value of the bond can be adjusted down, too. So if we go into another economic recession or depression, you could potentially lose some of your principal if you need to liquidate and get the value of your bond today.

Basically, if you buy T IPS, you’re betting that we’re heading into a period of inflation. D oes that seem likely? If you’re not sure (and, really, nobody ever knows for sure), you may want to do what D avid

Swensen recommends in his ideal portfolio: because T IPS go up in price when interest rates rise (which usually happens during inflationary times), balance them with an equal amount of traditional T reasuries that go down in price when interest rates rise. T hat way, you’re protected in any situation!

Of course, the U S government isn’t the only country that issues bonds to pay for its operations. And in the good old days of a few years ago, a bond backed by the full faith and credit of a sovereign nation used to be considered a fairly safe bet. But now that we’ve had G reece, Spain, and other nations teetering on default—or, like Argentina, plunging over the edge— foreign government bonds have become a riskier deal. Foreign bonds are also more vulnerable to inflation risks, and if you buy bonds in an unstable currency, you might run into big trouble exchanging them back into dollars. Most advisors say to leave these investments to expert traders and hedge funds.

But what about some other bonds that can bring in better returns than plain old T reasuries? Some of the types listed below are safer than others. Y ou can find out what others think about their prospects through a rating system that categorizes bonds by the level of risk to investors.

T here are several internationally recognized bond rating agencies, such as Moody’s, Fitch Ratings, and

Standard & Poor’s, that use special formulas to come up with credit ratings for different issuers—kind of like the way your credit is rated when you apply for a car loan or Visa card. For S&P, the grades range from AAA (the highest level of confidence that a company or country won’t default on its debts) to BBB (adequate for “investment grade” bonds), and all the way down to D (which means the bond issuer is already in default). T he lower the rating, the more interest the issuer usually has to pay to bond holders for the risk that they’re taking. T he expertly renamed high-yield bonds, formerly known as junk bonds, have a rating of lower than BBB, which makes them “subinvestment grade.”

•    C orporate Bonds. C orporations issue bonds when they want to raise money to expand, make acquisitions, pay dividends, fund a loss, or any number of reasons. Should you buy corporate bonds? It depends on the risk. If you pick the wrong bond, you could lose most or all of your money. E ven iconic companies such as T W A and K odak have gone bankrupt. A year after it declared C hapter 11, K odak’s unsecured bonds were selling for 14 cents on the dollar. But bonds from most giant U S corporations are still considered safe bets. Apple (with an AA+ rating) has been selling high-grade bonds to eager buyers—but the interest those bonds earn is only about 1% higher than comparable U S T reasuries! Some investors, like D avid Swensen, say, “W hy bother with corporate bonds when you can get a better return just buying stock in the company?”

But if you’re looking for higher yields in bonds, you have lots of options—as long as these investments go into your Risk/G rowth Bucket and not your Security Bucket! For instance, not everybody shies away from so-called junk bonds. Y ou have to look at each one and decide if it’s worth the risk. In May 2014 Australia’s largest airline, Qantas, offered a subinvestment-grade eight-year bond in Australian dollars for a 7.75% interest rate. T he company had its credit rating downgraded because of recent losses and debt problems, but would you count it out? Or at a more extreme level, in January 2013 in the midst of chaos, there were people who were buying oneyear E gyptian T reasury bills with a

“guaranteed” (a guarantee only as strong as you think an unstable government can make) return of 14.4% . T hose who did this were betting that the U S government and the Saudi Arabian government would keep E gypt stable and solvent.

W ould the rewards be worth the risk of default? T hat’s the kind of decision you’d have to make before buying the junk bond.

Of course, not many of us have the experience or time to do this level of research. T hat’s where a talented fiduciary advisor who’s an expert in the area might come in handy. But there are also domestic and international high-yield bond index funds that can give you good returns while spreading the risk among many bonds.

•    Municipal Bonds. H ow about munis? W hen a state, city, or county needs to raise funds for a big public works project (sewer systems, hospitals, mass transit), it borrows money by issuing a bond. In the past, these municipal bonds were considered a winwin deal for everybody, because the interest they paid was usually exempt from federal and possibly state taxes. But what’s been happening to cities and counties all over the U nited States? San Bernardino and Stockton, C alifornia? Jefferson C ounty, Alabama? D etroit? C hicago? All bankrupt or on the verge, and their bondholders potentially left holding the bag. D oesn’t sound like such a sure thing anymore. Also, when interest rates drop, sometimes the issuer of the bond can “call” it in and pay back your principal before the bond matures. Y ou lose that guaranteed rate of return you were counting on. But once you acknowledge the risks, there can be some great opportunities in municipal bonds if you know where to look.

And the tax advantages can be outstanding.

H ere’s an example that might prove valuable to you: a friend of mine recently bought a N ew Y ork C ity bond where he’s getting a 4% return tax free— which, for someone in a high tax bracket, is the equivalent of an approximately 7% return in a taxable bond! W hy isn’t he worried about the risk? T hese bonds are secured by a lien on future tax revenues. So if N ew Y ork C ity gets into trouble, it has the ability to tax its way out of it and pay him back! H e feels so good about this bond that he’s putting it in his Security Bucket!

T he point is, there are plenty of municipal bonds that could be valuable for you—but you have to educate yourself and sit down with a registered investment advisor or some other knowledgeable investment expert who knows his or her munis.

W ant to take the guesswork out of choosing the right bond mix for your portfolio? Vanguard founder Jack Bogle suggests buying into low-cost, low-fee bond index funds that spread out your risk because you’ll own every part of the bond market. Y ou

 

can see how Bogle puts this concept to work in his own portfolio in section 6, “Invest L ike the .001% : T he Billionaire’s Playbook.” N ow onward to greater risk and potentially greater reward.

 

C HAPT E R 4 .2

PL AY IN G T O W IN : T H E

RISK /G RO W T H BU C K E T

T he winner ain’t the one with the fastest car. It’s the one who refuses to lose.

— D AL E E AR N H AR D T SR .

T he R isk/G rowth Bucket is where everybody wants to be. W hy? Because it’s sexy! It’s exciting! Y ou can get a much higher return in here—but the key word is can. Y ou can also lose everything you’ve saved and invested. So whatever you put in your R isk/G rowth Bucket, you have to be prepared to lose a portion or even all of it if you don’t have protective measures in place. H ow do we know this? Because everything in life, including markets, runs in cycles. T here are going to be up times and down times. And anybody who invests in one particular kind of asset while it’s on a roll—be it real estate, stocks, bonds, commodities, or whatever—and thinks the party will last forever because “this time will be different” should get ready for a rude awakening. W hen I interviewed Jack Bogle for this book, he repeated one of his mantras: “Markets always revert to the mean.” (T hat means what goes up is going to come down, and vice versa.) And I’m sure Ray D alio got your attention when he said that whatever your favorite investment might be, at some point in your life, you can count on it dropping 50% to 70% in value. W hile there’s unlimited potential for upside in this bucket, never forget that you could lose it all (or at least a significant portion). T hat’s why I call this the Risk/G rowth Bucket and not the G rowth/Risk Bucket, because growth is not guaranteed, but risk is!

So what investments would you put in here?

H ere’s a sampling of seven main asset classes to consider:

1.     E quities. Another word for stocks, or ownership shares of individual companies or vehicles for owning many of them at once, like mutual funds, indexes, and exchange-traded funds (E T Fs).

E xchange-traded funds (E T Fs) have been called the “It” girl of the stock market, ballooning in popularity by more than 2,000% from 2001 to 2014, and holding more than $2 trillion in investments. But what exactly are they? E T Fs are built like mutual funds or index funds, because they contain a

diversified collection of assets, but you can trade them just like individual stocks. Most of them follow a theme (small-cap stocks, municipal bonds, gold) and/or trace an index. But with an index or mutual fund, you have to wait until the end of the trading day to buy or sell; E T Fs can be traded all day long. E xperts say that if you like the idea of an index fund, but you want to buy when you see the price is low and sell when the price is high during a trading session, an E T F might be for you. But that’s trading, not investing, and trying to time a market brings very intense and special risks.

But there’s another difference: when you buy shares of an E T F , you are not buying the actual stocks, bonds, commodities, or whatever else is bundled in the fund—you are buying

shares in an investment fund that owns those assets. T hat company promises that you’ll receive the same financial outcome as if you’d owned them yourself. But don’t worry, it sounds more complicated than it is.

A lot of people like E T Fs because they give you a tremendous amount of diversity at a low cost. In fact, many E T Fs have lower fees than even comparable traditional index funds, and sometimes lower minimum investment requirements. And because they don’t engage in a lot of the kind of trading that produces capital gains, they can be tax efficient (although there is a move toward more actively managed E T Fs coming to the market, which makes them less tax efficient).

Should you invest in E T F s? Jack Bogle, founder of Vanguard (which, incidentally, offers many E T F funds), told me he sees nothing wrong with owning broad-spectrum index E T Fs, but he warns that some are too specialized for individual investors. “Y ou can not only bet on the market,” he told me, “but on countries, on industry sectors. And you may be right and you may be wrong.” D avid Swensen wonders why individual investors should bother with E T Fs at all. “I’m a big believer in buying and holding for the long run,” he told me. “T he main reason you’d go into an E T F is to trade. And so I’m not a big fan.”

2.     H igh-Y ield Bonds. Y ou might also know these as junk bonds, and there’s a reason they call them junk. T hese are bonds with the lowest safety ratings, and you get a high-yield coupon (higher rate of return than a more secure bond) only because you’re taking a big risk. For a refresher, go back and read the bond briefing at the end of the last chapter.

3.     R eal E state. W e all know real estate can have tremendous returns. Y ou probably already know a lot about this category, but there are many ways to invest in property. Y ou can invest in a home that you rent out for an income. Y ou can buy property, fix it up, and then flip it in the short term. Y ou can invest in first trust deeds. Y ou can buy commercial real estate or an apartment. One of my favorites that I mentioned to you already is investing in senior housing, where you get both the income and the potential growth in appreciation as well. Or you can buy RE IT s: real estate investment trusts. T hese are trusts that own big chunks of commercial real estate (or mortgages) and sell shares to small investors, like mutual funds. RE IT s trade like stocks, and you can also buy shares of a RE IT index fund, which gives you a diversity of many different RE IT s.

For growth, the N obel economist Robert Shiller told me that you’re better off investing in RE IT s than owning your own home (which belongs in the

Security Bucket, anyway). “Buying an apartment RE IT sounds to me like maybe a better investment than buying your own house,” he said, “because there seems to be a tilt toward renting now.” T hat could change, of course. And, as with any investment, you’ve got to pause and think, “W hat am I betting on?” Y ou’re betting that the price of property is going to go up over time. But there’s no guarantee, so that’s why it’s in the Risk/G rowth Bucket. If it goes up, it could have a nice rate of return; if it doesn’t, you get nothing—or you could lose it all. W hen you buy your own home, you’re betting that the price of your home will go up. W hen you’re buying real estate that has income associated with it (a rental unit, an apartment building, commercial real estate, an RE IT , or an index that holds these), Shiller points out you have two ways to win. Y ou make income along the way and if the property increases in value, you also have the opportunity to make money when you sell on the appreciation.

4.     C ommodities. T his category includes gold, silver, oil, coffee, cotton, and so on. Over the years, gold has been considered the ultimate safe haven for many people, a staple of their Security Bucket, and conventional wisdom said it would only go up in value during uncertain times. T hen its price dropped more than 25% in 2013! W hy would you invest in gold? Y ou could keep a small amount in your portfolio that says, “In case paper money disappears, then this is a little portion of my security.” Y ou know, if all hell breaks loose, and the government collapses under a zombie invasion, at least you’ve got some gold (or silver) coins to buy yourself a houseboat and head to sea. (On second thought, can zombies swim?) Otherwise gold probably belongs in your

Risk/G rowth Bucket. Y ou’d invest in it as protection against inflation or as part of a balanced portfolio, as we will learn later on, but you have to accept the risk. So don’t kid yourself: if you buy gold, you’re betting it will go up in price. U nlike many other investments, there’s no income from this investment like you might get in stocks from dividends or from incomeproducing real estate or bonds. So gold could be a good risk or a bad one, but it goes in your

Risk/G rowth Bucket for sure. T his is not an attack on gold. In fact, in the right economic season, gold is a superstar performer! T hat’s why in chapter 5.1, “Invincible, U nsinkable, U nconquerable: T he All Seasons Strategy,” you’ll see why it can be invaluable to have a small portion of gold in your portfolio.

5.     C urrencies. G ot a yen to buy some yen? Since all currency is just “paper,” currency investing is pure speculation. T here are people who make a fortune in it and even more who lose a fortune. C urrency trading is not for the faint of heart.

6.     C ollectibles. Art, wine, coins, automobiles, and antiques, to name a few. Once again, this asset class requires very special knowledge or a lot of time on eBay.

7.     Structured N otes. W hat are these doing in both buckets? Because there are different types of structured notes. Some have 100% principal protection, and those can go in your Security Bucket, as long as the issuing bank is financially solid. T hen there are other kinds of notes that give you higher potential returns, but only partial protection if the index drops. Say you buy a note with 25% protection. T hat means if the stock market drops up to 25% , you don’t lose a dime. If it goes down 35% , you lose 10% . But for taking more risk, you get more upside: sometimes as much as 150% of the index to which it’s tied. In other words, if the market went up 10% , you’d receive a 15% return. So there’s potential for greater gains, but there’s definitely increased risk. Remember once again, structured notes should be purchased through an RIA, who will work to strip out all excess fees and deliver them to you in the form of an even greater return.

Safety doesn’t happen by accident.

— F L O R ID A H IG H W AY SIG N

W e’ve now covered a sample of some of the investment vehicles/assets that you might find in a diversified Risk/G rowth Bucket. Y ou may be wondering why I haven’t included some of the more daring investment vehicles of our time: call and put options, credit-default obligations (C D Os), and a whole host of exotic financial instruments available to traders these days. If you build up a lot of wealth, you may want to have your fiduciary look into some of these vehicles. But just realize that if you’re playing this game, you’re most likely no longer just an investor, you’ve become a speculator as well. It’s what’s called momentum trading, and you have to realize you can lose everything and more if you play the game wrong. And because the mantra of this book is that the road to financial freedom is through saving and investing for compounded growth, I’ll leave a discussion of these momentum assets for another day.

IT ’S T IME T O G E T IN T H E G AME

Okay, now you know the players that belong in your allocation buckets, and you know the key to building a winning team: diversify, diversify, diversify! But there’s more. Y ou not only have to diversify between your Security and your Risk/G rowth Buckets, but within them as well. As Burton Malkiel shared with me, you should “diversify across securities, across asset classes, across markets—and across time.” T hat’s how you truly get a portfolio for all seasons! For example, he says you want to invest not only in both stocks and bonds but also in different types of stocks and bonds, many of them from different markets in different parts of the world. (W e’ll talk about diversifying across time in chapter 4.4, “T iming Is E verything?”)

And, most experts agree, the ultimate diversification tool for individual investors is the low-fee index fund, which gives you the broadest exposure to the largest numbers of securities for the lowest cost. “T he best way to diversify is to own the index, because you don’t have to pay all these fees,” D avid Swensen told me. “And you get tax efficiency.” Meaning that if you’re investing outside of your IRA- or 401(k)-type account, you don’t get taxed for all that constant buying and selling that goes on in most mutual funds.

H AVE SOME FU N !

Of course, if you have your money machine in full gear, and you have the desire, there’s nothing wrong with setting aside a tiny percent of your R isk/G rowth Bucket to pick some stocks and do some day trading. “Index your important money, then go have fun,” Burton Malkiel told me. “It’s better than going to the racetrack.” But, he said, limit yourself to 5% or less of your total assets or portfolio.

Is all of this giving you an idea of what kind of portfolio mix would be best for you? Before you decide, just remember that we all have a tendency to pile up on the investments that we think will give us our greatest victories. And everybody gets victories. Y ou know why? D ifferent environments reward different investments. So let’s say real estate is hot. Y ou’ve invested in real estate, so now you’re a genius. Stock market is hot? If you have stocks, you’re a genius. Bonds are doing great? If you have bonds, once again you’re an investment master. Or maybe you just landed in the right place at the right time, right? So you don’t want to get overconfident. T hat’s why asset allocation is so important. W hat do all the smartest people in the world say? “I’m going to be wrong.” So they design their asset allocation ideally to make money in the long term even if they’re wrong in the short term.

L E T ’S T E ST Y OU R K N OW L E D G E

In the coming pages, I’ll be showing you the portfolios, or the asset allocations, designed by some of the greatest investors of all time. L et’s start with a sample from someone you’ve been hearing from throughout this book: D avid Swensen, Y ale’s $23.9 billion–plus man, a true master of asset allocation. W ould you be interested in seeing his personal portfolio recommendations? Me too! So when we sat down together in his office at Y ale, I asked him the key question: “If you couldn’t leave any money to your kids, only a portfolio and a set of investment principles, what would they be?”

H e showed me the asset allocation that he recommends for individual investors—one he thinks will hold up against the test of time. H e also recommends this portfolio for all institutions other than Y ale, Stanford, H arvard, and Princeton. W hy? Because these four institutions employ an army of full-time top analysts.

W hen I saw his list, I was amazed by how elegant and simple it was. I’ve shown you 15 types of assets to choose from; he uses only six categories, all in index funds. I was also surprised by how much weight he gave to one particular bucket. C an you guess which one? L et’s activate some of what we’ve learned thus far about the division between the Security and Risk/G rowth Buckets.

H ave a look at the box below and jot down where each asset class belongs. C heck which ones you think belong in the Security Bucket, where you put things that are going to give you modest returns in exchange for lower risk; and then check which belong in the Risk/G rowth Bucket, where there’s greater upside potential but also greater downside.

D avid Swensen Portfolio	Which Bucket?
Asset Class (Index Funds)	Portfolio Risk/G rowthSecurity
	Weight
D omestic stock	20%
International stock	20%
E merging stock markets	10%
RE IT s (real estate investment trusts)	20%
L ong-term U S T reasuries	15%

T IPS (T reasury inflation-           15%                              

protected securities)

L et’s start with the top four. T he first is a broad domestic stock index, something like the Vanguard 500 Index or the W ilshire 5000 T otal Market Index. W here would you put it? D oes it come with risk? Absolutely. H ave you got a guaranteed return? Absolutely not. C ould you lose it all? U nlikely—but it could drop significantly— and it has at times! Over the long term, U S stocks certainly have a great track record. Remember how they compare to owning your own personal real estate? E quities have done well over time, but they are one of the most volatile asset classes in the short run. In the last 86 years (through 2013), the S&P lost money 24 times. So stock index funds belong in which bucket? T hat’s right: Risk/G rowth.

H      ow about international stocks? D avid Swensen putsa lot of weight in foreign stocks because of the diversity they bring to the portfolio. If there’s a slump in America, business may be booming in E urope or Asia. But not everybody agrees with D avid. Foreign currencies aren’t as stable as good old U S greenbacks, so there’s a “currency risk” in investing in foreign stocks. And Jack Bogle, the founder of Vanguard, with 64 years of success, says that owning American companies is global. “T ony, the reality is that among the big corporations in America, none are domestic,” he told me. “T hey’re all over the world: McD onald’s, IBM, Microsoft, G eneral Motors. So you own an international portfolio anyway.” W here do foreign stocks belong? I think we can agree on the Risk/Growth Bucket, no?

E merging markets? D avid Swensen likes to put some money into the volatile stocks of developing nations, like Brazil, Vietnam, South Africa, and Indonesia. Y ou can get spectacular returns, but you can also lose everything. Risk/Growth Bucket? Y ou bet!

H ow about RE IT s? D avid told me he likes “real estate investment trusts that own big central business district office buildings and big regional malls and industrial buildings. T hey generally throw off a high-income component.” So these index funds can generate great returns, but they rise and fall with the American commercial real estate market. W hich bucket? Y ou’ve got it: Risk/Growth.

W hat about the last two on the list: long-term U S T reasuries and T IPS? D o they offer lower returns in exchange for more safety? Spot on! So which bucket do they belong in? Y ou’ve got it: Security.

C ongratulations! Y ou’ve just assigned six major asset classes to their proper allocation buckets, which is something 99.9% of the people you pass on the street wouldn’t be able to do!

Pretty cool thing, isn’t it? But let’s dig a little deeper here to understand why D avid chose this mix, and why it may or may not be right for you.

First let’s look at the Security Bucket. D avid said he chose only U S T reasury bonds “because there’s a purity there in having the full faith and credit of the U S government backing them.” But why did he pick this particular combination of bond funds? H alf are traditional long-term T reasury bonds, and half are inflation-protected securities.

I          said to D avid, “Y ou’re basically saying if I’m going to be secure, I’m going to protect myself against both inflation and deflation.”

“T hat’s absolutely right,” he said. “I can’t believe you saw that! A lot of people who put together bond indexes lump the two together. T he T reasuries are for deflation, like we had in 2008. But if you buy regular T reasury bonds, and inflation takes off, you’re going to end up having losses in your portfolio. If you buy the T IPS, and inflation takes off, you’re going to be protected.”

I want you to notice that D avid Swensen, like all the best, doesn’t know which is going to happen: inflation or deflation. So he plans for both scenarios. Y ou might say as you look at this, “W ell, yes, fifty percent for inflation and fifty percent for deflation. D oesn’t he just break even?” It’s not that simple, but your thinking is quality. H e is using his Security Bucket investment as protection that if his equity investments or real estate go down, he’s lowering his downside by having something to offset some of those investment risks. So he’s certain to make some money in his Security Bucket. And he doesn’t lose his principal, so he’s practicing smart Security Bucket usage. H e won’t lose money, but he’ll make some additional money if things inflate or deflate. A very smart approach.

But I was a bit surprised that only 30% of his asset allocation goes into the Security Bucket, while 70% of his assets go into the Risk/G rowth Bucket! T hat seemed pretty aggressive to me for some investors, so I asked D avid how it would work for the average investor.

“T hat’s a good question, T ony,” he said. “E quities are the core for portfolios that have a long time horizon. I mean, if you look at recent long periods of time—ten, twenty, fifty, one hundred years—you see that the equity returns are superior to those that you get in fixed income.”

H      istorical data certainly back him up. H ave a look atthe visual below that traces the returns of stocks and bonds for periods of 100 and 200 years. It shows that U S stocks have historically outperformed bonds in compounded annual returns. In fact, $1 invested in 1802 at 8.3% per annum would have grown to $8.8 million by the turn of the new millennium.

So D avid Swensen designed his ideal portfolio to be a wealth-generating machine that offers some stability through its tremendous diversity. And because it takes a long-term view of investing, it has the time to ride out periodic drops in the stock market.

I          was curious to see how this asset allocation mix would have fared in the past: those volatile 17 years from April 1, 1997, when T IPS first became available, to March 31, 2014. It was during those years when the Standard & Poor’s index performed like a rodeo bull, yet it dropped 51% . So I had a team of financial experts test its performance against the index during those years. G uess what? T he Swensen portfolio outperformed the stock market with an annual return of 7.86% !

D uring the bear market of 2000 through 2002, when the S&P 500 dropped almost 50% , Swensen’s portfolio stayed relatively stable, with a total loss of only 4.572% over those three terrible years! L ike other portfolios heavy in equities, Swensen’s took a hit in the massive crash of 2008, but it still did better than the S&P 500 by more than 6% , (losing 31% as opposed to 37% ) and then bounced back. (N ote: see the end of this chapter for the specific methodology to calculate the returns. Past performance does not guarantee future results.)

So, ladies and gentleman, it’s safe to say that D avid Swensen is one of those rare unicorns who can actually beat the stock market on a consistent basis—and in this portfolio, he does it with the power of asset allocation alone! And you have access to his best advice, right here, right now. If that was all you got out of this chapter, I think you’d agree it’s been worth the time! H owever, the most important thing to understand is this: even though this portfolio might do better and be more stable than the general market, it is still an aggressive portfolio that takes a strong gut because few people can take a 35% loss of their lifetime savings and not buckle and sell. So is it right for you? If you’re a young person, you might be very interested in this kind of mix, because you’ve got more time to recover from any losses. If you’re getting ready to retire, this portfolio might be too risky for you.

But not to worry. I’m going to give you several other examples of portfolios in the coming pages, including that one particular allocation mix Ray D alio shared with me that practically knocked me off my chair! It was so spectacular that I’ve devoted a whole chapter to it in the next section. But here’s a hint: its mix was much less aggressive than Swensen’s, but when we tested it over the same time frame, the D alio portfolio had a higher average annual return and significantly less volatility—it’s a smooth ride. It may be the H oly G rail of portfolio construction, one that gives you substantial growth with the lowest ratio of risk I’ve seen!

In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.

— T H E O D O R E R O O SE V E L T

But for now, let’s get back to the big picture and look at how you’ll decide your own basic numbers: W hat percentage of your assets are you going to put at risk, and what percentage are you going to secure? Before you make the choice, you have to consider three factors:

•   your stage in life,

•   your risk tolerance, and

•   your available liquidity.

F irst, how much time do you have ahead of you to build wealth and make mistakes with your investments along the way before you need to tap into them? If you’re younger, once again, you can be much more aggressive because you’ll have longer to recover your losses. (Although nobody wants to get in the habit of losing!)

Y our percentages also depend on how much access to income you have. If you earn a lot of money, you can afford to make more mistakes and still make up for it, right?

G AME SH OW T IME : W H AT ARE Y OU W IL L IN G T O RISK ?

And when it comes to risk, everyone has radically different ideas about what’s tolerable. Some of us are very security driven. Remember the 6 H uman

N eeds? C ertainty is the number one need. But some of us crave U ncertainty and Variety; we love to live on the edge. Y ou have to know your personality before you dive in here. So let’s say you’re on a game show; which of the following would you take?

•    $1,000 in cash

•    A 50% chance at winning $5,000

•    A 25% chance at winning $10,000• A 5% chance at winning $100,000

H ere’s another: you have just finished saving for a once-in-a-lifetime vacation. T hree weeks before you plan to leave, you lose your job. W ould you:

•    cancel the vacation;

•    take a much more modest vacation;

•    go as scheduled, reasoning that you need the time toprepare for a job search; or

•    extend your vacation, because this might be your lastchance to go first class?

Rutgers U niversity has developed a twenty-question, five-minute online quiz

(http://njaes.rutgers.edu/money/riskquiz) that can help you identify where you fit on the risk-tolerance scale. But the real answer is in your gut.

For the past 30 years, I’ve been putting on my W ealth Mastery seminars, where I’ve worked with people from more than 100 countries to transform their financial lives by putting them in a total-immersion fourday wealth-mastery process. In it, I like to play a little game with them called “the money pass.” From the stage, I tell the audience to “trade money” with one another. T hat’s all I say. T here’s usually a few moments of silent confusion, and then they start trading. Some people pull out a dollar, some take out a twenty, some people a hundred. Y ou can guess what happens. People are moving around, they’re looking at one another, they decide how to exchange. Some negotiate, some give away all their money, and some take another person’s $100 bill and give them $1. Y ou can imagine the astonished look on that individual’s face. After three or four minutes of this type of trading, I say, “Okay, grab a seat.” And I move on to the next subject.

Invariably, some guy will shout, “H ey! I want my hundred dollars back!”

I’ll say, “W ho said it was your hundred?” And he says, “W ell, we’re playing a game.” And I say, “Y eah. W hat made you think the game was over?” U sually I get a confused look as the person sits down, still frustrated over the lost $100. E ventually they get the insight: their perception of their risk tolerance and the reality are in different universes. T his guy thinks he has a high tolerance for risk, but he can get pissed off over the loss of $100. It always amazes me. Imagine if you were to lose $10,000, $100,000, or $500,000. T hat’s what aggressive investors can lose in a relatively short period of time. People don’t know their true tolerance for risk until they’ve had a real-life experience taking a significant loss.

I’ve taken G od-awful losses—multimillion-dollar hits at a stage in my life when I didn’t have that much to lose, when the losses equaled more than all that I owned.

T hose gut checks will wake you up! But the numbers don’t matter. Y ou can get thrown by losing $100 or $1,000. T he pain of losing far exceeds the joy of winning. And that’s why it’s great to have something like the All Seasons portfolio in your investment arsenal, because, through asset allocation alone, you can significantly reduce the risk of sizeable losses.

Just as science shows us that we’re hardwired to hate losing, it also shows that humans are not good at assessing our potential to win. Sometimes after you’ve made a few successful investments, you start thinking, “H ey, I’m good at this; I can do anything!” It’s just human nature to think you can beat the system. It’s what psychologists call motivational bias. Most of us think we’re better than we really are at predicting patterns and luckier than we really are when there’s a jackpot at stake. W hat else can explain why so many people play the lottery?! A famous 1981 study at Stockholm U niversity found that 93% of U S drivers think their skills are above average. T here’s even a name for this phenomenon: “the L ake W obegon E ffect,” referring to author G arrison K eillor’s mythical town where “all the children are above average.” H ey, who doesn’t think they’re above average! But when it comes to money, delusions that you’re better than everybody else can kill you.

If you’re a man, you’re guilty of this bias by biochemistry. T estosterone equals overconfidence. Study after study show that women tend to be better investors because they don’t overestimate their abilities to anticipate the future accurately. Sometimes confidence works against you. Just watch little boys. “I’m Superman! I’m going to fly! W atch me jump off this roof!” Suffice it to say, if you’re a woman reading this book, you have a built-in advantage!

W hen the markets are going up and up and up, investors can be mesmerized by their returns. E verybody’s seduced by the possibility of growth, thinking it’s the probability of growth. T hat’s where they get into trouble. As a result, they pour the majority or all of their money into investments that fit into the Risk/G rowth Bucket—not just 70% but sometimes 80% , 90% , or 100% . Some even borrow money to make

investments that they believe are going to go up forever, until they don’t. And because of poor asset allocation, with too much of their money riding on one horse, they lose it all or even end up in debt. And the reason people get screwed is that by the time they hear that the stock market (or gold, or the real estate market, or commodities, or any other type of investment) is a great place to go, very often the bubble is just about to end. So you need to put in place a system to make sure you don’t get seduced into putting too much of your money in any one market or asset class or too much in your Risk/G rowth Bucket.

All of this may sound pretty basic, especially to sophisticated investors who feel like they’ve got everything covered. But sometimes it’s high-level investors whose strings of successes send them veering off course. T hey forget the fundamentals.

N aturally, there will always be investors who can’t listen to reason, whose “irrational exuberance” runs away with them. T hey talk themselves into believing the biggest myth of investing: “T his time will be different.” I know dozens of these stories, all with unhappy endings. T ake Jonathan, a friend who made a fortune in business (and whose real name will remain anonymous for his privacy) and then liquidated everything to invest in the booming L as Vegas real estate market. H e had some early wins, so he doubled down and borrowed like crazy to keep building condos. E very time Jonathan came to my financial programs, he heard about the importance of putting some of your wins into your Security Bucket and not putting all your eggs into any one basket no matter how compelling the returns might be today. Jonathan gave credit to me and my Business Mastery programs for the more than 1,000% increase in his business that made all these investments possible. H e made more than $150 million selling his company. But he didn’t listen when it came to taking money off the table and putting it in the Security Bucket, and, boy, did he pay a price. T oday he acknowledges that he let his ego get in the way of his eardrums. H e wanted to be a billionaire, and he knew he was on target to become one. But then, do you remember what happened when the real estate market in L as Vegas collapsed? H ow far did housing prices go down? H ow about 61% between 2007 and 2012. Jonathan didn’t just lose everything—he lost a half billion dollars more than he had.

I sincerely hope all this is sinking in. If there’s anything you should take away from this chapter, it’s this: putting all of your money in the Risk/G rowth Bucket is the kiss of death. It’s why many experts estimate that 95% of investors lose money over virtually any decade. T ypically they ride the wave up (in real estate, stocks, gold), and when the wave disappears, they sink like a rock, and they’re pounded by financial losses during the inevitable crash.

Some people just won’t listen to advice. T hey have to learn the hard way, if at all. But to avoid those kinds of painful lessons, and to help you decide which options are right for you, I have to remind you that a conflict-free, independent investment manager can be the right choice. N otice how professional athletes, men and women at the top of their sport, always have coaches to keep them at peak performance? W hy is that? Because a coach will notice when their game is off, and can help them make small adjustments that can result in huge payoffs. T he same thing applies to your finances. G reat fiduciary advisors will keep you on course when you’re starting to act like a teenager and chasing returns. T hey can talk you off the ledge when you’re about to make a fateful investment decision.

PIC K A N U MBE R, AN Y N U MBE R . . .

Okay, the moment of reckoning has arrived! Say you’ve still got that $10,000 bonus in your hand (or you’ve accumulated $100,000, $200,000, $500,000, or $1 million or more), and you’ve decided to invest it all. K nowing what you know so far, how would you divide it up? W hat’s your new philosophy of investing? W hat percentage of your money are you going to keep growing in a secure environment and what percentage are you willing to risk for potentially greater growth?

Y ou’ve probably heard that old rule of thumb (or what Jack Bogle calls a “crude method”): invest your age in bonds. In other words, subtract your age from 100, and that would be the percentage you should keep in stocks. So if you were 40 years old, 60% should go to equities in your Risk/G rowth Bucket and 40% in your Security Bucket as bonds. At age 60, the ratio should be 40% stocks and 60% bonds. But those ratios are out of whack with today’s reality. T he volatility of both stocks and bonds has increased, and people live a lot longer.

So what should it be for you? W ould you like to be more aggressive with your risk, like D avid Swensen? W ith a 30% security and 70% risk? T hat would mean putting 30% of your $10,000 windfall—$3,000—in Security and 70% —or $7,000—into your Risk/G rowth Bucket. (If you had $1 million, you would be putting

$300,000 in Security and $700,000 in Risk/G rowth.) C an you really afford that kind of split? D o you have enough cash? D o you have enough time? Are you young enough? Or do you need to be a little bit more conservative, like most pensions are, at 60/40? Or is 50/50 right for you? Are you close enough to retirement that you’d want to have 80% in a secure place, and only 20% in riskier investments? W hat matters is not what most people do. W hat matters is what will meet both your financial and emotional needs.

I know, it’s such a personal choice, and even the brightest stars in finance sometimes have to think long and hard about what’s right for them and their families. W hen I interviewed J.P. Morgan’s Mary C allahan E rdoes, I asked her, “W hat criteria would you use in building an asset allocation? And if you have to build one for your kids, what would that look like?”

“I have three daughters,” she told me. “T hey’re three different ages. T hey have three different skill sets, and those are going to change over time, and I’m not going to know what they are. One might spend more money than another. One may want to work in an environment where she can earn a lot of money. Another may be more philanthropic in nature. One may have something that happens to her in life, a health issue. One may get married, one may not; one may have children, one may not. E very single permutation will vary over time, which is why even if I started all of them the first day they were born and set out an asset allocation, it would have to change.

“And that has to change based on their risk profile, because over time, you can’t have someone in a perfect asset allocation unless it’s perfect for them. And if, at the end of the day, someone comes to me and says, ‘All I want is T reasury bills to sleep well at night,’ that may be the best answer for them.”

I said to her, “Because it’s about meeting their emotional needs, right? It’s not about the money in the end.”

“E xactly, T ony,” she said. “Because if I cause more stress by taking half that portfolio and putting it in a stock market, but that leads to a deterioration of the happiness in their lives—why am I doing that?”

“W hat is the purpose of investing?” I asked. “Isn’t it about making sure that we have that economic freedom for ourselves and for our families?”

“T hat’s right, to be able to do the things you want to do,” she said. “But not at the expense of the stress, the strains, and the discomfort that goes along with a bad market environment.”

So what’s the lesson here from one of the best financial minds in the world? W hat’s more important even than building wealth is doing it in a way that will give you peace of mind.

So what will it be? W rite down your numbers and make them real! Are those percentages a comfortable fit? W alk around in them. L ive in them. Own them! Because those percentages are the key to your peace of mind as well as your financial future.

D one?

Okay! Y ou’ve just made the most important investment decision of your life. And once you know what your percentage is, you don’t want to alter it until you enter a new stage of life, or your circumstances change dramatically. Y ou’ve got to stick with it and keep the portfolio in balance. I’ll show you how later in this section.

Are you still concerned about making the right choice? Just remember, you’ve got a fiduciary to help you. And you don’t need tens of thousands, hundreds of thousands, or millions of dollars to get started—you could get started with next to nothing for free with today’s online services.

By the way, I’m not done with you yet! T here are ways to increase your returns within these buckets, and we’re going to get to that.

N ow that you understand these principles, and you’ve made this decision about how much you want to put in your Risk Bucket versus your Security Bucket, let me tell you the best news of all: after interviewing 50 of the most successful investors in the world, the smartest financial minds, I’ve uncovered the ways in which you can get G rowth-like returns with Security Bucket protections. T he most important piece of advice every investor I talked to echoed was, “D on’t lose money!” But for many investors, that means having to settle for mediocre returns in the Security Bucket. In just a couple of chapters, I’m going to share with you how to have the upside without the downside. H ow to have significant growth without significant risk. I know it sounds crazy, but it’s real, and it’s exciting.

As hard as we’ve worked here, I’m happy to tell you that the next chapter is easy and pure pleasure. N ow I’m going to reveal a third bucket that we haven’t talked about yet, but you’re going to love it because it’s fun, inspiring, and can give you a greater quality of life today, not decades in the future. L et’s discover what’s going to go in your D ream Bucket.

D avid Swensen provided the specific percentage for each asset class, but he did not provide the specific indices to represent each asset class. Independent analysts used the following indices to represent each asset class, and it is assumed that the portfolio would be rebalanced quarterly. N ote that past results do not guarantee future performance. Instead, I am providing you the historical data here to discuss and illustrate the underlying principles. 20% W ilshire 5000 T otal Mkt T R U SD 20% FT SE N ARE IT All RE IT s T R 20% MSC I AC W I E x U SA G R U SD 15% Barclays U S L ong C redit T R U SD

 

15% Barclays U S T reasury U S T IPS T R U SD 10% MSC I E M PR U SD

 

C HAPT E R 4 .3

T H E D RE AM BU C K E T

W hen you cease to dream, you cease to live.

— MAL C O L M F O R BE S

W hat’s a D ream Bucket? It’s where you set aside something for yourself and those you love so that all of you can enjoy life while you’re building your wealth. It’s something for today, not tomorrow! Y our D ream Bucket is meant to excite you, to put some juice in your life so you want to earn and contribute even more. T hink of the items you’re saving for in your D ream Bucket as strategic splurges.

W hat would float your boat right now? Maybe you’d buy yourself that pair of Manolo Blahniks you’ve always wanted, or a floor-side seat at a Miami H eat game. Or a VIP tour of D isneyland for the kids. Or you could start filling that bucket for a bigger reward: season tickets. A trip to the mountains in the summer or a ski or snowboarding vacation in the winter. A new car—maybe one that isn’t so practical, like a Mini C ooper or a Mustang. A vacation condo or home.

I know a millionaire who always flew coach because he liked to save a dollar, but his wife complained about it constantly. “W e have plenty of money. W hy don’t we enjoy it?” she said. It was a constant source of strife between them because they traveled so much for business. After attending my W ealth Mastery seminar, he decided to use his D ream Bucket to upgrade to business class when he flew with his family. H e discovered it not only made his travel life more comfortable but also (even more importantly) his home life as well. W ay to flame out, dude! Maybe someday he’d like to consider chartering a private jet instead of flying commercial—and it might not be as expensive as he thinks.

Many people have a lot of money but not much lifestyle. T hey spend their lives watching numbers accumulate in a bank account and miss out on the joy and enjoyment they can create and share along the way.

I remember that when I made my first G rowth Bucket hits early in my career, my idea of a jackpot was to buy two new suits because they were on sale at a Men’s W arehouse–like store. Or maybe take a vacation in H awaii. T hat was a big deal for me back then!

My resort in Fiji was a much bigger dream that came true. As I shared with you, when I was 24 years old, I fell in love with the turquoise waters of the South Pacific islands. It was like my heart had found a home. I wanted a refuge for myself and my friends and family. N ow, over the years, N amale Resort and Spa has become a pretty sizeable asset because I built it up and turned it into one of the top destinations in the South Pacific. But that’s just a bonus. In fact, it’s the number one resort in Fiji for more than ten years, and Oprah selected it as her favorite place to go last year. A jackpot on top of the dream that created it.

Y our dreams are not designed to give you a financial payoff, they are designed to give you a greater quality of life. And isn’t that why you’ve filled the first two buckets in the first place? But you’ve got to practice some restraint here, too. If you take all your money and put it only in the D ream Bucket, you’re likely to end up going broke like W illie N elson. So it’s a matter of balance. And the jackpots in your D ream Bucket don’t have to be just for yourself. T he best jackpots are the ones you give to others.

D reams are the touchstones of our character.

— H E N R Y D AV ID T H O R E AU

Maybe you’re like me, and you just love giving gifts. And the best gifts are the ones that are unexpected.

My mother never had money when she was young, and we always struggled as a family, living in cheap housing east of L A, where the nearly daily smog alerts announced on the news let us know it wasn’t safe to walk outside.

And so one day, after my business started taking off, I asked my mom to help me check out a condo I was thinking of buying on the water in H untington Beach. I walked her through it and showed her the magnificent ocean views. T hen we stepped out on the beach and breathed the salt air.

“I really love this place, but I want your final word,” I told her. “W hat do you think?”

“Are you kidding?” she said. “T his is incredible! C an you imagine coming from where we came from, and now you’re going to live here?”

“So you think it’s the right place, Mom?” “Oh, it’s unbelievable!” T hen I handed her the keys.

“W hat’s this?” she asked.

“It’s yours, Mom.”

I’ll never forget the look of astonishment on her face and then tears of joy. My mom has passed away now, but I still remember those moments so vividly as some of the favorite of my life.

Y ou don’t have to wait. Y ou could do this, too. Y ou can fulfill your dreams. If you want it badly enough, you’ll find a way.

N ot long after I gave my mother that condo, I met with a group of a hundred or so fifth graders from a poor neighborhood at a school in H ouston, T exas. Most of them were on a track that would never get them to college. So I decided then and there to make a contract with them. I would pay for their four-year college education if they kept a B average and stayed out of trouble. I made it clear that with focus, anyone could be above average, and I would provide mentoring to support them. I had a couple of key criteria: T hey had to stay out of jail. T hey couldn’t get pregnant before graduating high school. Most importantly, they needed to contribute 20 hours of service per year to some organization in their community. W hy did I add this? C ollege is wonderful, but what was even more important to me was to teach them they had something to give, not just something to get in life. I had no idea how I was going to pay for it in the long run, but I was completely committed, and I signed a legally binding contract requiring me to deliver the funds. It’s funny how motivating it can be when you have no choice but to move forward. I always say, if you want to take the island, you have to burn your boats! So I signed those contracts. T wenty-three of those kids worked with me from the fifth grade all the way to college. Several went on to graduate school, including law school! I call them my champions. T oday they are social workers, business owners, and parents. Just a few years ago, we had a reunion, and I got to hear the magnificent stories of how early-in-life giving to others had become a lifelong pattern. H ow it caused them to believe they had real worth in life. H ow it gave them such joy to give, and how many of them now are teaching this to their own children.

I’m telling you this because you don’t need to wait until you’re absolutely ready to fulfill your dream. Y ou just do it, and you find a way, and grace will find you.

G race comes when you commit to doing something that will serve more than just yourself —some would call it luck or coincidence. I leave it to you to decide what to believe. Just know that when you give your all, the rewards are infinite. I really believe motive does matter. But it doesn’t mean that it can’t benefit you too, right?

Jackpots can help you create more wealth, because the

key to creating wealth is to unleash your creativity and find a way to do more for others than anyone else is doing. If you find a way to add more value than anyone else, you can also find a way to prosper personally. T hat can apply to your own life as well as the lives of others. Remember when we talked about speeding up your plan, how if you wish to be great, learn to become the servant of many? W e already know that life supports what supports more life. And by supporting life, you lift yourself up as well, and more bounty comes to you.

G ive yourself peace of mind. Y ou deserve to be happy. Y ou deserve delight.

— H AN N AH AR E N D T

So how do you fill your D ream Bucket? L et’s talk about three ways. First, when you score a big hit, like that $10,000 bonus we were talking about earlier in the last chapter. Or, second, if your Risk/G rowth Bucket gets a positive hit, and you score big. Just like in Vegas, it might be time to take some of the risk off the table. An approach many of my students use is to take those profits, divide them up, and invest them back in a fixed proportion: say, one-third in Security, one-third in Risk/G rowth, and one-third in D ream. In the case of that bonus, that would be about $3,333 for your D ream Bucket.

By putting one-third of your Risk/G rowth Bucket money into Security, it’s like taking money off the table to help speed the growth of your most secure investments, and with it your peace of mind. By leaving one-third in G rowth, you continue to take risks with a potential larger upside, but you’re doing it with your winnings. By putting one-third in your D ream Bucket, you’re creating a jackpot that you can enjoy today. T his will stimulate and excite you in ways that will likely cause you to want to earn more, save more, and invest even more effectively—because of the rewards today, not just some day in the future.

T he third way to fill your D ream Bucket is to save a set percentage of your income and sock it away, building it up until you’re able to purchase your dreams—whether that be your first home, a car, a vacation, or those fun little items that will light you up today. But keep in mind, this is not taking any money out of what you are already saving for your Freedom Fund. T hat’s sacred and untouchable money! But you can find ways to increase the amounts you can put in your Freedom Fund and your D ream Bucket. H ere’s a quick reminder from the “Speed It U p!” chapters:

•   Save more and invest the difference.

•   E arn more and invest the difference.

•   Reduce fees and taxes and invest the difference.

•   G et better returns.

•   C hange your lifestyle.

So you can take some of those savings to invest, and some of those savings to make your dreams a reality today or in the near future.

W hat will be your strategy to fill this bucket? W ill you wait for a bonus or a stock market score, or will you set aside a percentage like my friend Angela? At first she thought she had no money she could possibly save even toward her financial freedom.

But by the time she went through the process of this book, she saw that relocating to Florida would save her enough money in state income tax that she could now set aside 10% of her income for her Freedom Fund and still earmark an additional 8% for her D ream Bucket. T he tax man was now filling her D ream Bucket. H ow

cool is that? Plus, she’s got better weather, too! She went through her accounts and figured out a way to become even more tax efficient to be able to put an additional 2% into her Freedom Fund for a total of 12% , on top of the 8% she was saving toward her dreams.

If you would have told her in the beginning that she would have found a way to save 20% , she would have said you were absolutely crazy. But today she not only has her future secured but also is saving for some important dreams in the short term that excite her. H iking in the H imalayas and rowing across the ocean. H er degree is in anthropology, and she’s always dreamed of spending time with famed paleontologist L ouise L eakey at her institute in K enya. She was even invited. She just doesn’t have the money right now. But if she sticks to her fiscally sound plan, she will. H ow cool to be able to be financially secure and independent, and, at the same time, live this life of adventure? Remember the strategy of Save More T omorrow? Y ou can decide that in your next salary increase, maybe 3% could go to your Freedom Fund, and maybe 1.5% or 2% could go to your D ream Fund— especially if there are some dreams that are important to you now, like saving for the down payment on your first home or a vacation getaway. T here are so many ways to do it!

But let me tell you the secret: the most important thing is to make a list of your dreams. Put them in order of importance, big and small, short term and long term. W rite down why you must achieve them or experience them. I’ve found that if you try to figure out a percentage to save without really knowing what you’re saving for, it’s not going to happen. T he secret is to know what you truly want and why you want it, and make it a burning passion. Suddenly your creativity will be unleashed, and you’ll find new ways to earn more, to save more, to add more value, to become more tax efficient, to become a better investor, or to make a lifestyle change that improves your life and gives you some of your dreams today, and not in the future. T hat’s the key to it all.

But decide today! T ake a moment now and make a list of your dreams. W rite them down so they become real to you. H ow much would you be willing to save for them? G et excited, and get started!

E very great dream begins with a dreamer.

— H AR R IE T T U BMAN

In the end, what percentage of your total assets do you think should go in your D ream Bucket? It doesn’t have to be much—maybe as little as 5% or 10% . But please don’t forget to reward yourself. W hile it’s important to keep your money safe and growing, never forget to have fun, to give, and to live your life fully on your path to financial freedom. T hat’s what it’s all about. D on’t save your D ream Bucket for “a rainy day.” W hy not get out and soak up the sunshine?

If you don’t, you could end up like a couple that a friend of mine told me about. T hey scrimped and saved their whole lives, and then finally decided they had enough to afford a fantastic C aribbean cruise. It was a weeklong trip on one of those giant cruise liners, hopping around the islands. Y ou can picture it: the ship had swimming pools, a climbing rock, dozens of restaurants and discos. T he couple was so excited, but they still wanted to be prudent with their capital, since they’d worked so hard to save for their retirement. T hey didn’t want to spend extra money on the lavish meals. T he trip by itself was a big enough splurge for them. So to save money, they loaded their suitcases with boxes of cheese and crackers to snack on during the cruise and vowed to avoid those expensive dinners.

T he weather was perfect, and the couple had a great time with all the activities on board. But every lunch and dinner, when everybody else was eating incredible feasts served up on huge buffet tables—shrimp, lobster, prime rib, mountains of desserts, and fine wines from around the world—the two of them went back to their room and •    could have more than twice as much money when you retire or cut years off the time it will take you to get to financial freedom. L et that soak in for a second!

•    W e have learned the difference between a butcher anda dietitian—between a broker and a fiduciary. And now we know where to go to get transparent advice (that may also be tax-deductible).

•    W e learned how to drastically reduce our 401(k) fees by using a low-cost provider like America’s Best 401k. Y ou can see how your plan stacks up by using the industry’s first fee checker

(http://americasbest401k.com/401k-fee-checker). Again, these cost savings will compound our total account balance and put money back in our family’s pocket. (For business owners, we showed how you can get yourself compliant with the law and drastically reduce your liability.)

•    W e learned about the Roth 401(k) and how we canprotect against rising taxes by paying the tax today and never paying tax again (not on the growth or the withdrawals).

•    W e learned that target-date funds (T D Fs) are not onlyexpensive but also may be more aggressive or volatile than you think. And if you want to use a T D F, you should stick with a low-cost provider like Vanguard. L ater, in the “Billionaire’s Playbook,” you will also learn how to put together your own asset allocation instead of paying a T D F to do it for you.

•    W e learned that variable annuities are a mutant evolution of a 2,000-year-old financial product but that other more traditional (fixed) annuities can provide what no other product can: a guaranteed lifetime income stream!

•    And finally, we learned that wealth without risk is apossibility. Sure, there is risk in everything, but we learned that certain structures will allow us to participate when the market goes up and not lose when it falls!

Are your eyes beginning to open? H as the blindfold been removed? H ow will your life be different now that you know the truth? Shattering these myths is the groundwork for creating true financial freedom. I want you to see, hear, feel, and know that the game is winnable. If these myths are unsettling, good! T hey were for me when I first discovered the truth. L et them drive you forward to make financial freedom a must in your life, and to declare that you will never be taken advantage of again.

W e will take it up a notch and have some fun in section 3. It’s here where we will make our dreams become more of a reality by putting in place a plan that is both doable and exciting. And if it’s not happening fast enough for you, we will show you how to speed it up and bring it closer into your future.

But first, the last and final myth must be put to death. But unlike the others, it’s not one that someone else has sold you. It’s the story you have sold yourself. It’s whatever myth or lie has kept you from taking action in the past. It’s time for a breakthrough! L et’s shatter your limits by discovering the lies we tell ourselves.

C HAPT E R 2.9

MY T H 9: “T H E L IE S W E T E L L O U RSE L V E S”

Seek truth and you will find a path.

— F R AN K SL AU G H T E R

Okay, let’s get real here. W e’ve just gone through all of the marketing and investment myths that have been promoted for years, at great expense to us, and to the benefit of big institutions. And my bet is that right now you’re probably shocked, but you feel incredibly empowered. Y ou now know what to avoid and what to do to succeed.

But there’s one final myth to tackle. T he myth that says the reason we’re not succeeding, not achieving, not growing is because of someone or something else beyond our control. Or the alternative thought that somehow we just aren’t made of the stuff that can help us master this area of our life. But here’s the truth: the ultimate thing that stops most of us from making significant progress in our lives is not somebody else’s limitations, but rather our own limiting perceptions or beliefs. N o matter how successful we are as human beings, no matter how high we reach personally, professionally, spiritually, emotionally, there’s always another level. And to get there, we have to be honest with ourselves; honest about our unconscious fears. W hat do I mean?

E verybody has a fear of failure at some level; at times we’ve all been fearful that perhaps we are not enough. E ven when we know what to do, our fear can keep us from executing our plans. As a result, rather than face our natural fears, what do we do? W e come up with stories. Stories about why we’re not where we want to be. W hy we’re not smart enough, successful enough, thin enough, rich enough, loved or loving enough. Our stories almost always relate to something outside our control, or our lack of some natural talent or ability. But talent and skill are two key elements to success attainable by anyone who is truly committed. Y ou can get the skill if you can get beyond the mental limits of how hard, difficult, or “impossible” it may be to master something.

Y ou’ve made the single most important financial decision of your life by deciding precisely how much you’re going to save to build your Freedom Fund—so you can tap into that and create a money machine that makes money while you sleep. And we’ve taken the time to look through all of the marketing myths that can trip you up along the way. So what’s left? T he last thing out there standing in our way is often our own story, our own limitations, our own fears. T he final obstacle to face is ourselves. T hat’s why, for 38 years, my passion has been helping people to break through from what holds them back—to help them get from where they are now to where they want to be, and faster. My whole life has been committed to helping people create breakthroughs. And frankly, while lots of people make this step complex, I’ve found there are only three elements that make the difference between success and failure in the long run––between whether you stay where you are, or you move forward. W hether you make excuses about what you don’t have or whether you get to enjoy the life you deserve.

BRE AK T H ROU G H S

So what is a breakthrough? A breakthrough is a moment in time when the impossible becomes possible—when you don’t just talk about something, but you finally take massive action and do whatever it takes to make it happen. Y ou make a move to truly change and improve your world.

Often it’s frustration, anger, or stress that triggers a breakthrough. W e hit our threshold: a point where we say, “N ever again and no more.” Or inspiration strikes: we meet someone who inspires us and that makes us see how life can be so much greater than we ever dreamed possible. Y ou meet someone who enjoys life fully, has a great relationship, is physically fit or financially free, and you decide, “I’m as smart as he or she is. I’m going to find a way.” W hat was acceptable before no longer is. T here’s no going back now. It’s amazing what you can do when you decide to draw a line in the sand, commit to a new goal, and set a new standard.

Most people say, “It took me ten years to make this change.” But the truth is, it didn’t take ten years for a breakthrough. T rue transformation happens in a moment. It may have taken you ten years to get to the point where you were ready, or open, or maybe even provoked. But we’ve all had breakthroughs in our lives, and those breakthroughs happened in a single moment. W e struggle with something for years—a job or a career, our weight or a relationship. W e’re miserable until one

day a trigger goes off. Suddenly, “T hat’s it.”

“I love you!”

“I quit!”

“I’m in!”

“L et’s begin!”

N ot within a day or an hour, but in that moment your life changes—and it changes forever.

H ave you ever stayed in a relationship way too long, even though you knew you were unhappy, and so was your partner? Y ou came to the edge of dealing with it, and then the fear of the unknown, of change, of being alone, stopped you. T he fear of loss and uncertainty kept you from taking action, and you settled.

W hatever you struggle with, I know there’s a place where you’ve had a breakthrough before. T ake a moment to think of one. W hat’s an area you used to struggle with—daily, weekly, monthly, for years or even a decade or more, until one day you hit your threshold? Y ou became inspired, or fed up, enough to finally make a real decision to change this area once and for all! And you took massive and immediate action to make a change. Y ou got it done. Y ou finally kicked the habit and quit smoking. Or you left a job that made you miserable and started your own business. Or maybe you finally decided to start exercising and change your body or get yourself out of that bad relationship.

I want you to own that breakthrough. T here was a time when things seemed like they couldn’t change, but you did it—you made it happen. Y ou do have the ability to change everything in your life. N o matter how long it’s been this way, you can change it all in a moment, a moment of real decision, a decision that is acted upon. T hat’s a breakthrough, and one is waiting for you right now.

T H RE E ST E PS T O C RE AT IN G Y OU R BRE AK T H ROU G H

T here are three steps to creating a breakthrough: three forces that, together, can massively change any and every aspect of your life. Any one on its own can work, but if you put all three together, you will absolutely change the aspect of your life that you choose to focus on.

W hat are the three biggest challenges people face in America? W hat are the three areas that show up over and over again, causing pain in people’s lives? Our finances, our relationships, and our bodies. H ow many people do you know who struggle with money, who can’t save, who don’t earn enough, who spend too much, or who can’t figure out what to do next with their career? And what about relationships? Men and women, we are wired so differently—if we don’t understand each other, it can take so much work to maintain healthy intimate relationships, to understand what our partner really needs and wants, to communicate in a loving and supportive way. And then there are our bodies. W e live in a time where the majority of people in the W estern world are massively overweight. In the U nited States, nearly seven in ten Americans are either overweight (defined by the C enters for D isease C ontrol and Prevention as having a body mass index of 25.0 to 29.9) or obese (having a BMI of 30.0 or higher). Our struggle with fitness and health has become a national crisis, and it’s spreading around the world as developing countries adopt some of our lifestyle and eating patterns.

W hy do I bring this all up? W hat do relationship challenges and unhealthy eating habits have to do with your ability to achieve financial freedom? W ell, whatever area you want to create a breakthrough in, whether it’s your body, your relationships, or this book’s focus, money, there are only three things that you need to look at. And they are the same three things no matter what kind of breakthrough you’re hoping to achieve. If you want to change your life you have to change your strategy, you have to change your story, and you have to change your state. L et’s begin with strategy, because that’s where most people start.

T H E RIG H T ST RAT E G Y

If you’re with me here now, reading this book, you’re in search of answers, of strategies, to take control of your money and secure your financial future. I live for finding strategies to improve every area of our lives. I’ve spent the past 38 years relentlessly focusing on finding strategies and tools to immediately change the quality of people’s lives. I’ve been successful and impacted over 50 million people in 100 countries because I’m obsessed with finding simple strategies that quickly lead to breakthroughs—breakthroughs in relationships, in finances, in careers, in growing businesses, in mind, body, and soul.

I’ve always believed the best way to get a result, the fastest way, is to find someone who has already accomplished what you’re after, and model his or her behavior. If you know someone who used to be overweight but has kept himself fit and healthy for a decade, model that person! Y ou have a friend who used to be miserable in her relationship and now is passionate and in love for ten years going? Model her. Y ou meet someone who started with nothing and has developed wealth and sustained it through time? L earn from those strategies! T hese people aren’t lucky. T hey’re simply doing something different than you are in this area of life.

I’ve spent my entire life as a hunter of human excellence. So to find a strategy that works, you go to the best; those who have proven results for the long term. And if you follow their strategies—if you sow the same seeds, then you’ll reap the same rewards. T his is the essence of what I mean when I say, “Success leaves clues.” And this book is filled with strategies modeled from the very best.

T he other thing the right strategy can do is save you the most valuable resource of all: time. If you start with a proven plan, the right strategy, you can literally convert decades of struggle into days of achievement. Y ou can avoid the inevitable frustration that comes with learning something for the first time by trial and error. Instead, you can get results in days, instead of years, by learning from people who have achieved success already. W hy reinvent the wheel?

So now there’s the question about the power of strategy. And if you read this book, you’ll have the best financial strategies that exist in the world today. I promise you that: because they’re not my strategies, they’re the strategies of the most successful investors in history. But as obsessed as I am with strategy, I know that strategy alone isn’t enough.

W hy not? T here are two key challenges to thinking that strategy alone can change your life. First, too often people have the wrong strategy, which inevitably ends in disappointment. Y ou’re trying to lose weight by eating 500 calories a day—which, of course, isn’t sustainable. Or you’re sure you’re going to get rich off one hot stock— highly unlikely.

W here do most people go to learn strategy? W here do we look for advice and guidance? T oo often from someone who isn’t successful in the very area we want to improve! H ow often do people get relationship advice from friends who are in lousy relationships themselves? Or fitness advice from a friend who struggles with his weight, too? H ow many people hear the message reinforced that they can’t change their body? W hy that message? Because they’re surrounded by friends or family who aren’t fit. T he same is true for financial advice. L ooking to someone who has not developed real wealth is a recipe for disaster. It simply reinforces the belief that nothing will work. It’s not that nothing will work—it’s that these strategies won’t work.

H owever beautiful the strategy, you should occasionally look at the results.

— W IN ST O N C H U R C H IL L

T H E POW E R OF ST ORY

L et’s go back to our biggest challenges: our relationships, our bodies, and our finances. In each of these areas, we get stuck for one of three reasons. First, as we showed above, we lack the right strategy. W e all know a couple where the guy doesn’t communicate or the woman never stops talking. N either of them understands the needs of his or her partner, much less meets those needs. And what about the friend who goes on fad diets constantly or is always looking out for a magical way to make a million bucks—telling himself that without it he’ll never be financially free. W ithout the right strategy, you will fail. And when you fail, you develop a lousy story: “My wife will never be satisfied.” “I’ll never lose the weight.” “T he only people who make money are the ones who already have money.” T hose limiting stories keep us from finding the right strategies, or, even if we have the right strategies, from executing them.

D o you know anyone like that? Y ou put the answer right in front of their very eyes, and they still say, “N o, that will never work because . . .” T hey’ll tell you a million reasons why it won’t work—they’ve got every excuse in the book. So if the right strategies are there in front of us, why aren’t people using them? W hy are they still not achieving their goals? W hy is it so hard to maintain a passionate relationship or lose the weight once and for all? Are 70% of Americans overweight because the strategy for becoming thin, fit, and healthy is really so complex? Is the information hidden and only available to the 1% , or incredibly expensive? H ell, no. T he answers are available everywhere: T here’s a gym with someone who can instruct you within a short drive. (G od forbid we were to walk there.) T here are trainers all over the world, some of which will coach you online, wherever you are! T he web is filled with free advice, and, of course, there are thousands of books on fitness and weight loss available for you to download right now to your iPad or smartphone. Y ou have to work to avoid finding the strategies for becoming fit, strong, and healthy.

So what’s the real problem? T he answer is: we have to bring in the human factor. I always say that 80% of success in life is psychology and 20% is mechanics. H ow else do you explain how someone can know what he needs to do, wants to do it, has the right strategy to get it done, and still not take action? T o solve this riddle we have to delve into the psychology of individuals: the values, beliefs, and emotions that drive us.

W hen someone has the right strategy in front of her, and she still doesn’t succeed, it’s because she’s missing the second key to a breakthrough: the power of story. If you’re not taking action and the answer is sitting there in front of you, there’s only one reason: you’ve created a set of beliefs that you’ve tied into a story—a story about why it won’t work, why it can’t work, why it only works for other people. It’s only for the rich, the thin, the lucky, the happy in relationships. It’s easy to come up with a limiting story.

So why bother to take action on a strategy that you “know” will fail? W ell, strategy here isn’t the problem. Y our story is. A half-hearted approach that says, “It might work, or it might not . . .”—of course it won’t! T hat belief becomes a self-fulfilling prophecy. W ith a disempowering story, failure is nothing less than guaranteed. W hich, of course, only reinforces your belief that nothing will work. And so the cycle continues.

But the people who make change happen, who get stuff done, who accomplish, who shift, who grow, who learn, they take their strategy and attach a new story to it: a story of empowerment, a story of “I can and I will” instead of “I can’t and I won’t.” It goes from being a story of limitation to a story of empowerment: “I will not be one of the many who can’t, I will be one of the few who do.”

T here was a time when I was 38 pounds overweight, and my story was, “I’m big-boned.” W hich I am. But I was also fat. Stories can be true, but if they don’t help us, if they’re stopping us from having the life we desire and deserve, we have to change them. W e’ve all had lousy stories in our lives.

I don’t make enough.

I can’t save more.

I’ll never read. I’ve got dyslexia.

My friend Sir Richard Branson, chairman of the Virgin empire, has dyslexia, but it certainly hasn’t limited his life in any way. W hy? Because his belief or story about dyslexia was empowering, not limiting. H is story wasn’t “I’ll never read,” it was “I have dyslexia, so I have to work harder to make everything happen—and I will.” Y ou can use your story, or your story can use you. E verybody has got an empowering story if he or she wants to find it. W hat’s wrong with your life is just as easy to find as what’s right with your life, when your story changes. If your relationship isn’t working out, all the good guys are gone, or they’re gay and you’re not. Or you’re gay and they’re not. T here’s always a story, right? Stories control our emotions, and emotions drive all of our behavior and actions.

L et me ask you a question: D o you worry about money? D oes it keep you up at night, stress you out thinking about your next paycheck, your car payment, your kids’ college tuition, or whether or not you’ll ever have enough money to be able to retire? W hat’s your financial stress really like? According to the American Institute of C ertified Public Accountants (AIC PA), 44% of Americans, nearly half of us, report “high levels” of financial stress. H ave you ever thought to yourself, “All this stress just might kill me?”

K elly McG onigal, a health psychologist at Stanford U niversity, warned about the dangers of stress for a full decade before she realized that maybe it was her advice, rather than stress itself, that was sending people to their graves faster. “I’m converting a stimulus [stress] that could be strengthening people into a source of disease.” W ith a breakthrough in her thinking, and some powerful new research, McG onigal made a complete turnaround.

T urns out, stress might just be our friend. Just as you put stress on a muscle to make it stronger (by lifting weights or running), emotional stress can make us physically and psychologically stronger too. McG onigal now highlights new research showing that when you change your mind about stress, you can literally change your body’s physical reaction to it. In an eight-year study, adults who experienced a “lot of stress” and who believed stress was harmful to their health had a 43% increase in their risk of dying. (T hat sure stressed me out.) H owever, people who experienced an equal amount of stress but did not view stress as harmful were no more likely to die! McG onigal says that physical signs of stress (a pounding heart, faster breathing, breaking out in a sweat) aren’t necessarily physical evidence of anxiety or signs that we aren’t coping well with pressure. Instead, we can interpret them as indications that our body is energized and preparing us to meet the next challenge. T he bottom line is, science has now proven that how you think about stress matters—the story you attach to stress. T elling yourself it’s good for you instead of harmful could mean the difference between a stress-induced heart attack at 50 or living well into your 90s.

Success is my only mofo option, failure’s not.

— “L O SE Y O U R SE L F ,” E minem

So what story have you been telling yourself about money? W hat’s stopping you from achieving your financial dreams? Are you telling yourself that it’s too early to start saving? Or too late to start rebuilding your investments? Y ou’re not making enough salary to put anything aside? Or the system is rigged against you, so why bother trying? Maybe your story is, “T he government has saddled us with debt, the financial system is in shambles,” or “I’m just not good with numbers.” G reat news: you don’t have to be! If you’ve got a phone and a calculator or can download our app on your phone, to answer six simple questions about where you are today, where you want to go, and what you’re willing to do to get a financial plan that you’ll clearly understand about how to be financially free.

Maybe your story is “It takes money to make money.” One of the first people I shared an early version of this book with had a core belief of “I will never be financially free unless I have a way to make a lot of money. People who start with a lot of money can make millions, but not me.” After she read the chapter on building your own money machine with T heodore Johnson—who never made more than $14,000 a year yet turned it into $70 million over his lifetime—her story went out the window. T heodore wasn’t lucky. H e used a simple system, the same one you’re about to learn.

H ere’s her new story, and it could be yours: “If I just happen to use this simple system of compounding, I can make a lot of money, I can go wherever I want, I can live however I truly want, I can be financially free. T here are no limits except the ones I impose on myself.”

One of my own financial breakthroughs happened with an important change in story. G rowing up poor, I always associated a lack of money with pain for everyone in the family. I swore to myself early on I would never have a child until I was truly financially successful. I swore that someday I would be so successful financially that my family would never ever experience the humiliation, frustration, and pain of my childhood years of not being able to pay the bills or put food on the table.

And I made good on my promise. By the time I was 18 years old, I was earning as much as $10,000 a month, which at the time seemed like a huge amount of money. It still is. I was so excited, I ran back to my friends from my community, the guys I had grown up poor with, and said, “L et’s go have a blast: let’s fly to E gypt and race camels between the pyramids!” I had had this dream as a little boy. And I could now share this dream with my friends. But the response was hardly what I was expecting: “E asy for you, Mr. Rich Man.” T he level of disdain I got from guys I considered to be friends shook me to my core. I wasn’t flaunting my money. I simply wanted to share my abundance with my friends and create an experience of real adventure. But I had to reevaluate. I created a new story: a belief that said you can do well but only so well, or else people will judge you. If you stand out and do too well financially, people won’t like you.

So for years, I did well in my life and businesses, but my income didn’t grow significantly. U ntil I finally hit a tipping point, a stage in my life where I thought, “T his is ridiculous. If I could expand my intelligence, should I?” My answer was, “Of course!” If I could experience and give more love, should I? Of course! If I could expand my ability to give, should I? Of course. If I could earn more and expand my financial wealth, should I? And the answer was, “Of course!” For the first time, I felt hesitancy. W hy was it that in every other area of my life it seemed natural to expand and become more, but when the issue came to money, suddenly it was different? W hy? It made no sense.

But I knew the truth. I had a deep, unconscious fear that people would judge me because I had expanded in this area as well. I wanted to please everyone, I wanted to be loved so badly that subconsciously I not only made doing well financially something wrong but also subconsciously sabotaged my own success. L ike so many people, I told myself that money was not spiritual. H ow crazy is that? Anyone who’s become truly wealthy knows the truth—the only way to become wealthy, and stay wealthy, is to find a way to do more for others than anyone else is doing in an area that people really value. If you become a blessing in other people’s lives, you too will be blessed. Money is only one of those blessings, but it is a blessing. It’s simply another form of freedom and abundance.

Money is nothing more than a reflection of your creativity, your capacity to focus, and your ability to add value and receive back. If you can find a way to create value—that is, add value for a massive number of people—you will have an opportunity to have a massive amount of economic abundance in your life.

I had to hit that threshold where I was tired of living that way and where I saw the absurdity of trying to fit in. It’s true: if you do well financially, you may be looked at as “the 1% .” In my life, as a kid, being a part of the 1% was something that was aspirational. I came from the 99% , I just wasn’t willing to settle for that, for my family or for my life. But staying there just to fit in—well, that didn’t make any sense. I decided I was tired of blaming others for my lack of financial progress. T he story I had of my financial limitations had to go. I would love others, but I would not spend my life trying to please them— especially knowing that to please them I would have to play small. I don’t believe in my heart that our creator made us for that. It was time for me to find a way to earn more in the same way I strove to give more, contribute more, love more, and expand my intellectual, emotional, and spiritual capacity.

W ith that shift in belief, suddenly—when it was clear that this was not a should to conquer this area, but a must —along with the relational areas of life, strategies started showing up in front of me; they’d probably been there all along, but because of my mind-set, I was blind to them. Y our whole world changes when you change your story.

C hange your story, change your life. D ivorce the story of limitation and marry the story of the truth, and everything changes. I can tell you: when you get rid of the limiting stories, take massive action, and find the strategies that work, the results you can create are truly miraculous.

L et me give you one final example. A dear friend of mine, Julie, a successful screenwriter who gets paid top dollar for her work, could never seem to make any financial headway. By the time she and her husband were in their 50s, they had a modest mortgage on a nice home, but only about $100,000 in an IRA—way, way short of what they’d need to retire. And their money was invested in a “socially responsible” mutual fund that charged high fees and ate up most of their returns.

Julie’s husband, C olin, wanted to invest more aggressively, but Julie wouldn’t even talk about finances with him. She told him she hated W all Street and everything it stood for. In fact, the whole idea of money made her uncomfortable. T o her, money was evil.

But then a breakthrough happened. Julie attended my seminar U nleash the Power W ithin (U PW ), where we use the power of Strategy, Story, and changing the State of your mind, body, and emotions to create breakthroughs in every area of people’s lives. U PW is intense: I use music, dynamic movement, humor, and a host of other tools to put the audience in a peak state— and that’s when breakthroughs happen.

Julie’s goal that weekend was to turn her financial life around. H ow did she do it? First, she recognized that something had to change, or she and C olin were looking forward to some very painful “golden years.” It finally hit her that her negative beliefs about money were creating constant pain in her marriage and in her future, and she asked herself, “W here did this story come from?” And then Julie did something really important: she dug down deep and asked herself, “Is this what I really believe? W e are not born believing money is good or evil. So where did this belief come from?”

She didn’t have to go very far to find the answer. Both of Julie’s parents grew up during the G reat D epression. H er mother never got the chance to go to college even though her academic scores were off the charts. Instead, she worked as a department store clerk for $9 a week, and didn’t dare complain about the low wages or long hours on her feet. Julie grew up hearing the stories over and over: how the rich exploit the poor, how banks and W all Street stockbrokers destroyed the economy, how you can’t trust the stock market. So Julie made the association in her brain: “If I become a wealthy investor, I’ll be a bad person, and my mother won’t love me.”

Julie realized that the story she’d been telling herself about the evils of wealth wasn’t her story after all; it was her mother’s story. “Money is the root of all evil,” was her mother’s mantra, not hers. T his realization jolted her. T he truth set her free, and those words lost all of their power over her. (In fact, when she did her homework on the biblical phrase, she found that it’s not “Money is the root of all evil,” but “the love of money” above all else—love, relationships, contribution—that’s the recipe for surefire disaster.)

It was an amazing transformation. Once Julie got past her limiting story, she could sit down with her husband for the first time to talk about their finances. H e was thrilled they could be partners in taking back control of their financial life. Imagine how hard it is to build wealth when your core belief is that money is evil. T hey dumped their high-cost mutual funds and transferred their IRA to a diverse portfolio of index funds with Vanguard. T hen they put in place a long-term financial plan, like the one you’ll be reading about in these pages, to finally put them on the road to financial freedom.

Julie and C olin shifted their story. And what happened? T hey learned how to play the game and win, they learned how to create an income for life—just like you’re going to do in chapter 5.2. Julie and C olin learned how to put an extra $150,000 to $250,000 into their pockets over their investment lifetime just by getting out of those expensive mutual funds. H ow great do those golden years look now!

R emember, you know the answer, and the secret is simple: change your story, change your life. D ivorce your story of limitation and marry the truth. Y ou can make anything happen.

Y OU R ST AT E

It’s hard to change your story when you’re in a lousy state. If you feel like hell, you don’t think to yourself, “L ife is beautiful!” H ave you ever been really angry with somebody, and suddenly you remembered every freaking thing that person ever did to irritate or annoy you? W hen you go into an angry state, it switches on the part of your brain that supports that state, and the story that keeps you there quickly appears.

By contrast, if you’ve ever fallen head over heels in love, can you remember how the world looked? It was like looking through rose-colored lenses: everything was wonderful, right? Rude clerks didn’t bother you; crying babies seemed cute. T hat’s how a positive state can change your outlook—your story.

Y our mental and emotional state colors your perception and experience of everything in life. W hen I work with anyone—from world-class athletes to highpowered executives—we change his or her state first. T here’s a part of you that, when it’s turned on, can make anything happen; but when it’s turned off, the world is dead. Y ou know what I’m talking about, don’t you? Y ou know when you get on a roll, and everything flows just perfectly without your even having to think about it? Y ou ace the tennis shot. Y ou say exactly the right thing in the meeting or walk out of the negotiation with exactly what you wanted. On the other hand, we’ve also all experienced the opposite: we couldn’t remember our home address, the name of our dinner host, or spell the word the. I call that the stupid state. But a few minutes later, it comes back to you: you remember the answer because you get in a different state.

T he purpose of this book is not to try teaching you how to change your state—that’s the basis of many of my other books and audios, programs, and live events. But in a nutshell, you can immediately and radically change how you feel (and not just hope you feel good) by learning that by changing your body first, you can change your mind.

I teach many ways to create immediate change in your state, but one of the simplest ways is to change what I call your physiology. Y ou can change the way you think by changing the way you move and breathe. E motion is created by motion. Massive action is the cure to all fear. T hink about it, fear is physical. Y ou feel it in your mouth, in your body, in your stomach. So is courage, and you can move from one to another in a matter of milliseconds if you learn to make radical shifts in the way you move, breathe, speak, and use your physical body. I’ve used these insights for almost four decades to turn around some of the world’s greatest peak-performance athletes, financial traders, and business and political leaders. L ast year, H arvard U niversity did a scientific study that proved the validity of this approach.

Social psychologist and H arvard professor Amy C uddy offered a “no-tech life hack” in her famous 2012 T E D T alk when she asked the audience to change their posture for two minutes. C uddy’s research showed that just assuming “power poses” or postures of high power (think W onder W oman with her hands on her hips and legs firmly planted on the ground; or the guy in your office leaning back in his chair, hands clasped behind his head, elbows out wide—you know the one) increased testosterone (the dominance hormone) by 20% , while simultaneously reducing cortisol (the major stress hormone) by 25% . T he impact of this biochemical change immediately transforms your willingness to face fears and take risks. All within just two minutes of changing your body. In C uddy’s study, 86 percent of the power posers reported feeling more likely to take chances. But when the second set of volunteers were asked to stand or sit for two minutes in more passive poses, with their legs and arms crossed tightly, their testosterone levels dropped by 10 percent, and the stress hormone rose by 15 percent. Far fewer of these men and women, only 60 percent, behaved assertively. Remember, these weren’t just psychological changes but actual biochemical changes, hormonal changes. W hat I have taught for 38 years and what all of my students knew was true through experience was now validated by science. W hat does this mean? It means, basically, you rock. Y ou’ve got some swagger in your step, you’re ready to put yourself on the line, to take the necessary risks and shape your world. T wo minutes of posing can lead to the changes that either configure your brain to be assertive, confident, and comfortable, or really stress reactive. Our bodies are able to change our minds!

T here was a time in my life when I was overweight and depressed, living in a studio apartment in Venice, C alifornia, staring at the empty furniture and listening to N eil D iamond records. Pretty scary, huh? One day a friend who hadn’t seen me in a long time stopped by. H e took one look at me and said, “Man, what happened to you?” It snapped me out of my trance. I decided then and there to break the pattern.

So I put on my running shoes and grabbed my Sony W alkman. (Y es, I’m ancient enough to have owned one of those.) And in those days, you had to be committed to your music: you had one album to listen to, not 10,000 songs to choose from. I turned to the legendary rock band H eart, put on the song “Barracuda,” and let the beat ignite me. I took off running with the determination that I was going to run as hard and as fast as I had ever run in my life, and I wasn’t going to stop until I spit up blood. T o say I was determined to push myself beyond my limits would be a serious understatement.

I’m sure it must have been a hilarious sight, given my excess 38 pounds and my beer belly flopping back and forth in the wind as I ran like a banshee. W hen I literally couldn’t breathe an ounce more of air, I collapsed on the beach and grabbed a journal I had brought with me. And in that state of absolute conviction, determination, exhilaration, and exhaustion, I sat and wrote down everything in my life I would no longer tolerate. T he way my body was, my laziness, my shallow intimate relationship, and my disastrous finances. Right across from it, I wrote what I was now committed to creating in my life—and in that pumped-up, invigorated state, I felt certain I could find the way.

W ith a strong enough state, you will develop a strong story. My story was: “T his ends here and now; my new life begins today.” And I meant it with every ounce of my being. I discovered that when you change your state and your story, you find or create the right strategy to get what you’re absolutely committed to. T hat’s how you create a real breakthrough—a new state with a new story and a proven strategy.

I went on to lose 30 pounds in the next 30 days, and 38 pounds total in a little more than six weeks. I was maniacal in my commitment. I set a new standard that day about who I was and what I stood for. It has not waned in the 30-plus years since that day (and my weight has never returned to that level either).

I went from earning less than $38,000 a year to more than $1 million a year just a little more than a year later. It was a level of change I couldn’t even imagine creating at the time. More importantly, I regained my emotional and psychological fitness—the two forces that truly change how someone’s life turns out. D etermination, faith, and courage began to be the forces that guided my every action going forward.

G reat strategies can surround you but they will be invisible to you unless you put yourself in a strong, determined, and empowered state. A state that will automatically breed the beliefs and stories that you can, must, and will achieve—and that you are committed to. W ith state and story combined, you’ll not only find the strategies that work, you will execute them and experience the rewards you desire and deserve. D o I have your full attention? If there’s any area of your life that you’re living that is far less than the life you desire, it’s time to change one or more of these elements.

Remember: we all get what we tolerate. So stop tolerating excuses within yourself, limiting beliefs of the past, or half-assed or fearful states. U se your body as a tool to snap yourself into a place of sheer will, determination, and commitment. Face your challenges head on with the core belief that problems are just speed bumps on the road to your dreams. And from that place, when you take massive action—with an effective and proven strategy—you will rewrite your history.

It’s time to no longer be one of the many but to become one of the few. One of the few who step up, own your true capability financially and in every area of your life. Most people start out with high aspirations but settle for a life and lifestyle far beneath their true capabilities. T hey let disappointments destroy them. D isappointment is inevitable when you are attempting to do anything of great scale. Instead, let your disappointments drive you to find new answers; discipline your disappointments. L earn from every failure, act on those learnings, and success becomes inevitable.

So next time you come up with a reason why you can’t do something, when you know in your heart that your spirit is unlimited, call bullshit on yourself. C hange your state. C hange your focus. C ome back to the truth. Adjust your approach and go after what you really want.

Okay, deep breath. Or loud scream. G et up and shake and move. W ith these 9 Myths—these past limitations— now out of our way, it’s time to move on to Step 3 on our 7-Step path to Financial Freedom. W e’re going to make the game winnable by coming up with a specific number —a number that reflects your exact financial dreams realized. T hen we’ll create a plan, improve that plan, and find ways to speed it up so you can achieve your financial dreams sooner than you may have ever imagined.

SE C T ION 3

W H AT ’S T H E PRIC E OF YOUR

D REAMS? MAK E T H E GAME W IN N ABL E

C HAPT E R 3.1

W H AT ’S T H E PRIC E O F Y O U R

D RE AMS? MAK E T H E G AME W IN N ABL E

All men dream, but not equally.

— T . E . L AW R E N C E

I usually kick off my financial seminars with a question: “W hat’s the price of your dreams?” T hen I invite people to stand up and tell me what it’s going to take for them to be financially secure, independent, or free. Most of them don’t have a clue. T here’s a lot of shuffling and squirming in the room, and then maybe a few hands shoot up. In hundreds of seminars with hundreds of thousands of people from all walks of life, I’ve heard just about every number imaginable.

So let me ask you personally now: H ow much money will you need to be financially secure, independent, or free? Just take a guess. Y ou don’t have to be right—or even logical. Is it $1 million? $5 million? $500 million? T ake a second right now, go with your gut, and write down the number, either in the margin of this book, in a notebook app, or just on a scrap of paper. It’s important to write it down, because writing it anchors it and makes it real.

D id you get it done? Soon you’ll see why this step is an important first action.

N ow, my experience tells me that if you’re like most people, that number probably feels a bit large to you right now, doesn’t it? W ell, keep reading, because we’re going to do a few easy exercises to help you tame that number. And I’ll bet you’ll find out that it can be made

much smaller than you ever imagined. In fact, you’re going to learn there’s not just one “magic number,” because there are five different levels of financial dreams that will set you free. And no matter if you’re just starting out or getting ready to retire, no matter how solid or shaky your balance sheet is right now, I guarantee you that at least one or two of those dreams will be within your reach. H ow? It starts with understanding what you truly need.

Recently, at one of my high-end programs, a young man in the back of the room stood up to name the price of his dreams. H e threw back his shoulders and announced, “A billion dollars.”

T here were a lot of ooohs and aaahs from the crowd. T his person was in his 20s, one of the younger participants at the conference, and he probably hadn’t earned his first million yet. So I asked him to consider what that number really meant.

Remember in chapter 1.4, “Money Mastery: It’s T ime to Break T hrough,” when we talked about how everything people do, they do for a reason? Just as a reminder, there are 6 Basic H uman N eeds: C ertainty, U ncertainty/Variety, Significance, C onnection/L ove, G rowth, and C ontribution. So why did this young man want a billion dollars? W hich of these needs was he trying to meet? C ertainty? Y ou can get C ertainty in your life for a lot less than a billion dollars! H ow about Variety? Y ou can get plenty of Variety with a million dollars, or much less, right? C onnection and L ove?

H ardly. If he gets a billion dollars, there will be a lot of people who want to be in his life, just like lottery winners who suddenly discover dozens of relatives and “friends” they never knew they had. W ith that kind of money, he’ll get connection, all right, but not the connections he wants and needs! G rowth and C ontribution? By his demeanor, I doubt these were at the top of this young man’s list when he named his number.

So when you look at the human needs, which one do you think drives him the most? C learly, it’s Significance. As he said, with a billion dollars, people would take him seriously; he would matter. T his might be true. But the problem is when he gets a billion, it still won’t be enough —because when you seek Significance, you’re always comparing yourself with someone else. And there’s always someone bigger, taller, stronger, faster, richer, funnier, younger, more handsome, more beautiful, with a bigger yacht, a nicer car, a nicer home. So while there’s nothing wrong with significance, if you make it your number one need, you’ll never be fulfilled.

But rather than lecture him, I decided to show him he could feel significant with a lot less money—which would make his life a lot easier. After all, he was just picking his number out of the sky. Saying he needed $1 billion made him feel like he was going after an important goal. But the problem is, when you have this huge goal in your head—if in your gut you don’t believe it’s going to happen—your brain rejects it. It’s like living a lie. H ave you ever done this? C ome up with some ginormous goal, and then a voice in your head pops up to say, “W ho are you kidding?” T he truth is, you’ll never make it happen until it sinks deep into your subconscious —the part of your mind so powerful that it makes your heart beat 100,000 times a day without your ever having to think about it.

H ave you ever been driving your car and gotten lost in thought and then suddenly looked up and realized, “H oly sh*t, who’s been driving my car for the last five minutes?!” T hankfully, it was the amazing protector of life, your subconscious mind.

T o get an idea of how this process works, take a look at the image below. Imagine your brain divided into an upper half and a lower half; the upper half is the conscious mind, while the lower half is your subconscious.

Ideas keep trying to lodge in your head, such as “I’m going to make ten million dollars!” or “I’m going to be financially free by the time I’m forty!” But your upper, conscious brain goes, “Screw you! T here’s no way in hell that will happen!” It quickly rejects the big idea and bounces it back out into space like a tennis ball. But if you resolve within yourself the sense of absolute certainty that “I’m going to do this!” and then you start to build a plan—something extraordinary happens. Y ou begin to develop the certainty you can actually achieve it. And with newfound confidence, you suddenly see there is a way to get it done. Y ou’ll find a role model who’s already achieving what you’re after, and you’ll take massive

action. T he goal seeps down into your subconscious, and it goes to work to make your dream a reality. T hat’s when the magic happens!

N ow, I doubt that you think you need $1 billion to fulfill your financial dreams. But I’d be willing to bet that the number you chose to feel financially secure or independent is pretty intimidating. Almost everybody makes that number bigger than it needs to be, because he or she doesn’t take the time to calculate what it really costs to live at different lifestyle levels. And that’s why so many never begin to work toward it. T hey talk a good game, get excited about it, they tell people their big dream, but they never act on it. W hy? Because psychologically they don’t have Certainty that they can do it. And C ertainty is the first human need that influences our behavior or actions. Fact. If you’ve failed to act in your financial world, it’s partly because you’re uncertain, you’re unsure as to what is right or wrong and which approach will succeed or fail. Or you’re feeling overwhelmed by the complexity of the system that no one has taken the time to walk you through with clarity.

W ith uncertainty, we default to doing nothing or at least procrastinating. W e put off until tomorrow what we need to do today.

T o help my would-be billionaire friend identify the real price of his dreams, so that they could lodge in his unconscious and become real, I asked him some questions. T hey’re the same kinds of questions I’ll be asking you in a moment to guide you on your path.

I started by asking my young friend what his lifestyle would be like if he had a billion dollars. H e thought for a moment and then said, “I’d have my own G ulfstream!”

“Y our own jet!” I said. “W here will you fly to?”

H      e said, “W ell, I live in N ew Y ork. I’d probably flydown to the Bahamas. And I’d probably fly to L A for some meetings.”

I          had him write down how many times he’d fly in ayear, and he figured it was probably a maximum of 12 flights. And how much would a jet cost him? W e looked it up, and a long-distance G ulfstream G 650 would cost him about $65 million; a slightly used G ulfstream IV would only set him back about $10 million. N ot including fuel, maintenance, and crew. T hen we looked up the cost of chartering a private jet instead of owning one: a midsize jet was all he really needed for himself and three family members to fly, and that’s around $2,500 an hour. H e would be flying for maybe 100 hours a year for a grand total of $250,000 per year, or around $5,000 per hour; or $500,000 if he wanted to fly by G ulfstream on every flight—still far less than the annual price of maintenance on many jets, and at a cost that would be less than 1% of the cost of buying that G ulfstream. E ven from the stage, I could see his eyes lighting up and his mind working.

“So what else would you buy with your billion dollars?” I asked.

“A private island!”

T hat was something I could relate to. I own a small island paradise in the country of Fiji. It was a wild dream I had early in my life to find an escape someday where I could take my family and friends and live. In my early 20s, I traveled to islands all over the world searching for my Shangri-L a. W hen I arrived in Fiji, I found it. A place with not only magnificent beauty but beautiful souls as well. I couldn’t afford it at the time, but I bought a piece of a little backpacker resort with 125 acres on the island. I really didn’t have the money, and it probably wasn’t the best investment at first. But it was part of what I call my D ream Bucket—something you’ll learn about later in this book. Still, I made it happen, and I’m proud to say that over the years, I’ve purchased and converted it into a protected ecological preserve with over 500 acres of land and nearly three miles of ocean frontage. I’ve turned N amale Resort and Spa into the number one resort in Fiji for the last decade, and it’s consistently rated among the top ten resorts in the South Pacific. But how often do I visit this paradise? W ith my crazy schedule, maybe four to six weeks a year. So my dream has come true: everybody else has a great time there!

I told my young friend, “If you want to enjoy your own island, you might not want to be in the hotel business. And trust me, you’re only going to be there a few weeks a year at the most.” W e looked up the costs and found out he could buy an island in the Bahamas for $10 or so—and then he would have to spend $30 million to $40 million to build a small resort! Or he could rent my friend Richard Branson’s N ecker Island resort for a week and bring all his friends and family for less than $350,000, with a staff of 50 people to take care of them all. If he did that every year for a decade, it would only cost $3.5 million versus $30 million to $40 million, with no work to maintain the property.

W e worked through his list, and guess how much it would take to have the lifestyle he wants for the rest of his life? W hen we added up the real cost of even his wildest dreams, not just his needs, it came to a grand total of not $1 billion, not $500 million, not $100 million, not $50 million, but $10 million to have everything he dreamed of having in his lifestyle and never have to work to pay for it—and his dreams were gigantic! T he difference between $10 million and $1 billion is astronomical. T hese numbers exist in different universes.

T he challenge is, when we get to really big numbers, people’s minds don’t fathom what they really mean. T here’s a radical difference between a million, a billion, and a trillion. E ven President Obama uses the terms millionaires and billionaires in the same breath, as if they’re in any way related—they’re not. L et me prove it to you. I’m going to give you a little test. I want you to think and make a first guess as to the answer. T his exercise will help you gain perspective on a million versus a billion versus the figure the government now uses so often: a trillion. In fact, in W ashington, a trillion is the new billion, as they say.

My first question is: H ow long ago was one million seconds ago? T ake a moment, even if you don’t know— what do you guess?

T he answer is: 12 days ago! H ow close were you? D on’t feel bad, most people have no clue. If you got it, congratulations. N ow we’re going to up the ante. Since you now have a perspective of what a million is (a million seconds being 12 days ago), how long ago was a billion seconds ago? Stay with me, come on; make a guess, commit to a number. T he answer is: 32 years ago! H ow close were you? For most people, they’re pretty far off. T hat’s the difference between a millionaire and a billionaire: 12 days or 32 years! D o you see what I mean by saying they live in “different universes”? Y ou can never say “millionaires” and “billionaires” in the same breath and be talking about the same thing.

Just to complete the thought: W hen you hear the U S government has $17 trillion in debt, how much is a trillion? W ell, if a billion seconds was 32 years ago, how long ago was a trillion seconds? T he answer: nearly 32,000 years ago (31,689, to be exact)! W hen humans were not even called humans! T he point of this exercise is to get you to realize that we blur large numbers, and if you get down to the facts, an extraordinary lifestyle probably costs less than you think it does.

But back to our would-be billionaire. N ow, don’t get me wrong: $10 million is still a hefty sum but probably within reach for this young entrepreneur over the course of his career. W ho knows? H e might actually end up with a billion—if he invents the next Instagram. But what if he doesn’t? H e could still live the extraordinary life he was dreaming of for 99% less money than he thought he needed. H e wouldn’t need to be a billionaire to live like one.

I’ll be willing to bet that once you find out the real price of your dreams, the number it would take for you to really get where you want to be is a lot less than you think! And always remember the ultimate truth: life is not about money, it’s about emotion. T he real goal is to have the lifestyle you want, not the things. W hen you die, someone else gets those things anyway. T hey’re not yours. I have no illusions: as much as I cherish and enjoy “my” resort in Fiji, I know I’m just the caretaker. Someday someone else will own this property. But I love that I have nurtured it into a destination where people from all over the world come to experience joy, romance, and adventure. It’s part of my legacy—and that’s what gives me joy. Attaining possessions is not the goal. Money itself is not the goal. Our worth is not measured by the weight of our bank accounts but, rather, by the weight of our souls. T he path to money, the places money can take us, the time and freedom and opportunity money can bring—these are what we’re really after.

Y ou can have it all. Just not all at once.

— O PR AH W IN F R E Y

T ake a moment now and think about what you really want your money to buy. N ot everybody wants to live like D onald T rump or Floyd “Money” Mayweather! Is your dream to travel the globe, exploring ancient cities or photographing lions in the Serengeti? Is it owning your own beach house in the Bahamas or a penthouse in N ew Y ork? Is it starting your own business—the next Snapchat, or creating an extraordinary contribution to humanity like the next C harity W ater? Is it something as simple as sending your kids to college and having enough left over for a house in the country with a big vegetable garden? Or is your dream just peace of mind— knowing you can be free forever from debt and worry? W herever your dreams may take you, I’m going to show you a path to get there. E ven if you don’t get all the way to the summit, you can reach the dreams that matter most to you and celebrate your victories along the way. Because money is a game of emotions, and we’re going to come up with some numbers that will ring your bells and make you say, “I’m certain! I promise myself I can get there!”

L ike all journeys, before you get started, you’ll need

to take stock of where you are. W e’ll work together on a few simple calculations. If you’ve never taken the time to figure out exactly what it’s going to take to achieve your financial goals, you’re not alone. Often, many of those who have earned millions of dollars haven’t developed a plan to sustain their lifestyle without having to work at least some of the time. And as we’ve already said, more than half of Americans haven’t even tried to calculate how much money they’ll need to retire, including 46% of all financial planners! W hy don’t we know our basic financial picture? T he number one reason I’ve found, after hearing from hundreds of thousands of people from a hundred different countries, is that people are afraid to know.

It’s like stepping on the scale. Y ou know you’ve gained weight, but you don’t want to know how much. It’s a form of denial; a way to put off making a change. H igh school wrestlers and professional boxers step on that thing every day, so that if they’re off target on their weight, they’ll know right away and can do something about it. Y ou can’t manage your health if you can’t measure it. And the same goes for your finances. Y ou can’t reach your financial dreams unless you know precisely how much it will take to get there. I’m here to help you set yourself apart from the masses who hide their heads in the sand when it comes to their money. In a minute, we’ll do some quick, easy number crunching to find out where you are and where you need to be. (If adding a few figures is a challenge for you, remember that there’s a calculator on your phone! And you can also go to our app, which will ask you the questions and calculate the numbers for you automatically. See www.tonyrobbins.com/masterthegame.)

But first let’s look at those five financial dreams. W hen I say the words “financial security,” “financial vitality,” “financial independence,” “financial freedom,” and “absolute financial freedom,” do those sound like the exact same thing to you? D o they bring up emotions that feel different in your body when you say them out loud? G ive it a try. W hich one feels higher: security or vitality? H ow about vitality or independence? Independence or freedom? W hat about absolute freedom? E ach of these five financial dreams is incrementally bigger, isn’t it? And the numbers needed to reach them would be different.

Of these five dreams, you may discover that you are committed to only two or three of them. For some people, financial security alone is life changing and gives them enormous freedom. And so, in designing this exercise, I’ve included these dreams as steps along the road to absolute financial freedom. Or, if you remember that mountain earlier in this book, as base camps along the climb to the summit. And remember, not all of us need or want to go all the way to the peak of E verest. For some of us, financial vitality would be a blessing, and independence would put us over the moon! N ot all of these dreams are “musts” for everybody.

I’m going to invite you to read the five and pick the three that matter to you most—what I call the T hree to T hrive. Y ou’ll have three targets: short-, medium-, and long-term goals. It’s set up this way because we don’t build on failure; we build only on success. If you’re just shooting for the big number in the distance, it might feel too far off, or even overwhelming, and as a result, you may never truly begin the journey. W e need a target close enough that we can feel certain it’s achievable, and in the relatively near future. T hat’s what gets you to take action and turn a short-term goal into reality. And remember to claim your victories along the way. W hy wait until you’re financially independent to celebrate? W hy not win at different stages? T hat’s what encourages you, excites you, and gives you momentum.

It takes as much energy to wish as it does to plan.

— E L E AN O R R O O SE V E L T

D RE AM 1:

FIN AN C IAL SE C U RIT Y

W hat does security mean? Instead of telling you what it is, let me ask you: H ow amazing would you feel if these five things were paid for as long as you live, without ever having to work to pay for them again?

1.     Y our home mortgage, for as long as you live—paid forever. You never have to work again to pay for your house!

2.     Y our utilities for the home—paid forever. Y ou never have to work to pay your phone bill or to keep the lights on.

3.     All the food for your family—paid forever.

4.     Y our basic transportation needs,

5.     Y our basic insurance costs—all of them paid for without your ever working another day in your life.

I’d bet that your quality of life would be pretty fulfilling, wouldn’t it? Y ou’d feel pretty secure if you knew these things were covered.

N ow for some good news: Remember that number you wrote down earlier—the amount you thought it would take to be financially secure and free? It was probably not as extreme as my billion-dollar friend’s number but probably felt pretty large, didn’t it? W ell, I’ll bet when you figure these numbers out, you’re going to be surprised that the dream of Financial Security is probably a lot closer than you think. Or if you’re one of the rare few who underestimate, you’ll have a reality check, and you’ll know the precise number it will take to realize your financial dreams.

If you haven’t downloaded our free app already, do it now. Or use the worksheet below and jot down what you pay for these five items on a monthly basis. It’s really simple: W hat’s your current mortgage payment? (If you’re in an early stage of your life where you don’t own a home yet, put your monthly rent here. Or you can estimate or check online what your mortgage payment would be on something that may not be your ideal home, but more like a starter home.) If you have your records, great. N ext, what’s your utility bill each month? T hird, what do you spend on food? K eep going, and if you don’t have the numbers, take a guess—you can always go back and change them later, but you don’t want to lose momentum. L et’s really get a number down that’s reasonable. Or pick up your bank book or go online and get your numbers. Just to keep the momentum for you right now in case those aren’t easily accessible, let me give you an example.

D o you remember my friend Angela, who I introduced to you in the first chapter? She’s 48 years old and single. She’s trying to figure out what it would take to be financially secure. H er first guess was $3 million. C ould that be right? Or even in the ballpark? So I asked her to go through this exercise, and write down her five basic monthly expenses. As it turned out, her numbers were almost identical to the national averages, which you’ll see in the list here.

1.   Rent or mortgage payment:        $____ per month

(Angela’s Average:

$1,060)

2.   Food, household:     $____ per month

(Angela’s Average:

$511)

3.   G as, electric, water, phone: $____ per month (Angela’s Average:

$289)

4.   T ransportation:       $____ per month

(Angela’s Average:

$729)

5.   Insurance payments: $____ per month

(Angela’s Average: $300)

           $____ per month T otal (Angela’s Average:

$2,889)

T otal basic monthly expenses: _______ × 12 =

__________ per year

(U S average basic annual expenses: $34,668)

W hen she was done, I had her add it up and multiply the monthly total by 12. T hat shows the annual income she’ll need to cover these items for life—without working—to be financially secure. As you can see, her number of $34,000 is virtually identical to the number for the average American.

N ow, how would Angela be able to have $34,000 a year without working? Remember, she’s going to build a money machine. She’s automated her savings of 10% of her income. She’s putting it in a Roth 401(k), where it’s being invested in low-fee index funds with an estimated growth rate of 6% . (T his is the percent that Jack Bogle estimates the markets will return over the next decade. H owever, the average stock market return has been 9.2% over the last 20 years.) W e ran it through the wealth calculator, which you’ll do in the next chapter, and she found out that instead of the $3 million she thought it would take to achieve financial security, she would need to accumulate only $640,000 in her Freedom Fund to have that $34,000 a year for the rest of her life—less than a quarter of the amount she thought she needed!

At first she was shocked. She asked me in disbelief, “T hat’s all it would take for me to have this? I’d still have to work, right?” I told her of course she would, but not to pay for her home, food, utilities, transportation, or basic health care! By the way, these five items, on average, represent 65% of most people’s expenses. So Angela now had a way to pay for 65% of her overhead without working. And remember, most of us want to do something meaningful. W ithout work, we’re a little crazy. W e just don’t want to have to work! She could work part-time to pay for the rest of her expenses or fulltime and have all that income for other things. I asked her how that would make her feel if everything from her home to transportation was paid for without her working for the rest of her life. “E xtraordinary!” she said. “T hat’s an achievable goal. T hat’s something I could figure out how to make happen.” I said, “E xactly!” And what you could see in her eyes was a sense of certainty, and because she was certain, she had a reason to act.

I reminded her, “By the way, this doesn’t have to be your ultimate goal. It might be your short-term goal.” For some people, all they want is financial security, like someone in a later stage of life who may have taken a hit in 2008. For someone who is middle-aged or young, you’ll blow through this goal—as long as you know what your number is and you act upon the seven steps of this book.

If you’re wondering, by the way, how long it would take to accumulate whatever your security number is, take heart. Y ou don’t have to do this calculation. W e’ll do it in the next chapter, “W hat’s Y our Plan?,” and if you want, the app will calculate the number for you. T ogether we’ll create three plans: a conservative plan, a moderate plan, and an aggressive plan. And you’ll decide which of these plans are most manageable and achievable.

Remember the aspiring billionaire? H is annual income for financial security was a mere $79,000. A far cry from the billionaire neighborhood. Y our number might be higher or lower. All you need to know now is the annual income you need to achieve financial security. If you haven’t already done it, calculate the numbers on the app or do it right here now.

1. Rent or mortgage payment:	$____ per month
2. Food, household:	$____ per month
3. G as, electric, water, phone:	$____ per month
4. T ransportation:	$____ per month
5. Insurance payments:	$____ per month
6. T otal	$____ per month

7. T otal basic monthly expenses: _______ × 12 =

__________ per year

By the way, we can’t go on to the next goal without talking about something that’s a simple requirement, not a dream. And it’s something almost everybody should be able to achieve relatively quickly, though few people have it in place: an emergency/protection fund. According to a Princeton U niversity–U niversity of C hicago study in 2014, 40% of Americans say they couldn’t come up with $2,000 if they needed it. Y ikes! T hat’s terrifying! W hy do we need to have an emergency supply of cash on hand? W hat if there’s an unexpected interruption in your income flow? It happens in almost everybody’s life at some point. An interruption can be a health problem, it can be a problem with your business, it can mean being displaced from a job. So you need some money to cover yourself for somewhere between three to 12 months. But for most people, three months is too short a time, while 12 months may seem like a lot. So perhaps you start by putting aside a few months’ overhead, and gradually build toward six or 12 months’ worth. W ouldn’t it be wonderful to know that if something happened, you had a year to be able to get yourself back on track? Y ou’d still have a roof overhead, food in the cupboard, and the bills would get paid.

Again, this goal is not for an annual income for life. Once you have that, you’re set. T his goal is just emergency cash to protect you until you develop a large enough nest egg to take care of yourself every year for the rest of your life without working, no matter what happens.

H ow much do you need? W ell, you know what your monthly overhead is. So write down that number and memorize it. Again, you can do this exercise on the app, and the number will be saved for you and always available at a glance in your pocket. My friend Angela, who set aside 10% of her salary to build her money machine, started looking into her spending patterns to find more savings. Remember how she realized it was cheaper to buy a brand-new car than to keep fixing her old one? W ell, she also found a way to set aside an additional 8% to build her emergency protection fund. She completed her goal, and now she sleeps much better at night! If you haven’t already, it’s crucial you set up an emergency fund. (And I guarantee you’ll have some great new ideas on how to do this after reading chapters 3.3 and 3.4, “Speed It U p.”) K eep that amount in cash or in a safe place like an FD IC -insured bank account.

N ow let’s move on to the next level of dreams. W ith security achieved, let’s look at:

D RE AM 2:

FIN AN C IAL VIT AL IT Y

W hat do I mean by vitality? T his goal is a mile marker on your path to Financial Independence and Freedom. Y ou’re not all the way there yet, but it’s the place where you can be secure and also have some extras thrown in that you can enjoy without having to work.

W hat do you pay for clothing every month? Is it

$100? $500? $1,000? H ow about for entertainment (cable T V, movies, concert tickets)? H ow about going out for dinner? Is it C hili’s or N obu tonight? So for food and entertainment, are you shelling out $200 a month or $2,000 plus? H ow about small indulgences or little luxuries like a gym membership, a manicure or massage, or monthly golf dues? Is it $50, $500, or $1,000 plus? W hatever it is for you, how would it feel if half of those costs were already covered without having to work, for the rest of your life? T hat’s what happens when you reach Financial Vitality. Sounds like something worth celebrating, doesn’t it?

H ere’s how to calculate your Financial Vitality:

1. H alf of your current monthly clothing costs		$____ per month
2. H alf of your current monthly dining and entertainment costs		$____ per month
3. H alf of your current small indulgence or little luxury costs	$____ per month
4.   T otal additional monthly income forvitality 5.   Y ou already know your monthly	$____ per month
Financial Security number (line 6 from page 216), so add that here	$____ per month
6. T otal monthly income necessary for Vitality	$____ per month
7. N ow multiply that by 12 and you’ll have the annual amount you need for financial vitality:	$____ × 12 = __________ per year

Again, just type in these figures, and all of this math will be done for you on the app.

D RE AM 3:

FIN AN C IAL IN D E PE N D E N C E

Pop the champagne, because when you’ve reached Financial Independence, you no longer have to work to have the same lifestyle you have today! T he annual interest earned on the return from your savings and investments (your Freedom Fund) will provide you with the income that you need—while you sleep. Y ou are now truly financially independent; that is, independent of work.

H ow amazing would that feel? W hat kind of peace of mind would that bring you and your family?

Financial Independence means that money is now your slave—you are not the slave to money. Money works for you; you don’t work for it. If you don’t like your job, you can tell your boss to shove it. Or you can keep right on working with a smile on your face and a song in your heart, knowing that you’re working because you want to, not because you have to.

So let’s figure out how much money it would take to maintain your current lifestyle. T his number might be really easy to calculate because, unfortunately, most people spend as much as they earn! Or sometimes more than they earn! If you made $100,000 and you spent $100,000 that year (including paying your taxes) just to maintain your lifestyle, your financial independence is $100,000. If you spend less than you earn, congratulations! U nfortunately, you are the exception, not the rule. So if it costs you only $80,000 to live, on a $100,000 salary, then $80,000 a year is what you need to be independent.

So what’s your Financial Independence number? G o to the app or write it here now: $_______.

Remember, clarity is power. W hen your brain knows a real number, your conscious mind will figure out a way to get there. Y ou now know the income you need to be financially secure, vital, and independent. So let’s see what happens when your dreams get bigger.

D are to live the dreams you have dreamed for yourself.

— R AL PH W AL D O E ME R SO N

L et me tell you the story of Ron and Michelle, a couple I met at one of the seminars I hold every year at my resort in Fiji. T hey were in their mid-30s, with two small children. Successful people, they owned a small business in C olorado. Ron was great at running their business, but neither of them paid attention to their household finances. (T hat’s why he was in Fiji attending my Business Mastery event, to grow his business 30% to 130% .) T heir accountant drew up personal financial statements for them every month, but they never bothered to look at them! N o wonder they were having trouble envisioning the life that they wanted—which turned out to be a life of contribution.

W hen I asked Ron what he needed to be financially set, as I asked the young would-be billionaire, his number was $20 million. I wanted to prove to him it could be a lot lower than that and still have an extraordinary quality of life for him and his family, so I walked the couple through what they actually spent every month. (Bear in mind that, as business owners, Ron and Michelle’s annual household income is clearly higher than the average American’s.)

First we started with Financial Security, and he told me his five numbers:

Mortgage on their main home	$6,000 per month
U tilities	$1,500 per month
T ransportation	$1,200 per month
Food	$2,000 per month
Insurance	$ 750 per month
T otal	$11,450 × 12 = $137,400 per year

So for Financial Security, all they needed was $137,400 in income per year. W ell within their reach! By the way, if Ron wanted to know how much he would need to accumulate in his nest egg or his Freedom Fund, most financial planners would tell him to multiply his annual income number by 10, or even 15. But today, with such low returns on safe, secure investments, that’s not realistic. Remember, on the way up the mountain (the accumulation phase), you might put your investments in an aggressive portfolio that could give you 7% to 10% . On the way back down the mountain (the decumulation phase), you will want your investments in a secure and less volatile environment, where by nature you would likely get smaller returns. So it might be smarter to use 5% as a more conservative assumption. T en times your income assumes a 10% return. T wenty times your income assumes a 5% return.

Ron discovered that financial security would be within reach—20 × $137,400 = $2,748,000—a number far less than the $20 million he’d projected.

For Financial Independence, they figured they needed $350,000 a year to maintain their lifestyle at the current level, because they had a second home and a lot of toys. Michelle was fond of things with L ouis Vuitton labels on them. So, conservatively, they needed $7 million ($350,000 × 20) in their critical mass to live that way without working. Ron was amazed to realize that this number was almost two-thirds less than the $20 million he thought it would take! And he’s going to get there a lot sooner than he imagined, having to save $13 million less than he’d previously estimated!

D RE AM 4:

FIN AN C IAL FRE E D OM

Once you’ve freed yourself from the need to work for the rest of your life, how about freeing up your lifestyle?

F inancial F reedom would mean you’re independent, you’ve got everything you have today, plus two or three significant luxuries you want in the future, and you don’t have to work to pay for them either. T o get there you need to ask yourself, “W hat annual income would I need to have the lifestyle I want and deserve?” W hat do you want the money for? Is it for the freedom to travel? T o own a bigger home or a second vacation home? Maybe you’ve always wanted a boat or a luxury car? Or do you want to contribute more to your community or church?

L et’s go back to Ron and Michelle. T hey were already living the lifestyle they wanted for $350,000 a year. So, I asked, what would make them feel financially free? W ould it be a bigger home? A condo in Aspen? A boat?

Y ou know what Ron said? H e’d feel financially free if he could donate $100,000 a year to their church—and maybe throw in a small Bass fishing boat and a ski vacation condo in Steamboat Springs for his family.

It was an awesome answer. I was so moved by his goal to contribute, I couldn’t wait to help them find a way to make it happen. I pointed out that Ron made about $500,000 a year in income, and spent only $350,000—he could already set aside that kind of money for the church if he really wanted to. But how great would it feel if he and Michelle could make that kind of contribution without working? Just from investment income alone?

After adding the costs of financing the boat and condo, along with his contribution, for Financial

Freedom they would have to add $165,000 a year to their number for Financial Independence. In other words, they would need $515,000 a year (× 20), or $10.2 million in their money machine. But remember, this number represents an even better lifestyle than he has today! It’s a lot, but still roughly half of what Ron had thought they needed just to be independent.

T he world that Ron and Michelle wanted was so close —they just didn’t know it. But once you figure out the price of your dreams, there are ways you can get there faster and for less money than you ever imagined.

W hat would it take for you to be financially free?

W hat items would you add to your total: A sports car?

A second home? Or a big donation, like Ron and Michelle? W hatever they are, write them down, and add the cost to your total for Independence. T hat’s the price of Financial Freedom. And if it seems too steep, just wait. Y ou’ll learn how to tame that number in the coming chapters.

H ere’s how Ron calculated his Financial Freedom numbers:

1. Monthly donation to church	$8,333 per month
2. 20' Bass fishing boat costing $50,000 financed at 5% = monthly payment of	$530 per month

3. Family ski condo mortgage costing

$800,000 at 4.5% = monthly payment

 

of	$4,880 per month
4. Monthly income for Financial Independence	$29,167 per month
5. T otal monthly income number for Freedom	$42,910 per month
6. N ow multiply that by 12, and you’ll have the annual amount you need for Financial Freedom What are your numbers?	$42,910 × 12 = $514,920 per year
1. L uxury item #1 per month	____ $____ per month
2. L uxury item #2 per month	____ $____ per month
3. D onation per month	____ $____ per month
4. Monthly income for Financial Independence (W hatever number you calculated annually divided by 12)	$____ per month

5.   T otal monthly income number for       $____

         Financial Freedom                                                    per

month

6.   N ow multiply that by 12, and you’ll havethe annual amount you need for Financial $____

        Freedom                                                           per year

D RE AM 5:

ABSOL U T E FIN AN C IAL FRE E D OM

H            ow about Absolute Financial Freedom? W hat would it be like if you could do anything you wanted, anytime you wanted? H ow would it feel if you and your family never had to want for anything again? If you were able to give freely and live completely on your own terms—not anybody else’s—and all without ever having to work to pay for it. T he money you make while you sleep—your investment income—would provide for your unlimited lifestyle. Maybe you would buy your parents the home of their dreams, or set up a foundation to feed the hungry or help clean up the ocean. Just picture what you could do.

I               asked Ron and Michelle to tell me the biggest dreams they could dream. W hat would Absolute

Financial Freedom look like for them? Once again, I was deeply moved when Michelle told me her paramount dream was to buy a ranch and turn it into a church camp. W hat would it cost? Ron figured about $2 million to buy it, and $1 million more for improvements.

I could see the excitement build in them when we ran through the numbers.

If they borrowed the money to buy the ranch, they would need about $120,000 ($3 million at 4% ) a year to service the debt. And that was already within reach!

So what else? Ron loved adventure and travel, and owning his own plane was an ultimate dream. So I walked him through the same exercise I did with my young would-be billionaire friend, and convinced him that renting a jet would give him a lot of the same convenience and satisfaction at a fraction of the cost of owning and maintaining a G ulfstream or a C essna C itation. D o you follow me? Y ou don’t have to own the jet to have the lifestyle. Y ou don’t have to own the sports team to sit in the sky box. And you don’t have to pay for the whole team to be an owner—you can be a partial owner and get all the privileges. T hat’s what my friend Magic Johnson did when he was part of the group that purchased the L os Angeles D odgers, along with my friend Peter G uber and several other partners in G uggenheim Baseball Management, which spent $2.15 billion to get the team and stadium. I can promise you Magic didn’t put in $2.15 billion—but he still gets all the joy, the pride, the excitement, the influence, and the fun of being an owner.

T his thinking can create the quality of life you want for yourself and those you love. W hat makes most people just dreamers versus those who live the dream is that dreamers have never figured out the price of their dreams. T hey make the number so big they never begin the journey. T here isn’t a dream you can’t realize if you’re committed enough and creative enough, and if you’re willing to find a way to add more value to other people’s lives than anybody else.

N ow, as you can tell, for most people, this category is mostly for fun. In my seminars, I do this exercise only with people who have really big dreams and want to know the price of them. I understand that most people will never achieve Absolute Financial Freedom, but there’s power in dreaming and unleashing your desires. Some of these high-octane dreams might excite you and make you want to earn more, and help you reach your goals faster. But there’s another reason to do this exercise. Y ou might achieve financial security without working, and then by working part-time at something you enjoy, you could be financially independent. Or it’s possible you could achieve Financial Independence through your investment income and part-time work, allowing yourself to experience the luxuries of Financial Freedom with that income.

So go for it! W rite down what you would put on this list or in your app. Y ou never know what you could create if your desires were truly unleashed!

H ere’s how Ron calculated his Absolute Financial Freedom numbers:

1.       A ranch for church camp that costs $3 million, financed at 4% = monthly payment of $10,000 per month

2.       A Beechcraft Bonanza plane that costs $300,000 financed at 5% = monthly payment of $3,181 per month

3.       Monthly income number for Financial Freedom:

$42,910 per month

4.       T otal monthly income for Absolute Financial Freedom: $56,091 per month

5.       N ow multiply that by 12, and you’ll have the annualamount you need for Absolute Financial Freedom: $673,092 per year.

So for a 20-foot fishing boat, a $100,000 yearly donation to their church, a ski vacation condo, a plane, and turning a ranch into a church camp, plus the lifestyle they have today without having to work, Ron and Michelle would need an income of $673,092 per year. Multiplied by 20, they would need to achieve a critical mass of $13.5 million. Still a third less than the number they thought they needed for mere security or independence!

What are your numbers?

1. L uxury item #1 per month	____ $____ per month
2. L uxury item #2 per month	____ $____ per month
3.   L uxury item #3 per month 4.   Monthly income for Financial	____ $____ per month
Freedom (page 222)	$____ per month

5.   T otal monthly income numberfor Absolute Financial

Freedom

$____ per month

6.   N ow multiply that by 12, andyou’ll have the annual amount you need for Absolute

         Financial Freedom                                 $____ per year

T here is only one thing that makes a dream impossible to achieve: the fear of failure.

— PAU L O C O E L H O

H            ow do all those numbers you’ve written down look toyou now? I hope that you’ve seen how the price of your financial dreams can be much smaller than you ever thought, and that you’ve picked out three to aim for, including at least one short-term goal and one long-term goal. W hich of these dreams are your T hree to T hrive? T he most important for most people—the most common “musts”—are Security, Vitality, and Independence. Or for those who want to reach higher, it’s Security, Independence, and Freedom. If you haven’t already done it, pick three and write them down. Make them real and put them in your app; key reminder messages will be sent to keep you on target.

If you’re a baby boomer who’s had a tough time since the meltdown of 2008, which one of these dreams is the absolute must for you? Security, right? H ere’s the good news: you may not have as many years to build your savings and investments to a critical mass, but you can absolutely have Financial Security, and I’ll show you how. Maybe you’ll never get to Independence, but maybe you will if you make it a “must.” If you’re starting younger, you’re way ahead. Y ou might be able to go for Freedom or even Absolute Freedom and not even be stressed about it. But it’s important to decide what matters most to you and know your numbers. W hy? Because in a few moments, we’re moving on to the next chapter, where you’ll be able to calculate how many years it will take for you to achieve these dreams based on how much you are saving at a reasonable average annual rate of return. And then we’ll make a plan to get there. T his is where the rubber meets the road. I’m going to walk you through each step, and everything will be automated for you. It’s absolutely critical that you keep moving forward.

I               want you to feel empowered and excited by the journey you’re on.

I want you to know that you’re the creator of your life, not just a manager. Sometimes we forget how much we’ve really created in our lives. I don’t care who you are, I know there are aspects of your life today that once were just a dream or a goal, or seemed impossible. It could have been a job or higher-level position you wanted that at the time seemed beyond your reach, or a car that you were obsessed with, or a place that you always wanted to visit. Maybe you even live there now. Maybe there was somebody in your life, someone you never thought might even go out with you, and now you’re married to them. Instead of being back in those days of dreaming, wondering if this person would ever make love to you, perhaps they are beside you now. If so, reach over and give them a kiss right now and remember this relationship once seemed impossible, and you created it.

W hat’s in your life today that was once a dream? W hat was a desire you had in the past that at the time seemed difficult or impossible to achieve—but now it’s in your life today? If you’re going to remember that you’re the creator of your life and not just the manager of your life’s circumstances, first, you must reconnect to the things you have created consciously. T ake a moment and jot down three or four of those things. And take note, your list does not need to be made up of all giant accomplishments. Sometimes the little things that seem difficult or impossible, when conquered or realized, provide us with essential lessons on how to achieve the big things. Also, there may be some things in your life today that once seemed difficult or impossible, and now you have them, but you take them for granted. T he law of familiarity says that if we are around anything (or anyone) long enough, we tend to take things just a little bit for granted. So awaken to your appreciation, and jot down your list now.

Second, you have to review what steps you took to turn that dream into your reality. T ake a moment right now. Select one of the things you have achieved. W hat were some of the first actions you took? Jot them down now.

I’ve interviewed literally tens of thousands of people about how they’ve taken something that seemed impossible and woven it into their life. H ow did they create it? H ow did you? T here’s a process we all go through. It’s a matter of three steps.

Step 1: U nleash Y our H unger and D esire, and Awaken L aser-like F ocus. Something happens within you: either you become inspired by something that excites you so much that your desire is completely unleashed—you become completely obsessed with it— and you focus on the object of your desire with laser-like intensity! Y our imagination is ignited. Or you hit a wall, a threshold, a place inside yourself, and affirm that you will no longer settle for life as it has been. Y ou make a decision never to go back, and you become ferociously focused on the new life or object you desire. It could be a job change, a relationship change, a lifestyle change. Y ou unleash your hunger for it—and wherever focus goes, energy flows.

H ave you ever experienced this? Y ou bought an outfit, or you bought a car, and suddenly you saw that car or outfit everywhere? H ow did that happen? Because part of your subconscious mind, called the reticular activating system, knows this is important now, so it notices anything that relates to it. T hose cars and outfits were always around you, but now you’re noticing them because your subconscious makes you aware of the very things you were not seeing before.

T hat’s what’s going to happen as you’re reading this book. Y ou’re going to start noticing the fees charged by mutual funds and hearing about asset allocation. Y ou’re going to start hearing things you’ve never heard before —high-frequency trading! dollar-cost-averaging!—and they are going to come to life for you because now your brain knows they’re important. Anything that’s important, anything that’s focused on, energy flows into it. And when you have that level of hunger, desire, and focus, step 2 starts to happen.

Step 2: Y ou T ake Massive and E ffective Action. If your desire is truly unleashed and you are obsessively focused on what you want, you will be called to do whatever it takes to make your dream a reality. T here are no limits to the energy and flexibility you’ll have in the pursuit of what you want. In your heart, you know massive action is the cure-all. If you’re willing to put in the effort, you’ll get there. Y ou’ve done it before, right? Maybe there was a time when you just had to see the girl you loved, so you borrowed a car and drove all night through a snowstorm to visit her at college. Maybe you moved heaven and earth to get your child into the best school to suit her needs. If it’s a “must” and not just a “should,” you’ll find a way.

But there’s one caveat, of course: you need to put effective execution behind all that effort, right? W hat if you drove through that snowstorm without a map and ended up in the wrong city? Y ou can throw all your effort into saving for the future, but put your money in a 401(k) loaded with high fees and poorly performing mutual funds, and you’ll get nowhere. Or you can invest everything in one company and watch the stock drop 40% in a day. So if you’re willing to do whatever it takes, you still have to execute your plan carefully, and keep adapting your approach. Because effort with effective execution creates magic. T his book is your map, your blueprint to take you from where you are today to where you want to be financially. By consistently taking massive and effective action, and adapting your approach whenever it doesn’t work and trying something new, you will move toward your dream, but there’s one final, extraordinary element that plays an important role in whether your dream becomes a reality or not.

Step 3: G race! Some call it luck, coincidence, fate, or G od’s hand. I call it grace: the acknowledgment that there’s more in this world than just ourselves, and that perhaps a higher power gives us both the privilege of this life as well as the gifts of insight and guidance when we’re open to them. It’s amazing how, when you take care of the first two steps, G od or the universe or grace— whatever you like to call it—tends to step in and support what you’re doing. T hings flow to you when you do your part first. W e’ve all experienced the phenomenon of serendipity. Something happens that defies explanation, so we call it a coincidence. W e miss a train and meet the person we end up marrying. W e fill in for a friend, and it leads us to the job of our dreams. W e didn’t figure it out in advance, didn’t earn it—it just happened. T o me, that’s grace. And the more you acknowledge and appreciate the grace that’s already in your life, the more you experience the gifts that are beyond what you’ve created. I’ve had it happen many times in my life, and I know it’s real. I also know that gratitude connects you to grace, and when you’re grateful, there is no anger. W hen you are grateful, there is no fear.

So, are you ready to become the creator of your life, not just the manager of your circumstances? D o you know what you’re really investing for? An income for life! Are your dreams becoming a part of you, a “must” that your unconscious mind focuses on night and day? Are you willing to do what it takes to make them a reality? T hen it’s time to turn the page and do what so many others fail to do.

It’s time to make a plan. . . .

C HAPT E R 3.2

W H AT ’S YOU R PL AN ?

If you don’t know where you are going, every road will get you nowhere.

— H E N R Y K ISSIN G E R

C ongratulations, you’ve come a long way! Y ou’ve taken three huge steps toward Financial Freedom. Y ou’ve made the most important financial decision of your life. Y ou’ve become an investor by committing or expanding the percentage of your income that automatically goes into your Freedom Fund, and you’ve begun to build your money machine that will set you free. Y ou’ve also learned how to protect yourself from the biggest lies designed to separate you from your money. Finally, you have put a price on your dreams: you know how much income it will take to be financially secure and independent. N ow we’re going to take what you’ve learned about the power of compounding and put those Money Power Principles to work. W e’re going to work together to create a plan for you and your family that is absolutely attainable and within reach, no matter what level of financial dream you’re         shooting     for:    security,          vitality,       or independence.

T here’s one more thing before we start. If you’re like most people, you hate talking about money. But hey, it’s just us, anyway. N o one else will see these numbers unless you decide to share them. W hat’s most important is that you be honest with yourself. N o rounding up here. N o bending the truth. N o looking at your “numbers” with a rosy lens and making your finances look a little better than they are. And by the same token, don’t sandbag yourself either by making the plan so conservative that you feel like it’s impossible to achieve. Just level with yourself and commit to taking a candid picture of where you are now. T hat’s how to make this plan really work.

Y OU C AN PL AY ON L Y Y OU R OW N H AN D

A good friend of mine recently had a reunion with a group of his boyhood pals near my home in Palm Beach. T hey all gathered to celebrate their 50th birthdays. T hey had gone to nursery school together and lived down the street from one another throughout high school in a L evitt community of tract homes on L ong Island, N ew Y ork. T heir fathers were all professionals, or owned their own businesses, their mothers were all housewives; and their household income levels tracked together closely. W hat struck me most about these lifelong friendships were the demographics. D uring their formative years, the lives of these friends were in synch, but once they went away to college, the young men splintered in different directions:

One went to work for a leading financial institution on W all Street.

One became a photographer, opening a frame shop in Manhattan.

One built homes across the mid-Atlantic states.

One started a business as an importer of fine wines and craft beers.

One trained as an engineer and worked on a civil servant’s salary in South Florida.

W hen they got together, these lifelong friends compared notes. D espite the gap in income levels and bank accounts, they were all happy—not happy in precisely the same ways, of course, but happy. T heir needs were met. Many of their hopes and dreams as well.

My friend shared the concepts from an early manuscript of this book with his buddies. After a few beers, the conversation turned to money, and they asked one another the same question you answered in the last chapter: H ow much money would it take to reach financial security or fund their retirements? T he W all Streeter thought he had to save at least $20 million to maintain his present lifestyle without having to work. T he Manhattan photographer thought $10 million would do the trick. T he real estate developer thought he could manage on $5 million, especially now that his kids were out of college. T he wine merchant had recently remarried. In spite of welcoming a new baby, he was counting on a nest egg of $2 million. And the civil servant, the one who’d been conditioned to live within his means and to look ahead to a steady pension for the rest of his life, thought he could live worry free once his pension kicked in and he started collecting Social Security benefits.

W hich one of these friends was closest to achieving his goal? W ho had the right number and the right plan in place to help him get there? It’s a trick question, of course. T he answer isn’t driven by money. Y ou don’t “win” the race of life by amassing the biggest pile of cash or accumulating the most things. And you don’t win by grabbing a quick lead and coasting to the finish line.

H ow do you win? Y ou win by living on your own terms—as well and as fully as you can, for as long as you can.

Y ou create a plan that meets your needs, that works for you, and you stick to it. T hat’s success, plain and simple. If you’re scrambling, constantly competing with others’ views of success or financial independence and trying to achieve an elusive goal, you’re going to fall behind and become frustrated. If you’re chasing someone else’s goal, you also lose. It doesn’t matter how much your neighbor has, what kind of car he or she drives, or the vacation he or she takes. T his plan is about you, only you, and no one else.

T he day you stop racing is the day you win the race.

— BO B MAR L E Y

T H E IL L U SION OF AD VAN T AG E

E ver watch track-and-field events in the Olympics? It’s easy to stare at the track just before the starting gun fires and wonder how the runner positioned all the way out in front in the outer lane of the track doesn’t have a huge advantage. Intellectually, we know that all the runners must run the same distance, but visually our eyes seem to deceive us. T hat so-called lead is called a stagger, and it’s meant to even the distance on an oval track. In a 400meter race, there’s a gap of about six meters separating each runner.

But, of course, everyone knows that there’s no advantage, physically, to being all the way out in front on the outside of the track, or all the way in the back on the inside. Y ou have to run the same distance either way. Y et the appearance of advantage can be a powerful psychological edge. D oes the guy out in front think he’s got the lead? D oes that give him a boost of confidence, or perhaps take away the tiniest fraction of his drive? D oes the guy all the way “in back” feel like the underdog—and then run just a little bit faster to compensate?

L et’s go back to our five friends, from the outsidelooking-in perspective. It might feel like the civil servant is all the way in the back, lagging behind the field, and it might seem like the W all Street executive has set himself up for a strong finish, but that’s the illusion, not the reality. N o one is ahead.

T here’s no first place or last place here. L ife is not a competition. Often people use money and the acquisition of things to measure where they stand: who’s got the nicer house, the fancier car, the summer home in the H amptons. But the truth is, we can’t predict how long we’ll live or the state of our health as we age. T he reality is, it doesn’t matter where we start. It’s how we finish that counts. H ere it seemed that all of these lifelong friends were headed in the right direction—each on his own terms, in his own time. T hat’s one of the reasons they felt so happy with their lives. W ith a little discipline and foresight, they all had a shot at winning the race they’d started together, all the way back in nursery school.

T he same can happen for you. It doesn’t matter where you stand in relation to your friends, your family, your colleagues, or clients. All that matters is your personal journey. It’s tempting to look at others as a yardstick and convince yourself that you’re all the way out in front, with the appearance of a lead, or resign yourself to the back of the pack. But that’s not the point. T he race of life is a marathon, not a sprint. T he only thing to do is focus on the path in front of you. L ook ahead. E stablish your own pace. K eep moving forward. And then create that plan.

T he only person you should try to be better than is the person you were yesterday.

— AN O N Y MO U S

Y OU R PL AN

N ow that you know that your only competition is yourself, it’s time to come up with a plan and create a financial blueprint. T he good news is, all you have to do is answer six questions in the It’s Y our Money app. U sing this wealth calculator, you’ll have a first version of your

plan within seconds. If you haven’t already downloaded the app, here’s the link: www.tonyrobbins.com/masterthegame.

T       he six questions are related to two areas: where youare now and what you are committed to creating going forward. T he few numbers you need to answer you can pull from your records, or perhaps off the top of your head. Y ou may have to do a little bit of homework, but most of these numbers should be close at hand—and, if you can’t come up with them right now, it’s okay to use a round-number estimate just to get you started to keep the momentum going.

U      sing these numbers, the app will build a plan tailored just for you, based on variables you get to determine: like how much you expect your income to grow, how much you’re determined to save, and what rate of return you expect to get on your investments. Y ou can be conservative or aggressive with your estimates—or you can run the numbers both ways and decide on some middle ground. And the beauty here is, once you capture these numbers, the app will do all the work for you. Y ou’ll have a true blueprint for your financial future, a clear plan to follow.

C H OOSE Y OU R OW N AD VE N T U RE

T he wealth calculator in the app you’ve just downloaded is a device I’ve used for more than three decades in my workshops and seminars. It’s simple and flexible, and it’s helped millions of people create financial plans that work for them. It’s built on a series of conservative assumptions, but you’re free to go in and change those assumptions if you’d like. Y ou can make them more conservative or more aggressive. Y ou’re in control, so put in numbers that fit with your lifestyle, your current reality, and your future dreams. If you don’t like the picture that comes back to you, you can play with your numbers and choose a different path to financial freedom. In the rest of this section, we’ll work together to get you specific steps to speed up your plan and insure its success. T he first plan you come up with is just that: your first bite of the apple. T hen we’re going to take it and improve upon it significantly in the pages ahead . . .

A few things to keep in mind before we start:

One of the biggest factors will be our tax rate, which is radically different for each one of us. T his book is read by people all over the world, so rather than make it complex, we’ve made it very simple. W herever you live, in the pages ahead you’ll learn to utilize the tools in your country that give you the greatest tax efficiency. W herever possible, you want to use tax-advantaged accounts to accumulate your wealth to generate a greater net rate of return.

T his calculator will then show you three potential scenarios, with different annual rates of return for each plan: 4% , 5.5% , and 7% . A conservative plan, a moderate plan, and an aggressive plan. T hese rates are after-tax rates of return. Some might find these numbers too conservative, or too aggressive; again, you can adjust them to any numbers you like.

H ow did we get to those numbers? On the high end, if you look at the standard set by the C harles Schwab organization, it will tell you an aggressive return is 10% .

Our app’s aggressive return is 7% . W hy the three-point difference? Schwab has shown that over the past 40 years, from 1972 to 2012, the market has averaged 10% . But our calculator is assuming approximately 30% in taxes, which brings the number to just under 7% . In the U nited States, long-term investment tax rates are only 20% , not 30% —so our app is being aggressive on the tax side. Also, remember that if you are investing through a tax-deferred vehicle like a 401(k), IRA, or annuity, you are deferring taxes. So if you had a 10% return (as in the Schwab example), you would continue to compound at 10% —with no tax deducted until withdrawal. W e are using our lower returns of 4% , 5.5% , and 7% to provide a buffer for mistakes or future returns failing to hit the aggressive mark you had hoped for.⁸

On the low end, or conservative side, if you look at Vanguard, it uses a 4% return after taxes. But we’re looking at things a little differently. Most Americans who have money to invest do it through their 401(k), IRA, or

401(k) Roth. W hat’s the best option? W e recommend that you go with a Roth (or your country’s equivalent), unless you truly are certain your taxes are going to be lower in the future. (L ucky you!) G overnments all around the world, and especially the U nited States, have spent money they do not have. H ow are they going to pay it back? By raising taxes. So while no one knows for certain whether taxes will go up or down, my bet here is they’re going up. In a Roth, your returns are 100% yours, meaning that if you’ve got a 7% return, you keep all 7% —no cut to the tax man ever on the growth of your investments. If you get a 10% return, you keep all 10% .

T his is why we built the wealth calculator this way. It gives the flexibility to think about returns in a net (aftertax) approach. Y ou design the plan with what you believe is most appropriate for your planning purposes.

T his wealth calculator is designed to quickly give you a sense of how different choices will impact how long it will take you to achieve Financial Security, Vitality, or Independence. After you come up with a basic plan you like, you can also get precision too. As I mentioned earlier, Stronghold (www.StrongholdFinancial.com) has a technology platform to link all of your investment accounts. It will give you immediate feedback on what your actual rate of return has been on your investments in the past. (Most people have no clue!) It will show your best performing years, your worst performing years, and in how many years you have taken a loss. It will also show you how much you are really paying in fees, so you’ll know the true impact on your future savings. G o there, if you like, after you have your basic plan completed on the app.

Of course, with the app, the numbers and your plans are completely secure and remain accessible to you wherever you go, on any device. Y ou can change your returns at any time, change how much you’re willing to save, and see the impact in moments.

O ne of the most powerful ways to accelerate the pace at which you achieve your financial goals—and the most painless way I know—is to implement the Save More T omorrow plan, which has helped over 10 million Americans grow their savings in ways they never thought possible. D o you remember how it works from chapter 7.4, “Y our Money Machine”? Y ou commit to automatically taking a percentage of any raise you receive in the future and adding that to your Freedom Fund.

So, for example, let’s say you’re saving 10% of your current income toward your Freedom Fund: you’re investing, but you want to find a way to speed up your plan. By committing to the Save More T omorrow plan, the next time you get a 10% raise, 3% would go toward your Freedom Fund and the other additional 7% would be available for your improved lifestyle today. D o this three times in the next decade, and you could be saving up to 19% —almost double what you are putting away today—and at no loss to you, because it’s all based on additional future income. T his will make a huge difference in the speed with which you can achieve your financial dreams.

T o take advantage, just click on the Save More T omorrow option in the app. One final note: I’ve also taken out the value of your home from the equation. N ow, hold on, before you scream and yell. Y es, I know, for many of you, it’s the largest investment you have. If you want to add it back in, you can, but I’ve taken it out so you have yet another conservative cushion. W hy? Because you’ll always need a home to live in. I don’t want you to run these numbers and generate a plan that relies on the value of your home to generate income. Y ou may sell your home in ten years and realize a significant gain. Or you may stay in your home for the rest of your life, or you might need to downsize and take some money off the table to help pay off an unanticipated expense. N o matter what happens, your plan is designed to keep you afloat no matter what your living situation holds.

Why all these buffers built into the system? Because I want these numbers to be real for you—not just real in this moment, but real over time, against any number of real-world events that could set you back. I want to soften the blow in case you veer off course. But I also want you to exceed your own expectations. Most of all, I want you to know with absolute clarity and certainty that the projections we generate together are truly within reach.

Ready to dive in? Open your app!

W hen I look into the future, it’s so bright it burns my eyes.

— O PR AH W IN F R E Y

D RU MROL L , PL E ASE . . .

N ow, I know you are going to want to dive right in, hit E nter, and sit back while the app tells you how the rest of your life will play out. But that’s actually not the point. T he true value of this next step is to show you what’s out there: what’s realistic, what’s possible, what’s worth dreaming and fighting for. It lets you try on different outcomes, and play with some of the variables if you want to create a different picture or produce a different result. In the near term, it gives you a true plan you can follow —a blueprint for your financial future.

T hink of it as your personal financial trainer. It takes your “real” numbers—your savings, your income—and calculates what they’ll be worth based on a series of anticipated outcomes. D on’t worry about specific investment strategies just yet. W e’ll cover these in section 4, but it’s important to get some idea of how your money can grow once it starts to work for you.

Remember, the focus is not on where or how you’ll invest your money. T his exercise is an opportunity to forecast—to look into the crystal ball of what’s possible. W hat would your future look like if you could realize a 6% return on your investments? H ow about 7% or more? H ow much money would you have after 10 years? After 20? W hat if you somehow managed to hit the jackpot and found a way to generate gains of 9% or 10% ? Remember, just one of the asset allocation portfolios you will learn in chapter 5.1, “Invincible, U nsinkable, U nconquerable: T he All Seasons Strategy,” has produced an average rate of just under 10% over the last 33 years, and lost money only four times (and one of the losses was only 0.03% )! So there are many possibilities once you educate yourself as to how the top investors on earth conduct themselves.

So play around until you find a number that feels right to you—one that you have a healthy dose of confidence in. Just a few minutes of your time, and you’ll know what your savings, with the power of compounding, at different rates of return, will bring you.

It is only the first step that is difficult.

— MAR IE D E V IC H Y -C H AMR O N D

C ongratulations on running your first plan. Are you excited about the results? C oncerned? Frustrated? Or encouraged? Over the years, working with countless people from all over the world, I’ve noticed their results tend to place them in roughly one of three categories:

1.     T hose who are young and in debt, wondering howthey’re ever going to get to financial security. W hat’s beautiful is that they find out they can!

2.     T hose who think they are decades away from financialsecurity, and are surprised—or, frankly, shocked—to learn they are only a stone’s throw away: five, seven, ten years max. In fact, some are already there but had no idea.

3.     T hose who started late and are fearful of never beingable to make up for lost ground.

L et me share with you some examples of other people I’ve worked with in similar situations and show you how their plans played out—how they achieved Financial Security, Vitality; even Independence and Freedom.

AL L G ROW N U P BU T ST IL L PAY IN G OFF ST U D E N T L OAN S . . .

L et’s start with someone young and in debt. L ike a lot of millennials today, Marco graduated with a big chunk of debt. As a 33-year-old engineer earning a respectable $75,000 a year, he was still paying off $20,000 in student loans. L ike so many Americans, Marco felt like his debt was consuming his life—he thought he’d be paying it off forever (and probably would be, had he paid only the minimum payments). Marco did, however, expect his salary to grow, slowly but steadily with expected raises of about 3% to 5% per year. After working together on a new plan for Marco, we allocated 5% of his income to paying off his student loans. And Marco committed 3% of any and all future raises to his Freedom Fund.

W hat did this new plan give him? H ow about a debt-free life in seven years! On top of that, Marco was going to be able to take that 5% , once he was debt free, and redirect it toward his savings to grow and compound his Freedom Fund. W ith this savings and investing plan, Marco could reach F inancial Security in 20 years. T hat may sound like a long time, but he’ll still be only 53 years old. And just seven years later, at 60, Marco could reach F inancial Independence—a full five years before he’d ever dreamed of retiring, with more annual income than he ever imagined! Marco went from worrying about never paying off his student loans to looking at a future of real financial independence. E ven better, within five years, by age 65, with all of his growth and the boost of Social Security added, Marco would actually experience his definition of Financial Freedom— a prospect entirely unfathomable to him before running his new plan. Remember, he began this journey with no assets and nothing but debt!

IF IT L OOK S T OO G OOD T O BE T RU E . . . IT MIG H T AC T U AL L Y BE T RU E

T hen there’s our second category of people: those who take a look at their plan and think something must be wrong. T heir calculator is not working! T hey see that F inancial V itality or Independence is popping up far too quickly.

“T here’s no way I can get there that fast,” they think. “I can’t achieve Financial Independence in five, seven, or eight years. T hat’s crazy!” In their minds, they’ve got a good 20 or 30 years of hard work and nose-to-thegrindstone days ahead of them.

W here’s the disconnect? H ow is that possible?

It’s possible because the number they had in their head—that $10 million or $20 million or $30 million price tag—was totally off base. It had nothing to do with reality. It was simply a pie-in-the-sky number representing what they thought they needed to be financially independent, not what they actually needed.

K atherine, a woman who attended one of my W ealth Mastery seminars, is a great example. She was a savvy businesswoman who needed $100,000 a year to be financially secure—a large number by many people’s standards, but not by her own. T o achieve Financial Independence, she’d need $175,000 to maintain her current lifestyle without working. K atherine assumed it was going to take more than 20 years to get there.

W ant to know what happened when she ran her numbers with my team? T he first thing they uncovered was that her current business was earning more than $300,000 a year in net profits and growing at nearly 20% per year. W ith my team’s help and a little bit of research, she found that she could sell her business today for six times her current profits, or a total of $1.8 million. W hat does this mean?

W ell, if she sold her business for $1.8 million and then received a 5% return, her annual investment income would be $90,000 per year. She had other investments already that were providing more than $10,000 per year, so with a $100,000 annual income, guess what: K atherine is financially secure right now!

K atherine was blown away—but also confused. She said, “But T ony, I don’t want to sell my business right now!” I told her that I wasn’t encouraging her to, nor did she have to. But she should declare victory and realize that she is financially secure today. W hy? Because she has the assets to produce the income she needs right now. E ven more exciting, at her business’s current growth rate of 20% per year, she would double her business in the next three and a half years. And even if her current growth rate was cut in half to only 10% per year, in seven years her business would be worth $3.6 million. If she sells at that point ($3.6 million × 5% = $180,000 per year in income without working), in three and a half to seven years, K atherine will be financially independent. N ot 20 years! And this was without making any other investments whatsoever!

By the way, one of the things I show business owners in my Business Mastery program is a little-known set of strategies that allows you to sell a portion (or even a significant majority) of your business and yet still run, control, direct, and profit from it. T his allows you to get a large cash-flow bump to secure your Financial Freedom today, while still having the enjoyment and fulfillment of growing the business you love.

Y OU C AN BE L AT E T O T H E PART Y AN D ST IL L W IN

L et’s go back to my friend Angela’s story. Angela is anything but average, but from a financial perspective, she represents the average American. Angela is 48 years old. H aving lived a free-spirited life, traveling and sailing around the world, she had never saved or invested in her entire life. After finishing section 1, she’s now committed to saving 10% , but she’s still got a major challenge: she’s beginning late in the game. (As she said, “I’m almost fifty!”) She has less time to tap into the power of compounding.

W hen Angela first calculated the amount of income she’d need for Financial Security, her number came to $34,000 a year. F or F inancial Independence, she’d need $50,000. At first glance, her numbers excited her. T hey didn’t have seven zeros, and they were numbers she could get her arms around. H owever, the timing of those numbers brought her back down to earth. Starting late in life and saving only 10% of her income was a plan that would take Angela 24 years to get to F inancial Security—if she was 41 years old, that would be a great win. She would achieve it by 65, but since she was starting later, Angela would be 72 years old when she achieved Financial Security. It was certainly a more compelling future than if she hadn’t run the plan, and she was glad to know she could get there. But she wasn’t terribly excited by the long, slow road ahead.

So what could we do to speed up that goal? H ow could Angela get to F inancial Security faster? One way would be to increase her savings and invest it. She was saving 10% already. N ever having saved before, 10% seemed like a huge number, but by committing to the Save More T omorrow plan, she could painlessly save more when she received raises and accelerate her plan. Another way to speed things up was to take a little more risk and increase her rate of return to 7% or more. Of course, that heightened risk could bring about more losses too. But it turned out there was an even simpler insight we had overlooked.

L ucky for Angela, she still had one more round in her arsenal. She had left out a huge piece of future earnings, one that many people neglect to include in their financial planning: Social Security.

Angela, already 48, was only 14 years away from taking Social Security at a reduced rate and 17 years away from capturing her full benefit. She stood to take home $1,250 per month once she turned 62, or about $15,000 a year. So that $34,000 a year in income she needed for Financial Security suddenly dropped down to $19,000. N ow when we reviewed the numbers in the app, she shaved a full decade off her timeline. Instead of getting to F inancial Security at 72, she was going to get there at 62! Angela was going to be financially secure in 14 years, and she was thrilled. She now would have enough income never to have to work again to pay for her mortgage, her utilities, her food, her transportation, and her basic health insurance—a real sense of freedom for Angela.

T he impossible became possible. And guess what else happened? Once Angela realized financial security was in view, she took that emotion, that excitement, that momentum, and she said, “H ey, let’s kick it up a notch. If I can get to Financial Security by sixty-two, let’s take a look at Financial Independence. I’m going to figure out a way to become financially independent, not in my seventies or eighties but in my sixties!” And her number to reach Financial Independence? It was $50,000—only $16,000 more a year in income than she’d need for Financial Security.

Angela took one more step. After reading chapter 3.6, “G et Better Returns and Speed Y our W ay to Victory,” she found yet another way to accelerate her plan. Angela was always extremely interested in owning incomeproducing real estate, and she learned some simple ways to invest in senior housing (or assisted living facilities) that are available through public and private real estate investment trusts. (T hese are covered in section 4.) W e will highlight more details later in the book, but in short, senior housing facilities are a way to own incomeproducing real estate that is also tied to what I call a “demographic inevitability”: a wave of 76 million baby boomers who are aging and will require the use of these facilities. By investing $438 per month (or $5,265 per year) for the next 20 years, and assuming that she reinvests the income for compound growth, she will have accumulated $228,572. (N ote: this assumes a 7% income/dividend payment, which is the current rate on multiple senior housing real estate investment trusts.)

T he amount she accumulates will generate $16,000 of income (assuming a 7% income payment), and she won’t have to tap into her principal unless she wants to! One last huge benefit? Angela doesn’t have to pay income tax on the entire income payment due to the tax deductions for depreciation.

Marco, K atherine, and Angela are real people just like you and me. Y our plan is within reach too, and just like them, you might be able to get there sooner than you think. D on’t let the first plan you’ve run on the app be the end-all. T hink of it as your starting point to make your dreams happen. In the next chapters, we’re going to show you five ways to speed it up and get there even faster.

K ites rise highest against the wind, not with

it.

— W IN ST O N C H U R C H IL L

W hether you’re excited about the numbers your plan threw back at you or you’re disappointed about the long haul ahead, take heart—disappointment isn’t always bad. It often serves as a great kick in the pants that pushes you

to create massive change. R emember, it’s not conditions but decisions that determine our lives. D isappointment can drive us, or it can defeat us. I choose to be driven by it—and I’m hoping you take the same view. Most people don’t even get to this point in their planning, because they don’t want the letdown they’re afraid they’ll experience once they run their numbers. But you’ve taken on the challenge and the promise of this book, so you’re not like most people. Y ou’ve chosen to be one of the few, not the many.

I vividly remember a Fourth of July trip I took more than 20 years ago with my dear friend Peter G uber and a group of top movie executives through N antucket and Martha’s Vineyard. W e were on Peter’s private yacht, and a couple of these moguls were throwing around how they had earned $20 million and $25 million on a single film that year. My jaw dropped—that number simply astonished me. H ere at 30 years old, I thought I was doing pretty well—that is, until I hung out on deck with a bunch of movie tycoons. T hese guys had an insane lifestyle, and it didn’t take long for me to get seduced by the idea of it all.

T his experience jolted me, but it also made me ask a different question: W hat did I really want to create in my life? And could I possibly ever get there? At that time, I didn’t see any way I could add enough value to other human beings through my core skill of coaching to ever create that level of Financial Freedom.

Of course, I was being totally unfair, comparing myself and my level of accomplishment to these men. I was 30 years old; Peter and his movie-producing friends were all in their early to late 50s. Peter was in the prime of his career; I was just beginning mine. H e had 52 Academy Award nominations and a slew of H ollywood hits to his name. Sure, I was making a name for myself and running a successful business—and changing lives— but financial success for Peter and his friends and financial success for me were light-years apart. And so, as I compared myself to those guys on the boat, I did what so many people do unfairly: I beat myself up for not being at the same level of accomplishment.

But the beauty of that moment, that day, was that it put me in a new and strange environment, and something inside me shifted. I was so far outside of my comfort zone. I felt like I didn’t belong—like I didn’t deserve to be there. H ave you ever felt like this? It’s amazing what our minds will do to us if we don’t consciously direct them.

And yet contrast is a beautiful thing. W hen you get around people who are playing the game of life at a higher level, you either get depressed, pissed off, or inspired. T hat day, I realized I didn’t want a yacht, but I was inspired to sharpen my game. I realized there was so much more I could do, give, and be. T he best was yet to come. I also realized how incredibly valuable it was for me to get uncomfortable at that point in my life; to put myself in an environment where I didn’t feel on top or superior.

Of course, Peter had none of these thoughts. H e was just bringing dear friends on a Fourth of July trip as a gift of love! But what he had really done was show me a world of unlimited possibilities. T hat experience helped awaken the truth in me. It became clear that I did have the capability to create anything I could envision. Maybe I didn’t want to have those same grown-up toys, but I sure as hell wanted to have the same types of choices for my family. T oday, in my early 50s, those impossible visions have become a simple reflection of the reality I now live. And I still don’t want a yacht!

L et’s be clear. It isn’t about the money. It’s about choice; about freedom. It’s about being able to live life on your terms, not anybody else’s.

D on’t complain.

D on’t say you can’t.

D on’t make up a story.

Instead, make a decision now!

Find your gift and deliver it to as many people as possible.

If you become stronger, smarter, more compassionate, or more skilled, then your goal is a worthwhile one.

One of my earliest mentors, Jim Rohn, always taught me, “W hat you get will never make you happy; who you become will make you very happy or very sad.” If each day you make just a little progress, you will feel the joy that comes with personal growth. And that leads to perhaps one of the most important lessons I have learned about big goals and achievement.

Most people overestimate what they can do in a year, and they massively underestimate what they can accomplish in a decade or two.

T he fact is: you are not a manager of circumstance, you’re the architect of your life’s experience. Just because something isn’t in the foreground or isn’t within striking distance, don’t underestimate the power of the right actions taken relentlessly.

W ith the power of compounding, what seems impossible becomes possible. Right now, whether you love your financial plan or hate it, or whether you’re excited or afraid, let’s make it stronger together. L et’s accelerate it by looking at the five elements that can speed it up.

8. At this time of this writing, interest rates have been repressed for an extended period of time. H owever, the app will be updated if and when interest rates rise. Y ou are also welcome at any time to put in any rate of return that best suits your circumstances and realistic investment return objectives.

C HAPT E R 3.3

SPE E D IT U P: 1. SAV E MO RE AN D IN V E ST T H E D IFFE RE N C E

If everything seems under control, you’re not going fast enough.

— MAR IO AN D R E T T I

C ongratulations: you’ve just taken a huge step toward F inancial F reedom! Most people don’t take the time to consider their complete financial picture and create a plan. And for those who do, it often stirs up all kinds of emotions. It’s big, it’s scary. I’ve been there, I get it. But now that you’ve done it, take a moment to savor your victory. And ask yourself this: H ow do you really feel about your plan? D o you feel good about your or your family’s future—are you excited to realize that your financial dreams are closer than you imagined? Or is it terrifying to think you might never get to where you’d like to be—are you so deep in debt you’re starting to wonder if you’ll ever dig your way out of the money pit?

W herever you are, it’s okay. Y ou’ve come a long way, you’ve made huge strides and there’s no turning back now. And now that you’ve learned to walk, so to speak, let’s teach you how to run. T he goal of these next minichapters is to get you thinking about how to make your financial dreams come true faster than you ever thought possible. D ream big. Make it happen. And then speed it up. H ave you ever had a crazy busy day, worked your tail off, raced against the clock, and then, against all odds, finished early? T hat extra hour or two of life that you reclaim is an absolute gift—a bonus that makes you feel like the world is on your side. Y ou hit the gym and go for a run, head out for cocktails with friends, or race home to tuck the little ones into bed.

I travel like mad; I’m in different countries, on different continents, crossing time zones and flying around the world like the business equivalent of a H arlem G lobetrotter. If I arrive somewhere early, if I’ve got an extra window in my week to refocus my energies or spend time with my wife or my family, I’m energized and excited. I just found some extra time!

W hat if that extra time could last more than just an hour or two? W hat if you could find not just an extra hour in your day, but, financially, find two years of savings in your life? Or five years? Maybe even a decade of life where you have the freedom of not having to work to support your lifestyle? T hat’s the promise of these pages. E ven if your current plan doesn’t look like it can get you there, these chapters can show you how to shift your plan and find that opening in your life—that extra money, that extra time, that ultimate freedom.

H e who gains time gains everything.

— BE N JAMIN D ISR AE L I

If you’re going to speed things up, there are five core strategies. Y ou can do any or all of them—it’s your choice. Any one of them by itself can significantly speed up the tempo with which you achieve your dreams of financial security, independence, or freedom. Put a couple of them together, and you’ll be unstoppable.

Y ou can be rich by having more than you need, or by needing less than you have.

— JIM MO T T

ST RAT E G Y 1: SAVE MORE AN D IN VE ST T H E

D IFFE RE N C E

T he first way to speed up your plan is to save more and invest those savings for compound growth. I know, I know, that’s not what you want to hear. Maybe you’re even thinking, “T ony, I’m spending every dime I have. T here’s no way I can possibly save more under any circumstances.” If that’s true, before we talk about anything else, let’s remember the most fundamental strategy you learned back in chapter 2.9, “Myth 9: T he L ies W e T ell Ourselves”: the best strategy to get around your belief system is to develop a new belief! Y ou can’t squeeze water from a rock, but you can change your story.

E ven if you’re convinced you have no room to save,

Richard T haler showed us that we can all Save More T omorrow. Remember those blue-collar workers who said they could never save? And just five years and three pay raises later, they were saving 14% . And 65% of them were saving as much as 19% ! Y ou can do this, and you can make it painless if you use that strategy. L et’s attack some fresh strategies right now.

W hat if—in one fell swoop, in one single move —you could save a huge chunk of money toward your F inancial F reedom, and it wouldn’t cost you a dime more? D o you like that idea? L et’s take a look at one of the biggest investments in your life: your home. If you’re like millions of Americans, home ownership is important, something you either aspire to or currently take great pride in. W hether you live in Portland, Maine, or Portland, Oregon, your house probably takes the biggest bite out of your monthly apple.

H ow would you feel if you could save an extra $250,000, $500,000, or even $1 million, from your home? Sound impossible? N o, I’m not talking about refinancing your mortgage at a lower rate, although that is one painless way to save hundreds or even thousands of dollars a month.

T H E BAN K E R’S SE C RE T

Y ou don’t have to wait for a market downtick to save money on your mortgage. By the time you’re reading this, rates may be on their way back up anyway. Y ou can still cut your mortgage payments in half, however, starting as soon as next month, without involving the bank or changing the terms of your loan. H ow? L et me ask you a simple question. L et’s say you’re applying for a home loan, which would you prefer?

Option 1: 80% of your combined mortgage payments goes toward interest; or

Option 2: a 30-year fixed rate mortgage at 6% .

G o ahead and think about it for a moment. W hat do you think? Are you tempted by option 2? D oes option 1 sound crazy? D id you follow the crowd and choose option 2? Or did you outsmart us all and choose option 1?

T he answer: it doesn’t matter. T hey’re identical. W hen you sign your name on the dotted line and take on that 30-year fixed-rate mortgage at 6% , fully 80% of your mortgage payments will go toward interest. D idn’t see that one coming, did you? H ow much does that interest expense wind up costing you over the course of your loan? Is it 30% more? 40% more? 50% more? L ife should be so good. Y ou want to know the banker’s secret? Y our interest payments will tack on an additional 100% or more to your loan value. T hat half-million-dollar home you buy actually ends up costing you a million dollars after interest payments. If you buy a $1 million home? T hat costs over $2 million once interest payments are added in! T ake a look at the chart below to see the impact of interest expense on your home purchase. T he example is a $1 million home, but no matter what price you pay for your home, the ratio of impact is the same. Interest payments will double the cost over time.

For most people, their mortgage is the single largest expense, and with the vast majority of your payment going toward interest, I bet you’re not surprised to learn that the average American, when you add in credit cards and auto loans, spends 34.5% of every take-home dollar on interest expense. And that’s just the average—many people spend more!

So how can you cut down that enormous interest payment? H ow can you decrease the interest expense you rack up over time—and take that money and funnel it to your Freedom Fund? T he answer is so simple it might surprise you.

If you have a traditional fixed-rate mortgage, all you have to do is make early principal payments over the life of the loan. Prepay your next month’s principal, and you could pay off a 30-year mortgage in 15 years in many cases! D oes that mean double your monthly payments? N o, not even close! H ere’s the key:

Money Power Principle 3. C ut your mortgage payments in half! T he next time you write your monthly mortgage check, write a second check for the principal-only portion of next month’s payment.

It’s money you’ll have to pay anyway the following month, so why not take it out of your pocket a couple of weeks early and enjoy some serious savings down the road? Fully 80% to 90% , and in some cases even more, of your early payments will be interest expense anyway. And on average, most Americans either move or refinance within five to seven years (and then start the insanity all over again with a new home mortgage).

“It’s a pity,” mortgage expert Marc E isenson, author of T he Banker’s Secret, told the New York T imes. “T here are millions of people out there who faithfully make their regular mortgage payments because they don’t understand . . . the benefits of pocket-change prepayments.”

L et’s take a look at an example (in the table on page 252). T he average American home is $270,000—but this strategy works whether your home costs $500,000 or $2 million. A 30-year loan on $270,000 at 6% requires an initial monthly payment of $1,618. W ith this technique, you would also write a second check for an extra $270— next month’s principal balance—a very small number, relatively speaking. T hat second check of $270 is money you’ll never pay interest on. T o be clear, you’re not paying extra money; you’re simply prepaying next month’s principal a touch sooner.

H old yourself to this pay-it-forward strategy each month, and, again, you’ll be able to pay off a 30-year mortgage in just 15 years—cutting the total cost of your home by close to 50% . W hy not prepay that $270, and cut the life of your mortgage in half? So if you have a million-dollar home, that’s a half million dollars back in your pocket! H ow much would that accelerate your journey to Financial Freedom?!

BABY , Y OU C AN D RIVE MY C AR

It’s not just our homes where we can save big bucks. One of my sons was dying for a BMW . After years of coveting the “ultimate driving machine,” he finally went out and leased a brand-new Beemer with all the performance options. H e was thrilled with his purchase. H e loved that car: he loved the way it drove, what it said about him, what it represented. It was a point of pride and aspiration, and it announced his arrival—in his own mind, at least.

On the flipside, that BMW cost him a fortune! H e could have made a monthly house payment with what he was paying for that car. A year or two later, the car got a little dinged up, and, no surprise, lost some of its luster.

At 30, and newly engaged, he decided he wanted to look for a home for him and his future wife. W hen he did the math, he almost croaked. T hat $1,200 payment for his BMW X 6 (with a twin turbo V8) could have literally covered an entire house payment.

H e realized he no longer needed the same ego stroke that came from driving a luxury car. It was just transportation, after all. H e saw that he could put himself in a Volkswagen Passat or a Mini C ooper, and it might even be nicer, newer, more fuel efficient.

On top of that, much of the joy that he got from driving that car also disappeared. H e found joy elsewhere: in the idea of building a new life, putting down roots with the woman he loved, and buying a home. G etting rid of the BMW was no longer a sacrifice; instead, it became a conscious decision to spend his money elsewhere and start building a financially secure future.

N ow, if you’re a car aficionado and love cars (as I do), I’m not telling you to go out and drive a Volkswagen. For many guys, that shiny black Ferrari, Porsche, or the new T esla is just too much to resist. And if your plan is getting you to where you want to be financially, by all means, drive whatever car you want. But if you’re not getting there, or you’re not getting there fast enough, then maybe it’s time to rethink your wheels and see if you can find some meaningful savings to put into your Freedom Fund.

Remember Angela? She read an early copy of this manuscript and came home with a new car—her first brand–new car ever! T ake a look at her numbers: she was able to trade in her old car and save $400 a month, or almost $5,000 a year, to put toward her savings and start compounding right away.

W H AT E L SE C AN Y OU D O?

H ouses and cars aren’t the only places where we can save. W here else can you work at axing expenses in your life that no longer give you value? I know the idea of living on a budget is totally unappealing to most people. I don’t want to be put on a budget and my guess is you don’t either. But what I do believe in is a spending plan. I like the idea of planning how to spend my money so that it gives me the most joy and happiness but also ensures my financial freedom long term.

N ow, to be fair, if you’re one of those people who says, “Screw it, I’m not going to save; I’m just going to focus on earning more,” then you can just go ahead and skip right over to the next minichapter on earning more and adding value. If the idea of saving just completely exhausts or bores you, you’ve got four other strategies to help you speed things up, and I don’t want you to miss them because saving isn’t for you. But if you do, stay with me. I promise you that little things can make a big difference long term—they add up to surprisingly giant numbers.

T o be fair, Amazon and brick-and-mortar bookstores have entire sections filled with books on how to save more money. D ave R amsey is a very caring man with several books in this area, and Suze O rman is another author worth investigating if you are looking to find savings. But we’re going to take a few pages here to highlight the best simple strategies now.

One thing is for sure: you can create a spending plan that helps you decide in advance how and where to spend your money to give you the greatest returns today and in the future.

Remember chapter 1.3, “T ap the Power,” where we looked at how ordering in pizza with friends instead of going out to dinner could save you $40 a week, or $2,080 a year? At an 8% return, that turns into more than $500,000 over 40 years. A half million dollars! T hat’s a whole different retirement picture than most Americans have today. T hat kind of money, on its own or added to our 401(k), can certainly help make us rethink our daily G rande skim latte with a shot of vanilla.

Financial expert D avid Bach is a good friend of mine who got his start by attending one of my financial seminars more than 20 years ago. H e made a decision to pursue his dream of helping people become financially independent, and just a few years later, I hired him for his first paid speech. T oday, through his passion and dedication, he’s helped educate over four million people through his bestselling book T he Automatic Millionaire: A Powerful One-Step Plan to L ive and Finish Rich, which includes the concept of creating wealth through finding what he calls your “L atte Factor.” And it’s not just about coffee: the L atte Factor is simply a metaphor for all those small purchases that we don’t even consider—things we wind up wasting our money on without even realizing it. But if you are a coffee fiend, how much is that addiction costing you? L et’s say you’re a casual “user”: at $4 a day, you’re effectively giving up almost $56,500 of savings at 6% interest over 20 years. For a single drink! But let’s be real: the Starbucks loyalist doesn’t go just once a day. W hat about the real evangelists who are there two or three times a day? T ake your $4 habit and boost it to $10 a day, and now you’re drinking away over $141,250 in savings over 20 years. T hat’s the cost of a four-year college education!

W hat if you’re a purist? Y ou don’t binge on caffeine; your body is a temple. But bottled water is your thing. G ot any Fiji or E vian enthusiasts out there? Or frankly, even if you just stock up on Poland Spring at C ostco, how much are you spending on bottled water every year? A young woman I work with, whom I adore and who considers herself very socially conscious, is about to get married to a guy who regularly buys 12-packs of 1.5-liter bottles of Smartwater. H ow smart is that? H e buys them three at a time, 36 big bottles in total, which lasts him about two weeks and sets him back $75. H e’s spending $150 a month on water, almost $1,800 a year—on something he could get free from the tap, or filter with a Brita water filter system and a few N algene bottles for $50 to $60 a year. Forget that he’s killing our planet; he’s also killing his wallet. I know her fiancé would be much happier if that $1,800 a year was going into their savings account and compounding annually. At 8% over 40 years, that’s $503,605 being pissed away—literally.

I’m not saying you have to give up bottled water or stop getting coffee, but the savings are there somewhere. Isn’t it time to find them?

And finally, let’s not forget about our impulse purchases: you know, the ones that feel great in the moment, like the pricey work bag or the beautiful H ermès tie. L isa, a young mom from N ashville, has a taste for the finer things in life. She drives her husband batty with her impulse purchases. She’ll come home with a great new dress or an amazing pair of boots, and her husband will invariably ask, “W ere they on sale?” or “D id you check online to see if you could get them cheaper?” After several spats, L isa and her husband agreed on a new plan. W hen L isa found herself unexpectedly at Saks Fifth Avenue or Jimmy C hoo, she’d take a photo of her next “must-have” and send it to her husband. H e had two weeks to find her a better price online; otherwise she’d order her purchase over the phone at full retail. But as L isa sheepishly admitted to me, over 80% of the time, he did find whatever she was looking for—at often at 20% or 30% cheaper.

So take a page from L isa and her husband and check out all the online rewards programs that can save you real money. U promise.com helps you earn cash back for college from your everyday spending, from online purchases to dining out and booking travel. Y ou can put those savings toward a student loan, savings account, or 529 college savings plan, a tax-deferred savings plan set up by parents for their kids’ college tuition. And if college has passed or it’s not a priority, but cash is, there are hundreds of other cash-back websites out there— E xtrabux, E bates, Mr. Rebates—all of which can save you 10% to 30% on purchases at thousands of online stores. As for L isa and her husband, they put all their savings back into their U promise account, and now everyone feels better about that pair of stilettos.

At the end of the day, the question to ask yourself is this: D o my expenses, big and small, bring me the thrill they once did? It’s not about depriving yourself; it’s about adjusting your spending habits to mirror your core values and indulge only the experiences that truly matter to you. T hat deliberate spending allows you to invest in a quality of life that is sustainable and brings you joy. W hether you’ve got 20, 30, or 40 years to invest, no matter where you are, how much you can save, or how many years you’ve got to do it, you can take advantage of the unparalleled power of compounding. Financial security, financial independence—whatever your goals, you will get there a whole lot faster when you put your money to work for you.

It’s not about lifestyle, it’s about timing. W hy not make simple changes today to insure you have more than enough down the road to continue to fund your lifestyle and your dreams? Y ou can still enjoy life’s finer pleasures —but you’re in control now. Y ou get to choose how to allocate your funds and where to get the biggest bang for your buck. W hether you’re going to tackle your mortgage expense or trade in those fancy wheels, make your online purchases work for you or do a little better on your everyday expenses—it’s in there. Real, meaningful savings, to the tune of hundreds of thousands of dollars to a million dollars or more are there for you to find and to reinvest.

N ow let’s turn the page and uncover the fastest way I know to speed up your plan and achieve financial independence faster. L et’s learn to earn more.

MIN D FU L SAVIN G S

H ere’s a quick-and-easy six-step exercise to get you thinking more aggressively—more purposefully—about saving:

1.     Brainstorm about all the recurring expenditures thatyou could eliminate or reduce to cut your expenses. C ar insurance, cell-phone bills, lunch money, movie tickets. T hink about where you can make changes.

2.     H ow much do these items or activities cost? H ighlightthe most significant of these expenditures and make a note of the associated costs. N ext, calculate how many times per week you indulge in this expense and take a reality-check snapshot.

3.     N ow, on a scale from 0 to 10 (with 0 representing none and 10 representing extremely pleasurable), how much joy do you get from each of the items above? Attach a number to each activity or item to help you associate these costs to your life.

4.     N ext, think of what it would feel like to have AbsoluteFinancial Freedom. Remember how you responded to that concept back in chapter 3.1: “W hat’s the Price of

        Y our    D reams?    Make    the    G ame   W innable”?

Remember how it made you feel? But at the same time, remember that this was a feeling you experienced in the abstract, in theory. H ere it’s close enough to taste. W hat would you be able to enjoy, have, do, be, or give if you were absolutely financially free?

5.     D ecide which is more important to you: the joy youreceive from the recurring expenditures on your list or the feeling of Absolute Financial Freedom.

Remember that life is a balance. Y ou don’t have to cut out everything from your list to move the needle on that feeling of freedom.

6.     W rite down at least three expenditures you are resolved to eliminate. C alculate how much money this will save you over the course of the next year.

C HAPT E R 3.4

SPE E D IT U P: 2. E ARN MO RE AN D

IN V E ST T H E D IFFE RE N C E

T ry not to become a man of success, but rather try to become a man of value.

— AL BE R T E IN ST E IN

Okay, let’s kick into second gear. If saving is one way to speed up your plan, there is an even faster way that literally has no limits—if you unleash your creativity and focus, and become obsessed with finding a way to do more for others than anyone else. T hat’s how you earn more and shift into the fast lane to freedom.

D RIVIN G A T RU C K T O FIN AN C IAL FRE E D OM?

W hen I was growing up, my mother had a great plan for me. She wanted me to become a truck driver. She had seen these ads on television, over and over, for T ruckmaster truck driving education school. She told me that with a little training, I could qualify as a truck driver and make up to $24,000 a year. W ow, $24,000! T hat was twice what my dad was earning as a parking attendant in downtown L A. She thought that this would provide a great future for me. She worked into her sales pitch that I’d have the freedom to be on the open road and drive. It actually appealed to me on a certain level: the idea that I could just turn on my music and go—kind of a cool thought for a 14-year-old kid who wasn’t even driving yet. I’d have the opportunity to get up and go instead of being stuck in an underground parking garage for 30plus years.

But after all of the misery I had witnessed, all of the shame associated with four different fathers, of never having enough money for clothing or food, I realized I could never drive a truck long enough or far enough to allow me to escape the pain of that situation. In my head, I decided that there was no way in my lifetime I would have a family that would suffer this way. On top of that, I wanted to use my mind and my heart. I wanted to get in the game of life at a different level.

I looked around and wondered how other people’s lives could be so vastly different from my own. W hy were we struggling constantly to make ends meet, to stay ahead of the bill collector—choosing between canned beans or spaghetti with ketchup because we couldn’t afford tomato sauce? And yet, in the same city, not far from us, kids I went to high school with were taking fancy vacations and studying on picture-perfect college campuses—living a life well beyond my wildest dreams— a life so obviously different from the one we would ever experience. W hat did they know that we didn’t know?

W hat were they doing differently from my father and mother?

I became obsessed. H ow was it possible that someone could earn twice as much money in the same amount of time? T hree times as much? T en times as much? It seemed crazy! F rom my perspective, it was an unsolvable riddle.

IN VE ST IN Y OU RSE L F

I was working as a janitor, and I needed extra money. A man my parents knew, and whom my father had called a “loser,” had become quite successful in a short period of time, at least in financial terms. H e was buying, fixing, and flipping real estate in Southern C alifornia and needed a kid on the weekend to help him move furniture. T hat chance encounter, that fateful weekend of working my tail off, led to an opening that would change my life forever. H is name was Jim H annah. H e took notice of my hustle and drive. W hen I had a moment, I asked him, “H ow did you turn your life around? H ow did you become so successful?”

“I did it,” he said, “by going to a seminar by a man named Jim Rohn.” “W hat’s a seminar?” I asked. “It’s a place where a man takes ten or twenty years of his life and all he’s learned and he condenses it into a few hours so that you can compress years of learning into days,” he answered. W ow, that sounded pretty awesome. “H ow much does it cost?” “T hirty-five dollars,” he told me. What!? I was making $40 a week as a part-time janitor while going to high school. “C an you get me in?” I asked. “Sure!” he said. “But I won’t—because you wouldn’t value it if you didn’t pay for it.” I stood there, disheartened. H ow could I ever afford $35 for three hours with this expert? “W ell, if you don’t think you’re worth the investment, don’t make it,” he finally shrugged. I struggled and struggled with that one—but ultimately decided to go for it. It turned out to be one of the most important investments of my life. I took a week’s pay and went to a seminar where I met Jim Rohn —the man who became my life’s first mentor.

I sat in an Irvine, C alifornia, hotel ballroom listening to Jim, riveted. T his silver-haired man literally echoed the questions that had been burning in my mind. H e, too, had grown up poor, wondering, even though his father was a good man, why his father struggled so hard only to suffer while others around him prospered. And then, suddenly, he answered the question I had been asking myself literally for years.

“W hat’s the secret to economic success? T he key,” he said, “is to understand how to become more valuable in the marketplace.

“T o have more, you simply have to become more.

“D on’t wish it was easier; wish you were better.

“For things to change, you have to change.

“For things to get better, you have to get better!

“W e get paid for bringing value to the marketplace. It takes time . . . but we don’t get paid for time, we get paid for value. America is unique. It’s a ladder to climb. It starts down here, at what? About $2.30 an hour. W hat was the top income last year? T he guy who runs D isney —$52 million! W ould a company pay somebody $52 million a year? T he answer is: of course! If you help a company make a billion dollars, would they pay you $52 million? Of course! It’s chicken feed! It’s not that much money.

“Is it really possible to become that valuable? T he answer is: of course!” And then he let me in on the ultimate secret. “H ow do you truly become more valuable? L earn to work harder on yourself than you do on your job.

“So can you personally become twice as valuable and make twice as much money in the same time? Is it possible to become ten times as valuable and make ten times as much money in the same time? Is that possible? Of course!” And then he paused and looked directly in my eyes and said, “All you have to do to earn more money in the same amount of time is simply become more valuable.”

And there it was! T here was my answer. Once I got that, it turned my life around. T hat clarity, that simplicity, the wisdom of those words—they hit me like a 100-pound brick. T hose are the exact words I’ve heard Jim Rohn speak probably a hundred times. I have carried them in my heart every day since, including the day that I spoke at his funeral in 2009.

T hat man, that seminar, that day—what Jim Rohn did was put me back in control of my own future. H e made me stop focusing on what was outside of my control—my past, the poverty, other people’s expectations, the state of the economy—and taught me to focus instead on what I could control. I could improve myself; I could find a way to serve, a way to do more, a way to become better, a way to add value to the marketplace. I became obsessed with finding ways to do more for others than anyone else was doing, in less time. T hat began a never-ending process that continues to this day! At its most basic level, it provided a pathway to progress that continues to drive and lead every single decision I make and action I take.

In the Bible, there is a simple tenet that says there’s nothing wrong with wanting to be great.⁹ If you wish to become great, learn to become the servant of many. If you can find a way to serve many people, you can earn more. Find a way to serve millions of people, you can earn millions. It’s the law of added value.

And if the gospel of W arren Buffett is more your thing than biblical verse, the O racle of O maha is famous for saying that the most powerful investment he ever made in his life, and that anyone can make, is an investment in himself. H e talks about investing in personal development books, in educating himself, and how a D ale C arnegie course completely changed his life. Buffett once told me this story himself when we were on the T oday show together. I laughed and asked him to keep telling that story. “It’s good for business,” I said, grinning.

I took Jim Rohn’s message to heart and became obsessed—I would never stop growing, never stop giving, never stop trying to expand my influence or my capacity to give and do good. And as a result, over the years, I’ve become more valuable in the marketplace. T o the point that I’m extremely fortunate enough today that finances are no longer an issue in my life. I’m not unique. Anyone can do the same—if you let go of your stories about the past, and break through your stories about the present and its limits. Problems are always available, but so is opportunity.

W hat does the American income ladder look like today? My bet is Jim Rohn couldn’t have imagined that in 2013, the low end of the ladder would be $7.25 an hour ($15,080 annually) and that the high-end earner of the year would be Appaloosa Management founder and hedge fund leader D avid T epper, who earned $3.5 billion in personal income. H ow could any human being make even $1 billion a year, much less $3.5 billion? W hy such an incredibly low income for some people and such a high-income opportunity for others? T he answer is the marketplace puts very little value on being a cashier at McD onald’s ($7.77 an hour) because it requires a skill that can be learned in a few hours by almost anyone. H owever, successfully expanding people’s financial returns in a significant way is a much more rare and valued set of skills. W hen most Americans are getting less than 33 basis points (a third of 1% ) annually as a return on their money from the bank, D avid T epper delivered a 42% return for his investors in the same time! H ow valuable were his contributions to their economic lives? If he got them a 1% return, he would have been 300% more valuable. A 42% return means he added 12,627% more economic value to their lives!

So how about you? W hat are you going to do to add more value to the marketplace? H ow are you going to ensure abundance rather than struggle? If we’re going to make a radical shift and take you from where you are today to where you want be—to financial freedom—then this path is the most powerful one I know to get you there.

N ow, before you start your rallying cry of objections, let me just say: I know that things are different today. I know it’s a challenging time for the economy. I know we’ve lost two million jobs since 2008, and the ones that are coming back are mostly service or low-paying jobs. And yes, I realize that incomes have been stagnant since the 1990s.

G uess what interest rates and unemployment looked like in 1978, when I started my career? W ithin two years, interest rates had skyrocketed! My first investment, a fourplex in L ong Beach, C alifornia, had an 18% mortgage. C an you imagine interest rates at 18% today to buy a home? W e’d have a revolt on the W hite H ouse lawn. But history is circular—always has been, always will be. Y es, incomes are stagnant, if you don’t find a way to geometrically add more value. But if you find a way to add value, incomes move in one direction, and that’s always up.

D      uring the G reat Recession, 8.8 million jobs were lost. In 2008, 2.3 million jobs were lost in that year alone! U nemployment peaked at 10% . But remember, that 10% unemployment rate is an average. Some portions of the population had unemployment levels over 25% , but for those making $100,000 per year or more, what would you guess was their unemployment rate? T he answer: close to 1% ! T he lesson? If you truly develop skills that are needed in the current marketplace —if you constantly improve and become more valuable— someone will employ you or you’ll employ yourself, regardless of the economy. And if you employ yourself, your raise becomes effective when you are!

E       ven today, it’s a totally different story in Silicon Valley, where jobs are for the taking. T echnology companies can’t fill their openings fast enough; they can’t find enough qualified people. Jobs are out there, but you and I need to retool our skill sets—retool ourselves—so that we become valuable in the new marketplace. I can promise you this: most of those “old jobs” aren’t coming back.

L et’s look at history. In the 1860s, 80% of Americans were farmers. T oday 2% of the U S population work in farming and agriculture, and we feed the entire world. N ew technology disrupted everything—suddenly one farmer could do the work of 500. Many people struggled, many lost their jobs. For those who didn’t adapt, the industrial revolution was an incredibly painful time. But that very same technology that brought along steam power and machine tools, which displaced people in the short term, made the quality of life of everyone around them exponentially better and provided more jobs at a higher level of income.

T oday’s new technologies are causing massive disruption once again. Oxford researchers say that almost half of America’s occupations are at risk of becoming automated (translation: replaced) within the next 20 years! Y ou and I have to retool to a different level. I promise you, 150 years ago, no one could have fathomed a day when there would be jobs called social media marketer, stem cell scientist, and robotics engineer. N o one could imagine that an electrician or a plumber would make $150,000 a year, or that a factory worker could learn how to use a computer to automate a machine and earn $100,000 in the process. But just because people couldn’t imagine it, didn’t mean it wouldn’t happen.

I meet people everyday who tell me the job market is frozen, or they’ve been laid off and fear they’ll never find work again. But I’m here to tell you it’s not the market, it’s you. Y ou can increase your earnings potential— anyone can. Y ou can add value to the marketplace. Y ou can learn new skills, you can master your own mind-set, you can grow and change and develop, and you can find the job and economic opportunity that you need and deserve.

But if your job is going to be obsolete in the next five or ten years, it’s time to think about making a pivot and trying something new. A pivot is what Silicon Valley calls it when you go from one business to another, usually after a colossal failure.

If you’re reading this book right now, you’re a person who looks for answers, for solutions, for a better way. T here are hundreds of ways you can retool your skill set. Y ou can do it by going after a college education, a trade education, or self-education. Y ou can earn $100,000 to millions a year, and not by just going and spending a boatload of money on a four-year college degree (that can put you $100,000 or more in debt). Millions of jobs are available in this country, but there is also a major skills gap. According to Mike Rowe, host of D iscovery C hannel’s D irty J obs, there are about 3.5 million jobs available right now, and only 10% of them require a four-year degree. T hat means that the other 90% of them require something else: training, skill, or a willingness to get dirty, perhaps, but mostly a willingness to learn a new and useful trade. According to Rowe, “T hat’s always been for sale, but it’s kind of fallen out of [our country’s] narrative.”

Retooling is both exciting and scary. E xciting because of the opportunity to learn, grow, create, and change. E xciting once you realize “I’m valuable; I have a contribution to make; I’m worth more.” Scary because you think, “H ow am I going to do this?” Remember Jim Rohn’s words: “For things to change, you have to change. F or things to get better, you have to get better.” Retool or be the fool. G et rid of your story of limitation and shift into high gear.

People often say to me, “T ony, that’s great if you have your own business or you work in a company where it’s growing. But what if you’re in a traditionally lowpaying job, and you love what you do? W hat if you’re a teacher, what then?” L et’s step outside our own limiting thinking, and let me give you a perfect example of a schoolteacher who used to struggle, but because of his passion and his desire to help more students, he found a way to add more value and earn more than most teachers ever dream about. T he real limitation in our earnings is never our job—it’s our creativity, our focus, and our contribution.

C RE AT IVIT Y , C ON T RIBU T ION , AN D T H E

K ORE AN ROC K ST AR

If you ever had a third-grade teacher who inspired you to try something new, or an eighth-grade teacher who believed in your own child beyond measure, you know the power of a single role model in the life of a child. Our teachers are one of our greatest yet most underappreciated and underpaid assets. So what do you do if you’re a teacher, or you have a similar job where your upside potential seems to be limited? As a teacher, how can one think about adding value to more than just 30 students in the classroom? Is there a way you might be able to add value to hundreds of students, thousands of students, even millions?

T       here are plenty of schoolteachers who think, “I’ll never make enough money doing what I love.” T here is broad agreement that we as society don’t value teachers in the way that we should. But as we now know, that limiting belief holds people back. K im K i-hoon is a teacher in South K orea who refused to buy into that story.

U      nlike most teachers, K im K i-hoon is known as a “rock star” in South K orea. K im is one of the most successful teachers in his country. H ow did he become so successful? H e worked harder on himself, on his ability to teach, than he did on his job.

Sixty years ago, according to the Wall Street J ournal, the majority of South K oreans were illiterate. T he country realized it needed to take massive and dramatic action. T oday teachers there are constantly encouraged to study, to innovate, to teach the same class in a new way every day. T hey’re taught to learn from one another, mentor one another—find the best techniques to add more value. T he result? T oday 15-year-olds in South K orea rank second in reading, and with a 93% graduation rate—compared with just 77% in the U nited States.

K i-hoon took that model and ran with it. H e put enormous time into finding the best teachers, studying their patterns, learning how to create breakthroughs. H e found a way to help his students learn faster, better, smarter—and not just his students but also students all across the country. W hy focus on just helping 30 students? he thought, W hy not help as many as I can? W ith the advent of technology, he realized he could put his classes online and make his passion for teaching and learning available to everyone.

T oday K i-hoon works about 60 hours a week, but only three hours of those are for giving lectures. T he other 57 hours are spent researching, innovating, developing curriculum, and responding to students. “T he harder I work, the more I make,” he says. And he works hardest to become better for the people he serves. K i-hoon records his classes on video, and circulates them on the internet, where students log on at the rate of $4 an hour. H ow does he know it works? H ow does he know he’s adding more value than anyone else? T he marketplace always tells you your true worth or value. G uess how many people buy his classes? L ast year, his annual earnings topped $4 million! T he more value K i-hoon offers via online classes and tutorials, the more students sign up. And, it follows, more students means more money—in this case, a lot more.

A teacher earning $4 million. H ow does that compare to the best schoolteacher you know? K i-hoon’s story shatters the belief that our profession limits us. H e’s part of the 1% not because he’s lucky, not because he was in the right place at the right time, not because he chose a lucrative profession. N o, K i-hoon is a wealthy man, part of the 1% , because he has never stopped learning, never stopped growing, never stopped investing in himself.

T H E U L T IMAT E MU L T IT ASK E R

But what if you’re not an entrepreneur? W hat if you have absolutely no interest in hanging up your own shingle? W hat if you work in corporate America or even for a small business? C an you still figure out a way to add more value and increase your earning potential? L et me tell you about a young woman. D aniela worked in a marketing department doing art design and didn’t see any clear path toward moving up in her company. She was extremely talented, but more importantly, she was hungry. She was constantly looking to do more and give more; it was just her nature. And so she often helped her colleagues with visual arts. And then she wanted to learn about marketing, so she started studying marketing and offered to help. And then, of course, she realized she didn’t really know anything about social media—but the opportunities there seemed huge, so she decided to educate herself on social media as well.

After a few years, D aniela was doing many of the jobs of her coworkers. And they forgot that she was offering a gift, and they started to take her for granted. A new pattern emerged where, at five o’clock, when jobs with key deadlines were still not done, she worked alone at her desk as her associates slipped out the door. She didn’t want to stay late, but she wasn’t going to let the company and their clients down. W hen it was clear her colleagues were actually taking advantage of her drive and ambition, she reached her limit. “I’m doing three people’s jobs plus my own!” But instead of getting angry, D aniela decided it was an opportunity.

W hat did she do? D aniela approached her C E O and laid it on the line: “Right now I’m doing the work of four people. I’ve gone to courses, I’ve learned and taught myself about visual arts, marketing, and social media. I’m not here to throw anybody under the bus, but I can save you fifty percent of your marketing cost right now and eliminate three people by taking on their jobs myself. And I’ll do a better job, too. I don’t need you to trust me on this: let me prove myself to you. L et them keep doing their jobs for six months, and I’ll do my assignments and theirs, so you’ll have two different examples to pick from. Y ou decide what’s best.”

All D aniela asked was that if she did a better job, after six months, her boss would give her more responsibility and double her pay. And guess what? She did it: she proved herself on the visual art and marketing fronts, with great copywriting and a successful social media campaign. D aniela showed that not only could she handle the extra work, but also she could run circles around the competition—she could outperform them all. She added enough value that the company realized it could pay one person twice as much money, and still cut its costs in half. T he marketplace had spoken.

H appiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.

— F R AN K L IN D . R O O SE V E L T

OPPORT U N IT Y IS E VE RY W H E RE

H ow are you going to add more value to the world? H ow are you going to contribute more, earn more, and increase your impact? T here are hundreds, if not thousands, of stories of average individuals who saw a problem, looked at things just a little bit differently, and went on to transform entire industries or create entirely new markets. T hey weren’t entrepreneurs; they were just people like you and me, people who wouldn’t settle. In the world we live in today, no industry or product is immune: the intersection of all things digital—the internet, social media, and technology—the interconnectedness of every person and everything on earth. T hat means that even the biggest companies and the most mature or stable businesses are ripe for disruption. E nter N ick W oodman.

RID IN G T H E W AVE

W ho would have predicted that K odak, the corporate titan that dominated the world of photography in the 20th century, would be caught flatfooted when digital imaging came on the scene? K odak invented digital photography. And yet after 124 years in business, the company filed for bankruptcy in 2012—a move that had a disastrous ripple effect on the economy in and around Rochester, N ew Y ork, where over 50,000 jobs were lost.

But those same massive technological and cultural changes that killed K odak provided a huge opportunity for a C alifornia surfer named N ick W oodman. W oodman was obsessed with surfing. H is absolute love of and devotion to the sport, along with his drive and his hunger, enabled him to find a way to add value.

C hances are you’ve never heard of W oodman, but he had the brilliant idea to strap a waterproof camera to his wrist while riding the waves. All W oodman set out to do was find a way to enjoy his surfing after it happened. W ith digital photography coming out, he started to tinker with cameras to see if he could make them more waterproof and capture better-quality video. And as technology changed, he continued to tinker. And tinker. H e ended up inventing the G oPro, a tiny, broadcastquality, clip-on-and-take-anywhere digital camera.

T his cool little device is now on the head of every extreme sports person in the world. W hether you’re riding a bike, paddling through rapids, snowboarding, or catching the waves, the G oPro allows you to capture the magic of your adrenaline rush and share it with everyone you love. W oodman’s timing couldn’t have been better: he began marketing the G oPro just as people started uploading their videos to Y ouT ube and Facebook. H e created a product he wanted to use and figured he couldn’t be the only guy needing one. W oodman figured out how to add value to millions of lives by making the new technology convenient, fun, and affordable. U ltimately, W oodman got in front of a trend. T hat trend was actively sharing digitally whatever was there. O ne of the key secrets if you really want to become wealthy: get in front of a trend. T oday the surfer from San D iego, C alifornia, is worth over $1 billion.

A N E W “C AT E G ORY ” IS BORN

Back in 2010, Matt L auer invited me to join him for a special roundtable discussion about where the economy was headed. I was joining W arren Buffett and the world’s youngest female self-made billionaire: a woman named Sara Blakely. Any opportunity to discuss the economy with W arren Buffett was a huge privilege, but what I didn’t bank on was being totally blown away by Sara’s story.

Blakely didn’t disrupt an industry so much as create an entirely new one. A former W alt D isney W orld employee, Sara was getting ready for a party when she realized she didn’t have the right underwear for a pair of fitted white pants. Rather than go commando, she decided to take matters into her own hands. Armed with nothing more than a pair of scissors and a whole lot of sass, she cut the feet off her control-top pantyhose, and, voila, a new industry was born.

Of course, it didn’t happen overnight, and it didn’t happen easily. Sara shared with me that one of the most important secrets to her success was that from an early age, her father actually encouraged her to “fail!”

But he defined failure not as failure to achieve a result . . . but failure to try. Around the dinner table, he would ask if she had failed today, and he was truly excited if she had —because he knew that meant she was on the path to success. “T ony, it just took away my fear of trying,” she told me.

D own and out in a dead-end office-products sales job, Blakely invested all the money she had in the world, $5,000, and set out to create body wear that would work for her. “I must have heard ‘no’ a thousand times,” she said. But she didn’t listen. In addition to the $5,000 she invested, she saved $3,000 (which she didn’t have) on legal fees by writing her own patent from a textbook.

U ltimately, the company she founded, Spanx, created an entirely new category of products called “shapewear” and has inspired a cultlike following among women worldwide. According to my wife, put on a pair to pull in all your “its and bits,” and you’ll take three inches off your waistline immediately.

W ith Oprah W infrey’s blessing, Spanx turned from a small business into a worldwide sensation. T oday Spanx is worth over a billion dollars, and the brand now includes over 200 products that help women look and feel great. E ver the optimist, Sara tried to work her magic on me: she tried to get me to wear a pair of her new Spanx for men when we were together on the T oday show. I thanked her and mentioned gently that perhaps she didn’t understand the male market as well as the female market. But I remain inspired by her example. In the end, Spanx for men has also taken off—no thanks to me. T oday Blakely owns 100% of her company, has zero debt, and has never taken on outside investment. In 2012 T ime magazine named her one of its “100 Most Influential People in the W orld.”

L ike N ick W oodman, she saw a need and moved to fill it. She refused to be limited by her own story and found a way to add value.

Y ou can too! Y ou don’t have to start a billion-dollar company, disrupt an entire category, or make $4 million as a teacher online. Y ou don’t even have to take on four jobs at once. But if these people are capable of doing that, couldn’t you find a way to make an extra $500 or $1,000 a month? Or maybe even an extra $20,000, $50,000, or even $100,000 or more a year? C ouldn’t you figure out how to unleash your own creativity, contribution, and focus to add more value to the marketplace and put that money in your Freedom Fund? Y ou can. T he time to begin is now. . . .

Find a way to earn or save an extra $500 per month, or $6,000 a year. If it is invested at an 8% return over 40 years, it is worth $1.5 million—remember our pizza example. If you find a way to earn $1,000 per month, or $12,000 a year, that’s worth $3 million in your nest egg. If you find a way to earn $3,000 per month, or $36,000 a year, that’s worth $9 million in your nest egg. W hat’s the lesson? G o add value, earn more, and invest your earnings, and you can create any level of financial freedom you truly desire.

9. “Instead, whoever wants to become great among you, must be your servant,” Matthew 20:26, N ew International V ersion.

C HAPT E R 3.5

SPE E D IT U P: 3. RE D U C E FE E S AN D

T AX E S (AN D IN V E ST T H E D IFFE RE N C E )

W e have what it takes to take what you have.

— SU G G E ST E D IR S MO T T O

“Y ou must pay taxes. But there’s no law that says you gotta leave a tip.”

— MO R G AN ST AN L E Y AD V E R T ISE ME N T

So now you’re rocking and rolling—you’re speeding up your path to financial freedom by saving more and earning more! W hat’s left? D oesn’t that cover it? Actually, no. Y ou now know as an insider that it’s not what you earn that matters, it’s what you keep. Our third strategy for speeding things up is to get more money out of your investments by reducing your fees and taxes, and reinvesting the difference.

Remember our three childhood friends from chapter

2.2, “Myth 2: ‘Our Fees? T hey’re a Small Price to Pay!’ ”? T hey all invested $100,000 at the age of 35 and earned a 7% return on their investment. But each one was subject to a different set of fees—and the difference between the 1% , 2% , and 3% fees came out to hundreds of thousands of dollars. T aylor, who paid just 1% in fees, accumulated almost twice as much money as her friend Jason, who paid 3% in fees. H er investment grew to $574,349, while he was left with only $324,340!

Remember, those hidden fees on mutual funds average an astronomical 3.17% . T he difference between owning high-cost, fee-laden mutual funds versus low-cost index funds could literally cost you a decade’s worth of your life’s work—talk about slowing you down on your path to Financial Freedom! And to add insult to injury, studies show that the high fees that come along with those mutual funds almost never lead to increased performance.

So stay away from excessive fees. Run for the hills. Find low-cost index funds to invest in and heed the warning of Jack Bogle, who showed us that paying through-the-nose fees can eat up as much as 50% to 70% of your future nest egg! T he mantra is simple: take the money you save on fees and reinvest it for compounded growth. T his strategy is another fast lane to freedom.

And what about an even bigger bite of your savings? D o you know what the single largest bite to come out of your nest egg is? Survey says: taxes!

Over the course of our lives, the average American pays more than half of his or her income to an assortment of taxes: income tax, property tax, sales tax, tax at the pump, and so on. (According to what many experts estimate, currently, that’s 54.25 cents per dollar.) G ood ol’ U ncle Sam. And we’re not done yet.

After 54.25% has been lopped off for the tax man, you can also say good-bye to another 17.25% of each dollar you earn in interest and fees. G ot a car, a house, any credit card or student loan debt? In April 2014 the average U S household had credit card debt of over $15,000; student loan debt of over $33,000; and mortgage debt of over $150,000. As a nation, we are up to our eyeballs in debt.

T he fact is, on average, approximately one-third of the income you have left after taxes will be spent on paying down interest!

T hat leaves you with (drumroll, please) a whopping 28.5% of your hard-earned income left over to pay for everything else in life: food, clothing, shelter, education, health care, travel, entertainment, and anything else you happen to stumble upon at the mall or on Amazon! Plus, out of this same number, you have to find a way to save and invest for F inancial F reedom, or at least some form of retirement income!

Becoming more efficient with your taxes is one way to get back some of that 54% you’ve given away. K eep more of your hard-earned income, and that’s money that you could invest and compound to achieve your vision of Financial Freedom quicker.

In fact, if you’re a high-income earner, living in a high-income state like C alifornia (as I used to), your total tax bill (including income, investment, payroll, O bamacare, and Social Security) clocks in at 62% . W hich means that unless you have an efficient tax strategy, you get to keep only 38 cents out of every dollar you earn.

T here’s no good reason to pay more than you have to

—in fact, it’s your right as an American not to pay more than you have to. As Billings L earned H and, one of the most influential judges of all time, stated:

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the T reasury. T here is not even a patriotic duty to increase one’s taxes. Over and over again the C ourts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. E veryone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

I follow Judge H and’s wisdom. I don’t believe in paying any more than I absolutely have to, and neither should you. I continually look for legal, ethical ways to lower my tax bill, and I do my best to make use of government initiatives that allow me to build my nest egg in a tax-free environment. I learned from those I interviewed that tax efficiency is one of the most direct pathways to shorten the time it takes to get from where you are now to where you want to be financially.

I am proud to be paying taxes in the U nited

States. T he only thing is, I could be just as proud for half of the money.

— AR T H U R G O D F R E Y

L et’s be clear: I’m a patriot. I love America. I am one of millions of examples of the American D ream, and I’m happy (well, perhaps not happy, but proud) to pay my taxes. Y et I pay millions of dollars in taxes every year. My tax bill is more than I ever thought I’d earn in a lifetime, much less in a year. But I know from Y ale’s D avid Swensen that there are only three forces that can help you achieve the greatest returns:

1. Asset allocation, 2. D iversification,

3. T ax efficiency.

It helps, of course, that D avid runs a nonprofit organization, but for the rest of us, even with current tax laws, there are ways to maximize investment returns and minimize your tax bill.

Money Power Principle 4. T ax efficiency is one of the simplest ways to continuously increase the real returns on your portfolio. T ax efficiency equals faster financial freedom.

(Reader alert: If your brain is going to blur as I talk about taxes, I get it! T hen simply jump immediately to the next chapter so you don’t lose momentum. But be sure to schedule a time to sit down with your fiduciary and/or a tax expert to learn how to be most tax efficient with your investments. If you’re willing to go for it, the next four pages offer some simple tax distinctions that, when understood, will allow you to keep more of your invested income and achieve your financial dreams

faster.)

PIC K Y OU R T AX !

W hat if you realized that a small amount of tax knowledge could save you from needlessly paying 30% of what you earned to the tax man? H ow much faster could you achieve your financial goals?

Y ou need to pay close attention to three types of taxes as an investor:

1.   Ordinary Income T ax.

As stated, if you’re a high-income earner, your combined federal and state income taxes are nearing or exceeding 50% .

2.   L ong-T erm C apital G ains.

T       his is a tax on investments, which is only 20% if you hold your investment for longer than one year before you sell.

3.   Short-T erm C apital G ains.

T       his is a tax on investment gains if the investment issold before you have held it for a minimum of one year. T oday the rates are currently the same as ordinary income taxes. Ouch!

N ow that you know the power of compounding, I’m sure you realize how compounding your growth after taking a 50% tax bite as opposed to a 20% tax bite can mean the difference between arriving at your financial goals a decade early or never getting there at all. Want to understand the real impact of this?

•    If you’re getting an 8% gross return on your mutualfund, you’re paying as much as 3% in fees on average —let’s call it 2% , conservatively.

•    So now your 8% return nets you 6% after fees. Butwe’re not done yet.

•    If you’re a high-income earner from C alifornia or N ewY ork with a 50% federal and state ordinary income tax, you’re left with closer to 3% on your investment after all these fees and taxes.

R emember you get to spend only what you keep; if you invest with a 3% net return, it takes 24 years to double your money.

If you made the same investment in an index fund, your 8% return would have fees in the range of 10 to 50 basis points (or 0.10% to 0.50% ). W e’ll go for the larger number just to be conservative. T hat means you have a

7.5% return (8% - 0.5% = 7.5% ), but since the index is not trading constantly, you defer all tax, and so your net return for the year is 7.5% . T hat means you can reinvest those returns and tap into the incredible power of compounding without the tax man interfering.

If you conscientiously manage your investments for tax efficiency, your 7.5% allows you to double your investments in 9.6 years instead of 24 years! N ow do you see the importance of both tax and fee efficiency?

So how do you lower your tax bill and keep more of your earnings so you can compound your investments and achieve your idea of F inancial F reedom faster?

•    Make sure that wherever possible, you invest in a waythat allows you to defer your taxes (401[k], IRA, annuity, defined benefit plan) so that you compound tax free and pay tax only at the time you sell the investment. Or set up a future tax-free environment by growing your investments in a Roth.

•    W hen you do sell any investment held outside of a tax-deferred account (like an IRA), make sure you hold for a minimum of a year and a day in order to qualify for the lower long-term capital gains rate (again, at the time of this writing the rate is 20% ).

ON E MORE T H IN G : BE W ARE OF MU T U AL

FU N D S

For most people, a home sale is usually a once- or twicea-decade thing, and your accountant or tax expert can easily explain how to do this most tax-efficiently. But let’s take a look at mutual funds. D o you know what those mutual fund managers of yours are doing every day? T hey’re trading. T hey are buying and selling stocks and bonds on a daily, monthly, or quarterly basis. T his is what the industry calls “turnover.”

According to C harlie F arrell of C BS MarketW atch, “So although their marketing material encourages investors to buy and hold, the managers certainly don’t practice what they preach. W hat they really mean is buy and hold

their      mutual      fund,     while     they     trade      your

retirement savings like crazy.”

E xperts say that the vast majority of mutual funds do not hold on to their investments for a full year. W hy else would you buy them other than hoping they can trade their way to better performance? And you know what that means? U nless you’re holding all of your mutual funds inside your 401(k), you’re typically paying ordinary income taxes on any gains.¹⁰

In short, there’s a good chance you’re being charged 35% , 45% , or up to 50% or more in income tax, depending on what state you live in and your income level. All this tax, and you didn’t even sell your mutual fund! So instead of keeping all your gains and having them continue to compound tax deferred, you are taking a devastating hit to your compounding ability that is completely avoidable if you understand tax efficiency.

E ven if you’ve maxed out your 401(k) and IRA, you can still make investments in a form that allows you to defer taxes. Index funds do not constantly trade individual companies; they usually hold a fixed basket of companies that changes only if the index that the fund tracks actually changes—which is rare.

As a result, if you’re investing in an index long term, you’re not taking the tax bite each year; instead, you’re deferring the taxes, since you haven’t sold anything. T hat money can remain in the fund and continue to compound earnings to its owner: you!

Y our fiduciary or a great tax expert can help you understand all the ways you can produce more net growth in your F reedom F und so that your compounding process is maximized. R emember, this can save you years or even decades!

And finally, in section 5, there is a strategy that you’ll learn about in the “Secrets of the U ltrawealthy” chapter that you can use, too: an IRS-approved method that will make a huge difference by allowing you to compound your investments and help you keep your nest egg tax free. T his could allow you to achieve your financial goals up to 25% to 50% faster without taking any greater investment risks!

H ave I got your attention? I hope so. Because it’s your money and it’s your life! D on’t let anyone take it or waste it! So you now have three fast-track strategies to speed up the pace and win the money game:

1.   Save more and invest the difference.

2.   E arn more (add value) and invest the difference.

3.   Reduce fees and taxes and invest the difference.

N ow it’s time to turn on the juice and take a quick look at some of the ways you can increase what your investments earn. . . .

10. H owever, in certain situations, the gains may be long-term if the fund held the position for an extended period.

C HAPT E R 3.6

SPE E D IT U P: 4. G E T BE T T E R

RE T U RN S AN D SPE E D Y O U R W AY T O

V IC T O RY

If you’re prepared, and you know what it takes, it’s not a risk. Y ou just have to figure out how to get there. T here is always a way to get there.

— MAR K C U BAN

H ow do you get a greater return while still reducing risk? Most people think that in order to get high returns, you have to take huge risks. But the greatest investors know that’s simply not the case. Remember K yle Bass from chapter 2.8, “Y ou G otta T ake H uge Risks to G et Big Rewards”? H e blew the high-risk, high-return myth out of the water with something called asymmetric risk/reward.

T       hat’s a fancy term for a pretty simple concept. H owdo you explain it? K yle turned $30 million into $2 billion by finding an investment opportunity where he risked only 3 cents for the opportunity to make $1—more accurately, $3 million for a $100 million upside—and expanded that risk/reward ratio into billions. Remember how he taught his sons to make “riskless” investments with significant upside by buying nickels? T he upside (reward) is way bigger than the downside (risk) on this deal, which makes it asymmetric.

One of Paul T udor Jones’s greatest successes is that he knows he can be wrong and still be successful, because he uses asymmetric risk/reward to guide his investment decisions. H e’s always looking for what he calls a 5:1 investment—where if he risks $1, he believes he can make $5.

Jones is willing to risk $1 million when his research shows he’s likely to make $5 million. Of course, he could be wrong. But if he uses the same 5:1 formula on his next investment, and he’s successful, he will have made $5 million, minus the first investment loss of $1 million, for a net investment gain of $4 million.

U      sing this formula of constantly investing where hehas the opportunity for asymmetric rewards for the risk he’s taking, Paul could be wrong four out of five times and break even. If he loses $1 million four times in a row trying to make $5 million, he’ll have lost a total of $4 million. But when the fifth decision is a success, with a single home run he’s earned back his total $5 million investment. T he greatest investors in history know how to maximize their returns—they know how to set the game up to win.

Y ou’ll learn more about what Paul teaches in section 6, “Invest L ike the .001% : T he Billionaire’s Playbook,” and in my interview with him. H e is going to share with you his “$100,000 MBA,” or the most important things he’s learned about investing—one of which is how to be wrong and still win!

So asymmetric risk/reward is the first way to get higher returns. T he second way? Y ou’ll learn more about this in chapter 4.1 on asset allocation, but for now, just know that if real estate’s mantra is “L ocation! L ocation! L ocation!” then the mantra for getting better returns while reducing risk is “D iversification! D iversification! D iversification!” E ffective diversification not only reduces your risk but also offers you the opportunity to maximize your returns.

Asset allocation is the one thing that every investment professional I’ve talked to, the best in the world, has said is the key factor in where you end up financially. It’s the most important skill, and it’s the one most investors know little about. So in chapter 4.1, “T he U ltimate Bucket L ist: Asset Allocation,” you’re going to learn the power of asset allocation and be able to implement its gifts to benefit you and your family for the rest of your life. On top of that, you’re going to see in section 6 the exact asset allocation of some of the most successful investors in the world who have consistently produced the highest returns.

Y es, you read that right: you’ll be able to model the exact strategies of the best investors on the planet. Y ou’ll have Ray D alio’s asset allocation! Obviously, past performance doesn’t guarantee future performance, but in the case of Ray D alio, your strategy is coming from one of the greatest investors of all time, and his focus is getting you the greatest return with the least amount of risk. D alio has been estimating every type of market and finding what the best ratio is through asset allocation for over 20 years. H e has more than $160 billion in assets under management and a record of only three losing years out of the last 22. After reading this book, you will learn a strategy that is based on Ray’s groundbreaking approach for the world’s wealthiest individuals, institutions, and governments.

H OW FAST C AN Y OU G O?

It’s probably pretty obvious that we’d all like better returns. But what’s less obvious is the massive impact that better returns have on your time horizon for investing. T he “rule of 72” says that it takes 72 years to double your money at a 1% compounded rate. So if you’ve got $10,000 to invest at 1% compounded, you may not be around to see that money double. Y ou can cut that timeline in half by doubling your rate to 2% , and in half again by doubling that rate to 4% ! So what’s the difference between a 10% return and a 4% return? A 10% return doubles every 7.2 years; a 4% return doubles every 18 years! If you want to radically change your plan and get to financial freedom in seven years versus 18 years, you can. Or 14 years instead of 36! T hose are the types of differences that are possible when you learn how to get better returns. And the most important thing is to get these greater returns without taking significantly greater risks wherever possible. Y ou’re looking for that asymmetric risk/reward that all great investors seek. It’s elusive, but it’s out there, and this is just one more way that you can speed up your approach to realizing your dreams. (T ake a look at the table on page 284 to see how fast—or slow

—your money will double.)

Y our next question is likely, “W here do I start looking for my own asymmetric risk/reward opportunities?” Sometimes they turn up in the unlikeliest places. For me —maybe because I grew up in Southern C alifornia—I’ve always believed in including real estate as a key component of my portfolio. If you ever turn on the news, it’s hard not to notice the demographic shift that’s taking place in this country right now, with 10,000 people turning 65 every day. T he boomers are hitting retirement in droves. In the back of my mind, I always knew there had to be a way to provide some of my capital to help expand quality facilities for people entering this stage of life, while providing a profit for me. But it wasn’t until I visited my wife’s grandmother in Vancouver, British C olumbia, that I connected the dots for a future investment in retirement communities.

My wife, my Bonnie Pearl—my “Sage”—is the love of my life. H er family is my family. H er grandma H ilda was my grandma. I loved her dearly. After being married for 58 years, her husband died, and we all watched as she suffered. For ten years, H ilda cried herself to sleep at night. She was living on her own, proud and independent, but heart-achingly lonely, missing her life partner. W e didn’t have the heart to put her in a home, yet with H ilda’s dementia worsening, Bonnie Pearl’s mom, Sharon, was determined to find her a home with the best possible care.

W e had heard that some retirement communities were pretty spectacular, and after weeks of looking, Sharon finally found a community that gave the Four Seasons a run for its money—this place is amazing. I always said I’d stay there, and I don’t say that about many places.

So guess what happened to G randmom after moving into her new digs? Forget that she traded up to a beautiful new apartment with modern amenities and 24hour care. T hat was just the tip of the iceberg. More amazing than that, she began a second life! At 88 years old, she transformed into a new woman and fell in love again. A 92-year-old Italian captured her heart. (“I don’t let him under my shirt yet, but he tries all the time,” she said with a grin.) T hey had four beautiful years together before he passed away, and I kid you not, at his funeral, she met her next beau. H er last decade was filled with a quality of life she never could have envisioned. She found happiness, joy, love, and friendship again. It was an unexpected last chapter of her life and a reminder that love is the ultimate wealth. It can show up unexpected anytime, anywhere—and it is never too late.

G           randmom’s story opened up the realization that there was a real need for retirement communities that were effectively staffed and beautiful just like hers. H ow could I find a way to invest in an opportunity like that? Obviously just walking into a home and asking to invest is probably not the most effective strategy. So I went to my personal advisor, Ajay G upta at Stronghold, and told him what I believed in and what I was looking for. H e found an opportunity where my investment not only stood to make a great return but also aligned with my values and beliefs and with a broader trend in the market. Many experts look at this category as a “demographic inevitability” because the 75-year-old age segment will grow by 84% between 2010 and 2030. D emand will be greater than supply!

Ajay found an investment company run by an amazing entrepreneur who builds, invests, and manages high-end senior living facilities. H e started with nothing and has built it into a $3 billion enterprise. H e finds the sites, puts up as much as half the money himself, and then rounds up a small group of investors to put up the rest.

H            ere’s what I get in exchange: I get a preferred returnon my money (which are income payments each month) based on the profitability of the facility. T his can range 6% to 8% per year, and because it’s real estate, I also get the tax benefit of depreciation, which means I don’t have to pay income tax on the entire income payment. Plus, I own a piece of the real estate, which, over the long term, I believe will increase in value. I get to participate in the exit strategy when the investor group eventually sells the facility. T o be clear, this specific investment is limited to investors who are accredited¹¹ and meet certain net worth/income requirements. But don’t fret! For those who are nonaccredited, there are publicly traded RE IT s (real estate investment trusts) that focus solely on owning a basket of properties around the country. T hese can be purchased for as little as $25 a share at the time of this writing and offer dividend (income) payments each quarter. D o your homework and/or have a fiduciary advisor help you find the best available.

If senior housing seems out of reach, another strategy in real estate is lending your money with a first trust deed as security. In the chapter on asset allocation, I’ll describe to you an example of how investors who need money will take short-term loans at high rates—for example, a oneyear loan for 8% or 10% , and you get the first trust deed as collateral. W hen done effectively, you can loan, say, $50,000 on a $100,000 home, or $500,000 on a $1 million home, and the property could drop 50% , and you’d still be in good shape. W hile others are collecting 3% and 4% returns, you’re getting 8% to 10% .

Once you start focusing passionately on ways to save more, earn more, reduce fees and taxes, and find better returns with even less risk, you’ll be amazed at how many new opportunities you’ll discover. Again, a great fiduciary advisor won’t just guide you; he or she can also help you to find investment opportunities with that magical asymmetric risk/reward that all successful investors seek.

Okay, we’re coming to the home stretch of this section. T his final step can massively increase the speed at which you achieve your most important financial goals. Plus, it’s fun to dream and explore. Y ou’re going to love the journey of this next chapter. L et’s discover . . .

11. F or an individual to be considered an accredited investor, he must have a net worth of at least U S$1 million, not including the value of his primary residence; or have income of at least $200,000 each year for the last two years (or $300,000 together with a spouse if married).

C HAPT E R 3.7

SPE E D IT U P: 5. C H AN G E Y O U R L IFE — AN D L IFE ST Y L E —FO R T H E BE T T E R

My favorite things in life don’t cost any money. It’s really clear that the most precious resource we all have is time.

— ST E V E JO BS

W hat would happen if, for just a moment, you considered making a change? A big change, like picking up and moving to another city? Y ou could be living large in Boulder, C olorado, for what you’re paying just in rent in N ew Y ork C ity or San Francisco. T he cost of homes, food, taxes, and so on differ wildly depending on where you live. Our country—our world—is one of boundless opportunity waiting for you to explore. So why not take off the blinders just for a moment to consider what life could be like if you lived in a new city or town?

Are you freezing your butt off in the Midwest winters, or battling the heat of the summer in Atlanta, wondering year after year why you don’t hoof it to a better climate? As a native son of Southern C alifornia, I’m always amazed by people who spend their lives freezing to death in the Arctic tundra of Minneapolis or C hicago. And even if you don’t care about the weather, you’ve got to care about your cost of living. A million-dollar home in W ashington, D C , costs a fraction of that in Raleigh, N orth C arolina—a city rated as the third best place for business and careers by Forbes, not to mention a hightech and educational hub (that also has great weather). Or what about something more local: a move from San Francisco to San D iego? Y ou can stay in the great state of C alifornia and still cut your housing costs by 32% .

It’s one thing to be tax-efficient in your investments; it’s another to be tax-efficient in your life. Y ou’re trying to save 5% here, 10% there. W hat about saving 10% or 15% or more in everything you do by moving to a less expensive city or a tax-friendly state? T hink about all the additional money you’d have to invest, share, donate if it

didn’t go straight to rent, food, or transportation. O ne

single move could give you a 10% to 30%

increase in your income. If you’re already saving 10% , with a move you now can save 20% to 40% without spending an additional dime. T his change in your savings rate will put some rocket fuel in your money machine that will massively improve the pace at which you achieve financial freedom.

I know what you’re going to say: “Move to a new city? Y ou’ve got to be crazy, T ony. I can’t just pick up and move! I have a job, I have family, I have friends; I’ve lived my whole life in D allas.” (Or Seattle or Miami or D enver.) But if you saw that you could save ten years of your investing life, reach your Financial Freedom goals a decade sooner or even more, might it be worth it?

G enerations of Americans have looked at retirement as a time to pick up and move to a warmer climate, a less expensive city, or to a beautiful, low-key place like Boise, Idaho, or G reenville, South C arolina, to breathe clean air

and enjoy the outdoors. But why wait until retirement? W hy not change your zip code today? W hy not find a place to raise your family that allows you to reduce your cost of living and

elevate your quality of life at the same time, while you’re young enough for both you and your children to reap the rewards?

If you’re still shaking your head no, I get it. I was with you on this one, actually—until recently. I grew up in C alifornia and never imagined living anywhere else. E ven when I started traveling extensively and buying homes and properties all over the world, C alifornia was always my home base.

T hen in 2012 C alifornia raised taxes on the highest income earners by more than 30% , to 13.3% . After a lifetime of paying through the nose on state income taxes (historically among the most punishing in the country), the tax situation got even worse. My effective tax rate— after federal and state income taxes, Social Security, investment taxes, payroll taxes, and the Obamacare tax— shot up to 62% . T hat meant I was left with 38 cents on every dollar. Just 38 cents! And on top of that, the new state income tax increase was made retroactive, meaning that I was going to have to pay additional tax on income I had already earned that year. T hey changed the rules of the game after the fact! I had reached my limit—this was outrageous. Because of my travel and the time I spent in my other homes, I was living in C alifornia for only 90 days out of the year! Just 90 days for literally a multimillion-dollar state tax bill? C alifornia was no longer sustainable for me—I’d had enough!

I had played by the rules, and the rules had come back to bite me. But instead of feeling sorry for myself, I voted with my conscience—or with my feet, I should say. Along with thousands of others, Sage and I realized we were no longer welcome in C alifornia. So we decided to take the plunge and look for a new place to live. (In fact, C alifornia has lost over $30 billion in annual income tax revenue over the last two decades to states such as N evada, Arizona, T exas, and W isconsin. If you want to see how big this trend is and how many people are moving from high-tax to low-tax states, go to www.howmoneywalks.com.)

W e turned it into a kind of treasure hunt. W e looked at places like L ake T ahoe, where we really liked the mountains, the mix of seasons, and the small-town vibe; and Austin, T exas, where music, energy, and high tech come together to create the fabric of an innovative and connected community.

W e looked at Florida too, reluctantly. All I knew of Florida were alligators and old people. But that’s the stereotype, not the reality. W hat we found instead was a paradise in Palm Beach. After looking at 88 properties in three states in just three weeks (I told you I’m a massiveaction guy), we found the only brand-new home on the water in Palm Beach. T wo acres, nearly 200 feet of ocean frontage on one side, and the Atlantic Intracoastal W aterway on the other, with a 50-foot boat dock. I feel like I’m back in my home in Fiji—it’s extraordinary. Sage has everything she wants close by: world-class restaurants, shopping, easy access to the entire E ast C oast, and all the privacy and serenity of living on an island right here in the U nited States.

Of course, the price tag was way higher than I ever wanted or imagined paying for a home. But Florida has no state income tax. W e went from 13.3% state income tax in C alifornia to nothing—nada, zip. So here’s the kicker: with the state taxes we’re saving every year, we are literally paying off our entire new home in six years! D id you catch that? W e’re paying for our entire home out of the tax savings we now get as residents of the Sunshine State instead of the G olden State. K ind of makes you think we should have done it sooner, huh?

Better late than never.

And if that weren’t enough (which it is!), we’ve massively improved our quality of life in the bargain. E very day we pinch ourselves as we wake up with magnificent weather: 78 degrees with a cool breeze off the ocean and water you can melt into, it’s so warm. In fact, Sage and I have become almost evangelical in our enthusiasm for our new home; we tell friends and family to think about moving down to Palm Beach to join us. My youngest son has already moved here. T wo of my dearest friends in the world are on their way down from C onnecticut and N ew Y ork, and they’re here to stay. And, of course, even if they’d decided not to move here, we would have happily taken our tax savings and flown them all out here to visit us in paradise anyway!

So whether or not you decide to join us in Palm Beach, there’s a new zip code out there that might be just right for you. Y ou don’t have to wait for retirement to get there. From N ashville, T ennessee, to Portland, Oregon, and from Augusta, Maine, to Ann Arbor, Michigan, there are hundreds of affordable havens for young and old alike: retirees looking to stretch their savings and continue to enjoy a rich, rewarding lifestyle; and young professionals looking to jump-start or reimagine their careers. C heck out U .S. News & World

Report’s feature on the best places to live for as little as

$75                                       a                                        day

(http://money.usnews.com/money/retirement/articles/201 best-places-to-retire-on-75-a-day). Also seriously consider the seven states where there’s no state income tax at all: Alaska, Florida, N evada, South D akota, T exas, W ashington, and W yoming. Or try T ennessee and N ew H ampshire, where only your dividend and interest income are taxed at the state level. T he Memphis and N ashville music scenes and more money in your pocket —how bad does that sound?

G IVE Y OU R G L OBE A SPIN

And while we’re at it, why not think all the way outside the box on this one? Forget just a 10% to 20% increase in your spending power, how about cutting your cost of living by a third, or in half? G et out your globe and give it a spin—and think about some of the beautiful (and beautifully affordable) places you could live if only you expanded your horizons.

T here are huge opportunities all over the world to improve your lifestyle and lower your expenses, in places such as Bali, Fiji, U ruguay, C osta Rica—if you have the courage and the freedom to go for it! Y ou can rent an extraordinary apartment in the mountains outside of Buenos Aires, Argentina, for a fraction of what it would cost for a studio walk-up in a major U S city. Y ou can move to the C zech Republic and find a room just off W enceslas Square in Prague’s N ew T own area, the heart of the city’s cultural community.

Remember my BMW -loving son? After he traded in his fancy wheels for a chance at a better lifestyle, he decided to think really big. H e went down to C osta Rica for a couple of days and was completely blown away by the extraordinary culture. T urns out there is a huge E nglish-speaking community in C osta Rica—tons of expats who discovered their money went a lot further down there, their days were a little richer, their nights more exciting. And C osta Rica isn’t just a place to relax and unwind. Some of our leading companies have established important bases of operations there. Procter & G amble, H einz, Microsoft, Intel—the list goes on and on, which means there are countless career opportunities available.

L ife can be an adventure. T ake a trip and explore a foreign city with an eye toward moving there. T urn your next vacation into a fact-finding expedition, where the endgame is to try on a whole new way of life. Y ou don’t have to live in a box and go through the same motions each and every day. Y ou don’t have to worry about making your rent or covering your basic expenses if you open yourself up to the idea of massive change. L ift yourself from your comfort zone and spend 60% , 70% , even 80% less money, getting you to your goal of financial freedom that much faster. And while you’re at it, improve the quality of your life in an exponential way.

E ven if a move across the world seems too radical now, think about this option over the long term—a fiveyear plan or a ten-year plan, or maybe a retirement plan. W hy not at least open yourself to the idea that there’s a beautiful and affordable place out there waiting to be discovered? Our world is dynamic—it’s changing constantly. T he idea that a move would be bad for your kids is a thing of the past. W e live in a global economy; what an amazing experience to give your kids an opportunity to see the world, learn a new language, adapt to a new culture. Y ou can make a family decision about creating a better quality of life for everyone.

L ife is like a bicycle. T o keep your balance, you must keep moving.

— AL BE R T E IN ST E IN

At the end of the day, it’s all about being more efficient and more effective with your earnings and your savings and speeding up your path to Financial Freedom. Y ou can find a way to improve the quality of your life while reducing your cost of living simultaneously. It’s the ultimate win-win. At the end of the day, the best investment you can make is the one you make in yourself and your lifestyle.

W ow, you’ve taken three giant steps toward Financial Freedom:

Step 1. Y ou’ve made the most important financial decision of your life.

Y ou’ve decided to become an investor, not merely a consumer. Y ou’ve committed a percentage of your income to save and invest in your Freedom Fund, and you’ve automated it.

Step 2. Y ou’ve become an insider who knows the rules of the game.

Y ou’ve debunked the 9 Myths, and you’ll never be taken advantage of again.

Step 3. Y ou’ve made the game winnable.

•    Y ou know exactly how much money it will take for you to achieve F inancial Security, Independence, or F reedom. Y ou know your T hree to T hrive: your short-term, medium-term, and long-term goals.

•    Y ou’ve come up with an initial financial plan and a timeline for achievement. Y ou’ve used the app to calculate approximately how long it will take you to meet financial goals you’re most committed to.

•    Y ou’ve reviewed the five ways to speed up your plan. Ideally, you’ve begun to brainstorm ways to apply these insights to sock away more money or keep more money in your financial Freedom Fund. T his can help you reach your cherished financial goals even quicker.

So what’s next? Step 4 answers the obvious question that’s probably burning in your mind: “W here do I put my money? W hat specific investments will maximize my upside and protect me against the downside?” It’s time to make the most important investment decision of your life. It’s time to learn the power of asset allocation . . .

SE C T ION 4

MAK E T H E MOST IMPORT AN T

INVEST MENT D EC ISION OF YOUR L IFE

C HAPT E R 4 .1

T H E U L T IMAT E BU C K E T L IST : ASSE T

AL L O C AT IO N

N ever test the depth of the river with both feet.

— W AR R E N BU F F E T T

Say you’ve got your money machine cranking: your boss just gave you an unexpected $10,000 bonus, or perhaps you suddenly came into a $100,000 inheritance. W hat would you do with it? W ould you put it in your savings account or your IRA? Invest in a virtual pocketful of Bitcoin? Bid on a case of vintage wine on eBay? Fly to

Vegas and bet it all on a roll of the dice? Or maybe buy 100 shares of Apple stock? W ould you put it all in one place or spread it around?

T he answer to that last question is the key to your financial future.

Asset allocation is the most important investment decision of your lifetime, more important than any single investment you’re going to make in stocks, bonds, real estate, or anything else. W hat’s the difference? W ell, the financial decisions you’ve already made—to automatically invest a percentage of your income for compound returns—gets you in the game. But once you decide to get in the game, now you’ve got to stay in the game—for the long term! Y ou can lose it all if you aren’t careful about where you put your money. Anybody can become wealthy; asset allocation is how you stay wealthy.

But don’t just take it from me. L isten to D avid Swensen, the rock star of institutional investing. Remember, he’s the guy who grew Y ale’s portfolio from

$1 billion to more than $23.9 billion by achieving a 13.9% average annual return across three decades of bear and bull markets. N obody does it better. W hen I sat down with him in his office in N ew H aven, C onnecticut, I asked, “W hat are the most important insights investors must have to achieve financial freedom?” H e told me that there are only three tools for reducing your risk and increasing your potential for financial success:

1.     Security selection—stock picking;

2.     Market timing—short-term bets on the direction of the market; and

3.     Asset allocation—your long-term strategy for diversified investing.

Before I could even ask about the first two, he made one thing perfectly clear: “Overwhelmingly, the most important of the three is asset allocation,” he said. “It actually explains more than a hundred percent of returns in the investment world.” W ait a second: H ow could it be more than 100% ? Because those fees, taxes, and losses that come along with stock picking and market timing put a drag on your profits.

Asset allocation is more than diversification. It means dividing up your money among different classes, or types, of investments (such as stocks, bonds, commodities, or real estate) and in specific proportions that you decide in advance, according to your goals or needs, risk tolerance, and stage of life.

W ow, that’s a mouthful, isn’t it?

Y et it’s the key to success or failure for the world’s best financial players, including every single one of the investors and traders I interviewed for this book. Paul T udor Jones swears by it. Mary C allahan E rdoes, perhaps the most powerful woman on W all Street, leads 22,000 financial professionals whose livelihoods depends on it. Ray D alio, who founded the largest hedge fund in the world and is now worth $14 billion personally, lives it.

T his chapter takes a complex subject and makes it simple enough for you to act on and positively affect your investment returns for the rest of your life, so give it your full commitment and focus! It doesn’t matter if you have only $1,000 that you’re going to save and invest or $1 million. T he principles you’re about to learn are critical to start applying immediately. If you think you know them already, it’s time to take them to the next level.

L et’s talk about why asset allocation is so crucial to your investment plan, and how you can start making it work for you today.

Anyone who thinks there’s safety in numbers hasn’t looked at the stock market pages.

— IR E N E PE T E R

H            ow many times have you picked what looks like thefastest line at the grocery store, but it turns out to be the slowest? Or how often do you switch to the fast lane in a traffic jam and watch the cars in the slow lane whiz past you? Y ou think you’re getting there faster, and then you’re wrong. And what about intimate relationships? In spite of how much you know about yourself and what you believe and value, have you ever chosen the “wrong” partner? W e all know that decision can have an extraordinary impact on the quality of your life!

T he same thing can happen with your investments. E xcept that when you make mistakes with your nest egg, if it’s too big a mistake, it’s all over. It can mean losing your home. Or still looking for work when you’re 70. Or having no money for your children’s education. T hat’s why this chapter is so important.

Asset allocation is the one key skill that can set you apart from 99% of all investors. And guess what? It won’t cost you a dime. D avid Swensen likes to quote H arry Markowitz, the N obel Prize–winning father of modern portfolio theory, to whom I also reached out to interview for this book. H e said famously, “D iversification is the only free lunch.” W hy? Because spreading your money across different investments decreases your risk, increases your upside returns over time, and doesn’t cost you anything.

W e’ve all heard the old adage “D on’t put all your eggs in one basket.” W ell, asset allocation protects you from making that financial mistake. It sounds like such a basic rule, but how many people do you know who violate it?

I               have a friend who got so excited about Apple that heput all his money in the company. For a while, it was the most successful stock in the world—until it dropped by 40% in a matter of weeks. Ouch. T hen there’s another friend who was in her 30s when she quit her job as a television executive, sold her house in L os Angeles at the height of the real estate market boom, and used the money to open a rustic diner in W yoming. She invested what was left in high-risk stocks and junk bonds, thinking the interest would provide enough income to support her. And it did for a while. But the stock market crash of 2008 wiped out her entire savings. She had to fold up her teepee and go back to work as a freelancer for a fraction of what she used to make.

W e’ve all heard horror stories from the economic meltdown. Maybe you know some baby boomers who had all their money tied up in real estate before the bottom fell out. Or a couple who were ready to retire with their 401(k) full and their target-date funds about to mature. T hey had the RV picked out, the boat in the driveway, the itinerary drawn up with visits to the grandkids marked out. T hen the financial world unraveled. T heir net worth was cut nearly in half, and their dream of retirement turned into 20 more years of work.

T hese stories are heartbreaking, and I want to make sure nothing like that ever happens to you. And the good news is, it never has to. T hat’s why I wrote this chapter: so that you’ll not only be protected but also can grow your nest egg faster.

W hat’s the simple and core investment lesson here? W hat goes up will come down! Ray D alio told me point-blank that in your lifetime “it’s almost certain that whatever you’re going to put your money in, there will come a day when you will lose fifty percent to seventy percent.” Y ikes! T hat means any investment you pick is going to lose half to two-thirds or more of its value! And don’t most people typically favor one type of investment because they feel they “know” more about that area, or because it’s currently providing a “hot” return? Some people tend to put all their money in real estate, others in stocks, bonds, or commodities. If you don’t diversify enough, you stand to lose your shirt! Are you hearing me? N o matter how well you plan, there will be a day of reckoning for every type of asset. So, diversify or die.

But if you diversify well, you’ll win!

By now I’m sure you’re crystal clear about the consequences of not diversifying! N ow would you like to hear about the incredible impact of the right diversification? It’s almost like having a license to print money. I know that’s an exaggeration, but imagine what it would feel like if you knew you were making money while you sleep, and that your diversification gave you true peace of mind regardless of the economic climate.

H ere’s a real example. H ow would you feel if, in that D efcon environment of 2008, when stock markets were losing more than $2 trillion, bonds were tanking, and real estate was falling through the floor, you could have had an asset allocation where your maximum loss was just 3.93% ? T his example is not a fantasy. T his is the power of asset allocation that I’ve mentioned several times in this book, and I’m going to demonstrate it to you shortly. Better yet, what if in the last 30 years of your life (between 1984 and 2013), your asset allocation was so powerful that you lost money only four times, with an average loss of just 1.9% , and never more than 3.93% ? Remember, everyone else during those three decades was riding the wild wave of inflation and deflation. In the last decade alone, we had two market drops of nearly 50% , yet you would have coasted through the storm without a single gut check and still averaged a compounded annual return of just under 10% . I’m not describing a hypothetical situation. W hat I’m describing to you is an actual portfolio, a specific asset allocation, designed by Ray D alio. Soon I’ll show you the exact formula that has produced these mind-blowing results. But before you can use it, you have to understand the core principles laid out in this chapter.

Rule 1: don’t lose money.

Rule 2: see Rule 1.

— W AR R E N BU F F E T T ’S R U L E S O F IN V E ST IN G

I can’t say it enough: good people often fail because they do the right thing at the wrong time. Buying a house—is it the right thing to do? Most experts would say yes. But in 2006, it was the wrong time! So the question is: If we’re all going to be wrong some of the time, where do we put our money? T hat’s where asset allocation comes in.

H ere’s another way to think about it: when you’re trying to build a winning team in sports, you have to know the capabilities of each player. Y ou have to know his strengths and weaknesses. Y ou have to decide who you can count on in different situations. N ow, say your portfolio is the team, and your investment choices are the players. Asset allocation helps you choose who starts and at which positions. U ltimately, it’s the right mix at the right time that brings you victory.

Asset allocation offers you a set of guiding principles: a philosophy of investing to help you decide where to put Freedom Fund money or your nest egg and in what proportions.

T hink of it as taking chunks of your money and putting them into two separate investment buckets with different levels of risk and reward. One of these first two buckets is a safe environment for your money, but it’s not going to grow very fast there. Y ou might get bored with it, but it’s secure, so that when you need it, it’s there. T he second bucket is sexier because it can give you the opportunity for much quicker growth, but it’s risky. In fact, you have to be prepared to lose everything you put in here!

So how much goes in each bucket? It depends on how much time you’ve got to grow your investments and how much risk you’re willing to take. Y ou’ve got to ask yourself, “H ow much risk can I afford to take at my stage in life?” But remember, you’re not diversifying just to protect yourself. Y ou want to enhance your results: to find the ideal blend of investments that will make you thrive, not just survive!

But, hey, if we’re willing to admit it, many people have more than enough stress in their daily lives without adding a ton of anxiety worrying about their investments day and night. A significant part of financial security or even freedom is peace of mind, that feeling that you don’t have to think about money. T he first bucket will give you certainty in your life, which, after all, is the first basic human need. And that’s why I call it the Security/Peace of Mind Bucket. It’s where you want to keep the part of your nest egg you can’t afford to lose

—or even imagine losing without waking up in a cold sweat! It’s a sanctuary of safe investments that you lock up tight—and then hide the key.

I don’t gamble, because winning a hundred dollars doesn’t give me great pleasure. But losing a hundred dollars pisses me off.

— AL E X T R E BE K , host of J eopardy!

T aking a financial hit not only lightens our wallets but also can steal the joy from our lives. Remember that behavioral economics study with the monkeys and the apples? A monkey was happy if he was given an apple. But if he was given two apples, and then one was taken away, he freaked out—even though, in the end, he still had an apple. H umans are the same way. Research on human emotion shows that the majority of people around the world underestimate how badly they feel when they lose. T he pleasure of our victories is dwarfed by the pain of our failures and our losses. So we all have to set up a Security/Peace of Mind Bucket to protect ourselves from taking the kind of hits that will not only set us back financially but also will make us miserable.

T o familiarize you with the kind of investments that are considered a bit more secure, let’s look at eight basic types of assets (investment options or resources) that might belong in this Security Bucket. T his is just a sampling. It’s not meant to be everything that would fit in this bucket. But as you read, you will notice a pattern: none of these types of investments tends to have extreme volatility—meaning that its value doesn’t tend to fluctuate much—especially compared with things you’ll see later in the Risk/G rowth Bucket. (Although, as we’ve all experienced, there are short periods in history where virtually all investments have increased volatility. L ater Ray D alio will show us how to prepare for this as well!) But this quick list is designed to get you to think about your investments in the future, and give you a feel for what might go here. Ask yourself, “Before I invest, is this putting me at risk? Is this something I’d be better off having in my R isk/G rowth Bucket or in my Security Bucket?”

So let’s take a look at what this is all about, starting with the first and perhaps the most important place to put a portion of your money: the Security/Peace of Mind Bucket. W hat assets would you want to put in here? Remember, this bucket is the slow but steady contender, like the turtle in the race to financial freedom. Because the turtle often wins! And you have to treat it like your sacred temple of savings and investments— because what goes in here doesn’t come out.

And before you go on, bear in mind that the beginning of this chapter has some fundamentals: the blocking and tackling of asset allocation. If you’re a sophisticated investor, you can scan through the list of investment options because you probably already know what they are, and you can save yourself some time. But I didn’t want to leave out anyone. Besides, you might find a distinction or two that you’ll find valuable. So let’s dive in.

1. C ash/C ash E quivalents. At some time in our lives, every one of us will need a cushion to cover our needs in case of an emergency or a sudden loss of income. N o matter your income level, you need some liquidity —or instant access to cash. Is it possible to be rich in assets and feel poor because you don’t have cash or liquidity? A lot of people were caught short in 2008 when the banks froze up and stopped lending (even to one another), and real estate seemed impossible to sell. In fact, according to a 2011 study, half of all Americans would struggle to come up with $2,000 in a crisis such as an unexpected medical bill, legal cost, or home or car repair. So you need some cash to make sure that doesn’t happen to you. T hink about it: it wouldn’t take a lot of focus or a lot of savings for you to be better off than more than half of America!

But once you’ve decided how much cash you need to have on hand, where do you keep it? Most of us choose bank accounts that are insured by the FD IC for balances of up to $250,000. U nfortunately, brickand-mortar banks pay almost no interest these days— the last time I checked, some were as low as 0.01% !— while online banks have been offering slightly higher rates. Maybe not ideal, but at least we know the money is safe and available. Y ou also may want to keep some of that cash in a safe place or for safety near your home—you know, “under your mattress”— in a hidden safe in case there’s an earthquake or hurricane or some other kind of emergency, and the AT Ms stop working.

Other tools for cash equivalents include money market funds—there are three types, and if you want to learn more, see the box for details.

For larger amounts of money that we need to keep safe and liquid, you can buy into ultra-short-term investments called cash equivalents. T he most well-known are good old money market funds. Y ou may even already own one. T hese are basically mutual funds made up of low-risk, extremely shortterm bonds and other kinds of debt (which you’ll learn more about in a moment). T hey can be great because you get a somewhat higher rate of return than a boring old bank account, but you still get immediate access to your cash 24 hours a day—and there are some that even let you write checks.

By the way, most banks offer money market deposit accounts, which are not the same as money market funds. T hese are like savings accounts where the banks are allowed to invest your money in short-term debt, and they pay you a slightly better interest rate in return. T here’s usually a minimum deposit required or other restrictions, low rates, and penalties if your balance falls too low. But they are insured by the FD IC , which is a good thing. And that sets them apart from money market funds, which are not guaranteed and could potentially drop in value.

But if you want to keep your money safe, liquid, and earning interest, one option is a U S T reasury money market fund with checking privileges. T rue, these funds aren’t insured by the FD IC , but because they are tied only to U S government debt and not to any corporations or banks that might default, the only way you can lose your money is if the government fails to pay its short-term obligations. If that happens, there is no U S government, and all bets are off anyway!

2.     Bonds. W e all know what a bond is, right? W hen I give you my bond, I give you my word. My promise. W hen I buy a bond, you give me your word—your promise—to return my money with a specific rate of interest after X period of time (the maturity date). T hat’s why bonds are called “fixed-income investments.” T he income—or return—you’ll get from them is fixed at the time you buy them, depending on the length of time you agree to hold them. And sometimes you can use those regular interest payments (dividends) as income while the bond matures. So it’s like a simple IOU with benefits, right? But there are zillions of bonds and bond funds out there; not all but many are rated by various agencies according to their levels of risk. At the end of this chapter, you’ll find a quick bond briefing to find out when they can be hazardous to your financial health, and when they can be useful— even great!—investments.

Bonds can also be kind of confusing. L ike a seesaw, they increase in value when interest rates go down, and decrease in value when rates go up.

After all, who wants to buy an old low-interest-rate bond when a shiny new bond with a higher interest rate comes on the market? But one way to avoid worrying so much about price fluctuations in bonds is to diversify and buy into a low-cost bond index fund.

And just remember, not all bonds are equal. G reece’s bonds are not going to be as strong as G ermany’s. D etroit’s municipal bonds are not going to be as strong as the U S T reasury’s. In fact, some investment advisors say the only completely safe bond is one backed by the full faith and credit of the U nited States. And you can actually buy U S bonds called T reasury inflation-protected securities, or T IPS, that rise in value to keep up with inflation through the consumer price index. Again, we’ll cover all of this in the bond briefing. And later I’ll be showing you an amazing portfolio that uses bond funds in a totally unique way. But meanwhile, let’s consider another fixed-income investment that might belong in your Security Bucket.

3.     C D s. Remember them? W ith certificates of deposit, you’re the one loaning the money to the bank. It takes your cash for a fixed rate of interest, and then returns it—along with your earnings—after a set amount of time. Because C D s are insured by the FD IC , they’re as safe as savings accounts, and—at the time of this writing—just about as exciting. But I wrote this book for every season, and seasons keep changing. I don’t know what season you’re in now, but I can tell you this story: in 1981, when I was 21 years old, you could buy a six-month C D for . . . wait for it . . . 17% interest! But you don’t have to go that far back to see how some types of C D s, in the right environment, can give you quality returns. Remember the story of how my Stronghold advisor got a small fixed rate on a C D in 2009, but it was a market-linked C D , which was attached to the growth of the stock market, and he averaged 8% interest over time! T hat was an unusually good deal, but there are still ways to get more bang for your buck (without risking your principal) by investing in these market-linked C D s. (Y ou can go back to chapter 2.8 for a recap about how they work.)

So how’s our team of assets doing so far? C D s, cash, money market funds, and bonds would be obvious players for your Security Bucket. But when do you put them in the game? Some players will do well in some environments and poorly in others. W hat’s the advantage of the cash player? T he cash player can jump into the game any time. Y ou can keep your money safe and ready to deploy when the right investment comes along. On the other hand, if you hold too much money in cash, your spending power is not growing. In fact, it’s shrinking due to inflation each year. But in deflationary times, like 2008, your cash will buy you more. If you had cash in 2008 and had the stomach to do it, you could have bought a home for almost 40% less than that same house cost the year before. (By the way, that’s what many hedge funds did. T hey bought tens of thousands of homes during the down time, fixed them up and rented them, and then sold them between 2011 and 2014 for a big profit.) Many stocks could be bought at a similar or even greater discount in 2008.

W                      hat’s the advantage of the bond player? D epending on the type of bond, you’ve got a guaranteed rate of return that gives you security when other asset class prices might be dropping. Regular C D s, as I’m writing this in 2014, probably don’t interest you at all, and they don’t interest me either. But that player can do well in high-interest-rate environments. And while market-linked C D s excel when the stock indexes are hot, they’re rock solid in every environment because you don’t lose principal. H ere is the downside of bonds: if you want to sell bonds before their maturity date (when you receive your full investment plus interest), and interest rates have risen significantly and new bonds provide a higher rate of return, you will have to unload them at a discount.

If all this seems incredibly complex, here’s the good news. Ray D alio has created a strategy called All Seasons, which will show you how to succeed with the right mix of bonds, equities, commodities, and gold in any economic season. W e’ll learn more about that later.

First, understand that because secure bonds offer a promised or stated rate of return and a return of principal, they are more secure than investments that do not guarantee either the rate of return or the principal. But the promise is only as good as the bond issuer. T he point here is that you need the right player for the right season in the right proportions and at the right time.

N ow let’s take a look at a few other assets for your Security Bucket team you might not have thought of:

4.     Y our home goes in here, too. W hy? Because it’s a sacred sanctuary. W e shouldn’t be “spending our home”! Americans have learned a hard lesson in recent years about the dangers of house flipping and using their homes like AT Ms. A home, if it’s your primary residence, shouldn’t be seen as an investment to leverage, and it shouldn’t be counted on to produce a gigantic return. But wait, haven’t we always been told that your home is your best investment because it always goes up in value?

In my search for answers, I sat down with the N obel Prize–winning economist R obert Shiller, the leading expert on real estate markets, and creator of the C ase-Shiller home price index of housing prices. H is breakthrough insights were used to create the following chart. Shiller found that when he adjusted for inflation, U S housing prices have been nearly flat for a century! H e exploded one of the biggest myths of our time: that home prices keep going up and up. “U nless there’s a bubble,” he told me. And we all know what eventually happens to bubbles.

On the other hand, owning your home with a fixedrate mortgage is a hedge against inflation, and there’s a tax advantage. W hat’s more, if you own a home outright, and you rent out all or part of it, it can be a safe way to earn some income. Also, as you’ll soon learn, there are some great ways to invest in real estate—like first trust deeds, RE IT s (real estate investment trusts), senior housing, income-producing properties, and so on. So nobody’s suggesting that you give up on real estate investments if that’s what you like to do! But it’s probably a good rule of thumb to put them in the next bucket we’re going to talk about: the Risk/G rowth Bucket.

Meanwhile, what other assets might belong in Security?

5.     Y our Pension. G ot one? T his bucket is the place to keep it if you’re one of the lucky few. Remember the example of D r. Alicia Munnell, director of the C enter of Retirement Research at Boston C ollege? She liquidated her pension and took an early payout, thinking she could invest and get a higher return than her past employer, the Federal Reserve. She learned the hard way that you don’t want to risk your lifetime income plan, and now she shares her story as a warning to others.

6.     Annuities. If you’re young, and you hear this word, you may think this doesn’t have any value for you. In the past, they took a lot of money, and you had to be a certain age in order to tap into these investment tools. But as you’ll learn in chapter 5.3, “Freedom: C reating Y our L ifetime Income Plan,” there are some new tools you can arm yourself with. Remember, these investments are insurance products that can give you a guaranteed income for life. T hey’re like private pensions if they’re done right. But as we’ve discussed, most annuities out there are terrible investments with high fees and ridiculous penalties. Most variable annuities should come with more warnings than a Viagra commercial! But you can find a few select annuities—which you will learn about in section 5—that are so safe and affordable that many experts call them the H oly G rail of retirement income solutions. H ow’s that? T hey can give the kind of returns you enjoy in your R isk/G rowth Bucket within the safety of your Security Bucket. A guaranteed income that will last your lifetime and never go down in value!

7.     At least one life insurance policy belongs in your Security Bucket, and you don’t mess with it. W hy? G ot a family? If you die, your family will be taken care of. T erm life will suffice for most people. H owever, another type of life insurance policy, described in section 5, can provide you with an income for life, tax free, while you’re still alive! And if structured correctly, it can also provide enormous tax efficiency. T he largest corporations and the ultrawealthy have been using this IRS-sanctioned approach for decades. Be sure to check out chapter 5.5 for details on how to use this tool to perhaps cut the time it takes to get to your financial goals by 25% to 50% depending on your tax bracket.

8.     Structured N otes. T hese products have been called “engineered safety” for investors. Structured notes are like market-linked C D s, but they aren’t covered by FD IC insurance. H ow do they work? Y ou lend money to a bank—usually one of the biggest banks in the world—and the bank promises to give you back the money after a specified period of time, plus a percentage of whatever gains accumulate in a particular index (say, the S&P 500—minus the dividends—commodities, gold, RE IT s, or a

combination). For example, at the time of this writing, J.P. Morgan has a seven-year structured note with 100% downside protection, meaning you’ll never lose your original investment, plus it gives you 90% of the upside gain of the S& P 500. N o wonder, as you learned in chapter 2.8, the ultrawealthy often use this tool to invest. T he right kind of structured note can be a great way to participate in the upside of the market without worrying about the downside—especially at a stage of life when you can’t afford to take such volatility risks.

W                      hen I sat down with Mary C allahan E rdoes,

C E O of J.P. Morgan Asset Management, with $2.5 trillion under management, she told me structured notes can be good investment choices, particularly for people afraid to put their money in anything after the financial meltdown of 2008. And they’re not a gimmick. “A lot of times, people will look at a structured note and say, ‘T hat looks too good to be true,’ ” she told me. “But you need to understand the product from start to finish. T here are no gimmicks, there are no gadgets; it’s just math in the markets . . . T he longer you don’t need liquidity, the more the market will pay you for that. If you’re going to put your money away for seven years, you should be able to get that much upside.”

So do structured notes belong in your Security Bucket? T he structured note is only as secure as the bank that issues it. E rdoes made it clear that J.P. Morgan was the largest bank in the world. Some fiduciaries will recommend the Royal Bank of C anada or other C anadian banks, since they have been rated as some of the best and safest in the world. (T he U nited States saw more than 9,400 banks collapse during the G reat D epression and almost 500 in the recent G reat Recession. Not one bank failed in Canada!) So, as always, you have to weigh the benefits against the risk and make your own decision. Also, watch out for fees and complicated contracts. As we said in chapter 2.8, structured notes can be a terrible product, just like mutual funds, if there are too many fees attached. If the issuer is fiscally strong, you won’t lose your money. But if the timing is off, you won’t make any money in that time period. So this is more of a secure protection strategy. It’s best to talk over this investment with your fiduciary advisor before jumping in.

T IME IS ON Y OU R SID E

W hew! T hat was a lot. But remember, if your head is exploding with all these choices, you’re not in this alone. Y ou can have your complimentary asset allocation (and full portfolio review) done for you online at www.strongholdfinancial.com or by your own fiduciary advisor.

But it’s important to understand the concept of asset allocation and which investments are available for each of these buckets so that your overall portfolio—your group of investments—reflects your goals and level of risk tolerance. T hat way you’re still running the show! At every decision point, you’ll be thinking, “H ow much am I risking and how much am I keeping secure?” T hat’s where the game is won or lost!

And, as you’ve already seen, the biggest challenge for your Security Bucket today is: What is really secure? W e know the world has changed, and even conservative savers have been forced into riskier and riskier investments by crazy-low interest rates. It’s tempting to shoot for bigger returns, especially when the stock market is galloping. Y ou may start thinking, “I’ll never get where I need to go from here.” But you can if you’re willing to play the long game. (And especially if you find some investments that guarantee returns without risking principal—which you’ll learn about soon.)

Just like in that old Rolling Stones song, time is on your side when it comes to growing your wealth. And time is certainly the greatest asset for the Security Bucket —even if you start later in life. After all, more and more of us are living into our 80s and 90s, so our investments can mature along with us. And if you’re G eneration X , Y , or Z —yes, there is a G eneration Z , the postmillennials! —you’re way ahead of the game! Y ou can start with a tiny amount and let the magic of compounding get you where you want to go so much easier.

W hat happens to the money in your Security Bucket reminds me of an old gambler’s trick on the golf course. T he gambler tells his mark, “Y ou play golf? I just started playing, and I’m no good. Y ou want to play ten cents a hole?” So the guy says, “Sure, great!” On the way to the first hole, the gambler says, “Y ou know, ten cents is kind of boring. Just to make it more fun, why don’t we just double the bet every hole?” T he first hole is 10 cents, the second hole is 20 cents, the third hole is 40. By the time they get to the fifth hole, it’s $1.60. T he sixth hole is $3.20, and they’re only one-third of the way through 18 holes. By the time they get to the 18th hole, how much are they playing for? H ow about $13,107! T hat’s a steep golf bet, even for D onald T rump. And that’s the magic of compounding in action.

It’s also what happens when you’re investing in your Security Bucket over the long haul. Y ou reinvest the interest you make, and, for a long time, there seems to be no progress at all. But you get to the 13th hole, and then the 14th, and then the 16th, and then it explodes.

T ake a look at the chart on page 312. T hat’s the exponential progression that will work for you.

Of course, sitting tight is a challenge for this generation! As a society, we’re wired for instant rewards, and waiting for the assets in our Security Bucket to increase in value can initially feel like watching grass grow. And that’s why we get tempted into putting too much of our money into the next bucket, Risk/G rowth. But not everything in your Security Bucket has to be dull as dishwater. If you have a talented and connected fiduciary advisor, he or she can show you how to take some of these boring security tools and eke out a more reasonable return, or even a significant return if you find the right environment.

H ere’s just one example of what my Stronghold advisor found for me—and it’s an asset that most people wouldn’t normally put in their Security Bucket: a residential real estate loan!

It starts with a guy building a house in Indian W ells, C alifornia, who ran into some financial trouble and had to sell it to a group of investors. E ver hear of Indian W ells? It’s like the Beverly H ills of Palm Springs, which is one of the highest-income environments per capita in the U nited States. T he city is beautiful, with extraordinary weather, surrounded by golf courses and resorts—an amazing place to own a home or a vacation home. T he investment company that bought the guy’s house buys up dozens of properties, so it needs a lot of cash—but the company doesn’t need it for long because it fixes up and resells the houses quickly. T o keep the money flowing, the company needs investors to give it short-term loans in exchange for first deeds of trust on the properties it holds.

E ver hear about first trust deeds? If you own a home and have a mortgage, a financial institution loaned you the money to buy your house, and you gave it your bond to pay it back at a certain rate of return. H owever, if you don’t keep your word and fail to keep up the payments, the entity that owns the mortgage, or trust deed, has the right to force you to sell—and it continues to receive interest until a new owner takes over. As an investor, I look for ways to get maximum rewards in a secure environment—a first trust deed structured properly can be perfect for this purpose.

My advisor and I found out that the real estate investment company was offering the first deed of trust on that house in Indian W ells as collateral on a $1 million loan, which would pay 10% interest for one year.

It was willing to have one investor take this on, or as many as 25, each contributing $40,000. In the end, I decided to invest in the full $1 million myself. Y ou might say, “W ow, that’s a great deal! Y ou get a hundredthousand-dollar profit to tie up your money for just one year. But T ony, what’s your risk?” T hat’s exactly why we did a lot of research. T he home, we learned after two qualified appraisals, was worth $2 million in its current state. So if I’m loaning $1 million, that loan has a 50% loan-to-value ratio, right? E ven if the company defaults, my $1 million is secure because the value of the property is $2 million.

T his was a pretty great deal, but I’ve also bought deeds of trust on smaller homes. Say I’d found a starter home in the Midwest that was worth $80,000. If I could get the mortgage for $40,000, at 50% loan to value, I might make the loan. T he Indian W ells deal was similar, only on a larger scale. So I decided to go for it, and I put that investment in my Security Bucket.

Okay, I can already hear you saying, “W ait a minute, T ony! W hat if the market drops? D oesn’t that investment belong in your Risk/G rowth Bucket?”

T hat’s a great question, because we’ve just been through one of the worst real estate crashes in history! And on the surface, it looks like you’d probably put this in your Risk Bucket. But here’s why I think it’s a safe investment: in 2008, when the real estate market just went through the floor, and the world was upside down, the prices of houses in most parts of the U nited States dropped 30% to 40% , max. T here were a few exceptions, such as some parts of L as Vegas, Phoenix, and Miami, where the prices dropped more than 50% . But all of those places had massive price growth right before the bubble burst. T he Indian W ells area didn’t experience that size of bubble—and while prices dropped 31% from 2008 to 2010 (far below the 50% mark), the biggest loss in a single year was only 13.6% (from 2008 to 2009). And remember, we’re loaning for only one year. So if residential real estate didn’t take anything close to a 50% hit in Indian W ells in 2008, it’s not likely to happen this year.

T hat’s why I decided to move forward with this as the investment to put in my Security Bucket. It’s the place where you have to be cautious. But it doesn’t have to be totally boring. And sometimes the returns can be very nice (8% to 10% , whereas many people typically settle for 1% to 4% returns in the Security Bucket) if you do your homework!

It is my contention that Aesop was writing for the tortoise market. H ares have no time to read.

— AN IT A BR O O K N E R

Boredom comes from a boring mind.

— “T H E ST R U G G L E W IT H IN ,” Metallica

N ow, what if that same company offered me a 12% return to invest in that $2 million property—but for the better rate, it wanted me to loan it $1.5 million instead of $1 million? T hat would make the loan-to-value ratio 75% —obviously I’d get a greater return by taking a greater risk. It means if the market dropped by 25% or more, I might lose some of my investment. N ot likely, but possible. So if I was willing to take the extra risk for an increase in returns, it might be something I’d consider. But I would not put this investment in my Security Bucket. It belongs in the next bucket you’re about to discover: the one that should be wrapped in yellow caution tape and handled with oven mitts, because if you approach it the wrong way, I guarantee you’re going to get burned! But handled effectively, it can speed up your journey to Financial Freedom.

By now you can see why asset allocation is an art, not a science. T he idea of security is totally subjective. Some people think nothing is safe! Others can live with a tiny bit of risk and still feel secure. So you’ve got to look at each investment on an individual basis.

T he real payoff of asset allocation comes when you figure out the right mix of how much of your money you keep safe and how much you’re willing to risk to get greater rewards and have the potential to grow faster. In investing, that’s where you live or die, succeed or fail. So what percentage do you think you should put in your Security Bucket—in safe investments? One-third? H alf? T wo-thirds? Failure to secure a significant portion of your hard-earned money in safe investments can spell financial disaster. C onversely, putting too much in this bucket can significantly slow your growth. H ow do we find the right balance? T hat’s what we’ve been working toward. And now that we’ve locked down the foundation for security, it’s time to really get in the game. It’s time to play to win.

As a quick note, bonds can be such a potentially important investment for your Security Bucket that I wanted to give you a quick bond briefing that might be well worth your review. If now’s not the right time, remember this is here as a reference for you, and skip over to the next chapter. K eep up the momentum! W e’re on our way to bigger risks and potentially bigger rewards.

A FE W W ORD S ABOU T BON D S G entlemen prefer bonds. — AN D R E W ME L L O N , founder of the Bank of N ew Y ork Mellon N ot that long ago, bonds were supposed to be the safest, most reliable form of investment. T hey were the big guns in the portfolios of the ultrawealthy, and

the bedrock of your Security/Peace of Mind Bucket for the average investor. But bonds have taken a bad rap in recent years, and for good reason. W ith the U S government keeping interest rates insanely low, and some of the companies, cities, and even nations that issue bonds teetering on the brink—or even going bankrupt—they don’t seem like such a great deal to everyone anymore.

But most experts still think bonds are an important part of your investment mix. (In fact, they’re the foundation of the mind-blowing portfolio that works in all economic climates, which you’ll learn about in chapter 5.1.) So let’s look at the basic kinds of bonds out there to see what can be great about them—and also what to watch out for.

• U S T reasury Bonds. Many investment experts, including Y ale’s asset allocation wizard D avid Swensen, feel that the safest bonds are good old U S T reasuries, because they are backed by the full faith and credit of the government. D avid told me, “T reasury bonds are really there as an anchor for the portfolio.” But because these bonds are so safe from default, they have smaller returns. And like other, less secure bonds, they can fluctuate in price based on outside events—particularly how much inflation or deflation is happening at the moment.

So suddenly what you thought was a bomb-proof investment can blow up in your face!

T reasuries come in four different types (and they have different names for how long they last to maturity).

1.     T -bills: T hese T reasury bills are government debt obligations that come due in less than 12 months. T hey are the basis for most short-term bond index funds and money market funds.

2.     T -notes: T reasury notes mature in one to ten years, and offer a fixed interest rate (known as “the coupon”). Y ou get interest payments on these every six months.

3.     T -bonds: Same as T -notes, but T reasury bonds mature in ten to 30 years.

4.     T IPS: First created in 1997, these T reasury inflation-protected securities protect you against spikes in inflation. W hen you buy T IPS, the principal (or “par value”) of your bond goes up or down when the consumer price index on inflation changes—and so does your semiannual interest payment. So if you buy $10,000 worth of

T IPS at 1.5% interest, and the C PI doesn’t change in six months, the “par value” of your bond stays the same, and you get a $150 interest payment. But—and here’s the beauty of T IPS!— if the cost of living goes up 2% , your bond is now worth $10,200, and your semiannual payment is $153. If you own a lot of T IPS, and there’s a lot of inflation, that money can add up! H ere’s a chart that shows you how it works:

N otice that the value of the bond can be adjusted down, too. So if we go into another economic recession or depression, you could potentially lose some of your principal if you need to liquidate and get the value of your bond today.

Basically, if you buy T IPS, you’re betting that we’re heading into a period of inflation. D oes that seem likely? If you’re not sure (and, really, nobody ever knows for sure), you may want to do what D avid

Swensen recommends in his ideal portfolio: because T IPS go up in price when interest rates rise (which usually happens during inflationary times), balance them with an equal amount of traditional T reasuries that go down in price when interest rates rise. T hat way, you’re protected in any situation!

Of course, the U S government isn’t the only country that issues bonds to pay for its operations. And in the good old days of a few years ago, a bond backed by the full faith and credit of a sovereign nation used to be considered a fairly safe bet. But now that we’ve had G reece, Spain, and other nations teetering on default—or, like Argentina, plunging over the edge— foreign government bonds have become a riskier deal. Foreign bonds are also more vulnerable to inflation risks, and if you buy bonds in an unstable currency, you might run into big trouble exchanging them back into dollars. Most advisors say to leave these investments to expert traders and hedge funds.

But what about some other bonds that can bring in better returns than plain old T reasuries? Some of the types listed below are safer than others. Y ou can find out what others think about their prospects through a rating system that categorizes bonds by the level of risk to investors.

T here are several internationally recognized bond rating agencies, such as Moody’s, Fitch Ratings, and

Standard & Poor’s, that use special formulas to come up with credit ratings for different issuers—kind of like the way your credit is rated when you apply for a car loan or Visa card. For S&P, the grades range from AAA (the highest level of confidence that a company or country won’t default on its debts) to BBB (adequate for “investment grade” bonds), and all the way down to D (which means the bond issuer is already in default). T he lower the rating, the more interest the issuer usually has to pay to bond holders for the risk that they’re taking. T he expertly renamed high-yield bonds, formerly known as junk bonds, have a rating of lower than BBB, which makes them “subinvestment grade.”

•    C orporate Bonds. C orporations issue bonds when they want to raise money to expand, make acquisitions, pay dividends, fund a loss, or any number of reasons. Should you buy corporate bonds? It depends on the risk. If you pick the wrong bond, you could lose most or all of your money. E ven iconic companies such as T W A and K odak have gone bankrupt. A year after it declared C hapter 11, K odak’s unsecured bonds were selling for 14 cents on the dollar. But bonds from most giant U S corporations are still considered safe bets. Apple (with an AA+ rating) has been selling high-grade bonds to eager buyers—but the interest those bonds earn is only about 1% higher than comparable U S T reasuries! Some investors, like D avid Swensen, say, “W hy bother with corporate bonds when you can get a better return just buying stock in the company?”

But if you’re looking for higher yields in bonds, you have lots of options—as long as these investments go into your Risk/G rowth Bucket and not your Security Bucket! For instance, not everybody shies away from so-called junk bonds. Y ou have to look at each one and decide if it’s worth the risk. In May 2014 Australia’s largest airline, Qantas, offered a subinvestment-grade eight-year bond in Australian dollars for a 7.75% interest rate. T he company had its credit rating downgraded because of recent losses and debt problems, but would you count it out? Or at a more extreme level, in January 2013 in the midst of chaos, there were people who were buying oneyear E gyptian T reasury bills with a

“guaranteed” (a guarantee only as strong as you think an unstable government can make) return of 14.4% . T hose who did this were betting that the U S government and the Saudi Arabian government would keep E gypt stable and solvent.

W ould the rewards be worth the risk of default? T hat’s the kind of decision you’d have to make before buying the junk bond.

Of course, not many of us have the experience or time to do this level of research. T hat’s where a talented fiduciary advisor who’s an expert in the area might come in handy. But there are also domestic and international high-yield bond index funds that can give you good returns while spreading the risk among many bonds.

•    Municipal Bonds. H ow about munis? W hen a state, city, or county needs to raise funds for a big public works project (sewer systems, hospitals, mass transit), it borrows money by issuing a bond. In the past, these municipal bonds were considered a winwin deal for everybody, because the interest they paid was usually exempt from federal and possibly state taxes. But what’s been happening to cities and counties all over the U nited States? San Bernardino and Stockton, C alifornia? Jefferson C ounty, Alabama? D etroit? C hicago? All bankrupt or on the verge, and their bondholders potentially left holding the bag. D oesn’t sound like such a sure thing anymore. Also, when interest rates drop, sometimes the issuer of the bond can “call” it in and pay back your principal before the bond matures. Y ou lose that guaranteed rate of return you were counting on. But once you acknowledge the risks, there can be some great opportunities in municipal bonds if you know where to look.

And the tax advantages can be outstanding.

H ere’s an example that might prove valuable to you: a friend of mine recently bought a N ew Y ork C ity bond where he’s getting a 4% return tax free— which, for someone in a high tax bracket, is the equivalent of an approximately 7% return in a taxable bond! W hy isn’t he worried about the risk? T hese bonds are secured by a lien on future tax revenues. So if N ew Y ork C ity gets into trouble, it has the ability to tax its way out of it and pay him back! H e feels so good about this bond that he’s putting it in his Security Bucket!

T he point is, there are plenty of municipal bonds that could be valuable for you—but you have to educate yourself and sit down with a registered investment advisor or some other knowledgeable investment expert who knows his or her munis.

W ant to take the guesswork out of choosing the right bond mix for your portfolio? Vanguard founder Jack Bogle suggests buying into low-cost, low-fee bond index funds that spread out your risk because you’ll own every part of the bond market. Y ou

 

can see how Bogle puts this concept to work in his own portfolio in section 6, “Invest L ike the .001% : T he Billionaire’s Playbook.” N ow onward to greater risk and potentially greater reward.

 

C HAPT E R 4 .2

PL AY IN G T O W IN : T H E

RISK /G RO W T H BU C K E T

T he winner ain’t the one with the fastest car. It’s the one who refuses to lose.

— D AL E E AR N H AR D T SR .

T he R isk/G rowth Bucket is where everybody wants to be. W hy? Because it’s sexy! It’s exciting! Y ou can get a much higher return in here—but the key word is can. Y ou can also lose everything you’ve saved and invested. So whatever you put in your R isk/G rowth Bucket, you have to be prepared to lose a portion or even all of it if you don’t have protective measures in place. H ow do we know this? Because everything in life, including markets, runs in cycles. T here are going to be up times and down times. And anybody who invests in one particular kind of asset while it’s on a roll—be it real estate, stocks, bonds, commodities, or whatever—and thinks the party will last forever because “this time will be different” should get ready for a rude awakening. W hen I interviewed Jack Bogle for this book, he repeated one of his mantras: “Markets always revert to the mean.” (T hat means what goes up is going to come down, and vice versa.) And I’m sure Ray D alio got your attention when he said that whatever your favorite investment might be, at some point in your life, you can count on it dropping 50% to 70% in value. W hile there’s unlimited potential for upside in this bucket, never forget that you could lose it all (or at least a significant portion). T hat’s why I call this the Risk/G rowth Bucket and not the G rowth/Risk Bucket, because growth is not guaranteed, but risk is!

So what investments would you put in here?

H ere’s a sampling of seven main asset classes to consider:

1.     E quities. Another word for stocks, or ownership shares of individual companies or vehicles for owning many of them at once, like mutual funds, indexes, and exchange-traded funds (E T Fs).

E xchange-traded funds (E T Fs) have been called the “It” girl of the stock market, ballooning in popularity by more than 2,000% from 2001 to 2014, and holding more than $2 trillion in investments. But what exactly are they? E T Fs are built like mutual funds or index funds, because they contain a

diversified collection of assets, but you can trade them just like individual stocks. Most of them follow a theme (small-cap stocks, municipal bonds, gold) and/or trace an index. But with an index or mutual fund, you have to wait until the end of the trading day to buy or sell; E T Fs can be traded all day long. E xperts say that if you like the idea of an index fund, but you want to buy when you see the price is low and sell when the price is high during a trading session, an E T F might be for you. But that’s trading, not investing, and trying to time a market brings very intense and special risks.

But there’s another difference: when you buy shares of an E T F , you are not buying the actual stocks, bonds, commodities, or whatever else is bundled in the fund—you are buying

shares in an investment fund that owns those assets. T hat company promises that you’ll receive the same financial outcome as if you’d owned them yourself. But don’t worry, it sounds more complicated than it is.

A lot of people like E T Fs because they give you a tremendous amount of diversity at a low cost. In fact, many E T Fs have lower fees than even comparable traditional index funds, and sometimes lower minimum investment requirements. And because they don’t engage in a lot of the kind of trading that produces capital gains, they can be tax efficient (although there is a move toward more actively managed E T Fs coming to the market, which makes them less tax efficient).

Should you invest in E T F s? Jack Bogle, founder of Vanguard (which, incidentally, offers many E T F funds), told me he sees nothing wrong with owning broad-spectrum index E T Fs, but he warns that some are too specialized for individual investors. “Y ou can not only bet on the market,” he told me, “but on countries, on industry sectors. And you may be right and you may be wrong.” D avid Swensen wonders why individual investors should bother with E T Fs at all. “I’m a big believer in buying and holding for the long run,” he told me. “T he main reason you’d go into an E T F is to trade. And so I’m not a big fan.”

2.     H igh-Y ield Bonds. Y ou might also know these as junk bonds, and there’s a reason they call them junk. T hese are bonds with the lowest safety ratings, and you get a high-yield coupon (higher rate of return than a more secure bond) only because you’re taking a big risk. For a refresher, go back and read the bond briefing at the end of the last chapter.

3.     R eal E state. W e all know real estate can have tremendous returns. Y ou probably already know a lot about this category, but there are many ways to invest in property. Y ou can invest in a home that you rent out for an income. Y ou can buy property, fix it up, and then flip it in the short term. Y ou can invest in first trust deeds. Y ou can buy commercial real estate or an apartment. One of my favorites that I mentioned to you already is investing in senior housing, where you get both the income and the potential growth in appreciation as well. Or you can buy RE IT s: real estate investment trusts. T hese are trusts that own big chunks of commercial real estate (or mortgages) and sell shares to small investors, like mutual funds. RE IT s trade like stocks, and you can also buy shares of a RE IT index fund, which gives you a diversity of many different RE IT s.

For growth, the N obel economist Robert Shiller told me that you’re better off investing in RE IT s than owning your own home (which belongs in the

Security Bucket, anyway). “Buying an apartment RE IT sounds to me like maybe a better investment than buying your own house,” he said, “because there seems to be a tilt toward renting now.” T hat could change, of course. And, as with any investment, you’ve got to pause and think, “W hat am I betting on?” Y ou’re betting that the price of property is going to go up over time. But there’s no guarantee, so that’s why it’s in the Risk/G rowth Bucket. If it goes up, it could have a nice rate of return; if it doesn’t, you get nothing—or you could lose it all. W hen you buy your own home, you’re betting that the price of your home will go up. W hen you’re buying real estate that has income associated with it (a rental unit, an apartment building, commercial real estate, an RE IT , or an index that holds these), Shiller points out you have two ways to win. Y ou make income along the way and if the property increases in value, you also have the opportunity to make money when you sell on the appreciation.

4.     C ommodities. T his category includes gold, silver, oil, coffee, cotton, and so on. Over the years, gold has been considered the ultimate safe haven for many people, a staple of their Security Bucket, and conventional wisdom said it would only go up in value during uncertain times. T hen its price dropped more than 25% in 2013! W hy would you invest in gold? Y ou could keep a small amount in your portfolio that says, “In case paper money disappears, then this is a little portion of my security.” Y ou know, if all hell breaks loose, and the government collapses under a zombie invasion, at least you’ve got some gold (or silver) coins to buy yourself a houseboat and head to sea. (On second thought, can zombies swim?) Otherwise gold probably belongs in your

Risk/G rowth Bucket. Y ou’d invest in it as protection against inflation or as part of a balanced portfolio, as we will learn later on, but you have to accept the risk. So don’t kid yourself: if you buy gold, you’re betting it will go up in price. U nlike many other investments, there’s no income from this investment like you might get in stocks from dividends or from incomeproducing real estate or bonds. So gold could be a good risk or a bad one, but it goes in your

Risk/G rowth Bucket for sure. T his is not an attack on gold. In fact, in the right economic season, gold is a superstar performer! T hat’s why in chapter 5.1, “Invincible, U nsinkable, U nconquerable: T he All Seasons Strategy,” you’ll see why it can be invaluable to have a small portion of gold in your portfolio.

5.     C urrencies. G ot a yen to buy some yen? Since all currency is just “paper,” currency investing is pure speculation. T here are people who make a fortune in it and even more who lose a fortune. C urrency trading is not for the faint of heart.

6.     C ollectibles. Art, wine, coins, automobiles, and antiques, to name a few. Once again, this asset class requires very special knowledge or a lot of time on eBay.

7.     Structured N otes. W hat are these doing in both buckets? Because there are different types of structured notes. Some have 100% principal protection, and those can go in your Security Bucket, as long as the issuing bank is financially solid. T hen there are other kinds of notes that give you higher potential returns, but only partial protection if the index drops. Say you buy a note with 25% protection. T hat means if the stock market drops up to 25% , you don’t lose a dime. If it goes down 35% , you lose 10% . But for taking more risk, you get more upside: sometimes as much as 150% of the index to which it’s tied. In other words, if the market went up 10% , you’d receive a 15% return. So there’s potential for greater gains, but there’s definitely increased risk. Remember once again, structured notes should be purchased through an RIA, who will work to strip out all excess fees and deliver them to you in the form of an even greater return.

Safety doesn’t happen by accident.

— F L O R ID A H IG H W AY SIG N

W e’ve now covered a sample of some of the investment vehicles/assets that you might find in a diversified Risk/G rowth Bucket. Y ou may be wondering why I haven’t included some of the more daring investment vehicles of our time: call and put options, credit-default obligations (C D Os), and a whole host of exotic financial instruments available to traders these days. If you build up a lot of wealth, you may want to have your fiduciary look into some of these vehicles. But just realize that if you’re playing this game, you’re most likely no longer just an investor, you’ve become a speculator as well. It’s what’s called momentum trading, and you have to realize you can lose everything and more if you play the game wrong. And because the mantra of this book is that the road to financial freedom is through saving and investing for compounded growth, I’ll leave a discussion of these momentum assets for another day.

IT ’S T IME T O G E T IN T H E G AME

Okay, now you know the players that belong in your allocation buckets, and you know the key to building a winning team: diversify, diversify, diversify! But there’s more. Y ou not only have to diversify between your Security and your Risk/G rowth Buckets, but within them as well. As Burton Malkiel shared with me, you should “diversify across securities, across asset classes, across markets—and across time.” T hat’s how you truly get a portfolio for all seasons! For example, he says you want to invest not only in both stocks and bonds but also in different types of stocks and bonds, many of them from different markets in different parts of the world. (W e’ll talk about diversifying across time in chapter 4.4, “T iming Is E verything?”)

And, most experts agree, the ultimate diversification tool for individual investors is the low-fee index fund, which gives you the broadest exposure to the largest numbers of securities for the lowest cost. “T he best way to diversify is to own the index, because you don’t have to pay all these fees,” D avid Swensen told me. “And you get tax efficiency.” Meaning that if you’re investing outside of your IRA- or 401(k)-type account, you don’t get taxed for all that constant buying and selling that goes on in most mutual funds.

H AVE SOME FU N !

Of course, if you have your money machine in full gear, and you have the desire, there’s nothing wrong with setting aside a tiny percent of your R isk/G rowth Bucket to pick some stocks and do some day trading. “Index your important money, then go have fun,” Burton Malkiel told me. “It’s better than going to the racetrack.” But, he said, limit yourself to 5% or less of your total assets or portfolio.

Is all of this giving you an idea of what kind of portfolio mix would be best for you? Before you decide, just remember that we all have a tendency to pile up on the investments that we think will give us our greatest victories. And everybody gets victories. Y ou know why? D ifferent environments reward different investments. So let’s say real estate is hot. Y ou’ve invested in real estate, so now you’re a genius. Stock market is hot? If you have stocks, you’re a genius. Bonds are doing great? If you have bonds, once again you’re an investment master. Or maybe you just landed in the right place at the right time, right? So you don’t want to get overconfident. T hat’s why asset allocation is so important. W hat do all the smartest people in the world say? “I’m going to be wrong.” So they design their asset allocation ideally to make money in the long term even if they’re wrong in the short term.

L E T ’S T E ST Y OU R K N OW L E D G E

In the coming pages, I’ll be showing you the portfolios, or the asset allocations, designed by some of the greatest investors of all time. L et’s start with a sample from someone you’ve been hearing from throughout this book: D avid Swensen, Y ale’s $23.9 billion–plus man, a true master of asset allocation. W ould you be interested in seeing his personal portfolio recommendations? Me too! So when we sat down together in his office at Y ale, I asked him the key question: “If you couldn’t leave any money to your kids, only a portfolio and a set of investment principles, what would they be?”

H e showed me the asset allocation that he recommends for individual investors—one he thinks will hold up against the test of time. H e also recommends this portfolio for all institutions other than Y ale, Stanford, H arvard, and Princeton. W hy? Because these four institutions employ an army of full-time top analysts.

W hen I saw his list, I was amazed by how elegant and simple it was. I’ve shown you 15 types of assets to choose from; he uses only six categories, all in index funds. I was also surprised by how much weight he gave to one particular bucket. C an you guess which one? L et’s activate some of what we’ve learned thus far about the division between the Security and Risk/G rowth Buckets.

H ave a look at the box below and jot down where each asset class belongs. C heck which ones you think belong in the Security Bucket, where you put things that are going to give you modest returns in exchange for lower risk; and then check which belong in the Risk/G rowth Bucket, where there’s greater upside potential but also greater downside.

D avid Swensen Portfolio	Which Bucket?
Asset Class (Index Funds)	Portfolio Risk/G rowthSecurity
	Weight
D omestic stock	20%
International stock	20%
E merging stock markets	10%
RE IT s (real estate investment trusts)	20%
L ong-term U S T reasuries	15%

T IPS (T reasury inflation-           15%                              

protected securities)

L et’s start with the top four. T he first is a broad domestic stock index, something like the Vanguard 500 Index or the W ilshire 5000 T otal Market Index. W here would you put it? D oes it come with risk? Absolutely. H ave you got a guaranteed return? Absolutely not. C ould you lose it all? U nlikely—but it could drop significantly— and it has at times! Over the long term, U S stocks certainly have a great track record. Remember how they compare to owning your own personal real estate? E quities have done well over time, but they are one of the most volatile asset classes in the short run. In the last 86 years (through 2013), the S&P lost money 24 times. So stock index funds belong in which bucket? T hat’s right: Risk/G rowth.

H      ow about international stocks? D avid Swensen putsa lot of weight in foreign stocks because of the diversity they bring to the portfolio. If there’s a slump in America, business may be booming in E urope or Asia. But not everybody agrees with D avid. Foreign currencies aren’t as stable as good old U S greenbacks, so there’s a “currency risk” in investing in foreign stocks. And Jack Bogle, the founder of Vanguard, with 64 years of success, says that owning American companies is global. “T ony, the reality is that among the big corporations in America, none are domestic,” he told me. “T hey’re all over the world: McD onald’s, IBM, Microsoft, G eneral Motors. So you own an international portfolio anyway.” W here do foreign stocks belong? I think we can agree on the Risk/Growth Bucket, no?

E merging markets? D avid Swensen likes to put some money into the volatile stocks of developing nations, like Brazil, Vietnam, South Africa, and Indonesia. Y ou can get spectacular returns, but you can also lose everything. Risk/Growth Bucket? Y ou bet!

H ow about RE IT s? D avid told me he likes “real estate investment trusts that own big central business district office buildings and big regional malls and industrial buildings. T hey generally throw off a high-income component.” So these index funds can generate great returns, but they rise and fall with the American commercial real estate market. W hich bucket? Y ou’ve got it: Risk/Growth.

W hat about the last two on the list: long-term U S T reasuries and T IPS? D o they offer lower returns in exchange for more safety? Spot on! So which bucket do they belong in? Y ou’ve got it: Security.

C ongratulations! Y ou’ve just assigned six major asset classes to their proper allocation buckets, which is something 99.9% of the people you pass on the street wouldn’t be able to do!

Pretty cool thing, isn’t it? But let’s dig a little deeper here to understand why D avid chose this mix, and why it may or may not be right for you.

First let’s look at the Security Bucket. D avid said he chose only U S T reasury bonds “because there’s a purity there in having the full faith and credit of the U S government backing them.” But why did he pick this particular combination of bond funds? H alf are traditional long-term T reasury bonds, and half are inflation-protected securities.

I          said to D avid, “Y ou’re basically saying if I’m going to be secure, I’m going to protect myself against both inflation and deflation.”

“T hat’s absolutely right,” he said. “I can’t believe you saw that! A lot of people who put together bond indexes lump the two together. T he T reasuries are for deflation, like we had in 2008. But if you buy regular T reasury bonds, and inflation takes off, you’re going to end up having losses in your portfolio. If you buy the T IPS, and inflation takes off, you’re going to be protected.”

I want you to notice that D avid Swensen, like all the best, doesn’t know which is going to happen: inflation or deflation. So he plans for both scenarios. Y ou might say as you look at this, “W ell, yes, fifty percent for inflation and fifty percent for deflation. D oesn’t he just break even?” It’s not that simple, but your thinking is quality. H e is using his Security Bucket investment as protection that if his equity investments or real estate go down, he’s lowering his downside by having something to offset some of those investment risks. So he’s certain to make some money in his Security Bucket. And he doesn’t lose his principal, so he’s practicing smart Security Bucket usage. H e won’t lose money, but he’ll make some additional money if things inflate or deflate. A very smart approach.

But I was a bit surprised that only 30% of his asset allocation goes into the Security Bucket, while 70% of his assets go into the Risk/G rowth Bucket! T hat seemed pretty aggressive to me for some investors, so I asked D avid how it would work for the average investor.

“T hat’s a good question, T ony,” he said. “E quities are the core for portfolios that have a long time horizon. I mean, if you look at recent long periods of time—ten, twenty, fifty, one hundred years—you see that the equity returns are superior to those that you get in fixed income.”

H      istorical data certainly back him up. H ave a look atthe visual below that traces the returns of stocks and bonds for periods of 100 and 200 years. It shows that U S stocks have historically outperformed bonds in compounded annual returns. In fact, $1 invested in 1802 at 8.3% per annum would have grown to $8.8 million by the turn of the new millennium.

So D avid Swensen designed his ideal portfolio to be a wealth-generating machine that offers some stability through its tremendous diversity. And because it takes a long-term view of investing, it has the time to ride out periodic drops in the stock market.

I          was curious to see how this asset allocation mix would have fared in the past: those volatile 17 years from April 1, 1997, when T IPS first became available, to March 31, 2014. It was during those years when the Standard & Poor’s index performed like a rodeo bull, yet it dropped 51% . So I had a team of financial experts test its performance against the index during those years. G uess what? T he Swensen portfolio outperformed the stock market with an annual return of 7.86% !

D uring the bear market of 2000 through 2002, when the S&P 500 dropped almost 50% , Swensen’s portfolio stayed relatively stable, with a total loss of only 4.572% over those three terrible years! L ike other portfolios heavy in equities, Swensen’s took a hit in the massive crash of 2008, but it still did better than the S&P 500 by more than 6% , (losing 31% as opposed to 37% ) and then bounced back. (N ote: see the end of this chapter for the specific methodology to calculate the returns. Past performance does not guarantee future results.)

So, ladies and gentleman, it’s safe to say that D avid Swensen is one of those rare unicorns who can actually beat the stock market on a consistent basis—and in this portfolio, he does it with the power of asset allocation alone! And you have access to his best advice, right here, right now. If that was all you got out of this chapter, I think you’d agree it’s been worth the time! H owever, the most important thing to understand is this: even though this portfolio might do better and be more stable than the general market, it is still an aggressive portfolio that takes a strong gut because few people can take a 35% loss of their lifetime savings and not buckle and sell. So is it right for you? If you’re a young person, you might be very interested in this kind of mix, because you’ve got more time to recover from any losses. If you’re getting ready to retire, this portfolio might be too risky for you.

But not to worry. I’m going to give you several other examples of portfolios in the coming pages, including that one particular allocation mix Ray D alio shared with me that practically knocked me off my chair! It was so spectacular that I’ve devoted a whole chapter to it in the next section. But here’s a hint: its mix was much less aggressive than Swensen’s, but when we tested it over the same time frame, the D alio portfolio had a higher average annual return and significantly less volatility—it’s a smooth ride. It may be the H oly G rail of portfolio construction, one that gives you substantial growth with the lowest ratio of risk I’ve seen!

In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.

— T H E O D O R E R O O SE V E L T

But for now, let’s get back to the big picture and look at how you’ll decide your own basic numbers: W hat percentage of your assets are you going to put at risk, and what percentage are you going to secure? Before you make the choice, you have to consider three factors:

•   your stage in life,

•   your risk tolerance, and

•   your available liquidity.

F irst, how much time do you have ahead of you to build wealth and make mistakes with your investments along the way before you need to tap into them? If you’re younger, once again, you can be much more aggressive because you’ll have longer to recover your losses. (Although nobody wants to get in the habit of losing!)

Y our percentages also depend on how much access to income you have. If you earn a lot of money, you can afford to make more mistakes and still make up for it, right?

G AME SH OW T IME : W H AT ARE Y OU W IL L IN G T O RISK ?

And when it comes to risk, everyone has radically different ideas about what’s tolerable. Some of us are very security driven. Remember the 6 H uman

N eeds? C ertainty is the number one need. But some of us crave U ncertainty and Variety; we love to live on the edge. Y ou have to know your personality before you dive in here. So let’s say you’re on a game show; which of the following would you take?

•    $1,000 in cash

•    A 50% chance at winning $5,000

•    A 25% chance at winning $10,000• A 5% chance at winning $100,000

H ere’s another: you have just finished saving for a once-in-a-lifetime vacation. T hree weeks before you plan to leave, you lose your job. W ould you:

•    cancel the vacation;

•    take a much more modest vacation;

•    go as scheduled, reasoning that you need the time toprepare for a job search; or

•    extend your vacation, because this might be your lastchance to go first class?

Rutgers U niversity has developed a twenty-question, five-minute online quiz

(http://njaes.rutgers.edu/money/riskquiz) that can help you identify where you fit on the risk-tolerance scale. But the real answer is in your gut.

For the past 30 years, I’ve been putting on my W ealth Mastery seminars, where I’ve worked with people from more than 100 countries to transform their financial lives by putting them in a total-immersion fourday wealth-mastery process. In it, I like to play a little game with them called “the money pass.” From the stage, I tell the audience to “trade money” with one another. T hat’s all I say. T here’s usually a few moments of silent confusion, and then they start trading. Some people pull out a dollar, some take out a twenty, some people a hundred. Y ou can guess what happens. People are moving around, they’re looking at one another, they decide how to exchange. Some negotiate, some give away all their money, and some take another person’s $100 bill and give them $1. Y ou can imagine the astonished look on that individual’s face. After three or four minutes of this type of trading, I say, “Okay, grab a seat.” And I move on to the next subject.

Invariably, some guy will shout, “H ey! I want my hundred dollars back!”

I’ll say, “W ho said it was your hundred?” And he says, “W ell, we’re playing a game.” And I say, “Y eah. W hat made you think the game was over?” U sually I get a confused look as the person sits down, still frustrated over the lost $100. E ventually they get the insight: their perception of their risk tolerance and the reality are in different universes. T his guy thinks he has a high tolerance for risk, but he can get pissed off over the loss of $100. It always amazes me. Imagine if you were to lose $10,000, $100,000, or $500,000. T hat’s what aggressive investors can lose in a relatively short period of time. People don’t know their true tolerance for risk until they’ve had a real-life experience taking a significant loss.

I’ve taken G od-awful losses—multimillion-dollar hits at a stage in my life when I didn’t have that much to lose, when the losses equaled more than all that I owned.

T hose gut checks will wake you up! But the numbers don’t matter. Y ou can get thrown by losing $100 or $1,000. T he pain of losing far exceeds the joy of winning. And that’s why it’s great to have something like the All Seasons portfolio in your investment arsenal, because, through asset allocation alone, you can significantly reduce the risk of sizeable losses.

Just as science shows us that we’re hardwired to hate losing, it also shows that humans are not good at assessing our potential to win. Sometimes after you’ve made a few successful investments, you start thinking, “H ey, I’m good at this; I can do anything!” It’s just human nature to think you can beat the system. It’s what psychologists call motivational bias. Most of us think we’re better than we really are at predicting patterns and luckier than we really are when there’s a jackpot at stake. W hat else can explain why so many people play the lottery?! A famous 1981 study at Stockholm U niversity found that 93% of U S drivers think their skills are above average. T here’s even a name for this phenomenon: “the L ake W obegon E ffect,” referring to author G arrison K eillor’s mythical town where “all the children are above average.” H ey, who doesn’t think they’re above average! But when it comes to money, delusions that you’re better than everybody else can kill you.

If you’re a man, you’re guilty of this bias by biochemistry. T estosterone equals overconfidence. Study after study show that women tend to be better investors because they don’t overestimate their abilities to anticipate the future accurately. Sometimes confidence works against you. Just watch little boys. “I’m Superman! I’m going to fly! W atch me jump off this roof!” Suffice it to say, if you’re a woman reading this book, you have a built-in advantage!

W hen the markets are going up and up and up, investors can be mesmerized by their returns. E verybody’s seduced by the possibility of growth, thinking it’s the probability of growth. T hat’s where they get into trouble. As a result, they pour the majority or all of their money into investments that fit into the Risk/G rowth Bucket—not just 70% but sometimes 80% , 90% , or 100% . Some even borrow money to make

investments that they believe are going to go up forever, until they don’t. And because of poor asset allocation, with too much of their money riding on one horse, they lose it all or even end up in debt. And the reason people get screwed is that by the time they hear that the stock market (or gold, or the real estate market, or commodities, or any other type of investment) is a great place to go, very often the bubble is just about to end. So you need to put in place a system to make sure you don’t get seduced into putting too much of your money in any one market or asset class or too much in your Risk/G rowth Bucket.

All of this may sound pretty basic, especially to sophisticated investors who feel like they’ve got everything covered. But sometimes it’s high-level investors whose strings of successes send them veering off course. T hey forget the fundamentals.

N aturally, there will always be investors who can’t listen to reason, whose “irrational exuberance” runs away with them. T hey talk themselves into believing the biggest myth of investing: “T his time will be different.” I know dozens of these stories, all with unhappy endings. T ake Jonathan, a friend who made a fortune in business (and whose real name will remain anonymous for his privacy) and then liquidated everything to invest in the booming L as Vegas real estate market. H e had some early wins, so he doubled down and borrowed like crazy to keep building condos. E very time Jonathan came to my financial programs, he heard about the importance of putting some of your wins into your Security Bucket and not putting all your eggs into any one basket no matter how compelling the returns might be today. Jonathan gave credit to me and my Business Mastery programs for the more than 1,000% increase in his business that made all these investments possible. H e made more than $150 million selling his company. But he didn’t listen when it came to taking money off the table and putting it in the Security Bucket, and, boy, did he pay a price. T oday he acknowledges that he let his ego get in the way of his eardrums. H e wanted to be a billionaire, and he knew he was on target to become one. But then, do you remember what happened when the real estate market in L as Vegas collapsed? H ow far did housing prices go down? H ow about 61% between 2007 and 2012. Jonathan didn’t just lose everything—he lost a half billion dollars more than he had.

I sincerely hope all this is sinking in. If there’s anything you should take away from this chapter, it’s this: putting all of your money in the Risk/G rowth Bucket is the kiss of death. It’s why many experts estimate that 95% of investors lose money over virtually any decade. T ypically they ride the wave up (in real estate, stocks, gold), and when the wave disappears, they sink like a rock, and they’re pounded by financial losses during the inevitable crash.

Some people just won’t listen to advice. T hey have to learn the hard way, if at all. But to avoid those kinds of painful lessons, and to help you decide which options are right for you, I have to remind you that a conflict-free, independent investment manager can be the right choice. N otice how professional athletes, men and women at the top of their sport, always have coaches to keep them at peak performance? W hy is that? Because a coach will notice when their game is off, and can help them make small adjustments that can result in huge payoffs. T he same thing applies to your finances. G reat fiduciary advisors will keep you on course when you’re starting to act like a teenager and chasing returns. T hey can talk you off the ledge when you’re about to make a fateful investment decision.

PIC K A N U MBE R, AN Y N U MBE R . . .

Okay, the moment of reckoning has arrived! Say you’ve still got that $10,000 bonus in your hand (or you’ve accumulated $100,000, $200,000, $500,000, or $1 million or more), and you’ve decided to invest it all. K nowing what you know so far, how would you divide it up? W hat’s your new philosophy of investing? W hat percentage of your money are you going to keep growing in a secure environment and what percentage are you willing to risk for potentially greater growth?

Y ou’ve probably heard that old rule of thumb (or what Jack Bogle calls a “crude method”): invest your age in bonds. In other words, subtract your age from 100, and that would be the percentage you should keep in stocks. So if you were 40 years old, 60% should go to equities in your Risk/G rowth Bucket and 40% in your Security Bucket as bonds. At age 60, the ratio should be 40% stocks and 60% bonds. But those ratios are out of whack with today’s reality. T he volatility of both stocks and bonds has increased, and people live a lot longer.

So what should it be for you? W ould you like to be more aggressive with your risk, like D avid Swensen? W ith a 30% security and 70% risk? T hat would mean putting 30% of your $10,000 windfall—$3,000—in Security and 70% —or $7,000—into your Risk/G rowth Bucket. (If you had $1 million, you would be putting

$300,000 in Security and $700,000 in Risk/G rowth.) C an you really afford that kind of split? D o you have enough cash? D o you have enough time? Are you young enough? Or do you need to be a little bit more conservative, like most pensions are, at 60/40? Or is 50/50 right for you? Are you close enough to retirement that you’d want to have 80% in a secure place, and only 20% in riskier investments? W hat matters is not what most people do. W hat matters is what will meet both your financial and emotional needs.

I know, it’s such a personal choice, and even the brightest stars in finance sometimes have to think long and hard about what’s right for them and their families. W hen I interviewed J.P. Morgan’s Mary C allahan E rdoes, I asked her, “W hat criteria would you use in building an asset allocation? And if you have to build one for your kids, what would that look like?”

“I have three daughters,” she told me. “T hey’re three different ages. T hey have three different skill sets, and those are going to change over time, and I’m not going to know what they are. One might spend more money than another. One may want to work in an environment where she can earn a lot of money. Another may be more philanthropic in nature. One may have something that happens to her in life, a health issue. One may get married, one may not; one may have children, one may not. E very single permutation will vary over time, which is why even if I started all of them the first day they were born and set out an asset allocation, it would have to change.

“And that has to change based on their risk profile, because over time, you can’t have someone in a perfect asset allocation unless it’s perfect for them. And if, at the end of the day, someone comes to me and says, ‘All I want is T reasury bills to sleep well at night,’ that may be the best answer for them.”

I said to her, “Because it’s about meeting their emotional needs, right? It’s not about the money in the end.”

“E xactly, T ony,” she said. “Because if I cause more stress by taking half that portfolio and putting it in a stock market, but that leads to a deterioration of the happiness in their lives—why am I doing that?”

“W hat is the purpose of investing?” I asked. “Isn’t it about making sure that we have that economic freedom for ourselves and for our families?”

“T hat’s right, to be able to do the things you want to do,” she said. “But not at the expense of the stress, the strains, and the discomfort that goes along with a bad market environment.”

So what’s the lesson here from one of the best financial minds in the world? W hat’s more important even than building wealth is doing it in a way that will give you peace of mind.

So what will it be? W rite down your numbers and make them real! Are those percentages a comfortable fit? W alk around in them. L ive in them. Own them! Because those percentages are the key to your peace of mind as well as your financial future.

D one?

Okay! Y ou’ve just made the most important investment decision of your life. And once you know what your percentage is, you don’t want to alter it until you enter a new stage of life, or your circumstances change dramatically. Y ou’ve got to stick with it and keep the portfolio in balance. I’ll show you how later in this section.

Are you still concerned about making the right choice? Just remember, you’ve got a fiduciary to help you. And you don’t need tens of thousands, hundreds of thousands, or millions of dollars to get started—you could get started with next to nothing for free with today’s online services.

By the way, I’m not done with you yet! T here are ways to increase your returns within these buckets, and we’re going to get to that.

N ow that you understand these principles, and you’ve made this decision about how much you want to put in your Risk Bucket versus your Security Bucket, let me tell you the best news of all: after interviewing 50 of the most successful investors in the world, the smartest financial minds, I’ve uncovered the ways in which you can get G rowth-like returns with Security Bucket protections. T he most important piece of advice every investor I talked to echoed was, “D on’t lose money!” But for many investors, that means having to settle for mediocre returns in the Security Bucket. In just a couple of chapters, I’m going to share with you how to have the upside without the downside. H ow to have significant growth without significant risk. I know it sounds crazy, but it’s real, and it’s exciting.

As hard as we’ve worked here, I’m happy to tell you that the next chapter is easy and pure pleasure. N ow I’m going to reveal a third bucket that we haven’t talked about yet, but you’re going to love it because it’s fun, inspiring, and can give you a greater quality of life today, not decades in the future. L et’s discover what’s going to go in your D ream Bucket.

D avid Swensen provided the specific percentage for each asset class, but he did not provide the specific indices to represent each asset class. Independent analysts used the following indices to represent each asset class, and it is assumed that the portfolio would be rebalanced quarterly. N ote that past results do not guarantee future performance. Instead, I am providing you the historical data here to discuss and illustrate the underlying principles. 20% W ilshire 5000 T otal Mkt T R U SD 20% FT SE N ARE IT All RE IT s T R 20% MSC I AC W I E x U SA G R U SD 15% Barclays U S L ong C redit T R U SD

 

15% Barclays U S T reasury U S T IPS T R U SD 10% MSC I E M PR U SD

 

C HAPT E R 4 .3

T H E D RE AM BU C K E T

W hen you cease to dream, you cease to live.

— MAL C O L M F O R BE S

W hat’s a D ream Bucket? It’s where you set aside something for yourself and those you love so that all of you can enjoy life while you’re building your wealth. It’s something for today, not tomorrow! Y our D ream Bucket is meant to excite you, to put some juice in your life so you want to earn and contribute even more. T hink of the items you’re saving for in your D ream Bucket as strategic splurges.

W hat would float your boat right now? Maybe you’d buy yourself that pair of Manolo Blahniks you’ve always wanted, or a floor-side seat at a Miami H eat game. Or a VIP tour of D isneyland for the kids. Or you could start filling that bucket for a bigger reward: season tickets. A trip to the mountains in the summer or a ski or snowboarding vacation in the winter. A new car—maybe one that isn’t so practical, like a Mini C ooper or a Mustang. A vacation condo or home.

I know a millionaire who always flew coach because he liked to save a dollar, but his wife complained about it constantly. “W e have plenty of money. W hy don’t we enjoy it?” she said. It was a constant source of strife between them because they traveled so much for business. After attending my W ealth Mastery seminar, he decided to use his D ream Bucket to upgrade to business class when he flew with his family. H e discovered it not only made his travel life more comfortable but also (even more importantly) his home life as well. W ay to flame out, dude! Maybe someday he’d like to consider chartering a private jet instead of flying commercial—and it might not be as expensive as he thinks.

Many people have a lot of money but not much lifestyle. T hey spend their lives watching numbers accumulate in a bank account and miss out on the joy and enjoyment they can create and share along the way.

I remember that when I made my first G rowth Bucket hits early in my career, my idea of a jackpot was to buy two new suits because they were on sale at a Men’s W arehouse–like store. Or maybe take a vacation in H awaii. T hat was a big deal for me back then!

My resort in Fiji was a much bigger dream that came true. As I shared with you, when I was 24 years old, I fell in love with the turquoise waters of the South Pacific islands. It was like my heart had found a home. I wanted a refuge for myself and my friends and family. N ow, over the years, N amale Resort and Spa has become a pretty sizeable asset because I built it up and turned it into one of the top destinations in the South Pacific. But that’s just a bonus. In fact, it’s the number one resort in Fiji for more than ten years, and Oprah selected it as her favorite place to go last year. A jackpot on top of the dream that created it.

Y our dreams are not designed to give you a financial payoff, they are designed to give you a greater quality of life. And isn’t that why you’ve filled the first two buckets in the first place? But you’ve got to practice some restraint here, too. If you take all your money and put it only in the D ream Bucket, you’re likely to end up going broke like W illie N elson. So it’s a matter of balance. And the jackpots in your D ream Bucket don’t have to be just for yourself. T he best jackpots are the ones you give to others.

D reams are the touchstones of our character.

— H E N R Y D AV ID T H O R E AU

Maybe you’re like me, and you just love giving gifts. And the best gifts are the ones that are unexpected.

My mother never had money when she was young, and we always struggled as a family, living in cheap housing east of L A, where the nearly daily smog alerts announced on the news let us know it wasn’t safe to walk outside.

And so one day, after my business started taking off, I asked my mom to help me check out a condo I was thinking of buying on the water in H untington Beach. I walked her through it and showed her the magnificent ocean views. T hen we stepped out on the beach and breathed the salt air.

“I really love this place, but I want your final word,” I told her. “W hat do you think?”

“Are you kidding?” she said. “T his is incredible! C an you imagine coming from where we came from, and now you’re going to live here?”

“So you think it’s the right place, Mom?” “Oh, it’s unbelievable!” T hen I handed her the keys.

“W hat’s this?” she asked.

“It’s yours, Mom.”

I’ll never forget the look of astonishment on her face and then tears of joy. My mom has passed away now, but I still remember those moments so vividly as some of the favorite of my life.

Y ou don’t have to wait. Y ou could do this, too. Y ou can fulfill your dreams. If you want it badly enough, you’ll find a way.

N ot long after I gave my mother that condo, I met with a group of a hundred or so fifth graders from a poor neighborhood at a school in H ouston, T exas. Most of them were on a track that would never get them to college. So I decided then and there to make a contract with them. I would pay for their four-year college education if they kept a B average and stayed out of trouble. I made it clear that with focus, anyone could be above average, and I would provide mentoring to support them. I had a couple of key criteria: T hey had to stay out of jail. T hey couldn’t get pregnant before graduating high school. Most importantly, they needed to contribute 20 hours of service per year to some organization in their community. W hy did I add this? C ollege is wonderful, but what was even more important to me was to teach them they had something to give, not just something to get in life. I had no idea how I was going to pay for it in the long run, but I was completely committed, and I signed a legally binding contract requiring me to deliver the funds. It’s funny how motivating it can be when you have no choice but to move forward. I always say, if you want to take the island, you have to burn your boats! So I signed those contracts. T wenty-three of those kids worked with me from the fifth grade all the way to college. Several went on to graduate school, including law school! I call them my champions. T oday they are social workers, business owners, and parents. Just a few years ago, we had a reunion, and I got to hear the magnificent stories of how early-in-life giving to others had become a lifelong pattern. H ow it caused them to believe they had real worth in life. H ow it gave them such joy to give, and how many of them now are teaching this to their own children.

I’m telling you this because you don’t need to wait until you’re absolutely ready to fulfill your dream. Y ou just do it, and you find a way, and grace will find you.

G race comes when you commit to doing something that will serve more than just yourself —some would call it luck or coincidence. I leave it to you to decide what to believe. Just know that when you give your all, the rewards are infinite. I really believe motive does matter. But it doesn’t mean that it can’t benefit you too, right?

Jackpots can help you create more wealth, because the

key to creating wealth is to unleash your creativity and find a way to do more for others than anyone else is doing. If you find a way to add more value than anyone else, you can also find a way to prosper personally. T hat can apply to your own life as well as the lives of others. Remember when we talked about speeding up your plan, how if you wish to be great, learn to become the servant of many? W e already know that life supports what supports more life. And by supporting life, you lift yourself up as well, and more bounty comes to you.

G ive yourself peace of mind. Y ou deserve to be happy. Y ou deserve delight.

— H AN N AH AR E N D T

So how do you fill your D ream Bucket? L et’s talk about three ways. First, when you score a big hit, like that $10,000 bonus we were talking about earlier in the last chapter. Or, second, if your Risk/G rowth Bucket gets a positive hit, and you score big. Just like in Vegas, it might be time to take some of the risk off the table. An approach many of my students use is to take those profits, divide them up, and invest them back in a fixed proportion: say, one-third in Security, one-third in Risk/G rowth, and one-third in D ream. In the case of that bonus, that would be about $3,333 for your D ream Bucket.

By putting one-third of your Risk/G rowth Bucket money into Security, it’s like taking money off the table to help speed the growth of your most secure investments, and with it your peace of mind. By leaving one-third in G rowth, you continue to take risks with a potential larger upside, but you’re doing it with your winnings. By putting one-third in your D ream Bucket, you’re creating a jackpot that you can enjoy today. T his will stimulate and excite you in ways that will likely cause you to want to earn more, save more, and invest even more effectively—because of the rewards today, not just some day in the future.

T he third way to fill your D ream Bucket is to save a set percentage of your income and sock it away, building it up until you’re able to purchase your dreams—whether that be your first home, a car, a vacation, or those fun little items that will light you up today. But keep in mind, this is not taking any money out of what you are already saving for your Freedom Fund. T hat’s sacred and untouchable money! But you can find ways to increase the amounts you can put in your Freedom Fund and your D ream Bucket. H ere’s a quick reminder from the “Speed It U p!” chapters:

•   Save more and invest the difference.

•   E arn more and invest the difference.

•   Reduce fees and taxes and invest the difference.

•   G et better returns.

•   C hange your lifestyle.

So you can take some of those savings to invest, and some of those savings to make your dreams a reality today or in the near future.

W hat will be your strategy to fill this bucket? W ill you wait for a bonus or a stock market score, or will you set aside a percentage like my friend Angela? At first she thought she had no money she could possibly save even toward her financial freedom.

But by the time she went through the process of this book, she saw that relocating to Florida would save her enough money in state income tax that she could now set aside 10% of her income for her Freedom Fund and still earmark an additional 8% for her D ream Bucket. T he tax man was now filling her D ream Bucket. H ow

cool is that? Plus, she’s got better weather, too! She went through her accounts and figured out a way to become even more tax efficient to be able to put an additional 2% into her Freedom Fund for a total of 12% , on top of the 8% she was saving toward her dreams.

If you would have told her in the beginning that she would have found a way to save 20% , she would have said you were absolutely crazy. But today she not only has her future secured but also is saving for some important dreams in the short term that excite her. H iking in the H imalayas and rowing across the ocean. H er degree is in anthropology, and she’s always dreamed of spending time with famed paleontologist L ouise L eakey at her institute in K enya. She was even invited. She just doesn’t have the money right now. But if she sticks to her fiscally sound plan, she will. H ow cool to be able to be financially secure and independent, and, at the same time, live this life of adventure? Remember the strategy of Save More T omorrow? Y ou can decide that in your next salary increase, maybe 3% could go to your Freedom Fund, and maybe 1.5% or 2% could go to your D ream Fund— especially if there are some dreams that are important to you now, like saving for the down payment on your first home or a vacation getaway. T here are so many ways to do it!

But let me tell you the secret: the most important thing is to make a list of your dreams. Put them in order of importance, big and small, short term and long term. W rite down why you must achieve them or experience them. I’ve found that if you try to figure out a percentage to save without really knowing what you’re saving for, it’s not going to happen. T he secret is to know what you truly want and why you want it, and make it a burning passion. Suddenly your creativity will be unleashed, and you’ll find new ways to earn more, to save more, to add more value, to become more tax efficient, to become a better investor, or to make a lifestyle change that improves your life and gives you some of your dreams today, and not in the future. T hat’s the key to it all.

But decide today! T ake a moment now and make a list of your dreams. W rite them down so they become real to you. H ow much would you be willing to save for them? G et excited, and get started!

E very great dream begins with a dreamer.

— H AR R IE T T U BMAN

In the end, what percentage of your total assets do you think should go in your D ream Bucket? It doesn’t have to be much—maybe as little as 5% or 10% . But please don’t forget to reward yourself. W hile it’s important to keep your money safe and growing, never forget to have fun, to give, and to live your life fully on your path to financial freedom. T hat’s what it’s all about. D on’t save your D ream Bucket for “a rainy day.” W hy not get out and soak up the sunshine?

If you don’t, you could end up like a couple that a friend of mine told me about. T hey scrimped and saved their whole lives, and then finally decided they had enough to afford a fantastic C aribbean cruise. It was a weeklong trip on one of those giant cruise liners, hopping around the islands. Y ou can picture it: the ship had swimming pools, a climbing rock, dozens of restaurants and discos. T he couple was so excited, but they still wanted to be prudent with their capital, since they’d worked so hard to save for their retirement. T hey didn’t want to spend extra money on the lavish meals. T he trip by itself was a big enough splurge for them. So to save money, they loaded their suitcases with boxes of cheese and crackers to snack on during the cruise and vowed to avoid those expensive dinners.

T he weather was perfect, and the couple had a great time with all the activities on board. But every lunch and dinner, when everybody else was eating incredible feasts served up on huge buffet tables—shrimp, lobster, prime rib, mountains of desserts, and fine wines from around the world—the two of them went back to their room and  •    could have more than twice as much money when you retire or cut years off the time it will take you to get to financial freedom. L et that soak in for a second!

•    W e have learned the difference between a butcher anda dietitian—between a broker and a fiduciary. And now we know where to go to get transparent advice (that may also be tax-deductible).

•    W e learned how to drastically reduce our 401(k) fees by using a low-cost provider like America’s Best 401k. Y ou can see how your plan stacks up by using the industry’s first fee checker

(http://americasbest401k.com/401k-fee-checker). Again, these cost savings will compound our total account balance and put money back in our family’s pocket. (For business owners, we showed how you can get yourself compliant with the law and drastically reduce your liability.)

•    W e learned about the Roth 401(k) and how we canprotect against rising taxes by paying the tax today and never paying tax again (not on the growth or the withdrawals).

•    W e learned that target-date funds (T D Fs) are not onlyexpensive but also may be more aggressive or volatile than you think. And if you want to use a T D F, you should stick with a low-cost provider like Vanguard. L ater, in the “Billionaire’s Playbook,” you will also learn how to put together your own asset allocation instead of paying a T D F to do it for you.

•    W e learned that variable annuities are a mutant evolution of a 2,000-year-old financial product but that other more traditional (fixed) annuities can provide what no other product can: a guaranteed lifetime income stream!

•    And finally, we learned that wealth without risk is apossibility. Sure, there is risk in everything, but we learned that certain structures will allow us to participate when the market goes up and not lose when it falls!

Are your eyes beginning to open? H as the blindfold been removed? H ow will your life be different now that you know the truth? Shattering these myths is the groundwork for creating true financial freedom. I want you to see, hear, feel, and know that the game is winnable. If these myths are unsettling, good! T hey were for me when I first discovered the truth. L et them drive you forward to make financial freedom a must in your life, and to declare that you will never be taken advantage of again.

W e will take it up a notch and have some fun in section 3. It’s here where we will make our dreams become more of a reality by putting in place a plan that is both doable and exciting. And if it’s not happening fast enough for you, we will show you how to speed it up and bring it closer into your future.

But first, the last and final myth must be put to death. But unlike the others, it’s not one that someone else has sold you. It’s the story you have sold yourself. It’s whatever myth or lie has kept you from taking action in the past. It’s time for a breakthrough! L et’s shatter your limits by discovering the lies we tell ourselves.

C HAPT E R 2.9

MY T H 9: “T H E L IE S W E T E L L O U RSE L V E S”

Seek truth and you will find a path.

— F R AN K SL AU G H T E R

Okay, let’s get real here. W e’ve just gone through all of the marketing and investment myths that have been promoted for years, at great expense to us, and to the benefit of big institutions. And my bet is that right now you’re probably shocked, but you feel incredibly empowered. Y ou now know what to avoid and what to do to succeed.

But there’s one final myth to tackle. T he myth that says the reason we’re not succeeding, not achieving, not growing is because of someone or something else beyond our control. Or the alternative thought that somehow we just aren’t made of the stuff that can help us master this area of our life. But here’s the truth: the ultimate thing that stops most of us from making significant progress in our lives is not somebody else’s limitations, but rather our own limiting perceptions or beliefs. N o matter how successful we are as human beings, no matter how high we reach personally, professionally, spiritually, emotionally, there’s always another level. And to get there, we have to be honest with ourselves; honest about our unconscious fears. W hat do I mean?

E verybody has a fear of failure at some level; at times we’ve all been fearful that perhaps we are not enough. E ven when we know what to do, our fear can keep us from executing our plans. As a result, rather than face our natural fears, what do we do? W e come up with stories. Stories about why we’re not where we want to be. W hy we’re not smart enough, successful enough, thin enough, rich enough, loved or loving enough. Our stories almost always relate to something outside our control, or our lack of some natural talent or ability. But talent and skill are two key elements to success attainable by anyone who is truly committed. Y ou can get the skill if you can get beyond the mental limits of how hard, difficult, or “impossible” it may be to master something.

Y ou’ve made the single most important financial decision of your life by deciding precisely how much you’re going to save to build your Freedom Fund—so you can tap into that and create a money machine that makes money while you sleep. And we’ve taken the time to look through all of the marketing myths that can trip you up along the way. So what’s left? T he last thing out there standing in our way is often our own story, our own limitations, our own fears. T he final obstacle to face is ourselves. T hat’s why, for 38 years, my passion has been helping people to break through from what holds them back—to help them get from where they are now to where they want to be, and faster. My whole life has been committed to helping people create breakthroughs. And frankly, while lots of people make this step complex, I’ve found there are only three elements that make the difference between success and failure in the long run––between whether you stay where you are, or you move forward. W hether you make excuses about what you don’t have or whether you get to enjoy the life you deserve.

BRE AK T H ROU G H S

So what is a breakthrough? A breakthrough is a moment in time when the impossible becomes possible—when you don’t just talk about something, but you finally take massive action and do whatever it takes to make it happen. Y ou make a move to truly change and improve your world.

Often it’s frustration, anger, or stress that triggers a breakthrough. W e hit our threshold: a point where we say, “N ever again and no more.” Or inspiration strikes: we meet someone who inspires us and that makes us see how life can be so much greater than we ever dreamed possible. Y ou meet someone who enjoys life fully, has a great relationship, is physically fit or financially free, and you decide, “I’m as smart as he or she is. I’m going to find a way.” W hat was acceptable before no longer is. T here’s no going back now. It’s amazing what you can do when you decide to draw a line in the sand, commit to a new goal, and set a new standard.

Most people say, “It took me ten years to make this change.” But the truth is, it didn’t take ten years for a breakthrough. T rue transformation happens in a moment. It may have taken you ten years to get to the point where you were ready, or open, or maybe even provoked. But we’ve all had breakthroughs in our lives, and those breakthroughs happened in a single moment. W e struggle with something for years—a job or a career, our weight or a relationship. W e’re miserable until one

day a trigger goes off. Suddenly, “T hat’s it.”

“I love you!”

“I quit!”

“I’m in!”

“L et’s begin!”

N ot within a day or an hour, but in that moment your life changes—and it changes forever.

H ave you ever stayed in a relationship way too long, even though you knew you were unhappy, and so was your partner? Y ou came to the edge of dealing with it, and then the fear of the unknown, of change, of being alone, stopped you. T he fear of loss and uncertainty kept you from taking action, and you settled.

W hatever you struggle with, I know there’s a place where you’ve had a breakthrough before. T ake a moment to think of one. W hat’s an area you used to struggle with—daily, weekly, monthly, for years or even a decade or more, until one day you hit your threshold? Y ou became inspired, or fed up, enough to finally make a real decision to change this area once and for all! And you took massive and immediate action to make a change. Y ou got it done. Y ou finally kicked the habit and quit smoking. Or you left a job that made you miserable and started your own business. Or maybe you finally decided to start exercising and change your body or get yourself out of that bad relationship.

I want you to own that breakthrough. T here was a time when things seemed like they couldn’t change, but you did it—you made it happen. Y ou do have the ability to change everything in your life. N o matter how long it’s been this way, you can change it all in a moment, a moment of real decision, a decision that is acted upon. T hat’s a breakthrough, and one is waiting for you right now.

T H RE E ST E PS T O C RE AT IN G Y OU R BRE AK T H ROU G H

T here are three steps to creating a breakthrough: three forces that, together, can massively change any and every aspect of your life. Any one on its own can work, but if you put all three together, you will absolutely change the aspect of your life that you choose to focus on.

W hat are the three biggest challenges people face in America? W hat are the three areas that show up over and over again, causing pain in people’s lives? Our finances, our relationships, and our bodies. H ow many people do you know who struggle with money, who can’t save, who don’t earn enough, who spend too much, or who can’t figure out what to do next with their career? And what about relationships? Men and women, we are wired so differently—if we don’t understand each other, it can take so much work to maintain healthy intimate relationships, to understand what our partner really needs and wants, to communicate in a loving and supportive way. And then there are our bodies. W e live in a time where the majority of people in the W estern world are massively overweight. In the U nited States, nearly seven in ten Americans are either overweight (defined by the C enters for D isease C ontrol and Prevention as having a body mass index of 25.0 to 29.9) or obese (having a BMI of 30.0 or higher). Our struggle with fitness and health has become a national crisis, and it’s spreading around the world as developing countries adopt some of our lifestyle and eating patterns.

W hy do I bring this all up? W hat do relationship challenges and unhealthy eating habits have to do with your ability to achieve financial freedom? W ell, whatever area you want to create a breakthrough in, whether it’s your body, your relationships, or this book’s focus, money, there are only three things that you need to look at. And they are the same three things no matter what kind of breakthrough you’re hoping to achieve. If you want to change your life you have to change your strategy, you have to change your story, and you have to change your state. L et’s begin with strategy, because that’s where most people start.

T H E RIG H T ST RAT E G Y

If you’re with me here now, reading this book, you’re in search of answers, of strategies, to take control of your money and secure your financial future. I live for finding strategies to improve every area of our lives. I’ve spent the past 38 years relentlessly focusing on finding strategies and tools to immediately change the quality of people’s lives. I’ve been successful and impacted over 50 million people in 100 countries because I’m obsessed with finding simple strategies that quickly lead to breakthroughs—breakthroughs in relationships, in finances, in careers, in growing businesses, in mind, body, and soul.

I’ve always believed the best way to get a result, the fastest way, is to find someone who has already accomplished what you’re after, and model his or her behavior. If you know someone who used to be overweight but has kept himself fit and healthy for a decade, model that person! Y ou have a friend who used to be miserable in her relationship and now is passionate and in love for ten years going? Model her. Y ou meet someone who started with nothing and has developed wealth and sustained it through time? L earn from those strategies! T hese people aren’t lucky. T hey’re simply doing something different than you are in this area of life.

I’ve spent my entire life as a hunter of human excellence. So to find a strategy that works, you go to the best; those who have proven results for the long term. And if you follow their strategies—if you sow the same seeds, then you’ll reap the same rewards. T his is the essence of what I mean when I say, “Success leaves clues.” And this book is filled with strategies modeled from the very best.

T he other thing the right strategy can do is save you the most valuable resource of all: time. If you start with a proven plan, the right strategy, you can literally convert decades of struggle into days of achievement. Y ou can avoid the inevitable frustration that comes with learning something for the first time by trial and error. Instead, you can get results in days, instead of years, by learning from people who have achieved success already. W hy reinvent the wheel?

So now there’s the question about the power of strategy. And if you read this book, you’ll have the best financial strategies that exist in the world today. I promise you that: because they’re not my strategies, they’re the strategies of the most successful investors in history. But as obsessed as I am with strategy, I know that strategy alone isn’t enough.

W hy not? T here are two key challenges to thinking that strategy alone can change your life. First, too often people have the wrong strategy, which inevitably ends in disappointment. Y ou’re trying to lose weight by eating 500 calories a day—which, of course, isn’t sustainable. Or you’re sure you’re going to get rich off one hot stock— highly unlikely.

W here do most people go to learn strategy? W here do we look for advice and guidance? T oo often from someone who isn’t successful in the very area we want to improve! H ow often do people get relationship advice from friends who are in lousy relationships themselves? Or fitness advice from a friend who struggles with his weight, too? H ow many people hear the message reinforced that they can’t change their body? W hy that message? Because they’re surrounded by friends or family who aren’t fit. T he same is true for financial advice. L ooking to someone who has not developed real wealth is a recipe for disaster. It simply reinforces the belief that nothing will work. It’s not that nothing will work—it’s that these strategies won’t work.

H owever beautiful the strategy, you should occasionally look at the results.

— W IN ST O N C H U R C H IL L

T H E POW E R OF ST ORY

L et’s go back to our biggest challenges: our relationships, our bodies, and our finances. In each of these areas, we get stuck for one of three reasons. First, as we showed above, we lack the right strategy. W e all know a couple where the guy doesn’t communicate or the woman never stops talking. N either of them understands the needs of his or her partner, much less meets those needs. And what about the friend who goes on fad diets constantly or is always looking out for a magical way to make a million bucks—telling himself that without it he’ll never be financially free. W ithout the right strategy, you will fail. And when you fail, you develop a lousy story: “My wife will never be satisfied.” “I’ll never lose the weight.” “T he only people who make money are the ones who already have money.” T hose limiting stories keep us from finding the right strategies, or, even if we have the right strategies, from executing them.

D o you know anyone like that? Y ou put the answer right in front of their very eyes, and they still say, “N o, that will never work because . . .” T hey’ll tell you a million reasons why it won’t work—they’ve got every excuse in the book. So if the right strategies are there in front of us, why aren’t people using them? W hy are they still not achieving their goals? W hy is it so hard to maintain a passionate relationship or lose the weight once and for all? Are 70% of Americans overweight because the strategy for becoming thin, fit, and healthy is really so complex? Is the information hidden and only available to the 1% , or incredibly expensive? H ell, no. T he answers are available everywhere: T here’s a gym with someone who can instruct you within a short drive. (G od forbid we were to walk there.) T here are trainers all over the world, some of which will coach you online, wherever you are! T he web is filled with free advice, and, of course, there are thousands of books on fitness and weight loss available for you to download right now to your iPad or smartphone. Y ou have to work to avoid finding the strategies for becoming fit, strong, and healthy.

So what’s the real problem? T he answer is: we have to bring in the human factor. I always say that 80% of success in life is psychology and 20% is mechanics. H ow else do you explain how someone can know what he needs to do, wants to do it, has the right strategy to get it done, and still not take action? T o solve this riddle we have to delve into the psychology of individuals: the values, beliefs, and emotions that drive us.

W hen someone has the right strategy in front of her, and she still doesn’t succeed, it’s because she’s missing the second key to a breakthrough: the power of story. If you’re not taking action and the answer is sitting there in front of you, there’s only one reason: you’ve created a set of beliefs that you’ve tied into a story—a story about why it won’t work, why it can’t work, why it only works for other people. It’s only for the rich, the thin, the lucky, the happy in relationships. It’s easy to come up with a limiting story.

So why bother to take action on a strategy that you “know” will fail? W ell, strategy here isn’t the problem. Y our story is. A half-hearted approach that says, “It might work, or it might not . . .”—of course it won’t! T hat belief becomes a self-fulfilling prophecy. W ith a disempowering story, failure is nothing less than guaranteed. W hich, of course, only reinforces your belief that nothing will work. And so the cycle continues.

But the people who make change happen, who get stuff done, who accomplish, who shift, who grow, who learn, they take their strategy and attach a new story to it: a story of empowerment, a story of “I can and I will” instead of “I can’t and I won’t.” It goes from being a story of limitation to a story of empowerment: “I will not be one of the many who can’t, I will be one of the few who do.”

T here was a time when I was 38 pounds overweight, and my story was, “I’m big-boned.” W hich I am. But I was also fat. Stories can be true, but if they don’t help us, if they’re stopping us from having the life we desire and deserve, we have to change them. W e’ve all had lousy stories in our lives.

I don’t make enough.

I can’t save more.

I’ll never read. I’ve got dyslexia.

My friend Sir Richard Branson, chairman of the Virgin empire, has dyslexia, but it certainly hasn’t limited his life in any way. W hy? Because his belief or story about dyslexia was empowering, not limiting. H is story wasn’t “I’ll never read,” it was “I have dyslexia, so I have to work harder to make everything happen—and I will.” Y ou can use your story, or your story can use you. E verybody has got an empowering story if he or she wants to find it. W hat’s wrong with your life is just as easy to find as what’s right with your life, when your story changes. If your relationship isn’t working out, all the good guys are gone, or they’re gay and you’re not. Or you’re gay and they’re not. T here’s always a story, right? Stories control our emotions, and emotions drive all of our behavior and actions.

L et me ask you a question: D o you worry about money? D oes it keep you up at night, stress you out thinking about your next paycheck, your car payment, your kids’ college tuition, or whether or not you’ll ever have enough money to be able to retire? W hat’s your financial stress really like? According to the American Institute of C ertified Public Accountants (AIC PA), 44% of Americans, nearly half of us, report “high levels” of financial stress. H ave you ever thought to yourself, “All this stress just might kill me?”

K elly McG onigal, a health psychologist at Stanford U niversity, warned about the dangers of stress for a full decade before she realized that maybe it was her advice, rather than stress itself, that was sending people to their graves faster. “I’m converting a stimulus [stress] that could be strengthening people into a source of disease.” W ith a breakthrough in her thinking, and some powerful new research, McG onigal made a complete turnaround.

T urns out, stress might just be our friend. Just as you put stress on a muscle to make it stronger (by lifting weights or running), emotional stress can make us physically and psychologically stronger too. McG onigal now highlights new research showing that when you change your mind about stress, you can literally change your body’s physical reaction to it. In an eight-year study, adults who experienced a “lot of stress” and who believed stress was harmful to their health had a 43% increase in their risk of dying. (T hat sure stressed me out.) H owever, people who experienced an equal amount of stress but did not view stress as harmful were no more likely to die! McG onigal says that physical signs of stress (a pounding heart, faster breathing, breaking out in a sweat) aren’t necessarily physical evidence of anxiety or signs that we aren’t coping well with pressure. Instead, we can interpret them as indications that our body is energized and preparing us to meet the next challenge. T he bottom line is, science has now proven that how you think about stress matters—the story you attach to stress. T elling yourself it’s good for you instead of harmful could mean the difference between a stress-induced heart attack at 50 or living well into your 90s.

Success is my only mofo option, failure’s not.

— “L O SE Y O U R SE L F ,” E minem

So what story have you been telling yourself about money? W hat’s stopping you from achieving your financial dreams? Are you telling yourself that it’s too early to start saving? Or too late to start rebuilding your investments? Y ou’re not making enough salary to put anything aside? Or the system is rigged against you, so why bother trying? Maybe your story is, “T he government has saddled us with debt, the financial system is in shambles,” or “I’m just not good with numbers.” G reat news: you don’t have to be! If you’ve got a phone and a calculator or can download our app on your phone, to answer six simple questions about where you are today, where you want to go, and what you’re willing to do to get a financial plan that you’ll clearly understand about how to be financially free.

Maybe your story is “It takes money to make money.” One of the first people I shared an early version of this book with had a core belief of “I will never be financially free unless I have a way to make a lot of money. People who start with a lot of money can make millions, but not me.” After she read the chapter on building your own money machine with T heodore Johnson—who never made more than $14,000 a year yet turned it into $70 million over his lifetime—her story went out the window. T heodore wasn’t lucky. H e used a simple system, the same one you’re about to learn.

H ere’s her new story, and it could be yours: “If I just happen to use this simple system of compounding, I can make a lot of money, I can go wherever I want, I can live however I truly want, I can be financially free. T here are no limits except the ones I impose on myself.”

One of my own financial breakthroughs happened with an important change in story. G rowing up poor, I always associated a lack of money with pain for everyone in the family. I swore to myself early on I would never have a child until I was truly financially successful. I swore that someday I would be so successful financially that my family would never ever experience the humiliation, frustration, and pain of my childhood years of not being able to pay the bills or put food on the table.

And I made good on my promise. By the time I was 18 years old, I was earning as much as $10,000 a month, which at the time seemed like a huge amount of money. It still is. I was so excited, I ran back to my friends from my community, the guys I had grown up poor with, and said, “L et’s go have a blast: let’s fly to E gypt and race camels between the pyramids!” I had had this dream as a little boy. And I could now share this dream with my friends. But the response was hardly what I was expecting: “E asy for you, Mr. Rich Man.” T he level of disdain I got from guys I considered to be friends shook me to my core. I wasn’t flaunting my money. I simply wanted to share my abundance with my friends and create an experience of real adventure. But I had to reevaluate. I created a new story: a belief that said you can do well but only so well, or else people will judge you. If you stand out and do too well financially, people won’t like you.

So for years, I did well in my life and businesses, but my income didn’t grow significantly. U ntil I finally hit a tipping point, a stage in my life where I thought, “T his is ridiculous. If I could expand my intelligence, should I?” My answer was, “Of course!” If I could experience and give more love, should I? Of course! If I could expand my ability to give, should I? Of course. If I could earn more and expand my financial wealth, should I? And the answer was, “Of course!” For the first time, I felt hesitancy. W hy was it that in every other area of my life it seemed natural to expand and become more, but when the issue came to money, suddenly it was different? W hy? It made no sense.

But I knew the truth. I had a deep, unconscious fear that people would judge me because I had expanded in this area as well. I wanted to please everyone, I wanted to be loved so badly that subconsciously I not only made doing well financially something wrong but also subconsciously sabotaged my own success. L ike so many people, I told myself that money was not spiritual. H ow crazy is that? Anyone who’s become truly wealthy knows the truth—the only way to become wealthy, and stay wealthy, is to find a way to do more for others than anyone else is doing in an area that people really value. If you become a blessing in other people’s lives, you too will be blessed. Money is only one of those blessings, but it is a blessing. It’s simply another form of freedom and abundance.

Money is nothing more than a reflection of your creativity, your capacity to focus, and your ability to add value and receive back. If you can find a way to create value—that is, add value for a massive number of people—you will have an opportunity to have a massive amount of economic abundance in your life.

I had to hit that threshold where I was tired of living that way and where I saw the absurdity of trying to fit in. It’s true: if you do well financially, you may be looked at as “the 1% .” In my life, as a kid, being a part of the 1% was something that was aspirational. I came from the 99% , I just wasn’t willing to settle for that, for my family or for my life. But staying there just to fit in—well, that didn’t make any sense. I decided I was tired of blaming others for my lack of financial progress. T he story I had of my financial limitations had to go. I would love others, but I would not spend my life trying to please them— especially knowing that to please them I would have to play small. I don’t believe in my heart that our creator made us for that. It was time for me to find a way to earn more in the same way I strove to give more, contribute more, love more, and expand my intellectual, emotional, and spiritual capacity.

W ith that shift in belief, suddenly—when it was clear that this was not a should to conquer this area, but a must —along with the relational areas of life, strategies started showing up in front of me; they’d probably been there all along, but because of my mind-set, I was blind to them. Y our whole world changes when you change your story.

C hange your story, change your life. D ivorce the story of limitation and marry the story of the truth, and everything changes. I can tell you: when you get rid of the limiting stories, take massive action, and find the strategies that work, the results you can create are truly miraculous.

L et me give you one final example. A dear friend of mine, Julie, a successful screenwriter who gets paid top dollar for her work, could never seem to make any financial headway. By the time she and her husband were in their 50s, they had a modest mortgage on a nice home, but only about $100,000 in an IRA—way, way short of what they’d need to retire. And their money was invested in a “socially responsible” mutual fund that charged high fees and ate up most of their returns.

Julie’s husband, C olin, wanted to invest more aggressively, but Julie wouldn’t even talk about finances with him. She told him she hated W all Street and everything it stood for. In fact, the whole idea of money made her uncomfortable. T o her, money was evil.

But then a breakthrough happened. Julie attended my seminar U nleash the Power W ithin (U PW ), where we use the power of Strategy, Story, and changing the State of your mind, body, and emotions to create breakthroughs in every area of people’s lives. U PW is intense: I use music, dynamic movement, humor, and a host of other tools to put the audience in a peak state— and that’s when breakthroughs happen.

Julie’s goal that weekend was to turn her financial life around. H ow did she do it? First, she recognized that something had to change, or she and C olin were looking forward to some very painful “golden years.” It finally hit her that her negative beliefs about money were creating constant pain in her marriage and in her future, and she asked herself, “W here did this story come from?” And then Julie did something really important: she dug down deep and asked herself, “Is this what I really believe? W e are not born believing money is good or evil. So where did this belief come from?”

She didn’t have to go very far to find the answer. Both of Julie’s parents grew up during the G reat D epression. H er mother never got the chance to go to college even though her academic scores were off the charts. Instead, she worked as a department store clerk for $9 a week, and didn’t dare complain about the low wages or long hours on her feet. Julie grew up hearing the stories over and over: how the rich exploit the poor, how banks and W all Street stockbrokers destroyed the economy, how you can’t trust the stock market. So Julie made the association in her brain: “If I become a wealthy investor, I’ll be a bad person, and my mother won’t love me.”

Julie realized that the story she’d been telling herself about the evils of wealth wasn’t her story after all; it was her mother’s story. “Money is the root of all evil,” was her mother’s mantra, not hers. T his realization jolted her. T he truth set her free, and those words lost all of their power over her. (In fact, when she did her homework on the biblical phrase, she found that it’s not “Money is the root of all evil,” but “the love of money” above all else—love, relationships, contribution—that’s the recipe for surefire disaster.)

It was an amazing transformation. Once Julie got past her limiting story, she could sit down with her husband for the first time to talk about their finances. H e was thrilled they could be partners in taking back control of their financial life. Imagine how hard it is to build wealth when your core belief is that money is evil. T hey dumped their high-cost mutual funds and transferred their IRA to a diverse portfolio of index funds with Vanguard. T hen they put in place a long-term financial plan, like the one you’ll be reading about in these pages, to finally put them on the road to financial freedom.

Julie and C olin shifted their story. And what happened? T hey learned how to play the game and win, they learned how to create an income for life—just like you’re going to do in chapter 5.2. Julie and C olin learned how to put an extra $150,000 to $250,000 into their pockets over their investment lifetime just by getting out of those expensive mutual funds. H ow great do those golden years look now!

R emember, you know the answer, and the secret is simple: change your story, change your life. D ivorce your story of limitation and marry the truth. Y ou can make anything happen.

Y OU R ST AT E

It’s hard to change your story when you’re in a lousy state. If you feel like hell, you don’t think to yourself, “L ife is beautiful!” H ave you ever been really angry with somebody, and suddenly you remembered every freaking thing that person ever did to irritate or annoy you? W hen you go into an angry state, it switches on the part of your brain that supports that state, and the story that keeps you there quickly appears.

By contrast, if you’ve ever fallen head over heels in love, can you remember how the world looked? It was like looking through rose-colored lenses: everything was wonderful, right? Rude clerks didn’t bother you; crying babies seemed cute. T hat’s how a positive state can change your outlook—your story.

Y our mental and emotional state colors your perception and experience of everything in life. W hen I work with anyone—from world-class athletes to highpowered executives—we change his or her state first. T here’s a part of you that, when it’s turned on, can make anything happen; but when it’s turned off, the world is dead. Y ou know what I’m talking about, don’t you? Y ou know when you get on a roll, and everything flows just perfectly without your even having to think about it? Y ou ace the tennis shot. Y ou say exactly the right thing in the meeting or walk out of the negotiation with exactly what you wanted. On the other hand, we’ve also all experienced the opposite: we couldn’t remember our home address, the name of our dinner host, or spell the word the. I call that the stupid state. But a few minutes later, it comes back to you: you remember the answer because you get in a different state.

T he purpose of this book is not to try teaching you how to change your state—that’s the basis of many of my other books and audios, programs, and live events. But in a nutshell, you can immediately and radically change how you feel (and not just hope you feel good) by learning that by changing your body first, you can change your mind.

I teach many ways to create immediate change in your state, but one of the simplest ways is to change what I call your physiology. Y ou can change the way you think by changing the way you move and breathe. E motion is created by motion. Massive action is the cure to all fear. T hink about it, fear is physical. Y ou feel it in your mouth, in your body, in your stomach. So is courage, and you can move from one to another in a matter of milliseconds if you learn to make radical shifts in the way you move, breathe, speak, and use your physical body. I’ve used these insights for almost four decades to turn around some of the world’s greatest peak-performance athletes, financial traders, and business and political leaders. L ast year, H arvard U niversity did a scientific study that proved the validity of this approach.

Social psychologist and H arvard professor Amy C uddy offered a “no-tech life hack” in her famous 2012 T E D T alk when she asked the audience to change their posture for two minutes. C uddy’s research showed that just assuming “power poses” or postures of high power (think W onder W oman with her hands on her hips and legs firmly planted on the ground; or the guy in your office leaning back in his chair, hands clasped behind his head, elbows out wide—you know the one) increased testosterone (the dominance hormone) by 20% , while simultaneously reducing cortisol (the major stress hormone) by 25% . T he impact of this biochemical change immediately transforms your willingness to face fears and take risks. All within just two minutes of changing your body. In C uddy’s study, 86 percent of the power posers reported feeling more likely to take chances. But when the second set of volunteers were asked to stand or sit for two minutes in more passive poses, with their legs and arms crossed tightly, their testosterone levels dropped by 10 percent, and the stress hormone rose by 15 percent. Far fewer of these men and women, only 60 percent, behaved assertively. Remember, these weren’t just psychological changes but actual biochemical changes, hormonal changes. W hat I have taught for 38 years and what all of my students knew was true through experience was now validated by science. W hat does this mean? It means, basically, you rock. Y ou’ve got some swagger in your step, you’re ready to put yourself on the line, to take the necessary risks and shape your world. T wo minutes of posing can lead to the changes that either configure your brain to be assertive, confident, and comfortable, or really stress reactive. Our bodies are able to change our minds!

T here was a time in my life when I was overweight and depressed, living in a studio apartment in Venice, C alifornia, staring at the empty furniture and listening to N eil D iamond records. Pretty scary, huh? One day a friend who hadn’t seen me in a long time stopped by. H e took one look at me and said, “Man, what happened to you?” It snapped me out of my trance. I decided then and there to break the pattern.

So I put on my running shoes and grabbed my Sony W alkman. (Y es, I’m ancient enough to have owned one of those.) And in those days, you had to be committed to your music: you had one album to listen to, not 10,000 songs to choose from. I turned to the legendary rock band H eart, put on the song “Barracuda,” and let the beat ignite me. I took off running with the determination that I was going to run as hard and as fast as I had ever run in my life, and I wasn’t going to stop until I spit up blood. T o say I was determined to push myself beyond my limits would be a serious understatement.

I’m sure it must have been a hilarious sight, given my excess 38 pounds and my beer belly flopping back and forth in the wind as I ran like a banshee. W hen I literally couldn’t breathe an ounce more of air, I collapsed on the beach and grabbed a journal I had brought with me. And in that state of absolute conviction, determination, exhilaration, and exhaustion, I sat and wrote down everything in my life I would no longer tolerate. T he way my body was, my laziness, my shallow intimate relationship, and my disastrous finances. Right across from it, I wrote what I was now committed to creating in my life—and in that pumped-up, invigorated state, I felt certain I could find the way.

W ith a strong enough state, you will develop a strong story. My story was: “T his ends here and now; my new life begins today.” And I meant it with every ounce of my being. I discovered that when you change your state and your story, you find or create the right strategy to get what you’re absolutely committed to. T hat’s how you create a real breakthrough—a new state with a new story and a proven strategy.

I went on to lose 30 pounds in the next 30 days, and 38 pounds total in a little more than six weeks. I was maniacal in my commitment. I set a new standard that day about who I was and what I stood for. It has not waned in the 30-plus years since that day (and my weight has never returned to that level either).

I went from earning less than $38,000 a year to more than $1 million a year just a little more than a year later. It was a level of change I couldn’t even imagine creating at the time. More importantly, I regained my emotional and psychological fitness—the two forces that truly change how someone’s life turns out. D etermination, faith, and courage began to be the forces that guided my every action going forward.

G reat strategies can surround you but they will be invisible to you unless you put yourself in a strong, determined, and empowered state. A state that will automatically breed the beliefs and stories that you can, must, and will achieve—and that you are committed to. W ith state and story combined, you’ll not only find the strategies that work, you will execute them and experience the rewards you desire and deserve. D o I have your full attention? If there’s any area of your life that you’re living that is far less than the life you desire, it’s time to change one or more of these elements.

Remember: we all get what we tolerate. So stop tolerating excuses within yourself, limiting beliefs of the past, or half-assed or fearful states. U se your body as a tool to snap yourself into a place of sheer will, determination, and commitment. Face your challenges head on with the core belief that problems are just speed bumps on the road to your dreams. And from that place, when you take massive action—with an effective and proven strategy—you will rewrite your history.

It’s time to no longer be one of the many but to become one of the few. One of the few who step up, own your true capability financially and in every area of your life. Most people start out with high aspirations but settle for a life and lifestyle far beneath their true capabilities. T hey let disappointments destroy them. D isappointment is inevitable when you are attempting to do anything of great scale. Instead, let your disappointments drive you to find new answers; discipline your disappointments. L earn from every failure, act on those learnings, and success becomes inevitable.

So next time you come up with a reason why you can’t do something, when you know in your heart that your spirit is unlimited, call bullshit on yourself. C hange your state. C hange your focus. C ome back to the truth. Adjust your approach and go after what you really want.

Okay, deep breath. Or loud scream. G et up and shake and move. W ith these 9 Myths—these past limitations— now out of our way, it’s time to move on to Step 3 on our 7-Step path to Financial Freedom. W e’re going to make the game winnable by coming up with a specific number —a number that reflects your exact financial dreams realized. T hen we’ll create a plan, improve that plan, and find ways to speed it up so you can achieve your financial dreams sooner than you may have ever imagined.

SE C T ION 3

W H AT ’S T H E PRIC E OF YOUR

D REAMS? MAK E T H E GAME W IN N ABL E

C HAPT E R 3.1

W H AT ’S T H E PRIC E O F Y O U R

D RE AMS? MAK E T H E G AME W IN N ABL E

All men dream, but not equally.

— T . E . L AW R E N C E

I usually kick off my financial seminars with a question: “W hat’s the price of your dreams?” T hen I invite people to stand up and tell me what it’s going to take for them to be financially secure, independent, or free. Most of them don’t have a clue. T here’s a lot of shuffling and squirming in the room, and then maybe a few hands shoot up. In hundreds of seminars with hundreds of thousands of people from all walks of life, I’ve heard just about every number imaginable.

So let me ask you personally now: H ow much money will you need to be financially secure, independent, or free? Just take a guess. Y ou don’t have to be right—or even logical. Is it $1 million? $5 million? $500 million? T ake a second right now, go with your gut, and write down the number, either in the margin of this book, in a notebook app, or just on a scrap of paper. It’s important to write it down, because writing it anchors it and makes it real.

D id you get it done? Soon you’ll see why this step is an important first action.

N ow, my experience tells me that if you’re like most people, that number probably feels a bit large to you right now, doesn’t it? W ell, keep reading, because we’re going to do a few easy exercises to help you tame that number. And I’ll bet you’ll find out that it can be made

much smaller than you ever imagined. In fact, you’re going to learn there’s not just one “magic number,” because there are five different levels of financial dreams that will set you free. And no matter if you’re just starting out or getting ready to retire, no matter how solid or shaky your balance sheet is right now, I guarantee you that at least one or two of those dreams will be within your reach. H ow? It starts with understanding what you truly need.

Recently, at one of my high-end programs, a young man in the back of the room stood up to name the price of his dreams. H e threw back his shoulders and announced, “A billion dollars.”

T here were a lot of ooohs and aaahs from the crowd. T his person was in his 20s, one of the younger participants at the conference, and he probably hadn’t earned his first million yet. So I asked him to consider what that number really meant.

Remember in chapter 1.4, “Money Mastery: It’s T ime to Break T hrough,” when we talked about how everything people do, they do for a reason? Just as a reminder, there are 6 Basic H uman N eeds: C ertainty, U ncertainty/Variety, Significance, C onnection/L ove, G rowth, and C ontribution. So why did this young man want a billion dollars? W hich of these needs was he trying to meet? C ertainty? Y ou can get C ertainty in your life for a lot less than a billion dollars! H ow about Variety? Y ou can get plenty of Variety with a million dollars, or much less, right? C onnection and L ove?

H ardly. If he gets a billion dollars, there will be a lot of people who want to be in his life, just like lottery winners who suddenly discover dozens of relatives and “friends” they never knew they had. W ith that kind of money, he’ll get connection, all right, but not the connections he wants and needs! G rowth and C ontribution? By his demeanor, I doubt these were at the top of this young man’s list when he named his number.

So when you look at the human needs, which one do you think drives him the most? C learly, it’s Significance. As he said, with a billion dollars, people would take him seriously; he would matter. T his might be true. But the problem is when he gets a billion, it still won’t be enough —because when you seek Significance, you’re always comparing yourself with someone else. And there’s always someone bigger, taller, stronger, faster, richer, funnier, younger, more handsome, more beautiful, with a bigger yacht, a nicer car, a nicer home. So while there’s nothing wrong with significance, if you make it your number one need, you’ll never be fulfilled.

But rather than lecture him, I decided to show him he could feel significant with a lot less money—which would make his life a lot easier. After all, he was just picking his number out of the sky. Saying he needed $1 billion made him feel like he was going after an important goal. But the problem is, when you have this huge goal in your head—if in your gut you don’t believe it’s going to happen—your brain rejects it. It’s like living a lie. H ave you ever done this? C ome up with some ginormous goal, and then a voice in your head pops up to say, “W ho are you kidding?” T he truth is, you’ll never make it happen until it sinks deep into your subconscious —the part of your mind so powerful that it makes your heart beat 100,000 times a day without your ever having to think about it.

H ave you ever been driving your car and gotten lost in thought and then suddenly looked up and realized, “H oly sh*t, who’s been driving my car for the last five minutes?!” T hankfully, it was the amazing protector of life, your subconscious mind.

T o get an idea of how this process works, take a look at the image below. Imagine your brain divided into an upper half and a lower half; the upper half is the conscious mind, while the lower half is your subconscious.

Ideas keep trying to lodge in your head, such as “I’m going to make ten million dollars!” or “I’m going to be financially free by the time I’m forty!” But your upper, conscious brain goes, “Screw you! T here’s no way in hell that will happen!” It quickly rejects the big idea and bounces it back out into space like a tennis ball. But if you resolve within yourself the sense of absolute certainty that “I’m going to do this!” and then you start to build a plan—something extraordinary happens. Y ou begin to develop the certainty you can actually achieve it. And with newfound confidence, you suddenly see there is a way to get it done. Y ou’ll find a role model who’s already achieving what you’re after, and you’ll take massive

action. T he goal seeps down into your subconscious, and it goes to work to make your dream a reality. T hat’s when the magic happens!

N ow, I doubt that you think you need $1 billion to fulfill your financial dreams. But I’d be willing to bet that the number you chose to feel financially secure or independent is pretty intimidating. Almost everybody makes that number bigger than it needs to be, because he or she doesn’t take the time to calculate what it really costs to live at different lifestyle levels. And that’s why so many never begin to work toward it. T hey talk a good game, get excited about it, they tell people their big dream, but they never act on it. W hy? Because psychologically they don’t have Certainty that they can do it. And C ertainty is the first human need that influences our behavior or actions. Fact. If you’ve failed to act in your financial world, it’s partly because you’re uncertain, you’re unsure as to what is right or wrong and which approach will succeed or fail. Or you’re feeling overwhelmed by the complexity of the system that no one has taken the time to walk you through with clarity.

W ith uncertainty, we default to doing nothing or at least procrastinating. W e put off until tomorrow what we need to do today.

T o help my would-be billionaire friend identify the real price of his dreams, so that they could lodge in his unconscious and become real, I asked him some questions. T hey’re the same kinds of questions I’ll be asking you in a moment to guide you on your path.

I started by asking my young friend what his lifestyle would be like if he had a billion dollars. H e thought for a moment and then said, “I’d have my own G ulfstream!”

“Y our own jet!” I said. “W here will you fly to?”

H      e said, “W ell, I live in N ew Y ork. I’d probably flydown to the Bahamas. And I’d probably fly to L A for some meetings.”

I          had him write down how many times he’d fly in ayear, and he figured it was probably a maximum of 12 flights. And how much would a jet cost him? W e looked it up, and a long-distance G ulfstream G 650 would cost him about $65 million; a slightly used G ulfstream IV would only set him back about $10 million. N ot including fuel, maintenance, and crew. T hen we looked up the cost of chartering a private jet instead of owning one: a midsize jet was all he really needed for himself and three family members to fly, and that’s around $2,500 an hour. H e would be flying for maybe 100 hours a year for a grand total of $250,000 per year, or around $5,000 per hour; or $500,000 if he wanted to fly by G ulfstream on every flight—still far less than the annual price of maintenance on many jets, and at a cost that would be less than 1% of the cost of buying that G ulfstream. E ven from the stage, I could see his eyes lighting up and his mind working.

“So what else would you buy with your billion dollars?” I asked.

“A private island!”

T hat was something I could relate to. I own a small island paradise in the country of Fiji. It was a wild dream I had early in my life to find an escape someday where I could take my family and friends and live. In my early 20s, I traveled to islands all over the world searching for my Shangri-L a. W hen I arrived in Fiji, I found it. A place with not only magnificent beauty but beautiful souls as well. I couldn’t afford it at the time, but I bought a piece of a little backpacker resort with 125 acres on the island. I really didn’t have the money, and it probably wasn’t the best investment at first. But it was part of what I call my D ream Bucket—something you’ll learn about later in this book. Still, I made it happen, and I’m proud to say that over the years, I’ve purchased and converted it into a protected ecological preserve with over 500 acres of land and nearly three miles of ocean frontage. I’ve turned N amale Resort and Spa into the number one resort in Fiji for the last decade, and it’s consistently rated among the top ten resorts in the South Pacific. But how often do I visit this paradise? W ith my crazy schedule, maybe four to six weeks a year. So my dream has come true: everybody else has a great time there!

I told my young friend, “If you want to enjoy your own island, you might not want to be in the hotel business. And trust me, you’re only going to be there a few weeks a year at the most.” W e looked up the costs and found out he could buy an island in the Bahamas for $10 or so—and then he would have to spend $30 million to $40 million to build a small resort! Or he could rent my friend Richard Branson’s N ecker Island resort for a week and bring all his friends and family for less than $350,000, with a staff of 50 people to take care of them all. If he did that every year for a decade, it would only cost $3.5 million versus $30 million to $40 million, with no work to maintain the property.

W e worked through his list, and guess how much it would take to have the lifestyle he wants for the rest of his life? W hen we added up the real cost of even his wildest dreams, not just his needs, it came to a grand total of not $1 billion, not $500 million, not $100 million, not $50 million, but $10 million to have everything he dreamed of having in his lifestyle and never have to work to pay for it—and his dreams were gigantic! T he difference between $10 million and $1 billion is astronomical. T hese numbers exist in different universes.

T he challenge is, when we get to really big numbers, people’s minds don’t fathom what they really mean. T here’s a radical difference between a million, a billion, and a trillion. E ven President Obama uses the terms millionaires and billionaires in the same breath, as if they’re in any way related—they’re not. L et me prove it to you. I’m going to give you a little test. I want you to think and make a first guess as to the answer. T his exercise will help you gain perspective on a million versus a billion versus the figure the government now uses so often: a trillion. In fact, in W ashington, a trillion is the new billion, as they say.

My first question is: H ow long ago was one million seconds ago? T ake a moment, even if you don’t know— what do you guess?

T he answer is: 12 days ago! H ow close were you? D on’t feel bad, most people have no clue. If you got it, congratulations. N ow we’re going to up the ante. Since you now have a perspective of what a million is (a million seconds being 12 days ago), how long ago was a billion seconds ago? Stay with me, come on; make a guess, commit to a number. T he answer is: 32 years ago! H ow close were you? For most people, they’re pretty far off. T hat’s the difference between a millionaire and a billionaire: 12 days or 32 years! D o you see what I mean by saying they live in “different universes”? Y ou can never say “millionaires” and “billionaires” in the same breath and be talking about the same thing.

Just to complete the thought: W hen you hear the U S government has $17 trillion in debt, how much is a trillion? W ell, if a billion seconds was 32 years ago, how long ago was a trillion seconds? T he answer: nearly 32,000 years ago (31,689, to be exact)! W hen humans were not even called humans! T he point of this exercise is to get you to realize that we blur large numbers, and if you get down to the facts, an extraordinary lifestyle probably costs less than you think it does.

But back to our would-be billionaire. N ow, don’t get me wrong: $10 million is still a hefty sum but probably within reach for this young entrepreneur over the course of his career. W ho knows? H e might actually end up with a billion—if he invents the next Instagram. But what if he doesn’t? H e could still live the extraordinary life he was dreaming of for 99% less money than he thought he needed. H e wouldn’t need to be a billionaire to live like one.

I’ll be willing to bet that once you find out the real price of your dreams, the number it would take for you to really get where you want to be is a lot less than you think! And always remember the ultimate truth: life is not about money, it’s about emotion. T he real goal is to have the lifestyle you want, not the things. W hen you die, someone else gets those things anyway. T hey’re not yours. I have no illusions: as much as I cherish and enjoy “my” resort in Fiji, I know I’m just the caretaker. Someday someone else will own this property. But I love that I have nurtured it into a destination where people from all over the world come to experience joy, romance, and adventure. It’s part of my legacy—and that’s what gives me joy. Attaining possessions is not the goal. Money itself is not the goal. Our worth is not measured by the weight of our bank accounts but, rather, by the weight of our souls. T he path to money, the places money can take us, the time and freedom and opportunity money can bring—these are what we’re really after.

Y ou can have it all. Just not all at once.

— O PR AH W IN F R E Y

T ake a moment now and think about what you really want your money to buy. N ot everybody wants to live like D onald T rump or Floyd “Money” Mayweather! Is your dream to travel the globe, exploring ancient cities or photographing lions in the Serengeti? Is it owning your own beach house in the Bahamas or a penthouse in N ew Y ork? Is it starting your own business—the next Snapchat, or creating an extraordinary contribution to humanity like the next C harity W ater? Is it something as simple as sending your kids to college and having enough left over for a house in the country with a big vegetable garden? Or is your dream just peace of mind— knowing you can be free forever from debt and worry? W herever your dreams may take you, I’m going to show you a path to get there. E ven if you don’t get all the way to the summit, you can reach the dreams that matter most to you and celebrate your victories along the way. Because money is a game of emotions, and we’re going to come up with some numbers that will ring your bells and make you say, “I’m certain! I promise myself I can get there!”

L ike all journeys, before you get started, you’ll need

to take stock of where you are. W e’ll work together on a few simple calculations. If you’ve never taken the time to figure out exactly what it’s going to take to achieve your financial goals, you’re not alone. Often, many of those who have earned millions of dollars haven’t developed a plan to sustain their lifestyle without having to work at least some of the time. And as we’ve already said, more than half of Americans haven’t even tried to calculate how much money they’ll need to retire, including 46% of all financial planners! W hy don’t we know our basic financial picture? T he number one reason I’ve found, after hearing from hundreds of thousands of people from a hundred different countries, is that people are afraid to know.

It’s like stepping on the scale. Y ou know you’ve gained weight, but you don’t want to know how much. It’s a form of denial; a way to put off making a change. H igh school wrestlers and professional boxers step on that thing every day, so that if they’re off target on their weight, they’ll know right away and can do something about it. Y ou can’t manage your health if you can’t measure it. And the same goes for your finances. Y ou can’t reach your financial dreams unless you know precisely how much it will take to get there. I’m here to help you set yourself apart from the masses who hide their heads in the sand when it comes to their money. In a minute, we’ll do some quick, easy number crunching to find out where you are and where you need to be. (If adding a few figures is a challenge for you, remember that there’s a calculator on your phone! And you can also go to our app, which will ask you the questions and calculate the numbers for you automatically. See www.tonyrobbins.com/masterthegame.)

But first let’s look at those five financial dreams. W hen I say the words “financial security,” “financial vitality,” “financial independence,” “financial freedom,” and “absolute financial freedom,” do those sound like the exact same thing to you? D o they bring up emotions that feel different in your body when you say them out loud? G ive it a try. W hich one feels higher: security or vitality? H ow about vitality or independence? Independence or freedom? W hat about absolute freedom? E ach of these five financial dreams is incrementally bigger, isn’t it? And the numbers needed to reach them would be different.

Of these five dreams, you may discover that you are committed to only two or three of them. For some people, financial security alone is life changing and gives them enormous freedom. And so, in designing this exercise, I’ve included these dreams as steps along the road to absolute financial freedom. Or, if you remember that mountain earlier in this book, as base camps along the climb to the summit. And remember, not all of us need or want to go all the way to the peak of E verest. For some of us, financial vitality would be a blessing, and independence would put us over the moon! N ot all of these dreams are “musts” for everybody.

I’m going to invite you to read the five and pick the three that matter to you most—what I call the T hree to T hrive. Y ou’ll have three targets: short-, medium-, and long-term goals. It’s set up this way because we don’t build on failure; we build only on success. If you’re just shooting for the big number in the distance, it might feel too far off, or even overwhelming, and as a result, you may never truly begin the journey. W e need a target close enough that we can feel certain it’s achievable, and in the relatively near future. T hat’s what gets you to take action and turn a short-term goal into reality. And remember to claim your victories along the way. W hy wait until you’re financially independent to celebrate? W hy not win at different stages? T hat’s what encourages you, excites you, and gives you momentum.

It takes as much energy to wish as it does to plan.

— E L E AN O R R O O SE V E L T

D RE AM 1:

FIN AN C IAL SE C U RIT Y

W hat does security mean? Instead of telling you what it is, let me ask you: H ow amazing would you feel if these five things were paid for as long as you live, without ever having to work to pay for them again?

1.     Y our home mortgage, for as long as you live—paid forever. You never have to work again to pay for your house!

2.     Y our utilities for the home—paid forever. Y ou never have to work to pay your phone bill or to keep the lights on.

3.     All the food for your family—paid forever.

4.     Y our basic transportation needs,

5.     Y our basic insurance costs—all of them paid for without your ever working another day in your life.

I’d bet that your quality of life would be pretty fulfilling, wouldn’t it? Y ou’d feel pretty secure if you knew these things were covered.

N ow for some good news: Remember that number you wrote down earlier—the amount you thought it would take to be financially secure and free? It was probably not as extreme as my billion-dollar friend’s number but probably felt pretty large, didn’t it? W ell, I’ll bet when you figure these numbers out, you’re going to be surprised that the dream of Financial Security is probably a lot closer than you think. Or if you’re one of the rare few who underestimate, you’ll have a reality check, and you’ll know the precise number it will take to realize your financial dreams.

If you haven’t downloaded our free app already, do it now. Or use the worksheet below and jot down what you pay for these five items on a monthly basis. It’s really simple: W hat’s your current mortgage payment? (If you’re in an early stage of your life where you don’t own a home yet, put your monthly rent here. Or you can estimate or check online what your mortgage payment would be on something that may not be your ideal home, but more like a starter home.) If you have your records, great. N ext, what’s your utility bill each month? T hird, what do you spend on food? K eep going, and if you don’t have the numbers, take a guess—you can always go back and change them later, but you don’t want to lose momentum. L et’s really get a number down that’s reasonable. Or pick up your bank book or go online and get your numbers. Just to keep the momentum for you right now in case those aren’t easily accessible, let me give you an example.

D o you remember my friend Angela, who I introduced to you in the first chapter? She’s 48 years old and single. She’s trying to figure out what it would take to be financially secure. H er first guess was $3 million. C ould that be right? Or even in the ballpark? So I asked her to go through this exercise, and write down her five basic monthly expenses. As it turned out, her numbers were almost identical to the national averages, which you’ll see in the list here.

1.   Rent or mortgage payment:        $____ per month

(Angela’s Average:

$1,060)

2.   Food, household:     $____ per month

(Angela’s Average:

$511)

3.   G as, electric, water, phone: $____ per month (Angela’s Average:

$289)

4.   T ransportation:       $____ per month

(Angela’s Average:

$729)

5.   Insurance payments: $____ per month

(Angela’s Average: $300)

           $____ per month T otal (Angela’s Average:

$2,889)

T otal basic monthly expenses: _______ × 12 =

__________ per year

(U S average basic annual expenses: $34,668)

W hen she was done, I had her add it up and multiply the monthly total by 12. T hat shows the annual income she’ll need to cover these items for life—without working—to be financially secure. As you can see, her number of $34,000 is virtually identical to the number for the average American.

N ow, how would Angela be able to have $34,000 a year without working? Remember, she’s going to build a money machine. She’s automated her savings of 10% of her income. She’s putting it in a Roth 401(k), where it’s being invested in low-fee index funds with an estimated growth rate of 6% . (T his is the percent that Jack Bogle estimates the markets will return over the next decade. H owever, the average stock market return has been 9.2% over the last 20 years.) W e ran it through the wealth calculator, which you’ll do in the next chapter, and she found out that instead of the $3 million she thought it would take to achieve financial security, she would need to accumulate only $640,000 in her Freedom Fund to have that $34,000 a year for the rest of her life—less than a quarter of the amount she thought she needed!

At first she was shocked. She asked me in disbelief, “T hat’s all it would take for me to have this? I’d still have to work, right?” I told her of course she would, but not to pay for her home, food, utilities, transportation, or basic health care! By the way, these five items, on average, represent 65% of most people’s expenses. So Angela now had a way to pay for 65% of her overhead without working. And remember, most of us want to do something meaningful. W ithout work, we’re a little crazy. W e just don’t want to have to work! She could work part-time to pay for the rest of her expenses or fulltime and have all that income for other things. I asked her how that would make her feel if everything from her home to transportation was paid for without her working for the rest of her life. “E xtraordinary!” she said. “T hat’s an achievable goal. T hat’s something I could figure out how to make happen.” I said, “E xactly!” And what you could see in her eyes was a sense of certainty, and because she was certain, she had a reason to act.

I reminded her, “By the way, this doesn’t have to be your ultimate goal. It might be your short-term goal.” For some people, all they want is financial security, like someone in a later stage of life who may have taken a hit in 2008. For someone who is middle-aged or young, you’ll blow through this goal—as long as you know what your number is and you act upon the seven steps of this book.

If you’re wondering, by the way, how long it would take to accumulate whatever your security number is, take heart. Y ou don’t have to do this calculation. W e’ll do it in the next chapter, “W hat’s Y our Plan?,” and if you want, the app will calculate the number for you. T ogether we’ll create three plans: a conservative plan, a moderate plan, and an aggressive plan. And you’ll decide which of these plans are most manageable and achievable.

Remember the aspiring billionaire? H is annual income for financial security was a mere $79,000. A far cry from the billionaire neighborhood. Y our number might be higher or lower. All you need to know now is the annual income you need to achieve financial security. If you haven’t already done it, calculate the numbers on the app or do it right here now.

1. Rent or mortgage payment:	$____ per month
2. Food, household:	$____ per month
3. G as, electric, water, phone:	$____ per month
4. T ransportation:	$____ per month
5. Insurance payments:	$____ per month
6. T otal	$____ per month

7. T otal basic monthly expenses: _______ × 12 =

__________ per year

By the way, we can’t go on to the next goal without talking about something that’s a simple requirement, not a dream. And it’s something almost everybody should be able to achieve relatively quickly, though few people have it in place: an emergency/protection fund. According to a Princeton U niversity–U niversity of C hicago study in 2014, 40% of Americans say they couldn’t come up with $2,000 if they needed it. Y ikes! T hat’s terrifying! W hy do we need to have an emergency supply of cash on hand? W hat if there’s an unexpected interruption in your income flow? It happens in almost everybody’s life at some point. An interruption can be a health problem, it can be a problem with your business, it can mean being displaced from a job. So you need some money to cover yourself for somewhere between three to 12 months. But for most people, three months is too short a time, while 12 months may seem like a lot. So perhaps you start by putting aside a few months’ overhead, and gradually build toward six or 12 months’ worth. W ouldn’t it be wonderful to know that if something happened, you had a year to be able to get yourself back on track? Y ou’d still have a roof overhead, food in the cupboard, and the bills would get paid.

Again, this goal is not for an annual income for life. Once you have that, you’re set. T his goal is just emergency cash to protect you until you develop a large enough nest egg to take care of yourself every year for the rest of your life without working, no matter what happens.

H ow much do you need? W ell, you know what your monthly overhead is. So write down that number and memorize it. Again, you can do this exercise on the app, and the number will be saved for you and always available at a glance in your pocket. My friend Angela, who set aside 10% of her salary to build her money machine, started looking into her spending patterns to find more savings. Remember how she realized it was cheaper to buy a brand-new car than to keep fixing her old one? W ell, she also found a way to set aside an additional 8% to build her emergency protection fund. She completed her goal, and now she sleeps much better at night! If you haven’t already, it’s crucial you set up an emergency fund. (And I guarantee you’ll have some great new ideas on how to do this after reading chapters 3.3 and 3.4, “Speed It U p.”) K eep that amount in cash or in a safe place like an FD IC -insured bank account.

N ow let’s move on to the next level of dreams. W ith security achieved, let’s look at:

D RE AM 2:

FIN AN C IAL VIT AL IT Y

W hat do I mean by vitality? T his goal is a mile marker on your path to Financial Independence and Freedom. Y ou’re not all the way there yet, but it’s the place where you can be secure and also have some extras thrown in that you can enjoy without having to work.

W hat do you pay for clothing every month? Is it

$100? $500? $1,000? H ow about for entertainment (cable T V, movies, concert tickets)? H ow about going out for dinner? Is it C hili’s or N obu tonight? So for food and entertainment, are you shelling out $200 a month or $2,000 plus? H ow about small indulgences or little luxuries like a gym membership, a manicure or massage, or monthly golf dues? Is it $50, $500, or $1,000 plus? W hatever it is for you, how would it feel if half of those costs were already covered without having to work, for the rest of your life? T hat’s what happens when you reach Financial Vitality. Sounds like something worth celebrating, doesn’t it?

H ere’s how to calculate your Financial Vitality:

1. H alf of your current monthly clothing costs		$____ per month
2. H alf of your current monthly dining and entertainment costs		$____ per month
3. H alf of your current small indulgence or little luxury costs	$____ per month
4.   T otal additional monthly income forvitality 5.   Y ou already know your monthly	$____ per month
Financial Security number (line 6 from page 216), so add that here	$____ per month
6. T otal monthly income necessary for Vitality	$____ per month
7. N ow multiply that by 12 and you’ll have the annual amount you need for financial vitality:	$____ × 12 = __________ per year

Again, just type in these figures, and all of this math will be done for you on the app.

D RE AM 3:

FIN AN C IAL IN D E PE N D E N C E

Pop the champagne, because when you’ve reached Financial Independence, you no longer have to work to have the same lifestyle you have today! T he annual interest earned on the return from your savings and investments (your Freedom Fund) will provide you with the income that you need—while you sleep. Y ou are now truly financially independent; that is, independent of work.

H ow amazing would that feel? W hat kind of peace of mind would that bring you and your family?

Financial Independence means that money is now your slave—you are not the slave to money. Money works for you; you don’t work for it. If you don’t like your job, you can tell your boss to shove it. Or you can keep right on working with a smile on your face and a song in your heart, knowing that you’re working because you want to, not because you have to.

So let’s figure out how much money it would take to maintain your current lifestyle. T his number might be really easy to calculate because, unfortunately, most people spend as much as they earn! Or sometimes more than they earn! If you made $100,000 and you spent $100,000 that year (including paying your taxes) just to maintain your lifestyle, your financial independence is $100,000. If you spend less than you earn, congratulations! U nfortunately, you are the exception, not the rule. So if it costs you only $80,000 to live, on a $100,000 salary, then $80,000 a year is what you need to be independent.

So what’s your Financial Independence number? G o to the app or write it here now: $_______.

Remember, clarity is power. W hen your brain knows a real number, your conscious mind will figure out a way to get there. Y ou now know the income you need to be financially secure, vital, and independent. So let’s see what happens when your dreams get bigger.

D are to live the dreams you have dreamed for yourself.

— R AL PH W AL D O E ME R SO N

L et me tell you the story of Ron and Michelle, a couple I met at one of the seminars I hold every year at my resort in Fiji. T hey were in their mid-30s, with two small children. Successful people, they owned a small business in C olorado. Ron was great at running their business, but neither of them paid attention to their household finances. (T hat’s why he was in Fiji attending my Business Mastery event, to grow his business 30% to 130% .) T heir accountant drew up personal financial statements for them every month, but they never bothered to look at them! N o wonder they were having trouble envisioning the life that they wanted—which turned out to be a life of contribution.

W hen I asked Ron what he needed to be financially set, as I asked the young would-be billionaire, his number was $20 million. I wanted to prove to him it could be a lot lower than that and still have an extraordinary quality of life for him and his family, so I walked the couple through what they actually spent every month. (Bear in mind that, as business owners, Ron and Michelle’s annual household income is clearly higher than the average American’s.)

First we started with Financial Security, and he told me his five numbers:

Mortgage on their main home	$6,000 per month
U tilities	$1,500 per month
T ransportation	$1,200 per month
Food	$2,000 per month
Insurance	$ 750 per month
T otal	$11,450 × 12 = $137,400 per year

So for Financial Security, all they needed was $137,400 in income per year. W ell within their reach! By the way, if Ron wanted to know how much he would need to accumulate in his nest egg or his Freedom Fund, most financial planners would tell him to multiply his annual income number by 10, or even 15. But today, with such low returns on safe, secure investments, that’s not realistic. Remember, on the way up the mountain (the accumulation phase), you might put your investments in an aggressive portfolio that could give you 7% to 10% . On the way back down the mountain (the decumulation phase), you will want your investments in a secure and less volatile environment, where by nature you would likely get smaller returns. So it might be smarter to use 5% as a more conservative assumption. T en times your income assumes a 10% return. T wenty times your income assumes a 5% return.

Ron discovered that financial security would be within reach—20 × $137,400 = $2,748,000—a number far less than the $20 million he’d projected.

For Financial Independence, they figured they needed $350,000 a year to maintain their lifestyle at the current level, because they had a second home and a lot of toys. Michelle was fond of things with L ouis Vuitton labels on them. So, conservatively, they needed $7 million ($350,000 × 20) in their critical mass to live that way without working. Ron was amazed to realize that this number was almost two-thirds less than the $20 million he thought it would take! And he’s going to get there a lot sooner than he imagined, having to save $13 million less than he’d previously estimated!

D RE AM 4:

FIN AN C IAL FRE E D OM

Once you’ve freed yourself from the need to work for the rest of your life, how about freeing up your lifestyle?

F inancial F reedom would mean you’re independent, you’ve got everything you have today, plus two or three significant luxuries you want in the future, and you don’t have to work to pay for them either. T o get there you need to ask yourself, “W hat annual income would I need to have the lifestyle I want and deserve?” W hat do you want the money for? Is it for the freedom to travel? T o own a bigger home or a second vacation home? Maybe you’ve always wanted a boat or a luxury car? Or do you want to contribute more to your community or church?

L et’s go back to Ron and Michelle. T hey were already living the lifestyle they wanted for $350,000 a year. So, I asked, what would make them feel financially free? W ould it be a bigger home? A condo in Aspen? A boat?

Y ou know what Ron said? H e’d feel financially free if he could donate $100,000 a year to their church—and maybe throw in a small Bass fishing boat and a ski vacation condo in Steamboat Springs for his family.

It was an awesome answer. I was so moved by his goal to contribute, I couldn’t wait to help them find a way to make it happen. I pointed out that Ron made about $500,000 a year in income, and spent only $350,000—he could already set aside that kind of money for the church if he really wanted to. But how great would it feel if he and Michelle could make that kind of contribution without working? Just from investment income alone?

After adding the costs of financing the boat and condo, along with his contribution, for Financial

Freedom they would have to add $165,000 a year to their number for Financial Independence. In other words, they would need $515,000 a year (× 20), or $10.2 million in their money machine. But remember, this number represents an even better lifestyle than he has today! It’s a lot, but still roughly half of what Ron had thought they needed just to be independent.

T he world that Ron and Michelle wanted was so close —they just didn’t know it. But once you figure out the price of your dreams, there are ways you can get there faster and for less money than you ever imagined.

W hat would it take for you to be financially free?

W hat items would you add to your total: A sports car?

A second home? Or a big donation, like Ron and Michelle? W hatever they are, write them down, and add the cost to your total for Independence. T hat’s the price of Financial Freedom. And if it seems too steep, just wait. Y ou’ll learn how to tame that number in the coming chapters.

H ere’s how Ron calculated his Financial Freedom numbers:

1. Monthly donation to church	$8,333 per month
2. 20' Bass fishing boat costing $50,000 financed at 5% = monthly payment of	$530 per month

3. Family ski condo mortgage costing

$800,000 at 4.5% = monthly payment

 

of	$4,880 per month
4. Monthly income for Financial Independence	$29,167 per month
5. T otal monthly income number for Freedom	$42,910 per month
6. N ow multiply that by 12, and you’ll have the annual amount you need for Financial Freedom What are your numbers?	$42,910 × 12 = $514,920 per year
1. L uxury item #1 per month	____ $____ per month
2. L uxury item #2 per month	____ $____ per month
3. D onation per month	____ $____ per month
4. Monthly income for Financial Independence (W hatever number you calculated annually divided by 12)	$____ per month

5.   T otal monthly income number for       $____

         Financial Freedom                                                    per

month

6.   N ow multiply that by 12, and you’ll havethe annual amount you need for Financial $____

        Freedom                                                           per year

D RE AM 5:

ABSOL U T E FIN AN C IAL FRE E D OM

H            ow about Absolute Financial Freedom? W hat would it be like if you could do anything you wanted, anytime you wanted? H ow would it feel if you and your family never had to want for anything again? If you were able to give freely and live completely on your own terms—not anybody else’s—and all without ever having to work to pay for it. T he money you make while you sleep—your investment income—would provide for your unlimited lifestyle. Maybe you would buy your parents the home of their dreams, or set up a foundation to feed the hungry or help clean up the ocean. Just picture what you could do.

I               asked Ron and Michelle to tell me the biggest dreams they could dream. W hat would Absolute

Financial Freedom look like for them? Once again, I was deeply moved when Michelle told me her paramount dream was to buy a ranch and turn it into a church camp. W hat would it cost? Ron figured about $2 million to buy it, and $1 million more for improvements.

I could see the excitement build in them when we ran through the numbers.

If they borrowed the money to buy the ranch, they would need about $120,000 ($3 million at 4% ) a year to service the debt. And that was already within reach!

So what else? Ron loved adventure and travel, and owning his own plane was an ultimate dream. So I walked him through the same exercise I did with my young would-be billionaire friend, and convinced him that renting a jet would give him a lot of the same convenience and satisfaction at a fraction of the cost of owning and maintaining a G ulfstream or a C essna C itation. D o you follow me? Y ou don’t have to own the jet to have the lifestyle. Y ou don’t have to own the sports team to sit in the sky box. And you don’t have to pay for the whole team to be an owner—you can be a partial owner and get all the privileges. T hat’s what my friend Magic Johnson did when he was part of the group that purchased the L os Angeles D odgers, along with my friend Peter G uber and several other partners in G uggenheim Baseball Management, which spent $2.15 billion to get the team and stadium. I can promise you Magic didn’t put in $2.15 billion—but he still gets all the joy, the pride, the excitement, the influence, and the fun of being an owner.

T his thinking can create the quality of life you want for yourself and those you love. W hat makes most people just dreamers versus those who live the dream is that dreamers have never figured out the price of their dreams. T hey make the number so big they never begin the journey. T here isn’t a dream you can’t realize if you’re committed enough and creative enough, and if you’re willing to find a way to add more value to other people’s lives than anybody else.

N ow, as you can tell, for most people, this category is mostly for fun. In my seminars, I do this exercise only with people who have really big dreams and want to know the price of them. I understand that most people will never achieve Absolute Financial Freedom, but there’s power in dreaming and unleashing your desires. Some of these high-octane dreams might excite you and make you want to earn more, and help you reach your goals faster. But there’s another reason to do this exercise. Y ou might achieve financial security without working, and then by working part-time at something you enjoy, you could be financially independent. Or it’s possible you could achieve Financial Independence through your investment income and part-time work, allowing yourself to experience the luxuries of Financial Freedom with that income.

So go for it! W rite down what you would put on this list or in your app. Y ou never know what you could create if your desires were truly unleashed!

H ere’s how Ron calculated his Absolute Financial Freedom numbers:

1.       A ranch for church camp that costs $3 million, financed at 4% = monthly payment of $10,000 per month

2.       A Beechcraft Bonanza plane that costs $300,000 financed at 5% = monthly payment of $3,181 per month

3.       Monthly income number for Financial Freedom:

$42,910 per month

4.       T otal monthly income for Absolute Financial Freedom: $56,091 per month

5.       N ow multiply that by 12, and you’ll have the annualamount you need for Absolute Financial Freedom: $673,092 per year.

So for a 20-foot fishing boat, a $100,000 yearly donation to their church, a ski vacation condo, a plane, and turning a ranch into a church camp, plus the lifestyle they have today without having to work, Ron and Michelle would need an income of $673,092 per year. Multiplied by 20, they would need to achieve a critical mass of $13.5 million. Still a third less than the number they thought they needed for mere security or independence!

What are your numbers?

1. L uxury item #1 per month	____ $____ per month
2. L uxury item #2 per month	____ $____ per month
3.   L uxury item #3 per month 4.   Monthly income for Financial	____ $____ per month
Freedom (page 222)	$____ per month

5.   T otal monthly income numberfor Absolute Financial

Freedom

$____ per month

6.   N ow multiply that by 12, andyou’ll have the annual amount you need for Absolute

         Financial Freedom                                 $____ per year

T here is only one thing that makes a dream impossible to achieve: the fear of failure.

— PAU L O C O E L H O

H            ow do all those numbers you’ve written down look toyou now? I hope that you’ve seen how the price of your financial dreams can be much smaller than you ever thought, and that you’ve picked out three to aim for, including at least one short-term goal and one long-term goal. W hich of these dreams are your T hree to T hrive? T he most important for most people—the most common “musts”—are Security, Vitality, and Independence. Or for those who want to reach higher, it’s Security, Independence, and Freedom. If you haven’t already done it, pick three and write them down. Make them real and put them in your app; key reminder messages will be sent to keep you on target.

If you’re a baby boomer who’s had a tough time since the meltdown of 2008, which one of these dreams is the absolute must for you? Security, right? H ere’s the good news: you may not have as many years to build your savings and investments to a critical mass, but you can absolutely have Financial Security, and I’ll show you how. Maybe you’ll never get to Independence, but maybe you will if you make it a “must.” If you’re starting younger, you’re way ahead. Y ou might be able to go for Freedom or even Absolute Freedom and not even be stressed about it. But it’s important to decide what matters most to you and know your numbers. W hy? Because in a few moments, we’re moving on to the next chapter, where you’ll be able to calculate how many years it will take for you to achieve these dreams based on how much you are saving at a reasonable average annual rate of return. And then we’ll make a plan to get there. T his is where the rubber meets the road. I’m going to walk you through each step, and everything will be automated for you. It’s absolutely critical that you keep moving forward.

I               want you to feel empowered and excited by the journey you’re on.

I want you to know that you’re the creator of your life, not just a manager. Sometimes we forget how much we’ve really created in our lives. I don’t care who you are, I know there are aspects of your life today that once were just a dream or a goal, or seemed impossible. It could have been a job or higher-level position you wanted that at the time seemed beyond your reach, or a car that you were obsessed with, or a place that you always wanted to visit. Maybe you even live there now. Maybe there was somebody in your life, someone you never thought might even go out with you, and now you’re married to them. Instead of being back in those days of dreaming, wondering if this person would ever make love to you, perhaps they are beside you now. If so, reach over and give them a kiss right now and remember this relationship once seemed impossible, and you created it.

W hat’s in your life today that was once a dream? W hat was a desire you had in the past that at the time seemed difficult or impossible to achieve—but now it’s in your life today? If you’re going to remember that you’re the creator of your life and not just the manager of your life’s circumstances, first, you must reconnect to the things you have created consciously. T ake a moment and jot down three or four of those things. And take note, your list does not need to be made up of all giant accomplishments. Sometimes the little things that seem difficult or impossible, when conquered or realized, provide us with essential lessons on how to achieve the big things. Also, there may be some things in your life today that once seemed difficult or impossible, and now you have them, but you take them for granted. T he law of familiarity says that if we are around anything (or anyone) long enough, we tend to take things just a little bit for granted. So awaken to your appreciation, and jot down your list now.

Second, you have to review what steps you took to turn that dream into your reality. T ake a moment right now. Select one of the things you have achieved. W hat were some of the first actions you took? Jot them down now.

I’ve interviewed literally tens of thousands of people about how they’ve taken something that seemed impossible and woven it into their life. H ow did they create it? H ow did you? T here’s a process we all go through. It’s a matter of three steps.

Step 1: U nleash Y our H unger and D esire, and Awaken L aser-like F ocus. Something happens within you: either you become inspired by something that excites you so much that your desire is completely unleashed—you become completely obsessed with it— and you focus on the object of your desire with laser-like intensity! Y our imagination is ignited. Or you hit a wall, a threshold, a place inside yourself, and affirm that you will no longer settle for life as it has been. Y ou make a decision never to go back, and you become ferociously focused on the new life or object you desire. It could be a job change, a relationship change, a lifestyle change. Y ou unleash your hunger for it—and wherever focus goes, energy flows.

H ave you ever experienced this? Y ou bought an outfit, or you bought a car, and suddenly you saw that car or outfit everywhere? H ow did that happen? Because part of your subconscious mind, called the reticular activating system, knows this is important now, so it notices anything that relates to it. T hose cars and outfits were always around you, but now you’re noticing them because your subconscious makes you aware of the very things you were not seeing before.

T hat’s what’s going to happen as you’re reading this book. Y ou’re going to start noticing the fees charged by mutual funds and hearing about asset allocation. Y ou’re going to start hearing things you’ve never heard before —high-frequency trading! dollar-cost-averaging!—and they are going to come to life for you because now your brain knows they’re important. Anything that’s important, anything that’s focused on, energy flows into it. And when you have that level of hunger, desire, and focus, step 2 starts to happen.

Step 2: Y ou T ake Massive and E ffective Action. If your desire is truly unleashed and you are obsessively focused on what you want, you will be called to do whatever it takes to make your dream a reality. T here are no limits to the energy and flexibility you’ll have in the pursuit of what you want. In your heart, you know massive action is the cure-all. If you’re willing to put in the effort, you’ll get there. Y ou’ve done it before, right? Maybe there was a time when you just had to see the girl you loved, so you borrowed a car and drove all night through a snowstorm to visit her at college. Maybe you moved heaven and earth to get your child into the best school to suit her needs. If it’s a “must” and not just a “should,” you’ll find a way.

But there’s one caveat, of course: you need to put effective execution behind all that effort, right? W hat if you drove through that snowstorm without a map and ended up in the wrong city? Y ou can throw all your effort into saving for the future, but put your money in a 401(k) loaded with high fees and poorly performing mutual funds, and you’ll get nowhere. Or you can invest everything in one company and watch the stock drop 40% in a day. So if you’re willing to do whatever it takes, you still have to execute your plan carefully, and keep adapting your approach. Because effort with effective execution creates magic. T his book is your map, your blueprint to take you from where you are today to where you want to be financially. By consistently taking massive and effective action, and adapting your approach whenever it doesn’t work and trying something new, you will move toward your dream, but there’s one final, extraordinary element that plays an important role in whether your dream becomes a reality or not.

Step 3: G race! Some call it luck, coincidence, fate, or G od’s hand. I call it grace: the acknowledgment that there’s more in this world than just ourselves, and that perhaps a higher power gives us both the privilege of this life as well as the gifts of insight and guidance when we’re open to them. It’s amazing how, when you take care of the first two steps, G od or the universe or grace— whatever you like to call it—tends to step in and support what you’re doing. T hings flow to you when you do your part first. W e’ve all experienced the phenomenon of serendipity. Something happens that defies explanation, so we call it a coincidence. W e miss a train and meet the person we end up marrying. W e fill in for a friend, and it leads us to the job of our dreams. W e didn’t figure it out in advance, didn’t earn it—it just happened. T o me, that’s grace. And the more you acknowledge and appreciate the grace that’s already in your life, the more you experience the gifts that are beyond what you’ve created. I’ve had it happen many times in my life, and I know it’s real. I also know that gratitude connects you to grace, and when you’re grateful, there is no anger. W hen you are grateful, there is no fear.

So, are you ready to become the creator of your life, not just the manager of your circumstances? D o you know what you’re really investing for? An income for life! Are your dreams becoming a part of you, a “must” that your unconscious mind focuses on night and day? Are you willing to do what it takes to make them a reality? T hen it’s time to turn the page and do what so many others fail to do.

It’s time to make a plan. . . .

C HAPT E R 3.2

W H AT ’S YOU R PL AN ?

If you don’t know where you are going, every road will get you nowhere.

— H E N R Y K ISSIN G E R

C ongratulations, you’ve come a long way! Y ou’ve taken three huge steps toward Financial Freedom. Y ou’ve made the most important financial decision of your life. Y ou’ve become an investor by committing or expanding the percentage of your income that automatically goes into your Freedom Fund, and you’ve begun to build your money machine that will set you free. Y ou’ve also learned how to protect yourself from the biggest lies designed to separate you from your money. Finally, you have put a price on your dreams: you know how much income it will take to be financially secure and independent. N ow we’re going to take what you’ve learned about the power of compounding and put those Money Power Principles to work. W e’re going to work together to create a plan for you and your family that is absolutely attainable and within reach, no matter what level of financial dream you’re         shooting     for:    security,          vitality,       or independence.

T here’s one more thing before we start. If you’re like most people, you hate talking about money. But hey, it’s just us, anyway. N o one else will see these numbers unless you decide to share them. W hat’s most important is that you be honest with yourself. N o rounding up here. N o bending the truth. N o looking at your “numbers” with a rosy lens and making your finances look a little better than they are. And by the same token, don’t sandbag yourself either by making the plan so conservative that you feel like it’s impossible to achieve. Just level with yourself and commit to taking a candid picture of where you are now. T hat’s how to make this plan really work.

Y OU C AN PL AY ON L Y Y OU R OW N H AN D

A good friend of mine recently had a reunion with a group of his boyhood pals near my home in Palm Beach. T hey all gathered to celebrate their 50th birthdays. T hey had gone to nursery school together and lived down the street from one another throughout high school in a L evitt community of tract homes on L ong Island, N ew Y ork. T heir fathers were all professionals, or owned their own businesses, their mothers were all housewives; and their household income levels tracked together closely. W hat struck me most about these lifelong friendships were the demographics. D uring their formative years, the lives of these friends were in synch, but once they went away to college, the young men splintered in different directions:

One went to work for a leading financial institution on W all Street.

One became a photographer, opening a frame shop in Manhattan.

One built homes across the mid-Atlantic states.

One started a business as an importer of fine wines and craft beers.

One trained as an engineer and worked on a civil servant’s salary in South Florida.

W hen they got together, these lifelong friends compared notes. D espite the gap in income levels and bank accounts, they were all happy—not happy in precisely the same ways, of course, but happy. T heir needs were met. Many of their hopes and dreams as well.

My friend shared the concepts from an early manuscript of this book with his buddies. After a few beers, the conversation turned to money, and they asked one another the same question you answered in the last chapter: H ow much money would it take to reach financial security or fund their retirements? T he W all Streeter thought he had to save at least $20 million to maintain his present lifestyle without having to work. T he Manhattan photographer thought $10 million would do the trick. T he real estate developer thought he could manage on $5 million, especially now that his kids were out of college. T he wine merchant had recently remarried. In spite of welcoming a new baby, he was counting on a nest egg of $2 million. And the civil servant, the one who’d been conditioned to live within his means and to look ahead to a steady pension for the rest of his life, thought he could live worry free once his pension kicked in and he started collecting Social Security benefits.

W hich one of these friends was closest to achieving his goal? W ho had the right number and the right plan in place to help him get there? It’s a trick question, of course. T he answer isn’t driven by money. Y ou don’t “win” the race of life by amassing the biggest pile of cash or accumulating the most things. And you don’t win by grabbing a quick lead and coasting to the finish line.

H ow do you win? Y ou win by living on your own terms—as well and as fully as you can, for as long as you can.

Y ou create a plan that meets your needs, that works for you, and you stick to it. T hat’s success, plain and simple. If you’re scrambling, constantly competing with others’ views of success or financial independence and trying to achieve an elusive goal, you’re going to fall behind and become frustrated. If you’re chasing someone else’s goal, you also lose. It doesn’t matter how much your neighbor has, what kind of car he or she drives, or the vacation he or she takes. T his plan is about you, only you, and no one else.

T he day you stop racing is the day you win the race.

— BO B MAR L E Y

T H E IL L U SION OF AD VAN T AG E

E ver watch track-and-field events in the Olympics? It’s easy to stare at the track just before the starting gun fires and wonder how the runner positioned all the way out in front in the outer lane of the track doesn’t have a huge advantage. Intellectually, we know that all the runners must run the same distance, but visually our eyes seem to deceive us. T hat so-called lead is called a stagger, and it’s meant to even the distance on an oval track. In a 400meter race, there’s a gap of about six meters separating each runner.

But, of course, everyone knows that there’s no advantage, physically, to being all the way out in front on the outside of the track, or all the way in the back on the inside. Y ou have to run the same distance either way. Y et the appearance of advantage can be a powerful psychological edge. D oes the guy out in front think he’s got the lead? D oes that give him a boost of confidence, or perhaps take away the tiniest fraction of his drive? D oes the guy all the way “in back” feel like the underdog—and then run just a little bit faster to compensate?

L et’s go back to our five friends, from the outsidelooking-in perspective. It might feel like the civil servant is all the way in the back, lagging behind the field, and it might seem like the W all Street executive has set himself up for a strong finish, but that’s the illusion, not the reality. N o one is ahead.

T here’s no first place or last place here. L ife is not a competition. Often people use money and the acquisition of things to measure where they stand: who’s got the nicer house, the fancier car, the summer home in the H amptons. But the truth is, we can’t predict how long we’ll live or the state of our health as we age. T he reality is, it doesn’t matter where we start. It’s how we finish that counts. H ere it seemed that all of these lifelong friends were headed in the right direction—each on his own terms, in his own time. T hat’s one of the reasons they felt so happy with their lives. W ith a little discipline and foresight, they all had a shot at winning the race they’d started together, all the way back in nursery school.

T he same can happen for you. It doesn’t matter where you stand in relation to your friends, your family, your colleagues, or clients. All that matters is your personal journey. It’s tempting to look at others as a yardstick and convince yourself that you’re all the way out in front, with the appearance of a lead, or resign yourself to the back of the pack. But that’s not the point. T he race of life is a marathon, not a sprint. T he only thing to do is focus on the path in front of you. L ook ahead. E stablish your own pace. K eep moving forward. And then create that plan.

T he only person you should try to be better than is the person you were yesterday.

— AN O N Y MO U S

Y OU R PL AN

N ow that you know that your only competition is yourself, it’s time to come up with a plan and create a financial blueprint. T he good news is, all you have to do is answer six questions in the It’s Y our Money app. U sing this wealth calculator, you’ll have a first version of your

plan within seconds. If you haven’t already downloaded the app, here’s the link: www.tonyrobbins.com/masterthegame.

T       he six questions are related to two areas: where youare now and what you are committed to creating going forward. T he few numbers you need to answer you can pull from your records, or perhaps off the top of your head. Y ou may have to do a little bit of homework, but most of these numbers should be close at hand—and, if you can’t come up with them right now, it’s okay to use a round-number estimate just to get you started to keep the momentum going.

U      sing these numbers, the app will build a plan tailored just for you, based on variables you get to determine: like how much you expect your income to grow, how much you’re determined to save, and what rate of return you expect to get on your investments. Y ou can be conservative or aggressive with your estimates—or you can run the numbers both ways and decide on some middle ground. And the beauty here is, once you capture these numbers, the app will do all the work for you. Y ou’ll have a true blueprint for your financial future, a clear plan to follow.

C H OOSE Y OU R OW N AD VE N T U RE

T he wealth calculator in the app you’ve just downloaded is a device I’ve used for more than three decades in my workshops and seminars. It’s simple and flexible, and it’s helped millions of people create financial plans that work for them. It’s built on a series of conservative assumptions, but you’re free to go in and change those assumptions if you’d like. Y ou can make them more conservative or more aggressive. Y ou’re in control, so put in numbers that fit with your lifestyle, your current reality, and your future dreams. If you don’t like the picture that comes back to you, you can play with your numbers and choose a different path to financial freedom. In the rest of this section, we’ll work together to get you specific steps to speed up your plan and insure its success. T he first plan you come up with is just that: your first bite of the apple. T hen we’re going to take it and improve upon it significantly in the pages ahead . . .

A few things to keep in mind before we start:

One of the biggest factors will be our tax rate, which is radically different for each one of us. T his book is read by people all over the world, so rather than make it complex, we’ve made it very simple. W herever you live, in the pages ahead you’ll learn to utilize the tools in your country that give you the greatest tax efficiency. W herever possible, you want to use tax-advantaged accounts to accumulate your wealth to generate a greater net rate of return.

T his calculator will then show you three potential scenarios, with different annual rates of return for each plan: 4% , 5.5% , and 7% . A conservative plan, a moderate plan, and an aggressive plan. T hese rates are after-tax rates of return. Some might find these numbers too conservative, or too aggressive; again, you can adjust them to any numbers you like.

H ow did we get to those numbers? On the high end, if you look at the standard set by the C harles Schwab organization, it will tell you an aggressive return is 10% .

Our app’s aggressive return is 7% . W hy the three-point difference? Schwab has shown that over the past 40 years, from 1972 to 2012, the market has averaged 10% . But our calculator is assuming approximately 30% in taxes, which brings the number to just under 7% . In the U nited States, long-term investment tax rates are only 20% , not 30% —so our app is being aggressive on the tax side. Also, remember that if you are investing through a tax-deferred vehicle like a 401(k), IRA, or annuity, you are deferring taxes. So if you had a 10% return (as in the Schwab example), you would continue to compound at 10% —with no tax deducted until withdrawal. W e are using our lower returns of 4% , 5.5% , and 7% to provide a buffer for mistakes or future returns failing to hit the aggressive mark you had hoped for.⁸

On the low end, or conservative side, if you look at Vanguard, it uses a 4% return after taxes. But we’re looking at things a little differently. Most Americans who have money to invest do it through their 401(k), IRA, or

401(k) Roth. W hat’s the best option? W e recommend that you go with a Roth (or your country’s equivalent), unless you truly are certain your taxes are going to be lower in the future. (L ucky you!) G overnments all around the world, and especially the U nited States, have spent money they do not have. H ow are they going to pay it back? By raising taxes. So while no one knows for certain whether taxes will go up or down, my bet here is they’re going up. In a Roth, your returns are 100% yours, meaning that if you’ve got a 7% return, you keep all 7% —no cut to the tax man ever on the growth of your investments. If you get a 10% return, you keep all 10% .

T his is why we built the wealth calculator this way. It gives the flexibility to think about returns in a net (aftertax) approach. Y ou design the plan with what you believe is most appropriate for your planning purposes.

T his wealth calculator is designed to quickly give you a sense of how different choices will impact how long it will take you to achieve Financial Security, Vitality, or Independence. After you come up with a basic plan you like, you can also get precision too. As I mentioned earlier, Stronghold (www.StrongholdFinancial.com) has a technology platform to link all of your investment accounts. It will give you immediate feedback on what your actual rate of return has been on your investments in the past. (Most people have no clue!) It will show your best performing years, your worst performing years, and in how many years you have taken a loss. It will also show you how much you are really paying in fees, so you’ll know the true impact on your future savings. G o there, if you like, after you have your basic plan completed on the app.

Of course, with the app, the numbers and your plans are completely secure and remain accessible to you wherever you go, on any device. Y ou can change your returns at any time, change how much you’re willing to save, and see the impact in moments.

O ne of the most powerful ways to accelerate the pace at which you achieve your financial goals—and the most painless way I know—is to implement the Save More T omorrow plan, which has helped over 10 million Americans grow their savings in ways they never thought possible. D o you remember how it works from chapter 7.4, “Y our Money Machine”? Y ou commit to automatically taking a percentage of any raise you receive in the future and adding that to your Freedom Fund.

So, for example, let’s say you’re saving 10% of your current income toward your Freedom Fund: you’re investing, but you want to find a way to speed up your plan. By committing to the Save More T omorrow plan, the next time you get a 10% raise, 3% would go toward your Freedom Fund and the other additional 7% would be available for your improved lifestyle today. D o this three times in the next decade, and you could be saving up to 19% —almost double what you are putting away today—and at no loss to you, because it’s all based on additional future income. T his will make a huge difference in the speed with which you can achieve your financial dreams.

T o take advantage, just click on the Save More T omorrow option in the app. One final note: I’ve also taken out the value of your home from the equation. N ow, hold on, before you scream and yell. Y es, I know, for many of you, it’s the largest investment you have. If you want to add it back in, you can, but I’ve taken it out so you have yet another conservative cushion. W hy? Because you’ll always need a home to live in. I don’t want you to run these numbers and generate a plan that relies on the value of your home to generate income. Y ou may sell your home in ten years and realize a significant gain. Or you may stay in your home for the rest of your life, or you might need to downsize and take some money off the table to help pay off an unanticipated expense. N o matter what happens, your plan is designed to keep you afloat no matter what your living situation holds.

Why all these buffers built into the system? Because I want these numbers to be real for you—not just real in this moment, but real over time, against any number of real-world events that could set you back. I want to soften the blow in case you veer off course. But I also want you to exceed your own expectations. Most of all, I want you to know with absolute clarity and certainty that the projections we generate together are truly within reach.

Ready to dive in? Open your app!

W hen I look into the future, it’s so bright it burns my eyes.

— O PR AH W IN F R E Y

D RU MROL L , PL E ASE . . .

N ow, I know you are going to want to dive right in, hit E nter, and sit back while the app tells you how the rest of your life will play out. But that’s actually not the point. T he true value of this next step is to show you what’s out there: what’s realistic, what’s possible, what’s worth dreaming and fighting for. It lets you try on different outcomes, and play with some of the variables if you want to create a different picture or produce a different result. In the near term, it gives you a true plan you can follow —a blueprint for your financial future.

T hink of it as your personal financial trainer. It takes your “real” numbers—your savings, your income—and calculates what they’ll be worth based on a series of anticipated outcomes. D on’t worry about specific investment strategies just yet. W e’ll cover these in section 4, but it’s important to get some idea of how your money can grow once it starts to work for you.

Remember, the focus is not on where or how you’ll invest your money. T his exercise is an opportunity to forecast—to look into the crystal ball of what’s possible. W hat would your future look like if you could realize a 6% return on your investments? H ow about 7% or more? H ow much money would you have after 10 years? After 20? W hat if you somehow managed to hit the jackpot and found a way to generate gains of 9% or 10% ? Remember, just one of the asset allocation portfolios you will learn in chapter 5.1, “Invincible, U nsinkable, U nconquerable: T he All Seasons Strategy,” has produced an average rate of just under 10% over the last 33 years, and lost money only four times (and one of the losses was only 0.03% )! So there are many possibilities once you educate yourself as to how the top investors on earth conduct themselves.

So play around until you find a number that feels right to you—one that you have a healthy dose of confidence in. Just a few minutes of your time, and you’ll know what your savings, with the power of compounding, at different rates of return, will bring you.

It is only the first step that is difficult.

— MAR IE D E V IC H Y -C H AMR O N D

C ongratulations on running your first plan. Are you excited about the results? C oncerned? Frustrated? Or encouraged? Over the years, working with countless people from all over the world, I’ve noticed their results tend to place them in roughly one of three categories:

1.     T hose who are young and in debt, wondering howthey’re ever going to get to financial security. W hat’s beautiful is that they find out they can!

2.     T hose who think they are decades away from financialsecurity, and are surprised—or, frankly, shocked—to learn they are only a stone’s throw away: five, seven, ten years max. In fact, some are already there but had no idea.

3.     T hose who started late and are fearful of never beingable to make up for lost ground.

L et me share with you some examples of other people I’ve worked with in similar situations and show you how their plans played out—how they achieved Financial Security, Vitality; even Independence and Freedom.

AL L G ROW N U P BU T ST IL L PAY IN G OFF ST U D E N T L OAN S . . .

L et’s start with someone young and in debt. L ike a lot of millennials today, Marco graduated with a big chunk of debt. As a 33-year-old engineer earning a respectable $75,000 a year, he was still paying off $20,000 in student loans. L ike so many Americans, Marco felt like his debt was consuming his life—he thought he’d be paying it off forever (and probably would be, had he paid only the minimum payments). Marco did, however, expect his salary to grow, slowly but steadily with expected raises of about 3% to 5% per year. After working together on a new plan for Marco, we allocated 5% of his income to paying off his student loans. And Marco committed 3% of any and all future raises to his Freedom Fund.

W hat did this new plan give him? H ow about a debt-free life in seven years! On top of that, Marco was going to be able to take that 5% , once he was debt free, and redirect it toward his savings to grow and compound his Freedom Fund. W ith this savings and investing plan, Marco could reach F inancial Security in 20 years. T hat may sound like a long time, but he’ll still be only 53 years old. And just seven years later, at 60, Marco could reach F inancial Independence—a full five years before he’d ever dreamed of retiring, with more annual income than he ever imagined! Marco went from worrying about never paying off his student loans to looking at a future of real financial independence. E ven better, within five years, by age 65, with all of his growth and the boost of Social Security added, Marco would actually experience his definition of Financial Freedom— a prospect entirely unfathomable to him before running his new plan. Remember, he began this journey with no assets and nothing but debt!

IF IT L OOK S T OO G OOD T O BE T RU E . . . IT MIG H T AC T U AL L Y BE T RU E

T hen there’s our second category of people: those who take a look at their plan and think something must be wrong. T heir calculator is not working! T hey see that F inancial V itality or Independence is popping up far too quickly.

“T here’s no way I can get there that fast,” they think. “I can’t achieve Financial Independence in five, seven, or eight years. T hat’s crazy!” In their minds, they’ve got a good 20 or 30 years of hard work and nose-to-thegrindstone days ahead of them.

W here’s the disconnect? H ow is that possible?

It’s possible because the number they had in their head—that $10 million or $20 million or $30 million price tag—was totally off base. It had nothing to do with reality. It was simply a pie-in-the-sky number representing what they thought they needed to be financially independent, not what they actually needed.

K atherine, a woman who attended one of my W ealth Mastery seminars, is a great example. She was a savvy businesswoman who needed $100,000 a year to be financially secure—a large number by many people’s standards, but not by her own. T o achieve Financial Independence, she’d need $175,000 to maintain her current lifestyle without working. K atherine assumed it was going to take more than 20 years to get there.

W ant to know what happened when she ran her numbers with my team? T he first thing they uncovered was that her current business was earning more than $300,000 a year in net profits and growing at nearly 20% per year. W ith my team’s help and a little bit of research, she found that she could sell her business today for six times her current profits, or a total of $1.8 million. W hat does this mean?

W ell, if she sold her business for $1.8 million and then received a 5% return, her annual investment income would be $90,000 per year. She had other investments already that were providing more than $10,000 per year, so with a $100,000 annual income, guess what: K atherine is financially secure right now!

K atherine was blown away—but also confused. She said, “But T ony, I don’t want to sell my business right now!” I told her that I wasn’t encouraging her to, nor did she have to. But she should declare victory and realize that she is financially secure today. W hy? Because she has the assets to produce the income she needs right now. E ven more exciting, at her business’s current growth rate of 20% per year, she would double her business in the next three and a half years. And even if her current growth rate was cut in half to only 10% per year, in seven years her business would be worth $3.6 million. If she sells at that point ($3.6 million × 5% = $180,000 per year in income without working), in three and a half to seven years, K atherine will be financially independent. N ot 20 years! And this was without making any other investments whatsoever!

By the way, one of the things I show business owners in my Business Mastery program is a little-known set of strategies that allows you to sell a portion (or even a significant majority) of your business and yet still run, control, direct, and profit from it. T his allows you to get a large cash-flow bump to secure your Financial Freedom today, while still having the enjoyment and fulfillment of growing the business you love.

Y OU C AN BE L AT E T O T H E PART Y AN D ST IL L W IN

L et’s go back to my friend Angela’s story. Angela is anything but average, but from a financial perspective, she represents the average American. Angela is 48 years old. H aving lived a free-spirited life, traveling and sailing around the world, she had never saved or invested in her entire life. After finishing section 1, she’s now committed to saving 10% , but she’s still got a major challenge: she’s beginning late in the game. (As she said, “I’m almost fifty!”) She has less time to tap into the power of compounding.

W hen Angela first calculated the amount of income she’d need for Financial Security, her number came to $34,000 a year. F or F inancial Independence, she’d need $50,000. At first glance, her numbers excited her. T hey didn’t have seven zeros, and they were numbers she could get her arms around. H owever, the timing of those numbers brought her back down to earth. Starting late in life and saving only 10% of her income was a plan that would take Angela 24 years to get to F inancial Security—if she was 41 years old, that would be a great win. She would achieve it by 65, but since she was starting later, Angela would be 72 years old when she achieved Financial Security. It was certainly a more compelling future than if she hadn’t run the plan, and she was glad to know she could get there. But she wasn’t terribly excited by the long, slow road ahead.

So what could we do to speed up that goal? H ow could Angela get to F inancial Security faster? One way would be to increase her savings and invest it. She was saving 10% already. N ever having saved before, 10% seemed like a huge number, but by committing to the Save More T omorrow plan, she could painlessly save more when she received raises and accelerate her plan. Another way to speed things up was to take a little more risk and increase her rate of return to 7% or more. Of course, that heightened risk could bring about more losses too. But it turned out there was an even simpler insight we had overlooked.

L ucky for Angela, she still had one more round in her arsenal. She had left out a huge piece of future earnings, one that many people neglect to include in their financial planning: Social Security.

Angela, already 48, was only 14 years away from taking Social Security at a reduced rate and 17 years away from capturing her full benefit. She stood to take home $1,250 per month once she turned 62, or about $15,000 a year. So that $34,000 a year in income she needed for Financial Security suddenly dropped down to $19,000. N ow when we reviewed the numbers in the app, she shaved a full decade off her timeline. Instead of getting to F inancial Security at 72, she was going to get there at 62! Angela was going to be financially secure in 14 years, and she was thrilled. She now would have enough income never to have to work again to pay for her mortgage, her utilities, her food, her transportation, and her basic health insurance—a real sense of freedom for Angela.

T he impossible became possible. And guess what else happened? Once Angela realized financial security was in view, she took that emotion, that excitement, that momentum, and she said, “H ey, let’s kick it up a notch. If I can get to Financial Security by sixty-two, let’s take a look at Financial Independence. I’m going to figure out a way to become financially independent, not in my seventies or eighties but in my sixties!” And her number to reach Financial Independence? It was $50,000—only $16,000 more a year in income than she’d need for Financial Security.

Angela took one more step. After reading chapter 3.6, “G et Better Returns and Speed Y our W ay to Victory,” she found yet another way to accelerate her plan. Angela was always extremely interested in owning incomeproducing real estate, and she learned some simple ways to invest in senior housing (or assisted living facilities) that are available through public and private real estate investment trusts. (T hese are covered in section 4.) W e will highlight more details later in the book, but in short, senior housing facilities are a way to own incomeproducing real estate that is also tied to what I call a “demographic inevitability”: a wave of 76 million baby boomers who are aging and will require the use of these facilities. By investing $438 per month (or $5,265 per year) for the next 20 years, and assuming that she reinvests the income for compound growth, she will have accumulated $228,572. (N ote: this assumes a 7% income/dividend payment, which is the current rate on multiple senior housing real estate investment trusts.)

T he amount she accumulates will generate $16,000 of income (assuming a 7% income payment), and she won’t have to tap into her principal unless she wants to! One last huge benefit? Angela doesn’t have to pay income tax on the entire income payment due to the tax deductions for depreciation.

Marco, K atherine, and Angela are real people just like you and me. Y our plan is within reach too, and just like them, you might be able to get there sooner than you think. D on’t let the first plan you’ve run on the app be the end-all. T hink of it as your starting point to make your dreams happen. In the next chapters, we’re going to show you five ways to speed it up and get there even faster.

K ites rise highest against the wind, not with

it.

— W IN ST O N C H U R C H IL L

W hether you’re excited about the numbers your plan threw back at you or you’re disappointed about the long haul ahead, take heart—disappointment isn’t always bad. It often serves as a great kick in the pants that pushes you

to create massive change. R emember, it’s not conditions but decisions that determine our lives. D isappointment can drive us, or it can defeat us. I choose to be driven by it—and I’m hoping you take the same view. Most people don’t even get to this point in their planning, because they don’t want the letdown they’re afraid they’ll experience once they run their numbers. But you’ve taken on the challenge and the promise of this book, so you’re not like most people. Y ou’ve chosen to be one of the few, not the many.

I vividly remember a Fourth of July trip I took more than 20 years ago with my dear friend Peter G uber and a group of top movie executives through N antucket and Martha’s Vineyard. W e were on Peter’s private yacht, and a couple of these moguls were throwing around how they had earned $20 million and $25 million on a single film that year. My jaw dropped—that number simply astonished me. H ere at 30 years old, I thought I was doing pretty well—that is, until I hung out on deck with a bunch of movie tycoons. T hese guys had an insane lifestyle, and it didn’t take long for me to get seduced by the idea of it all.

T his experience jolted me, but it also made me ask a different question: W hat did I really want to create in my life? And could I possibly ever get there? At that time, I didn’t see any way I could add enough value to other human beings through my core skill of coaching to ever create that level of Financial Freedom.

Of course, I was being totally unfair, comparing myself and my level of accomplishment to these men. I was 30 years old; Peter and his movie-producing friends were all in their early to late 50s. Peter was in the prime of his career; I was just beginning mine. H e had 52 Academy Award nominations and a slew of H ollywood hits to his name. Sure, I was making a name for myself and running a successful business—and changing lives— but financial success for Peter and his friends and financial success for me were light-years apart. And so, as I compared myself to those guys on the boat, I did what so many people do unfairly: I beat myself up for not being at the same level of accomplishment.

But the beauty of that moment, that day, was that it put me in a new and strange environment, and something inside me shifted. I was so far outside of my comfort zone. I felt like I didn’t belong—like I didn’t deserve to be there. H ave you ever felt like this? It’s amazing what our minds will do to us if we don’t consciously direct them.

And yet contrast is a beautiful thing. W hen you get around people who are playing the game of life at a higher level, you either get depressed, pissed off, or inspired. T hat day, I realized I didn’t want a yacht, but I was inspired to sharpen my game. I realized there was so much more I could do, give, and be. T he best was yet to come. I also realized how incredibly valuable it was for me to get uncomfortable at that point in my life; to put myself in an environment where I didn’t feel on top or superior.

Of course, Peter had none of these thoughts. H e was just bringing dear friends on a Fourth of July trip as a gift of love! But what he had really done was show me a world of unlimited possibilities. T hat experience helped awaken the truth in me. It became clear that I did have the capability to create anything I could envision. Maybe I didn’t want to have those same grown-up toys, but I sure as hell wanted to have the same types of choices for my family. T oday, in my early 50s, those impossible visions have become a simple reflection of the reality I now live. And I still don’t want a yacht!

L et’s be clear. It isn’t about the money. It’s about choice; about freedom. It’s about being able to live life on your terms, not anybody else’s.

D on’t complain.

D on’t say you can’t.

D on’t make up a story.

Instead, make a decision now!

Find your gift and deliver it to as many people as possible.

If you become stronger, smarter, more compassionate, or more skilled, then your goal is a worthwhile one.

One of my earliest mentors, Jim Rohn, always taught me, “W hat you get will never make you happy; who you become will make you very happy or very sad.” If each day you make just a little progress, you will feel the joy that comes with personal growth. And that leads to perhaps one of the most important lessons I have learned about big goals and achievement.

Most people overestimate what they can do in a year, and they massively underestimate what they can accomplish in a decade or two.

T he fact is: you are not a manager of circumstance, you’re the architect of your life’s experience. Just because something isn’t in the foreground or isn’t within striking distance, don’t underestimate the power of the right actions taken relentlessly.

W ith the power of compounding, what seems impossible becomes possible. Right now, whether you love your financial plan or hate it, or whether you’re excited or afraid, let’s make it stronger together. L et’s accelerate it by looking at the five elements that can speed it up.

8. At this time of this writing, interest rates have been repressed for an extended period of time. H owever, the app will be updated if and when interest rates rise. Y ou are also welcome at any time to put in any rate of return that best suits your circumstances and realistic investment return objectives.

C HAPT E R 3.3

SPE E D IT U P: 1. SAV E MO RE AN D IN V E ST T H E D IFFE RE N C E

If everything seems under control, you’re not going fast enough.

— MAR IO AN D R E T T I

C ongratulations: you’ve just taken a huge step toward F inancial F reedom! Most people don’t take the time to consider their complete financial picture and create a plan. And for those who do, it often stirs up all kinds of emotions. It’s big, it’s scary. I’ve been there, I get it. But now that you’ve done it, take a moment to savor your victory. And ask yourself this: H ow do you really feel about your plan? D o you feel good about your or your family’s future—are you excited to realize that your financial dreams are closer than you imagined? Or is it terrifying to think you might never get to where you’d like to be—are you so deep in debt you’re starting to wonder if you’ll ever dig your way out of the money pit?

W herever you are, it’s okay. Y ou’ve come a long way, you’ve made huge strides and there’s no turning back now. And now that you’ve learned to walk, so to speak, let’s teach you how to run. T he goal of these next minichapters is to get you thinking about how to make your financial dreams come true faster than you ever thought possible. D ream big. Make it happen. And then speed it up. H ave you ever had a crazy busy day, worked your tail off, raced against the clock, and then, against all odds, finished early? T hat extra hour or two of life that you reclaim is an absolute gift—a bonus that makes you feel like the world is on your side. Y ou hit the gym and go for a run, head out for cocktails with friends, or race home to tuck the little ones into bed.

I travel like mad; I’m in different countries, on different continents, crossing time zones and flying around the world like the business equivalent of a H arlem G lobetrotter. If I arrive somewhere early, if I’ve got an extra window in my week to refocus my energies or spend time with my wife or my family, I’m energized and excited. I just found some extra time!

W hat if that extra time could last more than just an hour or two? W hat if you could find not just an extra hour in your day, but, financially, find two years of savings in your life? Or five years? Maybe even a decade of life where you have the freedom of not having to work to support your lifestyle? T hat’s the promise of these pages. E ven if your current plan doesn’t look like it can get you there, these chapters can show you how to shift your plan and find that opening in your life—that extra money, that extra time, that ultimate freedom.

H e who gains time gains everything.

— BE N JAMIN D ISR AE L I

If you’re going to speed things up, there are five core strategies. Y ou can do any or all of them—it’s your choice. Any one of them by itself can significantly speed up the tempo with which you achieve your dreams of financial security, independence, or freedom. Put a couple of them together, and you’ll be unstoppable.

Y ou can be rich by having more than you need, or by needing less than you have.

— JIM MO T T

ST RAT E G Y 1: SAVE MORE AN D IN VE ST T H E

D IFFE RE N C E

T he first way to speed up your plan is to save more and invest those savings for compound growth. I know, I know, that’s not what you want to hear. Maybe you’re even thinking, “T ony, I’m spending every dime I have. T here’s no way I can possibly save more under any circumstances.” If that’s true, before we talk about anything else, let’s remember the most fundamental strategy you learned back in chapter 2.9, “Myth 9: T he L ies W e T ell Ourselves”: the best strategy to get around your belief system is to develop a new belief! Y ou can’t squeeze water from a rock, but you can change your story.

E ven if you’re convinced you have no room to save,

Richard T haler showed us that we can all Save More T omorrow. Remember those blue-collar workers who said they could never save? And just five years and three pay raises later, they were saving 14% . And 65% of them were saving as much as 19% ! Y ou can do this, and you can make it painless if you use that strategy. L et’s attack some fresh strategies right now.

W hat if—in one fell swoop, in one single move —you could save a huge chunk of money toward your F inancial F reedom, and it wouldn’t cost you a dime more? D o you like that idea? L et’s take a look at one of the biggest investments in your life: your home. If you’re like millions of Americans, home ownership is important, something you either aspire to or currently take great pride in. W hether you live in Portland, Maine, or Portland, Oregon, your house probably takes the biggest bite out of your monthly apple.

H ow would you feel if you could save an extra $250,000, $500,000, or even $1 million, from your home? Sound impossible? N o, I’m not talking about refinancing your mortgage at a lower rate, although that is one painless way to save hundreds or even thousands of dollars a month.

T H E BAN K E R’S SE C RE T

Y ou don’t have to wait for a market downtick to save money on your mortgage. By the time you’re reading this, rates may be on their way back up anyway. Y ou can still cut your mortgage payments in half, however, starting as soon as next month, without involving the bank or changing the terms of your loan. H ow? L et me ask you a simple question. L et’s say you’re applying for a home loan, which would you prefer?

Option 1: 80% of your combined mortgage payments goes toward interest; or

Option 2: a 30-year fixed rate mortgage at 6% .

G o ahead and think about it for a moment. W hat do you think? Are you tempted by option 2? D oes option 1 sound crazy? D id you follow the crowd and choose option 2? Or did you outsmart us all and choose option 1?

T he answer: it doesn’t matter. T hey’re identical. W hen you sign your name on the dotted line and take on that 30-year fixed-rate mortgage at 6% , fully 80% of your mortgage payments will go toward interest. D idn’t see that one coming, did you? H ow much does that interest expense wind up costing you over the course of your loan? Is it 30% more? 40% more? 50% more? L ife should be so good. Y ou want to know the banker’s secret? Y our interest payments will tack on an additional 100% or more to your loan value. T hat half-million-dollar home you buy actually ends up costing you a million dollars after interest payments. If you buy a $1 million home? T hat costs over $2 million once interest payments are added in! T ake a look at the chart below to see the impact of interest expense on your home purchase. T he example is a $1 million home, but no matter what price you pay for your home, the ratio of impact is the same. Interest payments will double the cost over time.

For most people, their mortgage is the single largest expense, and with the vast majority of your payment going toward interest, I bet you’re not surprised to learn that the average American, when you add in credit cards and auto loans, spends 34.5% of every take-home dollar on interest expense. And that’s just the average—many people spend more!

So how can you cut down that enormous interest payment? H ow can you decrease the interest expense you rack up over time—and take that money and funnel it to your Freedom Fund? T he answer is so simple it might surprise you.

If you have a traditional fixed-rate mortgage, all you have to do is make early principal payments over the life of the loan. Prepay your next month’s principal, and you could pay off a 30-year mortgage in 15 years in many cases! D oes that mean double your monthly payments? N o, not even close! H ere’s the key:

Money Power Principle 3. C ut your mortgage payments in half! T he next time you write your monthly mortgage check, write a second check for the principal-only portion of next month’s payment.

It’s money you’ll have to pay anyway the following month, so why not take it out of your pocket a couple of weeks early and enjoy some serious savings down the road? Fully 80% to 90% , and in some cases even more, of your early payments will be interest expense anyway. And on average, most Americans either move or refinance within five to seven years (and then start the insanity all over again with a new home mortgage).

“It’s a pity,” mortgage expert Marc E isenson, author of T he Banker’s Secret, told the New York T imes. “T here are millions of people out there who faithfully make their regular mortgage payments because they don’t understand . . . the benefits of pocket-change prepayments.”

L et’s take a look at an example (in the table on page 252). T he average American home is $270,000—but this strategy works whether your home costs $500,000 or $2 million. A 30-year loan on $270,000 at 6% requires an initial monthly payment of $1,618. W ith this technique, you would also write a second check for an extra $270— next month’s principal balance—a very small number, relatively speaking. T hat second check of $270 is money you’ll never pay interest on. T o be clear, you’re not paying extra money; you’re simply prepaying next month’s principal a touch sooner.

H old yourself to this pay-it-forward strategy each month, and, again, you’ll be able to pay off a 30-year mortgage in just 15 years—cutting the total cost of your home by close to 50% . W hy not prepay that $270, and cut the life of your mortgage in half? So if you have a million-dollar home, that’s a half million dollars back in your pocket! H ow much would that accelerate your journey to Financial Freedom?!

BABY , Y OU C AN D RIVE MY C AR

It’s not just our homes where we can save big bucks. One of my sons was dying for a BMW . After years of coveting the “ultimate driving machine,” he finally went out and leased a brand-new Beemer with all the performance options. H e was thrilled with his purchase. H e loved that car: he loved the way it drove, what it said about him, what it represented. It was a point of pride and aspiration, and it announced his arrival—in his own mind, at least.

On the flipside, that BMW cost him a fortune! H e could have made a monthly house payment with what he was paying for that car. A year or two later, the car got a little dinged up, and, no surprise, lost some of its luster.

At 30, and newly engaged, he decided he wanted to look for a home for him and his future wife. W hen he did the math, he almost croaked. T hat $1,200 payment for his BMW X 6 (with a twin turbo V8) could have literally covered an entire house payment.

H e realized he no longer needed the same ego stroke that came from driving a luxury car. It was just transportation, after all. H e saw that he could put himself in a Volkswagen Passat or a Mini C ooper, and it might even be nicer, newer, more fuel efficient.

On top of that, much of the joy that he got from driving that car also disappeared. H e found joy elsewhere: in the idea of building a new life, putting down roots with the woman he loved, and buying a home. G etting rid of the BMW was no longer a sacrifice; instead, it became a conscious decision to spend his money elsewhere and start building a financially secure future.

N ow, if you’re a car aficionado and love cars (as I do), I’m not telling you to go out and drive a Volkswagen. For many guys, that shiny black Ferrari, Porsche, or the new T esla is just too much to resist. And if your plan is getting you to where you want to be financially, by all means, drive whatever car you want. But if you’re not getting there, or you’re not getting there fast enough, then maybe it’s time to rethink your wheels and see if you can find some meaningful savings to put into your Freedom Fund.

Remember Angela? She read an early copy of this manuscript and came home with a new car—her first brand–new car ever! T ake a look at her numbers: she was able to trade in her old car and save $400 a month, or almost $5,000 a year, to put toward her savings and start compounding right away.

W H AT E L SE C AN Y OU D O?

H ouses and cars aren’t the only places where we can save. W here else can you work at axing expenses in your life that no longer give you value? I know the idea of living on a budget is totally unappealing to most people. I don’t want to be put on a budget and my guess is you don’t either. But what I do believe in is a spending plan. I like the idea of planning how to spend my money so that it gives me the most joy and happiness but also ensures my financial freedom long term.

N ow, to be fair, if you’re one of those people who says, “Screw it, I’m not going to save; I’m just going to focus on earning more,” then you can just go ahead and skip right over to the next minichapter on earning more and adding value. If the idea of saving just completely exhausts or bores you, you’ve got four other strategies to help you speed things up, and I don’t want you to miss them because saving isn’t for you. But if you do, stay with me. I promise you that little things can make a big difference long term—they add up to surprisingly giant numbers.

T o be fair, Amazon and brick-and-mortar bookstores have entire sections filled with books on how to save more money. D ave R amsey is a very caring man with several books in this area, and Suze O rman is another author worth investigating if you are looking to find savings. But we’re going to take a few pages here to highlight the best simple strategies now.

One thing is for sure: you can create a spending plan that helps you decide in advance how and where to spend your money to give you the greatest returns today and in the future.

Remember chapter 1.3, “T ap the Power,” where we looked at how ordering in pizza with friends instead of going out to dinner could save you $40 a week, or $2,080 a year? At an 8% return, that turns into more than $500,000 over 40 years. A half million dollars! T hat’s a whole different retirement picture than most Americans have today. T hat kind of money, on its own or added to our 401(k), can certainly help make us rethink our daily G rande skim latte with a shot of vanilla.

Financial expert D avid Bach is a good friend of mine who got his start by attending one of my financial seminars more than 20 years ago. H e made a decision to pursue his dream of helping people become financially independent, and just a few years later, I hired him for his first paid speech. T oday, through his passion and dedication, he’s helped educate over four million people through his bestselling book T he Automatic Millionaire: A Powerful One-Step Plan to L ive and Finish Rich, which includes the concept of creating wealth through finding what he calls your “L atte Factor.” And it’s not just about coffee: the L atte Factor is simply a metaphor for all those small purchases that we don’t even consider—things we wind up wasting our money on without even realizing it. But if you are a coffee fiend, how much is that addiction costing you? L et’s say you’re a casual “user”: at $4 a day, you’re effectively giving up almost $56,500 of savings at 6% interest over 20 years. For a single drink! But let’s be real: the Starbucks loyalist doesn’t go just once a day. W hat about the real evangelists who are there two or three times a day? T ake your $4 habit and boost it to $10 a day, and now you’re drinking away over $141,250 in savings over 20 years. T hat’s the cost of a four-year college education!

W hat if you’re a purist? Y ou don’t binge on caffeine; your body is a temple. But bottled water is your thing. G ot any Fiji or E vian enthusiasts out there? Or frankly, even if you just stock up on Poland Spring at C ostco, how much are you spending on bottled water every year? A young woman I work with, whom I adore and who considers herself very socially conscious, is about to get married to a guy who regularly buys 12-packs of 1.5-liter bottles of Smartwater. H ow smart is that? H e buys them three at a time, 36 big bottles in total, which lasts him about two weeks and sets him back $75. H e’s spending $150 a month on water, almost $1,800 a year—on something he could get free from the tap, or filter with a Brita water filter system and a few N algene bottles for $50 to $60 a year. Forget that he’s killing our planet; he’s also killing his wallet. I know her fiancé would be much happier if that $1,800 a year was going into their savings account and compounding annually. At 8% over 40 years, that’s $503,605 being pissed away—literally.

I’m not saying you have to give up bottled water or stop getting coffee, but the savings are there somewhere. Isn’t it time to find them?

And finally, let’s not forget about our impulse purchases: you know, the ones that feel great in the moment, like the pricey work bag or the beautiful H ermès tie. L isa, a young mom from N ashville, has a taste for the finer things in life. She drives her husband batty with her impulse purchases. She’ll come home with a great new dress or an amazing pair of boots, and her husband will invariably ask, “W ere they on sale?” or “D id you check online to see if you could get them cheaper?” After several spats, L isa and her husband agreed on a new plan. W hen L isa found herself unexpectedly at Saks Fifth Avenue or Jimmy C hoo, she’d take a photo of her next “must-have” and send it to her husband. H e had two weeks to find her a better price online; otherwise she’d order her purchase over the phone at full retail. But as L isa sheepishly admitted to me, over 80% of the time, he did find whatever she was looking for—at often at 20% or 30% cheaper.

So take a page from L isa and her husband and check out all the online rewards programs that can save you real money. U promise.com helps you earn cash back for college from your everyday spending, from online purchases to dining out and booking travel. Y ou can put those savings toward a student loan, savings account, or 529 college savings plan, a tax-deferred savings plan set up by parents for their kids’ college tuition. And if college has passed or it’s not a priority, but cash is, there are hundreds of other cash-back websites out there— E xtrabux, E bates, Mr. Rebates—all of which can save you 10% to 30% on purchases at thousands of online stores. As for L isa and her husband, they put all their savings back into their U promise account, and now everyone feels better about that pair of stilettos.

At the end of the day, the question to ask yourself is this: D o my expenses, big and small, bring me the thrill they once did? It’s not about depriving yourself; it’s about adjusting your spending habits to mirror your core values and indulge only the experiences that truly matter to you. T hat deliberate spending allows you to invest in a quality of life that is sustainable and brings you joy. W hether you’ve got 20, 30, or 40 years to invest, no matter where you are, how much you can save, or how many years you’ve got to do it, you can take advantage of the unparalleled power of compounding. Financial security, financial independence—whatever your goals, you will get there a whole lot faster when you put your money to work for you.

It’s not about lifestyle, it’s about timing. W hy not make simple changes today to insure you have more than enough down the road to continue to fund your lifestyle and your dreams? Y ou can still enjoy life’s finer pleasures —but you’re in control now. Y ou get to choose how to allocate your funds and where to get the biggest bang for your buck. W hether you’re going to tackle your mortgage expense or trade in those fancy wheels, make your online purchases work for you or do a little better on your everyday expenses—it’s in there. Real, meaningful savings, to the tune of hundreds of thousands of dollars to a million dollars or more are there for you to find and to reinvest.

N ow let’s turn the page and uncover the fastest way I know to speed up your plan and achieve financial independence faster. L et’s learn to earn more.

MIN D FU L SAVIN G S

H ere’s a quick-and-easy six-step exercise to get you thinking more aggressively—more purposefully—about saving:

1.     Brainstorm about all the recurring expenditures thatyou could eliminate or reduce to cut your expenses. C ar insurance, cell-phone bills, lunch money, movie tickets. T hink about where you can make changes.

2.     H ow much do these items or activities cost? H ighlightthe most significant of these expenditures and make a note of the associated costs. N ext, calculate how many times per week you indulge in this expense and take a reality-check snapshot.

3.     N ow, on a scale from 0 to 10 (with 0 representing none and 10 representing extremely pleasurable), how much joy do you get from each of the items above? Attach a number to each activity or item to help you associate these costs to your life.

4.     N ext, think of what it would feel like to have AbsoluteFinancial Freedom. Remember how you responded to that concept back in chapter 3.1: “W hat’s the Price of

        Y our    D reams?    Make    the    G ame   W innable”?

Remember how it made you feel? But at the same time, remember that this was a feeling you experienced in the abstract, in theory. H ere it’s close enough to taste. W hat would you be able to enjoy, have, do, be, or give if you were absolutely financially free?

5.     D ecide which is more important to you: the joy youreceive from the recurring expenditures on your list or the feeling of Absolute Financial Freedom.

Remember that life is a balance. Y ou don’t have to cut out everything from your list to move the needle on that feeling of freedom.

6.     W rite down at least three expenditures you are resolved to eliminate. C alculate how much money this will save you over the course of the next year.

C HAPT E R 3.4

SPE E D IT U P: 2. E ARN MO RE AN D

IN V E ST T H E D IFFE RE N C E

T ry not to become a man of success, but rather try to become a man of value.

— AL BE R T E IN ST E IN

Okay, let’s kick into second gear. If saving is one way to speed up your plan, there is an even faster way that literally has no limits—if you unleash your creativity and focus, and become obsessed with finding a way to do more for others than anyone else. T hat’s how you earn more and shift into the fast lane to freedom.

D RIVIN G A T RU C K T O FIN AN C IAL FRE E D OM?

W hen I was growing up, my mother had a great plan for me. She wanted me to become a truck driver. She had seen these ads on television, over and over, for T ruckmaster truck driving education school. She told me that with a little training, I could qualify as a truck driver and make up to $24,000 a year. W ow, $24,000! T hat was twice what my dad was earning as a parking attendant in downtown L A. She thought that this would provide a great future for me. She worked into her sales pitch that I’d have the freedom to be on the open road and drive. It actually appealed to me on a certain level: the idea that I could just turn on my music and go—kind of a cool thought for a 14-year-old kid who wasn’t even driving yet. I’d have the opportunity to get up and go instead of being stuck in an underground parking garage for 30plus years.

But after all of the misery I had witnessed, all of the shame associated with four different fathers, of never having enough money for clothing or food, I realized I could never drive a truck long enough or far enough to allow me to escape the pain of that situation. In my head, I decided that there was no way in my lifetime I would have a family that would suffer this way. On top of that, I wanted to use my mind and my heart. I wanted to get in the game of life at a different level.

I looked around and wondered how other people’s lives could be so vastly different from my own. W hy were we struggling constantly to make ends meet, to stay ahead of the bill collector—choosing between canned beans or spaghetti with ketchup because we couldn’t afford tomato sauce? And yet, in the same city, not far from us, kids I went to high school with were taking fancy vacations and studying on picture-perfect college campuses—living a life well beyond my wildest dreams— a life so obviously different from the one we would ever experience. W hat did they know that we didn’t know?

W hat were they doing differently from my father and mother?

I became obsessed. H ow was it possible that someone could earn twice as much money in the same amount of time? T hree times as much? T en times as much? It seemed crazy! F rom my perspective, it was an unsolvable riddle.

IN VE ST IN Y OU RSE L F

I was working as a janitor, and I needed extra money. A man my parents knew, and whom my father had called a “loser,” had become quite successful in a short period of time, at least in financial terms. H e was buying, fixing, and flipping real estate in Southern C alifornia and needed a kid on the weekend to help him move furniture. T hat chance encounter, that fateful weekend of working my tail off, led to an opening that would change my life forever. H is name was Jim H annah. H e took notice of my hustle and drive. W hen I had a moment, I asked him, “H ow did you turn your life around? H ow did you become so successful?”

“I did it,” he said, “by going to a seminar by a man named Jim Rohn.” “W hat’s a seminar?” I asked. “It’s a place where a man takes ten or twenty years of his life and all he’s learned and he condenses it into a few hours so that you can compress years of learning into days,” he answered. W ow, that sounded pretty awesome. “H ow much does it cost?” “T hirty-five dollars,” he told me. What!? I was making $40 a week as a part-time janitor while going to high school. “C an you get me in?” I asked. “Sure!” he said. “But I won’t—because you wouldn’t value it if you didn’t pay for it.” I stood there, disheartened. H ow could I ever afford $35 for three hours with this expert? “W ell, if you don’t think you’re worth the investment, don’t make it,” he finally shrugged. I struggled and struggled with that one—but ultimately decided to go for it. It turned out to be one of the most important investments of my life. I took a week’s pay and went to a seminar where I met Jim Rohn —the man who became my life’s first mentor.

I sat in an Irvine, C alifornia, hotel ballroom listening to Jim, riveted. T his silver-haired man literally echoed the questions that had been burning in my mind. H e, too, had grown up poor, wondering, even though his father was a good man, why his father struggled so hard only to suffer while others around him prospered. And then, suddenly, he answered the question I had been asking myself literally for years.

“W hat’s the secret to economic success? T he key,” he said, “is to understand how to become more valuable in the marketplace.

“T o have more, you simply have to become more.

“D on’t wish it was easier; wish you were better.

“For things to change, you have to change.

“For things to get better, you have to get better!

“W e get paid for bringing value to the marketplace. It takes time . . . but we don’t get paid for time, we get paid for value. America is unique. It’s a ladder to climb. It starts down here, at what? About $2.30 an hour. W hat was the top income last year? T he guy who runs D isney —$52 million! W ould a company pay somebody $52 million a year? T he answer is: of course! If you help a company make a billion dollars, would they pay you $52 million? Of course! It’s chicken feed! It’s not that much money.

“Is it really possible to become that valuable? T he answer is: of course!” And then he let me in on the ultimate secret. “H ow do you truly become more valuable? L earn to work harder on yourself than you do on your job.

“So can you personally become twice as valuable and make twice as much money in the same time? Is it possible to become ten times as valuable and make ten times as much money in the same time? Is that possible? Of course!” And then he paused and looked directly in my eyes and said, “All you have to do to earn more money in the same amount of time is simply become more valuable.”

And there it was! T here was my answer. Once I got that, it turned my life around. T hat clarity, that simplicity, the wisdom of those words—they hit me like a 100-pound brick. T hose are the exact words I’ve heard Jim Rohn speak probably a hundred times. I have carried them in my heart every day since, including the day that I spoke at his funeral in 2009.

T hat man, that seminar, that day—what Jim Rohn did was put me back in control of my own future. H e made me stop focusing on what was outside of my control—my past, the poverty, other people’s expectations, the state of the economy—and taught me to focus instead on what I could control. I could improve myself; I could find a way to serve, a way to do more, a way to become better, a way to add value to the marketplace. I became obsessed with finding ways to do more for others than anyone else was doing, in less time. T hat began a never-ending process that continues to this day! At its most basic level, it provided a pathway to progress that continues to drive and lead every single decision I make and action I take.

In the Bible, there is a simple tenet that says there’s nothing wrong with wanting to be great.⁹ If you wish to become great, learn to become the servant of many. If you can find a way to serve many people, you can earn more. Find a way to serve millions of people, you can earn millions. It’s the law of added value.

And if the gospel of W arren Buffett is more your thing than biblical verse, the O racle of O maha is famous for saying that the most powerful investment he ever made in his life, and that anyone can make, is an investment in himself. H e talks about investing in personal development books, in educating himself, and how a D ale C arnegie course completely changed his life. Buffett once told me this story himself when we were on the T oday show together. I laughed and asked him to keep telling that story. “It’s good for business,” I said, grinning.

I took Jim Rohn’s message to heart and became obsessed—I would never stop growing, never stop giving, never stop trying to expand my influence or my capacity to give and do good. And as a result, over the years, I’ve become more valuable in the marketplace. T o the point that I’m extremely fortunate enough today that finances are no longer an issue in my life. I’m not unique. Anyone can do the same—if you let go of your stories about the past, and break through your stories about the present and its limits. Problems are always available, but so is opportunity.

W hat does the American income ladder look like today? My bet is Jim Rohn couldn’t have imagined that in 2013, the low end of the ladder would be $7.25 an hour ($15,080 annually) and that the high-end earner of the year would be Appaloosa Management founder and hedge fund leader D avid T epper, who earned $3.5 billion in personal income. H ow could any human being make even $1 billion a year, much less $3.5 billion? W hy such an incredibly low income for some people and such a high-income opportunity for others? T he answer is the marketplace puts very little value on being a cashier at McD onald’s ($7.77 an hour) because it requires a skill that can be learned in a few hours by almost anyone. H owever, successfully expanding people’s financial returns in a significant way is a much more rare and valued set of skills. W hen most Americans are getting less than 33 basis points (a third of 1% ) annually as a return on their money from the bank, D avid T epper delivered a 42% return for his investors in the same time! H ow valuable were his contributions to their economic lives? If he got them a 1% return, he would have been 300% more valuable. A 42% return means he added 12,627% more economic value to their lives!

So how about you? W hat are you going to do to add more value to the marketplace? H ow are you going to ensure abundance rather than struggle? If we’re going to make a radical shift and take you from where you are today to where you want be—to financial freedom—then this path is the most powerful one I know to get you there.

N ow, before you start your rallying cry of objections, let me just say: I know that things are different today. I know it’s a challenging time for the economy. I know we’ve lost two million jobs since 2008, and the ones that are coming back are mostly service or low-paying jobs. And yes, I realize that incomes have been stagnant since the 1990s.

G uess what interest rates and unemployment looked like in 1978, when I started my career? W ithin two years, interest rates had skyrocketed! My first investment, a fourplex in L ong Beach, C alifornia, had an 18% mortgage. C an you imagine interest rates at 18% today to buy a home? W e’d have a revolt on the W hite H ouse lawn. But history is circular—always has been, always will be. Y es, incomes are stagnant, if you don’t find a way to geometrically add more value. But if you find a way to add value, incomes move in one direction, and that’s always up.

D      uring the G reat Recession, 8.8 million jobs were lost. In 2008, 2.3 million jobs were lost in that year alone! U nemployment peaked at 10% . But remember, that 10% unemployment rate is an average. Some portions of the population had unemployment levels over 25% , but for those making $100,000 per year or more, what would you guess was their unemployment rate? T he answer: close to 1% ! T he lesson? If you truly develop skills that are needed in the current marketplace —if you constantly improve and become more valuable— someone will employ you or you’ll employ yourself, regardless of the economy. And if you employ yourself, your raise becomes effective when you are!

E       ven today, it’s a totally different story in Silicon Valley, where jobs are for the taking. T echnology companies can’t fill their openings fast enough; they can’t find enough qualified people. Jobs are out there, but you and I need to retool our skill sets—retool ourselves—so that we become valuable in the new marketplace. I can promise you this: most of those “old jobs” aren’t coming back.

L et’s look at history. In the 1860s, 80% of Americans were farmers. T oday 2% of the U S population work in farming and agriculture, and we feed the entire world. N ew technology disrupted everything—suddenly one farmer could do the work of 500. Many people struggled, many lost their jobs. For those who didn’t adapt, the industrial revolution was an incredibly painful time. But that very same technology that brought along steam power and machine tools, which displaced people in the short term, made the quality of life of everyone around them exponentially better and provided more jobs at a higher level of income.

T oday’s new technologies are causing massive disruption once again. Oxford researchers say that almost half of America’s occupations are at risk of becoming automated (translation: replaced) within the next 20 years! Y ou and I have to retool to a different level. I promise you, 150 years ago, no one could have fathomed a day when there would be jobs called social media marketer, stem cell scientist, and robotics engineer. N o one could imagine that an electrician or a plumber would make $150,000 a year, or that a factory worker could learn how to use a computer to automate a machine and earn $100,000 in the process. But just because people couldn’t imagine it, didn’t mean it wouldn’t happen.

I meet people everyday who tell me the job market is frozen, or they’ve been laid off and fear they’ll never find work again. But I’m here to tell you it’s not the market, it’s you. Y ou can increase your earnings potential— anyone can. Y ou can add value to the marketplace. Y ou can learn new skills, you can master your own mind-set, you can grow and change and develop, and you can find the job and economic opportunity that you need and deserve.

But if your job is going to be obsolete in the next five or ten years, it’s time to think about making a pivot and trying something new. A pivot is what Silicon Valley calls it when you go from one business to another, usually after a colossal failure.

If you’re reading this book right now, you’re a person who looks for answers, for solutions, for a better way. T here are hundreds of ways you can retool your skill set. Y ou can do it by going after a college education, a trade education, or self-education. Y ou can earn $100,000 to millions a year, and not by just going and spending a boatload of money on a four-year college degree (that can put you $100,000 or more in debt). Millions of jobs are available in this country, but there is also a major skills gap. According to Mike Rowe, host of D iscovery C hannel’s D irty J obs, there are about 3.5 million jobs available right now, and only 10% of them require a four-year degree. T hat means that the other 90% of them require something else: training, skill, or a willingness to get dirty, perhaps, but mostly a willingness to learn a new and useful trade. According to Rowe, “T hat’s always been for sale, but it’s kind of fallen out of [our country’s] narrative.”

Retooling is both exciting and scary. E xciting because of the opportunity to learn, grow, create, and change. E xciting once you realize “I’m valuable; I have a contribution to make; I’m worth more.” Scary because you think, “H ow am I going to do this?” Remember Jim Rohn’s words: “For things to change, you have to change. F or things to get better, you have to get better.” Retool or be the fool. G et rid of your story of limitation and shift into high gear.

People often say to me, “T ony, that’s great if you have your own business or you work in a company where it’s growing. But what if you’re in a traditionally lowpaying job, and you love what you do? W hat if you’re a teacher, what then?” L et’s step outside our own limiting thinking, and let me give you a perfect example of a schoolteacher who used to struggle, but because of his passion and his desire to help more students, he found a way to add more value and earn more than most teachers ever dream about. T he real limitation in our earnings is never our job—it’s our creativity, our focus, and our contribution.

C RE AT IVIT Y , C ON T RIBU T ION , AN D T H E

K ORE AN ROC K ST AR

If you ever had a third-grade teacher who inspired you to try something new, or an eighth-grade teacher who believed in your own child beyond measure, you know the power of a single role model in the life of a child. Our teachers are one of our greatest yet most underappreciated and underpaid assets. So what do you do if you’re a teacher, or you have a similar job where your upside potential seems to be limited? As a teacher, how can one think about adding value to more than just 30 students in the classroom? Is there a way you might be able to add value to hundreds of students, thousands of students, even millions?

T       here are plenty of schoolteachers who think, “I’ll never make enough money doing what I love.” T here is broad agreement that we as society don’t value teachers in the way that we should. But as we now know, that limiting belief holds people back. K im K i-hoon is a teacher in South K orea who refused to buy into that story.

U      nlike most teachers, K im K i-hoon is known as a “rock star” in South K orea. K im is one of the most successful teachers in his country. H ow did he become so successful? H e worked harder on himself, on his ability to teach, than he did on his job.

Sixty years ago, according to the Wall Street J ournal, the majority of South K oreans were illiterate. T he country realized it needed to take massive and dramatic action. T oday teachers there are constantly encouraged to study, to innovate, to teach the same class in a new way every day. T hey’re taught to learn from one another, mentor one another—find the best techniques to add more value. T he result? T oday 15-year-olds in South K orea rank second in reading, and with a 93% graduation rate—compared with just 77% in the U nited States.

K i-hoon took that model and ran with it. H e put enormous time into finding the best teachers, studying their patterns, learning how to create breakthroughs. H e found a way to help his students learn faster, better, smarter—and not just his students but also students all across the country. W hy focus on just helping 30 students? he thought, W hy not help as many as I can? W ith the advent of technology, he realized he could put his classes online and make his passion for teaching and learning available to everyone.

T oday K i-hoon works about 60 hours a week, but only three hours of those are for giving lectures. T he other 57 hours are spent researching, innovating, developing curriculum, and responding to students. “T he harder I work, the more I make,” he says. And he works hardest to become better for the people he serves. K i-hoon records his classes on video, and circulates them on the internet, where students log on at the rate of $4 an hour. H ow does he know it works? H ow does he know he’s adding more value than anyone else? T he marketplace always tells you your true worth or value. G uess how many people buy his classes? L ast year, his annual earnings topped $4 million! T he more value K i-hoon offers via online classes and tutorials, the more students sign up. And, it follows, more students means more money—in this case, a lot more.

A teacher earning $4 million. H ow does that compare to the best schoolteacher you know? K i-hoon’s story shatters the belief that our profession limits us. H e’s part of the 1% not because he’s lucky, not because he was in the right place at the right time, not because he chose a lucrative profession. N o, K i-hoon is a wealthy man, part of the 1% , because he has never stopped learning, never stopped growing, never stopped investing in himself.

T H E U L T IMAT E MU L T IT ASK E R

But what if you’re not an entrepreneur? W hat if you have absolutely no interest in hanging up your own shingle? W hat if you work in corporate America or even for a small business? C an you still figure out a way to add more value and increase your earning potential? L et me tell you about a young woman. D aniela worked in a marketing department doing art design and didn’t see any clear path toward moving up in her company. She was extremely talented, but more importantly, she was hungry. She was constantly looking to do more and give more; it was just her nature. And so she often helped her colleagues with visual arts. And then she wanted to learn about marketing, so she started studying marketing and offered to help. And then, of course, she realized she didn’t really know anything about social media—but the opportunities there seemed huge, so she decided to educate herself on social media as well.

After a few years, D aniela was doing many of the jobs of her coworkers. And they forgot that she was offering a gift, and they started to take her for granted. A new pattern emerged where, at five o’clock, when jobs with key deadlines were still not done, she worked alone at her desk as her associates slipped out the door. She didn’t want to stay late, but she wasn’t going to let the company and their clients down. W hen it was clear her colleagues were actually taking advantage of her drive and ambition, she reached her limit. “I’m doing three people’s jobs plus my own!” But instead of getting angry, D aniela decided it was an opportunity.

W hat did she do? D aniela approached her C E O and laid it on the line: “Right now I’m doing the work of four people. I’ve gone to courses, I’ve learned and taught myself about visual arts, marketing, and social media. I’m not here to throw anybody under the bus, but I can save you fifty percent of your marketing cost right now and eliminate three people by taking on their jobs myself. And I’ll do a better job, too. I don’t need you to trust me on this: let me prove myself to you. L et them keep doing their jobs for six months, and I’ll do my assignments and theirs, so you’ll have two different examples to pick from. Y ou decide what’s best.”

All D aniela asked was that if she did a better job, after six months, her boss would give her more responsibility and double her pay. And guess what? She did it: she proved herself on the visual art and marketing fronts, with great copywriting and a successful social media campaign. D aniela showed that not only could she handle the extra work, but also she could run circles around the competition—she could outperform them all. She added enough value that the company realized it could pay one person twice as much money, and still cut its costs in half. T he marketplace had spoken.

H appiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.

— F R AN K L IN D . R O O SE V E L T

OPPORT U N IT Y IS E VE RY W H E RE

H ow are you going to add more value to the world? H ow are you going to contribute more, earn more, and increase your impact? T here are hundreds, if not thousands, of stories of average individuals who saw a problem, looked at things just a little bit differently, and went on to transform entire industries or create entirely new markets. T hey weren’t entrepreneurs; they were just people like you and me, people who wouldn’t settle. In the world we live in today, no industry or product is immune: the intersection of all things digital—the internet, social media, and technology—the interconnectedness of every person and everything on earth. T hat means that even the biggest companies and the most mature or stable businesses are ripe for disruption. E nter N ick W oodman.

RID IN G T H E W AVE

W ho would have predicted that K odak, the corporate titan that dominated the world of photography in the 20th century, would be caught flatfooted when digital imaging came on the scene? K odak invented digital photography. And yet after 124 years in business, the company filed for bankruptcy in 2012—a move that had a disastrous ripple effect on the economy in and around Rochester, N ew Y ork, where over 50,000 jobs were lost.

But those same massive technological and cultural changes that killed K odak provided a huge opportunity for a C alifornia surfer named N ick W oodman. W oodman was obsessed with surfing. H is absolute love of and devotion to the sport, along with his drive and his hunger, enabled him to find a way to add value.

C hances are you’ve never heard of W oodman, but he had the brilliant idea to strap a waterproof camera to his wrist while riding the waves. All W oodman set out to do was find a way to enjoy his surfing after it happened. W ith digital photography coming out, he started to tinker with cameras to see if he could make them more waterproof and capture better-quality video. And as technology changed, he continued to tinker. And tinker. H e ended up inventing the G oPro, a tiny, broadcastquality, clip-on-and-take-anywhere digital camera.

T his cool little device is now on the head of every extreme sports person in the world. W hether you’re riding a bike, paddling through rapids, snowboarding, or catching the waves, the G oPro allows you to capture the magic of your adrenaline rush and share it with everyone you love. W oodman’s timing couldn’t have been better: he began marketing the G oPro just as people started uploading their videos to Y ouT ube and Facebook. H e created a product he wanted to use and figured he couldn’t be the only guy needing one. W oodman figured out how to add value to millions of lives by making the new technology convenient, fun, and affordable. U ltimately, W oodman got in front of a trend. T hat trend was actively sharing digitally whatever was there. O ne of the key secrets if you really want to become wealthy: get in front of a trend. T oday the surfer from San D iego, C alifornia, is worth over $1 billion.

A N E W “C AT E G ORY ” IS BORN

Back in 2010, Matt L auer invited me to join him for a special roundtable discussion about where the economy was headed. I was joining W arren Buffett and the world’s youngest female self-made billionaire: a woman named Sara Blakely. Any opportunity to discuss the economy with W arren Buffett was a huge privilege, but what I didn’t bank on was being totally blown away by Sara’s story.

Blakely didn’t disrupt an industry so much as create an entirely new one. A former W alt D isney W orld employee, Sara was getting ready for a party when she realized she didn’t have the right underwear for a pair of fitted white pants. Rather than go commando, she decided to take matters into her own hands. Armed with nothing more than a pair of scissors and a whole lot of sass, she cut the feet off her control-top pantyhose, and, voila, a new industry was born.

Of course, it didn’t happen overnight, and it didn’t happen easily. Sara shared with me that one of the most important secrets to her success was that from an early age, her father actually encouraged her to “fail!”

But he defined failure not as failure to achieve a result . . . but failure to try. Around the dinner table, he would ask if she had failed today, and he was truly excited if she had —because he knew that meant she was on the path to success. “T ony, it just took away my fear of trying,” she told me.

D own and out in a dead-end office-products sales job, Blakely invested all the money she had in the world, $5,000, and set out to create body wear that would work for her. “I must have heard ‘no’ a thousand times,” she said. But she didn’t listen. In addition to the $5,000 she invested, she saved $3,000 (which she didn’t have) on legal fees by writing her own patent from a textbook.

U ltimately, the company she founded, Spanx, created an entirely new category of products called “shapewear” and has inspired a cultlike following among women worldwide. According to my wife, put on a pair to pull in all your “its and bits,” and you’ll take three inches off your waistline immediately.

W ith Oprah W infrey’s blessing, Spanx turned from a small business into a worldwide sensation. T oday Spanx is worth over a billion dollars, and the brand now includes over 200 products that help women look and feel great. E ver the optimist, Sara tried to work her magic on me: she tried to get me to wear a pair of her new Spanx for men when we were together on the T oday show. I thanked her and mentioned gently that perhaps she didn’t understand the male market as well as the female market. But I remain inspired by her example. In the end, Spanx for men has also taken off—no thanks to me. T oday Blakely owns 100% of her company, has zero debt, and has never taken on outside investment. In 2012 T ime magazine named her one of its “100 Most Influential People in the W orld.”

L ike N ick W oodman, she saw a need and moved to fill it. She refused to be limited by her own story and found a way to add value.

Y ou can too! Y ou don’t have to start a billion-dollar company, disrupt an entire category, or make $4 million as a teacher online. Y ou don’t even have to take on four jobs at once. But if these people are capable of doing that, couldn’t you find a way to make an extra $500 or $1,000 a month? Or maybe even an extra $20,000, $50,000, or even $100,000 or more a year? C ouldn’t you figure out how to unleash your own creativity, contribution, and focus to add more value to the marketplace and put that money in your Freedom Fund? Y ou can. T he time to begin is now. . . .

Find a way to earn or save an extra $500 per month, or $6,000 a year. If it is invested at an 8% return over 40 years, it is worth $1.5 million—remember our pizza example. If you find a way to earn $1,000 per month, or $12,000 a year, that’s worth $3 million in your nest egg. If you find a way to earn $3,000 per month, or $36,000 a year, that’s worth $9 million in your nest egg. W hat’s the lesson? G o add value, earn more, and invest your earnings, and you can create any level of financial freedom you truly desire.

9. “Instead, whoever wants to become great among you, must be your servant,” Matthew 20:26, N ew International V ersion.

C HAPT E R 3.5

SPE E D IT U P: 3. RE D U C E FE E S AN D

T AX E S (AN D IN V E ST T H E D IFFE RE N C E )

W e have what it takes to take what you have.

— SU G G E ST E D IR S MO T T O

“Y ou must pay taxes. But there’s no law that says you gotta leave a tip.”

— MO R G AN ST AN L E Y AD V E R T ISE ME N T

So now you’re rocking and rolling—you’re speeding up your path to financial freedom by saving more and earning more! W hat’s left? D oesn’t that cover it? Actually, no. Y ou now know as an insider that it’s not what you earn that matters, it’s what you keep. Our third strategy for speeding things up is to get more money out of your investments by reducing your fees and taxes, and reinvesting the difference.

Remember our three childhood friends from chapter

2.2, “Myth 2: ‘Our Fees? T hey’re a Small Price to Pay!’ ”? T hey all invested $100,000 at the age of 35 and earned a 7% return on their investment. But each one was subject to a different set of fees—and the difference between the 1% , 2% , and 3% fees came out to hundreds of thousands of dollars. T aylor, who paid just 1% in fees, accumulated almost twice as much money as her friend Jason, who paid 3% in fees. H er investment grew to $574,349, while he was left with only $324,340!

Remember, those hidden fees on mutual funds average an astronomical 3.17% . T he difference between owning high-cost, fee-laden mutual funds versus low-cost index funds could literally cost you a decade’s worth of your life’s work—talk about slowing you down on your path to Financial Freedom! And to add insult to injury, studies show that the high fees that come along with those mutual funds almost never lead to increased performance.

So stay away from excessive fees. Run for the hills. Find low-cost index funds to invest in and heed the warning of Jack Bogle, who showed us that paying through-the-nose fees can eat up as much as 50% to 70% of your future nest egg! T he mantra is simple: take the money you save on fees and reinvest it for compounded growth. T his strategy is another fast lane to freedom.

And what about an even bigger bite of your savings? D o you know what the single largest bite to come out of your nest egg is? Survey says: taxes!

Over the course of our lives, the average American pays more than half of his or her income to an assortment of taxes: income tax, property tax, sales tax, tax at the pump, and so on. (According to what many experts estimate, currently, that’s 54.25 cents per dollar.) G ood ol’ U ncle Sam. And we’re not done yet.

After 54.25% has been lopped off for the tax man, you can also say good-bye to another 17.25% of each dollar you earn in interest and fees. G ot a car, a house, any credit card or student loan debt? In April 2014 the average U S household had credit card debt of over $15,000; student loan debt of over $33,000; and mortgage debt of over $150,000. As a nation, we are up to our eyeballs in debt.

T he fact is, on average, approximately one-third of the income you have left after taxes will be spent on paying down interest!

T hat leaves you with (drumroll, please) a whopping 28.5% of your hard-earned income left over to pay for everything else in life: food, clothing, shelter, education, health care, travel, entertainment, and anything else you happen to stumble upon at the mall or on Amazon! Plus, out of this same number, you have to find a way to save and invest for F inancial F reedom, or at least some form of retirement income!

Becoming more efficient with your taxes is one way to get back some of that 54% you’ve given away. K eep more of your hard-earned income, and that’s money that you could invest and compound to achieve your vision of Financial Freedom quicker.

In fact, if you’re a high-income earner, living in a high-income state like C alifornia (as I used to), your total tax bill (including income, investment, payroll, O bamacare, and Social Security) clocks in at 62% . W hich means that unless you have an efficient tax strategy, you get to keep only 38 cents out of every dollar you earn.

T here’s no good reason to pay more than you have to

—in fact, it’s your right as an American not to pay more than you have to. As Billings L earned H and, one of the most influential judges of all time, stated:

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the T reasury. T here is not even a patriotic duty to increase one’s taxes. Over and over again the C ourts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. E veryone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

I follow Judge H and’s wisdom. I don’t believe in paying any more than I absolutely have to, and neither should you. I continually look for legal, ethical ways to lower my tax bill, and I do my best to make use of government initiatives that allow me to build my nest egg in a tax-free environment. I learned from those I interviewed that tax efficiency is one of the most direct pathways to shorten the time it takes to get from where you are now to where you want to be financially.

I am proud to be paying taxes in the U nited

States. T he only thing is, I could be just as proud for half of the money.

— AR T H U R G O D F R E Y

L et’s be clear: I’m a patriot. I love America. I am one of millions of examples of the American D ream, and I’m happy (well, perhaps not happy, but proud) to pay my taxes. Y et I pay millions of dollars in taxes every year. My tax bill is more than I ever thought I’d earn in a lifetime, much less in a year. But I know from Y ale’s D avid Swensen that there are only three forces that can help you achieve the greatest returns:

1. Asset allocation, 2. D iversification,

3. T ax efficiency.

It helps, of course, that D avid runs a nonprofit organization, but for the rest of us, even with current tax laws, there are ways to maximize investment returns and minimize your tax bill.

Money Power Principle 4. T ax efficiency is one of the simplest ways to continuously increase the real returns on your portfolio. T ax efficiency equals faster financial freedom.

(Reader alert: If your brain is going to blur as I talk about taxes, I get it! T hen simply jump immediately to the next chapter so you don’t lose momentum. But be sure to schedule a time to sit down with your fiduciary and/or a tax expert to learn how to be most tax efficient with your investments. If you’re willing to go for it, the next four pages offer some simple tax distinctions that, when understood, will allow you to keep more of your invested income and achieve your financial dreams

faster.)

PIC K Y OU R T AX !

W hat if you realized that a small amount of tax knowledge could save you from needlessly paying 30% of what you earned to the tax man? H ow much faster could you achieve your financial goals?

Y ou need to pay close attention to three types of taxes as an investor:

1.   Ordinary Income T ax.

As stated, if you’re a high-income earner, your combined federal and state income taxes are nearing or exceeding 50% .

2.   L ong-T erm C apital G ains.

T       his is a tax on investments, which is only 20% if you hold your investment for longer than one year before you sell.

3.   Short-T erm C apital G ains.

T       his is a tax on investment gains if the investment issold before you have held it for a minimum of one year. T oday the rates are currently the same as ordinary income taxes. Ouch!

N ow that you know the power of compounding, I’m sure you realize how compounding your growth after taking a 50% tax bite as opposed to a 20% tax bite can mean the difference between arriving at your financial goals a decade early or never getting there at all. Want to understand the real impact of this?

•    If you’re getting an 8% gross return on your mutualfund, you’re paying as much as 3% in fees on average —let’s call it 2% , conservatively.

•    So now your 8% return nets you 6% after fees. Butwe’re not done yet.

•    If you’re a high-income earner from C alifornia or N ewY ork with a 50% federal and state ordinary income tax, you’re left with closer to 3% on your investment after all these fees and taxes.

R emember you get to spend only what you keep; if you invest with a 3% net return, it takes 24 years to double your money.

If you made the same investment in an index fund, your 8% return would have fees in the range of 10 to 50 basis points (or 0.10% to 0.50% ). W e’ll go for the larger number just to be conservative. T hat means you have a

7.5% return (8% - 0.5% = 7.5% ), but since the index is not trading constantly, you defer all tax, and so your net return for the year is 7.5% . T hat means you can reinvest those returns and tap into the incredible power of compounding without the tax man interfering.

If you conscientiously manage your investments for tax efficiency, your 7.5% allows you to double your investments in 9.6 years instead of 24 years! N ow do you see the importance of both tax and fee efficiency?

So how do you lower your tax bill and keep more of your earnings so you can compound your investments and achieve your idea of F inancial F reedom faster?

•    Make sure that wherever possible, you invest in a waythat allows you to defer your taxes (401[k], IRA, annuity, defined benefit plan) so that you compound tax free and pay tax only at the time you sell the investment. Or set up a future tax-free environment by growing your investments in a Roth.

•    W hen you do sell any investment held outside of a tax-deferred account (like an IRA), make sure you hold for a minimum of a year and a day in order to qualify for the lower long-term capital gains rate (again, at the time of this writing the rate is 20% ).

ON E MORE T H IN G : BE W ARE OF MU T U AL

FU N D S

For most people, a home sale is usually a once- or twicea-decade thing, and your accountant or tax expert can easily explain how to do this most tax-efficiently. But let’s take a look at mutual funds. D o you know what those mutual fund managers of yours are doing every day? T hey’re trading. T hey are buying and selling stocks and bonds on a daily, monthly, or quarterly basis. T his is what the industry calls “turnover.”

According to C harlie F arrell of C BS MarketW atch, “So although their marketing material encourages investors to buy and hold, the managers certainly don’t practice what they preach. W hat they really mean is buy and hold

their      mutual      fund,     while     they     trade      your

retirement savings like crazy.”

E xperts say that the vast majority of mutual funds do not hold on to their investments for a full year. W hy else would you buy them other than hoping they can trade their way to better performance? And you know what that means? U nless you’re holding all of your mutual funds inside your 401(k), you’re typically paying ordinary income taxes on any gains.¹⁰

In short, there’s a good chance you’re being charged 35% , 45% , or up to 50% or more in income tax, depending on what state you live in and your income level. All this tax, and you didn’t even sell your mutual fund! So instead of keeping all your gains and having them continue to compound tax deferred, you are taking a devastating hit to your compounding ability that is completely avoidable if you understand tax efficiency.

E ven if you’ve maxed out your 401(k) and IRA, you can still make investments in a form that allows you to defer taxes. Index funds do not constantly trade individual companies; they usually hold a fixed basket of companies that changes only if the index that the fund tracks actually changes—which is rare.

As a result, if you’re investing in an index long term, you’re not taking the tax bite each year; instead, you’re deferring the taxes, since you haven’t sold anything. T hat money can remain in the fund and continue to compound earnings to its owner: you!

Y our fiduciary or a great tax expert can help you understand all the ways you can produce more net growth in your F reedom F und so that your compounding process is maximized. R emember, this can save you years or even decades!

And finally, in section 5, there is a strategy that you’ll learn about in the “Secrets of the U ltrawealthy” chapter that you can use, too: an IRS-approved method that will make a huge difference by allowing you to compound your investments and help you keep your nest egg tax free. T his could allow you to achieve your financial goals up to 25% to 50% faster without taking any greater investment risks!

H ave I got your attention? I hope so. Because it’s your money and it’s your life! D on’t let anyone take it or waste it! So you now have three fast-track strategies to speed up the pace and win the money game:

1.   Save more and invest the difference.

2.   E arn more (add value) and invest the difference.

3.   Reduce fees and taxes and invest the difference.

N ow it’s time to turn on the juice and take a quick look at some of the ways you can increase what your investments earn. . . .

10. H owever, in certain situations, the gains may be long-term if the fund held the position for an extended period.

C HAPT E R 3.6

SPE E D IT U P: 4. G E T BE T T E R

RE T U RN S AN D SPE E D Y O U R W AY T O

V IC T O RY

If you’re prepared, and you know what it takes, it’s not a risk. Y ou just have to figure out how to get there. T here is always a way to get there.

— MAR K C U BAN

H ow do you get a greater return while still reducing risk? Most people think that in order to get high returns, you have to take huge risks. But the greatest investors know that’s simply not the case. Remember K yle Bass from chapter 2.8, “Y ou G otta T ake H uge Risks to G et Big Rewards”? H e blew the high-risk, high-return myth out of the water with something called asymmetric risk/reward.

T       hat’s a fancy term for a pretty simple concept. H owdo you explain it? K yle turned $30 million into $2 billion by finding an investment opportunity where he risked only 3 cents for the opportunity to make $1—more accurately, $3 million for a $100 million upside—and expanded that risk/reward ratio into billions. Remember how he taught his sons to make “riskless” investments with significant upside by buying nickels? T he upside (reward) is way bigger than the downside (risk) on this deal, which makes it asymmetric.

One of Paul T udor Jones’s greatest successes is that he knows he can be wrong and still be successful, because he uses asymmetric risk/reward to guide his investment decisions. H e’s always looking for what he calls a 5:1 investment—where if he risks $1, he believes he can make $5.

Jones is willing to risk $1 million when his research shows he’s likely to make $5 million. Of course, he could be wrong. But if he uses the same 5:1 formula on his next investment, and he’s successful, he will have made $5 million, minus the first investment loss of $1 million, for a net investment gain of $4 million.

U      sing this formula of constantly investing where hehas the opportunity for asymmetric rewards for the risk he’s taking, Paul could be wrong four out of five times and break even. If he loses $1 million four times in a row trying to make $5 million, he’ll have lost a total of $4 million. But when the fifth decision is a success, with a single home run he’s earned back his total $5 million investment. T he greatest investors in history know how to maximize their returns—they know how to set the game up to win.

Y ou’ll learn more about what Paul teaches in section 6, “Invest L ike the .001% : T he Billionaire’s Playbook,” and in my interview with him. H e is going to share with you his “$100,000 MBA,” or the most important things he’s learned about investing—one of which is how to be wrong and still win!

So asymmetric risk/reward is the first way to get higher returns. T he second way? Y ou’ll learn more about this in chapter 4.1 on asset allocation, but for now, just know that if real estate’s mantra is “L ocation! L ocation! L ocation!” then the mantra for getting better returns while reducing risk is “D iversification! D iversification! D iversification!” E ffective diversification not only reduces your risk but also offers you the opportunity to maximize your returns.

Asset allocation is the one thing that every investment professional I’ve talked to, the best in the world, has said is the key factor in where you end up financially. It’s the most important skill, and it’s the one most investors know little about. So in chapter 4.1, “T he U ltimate Bucket L ist: Asset Allocation,” you’re going to learn the power of asset allocation and be able to implement its gifts to benefit you and your family for the rest of your life. On top of that, you’re going to see in section 6 the exact asset allocation of some of the most successful investors in the world who have consistently produced the highest returns.

Y es, you read that right: you’ll be able to model the exact strategies of the best investors on the planet. Y ou’ll have Ray D alio’s asset allocation! Obviously, past performance doesn’t guarantee future performance, but in the case of Ray D alio, your strategy is coming from one of the greatest investors of all time, and his focus is getting you the greatest return with the least amount of risk. D alio has been estimating every type of market and finding what the best ratio is through asset allocation for over 20 years. H e has more than $160 billion in assets under management and a record of only three losing years out of the last 22. After reading this book, you will learn a strategy that is based on Ray’s groundbreaking approach for the world’s wealthiest individuals, institutions, and governments.

H OW FAST C AN Y OU G O?

It’s probably pretty obvious that we’d all like better returns. But what’s less obvious is the massive impact that better returns have on your time horizon for investing. T he “rule of 72” says that it takes 72 years to double your money at a 1% compounded rate. So if you’ve got $10,000 to invest at 1% compounded, you may not be around to see that money double. Y ou can cut that timeline in half by doubling your rate to 2% , and in half again by doubling that rate to 4% ! So what’s the difference between a 10% return and a 4% return? A 10% return doubles every 7.2 years; a 4% return doubles every 18 years! If you want to radically change your plan and get to financial freedom in seven years versus 18 years, you can. Or 14 years instead of 36! T hose are the types of differences that are possible when you learn how to get better returns. And the most important thing is to get these greater returns without taking significantly greater risks wherever possible. Y ou’re looking for that asymmetric risk/reward that all great investors seek. It’s elusive, but it’s out there, and this is just one more way that you can speed up your approach to realizing your dreams. (T ake a look at the table on page 284 to see how fast—or slow

—your money will double.)

Y our next question is likely, “W here do I start looking for my own asymmetric risk/reward opportunities?” Sometimes they turn up in the unlikeliest places. For me —maybe because I grew up in Southern C alifornia—I’ve always believed in including real estate as a key component of my portfolio. If you ever turn on the news, it’s hard not to notice the demographic shift that’s taking place in this country right now, with 10,000 people turning 65 every day. T he boomers are hitting retirement in droves. In the back of my mind, I always knew there had to be a way to provide some of my capital to help expand quality facilities for people entering this stage of life, while providing a profit for me. But it wasn’t until I visited my wife’s grandmother in Vancouver, British C olumbia, that I connected the dots for a future investment in retirement communities.

My wife, my Bonnie Pearl—my “Sage”—is the love of my life. H er family is my family. H er grandma H ilda was my grandma. I loved her dearly. After being married for 58 years, her husband died, and we all watched as she suffered. For ten years, H ilda cried herself to sleep at night. She was living on her own, proud and independent, but heart-achingly lonely, missing her life partner. W e didn’t have the heart to put her in a home, yet with H ilda’s dementia worsening, Bonnie Pearl’s mom, Sharon, was determined to find her a home with the best possible care.

W e had heard that some retirement communities were pretty spectacular, and after weeks of looking, Sharon finally found a community that gave the Four Seasons a run for its money—this place is amazing. I always said I’d stay there, and I don’t say that about many places.

So guess what happened to G randmom after moving into her new digs? Forget that she traded up to a beautiful new apartment with modern amenities and 24hour care. T hat was just the tip of the iceberg. More amazing than that, she began a second life! At 88 years old, she transformed into a new woman and fell in love again. A 92-year-old Italian captured her heart. (“I don’t let him under my shirt yet, but he tries all the time,” she said with a grin.) T hey had four beautiful years together before he passed away, and I kid you not, at his funeral, she met her next beau. H er last decade was filled with a quality of life she never could have envisioned. She found happiness, joy, love, and friendship again. It was an unexpected last chapter of her life and a reminder that love is the ultimate wealth. It can show up unexpected anytime, anywhere—and it is never too late.

G           randmom’s story opened up the realization that there was a real need for retirement communities that were effectively staffed and beautiful just like hers. H ow could I find a way to invest in an opportunity like that? Obviously just walking into a home and asking to invest is probably not the most effective strategy. So I went to my personal advisor, Ajay G upta at Stronghold, and told him what I believed in and what I was looking for. H e found an opportunity where my investment not only stood to make a great return but also aligned with my values and beliefs and with a broader trend in the market. Many experts look at this category as a “demographic inevitability” because the 75-year-old age segment will grow by 84% between 2010 and 2030. D emand will be greater than supply!

Ajay found an investment company run by an amazing entrepreneur who builds, invests, and manages high-end senior living facilities. H e started with nothing and has built it into a $3 billion enterprise. H e finds the sites, puts up as much as half the money himself, and then rounds up a small group of investors to put up the rest.

H            ere’s what I get in exchange: I get a preferred returnon my money (which are income payments each month) based on the profitability of the facility. T his can range 6% to 8% per year, and because it’s real estate, I also get the tax benefit of depreciation, which means I don’t have to pay income tax on the entire income payment. Plus, I own a piece of the real estate, which, over the long term, I believe will increase in value. I get to participate in the exit strategy when the investor group eventually sells the facility. T o be clear, this specific investment is limited to investors who are accredited¹¹ and meet certain net worth/income requirements. But don’t fret! For those who are nonaccredited, there are publicly traded RE IT s (real estate investment trusts) that focus solely on owning a basket of properties around the country. T hese can be purchased for as little as $25 a share at the time of this writing and offer dividend (income) payments each quarter. D o your homework and/or have a fiduciary advisor help you find the best available.

If senior housing seems out of reach, another strategy in real estate is lending your money with a first trust deed as security. In the chapter on asset allocation, I’ll describe to you an example of how investors who need money will take short-term loans at high rates—for example, a oneyear loan for 8% or 10% , and you get the first trust deed as collateral. W hen done effectively, you can loan, say, $50,000 on a $100,000 home, or $500,000 on a $1 million home, and the property could drop 50% , and you’d still be in good shape. W hile others are collecting 3% and 4% returns, you’re getting 8% to 10% .

Once you start focusing passionately on ways to save more, earn more, reduce fees and taxes, and find better returns with even less risk, you’ll be amazed at how many new opportunities you’ll discover. Again, a great fiduciary advisor won’t just guide you; he or she can also help you to find investment opportunities with that magical asymmetric risk/reward that all successful investors seek.

Okay, we’re coming to the home stretch of this section. T his final step can massively increase the speed at which you achieve your most important financial goals. Plus, it’s fun to dream and explore. Y ou’re going to love the journey of this next chapter. L et’s discover . . .

11. F or an individual to be considered an accredited investor, he must have a net worth of at least U S$1 million, not including the value of his primary residence; or have income of at least $200,000 each year for the last two years (or $300,000 together with a spouse if married).

C HAPT E R 3.7

SPE E D IT U P: 5. C H AN G E Y O U R L IFE — AN D L IFE ST Y L E —FO R T H E BE T T E R

My favorite things in life don’t cost any money. It’s really clear that the most precious resource we all have is time.

— ST E V E JO BS

W hat would happen if, for just a moment, you considered making a change? A big change, like picking up and moving to another city? Y ou could be living large in Boulder, C olorado, for what you’re paying just in rent in N ew Y ork C ity or San Francisco. T he cost of homes, food, taxes, and so on differ wildly depending on where you live. Our country—our world—is one of boundless opportunity waiting for you to explore. So why not take off the blinders just for a moment to consider what life could be like if you lived in a new city or town?

Are you freezing your butt off in the Midwest winters, or battling the heat of the summer in Atlanta, wondering year after year why you don’t hoof it to a better climate? As a native son of Southern C alifornia, I’m always amazed by people who spend their lives freezing to death in the Arctic tundra of Minneapolis or C hicago. And even if you don’t care about the weather, you’ve got to care about your cost of living. A million-dollar home in W ashington, D C , costs a fraction of that in Raleigh, N orth C arolina—a city rated as the third best place for business and careers by Forbes, not to mention a hightech and educational hub (that also has great weather). Or what about something more local: a move from San Francisco to San D iego? Y ou can stay in the great state of C alifornia and still cut your housing costs by 32% .

It’s one thing to be tax-efficient in your investments; it’s another to be tax-efficient in your life. Y ou’re trying to save 5% here, 10% there. W hat about saving 10% or 15% or more in everything you do by moving to a less expensive city or a tax-friendly state? T hink about all the additional money you’d have to invest, share, donate if it

didn’t go straight to rent, food, or transportation. O ne

single move could give you a 10% to 30%

increase in your income. If you’re already saving 10% , with a move you now can save 20% to 40% without spending an additional dime. T his change in your savings rate will put some rocket fuel in your money machine that will massively improve the pace at which you achieve financial freedom.

I know what you’re going to say: “Move to a new city? Y ou’ve got to be crazy, T ony. I can’t just pick up and move! I have a job, I have family, I have friends; I’ve lived my whole life in D allas.” (Or Seattle or Miami or D enver.) But if you saw that you could save ten years of your investing life, reach your Financial Freedom goals a decade sooner or even more, might it be worth it?

G enerations of Americans have looked at retirement as a time to pick up and move to a warmer climate, a less expensive city, or to a beautiful, low-key place like Boise, Idaho, or G reenville, South C arolina, to breathe clean air

and enjoy the outdoors. But why wait until retirement? W hy not change your zip code today? W hy not find a place to raise your family that allows you to reduce your cost of living and

elevate your quality of life at the same time, while you’re young enough for both you and your children to reap the rewards?

If you’re still shaking your head no, I get it. I was with you on this one, actually—until recently. I grew up in C alifornia and never imagined living anywhere else. E ven when I started traveling extensively and buying homes and properties all over the world, C alifornia was always my home base.

T hen in 2012 C alifornia raised taxes on the highest income earners by more than 30% , to 13.3% . After a lifetime of paying through the nose on state income taxes (historically among the most punishing in the country), the tax situation got even worse. My effective tax rate— after federal and state income taxes, Social Security, investment taxes, payroll taxes, and the Obamacare tax— shot up to 62% . T hat meant I was left with 38 cents on every dollar. Just 38 cents! And on top of that, the new state income tax increase was made retroactive, meaning that I was going to have to pay additional tax on income I had already earned that year. T hey changed the rules of the game after the fact! I had reached my limit—this was outrageous. Because of my travel and the time I spent in my other homes, I was living in C alifornia for only 90 days out of the year! Just 90 days for literally a multimillion-dollar state tax bill? C alifornia was no longer sustainable for me—I’d had enough!

I had played by the rules, and the rules had come back to bite me. But instead of feeling sorry for myself, I voted with my conscience—or with my feet, I should say. Along with thousands of others, Sage and I realized we were no longer welcome in C alifornia. So we decided to take the plunge and look for a new place to live. (In fact, C alifornia has lost over $30 billion in annual income tax revenue over the last two decades to states such as N evada, Arizona, T exas, and W isconsin. If you want to see how big this trend is and how many people are moving from high-tax to low-tax states, go to www.howmoneywalks.com.)

W e turned it into a kind of treasure hunt. W e looked at places like L ake T ahoe, where we really liked the mountains, the mix of seasons, and the small-town vibe; and Austin, T exas, where music, energy, and high tech come together to create the fabric of an innovative and connected community.

W e looked at Florida too, reluctantly. All I knew of Florida were alligators and old people. But that’s the stereotype, not the reality. W hat we found instead was a paradise in Palm Beach. After looking at 88 properties in three states in just three weeks (I told you I’m a massiveaction guy), we found the only brand-new home on the water in Palm Beach. T wo acres, nearly 200 feet of ocean frontage on one side, and the Atlantic Intracoastal W aterway on the other, with a 50-foot boat dock. I feel like I’m back in my home in Fiji—it’s extraordinary. Sage has everything she wants close by: world-class restaurants, shopping, easy access to the entire E ast C oast, and all the privacy and serenity of living on an island right here in the U nited States.

Of course, the price tag was way higher than I ever wanted or imagined paying for a home. But Florida has no state income tax. W e went from 13.3% state income tax in C alifornia to nothing—nada, zip. So here’s the kicker: with the state taxes we’re saving every year, we are literally paying off our entire new home in six years! D id you catch that? W e’re paying for our entire home out of the tax savings we now get as residents of the Sunshine State instead of the G olden State. K ind of makes you think we should have done it sooner, huh?

Better late than never.

And if that weren’t enough (which it is!), we’ve massively improved our quality of life in the bargain. E very day we pinch ourselves as we wake up with magnificent weather: 78 degrees with a cool breeze off the ocean and water you can melt into, it’s so warm. In fact, Sage and I have become almost evangelical in our enthusiasm for our new home; we tell friends and family to think about moving down to Palm Beach to join us. My youngest son has already moved here. T wo of my dearest friends in the world are on their way down from C onnecticut and N ew Y ork, and they’re here to stay. And, of course, even if they’d decided not to move here, we would have happily taken our tax savings and flown them all out here to visit us in paradise anyway!

So whether or not you decide to join us in Palm Beach, there’s a new zip code out there that might be just right for you. Y ou don’t have to wait for retirement to get there. From N ashville, T ennessee, to Portland, Oregon, and from Augusta, Maine, to Ann Arbor, Michigan, there are hundreds of affordable havens for young and old alike: retirees looking to stretch their savings and continue to enjoy a rich, rewarding lifestyle; and young professionals looking to jump-start or reimagine their careers. C heck out U .S. News & World

Report’s feature on the best places to live for as little as

$75                                       a                                        day

(http://money.usnews.com/money/retirement/articles/201 best-places-to-retire-on-75-a-day). Also seriously consider the seven states where there’s no state income tax at all: Alaska, Florida, N evada, South D akota, T exas, W ashington, and W yoming. Or try T ennessee and N ew H ampshire, where only your dividend and interest income are taxed at the state level. T he Memphis and N ashville music scenes and more money in your pocket —how bad does that sound?

G IVE Y OU R G L OBE A SPIN

And while we’re at it, why not think all the way outside the box on this one? Forget just a 10% to 20% increase in your spending power, how about cutting your cost of living by a third, or in half? G et out your globe and give it a spin—and think about some of the beautiful (and beautifully affordable) places you could live if only you expanded your horizons.

T here are huge opportunities all over the world to improve your lifestyle and lower your expenses, in places such as Bali, Fiji, U ruguay, C osta Rica—if you have the courage and the freedom to go for it! Y ou can rent an extraordinary apartment in the mountains outside of Buenos Aires, Argentina, for a fraction of what it would cost for a studio walk-up in a major U S city. Y ou can move to the C zech Republic and find a room just off W enceslas Square in Prague’s N ew T own area, the heart of the city’s cultural community.

Remember my BMW -loving son? After he traded in his fancy wheels for a chance at a better lifestyle, he decided to think really big. H e went down to C osta Rica for a couple of days and was completely blown away by the extraordinary culture. T urns out there is a huge E nglish-speaking community in C osta Rica—tons of expats who discovered their money went a lot further down there, their days were a little richer, their nights more exciting. And C osta Rica isn’t just a place to relax and unwind. Some of our leading companies have established important bases of operations there. Procter & G amble, H einz, Microsoft, Intel—the list goes on and on, which means there are countless career opportunities available.

L ife can be an adventure. T ake a trip and explore a foreign city with an eye toward moving there. T urn your next vacation into a fact-finding expedition, where the endgame is to try on a whole new way of life. Y ou don’t have to live in a box and go through the same motions each and every day. Y ou don’t have to worry about making your rent or covering your basic expenses if you open yourself up to the idea of massive change. L ift yourself from your comfort zone and spend 60% , 70% , even 80% less money, getting you to your goal of financial freedom that much faster. And while you’re at it, improve the quality of your life in an exponential way.

E ven if a move across the world seems too radical now, think about this option over the long term—a fiveyear plan or a ten-year plan, or maybe a retirement plan. W hy not at least open yourself to the idea that there’s a beautiful and affordable place out there waiting to be discovered? Our world is dynamic—it’s changing constantly. T he idea that a move would be bad for your kids is a thing of the past. W e live in a global economy; what an amazing experience to give your kids an opportunity to see the world, learn a new language, adapt to a new culture. Y ou can make a family decision about creating a better quality of life for everyone.

L ife is like a bicycle. T o keep your balance, you must keep moving.

— AL BE R T E IN ST E IN

At the end of the day, it’s all about being more efficient and more effective with your earnings and your savings and speeding up your path to Financial Freedom. Y ou can find a way to improve the quality of your life while reducing your cost of living simultaneously. It’s the ultimate win-win. At the end of the day, the best investment you can make is the one you make in yourself and your lifestyle.

W ow, you’ve taken three giant steps toward Financial Freedom:

Step 1. Y ou’ve made the most important financial decision of your life.

Y ou’ve decided to become an investor, not merely a consumer. Y ou’ve committed a percentage of your income to save and invest in your Freedom Fund, and you’ve automated it.

Step 2. Y ou’ve become an insider who knows the rules of the game.

Y ou’ve debunked the 9 Myths, and you’ll never be taken advantage of again.

Step 3. Y ou’ve made the game winnable.

•    Y ou know exactly how much money it will take for you to achieve F inancial Security, Independence, or F reedom. Y ou know your T hree to T hrive: your short-term, medium-term, and long-term goals.

•    Y ou’ve come up with an initial financial plan and a timeline for achievement. Y ou’ve used the app to calculate approximately how long it will take you to meet financial goals you’re most committed to.

•    Y ou’ve reviewed the five ways to speed up your plan. Ideally, you’ve begun to brainstorm ways to apply these insights to sock away more money or keep more money in your financial Freedom Fund. T his can help you reach your cherished financial goals even quicker.

So what’s next? Step 4 answers the obvious question that’s probably burning in your mind: “W here do I put my money? W hat specific investments will maximize my upside and protect me against the downside?” It’s time to make the most important investment decision of your life. It’s time to learn the power of asset allocation . . .

SE C T ION 4

MAK E T H E MOST IMPORT AN T

INVEST MENT D EC ISION OF YOUR L IFE

C HAPT E R 4 .1

T H E U L T IMAT E BU C K E T L IST : ASSE T

AL L O C AT IO N

N ever test the depth of the river with both feet.

— W AR R E N BU F F E T T

Say you’ve got your money machine cranking: your boss just gave you an unexpected $10,000 bonus, or perhaps you suddenly came into a $100,000 inheritance. W hat would you do with it? W ould you put it in your savings account or your IRA? Invest in a virtual pocketful of Bitcoin? Bid on a case of vintage wine on eBay? Fly to

Vegas and bet it all on a roll of the dice? Or maybe buy 100 shares of Apple stock? W ould you put it all in one place or spread it around?

T he answer to that last question is the key to your financial future.

Asset allocation is the most important investment decision of your lifetime, more important than any single investment you’re going to make in stocks, bonds, real estate, or anything else. W hat’s the difference? W ell, the financial decisions you’ve already made—to automatically invest a percentage of your income for compound returns—gets you in the game. But once you decide to get in the game, now you’ve got to stay in the game—for the long term! Y ou can lose it all if you aren’t careful about where you put your money. Anybody can become wealthy; asset allocation is how you stay wealthy.

But don’t just take it from me. L isten to D avid Swensen, the rock star of institutional investing. Remember, he’s the guy who grew Y ale’s portfolio from

$1 billion to more than $23.9 billion by achieving a 13.9% average annual return across three decades of bear and bull markets. N obody does it better. W hen I sat down with him in his office in N ew H aven, C onnecticut, I asked, “W hat are the most important insights investors must have to achieve financial freedom?” H e told me that there are only three tools for reducing your risk and increasing your potential for financial success:

1.     Security selection—stock picking;

2.     Market timing—short-term bets on the direction of the market; and

3.     Asset allocation—your long-term strategy for diversified investing.

Before I could even ask about the first two, he made one thing perfectly clear: “Overwhelmingly, the most important of the three is asset allocation,” he said. “It actually explains more than a hundred percent of returns in the investment world.” W ait a second: H ow could it be more than 100% ? Because those fees, taxes, and losses that come along with stock picking and market timing put a drag on your profits.

Asset allocation is more than diversification. It means dividing up your money among different classes, or types, of investments (such as stocks, bonds, commodities, or real estate) and in specific proportions that you decide in advance, according to your goals or needs, risk tolerance, and stage of life.

W ow, that’s a mouthful, isn’t it?

Y et it’s the key to success or failure for the world’s best financial players, including every single one of the investors and traders I interviewed for this book. Paul T udor Jones swears by it. Mary C allahan E rdoes, perhaps the most powerful woman on W all Street, leads 22,000 financial professionals whose livelihoods depends on it. Ray D alio, who founded the largest hedge fund in the world and is now worth $14 billion personally, lives it.

T his chapter takes a complex subject and makes it simple enough for you to act on and positively affect your investment returns for the rest of your life, so give it your full commitment and focus! It doesn’t matter if you have only $1,000 that you’re going to save and invest or $1 million. T he principles you’re about to learn are critical to start applying immediately. If you think you know them already, it’s time to take them to the next level.

L et’s talk about why asset allocation is so crucial to your investment plan, and how you can start making it work for you today.

Anyone who thinks there’s safety in numbers hasn’t looked at the stock market pages.

— IR E N E PE T E R

H            ow many times have you picked what looks like thefastest line at the grocery store, but it turns out to be the slowest? Or how often do you switch to the fast lane in a traffic jam and watch the cars in the slow lane whiz past you? Y ou think you’re getting there faster, and then you’re wrong. And what about intimate relationships? In spite of how much you know about yourself and what you believe and value, have you ever chosen the “wrong” partner? W e all know that decision can have an extraordinary impact on the quality of your life!

T he same thing can happen with your investments. E xcept that when you make mistakes with your nest egg, if it’s too big a mistake, it’s all over. It can mean losing your home. Or still looking for work when you’re 70. Or having no money for your children’s education. T hat’s why this chapter is so important.

Asset allocation is the one key skill that can set you apart from 99% of all investors. And guess what? It won’t cost you a dime. D avid Swensen likes to quote H arry Markowitz, the N obel Prize–winning father of modern portfolio theory, to whom I also reached out to interview for this book. H e said famously, “D iversification is the only free lunch.” W hy? Because spreading your money across different investments decreases your risk, increases your upside returns over time, and doesn’t cost you anything.

W e’ve all heard the old adage “D on’t put all your eggs in one basket.” W ell, asset allocation protects you from making that financial mistake. It sounds like such a basic rule, but how many people do you know who violate it?

I               have a friend who got so excited about Apple that heput all his money in the company. For a while, it was the most successful stock in the world—until it dropped by 40% in a matter of weeks. Ouch. T hen there’s another friend who was in her 30s when she quit her job as a television executive, sold her house in L os Angeles at the height of the real estate market boom, and used the money to open a rustic diner in W yoming. She invested what was left in high-risk stocks and junk bonds, thinking the interest would provide enough income to support her. And it did for a while. But the stock market crash of 2008 wiped out her entire savings. She had to fold up her teepee and go back to work as a freelancer for a fraction of what she used to make.

W e’ve all heard horror stories from the economic meltdown. Maybe you know some baby boomers who had all their money tied up in real estate before the bottom fell out. Or a couple who were ready to retire with their 401(k) full and their target-date funds about to mature. T hey had the RV picked out, the boat in the driveway, the itinerary drawn up with visits to the grandkids marked out. T hen the financial world unraveled. T heir net worth was cut nearly in half, and their dream of retirement turned into 20 more years of work.

T hese stories are heartbreaking, and I want to make sure nothing like that ever happens to you. And the good news is, it never has to. T hat’s why I wrote this chapter: so that you’ll not only be protected but also can grow your nest egg faster.

W hat’s the simple and core investment lesson here? W hat goes up will come down! Ray D alio told me point-blank that in your lifetime “it’s almost certain that whatever you’re going to put your money in, there will come a day when you will lose fifty percent to seventy percent.” Y ikes! T hat means any investment you pick is going to lose half to two-thirds or more of its value! And don’t most people typically favor one type of investment because they feel they “know” more about that area, or because it’s currently providing a “hot” return? Some people tend to put all their money in real estate, others in stocks, bonds, or commodities. If you don’t diversify enough, you stand to lose your shirt! Are you hearing me? N o matter how well you plan, there will be a day of reckoning for every type of asset. So, diversify or die.

But if you diversify well, you’ll win!

By now I’m sure you’re crystal clear about the consequences of not diversifying! N ow would you like to hear about the incredible impact of the right diversification? It’s almost like having a license to print money. I know that’s an exaggeration, but imagine what it would feel like if you knew you were making money while you sleep, and that your diversification gave you true peace of mind regardless of the economic climate.

H ere’s a real example. H ow would you feel if, in that D efcon environment of 2008, when stock markets were losing more than $2 trillion, bonds were tanking, and real estate was falling through the floor, you could have had an asset allocation where your maximum loss was just 3.93% ? T his example is not a fantasy. T his is the power of asset allocation that I’ve mentioned several times in this book, and I’m going to demonstrate it to you shortly. Better yet, what if in the last 30 years of your life (between 1984 and 2013), your asset allocation was so powerful that you lost money only four times, with an average loss of just 1.9% , and never more than 3.93% ? Remember, everyone else during those three decades was riding the wild wave of inflation and deflation. In the last decade alone, we had two market drops of nearly 50% , yet you would have coasted through the storm without a single gut check and still averaged a compounded annual return of just under 10% . I’m not describing a hypothetical situation. W hat I’m describing to you is an actual portfolio, a specific asset allocation, designed by Ray D alio. Soon I’ll show you the exact formula that has produced these mind-blowing results. But before you can use it, you have to understand the core principles laid out in this chapter.

Rule 1: don’t lose money.

Rule 2: see Rule 1.

— W AR R E N BU F F E T T ’S R U L E S O F IN V E ST IN G

I can’t say it enough: good people often fail because they do the right thing at the wrong time. Buying a house—is it the right thing to do? Most experts would say yes. But in 2006, it was the wrong time! So the question is: If we’re all going to be wrong some of the time, where do we put our money? T hat’s where asset allocation comes in.

H ere’s another way to think about it: when you’re trying to build a winning team in sports, you have to know the capabilities of each player. Y ou have to know his strengths and weaknesses. Y ou have to decide who you can count on in different situations. N ow, say your portfolio is the team, and your investment choices are the players. Asset allocation helps you choose who starts and at which positions. U ltimately, it’s the right mix at the right time that brings you victory.

Asset allocation offers you a set of guiding principles: a philosophy of investing to help you decide where to put Freedom Fund money or your nest egg and in what proportions.

T hink of it as taking chunks of your money and putting them into two separate investment buckets with different levels of risk and reward. One of these first two buckets is a safe environment for your money, but it’s not going to grow very fast there. Y ou might get bored with it, but it’s secure, so that when you need it, it’s there. T he second bucket is sexier because it can give you the opportunity for much quicker growth, but it’s risky. In fact, you have to be prepared to lose everything you put in here!

So how much goes in each bucket? It depends on how much time you’ve got to grow your investments and how much risk you’re willing to take. Y ou’ve got to ask yourself, “H ow much risk can I afford to take at my stage in life?” But remember, you’re not diversifying just to protect yourself. Y ou want to enhance your results: to find the ideal blend of investments that will make you thrive, not just survive!

But, hey, if we’re willing to admit it, many people have more than enough stress in their daily lives without adding a ton of anxiety worrying about their investments day and night. A significant part of financial security or even freedom is peace of mind, that feeling that you don’t have to think about money. T he first bucket will give you certainty in your life, which, after all, is the first basic human need. And that’s why I call it the Security/Peace of Mind Bucket. It’s where you want to keep the part of your nest egg you can’t afford to lose

—or even imagine losing without waking up in a cold sweat! It’s a sanctuary of safe investments that you lock up tight—and then hide the key.

I don’t gamble, because winning a hundred dollars doesn’t give me great pleasure. But losing a hundred dollars pisses me off.

— AL E X T R E BE K , host of J eopardy!

T aking a financial hit not only lightens our wallets but also can steal the joy from our lives. Remember that behavioral economics study with the monkeys and the apples? A monkey was happy if he was given an apple. But if he was given two apples, and then one was taken away, he freaked out—even though, in the end, he still had an apple. H umans are the same way. Research on human emotion shows that the majority of people around the world underestimate how badly they feel when they lose. T he pleasure of our victories is dwarfed by the pain of our failures and our losses. So we all have to set up a Security/Peace of Mind Bucket to protect ourselves from taking the kind of hits that will not only set us back financially but also will make us miserable.

T o familiarize you with the kind of investments that are considered a bit more secure, let’s look at eight basic types of assets (investment options or resources) that might belong in this Security Bucket. T his is just a sampling. It’s not meant to be everything that would fit in this bucket. But as you read, you will notice a pattern: none of these types of investments tends to have extreme volatility—meaning that its value doesn’t tend to fluctuate much—especially compared with things you’ll see later in the Risk/G rowth Bucket. (Although, as we’ve all experienced, there are short periods in history where virtually all investments have increased volatility. L ater Ray D alio will show us how to prepare for this as well!) But this quick list is designed to get you to think about your investments in the future, and give you a feel for what might go here. Ask yourself, “Before I invest, is this putting me at risk? Is this something I’d be better off having in my R isk/G rowth Bucket or in my Security Bucket?”

So let’s take a look at what this is all about, starting with the first and perhaps the most important place to put a portion of your money: the Security/Peace of Mind Bucket. W hat assets would you want to put in here? Remember, this bucket is the slow but steady contender, like the turtle in the race to financial freedom. Because the turtle often wins! And you have to treat it like your sacred temple of savings and investments— because what goes in here doesn’t come out.

And before you go on, bear in mind that the beginning of this chapter has some fundamentals: the blocking and tackling of asset allocation. If you’re a sophisticated investor, you can scan through the list of investment options because you probably already know what they are, and you can save yourself some time. But I didn’t want to leave out anyone. Besides, you might find a distinction or two that you’ll find valuable. So let’s dive in.

1. C ash/C ash E quivalents. At some time in our lives, every one of us will need a cushion to cover our needs in case of an emergency or a sudden loss of income. N o matter your income level, you need some liquidity —or instant access to cash. Is it possible to be rich in assets and feel poor because you don’t have cash or liquidity? A lot of people were caught short in 2008 when the banks froze up and stopped lending (even to one another), and real estate seemed impossible to sell. In fact, according to a 2011 study, half of all Americans would struggle to come up with $2,000 in a crisis such as an unexpected medical bill, legal cost, or home or car repair. So you need some cash to make sure that doesn’t happen to you. T hink about it: it wouldn’t take a lot of focus or a lot of savings for you to be better off than more than half of America!

But once you’ve decided how much cash you need to have on hand, where do you keep it? Most of us choose bank accounts that are insured by the FD IC for balances of up to $250,000. U nfortunately, brickand-mortar banks pay almost no interest these days— the last time I checked, some were as low as 0.01% !— while online banks have been offering slightly higher rates. Maybe not ideal, but at least we know the money is safe and available. Y ou also may want to keep some of that cash in a safe place or for safety near your home—you know, “under your mattress”— in a hidden safe in case there’s an earthquake or hurricane or some other kind of emergency, and the AT Ms stop working.

Other tools for cash equivalents include money market funds—there are three types, and if you want to learn more, see the box for details.

For larger amounts of money that we need to keep safe and liquid, you can buy into ultra-short-term investments called cash equivalents. T he most well-known are good old money market funds. Y ou may even already own one. T hese are basically mutual funds made up of low-risk, extremely shortterm bonds and other kinds of debt (which you’ll learn more about in a moment). T hey can be great because you get a somewhat higher rate of return than a boring old bank account, but you still get immediate access to your cash 24 hours a day—and there are some that even let you write checks.

By the way, most banks offer money market deposit accounts, which are not the same as money market funds. T hese are like savings accounts where the banks are allowed to invest your money in short-term debt, and they pay you a slightly better interest rate in return. T here’s usually a minimum deposit required or other restrictions, low rates, and penalties if your balance falls too low. But they are insured by the FD IC , which is a good thing. And that sets them apart from money market funds, which are not guaranteed and could potentially drop in value.

But if you want to keep your money safe, liquid, and earning interest, one option is a U S T reasury money market fund with checking privileges. T rue, these funds aren’t insured by the FD IC , but because they are tied only to U S government debt and not to any corporations or banks that might default, the only way you can lose your money is if the government fails to pay its short-term obligations. If that happens, there is no U S government, and all bets are off anyway!

2.     Bonds. W e all know what a bond is, right? W hen I give you my bond, I give you my word. My promise. W hen I buy a bond, you give me your word—your promise—to return my money with a specific rate of interest after X period of time (the maturity date). T hat’s why bonds are called “fixed-income investments.” T he income—or return—you’ll get from them is fixed at the time you buy them, depending on the length of time you agree to hold them. And sometimes you can use those regular interest payments (dividends) as income while the bond matures. So it’s like a simple IOU with benefits, right? But there are zillions of bonds and bond funds out there; not all but many are rated by various agencies according to their levels of risk. At the end of this chapter, you’ll find a quick bond briefing to find out when they can be hazardous to your financial health, and when they can be useful— even great!—investments.

Bonds can also be kind of confusing. L ike a seesaw, they increase in value when interest rates go down, and decrease in value when rates go up.

After all, who wants to buy an old low-interest-rate bond when a shiny new bond with a higher interest rate comes on the market? But one way to avoid worrying so much about price fluctuations in bonds is to diversify and buy into a low-cost bond index fund.

And just remember, not all bonds are equal. G reece’s bonds are not going to be as strong as G ermany’s. D etroit’s municipal bonds are not going to be as strong as the U S T reasury’s. In fact, some investment advisors say the only completely safe bond is one backed by the full faith and credit of the U nited States. And you can actually buy U S bonds called T reasury inflation-protected securities, or T IPS, that rise in value to keep up with inflation through the consumer price index. Again, we’ll cover all of this in the bond briefing. And later I’ll be showing you an amazing portfolio that uses bond funds in a totally unique way. But meanwhile, let’s consider another fixed-income investment that might belong in your Security Bucket.

3.     C D s. Remember them? W ith certificates of deposit, you’re the one loaning the money to the bank. It takes your cash for a fixed rate of interest, and then returns it—along with your earnings—after a set amount of time. Because C D s are insured by the FD IC , they’re as safe as savings accounts, and—at the time of this writing—just about as exciting. But I wrote this book for every season, and seasons keep changing. I don’t know what season you’re in now, but I can tell you this story: in 1981, when I was 21 years old, you could buy a six-month C D for . . . wait for it . . . 17% interest! But you don’t have to go that far back to see how some types of C D s, in the right environment, can give you quality returns. Remember the story of how my Stronghold advisor got a small fixed rate on a C D in 2009, but it was a market-linked C D , which was attached to the growth of the stock market, and he averaged 8% interest over time! T hat was an unusually good deal, but there are still ways to get more bang for your buck (without risking your principal) by investing in these market-linked C D s. (Y ou can go back to chapter 2.8 for a recap about how they work.)

So how’s our team of assets doing so far? C D s, cash, money market funds, and bonds would be obvious players for your Security Bucket. But when do you put them in the game? Some players will do well in some environments and poorly in others. W hat’s the advantage of the cash player? T he cash player can jump into the game any time. Y ou can keep your money safe and ready to deploy when the right investment comes along. On the other hand, if you hold too much money in cash, your spending power is not growing. In fact, it’s shrinking due to inflation each year. But in deflationary times, like 2008, your cash will buy you more. If you had cash in 2008 and had the stomach to do it, you could have bought a home for almost 40% less than that same house cost the year before. (By the way, that’s what many hedge funds did. T hey bought tens of thousands of homes during the down time, fixed them up and rented them, and then sold them between 2011 and 2014 for a big profit.) Many stocks could be bought at a similar or even greater discount in 2008.

W                      hat’s the advantage of the bond player? D epending on the type of bond, you’ve got a guaranteed rate of return that gives you security when other asset class prices might be dropping. Regular C D s, as I’m writing this in 2014, probably don’t interest you at all, and they don’t interest me either. But that player can do well in high-interest-rate environments. And while market-linked C D s excel when the stock indexes are hot, they’re rock solid in every environment because you don’t lose principal. H ere is the downside of bonds: if you want to sell bonds before their maturity date (when you receive your full investment plus interest), and interest rates have risen significantly and new bonds provide a higher rate of return, you will have to unload them at a discount.

If all this seems incredibly complex, here’s the good news. Ray D alio has created a strategy called All Seasons, which will show you how to succeed with the right mix of bonds, equities, commodities, and gold in any economic season. W e’ll learn more about that later.

First, understand that because secure bonds offer a promised or stated rate of return and a return of principal, they are more secure than investments that do not guarantee either the rate of return or the principal. But the promise is only as good as the bond issuer. T he point here is that you need the right player for the right season in the right proportions and at the right time.

N ow let’s take a look at a few other assets for your Security Bucket team you might not have thought of:

4.     Y our home goes in here, too. W hy? Because it’s a sacred sanctuary. W e shouldn’t be “spending our home”! Americans have learned a hard lesson in recent years about the dangers of house flipping and using their homes like AT Ms. A home, if it’s your primary residence, shouldn’t be seen as an investment to leverage, and it shouldn’t be counted on to produce a gigantic return. But wait, haven’t we always been told that your home is your best investment because it always goes up in value?

In my search for answers, I sat down with the N obel Prize–winning economist R obert Shiller, the leading expert on real estate markets, and creator of the C ase-Shiller home price index of housing prices. H is breakthrough insights were used to create the following chart. Shiller found that when he adjusted for inflation, U S housing prices have been nearly flat for a century! H e exploded one of the biggest myths of our time: that home prices keep going up and up. “U nless there’s a bubble,” he told me. And we all know what eventually happens to bubbles.

On the other hand, owning your home with a fixedrate mortgage is a hedge against inflation, and there’s a tax advantage. W hat’s more, if you own a home outright, and you rent out all or part of it, it can be a safe way to earn some income. Also, as you’ll soon learn, there are some great ways to invest in real estate—like first trust deeds, RE IT s (real estate investment trusts), senior housing, income-producing properties, and so on. So nobody’s suggesting that you give up on real estate investments if that’s what you like to do! But it’s probably a good rule of thumb to put them in the next bucket we’re going to talk about: the Risk/G rowth Bucket.

Meanwhile, what other assets might belong in Security?

5.     Y our Pension. G ot one? T his bucket is the place to keep it if you’re one of the lucky few. Remember the example of D r. Alicia Munnell, director of the C enter of Retirement Research at Boston C ollege? She liquidated her pension and took an early payout, thinking she could invest and get a higher return than her past employer, the Federal Reserve. She learned the hard way that you don’t want to risk your lifetime income plan, and now she shares her story as a warning to others.

6.     Annuities. If you’re young, and you hear this word, you may think this doesn’t have any value for you. In the past, they took a lot of money, and you had to be a certain age in order to tap into these investment tools. But as you’ll learn in chapter 5.3, “Freedom: C reating Y our L ifetime Income Plan,” there are some new tools you can arm yourself with. Remember, these investments are insurance products that can give you a guaranteed income for life. T hey’re like private pensions if they’re done right. But as we’ve discussed, most annuities out there are terrible investments with high fees and ridiculous penalties. Most variable annuities should come with more warnings than a Viagra commercial! But you can find a few select annuities—which you will learn about in section 5—that are so safe and affordable that many experts call them the H oly G rail of retirement income solutions. H ow’s that? T hey can give the kind of returns you enjoy in your R isk/G rowth Bucket within the safety of your Security Bucket. A guaranteed income that will last your lifetime and never go down in value!

7.     At least one life insurance policy belongs in your Security Bucket, and you don’t mess with it. W hy? G ot a family? If you die, your family will be taken care of. T erm life will suffice for most people. H owever, another type of life insurance policy, described in section 5, can provide you with an income for life, tax free, while you’re still alive! And if structured correctly, it can also provide enormous tax efficiency. T he largest corporations and the ultrawealthy have been using this IRS-sanctioned approach for decades. Be sure to check out chapter 5.5 for details on how to use this tool to perhaps cut the time it takes to get to your financial goals by 25% to 50% depending on your tax bracket.

8.     Structured N otes. T hese products have been called “engineered safety” for investors. Structured notes are like market-linked C D s, but they aren’t covered by FD IC insurance. H ow do they work? Y ou lend money to a bank—usually one of the biggest banks in the world—and the bank promises to give you back the money after a specified period of time, plus a percentage of whatever gains accumulate in a particular index (say, the S&P 500—minus the dividends—commodities, gold, RE IT s, or a

combination). For example, at the time of this writing, J.P. Morgan has a seven-year structured note with 100% downside protection, meaning you’ll never lose your original investment, plus it gives you 90% of the upside gain of the S& P 500. N o wonder, as you learned in chapter 2.8, the ultrawealthy often use this tool to invest. T he right kind of structured note can be a great way to participate in the upside of the market without worrying about the downside—especially at a stage of life when you can’t afford to take such volatility risks.

W                      hen I sat down with Mary C allahan E rdoes,

C E O of J.P. Morgan Asset Management, with $2.5 trillion under management, she told me structured notes can be good investment choices, particularly for people afraid to put their money in anything after the financial meltdown of 2008. And they’re not a gimmick. “A lot of times, people will look at a structured note and say, ‘T hat looks too good to be true,’ ” she told me. “But you need to understand the product from start to finish. T here are no gimmicks, there are no gadgets; it’s just math in the markets . . . T he longer you don’t need liquidity, the more the market will pay you for that. If you’re going to put your money away for seven years, you should be able to get that much upside.”

So do structured notes belong in your Security Bucket? T he structured note is only as secure as the bank that issues it. E rdoes made it clear that J.P. Morgan was the largest bank in the world. Some fiduciaries will recommend the Royal Bank of C anada or other C anadian banks, since they have been rated as some of the best and safest in the world. (T he U nited States saw more than 9,400 banks collapse during the G reat D epression and almost 500 in the recent G reat Recession. Not one bank failed in Canada!) So, as always, you have to weigh the benefits against the risk and make your own decision. Also, watch out for fees and complicated contracts. As we said in chapter 2.8, structured notes can be a terrible product, just like mutual funds, if there are too many fees attached. If the issuer is fiscally strong, you won’t lose your money. But if the timing is off, you won’t make any money in that time period. So this is more of a secure protection strategy. It’s best to talk over this investment with your fiduciary advisor before jumping in.

T IME IS ON Y OU R SID E

W hew! T hat was a lot. But remember, if your head is exploding with all these choices, you’re not in this alone. Y ou can have your complimentary asset allocation (and full portfolio review) done for you online at www.strongholdfinancial.com or by your own fiduciary advisor.

But it’s important to understand the concept of asset allocation and which investments are available for each of these buckets so that your overall portfolio—your group of investments—reflects your goals and level of risk tolerance. T hat way you’re still running the show! At every decision point, you’ll be thinking, “H ow much am I risking and how much am I keeping secure?” T hat’s where the game is won or lost!

And, as you’ve already seen, the biggest challenge for your Security Bucket today is: What is really secure? W e know the world has changed, and even conservative savers have been forced into riskier and riskier investments by crazy-low interest rates. It’s tempting to shoot for bigger returns, especially when the stock market is galloping. Y ou may start thinking, “I’ll never get where I need to go from here.” But you can if you’re willing to play the long game. (And especially if you find some investments that guarantee returns without risking principal—which you’ll learn about soon.)

Just like in that old Rolling Stones song, time is on your side when it comes to growing your wealth. And time is certainly the greatest asset for the Security Bucket —even if you start later in life. After all, more and more of us are living into our 80s and 90s, so our investments can mature along with us. And if you’re G eneration X , Y , or Z —yes, there is a G eneration Z , the postmillennials! —you’re way ahead of the game! Y ou can start with a tiny amount and let the magic of compounding get you where you want to go so much easier.

W hat happens to the money in your Security Bucket reminds me of an old gambler’s trick on the golf course. T he gambler tells his mark, “Y ou play golf? I just started playing, and I’m no good. Y ou want to play ten cents a hole?” So the guy says, “Sure, great!” On the way to the first hole, the gambler says, “Y ou know, ten cents is kind of boring. Just to make it more fun, why don’t we just double the bet every hole?” T he first hole is 10 cents, the second hole is 20 cents, the third hole is 40. By the time they get to the fifth hole, it’s $1.60. T he sixth hole is $3.20, and they’re only one-third of the way through 18 holes. By the time they get to the 18th hole, how much are they playing for? H ow about $13,107! T hat’s a steep golf bet, even for D onald T rump. And that’s the magic of compounding in action.

It’s also what happens when you’re investing in your Security Bucket over the long haul. Y ou reinvest the interest you make, and, for a long time, there seems to be no progress at all. But you get to the 13th hole, and then the 14th, and then the 16th, and then it explodes.

T ake a look at the chart on page 312. T hat’s the exponential progression that will work for you.

Of course, sitting tight is a challenge for this generation! As a society, we’re wired for instant rewards, and waiting for the assets in our Security Bucket to increase in value can initially feel like watching grass grow. And that’s why we get tempted into putting too much of our money into the next bucket, Risk/G rowth. But not everything in your Security Bucket has to be dull as dishwater. If you have a talented and connected fiduciary advisor, he or she can show you how to take some of these boring security tools and eke out a more reasonable return, or even a significant return if you find the right environment.

H ere’s just one example of what my Stronghold advisor found for me—and it’s an asset that most people wouldn’t normally put in their Security Bucket: a residential real estate loan!

It starts with a guy building a house in Indian W ells, C alifornia, who ran into some financial trouble and had to sell it to a group of investors. E ver hear of Indian W ells? It’s like the Beverly H ills of Palm Springs, which is one of the highest-income environments per capita in the U nited States. T he city is beautiful, with extraordinary weather, surrounded by golf courses and resorts—an amazing place to own a home or a vacation home. T he investment company that bought the guy’s house buys up dozens of properties, so it needs a lot of cash—but the company doesn’t need it for long because it fixes up and resells the houses quickly. T o keep the money flowing, the company needs investors to give it short-term loans in exchange for first deeds of trust on the properties it holds.

E ver hear about first trust deeds? If you own a home and have a mortgage, a financial institution loaned you the money to buy your house, and you gave it your bond to pay it back at a certain rate of return. H owever, if you don’t keep your word and fail to keep up the payments, the entity that owns the mortgage, or trust deed, has the right to force you to sell—and it continues to receive interest until a new owner takes over. As an investor, I look for ways to get maximum rewards in a secure environment—a first trust deed structured properly can be perfect for this purpose.

My advisor and I found out that the real estate investment company was offering the first deed of trust on that house in Indian W ells as collateral on a $1 million loan, which would pay 10% interest for one year.

It was willing to have one investor take this on, or as many as 25, each contributing $40,000. In the end, I decided to invest in the full $1 million myself. Y ou might say, “W ow, that’s a great deal! Y ou get a hundredthousand-dollar profit to tie up your money for just one year. But T ony, what’s your risk?” T hat’s exactly why we did a lot of research. T he home, we learned after two qualified appraisals, was worth $2 million in its current state. So if I’m loaning $1 million, that loan has a 50% loan-to-value ratio, right? E ven if the company defaults, my $1 million is secure because the value of the property is $2 million.

T his was a pretty great deal, but I’ve also bought deeds of trust on smaller homes. Say I’d found a starter home in the Midwest that was worth $80,000. If I could get the mortgage for $40,000, at 50% loan to value, I might make the loan. T he Indian W ells deal was similar, only on a larger scale. So I decided to go for it, and I put that investment in my Security Bucket.

Okay, I can already hear you saying, “W ait a minute, T ony! W hat if the market drops? D oesn’t that investment belong in your Risk/G rowth Bucket?”

T hat’s a great question, because we’ve just been through one of the worst real estate crashes in history! And on the surface, it looks like you’d probably put this in your Risk Bucket. But here’s why I think it’s a safe investment: in 2008, when the real estate market just went through the floor, and the world was upside down, the prices of houses in most parts of the U nited States dropped 30% to 40% , max. T here were a few exceptions, such as some parts of L as Vegas, Phoenix, and Miami, where the prices dropped more than 50% . But all of those places had massive price growth right before the bubble burst. T he Indian W ells area didn’t experience that size of bubble—and while prices dropped 31% from 2008 to 2010 (far below the 50% mark), the biggest loss in a single year was only 13.6% (from 2008 to 2009). And remember, we’re loaning for only one year. So if residential real estate didn’t take anything close to a 50% hit in Indian W ells in 2008, it’s not likely to happen this year.

T hat’s why I decided to move forward with this as the investment to put in my Security Bucket. It’s the place where you have to be cautious. But it doesn’t have to be totally boring. And sometimes the returns can be very nice (8% to 10% , whereas many people typically settle for 1% to 4% returns in the Security Bucket) if you do your homework!

It is my contention that Aesop was writing for the tortoise market. H ares have no time to read.

— AN IT A BR O O K N E R

Boredom comes from a boring mind.

— “T H E ST R U G G L E W IT H IN ,” Metallica

N ow, what if that same company offered me a 12% return to invest in that $2 million property—but for the better rate, it wanted me to loan it $1.5 million instead of $1 million? T hat would make the loan-to-value ratio 75% —obviously I’d get a greater return by taking a greater risk. It means if the market dropped by 25% or more, I might lose some of my investment. N ot likely, but possible. So if I was willing to take the extra risk for an increase in returns, it might be something I’d consider. But I would not put this investment in my Security Bucket. It belongs in the next bucket you’re about to discover: the one that should be wrapped in yellow caution tape and handled with oven mitts, because if you approach it the wrong way, I guarantee you’re going to get burned! But handled effectively, it can speed up your journey to Financial Freedom.

By now you can see why asset allocation is an art, not a science. T he idea of security is totally subjective. Some people think nothing is safe! Others can live with a tiny bit of risk and still feel secure. So you’ve got to look at each investment on an individual basis.

T he real payoff of asset allocation comes when you figure out the right mix of how much of your money you keep safe and how much you’re willing to risk to get greater rewards and have the potential to grow faster. In investing, that’s where you live or die, succeed or fail. So what percentage do you think you should put in your Security Bucket—in safe investments? One-third? H alf? T wo-thirds? Failure to secure a significant portion of your hard-earned money in safe investments can spell financial disaster. C onversely, putting too much in this bucket can significantly slow your growth. H ow do we find the right balance? T hat’s what we’ve been working toward. And now that we’ve locked down the foundation for security, it’s time to really get in the game. It’s time to play to win.

As a quick note, bonds can be such a potentially important investment for your Security Bucket that I wanted to give you a quick bond briefing that might be well worth your review. If now’s not the right time, remember this is here as a reference for you, and skip over to the next chapter. K eep up the momentum! W e’re on our way to bigger risks and potentially bigger rewards.

A FE W W ORD S ABOU T BON D S G entlemen prefer bonds. — AN D R E W ME L L O N , founder of the Bank of N ew Y ork Mellon N ot that long ago, bonds were supposed to be the safest, most reliable form of investment. T hey were the big guns in the portfolios of the ultrawealthy, and

the bedrock of your Security/Peace of Mind Bucket for the average investor. But bonds have taken a bad rap in recent years, and for good reason. W ith the U S government keeping interest rates insanely low, and some of the companies, cities, and even nations that issue bonds teetering on the brink—or even going bankrupt—they don’t seem like such a great deal to everyone anymore.

But most experts still think bonds are an important part of your investment mix. (In fact, they’re the foundation of the mind-blowing portfolio that works in all economic climates, which you’ll learn about in chapter 5.1.) So let’s look at the basic kinds of bonds out there to see what can be great about them—and also what to watch out for.

• U S T reasury Bonds. Many investment experts, including Y ale’s asset allocation wizard D avid Swensen, feel that the safest bonds are good old U S T reasuries, because they are backed by the full faith and credit of the government. D avid told me, “T reasury bonds are really there as an anchor for the portfolio.” But because these bonds are so safe from default, they have smaller returns. And like other, less secure bonds, they can fluctuate in price based on outside events—particularly how much inflation or deflation is happening at the moment.

So suddenly what you thought was a bomb-proof investment can blow up in your face!

T reasuries come in four different types (and they have different names for how long they last to maturity).

1.     T -bills: T hese T reasury bills are government debt obligations that come due in less than 12 months. T hey are the basis for most short-term bond index funds and money market funds.

2.     T -notes: T reasury notes mature in one to ten years, and offer a fixed interest rate (known as “the coupon”). Y ou get interest payments on these every six months.

3.     T -bonds: Same as T -notes, but T reasury bonds mature in ten to 30 years.

4.     T IPS: First created in 1997, these T reasury inflation-protected securities protect you against spikes in inflation. W hen you buy T IPS, the principal (or “par value”) of your bond goes up or down when the consumer price index on inflation changes—and so does your semiannual interest payment. So if you buy $10,000 worth of

T IPS at 1.5% interest, and the C PI doesn’t change in six months, the “par value” of your bond stays the same, and you get a $150 interest payment. But—and here’s the beauty of T IPS!— if the cost of living goes up 2% , your bond is now worth $10,200, and your semiannual payment is $153. If you own a lot of T IPS, and there’s a lot of inflation, that money can add up! H ere’s a chart that shows you how it works:

N otice that the value of the bond can be adjusted down, too. So if we go into another economic recession or depression, you could potentially lose some of your principal if you need to liquidate and get the value of your bond today.

Basically, if you buy T IPS, you’re betting that we’re heading into a period of inflation. D oes that seem likely? If you’re not sure (and, really, nobody ever knows for sure), you may want to do what D avid

Swensen recommends in his ideal portfolio: because T IPS go up in price when interest rates rise (which usually happens during inflationary times), balance them with an equal amount of traditional T reasuries that go down in price when interest rates rise. T hat way, you’re protected in any situation!

Of course, the U S government isn’t the only country that issues bonds to pay for its operations. And in the good old days of a few years ago, a bond backed by the full faith and credit of a sovereign nation used to be considered a fairly safe bet. But now that we’ve had G reece, Spain, and other nations teetering on default—or, like Argentina, plunging over the edge— foreign government bonds have become a riskier deal. Foreign bonds are also more vulnerable to inflation risks, and if you buy bonds in an unstable currency, you might run into big trouble exchanging them back into dollars. Most advisors say to leave these investments to expert traders and hedge funds.

But what about some other bonds that can bring in better returns than plain old T reasuries? Some of the types listed below are safer than others. Y ou can find out what others think about their prospects through a rating system that categorizes bonds by the level of risk to investors.

T here are several internationally recognized bond rating agencies, such as Moody’s, Fitch Ratings, and

Standard & Poor’s, that use special formulas to come up with credit ratings for different issuers—kind of like the way your credit is rated when you apply for a car loan or Visa card. For S&P, the grades range from AAA (the highest level of confidence that a company or country won’t default on its debts) to BBB (adequate for “investment grade” bonds), and all the way down to D (which means the bond issuer is already in default). T he lower the rating, the more interest the issuer usually has to pay to bond holders for the risk that they’re taking. T he expertly renamed high-yield bonds, formerly known as junk bonds, have a rating of lower than BBB, which makes them “subinvestment grade.”

•    C orporate Bonds. C orporations issue bonds when they want to raise money to expand, make acquisitions, pay dividends, fund a loss, or any number of reasons. Should you buy corporate bonds? It depends on the risk. If you pick the wrong bond, you could lose most or all of your money. E ven iconic companies such as T W A and K odak have gone bankrupt. A year after it declared C hapter 11, K odak’s unsecured bonds were selling for 14 cents on the dollar. But bonds from most giant U S corporations are still considered safe bets. Apple (with an AA+ rating) has been selling high-grade bonds to eager buyers—but the interest those bonds earn is only about 1% higher than comparable U S T reasuries! Some investors, like D avid Swensen, say, “W hy bother with corporate bonds when you can get a better return just buying stock in the company?”

But if you’re looking for higher yields in bonds, you have lots of options—as long as these investments go into your Risk/G rowth Bucket and not your Security Bucket! For instance, not everybody shies away from so-called junk bonds. Y ou have to look at each one and decide if it’s worth the risk. In May 2014 Australia’s largest airline, Qantas, offered a subinvestment-grade eight-year bond in Australian dollars for a 7.75% interest rate. T he company had its credit rating downgraded because of recent losses and debt problems, but would you count it out? Or at a more extreme level, in January 2013 in the midst of chaos, there were people who were buying oneyear E gyptian T reasury bills with a

“guaranteed” (a guarantee only as strong as you think an unstable government can make) return of 14.4% . T hose who did this were betting that the U S government and the Saudi Arabian government would keep E gypt stable and solvent.

W ould the rewards be worth the risk of default? T hat’s the kind of decision you’d have to make before buying the junk bond.

Of course, not many of us have the experience or time to do this level of research. T hat’s where a talented fiduciary advisor who’s an expert in the area might come in handy. But there are also domestic and international high-yield bond index funds that can give you good returns while spreading the risk among many bonds.

•    Municipal Bonds. H ow about munis? W hen a state, city, or county needs to raise funds for a big public works project (sewer systems, hospitals, mass transit), it borrows money by issuing a bond. In the past, these municipal bonds were considered a winwin deal for everybody, because the interest they paid was usually exempt from federal and possibly state taxes. But what’s been happening to cities and counties all over the U nited States? San Bernardino and Stockton, C alifornia? Jefferson C ounty, Alabama? D etroit? C hicago? All bankrupt or on the verge, and their bondholders potentially left holding the bag. D oesn’t sound like such a sure thing anymore. Also, when interest rates drop, sometimes the issuer of the bond can “call” it in and pay back your principal before the bond matures. Y ou lose that guaranteed rate of return you were counting on. But once you acknowledge the risks, there can be some great opportunities in municipal bonds if you know where to look.

And the tax advantages can be outstanding.

H ere’s an example that might prove valuable to you: a friend of mine recently bought a N ew Y ork C ity bond where he’s getting a 4% return tax free— which, for someone in a high tax bracket, is the equivalent of an approximately 7% return in a taxable bond! W hy isn’t he worried about the risk? T hese bonds are secured by a lien on future tax revenues. So if N ew Y ork C ity gets into trouble, it has the ability to tax its way out of it and pay him back! H e feels so good about this bond that he’s putting it in his Security Bucket!

T he point is, there are plenty of municipal bonds that could be valuable for you—but you have to educate yourself and sit down with a registered investment advisor or some other knowledgeable investment expert who knows his or her munis.

W ant to take the guesswork out of choosing the right bond mix for your portfolio? Vanguard founder Jack Bogle suggests buying into low-cost, low-fee bond index funds that spread out your risk because you’ll own every part of the bond market. Y ou

 

can see how Bogle puts this concept to work in his own portfolio in section 6, “Invest L ike the .001% : T he Billionaire’s Playbook.” N ow onward to greater risk and potentially greater reward.

 

C HAPT E R 4 .2

PL AY IN G T O W IN : T H E

RISK /G RO W T H BU C K E T

T he winner ain’t the one with the fastest car. It’s the one who refuses to lose.

— D AL E E AR N H AR D T SR .

T he R isk/G rowth Bucket is where everybody wants to be. W hy? Because it’s sexy! It’s exciting! Y ou can get a much higher return in here—but the key word is can. Y ou can also lose everything you’ve saved and invested. So whatever you put in your R isk/G rowth Bucket, you have to be prepared to lose a portion or even all of it if you don’t have protective measures in place. H ow do we know this? Because everything in life, including markets, runs in cycles. T here are going to be up times and down times. And anybody who invests in one particular kind of asset while it’s on a roll—be it real estate, stocks, bonds, commodities, or whatever—and thinks the party will last forever because “this time will be different” should get ready for a rude awakening. W hen I interviewed Jack Bogle for this book, he repeated one of his mantras: “Markets always revert to the mean.” (T hat means what goes up is going to come down, and vice versa.) And I’m sure Ray D alio got your attention when he said that whatever your favorite investment might be, at some point in your life, you can count on it dropping 50% to 70% in value. W hile there’s unlimited potential for upside in this bucket, never forget that you could lose it all (or at least a significant portion). T hat’s why I call this the Risk/G rowth Bucket and not the G rowth/Risk Bucket, because growth is not guaranteed, but risk is!

So what investments would you put in here?

H ere’s a sampling of seven main asset classes to consider:

1.     E quities. Another word for stocks, or ownership shares of individual companies or vehicles for owning many of them at once, like mutual funds, indexes, and exchange-traded funds (E T Fs).

E xchange-traded funds (E T Fs) have been called the “It” girl of the stock market, ballooning in popularity by more than 2,000% from 2001 to 2014, and holding more than $2 trillion in investments. But what exactly are they? E T Fs are built like mutual funds or index funds, because they contain a

diversified collection of assets, but you can trade them just like individual stocks. Most of them follow a theme (small-cap stocks, municipal bonds, gold) and/or trace an index. But with an index or mutual fund, you have to wait until the end of the trading day to buy or sell; E T Fs can be traded all day long. E xperts say that if you like the idea of an index fund, but you want to buy when you see the price is low and sell when the price is high during a trading session, an E T F might be for you. But that’s trading, not investing, and trying to time a market brings very intense and special risks.

But there’s another difference: when you buy shares of an E T F , you are not buying the actual stocks, bonds, commodities, or whatever else is bundled in the fund—you are buying

shares in an investment fund that owns those assets. T hat company promises that you’ll receive the same financial outcome as if you’d owned them yourself. But don’t worry, it sounds more complicated than it is.

A lot of people like E T Fs because they give you a tremendous amount of diversity at a low cost. In fact, many E T Fs have lower fees than even comparable traditional index funds, and sometimes lower minimum investment requirements. And because they don’t engage in a lot of the kind of trading that produces capital gains, they can be tax efficient (although there is a move toward more actively managed E T Fs coming to the market, which makes them less tax efficient).

Should you invest in E T F s? Jack Bogle, founder of Vanguard (which, incidentally, offers many E T F funds), told me he sees nothing wrong with owning broad-spectrum index E T Fs, but he warns that some are too specialized for individual investors. “Y ou can not only bet on the market,” he told me, “but on countries, on industry sectors. And you may be right and you may be wrong.” D avid Swensen wonders why individual investors should bother with E T Fs at all. “I’m a big believer in buying and holding for the long run,” he told me. “T he main reason you’d go into an E T F is to trade. And so I’m not a big fan.”

2.     H igh-Y ield Bonds. Y ou might also know these as junk bonds, and there’s a reason they call them junk. T hese are bonds with the lowest safety ratings, and you get a high-yield coupon (higher rate of return than a more secure bond) only because you’re taking a big risk. For a refresher, go back and read the bond briefing at the end of the last chapter.

3.     R eal E state. W e all know real estate can have tremendous returns. Y ou probably already know a lot about this category, but there are many ways to invest in property. Y ou can invest in a home that you rent out for an income. Y ou can buy property, fix it up, and then flip it in the short term. Y ou can invest in first trust deeds. Y ou can buy commercial real estate or an apartment. One of my favorites that I mentioned to you already is investing in senior housing, where you get both the income and the potential growth in appreciation as well. Or you can buy RE IT s: real estate investment trusts. T hese are trusts that own big chunks of commercial real estate (or mortgages) and sell shares to small investors, like mutual funds. RE IT s trade like stocks, and you can also buy shares of a RE IT index fund, which gives you a diversity of many different RE IT s.

For growth, the N obel economist Robert Shiller told me that you’re better off investing in RE IT s than owning your own home (which belongs in the

Security Bucket, anyway). “Buying an apartment RE IT sounds to me like maybe a better investment than buying your own house,” he said, “because there seems to be a tilt toward renting now.” T hat could change, of course. And, as with any investment, you’ve got to pause and think, “W hat am I betting on?” Y ou’re betting that the price of property is going to go up over time. But there’s no guarantee, so that’s why it’s in the Risk/G rowth Bucket. If it goes up, it could have a nice rate of return; if it doesn’t, you get nothing—or you could lose it all. W hen you buy your own home, you’re betting that the price of your home will go up. W hen you’re buying real estate that has income associated with it (a rental unit, an apartment building, commercial real estate, an RE IT , or an index that holds these), Shiller points out you have two ways to win. Y ou make income along the way and if the property increases in value, you also have the opportunity to make money when you sell on the appreciation.

4.     C ommodities. T his category includes gold, silver, oil, coffee, cotton, and so on. Over the years, gold has been considered the ultimate safe haven for many people, a staple of their Security Bucket, and conventional wisdom said it would only go up in value during uncertain times. T hen its price dropped more than 25% in 2013! W hy would you invest in gold? Y ou could keep a small amount in your portfolio that says, “In case paper money disappears, then this is a little portion of my security.” Y ou know, if all hell breaks loose, and the government collapses under a zombie invasion, at least you’ve got some gold (or silver) coins to buy yourself a houseboat and head to sea. (On second thought, can zombies swim?) Otherwise gold probably belongs in your

Risk/G rowth Bucket. Y ou’d invest in it as protection against inflation or as part of a balanced portfolio, as we will learn later on, but you have to accept the risk. So don’t kid yourself: if you buy gold, you’re betting it will go up in price. U nlike many other investments, there’s no income from this investment like you might get in stocks from dividends or from incomeproducing real estate or bonds. So gold could be a good risk or a bad one, but it goes in your

Risk/G rowth Bucket for sure. T his is not an attack on gold. In fact, in the right economic season, gold is a superstar performer! T hat’s why in chapter 5.1, “Invincible, U nsinkable, U nconquerable: T he All Seasons Strategy,” you’ll see why it can be invaluable to have a small portion of gold in your portfolio.

5.     C urrencies. G ot a yen to buy some yen? Since all currency is just “paper,” currency investing is pure speculation. T here are people who make a fortune in it and even more who lose a fortune. C urrency trading is not for the faint of heart.

6.     C ollectibles. Art, wine, coins, automobiles, and antiques, to name a few. Once again, this asset class requires very special knowledge or a lot of time on eBay.

7.     Structured N otes. W hat are these doing in both buckets? Because there are different types of structured notes. Some have 100% principal protection, and those can go in your Security Bucket, as long as the issuing bank is financially solid. T hen there are other kinds of notes that give you higher potential returns, but only partial protection if the index drops. Say you buy a note with 25% protection. T hat means if the stock market drops up to 25% , you don’t lose a dime. If it goes down 35% , you lose 10% . But for taking more risk, you get more upside: sometimes as much as 150% of the index to which it’s tied. In other words, if the market went up 10% , you’d receive a 15% return. So there’s potential for greater gains, but there’s definitely increased risk. Remember once again, structured notes should be purchased through an RIA, who will work to strip out all excess fees and deliver them to you in the form of an even greater return.

Safety doesn’t happen by accident.

— F L O R ID A H IG H W AY SIG N

W e’ve now covered a sample of some of the investment vehicles/assets that you might find in a diversified Risk/G rowth Bucket. Y ou may be wondering why I haven’t included some of the more daring investment vehicles of our time: call and put options, credit-default obligations (C D Os), and a whole host of exotic financial instruments available to traders these days. If you build up a lot of wealth, you may want to have your fiduciary look into some of these vehicles. But just realize that if you’re playing this game, you’re most likely no longer just an investor, you’ve become a speculator as well. It’s what’s called momentum trading, and you have to realize you can lose everything and more if you play the game wrong. And because the mantra of this book is that the road to financial freedom is through saving and investing for compounded growth, I’ll leave a discussion of these momentum assets for another day.

IT ’S T IME T O G E T IN T H E G AME

Okay, now you know the players that belong in your allocation buckets, and you know the key to building a winning team: diversify, diversify, diversify! But there’s more. Y ou not only have to diversify between your Security and your Risk/G rowth Buckets, but within them as well. As Burton Malkiel shared with me, you should “diversify across securities, across asset classes, across markets—and across time.” T hat’s how you truly get a portfolio for all seasons! For example, he says you want to invest not only in both stocks and bonds but also in different types of stocks and bonds, many of them from different markets in different parts of the world. (W e’ll talk about diversifying across time in chapter 4.4, “T iming Is E verything?”)

And, most experts agree, the ultimate diversification tool for individual investors is the low-fee index fund, which gives you the broadest exposure to the largest numbers of securities for the lowest cost. “T he best way to diversify is to own the index, because you don’t have to pay all these fees,” D avid Swensen told me. “And you get tax efficiency.” Meaning that if you’re investing outside of your IRA- or 401(k)-type account, you don’t get taxed for all that constant buying and selling that goes on in most mutual funds.

H AVE SOME FU N !

Of course, if you have your money machine in full gear, and you have the desire, there’s nothing wrong with setting aside a tiny percent of your R isk/G rowth Bucket to pick some stocks and do some day trading. “Index your important money, then go have fun,” Burton Malkiel told me. “It’s better than going to the racetrack.” But, he said, limit yourself to 5% or less of your total assets or portfolio.

Is all of this giving you an idea of what kind of portfolio mix would be best for you? Before you decide, just remember that we all have a tendency to pile up on the investments that we think will give us our greatest victories. And everybody gets victories. Y ou know why? D ifferent environments reward different investments. So let’s say real estate is hot. Y ou’ve invested in real estate, so now you’re a genius. Stock market is hot? If you have stocks, you’re a genius. Bonds are doing great? If you have bonds, once again you’re an investment master. Or maybe you just landed in the right place at the right time, right? So you don’t want to get overconfident. T hat’s why asset allocation is so important. W hat do all the smartest people in the world say? “I’m going to be wrong.” So they design their asset allocation ideally to make money in the long term even if they’re wrong in the short term.

L E T ’S T E ST Y OU R K N OW L E D G E

In the coming pages, I’ll be showing you the portfolios, or the asset allocations, designed by some of the greatest investors of all time. L et’s start with a sample from someone you’ve been hearing from throughout this book: D avid Swensen, Y ale’s $23.9 billion–plus man, a true master of asset allocation. W ould you be interested in seeing his personal portfolio recommendations? Me too! So when we sat down together in his office at Y ale, I asked him the key question: “If you couldn’t leave any money to your kids, only a portfolio and a set of investment principles, what would they be?”

H e showed me the asset allocation that he recommends for individual investors—one he thinks will hold up against the test of time. H e also recommends this portfolio for all institutions other than Y ale, Stanford, H arvard, and Princeton. W hy? Because these four institutions employ an army of full-time top analysts.

W hen I saw his list, I was amazed by how elegant and simple it was. I’ve shown you 15 types of assets to choose from; he uses only six categories, all in index funds. I was also surprised by how much weight he gave to one particular bucket. C an you guess which one? L et’s activate some of what we’ve learned thus far about the division between the Security and Risk/G rowth Buckets.

H ave a look at the box below and jot down where each asset class belongs. C heck which ones you think belong in the Security Bucket, where you put things that are going to give you modest returns in exchange for lower risk; and then check which belong in the Risk/G rowth Bucket, where there’s greater upside potential but also greater downside.

D avid Swensen Portfolio	Which Bucket?
Asset Class (Index Funds)	Portfolio Risk/G rowthSecurity
	Weight
D omestic stock	20%
International stock	20%
E merging stock markets	10%
RE IT s (real estate investment trusts)	20%
L ong-term U S T reasuries	15%

T IPS (T reasury inflation-           15%                              

protected securities)

L et’s start with the top four. T he first is a broad domestic stock index, something like the Vanguard 500 Index or the W ilshire 5000 T otal Market Index. W here would you put it? D oes it come with risk? Absolutely. H ave you got a guaranteed return? Absolutely not. C ould you lose it all? U nlikely—but it could drop significantly— and it has at times! Over the long term, U S stocks certainly have a great track record. Remember how they compare to owning your own personal real estate? E quities have done well over time, but they are one of the most volatile asset classes in the short run. In the last 86 years (through 2013), the S&P lost money 24 times. So stock index funds belong in which bucket? T hat’s right: Risk/G rowth.

H      ow about international stocks? D avid Swensen putsa lot of weight in foreign stocks because of the diversity they bring to the portfolio. If there’s a slump in America, business may be booming in E urope or Asia. But not everybody agrees with D avid. Foreign currencies aren’t as stable as good old U S greenbacks, so there’s a “currency risk” in investing in foreign stocks. And Jack Bogle, the founder of Vanguard, with 64 years of success, says that owning American companies is global. “T ony, the reality is that among the big corporations in America, none are domestic,” he told me. “T hey’re all over the world: McD onald’s, IBM, Microsoft, G eneral Motors. So you own an international portfolio anyway.” W here do foreign stocks belong? I think we can agree on the Risk/Growth Bucket, no?

E merging markets? D avid Swensen likes to put some money into the volatile stocks of developing nations, like Brazil, Vietnam, South Africa, and Indonesia. Y ou can get spectacular returns, but you can also lose everything. Risk/Growth Bucket? Y ou bet!

H ow about RE IT s? D avid told me he likes “real estate investment trusts that own big central business district office buildings and big regional malls and industrial buildings. T hey generally throw off a high-income component.” So these index funds can generate great returns, but they rise and fall with the American commercial real estate market. W hich bucket? Y ou’ve got it: Risk/Growth.

W hat about the last two on the list: long-term U S T reasuries and T IPS? D o they offer lower returns in exchange for more safety? Spot on! So which bucket do they belong in? Y ou’ve got it: Security.

C ongratulations! Y ou’ve just assigned six major asset classes to their proper allocation buckets, which is something 99.9% of the people you pass on the street wouldn’t be able to do!

Pretty cool thing, isn’t it? But let’s dig a little deeper here to understand why D avid chose this mix, and why it may or may not be right for you.

First let’s look at the Security Bucket. D avid said he chose only U S T reasury bonds “because there’s a purity there in having the full faith and credit of the U S government backing them.” But why did he pick this particular combination of bond funds? H alf are traditional long-term T reasury bonds, and half are inflation-protected securities.

I          said to D avid, “Y ou’re basically saying if I’m going to be secure, I’m going to protect myself against both inflation and deflation.”

“T hat’s absolutely right,” he said. “I can’t believe you saw that! A lot of people who put together bond indexes lump the two together. T he T reasuries are for deflation, like we had in 2008. But if you buy regular T reasury bonds, and inflation takes off, you’re going to end up having losses in your portfolio. If you buy the T IPS, and inflation takes off, you’re going to be protected.”

I want you to notice that D avid Swensen, like all the best, doesn’t know which is going to happen: inflation or deflation. So he plans for both scenarios. Y ou might say as you look at this, “W ell, yes, fifty percent for inflation and fifty percent for deflation. D oesn’t he just break even?” It’s not that simple, but your thinking is quality. H e is using his Security Bucket investment as protection that if his equity investments or real estate go down, he’s lowering his downside by having something to offset some of those investment risks. So he’s certain to make some money in his Security Bucket. And he doesn’t lose his principal, so he’s practicing smart Security Bucket usage. H e won’t lose money, but he’ll make some additional money if things inflate or deflate. A very smart approach.

But I was a bit surprised that only 30% of his asset allocation goes into the Security Bucket, while 70% of his assets go into the Risk/G rowth Bucket! T hat seemed pretty aggressive to me for some investors, so I asked D avid how it would work for the average investor.

“T hat’s a good question, T ony,” he said. “E quities are the core for portfolios that have a long time horizon. I mean, if you look at recent long periods of time—ten, twenty, fifty, one hundred years—you see that the equity returns are superior to those that you get in fixed income.”

H      istorical data certainly back him up. H ave a look atthe visual below that traces the returns of stocks and bonds for periods of 100 and 200 years. It shows that U S stocks have historically outperformed bonds in compounded annual returns. In fact, $1 invested in 1802 at 8.3% per annum would have grown to $8.8 million by the turn of the new millennium.

So D avid Swensen designed his ideal portfolio to be a wealth-generating machine that offers some stability through its tremendous diversity. And because it takes a long-term view of investing, it has the time to ride out periodic drops in the stock market.

I          was curious to see how this asset allocation mix would have fared in the past: those volatile 17 years from April 1, 1997, when T IPS first became available, to March 31, 2014. It was during those years when the Standard & Poor’s index performed like a rodeo bull, yet it dropped 51% . So I had a team of financial experts test its performance against the index during those years. G uess what? T he Swensen portfolio outperformed the stock market with an annual return of 7.86% !

D uring the bear market of 2000 through 2002, when the S&P 500 dropped almost 50% , Swensen’s portfolio stayed relatively stable, with a total loss of only 4.572% over those three terrible years! L ike other portfolios heavy in equities, Swensen’s took a hit in the massive crash of 2008, but it still did better than the S&P 500 by more than 6% , (losing 31% as opposed to 37% ) and then bounced back. (N ote: see the end of this chapter for the specific methodology to calculate the returns. Past performance does not guarantee future results.)

So, ladies and gentleman, it’s safe to say that D avid Swensen is one of those rare unicorns who can actually beat the stock market on a consistent basis—and in this portfolio, he does it with the power of asset allocation alone! And you have access to his best advice, right here, right now. If that was all you got out of this chapter, I think you’d agree it’s been worth the time! H owever, the most important thing to understand is this: even though this portfolio might do better and be more stable than the general market, it is still an aggressive portfolio that takes a strong gut because few people can take a 35% loss of their lifetime savings and not buckle and sell. So is it right for you? If you’re a young person, you might be very interested in this kind of mix, because you’ve got more time to recover from any losses. If you’re getting ready to retire, this portfolio might be too risky for you.

But not to worry. I’m going to give you several other examples of portfolios in the coming pages, including that one particular allocation mix Ray D alio shared with me that practically knocked me off my chair! It was so spectacular that I’ve devoted a whole chapter to it in the next section. But here’s a hint: its mix was much less aggressive than Swensen’s, but when we tested it over the same time frame, the D alio portfolio had a higher average annual return and significantly less volatility—it’s a smooth ride. It may be the H oly G rail of portfolio construction, one that gives you substantial growth with the lowest ratio of risk I’ve seen!

In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.

— T H E O D O R E R O O SE V E L T

But for now, let’s get back to the big picture and look at how you’ll decide your own basic numbers: W hat percentage of your assets are you going to put at risk, and what percentage are you going to secure? Before you make the choice, you have to consider three factors:

•   your stage in life,

•   your risk tolerance, and

•   your available liquidity.

F irst, how much time do you have ahead of you to build wealth and make mistakes with your investments along the way before you need to tap into them? If you’re younger, once again, you can be much more aggressive because you’ll have longer to recover your losses. (Although nobody wants to get in the habit of losing!)

Y our percentages also depend on how much access to income you have. If you earn a lot of money, you can afford to make more mistakes and still make up for it, right?

G AME SH OW T IME : W H AT ARE Y OU W IL L IN G T O RISK ?

And when it comes to risk, everyone has radically different ideas about what’s tolerable. Some of us are very security driven. Remember the 6 H uman

N eeds? C ertainty is the number one need. But some of us crave U ncertainty and Variety; we love to live on the edge. Y ou have to know your personality before you dive in here. So let’s say you’re on a game show; which of the following would you take?

•    $1,000 in cash

•    A 50% chance at winning $5,000

•    A 25% chance at winning $10,000• A 5% chance at winning $100,000

H ere’s another: you have just finished saving for a once-in-a-lifetime vacation. T hree weeks before you plan to leave, you lose your job. W ould you:

•    cancel the vacation;

•    take a much more modest vacation;

•    go as scheduled, reasoning that you need the time toprepare for a job search; or

•    extend your vacation, because this might be your lastchance to go first class?

Rutgers U niversity has developed a twenty-question, five-minute online quiz

(http://njaes.rutgers.edu/money/riskquiz) that can help you identify where you fit on the risk-tolerance scale. But the real answer is in your gut.

For the past 30 years, I’ve been putting on my W ealth Mastery seminars, where I’ve worked with people from more than 100 countries to transform their financial lives by putting them in a total-immersion fourday wealth-mastery process. In it, I like to play a little game with them called “the money pass.” From the stage, I tell the audience to “trade money” with one another. T hat’s all I say. T here’s usually a few moments of silent confusion, and then they start trading. Some people pull out a dollar, some take out a twenty, some people a hundred. Y ou can guess what happens. People are moving around, they’re looking at one another, they decide how to exchange. Some negotiate, some give away all their money, and some take another person’s $100 bill and give them $1. Y ou can imagine the astonished look on that individual’s face. After three or four minutes of this type of trading, I say, “Okay, grab a seat.” And I move on to the next subject.

Invariably, some guy will shout, “H ey! I want my hundred dollars back!”

I’ll say, “W ho said it was your hundred?” And he says, “W ell, we’re playing a game.” And I say, “Y eah. W hat made you think the game was over?” U sually I get a confused look as the person sits down, still frustrated over the lost $100. E ventually they get the insight: their perception of their risk tolerance and the reality are in different universes. T his guy thinks he has a high tolerance for risk, but he can get pissed off over the loss of $100. It always amazes me. Imagine if you were to lose $10,000, $100,000, or $500,000. T hat’s what aggressive investors can lose in a relatively short period of time. People don’t know their true tolerance for risk until they’ve had a real-life experience taking a significant loss.

I’ve taken G od-awful losses—multimillion-dollar hits at a stage in my life when I didn’t have that much to lose, when the losses equaled more than all that I owned.

T hose gut checks will wake you up! But the numbers don’t matter. Y ou can get thrown by losing $100 or $1,000. T he pain of losing far exceeds the joy of winning. And that’s why it’s great to have something like the All Seasons portfolio in your investment arsenal, because, through asset allocation alone, you can significantly reduce the risk of sizeable losses.

Just as science shows us that we’re hardwired to hate losing, it also shows that humans are not good at assessing our potential to win. Sometimes after you’ve made a few successful investments, you start thinking, “H ey, I’m good at this; I can do anything!” It’s just human nature to think you can beat the system. It’s what psychologists call motivational bias. Most of us think we’re better than we really are at predicting patterns and luckier than we really are when there’s a jackpot at stake. W hat else can explain why so many people play the lottery?! A famous 1981 study at Stockholm U niversity found that 93% of U S drivers think their skills are above average. T here’s even a name for this phenomenon: “the L ake W obegon E ffect,” referring to author G arrison K eillor’s mythical town where “all the children are above average.” H ey, who doesn’t think they’re above average! But when it comes to money, delusions that you’re better than everybody else can kill you.

If you’re a man, you’re guilty of this bias by biochemistry. T estosterone equals overconfidence. Study after study show that women tend to be better investors because they don’t overestimate their abilities to anticipate the future accurately. Sometimes confidence works against you. Just watch little boys. “I’m Superman! I’m going to fly! W atch me jump off this roof!” Suffice it to say, if you’re a woman reading this book, you have a built-in advantage!

W hen the markets are going up and up and up, investors can be mesmerized by their returns. E verybody’s seduced by the possibility of growth, thinking it’s the probability of growth. T hat’s where they get into trouble. As a result, they pour the majority or all of their money into investments that fit into the Risk/G rowth Bucket—not just 70% but sometimes 80% , 90% , or 100% . Some even borrow money to make

investments that they believe are going to go up forever, until they don’t. And because of poor asset allocation, with too much of their money riding on one horse, they lose it all or even end up in debt. And the reason people get screwed is that by the time they hear that the stock market (or gold, or the real estate market, or commodities, or any other type of investment) is a great place to go, very often the bubble is just about to end. So you need to put in place a system to make sure you don’t get seduced into putting too much of your money in any one market or asset class or too much in your Risk/G rowth Bucket.

All of this may sound pretty basic, especially to sophisticated investors who feel like they’ve got everything covered. But sometimes it’s high-level investors whose strings of successes send them veering off course. T hey forget the fundamentals.

N aturally, there will always be investors who can’t listen to reason, whose “irrational exuberance” runs away with them. T hey talk themselves into believing the biggest myth of investing: “T his time will be different.” I know dozens of these stories, all with unhappy endings. T ake Jonathan, a friend who made a fortune in business (and whose real name will remain anonymous for his privacy) and then liquidated everything to invest in the booming L as Vegas real estate market. H e had some early wins, so he doubled down and borrowed like crazy to keep building condos. E very time Jonathan came to my financial programs, he heard about the importance of putting some of your wins into your Security Bucket and not putting all your eggs into any one basket no matter how compelling the returns might be today. Jonathan gave credit to me and my Business Mastery programs for the more than 1,000% increase in his business that made all these investments possible. H e made more than $150 million selling his company. But he didn’t listen when it came to taking money off the table and putting it in the Security Bucket, and, boy, did he pay a price. T oday he acknowledges that he let his ego get in the way of his eardrums. H e wanted to be a billionaire, and he knew he was on target to become one. But then, do you remember what happened when the real estate market in L as Vegas collapsed? H ow far did housing prices go down? H ow about 61% between 2007 and 2012. Jonathan didn’t just lose everything—he lost a half billion dollars more than he had.

I sincerely hope all this is sinking in. If there’s anything you should take away from this chapter, it’s this: putting all of your money in the Risk/G rowth Bucket is the kiss of death. It’s why many experts estimate that 95% of investors lose money over virtually any decade. T ypically they ride the wave up (in real estate, stocks, gold), and when the wave disappears, they sink like a rock, and they’re pounded by financial losses during the inevitable crash.

Some people just won’t listen to advice. T hey have to learn the hard way, if at all. But to avoid those kinds of painful lessons, and to help you decide which options are right for you, I have to remind you that a conflict-free, independent investment manager can be the right choice. N otice how professional athletes, men and women at the top of their sport, always have coaches to keep them at peak performance? W hy is that? Because a coach will notice when their game is off, and can help them make small adjustments that can result in huge payoffs. T he same thing applies to your finances. G reat fiduciary advisors will keep you on course when you’re starting to act like a teenager and chasing returns. T hey can talk you off the ledge when you’re about to make a fateful investment decision.

PIC K A N U MBE R, AN Y N U MBE R . . .

Okay, the moment of reckoning has arrived! Say you’ve still got that $10,000 bonus in your hand (or you’ve accumulated $100,000, $200,000, $500,000, or $1 million or more), and you’ve decided to invest it all. K nowing what you know so far, how would you divide it up? W hat’s your new philosophy of investing? W hat percentage of your money are you going to keep growing in a secure environment and what percentage are you willing to risk for potentially greater growth?

Y ou’ve probably heard that old rule of thumb (or what Jack Bogle calls a “crude method”): invest your age in bonds. In other words, subtract your age from 100, and that would be the percentage you should keep in stocks. So if you were 40 years old, 60% should go to equities in your Risk/G rowth Bucket and 40% in your Security Bucket as bonds. At age 60, the ratio should be 40% stocks and 60% bonds. But those ratios are out of whack with today’s reality. T he volatility of both stocks and bonds has increased, and people live a lot longer.

So what should it be for you? W ould you like to be more aggressive with your risk, like D avid Swensen? W ith a 30% security and 70% risk? T hat would mean putting 30% of your $10,000 windfall—$3,000—in Security and 70% —or $7,000—into your Risk/G rowth Bucket. (If you had $1 million, you would be putting

$300,000 in Security and $700,000 in Risk/G rowth.) C an you really afford that kind of split? D o you have enough cash? D o you have enough time? Are you young enough? Or do you need to be a little bit more conservative, like most pensions are, at 60/40? Or is 50/50 right for you? Are you close enough to retirement that you’d want to have 80% in a secure place, and only 20% in riskier investments? W hat matters is not what most people do. W hat matters is what will meet both your financial and emotional needs.

I know, it’s such a personal choice, and even the brightest stars in finance sometimes have to think long and hard about what’s right for them and their families. W hen I interviewed J.P. Morgan’s Mary C allahan E rdoes, I asked her, “W hat criteria would you use in building an asset allocation? And if you have to build one for your kids, what would that look like?”

“I have three daughters,” she told me. “T hey’re three different ages. T hey have three different skill sets, and those are going to change over time, and I’m not going to know what they are. One might spend more money than another. One may want to work in an environment where she can earn a lot of money. Another may be more philanthropic in nature. One may have something that happens to her in life, a health issue. One may get married, one may not; one may have children, one may not. E very single permutation will vary over time, which is why even if I started all of them the first day they were born and set out an asset allocation, it would have to change.

“And that has to change based on their risk profile, because over time, you can’t have someone in a perfect asset allocation unless it’s perfect for them. And if, at the end of the day, someone comes to me and says, ‘All I want is T reasury bills to sleep well at night,’ that may be the best answer for them.”

I said to her, “Because it’s about meeting their emotional needs, right? It’s not about the money in the end.”

“E xactly, T ony,” she said. “Because if I cause more stress by taking half that portfolio and putting it in a stock market, but that leads to a deterioration of the happiness in their lives—why am I doing that?”

“W hat is the purpose of investing?” I asked. “Isn’t it about making sure that we have that economic freedom for ourselves and for our families?”

“T hat’s right, to be able to do the things you want to do,” she said. “But not at the expense of the stress, the strains, and the discomfort that goes along with a bad market environment.”

So what’s the lesson here from one of the best financial minds in the world? W hat’s more important even than building wealth is doing it in a way that will give you peace of mind.

So what will it be? W rite down your numbers and make them real! Are those percentages a comfortable fit? W alk around in them. L ive in them. Own them! Because those percentages are the key to your peace of mind as well as your financial future.

D one?

Okay! Y ou’ve just made the most important investment decision of your life. And once you know what your percentage is, you don’t want to alter it until you enter a new stage of life, or your circumstances change dramatically. Y ou’ve got to stick with it and keep the portfolio in balance. I’ll show you how later in this section.

Are you still concerned about making the right choice? Just remember, you’ve got a fiduciary to help you. And you don’t need tens of thousands, hundreds of thousands, or millions of dollars to get started—you could get started with next to nothing for free with today’s online services.

By the way, I’m not done with you yet! T here are ways to increase your returns within these buckets, and we’re going to get to that.

N ow that you understand these principles, and you’ve made this decision about how much you want to put in your Risk Bucket versus your Security Bucket, let me tell you the best news of all: after interviewing 50 of the most successful investors in the world, the smartest financial minds, I’ve uncovered the ways in which you can get G rowth-like returns with Security Bucket protections. T he most important piece of advice every investor I talked to echoed was, “D on’t lose money!” But for many investors, that means having to settle for mediocre returns in the Security Bucket. In just a couple of chapters, I’m going to share with you how to have the upside without the downside. H ow to have significant growth without significant risk. I know it sounds crazy, but it’s real, and it’s exciting.

As hard as we’ve worked here, I’m happy to tell you that the next chapter is easy and pure pleasure. N ow I’m going to reveal a third bucket that we haven’t talked about yet, but you’re going to love it because it’s fun, inspiring, and can give you a greater quality of life today, not decades in the future. L et’s discover what’s going to go in your D ream Bucket.

D avid Swensen provided the specific percentage for each asset class, but he did not provide the specific indices to represent each asset class. Independent analysts used the following indices to represent each asset class, and it is assumed that the portfolio would be rebalanced quarterly. N ote that past results do not guarantee future performance. Instead, I am providing you the historical data here to discuss and illustrate the underlying principles. 20% W ilshire 5000 T otal Mkt T R U SD 20% FT SE N ARE IT All RE IT s T R 20% MSC I AC W I E x U SA G R U SD 15% Barclays U S L ong C redit T R U SD

 

15% Barclays U S T reasury U S T IPS T R U SD 10% MSC I E M PR U SD

 

C HAPT E R 4 .3

T H E D RE AM BU C K E T

W hen you cease to dream, you cease to live.

— MAL C O L M F O R BE S

W hat’s a D ream Bucket? It’s where you set aside something for yourself and those you love so that all of you can enjoy life while you’re building your wealth. It’s something for today, not tomorrow! Y our D ream Bucket is meant to excite you, to put some juice in your life so you want to earn and contribute even more. T hink of the items you’re saving for in your D ream Bucket as strategic splurges.

W hat would float your boat right now? Maybe you’d buy yourself that pair of Manolo Blahniks you’ve always wanted, or a floor-side seat at a Miami H eat game. Or a VIP tour of D isneyland for the kids. Or you could start filling that bucket for a bigger reward: season tickets. A trip to the mountains in the summer or a ski or snowboarding vacation in the winter. A new car—maybe one that isn’t so practical, like a Mini C ooper or a Mustang. A vacation condo or home.

I know a millionaire who always flew coach because he liked to save a dollar, but his wife complained about it constantly. “W e have plenty of money. W hy don’t we enjoy it?” she said. It was a constant source of strife between them because they traveled so much for business. After attending my W ealth Mastery seminar, he decided to use his D ream Bucket to upgrade to business class when he flew with his family. H e discovered it not only made his travel life more comfortable but also (even more importantly) his home life as well. W ay to flame out, dude! Maybe someday he’d like to consider chartering a private jet instead of flying commercial—and it might not be as expensive as he thinks.

Many people have a lot of money but not much lifestyle. T hey spend their lives watching numbers accumulate in a bank account and miss out on the joy and enjoyment they can create and share along the way.

I remember that when I made my first G rowth Bucket hits early in my career, my idea of a jackpot was to buy two new suits because they were on sale at a Men’s W arehouse–like store. Or maybe take a vacation in H awaii. T hat was a big deal for me back then!

My resort in Fiji was a much bigger dream that came true. As I shared with you, when I was 24 years old, I fell in love with the turquoise waters of the South Pacific islands. It was like my heart had found a home. I wanted a refuge for myself and my friends and family. N ow, over the years, N amale Resort and Spa has become a pretty sizeable asset because I built it up and turned it into one of the top destinations in the South Pacific. But that’s just a bonus. In fact, it’s the number one resort in Fiji for more than ten years, and Oprah selected it as her favorite place to go last year. A jackpot on top of the dream that created it.

Y our dreams are not designed to give you a financial payoff, they are designed to give you a greater quality of life. And isn’t that why you’ve filled the first two buckets in the first place? But you’ve got to practice some restraint here, too. If you take all your money and put it only in the D ream Bucket, you’re likely to end up going broke like W illie N elson. So it’s a matter of balance. And the jackpots in your D ream Bucket don’t have to be just for yourself. T he best jackpots are the ones you give to others.

D reams are the touchstones of our character.

— H E N R Y D AV ID T H O R E AU

Maybe you’re like me, and you just love giving gifts. And the best gifts are the ones that are unexpected.

My mother never had money when she was young, and we always struggled as a family, living in cheap housing east of L A, where the nearly daily smog alerts announced on the news let us know it wasn’t safe to walk outside.

And so one day, after my business started taking off, I asked my mom to help me check out a condo I was thinking of buying on the water in H untington Beach. I walked her through it and showed her the magnificent ocean views. T hen we stepped out on the beach and breathed the salt air.

“I really love this place, but I want your final word,” I told her. “W hat do you think?”

“Are you kidding?” she said. “T his is incredible! C an you imagine coming from where we came from, and now you’re going to live here?”

“So you think it’s the right place, Mom?” “Oh, it’s unbelievable!” T hen I handed her the keys.

“W hat’s this?” she asked.

“It’s yours, Mom.”

I’ll never forget the look of astonishment on her face and then tears of joy. My mom has passed away now, but I still remember those moments so vividly as some of the favorite of my life.

Y ou don’t have to wait. Y ou could do this, too. Y ou can fulfill your dreams. If you want it badly enough, you’ll find a way.

N ot long after I gave my mother that condo, I met with a group of a hundred or so fifth graders from a poor neighborhood at a school in H ouston, T exas. Most of them were on a track that would never get them to college. So I decided then and there to make a contract with them. I would pay for their four-year college education if they kept a B average and stayed out of trouble. I made it clear that with focus, anyone could be above average, and I would provide mentoring to support them. I had a couple of key criteria: T hey had to stay out of jail. T hey couldn’t get pregnant before graduating high school. Most importantly, they needed to contribute 20 hours of service per year to some organization in their community. W hy did I add this? C ollege is wonderful, but what was even more important to me was to teach them they had something to give, not just something to get in life. I had no idea how I was going to pay for it in the long run, but I was completely committed, and I signed a legally binding contract requiring me to deliver the funds. It’s funny how motivating it can be when you have no choice but to move forward. I always say, if you want to take the island, you have to burn your boats! So I signed those contracts. T wenty-three of those kids worked with me from the fifth grade all the way to college. Several went on to graduate school, including law school! I call them my champions. T oday they are social workers, business owners, and parents. Just a few years ago, we had a reunion, and I got to hear the magnificent stories of how early-in-life giving to others had become a lifelong pattern. H ow it caused them to believe they had real worth in life. H ow it gave them such joy to give, and how many of them now are teaching this to their own children.

I’m telling you this because you don’t need to wait until you’re absolutely ready to fulfill your dream. Y ou just do it, and you find a way, and grace will find you.

G race comes when you commit to doing something that will serve more than just yourself —some would call it luck or coincidence. I leave it to you to decide what to believe. Just know that when you give your all, the rewards are infinite. I really believe motive does matter. But it doesn’t mean that it can’t benefit you too, right?

Jackpots can help you create more wealth, because the

key to creating wealth is to unleash your creativity and find a way to do more for others than anyone else is doing. If you find a way to add more value than anyone else, you can also find a way to prosper personally. T hat can apply to your own life as well as the lives of others. Remember when we talked about speeding up your plan, how if you wish to be great, learn to become the servant of many? W e already know that life supports what supports more life. And by supporting life, you lift yourself up as well, and more bounty comes to you.

G ive yourself peace of mind. Y ou deserve to be happy. Y ou deserve delight.

— H AN N AH AR E N D T

So how do you fill your D ream Bucket? L et’s talk about three ways. First, when you score a big hit, like that $10,000 bonus we were talking about earlier in the last chapter. Or, second, if your Risk/G rowth Bucket gets a positive hit, and you score big. Just like in Vegas, it might be time to take some of the risk off the table. An approach many of my students use is to take those profits, divide them up, and invest them back in a fixed proportion: say, one-third in Security, one-third in Risk/G rowth, and one-third in D ream. In the case of that bonus, that would be about $3,333 for your D ream Bucket.

By putting one-third of your Risk/G rowth Bucket money into Security, it’s like taking money off the table to help speed the growth of your most secure investments, and with it your peace of mind. By leaving one-third in G rowth, you continue to take risks with a potential larger upside, but you’re doing it with your winnings. By putting one-third in your D ream Bucket, you’re creating a jackpot that you can enjoy today. T his will stimulate and excite you in ways that will likely cause you to want to earn more, save more, and invest even more effectively—because of the rewards today, not just some day in the future.

T he third way to fill your D ream Bucket is to save a set percentage of your income and sock it away, building it up until you’re able to purchase your dreams—whether that be your first home, a car, a vacation, or those fun little items that will light you up today. But keep in mind, this is not taking any money out of what you are already saving for your Freedom Fund. T hat’s sacred and untouchable money! But you can find ways to increase the amounts you can put in your Freedom Fund and your D ream Bucket. H ere’s a quick reminder from the “Speed It U p!” chapters:

•   Save more and invest the difference.

•   E arn more and invest the difference.

•   Reduce fees and taxes and invest the difference.

•   G et better returns.

•   C hange your lifestyle.

So you can take some of those savings to invest, and some of those savings to make your dreams a reality today or in the near future.

W hat will be your strategy to fill this bucket? W ill you wait for a bonus or a stock market score, or will you set aside a percentage like my friend Angela? At first she thought she had no money she could possibly save even toward her financial freedom.

But by the time she went through the process of this book, she saw that relocating to Florida would save her enough money in state income tax that she could now set aside 10% of her income for her Freedom Fund and still earmark an additional 8% for her D ream Bucket. T he tax man was now filling her D ream Bucket. H ow

cool is that? Plus, she’s got better weather, too! She went through her accounts and figured out a way to become even more tax efficient to be able to put an additional 2% into her Freedom Fund for a total of 12% , on top of the 8% she was saving toward her dreams.

If you would have told her in the beginning that she would have found a way to save 20% , she would have said you were absolutely crazy. But today she not only has her future secured but also is saving for some important dreams in the short term that excite her. H iking in the H imalayas and rowing across the ocean. H er degree is in anthropology, and she’s always dreamed of spending time with famed paleontologist L ouise L eakey at her institute in K enya. She was even invited. She just doesn’t have the money right now. But if she sticks to her fiscally sound plan, she will. H ow cool to be able to be financially secure and independent, and, at the same time, live this life of adventure? Remember the strategy of Save More T omorrow? Y ou can decide that in your next salary increase, maybe 3% could go to your Freedom Fund, and maybe 1.5% or 2% could go to your D ream Fund— especially if there are some dreams that are important to you now, like saving for the down payment on your first home or a vacation getaway. T here are so many ways to do it!

But let me tell you the secret: the most important thing is to make a list of your dreams. Put them in order of importance, big and small, short term and long term. W rite down why you must achieve them or experience them. I’ve found that if you try to figure out a percentage to save without really knowing what you’re saving for, it’s not going to happen. T he secret is to know what you truly want and why you want it, and make it a burning passion. Suddenly your creativity will be unleashed, and you’ll find new ways to earn more, to save more, to add more value, to become more tax efficient, to become a better investor, or to make a lifestyle change that improves your life and gives you some of your dreams today, and not in the future. T hat’s the key to it all.

But decide today! T ake a moment now and make a list of your dreams. W rite them down so they become real to you. H ow much would you be willing to save for them? G et excited, and get started!

E very great dream begins with a dreamer.

— H AR R IE T T U BMAN

In the end, what percentage of your total assets do you think should go in your D ream Bucket? It doesn’t have to be much—maybe as little as 5% or 10% . But please don’t forget to reward yourself. W hile it’s important to keep your money safe and growing, never forget to have fun, to give, and to live your life fully on your path to financial freedom. T hat’s what it’s all about. D on’t save your D ream Bucket for “a rainy day.” W hy not get out and soak up the sunshine?

If you don’t, you could end up like a couple that a friend of mine told me about. T hey scrimped and saved their whole lives, and then finally decided they had enough to afford a fantastic C aribbean cruise. It was a weeklong trip on one of those giant cruise liners, hopping around the islands. Y ou can picture it: the ship had swimming pools, a climbing rock, dozens of restaurants and discos. T he couple was so excited, but they still wanted to be prudent with their capital, since they’d worked so hard to save for their retirement. T hey didn’t want to spend extra money on the lavish meals. T he trip by itself was a big enough splurge for them. So to save money, they loaded their suitcases with boxes of cheese and crackers to snack on during the cruise and vowed to avoid those expensive dinners.

T he weather was perfect, and the couple had a great time with all the activities on board. But every lunch and dinner, when everybody else was eating incredible feasts served up on huge buffet tables—shrimp, lobster, prime rib, mountains of desserts, and fine wines from around the world—the two of them went back to their room and •    could have more than twice as much money when you retire or cut years off the time it will take you to get to financial freedom. L et that soak in for a second!

•    W e have learned the difference between a butcher anda dietitian—between a broker and a fiduciary. And now we know where to go to get transparent advice (that may also be tax-deductible).

•    W e learned how to drastically reduce our 401(k) fees by using a low-cost provider like America’s Best 401k. Y ou can see how your plan stacks up by using the industry’s first fee checker

(http://americasbest401k.com/401k-fee-checker). Again, these cost savings will compound our total account balance and put money back in our family’s pocket. (For business owners, we showed how you can get yourself compliant with the law and drastically reduce your liability.)

•    W e learned about the Roth 401(k) and how we canprotect against rising taxes by paying the tax today and never paying tax again (not on the growth or the withdrawals).

•    W e learned that target-date funds (T D Fs) are not onlyexpensive but also may be more aggressive or volatile than you think. And if you want to use a T D F, you should stick with a low-cost provider like Vanguard. L ater, in the “Billionaire’s Playbook,” you will also learn how to put together your own asset allocation instead of paying a T D F to do it for you.

•    W e learned that variable annuities are a mutant evolution of a 2,000-year-old financial product but that other more traditional (fixed) annuities can provide what no other product can: a guaranteed lifetime income stream!

•    And finally, we learned that wealth without risk is apossibility. Sure, there is risk in everything, but we learned that certain structures will allow us to participate when the market goes up and not lose when it falls!

Are your eyes beginning to open? H as the blindfold been removed? H ow will your life be different now that you know the truth? Shattering these myths is the groundwork for creating true financial freedom. I want you to see, hear, feel, and know that the game is winnable. If these myths are unsettling, good! T hey were for me when I first discovered the truth. L et them drive you forward to make financial freedom a must in your life, and to declare that you will never be taken advantage of again.

W e will take it up a notch and have some fun in section 3. It’s here where we will make our dreams become more of a reality by putting in place a plan that is both doable and exciting. And if it’s not happening fast enough for you, we will show you how to speed it up and bring it closer into your future.

But first, the last and final myth must be put to death. But unlike the others, it’s not one that someone else has sold you. It’s the story you have sold yourself. It’s whatever myth or lie has kept you from taking action in the past. It’s time for a breakthrough! L et’s shatter your limits by discovering the lies we tell ourselves.

C HAPT E R 2.9

MY T H 9: “T H E L IE S W E T E L L O U RSE L V E S”

Seek truth and you will find a path.

— F R AN K SL AU G H T E R

Okay, let’s get real here. W e’ve just gone through all of the marketing and investment myths that have been promoted for years, at great expense to us, and to the benefit of big institutions. And my bet is that right now you’re probably shocked, but you feel incredibly empowered. Y ou now know what to avoid and what to do to succeed.

But there’s one final myth to tackle. T he myth that says the reason we’re not succeeding, not achieving, not growing is because of someone or something else beyond our control. Or the alternative thought that somehow we just aren’t made of the stuff that can help us master this area of our life. But here’s the truth: the ultimate thing that stops most of us from making significant progress in our lives is not somebody else’s limitations, but rather our own limiting perceptions or beliefs. N o matter how successful we are as human beings, no matter how high we reach personally, professionally, spiritually, emotionally, there’s always another level. And to get there, we have to be honest with ourselves; honest about our unconscious fears. W hat do I mean?

E verybody has a fear of failure at some level; at times we’ve all been fearful that perhaps we are not enough. E ven when we know what to do, our fear can keep us from executing our plans. As a result, rather than face our natural fears, what do we do? W e come up with stories. Stories about why we’re not where we want to be. W hy we’re not smart enough, successful enough, thin enough, rich enough, loved or loving enough. Our stories almost always relate to something outside our control, or our lack of some natural talent or ability. But talent and skill are two key elements to success attainable by anyone who is truly committed. Y ou can get the skill if you can get beyond the mental limits of how hard, difficult, or “impossible” it may be to master something.

Y ou’ve made the single most important financial decision of your life by deciding precisely how much you’re going to save to build your Freedom Fund—so you can tap into that and create a money machine that makes money while you sleep. And we’ve taken the time to look through all of the marketing myths that can trip you up along the way. So what’s left? T he last thing out there standing in our way is often our own story, our own limitations, our own fears. T he final obstacle to face is ourselves. T hat’s why, for 38 years, my passion has been helping people to break through from what holds them back—to help them get from where they are now to where they want to be, and faster. My whole life has been committed to helping people create breakthroughs. And frankly, while lots of people make this step complex, I’ve found there are only three elements that make the difference between success and failure in the long run––between whether you stay where you are, or you move forward. W hether you make excuses about what you don’t have or whether you get to enjoy the life you deserve.

BRE AK T H ROU G H S

So what is a breakthrough? A breakthrough is a moment in time when the impossible becomes possible—when you don’t just talk about something, but you finally take massive action and do whatever it takes to make it happen. Y ou make a move to truly change and improve your world.

Often it’s frustration, anger, or stress that triggers a breakthrough. W e hit our threshold: a point where we say, “N ever again and no more.” Or inspiration strikes: we meet someone who inspires us and that makes us see how life can be so much greater than we ever dreamed possible. Y ou meet someone who enjoys life fully, has a great relationship, is physically fit or financially free, and you decide, “I’m as smart as he or she is. I’m going to find a way.” W hat was acceptable before no longer is. T here’s no going back now. It’s amazing what you can do when you decide to draw a line in the sand, commit to a new goal, and set a new standard.

Most people say, “It took me ten years to make this change.” But the truth is, it didn’t take ten years for a breakthrough. T rue transformation happens in a moment. It may have taken you ten years to get to the point where you were ready, or open, or maybe even provoked. But we’ve all had breakthroughs in our lives, and those breakthroughs happened in a single moment. W e struggle with something for years—a job or a career, our weight or a relationship. W e’re miserable until one

day a trigger goes off. Suddenly, “T hat’s it.”

“I love you!”

“I quit!”

“I’m in!”

“L et’s begin!”

N ot within a day or an hour, but in that moment your life changes—and it changes forever.

H ave you ever stayed in a relationship way too long, even though you knew you were unhappy, and so was your partner? Y ou came to the edge of dealing with it, and then the fear of the unknown, of change, of being alone, stopped you. T he fear of loss and uncertainty kept you from taking action, and you settled.

W hatever you struggle with, I know there’s a place where you’ve had a breakthrough before. T ake a moment to think of one. W hat’s an area you used to struggle with—daily, weekly, monthly, for years or even a decade or more, until one day you hit your threshold? Y ou became inspired, or fed up, enough to finally make a real decision to change this area once and for all! And you took massive and immediate action to make a change. Y ou got it done. Y ou finally kicked the habit and quit smoking. Or you left a job that made you miserable and started your own business. Or maybe you finally decided to start exercising and change your body or get yourself out of that bad relationship.

I want you to own that breakthrough. T here was a time when things seemed like they couldn’t change, but you did it—you made it happen. Y ou do have the ability to change everything in your life. N o matter how long it’s been this way, you can change it all in a moment, a moment of real decision, a decision that is acted upon. T hat’s a breakthrough, and one is waiting for you right now.

T H RE E ST E PS T O C RE AT IN G Y OU R BRE AK T H ROU G H

T here are three steps to creating a breakthrough: three forces that, together, can massively change any and every aspect of your life. Any one on its own can work, but if you put all three together, you will absolutely change the aspect of your life that you choose to focus on.

W hat are the three biggest challenges people face in America? W hat are the three areas that show up over and over again, causing pain in people’s lives? Our finances, our relationships, and our bodies. H ow many people do you know who struggle with money, who can’t save, who don’t earn enough, who spend too much, or who can’t figure out what to do next with their career? And what about relationships? Men and women, we are wired so differently—if we don’t understand each other, it can take so much work to maintain healthy intimate relationships, to understand what our partner really needs and wants, to communicate in a loving and supportive way. And then there are our bodies. W e live in a time where the majority of people in the W estern world are massively overweight. In the U nited States, nearly seven in ten Americans are either overweight (defined by the C enters for D isease C ontrol and Prevention as having a body mass index of 25.0 to 29.9) or obese (having a BMI of 30.0 or higher). Our struggle with fitness and health has become a national crisis, and it’s spreading around the world as developing countries adopt some of our lifestyle and eating patterns.

W hy do I bring this all up? W hat do relationship challenges and unhealthy eating habits have to do with your ability to achieve financial freedom? W ell, whatever area you want to create a breakthrough in, whether it’s your body, your relationships, or this book’s focus, money, there are only three things that you need to look at. And they are the same three things no matter what kind of breakthrough you’re hoping to achieve. If you want to change your life you have to change your strategy, you have to change your story, and you have to change your state. L et’s begin with strategy, because that’s where most people start.

T H E RIG H T ST RAT E G Y

If you’re with me here now, reading this book, you’re in search of answers, of strategies, to take control of your money and secure your financial future. I live for finding strategies to improve every area of our lives. I’ve spent the past 38 years relentlessly focusing on finding strategies and tools to immediately change the quality of people’s lives. I’ve been successful and impacted over 50 million people in 100 countries because I’m obsessed with finding simple strategies that quickly lead to breakthroughs—breakthroughs in relationships, in finances, in careers, in growing businesses, in mind, body, and soul.

I’ve always believed the best way to get a result, the fastest way, is to find someone who has already accomplished what you’re after, and model his or her behavior. If you know someone who used to be overweight but has kept himself fit and healthy for a decade, model that person! Y ou have a friend who used to be miserable in her relationship and now is passionate and in love for ten years going? Model her. Y ou meet someone who started with nothing and has developed wealth and sustained it through time? L earn from those strategies! T hese people aren’t lucky. T hey’re simply doing something different than you are in this area of life.

I’ve spent my entire life as a hunter of human excellence. So to find a strategy that works, you go to the best; those who have proven results for the long term. And if you follow their strategies—if you sow the same seeds, then you’ll reap the same rewards. T his is the essence of what I mean when I say, “Success leaves clues.” And this book is filled with strategies modeled from the very best.

T he other thing the right strategy can do is save you the most valuable resource of all: time. If you start with a proven plan, the right strategy, you can literally convert decades of struggle into days of achievement. Y ou can avoid the inevitable frustration that comes with learning something for the first time by trial and error. Instead, you can get results in days, instead of years, by learning from people who have achieved success already. W hy reinvent the wheel?

So now there’s the question about the power of strategy. And if you read this book, you’ll have the best financial strategies that exist in the world today. I promise you that: because they’re not my strategies, they’re the strategies of the most successful investors in history. But as obsessed as I am with strategy, I know that strategy alone isn’t enough.

W hy not? T here are two key challenges to thinking that strategy alone can change your life. First, too often people have the wrong strategy, which inevitably ends in disappointment. Y ou’re trying to lose weight by eating 500 calories a day—which, of course, isn’t sustainable. Or you’re sure you’re going to get rich off one hot stock— highly unlikely.

W here do most people go to learn strategy? W here do we look for advice and guidance? T oo often from someone who isn’t successful in the very area we want to improve! H ow often do people get relationship advice from friends who are in lousy relationships themselves? Or fitness advice from a friend who struggles with his weight, too? H ow many people hear the message reinforced that they can’t change their body? W hy that message? Because they’re surrounded by friends or family who aren’t fit. T he same is true for financial advice. L ooking to someone who has not developed real wealth is a recipe for disaster. It simply reinforces the belief that nothing will work. It’s not that nothing will work—it’s that these strategies won’t work.

H owever beautiful the strategy, you should occasionally look at the results.

— W IN ST O N C H U R C H IL L

T H E POW E R OF ST ORY

L et’s go back to our biggest challenges: our relationships, our bodies, and our finances. In each of these areas, we get stuck for one of three reasons. First, as we showed above, we lack the right strategy. W e all know a couple where the guy doesn’t communicate or the woman never stops talking. N either of them understands the needs of his or her partner, much less meets those needs. And what about the friend who goes on fad diets constantly or is always looking out for a magical way to make a million bucks—telling himself that without it he’ll never be financially free. W ithout the right strategy, you will fail. And when you fail, you develop a lousy story: “My wife will never be satisfied.” “I’ll never lose the weight.” “T he only people who make money are the ones who already have money.” T hose limiting stories keep us from finding the right strategies, or, even if we have the right strategies, from executing them.

D o you know anyone like that? Y ou put the answer right in front of their very eyes, and they still say, “N o, that will never work because . . .” T hey’ll tell you a million reasons why it won’t work—they’ve got every excuse in the book. So if the right strategies are there in front of us, why aren’t people using them? W hy are they still not achieving their goals? W hy is it so hard to maintain a passionate relationship or lose the weight once and for all? Are 70% of Americans overweight because the strategy for becoming thin, fit, and healthy is really so complex? Is the information hidden and only available to the 1% , or incredibly expensive? H ell, no. T he answers are available everywhere: T here’s a gym with someone who can instruct you within a short drive. (G od forbid we were to walk there.) T here are trainers all over the world, some of which will coach you online, wherever you are! T he web is filled with free advice, and, of course, there are thousands of books on fitness and weight loss available for you to download right now to your iPad or smartphone. Y ou have to work to avoid finding the strategies for becoming fit, strong, and healthy.

So what’s the real problem? T he answer is: we have to bring in the human factor. I always say that 80% of success in life is psychology and 20% is mechanics. H ow else do you explain how someone can know what he needs to do, wants to do it, has the right strategy to get it done, and still not take action? T o solve this riddle we have to delve into the psychology of individuals: the values, beliefs, and emotions that drive us.

W hen someone has the right strategy in front of her, and she still doesn’t succeed, it’s because she’s missing the second key to a breakthrough: the power of story. If you’re not taking action and the answer is sitting there in front of you, there’s only one reason: you’ve created a set of beliefs that you’ve tied into a story—a story about why it won’t work, why it can’t work, why it only works for other people. It’s only for the rich, the thin, the lucky, the happy in relationships. It’s easy to come up with a limiting story.

So why bother to take action on a strategy that you “know” will fail? W ell, strategy here isn’t the problem. Y our story is. A half-hearted approach that says, “It might work, or it might not . . .”—of course it won’t! T hat belief becomes a self-fulfilling prophecy. W ith a disempowering story, failure is nothing less than guaranteed. W hich, of course, only reinforces your belief that nothing will work. And so the cycle continues.

But the people who make change happen, who get stuff done, who accomplish, who shift, who grow, who learn, they take their strategy and attach a new story to it: a story of empowerment, a story of “I can and I will” instead of “I can’t and I won’t.” It goes from being a story of limitation to a story of empowerment: “I will not be one of the many who can’t, I will be one of the few who do.”

T here was a time when I was 38 pounds overweight, and my story was, “I’m big-boned.” W hich I am. But I was also fat. Stories can be true, but if they don’t help us, if they’re stopping us from having the life we desire and deserve, we have to change them. W e’ve all had lousy stories in our lives.

I don’t make enough.

I can’t save more.

I’ll never read. I’ve got dyslexia.

My friend Sir Richard Branson, chairman of the Virgin empire, has dyslexia, but it certainly hasn’t limited his life in any way. W hy? Because his belief or story about dyslexia was empowering, not limiting. H is story wasn’t “I’ll never read,” it was “I have dyslexia, so I have to work harder to make everything happen—and I will.” Y ou can use your story, or your story can use you. E verybody has got an empowering story if he or she wants to find it. W hat’s wrong with your life is just as easy to find as what’s right with your life, when your story changes. If your relationship isn’t working out, all the good guys are gone, or they’re gay and you’re not. Or you’re gay and they’re not. T here’s always a story, right? Stories control our emotions, and emotions drive all of our behavior and actions.

L et me ask you a question: D o you worry about money? D oes it keep you up at night, stress you out thinking about your next paycheck, your car payment, your kids’ college tuition, or whether or not you’ll ever have enough money to be able to retire? W hat’s your financial stress really like? According to the American Institute of C ertified Public Accountants (AIC PA), 44% of Americans, nearly half of us, report “high levels” of financial stress. H ave you ever thought to yourself, “All this stress just might kill me?”

K elly McG onigal, a health psychologist at Stanford U niversity, warned about the dangers of stress for a full decade before she realized that maybe it was her advice, rather than stress itself, that was sending people to their graves faster. “I’m converting a stimulus [stress] that could be strengthening people into a source of disease.” W ith a breakthrough in her thinking, and some powerful new research, McG onigal made a complete turnaround.

T urns out, stress might just be our friend. Just as you put stress on a muscle to make it stronger (by lifting weights or running), emotional stress can make us physically and psychologically stronger too. McG onigal now highlights new research showing that when you change your mind about stress, you can literally change your body’s physical reaction to it. In an eight-year study, adults who experienced a “lot of stress” and who believed stress was harmful to their health had a 43% increase in their risk of dying. (T hat sure stressed me out.) H owever, people who experienced an equal amount of stress but did not view stress as harmful were no more likely to die! McG onigal says that physical signs of stress (a pounding heart, faster breathing, breaking out in a sweat) aren’t necessarily physical evidence of anxiety or signs that we aren’t coping well with pressure. Instead, we can interpret them as indications that our body is energized and preparing us to meet the next challenge. T he bottom line is, science has now proven that how you think about stress matters—the story you attach to stress. T elling yourself it’s good for you instead of harmful could mean the difference between a stress-induced heart attack at 50 or living well into your 90s.

Success is my only mofo option, failure’s not.

— “L O SE Y O U R SE L F ,” E minem

So what story have you been telling yourself about money? W hat’s stopping you from achieving your financial dreams? Are you telling yourself that it’s too early to start saving? Or too late to start rebuilding your investments? Y ou’re not making enough salary to put anything aside? Or the system is rigged against you, so why bother trying? Maybe your story is, “T he government has saddled us with debt, the financial system is in shambles,” or “I’m just not good with numbers.” G reat news: you don’t have to be! If you’ve got a phone and a calculator or can download our app on your phone, to answer six simple questions about where you are today, where you want to go, and what you’re willing to do to get a financial plan that you’ll clearly understand about how to be financially free.

Maybe your story is “It takes money to make money.” One of the first people I shared an early version of this book with had a core belief of “I will never be financially free unless I have a way to make a lot of money. People who start with a lot of money can make millions, but not me.” After she read the chapter on building your own money machine with T heodore Johnson—who never made more than $14,000 a year yet turned it into $70 million over his lifetime—her story went out the window. T heodore wasn’t lucky. H e used a simple system, the same one you’re about to learn.

H ere’s her new story, and it could be yours: “If I just happen to use this simple system of compounding, I can make a lot of money, I can go wherever I want, I can live however I truly want, I can be financially free. T here are no limits except the ones I impose on myself.”

One of my own financial breakthroughs happened with an important change in story. G rowing up poor, I always associated a lack of money with pain for everyone in the family. I swore to myself early on I would never have a child until I was truly financially successful. I swore that someday I would be so successful financially that my family would never ever experience the humiliation, frustration, and pain of my childhood years of not being able to pay the bills or put food on the table.

And I made good on my promise. By the time I was 18 years old, I was earning as much as $10,000 a month, which at the time seemed like a huge amount of money. It still is. I was so excited, I ran back to my friends from my community, the guys I had grown up poor with, and said, “L et’s go have a blast: let’s fly to E gypt and race camels between the pyramids!” I had had this dream as a little boy. And I could now share this dream with my friends. But the response was hardly what I was expecting: “E asy for you, Mr. Rich Man.” T he level of disdain I got from guys I considered to be friends shook me to my core. I wasn’t flaunting my money. I simply wanted to share my abundance with my friends and create an experience of real adventure. But I had to reevaluate. I created a new story: a belief that said you can do well but only so well, or else people will judge you. If you stand out and do too well financially, people won’t like you.

So for years, I did well in my life and businesses, but my income didn’t grow significantly. U ntil I finally hit a tipping point, a stage in my life where I thought, “T his is ridiculous. If I could expand my intelligence, should I?” My answer was, “Of course!” If I could experience and give more love, should I? Of course! If I could expand my ability to give, should I? Of course. If I could earn more and expand my financial wealth, should I? And the answer was, “Of course!” For the first time, I felt hesitancy. W hy was it that in every other area of my life it seemed natural to expand and become more, but when the issue came to money, suddenly it was different? W hy? It made no sense.

But I knew the truth. I had a deep, unconscious fear that people would judge me because I had expanded in this area as well. I wanted to please everyone, I wanted to be loved so badly that subconsciously I not only made doing well financially something wrong but also subconsciously sabotaged my own success. L ike so many people, I told myself that money was not spiritual. H ow crazy is that? Anyone who’s become truly wealthy knows the truth—the only way to become wealthy, and stay wealthy, is to find a way to do more for others than anyone else is doing in an area that people really value. If you become a blessing in other people’s lives, you too will be blessed. Money is only one of those blessings, but it is a blessing. It’s simply another form of freedom and abundance.

Money is nothing more than a reflection of your creativity, your capacity to focus, and your ability to add value and receive back. If you can find a way to create value—that is, add value for a massive number of people—you will have an opportunity to have a massive amount of economic abundance in your life.

I had to hit that threshold where I was tired of living that way and where I saw the absurdity of trying to fit in. It’s true: if you do well financially, you may be looked at as “the 1% .” In my life, as a kid, being a part of the 1% was something that was aspirational. I came from the 99% , I just wasn’t willing to settle for that, for my family or for my life. But staying there just to fit in—well, that didn’t make any sense. I decided I was tired of blaming others for my lack of financial progress. T he story I had of my financial limitations had to go. I would love others, but I would not spend my life trying to please them— especially knowing that to please them I would have to play small. I don’t believe in my heart that our creator made us for that. It was time for me to find a way to earn more in the same way I strove to give more, contribute more, love more, and expand my intellectual, emotional, and spiritual capacity.

W ith that shift in belief, suddenly—when it was clear that this was not a should to conquer this area, but a must —along with the relational areas of life, strategies started showing up in front of me; they’d probably been there all along, but because of my mind-set, I was blind to them. Y our whole world changes when you change your story.

C hange your story, change your life. D ivorce the story of limitation and marry the story of the truth, and everything changes. I can tell you: when you get rid of the limiting stories, take massive action, and find the strategies that work, the results you can create are truly miraculous.

L et me give you one final example. A dear friend of mine, Julie, a successful screenwriter who gets paid top dollar for her work, could never seem to make any financial headway. By the time she and her husband were in their 50s, they had a modest mortgage on a nice home, but only about $100,000 in an IRA—way, way short of what they’d need to retire. And their money was invested in a “socially responsible” mutual fund that charged high fees and ate up most of their returns.

Julie’s husband, C olin, wanted to invest more aggressively, but Julie wouldn’t even talk about finances with him. She told him she hated W all Street and everything it stood for. In fact, the whole idea of money made her uncomfortable. T o her, money was evil.

But then a breakthrough happened. Julie attended my seminar U nleash the Power W ithin (U PW ), where we use the power of Strategy, Story, and changing the State of your mind, body, and emotions to create breakthroughs in every area of people’s lives. U PW is intense: I use music, dynamic movement, humor, and a host of other tools to put the audience in a peak state— and that’s when breakthroughs happen.

Julie’s goal that weekend was to turn her financial life around. H ow did she do it? First, she recognized that something had to change, or she and C olin were looking forward to some very painful “golden years.” It finally hit her that her negative beliefs about money were creating constant pain in her marriage and in her future, and she asked herself, “W here did this story come from?” And then Julie did something really important: she dug down deep and asked herself, “Is this what I really believe? W e are not born believing money is good or evil. So where did this belief come from?”

She didn’t have to go very far to find the answer. Both of Julie’s parents grew up during the G reat D epression. H er mother never got the chance to go to college even though her academic scores were off the charts. Instead, she worked as a department store clerk for $9 a week, and didn’t dare complain about the low wages or long hours on her feet. Julie grew up hearing the stories over and over: how the rich exploit the poor, how banks and W all Street stockbrokers destroyed the economy, how you can’t trust the stock market. So Julie made the association in her brain: “If I become a wealthy investor, I’ll be a bad person, and my mother won’t love me.”

Julie realized that the story she’d been telling herself about the evils of wealth wasn’t her story after all; it was her mother’s story. “Money is the root of all evil,” was her mother’s mantra, not hers. T his realization jolted her. T he truth set her free, and those words lost all of their power over her. (In fact, when she did her homework on the biblical phrase, she found that it’s not “Money is the root of all evil,” but “the love of money” above all else—love, relationships, contribution—that’s the recipe for surefire disaster.)

It was an amazing transformation. Once Julie got past her limiting story, she could sit down with her husband for the first time to talk about their finances. H e was thrilled they could be partners in taking back control of their financial life. Imagine how hard it is to build wealth when your core belief is that money is evil. T hey dumped their high-cost mutual funds and transferred their IRA to a diverse portfolio of index funds with Vanguard. T hen they put in place a long-term financial plan, like the one you’ll be reading about in these pages, to finally put them on the road to financial freedom.

Julie and C olin shifted their story. And what happened? T hey learned how to play the game and win, they learned how to create an income for life—just like you’re going to do in chapter 5.2. Julie and C olin learned how to put an extra $150,000 to $250,000 into their pockets over their investment lifetime just by getting out of those expensive mutual funds. H ow great do those golden years look now!

R emember, you know the answer, and the secret is simple: change your story, change your life. D ivorce your story of limitation and marry the truth. Y ou can make anything happen.

Y OU R ST AT E

It’s hard to change your story when you’re in a lousy state. If you feel like hell, you don’t think to yourself, “L ife is beautiful!” H ave you ever been really angry with somebody, and suddenly you remembered every freaking thing that person ever did to irritate or annoy you? W hen you go into an angry state, it switches on the part of your brain that supports that state, and the story that keeps you there quickly appears.

By contrast, if you’ve ever fallen head over heels in love, can you remember how the world looked? It was like looking through rose-colored lenses: everything was wonderful, right? Rude clerks didn’t bother you; crying babies seemed cute. T hat’s how a positive state can change your outlook—your story.

Y our mental and emotional state colors your perception and experience of everything in life. W hen I work with anyone—from world-class athletes to highpowered executives—we change his or her state first. T here’s a part of you that, when it’s turned on, can make anything happen; but when it’s turned off, the world is dead. Y ou know what I’m talking about, don’t you? Y ou know when you get on a roll, and everything flows just perfectly without your even having to think about it? Y ou ace the tennis shot. Y ou say exactly the right thing in the meeting or walk out of the negotiation with exactly what you wanted. On the other hand, we’ve also all experienced the opposite: we couldn’t remember our home address, the name of our dinner host, or spell the word the. I call that the stupid state. But a few minutes later, it comes back to you: you remember the answer because you get in a different state.

T he purpose of this book is not to try teaching you how to change your state—that’s the basis of many of my other books and audios, programs, and live events. But in a nutshell, you can immediately and radically change how you feel (and not just hope you feel good) by learning that by changing your body first, you can change your mind.

I teach many ways to create immediate change in your state, but one of the simplest ways is to change what I call your physiology. Y ou can change the way you think by changing the way you move and breathe. E motion is created by motion. Massive action is the cure to all fear. T hink about it, fear is physical. Y ou feel it in your mouth, in your body, in your stomach. So is courage, and you can move from one to another in a matter of milliseconds if you learn to make radical shifts in the way you move, breathe, speak, and use your physical body. I’ve used these insights for almost four decades to turn around some of the world’s greatest peak-performance athletes, financial traders, and business and political leaders. L ast year, H arvard U niversity did a scientific study that proved the validity of this approach.

Social psychologist and H arvard professor Amy C uddy offered a “no-tech life hack” in her famous 2012 T E D T alk when she asked the audience to change their posture for two minutes. C uddy’s research showed that just assuming “power poses” or postures of high power (think W onder W oman with her hands on her hips and legs firmly planted on the ground; or the guy in your office leaning back in his chair, hands clasped behind his head, elbows out wide—you know the one) increased testosterone (the dominance hormone) by 20% , while simultaneously reducing cortisol (the major stress hormone) by 25% . T he impact of this biochemical change immediately transforms your willingness to face fears and take risks. All within just two minutes of changing your body. In C uddy’s study, 86 percent of the power posers reported feeling more likely to take chances. But when the second set of volunteers were asked to stand or sit for two minutes in more passive poses, with their legs and arms crossed tightly, their testosterone levels dropped by 10 percent, and the stress hormone rose by 15 percent. Far fewer of these men and women, only 60 percent, behaved assertively. Remember, these weren’t just psychological changes but actual biochemical changes, hormonal changes. W hat I have taught for 38 years and what all of my students knew was true through experience was now validated by science. W hat does this mean? It means, basically, you rock. Y ou’ve got some swagger in your step, you’re ready to put yourself on the line, to take the necessary risks and shape your world. T wo minutes of posing can lead to the changes that either configure your brain to be assertive, confident, and comfortable, or really stress reactive. Our bodies are able to change our minds!

T here was a time in my life when I was overweight and depressed, living in a studio apartment in Venice, C alifornia, staring at the empty furniture and listening to N eil D iamond records. Pretty scary, huh? One day a friend who hadn’t seen me in a long time stopped by. H e took one look at me and said, “Man, what happened to you?” It snapped me out of my trance. I decided then and there to break the pattern.

So I put on my running shoes and grabbed my Sony W alkman. (Y es, I’m ancient enough to have owned one of those.) And in those days, you had to be committed to your music: you had one album to listen to, not 10,000 songs to choose from. I turned to the legendary rock band H eart, put on the song “Barracuda,” and let the beat ignite me. I took off running with the determination that I was going to run as hard and as fast as I had ever run in my life, and I wasn’t going to stop until I spit up blood. T o say I was determined to push myself beyond my limits would be a serious understatement.

I’m sure it must have been a hilarious sight, given my excess 38 pounds and my beer belly flopping back and forth in the wind as I ran like a banshee. W hen I literally couldn’t breathe an ounce more of air, I collapsed on the beach and grabbed a journal I had brought with me. And in that state of absolute conviction, determination, exhilaration, and exhaustion, I sat and wrote down everything in my life I would no longer tolerate. T he way my body was, my laziness, my shallow intimate relationship, and my disastrous finances. Right across from it, I wrote what I was now committed to creating in my life—and in that pumped-up, invigorated state, I felt certain I could find the way.

W ith a strong enough state, you will develop a strong story. My story was: “T his ends here and now; my new life begins today.” And I meant it with every ounce of my being. I discovered that when you change your state and your story, you find or create the right strategy to get what you’re absolutely committed to. T hat’s how you create a real breakthrough—a new state with a new story and a proven strategy.

I went on to lose 30 pounds in the next 30 days, and 38 pounds total in a little more than six weeks. I was maniacal in my commitment. I set a new standard that day about who I was and what I stood for. It has not waned in the 30-plus years since that day (and my weight has never returned to that level either).

I went from earning less than $38,000 a year to more than $1 million a year just a little more than a year later. It was a level of change I couldn’t even imagine creating at the time. More importantly, I regained my emotional and psychological fitness—the two forces that truly change how someone’s life turns out. D etermination, faith, and courage began to be the forces that guided my every action going forward.

G reat strategies can surround you but they will be invisible to you unless you put yourself in a strong, determined, and empowered state. A state that will automatically breed the beliefs and stories that you can, must, and will achieve—and that you are committed to. W ith state and story combined, you’ll not only find the strategies that work, you will execute them and experience the rewards you desire and deserve. D o I have your full attention? If there’s any area of your life that you’re living that is far less than the life you desire, it’s time to change one or more of these elements.

Remember: we all get what we tolerate. So stop tolerating excuses within yourself, limiting beliefs of the past, or half-assed or fearful states. U se your body as a tool to snap yourself into a place of sheer will, determination, and commitment. Face your challenges head on with the core belief that problems are just speed bumps on the road to your dreams. And from that place, when you take massive action—with an effective and proven strategy—you will rewrite your history.

It’s time to no longer be one of the many but to become one of the few. One of the few who step up, own your true capability financially and in every area of your life. Most people start out with high aspirations but settle for a life and lifestyle far beneath their true capabilities. T hey let disappointments destroy them. D isappointment is inevitable when you are attempting to do anything of great scale. Instead, let your disappointments drive you to find new answers; discipline your disappointments. L earn from every failure, act on those learnings, and success becomes inevitable.

So next time you come up with a reason why you can’t do something, when you know in your heart that your spirit is unlimited, call bullshit on yourself. C hange your state. C hange your focus. C ome back to the truth. Adjust your approach and go after what you really want.

Okay, deep breath. Or loud scream. G et up and shake and move. W ith these 9 Myths—these past limitations— now out of our way, it’s time to move on to Step 3 on our 7-Step path to Financial Freedom. W e’re going to make the game winnable by coming up with a specific number —a number that reflects your exact financial dreams realized. T hen we’ll create a plan, improve that plan, and find ways to speed it up so you can achieve your financial dreams sooner than you may have ever imagined.

SE C T ION 3

W H AT ’S T H E PRIC E OF YOUR

D REAMS? MAK E T H E GAME W IN N ABL E

C HAPT E R 3.1

W H AT ’S T H E PRIC E O F Y O U R

D RE AMS? MAK E T H E G AME W IN N ABL E

All men dream, but not equally.

— T . E . L AW R E N C E

I usually kick off my financial seminars with a question: “W hat’s the price of your dreams?” T hen I invite people to stand up and tell me what it’s going to take for them to be financially secure, independent, or free. Most of them don’t have a clue. T here’s a lot of shuffling and squirming in the room, and then maybe a few hands shoot up. In hundreds of seminars with hundreds of thousands of people from all walks of life, I’ve heard just about every number imaginable.

So let me ask you personally now: H ow much money will you need to be financially secure, independent, or free? Just take a guess. Y ou don’t have to be right—or even logical. Is it $1 million? $5 million? $500 million? T ake a second right now, go with your gut, and write down the number, either in the margin of this book, in a notebook app, or just on a scrap of paper. It’s important to write it down, because writing it anchors it and makes it real.

D id you get it done? Soon you’ll see why this step is an important first action.

N ow, my experience tells me that if you’re like most people, that number probably feels a bit large to you right now, doesn’t it? W ell, keep reading, because we’re going to do a few easy exercises to help you tame that number. And I’ll bet you’ll find out that it can be made

much smaller than you ever imagined. In fact, you’re going to learn there’s not just one “magic number,” because there are five different levels of financial dreams that will set you free. And no matter if you’re just starting out or getting ready to retire, no matter how solid or shaky your balance sheet is right now, I guarantee you that at least one or two of those dreams will be within your reach. H ow? It starts with understanding what you truly need.

Recently, at one of my high-end programs, a young man in the back of the room stood up to name the price of his dreams. H e threw back his shoulders and announced, “A billion dollars.”

T here were a lot of ooohs and aaahs from the crowd. T his person was in his 20s, one of the younger participants at the conference, and he probably hadn’t earned his first million yet. So I asked him to consider what that number really meant.

Remember in chapter 1.4, “Money Mastery: It’s T ime to Break T hrough,” when we talked about how everything people do, they do for a reason? Just as a reminder, there are 6 Basic H uman N eeds: C ertainty, U ncertainty/Variety, Significance, C onnection/L ove, G rowth, and C ontribution. So why did this young man want a billion dollars? W hich of these needs was he trying to meet? C ertainty? Y ou can get C ertainty in your life for a lot less than a billion dollars! H ow about Variety? Y ou can get plenty of Variety with a million dollars, or much less, right? C onnection and L ove?

H ardly. If he gets a billion dollars, there will be a lot of people who want to be in his life, just like lottery winners who suddenly discover dozens of relatives and “friends” they never knew they had. W ith that kind of money, he’ll get connection, all right, but not the connections he wants and needs! G rowth and C ontribution? By his demeanor, I doubt these were at the top of this young man’s list when he named his number.

So when you look at the human needs, which one do you think drives him the most? C learly, it’s Significance. As he said, with a billion dollars, people would take him seriously; he would matter. T his might be true. But the problem is when he gets a billion, it still won’t be enough —because when you seek Significance, you’re always comparing yourself with someone else. And there’s always someone bigger, taller, stronger, faster, richer, funnier, younger, more handsome, more beautiful, with a bigger yacht, a nicer car, a nicer home. So while there’s nothing wrong with significance, if you make it your number one need, you’ll never be fulfilled.

But rather than lecture him, I decided to show him he could feel significant with a lot less money—which would make his life a lot easier. After all, he was just picking his number out of the sky. Saying he needed $1 billion made him feel like he was going after an important goal. But the problem is, when you have this huge goal in your head—if in your gut you don’t believe it’s going to happen—your brain rejects it. It’s like living a lie. H ave you ever done this? C ome up with some ginormous goal, and then a voice in your head pops up to say, “W ho are you kidding?” T he truth is, you’ll never make it happen until it sinks deep into your subconscious —the part of your mind so powerful that it makes your heart beat 100,000 times a day without your ever having to think about it.

H ave you ever been driving your car and gotten lost in thought and then suddenly looked up and realized, “H oly sh*t, who’s been driving my car for the last five minutes?!” T hankfully, it was the amazing protector of life, your subconscious mind.

T o get an idea of how this process works, take a look at the image below. Imagine your brain divided into an upper half and a lower half; the upper half is the conscious mind, while the lower half is your subconscious.

Ideas keep trying to lodge in your head, such as “I’m going to make ten million dollars!” or “I’m going to be financially free by the time I’m forty!” But your upper, conscious brain goes, “Screw you! T here’s no way in hell that will happen!” It quickly rejects the big idea and bounces it back out into space like a tennis ball. But if you resolve within yourself the sense of absolute certainty that “I’m going to do this!” and then you start to build a plan—something extraordinary happens. Y ou begin to develop the certainty you can actually achieve it. And with newfound confidence, you suddenly see there is a way to get it done. Y ou’ll find a role model who’s already achieving what you’re after, and you’ll take massive

action. T he goal seeps down into your subconscious, and it goes to work to make your dream a reality. T hat’s when the magic happens!

N ow, I doubt that you think you need $1 billion to fulfill your financial dreams. But I’d be willing to bet that the number you chose to feel financially secure or independent is pretty intimidating. Almost everybody makes that number bigger than it needs to be, because he or she doesn’t take the time to calculate what it really costs to live at different lifestyle levels. And that’s why so many never begin to work toward it. T hey talk a good game, get excited about it, they tell people their big dream, but they never act on it. W hy? Because psychologically they don’t have Certainty that they can do it. And C ertainty is the first human need that influences our behavior or actions. Fact. If you’ve failed to act in your financial world, it’s partly because you’re uncertain, you’re unsure as to what is right or wrong and which approach will succeed or fail. Or you’re feeling overwhelmed by the complexity of the system that no one has taken the time to walk you through with clarity.

W ith uncertainty, we default to doing nothing or at least procrastinating. W e put off until tomorrow what we need to do today.

T o help my would-be billionaire friend identify the real price of his dreams, so that they could lodge in his unconscious and become real, I asked him some questions. T hey’re the same kinds of questions I’ll be asking you in a moment to guide you on your path.

I started by asking my young friend what his lifestyle would be like if he had a billion dollars. H e thought for a moment and then said, “I’d have my own G ulfstream!”

“Y our own jet!” I said. “W here will you fly to?”

H      e said, “W ell, I live in N ew Y ork. I’d probably flydown to the Bahamas. And I’d probably fly to L A for some meetings.”

I          had him write down how many times he’d fly in ayear, and he figured it was probably a maximum of 12 flights. And how much would a jet cost him? W e looked it up, and a long-distance G ulfstream G 650 would cost him about $65 million; a slightly used G ulfstream IV would only set him back about $10 million. N ot including fuel, maintenance, and crew. T hen we looked up the cost of chartering a private jet instead of owning one: a midsize jet was all he really needed for himself and three family members to fly, and that’s around $2,500 an hour. H e would be flying for maybe 100 hours a year for a grand total of $250,000 per year, or around $5,000 per hour; or $500,000 if he wanted to fly by G ulfstream on every flight—still far less than the annual price of maintenance on many jets, and at a cost that would be less than 1% of the cost of buying that G ulfstream. E ven from the stage, I could see his eyes lighting up and his mind working.

“So what else would you buy with your billion dollars?” I asked.

“A private island!”

T hat was something I could relate to. I own a small island paradise in the country of Fiji. It was a wild dream I had early in my life to find an escape someday where I could take my family and friends and live. In my early 20s, I traveled to islands all over the world searching for my Shangri-L a. W hen I arrived in Fiji, I found it. A place with not only magnificent beauty but beautiful souls as well. I couldn’t afford it at the time, but I bought a piece of a little backpacker resort with 125 acres on the island. I really didn’t have the money, and it probably wasn’t the best investment at first. But it was part of what I call my D ream Bucket—something you’ll learn about later in this book. Still, I made it happen, and I’m proud to say that over the years, I’ve purchased and converted it into a protected ecological preserve with over 500 acres of land and nearly three miles of ocean frontage. I’ve turned N amale Resort and Spa into the number one resort in Fiji for the last decade, and it’s consistently rated among the top ten resorts in the South Pacific. But how often do I visit this paradise? W ith my crazy schedule, maybe four to six weeks a year. So my dream has come true: everybody else has a great time there!

I told my young friend, “If you want to enjoy your own island, you might not want to be in the hotel business. And trust me, you’re only going to be there a few weeks a year at the most.” W e looked up the costs and found out he could buy an island in the Bahamas for $10 or so—and then he would have to spend $30 million to $40 million to build a small resort! Or he could rent my friend Richard Branson’s N ecker Island resort for a week and bring all his friends and family for less than $350,000, with a staff of 50 people to take care of them all. If he did that every year for a decade, it would only cost $3.5 million versus $30 million to $40 million, with no work to maintain the property.

W e worked through his list, and guess how much it would take to have the lifestyle he wants for the rest of his life? W hen we added up the real cost of even his wildest dreams, not just his needs, it came to a grand total of not $1 billion, not $500 million, not $100 million, not $50 million, but $10 million to have everything he dreamed of having in his lifestyle and never have to work to pay for it—and his dreams were gigantic! T he difference between $10 million and $1 billion is astronomical. T hese numbers exist in different universes.

T he challenge is, when we get to really big numbers, people’s minds don’t fathom what they really mean. T here’s a radical difference between a million, a billion, and a trillion. E ven President Obama uses the terms millionaires and billionaires in the same breath, as if they’re in any way related—they’re not. L et me prove it to you. I’m going to give you a little test. I want you to think and make a first guess as to the answer. T his exercise will help you gain perspective on a million versus a billion versus the figure the government now uses so often: a trillion. In fact, in W ashington, a trillion is the new billion, as they say.

My first question is: H ow long ago was one million seconds ago? T ake a moment, even if you don’t know— what do you guess?

T he answer is: 12 days ago! H ow close were you? D on’t feel bad, most people have no clue. If you got it, congratulations. N ow we’re going to up the ante. Since you now have a perspective of what a million is (a million seconds being 12 days ago), how long ago was a billion seconds ago? Stay with me, come on; make a guess, commit to a number. T he answer is: 32 years ago! H ow close were you? For most people, they’re pretty far off. T hat’s the difference between a millionaire and a billionaire: 12 days or 32 years! D o you see what I mean by saying they live in “different universes”? Y ou can never say “millionaires” and “billionaires” in the same breath and be talking about the same thing.

Just to complete the thought: W hen you hear the U S government has $17 trillion in debt, how much is a trillion? W ell, if a billion seconds was 32 years ago, how long ago was a trillion seconds? T he answer: nearly 32,000 years ago (31,689, to be exact)! W hen humans were not even called humans! T he point of this exercise is to get you to realize that we blur large numbers, and if you get down to the facts, an extraordinary lifestyle probably costs less than you think it does.

But back to our would-be billionaire. N ow, don’t get me wrong: $10 million is still a hefty sum but probably within reach for this young entrepreneur over the course of his career. W ho knows? H e might actually end up with a billion—if he invents the next Instagram. But what if he doesn’t? H e could still live the extraordinary life he was dreaming of for 99% less money than he thought he needed. H e wouldn’t need to be a billionaire to live like one.

I’ll be willing to bet that once you find out the real price of your dreams, the number it would take for you to really get where you want to be is a lot less than you think! And always remember the ultimate truth: life is not about money, it’s about emotion. T he real goal is to have the lifestyle you want, not the things. W hen you die, someone else gets those things anyway. T hey’re not yours. I have no illusions: as much as I cherish and enjoy “my” resort in Fiji, I know I’m just the caretaker. Someday someone else will own this property. But I love that I have nurtured it into a destination where people from all over the world come to experience joy, romance, and adventure. It’s part of my legacy—and that’s what gives me joy. Attaining possessions is not the goal. Money itself is not the goal. Our worth is not measured by the weight of our bank accounts but, rather, by the weight of our souls. T he path to money, the places money can take us, the time and freedom and opportunity money can bring—these are what we’re really after.

Y ou can have it all. Just not all at once.

— O PR AH W IN F R E Y

T ake a moment now and think about what you really want your money to buy. N ot everybody wants to live like D onald T rump or Floyd “Money” Mayweather! Is your dream to travel the globe, exploring ancient cities or photographing lions in the Serengeti? Is it owning your own beach house in the Bahamas or a penthouse in N ew Y ork? Is it starting your own business—the next Snapchat, or creating an extraordinary contribution to humanity like the next C harity W ater? Is it something as simple as sending your kids to college and having enough left over for a house in the country with a big vegetable garden? Or is your dream just peace of mind— knowing you can be free forever from debt and worry? W herever your dreams may take you, I’m going to show you a path to get there. E ven if you don’t get all the way to the summit, you can reach the dreams that matter most to you and celebrate your victories along the way. Because money is a game of emotions, and we’re going to come up with some numbers that will ring your bells and make you say, “I’m certain! I promise myself I can get there!”

L ike all journeys, before you get started, you’ll need

to take stock of where you are. W e’ll work together on a few simple calculations. If you’ve never taken the time to figure out exactly what it’s going to take to achieve your financial goals, you’re not alone. Often, many of those who have earned millions of dollars haven’t developed a plan to sustain their lifestyle without having to work at least some of the time. And as we’ve already said, more than half of Americans haven’t even tried to calculate how much money they’ll need to retire, including 46% of all financial planners! W hy don’t we know our basic financial picture? T he number one reason I’ve found, after hearing from hundreds of thousands of people from a hundred different countries, is that people are afraid to know.

It’s like stepping on the scale. Y ou know you’ve gained weight, but you don’t want to know how much. It’s a form of denial; a way to put off making a change. H igh school wrestlers and professional boxers step on that thing every day, so that if they’re off target on their weight, they’ll know right away and can do something about it. Y ou can’t manage your health if you can’t measure it. And the same goes for your finances. Y ou can’t reach your financial dreams unless you know precisely how much it will take to get there. I’m here to help you set yourself apart from the masses who hide their heads in the sand when it comes to their money. In a minute, we’ll do some quick, easy number crunching to find out where you are and where you need to be. (If adding a few figures is a challenge for you, remember that there’s a calculator on your phone! And you can also go to our app, which will ask you the questions and calculate the numbers for you automatically. See www.tonyrobbins.com/masterthegame.)

But first let’s look at those five financial dreams. W hen I say the words “financial security,” “financial vitality,” “financial independence,” “financial freedom,” and “absolute financial freedom,” do those sound like the exact same thing to you? D o they bring up emotions that feel different in your body when you say them out loud? G ive it a try. W hich one feels higher: security or vitality? H ow about vitality or independence? Independence or freedom? W hat about absolute freedom? E ach of these five financial dreams is incrementally bigger, isn’t it? And the numbers needed to reach them would be different.

Of these five dreams, you may discover that you are committed to only two or three of them. For some people, financial security alone is life changing and gives them enormous freedom. And so, in designing this exercise, I’ve included these dreams as steps along the road to absolute financial freedom. Or, if you remember that mountain earlier in this book, as base camps along the climb to the summit. And remember, not all of us need or want to go all the way to the peak of E verest. For some of us, financial vitality would be a blessing, and independence would put us over the moon! N ot all of these dreams are “musts” for everybody.

I’m going to invite you to read the five and pick the three that matter to you most—what I call the T hree to T hrive. Y ou’ll have three targets: short-, medium-, and long-term goals. It’s set up this way because we don’t build on failure; we build only on success. If you’re just shooting for the big number in the distance, it might feel too far off, or even overwhelming, and as a result, you may never truly begin the journey. W e need a target close enough that we can feel certain it’s achievable, and in the relatively near future. T hat’s what gets you to take action and turn a short-term goal into reality. And remember to claim your victories along the way. W hy wait until you’re financially independent to celebrate? W hy not win at different stages? T hat’s what encourages you, excites you, and gives you momentum.

It takes as much energy to wish as it does to plan.

— E L E AN O R R O O SE V E L T

D RE AM 1:

FIN AN C IAL SE C U RIT Y

W hat does security mean? Instead of telling you what it is, let me ask you: H ow amazing would you feel if these five things were paid for as long as you live, without ever having to work to pay for them again?

1.     Y our home mortgage, for as long as you live—paid forever. You never have to work again to pay for your house!

2.     Y our utilities for the home—paid forever. Y ou never have to work to pay your phone bill or to keep the lights on.

3.     All the food for your family—paid forever.

4.     Y our basic transportation needs,

5.     Y our basic insurance costs—all of them paid for without your ever working another day in your life.

I’d bet that your quality of life would be pretty fulfilling, wouldn’t it? Y ou’d feel pretty secure if you knew these things were covered.

N ow for some good news: Remember that number you wrote down earlier—the amount you thought it would take to be financially secure and free? It was probably not as extreme as my billion-dollar friend’s number but probably felt pretty large, didn’t it? W ell, I’ll bet when you figure these numbers out, you’re going to be surprised that the dream of Financial Security is probably a lot closer than you think. Or if you’re one of the rare few who underestimate, you’ll have a reality check, and you’ll know the precise number it will take to realize your financial dreams.

If you haven’t downloaded our free app already, do it now. Or use the worksheet below and jot down what you pay for these five items on a monthly basis. It’s really simple: W hat’s your current mortgage payment? (If you’re in an early stage of your life where you don’t own a home yet, put your monthly rent here. Or you can estimate or check online what your mortgage payment would be on something that may not be your ideal home, but more like a starter home.) If you have your records, great. N ext, what’s your utility bill each month? T hird, what do you spend on food? K eep going, and if you don’t have the numbers, take a guess—you can always go back and change them later, but you don’t want to lose momentum. L et’s really get a number down that’s reasonable. Or pick up your bank book or go online and get your numbers. Just to keep the momentum for you right now in case those aren’t easily accessible, let me give you an example.

D o you remember my friend Angela, who I introduced to you in the first chapter? She’s 48 years old and single. She’s trying to figure out what it would take to be financially secure. H er first guess was $3 million. C ould that be right? Or even in the ballpark? So I asked her to go through this exercise, and write down her five basic monthly expenses. As it turned out, her numbers were almost identical to the national averages, which you’ll see in the list here.

1.   Rent or mortgage payment:        $____ per month

(Angela’s Average:

$1,060)

2.   Food, household:     $____ per month

(Angela’s Average:

$511)

3.   G as, electric, water, phone: $____ per month (Angela’s Average:

$289)

4.   T ransportation:       $____ per month

(Angela’s Average:

$729)

5.   Insurance payments: $____ per month

(Angela’s Average: $300)

           $____ per month T otal (Angela’s Average:

$2,889)

T otal basic monthly expenses: _______ × 12 =

__________ per year

(U S average basic annual expenses: $34,668)

W hen she was done, I had her add it up and multiply the monthly total by 12. T hat shows the annual income she’ll need to cover these items for life—without working—to be financially secure. As you can see, her number of $34,000 is virtually identical to the number for the average American.

N ow, how would Angela be able to have $34,000 a year without working? Remember, she’s going to build a money machine. She’s automated her savings of 10% of her income. She’s putting it in a Roth 401(k), where it’s being invested in low-fee index funds with an estimated growth rate of 6% . (T his is the percent that Jack Bogle estimates the markets will return over the next decade. H owever, the average stock market return has been 9.2% over the last 20 years.) W e ran it through the wealth calculator, which you’ll do in the next chapter, and she found out that instead of the $3 million she thought it would take to achieve financial security, she would need to accumulate only $640,000 in her Freedom Fund to have that $34,000 a year for the rest of her life—less than a quarter of the amount she thought she needed!

At first she was shocked. She asked me in disbelief, “T hat’s all it would take for me to have this? I’d still have to work, right?” I told her of course she would, but not to pay for her home, food, utilities, transportation, or basic health care! By the way, these five items, on average, represent 65% of most people’s expenses. So Angela now had a way to pay for 65% of her overhead without working. And remember, most of us want to do something meaningful. W ithout work, we’re a little crazy. W e just don’t want to have to work! She could work part-time to pay for the rest of her expenses or fulltime and have all that income for other things. I asked her how that would make her feel if everything from her home to transportation was paid for without her working for the rest of her life. “E xtraordinary!” she said. “T hat’s an achievable goal. T hat’s something I could figure out how to make happen.” I said, “E xactly!” And what you could see in her eyes was a sense of certainty, and because she was certain, she had a reason to act.

I reminded her, “By the way, this doesn’t have to be your ultimate goal. It might be your short-term goal.” For some people, all they want is financial security, like someone in a later stage of life who may have taken a hit in 2008. For someone who is middle-aged or young, you’ll blow through this goal—as long as you know what your number is and you act upon the seven steps of this book.

If you’re wondering, by the way, how long it would take to accumulate whatever your security number is, take heart. Y ou don’t have to do this calculation. W e’ll do it in the next chapter, “W hat’s Y our Plan?,” and if you want, the app will calculate the number for you. T ogether we’ll create three plans: a conservative plan, a moderate plan, and an aggressive plan. And you’ll decide which of these plans are most manageable and achievable.

Remember the aspiring billionaire? H is annual income for financial security was a mere $79,000. A far cry from the billionaire neighborhood. Y our number might be higher or lower. All you need to know now is the annual income you need to achieve financial security. If you haven’t already done it, calculate the numbers on the app or do it right here now.

1. Rent or mortgage payment:	$____ per month
2. Food, household:	$____ per month
3. G as, electric, water, phone:	$____ per month
4. T ransportation:	$____ per month
5. Insurance payments:	$____ per month
6. T otal	$____ per month

7. T otal basic monthly expenses: _______ × 12 =

__________ per year

By the way, we can’t go on to the next goal without talking about something that’s a simple requirement, not a dream. And it’s something almost everybody should be able to achieve relatively quickly, though few people have it in place: an emergency/protection fund. According to a Princeton U niversity–U niversity of C hicago study in 2014, 40% of Americans say they couldn’t come up with $2,000 if they needed it. Y ikes! T hat’s terrifying! W hy do we need to have an emergency supply of cash on hand? W hat if there’s an unexpected interruption in your income flow? It happens in almost everybody’s life at some point. An interruption can be a health problem, it can be a problem with your business, it can mean being displaced from a job. So you need some money to cover yourself for somewhere between three to 12 months. But for most people, three months is too short a time, while 12 months may seem like a lot. So perhaps you start by putting aside a few months’ overhead, and gradually build toward six or 12 months’ worth. W ouldn’t it be wonderful to know that if something happened, you had a year to be able to get yourself back on track? Y ou’d still have a roof overhead, food in the cupboard, and the bills would get paid.

Again, this goal is not for an annual income for life. Once you have that, you’re set. T his goal is just emergency cash to protect you until you develop a large enough nest egg to take care of yourself every year for the rest of your life without working, no matter what happens.

H ow much do you need? W ell, you know what your monthly overhead is. So write down that number and memorize it. Again, you can do this exercise on the app, and the number will be saved for you and always available at a glance in your pocket. My friend Angela, who set aside 10% of her salary to build her money machine, started looking into her spending patterns to find more savings. Remember how she realized it was cheaper to buy a brand-new car than to keep fixing her old one? W ell, she also found a way to set aside an additional 8% to build her emergency protection fund. She completed her goal, and now she sleeps much better at night! If you haven’t already, it’s crucial you set up an emergency fund. (And I guarantee you’ll have some great new ideas on how to do this after reading chapters 3.3 and 3.4, “Speed It U p.”) K eep that amount in cash or in a safe place like an FD IC -insured bank account.

N ow let’s move on to the next level of dreams. W ith security achieved, let’s look at:

D RE AM 2:

FIN AN C IAL VIT AL IT Y

W hat do I mean by vitality? T his goal is a mile marker on your path to Financial Independence and Freedom. Y ou’re not all the way there yet, but it’s the place where you can be secure and also have some extras thrown in that you can enjoy without having to work.

W hat do you pay for clothing every month? Is it

$100? $500? $1,000? H ow about for entertainment (cable T V, movies, concert tickets)? H ow about going out for dinner? Is it C hili’s or N obu tonight? So for food and entertainment, are you shelling out $200 a month or $2,000 plus? H ow about small indulgences or little luxuries like a gym membership, a manicure or massage, or monthly golf dues? Is it $50, $500, or $1,000 plus? W hatever it is for you, how would it feel if half of those costs were already covered without having to work, for the rest of your life? T hat’s what happens when you reach Financial Vitality. Sounds like something worth celebrating, doesn’t it?

H ere’s how to calculate your Financial Vitality:

1. H alf of your current monthly clothing costs		$____ per month
2. H alf of your current monthly dining and entertainment costs		$____ per month
3. H alf of your current small indulgence or little luxury costs	$____ per month
4.   T otal additional monthly income forvitality 5.   Y ou already know your monthly	$____ per month
Financial Security number (line 6 from page 216), so add that here	$____ per month
6. T otal monthly income necessary for Vitality	$____ per month
7. N ow multiply that by 12 and you’ll have the annual amount you need for financial vitality:	$____ × 12 = __________ per year

Again, just type in these figures, and all of this math will be done for you on the app.

D RE AM 3:

FIN AN C IAL IN D E PE N D E N C E

Pop the champagne, because when you’ve reached Financial Independence, you no longer have to work to have the same lifestyle you have today! T he annual interest earned on the return from your savings and investments (your Freedom Fund) will provide you with the income that you need—while you sleep. Y ou are now truly financially independent; that is, independent of work.

H ow amazing would that feel? W hat kind of peace of mind would that bring you and your family?

Financial Independence means that money is now your slave—you are not the slave to money. Money works for you; you don’t work for it. If you don’t like your job, you can tell your boss to shove it. Or you can keep right on working with a smile on your face and a song in your heart, knowing that you’re working because you want to, not because you have to.

So let’s figure out how much money it would take to maintain your current lifestyle. T his number might be really easy to calculate because, unfortunately, most people spend as much as they earn! Or sometimes more than they earn! If you made $100,000 and you spent $100,000 that year (including paying your taxes) just to maintain your lifestyle, your financial independence is $100,000. If you spend less than you earn, congratulations! U nfortunately, you are the exception, not the rule. So if it costs you only $80,000 to live, on a $100,000 salary, then $80,000 a year is what you need to be independent.

So what’s your Financial Independence number? G o to the app or write it here now: $_______.

Remember, clarity is power. W hen your brain knows a real number, your conscious mind will figure out a way to get there. Y ou now know the income you need to be financially secure, vital, and independent. So let’s see what happens when your dreams get bigger.

D are to live the dreams you have dreamed for yourself.

— R AL PH W AL D O E ME R SO N

L et me tell you the story of Ron and Michelle, a couple I met at one of the seminars I hold every year at my resort in Fiji. T hey were in their mid-30s, with two small children. Successful people, they owned a small business in C olorado. Ron was great at running their business, but neither of them paid attention to their household finances. (T hat’s why he was in Fiji attending my Business Mastery event, to grow his business 30% to 130% .) T heir accountant drew up personal financial statements for them every month, but they never bothered to look at them! N o wonder they were having trouble envisioning the life that they wanted—which turned out to be a life of contribution.

W hen I asked Ron what he needed to be financially set, as I asked the young would-be billionaire, his number was $20 million. I wanted to prove to him it could be a lot lower than that and still have an extraordinary quality of life for him and his family, so I walked the couple through what they actually spent every month. (Bear in mind that, as business owners, Ron and Michelle’s annual household income is clearly higher than the average American’s.)

First we started with Financial Security, and he told me his five numbers:

Mortgage on their main home	$6,000 per month
U tilities	$1,500 per month
T ransportation	$1,200 per month
Food	$2,000 per month
Insurance	$ 750 per month
T otal	$11,450 × 12 = $137,400 per year

So for Financial Security, all they needed was $137,400 in income per year. W ell within their reach! By the way, if Ron wanted to know how much he would need to accumulate in his nest egg or his Freedom Fund, most financial planners would tell him to multiply his annual income number by 10, or even 15. But today, with such low returns on safe, secure investments, that’s not realistic. Remember, on the way up the mountain (the accumulation phase), you might put your investments in an aggressive portfolio that could give you 7% to 10% . On the way back down the mountain (the decumulation phase), you will want your investments in a secure and less volatile environment, where by nature you would likely get smaller returns. So it might be smarter to use 5% as a more conservative assumption. T en times your income assumes a 10% return. T wenty times your income assumes a 5% return.

Ron discovered that financial security would be within reach—20 × $137,400 = $2,748,000—a number far less than the $20 million he’d projected.

For Financial Independence, they figured they needed $350,000 a year to maintain their lifestyle at the current level, because they had a second home and a lot of toys. Michelle was fond of things with L ouis Vuitton labels on them. So, conservatively, they needed $7 million ($350,000 × 20) in their critical mass to live that way without working. Ron was amazed to realize that this number was almost two-thirds less than the $20 million he thought it would take! And he’s going to get there a lot sooner than he imagined, having to save $13 million less than he’d previously estimated!

D RE AM 4:

FIN AN C IAL FRE E D OM

Once you’ve freed yourself from the need to work for the rest of your life, how about freeing up your lifestyle?

F inancial F reedom would mean you’re independent, you’ve got everything you have today, plus two or three significant luxuries you want in the future, and you don’t have to work to pay for them either. T o get there you need to ask yourself, “W hat annual income would I need to have the lifestyle I want and deserve?” W hat do you want the money for? Is it for the freedom to travel? T o own a bigger home or a second vacation home? Maybe you’ve always wanted a boat or a luxury car? Or do you want to contribute more to your community or church?

L et’s go back to Ron and Michelle. T hey were already living the lifestyle they wanted for $350,000 a year. So, I asked, what would make them feel financially free? W ould it be a bigger home? A condo in Aspen? A boat?

Y ou know what Ron said? H e’d feel financially free if he could donate $100,000 a year to their church—and maybe throw in a small Bass fishing boat and a ski vacation condo in Steamboat Springs for his family.

It was an awesome answer. I was so moved by his goal to contribute, I couldn’t wait to help them find a way to make it happen. I pointed out that Ron made about $500,000 a year in income, and spent only $350,000—he could already set aside that kind of money for the church if he really wanted to. But how great would it feel if he and Michelle could make that kind of contribution without working? Just from investment income alone?

After adding the costs of financing the boat and condo, along with his contribution, for Financial

Freedom they would have to add $165,000 a year to their number for Financial Independence. In other words, they would need $515,000 a year (× 20), or $10.2 million in their money machine. But remember, this number represents an even better lifestyle than he has today! It’s a lot, but still roughly half of what Ron had thought they needed just to be independent.

T he world that Ron and Michelle wanted was so close —they just didn’t know it. But once you figure out the price of your dreams, there are ways you can get there faster and for less money than you ever imagined.

W hat would it take for you to be financially free?

W hat items would you add to your total: A sports car?

A second home? Or a big donation, like Ron and Michelle? W hatever they are, write them down, and add the cost to your total for Independence. T hat’s the price of Financial Freedom. And if it seems too steep, just wait. Y ou’ll learn how to tame that number in the coming chapters.

H ere’s how Ron calculated his Financial Freedom numbers:

1. Monthly donation to church	$8,333 per month
2. 20' Bass fishing boat costing $50,000 financed at 5% = monthly payment of	$530 per month

3. Family ski condo mortgage costing

$800,000 at 4.5% = monthly payment

 

of	$4,880 per month
4. Monthly income for Financial Independence	$29,167 per month
5. T otal monthly income number for Freedom	$42,910 per month
6. N ow multiply that by 12, and you’ll have the annual amount you need for Financial Freedom What are your numbers?	$42,910 × 12 = $514,920 per year
1. L uxury item #1 per month	____ $____ per month
2. L uxury item #2 per month	____ $____ per month
3. D onation per month	____ $____ per month
4. Monthly income for Financial Independence (W hatever number you calculated annually divided by 12)	$____ per month

5.   T otal monthly income number for       $____

         Financial Freedom                                                    per

month

6.   N ow multiply that by 12, and you’ll havethe annual amount you need for Financial $____

        Freedom                                                           per year

D RE AM 5:

ABSOL U T E FIN AN C IAL FRE E D OM

H            ow about Absolute Financial Freedom? W hat would it be like if you could do anything you wanted, anytime you wanted? H ow would it feel if you and your family never had to want for anything again? If you were able to give freely and live completely on your own terms—not anybody else’s—and all without ever having to work to pay for it. T he money you make while you sleep—your investment income—would provide for your unlimited lifestyle. Maybe you would buy your parents the home of their dreams, or set up a foundation to feed the hungry or help clean up the ocean. Just picture what you could do.

I               asked Ron and Michelle to tell me the biggest dreams they could dream. W hat would Absolute

Financial Freedom look like for them? Once again, I was deeply moved when Michelle told me her paramount dream was to buy a ranch and turn it into a church camp. W hat would it cost? Ron figured about $2 million to buy it, and $1 million more for improvements.

I could see the excitement build in them when we ran through the numbers.

If they borrowed the money to buy the ranch, they would need about $120,000 ($3 million at 4% ) a year to service the debt. And that was already within reach!

So what else? Ron loved adventure and travel, and owning his own plane was an ultimate dream. So I walked him through the same exercise I did with my young would-be billionaire friend, and convinced him that renting a jet would give him a lot of the same convenience and satisfaction at a fraction of the cost of owning and maintaining a G ulfstream or a C essna C itation. D o you follow me? Y ou don’t have to own the jet to have the lifestyle. Y ou don’t have to own the sports team to sit in the sky box. And you don’t have to pay for the whole team to be an owner—you can be a partial owner and get all the privileges. T hat’s what my friend Magic Johnson did when he was part of the group that purchased the L os Angeles D odgers, along with my friend Peter G uber and several other partners in G uggenheim Baseball Management, which spent $2.15 billion to get the team and stadium. I can promise you Magic didn’t put in $2.15 billion—but he still gets all the joy, the pride, the excitement, the influence, and the fun of being an owner.

T his thinking can create the quality of life you want for yourself and those you love. W hat makes most people just dreamers versus those who live the dream is that dreamers have never figured out the price of their dreams. T hey make the number so big they never begin the journey. T here isn’t a dream you can’t realize if you’re committed enough and creative enough, and if you’re willing to find a way to add more value to other people’s lives than anybody else.

N ow, as you can tell, for most people, this category is mostly for fun. In my seminars, I do this exercise only with people who have really big dreams and want to know the price of them. I understand that most people will never achieve Absolute Financial Freedom, but there’s power in dreaming and unleashing your desires. Some of these high-octane dreams might excite you and make you want to earn more, and help you reach your goals faster. But there’s another reason to do this exercise. Y ou might achieve financial security without working, and then by working part-time at something you enjoy, you could be financially independent. Or it’s possible you could achieve Financial Independence through your investment income and part-time work, allowing yourself to experience the luxuries of Financial Freedom with that income.

So go for it! W rite down what you would put on this list or in your app. Y ou never know what you could create if your desires were truly unleashed!

H ere’s how Ron calculated his Absolute Financial Freedom numbers:

1.       A ranch for church camp that costs $3 million, financed at 4% = monthly payment of $10,000 per month

2.       A Beechcraft Bonanza plane that costs $300,000 financed at 5% = monthly payment of $3,181 per month

3.       Monthly income number for Financial Freedom:

$42,910 per month

4.       T otal monthly income for Absolute Financial Freedom: $56,091 per month

5.       N ow multiply that by 12, and you’ll have the annualamount you need for Absolute Financial Freedom: $673,092 per year.

So for a 20-foot fishing boat, a $100,000 yearly donation to their church, a ski vacation condo, a plane, and turning a ranch into a church camp, plus the lifestyle they have today without having to work, Ron and Michelle would need an income of $673,092 per year. Multiplied by 20, they would need to achieve a critical mass of $13.5 million. Still a third less than the number they thought they needed for mere security or independence!

What are your numbers?

1. L uxury item #1 per month	____ $____ per month
2. L uxury item #2 per month	____ $____ per month
3.   L uxury item #3 per month 4.   Monthly income for Financial	____ $____ per month
Freedom (page 222)	$____ per month

5.   T otal monthly income numberfor Absolute Financial

Freedom

$____ per month

6.   N ow multiply that by 12, andyou’ll have the annual amount you need for Absolute

         Financial Freedom                                 $____ per year

T here is only one thing that makes a dream impossible to achieve: the fear of failure.

— PAU L O C O E L H O

H            ow do all those numbers you’ve written down look toyou now? I hope that you’ve seen how the price of your financial dreams can be much smaller than you ever thought, and that you’ve picked out three to aim for, including at least one short-term goal and one long-term goal. W hich of these dreams are your T hree to T hrive? T he most important for most people—the most common “musts”—are Security, Vitality, and Independence. Or for those who want to reach higher, it’s Security, Independence, and Freedom. If you haven’t already done it, pick three and write them down. Make them real and put them in your app; key reminder messages will be sent to keep you on target.

If you’re a baby boomer who’s had a tough time since the meltdown of 2008, which one of these dreams is the absolute must for you? Security, right? H ere’s the good news: you may not have as many years to build your savings and investments to a critical mass, but you can absolutely have Financial Security, and I’ll show you how. Maybe you’ll never get to Independence, but maybe you will if you make it a “must.” If you’re starting younger, you’re way ahead. Y ou might be able to go for Freedom or even Absolute Freedom and not even be stressed about it. But it’s important to decide what matters most to you and know your numbers. W hy? Because in a few moments, we’re moving on to the next chapter, where you’ll be able to calculate how many years it will take for you to achieve these dreams based on how much you are saving at a reasonable average annual rate of return. And then we’ll make a plan to get there. T his is where the rubber meets the road. I’m going to walk you through each step, and everything will be automated for you. It’s absolutely critical that you keep moving forward.

I               want you to feel empowered and excited by the journey you’re on.

I want you to know that you’re the creator of your life, not just a manager. Sometimes we forget how much we’ve really created in our lives. I don’t care who you are, I know there are aspects of your life today that once were just a dream or a goal, or seemed impossible. It could have been a job or higher-level position you wanted that at the time seemed beyond your reach, or a car that you were obsessed with, or a place that you always wanted to visit. Maybe you even live there now. Maybe there was somebody in your life, someone you never thought might even go out with you, and now you’re married to them. Instead of being back in those days of dreaming, wondering if this person would ever make love to you, perhaps they are beside you now. If so, reach over and give them a kiss right now and remember this relationship once seemed impossible, and you created it.

W hat’s in your life today that was once a dream? W hat was a desire you had in the past that at the time seemed difficult or impossible to achieve—but now it’s in your life today? If you’re going to remember that you’re the creator of your life and not just the manager of your life’s circumstances, first, you must reconnect to the things you have created consciously. T ake a moment and jot down three or four of those things. And take note, your list does not need to be made up of all giant accomplishments. Sometimes the little things that seem difficult or impossible, when conquered or realized, provide us with essential lessons on how to achieve the big things. Also, there may be some things in your life today that once seemed difficult or impossible, and now you have them, but you take them for granted. T he law of familiarity says that if we are around anything (or anyone) long enough, we tend to take things just a little bit for granted. So awaken to your appreciation, and jot down your list now.

Second, you have to review what steps you took to turn that dream into your reality. T ake a moment right now. Select one of the things you have achieved. W hat were some of the first actions you took? Jot them down now.

I’ve interviewed literally tens of thousands of people about how they’ve taken something that seemed impossible and woven it into their life. H ow did they create it? H ow did you? T here’s a process we all go through. It’s a matter of three steps.

Step 1: U nleash Y our H unger and D esire, and Awaken L aser-like F ocus. Something happens within you: either you become inspired by something that excites you so much that your desire is completely unleashed—you become completely obsessed with it— and you focus on the object of your desire with laser-like intensity! Y our imagination is ignited. Or you hit a wall, a threshold, a place inside yourself, and affirm that you will no longer settle for life as it has been. Y ou make a decision never to go back, and you become ferociously focused on the new life or object you desire. It could be a job change, a relationship change, a lifestyle change. Y ou unleash your hunger for it—and wherever focus goes, energy flows.

H ave you ever experienced this? Y ou bought an outfit, or you bought a car, and suddenly you saw that car or outfit everywhere? H ow did that happen? Because part of your subconscious mind, called the reticular activating system, knows this is important now, so it notices anything that relates to it. T hose cars and outfits were always around you, but now you’re noticing them because your subconscious makes you aware of the very things you were not seeing before.

T hat’s what’s going to happen as you’re reading this book. Y ou’re going to start noticing the fees charged by mutual funds and hearing about asset allocation. Y ou’re going to start hearing things you’ve never heard before —high-frequency trading! dollar-cost-averaging!—and they are going to come to life for you because now your brain knows they’re important. Anything that’s important, anything that’s focused on, energy flows into it. And when you have that level of hunger, desire, and focus, step 2 starts to happen.

Step 2: Y ou T ake Massive and E ffective Action. If your desire is truly unleashed and you are obsessively focused on what you want, you will be called to do whatever it takes to make your dream a reality. T here are no limits to the energy and flexibility you’ll have in the pursuit of what you want. In your heart, you know massive action is the cure-all. If you’re willing to put in the effort, you’ll get there. Y ou’ve done it before, right? Maybe there was a time when you just had to see the girl you loved, so you borrowed a car and drove all night through a snowstorm to visit her at college. Maybe you moved heaven and earth to get your child into the best school to suit her needs. If it’s a “must” and not just a “should,” you’ll find a way.

But there’s one caveat, of course: you need to put effective execution behind all that effort, right? W hat if you drove through that snowstorm without a map and ended up in the wrong city? Y ou can throw all your effort into saving for the future, but put your money in a 401(k) loaded with high fees and poorly performing mutual funds, and you’ll get nowhere. Or you can invest everything in one company and watch the stock drop 40% in a day. So if you’re willing to do whatever it takes, you still have to execute your plan carefully, and keep adapting your approach. Because effort with effective execution creates magic. T his book is your map, your blueprint to take you from where you are today to where you want to be financially. By consistently taking massive and effective action, and adapting your approach whenever it doesn’t work and trying something new, you will move toward your dream, but there’s one final, extraordinary element that plays an important role in whether your dream becomes a reality or not.

Step 3: G race! Some call it luck, coincidence, fate, or G od’s hand. I call it grace: the acknowledgment that there’s more in this world than just ourselves, and that perhaps a higher power gives us both the privilege of this life as well as the gifts of insight and guidance when we’re open to them. It’s amazing how, when you take care of the first two steps, G od or the universe or grace— whatever you like to call it—tends to step in and support what you’re doing. T hings flow to you when you do your part first. W e’ve all experienced the phenomenon of serendipity. Something happens that defies explanation, so we call it a coincidence. W e miss a train and meet the person we end up marrying. W e fill in for a friend, and it leads us to the job of our dreams. W e didn’t figure it out in advance, didn’t earn it—it just happened. T o me, that’s grace. And the more you acknowledge and appreciate the grace that’s already in your life, the more you experience the gifts that are beyond what you’ve created. I’ve had it happen many times in my life, and I know it’s real. I also know that gratitude connects you to grace, and when you’re grateful, there is no anger. W hen you are grateful, there is no fear.

So, are you ready to become the creator of your life, not just the manager of your circumstances? D o you know what you’re really investing for? An income for life! Are your dreams becoming a part of you, a “must” that your unconscious mind focuses on night and day? Are you willing to do what it takes to make them a reality? T hen it’s time to turn the page and do what so many others fail to do.

It’s time to make a plan. . . .

C HAPT E R 3.2

W H AT ’S YOU R PL AN ?

If you don’t know where you are going, every road will get you nowhere.

— H E N R Y K ISSIN G E R

C ongratulations, you’ve come a long way! Y ou’ve taken three huge steps toward Financial Freedom. Y ou’ve made the most important financial decision of your life. Y ou’ve become an investor by committing or expanding the percentage of your income that automatically goes into your Freedom Fund, and you’ve begun to build your money machine that will set you free. Y ou’ve also learned how to protect yourself from the biggest lies designed to separate you from your money. Finally, you have put a price on your dreams: you know how much income it will take to be financially secure and independent. N ow we’re going to take what you’ve learned about the power of compounding and put those Money Power Principles to work. W e’re going to work together to create a plan for you and your family that is absolutely attainable and within reach, no matter what level of financial dream you’re         shooting     for:    security,          vitality,       or independence.

T here’s one more thing before we start. If you’re like most people, you hate talking about money. But hey, it’s just us, anyway. N o one else will see these numbers unless you decide to share them. W hat’s most important is that you be honest with yourself. N o rounding up here. N o bending the truth. N o looking at your “numbers” with a rosy lens and making your finances look a little better than they are. And by the same token, don’t sandbag yourself either by making the plan so conservative that you feel like it’s impossible to achieve. Just level with yourself and commit to taking a candid picture of where you are now. T hat’s how to make this plan really work.

Y OU C AN PL AY ON L Y Y OU R OW N H AN D

A good friend of mine recently had a reunion with a group of his boyhood pals near my home in Palm Beach. T hey all gathered to celebrate their 50th birthdays. T hey had gone to nursery school together and lived down the street from one another throughout high school in a L evitt community of tract homes on L ong Island, N ew Y ork. T heir fathers were all professionals, or owned their own businesses, their mothers were all housewives; and their household income levels tracked together closely. W hat struck me most about these lifelong friendships were the demographics. D uring their formative years, the lives of these friends were in synch, but once they went away to college, the young men splintered in different directions:

One went to work for a leading financial institution on W all Street.

One became a photographer, opening a frame shop in Manhattan.

One built homes across the mid-Atlantic states.

One started a business as an importer of fine wines and craft beers.

One trained as an engineer and worked on a civil servant’s salary in South Florida.

W hen they got together, these lifelong friends compared notes. D espite the gap in income levels and bank accounts, they were all happy—not happy in precisely the same ways, of course, but happy. T heir needs were met. Many of their hopes and dreams as well.

My friend shared the concepts from an early manuscript of this book with his buddies. After a few beers, the conversation turned to money, and they asked one another the same question you answered in the last chapter: H ow much money would it take to reach financial security or fund their retirements? T he W all Streeter thought he had to save at least $20 million to maintain his present lifestyle without having to work. T he Manhattan photographer thought $10 million would do the trick. T he real estate developer thought he could manage on $5 million, especially now that his kids were out of college. T he wine merchant had recently remarried. In spite of welcoming a new baby, he was counting on a nest egg of $2 million. And the civil servant, the one who’d been conditioned to live within his means and to look ahead to a steady pension for the rest of his life, thought he could live worry free once his pension kicked in and he started collecting Social Security benefits.

W hich one of these friends was closest to achieving his goal? W ho had the right number and the right plan in place to help him get there? It’s a trick question, of course. T he answer isn’t driven by money. Y ou don’t “win” the race of life by amassing the biggest pile of cash or accumulating the most things. And you don’t win by grabbing a quick lead and coasting to the finish line.

H ow do you win? Y ou win by living on your own terms—as well and as fully as you can, for as long as you can.

Y ou create a plan that meets your needs, that works for you, and you stick to it. T hat’s success, plain and simple. If you’re scrambling, constantly competing with others’ views of success or financial independence and trying to achieve an elusive goal, you’re going to fall behind and become frustrated. If you’re chasing someone else’s goal, you also lose. It doesn’t matter how much your neighbor has, what kind of car he or she drives, or the vacation he or she takes. T his plan is about you, only you, and no one else.

T he day you stop racing is the day you win the race.

— BO B MAR L E Y

T H E IL L U SION OF AD VAN T AG E

E ver watch track-and-field events in the Olympics? It’s easy to stare at the track just before the starting gun fires and wonder how the runner positioned all the way out in front in the outer lane of the track doesn’t have a huge advantage. Intellectually, we know that all the runners must run the same distance, but visually our eyes seem to deceive us. T hat so-called lead is called a stagger, and it’s meant to even the distance on an oval track. In a 400meter race, there’s a gap of about six meters separating each runner.

But, of course, everyone knows that there’s no advantage, physically, to being all the way out in front on the outside of the track, or all the way in the back on the inside. Y ou have to run the same distance either way. Y et the appearance of advantage can be a powerful psychological edge. D oes the guy out in front think he’s got the lead? D oes that give him a boost of confidence, or perhaps take away the tiniest fraction of his drive? D oes the guy all the way “in back” feel like the underdog—and then run just a little bit faster to compensate?

L et’s go back to our five friends, from the outsidelooking-in perspective. It might feel like the civil servant is all the way in the back, lagging behind the field, and it might seem like the W all Street executive has set himself up for a strong finish, but that’s the illusion, not the reality. N o one is ahead.

T here’s no first place or last place here. L ife is not a competition. Often people use money and the acquisition of things to measure where they stand: who’s got the nicer house, the fancier car, the summer home in the H amptons. But the truth is, we can’t predict how long we’ll live or the state of our health as we age. T he reality is, it doesn’t matter where we start. It’s how we finish that counts. H ere it seemed that all of these lifelong friends were headed in the right direction—each on his own terms, in his own time. T hat’s one of the reasons they felt so happy with their lives. W ith a little discipline and foresight, they all had a shot at winning the race they’d started together, all the way back in nursery school.

T he same can happen for you. It doesn’t matter where you stand in relation to your friends, your family, your colleagues, or clients. All that matters is your personal journey. It’s tempting to look at others as a yardstick and convince yourself that you’re all the way out in front, with the appearance of a lead, or resign yourself to the back of the pack. But that’s not the point. T he race of life is a marathon, not a sprint. T he only thing to do is focus on the path in front of you. L ook ahead. E stablish your own pace. K eep moving forward. And then create that plan.

T he only person you should try to be better than is the person you were yesterday.

— AN O N Y MO U S

Y OU R PL AN

N ow that you know that your only competition is yourself, it’s time to come up with a plan and create a financial blueprint. T he good news is, all you have to do is answer six questions in the It’s Y our Money app. U sing this wealth calculator, you’ll have a first version of your

plan within seconds. If you haven’t already downloaded the app, here’s the link: www.tonyrobbins.com/masterthegame.

T       he six questions are related to two areas: where youare now and what you are committed to creating going forward. T he few numbers you need to answer you can pull from your records, or perhaps off the top of your head. Y ou may have to do a little bit of homework, but most of these numbers should be close at hand—and, if you can’t come up with them right now, it’s okay to use a round-number estimate just to get you started to keep the momentum going.

U      sing these numbers, the app will build a plan tailored just for you, based on variables you get to determine: like how much you expect your income to grow, how much you’re determined to save, and what rate of return you expect to get on your investments. Y ou can be conservative or aggressive with your estimates—or you can run the numbers both ways and decide on some middle ground. And the beauty here is, once you capture these numbers, the app will do all the work for you. Y ou’ll have a true blueprint for your financial future, a clear plan to follow.

C H OOSE Y OU R OW N AD VE N T U RE

T he wealth calculator in the app you’ve just downloaded is a device I’ve used for more than three decades in my workshops and seminars. It’s simple and flexible, and it’s helped millions of people create financial plans that work for them. It’s built on a series of conservative assumptions, but you’re free to go in and change those assumptions if you’d like. Y ou can make them more conservative or more aggressive. Y ou’re in control, so put in numbers that fit with your lifestyle, your current reality, and your future dreams. If you don’t like the picture that comes back to you, you can play with your numbers and choose a different path to financial freedom. In the rest of this section, we’ll work together to get you specific steps to speed up your plan and insure its success. T he first plan you come up with is just that: your first bite of the apple. T hen we’re going to take it and improve upon it significantly in the pages ahead . . .

A few things to keep in mind before we start:

One of the biggest factors will be our tax rate, which is radically different for each one of us. T his book is read by people all over the world, so rather than make it complex, we’ve made it very simple. W herever you live, in the pages ahead you’ll learn to utilize the tools in your country that give you the greatest tax efficiency. W herever possible, you want to use tax-advantaged accounts to accumulate your wealth to generate a greater net rate of return.

T his calculator will then show you three potential scenarios, with different annual rates of return for each plan: 4% , 5.5% , and 7% . A conservative plan, a moderate plan, and an aggressive plan. T hese rates are after-tax rates of return. Some might find these numbers too conservative, or too aggressive; again, you can adjust them to any numbers you like.

H ow did we get to those numbers? On the high end, if you look at the standard set by the C harles Schwab organization, it will tell you an aggressive return is 10% .

Our app’s aggressive return is 7% . W hy the three-point difference? Schwab has shown that over the past 40 years, from 1972 to 2012, the market has averaged 10% . But our calculator is assuming approximately 30% in taxes, which brings the number to just under 7% . In the U nited States, long-term investment tax rates are only 20% , not 30% —so our app is being aggressive on the tax side. Also, remember that if you are investing through a tax-deferred vehicle like a 401(k), IRA, or annuity, you are deferring taxes. So if you had a 10% return (as in the Schwab example), you would continue to compound at 10% —with no tax deducted until withdrawal. W e are using our lower returns of 4% , 5.5% , and 7% to provide a buffer for mistakes or future returns failing to hit the aggressive mark you had hoped for.⁸

On the low end, or conservative side, if you look at Vanguard, it uses a 4% return after taxes. But we’re looking at things a little differently. Most Americans who have money to invest do it through their 401(k), IRA, or

401(k) Roth. W hat’s the best option? W e recommend that you go with a Roth (or your country’s equivalent), unless you truly are certain your taxes are going to be lower in the future. (L ucky you!) G overnments all around the world, and especially the U nited States, have spent money they do not have. H ow are they going to pay it back? By raising taxes. So while no one knows for certain whether taxes will go up or down, my bet here is they’re going up. In a Roth, your returns are 100% yours, meaning that if you’ve got a 7% return, you keep all 7% —no cut to the tax man ever on the growth of your investments. If you get a 10% return, you keep all 10% .

T his is why we built the wealth calculator this way. It gives the flexibility to think about returns in a net (aftertax) approach. Y ou design the plan with what you believe is most appropriate for your planning purposes.

T his wealth calculator is designed to quickly give you a sense of how different choices will impact how long it will take you to achieve Financial Security, Vitality, or Independence. After you come up with a basic plan you like, you can also get precision too. As I mentioned earlier, Stronghold (www.StrongholdFinancial.com) has a technology platform to link all of your investment accounts. It will give you immediate feedback on what your actual rate of return has been on your investments in the past. (Most people have no clue!) It will show your best performing years, your worst performing years, and in how many years you have taken a loss. It will also show you how much you are really paying in fees, so you’ll know the true impact on your future savings. G o there, if you like, after you have your basic plan completed on the app.

Of course, with the app, the numbers and your plans are completely secure and remain accessible to you wherever you go, on any device. Y ou can change your returns at any time, change how much you’re willing to save, and see the impact in moments.

O ne of the most powerful ways to accelerate the pace at which you achieve your financial goals—and the most painless way I know—is to implement the Save More T omorrow plan, which has helped over 10 million Americans grow their savings in ways they never thought possible. D o you remember how it works from chapter 7.4, “Y our Money Machine”? Y ou commit to automatically taking a percentage of any raise you receive in the future and adding that to your Freedom Fund.

So, for example, let’s say you’re saving 10% of your current income toward your Freedom Fund: you’re investing, but you want to find a way to speed up your plan. By committing to the Save More T omorrow plan, the next time you get a 10% raise, 3% would go toward your Freedom Fund and the other additional 7% would be available for your improved lifestyle today. D o this three times in the next decade, and you could be saving up to 19% —almost double what you are putting away today—and at no loss to you, because it’s all based on additional future income. T his will make a huge difference in the speed with which you can achieve your financial dreams.

T o take advantage, just click on the Save More T omorrow option in the app. One final note: I’ve also taken out the value of your home from the equation. N ow, hold on, before you scream and yell. Y es, I know, for many of you, it’s the largest investment you have. If you want to add it back in, you can, but I’ve taken it out so you have yet another conservative cushion. W hy? Because you’ll always need a home to live in. I don’t want you to run these numbers and generate a plan that relies on the value of your home to generate income. Y ou may sell your home in ten years and realize a significant gain. Or you may stay in your home for the rest of your life, or you might need to downsize and take some money off the table to help pay off an unanticipated expense. N o matter what happens, your plan is designed to keep you afloat no matter what your living situation holds.

Why all these buffers built into the system? Because I want these numbers to be real for you—not just real in this moment, but real over time, against any number of real-world events that could set you back. I want to soften the blow in case you veer off course. But I also want you to exceed your own expectations. Most of all, I want you to know with absolute clarity and certainty that the projections we generate together are truly within reach.

Ready to dive in? Open your app!

W hen I look into the future, it’s so bright it burns my eyes.

— O PR AH W IN F R E Y

D RU MROL L , PL E ASE . . .

N ow, I know you are going to want to dive right in, hit E nter, and sit back while the app tells you how the rest of your life will play out. But that’s actually not the point. T he true value of this next step is to show you what’s out there: what’s realistic, what’s possible, what’s worth dreaming and fighting for. It lets you try on different outcomes, and play with some of the variables if you want to create a different picture or produce a different result. In the near term, it gives you a true plan you can follow —a blueprint for your financial future.

T hink of it as your personal financial trainer. It takes your “real” numbers—your savings, your income—and calculates what they’ll be worth based on a series of anticipated outcomes. D on’t worry about specific investment strategies just yet. W e’ll cover these in section 4, but it’s important to get some idea of how your money can grow once it starts to work for you.

Remember, the focus is not on where or how you’ll invest your money. T his exercise is an opportunity to forecast—to look into the crystal ball of what’s possible. W hat would your future look like if you could realize a 6% return on your investments? H ow about 7% or more? H ow much money would you have after 10 years? After 20? W hat if you somehow managed to hit the jackpot and found a way to generate gains of 9% or 10% ? Remember, just one of the asset allocation portfolios you will learn in chapter 5.1, “Invincible, U nsinkable, U nconquerable: T he All Seasons Strategy,” has produced an average rate of just under 10% over the last 33 years, and lost money only four times (and one of the losses was only 0.03% )! So there are many possibilities once you educate yourself as to how the top investors on earth conduct themselves.

So play around until you find a number that feels right to you—one that you have a healthy dose of confidence in. Just a few minutes of your time, and you’ll know what your savings, with the power of compounding, at different rates of return, will bring you.

It is only the first step that is difficult.

— MAR IE D E V IC H Y -C H AMR O N D

C ongratulations on running your first plan. Are you excited about the results? C oncerned? Frustrated? Or encouraged? Over the years, working with countless people from all over the world, I’ve noticed their results tend to place them in roughly one of three categories:

1.     T hose who are young and in debt, wondering howthey’re ever going to get to financial security. W hat’s beautiful is that they find out they can!

2.     T hose who think they are decades away from financialsecurity, and are surprised—or, frankly, shocked—to learn they are only a stone’s throw away: five, seven, ten years max. In fact, some are already there but had no idea.

3.     T hose who started late and are fearful of never beingable to make up for lost ground.

L et me share with you some examples of other people I’ve worked with in similar situations and show you how their plans played out—how they achieved Financial Security, Vitality; even Independence and Freedom.

AL L G ROW N U P BU T ST IL L PAY IN G OFF ST U D E N T L OAN S . . .

L et’s start with someone young and in debt. L ike a lot of millennials today, Marco graduated with a big chunk of debt. As a 33-year-old engineer earning a respectable $75,000 a year, he was still paying off $20,000 in student loans. L ike so many Americans, Marco felt like his debt was consuming his life—he thought he’d be paying it off forever (and probably would be, had he paid only the minimum payments). Marco did, however, expect his salary to grow, slowly but steadily with expected raises of about 3% to 5% per year. After working together on a new plan for Marco, we allocated 5% of his income to paying off his student loans. And Marco committed 3% of any and all future raises to his Freedom Fund.

W hat did this new plan give him? H ow about a debt-free life in seven years! On top of that, Marco was going to be able to take that 5% , once he was debt free, and redirect it toward his savings to grow and compound his Freedom Fund. W ith this savings and investing plan, Marco could reach F inancial Security in 20 years. T hat may sound like a long time, but he’ll still be only 53 years old. And just seven years later, at 60, Marco could reach F inancial Independence—a full five years before he’d ever dreamed of retiring, with more annual income than he ever imagined! Marco went from worrying about never paying off his student loans to looking at a future of real financial independence. E ven better, within five years, by age 65, with all of his growth and the boost of Social Security added, Marco would actually experience his definition of Financial Freedom— a prospect entirely unfathomable to him before running his new plan. Remember, he began this journey with no assets and nothing but debt!

IF IT L OOK S T OO G OOD T O BE T RU E . . . IT MIG H T AC T U AL L Y BE T RU E

T hen there’s our second category of people: those who take a look at their plan and think something must be wrong. T heir calculator is not working! T hey see that F inancial V itality or Independence is popping up far too quickly.

“T here’s no way I can get there that fast,” they think. “I can’t achieve Financial Independence in five, seven, or eight years. T hat’s crazy!” In their minds, they’ve got a good 20 or 30 years of hard work and nose-to-thegrindstone days ahead of them.

W here’s the disconnect? H ow is that possible?

It’s possible because the number they had in their head—that $10 million or $20 million or $30 million price tag—was totally off base. It had nothing to do with reality. It was simply a pie-in-the-sky number representing what they thought they needed to be financially independent, not what they actually needed.

K atherine, a woman who attended one of my W ealth Mastery seminars, is a great example. She was a savvy businesswoman who needed $100,000 a year to be financially secure—a large number by many people’s standards, but not by her own. T o achieve Financial Independence, she’d need $175,000 to maintain her current lifestyle without working. K atherine assumed it was going to take more than 20 years to get there.

W ant to know what happened when she ran her numbers with my team? T he first thing they uncovered was that her current business was earning more than $300,000 a year in net profits and growing at nearly 20% per year. W ith my team’s help and a little bit of research, she found that she could sell her business today for six times her current profits, or a total of $1.8 million. W hat does this mean?

W ell, if she sold her business for $1.8 million and then received a 5% return, her annual investment income would be $90,000 per year. She had other investments already that were providing more than $10,000 per year, so with a $100,000 annual income, guess what: K atherine is financially secure right now!

K atherine was blown away—but also confused. She said, “But T ony, I don’t want to sell my business right now!” I told her that I wasn’t encouraging her to, nor did she have to. But she should declare victory and realize that she is financially secure today. W hy? Because she has the assets to produce the income she needs right now. E ven more exciting, at her business’s current growth rate of 20% per year, she would double her business in the next three and a half years. And even if her current growth rate was cut in half to only 10% per year, in seven years her business would be worth $3.6 million. If she sells at that point ($3.6 million × 5% = $180,000 per year in income without working), in three and a half to seven years, K atherine will be financially independent. N ot 20 years! And this was without making any other investments whatsoever!

By the way, one of the things I show business owners in my Business Mastery program is a little-known set of strategies that allows you to sell a portion (or even a significant majority) of your business and yet still run, control, direct, and profit from it. T his allows you to get a large cash-flow bump to secure your Financial Freedom today, while still having the enjoyment and fulfillment of growing the business you love.

Y OU C AN BE L AT E T O T H E PART Y AN D ST IL L W IN

L et’s go back to my friend Angela’s story. Angela is anything but average, but from a financial perspective, she represents the average American. Angela is 48 years old. H aving lived a free-spirited life, traveling and sailing around the world, she had never saved or invested in her entire life. After finishing section 1, she’s now committed to saving 10% , but she’s still got a major challenge: she’s beginning late in the game. (As she said, “I’m almost fifty!”) She has less time to tap into the power of compounding.

W hen Angela first calculated the amount of income she’d need for Financial Security, her number came to $34,000 a year. F or F inancial Independence, she’d need $50,000. At first glance, her numbers excited her. T hey didn’t have seven zeros, and they were numbers she could get her arms around. H owever, the timing of those numbers brought her back down to earth. Starting late in life and saving only 10% of her income was a plan that would take Angela 24 years to get to F inancial Security—if she was 41 years old, that would be a great win. She would achieve it by 65, but since she was starting later, Angela would be 72 years old when she achieved Financial Security. It was certainly a more compelling future than if she hadn’t run the plan, and she was glad to know she could get there. But she wasn’t terribly excited by the long, slow road ahead.

So what could we do to speed up that goal? H ow could Angela get to F inancial Security faster? One way would be to increase her savings and invest it. She was saving 10% already. N ever having saved before, 10% seemed like a huge number, but by committing to the Save More T omorrow plan, she could painlessly save more when she received raises and accelerate her plan. Another way to speed things up was to take a little more risk and increase her rate of return to 7% or more. Of course, that heightened risk could bring about more losses too. But it turned out there was an even simpler insight we had overlooked.

L ucky for Angela, she still had one more round in her arsenal. She had left out a huge piece of future earnings, one that many people neglect to include in their financial planning: Social Security.

Angela, already 48, was only 14 years away from taking Social Security at a reduced rate and 17 years away from capturing her full benefit. She stood to take home $1,250 per month once she turned 62, or about $15,000 a year. So that $34,000 a year in income she needed for Financial Security suddenly dropped down to $19,000. N ow when we reviewed the numbers in the app, she shaved a full decade off her timeline. Instead of getting to F inancial Security at 72, she was going to get there at 62! Angela was going to be financially secure in 14 years, and she was thrilled. She now would have enough income never to have to work again to pay for her mortgage, her utilities, her food, her transportation, and her basic health insurance—a real sense of freedom for Angela.

T he impossible became possible. And guess what else happened? Once Angela realized financial security was in view, she took that emotion, that excitement, that momentum, and she said, “H ey, let’s kick it up a notch. If I can get to Financial Security by sixty-two, let’s take a look at Financial Independence. I’m going to figure out a way to become financially independent, not in my seventies or eighties but in my sixties!” And her number to reach Financial Independence? It was $50,000—only $16,000 more a year in income than she’d need for Financial Security.

Angela took one more step. After reading chapter 3.6, “G et Better Returns and Speed Y our W ay to Victory,” she found yet another way to accelerate her plan. Angela was always extremely interested in owning incomeproducing real estate, and she learned some simple ways to invest in senior housing (or assisted living facilities) that are available through public and private real estate investment trusts. (T hese are covered in section 4.) W e will highlight more details later in the book, but in short, senior housing facilities are a way to own incomeproducing real estate that is also tied to what I call a “demographic inevitability”: a wave of 76 million baby boomers who are aging and will require the use of these facilities. By investing $438 per month (or $5,265 per year) for the next 20 years, and assuming that she reinvests the income for compound growth, she will have accumulated $228,572. (N ote: this assumes a 7% income/dividend payment, which is the current rate on multiple senior housing real estate investment trusts.)

T he amount she accumulates will generate $16,000 of income (assuming a 7% income payment), and she won’t have to tap into her principal unless she wants to! One last huge benefit? Angela doesn’t have to pay income tax on the entire income payment due to the tax deductions for depreciation.

Marco, K atherine, and Angela are real people just like you and me. Y our plan is within reach too, and just like them, you might be able to get there sooner than you think. D on’t let the first plan you’ve run on the app be the end-all. T hink of it as your starting point to make your dreams happen. In the next chapters, we’re going to show you five ways to speed it up and get there even faster.

K ites rise highest against the wind, not with

it.

— W IN ST O N C H U R C H IL L

W hether you’re excited about the numbers your plan threw back at you or you’re disappointed about the long haul ahead, take heart—disappointment isn’t always bad. It often serves as a great kick in the pants that pushes you

to create massive change. R emember, it’s not conditions but decisions that determine our lives. D isappointment can drive us, or it can defeat us. I choose to be driven by it—and I’m hoping you take the same view. Most people don’t even get to this point in their planning, because they don’t want the letdown they’re afraid they’ll experience once they run their numbers. But you’ve taken on the challenge and the promise of this book, so you’re not like most people. Y ou’ve chosen to be one of the few, not the many.

I vividly remember a Fourth of July trip I took more than 20 years ago with my dear friend Peter G uber and a group of top movie executives through N antucket and Martha’s Vineyard. W e were on Peter’s private yacht, and a couple of these moguls were throwing around how they had earned $20 million and $25 million on a single film that year. My jaw dropped—that number simply astonished me. H ere at 30 years old, I thought I was doing pretty well—that is, until I hung out on deck with a bunch of movie tycoons. T hese guys had an insane lifestyle, and it didn’t take long for me to get seduced by the idea of it all.

T his experience jolted me, but it also made me ask a different question: W hat did I really want to create in my life? And could I possibly ever get there? At that time, I didn’t see any way I could add enough value to other human beings through my core skill of coaching to ever create that level of Financial Freedom.

Of course, I was being totally unfair, comparing myself and my level of accomplishment to these men. I was 30 years old; Peter and his movie-producing friends were all in their early to late 50s. Peter was in the prime of his career; I was just beginning mine. H e had 52 Academy Award nominations and a slew of H ollywood hits to his name. Sure, I was making a name for myself and running a successful business—and changing lives— but financial success for Peter and his friends and financial success for me were light-years apart. And so, as I compared myself to those guys on the boat, I did what so many people do unfairly: I beat myself up for not being at the same level of accomplishment.

But the beauty of that moment, that day, was that it put me in a new and strange environment, and something inside me shifted. I was so far outside of my comfort zone. I felt like I didn’t belong—like I didn’t deserve to be there. H ave you ever felt like this? It’s amazing what our minds will do to us if we don’t consciously direct them.

And yet contrast is a beautiful thing. W hen you get around people who are playing the game of life at a higher level, you either get depressed, pissed off, or inspired. T hat day, I realized I didn’t want a yacht, but I was inspired to sharpen my game. I realized there was so much more I could do, give, and be. T he best was yet to come. I also realized how incredibly valuable it was for me to get uncomfortable at that point in my life; to put myself in an environment where I didn’t feel on top or superior.

Of course, Peter had none of these thoughts. H e was just bringing dear friends on a Fourth of July trip as a gift of love! But what he had really done was show me a world of unlimited possibilities. T hat experience helped awaken the truth in me. It became clear that I did have the capability to create anything I could envision. Maybe I didn’t want to have those same grown-up toys, but I sure as hell wanted to have the same types of choices for my family. T oday, in my early 50s, those impossible visions have become a simple reflection of the reality I now live. And I still don’t want a yacht!

L et’s be clear. It isn’t about the money. It’s about choice; about freedom. It’s about being able to live life on your terms, not anybody else’s.

D on’t complain.

D on’t say you can’t.

D on’t make up a story.

Instead, make a decision now!

Find your gift and deliver it to as many people as possible.

If you become stronger, smarter, more compassionate, or more skilled, then your goal is a worthwhile one.

One of my earliest mentors, Jim Rohn, always taught me, “W hat you get will never make you happy; who you become will make you very happy or very sad.” If each day you make just a little progress, you will feel the joy that comes with personal growth. And that leads to perhaps one of the most important lessons I have learned about big goals and achievement.

Most people overestimate what they can do in a year, and they massively underestimate what they can accomplish in a decade or two.

T he fact is: you are not a manager of circumstance, you’re the architect of your life’s experience. Just because something isn’t in the foreground or isn’t within striking distance, don’t underestimate the power of the right actions taken relentlessly.

W ith the power of compounding, what seems impossible becomes possible. Right now, whether you love your financial plan or hate it, or whether you’re excited or afraid, let’s make it stronger together. L et’s accelerate it by looking at the five elements that can speed it up.

8. At this time of this writing, interest rates have been repressed for an extended period of time. H owever, the app will be updated if and when interest rates rise. Y ou are also welcome at any time to put in any rate of return that best suits your circumstances and realistic investment return objectives.

C HAPT E R 3.3

SPE E D IT U P: 1. SAV E MO RE AN D IN V E ST T H E D IFFE RE N C E

If everything seems under control, you’re not going fast enough.

— MAR IO AN D R E T T I

C ongratulations: you’ve just taken a huge step toward F inancial F reedom! Most people don’t take the time to consider their complete financial picture and create a plan. And for those who do, it often stirs up all kinds of emotions. It’s big, it’s scary. I’ve been there, I get it. But now that you’ve done it, take a moment to savor your victory. And ask yourself this: H ow do you really feel about your plan? D o you feel good about your or your family’s future—are you excited to realize that your financial dreams are closer than you imagined? Or is it terrifying to think you might never get to where you’d like to be—are you so deep in debt you’re starting to wonder if you’ll ever dig your way out of the money pit?

W herever you are, it’s okay. Y ou’ve come a long way, you’ve made huge strides and there’s no turning back now. And now that you’ve learned to walk, so to speak, let’s teach you how to run. T he goal of these next minichapters is to get you thinking about how to make your financial dreams come true faster than you ever thought possible. D ream big. Make it happen. And then speed it up. H ave you ever had a crazy busy day, worked your tail off, raced against the clock, and then, against all odds, finished early? T hat extra hour or two of life that you reclaim is an absolute gift—a bonus that makes you feel like the world is on your side. Y ou hit the gym and go for a run, head out for cocktails with friends, or race home to tuck the little ones into bed.

I travel like mad; I’m in different countries, on different continents, crossing time zones and flying around the world like the business equivalent of a H arlem G lobetrotter. If I arrive somewhere early, if I’ve got an extra window in my week to refocus my energies or spend time with my wife or my family, I’m energized and excited. I just found some extra time!

W hat if that extra time could last more than just an hour or two? W hat if you could find not just an extra hour in your day, but, financially, find two years of savings in your life? Or five years? Maybe even a decade of life where you have the freedom of not having to work to support your lifestyle? T hat’s the promise of these pages. E ven if your current plan doesn’t look like it can get you there, these chapters can show you how to shift your plan and find that opening in your life—that extra money, that extra time, that ultimate freedom.

H e who gains time gains everything.

— BE N JAMIN D ISR AE L I

If you’re going to speed things up, there are five core strategies. Y ou can do any or all of them—it’s your choice. Any one of them by itself can significantly speed up the tempo with which you achieve your dreams of financial security, independence, or freedom. Put a couple of them together, and you’ll be unstoppable.

Y ou can be rich by having more than you need, or by needing less than you have.

— JIM MO T T

ST RAT E G Y 1: SAVE MORE AN D IN VE ST T H E

D IFFE RE N C E

T he first way to speed up your plan is to save more and invest those savings for compound growth. I know, I know, that’s not what you want to hear. Maybe you’re even thinking, “T ony, I’m spending every dime I have. T here’s no way I can possibly save more under any circumstances.” If that’s true, before we talk about anything else, let’s remember the most fundamental strategy you learned back in chapter 2.9, “Myth 9: T he L ies W e T ell Ourselves”: the best strategy to get around your belief system is to develop a new belief! Y ou can’t squeeze water from a rock, but you can change your story.

E ven if you’re convinced you have no room to save,

Richard T haler showed us that we can all Save More T omorrow. Remember those blue-collar workers who said they could never save? And just five years and three pay raises later, they were saving 14% . And 65% of them were saving as much as 19% ! Y ou can do this, and you can make it painless if you use that strategy. L et’s attack some fresh strategies right now.

W hat if—in one fell swoop, in one single move —you could save a huge chunk of money toward your F inancial F reedom, and it wouldn’t cost you a dime more? D o you like that idea? L et’s take a look at one of the biggest investments in your life: your home. If you’re like millions of Americans, home ownership is important, something you either aspire to or currently take great pride in. W hether you live in Portland, Maine, or Portland, Oregon, your house probably takes the biggest bite out of your monthly apple.

H ow would you feel if you could save an extra $250,000, $500,000, or even $1 million, from your home? Sound impossible? N o, I’m not talking about refinancing your mortgage at a lower rate, although that is one painless way to save hundreds or even thousands of dollars a month.

T H E BAN K E R’S SE C RE T

Y ou don’t have to wait for a market downtick to save money on your mortgage. By the time you’re reading this, rates may be on their way back up anyway. Y ou can still cut your mortgage payments in half, however, starting as soon as next month, without involving the bank or changing the terms of your loan. H ow? L et me ask you a simple question. L et’s say you’re applying for a home loan, which would you prefer?

Option 1: 80% of your combined mortgage payments goes toward interest; or

Option 2: a 30-year fixed rate mortgage at 6% .

G o ahead and think about it for a moment. W hat do you think? Are you tempted by option 2? D oes option 1 sound crazy? D id you follow the crowd and choose option 2? Or did you outsmart us all and choose option 1?

T he answer: it doesn’t matter. T hey’re identical. W hen you sign your name on the dotted line and take on that 30-year fixed-rate mortgage at 6% , fully 80% of your mortgage payments will go toward interest. D idn’t see that one coming, did you? H ow much does that interest expense wind up costing you over the course of your loan? Is it 30% more? 40% more? 50% more? L ife should be so good. Y ou want to know the banker’s secret? Y our interest payments will tack on an additional 100% or more to your loan value. T hat half-million-dollar home you buy actually ends up costing you a million dollars after interest payments. If you buy a $1 million home? T hat costs over $2 million once interest payments are added in! T ake a look at the chart below to see the impact of interest expense on your home purchase. T he example is a $1 million home, but no matter what price you pay for your home, the ratio of impact is the same. Interest payments will double the cost over time.

For most people, their mortgage is the single largest expense, and with the vast majority of your payment going toward interest, I bet you’re not surprised to learn that the average American, when you add in credit cards and auto loans, spends 34.5% of every take-home dollar on interest expense. And that’s just the average—many people spend more!

So how can you cut down that enormous interest payment? H ow can you decrease the interest expense you rack up over time—and take that money and funnel it to your Freedom Fund? T he answer is so simple it might surprise you.

If you have a traditional fixed-rate mortgage, all you have to do is make early principal payments over the life of the loan. Prepay your next month’s principal, and you could pay off a 30-year mortgage in 15 years in many cases! D oes that mean double your monthly payments? N o, not even close! H ere’s the key:

Money Power Principle 3. C ut your mortgage payments in half! T he next time you write your monthly mortgage check, write a second check for the principal-only portion of next month’s payment.

It’s money you’ll have to pay anyway the following month, so why not take it out of your pocket a couple of weeks early and enjoy some serious savings down the road? Fully 80% to 90% , and in some cases even more, of your early payments will be interest expense anyway. And on average, most Americans either move or refinance within five to seven years (and then start the insanity all over again with a new home mortgage).

“It’s a pity,” mortgage expert Marc E isenson, author of T he Banker’s Secret, told the New York T imes. “T here are millions of people out there who faithfully make their regular mortgage payments because they don’t understand . . . the benefits of pocket-change prepayments.”

L et’s take a look at an example (in the table on page 252). T he average American home is $270,000—but this strategy works whether your home costs $500,000 or $2 million. A 30-year loan on $270,000 at 6% requires an initial monthly payment of $1,618. W ith this technique, you would also write a second check for an extra $270— next month’s principal balance—a very small number, relatively speaking. T hat second check of $270 is money you’ll never pay interest on. T o be clear, you’re not paying extra money; you’re simply prepaying next month’s principal a touch sooner.

H old yourself to this pay-it-forward strategy each month, and, again, you’ll be able to pay off a 30-year mortgage in just 15 years—cutting the total cost of your home by close to 50% . W hy not prepay that $270, and cut the life of your mortgage in half? So if you have a million-dollar home, that’s a half million dollars back in your pocket! H ow much would that accelerate your journey to Financial Freedom?!

BABY , Y OU C AN D RIVE MY C AR

It’s not just our homes where we can save big bucks. One of my sons was dying for a BMW . After years of coveting the “ultimate driving machine,” he finally went out and leased a brand-new Beemer with all the performance options. H e was thrilled with his purchase. H e loved that car: he loved the way it drove, what it said about him, what it represented. It was a point of pride and aspiration, and it announced his arrival—in his own mind, at least.

On the flipside, that BMW cost him a fortune! H e could have made a monthly house payment with what he was paying for that car. A year or two later, the car got a little dinged up, and, no surprise, lost some of its luster.

At 30, and newly engaged, he decided he wanted to look for a home for him and his future wife. W hen he did the math, he almost croaked. T hat $1,200 payment for his BMW X 6 (with a twin turbo V8) could have literally covered an entire house payment.

H e realized he no longer needed the same ego stroke that came from driving a luxury car. It was just transportation, after all. H e saw that he could put himself in a Volkswagen Passat or a Mini C ooper, and it might even be nicer, newer, more fuel efficient.

On top of that, much of the joy that he got from driving that car also disappeared. H e found joy elsewhere: in the idea of building a new life, putting down roots with the woman he loved, and buying a home. G etting rid of the BMW was no longer a sacrifice; instead, it became a conscious decision to spend his money elsewhere and start building a financially secure future.

N ow, if you’re a car aficionado and love cars (as I do), I’m not telling you to go out and drive a Volkswagen. For many guys, that shiny black Ferrari, Porsche, or the new T esla is just too much to resist. And if your plan is getting you to where you want to be financially, by all means, drive whatever car you want. But if you’re not getting there, or you’re not getting there fast enough, then maybe it’s time to rethink your wheels and see if you can find some meaningful savings to put into your Freedom Fund.

Remember Angela? She read an early copy of this manuscript and came home with a new car—her first brand–new car ever! T ake a look at her numbers: she was able to trade in her old car and save $400 a month, or almost $5,000 a year, to put toward her savings and start compounding right away.

W H AT E L SE C AN Y OU D O?

H ouses and cars aren’t the only places where we can save. W here else can you work at axing expenses in your life that no longer give you value? I know the idea of living on a budget is totally unappealing to most people. I don’t want to be put on a budget and my guess is you don’t either. But what I do believe in is a spending plan. I like the idea of planning how to spend my money so that it gives me the most joy and happiness but also ensures my financial freedom long term.

N ow, to be fair, if you’re one of those people who says, “Screw it, I’m not going to save; I’m just going to focus on earning more,” then you can just go ahead and skip right over to the next minichapter on earning more and adding value. If the idea of saving just completely exhausts or bores you, you’ve got four other strategies to help you speed things up, and I don’t want you to miss them because saving isn’t for you. But if you do, stay with me. I promise you that little things can make a big difference long term—they add up to surprisingly giant numbers.

T o be fair, Amazon and brick-and-mortar bookstores have entire sections filled with books on how to save more money. D ave R amsey is a very caring man with several books in this area, and Suze O rman is another author worth investigating if you are looking to find savings. But we’re going to take a few pages here to highlight the best simple strategies now.

One thing is for sure: you can create a spending plan that helps you decide in advance how and where to spend your money to give you the greatest returns today and in the future.

Remember chapter 1.3, “T ap the Power,” where we looked at how ordering in pizza with friends instead of going out to dinner could save you $40 a week, or $2,080 a year? At an 8% return, that turns into more than $500,000 over 40 years. A half million dollars! T hat’s a whole different retirement picture than most Americans have today. T hat kind of money, on its own or added to our 401(k), can certainly help make us rethink our daily G rande skim latte with a shot of vanilla.

Financial expert D avid Bach is a good friend of mine who got his start by attending one of my financial seminars more than 20 years ago. H e made a decision to pursue his dream of helping people become financially independent, and just a few years later, I hired him for his first paid speech. T oday, through his passion and dedication, he’s helped educate over four million people through his bestselling book T he Automatic Millionaire: A Powerful One-Step Plan to L ive and Finish Rich, which includes the concept of creating wealth through finding what he calls your “L atte Factor.” And it’s not just about coffee: the L atte Factor is simply a metaphor for all those small purchases that we don’t even consider—things we wind up wasting our money on without even realizing it. But if you are a coffee fiend, how much is that addiction costing you? L et’s say you’re a casual “user”: at $4 a day, you’re effectively giving up almost $56,500 of savings at 6% interest over 20 years. For a single drink! But let’s be real: the Starbucks loyalist doesn’t go just once a day. W hat about the real evangelists who are there two or three times a day? T ake your $4 habit and boost it to $10 a day, and now you’re drinking away over $141,250 in savings over 20 years. T hat’s the cost of a four-year college education!

W hat if you’re a purist? Y ou don’t binge on caffeine; your body is a temple. But bottled water is your thing. G ot any Fiji or E vian enthusiasts out there? Or frankly, even if you just stock up on Poland Spring at C ostco, how much are you spending on bottled water every year? A young woman I work with, whom I adore and who considers herself very socially conscious, is about to get married to a guy who regularly buys 12-packs of 1.5-liter bottles of Smartwater. H ow smart is that? H e buys them three at a time, 36 big bottles in total, which lasts him about two weeks and sets him back $75. H e’s spending $150 a month on water, almost $1,800 a year—on something he could get free from the tap, or filter with a Brita water filter system and a few N algene bottles for $50 to $60 a year. Forget that he’s killing our planet; he’s also killing his wallet. I know her fiancé would be much happier if that $1,800 a year was going into their savings account and compounding annually. At 8% over 40 years, that’s $503,605 being pissed away—literally.

I’m not saying you have to give up bottled water or stop getting coffee, but the savings are there somewhere. Isn’t it time to find them?

And finally, let’s not forget about our impulse purchases: you know, the ones that feel great in the moment, like the pricey work bag or the beautiful H ermès tie. L isa, a young mom from N ashville, has a taste for the finer things in life. She drives her husband batty with her impulse purchases. She’ll come home with a great new dress or an amazing pair of boots, and her husband will invariably ask, “W ere they on sale?” or “D id you check online to see if you could get them cheaper?” After several spats, L isa and her husband agreed on a new plan. W hen L isa found herself unexpectedly at Saks Fifth Avenue or Jimmy C hoo, she’d take a photo of her next “must-have” and send it to her husband. H e had two weeks to find her a better price online; otherwise she’d order her purchase over the phone at full retail. But as L isa sheepishly admitted to me, over 80% of the time, he did find whatever she was looking for—at often at 20% or 30% cheaper.

So take a page from L isa and her husband and check out all the online rewards programs that can save you real money. U promise.com helps you earn cash back for college from your everyday spending, from online purchases to dining out and booking travel. Y ou can put those savings toward a student loan, savings account, or 529 college savings plan, a tax-deferred savings plan set up by parents for their kids’ college tuition. And if college has passed or it’s not a priority, but cash is, there are hundreds of other cash-back websites out there— E xtrabux, E bates, Mr. Rebates—all of which can save you 10% to 30% on purchases at thousands of online stores. As for L isa and her husband, they put all their savings back into their U promise account, and now everyone feels better about that pair of stilettos.

At the end of the day, the question to ask yourself is this: D o my expenses, big and small, bring me the thrill they once did? It’s not about depriving yourself; it’s about adjusting your spending habits to mirror your core values and indulge only the experiences that truly matter to you. T hat deliberate spending allows you to invest in a quality of life that is sustainable and brings you joy. W hether you’ve got 20, 30, or 40 years to invest, no matter where you are, how much you can save, or how many years you’ve got to do it, you can take advantage of the unparalleled power of compounding. Financial security, financial independence—whatever your goals, you will get there a whole lot faster when you put your money to work for you.

It’s not about lifestyle, it’s about timing. W hy not make simple changes today to insure you have more than enough down the road to continue to fund your lifestyle and your dreams? Y ou can still enjoy life’s finer pleasures —but you’re in control now. Y ou get to choose how to allocate your funds and where to get the biggest bang for your buck. W hether you’re going to tackle your mortgage expense or trade in those fancy wheels, make your online purchases work for you or do a little better on your everyday expenses—it’s in there. Real, meaningful savings, to the tune of hundreds of thousands of dollars to a million dollars or more are there for you to find and to reinvest.

N ow let’s turn the page and uncover the fastest way I know to speed up your plan and achieve financial independence faster. L et’s learn to earn more.

MIN D FU L SAVIN G S

H ere’s a quick-and-easy six-step exercise to get you thinking more aggressively—more purposefully—about saving:

1.     Brainstorm about all the recurring expenditures thatyou could eliminate or reduce to cut your expenses. C ar insurance, cell-phone bills, lunch money, movie tickets. T hink about where you can make changes.

2.     H ow much do these items or activities cost? H ighlightthe most significant of these expenditures and make a note of the associated costs. N ext, calculate how many times per week you indulge in this expense and take a reality-check snapshot.

3.     N ow, on a scale from 0 to 10 (with 0 representing none and 10 representing extremely pleasurable), how much joy do you get from each of the items above? Attach a number to each activity or item to help you associate these costs to your life.

4.     N ext, think of what it would feel like to have AbsoluteFinancial Freedom. Remember how you responded to that concept back in chapter 3.1: “W hat’s the Price of

        Y our    D reams?    Make    the    G ame   W innable”?

Remember how it made you feel? But at the same time, remember that this was a feeling you experienced in the abstract, in theory. H ere it’s close enough to taste. W hat would you be able to enjoy, have, do, be, or give if you were absolutely financially free?

5.     D ecide which is more important to you: the joy youreceive from the recurring expenditures on your list or the feeling of Absolute Financial Freedom.

Remember that life is a balance. Y ou don’t have to cut out everything from your list to move the needle on that feeling of freedom.

6.     W rite down at least three expenditures you are resolved to eliminate. C alculate how much money this will save you over the course of the next year.

C HAPT E R 3.4

SPE E D IT U P: 2. E ARN MO RE AN D

IN V E ST T H E D IFFE RE N C E

T ry not to become a man of success, but rather try to become a man of value.

— AL BE R T E IN ST E IN

Okay, let’s kick into second gear. If saving is one way to speed up your plan, there is an even faster way that literally has no limits—if you unleash your creativity and focus, and become obsessed with finding a way to do more for others than anyone else. T hat’s how you earn more and shift into the fast lane to freedom.

D RIVIN G A T RU C K T O FIN AN C IAL FRE E D OM?

W hen I was growing up, my mother had a great plan for me. She wanted me to become a truck driver. She had seen these ads on television, over and over, for T ruckmaster truck driving education school. She told me that with a little training, I could qualify as a truck driver and make up to $24,000 a year. W ow, $24,000! T hat was twice what my dad was earning as a parking attendant in downtown L A. She thought that this would provide a great future for me. She worked into her sales pitch that I’d have the freedom to be on the open road and drive. It actually appealed to me on a certain level: the idea that I could just turn on my music and go—kind of a cool thought for a 14-year-old kid who wasn’t even driving yet. I’d have the opportunity to get up and go instead of being stuck in an underground parking garage for 30plus years.

But after all of the misery I had witnessed, all of the shame associated with four different fathers, of never having enough money for clothing or food, I realized I could never drive a truck long enough or far enough to allow me to escape the pain of that situation. In my head, I decided that there was no way in my lifetime I would have a family that would suffer this way. On top of that, I wanted to use my mind and my heart. I wanted to get in the game of life at a different level.

I looked around and wondered how other people’s lives could be so vastly different from my own. W hy were we struggling constantly to make ends meet, to stay ahead of the bill collector—choosing between canned beans or spaghetti with ketchup because we couldn’t afford tomato sauce? And yet, in the same city, not far from us, kids I went to high school with were taking fancy vacations and studying on picture-perfect college campuses—living a life well beyond my wildest dreams— a life so obviously different from the one we would ever experience. W hat did they know that we didn’t know?

W hat were they doing differently from my father and mother?

I became obsessed. H ow was it possible that someone could earn twice as much money in the same amount of time? T hree times as much? T en times as much? It seemed crazy! F rom my perspective, it was an unsolvable riddle.

IN VE ST IN Y OU RSE L F

I was working as a janitor, and I needed extra money. A man my parents knew, and whom my father had called a “loser,” had become quite successful in a short period of time, at least in financial terms. H e was buying, fixing, and flipping real estate in Southern C alifornia and needed a kid on the weekend to help him move furniture. T hat chance encounter, that fateful weekend of working my tail off, led to an opening that would change my life forever. H is name was Jim H annah. H e took notice of my hustle and drive. W hen I had a moment, I asked him, “H ow did you turn your life around? H ow did you become so successful?”

“I did it,” he said, “by going to a seminar by a man named Jim Rohn.” “W hat’s a seminar?” I asked. “It’s a place where a man takes ten or twenty years of his life and all he’s learned and he condenses it into a few hours so that you can compress years of learning into days,” he answered. W ow, that sounded pretty awesome. “H ow much does it cost?” “T hirty-five dollars,” he told me. What!? I was making $40 a week as a part-time janitor while going to high school. “C an you get me in?” I asked. “Sure!” he said. “But I won’t—because you wouldn’t value it if you didn’t pay for it.” I stood there, disheartened. H ow could I ever afford $35 for three hours with this expert? “W ell, if you don’t think you’re worth the investment, don’t make it,” he finally shrugged. I struggled and struggled with that one—but ultimately decided to go for it. It turned out to be one of the most important investments of my life. I took a week’s pay and went to a seminar where I met Jim Rohn —the man who became my life’s first mentor.

I sat in an Irvine, C alifornia, hotel ballroom listening to Jim, riveted. T his silver-haired man literally echoed the questions that had been burning in my mind. H e, too, had grown up poor, wondering, even though his father was a good man, why his father struggled so hard only to suffer while others around him prospered. And then, suddenly, he answered the question I had been asking myself literally for years.

“W hat’s the secret to economic success? T he key,” he said, “is to understand how to become more valuable in the marketplace.

“T o have more, you simply have to become more.

“D on’t wish it was easier; wish you were better.

“For things to change, you have to change.

“For things to get better, you have to get better!

“W e get paid for bringing value to the marketplace. It takes time . . . but we don’t get paid for time, we get paid for value. America is unique. It’s a ladder to climb. It starts down here, at what? About $2.30 an hour. W hat was the top income last year? T he guy who runs D isney —$52 million! W ould a company pay somebody $52 million a year? T he answer is: of course! If you help a company make a billion dollars, would they pay you $52 million? Of course! It’s chicken feed! It’s not that much money.

“Is it really possible to become that valuable? T he answer is: of course!” And then he let me in on the ultimate secret. “H ow do you truly become more valuable? L earn to work harder on yourself than you do on your job.

“So can you personally become twice as valuable and make twice as much money in the same time? Is it possible to become ten times as valuable and make ten times as much money in the same time? Is that possible? Of course!” And then he paused and looked directly in my eyes and said, “All you have to do to earn more money in the same amount of time is simply become more valuable.”

And there it was! T here was my answer. Once I got that, it turned my life around. T hat clarity, that simplicity, the wisdom of those words—they hit me like a 100-pound brick. T hose are the exact words I’ve heard Jim Rohn speak probably a hundred times. I have carried them in my heart every day since, including the day that I spoke at his funeral in 2009.

T hat man, that seminar, that day—what Jim Rohn did was put me back in control of my own future. H e made me stop focusing on what was outside of my control—my past, the poverty, other people’s expectations, the state of the economy—and taught me to focus instead on what I could control. I could improve myself; I could find a way to serve, a way to do more, a way to become better, a way to add value to the marketplace. I became obsessed with finding ways to do more for others than anyone else was doing, in less time. T hat began a never-ending process that continues to this day! At its most basic level, it provided a pathway to progress that continues to drive and lead every single decision I make and action I take.

In the Bible, there is a simple tenet that says there’s nothing wrong with wanting to be great.⁹ If you wish to become great, learn to become the servant of many. If you can find a way to serve many people, you can earn more. Find a way to serve millions of people, you can earn millions. It’s the law of added value.

And if the gospel of W arren Buffett is more your thing than biblical verse, the O racle of O maha is famous for saying that the most powerful investment he ever made in his life, and that anyone can make, is an investment in himself. H e talks about investing in personal development books, in educating himself, and how a D ale C arnegie course completely changed his life. Buffett once told me this story himself when we were on the T oday show together. I laughed and asked him to keep telling that story. “It’s good for business,” I said, grinning.

I took Jim Rohn’s message to heart and became obsessed—I would never stop growing, never stop giving, never stop trying to expand my influence or my capacity to give and do good. And as a result, over the years, I’ve become more valuable in the marketplace. T o the point that I’m extremely fortunate enough today that finances are no longer an issue in my life. I’m not unique. Anyone can do the same—if you let go of your stories about the past, and break through your stories about the present and its limits. Problems are always available, but so is opportunity.

W hat does the American income ladder look like today? My bet is Jim Rohn couldn’t have imagined that in 2013, the low end of the ladder would be $7.25 an hour ($15,080 annually) and that the high-end earner of the year would be Appaloosa Management founder and hedge fund leader D avid T epper, who earned $3.5 billion in personal income. H ow could any human being make even $1 billion a year, much less $3.5 billion? W hy such an incredibly low income for some people and such a high-income opportunity for others? T he answer is the marketplace puts very little value on being a cashier at McD onald’s ($7.77 an hour) because it requires a skill that can be learned in a few hours by almost anyone. H owever, successfully expanding people’s financial returns in a significant way is a much more rare and valued set of skills. W hen most Americans are getting less than 33 basis points (a third of 1% ) annually as a return on their money from the bank, D avid T epper delivered a 42% return for his investors in the same time! H ow valuable were his contributions to their economic lives? If he got them a 1% return, he would have been 300% more valuable. A 42% return means he added 12,627% more economic value to their lives!

So how about you? W hat are you going to do to add more value to the marketplace? H ow are you going to ensure abundance rather than struggle? If we’re going to make a radical shift and take you from where you are today to where you want be—to financial freedom—then this path is the most powerful one I know to get you there.

N ow, before you start your rallying cry of objections, let me just say: I know that things are different today. I know it’s a challenging time for the economy. I know we’ve lost two million jobs since 2008, and the ones that are coming back are mostly service or low-paying jobs. And yes, I realize that incomes have been stagnant since the 1990s.

G uess what interest rates and unemployment looked like in 1978, when I started my career? W ithin two years, interest rates had skyrocketed! My first investment, a fourplex in L ong Beach, C alifornia, had an 18% mortgage. C an you imagine interest rates at 18% today to buy a home? W e’d have a revolt on the W hite H ouse lawn. But history is circular—always has been, always will be. Y es, incomes are stagnant, if you don’t find a way to geometrically add more value. But if you find a way to add value, incomes move in one direction, and that’s always up.

D      uring the G reat Recession, 8.8 million jobs were lost. In 2008, 2.3 million jobs were lost in that year alone! U nemployment peaked at 10% . But remember, that 10% unemployment rate is an average. Some portions of the population had unemployment levels over 25% , but for those making $100,000 per year or more, what would you guess was their unemployment rate? T he answer: close to 1% ! T he lesson? If you truly develop skills that are needed in the current marketplace —if you constantly improve and become more valuable— someone will employ you or you’ll employ yourself, regardless of the economy. And if you employ yourself, your raise becomes effective when you are!

E       ven today, it’s a totally different story in Silicon Valley, where jobs are for the taking. T echnology companies can’t fill their openings fast enough; they can’t find enough qualified people. Jobs are out there, but you and I need to retool our skill sets—retool ourselves—so that we become valuable in the new marketplace. I can promise you this: most of those “old jobs” aren’t coming back.

L et’s look at history. In the 1860s, 80% of Americans were farmers. T oday 2% of the U S population work in farming and agriculture, and we feed the entire world. N ew technology disrupted everything—suddenly one farmer could do the work of 500. Many people struggled, many lost their jobs. For those who didn’t adapt, the industrial revolution was an incredibly painful time. But that very same technology that brought along steam power and machine tools, which displaced people in the short term, made the quality of life of everyone around them exponentially better and provided more jobs at a higher level of income.

T oday’s new technologies are causing massive disruption once again. Oxford researchers say that almost half of America’s occupations are at risk of becoming automated (translation: replaced) within the next 20 years! Y ou and I have to retool to a different level. I promise you, 150 years ago, no one could have fathomed a day when there would be jobs called social media marketer, stem cell scientist, and robotics engineer. N o one could imagine that an electrician or a plumber would make $150,000 a year, or that a factory worker could learn how to use a computer to automate a machine and earn $100,000 in the process. But just because people couldn’t imagine it, didn’t mean it wouldn’t happen.

I meet people everyday who tell me the job market is frozen, or they’ve been laid off and fear they’ll never find work again. But I’m here to tell you it’s not the market, it’s you. Y ou can increase your earnings potential— anyone can. Y ou can add value to the marketplace. Y ou can learn new skills, you can master your own mind-set, you can grow and change and develop, and you can find the job and economic opportunity that you need and deserve.

But if your job is going to be obsolete in the next five or ten years, it’s time to think about making a pivot and trying something new. A pivot is what Silicon Valley calls it when you go from one business to another, usually after a colossal failure.

If you’re reading this book right now, you’re a person who looks for answers, for solutions, for a better way. T here are hundreds of ways you can retool your skill set. Y ou can do it by going after a college education, a trade education, or self-education. Y ou can earn $100,000 to millions a year, and not by just going and spending a boatload of money on a four-year college degree (that can put you $100,000 or more in debt). Millions of jobs are available in this country, but there is also a major skills gap. According to Mike Rowe, host of D iscovery C hannel’s D irty J obs, there are about 3.5 million jobs available right now, and only 10% of them require a four-year degree. T hat means that the other 90% of them require something else: training, skill, or a willingness to get dirty, perhaps, but mostly a willingness to learn a new and useful trade. According to Rowe, “T hat’s always been for sale, but it’s kind of fallen out of [our country’s] narrative.”

Retooling is both exciting and scary. E xciting because of the opportunity to learn, grow, create, and change. E xciting once you realize “I’m valuable; I have a contribution to make; I’m worth more.” Scary because you think, “H ow am I going to do this?” Remember Jim Rohn’s words: “For things to change, you have to change. F or things to get better, you have to get better.” Retool or be the fool. G et rid of your story of limitation and shift into high gear.

People often say to me, “T ony, that’s great if you have your own business or you work in a company where it’s growing. But what if you’re in a traditionally lowpaying job, and you love what you do? W hat if you’re a teacher, what then?” L et’s step outside our own limiting thinking, and let me give you a perfect example of a schoolteacher who used to struggle, but because of his passion and his desire to help more students, he found a way to add more value and earn more than most teachers ever dream about. T he real limitation in our earnings is never our job—it’s our creativity, our focus, and our contribution.

C RE AT IVIT Y , C ON T RIBU T ION , AN D T H E

K ORE AN ROC K ST AR

If you ever had a third-grade teacher who inspired you to try something new, or an eighth-grade teacher who believed in your own child beyond measure, you know the power of a single role model in the life of a child. Our teachers are one of our greatest yet most underappreciated and underpaid assets. So what do you do if you’re a teacher, or you have a similar job where your upside potential seems to be limited? As a teacher, how can one think about adding value to more than just 30 students in the classroom? Is there a way you might be able to add value to hundreds of students, thousands of students, even millions?

T       here are plenty of schoolteachers who think, “I’ll never make enough money doing what I love.” T here is broad agreement that we as society don’t value teachers in the way that we should. But as we now know, that limiting belief holds people back. K im K i-hoon is a teacher in South K orea who refused to buy into that story.

U      nlike most teachers, K im K i-hoon is known as a “rock star” in South K orea. K im is one of the most successful teachers in his country. H ow did he become so successful? H e worked harder on himself, on his ability to teach, than he did on his job.

Sixty years ago, according to the Wall Street J ournal, the majority of South K oreans were illiterate. T he country realized it needed to take massive and dramatic action. T oday teachers there are constantly encouraged to study, to innovate, to teach the same class in a new way every day. T hey’re taught to learn from one another, mentor one another—find the best techniques to add more value. T he result? T oday 15-year-olds in South K orea rank second in reading, and with a 93% graduation rate—compared with just 77% in the U nited States.

K i-hoon took that model and ran with it. H e put enormous time into finding the best teachers, studying their patterns, learning how to create breakthroughs. H e found a way to help his students learn faster, better, smarter—and not just his students but also students all across the country. W hy focus on just helping 30 students? he thought, W hy not help as many as I can? W ith the advent of technology, he realized he could put his classes online and make his passion for teaching and learning available to everyone.

T oday K i-hoon works about 60 hours a week, but only three hours of those are for giving lectures. T he other 57 hours are spent researching, innovating, developing curriculum, and responding to students. “T he harder I work, the more I make,” he says. And he works hardest to become better for the people he serves. K i-hoon records his classes on video, and circulates them on the internet, where students log on at the rate of $4 an hour. H ow does he know it works? H ow does he know he’s adding more value than anyone else? T he marketplace always tells you your true worth or value. G uess how many people buy his classes? L ast year, his annual earnings topped $4 million! T he more value K i-hoon offers via online classes and tutorials, the more students sign up. And, it follows, more students means more money—in this case, a lot more.

A teacher earning $4 million. H ow does that compare to the best schoolteacher you know? K i-hoon’s story shatters the belief that our profession limits us. H e’s part of the 1% not because he’s lucky, not because he was in the right place at the right time, not because he chose a lucrative profession. N o, K i-hoon is a wealthy man, part of the 1% , because he has never stopped learning, never stopped growing, never stopped investing in himself.

T H E U L T IMAT E MU L T IT ASK E R

But what if you’re not an entrepreneur? W hat if you have absolutely no interest in hanging up your own shingle? W hat if you work in corporate America or even for a small business? C an you still figure out a way to add more value and increase your earning potential? L et me tell you about a young woman. D aniela worked in a marketing department doing art design and didn’t see any clear path toward moving up in her company. She was extremely talented, but more importantly, she was hungry. She was constantly looking to do more and give more; it was just her nature. And so she often helped her colleagues with visual arts. And then she wanted to learn about marketing, so she started studying marketing and offered to help. And then, of course, she realized she didn’t really know anything about social media—but the opportunities there seemed huge, so she decided to educate herself on social media as well.

After a few years, D aniela was doing many of the jobs of her coworkers. And they forgot that she was offering a gift, and they started to take her for granted. A new pattern emerged where, at five o’clock, when jobs with key deadlines were still not done, she worked alone at her desk as her associates slipped out the door. She didn’t want to stay late, but she wasn’t going to let the company and their clients down. W hen it was clear her colleagues were actually taking advantage of her drive and ambition, she reached her limit. “I’m doing three people’s jobs plus my own!” But instead of getting angry, D aniela decided it was an opportunity.

W hat did she do? D aniela approached her C E O and laid it on the line: “Right now I’m doing the work of four people. I’ve gone to courses, I’ve learned and taught myself about visual arts, marketing, and social media. I’m not here to throw anybody under the bus, but I can save you fifty percent of your marketing cost right now and eliminate three people by taking on their jobs myself. And I’ll do a better job, too. I don’t need you to trust me on this: let me prove myself to you. L et them keep doing their jobs for six months, and I’ll do my assignments and theirs, so you’ll have two different examples to pick from. Y ou decide what’s best.”

All D aniela asked was that if she did a better job, after six months, her boss would give her more responsibility and double her pay. And guess what? She did it: she proved herself on the visual art and marketing fronts, with great copywriting and a successful social media campaign. D aniela showed that not only could she handle the extra work, but also she could run circles around the competition—she could outperform them all. She added enough value that the company realized it could pay one person twice as much money, and still cut its costs in half. T he marketplace had spoken.

H appiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.

— F R AN K L IN D . R O O SE V E L T

OPPORT U N IT Y IS E VE RY W H E RE

H ow are you going to add more value to the world? H ow are you going to contribute more, earn more, and increase your impact? T here are hundreds, if not thousands, of stories of average individuals who saw a problem, looked at things just a little bit differently, and went on to transform entire industries or create entirely new markets. T hey weren’t entrepreneurs; they were just people like you and me, people who wouldn’t settle. In the world we live in today, no industry or product is immune: the intersection of all things digital—the internet, social media, and technology—the interconnectedness of every person and everything on earth. T hat means that even the biggest companies and the most mature or stable businesses are ripe for disruption. E nter N ick W oodman.

RID IN G T H E W AVE

W ho would have predicted that K odak, the corporate titan that dominated the world of photography in the 20th century, would be caught flatfooted when digital imaging came on the scene? K odak invented digital photography. And yet after 124 years in business, the company filed for bankruptcy in 2012—a move that had a disastrous ripple effect on the economy in and around Rochester, N ew Y ork, where over 50,000 jobs were lost.

But those same massive technological and cultural changes that killed K odak provided a huge opportunity for a C alifornia surfer named N ick W oodman. W oodman was obsessed with surfing. H is absolute love of and devotion to the sport, along with his drive and his hunger, enabled him to find a way to add value.

C hances are you’ve never heard of W oodman, but he had the brilliant idea to strap a waterproof camera to his wrist while riding the waves. All W oodman set out to do was find a way to enjoy his surfing after it happened. W ith digital photography coming out, he started to tinker with cameras to see if he could make them more waterproof and capture better-quality video. And as technology changed, he continued to tinker. And tinker. H e ended up inventing the G oPro, a tiny, broadcastquality, clip-on-and-take-anywhere digital camera.

T his cool little device is now on the head of every extreme sports person in the world. W hether you’re riding a bike, paddling through rapids, snowboarding, or catching the waves, the G oPro allows you to capture the magic of your adrenaline rush and share it with everyone you love. W oodman’s timing couldn’t have been better: he began marketing the G oPro just as people started uploading their videos to Y ouT ube and Facebook. H e created a product he wanted to use and figured he couldn’t be the only guy needing one. W oodman figured out how to add value to millions of lives by making the new technology convenient, fun, and affordable. U ltimately, W oodman got in front of a trend. T hat trend was actively sharing digitally whatever was there. O ne of the key secrets if you really want to become wealthy: get in front of a trend. T oday the surfer from San D iego, C alifornia, is worth over $1 billion.

A N E W “C AT E G ORY ” IS BORN

Back in 2010, Matt L auer invited me to join him for a special roundtable discussion about where the economy was headed. I was joining W arren Buffett and the world’s youngest female self-made billionaire: a woman named Sara Blakely. Any opportunity to discuss the economy with W arren Buffett was a huge privilege, but what I didn’t bank on was being totally blown away by Sara’s story.

Blakely didn’t disrupt an industry so much as create an entirely new one. A former W alt D isney W orld employee, Sara was getting ready for a party when she realized she didn’t have the right underwear for a pair of fitted white pants. Rather than go commando, she decided to take matters into her own hands. Armed with nothing more than a pair of scissors and a whole lot of sass, she cut the feet off her control-top pantyhose, and, voila, a new industry was born.

Of course, it didn’t happen overnight, and it didn’t happen easily. Sara shared with me that one of the most important secrets to her success was that from an early age, her father actually encouraged her to “fail!”

But he defined failure not as failure to achieve a result . . . but failure to try. Around the dinner table, he would ask if she had failed today, and he was truly excited if she had —because he knew that meant she was on the path to success. “T ony, it just took away my fear of trying,” she told me.

D own and out in a dead-end office-products sales job, Blakely invested all the money she had in the world, $5,000, and set out to create body wear that would work for her. “I must have heard ‘no’ a thousand times,” she said. But she didn’t listen. In addition to the $5,000 she invested, she saved $3,000 (which she didn’t have) on legal fees by writing her own patent from a textbook.

U ltimately, the company she founded, Spanx, created an entirely new category of products called “shapewear” and has inspired a cultlike following among women worldwide. According to my wife, put on a pair to pull in all your “its and bits,” and you’ll take three inches off your waistline immediately.

W ith Oprah W infrey’s blessing, Spanx turned from a small business into a worldwide sensation. T oday Spanx is worth over a billion dollars, and the brand now includes over 200 products that help women look and feel great. E ver the optimist, Sara tried to work her magic on me: she tried to get me to wear a pair of her new Spanx for men when we were together on the T oday show. I thanked her and mentioned gently that perhaps she didn’t understand the male market as well as the female market. But I remain inspired by her example. In the end, Spanx for men has also taken off—no thanks to me. T oday Blakely owns 100% of her company, has zero debt, and has never taken on outside investment. In 2012 T ime magazine named her one of its “100 Most Influential People in the W orld.”

L ike N ick W oodman, she saw a need and moved to fill it. She refused to be limited by her own story and found a way to add value.

Y ou can too! Y ou don’t have to start a billion-dollar company, disrupt an entire category, or make $4 million as a teacher online. Y ou don’t even have to take on four jobs at once. But if these people are capable of doing that, couldn’t you find a way to make an extra $500 or $1,000 a month? Or maybe even an extra $20,000, $50,000, or even $100,000 or more a year? C ouldn’t you figure out how to unleash your own creativity, contribution, and focus to add more value to the marketplace and put that money in your Freedom Fund? Y ou can. T he time to begin is now. . . .

Find a way to earn or save an extra $500 per month, or $6,000 a year. If it is invested at an 8% return over 40 years, it is worth $1.5 million—remember our pizza example. If you find a way to earn $1,000 per month, or $12,000 a year, that’s worth $3 million in your nest egg. If you find a way to earn $3,000 per month, or $36,000 a year, that’s worth $9 million in your nest egg. W hat’s the lesson? G o add value, earn more, and invest your earnings, and you can create any level of financial freedom you truly desire.

9. “Instead, whoever wants to become great among you, must be your servant,” Matthew 20:26, N ew International V ersion.

C HAPT E R 3.5

SPE E D IT U P: 3. RE D U C E FE E S AN D

T AX E S (AN D IN V E ST T H E D IFFE RE N C E )

W e have what it takes to take what you have.

— SU G G E ST E D IR S MO T T O

“Y ou must pay taxes. But there’s no law that says you gotta leave a tip.”

— MO R G AN ST AN L E Y AD V E R T ISE ME N T

So now you’re rocking and rolling—you’re speeding up your path to financial freedom by saving more and earning more! W hat’s left? D oesn’t that cover it? Actually, no. Y ou now know as an insider that it’s not what you earn that matters, it’s what you keep. Our third strategy for speeding things up is to get more money out of your investments by reducing your fees and taxes, and reinvesting the difference.

Remember our three childhood friends from chapter

2.2, “Myth 2: ‘Our Fees? T hey’re a Small Price to Pay!’ ”? T hey all invested $100,000 at the age of 35 and earned a 7% return on their investment. But each one was subject to a different set of fees—and the difference between the 1% , 2% , and 3% fees came out to hundreds of thousands of dollars. T aylor, who paid just 1% in fees, accumulated almost twice as much money as her friend Jason, who paid 3% in fees. H er investment grew to $574,349, while he was left with only $324,340!

Remember, those hidden fees on mutual funds average an astronomical 3.17% . T he difference between owning high-cost, fee-laden mutual funds versus low-cost index funds could literally cost you a decade’s worth of your life’s work—talk about slowing you down on your path to Financial Freedom! And to add insult to injury, studies show that the high fees that come along with those mutual funds almost never lead to increased performance.

So stay away from excessive fees. Run for the hills. Find low-cost index funds to invest in and heed the warning of Jack Bogle, who showed us that paying through-the-nose fees can eat up as much as 50% to 70% of your future nest egg! T he mantra is simple: take the money you save on fees and reinvest it for compounded growth. T his strategy is another fast lane to freedom.

And what about an even bigger bite of your savings? D o you know what the single largest bite to come out of your nest egg is? Survey says: taxes!

Over the course of our lives, the average American pays more than half of his or her income to an assortment of taxes: income tax, property tax, sales tax, tax at the pump, and so on. (According to what many experts estimate, currently, that’s 54.25 cents per dollar.) G ood ol’ U ncle Sam. And we’re not done yet.

After 54.25% has been lopped off for the tax man, you can also say good-bye to another 17.25% of each dollar you earn in interest and fees. G ot a car, a house, any credit card or student loan debt? In April 2014 the average U S household had credit card debt of over $15,000; student loan debt of over $33,000; and mortgage debt of over $150,000. As a nation, we are up to our eyeballs in debt.

T he fact is, on average, approximately one-third of the income you have left after taxes will be spent on paying down interest!

T hat leaves you with (drumroll, please) a whopping 28.5% of your hard-earned income left over to pay for everything else in life: food, clothing, shelter, education, health care, travel, entertainment, and anything else you happen to stumble upon at the mall or on Amazon! Plus, out of this same number, you have to find a way to save and invest for F inancial F reedom, or at least some form of retirement income!

Becoming more efficient with your taxes is one way to get back some of that 54% you’ve given away. K eep more of your hard-earned income, and that’s money that you could invest and compound to achieve your vision of Financial Freedom quicker.

In fact, if you’re a high-income earner, living in a high-income state like C alifornia (as I used to), your total tax bill (including income, investment, payroll, O bamacare, and Social Security) clocks in at 62% . W hich means that unless you have an efficient tax strategy, you get to keep only 38 cents out of every dollar you earn.

T here’s no good reason to pay more than you have to

—in fact, it’s your right as an American not to pay more than you have to. As Billings L earned H and, one of the most influential judges of all time, stated:

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the T reasury. T here is not even a patriotic duty to increase one’s taxes. Over and over again the C ourts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. E veryone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

I follow Judge H and’s wisdom. I don’t believe in paying any more than I absolutely have to, and neither should you. I continually look for legal, ethical ways to lower my tax bill, and I do my best to make use of government initiatives that allow me to build my nest egg in a tax-free environment. I learned from those I interviewed that tax efficiency is one of the most direct pathways to shorten the time it takes to get from where you are now to where you want to be financially.

I am proud to be paying taxes in the U nited

States. T he only thing is, I could be just as proud for half of the money.

— AR T H U R G O D F R E Y

L et’s be clear: I’m a patriot. I love America. I am one of millions of examples of the American D ream, and I’m happy (well, perhaps not happy, but proud) to pay my taxes. Y et I pay millions of dollars in taxes every year. My tax bill is more than I ever thought I’d earn in a lifetime, much less in a year. But I know from Y ale’s D avid Swensen that there are only three forces that can help you achieve the greatest returns:

1. Asset allocation, 2. D iversification,

3. T ax efficiency.

It helps, of course, that D avid runs a nonprofit organization, but for the rest of us, even with current tax laws, there are ways to maximize investment returns and minimize your tax bill.

Money Power Principle 4. T ax efficiency is one of the simplest ways to continuously increase the real returns on your portfolio. T ax efficiency equals faster financial freedom.

(Reader alert: If your brain is going to blur as I talk about taxes, I get it! T hen simply jump immediately to the next chapter so you don’t lose momentum. But be sure to schedule a time to sit down with your fiduciary and/or a tax expert to learn how to be most tax efficient with your investments. If you’re willing to go for it, the next four pages offer some simple tax distinctions that, when understood, will allow you to keep more of your invested income and achieve your financial dreams

faster.)

PIC K Y OU R T AX !

W hat if you realized that a small amount of tax knowledge could save you from needlessly paying 30% of what you earned to the tax man? H ow much faster could you achieve your financial goals?

Y ou need to pay close attention to three types of taxes as an investor:

1.   Ordinary Income T ax.

As stated, if you’re a high-income earner, your combined federal and state income taxes are nearing or exceeding 50% .

2.   L ong-T erm C apital G ains.

T       his is a tax on investments, which is only 20% if you hold your investment for longer than one year before you sell.

3.   Short-T erm C apital G ains.

T       his is a tax on investment gains if the investment issold before you have held it for a minimum of one year. T oday the rates are currently the same as ordinary income taxes. Ouch!

N ow that you know the power of compounding, I’m sure you realize how compounding your growth after taking a 50% tax bite as opposed to a 20% tax bite can mean the difference between arriving at your financial goals a decade early or never getting there at all. Want to understand the real impact of this?

•    If you’re getting an 8% gross return on your mutualfund, you’re paying as much as 3% in fees on average —let’s call it 2% , conservatively.

•    So now your 8% return nets you 6% after fees. Butwe’re not done yet.

•    If you’re a high-income earner from C alifornia or N ewY ork with a 50% federal and state ordinary income tax, you’re left with closer to 3% on your investment after all these fees and taxes.

R emember you get to spend only what you keep; if you invest with a 3% net return, it takes 24 years to double your money.

If you made the same investment in an index fund, your 8% return would have fees in the range of 10 to 50 basis points (or 0.10% to 0.50% ). W e’ll go for the larger number just to be conservative. T hat means you have a

7.5% return (8% - 0.5% = 7.5% ), but since the index is not trading constantly, you defer all tax, and so your net return for the year is 7.5% . T hat means you can reinvest those returns and tap into the incredible power of compounding without the tax man interfering.

If you conscientiously manage your investments for tax efficiency, your 7.5% allows you to double your investments in 9.6 years instead of 24 years! N ow do you see the importance of both tax and fee efficiency?

So how do you lower your tax bill and keep more of your earnings so you can compound your investments and achieve your idea of F inancial F reedom faster?

•    Make sure that wherever possible, you invest in a waythat allows you to defer your taxes (401[k], IRA, annuity, defined benefit plan) so that you compound tax free and pay tax only at the time you sell the investment. Or set up a future tax-free environment by growing your investments in a Roth.

•    W hen you do sell any investment held outside of a tax-deferred account (like an IRA), make sure you hold for a minimum of a year and a day in order to qualify for the lower long-term capital gains rate (again, at the time of this writing the rate is 20% ).

ON E MORE T H IN G : BE W ARE OF MU T U AL

FU N D S

For most people, a home sale is usually a once- or twicea-decade thing, and your accountant or tax expert can easily explain how to do this most tax-efficiently. But let’s take a look at mutual funds. D o you know what those mutual fund managers of yours are doing every day? T hey’re trading. T hey are buying and selling stocks and bonds on a daily, monthly, or quarterly basis. T his is what the industry calls “turnover.”

According to C harlie F arrell of C BS MarketW atch, “So although their marketing material encourages investors to buy and hold, the managers certainly don’t practice what they preach. W hat they really mean is buy and hold

their      mutual      fund,     while     they     trade      your

retirement savings like crazy.”

E xperts say that the vast majority of mutual funds do not hold on to their investments for a full year. W hy else would you buy them other than hoping they can trade their way to better performance? And you know what that means? U nless you’re holding all of your mutual funds inside your 401(k), you’re typically paying ordinary income taxes on any gains.¹⁰

In short, there’s a good chance you’re being charged 35% , 45% , or up to 50% or more in income tax, depending on what state you live in and your income level. All this tax, and you didn’t even sell your mutual fund! So instead of keeping all your gains and having them continue to compound tax deferred, you are taking a devastating hit to your compounding ability that is completely avoidable if you understand tax efficiency.

E ven if you’ve maxed out your 401(k) and IRA, you can still make investments in a form that allows you to defer taxes. Index funds do not constantly trade individual companies; they usually hold a fixed basket of companies that changes only if the index that the fund tracks actually changes—which is rare.

As a result, if you’re investing in an index long term, you’re not taking the tax bite each year; instead, you’re deferring the taxes, since you haven’t sold anything. T hat money can remain in the fund and continue to compound earnings to its owner: you!

Y our fiduciary or a great tax expert can help you understand all the ways you can produce more net growth in your F reedom F und so that your compounding process is maximized. R emember, this can save you years or even decades!

And finally, in section 5, there is a strategy that you’ll learn about in the “Secrets of the U ltrawealthy” chapter that you can use, too: an IRS-approved method that will make a huge difference by allowing you to compound your investments and help you keep your nest egg tax free. T his could allow you to achieve your financial goals up to 25% to 50% faster without taking any greater investment risks!

H ave I got your attention? I hope so. Because it’s your money and it’s your life! D on’t let anyone take it or waste it! So you now have three fast-track strategies to speed up the pace and win the money game:

1.   Save more and invest the difference.

2.   E arn more (add value) and invest the difference.

3.   Reduce fees and taxes and invest the difference.

N ow it’s time to turn on the juice and take a quick look at some of the ways you can increase what your investments earn. . . .

10. H owever, in certain situations, the gains may be long-term if the fund held the position for an extended period.

C HAPT E R 3.6

SPE E D IT U P: 4. G E T BE T T E R

RE T U RN S AN D SPE E D Y O U R W AY T O

V IC T O RY

If you’re prepared, and you know what it takes, it’s not a risk. Y ou just have to figure out how to get there. T here is always a way to get there.

— MAR K C U BAN

H ow do you get a greater return while still reducing risk? Most people think that in order to get high returns, you have to take huge risks. But the greatest investors know that’s simply not the case. Remember K yle Bass from chapter 2.8, “Y ou G otta T ake H uge Risks to G et Big Rewards”? H e blew the high-risk, high-return myth out of the water with something called asymmetric risk/reward.

T       hat’s a fancy term for a pretty simple concept. H owdo you explain it? K yle turned $30 million into $2 billion by finding an investment opportunity where he risked only 3 cents for the opportunity to make $1—more accurately, $3 million for a $100 million upside—and expanded that risk/reward ratio into billions. Remember how he taught his sons to make “riskless” investments with significant upside by buying nickels? T he upside (reward) is way bigger than the downside (risk) on this deal, which makes it asymmetric.

One of Paul T udor Jones’s greatest successes is that he knows he can be wrong and still be successful, because he uses asymmetric risk/reward to guide his investment decisions. H e’s always looking for what he calls a 5:1 investment—where if he risks $1, he believes he can make $5.

Jones is willing to risk $1 million when his research shows he’s likely to make $5 million. Of course, he could be wrong. But if he uses the same 5:1 formula on his next investment, and he’s successful, he will have made $5 million, minus the first investment loss of $1 million, for a net investment gain of $4 million.

U      sing this formula of constantly investing where hehas the opportunity for asymmetric rewards for the risk he’s taking, Paul could be wrong four out of five times and break even. If he loses $1 million four times in a row trying to make $5 million, he’ll have lost a total of $4 million. But when the fifth decision is a success, with a single home run he’s earned back his total $5 million investment. T he greatest investors in history know how to maximize their returns—they know how to set the game up to win.

Y ou’ll learn more about what Paul teaches in section 6, “Invest L ike the .001% : T he Billionaire’s Playbook,” and in my interview with him. H e is going to share with you his “$100,000 MBA,” or the most important things he’s learned about investing—one of which is how to be wrong and still win!

So asymmetric risk/reward is the first way to get higher returns. T he second way? Y ou’ll learn more about this in chapter 4.1 on asset allocation, but for now, just know that if real estate’s mantra is “L ocation! L ocation! L ocation!” then the mantra for getting better returns while reducing risk is “D iversification! D iversification! D iversification!” E ffective diversification not only reduces your risk but also offers you the opportunity to maximize your returns.

Asset allocation is the one thing that every investment professional I’ve talked to, the best in the world, has said is the key factor in where you end up financially. It’s the most important skill, and it’s the one most investors know little about. So in chapter 4.1, “T he U ltimate Bucket L ist: Asset Allocation,” you’re going to learn the power of asset allocation and be able to implement its gifts to benefit you and your family for the rest of your life. On top of that, you’re going to see in section 6 the exact asset allocation of some of the most successful investors in the world who have consistently produced the highest returns.

Y es, you read that right: you’ll be able to model the exact strategies of the best investors on the planet. Y ou’ll have Ray D alio’s asset allocation! Obviously, past performance doesn’t guarantee future performance, but in the case of Ray D alio, your strategy is coming from one of the greatest investors of all time, and his focus is getting you the greatest return with the least amount of risk. D alio has been estimating every type of market and finding what the best ratio is through asset allocation for over 20 years. H e has more than $160 billion in assets under management and a record of only three losing years out of the last 22. After reading this book, you will learn a strategy that is based on Ray’s groundbreaking approach for the world’s wealthiest individuals, institutions, and governments.

H OW FAST C AN Y OU G O?

It’s probably pretty obvious that we’d all like better returns. But what’s less obvious is the massive impact that better returns have on your time horizon for investing. T he “rule of 72” says that it takes 72 years to double your money at a 1% compounded rate. So if you’ve got $10,000 to invest at 1% compounded, you may not be around to see that money double. Y ou can cut that timeline in half by doubling your rate to 2% , and in half again by doubling that rate to 4% ! So what’s the difference between a 10% return and a 4% return? A 10% return doubles every 7.2 years; a 4% return doubles every 18 years! If you want to radically change your plan and get to financial freedom in seven years versus 18 years, you can. Or 14 years instead of 36! T hose are the types of differences that are possible when you learn how to get better returns. And the most important thing is to get these greater returns without taking significantly greater risks wherever possible. Y ou’re looking for that asymmetric risk/reward that all great investors seek. It’s elusive, but it’s out there, and this is just one more way that you can speed up your approach to realizing your dreams. (T ake a look at the table on page 284 to see how fast—or slow

—your money will double.)

Y our next question is likely, “W here do I start looking for my own asymmetric risk/reward opportunities?” Sometimes they turn up in the unlikeliest places. For me —maybe because I grew up in Southern C alifornia—I’ve always believed in including real estate as a key component of my portfolio. If you ever turn on the news, it’s hard not to notice the demographic shift that’s taking place in this country right now, with 10,000 people turning 65 every day. T he boomers are hitting retirement in droves. In the back of my mind, I always knew there had to be a way to provide some of my capital to help expand quality facilities for people entering this stage of life, while providing a profit for me. But it wasn’t until I visited my wife’s grandmother in Vancouver, British C olumbia, that I connected the dots for a future investment in retirement communities.

My wife, my Bonnie Pearl—my “Sage”—is the love of my life. H er family is my family. H er grandma H ilda was my grandma. I loved her dearly. After being married for 58 years, her husband died, and we all watched as she suffered. For ten years, H ilda cried herself to sleep at night. She was living on her own, proud and independent, but heart-achingly lonely, missing her life partner. W e didn’t have the heart to put her in a home, yet with H ilda’s dementia worsening, Bonnie Pearl’s mom, Sharon, was determined to find her a home with the best possible care.

W e had heard that some retirement communities were pretty spectacular, and after weeks of looking, Sharon finally found a community that gave the Four Seasons a run for its money—this place is amazing. I always said I’d stay there, and I don’t say that about many places.

So guess what happened to G randmom after moving into her new digs? Forget that she traded up to a beautiful new apartment with modern amenities and 24hour care. T hat was just the tip of the iceberg. More amazing than that, she began a second life! At 88 years old, she transformed into a new woman and fell in love again. A 92-year-old Italian captured her heart. (“I don’t let him under my shirt yet, but he tries all the time,” she said with a grin.) T hey had four beautiful years together before he passed away, and I kid you not, at his funeral, she met her next beau. H er last decade was filled with a quality of life she never could have envisioned. She found happiness, joy, love, and friendship again. It was an unexpected last chapter of her life and a reminder that love is the ultimate wealth. It can show up unexpected anytime, anywhere—and it is never too late.

G           randmom’s story opened up the realization that there was a real need for retirement communities that were effectively staffed and beautiful just like hers. H ow could I find a way to invest in an opportunity like that? Obviously just walking into a home and asking to invest is probably not the most effective strategy. So I went to my personal advisor, Ajay G upta at Stronghold, and told him what I believed in and what I was looking for. H e found an opportunity where my investment not only stood to make a great return but also aligned with my values and beliefs and with a broader trend in the market. Many experts look at this category as a “demographic inevitability” because the 75-year-old age segment will grow by 84% between 2010 and 2030. D emand will be greater than supply!

Ajay found an investment company run by an amazing entrepreneur who builds, invests, and manages high-end senior living facilities. H e started with nothing and has built it into a $3 billion enterprise. H e finds the sites, puts up as much as half the money himself, and then rounds up a small group of investors to put up the rest.

H            ere’s what I get in exchange: I get a preferred returnon my money (which are income payments each month) based on the profitability of the facility. T his can range 6% to 8% per year, and because it’s real estate, I also get the tax benefit of depreciation, which means I don’t have to pay income tax on the entire income payment. Plus, I own a piece of the real estate, which, over the long term, I believe will increase in value. I get to participate in the exit strategy when the investor group eventually sells the facility. T o be clear, this specific investment is limited to investors who are accredited¹¹ and meet certain net worth/income requirements. But don’t fret! For those who are nonaccredited, there are publicly traded RE IT s (real estate investment trusts) that focus solely on owning a basket of properties around the country. T hese can be purchased for as little as $25 a share at the time of this writing and offer dividend (income) payments each quarter. D o your homework and/or have a fiduciary advisor help you find the best available.

If senior housing seems out of reach, another strategy in real estate is lending your money with a first trust deed as security. In the chapter on asset allocation, I’ll describe to you an example of how investors who need money will take short-term loans at high rates—for example, a oneyear loan for 8% or 10% , and you get the first trust deed as collateral. W hen done effectively, you can loan, say, $50,000 on a $100,000 home, or $500,000 on a $1 million home, and the property could drop 50% , and you’d still be in good shape. W hile others are collecting 3% and 4% returns, you’re getting 8% to 10% .

Once you start focusing passionately on ways to save more, earn more, reduce fees and taxes, and find better returns with even less risk, you’ll be amazed at how many new opportunities you’ll discover. Again, a great fiduciary advisor won’t just guide you; he or she can also help you to find investment opportunities with that magical asymmetric risk/reward that all successful investors seek.

Okay, we’re coming to the home stretch of this section. T his final step can massively increase the speed at which you achieve your most important financial goals. Plus, it’s fun to dream and explore. Y ou’re going to love the journey of this next chapter. L et’s discover . . .

11. F or an individual to be considered an accredited investor, he must have a net worth of at least U S$1 million, not including the value of his primary residence; or have income of at least $200,000 each year for the last two years (or $300,000 together with a spouse if married).

C HAPT E R 3.7

SPE E D IT U P: 5. C H AN G E Y O U R L IFE — AN D L IFE ST Y L E —FO R T H E BE T T E R

My favorite things in life don’t cost any money. It’s really clear that the most precious resource we all have is time.

— ST E V E JO BS

W hat would happen if, for just a moment, you considered making a change? A big change, like picking up and moving to another city? Y ou could be living large in Boulder, C olorado, for what you’re paying just in rent in N ew Y ork C ity or San Francisco. T he cost of homes, food, taxes, and so on differ wildly depending on where you live. Our country—our world—is one of boundless opportunity waiting for you to explore. So why not take off the blinders just for a moment to consider what life could be like if you lived in a new city or town?

Are you freezing your butt off in the Midwest winters, or battling the heat of the summer in Atlanta, wondering year after year why you don’t hoof it to a better climate? As a native son of Southern C alifornia, I’m always amazed by people who spend their lives freezing to death in the Arctic tundra of Minneapolis or C hicago. And even if you don’t care about the weather, you’ve got to care about your cost of living. A million-dollar home in W ashington, D C , costs a fraction of that in Raleigh, N orth C arolina—a city rated as the third best place for business and careers by Forbes, not to mention a hightech and educational hub (that also has great weather). Or what about something more local: a move from San Francisco to San D iego? Y ou can stay in the great state of C alifornia and still cut your housing costs by 32% .

It’s one thing to be tax-efficient in your investments; it’s another to be tax-efficient in your life. Y ou’re trying to save 5% here, 10% there. W hat about saving 10% or 15% or more in everything you do by moving to a less expensive city or a tax-friendly state? T hink about all the additional money you’d have to invest, share, donate if it

didn’t go straight to rent, food, or transportation. O ne

single move could give you a 10% to 30%

increase in your income. If you’re already saving 10% , with a move you now can save 20% to 40% without spending an additional dime. T his change in your savings rate will put some rocket fuel in your money machine that will massively improve the pace at which you achieve financial freedom.

I know what you’re going to say: “Move to a new city? Y ou’ve got to be crazy, T ony. I can’t just pick up and move! I have a job, I have family, I have friends; I’ve lived my whole life in D allas.” (Or Seattle or Miami or D enver.) But if you saw that you could save ten years of your investing life, reach your Financial Freedom goals a decade sooner or even more, might it be worth it?

G enerations of Americans have looked at retirement as a time to pick up and move to a warmer climate, a less expensive city, or to a beautiful, low-key place like Boise, Idaho, or G reenville, South C arolina, to breathe clean air

and enjoy the outdoors. But why wait until retirement? W hy not change your zip code today? W hy not find a place to raise your family that allows you to reduce your cost of living and

elevate your quality of life at the same time, while you’re young enough for both you and your children to reap the rewards?

If you’re still shaking your head no, I get it. I was with you on this one, actually—until recently. I grew up in C alifornia and never imagined living anywhere else. E ven when I started traveling extensively and buying homes and properties all over the world, C alifornia was always my home base.

T hen in 2012 C alifornia raised taxes on the highest income earners by more than 30% , to 13.3% . After a lifetime of paying through the nose on state income taxes (historically among the most punishing in the country), the tax situation got even worse. My effective tax rate— after federal and state income taxes, Social Security, investment taxes, payroll taxes, and the Obamacare tax— shot up to 62% . T hat meant I was left with 38 cents on every dollar. Just 38 cents! And on top of that, the new state income tax increase was made retroactive, meaning that I was going to have to pay additional tax on income I had already earned that year. T hey changed the rules of the game after the fact! I had reached my limit—this was outrageous. Because of my travel and the time I spent in my other homes, I was living in C alifornia for only 90 days out of the year! Just 90 days for literally a multimillion-dollar state tax bill? C alifornia was no longer sustainable for me—I’d had enough!

I had played by the rules, and the rules had come back to bite me. But instead of feeling sorry for myself, I voted with my conscience—or with my feet, I should say. Along with thousands of others, Sage and I realized we were no longer welcome in C alifornia. So we decided to take the plunge and look for a new place to live. (In fact, C alifornia has lost over $30 billion in annual income tax revenue over the last two decades to states such as N evada, Arizona, T exas, and W isconsin. If you want to see how big this trend is and how many people are moving from high-tax to low-tax states, go to www.howmoneywalks.com.)

W e turned it into a kind of treasure hunt. W e looked at places like L ake T ahoe, where we really liked the mountains, the mix of seasons, and the small-town vibe; and Austin, T exas, where music, energy, and high tech come together to create the fabric of an innovative and connected community.

W e looked at Florida too, reluctantly. All I knew of Florida were alligators and old people. But that’s the stereotype, not the reality. W hat we found instead was a paradise in Palm Beach. After looking at 88 properties in three states in just three weeks (I told you I’m a massiveaction guy), we found the only brand-new home on the water in Palm Beach. T wo acres, nearly 200 feet of ocean frontage on one side, and the Atlantic Intracoastal W aterway on the other, with a 50-foot boat dock. I feel like I’m back in my home in Fiji—it’s extraordinary. Sage has everything she wants close by: world-class restaurants, shopping, easy access to the entire E ast C oast, and all the privacy and serenity of living on an island right here in the U nited States.

Of course, the price tag was way higher than I ever wanted or imagined paying for a home. But Florida has no state income tax. W e went from 13.3% state income tax in C alifornia to nothing—nada, zip. So here’s the kicker: with the state taxes we’re saving every year, we are literally paying off our entire new home in six years! D id you catch that? W e’re paying for our entire home out of the tax savings we now get as residents of the Sunshine State instead of the G olden State. K ind of makes you think we should have done it sooner, huh?

Better late than never.

And if that weren’t enough (which it is!), we’ve massively improved our quality of life in the bargain. E very day we pinch ourselves as we wake up with magnificent weather: 78 degrees with a cool breeze off the ocean and water you can melt into, it’s so warm. In fact, Sage and I have become almost evangelical in our enthusiasm for our new home; we tell friends and family to think about moving down to Palm Beach to join us. My youngest son has already moved here. T wo of my dearest friends in the world are on their way down from C onnecticut and N ew Y ork, and they’re here to stay. And, of course, even if they’d decided not to move here, we would have happily taken our tax savings and flown them all out here to visit us in paradise anyway!

So whether or not you decide to join us in Palm Beach, there’s a new zip code out there that might be just right for you. Y ou don’t have to wait for retirement to get there. From N ashville, T ennessee, to Portland, Oregon, and from Augusta, Maine, to Ann Arbor, Michigan, there are hundreds of affordable havens for young and old alike: retirees looking to stretch their savings and continue to enjoy a rich, rewarding lifestyle; and young professionals looking to jump-start or reimagine their careers. C heck out U .S. News & World

Report’s feature on the best places to live for as little as

$75                                       a                                        day

(http://money.usnews.com/money/retirement/articles/201 best-places-to-retire-on-75-a-day). Also seriously consider the seven states where there’s no state income tax at all: Alaska, Florida, N evada, South D akota, T exas, W ashington, and W yoming. Or try T ennessee and N ew H ampshire, where only your dividend and interest income are taxed at the state level. T he Memphis and N ashville music scenes and more money in your pocket —how bad does that sound?

G IVE Y OU R G L OBE A SPIN

And while we’re at it, why not think all the way outside the box on this one? Forget just a 10% to 20% increase in your spending power, how about cutting your cost of living by a third, or in half? G et out your globe and give it a spin—and think about some of the beautiful (and beautifully affordable) places you could live if only you expanded your horizons.

T here are huge opportunities all over the world to improve your lifestyle and lower your expenses, in places such as Bali, Fiji, U ruguay, C osta Rica—if you have the courage and the freedom to go for it! Y ou can rent an extraordinary apartment in the mountains outside of Buenos Aires, Argentina, for a fraction of what it would cost for a studio walk-up in a major U S city. Y ou can move to the C zech Republic and find a room just off W enceslas Square in Prague’s N ew T own area, the heart of the city’s cultural community.

Remember my BMW -loving son? After he traded in his fancy wheels for a chance at a better lifestyle, he decided to think really big. H e went down to C osta Rica for a couple of days and was completely blown away by the extraordinary culture. T urns out there is a huge E nglish-speaking community in C osta Rica—tons of expats who discovered their money went a lot further down there, their days were a little richer, their nights more exciting. And C osta Rica isn’t just a place to relax and unwind. Some of our leading companies have established important bases of operations there. Procter & G amble, H einz, Microsoft, Intel—the list goes on and on, which means there are countless career opportunities available.

L ife can be an adventure. T ake a trip and explore a foreign city with an eye toward moving there. T urn your next vacation into a fact-finding expedition, where the endgame is to try on a whole new way of life. Y ou don’t have to live in a box and go through the same motions each and every day. Y ou don’t have to worry about making your rent or covering your basic expenses if you open yourself up to the idea of massive change. L ift yourself from your comfort zone and spend 60% , 70% , even 80% less money, getting you to your goal of financial freedom that much faster. And while you’re at it, improve the quality of your life in an exponential way.

E ven if a move across the world seems too radical now, think about this option over the long term—a fiveyear plan or a ten-year plan, or maybe a retirement plan. W hy not at least open yourself to the idea that there’s a beautiful and affordable place out there waiting to be discovered? Our world is dynamic—it’s changing constantly. T he idea that a move would be bad for your kids is a thing of the past. W e live in a global economy; what an amazing experience to give your kids an opportunity to see the world, learn a new language, adapt to a new culture. Y ou can make a family decision about creating a better quality of life for everyone.

L ife is like a bicycle. T o keep your balance, you must keep moving.

— AL BE R T E IN ST E IN

At the end of the day, it’s all about being more efficient and more effective with your earnings and your savings and speeding up your path to Financial Freedom. Y ou can find a way to improve the quality of your life while reducing your cost of living simultaneously. It’s the ultimate win-win. At the end of the day, the best investment you can make is the one you make in yourself and your lifestyle.

W ow, you’ve taken three giant steps toward Financial Freedom:

Step 1. Y ou’ve made the most important financial decision of your life.

Y ou’ve decided to become an investor, not merely a consumer. Y ou’ve committed a percentage of your income to save and invest in your Freedom Fund, and you’ve automated it.

Step 2. Y ou’ve become an insider who knows the rules of the game.

Y ou’ve debunked the 9 Myths, and you’ll never be taken advantage of again.

Step 3. Y ou’ve made the game winnable.

•    Y ou know exactly how much money it will take for you to achieve F inancial Security, Independence, or F reedom. Y ou know your T hree to T hrive: your short-term, medium-term, and long-term goals.

•    Y ou’ve come up with an initial financial plan and a timeline for achievement. Y ou’ve used the app to calculate approximately how long it will take you to meet financial goals you’re most committed to.

•    Y ou’ve reviewed the five ways to speed up your plan. Ideally, you’ve begun to brainstorm ways to apply these insights to sock away more money or keep more money in your financial Freedom Fund. T his can help you reach your cherished financial goals even quicker.

So what’s next? Step 4 answers the obvious question that’s probably burning in your mind: “W here do I put my money? W hat specific investments will maximize my upside and protect me against the downside?” It’s time to make the most important investment decision of your life. It’s time to learn the power of asset allocation . . .

SE C T ION 4

MAK E T H E MOST IMPORT AN T

INVEST MENT D EC ISION OF YOUR L IFE

C HAPT E R 4 .1

T H E U L T IMAT E BU C K E T L IST : ASSE T

AL L O C AT IO N

N ever test the depth of the river with both feet.

— W AR R E N BU F F E T T

Say you’ve got your money machine cranking: your boss just gave you an unexpected $10,000 bonus, or perhaps you suddenly came into a $100,000 inheritance. W hat would you do with it? W ould you put it in your savings account or your IRA? Invest in a virtual pocketful of Bitcoin? Bid on a case of vintage wine on eBay? Fly to

Vegas and bet it all on a roll of the dice? Or maybe buy 100 shares of Apple stock? W ould you put it all in one place or spread it around?

T he answer to that last question is the key to your financial future.

Asset allocation is the most important investment decision of your lifetime, more important than any single investment you’re going to make in stocks, bonds, real estate, or anything else. W hat’s the difference? W ell, the financial decisions you’ve already made—to automatically invest a percentage of your income for compound returns—gets you in the game. But once you decide to get in the game, now you’ve got to stay in the game—for the long term! Y ou can lose it all if you aren’t careful about where you put your money. Anybody can become wealthy; asset allocation is how you stay wealthy.

But don’t just take it from me. L isten to D avid Swensen, the rock star of institutional investing. Remember, he’s the guy who grew Y ale’s portfolio from

$1 billion to more than $23.9 billion by achieving a 13.9% average annual return across three decades of bear and bull markets. N obody does it better. W hen I sat down with him in his office in N ew H aven, C onnecticut, I asked, “W hat are the most important insights investors must have to achieve financial freedom?” H e told me that there are only three tools for reducing your risk and increasing your potential for financial success:

1.     Security selection—stock picking;

2.     Market timing—short-term bets on the direction of the market; and

3.     Asset allocation—your long-term strategy for diversified investing.

Before I could even ask about the first two, he made one thing perfectly clear: “Overwhelmingly, the most important of the three is asset allocation,” he said. “It actually explains more than a hundred percent of returns in the investment world.” W ait a second: H ow could it be more than 100% ? Because those fees, taxes, and losses that come along with stock picking and market timing put a drag on your profits.

Asset allocation is more than diversification. It means dividing up your money among different classes, or types, of investments (such as stocks, bonds, commodities, or real estate) and in specific proportions that you decide in advance, according to your goals or needs, risk tolerance, and stage of life.

W ow, that’s a mouthful, isn’t it?

Y et it’s the key to success or failure for the world’s best financial players, including every single one of the investors and traders I interviewed for this book. Paul T udor Jones swears by it. Mary C allahan E rdoes, perhaps the most powerful woman on W all Street, leads 22,000 financial professionals whose livelihoods depends on it. Ray D alio, who founded the largest hedge fund in the world and is now worth $14 billion personally, lives it.

T his chapter takes a complex subject and makes it simple enough for you to act on and positively affect your investment returns for the rest of your life, so give it your full commitment and focus! It doesn’t matter if you have only $1,000 that you’re going to save and invest or $1 million. T he principles you’re about to learn are critical to start applying immediately. If you think you know them already, it’s time to take them to the next level.

L et’s talk about why asset allocation is so crucial to your investment plan, and how you can start making it work for you today.

Anyone who thinks there’s safety in numbers hasn’t looked at the stock market pages.

— IR E N E PE T E R

H            ow many times have you picked what looks like thefastest line at the grocery store, but it turns out to be the slowest? Or how often do you switch to the fast lane in a traffic jam and watch the cars in the slow lane whiz past you? Y ou think you’re getting there faster, and then you’re wrong. And what about intimate relationships? In spite of how much you know about yourself and what you believe and value, have you ever chosen the “wrong” partner? W e all know that decision can have an extraordinary impact on the quality of your life!

T he same thing can happen with your investments. E xcept that when you make mistakes with your nest egg, if it’s too big a mistake, it’s all over. It can mean losing your home. Or still looking for work when you’re 70. Or having no money for your children’s education. T hat’s why this chapter is so important.

Asset allocation is the one key skill that can set you apart from 99% of all investors. And guess what? It won’t cost you a dime. D avid Swensen likes to quote H arry Markowitz, the N obel Prize–winning father of modern portfolio theory, to whom I also reached out to interview for this book. H e said famously, “D iversification is the only free lunch.” W hy? Because spreading your money across different investments decreases your risk, increases your upside returns over time, and doesn’t cost you anything.

W e’ve all heard the old adage “D on’t put all your eggs in one basket.” W ell, asset allocation protects you from making that financial mistake. It sounds like such a basic rule, but how many people do you know who violate it?

I               have a friend who got so excited about Apple that heput all his money in the company. For a while, it was the most successful stock in the world—until it dropped by 40% in a matter of weeks. Ouch. T hen there’s another friend who was in her 30s when she quit her job as a television executive, sold her house in L os Angeles at the height of the real estate market boom, and used the money to open a rustic diner in W yoming. She invested what was left in high-risk stocks and junk bonds, thinking the interest would provide enough income to support her. And it did for a while. But the stock market crash of 2008 wiped out her entire savings. She had to fold up her teepee and go back to work as a freelancer for a fraction of what she used to make.

W e’ve all heard horror stories from the economic meltdown. Maybe you know some baby boomers who had all their money tied up in real estate before the bottom fell out. Or a couple who were ready to retire with their 401(k) full and their target-date funds about to mature. T hey had the RV picked out, the boat in the driveway, the itinerary drawn up with visits to the grandkids marked out. T hen the financial world unraveled. T heir net worth was cut nearly in half, and their dream of retirement turned into 20 more years of work.

T hese stories are heartbreaking, and I want to make sure nothing like that ever happens to you. And the good news is, it never has to. T hat’s why I wrote this chapter: so that you’ll not only be protected but also can grow your nest egg faster.

W hat’s the simple and core investment lesson here? W hat goes up will come down! Ray D alio told me point-blank that in your lifetime “it’s almost certain that whatever you’re going to put your money in, there will come a day when you will lose fifty percent to seventy percent.” Y ikes! T hat means any investment you pick is going to lose half to two-thirds or more of its value! And don’t most people typically favor one type of investment because they feel they “know” more about that area, or because it’s currently providing a “hot” return? Some people tend to put all their money in real estate, others in stocks, bonds, or commodities. If you don’t diversify enough, you stand to lose your shirt! Are you hearing me? N o matter how well you plan, there will be a day of reckoning for every type of asset. So, diversify or die.

But if you diversify well, you’ll win!

By now I’m sure you’re crystal clear about the consequences of not diversifying! N ow would you like to hear about the incredible impact of the right diversification? It’s almost like having a license to print money. I know that’s an exaggeration, but imagine what it would feel like if you knew you were making money while you sleep, and that your diversification gave you true peace of mind regardless of the economic climate.

H ere’s a real example. H ow would you feel if, in that D efcon environment of 2008, when stock markets were losing more than $2 trillion, bonds were tanking, and real estate was falling through the floor, you could have had an asset allocation where your maximum loss was just 3.93% ? T his example is not a fantasy. T his is the power of asset allocation that I’ve mentioned several times in this book, and I’m going to demonstrate it to you shortly. Better yet, what if in the last 30 years of your life (between 1984 and 2013), your asset allocation was so powerful that you lost money only four times, with an average loss of just 1.9% , and never more than 3.93% ? Remember, everyone else during those three decades was riding the wild wave of inflation and deflation. In the last decade alone, we had two market drops of nearly 50% , yet you would have coasted through the storm without a single gut check and still averaged a compounded annual return of just under 10% . I’m not describing a hypothetical situation. W hat I’m describing to you is an actual portfolio, a specific asset allocation, designed by Ray D alio. Soon I’ll show you the exact formula that has produced these mind-blowing results. But before you can use it, you have to understand the core principles laid out in this chapter.

Rule 1: don’t lose money.

Rule 2: see Rule 1.

— W AR R E N BU F F E T T ’S R U L E S O F IN V E ST IN G

I can’t say it enough: good people often fail because they do the right thing at the wrong time. Buying a house—is it the right thing to do? Most experts would say yes. But in 2006, it was the wrong time! So the question is: If we’re all going to be wrong some of the time, where do we put our money? T hat’s where asset allocation comes in.

H ere’s another way to think about it: when you’re trying to build a winning team in sports, you have to know the capabilities of each player. Y ou have to know his strengths and weaknesses. Y ou have to decide who you can count on in different situations. N ow, say your portfolio is the team, and your investment choices are the players. Asset allocation helps you choose who starts and at which positions. U ltimately, it’s the right mix at the right time that brings you victory.

Asset allocation offers you a set of guiding principles: a philosophy of investing to help you decide where to put Freedom Fund money or your nest egg and in what proportions.

T hink of it as taking chunks of your money and putting them into two separate investment buckets with different levels of risk and reward. One of these first two buckets is a safe environment for your money, but it’s not going to grow very fast there. Y ou might get bored with it, but it’s secure, so that when you need it, it’s there. T he second bucket is sexier because it can give you the opportunity for much quicker growth, but it’s risky. In fact, you have to be prepared to lose everything you put in here!

So how much goes in each bucket? It depends on how much time you’ve got to grow your investments and how much risk you’re willing to take. Y ou’ve got to ask yourself, “H ow much risk can I afford to take at my stage in life?” But remember, you’re not diversifying just to protect yourself. Y ou want to enhance your results: to find the ideal blend of investments that will make you thrive, not just survive!

But, hey, if we’re willing to admit it, many people have more than enough stress in their daily lives without adding a ton of anxiety worrying about their investments day and night. A significant part of financial security or even freedom is peace of mind, that feeling that you don’t have to think about money. T he first bucket will give you certainty in your life, which, after all, is the first basic human need. And that’s why I call it the Security/Peace of Mind Bucket. It’s where you want to keep the part of your nest egg you can’t afford to lose

—or even imagine losing without waking up in a cold sweat! It’s a sanctuary of safe investments that you lock up tight—and then hide the key.

I don’t gamble, because winning a hundred dollars doesn’t give me great pleasure. But losing a hundred dollars pisses me off.

— AL E X T R E BE K , host of J eopardy!

T aking a financial hit not only lightens our wallets but also can steal the joy from our lives. Remember that behavioral economics study with the monkeys and the apples? A monkey was happy if he was given an apple. But if he was given two apples, and then one was taken away, he freaked out—even though, in the end, he still had an apple. H umans are the same way. Research on human emotion shows that the majority of people around the world underestimate how badly they feel when they lose. T he pleasure of our victories is dwarfed by the pain of our failures and our losses. So we all have to set up a Security/Peace of Mind Bucket to protect ourselves from taking the kind of hits that will not only set us back financially but also will make us miserable.

T o familiarize you with the kind of investments that are considered a bit more secure, let’s look at eight basic types of assets (investment options or resources) that might belong in this Security Bucket. T his is just a sampling. It’s not meant to be everything that would fit in this bucket. But as you read, you will notice a pattern: none of these types of investments tends to have extreme volatility—meaning that its value doesn’t tend to fluctuate much—especially compared with things you’ll see later in the Risk/G rowth Bucket. (Although, as we’ve all experienced, there are short periods in history where virtually all investments have increased volatility. L ater Ray D alio will show us how to prepare for this as well!) But this quick list is designed to get you to think about your investments in the future, and give you a feel for what might go here. Ask yourself, “Before I invest, is this putting me at risk? Is this something I’d be better off having in my R isk/G rowth Bucket or in my Security Bucket?”

So let’s take a look at what this is all about, starting with the first and perhaps the most important place to put a portion of your money: the Security/Peace of Mind Bucket. W hat assets would you want to put in here? Remember, this bucket is the slow but steady contender, like the turtle in the race to financial freedom. Because the turtle often wins! And you have to treat it like your sacred temple of savings and investments— because what goes in here doesn’t come out.

And before you go on, bear in mind that the beginning of this chapter has some fundamentals: the blocking and tackling of asset allocation. If you’re a sophisticated investor, you can scan through the list of investment options because you probably already know what they are, and you can save yourself some time. But I didn’t want to leave out anyone. Besides, you might find a distinction or two that you’ll find valuable. So let’s dive in.

1. C ash/C ash E quivalents. At some time in our lives, every one of us will need a cushion to cover our needs in case of an emergency or a sudden loss of income. N o matter your income level, you need some liquidity —or instant access to cash. Is it possible to be rich in assets and feel poor because you don’t have cash or liquidity? A lot of people were caught short in 2008 when the banks froze up and stopped lending (even to one another), and real estate seemed impossible to sell. In fact, according to a 2011 study, half of all Americans would struggle to come up with $2,000 in a crisis such as an unexpected medical bill, legal cost, or home or car repair. So you need some cash to make sure that doesn’t happen to you. T hink about it: it wouldn’t take a lot of focus or a lot of savings for you to be better off than more than half of America!

But once you’ve decided how much cash you need to have on hand, where do you keep it? Most of us choose bank accounts that are insured by the FD IC for balances of up to $250,000. U nfortunately, brickand-mortar banks pay almost no interest these days— the last time I checked, some were as low as 0.01% !— while online banks have been offering slightly higher rates. Maybe not ideal, but at least we know the money is safe and available. Y ou also may want to keep some of that cash in a safe place or for safety near your home—you know, “under your mattress”— in a hidden safe in case there’s an earthquake or hurricane or some other kind of emergency, and the AT Ms stop working.

Other tools for cash equivalents include money market funds—there are three types, and if you want to learn more, see the box for details.

For larger amounts of money that we need to keep safe and liquid, you can buy into ultra-short-term investments called cash equivalents. T he most well-known are good old money market funds. Y ou may even already own one. T hese are basically mutual funds made up of low-risk, extremely shortterm bonds and other kinds of debt (which you’ll learn more about in a moment). T hey can be great because you get a somewhat higher rate of return than a boring old bank account, but you still get immediate access to your cash 24 hours a day—and there are some that even let you write checks.

By the way, most banks offer money market deposit accounts, which are not the same as money market funds. T hese are like savings accounts where the banks are allowed to invest your money in short-term debt, and they pay you a slightly better interest rate in return. T here’s usually a minimum deposit required or other restrictions, low rates, and penalties if your balance falls too low. But they are insured by the FD IC , which is a good thing. And that sets them apart from money market funds, which are not guaranteed and could potentially drop in value.

But if you want to keep your money safe, liquid, and earning interest, one option is a U S T reasury money market fund with checking privileges. T rue, these funds aren’t insured by the FD IC , but because they are tied only to U S government debt and not to any corporations or banks that might default, the only way you can lose your money is if the government fails to pay its short-term obligations. If that happens, there is no U S government, and all bets are off anyway!

2.     Bonds. W e all know what a bond is, right? W hen I give you my bond, I give you my word. My promise. W hen I buy a bond, you give me your word—your promise—to return my money with a specific rate of interest after X period of time (the maturity date). T hat’s why bonds are called “fixed-income investments.” T he income—or return—you’ll get from them is fixed at the time you buy them, depending on the length of time you agree to hold them. And sometimes you can use those regular interest payments (dividends) as income while the bond matures. So it’s like a simple IOU with benefits, right? But there are zillions of bonds and bond funds out there; not all but many are rated by various agencies according to their levels of risk. At the end of this chapter, you’ll find a quick bond briefing to find out when they can be hazardous to your financial health, and when they can be useful— even great!—investments.

Bonds can also be kind of confusing. L ike a seesaw, they increase in value when interest rates go down, and decrease in value when rates go up.

After all, who wants to buy an old low-interest-rate bond when a shiny new bond with a higher interest rate comes on the market? But one way to avoid worrying so much about price fluctuations in bonds is to diversify and buy into a low-cost bond index fund.

And just remember, not all bonds are equal. G reece’s bonds are not going to be as strong as G ermany’s. D etroit’s municipal bonds are not going to be as strong as the U S T reasury’s. In fact, some investment advisors say the only completely safe bond is one backed by the full faith and credit of the U nited States. And you can actually buy U S bonds called T reasury inflation-protected securities, or T IPS, that rise in value to keep up with inflation through the consumer price index. Again, we’ll cover all of this in the bond briefing. And later I’ll be showing you an amazing portfolio that uses bond funds in a totally unique way. But meanwhile, let’s consider another fixed-income investment that might belong in your Security Bucket.

3.     C D s. Remember them? W ith certificates of deposit, you’re the one loaning the money to the bank. It takes your cash for a fixed rate of interest, and then returns it—along with your earnings—after a set amount of time. Because C D s are insured by the FD IC , they’re as safe as savings accounts, and—at the time of this writing—just about as exciting. But I wrote this book for every season, and seasons keep changing. I don’t know what season you’re in now, but I can tell you this story: in 1981, when I was 21 years old, you could buy a six-month C D for . . . wait for it . . . 17% interest! But you don’t have to go that far back to see how some types of C D s, in the right environment, can give you quality returns. Remember the story of how my Stronghold advisor got a small fixed rate on a C D in 2009, but it was a market-linked C D , which was attached to the growth of the stock market, and he averaged 8% interest over time! T hat was an unusually good deal, but there are still ways to get more bang for your buck (without risking your principal) by investing in these market-linked C D s. (Y ou can go back to chapter 2.8 for a recap about how they work.)

So how’s our team of assets doing so far? C D s, cash, money market funds, and bonds would be obvious players for your Security Bucket. But when do you put them in the game? Some players will do well in some environments and poorly in others. W hat’s the advantage of the cash player? T he cash player can jump into the game any time. Y ou can keep your money safe and ready to deploy when the right investment comes along. On the other hand, if you hold too much money in cash, your spending power is not growing. In fact, it’s shrinking due to inflation each year. But in deflationary times, like 2008, your cash will buy you more. If you had cash in 2008 and had the stomach to do it, you could have bought a home for almost 40% less than that same house cost the year before. (By the way, that’s what many hedge funds did. T hey bought tens of thousands of homes during the down time, fixed them up and rented them, and then sold them between 2011 and 2014 for a big profit.) Many stocks could be bought at a similar or even greater discount in 2008.

W                      hat’s the advantage of the bond player? D epending on the type of bond, you’ve got a guaranteed rate of return that gives you security when other asset class prices might be dropping. Regular C D s, as I’m writing this in 2014, probably don’t interest you at all, and they don’t interest me either. But that player can do well in high-interest-rate environments. And while market-linked C D s excel when the stock indexes are hot, they’re rock solid in every environment because you don’t lose principal. H ere is the downside of bonds: if you want to sell bonds before their maturity date (when you receive your full investment plus interest), and interest rates have risen significantly and new bonds provide a higher rate of return, you will have to unload them at a discount.

If all this seems incredibly complex, here’s the good news. Ray D alio has created a strategy called All Seasons, which will show you how to succeed with the right mix of bonds, equities, commodities, and gold in any economic season. W e’ll learn more about that later.

First, understand that because secure bonds offer a promised or stated rate of return and a return of principal, they are more secure than investments that do not guarantee either the rate of return or the principal. But the promise is only as good as the bond issuer. T he point here is that you need the right player for the right season in the right proportions and at the right time.

N ow let’s take a look at a few other assets for your Security Bucket team you might not have thought of:

4.     Y our home goes in here, too. W hy? Because it’s a sacred sanctuary. W e shouldn’t be “spending our home”! Americans have learned a hard lesson in recent years about the dangers of house flipping and using their homes like AT Ms. A home, if it’s your primary residence, shouldn’t be seen as an investment to leverage, and it shouldn’t be counted on to produce a gigantic return. But wait, haven’t we always been told that your home is your best investment because it always goes up in value?

In my search for answers, I sat down with the N obel Prize–winning economist R obert Shiller, the leading expert on real estate markets, and creator of the C ase-Shiller home price index of housing prices. H is breakthrough insights were used to create the following chart. Shiller found that when he adjusted for inflation, U S housing prices have been nearly flat for a century! H e exploded one of the biggest myths of our time: that home prices keep going up and up. “U nless there’s a bubble,” he told me. And we all know what eventually happens to bubbles.

On the other hand, owning your home with a fixedrate mortgage is a hedge against inflation, and there’s a tax advantage. W hat’s more, if you own a home outright, and you rent out all or part of it, it can be a safe way to earn some income. Also, as you’ll soon learn, there are some great ways to invest in real estate—like first trust deeds, RE IT s (real estate investment trusts), senior housing, income-producing properties, and so on. So nobody’s suggesting that you give up on real estate investments if that’s what you like to do! But it’s probably a good rule of thumb to put them in the next bucket we’re going to talk about: the Risk/G rowth Bucket.

Meanwhile, what other assets might belong in Security?

5.     Y our Pension. G ot one? T his bucket is the place to keep it if you’re one of the lucky few. Remember the example of D r. Alicia Munnell, director of the C enter of Retirement Research at Boston C ollege? She liquidated her pension and took an early payout, thinking she could invest and get a higher return than her past employer, the Federal Reserve. She learned the hard way that you don’t want to risk your lifetime income plan, and now she shares her story as a warning to others.

6.     Annuities. If you’re young, and you hear this word, you may think this doesn’t have any value for you. In the past, they took a lot of money, and you had to be a certain age in order to tap into these investment tools. But as you’ll learn in chapter 5.3, “Freedom: C reating Y our L ifetime Income Plan,” there are some new tools you can arm yourself with. Remember, these investments are insurance products that can give you a guaranteed income for life. T hey’re like private pensions if they’re done right. But as we’ve discussed, most annuities out there are terrible investments with high fees and ridiculous penalties. Most variable annuities should come with more warnings than a Viagra commercial! But you can find a few select annuities—which you will learn about in section 5—that are so safe and affordable that many experts call them the H oly G rail of retirement income solutions. H ow’s that? T hey can give the kind of returns you enjoy in your R isk/G rowth Bucket within the safety of your Security Bucket. A guaranteed income that will last your lifetime and never go down in value!

7.     At least one life insurance policy belongs in your Security Bucket, and you don’t mess with it. W hy? G ot a family? If you die, your family will be taken care of. T erm life will suffice for most people. H owever, another type of life insurance policy, described in section 5, can provide you with an income for life, tax free, while you’re still alive! And if structured correctly, it can also provide enormous tax efficiency. T he largest corporations and the ultrawealthy have been using this IRS-sanctioned approach for decades. Be sure to check out chapter 5.5 for details on how to use this tool to perhaps cut the time it takes to get to your financial goals by 25% to 50% depending on your tax bracket.

8.     Structured N otes. T hese products have been called “engineered safety” for investors. Structured notes are like market-linked C D s, but they aren’t covered by FD IC insurance. H ow do they work? Y ou lend money to a bank—usually one of the biggest banks in the world—and the bank promises to give you back the money after a specified period of time, plus a percentage of whatever gains accumulate in a particular index (say, the S&P 500—minus the dividends—commodities, gold, RE IT s, or a

combination). For example, at the time of this writing, J.P. Morgan has a seven-year structured note with 100% downside protection, meaning you’ll never lose your original investment, plus it gives you 90% of the upside gain of the S& P 500. N o wonder, as you learned in chapter 2.8, the ultrawealthy often use this tool to invest. T he right kind of structured note can be a great way to participate in the upside of the market without worrying about the downside—especially at a stage of life when you can’t afford to take such volatility risks.

W                      hen I sat down with Mary C allahan E rdoes,

C E O of J.P. Morgan Asset Management, with $2.5 trillion under management, she told me structured notes can be good investment choices, particularly for people afraid to put their money in anything after the financial meltdown of 2008. And they’re not a gimmick. “A lot of times, people will look at a structured note and say, ‘T hat looks too good to be true,’ ” she told me. “But you need to understand the product from start to finish. T here are no gimmicks, there are no gadgets; it’s just math in the markets . . . T he longer you don’t need liquidity, the more the market will pay you for that. If you’re going to put your money away for seven years, you should be able to get that much upside.”

So do structured notes belong in your Security Bucket? T he structured note is only as secure as the bank that issues it. E rdoes made it clear that J.P. Morgan was the largest bank in the world. Some fiduciaries will recommend the Royal Bank of C anada or other C anadian banks, since they have been rated as some of the best and safest in the world. (T he U nited States saw more than 9,400 banks collapse during the G reat D epression and almost 500 in the recent G reat Recession. Not one bank failed in Canada!) So, as always, you have to weigh the benefits against the risk and make your own decision. Also, watch out for fees and complicated contracts. As we said in chapter 2.8, structured notes can be a terrible product, just like mutual funds, if there are too many fees attached. If the issuer is fiscally strong, you won’t lose your money. But if the timing is off, you won’t make any money in that time period. So this is more of a secure protection strategy. It’s best to talk over this investment with your fiduciary advisor before jumping in.

T IME IS ON Y OU R SID E

W hew! T hat was a lot. But remember, if your head is exploding with all these choices, you’re not in this alone. Y ou can have your complimentary asset allocation (and full portfolio review) done for you online at www.strongholdfinancial.com or by your own fiduciary advisor.

But it’s important to understand the concept of asset allocation and which investments are available for each of these buckets so that your overall portfolio—your group of investments—reflects your goals and level of risk tolerance. T hat way you’re still running the show! At every decision point, you’ll be thinking, “H ow much am I risking and how much am I keeping secure?” T hat’s where the game is won or lost!

And, as you’ve already seen, the biggest challenge for your Security Bucket today is: What is really secure? W e know the world has changed, and even conservative savers have been forced into riskier and riskier investments by crazy-low interest rates. It’s tempting to shoot for bigger returns, especially when the stock market is galloping. Y ou may start thinking, “I’ll never get where I need to go from here.” But you can if you’re willing to play the long game. (And especially if you find some investments that guarantee returns without risking principal—which you’ll learn about soon.)

Just like in that old Rolling Stones song, time is on your side when it comes to growing your wealth. And time is certainly the greatest asset for the Security Bucket —even if you start later in life. After all, more and more of us are living into our 80s and 90s, so our investments can mature along with us. And if you’re G eneration X , Y , or Z —yes, there is a G eneration Z , the postmillennials! —you’re way ahead of the game! Y ou can start with a tiny amount and let the magic of compounding get you where you want to go so much easier.

W hat happens to the money in your Security Bucket reminds me of an old gambler’s trick on the golf course. T he gambler tells his mark, “Y ou play golf? I just started playing, and I’m no good. Y ou want to play ten cents a hole?” So the guy says, “Sure, great!” On the way to the first hole, the gambler says, “Y ou know, ten cents is kind of boring. Just to make it more fun, why don’t we just double the bet every hole?” T he first hole is 10 cents, the second hole is 20 cents, the third hole is 40. By the time they get to the fifth hole, it’s $1.60. T he sixth hole is $3.20, and they’re only one-third of the way through 18 holes. By the time they get to the 18th hole, how much are they playing for? H ow about $13,107! T hat’s a steep golf bet, even for D onald T rump. And that’s the magic of compounding in action.

It’s also what happens when you’re investing in your Security Bucket over the long haul. Y ou reinvest the interest you make, and, for a long time, there seems to be no progress at all. But you get to the 13th hole, and then the 14th, and then the 16th, and then it explodes.

T ake a look at the chart on page 312. T hat’s the exponential progression that will work for you.

Of course, sitting tight is a challenge for this generation! As a society, we’re wired for instant rewards, and waiting for the assets in our Security Bucket to increase in value can initially feel like watching grass grow. And that’s why we get tempted into putting too much of our money into the next bucket, Risk/G rowth. But not everything in your Security Bucket has to be dull as dishwater. If you have a talented and connected fiduciary advisor, he or she can show you how to take some of these boring security tools and eke out a more reasonable return, or even a significant return if you find the right environment.

H ere’s just one example of what my Stronghold advisor found for me—and it’s an asset that most people wouldn’t normally put in their Security Bucket: a residential real estate loan!

It starts with a guy building a house in Indian W ells, C alifornia, who ran into some financial trouble and had to sell it to a group of investors. E ver hear of Indian W ells? It’s like the Beverly H ills of Palm Springs, which is one of the highest-income environments per capita in the U nited States. T he city is beautiful, with extraordinary weather, surrounded by golf courses and resorts—an amazing place to own a home or a vacation home. T he investment company that bought the guy’s house buys up dozens of properties, so it needs a lot of cash—but the company doesn’t need it for long because it fixes up and resells the houses quickly. T o keep the money flowing, the company needs investors to give it short-term loans in exchange for first deeds of trust on the properties it holds.

E ver hear about first trust deeds? If you own a home and have a mortgage, a financial institution loaned you the money to buy your house, and you gave it your bond to pay it back at a certain rate of return. H owever, if you don’t keep your word and fail to keep up the payments, the entity that owns the mortgage, or trust deed, has the right to force you to sell—and it continues to receive interest until a new owner takes over. As an investor, I look for ways to get maximum rewards in a secure environment—a first trust deed structured properly can be perfect for this purpose.

My advisor and I found out that the real estate investment company was offering the first deed of trust on that house in Indian W ells as collateral on a $1 million loan, which would pay 10% interest for one year.

It was willing to have one investor take this on, or as many as 25, each contributing $40,000. In the end, I decided to invest in the full $1 million myself. Y ou might say, “W ow, that’s a great deal! Y ou get a hundredthousand-dollar profit to tie up your money for just one year. But T ony, what’s your risk?” T hat’s exactly why we did a lot of research. T he home, we learned after two qualified appraisals, was worth $2 million in its current state. So if I’m loaning $1 million, that loan has a 50% loan-to-value ratio, right? E ven if the company defaults, my $1 million is secure because the value of the property is $2 million.

T his was a pretty great deal, but I’ve also bought deeds of trust on smaller homes. Say I’d found a starter home in the Midwest that was worth $80,000. If I could get the mortgage for $40,000, at 50% loan to value, I might make the loan. T he Indian W ells deal was similar, only on a larger scale. So I decided to go for it, and I put that investment in my Security Bucket.

Okay, I can already hear you saying, “W ait a minute, T ony! W hat if the market drops? D oesn’t that investment belong in your Risk/G rowth Bucket?”

T hat’s a great question, because we’ve just been through one of the worst real estate crashes in history! And on the surface, it looks like you’d probably put this in your Risk Bucket. But here’s why I think it’s a safe investment: in 2008, when the real estate market just went through the floor, and the world was upside down, the prices of houses in most parts of the U nited States dropped 30% to 40% , max. T here were a few exceptions, such as some parts of L as Vegas, Phoenix, and Miami, where the prices dropped more than 50% . But all of those places had massive price growth right before the bubble burst. T he Indian W ells area didn’t experience that size of bubble—and while prices dropped 31% from 2008 to 2010 (far below the 50% mark), the biggest loss in a single year was only 13.6% (from 2008 to 2009). And remember, we’re loaning for only one year. So if residential real estate didn’t take anything close to a 50% hit in Indian W ells in 2008, it’s not likely to happen this year.

T hat’s why I decided to move forward with this as the investment to put in my Security Bucket. It’s the place where you have to be cautious. But it doesn’t have to be totally boring. And sometimes the returns can be very nice (8% to 10% , whereas many people typically settle for 1% to 4% returns in the Security Bucket) if you do your homework!

It is my contention that Aesop was writing for the tortoise market. H ares have no time to read.

— AN IT A BR O O K N E R

Boredom comes from a boring mind.

— “T H E ST R U G G L E W IT H IN ,” Metallica

N ow, what if that same company offered me a 12% return to invest in that $2 million property—but for the better rate, it wanted me to loan it $1.5 million instead of $1 million? T hat would make the loan-to-value ratio 75% —obviously I’d get a greater return by taking a greater risk. It means if the market dropped by 25% or more, I might lose some of my investment. N ot likely, but possible. So if I was willing to take the extra risk for an increase in returns, it might be something I’d consider. But I would not put this investment in my Security Bucket. It belongs in the next bucket you’re about to discover: the one that should be wrapped in yellow caution tape and handled with oven mitts, because if you approach it the wrong way, I guarantee you’re going to get burned! But handled effectively, it can speed up your journey to Financial Freedom.

By now you can see why asset allocation is an art, not a science. T he idea of security is totally subjective. Some people think nothing is safe! Others can live with a tiny bit of risk and still feel secure. So you’ve got to look at each investment on an individual basis.

T he real payoff of asset allocation comes when you figure out the right mix of how much of your money you keep safe and how much you’re willing to risk to get greater rewards and have the potential to grow faster. In investing, that’s where you live or die, succeed or fail. So what percentage do you think you should put in your Security Bucket—in safe investments? One-third? H alf? T wo-thirds? Failure to secure a significant portion of your hard-earned money in safe investments can spell financial disaster. C onversely, putting too much in this bucket can significantly slow your growth. H ow do we find the right balance? T hat’s what we’ve been working toward. And now that we’ve locked down the foundation for security, it’s time to really get in the game. It’s time to play to win.

As a quick note, bonds can be such a potentially important investment for your Security Bucket that I wanted to give you a quick bond briefing that might be well worth your review. If now’s not the right time, remember this is here as a reference for you, and skip over to the next chapter. K eep up the momentum! W e’re on our way to bigger risks and potentially bigger rewards.

A FE W W ORD S ABOU T BON D S G entlemen prefer bonds. — AN D R E W ME L L O N , founder of the Bank of N ew Y ork Mellon N ot that long ago, bonds were supposed to be the safest, most reliable form of investment. T hey were the big guns in the portfolios of the ultrawealthy, and

the bedrock of your Security/Peace of Mind Bucket for the average investor. But bonds have taken a bad rap in recent years, and for good reason. W ith the U S government keeping interest rates insanely low, and some of the companies, cities, and even nations that issue bonds teetering on the brink—or even going bankrupt—they don’t seem like such a great deal to everyone anymore.

But most experts still think bonds are an important part of your investment mix. (In fact, they’re the foundation of the mind-blowing portfolio that works in all economic climates, which you’ll learn about in chapter 5.1.) So let’s look at the basic kinds of bonds out there to see what can be great about them—and also what to watch out for.

• U S T reasury Bonds. Many investment experts, including Y ale’s asset allocation wizard D avid Swensen, feel that the safest bonds are good old U S T reasuries, because they are backed by the full faith and credit of the government. D avid told me, “T reasury bonds are really there as an anchor for the portfolio.” But because these bonds are so safe from default, they have smaller returns. And like other, less secure bonds, they can fluctuate in price based on outside events—particularly how much inflation or deflation is happening at the moment.

So suddenly what you thought was a bomb-proof investment can blow up in your face!

T reasuries come in four different types (and they have different names for how long they last to maturity).

1.     T -bills: T hese T reasury bills are government debt obligations that come due in less than 12 months. T hey are the basis for most short-term bond index funds and money market funds.

2.     T -notes: T reasury notes mature in one to ten years, and offer a fixed interest rate (known as “the coupon”). Y ou get interest payments on these every six months.

3.     T -bonds: Same as T -notes, but T reasury bonds mature in ten to 30 years.

4.     T IPS: First created in 1997, these T reasury inflation-protected securities protect you against spikes in inflation. W hen you buy T IPS, the principal (or “par value”) of your bond goes up or down when the consumer price index on inflation changes—and so does your semiannual interest payment. So if you buy $10,000 worth of

T IPS at 1.5% interest, and the C PI doesn’t change in six months, the “par value” of your bond stays the same, and you get a $150 interest payment. But—and here’s the beauty of T IPS!— if the cost of living goes up 2% , your bond is now worth $10,200, and your semiannual payment is $153. If you own a lot of T IPS, and there’s a lot of inflation, that money can add up! H ere’s a chart that shows you how it works:

N otice that the value of the bond can be adjusted down, too. So if we go into another economic recession or depression, you could potentially lose some of your principal if you need to liquidate and get the value of your bond today.

Basically, if you buy T IPS, you’re betting that we’re heading into a period of inflation. D oes that seem likely? If you’re not sure (and, really, nobody ever knows for sure), you may want to do what D avid

Swensen recommends in his ideal portfolio: because T IPS go up in price when interest rates rise (which usually happens during inflationary times), balance them with an equal amount of traditional T reasuries that go down in price when interest rates rise. T hat way, you’re protected in any situation!

Of course, the U S government isn’t the only country that issues bonds to pay for its operations. And in the good old days of a few years ago, a bond backed by the full faith and credit of a sovereign nation used to be considered a fairly safe bet. But now that we’ve had G reece, Spain, and other nations teetering on default—or, like Argentina, plunging over the edge— foreign government bonds have become a riskier deal. Foreign bonds are also more vulnerable to inflation risks, and if you buy bonds in an unstable currency, you might run into big trouble exchanging them back into dollars. Most advisors say to leave these investments to expert traders and hedge funds.

But what about some other bonds that can bring in better returns than plain old T reasuries? Some of the types listed below are safer than others. Y ou can find out what others think about their prospects through a rating system that categorizes bonds by the level of risk to investors.

T here are several internationally recognized bond rating agencies, such as Moody’s, Fitch Ratings, and

Standard & Poor’s, that use special formulas to come up with credit ratings for different issuers—kind of like the way your credit is rated when you apply for a car loan or Visa card. For S&P, the grades range from AAA (the highest level of confidence that a company or country won’t default on its debts) to BBB (adequate for “investment grade” bonds), and all the way down to D (which means the bond issuer is already in default). T he lower the rating, the more interest the issuer usually has to pay to bond holders for the risk that they’re taking. T he expertly renamed high-yield bonds, formerly known as junk bonds, have a rating of lower than BBB, which makes them “subinvestment grade.”

•    C orporate Bonds. C orporations issue bonds when they want to raise money to expand, make acquisitions, pay dividends, fund a loss, or any number of reasons. Should you buy corporate bonds? It depends on the risk. If you pick the wrong bond, you could lose most or all of your money. E ven iconic companies such as T W A and K odak have gone bankrupt. A year after it declared C hapter 11, K odak’s unsecured bonds were selling for 14 cents on the dollar. But bonds from most giant U S corporations are still considered safe bets. Apple (with an AA+ rating) has been selling high-grade bonds to eager buyers—but the interest those bonds earn is only about 1% higher than comparable U S T reasuries! Some investors, like D avid Swensen, say, “W hy bother with corporate bonds when you can get a better return just buying stock in the company?”

But if you’re looking for higher yields in bonds, you have lots of options—as long as these investments go into your Risk/G rowth Bucket and not your Security Bucket! For instance, not everybody shies away from so-called junk bonds. Y ou have to look at each one and decide if it’s worth the risk. In May 2014 Australia’s largest airline, Qantas, offered a subinvestment-grade eight-year bond in Australian dollars for a 7.75% interest rate. T he company had its credit rating downgraded because of recent losses and debt problems, but would you count it out? Or at a more extreme level, in January 2013 in the midst of chaos, there were people who were buying oneyear E gyptian T reasury bills with a

“guaranteed” (a guarantee only as strong as you think an unstable government can make) return of 14.4% . T hose who did this were betting that the U S government and the Saudi Arabian government would keep E gypt stable and solvent.

W ould the rewards be worth the risk of default? T hat’s the kind of decision you’d have to make before buying the junk bond.

Of course, not many of us have the experience or time to do this level of research. T hat’s where a talented fiduciary advisor who’s an expert in the area might come in handy. But there are also domestic and international high-yield bond index funds that can give you good returns while spreading the risk among many bonds.

•    Municipal Bonds. H ow about munis? W hen a state, city, or county needs to raise funds for a big public works project (sewer systems, hospitals, mass transit), it borrows money by issuing a bond. In the past, these municipal bonds were considered a winwin deal for everybody, because the interest they paid was usually exempt from federal and possibly state taxes. But what’s been happening to cities and counties all over the U nited States? San Bernardino and Stockton, C alifornia? Jefferson C ounty, Alabama? D etroit? C hicago? All bankrupt or on the verge, and their bondholders potentially left holding the bag. D oesn’t sound like such a sure thing anymore. Also, when interest rates drop, sometimes the issuer of the bond can “call” it in and pay back your principal before the bond matures. Y ou lose that guaranteed rate of return you were counting on. But once you acknowledge the risks, there can be some great opportunities in municipal bonds if you know where to look.

And the tax advantages can be outstanding.

H ere’s an example that might prove valuable to you: a friend of mine recently bought a N ew Y ork C ity bond where he’s getting a 4% return tax free— which, for someone in a high tax bracket, is the equivalent of an approximately 7% return in a taxable bond! W hy isn’t he worried about the risk? T hese bonds are secured by a lien on future tax revenues. So if N ew Y ork C ity gets into trouble, it has the ability to tax its way out of it and pay him back! H e feels so good about this bond that he’s putting it in his Security Bucket!

T he point is, there are plenty of municipal bonds that could be valuable for you—but you have to educate yourself and sit down with a registered investment advisor or some other knowledgeable investment expert who knows his or her munis.

W ant to take the guesswork out of choosing the right bond mix for your portfolio? Vanguard founder Jack Bogle suggests buying into low-cost, low-fee bond index funds that spread out your risk because you’ll own every part of the bond market. Y ou

 

can see how Bogle puts this concept to work in his own portfolio in section 6, “Invest L ike the .001% : T he Billionaire’s Playbook.” N ow onward to greater risk and potentially greater reward.

 

C HAPT E R 4 .2

PL AY IN G T O W IN : T H E

RISK /G RO W T H BU C K E T

T he winner ain’t the one with the fastest car. It’s the one who refuses to lose.

— D AL E E AR N H AR D T SR .

T he R isk/G rowth Bucket is where everybody wants to be. W hy? Because it’s sexy! It’s exciting! Y ou can get a much higher return in here—but the key word is can. Y ou can also lose everything you’ve saved and invested. So whatever you put in your R isk/G rowth Bucket, you have to be prepared to lose a portion or even all of it if you don’t have protective measures in place. H ow do we know this? Because everything in life, including markets, runs in cycles. T here are going to be up times and down times. And anybody who invests in one particular kind of asset while it’s on a roll—be it real estate, stocks, bonds, commodities, or whatever—and thinks the party will last forever because “this time will be different” should get ready for a rude awakening. W hen I interviewed Jack Bogle for this book, he repeated one of his mantras: “Markets always revert to the mean.” (T hat means what goes up is going to come down, and vice versa.) And I’m sure Ray D alio got your attention when he said that whatever your favorite investment might be, at some point in your life, you can count on it dropping 50% to 70% in value. W hile there’s unlimited potential for upside in this bucket, never forget that you could lose it all (or at least a significant portion). T hat’s why I call this the Risk/G rowth Bucket and not the G rowth/Risk Bucket, because growth is not guaranteed, but risk is!

So what investments would you put in here?

H ere’s a sampling of seven main asset classes to consider:

1.     E quities. Another word for stocks, or ownership shares of individual companies or vehicles for owning many of them at once, like mutual funds, indexes, and exchange-traded funds (E T Fs).

E xchange-traded funds (E T Fs) have been called the “It” girl of the stock market, ballooning in popularity by more than 2,000% from 2001 to 2014, and holding more than $2 trillion in investments. But what exactly are they? E T Fs are built like mutual funds or index funds, because they contain a

diversified collection of assets, but you can trade them just like individual stocks. Most of them follow a theme (small-cap stocks, municipal bonds, gold) and/or trace an index. But with an index or mutual fund, you have to wait until the end of the trading day to buy or sell; E T Fs can be traded all day long. E xperts say that if you like the idea of an index fund, but you want to buy when you see the price is low and sell when the price is high during a trading session, an E T F might be for you. But that’s trading, not investing, and trying to time a market brings very intense and special risks.

But there’s another difference: when you buy shares of an E T F , you are not buying the actual stocks, bonds, commodities, or whatever else is bundled in the fund—you are buying

shares in an investment fund that owns those assets. T hat company promises that you’ll receive the same financial outcome as if you’d owned them yourself. But don’t worry, it sounds more complicated than it is.

A lot of people like E T Fs because they give you a tremendous amount of diversity at a low cost. In fact, many E T Fs have lower fees than even comparable traditional index funds, and sometimes lower minimum investment requirements. And because they don’t engage in a lot of the kind of trading that produces capital gains, they can be tax efficient (although there is a move toward more actively managed E T Fs coming to the market, which makes them less tax efficient).

Should you invest in E T F s? Jack Bogle, founder of Vanguard (which, incidentally, offers many E T F funds), told me he sees nothing wrong with owning broad-spectrum index E T Fs, but he warns that some are too specialized for individual investors. “Y ou can not only bet on the market,” he told me, “but on countries, on industry sectors. And you may be right and you may be wrong.” D avid Swensen wonders why individual investors should bother with E T Fs at all. “I’m a big believer in buying and holding for the long run,” he told me. “T he main reason you’d go into an E T F is to trade. And so I’m not a big fan.”

2.     H igh-Y ield Bonds. Y ou might also know these as junk bonds, and there’s a reason they call them junk. T hese are bonds with the lowest safety ratings, and you get a high-yield coupon (higher rate of return than a more secure bond) only because you’re taking a big risk. For a refresher, go back and read the bond briefing at the end of the last chapter.

3.     R eal E state. W e all know real estate can have tremendous returns. Y ou probably already know a lot about this category, but there are many ways to invest in property. Y ou can invest in a home that you rent out for an income. Y ou can buy property, fix it up, and then flip it in the short term. Y ou can invest in first trust deeds. Y ou can buy commercial real estate or an apartment. One of my favorites that I mentioned to you already is investing in senior housing, where you get both the income and the potential growth in appreciation as well. Or you can buy RE IT s: real estate investment trusts. T hese are trusts that own big chunks of commercial real estate (or mortgages) and sell shares to small investors, like mutual funds. RE IT s trade like stocks, and you can also buy shares of a RE IT index fund, which gives you a diversity of many different RE IT s.

For growth, the N obel economist Robert Shiller told me that you’re better off investing in RE IT s than owning your own home (which belongs in the

Security Bucket, anyway). “Buying an apartment RE IT sounds to me like maybe a better investment than buying your own house,” he said, “because there seems to be a tilt toward renting now.” T hat could change, of course. And, as with any investment, you’ve got to pause and think, “W hat am I betting on?” Y ou’re betting that the price of property is going to go up over time. But there’s no guarantee, so that’s why it’s in the Risk/G rowth Bucket. If it goes up, it could have a nice rate of return; if it doesn’t, you get nothing—or you could lose it all. W hen you buy your own home, you’re betting that the price of your home will go up. W hen you’re buying real estate that has income associated with it (a rental unit, an apartment building, commercial real estate, an RE IT , or an index that holds these), Shiller points out you have two ways to win. Y ou make income along the way and if the property increases in value, you also have the opportunity to make money when you sell on the appreciation.

4.     C ommodities. T his category includes gold, silver, oil, coffee, cotton, and so on. Over the years, gold has been considered the ultimate safe haven for many people, a staple of their Security Bucket, and conventional wisdom said it would only go up in value during uncertain times. T hen its price dropped more than 25% in 2013! W hy would you invest in gold? Y ou could keep a small amount in your portfolio that says, “In case paper money disappears, then this is a little portion of my security.” Y ou know, if all hell breaks loose, and the government collapses under a zombie invasion, at least you’ve got some gold (or silver) coins to buy yourself a houseboat and head to sea. (On second thought, can zombies swim?) Otherwise gold probably belongs in your

Risk/G rowth Bucket. Y ou’d invest in it as protection against inflation or as part of a balanced portfolio, as we will learn later on, but you have to accept the risk. So don’t kid yourself: if you buy gold, you’re betting it will go up in price. U nlike many other investments, there’s no income from this investment like you might get in stocks from dividends or from incomeproducing real estate or bonds. So gold could be a good risk or a bad one, but it goes in your

Risk/G rowth Bucket for sure. T his is not an attack on gold. In fact, in the right economic season, gold is a superstar performer! T hat’s why in chapter 5.1, “Invincible, U nsinkable, U nconquerable: T he All Seasons Strategy,” you’ll see why it can be invaluable to have a small portion of gold in your portfolio.

5.     C urrencies. G ot a yen to buy some yen? Since all currency is just “paper,” currency investing is pure speculation. T here are people who make a fortune in it and even more who lose a fortune. C urrency trading is not for the faint of heart.

6.     C ollectibles. Art, wine, coins, automobiles, and antiques, to name a few. Once again, this asset class requires very special knowledge or a lot of time on eBay.

7.     Structured N otes. W hat are these doing in both buckets? Because there are different types of structured notes. Some have 100% principal protection, and those can go in your Security Bucket, as long as the issuing bank is financially solid. T hen there are other kinds of notes that give you higher potential returns, but only partial protection if the index drops. Say you buy a note with 25% protection. T hat means if the stock market drops up to 25% , you don’t lose a dime. If it goes down 35% , you lose 10% . But for taking more risk, you get more upside: sometimes as much as 150% of the index to which it’s tied. In other words, if the market went up 10% , you’d receive a 15% return. So there’s potential for greater gains, but there’s definitely increased risk. Remember once again, structured notes should be purchased through an RIA, who will work to strip out all excess fees and deliver them to you in the form of an even greater return.

Safety doesn’t happen by accident.

— F L O R ID A H IG H W AY SIG N

W e’ve now covered a sample of some of the investment vehicles/assets that you might find in a diversified Risk/G rowth Bucket. Y ou may be wondering why I haven’t included some of the more daring investment vehicles of our time: call and put options, credit-default obligations (C D Os), and a whole host of exotic financial instruments available to traders these days. If you build up a lot of wealth, you may want to have your fiduciary look into some of these vehicles. But just realize that if you’re playing this game, you’re most likely no longer just an investor, you’ve become a speculator as well. It’s what’s called momentum trading, and you have to realize you can lose everything and more if you play the game wrong. And because the mantra of this book is that the road to financial freedom is through saving and investing for compounded growth, I’ll leave a discussion of these momentum assets for another day.

IT ’S T IME T O G E T IN T H E G AME

Okay, now you know the players that belong in your allocation buckets, and you know the key to building a winning team: diversify, diversify, diversify! But there’s more. Y ou not only have to diversify between your Security and your Risk/G rowth Buckets, but within them as well. As Burton Malkiel shared with me, you should “diversify across securities, across asset classes, across markets—and across time.” T hat’s how you truly get a portfolio for all seasons! For example, he says you want to invest not only in both stocks and bonds but also in different types of stocks and bonds, many of them from different markets in different parts of the world. (W e’ll talk about diversifying across time in chapter 4.4, “T iming Is E verything?”)

And, most experts agree, the ultimate diversification tool for individual investors is the low-fee index fund, which gives you the broadest exposure to the largest numbers of securities for the lowest cost. “T he best way to diversify is to own the index, because you don’t have to pay all these fees,” D avid Swensen told me. “And you get tax efficiency.” Meaning that if you’re investing outside of your IRA- or 401(k)-type account, you don’t get taxed for all that constant buying and selling that goes on in most mutual funds.

H AVE SOME FU N !

Of course, if you have your money machine in full gear, and you have the desire, there’s nothing wrong with setting aside a tiny percent of your R isk/G rowth Bucket to pick some stocks and do some day trading. “Index your important money, then go have fun,” Burton Malkiel told me. “It’s better than going to the racetrack.” But, he said, limit yourself to 5% or less of your total assets or portfolio.

Is all of this giving you an idea of what kind of portfolio mix would be best for you? Before you decide, just remember that we all have a tendency to pile up on the investments that we think will give us our greatest victories. And everybody gets victories. Y ou know why? D ifferent environments reward different investments. So let’s say real estate is hot. Y ou’ve invested in real estate, so now you’re a genius. Stock market is hot? If you have stocks, you’re a genius. Bonds are doing great? If you have bonds, once again you’re an investment master. Or maybe you just landed in the right place at the right time, right? So you don’t want to get overconfident. T hat’s why asset allocation is so important. W hat do all the smartest people in the world say? “I’m going to be wrong.” So they design their asset allocation ideally to make money in the long term even if they’re wrong in the short term.

L E T ’S T E ST Y OU R K N OW L E D G E

In the coming pages, I’ll be showing you the portfolios, or the asset allocations, designed by some of the greatest investors of all time. L et’s start with a sample from someone you’ve been hearing from throughout this book: D avid Swensen, Y ale’s $23.9 billion–plus man, a true master of asset allocation. W ould you be interested in seeing his personal portfolio recommendations? Me too! So when we sat down together in his office at Y ale, I asked him the key question: “If you couldn’t leave any money to your kids, only a portfolio and a set of investment principles, what would they be?”

H e showed me the asset allocation that he recommends for individual investors—one he thinks will hold up against the test of time. H e also recommends this portfolio for all institutions other than Y ale, Stanford, H arvard, and Princeton. W hy? Because these four institutions employ an army of full-time top analysts.

W hen I saw his list, I was amazed by how elegant and simple it was. I’ve shown you 15 types of assets to choose from; he uses only six categories, all in index funds. I was also surprised by how much weight he gave to one particular bucket. C an you guess which one? L et’s activate some of what we’ve learned thus far about the division between the Security and Risk/G rowth Buckets.

H ave a look at the box below and jot down where each asset class belongs. C heck which ones you think belong in the Security Bucket, where you put things that are going to give you modest returns in exchange for lower risk; and then check which belong in the Risk/G rowth Bucket, where there’s greater upside potential but also greater downside.

D avid Swensen Portfolio	Which Bucket?
Asset Class (Index Funds)	Portfolio Risk/G rowthSecurity
	Weight
D omestic stock	20%
International stock	20%
E merging stock markets	10%
RE IT s (real estate investment trusts)	20%
L ong-term U S T reasuries	15%

T IPS (T reasury inflation-           15%                              

protected securities)

L et’s start with the top four. T he first is a broad domestic stock index, something like the Vanguard 500 Index or the W ilshire 5000 T otal Market Index. W here would you put it? D oes it come with risk? Absolutely. H ave you got a guaranteed return? Absolutely not. C ould you lose it all? U nlikely—but it could drop significantly— and it has at times! Over the long term, U S stocks certainly have a great track record. Remember how they compare to owning your own personal real estate? E quities have done well over time, but they are one of the most volatile asset classes in the short run. In the last 86 years (through 2013), the S&P lost money 24 times. So stock index funds belong in which bucket? T hat’s right: Risk/G rowth.

H      ow about international stocks? D avid Swensen putsa lot of weight in foreign stocks because of the diversity they bring to the portfolio. If there’s a slump in America, business may be booming in E urope or Asia. But not everybody agrees with D avid. Foreign currencies aren’t as stable as good old U S greenbacks, so there’s a “currency risk” in investing in foreign stocks. And Jack Bogle, the founder of Vanguard, with 64 years of success, says that owning American companies is global. “T ony, the reality is that among the big corporations in America, none are domestic,” he told me. “T hey’re all over the world: McD onald’s, IBM, Microsoft, G eneral Motors. So you own an international portfolio anyway.” W here do foreign stocks belong? I think we can agree on the Risk/Growth Bucket, no?

E merging markets? D avid Swensen likes to put some money into the volatile stocks of developing nations, like Brazil, Vietnam, South Africa, and Indonesia. Y ou can get spectacular returns, but you can also lose everything. Risk/Growth Bucket? Y ou bet!

H ow about RE IT s? D avid told me he likes “real estate investment trusts that own big central business district office buildings and big regional malls and industrial buildings. T hey generally throw off a high-income component.” So these index funds can generate great returns, but they rise and fall with the American commercial real estate market. W hich bucket? Y ou’ve got it: Risk/Growth.

W hat about the last two on the list: long-term U S T reasuries and T IPS? D o they offer lower returns in exchange for more safety? Spot on! So which bucket do they belong in? Y ou’ve got it: Security.

C ongratulations! Y ou’ve just assigned six major asset classes to their proper allocation buckets, which is something 99.9% of the people you pass on the street wouldn’t be able to do!

Pretty cool thing, isn’t it? But let’s dig a little deeper here to understand why D avid chose this mix, and why it may or may not be right for you.

First let’s look at the Security Bucket. D avid said he chose only U S T reasury bonds “because there’s a purity there in having the full faith and credit of the U S government backing them.” But why did he pick this particular combination of bond funds? H alf are traditional long-term T reasury bonds, and half are inflation-protected securities.

I          said to D avid, “Y ou’re basically saying if I’m going to be secure, I’m going to protect myself against both inflation and deflation.”

“T hat’s absolutely right,” he said. “I can’t believe you saw that! A lot of people who put together bond indexes lump the two together. T he T reasuries are for deflation, like we had in 2008. But if you buy regular T reasury bonds, and inflation takes off, you’re going to end up having losses in your portfolio. If you buy the T IPS, and inflation takes off, you’re going to be protected.”

I want you to notice that D avid Swensen, like all the best, doesn’t know which is going to happen: inflation or deflation. So he plans for both scenarios. Y ou might say as you look at this, “W ell, yes, fifty percent for inflation and fifty percent for deflation. D oesn’t he just break even?” It’s not that simple, but your thinking is quality. H e is using his Security Bucket investment as protection that if his equity investments or real estate go down, he’s lowering his downside by having something to offset some of those investment risks. So he’s certain to make some money in his Security Bucket. And he doesn’t lose his principal, so he’s practicing smart Security Bucket usage. H e won’t lose money, but he’ll make some additional money if things inflate or deflate. A very smart approach.

But I was a bit surprised that only 30% of his asset allocation goes into the Security Bucket, while 70% of his assets go into the Risk/G rowth Bucket! T hat seemed pretty aggressive to me for some investors, so I asked D avid how it would work for the average investor.

“T hat’s a good question, T ony,” he said. “E quities are the core for portfolios that have a long time horizon. I mean, if you look at recent long periods of time—ten, twenty, fifty, one hundred years—you see that the equity returns are superior to those that you get in fixed income.”

H      istorical data certainly back him up. H ave a look atthe visual below that traces the returns of stocks and bonds for periods of 100 and 200 years. It shows that U S stocks have historically outperformed bonds in compounded annual returns. In fact, $1 invested in 1802 at 8.3% per annum would have grown to $8.8 million by the turn of the new millennium.

So D avid Swensen designed his ideal portfolio to be a wealth-generating machine that offers some stability through its tremendous diversity. And because it takes a long-term view of investing, it has the time to ride out periodic drops in the stock market.

I          was curious to see how this asset allocation mix would have fared in the past: those volatile 17 years from April 1, 1997, when T IPS first became available, to March 31, 2014. It was during those years when the Standard & Poor’s index performed like a rodeo bull, yet it dropped 51% . So I had a team of financial experts test its performance against the index during those years. G uess what? T he Swensen portfolio outperformed the stock market with an annual return of 7.86% !

D uring the bear market of 2000 through 2002, when the S&P 500 dropped almost 50% , Swensen’s portfolio stayed relatively stable, with a total loss of only 4.572% over those three terrible years! L ike other portfolios heavy in equities, Swensen’s took a hit in the massive crash of 2008, but it still did better than the S&P 500 by more than 6% , (losing 31% as opposed to 37% ) and then bounced back. (N ote: see the end of this chapter for the specific methodology to calculate the returns. Past performance does not guarantee future results.)

So, ladies and gentleman, it’s safe to say that D avid Swensen is one of those rare unicorns who can actually beat the stock market on a consistent basis—and in this portfolio, he does it with the power of asset allocation alone! And you have access to his best advice, right here, right now. If that was all you got out of this chapter, I think you’d agree it’s been worth the time! H owever, the most important thing to understand is this: even though this portfolio might do better and be more stable than the general market, it is still an aggressive portfolio that takes a strong gut because few people can take a 35% loss of their lifetime savings and not buckle and sell. So is it right for you? If you’re a young person, you might be very interested in this kind of mix, because you’ve got more time to recover from any losses. If you’re getting ready to retire, this portfolio might be too risky for you.

But not to worry. I’m going to give you several other examples of portfolios in the coming pages, including that one particular allocation mix Ray D alio shared with me that practically knocked me off my chair! It was so spectacular that I’ve devoted a whole chapter to it in the next section. But here’s a hint: its mix was much less aggressive than Swensen’s, but when we tested it over the same time frame, the D alio portfolio had a higher average annual return and significantly less volatility—it’s a smooth ride. It may be the H oly G rail of portfolio construction, one that gives you substantial growth with the lowest ratio of risk I’ve seen!

In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.

— T H E O D O R E R O O SE V E L T

But for now, let’s get back to the big picture and look at how you’ll decide your own basic numbers: W hat percentage of your assets are you going to put at risk, and what percentage are you going to secure? Before you make the choice, you have to consider three factors:

•   your stage in life,

•   your risk tolerance, and

•   your available liquidity.

F irst, how much time do you have ahead of you to build wealth and make mistakes with your investments along the way before you need to tap into them? If you’re younger, once again, you can be much more aggressive because you’ll have longer to recover your losses. (Although nobody wants to get in the habit of losing!)

Y our percentages also depend on how much access to income you have. If you earn a lot of money, you can afford to make more mistakes and still make up for it, right?

G AME SH OW T IME : W H AT ARE Y OU W IL L IN G T O RISK ?

And when it comes to risk, everyone has radically different ideas about what’s tolerable. Some of us are very security driven. Remember the 6 H uman

N eeds? C ertainty is the number one need. But some of us crave U ncertainty and Variety; we love to live on the edge. Y ou have to know your personality before you dive in here. So let’s say you’re on a game show; which of the following would you take?

•    $1,000 in cash

•    A 50% chance at winning $5,000

•    A 25% chance at winning $10,000• A 5% chance at winning $100,000

H ere’s another: you have just finished saving for a once-in-a-lifetime vacation. T hree weeks before you plan to leave, you lose your job. W ould you:

•    cancel the vacation;

•    take a much more modest vacation;

•    go as scheduled, reasoning that you need the time toprepare for a job search; or

•    extend your vacation, because this might be your lastchance to go first class?

Rutgers U niversity has developed a twenty-question, five-minute online quiz

(http://njaes.rutgers.edu/money/riskquiz) that can help you identify where you fit on the risk-tolerance scale. But the real answer is in your gut.

For the past 30 years, I’ve been putting on my W ealth Mastery seminars, where I’ve worked with people from more than 100 countries to transform their financial lives by putting them in a total-immersion fourday wealth-mastery process. In it, I like to play a little game with them called “the money pass.” From the stage, I tell the audience to “trade money” with one another. T hat’s all I say. T here’s usually a few moments of silent confusion, and then they start trading. Some people pull out a dollar, some take out a twenty, some people a hundred. Y ou can guess what happens. People are moving around, they’re looking at one another, they decide how to exchange. Some negotiate, some give away all their money, and some take another person’s $100 bill and give them $1. Y ou can imagine the astonished look on that individual’s face. After three or four minutes of this type of trading, I say, “Okay, grab a seat.” And I move on to the next subject.

Invariably, some guy will shout, “H ey! I want my hundred dollars back!”

I’ll say, “W ho said it was your hundred?” And he says, “W ell, we’re playing a game.” And I say, “Y eah. W hat made you think the game was over?” U sually I get a confused look as the person sits down, still frustrated over the lost $100. E ventually they get the insight: their perception of their risk tolerance and the reality are in different universes. T his guy thinks he has a high tolerance for risk, but he can get pissed off over the loss of $100. It always amazes me. Imagine if you were to lose $10,000, $100,000, or $500,000. T hat’s what aggressive investors can lose in a relatively short period of time. People don’t know their true tolerance for risk until they’ve had a real-life experience taking a significant loss.

I’ve taken G od-awful losses—multimillion-dollar hits at a stage in my life when I didn’t have that much to lose, when the losses equaled more than all that I owned.

T hose gut checks will wake you up! But the numbers don’t matter. Y ou can get thrown by losing $100 or $1,000. T he pain of losing far exceeds the joy of winning. And that’s why it’s great to have something like the All Seasons portfolio in your investment arsenal, because, through asset allocation alone, you can significantly reduce the risk of sizeable losses.

Just as science shows us that we’re hardwired to hate losing, it also shows that humans are not good at assessing our potential to win. Sometimes after you’ve made a few successful investments, you start thinking, “H ey, I’m good at this; I can do anything!” It’s just human nature to think you can beat the system. It’s what psychologists call motivational bias. Most of us think we’re better than we really are at predicting patterns and luckier than we really are when there’s a jackpot at stake. W hat else can explain why so many people play the lottery?! A famous 1981 study at Stockholm U niversity found that 93% of U S drivers think their skills are above average. T here’s even a name for this phenomenon: “the L ake W obegon E ffect,” referring to author G arrison K eillor’s mythical town where “all the children are above average.” H ey, who doesn’t think they’re above average! But when it comes to money, delusions that you’re better than everybody else can kill you.

If you’re a man, you’re guilty of this bias by biochemistry. T estosterone equals overconfidence. Study after study show that women tend to be better investors because they don’t overestimate their abilities to anticipate the future accurately. Sometimes confidence works against you. Just watch little boys. “I’m Superman! I’m going to fly! W atch me jump off this roof!” Suffice it to say, if you’re a woman reading this book, you have a built-in advantage!

W hen the markets are going up and up and up, investors can be mesmerized by their returns. E verybody’s seduced by the possibility of growth, thinking it’s the probability of growth. T hat’s where they get into trouble. As a result, they pour the majority or all of their money into investments that fit into the Risk/G rowth Bucket—not just 70% but sometimes 80% , 90% , or 100% . Some even borrow money to make

investments that they believe are going to go up forever, until they don’t. And because of poor asset allocation, with too much of their money riding on one horse, they lose it all or even end up in debt. And the reason people get screwed is that by the time they hear that the stock market (or gold, or the real estate market, or commodities, or any other type of investment) is a great place to go, very often the bubble is just about to end. So you need to put in place a system to make sure you don’t get seduced into putting too much of your money in any one market or asset class or too much in your Risk/G rowth Bucket.

All of this may sound pretty basic, especially to sophisticated investors who feel like they’ve got everything covered. But sometimes it’s high-level investors whose strings of successes send them veering off course. T hey forget the fundamentals.

N aturally, there will always be investors who can’t listen to reason, whose “irrational exuberance” runs away with them. T hey talk themselves into believing the biggest myth of investing: “T his time will be different.” I know dozens of these stories, all with unhappy endings. T ake Jonathan, a friend who made a fortune in business (and whose real name will remain anonymous for his privacy) and then liquidated everything to invest in the booming L as Vegas real estate market. H e had some early wins, so he doubled down and borrowed like crazy to keep building condos. E very time Jonathan came to my financial programs, he heard about the importance of putting some of your wins into your Security Bucket and not putting all your eggs into any one basket no matter how compelling the returns might be today. Jonathan gave credit to me and my Business Mastery programs for the more than 1,000% increase in his business that made all these investments possible. H e made more than $150 million selling his company. But he didn’t listen when it came to taking money off the table and putting it in the Security Bucket, and, boy, did he pay a price. T oday he acknowledges that he let his ego get in the way of his eardrums. H e wanted to be a billionaire, and he knew he was on target to become one. But then, do you remember what happened when the real estate market in L as Vegas collapsed? H ow far did housing prices go down? H ow about 61% between 2007 and 2012. Jonathan didn’t just lose everything—he lost a half billion dollars more than he had.

I sincerely hope all this is sinking in. If there’s anything you should take away from this chapter, it’s this: putting all of your money in the Risk/G rowth Bucket is the kiss of death. It’s why many experts estimate that 95% of investors lose money over virtually any decade. T ypically they ride the wave up (in real estate, stocks, gold), and when the wave disappears, they sink like a rock, and they’re pounded by financial losses during the inevitable crash.

Some people just won’t listen to advice. T hey have to learn the hard way, if at all. But to avoid those kinds of painful lessons, and to help you decide which options are right for you, I have to remind you that a conflict-free, independent investment manager can be the right choice. N otice how professional athletes, men and women at the top of their sport, always have coaches to keep them at peak performance? W hy is that? Because a coach will notice when their game is off, and can help them make small adjustments that can result in huge payoffs. T he same thing applies to your finances. G reat fiduciary advisors will keep you on course when you’re starting to act like a teenager and chasing returns. T hey can talk you off the ledge when you’re about to make a fateful investment decision.

PIC K A N U MBE R, AN Y N U MBE R . . .

Okay, the moment of reckoning has arrived! Say you’ve still got that $10,000 bonus in your hand (or you’ve accumulated $100,000, $200,000, $500,000, or $1 million or more), and you’ve decided to invest it all. K nowing what you know so far, how would you divide it up? W hat’s your new philosophy of investing? W hat percentage of your money are you going to keep growing in a secure environment and what percentage are you willing to risk for potentially greater growth?

Y ou’ve probably heard that old rule of thumb (or what Jack Bogle calls a “crude method”): invest your age in bonds. In other words, subtract your age from 100, and that would be the percentage you should keep in stocks. So if you were 40 years old, 60% should go to equities in your Risk/G rowth Bucket and 40% in your Security Bucket as bonds. At age 60, the ratio should be 40% stocks and 60% bonds. But those ratios are out of whack with today’s reality. T he volatility of both stocks and bonds has increased, and people live a lot longer.

So what should it be for you? W ould you like to be more aggressive with your risk, like D avid Swensen? W ith a 30% security and 70% risk? T hat would mean putting 30% of your $10,000 windfall—$3,000—in Security and 70% —or $7,000—into your Risk/G rowth Bucket. (If you had $1 million, you would be putting

$300,000 in Security and $700,000 in Risk/G rowth.) C an you really afford that kind of split? D o you have enough cash? D o you have enough time? Are you young enough? Or do you need to be a little bit more conservative, like most pensions are, at 60/40? Or is 50/50 right for you? Are you close enough to retirement that you’d want to have 80% in a secure place, and only 20% in riskier investments? W hat matters is not what most people do. W hat matters is what will meet both your financial and emotional needs.

I know, it’s such a personal choice, and even the brightest stars in finance sometimes have to think long and hard about what’s right for them and their families. W hen I interviewed J.P. Morgan’s Mary C allahan E rdoes, I asked her, “W hat criteria would you use in building an asset allocation? And if you have to build one for your kids, what would that look like?”

“I have three daughters,” she told me. “T hey’re three different ages. T hey have three different skill sets, and those are going to change over time, and I’m not going to know what they are. One might spend more money than another. One may want to work in an environment where she can earn a lot of money. Another may be more philanthropic in nature. One may have something that happens to her in life, a health issue. One may get married, one may not; one may have children, one may not. E very single permutation will vary over time, which is why even if I started all of them the first day they were born and set out an asset allocation, it would have to change.

“And that has to change based on their risk profile, because over time, you can’t have someone in a perfect asset allocation unless it’s perfect for them. And if, at the end of the day, someone comes to me and says, ‘All I want is T reasury bills to sleep well at night,’ that may be the best answer for them.”

I said to her, “Because it’s about meeting their emotional needs, right? It’s not about the money in the end.”

“E xactly, T ony,” she said. “Because if I cause more stress by taking half that portfolio and putting it in a stock market, but that leads to a deterioration of the happiness in their lives—why am I doing that?”

“W hat is the purpose of investing?” I asked. “Isn’t it about making sure that we have that economic freedom for ourselves and for our families?”

“T hat’s right, to be able to do the things you want to do,” she said. “But not at the expense of the stress, the strains, and the discomfort that goes along with a bad market environment.”

So what’s the lesson here from one of the best financial minds in the world? W hat’s more important even than building wealth is doing it in a way that will give you peace of mind.

So what will it be? W rite down your numbers and make them real! Are those percentages a comfortable fit? W alk around in them. L ive in them. Own them! Because those percentages are the key to your peace of mind as well as your financial future.

D one?

Okay! Y ou’ve just made the most important investment decision of your life. And once you know what your percentage is, you don’t want to alter it until you enter a new stage of life, or your circumstances change dramatically. Y ou’ve got to stick with it and keep the portfolio in balance. I’ll show you how later in this section.

Are you still concerned about making the right choice? Just remember, you’ve got a fiduciary to help you. And you don’t need tens of thousands, hundreds of thousands, or millions of dollars to get started—you could get started with next to nothing for free with today’s online services.

By the way, I’m not done with you yet! T here are ways to increase your returns within these buckets, and we’re going to get to that.

N ow that you understand these principles, and you’ve made this decision about how much you want to put in your Risk Bucket versus your Security Bucket, let me tell you the best news of all: after interviewing 50 of the most successful investors in the world, the smartest financial minds, I’ve uncovered the ways in which you can get G rowth-like returns with Security Bucket protections. T he most important piece of advice every investor I talked to echoed was, “D on’t lose money!” But for many investors, that means having to settle for mediocre returns in the Security Bucket. In just a couple of chapters, I’m going to share with you how to have the upside without the downside. H ow to have significant growth without significant risk. I know it sounds crazy, but it’s real, and it’s exciting.

As hard as we’ve worked here, I’m happy to tell you that the next chapter is easy and pure pleasure. N ow I’m going to reveal a third bucket that we haven’t talked about yet, but you’re going to love it because it’s fun, inspiring, and can give you a greater quality of life today, not decades in the future. L et’s discover what’s going to go in your D ream Bucket.

D avid Swensen provided the specific percentage for each asset class, but he did not provide the specific indices to represent each asset class. Independent analysts used the following indices to represent each asset class, and it is assumed that the portfolio would be rebalanced quarterly. N ote that past results do not guarantee future performance. Instead, I am providing you the historical data here to discuss and illustrate the underlying principles. 20% W ilshire 5000 T otal Mkt T R U SD 20% FT SE N ARE IT All RE IT s T R 20% MSC I AC W I E x U SA G R U SD 15% Barclays U S L ong C redit T R U SD

 

15% Barclays U S T reasury U S T IPS T R U SD 10% MSC I E M PR U SD

 

C HAPT E R 4 .3

T H E D RE AM BU C K E T

W hen you cease to dream, you cease to live.

— MAL C O L M F O R BE S

W hat’s a D ream Bucket? It’s where you set aside something for yourself and those you love so that all of you can enjoy life while you’re building your wealth. It’s something for today, not tomorrow! Y our D ream Bucket is meant to excite you, to put some juice in your life so you want to earn and contribute even more. T hink of the items you’re saving for in your D ream Bucket as strategic splurges.

W hat would float your boat right now? Maybe you’d buy yourself that pair of Manolo Blahniks you’ve always wanted, or a floor-side seat at a Miami H eat game. Or a VIP tour of D isneyland for the kids. Or you could start filling that bucket for a bigger reward: season tickets. A trip to the mountains in the summer or a ski or snowboarding vacation in the winter. A new car—maybe one that isn’t so practical, like a Mini C ooper or a Mustang. A vacation condo or home.

I know a millionaire who always flew coach because he liked to save a dollar, but his wife complained about it constantly. “W e have plenty of money. W hy don’t we enjoy it?” she said. It was a constant source of strife between them because they traveled so much for business. After attending my W ealth Mastery seminar, he decided to use his D ream Bucket to upgrade to business class when he flew with his family. H e discovered it not only made his travel life more comfortable but also (even more importantly) his home life as well. W ay to flame out, dude! Maybe someday he’d like to consider chartering a private jet instead of flying commercial—and it might not be as expensive as he thinks.

Many people have a lot of money but not much lifestyle. T hey spend their lives watching numbers accumulate in a bank account and miss out on the joy and enjoyment they can create and share along the way.

I remember that when I made my first G rowth Bucket hits early in my career, my idea of a jackpot was to buy two new suits because they were on sale at a Men’s W arehouse–like store. Or maybe take a vacation in H awaii. T hat was a big deal for me back then!

My resort in Fiji was a much bigger dream that came true. As I shared with you, when I was 24 years old, I fell in love with the turquoise waters of the South Pacific islands. It was like my heart had found a home. I wanted a refuge for myself and my friends and family. N ow, over the years, N amale Resort and Spa has become a pretty sizeable asset because I built it up and turned it into one of the top destinations in the South Pacific. But that’s just a bonus. In fact, it’s the number one resort in Fiji for more than ten years, and Oprah selected it as her favorite place to go last year. A jackpot on top of the dream that created it.

Y our dreams are not designed to give you a financial payoff, they are designed to give you a greater quality of life. And isn’t that why you’ve filled the first two buckets in the first place? But you’ve got to practice some restraint here, too. If you take all your money and put it only in the D ream Bucket, you’re likely to end up going broke like W illie N elson. So it’s a matter of balance. And the jackpots in your D ream Bucket don’t have to be just for yourself. T he best jackpots are the ones you give to others.

D reams are the touchstones of our character.

— H E N R Y D AV ID T H O R E AU

Maybe you’re like me, and you just love giving gifts. And the best gifts are the ones that are unexpected.

My mother never had money when she was young, and we always struggled as a family, living in cheap housing east of L A, where the nearly daily smog alerts announced on the news let us know it wasn’t safe to walk outside.

And so one day, after my business started taking off, I asked my mom to help me check out a condo I was thinking of buying on the water in H untington Beach. I walked her through it and showed her the magnificent ocean views. T hen we stepped out on the beach and breathed the salt air.

“I really love this place, but I want your final word,” I told her. “W hat do you think?”

“Are you kidding?” she said. “T his is incredible! C an you imagine coming from where we came from, and now you’re going to live here?”

“So you think it’s the right place, Mom?” “Oh, it’s unbelievable!” T hen I handed her the keys.

“W hat’s this?” she asked.

“It’s yours, Mom.”

I’ll never forget the look of astonishment on her face and then tears of joy. My mom has passed away now, but I still remember those moments so vividly as some of the favorite of my life.

Y ou don’t have to wait. Y ou could do this, too. Y ou can fulfill your dreams. If you want it badly enough, you’ll find a way.

N ot long after I gave my mother that condo, I met with a group of a hundred or so fifth graders from a poor neighborhood at a school in H ouston, T exas. Most of them were on a track that would never get them to college. So I decided then and there to make a contract with them. I would pay for their four-year college education if they kept a B average and stayed out of trouble. I made it clear that with focus, anyone could be above average, and I would provide mentoring to support them. I had a couple of key criteria: T hey had to stay out of jail. T hey couldn’t get pregnant before graduating high school. Most importantly, they needed to contribute 20 hours of service per year to some organization in their community. W hy did I add this? C ollege is wonderful, but what was even more important to me was to teach them they had something to give, not just something to get in life. I had no idea how I was going to pay for it in the long run, but I was completely committed, and I signed a legally binding contract requiring me to deliver the funds. It’s funny how motivating it can be when you have no choice but to move forward. I always say, if you want to take the island, you have to burn your boats! So I signed those contracts. T wenty-three of those kids worked with me from the fifth grade all the way to college. Several went on to graduate school, including law school! I call them my champions. T oday they are social workers, business owners, and parents. Just a few years ago, we had a reunion, and I got to hear the magnificent stories of how early-in-life giving to others had become a lifelong pattern. H ow it caused them to believe they had real worth in life. H ow it gave them such joy to give, and how many of them now are teaching this to their own children.

I’m telling you this because you don’t need to wait until you’re absolutely ready to fulfill your dream. Y ou just do it, and you find a way, and grace will find you.

G race comes when you commit to doing something that will serve more than just yourself —some would call it luck or coincidence. I leave it to you to decide what to believe. Just know that when you give your all, the rewards are infinite. I really believe motive does matter. But it doesn’t mean that it can’t benefit you too, right?

Jackpots can help you create more wealth, because the

key to creating wealth is to unleash your creativity and find a way to do more for others than anyone else is doing. If you find a way to add more value than anyone else, you can also find a way to prosper personally. T hat can apply to your own life as well as the lives of others. Remember when we talked about speeding up your plan, how if you wish to be great, learn to become the servant of many? W e already know that life supports what supports more life. And by supporting life, you lift yourself up as well, and more bounty comes to you.

G ive yourself peace of mind. Y ou deserve to be happy. Y ou deserve delight.

— H AN N AH AR E N D T

So how do you fill your D ream Bucket? L et’s talk about three ways. First, when you score a big hit, like that $10,000 bonus we were talking about earlier in the last chapter. Or, second, if your Risk/G rowth Bucket gets a positive hit, and you score big. Just like in Vegas, it might be time to take some of the risk off the table. An approach many of my students use is to take those profits, divide them up, and invest them back in a fixed proportion: say, one-third in Security, one-third in Risk/G rowth, and one-third in D ream. In the case of that bonus, that would be about $3,333 for your D ream Bucket.

By putting one-third of your Risk/G rowth Bucket money into Security, it’s like taking money off the table to help speed the growth of your most secure investments, and with it your peace of mind. By leaving one-third in G rowth, you continue to take risks with a potential larger upside, but you’re doing it with your winnings. By putting one-third in your D ream Bucket, you’re creating a jackpot that you can enjoy today. T his will stimulate and excite you in ways that will likely cause you to want to earn more, save more, and invest even more effectively—because of the rewards today, not just some day in the future.

T he third way to fill your D ream Bucket is to save a set percentage of your income and sock it away, building it up until you’re able to purchase your dreams—whether that be your first home, a car, a vacation, or those fun little items that will light you up today. But keep in mind, this is not taking any money out of what you are already saving for your Freedom Fund. T hat’s sacred and untouchable money! But you can find ways to increase the amounts you can put in your Freedom Fund and your D ream Bucket. H ere’s a quick reminder from the “Speed It U p!” chapters:

•   Save more and invest the difference.

•   E arn more and invest the difference.

•   Reduce fees and taxes and invest the difference.

•   G et better returns.

•   C hange your lifestyle.

So you can take some of those savings to invest, and some of those savings to make your dreams a reality today or in the near future.

W hat will be your strategy to fill this bucket? W ill you wait for a bonus or a stock market score, or will you set aside a percentage like my friend Angela? At first she thought she had no money she could possibly save even toward her financial freedom.

But by the time she went through the process of this book, she saw that relocating to Florida would save her enough money in state income tax that she could now set aside 10% of her income for her Freedom Fund and still earmark an additional 8% for her D ream Bucket. T he tax man was now filling her D ream Bucket. H ow

cool is that? Plus, she’s got better weather, too! She went through her accounts and figured out a way to become even more tax efficient to be able to put an additional 2% into her Freedom Fund for a total of 12% , on top of the 8% she was saving toward her dreams.

If you would have told her in the beginning that she would have found a way to save 20% , she would have said you were absolutely crazy. But today she not only has her future secured but also is saving for some important dreams in the short term that excite her. H iking in the H imalayas and rowing across the ocean. H er degree is in anthropology, and she’s always dreamed of spending time with famed paleontologist L ouise L eakey at her institute in K enya. She was even invited. She just doesn’t have the money right now. But if she sticks to her fiscally sound plan, she will. H ow cool to be able to be financially secure and independent, and, at the same time, live this life of adventure? Remember the strategy of Save More T omorrow? Y ou can decide that in your next salary increase, maybe 3% could go to your Freedom Fund, and maybe 1.5% or 2% could go to your D ream Fund— especially if there are some dreams that are important to you now, like saving for the down payment on your first home or a vacation getaway. T here are so many ways to do it!

But let me tell you the secret: the most important thing is to make a list of your dreams. Put them in order of importance, big and small, short term and long term. W rite down why you must achieve them or experience them. I’ve found that if you try to figure out a percentage to save without really knowing what you’re saving for, it’s not going to happen. T he secret is to know what you truly want and why you want it, and make it a burning passion. Suddenly your creativity will be unleashed, and you’ll find new ways to earn more, to save more, to add more value, to become more tax efficient, to become a better investor, or to make a lifestyle change that improves your life and gives you some of your dreams today, and not in the future. T hat’s the key to it all.

But decide today! T ake a moment now and make a list of your dreams. W rite them down so they become real to you. H ow much would you be willing to save for them? G et excited, and get started!

E very great dream begins with a dreamer.

— H AR R IE T T U BMAN

In the end, what percentage of your total assets do you think should go in your D ream Bucket? It doesn’t have to be much—maybe as little as 5% or 10% . But please don’t forget to reward yourself. W hile it’s important to keep your money safe and growing, never forget to have fun, to give, and to live your life fully on your path to financial freedom. T hat’s what it’s all about. D on’t save your D ream Bucket for “a rainy day.” W hy not get out and soak up the sunshine?

If you don’t, you could end up like a couple that a friend of mine told me about. T hey scrimped and saved their whole lives, and then finally decided they had enough to afford a fantastic C aribbean cruise. It was a weeklong trip on one of those giant cruise liners, hopping around the islands. Y ou can picture it: the ship had swimming pools, a climbing rock, dozens of restaurants and discos. T he couple was so excited, but they still wanted to be prudent with their capital, since they’d worked so hard to save for their retirement. T hey didn’t want to spend extra money on the lavish meals. T he trip by itself was a big enough splurge for them. So to save money, they loaded their suitcases with boxes of cheese and crackers to snack on during the cruise and vowed to avoid those expensive dinners.

T he weather was perfect, and the couple had a great time with all the activities on board. But every lunch and dinner, when everybody else was eating incredible feasts served up on huge buffet tables—shrimp, lobster, prime rib, mountains of desserts, and fine wines from around the world—the two of them went back to their room and 

ate the cheese and crackers. T hey didn’t mind. T hey were enjoying the trip of a lifetime, and they were proud of themselves for being frugal. But on the last day, they finally broke down and decided to splurge and have a magnificent final dinner upstairs! So they tucked into one of those amazing buffets and piled their plates with the best food they’d had in their lives.

After having multiple desserts and drinking wine, they asked the waiter for the bill. And with an astonished look on his face, he said, “W hat bill?” T hey said, “T he bill for this magnificent dinner. T he wine, desserts, everything.”

T he waiter turned to them with shock and said,

“D idn’t you know the meals come with the trip?”

T he meals came with the trip. H ow’s that for a metaphor? So don’t settle for cheese and crackers on this journey; enjoy everything that comes with it.

And one more reminder: so much of what makes us wealthy is free. Remember what Sir John T empleton told us earlier: the secret to wealth is gratitude. It’s not just what we achieve or accomplish. It’s what we appreciate. It’s not just the adventure of a cruise. It’s what we take the time to enjoy. Y ou can find an adventure and joy in those you love, in the dancing eyes of your children, or the joyous faces of those you love. T here are jackpots everywhere if you wake up to the beauty of your life today. So don’t vow to someday get beyond scarcity; start beyond it. Realize how lucky you are and all the wealth you possess in love, joy, opportunities, health, friends, and family. D on’t get rich. Start rich.

So far we’ve learned how to allocate our investments among different types and classes of assets, and to put chunks of money in separate buckets for Security/Peace of Mind and for Risk/G rowth. W e’ve learned we also need to set aside another chunk of money for a D ream Bucket that will add juice to our lives as we build our wealth, and incentives to do better for ourselves and others. So now we have one final, brief chapter to teach you a set of three simple skills that can increase your returns 1% to 2% per year and, more importantly, make certain you avoid the mistakes so many people make by trying to time the market. L et’s learn how from the power of knowing . . .

C HAPT E R 4 .4

T IMIN G IS E V E RY T H IN G ?

W e have met the enemy, and he is us.

— PO G O

W hat’s the secret of success for investors and stand-up comedians . . . ?

T iming. It’s everything.

T he best comics know exactly when to deliver a punch line. And the smartest investors know just when to enter the market—except for when they don’t! E ven the best of the best fail to hit every beat every single time. For a comedian, a mistake in timing results in an embarrassing, deathly silence in the house— and maybe a few thrown objects. But if you’re an investor, a mistake in timing can destroy your nest egg. So we need a solution that doesn’t require us to be a psychic.

W e’ve already seen how diversifying your portfolio across different asset classes and across different markets can protect you in a volatile economy. But haven’t we all had the experience of being at the right place or doing exactly the right thing . . . but at the wrong time? So by now you might be thinking, “Okay, T ony, so now I know how to diversify my investments— but what if my timing is off?”

I’ve asked myself the same question. W hat if I put my money in the stock market at its peak, and it starts dropping? O r if I buy into a bond fund, and the interest rates begin to spike? Markets are always going to fluctuate, and we’ve learned that nobody, I mean nobody, can consistently and successfully predict when it’s going to happen.

So how do we protect ourselves from all the ups and downs and really succeed?

Most investors get caught up in a kind of mob mentality that has them chasing winners and running away from losers. Mutual fund managers do the same thing. It’s human nature to want to follow the pack and not to miss out on anything. “E motions get ahold of us and we, as investors, tend to do very stupid things,” the Princeton economist Burton Malkiel told me. “W e tend to put money into the market and take it out at exactly the wrong time.”

H                        e reminded me of what happened during the techbubble at the turn of the 21st century: “More money went into the market in the first quarter of 2000, which turned out to be the top of the internet bubble, than ever before,” he said. “T hen by the third quarter of 2002, when the market was way down, the money came pouring out.” T hose investors who bailed instead of riding out the slump missed out on one of the greatest upturns of the decade! “T hen in the third quarter of 2008, which happened to coincide with the peak of the financial crisis,” said Malkiel, “more money went out of the market than ever, ever, ever before. So our emotions get ahold of us. W e get scared.”

And who could blame anyone for being scared during that epic crash! In October 2009, after the stock market had lost more than $2 trillion in value, and when hundreds of thousands of Americans were losing their jobs every month, Matt L auer at N BC ’s T oday show called my office. H e asked me to come on the air the next morning to talk about what viewers could do to cope with the crisis. I’d known Matt for years and had been on his show a number of times, so of course I agreed. W hen I arrived on the set, his producer told me, “Okay, you’ve got four minutes to pump the country up.”

I    thought, “Are you kidding me?”

“W ell, pumping people up is not what I do,” I said. “I tell them the truth.” And that’s what I did. I warned the T oday show audience in two different segments that the stock market meltdown was not over, that the worst could still be coming. H ow’s that for pumping them up?

“Many stocks that were selling for fifty dollars not long ago are selling for ten dollars or five dollars, and here’s the truth: some may go down to a dollar,” I said, as news anchor Ann C urry’s eyes grew wider and wider. But I also told the viewers that, instead of freaking out, they should fight their fears and educate themselves about people who had done well in tough times. L ike Sir John T empleton, who had made all his money when markets were crashing during the G reat D epression. I said that if you studied history, you knew there was a great chance, based on what happened in the ’70s and even in the ’30s, that in a short period stocks that had gone down to $1 would go up again. T hey might not get back to $50 for a long time, but, historically, many would jump to $5 in a few months. T hat’s a 400% return, and it could happen in six months! “If you stay strong and smart, and the market continues to recover, you could make a thousand percent or more! T his could be the greatest investment opportunity since you’ve been alive!” I said.

It was not exactly the message the T oday show expected to hear, but it turned out to be dead-on. H ow did I know the market was going to keep dropping? Because I was so brilliant? H ardly. I wish I could say that. T he reality was that my friend and client Paul T udor Jones had been warning me about what was happening in the markets almost a year in advance of the crisis. H e is one of those unicorns who can actually time the markets on a fairly consistent basis. It’s part of what made him not only one of the most successful investors in history but a legendary figure. H e predicted the Black Monday crash of 1987, and when everyone else was freaking out, he helped his clients make a 60% monthly return and 200% for the year.

So you can bet I was grateful for Paul’s insights! In early 2008 he told me a stock market and real estate crash was coming, and soon. I was so concerned that I reached out to my Platinum Partners, an exclusive group of my clients who I work with three to four times a year in intimate, intensive sessions to transform their relationships, businesses, and finances. I called a surprise meeting and asked them all to fly and meet me in D ubai in April 2008 to warn them about the coming crisis and help them prepare for it. Remember, anticipation is power. W ith a four- to six-month jump, many of my clients were able to actually profit from one of the worst economic times in history.

Y es, sure enough, stock prices plummeted throughout the last quarter of 2008. By March 2009, the market was so bad, C itigroup bank shares had dropped from a high of $57 to—you guessed it!—as I had warned, $0.97. Y ou could literally own the stock for less than it cost you to take your money out of one of its AT Ms!

So what should an investor do in this extraordinary kind of situation? If you believe Sir John T empleton’s motto, “T he best opportunities come in times of maximum pessimism,” or W arren Buffett’s mantra, “Be fearful when others are greedy, and be greedy when others are fearful,” it was a great time to scoop up bargains. W hy? Because smart, long-term investors know that seasons always change. T hey’ll tell you that winter is the time to buy—and the early months of 2009 were definitely winter! It’s the time when fortunes can be made, because even though it may take awhile, spring always comes.

But what if you got scared or felt you had to sell when the markets collapsed? Y ou might say, “T ony, what if I lost my job in 2008 and had no other source of income? Or my kid’s tuition was due and the banks wouldn’t loan me any money?” If you sold your stocks in 2008, all I can say is, I feel your pain, but I wish you could have found another way to make ends meet. Individual investors who liquidated their funds when the market plunged learned an agonizing lesson. Instead of riding the tide back up, they locked in their losses—permanently. If and when they got back into stocks, they had to pay a much higher price, because as you know, the market roared back to life.

Seeing so many people lose so much in such a short time, and feeling the suffering that all this created, is what started my obsession with wanting to bring the most important investment insights to the general public. It literally was the trigger for the birth of this book.

It also made me search to see if the same level of financial intelligence that created high-frequency trading (where the H FT investors truly have the upside without the downside) could be harnessed in some way for the good of the average investor. Remember, the H FT investors make money and virtually never lose.

So what’s the good news? In the upcoming section of this book, “U pside W ithout the D ownside: C reate a L ifetime Income Plan,” you’re going to learn there’s a way for you to never leave the market yet never take a loss. W hy? Because there are financial tools—insurance products, to be specific—where you don’t have to worry about timing at all. Y ou make money when the market goes up, and when it goes down 10% , 20% , 30% , or even 50% , you don’t lose a dime (according to the guarantees of the issuing insurance company). It sounds too good to be true, but in reality, it’s the ultimate in creating a portfolio that truly offers you peace of mind. For now let me show you three tools that can help you limit many of your investment risks and maximize your investment returns in a traditional investing format.

T he future ain’t what it used to be.

— Y O G I BE R R A

Prediction is very difficult, especially about the future.

— N IE L S BO H R

On March 2, 2009, Paul T udor Jones told me that the market was hitting its absolute bottom. Prices would start rising again. Spring was coming. So I tweeted:

By the way, it was the first time I ever tweeted any information on the potential direction of the stock market! As it turned out, only seven days later, the U S stock exchange indexes did exactly that: bottomed out on March 9. Prices started rising gradually and then took off. And sure enough, C itigroup stocks, which were $1.05 on March 9, 2009, closed on August 27, 2009, at $5 a share—a 400% increase!¹² W hat an incredible return you could have had if you’d managed your fear and bought when everyone else was selling!

N ow, I’d love to be able to say that past market behavior can predict the future, or that Paul T udor Jones or anyone else I know could continuously successfully forecast these market swings, but it isn’t possible. Based on analysis from those “in the know,” I put out another heads-up warning for potential challenges in 2010, this time on video, when it looked like the market was overextended and heading for another correction. I wanted people to make a conscious decision whether they wanted to protect themselves from the potential of another huge hit. But this time we were wrong. N obody could guess that the U S government would do something that no government has ever done in human history—it decided to prop up the markets by “printing” $4 trillion, while telling the world that it would continue to do so indefinitely, literally until the economy recovered!

By magically adding zeroes to its balance sheet, the Federal Reserve was able to pump cash into the system by buying back bonds (both mortgage-backed bonds and T reasuries) from the big banks. T his keeps interest rates unnaturally low and forces savers and anyone looking for some sort of return into the stock market. And the Fed kept doing it year after year. N o wonder U S stocks never came down from that sugar high!

So if you think you can time the markets, you’re wrong. E ven the best in the world can’t do it every time because there will always be factors they can’t predict. L ike stock picking, it’s best to leave market timing to the masterminds who employ large staffs of analysts—ones like Paul, who can also afford to be wrong because of the many different bets they place on the direction of the markets. But this does not mean you can’t take advantage of the concept behind market timing —the opportunities of rising and falling markets—by applying a couple of simple but powerful principles that you’re about to learn here. Both involve taking yourself out of the picture and automating your investment schedule. “Y ou can’t control the market, but you can control what you pay,” Burt Malkiel told me. “Y ou have to try to get yourself on automatic pilot so your emotions don’t kill you.”

Far more money has been lost by investors preparing for corrections, or trying to

anticipate corrections, than has been lost in corrections themselves.

— PE T E R L Y N C H

SO W H AT ’S AN AN SW E R T O T H E D IL E MMA OF T IMIN G ?

One of these techniques is as old as W arren Buffett’s original teacher, Benjamin G raham, the dean of modern investing. G raham, who taught at C olumbia Business School in the mid–20th century, championed a gutsy technique with a boring name: dollar-cost averaging. (In fact, Buffett credits G raham with first coming up with the famous top rule of investing: “D on’t lose money!”) It’s a system designed to reduce your chances of making the big investment mistakes we all fear: buying something right before it drops in price, or pulling out of an investment right before its price goes up.

W e’ve already learned the first two keys of asset allocation: diversify across asset classes and diversify across markets. But remember, there’s a third key: diversify across time. And that’s what dollar-cost averaging does for you. T hink of it as the way you activate your asset allocation plan. Asset allocation is the theory; dollar-cost averaging is how you execute it. It’s how you avoid letting your emotions screw up the great asset allocation plan you’ve just put together by either delaying investing—because you think the market’s too high and you hope it will drop before you get in—or by ignoring or selling off the funds that aren’t producing great returns at the moment.

According to the many fans of dollar-cost averaging— and that includes powerhouses like Jack Bogle and Burt Malkiel—it’s the key to sleeping better at night, knowing your investments will not only survive unstable markets but also continue to grow in the long term, no matter what the economic conditions. Sound great? All you need to do is make equal contributions to all of your investments on a set time schedule, either monthly or quarterly.

E asy, right?

But there are two challenges I have to warn you about. First, dollar-cost averaging is going to seem counterintuitive, and you might feel like you’re going to be making less money using it. But I’ll show in just a moment that what’s counterintuitive is actually to your advantage. R emember, the goal is to take emotion out of investing because emotion is what so often destroys investing success, whether it’s greed or fear. Second, there’s been some recent debate about the longterm effectiveness of dollar-cost averaging, and I’ll show what both sides are saying. But first, let’s talk about the most common way investors use it and its potential impact.

W hen you invest on a set schedule, with the same amount of money invested each month or week in exact accordance with your asset allocation plan, the fluctuations of the market work to increase your gains, not decrease them. If you have $1,000 to invest each month, and you have a 60% Risk/G rowth and 40% Security asset allocation, you’re going to put $600 in your Risk/G rowth Bucket and $400 in your Security Bucket regardless of what’s happened to prices. V olatility through time can become your friend. T his part might seem counterintuitive. But Burt Malkiel gave me a great example of how it works:

H ere’s a great test. T ake a moment and give me your best answer to this question: Suppose you’re putting $1,000 a year into an index fund for five years. W hich of these two indexes do you think would be better for you?

E xample 1

•    T he index stays at $100 per share for the first year.

•    It goes down to $60 the next year.

•    It stays at $60 the third year.

•    T hen in the fourth year, it shoots up to $140.

•    In the fifth year, it ends up at $100, the same place where you started.

E xample 2

•   T he market is at $100 the first year.

•   $110 the second year.

•   $120 the third.

•   $130 the fourth, and

•   $140 the fifth year.

So, which index do you think ends up making you the most money after five years? Y our instincts might tell you that you’d do better in the second scenario, with steady gains, but you’d be wrong. Y ou can actually make higher returns by investing regularly in a volatile stock market.

T hink about it for a moment: in example 1, by investing the same amount of dollars, you actually get to buy more shares when the index was cheaper at $60, so you owned more of the market when the price went back up!

H ere’s Burt Malkiel’s chart that shows how it happens:

After five years of a steadily rising market, your $5,000 turns into $5,915. N ot bad.

But in that volatile market, you make 14.5% more in profit, winding up with $6,048! T he problem, Malkiel told me, is that most people don’t let the first scenario work for them. “W hen the market falls, they say, ‘Oh my G od! I’m going to sell!’ So you have to keep your head and keep a steady course.”

Investors learned a hard lesson during the first ten years of the 2000s, or what’s known in financial circles as the lost decade. If you put all your money into the U S stock market at the beginning of 2000, you got killed.

O ne dollar invested in the S& P 500 on D ecember 31, 1999, was worth 90 cents by the end of 2009.

But according to Burt Malkiel, if you had spread out your investments through dollar-cost averaging during the same time period, you would have made money!

Malkiel authored a Wall Street J ournal article titled “ ‘Buy and H old’ Is Still a W inner,” in which he explained that if you were diversified among a basket of index funds, including U S stocks, foreign stocks, and emerging-market stocks, bonds, and real estate, between the beginning of 2000 and the end of 2009, a $100,000 initial investment would have grown to $191,859. T hat’s over 6.7% annually during a lost decade.

“D ollar-cost averaging is how you make the volatility of the market work for you,” he told me.

E veryone from W arren Buffett’s mentor Benjamin G raham to Burt Malkiel and many of the most respected academics certainly make a case for using dollar-cost averaging when you’re investing a percentage of your steady stream of income. But if you have a lump sum to invest, it may not be the best approach. If this is your current situation, read the breakout box in this chapter titled “D ollar-C ost Averaging Versus L ump-Sum

Investing.”

W hat dollar-cost averaging really means is systematically putting the same amount of money across your full portfolio—not just the stock portion.

Remember, volatility can be your friend with dollarcost averaging, and it can also allow for another technique that will keep you on track, “rebalancing,” which we’ll address in a moment.

So what’s the best way to put dollar-cost averaging to work for you? L uckily, most people who have 401(k)s or 403(b)s that automatically invest the same amount on a fixed time schedule already reap the benefits of dollarcost averaging. But if you don’t have an automated system, it’s easy to set one up. I have a self-employed friend who set up her own tax-advantaged retirement account with Vanguard, and she’s instructed it to automatically deduct $1,000 from her bank account every month to distribute among her diversified index funds. She knows she might not always have the discipline to buy when one market feels too high or another drops too low, so she takes herself out of the picture. She’s a longterm investor who doesn’t worry about timing anymore, because her system is automated, and the decision is out of her hands.

T here’s a way to make dollar-cost averaging even easier, and that’s by setting up an account with Stronghold, where it will do this for you automatically.

Also, remember, in the next section I’ll show you an extraordinary tool that can protect you from losing your principal in these volatile times. W here, even if your timing is all wrong, you don’t lose a dime in the stock market. And if you’re right, you win even bigger. But before we get there, let’s have a look at a second timetested pattern of investing that will protect your savings and help you maximize your Freedom Fund as you build true wealth.

T H E PAT T E RN T O AVOID : T H E AVE RAG E

PE RSON ’S APPROAC H T O IN VE ST IN G ! A

RE BAL AN C IN G AC T

D avid Swensen and Burt Malkiel sometimes take different approaches to finance. But there’s one lesson they both told me, and all the other experts I’ve interviewed agree on this: to be a successful investor, you need to rebalance your portfolio at regular intervals.

Y ou have to take a look at your buckets and make sure your asset allocations are still in the right ratio. From time to time, a particular part of one of your buckets may grow significantly and disproportionally to the rest of your portfolio and throw you out of balance.

Say you started out with 60% of your money in your Risk/G rowth Bucket and 40% of your money in your Security Bucket. Six months later, you check your account balances and find out that your Risk/G rowth investments have taken off, and they no longer represent 60% of your total assets—it’s more like 75% . And now your Security Bucket holds only 25% instead of 40% .

Y ou need to rebalance!

L ike dollar-cost averaging, rebalancing is a technique that seems simple at first, but it can take a lot of discipline. And unless you remember how important and effective rebalancing is in maximizing your profits and protecting against your losses, you’ll find yourself getting caught up in the momentum of what seems to be working in the moment. Y ou’ll be hypnotized into the illusion that your current investment successes will continue forever, or that the current market (stock market, real estate market, bond market, commodity market) can go only in one direction: up.

T his pattern of emotion and psychology is what causes people to stay with an investment too long and end up losing the very gains they were so proud of originally. It takes discipline to sell something when it’s still growing and invest that money into something that’s down in price or growing more slowly, but this willpower is what makes someone a great investor.

A powerful example of this principle was the day I was visiting with investment icon C arl Icahn. It was just announced that he had made a profit of nearly $800 million on his N etflix stocks. H e’d bought the majority of his shares at $58 the previous year and was now selling them for $341 a share. H is son, Brett, who works with C arl and who originally brought this investment opportunity to him, protested the selling of the stock. H e was certain that N etflix had more growth ahead of it.

C arl said he agreed, but their portfolio needed to be rebalanced. If they didn’t rebalance, they could find themselves losing some of the extraordinary profits that they gained. C arl took his 487% profit and reinvested those profits into other assets in his portfolio, while keeping 2% of his N etflix shares to take advantage of any potential growth. Some of that money he used to buy $2.38 trillion in a little company called Apple, which he believed was undervalued at the time. H e sold high and bought low. And rebalancing was a key part of that process.

IF BIL L ION AIRE S D O IT , MAY BE Y OU SH OU L D T OO!

So what do you do if you find that you’re out of balance? Y ou were 60% Risk/G rowth and 40% Security, but as we described above, your stocks have soared, and you’re now 75% /25% as a result. In this case, your rebalancing action plan requires you to shift your regular contributions to the Risk/G rowth Bucket into Security until the 25% is back up to 40% . Or you have to divert the profits or even sell some of the G rowth/Risk investments that are booming and reinvest them back into bonds or first trust deeds or whatever combination of assets you’re keeping in your Security Bucket. But this can be agonizing, especially if, say, RE IT s are roaring, or international stocks are suddenly going through the roof.

W ho wants to jump off when you’re riding a rocket? All you want is more! But you have to take some of those assets off the table to reduce your exposure to risk and make certain that you keep some of the gains or profits you’ve made.

Just like dollar-cost averaging, you’ve got to take your emotions out of the picture. Portfolio rebalancing makes you do the opposite of what you want to do. In investing, that’s usually the right thing to do.

L et’s take a real-world example: say it’s the summer of 2013, and the S&P 500 index is lurching back to recordbreaking levels, while bonds are still coughing up meager returns. D o you want to sell your stocks and buy bonds? N o way! But the rules of rebalancing say that’s exactly what you have to do to keep your original ratio—even though a voice inside you is shouting, “H ey, stupid! W hy are you putting money into those dogs?!”

T he rules of rebalancing don’t guarantee you’re going to win every time. But rebalancing means you’re going to win more often. It increases your probabilities of success.

And probabilities through time are what dominate the success or failure of your investment life.

Sophisticated investors also rebalance within markets and asset classes, and that can be even more painful.

Say you owned a lot of Apple stock back in July 2012.

It would have seemed insane to sell those shares, which had been surging—up 44% in the previous two quarters —and were worth more than $614 per share. But if Apple stock is dominating your portfolio (remember, it has grown 44% , and it’s put you out of balance, likely significantly), the rules of rebalancing say that you have to sell some Apple to get your ratio right. Ouch. But you would have thanked yourself the same time next year. W hy? Apple stocks took a roller coaster ride, plummeting from a high of $705 per share in September 2012, to a low of $385 the following April, and ending at $414 in July 2013—a 41% loss that you avoided because you rebalanced.

H ow often should you rebalance? Most investors rebalance once or twice a year. Mary C allahan E rdoes of J.P. Morgan told me she believes rebalancing is such a powerful tool that she does it “constantly.” W hat does that mean? “T hat’s as often as your portfolio gets out of whack with the plan that you originally put in place, or the adjusted plan based on what’s happened in the world. And that shouldn’t be set. It should be a constant evaluation, but not an obsessive evaluation.”

Burt Malkiel, on the other hand, likes to ride the momentum of bull markets. H e advises rebalancing only once a year. “I don’t want to just be triggerhappy and sell something because it’s going up,” he said. “I like to give my good asset class at least a year in the run.”

H owever often you do it, rebalancing can not only protect you from too much risk—it can dramatically increase your returns. Just like dollar-cost averaging, the

discipline once again makes you invest in underperforming assets when their prices are low, so that you own lots of them when their prices go up. Y our profits get passed along to the other players on your team, like the ball in an L A L akers motion offense, or relay runners passing the baton on the way to victory at the finish line.

T he number of times you rebalance does have an impact on your taxes, however. If your investments are not in a tax-deferred environment, and you rebalance an asset you have owned less than a year, you’ll typically pay ordinary income taxes instead of the lower longterm investment tax rate!

If rebalancing seems a little intimidating, the good news is this work can be done for you automatically by Stronghold or any other fiduciary advisor you choose. H e or she will guide you on being tax-efficient while still tapping into the power of rebalancing.

So now you’ve learned two time-tested ways to reduce your risk and increase your returns just through asset allocation. But there’s still one final trick that can take the sting out of your losses—and your taxes!

IT ’S H ARVE ST T IME

So what happens when it’s portfolio-rebalancing time, and you have to sell some stocks that aren’t in your 401(k) or other tax-advantaged account? U ncle Sam will have his hand out for part of your profits. Are the capital gains taxes making you crazy? L isten, there’s a perfectly legal way for you to lower those taxes while keeping your portfolio balanced: tax-loss harvesting. T he benefit you get by tax-loss harvesting is that you reduce your taxes, and that increases your net return! In essence, you use some of your inevitable losses to maximize your net gains.

Burt Malkiel believes that tax-loss harvesting can increase your annual rate of return by as much as 1% per year, so it’s certainly worth investigating.

Billionaires and big institutions increase their returns this way, although few ordinary investors take advantage of these powerful techniques. Few know of them, and even those who do may think rebalancing and tax harvesting sound too complicated to try on their own. N ot to worry! Y ou can get access to your own fiduciary advisor or access to software that will make it as easy as ordering a pizza online, or at least updating your Facebook security settings.

N ow, bear in mind, my goal is to make investing simple for everyone, and this section is probably the one that tested your brain the most! So first, congratulations on sticking with me. T his stuff feels very technical, and most people avoid it like the plague. If you feel a bit overwhelmed by asset allocation and the idea of dollarcost averaging, rebalancing, and tax-loss harvesting, I want you to know all of this can be automated for you. But it’s still helpful to understand what these strategies are and the principle reasons why they’re effective.

Just remember four things from this section of the book:

1.     Asset allocation is everything! So you want to diversify between your Security Bucket and your Risk/G rowth Bucket. Y ou want to diversify across asset classes, markets, and time.

2.     Y ou don’t want to hesitate to get in the market trying to have perfect timing; instead, use dollar-cost averaging and know that volatility can be your friend, providing opportunities to buy investments cheaply when the market is down. T his technique will increase your portfolio’s value when the markets come back up.

3.     H ave a D ream Bucket that gives you emotional juice and excitement so you can experience the benefits of your investing prowess in the short term and midterm instead of just someday far in the future.

4.     U se rebalancing and tax harvesting to maximize your returns and minimize losses.

W hen I first brought up that I was going to teach asset allocation and these additional refining strategies in this book, many of my friends in the financial world said, “Y ou’re crazy! It’s just too complex. T he average person won’t understand it, and few will even take the time to read it.” My answer was simple: “I’m here for the few who do versus the many who talk.” It takes hunger to push yourself to master something new. But in the case of mastering investment principles, it truly is worth the effort. E ven if you have to read something a couple of times to get it down, the rewards can be immense—it could mean saving years of your life without having to work. More importantly, mastering these will give you a greater sense of empowerment and peace of mind today.

Mastering this section is a lot like trying to learn to drive a stick-shift car for the first time. W hat?! I’m supposed to figure out how to use the accelerator, the brake, the clutch, the stick, the rearview mirror, the steering wheel, and watch the road too? Are you kidding me?! But after awhile, you’re driving the car without thinking about it.

W ell, we’ve already come a long way together on the 7 Simple Steps to Financial Freedom. L et’s check in where we are now:

1.     Y ou’ve made the most important financial decision of your life by deciding to save a percentage of your income—your F reedom F und—and invest it automatically for compounded interest. H ave you acted on this yet by setting up an auto-deduct account? If not, do it today!

2.     Y ou’ve learned the rules of investing and how to avoid W all Street’s nine biggest marketing/investment myths. Y ou’re becoming the chess player, not the chess piece.

3.     Y ou’ve taken the third step on your path to financial freedom by making the game winnable. T here are three stages within this step: N umber one, you’ve calculated your top three financial goals, which for many people are financial security, vitality, and independence. N umber two, you have a plan with real numbers. And number three, you’ve looked for and are implementing ways to speed it up so you can enjoy your rewards even sooner.

4.     In this section, you’ve made the most important investment decision of your life by allocating your assets into a portfolio with a specific percentage into different buckets (Security, R isk/G rowth, D ream). Y ou’ve diversified, and you have a plan that will fuel your financial dreams.

Y ou’re already light-years ahead of other Americans (or investors anywhere in the world) when it comes to understanding your finances and managing your money. And if you’re anything like the men and women who have been gracious enough to read this book in manuscript form, you might already be so excited by what you’ve learned that you’re jumping up and down and grabbing your friends by the collars to show them some of the ways you’ve learned that they can add hundreds of thousands of dollars, or even millions, to their lifetime investment earnings. So you might be surprised to learn: you ain’t seen nothin’ yet! I promise you, the best is still to come. And everything from here on out is much easier than this section!

N ow that you’re thinking and acting like an insider, I’ll show you how to truly invest like one. L et’s find out how you can be successful in any financial environment and how you can tap into the power of the upside without the downside, creating a lifetime income stream.

D OL L AR-C OST AVE RAG IN G VE RSU S L U MPSU M IN VE ST IN G

But is it the best approach if you have a lump sum to invest?

W hat do you do if you have a sudden windfall, like that $10,000 bonus we talked about earlier in this section? Or what if you got a $50,000 insurance payout? D o you use dollar-cost averaging to invest it over a set time schedule of months or even years, or do you invest in a lump sum?

H ere’s where the controversy comes in. Some investment advisors have turned against dollar-cost averaging because, as even Burt Malkiel admits, it’s not the most productive strategy for investing in the stock market when it keeps going straight up—like it’s been doing in the years following the recent G reat Recession.

Y ou would have made more money by investing “everything” at the beginning of the bull market than if you had doled out your money over five years. T hat’s obvious, right? And there have been recent studies, including one by Vanguard in 2012, showing that in rolling ten-year periods over the past 80 years in the U S, U K , and Australian stock markets, lumpsum investing has outperformed dollar-cost averaging more than two-thirds of the time.

W hy is this true? Because you’re putting more of your money to work sooner and over a longer period of time, and limiting your trading fees. Onetime lump-sum investing gives you the opportunity for greater potential growth but also greater overall loss when markets drop. Research shows that lump-sum investing over the long term, when diversified successfully, is more profitable. But by how much? In the end, the average increased returns were no more than 2.3% more. And remember the statistics that Burt Malkiel shared with us for the 2000-to-2010 lost decade period—in that case, if you had invested $1 in the S&P 500 on D ecember 31, 1999, ten years later it was worth only 90 cents. But if you did dollar-cost averaging, you made money during that same period. W hat would you do? W ould you plunk down the whole ten grand as soon as you got it? Or would you keep it in a more secure place and invest $1,000 a month over ten months? Or $50,000 over two years? If the market keeps going up and up, you might lose out on some gains. But behavioral economics tells us you won’t have as much regret as you would if the market crashed two days after you’d invested it all!

So it’s totally up to you. Once again, I’m not here to give you my opinion, just the best insights available from the best experts. For most people, lump-sum investing is not an issue because they don’t have a significant sum to invest! If that’s your situation, you’ll still maximize your returns by investing in a diversified portfolio with dollar-cost averaging.

12. If you look on most of today’s stock charts, you may see that C itigroup was selling for $10.50 on March 9, 2009, and $50.50 on August 27, 2009. T his is not accurate. T hese charts have been reformatted to reflect the fact that on May 6, 2011, C itigroup did a reverse stock split. E very ten shares of stock that was selling for $4.48 on May 5 were combined into one share of stock worth $44.80 a share, which ended the day at $45.20, for a small gain per share. T hus 29 billion shares of C itigroup were converted into just

2.9 billion shares in order to raise the price per share. O r as the W all Street J ournal stated on May 10, 2011, “C itigroup became a $40 stock the first time since 2007, as its share price appeared to rise more than 850% from F riday’s close. O ne catch: Investors didn’t earn a dime.”

SE C T ION 5

UPSID E W IT H OUT T H E

D OW N SID E: C REAT E A

L IFET IME IN C OME PL AN

C HAPT E R 5.1

IN V IN C IBL E , U N SIN K ABL E ,

U N C O N Q U E RABL E : T H E AL L

SE ASO N S ST RAT E G Y

Invincibility lies in the defense.

— SU N T Z U , T he Art of W ar

T here are events in our lives that forever shape our view of the world. Mile markers on our journey that, whether we knew it or not, have given us the lens through which we now see the world. And what we choose to allow those events to mean to us will ripple through our behavior and decision making for the rest of our lives.

If you grew up in the Roaring T wenties, your life was shaped by prosperity and grandeur. It was the days of the G reat G atsby. But if you grew up during the G reat D epression, your life was shaped by struggle and anxiety. G rowing up in a severe economic “winter” forced you to become a survivor.

T oday’s generations have a completely different experience of the world. T hey have grown up in incredible prosperity, even if their incomes don’t land them in the 1% . W e all get the benefits of living in an on-demand world. W e can have groceries delivered to our door, deposit checks from the comfort of our pajamas, and watch thousands of television channels whenever and wherever we choose. My granddaughter hasn’t learned to tie her shoes, but at age four she can navigate an iPad as well as I can, and she already knows that G oogle can answer any question she has on a moment’s notice! T his is also the era of possibility, where a start-up like W hatsApp, with only 50 or so employees, can disrupt an industry and sell for $19 billion!

W ithout a doubt, our lives are shaped by the seasons and events through which we live, but more importantly, it’s the meaning we give those events that will determine our ultimate trajectory.

T H E 1970S

Ray D alio, now 65, came of age in the 1970s. It was a time of violent change in seasons and arguably the worst economic environment since the G reat D epression. H igh unemployment was accompanied by massive

inflation, causing interest rates to skyrocket into the high teens. Remember I shared with you that my first mortgage coming out of the inflation of the 1970s was a whopping 18% interest! T here was also an “oil shock” in 1973, as an embargo caught the U nited States off guard, causing oil prices to rise from $2.10 a barrel to $10.40. N o one was prepared for this. Just a few years later, the government imposed odd-even rationing, where people were forced not only to wait in line at the pump for hours but also were allowed to gas up only on odd or even days of the month! It was a season of political strife as faith in our government dwindled after Vietnam and W atergate. In 1974 President N ixon was forced to resign and was later pardoned by his successor, former vice president G erald Ford, for any wrongdoing (wink, wink).

In 1971 Ray D alio was fresh out of college and a clerk on the N ew Y ork Stock E xchange. H e saw bull and bear markets come in short bursts and create massive volatility in different asset classes. T ides changed quickly and unexpectedly. Ray saw the huge opportunity but was equally or even more aware of the enormous risks that came with the territory. As a result, he became ferociously committed to understanding how all these scenarios and movements were intertwined. By understanding how the bigger economic “machine” worked, he would ultimately figure out how to avoid those cataclysmic losses that doom so many investors.

All of these events shaped young Ray D alio to ultimately become the world’s largest hedge fund manager. But the seminal moment that most shaped Ray’s investment philosophy happened on a hot night in August 1971, when a surprise address from President N ixon would change the financial world as we know it.

A N IX ON N IG H T

All three major networks had their broadcasting interrupted unexpectedly as the president of the U nited States suddenly appeared in living rooms across America.

In a serious and agitated state, he declared, “I directed Secretary [John] C onnally to suspend temporarily the convertibility of the dollar to gold.” In one brief sentence, just 14 words, President N ixon announced to the world that the dollar as we knew it would never be the same again. N o longer would the dollar’s value be tied directly to gold. Remember Fort K nox? It used to be that for every paper dollar, the government would have the equivalent value of physical gold stocked away safely. And with N ixon’s declaration, the dollar was now just paper. Imagine you had a treasure chest filled with gold, only to open it one day and find a yellow paper sticky note that said simply “IOU .”

N ixon was saying that the dollar’s value would now be determined by whatever we (the market) deemed its worth. T his news also shocked foreign governments that had held huge sums of dollars, believing that they had the option to convert to gold at any time. Overnight, N ixon removed that option from the table (once again living up to his nickname “T ricky D ick”). Oh, he also issued a 10% surcharge on all imports to keep the U nited States competitive. And like a blizzard in late October, N ixon’s address signified a change in seasons of epic proportions.

Ray was watching the president’s address from his apartment and couldn’t believe what he was hearing. W hat were the implications of N ixon’s decision to take the U nited States off the gold standard? W hat did it mean for markets? W hat did this mean for the U S dollar and its position in the world?

One thing Ray thought for sure: “It means the definition of money is different. I would have thought maybe it’s a crisis!” H e was certain that when he walked onto the trading floor the next morning, the market was sure to plummet.

H e was wrong.

T o his amazement, the D ow Jones was up nearly 4% that next day, as stocks soared to the highest single-day gain in history. G old also skyrocketed as well! It was completely counterintuitive to what most experts would expect. After all, we had just broken our sacred promise to the world that these pieces of paper with dead presidents on them were actually worth something of value. Surely this change wouldn’t inspire confidence in the U S economy or government. T his was a head scratcher. T his market boom eventually became known as the “N ixon rally.”

But it wasn’t all great news. By letting the value of the dollar be determined by “whatever we all think it’s worth,” an inflationary storm brewed on the horizon. Ray elaborates: “But then in 1973, it set up the ingredients for the first oil shock. W e never had an oil shock before. W e never had inflation to worry about before. And all of those things became, in a sense, surprises. And I developed a modus operandi to expect surprises.” It’s the surprises that we can’t afford, or stomach. It’s the next 2008. It’s the next shock wave sure to rumble through our markets.

T                  he N ixon rally was a catalyst for Ray: the beginningof a lifelong obsession to prepare for anything—the unknown around every corner. H is mission was to study every conceivable market environment and what that meant for certain investments. T his is his core operating principle that allows him to manage the world’s largest hedge fund. N ot espousing that he knows all. Quite the opposite. H e is insatiably hungry to continually discover what he doesn’t yet know. Because what’s obvious is obviously wrong. T he prevailing thought is usually the wrong thought. And since the world is continually changing and evolving, Ray’s journey to uncover the unknown is a never-ending endeavor.

U                 L T IMAT E IN VE ST OR N IRVAN A

W hat you are about to read could very well be the most important chapter in the entire book. Y es, yes, I know, I said that before. And it’s true that if you don’t know the rules of the game, you will get crushed. And if you don’t think like an insider, conventional wisdom will lead you to accept the fate of the herd. And if you don’t decide on a percentage and automate your savings, you will never get the rocket off the ground. Y et I wholeheartedly believe that there is nothing in this book that tops Ray’s strategy for the largest returns possible with the least amount of risk. T his is Ray’s specialty. T his is what Ray is known for throughout the world.

T he portfolio you are going to learn about in the pages ahead would have provided you with:

1.     E xtraordinary returns—nearly 10% annually (9.88% to be exact, net of fees) for the last 40 years (1974 through 2013)!

2.     E xtraordinary safety—you would have made money exactly 85% of the time over the last 40 years! T here were only six losses during those 40 years, and the average loss was only 1.47% . T wo of the six losses were breakeven, for all intents and purposes, as they were 0.03% or less. So from a practical perspective, you would have lost money four times in 40 years.

3.     E xtraordinary low volatility—the worst loss you would have experienced during those 40 years was only –3.93% !

Remember W arren Buffett’s ultimate laws of investing? Rule 1: don’t lose money. Rule 2: see rule 1. T he application of this rule is Ray’s greatest genius. T his is why he is the L eonardo da Vinci of investing.

Anybody can show you a portfolio (in hindsight) where you could have taken gigantic risks and received big rewards. And if you didn’t fold like a paper bag when the portfolio was down 50% or 60% , you would have ended up with big returns. T his advice is good marketing, but it’s not reality for most people.

I couldn’t fathom that there was a way for the individual investor (like you and me) to have stock market–like gains, yet simultaneously have a strategy that would greatly limit both the frequency and size of the losses in nearly every conceivable economic environment. C an you imagine a portfolio model that declined just 3.93% in 2008, when the world was melting down and the market was down 50% from its peak? A portfolio where you can more than likely be safe and secure when the next gut-wrenching crash wipes out trillions in America’s 401(k) accounts? T his is the gift that lies in the pages ahead. (N ote that past performance does not guarantee future results. Instead, I am providing you the historical data here to discuss and illustrate the underlying principles.)

But before we dive in, and before you can appreciate the beauty and power of Ray’s guidance, let’s understand the backstory of one of the most incredible investors and asset allocators to walk the planet. L et’s learn why governments and the world’s largest corporations have Ray on speed dial so they can maximize their returns and limit their losses.

I’M L OVIN ’ IT

N ineteen eighty-three was a bad year for chickens. It was the year that McD onald’s decided to launch the wildly successful “C hicken McN ugget.” T hey were such a hit that it took a few years to work out supply-chain issues because they couldn’t get their hands on enough birds. But if it wasn’t for the genius of Ray D alio, the C hicken McN ugget wouldn’t even exist.

H ow does the world of high finance intersect with the fast-food-selling clown? Because when McD onald’s wanted to launch the new food, it was nervous about the rising cost of chicken and having to up its prices—not an option for its budget-conscious clientele. But the suppliers weren’t willing to give a fixed price for its chickens because they knew that it wasn’t the chickens that are expensive. It’s the cost of feeding them all that corn and soymeal. And if the feed costs rose, the suppliers would have to eat the losses.

McD onald’s called Ray, knowing that he is one of the world’s most gifted minds when it comes to eliminating or minimizing risk while maximizing upside—and he rang up a solution. H e put together a custom futures contract (translation: a guarantee against future rising prices of corn and soymeal) that allowed suppliers to be comfortable selling their chickens for a fixed price. Bon appétit!

Ray’s expertise extends far beyond the boardrooms of major corporations. Just how far does his wisdom reverberate throughout the world? In 1997, when the U S T reasury decided to issue inflation-protected bonds (today, they are commonly known as T IPS), officials came to R ay’s firm, Bridgewater, to seek advice on how to structure them. Bridgewater’s recommendations led to the current design of T IPS.

Ray is more than just a money manager. H e is a master of markets and risk. H e knows how to put together the pieces to tilt the odds of winning drastically in favor of him and his clients.

So how does Ray do it? W hat’s his secret? L et’s sit at the feet of this economic master and let him take us on a journey!

IN T E L L E C T U AL N AVY SE AL S

Remember the jungle metaphor Ray gave us way back in chapter 1? As Ray sees it, to get what we really want in life, we have to go through the jungle to get to the other side. T he jungle is dangerous because of the unknowns.

It’s the challenges lurking around the next bend that can hurt you. So, in order to get to where you want to go, you have to surround yourself with the smartest minds that you also respect. Ray’s firm, Bridgewater, is his personal team of “jungle masters.” H e has more than 1,500 employees who are almost as obsessed as Ray with figuring out how to maximize returns and minimize risk.

As I mentioned early on, Bridgewater is the world’s largest hedge fund, with nearly $160 billion under its watch. T his amount is astonishing, considering most “big” hedge funds these days hover around $15 billion. Although the average investor has never heard of Ray, his name echoes in the halls of the highest places. H is observations, a daily report, are read by the most powerful figures in finance, from the heads of central banks to those in foreign governments, and even the president of the U nited States.

T here is a reason why the world’s biggest players, from the largest pension funds to the sovereign wealth funds of foreign countries, invest with Ray. And here is a clue: it’s not “conventional wisdom.” H e thinks way outside the box. H eck, he shatters the box. And his voracious appetite to continually learn and challenge the conventional and find “the truth” is what propelled Ray from his first office (his apartment) to a sprawling campus in C onnecticut. H is jungle team at Bridgewater has been called a group of intellectual N avy SE AL S. W hy?

Because by working at Bridgewater, you are going through the jungle with Ray, arm in arm. T he culture requires you to be creative, insightful, and courageous— always able to defend your position or views. But Ray also requires that you have the willingness to question or even attack anything you consider faulty. T he mission is to find out what is true and then figure out the best way to deal with it. T his approach requires “radical openness, radical truth, and radical transparency.” T he survival (and success) of the entire firm depends on it.

AL PH A D OG

Ray D alio put himself on the map with the extraordinary (and continual) success of his Pure Alpha strategy. L aunched in 1991, the strategy now has $80 billion and has produced a mind-boggling 21% annualized return (before fees were taken out), and with relatively low risk. T he fund’s investors include the world’s wealthiest individuals, governments, and pension funds. It’s the 1% of the 1% of the 1% , and the “club” has been closed to new investors for many years. T he

Pure Alpha strategy is actively managed, meaning that Ray and his team are continuously looking for opportunistic investments. T hey want to get in at the right time and get out at the right time. T hey aren’t just riding the markets, which was evidenced by a

17% gain (before fees) in 2008 while many hedge fund managers were closing their doors or begging investors not to pull out. T he investors in the Pure Alpha strategy want big rewards and are willing to take risks—albeit still limiting their risk as much as humanly possible.

C H IL D RE N AN D C H ARIT Y

W ith incredible success managing the Pure Alpha strategy, Ray has built up quite a sizeable personal nest egg. Back in the mid-’90s, he began to think about his legacy and the funds he wanted to leave behind, but he wondered, “W hat type of portfolio would I use if I wasn’t around to actively manage the money any longer?” W hat type of portfolio would outlive his own decision making and continue to support his children and philanthropic efforts decades from now?

Ray knew that conventional wisdom and conventional portfolio management would leave him in the hands of a model that continually shows that it can’t survive when times get tough. So he began to explore whether or not he could put together a portfolio—an asset allocation— that would do well in any economic environment in the future. W hether it’s another brutal winter like 2008, a depression, a recession, or so on. Because nobody knows what will happen five years from now, let alone 20 or 30 years out.

T he results?

A completely new way to look at asset allocation. A new set of rules. And only after the portfolio had been tested all the way back to 1925, and only after it produced stellar results for R ay’s personal family trust, in a variety of economic conditions, did he begin to offer it to a select group. So long as they had the minimum $100 million investment, of course. T he new strategy, known as the All W eather strategy, made its public debut in 1996, just four years before a massive market correction put it to the test. It passed with flying colors.

QU E ST ION S ARE T H E AN SW E R

W e’ve all heard the maxim “Ask and you shall receive!” But if you ask better questions, you’ll get better answers! It’s the common denominator of all highly successful people. Bill G ates didn’t ask, “H ow do I build the best software in the world?” H e asked, “H ow can I create the intelligence [the operating system] that will control all computers?” T his distinction is one core reason why Microsoft became not just a successful software company but also the dominant force in computing—still controlling nearly 90% of the world’s personal computer market! H owever, G ates was slow to master the web because his focus was on what was inside the computer, but the “G oogle Boys,” L arry Page and Sergey Brin, asked, “H ow do we organize the entire world’s information and make it accessible and useful?” As a result, they focused on an even more powerful force in technology, life, and business. A higher-level question gave them a higher-level answer and the rewards that come with it. T o get results, you can’t just ask the question once, you have to become obsessed with finding its greatest answer(s).

T he average person asks questions such as “H ow do I get by?” or “W hy is this happening to me?” Some even ask questions that disempower them, causing their minds to focus on and find roadblocks instead of solutions. Questions like “H ow come I can never lose weight?” or “W hy can’t I ever hang on to my money?” only move them farther down the path of limitation.

I have been obsessed with the question of how do I make things better? H ow do I help people to significantly improve the quality of their lives now? T his focus has driven me for 38 years to find or create strategies and tools that can make an immediate difference. W hat about you? W hat question(s) do you ask more than any other? W hat do you focus on most often? W hat’s your life’s obsession? F inding love? Making a difference? L earning? E arning? Pleasing everyone? Avoiding pain? C hanging the world? Are you aware of what you focus on most; your primary question in life? W hatever it is, it will shape, mold, and direct your life. T his book answers the question, “W hat do the most effective investors do to consistently succeed?” W hat are the decisions and actions of those who start with nothing but manage to create wealth and financial freedom for their families?

In the financial world, Ray D alio became obsessed with a series of better-quality questions. Questions that led him to ultimately create the All W eather portfolio. It’s the approach you are about to learn here and has the potential to change your financial life for the better forever.

“W hat kind of investment portfolio would one need to have to be absolutely certain that it would perform well in good times and in bad—across all economic environments?”

T his might sound like an obvious question, and, in fact, many “experts” and financial advisors would say that the diversified asset allocation they are using is designed to do just that. But the conventional answer to this question is why so many professionals were down 30% to 50% in 2008. W e saw how many target-date funds got slaughtered when they were supposed to be set up to be more conservative as their owners neared retirement age. W e saw L ehman Brothers, a 158-year-old bedrock institution, collapse within days. It was a time when most financial advisors were hiding under their desks and dodging client phone calls. One friend of mine joked painfully, “My 401(k) is now a 201(k).” All the fancy software that the industry uses—the “Monte C arlo”

simulations that calculate all sorts of potential scenarios in the future—didn’t predict or protect investors from the crash of 1987, the collapse of 2000, the destruction of 2008—the list goes on.

If you remember those days back in 2008, the standard answers were “T his just hasn’t happened before,” “W e are in uncharted waters,” “It’s different this time.” Ray doesn’t buy those answers (which is why he predicted the 2008 global financial crisis and made money in 2008).

Make no mistake, what Ray calls “surprises” will always look different from the time before. T he G reat D epression, the 1973 oil crisis, the rapid inflation of the late ’70s, the British sterling crisis of 1976, Black Monday in 1987, the dot-com bubble of 2000, the housing bust in 2008, the 28% drop in gold prices in 2013—all of these surprises caught most investments professionals way off guard. And the next surprise will have them on their heels again. T hat we can be sure of.

But in 2009, once the smoke had cleared and the market started to bounce back, very few money managers stopped to ask if their conventional approach to asset allocation and risk management might have been wrong to begin with. Many of them dusted themselves off, got back in the selling saddle, and prayed that things would just get back to “normal.” But remember R ay’s mantra, “E xpect surprises,” and his core operating question, “W hat don’t I know?” It’s not a question of whether or not there will be another crash, it is a question of when.

MARK OW IT Z : T H E SE C RE T T O MAX IMIZ IN G

RE T U RN S

H arry Markowitz is known as the father of modern portfolio theory. H e explains the fundamental concept behind the work that won him the N obel Prize. In short, investments in a portfolio should not just be looked at individually, but rather as a group. T here is a trade-off for risk and return, so don’t just listen to one instrument, listen to the entire orchestra. And how your investments perform together, how well they are diversified, will ultimately determine your reward. T his advice might sound simple now, but in 1952 this thinking was groundbreaking. At some level, this understanding has influenced virtually every portfolio manager from N ew Y ork to H ong K ong.

L ike all great investors, Ray stood on Markowitz’s shoulders, using his core insights as a basis for thinking about the design of any portfolio or asset allocation. But he wanted to take it to another level. H e was sure that he could add a couple more key distinctions—pull a couple key levers—and create his own groundbreaking discovery. H e took his four decades of investing experience and rounded up his troops to focus their brainpower on this project. Ray literally spent years refining his research until he had arrived at a completely new way to look at asset allocation. T he ultimate in maximizing returns and minimizing risk. And his discoveries have given him a new level of competitive advantage—an advantage that will soon become yours.

U p until this book’s publication, Ray’s life-altering, game-changing approach has been for the exclusive benefit of his clients. G overnments, pension plans, billionaires—all get the extraordinary investment advantages you are about to learn—through Ray’s All W eather strategy. As I mentioned, it’s where Ray has serious skin in the game. It’s where he invests all of his family and legacy money alongside the “Security Buckets” of the most conservative and sophisticated institutions in the world. L ike Ray, I also now invest a portion of my family’s money in this approach, as well as my foundation’s money, because as you’ll begin to see, it has produced results in every economic environment over the last 85 years. From depressions and recessions, to times of inflation or deflation; in good times and in bad, this strategy has found a way to maximize opportunity. H istorically it appears to be one of the best approaches possible to achieving my wishes long after I am gone.

G AME D AY

T o be able to sit with yet another of the great investment legends of our time was truly a gift. I spent close to 15 hours studying and preparing for my time with Ray, combing over every resource I could get my hands on (which was tough, because he typically avoids media and publicity). I dug up some rare speeches he gave to world leaders at D avos and the C ouncil on Foreign Relations. I watched his interview with C harlie Rose of 60 Minutes (one of his only major media appearances). I watched his instructional animated video H ow the E conomic Machine

Works—In                          T hirty                         Minutes

(www.economicprinciples.org). It’s a brilliant video I highly encourage you to watch to really understand how the world economy works. I combed through every white paper and article I could find. I read and highlighted virtually every page of his famous text Principles, which covers both his life and management guiding principles. T his was an opportunity of a lifetime, and I wasn’t going to walk in without being completely prepared.

W hat was supposed to be a one-hour interview quickly turned into nearly three. L ittle did I know Ray was a fan of my work and had been listening to my audio programs for almost 20 years. W hat an honor! W e went deep. W e were pitching and catching on everything from investing to how the world economic machine really works. I began with a simple question: “Is the game still winnable for the individual investor?”

“Y es!” he said emphatically. But you certainly aren’t going to do it listening to your broker buddy. And you certainly aren’t going to do it by trying to time the market. T iming the market is basically playing poker with the best players in the world who play round the clock with nearly unlimited resources. T here are only so many poker chips on the table. “It’s a zero-sum game.” So to think you are going to take chips from guys like Ray is more than wishful thinking. It’s delusional. “T here is a world game going on, and only a handful actually make money, and they make a lot by taking chips from the players who aren’t as good!” As the old saying goes, if you have been at a poker table for a while, and you still don’t know who the sucker is: it’s you!

Ray put the final warning stamp on trying to beat/time the market: “You don’t want to be in that game!”

“Okay, Ray, so we know we shouldn’t try to beat the best players in the world. So let me ask you what I have asked every person I have interviewed for this book: If you couldn’t leave any of your financial wealth to your children but only a portfolio, a specific asset allocation with a list of principles to guide them, what would it be?” Ray sat back, and I could see his hesitancy for a moment. N ot because he didn’t want to share, but because we live in an incredibly complex world of risk and opportunity. “T ony, that’s just too complex. It’s very hard for me to convey to the average individual in a short amount of time, and things are constantly changing.” Fair enough. Y ou can’t cram 47 years of experience into a three-hour interview. But I pressed him a bit . . .

“Y eah, I agree, Ray. But you also just told me how the individual investor is not going to succeed by using a traditional wealth manager. So help us understand what we can do to succeed. W e all know that asset allocation is the most important part of our success, so what are some of the principles that you would use to create maximum reward with minimal risk?”

And that’s when Ray began to open up and share some amazing secrets and insights. H is first step was to shatter my “conventional wisdom” and show me that conventional wisdom on what is a “balanced” portfolio is not balanced at all.

T he secret of all victory lies in the organization of the nonobvious.

— MAR C U S AU R E L IU S

U N BAL AN C E D

Most advisors (and advertisements) will encourage you to have a “balanced portfolio.” Balance sounds like a good thing, right? Balance tells us that we aren’t taking too much risk. And that our more risky investments are offset by our more conservative ones. But the question lingers:

W hy did most conventional balanced portfolios drop 25% to 40% when the bottom fell out of the market?

T he conventional balanced portfolios are divided up between 50% stocks and 50% bonds (or maybe 60/40 if you are a bit more aggressive, or 70/30 if you are even more aggressive). But let’s stick with 50/50 for the sake of this example. T hat would mean if someone has $10,000, he would invest $5,000 in stocks and $5,000 in bonds (or similarly, $100,000 would mean $50,000 in bonds and $50,000 in stocks—you get the idea).

By using this typical balanced approach, we are hoping for three things:

1.   W e hope stocks will do well.

2.   W e hope bonds will do well.

3.   W e hope both don’t go down at the same time when the next crash comes.

It’s hard not to notice that hope is the foundation of this typical approach. But insiders like Ray D alio don’t rely on hope. H ope is not a strategy when it comes to your family’s well-being.

RISK Y BU SIN E SS

By dividing up your money in 50% stocks and 50% bonds (or some general variation thereof), many would think that they are diversified and spreading out their risk. But in reality, you really are taking much more risk than you think. W hy? Because, as Ray pointed out emphatically multiple times during our conversation, stocks are three times more risky (aka volatile) than bonds.

“T ony, by having a fifty-fifty portfolio, you really have more like ninety-five percent of your risk in stocks!” Below is a pie chart of the 50/50 portfolio. T he left side shows how the money is divided up between stocks and bonds in percentage terms. But the right side shows how the same portfolio is divided up in terms of risk.

So with 50% of your “money” in stocks, it seems relatively balanced at first glance. But as shown here, you would have closer to 95% or more at “risk” because of the size and volatility of your stock holdings. T hus, if stocks tank, the whole portfolio tanks. So much for balance!

H                        ow does this concept translate to real life?

From 1973 through 2013, the S&P 500 has lost money nine times, and the cumulative losses totaled 134% ! D uring the same period, bonds (represented by the Barclays Aggregate Bond index) lost money just three times, and the cumulative losses were just 6% . So if you had a 50/50 portfolio, the S&P 500 accounted for over 95% of your losses!

“T ony,” Ray said, “when you look at most portfolios, they have a very strong bias to do well in good times and bad in bad times.” And thus your de facto strategy is simply hoping that stocks go up. T his conventional approach to diversifying investments isn’t diversifying at all.

I    had never heard this concept of balance versus riskexplained so simply. As I sat there, I started to think back to my own investments and where I may have made some wrong assumptions.

So let me ask you, how does this understanding make you feel about your

“balanced” portfolio now?

D oes this change your view as to what it means to be diversified? I sure hope so! Most people try to protect themselves by diversifying the amount of money they put into certain investment assets. One might say, “Fifty percent of my money is in ‘risky’ stocks (with perhaps greater upside potential if things go well) and fifty percent of my money is going in ‘secure’ bonds to protect me.” Ray is showing us that if your money is divided equally, yet your investments are not equal in their risk, you are not balanced! Y ou are really still putting most of your money at risk! Y ou have to divide up your money based on how much risk/reward there is —not just in equal amounts of dollars in each type of investment.

Y ou now know something that 99% of investors don’t know and that most professionals don’t know or implement! But don’t feel bad. Ray says most of the big institutions, with hundreds of billions of dollars, are making the same mistake!

RAIN MAK E R

Ray was now on a roll and was systematically dissecting everything I had been taught or sold over the years!

“T ony, there is another major problem with the balanced portfolio ‘theory.’ It’s based around a giant and, unfortunately, inaccurate assumption. It’s the difference between correlation and causation.”

Correlation is a fancy investment word for when things move together. In primitive cultures, they would dance in an attempt to make it rain. Sometimes it actually worked! Or so they thought. T hey confused causation with correlation. In other words, they thought their jumping up and down caused the rain, but it was actually just coincidence. And if it happened more and more often, they would build some false confidence around their ability to predict the correlation between their dancing and the rain.

Investment professionals often buy into the same mythology. T hey say that certain investments are either correlated (move together) or uncorrelated (have no predictable relationship). And yes, at times they might be correlated, but like the rainmaker, it’s often just happenstance.

Ray and his team have shown that all historical data point to the fact that many investments have completely random correlations. T he 2008 economic collapse destroyed this glaring assumption when almost all asset classes plummeted in unison. T he truth is, sometimes they move together, sometimes they don’t. So when the professionals try to create balance, hoping stocks move in the opposite direction of bonds, for example, it’s a complete crapshoot. But this faulty logic is the underpinning of what most financial professionals use as their “true north.”

R ay has clearly uncovered some glaring holes in the traditional asset allocation model. If he were a professor at an Ivy L eague school and had published this work, he probably would have been nominated for a N obel Prize! But in the trenches—in the jungle—is where Ray would rather live.

T H E FOU R SE ASON S

W hen I talked with D avid Swensen, Y ale’s chief investment officer, he told me that “unconventional wisdom is the only way you can succeed.” Follow the herd, and you don’t have a chance. Oftentimes people hear the same advice or thinking over and over again and mistake it for the truth. But it’s unconventional wisdom that usually leads to the truth and more often leads to a competitive advantage.

And here is where Ray’s second piece of unconventional wisdom came crashing in. “T ony, when looking back through history, there is one thing we can see with absolute certainty: every investment has an ideal environment in which it flourishes.

In other words, there’s a season for everything.” T ake real estate, for example. L ook back to the early 2000s, when Americans were buying whatever they could get their hands on (including people with little money!). But they weren’t just buying homes because “interest rates were low.” Interest rates were even lower in 2009, and they couldn’t give houses away. People were buying during the boom because prices were inflating rapidly. H ome prices were rising every single month, and they didn’t want to miss out. Billionaire investing icon G eorge Soros pointed out that “Americans have added more household mortgage debt in the last six years [by 2007] than in the prior life of the mortgage market.” T hat’s right, more loans were issued in six years than in the entire history of home loans.

In Miami and many parts of South Florida, you could put down a deposit, and because of inflationary prices, before the condo was even finished being built, you could sell it for a sizeable profit. And what did people do with that home equity? T hey used their home like an AT M and spent it, and that massive spending stimulated the profitability of corporations and the growth of the economy. Soros cited some staggering numbers: “Martin Feldstein, a former chairman of the C ouncil of E conomic Advisers, estimated that from 1997 through 2006, consumers drew more than $9 trillion in cash out of their home equity.” T o put this in perspective, in just six years (from 2001 to 2007), Americans added more household mortgage debt (about $5.5 trillion) than in the prior life of the mortgage market, which is more than a century old. Of course, this national behavior is not a sustainable way to live. W hen home prices dropped like a rock, so did spending and the economy.

In summary, which season or environment can powerfully drive home prices? Inflation. But in 2009 we experienced deflation, when prices sank, and many mortage holders were left with a home underwater— worth less than what they owed. D eflation drops the price of this investment class.

H ow about stocks? T hey too perform well during inflation. W ith inflation comes rising prices. H igher prices mean that companies have the opportunity to make more money. And rising revenues mean growth in stock prices. T his has proven true over time.

Bonds are a different animal. T ake U S T reasury bonds, for example. If we have a season of deflation, which is accompanied by falling interest rates, bond prices will rise.

R ay then revealed the most simple and important distinction of all. T here are only four things that move the price of assets:

1.                 inflation,

2.                 deflation,

3.                 rising economic growth, and4. declining economic growth.

Ray’s view boils it down to only four different possible environments, or economic seasons, that will ultimately affect whether investments (asset prices) go up or down. (E xcept unlike nature, there is not a predetermined order in which the seasons will arrive.) T hey are:

1.                higher than expected inflation (rising prices),

2.                lower than expected inflation (or deflation),3. higher than expected economic growth, and 4. lower than expected economic growth.

W hen you look at a stock (or bond) price today, the price already incorporates what we (the market) “expect” about the future. Ray said to me, “T ony, there is a literal picture of the future when you look at prices today.” In other words, the price of Apple’s stock today incorporates the expectations of investors who believe the company will continue to grow at a certain pace. T his is why you may have heard that a stock will fall when a company says that its future growth (earnings) will be lower than it had initially expected.

“It’s the surprises that will ultimately determine which asset class will do well. If we have a real good growth surprise, that would be very good for stocks and not great for bonds. For bonds, if we have a surprise drop in inflation, it would be good for bonds.”

If there are only four potential economic environments or seasons, Ray says you should have 25% of your risk in each of these four categories. H e explains: “I know that there are good and bad environments for all asset classes. And I know that in one’s lifetime, there will be a ruinous environment for one of those asset classes. T hat’s been true throughout history.”

T his is why he calls this approach All W eather: because there are four possible seasons in the financial world, and nobody really knows which season will come next. W ith this approach, each season, each quadrant, is covered all the time, so you’re always protected. Ray elaborates: “I imagine four portfolios, each with an equal amount of risk in them. T hat means I would not have an exposure to any particular environment.” H ow cool is that? W e aren’t trying to predict the future, because nobody knows what the future holds. W hat we do know is that there only four potential seasons we will all face. By using this investment strategy, we can know that we are protected—not merely hoping —and that our investments are sheltered and will do well in any season that comes our way.

Bob Prince, the co-chief investment officer at Bridgewater, describes the uniqueness of the All W eather approach: “T oday we can structure a portfolio that will do well in 2022, even though we can’t possibly know what the world will look like in 2022.”

I honestly sat there with my jaw open because nobody had ever described to me such a simple yet elegant solution. It makes perfect sense to have investments, divided up equally by risk, that will do well in all seasons but how you actually accomplish this is the golden ticket.

“So we know the four potential seasons, but which type of investment will perform well in each of these environments?” Ray responded by categorizing them into each season. Below is a chart that makes it easy to break down visually.

T W O D OW N , ON E T O G O

On the surface, asset allocation might sometimes feel complex, even when you understand the principles that Ray has laid out. But there’s one thing I know for sure: complexity is the enemy of execution. If you and I are actually going to get ourselves to follow through with this process and receive the rewards, I had to find a way to make this advice even simpler.

So I said to Ray, “W hat you have shared with us here is invaluable. A completely different way of looking at asset allocation. By now we all know asset allocation is one of the single most important keys to all successful investing. But the challenge for the average investor— and even for the sophisticated investor—is how to take these principles and translate them into an actual portfolio with the most effective percentages of each asset class. It will be too complex for ninety-nine percent of us to figure out. So it would be a huge gift if you could share the specific percentages that people would invest in each asset class so that their risk would be divided equally among seasons!”

Ray looked at me, and I could see the wheels turning. “T ony, it’s not really that simple.” Ray explained that in his All W eather strategy, they use very sophisticated investment instruments, and they also use leverage to maximize returns.

I understood where Ray was coming from, so I asked him for a more simplified version: “C an you give me the percentages that the average person can do, without any leverage, to get the best returns with the least amount of risk? I know it’s not going to be your absolute perfect asset allocation because I’m putting you on the spot to create it right here and now. But Ray, your best estimate will certainly be greater than most people’s best plan. C ould you give a version of the All W eather portfolio that readers could do on their own or with the help of a fiduciary advisor?”

Ray has taken on very few investors in the last ten years, and the last time he did, you had to be an institutional investor with $5 billion in investable assets, and your initial investment needed to be a minimum of $100 million just to get Ray’s advice. T his helps you understand what a big ask I was making. But I know how much he cares about the little guy. H e certainly hasn’t forgotten his roots as a self-made man from humble beginnings in Queens, N ew Y ork.

“Ray, I know you’ve got a huge heart to help, so let’s give folks a recipe for success. Y ou won’t take anybody’s money, even if they are worth five billion dollars today. H elp your brothers and sisters out!” I said with a big smile.

And then something magical happened.

I looked in Ray’s eyes, and a smile came across his face. “All right, T ony. It wouldn’t be exact or perfect, but let me give you a sample portfolio that the average person could implement.” And then slowly he began to unfold the exact sequence for what his experience shows will give you and me the increased probability of the highest return in any market environment, as long as we live, with the least amount of risk.

D RU MROL L , PL E ASE

Y ou are about to see the exact asset allocation built by a man whom many call the best asset allocator to walk the planet. A self-made man who built himself from nothing financially to a net worth of over $14 billion, and who manages $160 billion a year and produces annual returns of more than 21% for his investors (before fees). H ere he shares not only which type of investment but also what percentage of each asset class you need to win! In fact, if you look online, many people have tried to replicate a version of this based upon Ray’s previous interviews. In fact, there is a whole new category of investment products now called “Risk Parity,” based on Ray’s innovations. Many funds or strategies say they were “inspired” by Ray’s approach, but nobody received the specific allocation like Ray provided here. Many of the replicas were down as much as 30% or more in 2008. More like “some weather” than “All W eather,” if you ask me. A fake Rolex will never be a Rolex. (A quick note: the strategy below is not the same as Ray’s All W eather strategy, of course. As he said, his fund uses more sophisticated investments and also uses leverage. But the core principles are the same, and the specific percentages

are designed directly by Ray, and no one else, so let’s call this portfolio herein the “All Seasons” portfolio.)

G IVE ME T H E N U MBE RS

“So tell me, Ray, what are the percentages you would put in stocks? W hat percentage in gold? And so on.” H e graciously proceeded to sketch out the following breakdown:

First, he said, we need 30% in stocks (for instance, the S& P 500 or other indexes for

further diversification in this basket). Initially that sounded low to me, but remember, stocks are three times more risky than bonds. And who am I to second-guess the Y oda of asset allocation!?

“T hen you need long-term government bonds. F ifteen percent in intermediate term [seven- to ten-year T reasuries] and forty percent in longterm bonds [20- to 25-year T reasuries].” “W hy such a large percentage?” I asked.

“Because this counters the volatility of the stocks.” I remembered quickly it’s about balancing risk, not the dollar amounts. And by going out to longer-term (duration) bonds, this allocation will bring a potential for higher returns.

H e rounded out the portfolio with 7.5% in gold and 7.5% in commodities. “Y ou need to have a piece of that portfolio that will do well with accelerated inflation, so you would want a percentage in gold and commodities. T hese have high volatility. Because there are environments where rapid inflation can hurt both stocks and bonds.”

L astly, the portfolio must be rebalanced. Meaning, when one segment does well, you must sell a portion and reallocate back to the original allocation. T his should be done at least annually, and, if done properly, it can actually increase the tax efficiency. T his is part of the reason why I recommend having a fiduciary implement and manage this crucial, ongoing process.

G RAT IT U D E

W ow! T here it was in black and white. Ray had masterfully and graciously provided a game-changing recipe that would impact the lives of millions of Americans. D o you realize the level of generosity this man provided both you and me that wonderful day? G iving from the heart is at the core of who Ray is.

W hich is why I wasn’t the least bit surprised to learn later that he and his wife, Barbara, have signed the G iving Pledge—a commitment by the world’s wealthiest individuals, from Bill G ates to W arren Buffett, to give away the majority of their wealth through philanthropy.

D O I H AVE Y OU R AT T E N T ION N OW ?

W hen my own investment team showed me the backtested performance numbers of this All Seasons portfolio, I was astonished. I will never forget it. I was sitting with my wife at dinner and received a text message from my personal advisor, Ajay G upta, that read, “D id you see the email with the back-tested numbers on the portfolio that Ray D alio shared with you? U nbelievable!” Ajay normally doesn’t text me at night, so I knew he couldn’t wait to share. As soon as our dinner date was over I grabbed my phone and opened the email . . .

C HAPT E R 5.2

IT ’S T IME T O T H RIV E : ST O RM-PRO O F RE T U RN S AN D U N RIV AL E D RE SU L T S

If no mistake have you made, yet losing you are . . . a different game you should play.

— Y O D A

T H E PROOF IS IN T H E PU D D IN G

It’s safe to say that in the past 80-plus years, we have experienced every possible economic season and more than a handful of surprises, from the G reat D epression to the G reat Recession and everything in between. So how did the All Seasons portfolio perform? As I mentioned, I took it to a team of analysts to have it tested extensively all the way back to 1925! T he results astonished everyone.

W e already saw in the previous chapter how the All Seasons approach did over 40 years, so let’s dig a little deeper. But let’s take a look at how it did during what I call the “modern period”—the 30 years from 1984 through 2013. T he portfolio was rock solid:¹³

•    Just under 10% (precisely 9.72% , net of fees) average annualized return. (It’s important to note that this is the actual return, not an inflated average return.)

•    Y ou would have made money just over 86% of the time. T hat’s only four down/negative years. T he average loss was just 1.9% , and one of the four losses was just 0.03% (essentially a break-even year)—so effectively you would have lost money only three out of 30 years.

•    T he worst down year was –3.93% in 2008 (when the S& P 500 was down 37% !).

•    Investor nerd alert! Standard deviation was just 7.63% .

(T his means extremely low risk and low volatility.)

W hy did we select the modern period from 1984? T his time frame marks the beginning of the 401(k) plan, when every American became an investor and no longer was the stock market just for the sophisticated. For some perspective, 30 years ago, there was no W orld W ide W eb. H eck, the first “portable” handheld cell phones came out in 1984. T he Motorola D ynaT ac was a beige brick that cost nearly $4,000. T he plan itself also cost $50 a month and 50 cents per minute, but you could talk only for 30 minutes before the battery died. I know because I’m ancient enough to be one of the first proud owners.

But let’s not point out just the positives. L et’s look at how the portfolio held up in the worst times: the economic winters. T his analysis is what the industry calls stress testing.

If you look at what I call the “historical period,” from 1939 to 2013 (75 years), consider these startling stats. (Please note that in order to go back further in time, we had to use different “indexes” to represent the asset allocation because certain indexes didn’t exist prior to 1983. See the end of the chapter for a full explanation on the methodology used.)

L et’s go back even further, all the way to 1927, which includes the worst decade in our economic history, the G reat D epression:

If a house is deemed storm-proof, the only way to know for sure is to endure the test of time and the worst of storms. Below is a chart showing the seven worst drops since 1935. As you will see, the All Seasons portfolio was actually up in two out of seven of those “winters”! And the losses it did sustain were relatively small in comparison with the U S stock market. T alk about bucking the trend. W hile winter was kicking everyone’s butt, this portfolio would have allowed you to spend the winter skiing or snowboarding and enjoying your hot chocolate!

If you look at how the All Seasons portfolio would have performed against the market in more recent years, the difference is even greater! F rom January 1, 2000, through F ebruary 2, 2015, the All Seasons portfolio destroyed the returns of the market (the S& P 500). D uring this time frame, we endured all kinds of what Ray calls “surprises”: the tech crash, the credit crisis, the E uropean debt crisis, and the largest singleyear drop in gold (down 28% in 2013) in more than a decade. T his time frame includes what experts call the lost decade, in which the S&P 500 was flat for ten years, from the beginning of 2000 to the end of 2009. T ake a look at the difference in how his design performed:

BU RN ’E M D OW N

It’s fascinating and quite sad that we live in a time where the media is salivating to take down anyone considered to be “best in class.” C ulture seems to lift them onto a pedestal of perfection only to hope they come crashing down. W hether it’s an athlete, a C E O, or a money manager, any false move or seemingly slight crack in the armor is exploited to the fullest. Stone them in the town square of television and the internet.

I found it mind boggling that with more than 30 years of stellar returns, Ray’s All W eather strategy received intense criticism when he was down approximately 4% in 2013. A whopping 4% . N ot the whopping 37% hit that the S&P took just a few years earlier. Remember, based on history, the All Seasons approach will take losses, but the goal is to minimize those dramatic drops. L et’s be honest: you could buy into this portfolio and see a loss the first year. T his portfolio is not meant to shoot out the lights. It’s a long-term approach for the smoothest possible ride. It would be a mistake to judge it by any single year, rather we need to evaluate its overall longterm performance—like any other investment opportunity. At the time of this writing (mid-2014), the media is back on the D alio bandwagon, as his All W eather fund was up 11% through June.

Imagine, all this media attention over a 4% loss? N ever mind that over the last five years, between 2009 and 2013, the All W eather has averaged over 11% per year, even including this single down year! But the fact he lost even a small amount when the market was up and that he received big media attention shows how his incredible performance has become expected. Y ou are only as good as your last “at bat” when it comes to the financial media. H ow ridiculous. N ever mind the fact that Ray’s clients have enjoyed incredible returns year after year, decade after decade, as the New Yorker reported in a 2011 article on Bridgewater called “Mastering the Machine”:

“In 2007, D alio predicted that the housingand-lending boom would end badly. L ater that year, he warned the Bush Administration that many of the world’s largest banks were on the verge of insolvency. In 2008, a disastrous year for many of Bridgewater’s rivals, the firm’s flagship Pure Alpha fund rose in value by 9.5% after accounting for fees. L ast year, the Pure Alpha fund rose 45% , the highest return of any big hedge fund.”

T he point is, there are a number of pundits who will sit back and criticize any strategy you may deploy. T o echo my favorite quote from D r. D avid Babbel, “L et them criticize; let us sleep.”

G OOD QU E ST ION S

W hen it comes to the All W eather approach, the biggest question from the bloggers is: W hat happens when interest rates go up? W on’t the government bonds go down and cause a loss to the portfolio because of the large percentage allocated to bonds?

It’s a fair question, but deserves more than a sound bite from an armchair quarterback. First, remember that by having a large allocation to bonds, it’s not a bet on bonds alone. T his portfolio spreads your risk among the four potential economic seasons.

Ray showed us that the point is not to plan for a specific season or pretend to know what season is coming next. Remember, it’s the surprises that will catch most off guard.

In fact, many have been trying to proselytize and predict the next season by calling for interest rates to rise quickly. After all, we are at all-time lows. Y et Michael O’H iggins, author of the famous book Beating the D ow, says that people may be waiting quite some time for any significant interest rate increases, since the Fed has a history of suppressing interest rates for long periods to keep costs of borrowing low: “T o the great number of investors who believe interest rates will inevitability go higher in the coming year (2014), remember that the

U S F ed kept long (duration) rates below 3% for 22 years from 1934 to 1956.”

T he Fed has kept rates low since 2008, so who knows how long interest rates will remain low. N obody can tell you with certainty. In early 2014, when everyone was expecting rates to rise, they dropped yet again and caused a spike in U S bond prices. (Remember, as rates go down, prices go up.)

H OW D ID T H E AL L SE ASON S PE RFORM IN A RISIN G -IN T E RE ST RAT E MARK E T ?

A revealing exercise is to look back in history at what happened to the All Seasons portfolio during a season when interest rates rose like a hot air balloon. After interest rates declined for many decades, the 1970s brought rapid inflation. D espite skyrocketing interest rates, the All Seasons portfolio had just a single losing year in the 1970s and had an annualized return of 9.68% during the decade. T his includes enduring the back-to-back drops of 1973 and 1974, when the S&P lost 14.31% and then another 25.90% loss, for a cumulative loss of 40.21% .

So let’s not let the talking heads persuade us to believe that they know what season is coming next. But let’s certainly prepare for all seasons and the series of surprises that lay ahead.

L E T ’S G E T RE AL

One final and crucial advantage of the All Seasons portfolio has a much more human element. Many critics will point out that if you could stomach more risk, you might have been able to beat this All Seasons approach. And they would be right. But the point of the All Seasons portfolio is to reduce volatility/risk while still maximizing gains!

If you are younger and have a longer time horizon, or you are willing to stomach more risk, you could still take advantage of the All Seasons foundation but make a small adjustment in the stocks versus bonds to, hopefully, produce a greater return. But keep in mind, by adding more stocks and decreasing your bonds, this change will increase risk/volatility and have you betting more on one season (in which you hope stocks will go up). In the past, this has worked quite well. If you visit the Stronghold website, you can see how, over time, by adding more stocks, the portfolio would have produced a greater returns but also produced greater downside in certain years. But here is what’s incredibly interesting. W hen compared with a standard 60% /40% balanced portfolio (60% in the S&P 500 and 40% in the Barclays Aggregate Bond index), the All Seasons approach, with more stock exposure, outperformed handily —and you would have to have accepted nearly 80% more risk (standard deviation) with the traditional 60/40 portfolio to still achieve results that would still fall slightly short of the All Seasons with increased equity focus.

But let’s be honest with ourselves. Our stomach lining is much weaker than we let on. T he research firm D albar revealed the truth about our appetite for risk. F or the

20-year period from D ecember 31, 1993, to D ecember 31, 2013, the S& P 500 returned 9.2% annually, but the average mutual fund investor averaged just over 2.5% , barely beating inflation.¹⁴ T o put this in perspective, you would have received a better return by investing in three-month U S T reasuries (which is nearly a cash equivalent) and avoided the stomach-turning drops.

W hy did the average investor leave so much on the table?

D albar president L ouis H arvey says investors “move their money in and out of the market at the wrong times. T hey get excited or they panic, and they hurt themselves.”

One of the more startling examples is a study conducted by Fidelity on the performance of its flagship

Magellan mutual fund. T he fund was run by investment legend Peter L ynch,¹⁵ who delivered an astonishing 29% average annual return between 1977 and 1990. But F idelity found that the average Magellan investor actually lost money!!! H ow in the world? Fidelity showed that when the fund was down, people would cash in—scared of the possibility of losing more. And when the fund was up again, they would come running back like the prodigal investor.

H ere is the reality: most people couldn’t stomach another 2008 without selling some or all of their investments. It’s human nature. So when people talk about better performance, for the most part they are talking about a fictitious investor; one with nerves of steel and a drawer full of T ums. C ase in point: I was reading MarketW atch recently and came across an article by Mark H ulbert. Mark’s financial publication tracks the performance of subscription newsletters that tell investors exactly how to trade the markets. T he best performing newsletter over 20 years was up 16.3% annually! Outstanding performance, to say the least. But with the ups come major downs. As Mark explains, “[T ]hat high-flying performance can be stomach churning, with his performance during the downturns of the last three market cycles—since 2000—among the very worst of his peers. D uring the 2007–09 bear market, for example, the service’s average model portfolio lost nearly two-thirds of its value.” T wo-thirds?! T hat’s 66% ! C an you imagine investing $100,000 and now seeing only $33,000 on your monthly statement? Or $1 million of your life savings reduced to just $333,000? W ould you have white knuckled it and held on?

W hen Mark asked the newsletter publisher about whether or not investors could actually hang on during the roller coaster ride, he provided quite the understatement by saying, in an email, that his approach isn’t for an investor who “bails out of his/her broadly diversified portfolio the first time a worry arises.”

I would call a 66% drop more than “a worry.” H e makes it sound like us mere mortals are prone to overreaction, as though I jumped out of a moving car when the check engine light came on. R emember, a 66% loss would require nearly 200% gains just to get back to even—just to recoup the portion of your nest egg that it may have taken your entire life to save!

W ithout exception, the “money masters” I interviewed for this book are obsessed with not losing their money. T hey understand that when you lose, you have to make significantly more to get back to where you started—to get back to breakeven.

T he reality is, if we are being honest with ourselves, we all make emotional decisions about our investments. W e are all emotional creatures, and even the best traders in the world are always fighting the inner fear. T his All Seasons portfolio protects you not only from any potential environment but also from yourself!!! It provides “emotional scaffolding” to keep you from making poor decisions. If your worst down year in the last 75 years was 3.93% , what is the likelihood that you would have freaked out and sold everything? And in 2008, when the world was burning down but your All Seasons portfolio was down just 3.93% while everyone else seemed to be melting down, how peaceful would have you felt?

So there you have it! T he All Seasons recipe from the master chef Ray D alio. And rather than wait until you have a $5 billion net worth, you get access here, for the few dollars you invested in this book! H e has simplified it by taking out the leverage and also making it a more passive approach (not trying to beat the market by being the best picker or predictor of what’s coming next). Y ou are welcome to implement this portfolio yourself, but if you do, let me just add a few points of caution:

•    T he low-cost index funds or E T Fs you choose will change the performance. It’s crucial to find the most efficient and cost-effective representations for each percentage.

•    T he portfolio will need to be monitored continuallyand rebalanced annually.

•    T he portfolio is not tax efficient at times. It’s important to use your qualified accounts (IRAs/401[k]s) or other tax-efficient structures to maximize tax efficiency appropriately. Y ou could also use a low-cost variable annuity like the ones offered by T IAA-C RE F or Vanguard. (H owever, those are the only two that experts seem to agree are worth the cost.)

AL L SE ASON S + L IFE T IME IN C OME

T he team at Stronghold (www.strongholdfinancial.com) currently uses the All Seasons portfolio as one of the many options available to their clients. Some readers will want to implement this on their own, while others will be better served using the expertise and assistance of a fiduciary advisor like Stronghold. Please take action in whatever form supports you most.

T AK E MASSIVE AC T ION

T he ball is now in your court. If you have a better strategy that has proven effective to minimize downside and maximize upside, maybe you should be running your own hedge fund. Y ou now are armed with info to do this on your own, or if you choose, you can have a fiduciary implement and monitor this for you as part of a comprehensive plan.

If you want to create your own personal plan in less than five minutes, go to the website now

(www.strongholdfinancial.com) to see how your current portfolio approach stacks up against a variety of strategies, including the All Seasons approach provided here.

L E T ’S T AK E Y OU R BROK E R FOR A T E ST D RIVE

Stronghold’s complimentary analysis allows you to “look under the hood” and find out how much you are really paying in fees and how your current investments are really performing. It will also highlight how much risk you’re currently taking as well as your true performance over the past 15 years, during which we have seen two near 50% declines (2000–02 and 2008–09)!

If you choose to take action, you can transfer your accounts online and begin the process today. If not, you’ll have all the information you need for free.

W H AT ABOU T MY 401(K )?

T he All Seasons approach can be implemented in your existing 401(k) plan so long as there are fund choices available that represent the recommended investments. T his you can do on your own or with the help of an advisor. If you use Stronghold, it will automatically link your 401(k) account to your overall plan and make sure that the 401(k) portfolio is set up correctly. Again,

America’s Best 401k can provide you with the All Seasons strategy as well.

IN C OME IS T H E OU T C OME

W hew! W ow, we covered a ton of territory in these last two chapters. But by now I think you can see why. W hat you hold in your hands is an investment plan with a track record of “smooth” returns that is second to none! Y ou can implement it in a few minutes, and you no longer have to live with the worry about the ups and downs of the market. Of course, nobody knows what the future holds, but history would tell us that by doing so, you will be set up to do well and be protected in any environment.

So now let’s go back to our “personal E verest” metaphor of investing. By using the All Seasons strategy, you have the best odds of having a smooth and steady climb to the top. Y es there will be surprises, but you will be set up to succeed over the long term. N ow remember, once you have built up the value of your investments to a critical mass where you have enough to be financially free, you will need to ultimately turn your nest egg (those investments) into a guaranteed income stream—your own lifetime income plan. A paycheck for life without ever having to work again. T hat’s ultimately where financial freedom comes from. L et’s turn the page now and learn why “All Seasons + Income for L ife C an = Real Financial Freedom.” L et’s learn how to create an income for life!

H OW D OE S H E D O IT ?

H ow does Ray D alio keep generating such extraordinarily consistent returns? H e has learned that this giant economy is one big machine, and everything is linked together in some way. Sometimes it’s obvious, many times not. H e can look at the machine and know that there are predictable patterns he can take advantage of. In fact, the culmination of his findings on the economic machine is packed into a brilliant 30-minute video that, in my opinion, should be required viewing for every American! Ray decided to produce the video only to make an impact on society and help demystify the economics that make our world go round. T ake the time to watch it, and you will be glad you did: www.economicprinciples.org.

H OW D ID W E C AL C U L AT E T H E RE T U RN S?

In order to insure the accuracy and credibility of the results produced by the All Seasons portfolio shared here, a team of analysts tested this portfolio using the annual historic returns of low-cost, broadly diversified index funds where possible. W hy is this important to you? By using real fund data as opposed to theoretical data from a constructed index, all the returns listed in this chapter are fully inclusive of annual fund fees and any tracking error present in the underlying funds. T his has the benefit of showing you realistic historic returns for the All Seasons portfolio (as opposed to theoretical returns that are sometimes used in backtesting). T his insures that the investment holdings and numbers used in back-testing this portfolio were and are accessible to the everyday man on the street and not only available to multibillion-dollar W all Street institutions. W here they were unable to use actual index fund data because the funds didn’t exist at that time, they used broadly diversified index data for each asset class and adjusted the returns for fund fees. N ote that they used annual rebalancing in the calculations and assumed that the investments were held in a tax-free account with no transaction costs. Finally, I would like to thank C liff Schoeman, Simon Roy, and the entire Jemstep team for their in-depth analysis and coordination with Ajay G upta at Stronghold W ealth Management in this effort. (Past performance does not guarantee future results.)

13.               T his assumes the portfolio was rebalanced annually. Past performance does not guarantee future results. Instead, as I mentioned prior, I am providing you the historical data here to discuss and illustrate the underlying principles.

14.               Source: R ichard Bernstein Advisors L L C , Bloomberg, MSC I, Standard & Poor’s, R ussell, H F R I, BofA Merrill L ynch, D albar, F H F A, F R B, F T SE . T otal R eturns in U SD .

15.               I had the privilege to interview Peter L ynch on his core investingprinciples while he was on his great winning streak, when he spoke at my W ealth Mastery program in the early 1990s.

C HAPT E R 5.3

FRE E D O M: C RE AT IN G Y O U R L IFE T IME IN C O ME PL AN

L ifetime Income Stream K ey to Retirement H appiness

— T IME , July 30, 2012

I have enough money to retire comfortably for the rest of my life. Problem is, I have to die next week.

— AN O N Y MO U S

In 1952 E dmund H illary led the first expedition to successfully climb Mount E verest, a feat once thought to be impossible. T he Queen of E ngland promptly knighted him, making him “Sir” E dmund H illary for his amazing trek.

D espite his accomplishment, many people believe Sir E dmund H illary may not have been the first person to reach the peak of E verest. In fact, it is widely believed that G eorge Mallory may have been the first person to reach the peak, nearly 30 years prior!

So, if G eorge Mallory reached the peak of Mount E verest in 1924, why did E dmund H illary receive all the fame—including being knighted by the Queen?

Because E dmund H illary didn’t just make it to the peak, he also successfully made it back down the mountain. G eorge Mallory was not so lucky. L ike the vast majority of those who have died on E verest, it was coming down that proved fatal.

IN VE ST IN G FOR W H AT , E X AC T L Y ?

I often ask people, “W hat are you investing for?” T he responses are wide and diverse:

“Returns.”

“G rowth.”

“Assets.”

“Freedom.”

“Fun.”

Rarely do I hear the answer that matters most: Income!!!!!

W e all need an income that we can count on. C onsistent cash flow that shows up in our account every single month, like clockwork. C an you imagine never worrying again about how you will pay your bills or whether your money will run out? Or having the joy and freedom of traveling without a care in the world? N ot having to worry about opening your monthly statements and praying the market holds up? H aving the peace of mind to give generously to your church or favorite charity and not wonder if there will be more where that came from? W e all know intuitively: income is freedom!

Shout it from the hilltops like Mel G ibson in the movie Braveheart: “Income is freedom!!!”

And lack of income is stress. L ack of income is struggle. L ack of income is not an acceptable outcome for you and your family. Make this your declaration.

D r. Jeffrey Brown, retirement expert and advisor to the W hite H ouse, said it best in a recent Forbes article: “[I]ncome is the outcome that matters most for retirement security.”

T he wealthy know that their assets (stocks, bonds, gold, and so on) will always fluctuate in value. But you can’t “spend” assets. Y ou can only spend cash. T he year 2008 was a time when there were lots of people with assets (real estate, in particular) that were plummeting in price, and they couldn’t sell. T hey were asset “rich” and cash “poor.” T his equation often leads to bankruptcy. Always remember that income is the outcome.

By the end of this section, you will have the certainty and the tools you need to lock down exactly the income you desire. T his is what I call “income insurance.” A guaranteed way to know for certain that you will have a paycheck for life without having to work for it in the future—to be absolutely certain that you will never run out of money. And guess what?

Y ou get to decide when you want your income checks to begin.

T here are many ways to skin the proverbial cat, so we will review a couple of different methods for getting the income insurance that makes sense for you.

One of the more exciting structures for locking down income has other powerful benefits as well. It is the only financial vehicle on the planet that can give you the following:

•    100% guarantee on your deposits.¹⁶ (Y ou can’t lose your money, and you keep total control.)

•    U pside without the downside: your account value growth will be tied to the market, so if the market goes up, you get to participate in the gains. But if the market goes down, you don’t lose a dime.

•    T ax deferral on your growth. (Remember the dollar-doubling example? T ax efficiency was the

difference between having $28,466 or more than $1 million!)

•    A guaranteed lifetime income stream where you have control and get to decide when to turn it on.

•    G et this: the income payments can be made taxfree if structured correctly.

•    N o annual management fees.

Y ou get all of these benefits by using a modern version of a 2000-year-old financial tool! H ow is this possible? I am sure it sounds too good to be true, but stick with me. It’s not! I use this approach, and I am excited to share the details with you.

As we have highlighted throughout the book, the financial future that you envision is very much like climbing Mount E verest. Y ou will work for decades to accumulate your critical mass (climbing to the top), but that’s only half the story. Achieving critical mass without having a plan and strategy for how to turn it into income that will last the rest of your lifetime will leave you like G eorge Mallory: dead on the back side of a mountain.

A N E W AG E

W e are, without a doubt, in uncharted waters. In the past 30 years, the concept of retirement has transformed radically. H eck, even as recently as the late ’80s, over 62% of workers had a pension plan. Remember those? On your last day of work, you got a gold watch and the first of your guaranteed lifetime income checks. T oday, unless you work for the government, a pension is a relic; a financial dinosaur. N ow, for better or worse, you are captain of your own ship. Y ou are ultimately responsible for whether or not your money will last. T hat’s quite a burden to bear. T hrow in market volatility, excessive fees, inflation, and medical “surprises,” and you quickly start to understand why so many are facing a massive retirement crisis. Many people, including your neighbors and colleagues, are going to face the real likelihood of outliving their money. E specially with the prospect of living longer than ever before.

IS 80 T H E N E W 50?

A long, fruitful retirement is a concept that’s only a few generations old. If you recall from our discussion earlier, when President Franklin Roosevelt created Social Security in 1935, the average life expectancy was just 62. And the payments wouldn’t kick in until age 65, so only a small percentage would actually receive Social Security benefits to begin with.

At the time, the Social Security system made financial sense because there were 40 workers (contributors) for every retiree collecting benefits. T hat means there were 40 people pulling the wagon, with only 1 sitting in the back. By 2010, the ratio had dropped to only 2.9 wagon pullers for every retiree. T he math doesn’t pencil out, but since when has that stopped W ashington?

T oday the average life expectancy for a male is 79, while the average female will live to 81. F or a married couple, at least one spouse has a 25% chance of reaching age 97.

BU T W AIT , T H E RE ’S MORE !

Y ou could be living way longer than even these estimates. T hink how far we have come in the past 30 years with technology. From the floppy disk to nanotechnology. T oday scientists are using 3-D printing to generate new organs out of thin air. Researchers can use human cells, scraped gently from your skin, to “print” an entirely new ear, bladder, or windpipe!¹⁷ Science fiction has become reality. L ater we’ll hear directly from my friend Ray K urzweil, the T homas E dison of our age and currently the head of engineering at G oogle. W hen asked how advances in life sciences will affect life expectancies, he said:

“D uring the 2020s, humans will have the means of changing their genes; not just ‘designer babies’ will be feasible, but designer baby boomers through the rejuvenation of all of one’s body’s tissues and organs by transforming one’s skin cells into youthful versions of every other cell type. People will be able to ‘reprogram’ their own biochemistry away from disease and aging, radically extending life expectancy.”

T hose are exciting words for us boomers!!! W rinkles be damned! W e may all soon be drinking from the proverbial fountain of youth.

But the implications for our retirement are clear. O ur money has to last even longer that we may think. C an you imagine if Ray is right, and us boomers live until we are 110 or 120? Imagine the type of technology that will alter the lifespan of millennials. W hat if 110 or 115 is in your future? N othing will be more important than guaranteed lifetime income. A paycheck that you can’t outlive will be the best asset you own.

W hen I was young, I thought that money was the most important thing in life; now that I am old, I know that it is.

— O SC AR W IL D E

T H E 4% RU L E IS D E AD

In the early 1990s, a C alifornia financial planner came up with what he called the “4% rule.” T he gist is that if you wanted your money to last your entire life, you could take out 4% per year if you had a “balanced portfolio” invested in 60% stocks and 40% bonds. And you could increase the amount each year to account for inflation.

“W ell, it was beautiful while it lasted,” recounts a 2013

Wall Street J ournal article entitled “Say G oodbye to the 4% Rule.” W hy the sudden death? Because when the rule came into existence, government bonds were paying over 4% , and stocks were riding the bull! If you retired in January 2000, and you followed the traditional 4% rule, you would have lost 33% of your money by 2010, and, according to T . Rowe Price G roup, you would now have only a 29% chance that your money would last your lifetime. Or spoken in a more direct way, you’d have a 71% chance of living beyond your income. Broke and old are not two things that most of us would like to experience together.

T oday we are living in a world of globally suppressed interest rates, which is, in effect, a war on savers. And most certainly a war on seniors. H ow can one retire safely when interest rates are near 0% ? T hey must venture out into unsafe territory to try to find returns for their money. L ike the story of the thirst-stricken wildebeest that must venture down to the crocodileinfested waters to seek out a drink. D anger lurks, and those who need positive returns to live, to pay their bills, become increasingly vulnerable.

C RIT IC AL MASS D E ST RU C T ION

N o matter what anyone tells you, or sells you, there isn’t a single portfolio manager, broker, or financial advisor who can control the primary factor that will determine if our money will last. It’s the financial world’s dirty little secret that very few professionals know. And of those who do, very few will ever dare bring it up. In my usual direct fashion, I put it smack dab in the middle of the table when I sat down with legend Jack Bogle.

Remember Jack Bogle? H e is the founder of the world’s largest mutual fund, Vanguard, and about as straightforward as a man could be. W hen we spoke for four hours in his Pennsylvania office, I brought up the dirty little secret, and he certainly didn’t sugarcoat his opinion or thoughts. “Some things don’t make me happy to say, but there is a lottery aspect to all of this: when you were born, when you retire, and when your children go

to college. And you have no control over that.” W hat lottery is he talking about?

It’s the big luck of the draw: W hat will the market be doing when you retire? If someone retired in the mid-1990s, he was a “happy camper.” If he retired in the mid-2000s, he was a “homeless camper.” Bogle himself said in an early 2013 C N BC interview that, over the next decade, we should prepare for two declines of up to 50% . H oly sh*t! But maybe we

shouldn’t be surprised by his prediction. In the 2000s, we have already experienced two drawdowns of nearly 50% . And let’s not forget that if you lose 50% , you have to make 100% just to get back to even.

T he risk we all face, the dirty little secret, is the devastating concept of sequence of returns. Sounds complicated, but it’s not. In essence, the earliest years of your retirement will define your later years. If you suffer investment losses in your early years of retirement, which is entirely a matter of luck, your odds of making it the distance have fallen off the cliff.

Y ou can do everything right: find a fiduciary advisor, reduce your fees, invest tax efficiently, and build up a Freedom Fund.

But when it’s time to ski down the backside of the mountain, when it’s time for you to take income from your portfolio, if you have one bad year early on, your plan could easily go into a tailspin. A few bad years, and you will find yourself back at work and selling that vacation home. Sound overly dramatic? L et’s look at a hypothetical example of how the sequence of returns risk plays out over time.

JOH N BIT T H E D OG

John bit the dog. T he dog bit John. Same four words, but when arranged in a different sequence, they have an entirely different meaning. E specially for John!

John is now 65 and has accumulated $500,000 (far more than the average American) and is ready to retire. L ike most Americans nearing retirement, John is in a “balanced” portfolio (60% stocks, 40% bonds), which, as we learned from Ray D alio, isn’t balanced at all! Since interest rates are so low, the 4% rule won’t cut it. John decides that he will need to take out 5% , or $25,000, of his nest egg/Freedom Fund each year to meet his income needs for his most basic standard of living. W hen added to his Social Security payments, he “should” be just fine. And he must also increase his withdrawal each year (by 3% ) to adjust for inflation because each year the same amount of money will buy fewer goods and services.

As John’s luck would have it, he experiences some market losses early on. In fact, three bad years kick off the beginning of his so-called golden years. N ot such a shiny start.

In five short years, John’s $500,000 has been cut in half. And withdrawing money when the market is down makes it worse, as there is less in the account to grow if or when the market comes back. But life goes on, and bills must be paid.

From age 70 onward, John has many solid positive/up years in the market, but the damage has already been done. T he road to recovery is just too steep. By his late 70s, he sees the writing on the wall and knows that he will run out. By age 83, his account value has collapsed. In the end, he can withdraw just $580,963 from his original $500,000 retirement account. In other words, after 18 years of continued investing during retirement, he has just an additional $80,000 to show for it.

But here is the crazy thing: during John’s tumble down the mountain, the market averaged over 8% annual growth. T hat’s a pretty great return, by anyone’s standards!

H ere’s the problem: the market doesn’t give you average annual returns each year. It gives you actual returns that work out to an average.

(Remember our discussions about the difference between real and average returns in chapter 2.3, “Myth 3: ‘Our

Returns? W hat Y ou See Is W hat Y ou G et’ ”?) And

“hoping” you don’t suffer losses in years in which you can’t afford them is not an effective strategy for securing your financial future.

FL IP-FL OP

Susan is also age 65, and she too has $500,000. And like John, she will withdraw 5% , or $25,000 per year, for her income, and she too will increase her withdrawal slightly each year to adjust for inflation. And to truly illustrate the concept, we used the exact same investment returns, but we simply flipped the sequence of those returns. W e reversed the order so that the first year becomes the last year and vice versa.

By merely reversing the order of the returns, Susan has an entirely different retirement experience. In fact, by the time she is 89, she has withdrawn over $900,000 in income payments and still has an additional $1,677,975 left in her account! She never had a care in the world.

T wo folks, same amount for retirement, same withdrawal strategy: one is destitute, while the other is absolutely free financially.

And what’s even more mind boggling: they both had the same average return (8.03% annually) over the 25-year period!

H ow is this possible? Because the “average” is the total returns divided by the number of years.

N obody can predict what will happen around the next corner. N obody knows when the market will be up and when it will be down.

N ow, imagine if John and Susan both had income insurance. John would have avoided an ulcer, knowing that as his account dwindled, he had a guaranteed income check at the end of the rainbow. Susan would have simply had more money to do with as she pleases. Maybe take an extra vacation, give more to her grandkids, or contribute to her favorite charity. T he value of income insurance cannot be overstated! And when coupled with the All Seasons portfolio, you have quite a powerful combination.

6 D E G RE E S OF SE PARAT ION

Y ou might recall from earlier in the book when I introduced W harton professor D r. D avid Babbel. H e is not only one of the most well-educated men I have ever met but also a gentle and caring soul with a grounding faith. And he prefers D avid over “D octor” or

“Professor.”

H ere is a quick refresher on D avid’s accomplished background. H e has six degrees! A degree in economics, an MBA in international finance, a PhD in finance, a PhD minor in food and resource economics, a PhD

certificate on tropical agriculture, and a PhD certificate in L atin American studies. H e has taught investment at Berkeley and the W harton School for over 30 years. H e was the director of research in the pension and insurance division for G oldman Sachs. H e has worked for the W orld Bank and consulted for the U S T reasury, the Federal Reserve, and the D epartment of L abor. T o say he knows his stuff is to say Michael Jordan knows how to play basketball.

D avid is also the author of a polarizing report in which he lays out his own personal retirement plan. W hen it came time for D avid to retire, he wanted a strategy that would give him peace of mind and a guaranteed income for life. H e remembered that income is the outcome. And he also wisely took into consideration other factors such as not wanting to make complex investment decisions in his older years. H e considered all his options and drew upon his vast knowledge of risk and markets. H e even consulted with his friends and former colleagues on W all Street to compare strategies. In the end, D avid decided that the best place for his hard-earned retirement money was annuities!

Whoa! W ait a second.

H ow could Babbel commit what his W all Street buddies call “annuicide”? Annuicide being the term that brokers first coined for a client who withdraws money from the stock market and uses age-old insurance companies to guarantee a lifetime income. Brokers see it as an irreversible decision that no longer allows them to generate revenues from your investment. T he death of their profits.

C ome to think of it, when was the last time your broker talked to you about creating a lifetime income plan? Probably never. W all Street typically has no interest in promoting concepts related to withdrawal. T o them, withdrawal is a four-letter word. H ere is the irony: you represent a lifetime of income for the broker so long as you never leave.

Americans should convert at least half of their retirement savings into an annuity.

— U S T R E ASU R Y D E PAR T ME N T

D r. Jeffrey Brown knows a thing or two when it comes to creating a lifetime income plan. H e is an advisor to the U S T reasury and the W orld Bank, and is one of the people called on by C hina to help evaluate its future Social Security strategy. H e was also one of only seven individuals appointed by the president of the U nited States to the Social Security Advisory Board.

Jeff has spent most of his professional career studying how to provide people an income for life. W hat did he resolve? T hat annuities are one of the most important investment vehicles we have.

Jeff and I had a fascinating three-hour interview around income planning and how baffling it is to him that income is omitted from most financial planning conversations. H ow is it possible that income insurance is barely discussed in the offices of most financial planners, nor is it included as an option inside 401(k) plans, the primary retirement vehicle for Americans?

I asked him, “H ow do people find a way to protect themselves so they really have an income for life when they are living longer than ever before? T hey’re retiring at sixty-five, and today they’ve got twenty or thirty years of retirement income needs ahead of them, but their financial plan won’t last that long. W hat’s the solution?”

“T he good news, T ony, is we actually do know how to address this problem,” he said. “W e’ve just got to get people to change the way they are thinking about funding their retirement. T here are products out there in ‘economist land’ that we call annuities, which basically allow you to go to an insurance company and say, ‘Y ou know what? I am going to take my money and put it with you, you’re going to manage it, grow it, and you’re going to pay me back income every month for as long as I live.’ T he easiest way to understand this is, it’s exactly what Social Security does. W ith Social Security, you know, you’re paying in over your lifetime while you’re working, and then when you retire, you get paid back income every month for as long as you live. Y ou don’t have to be limited by Social Security; you can expand your lifetime income by doing this on your own as well.”

Jeff and his team performed a study where they compared how annuities were described, or “framed,” and how the shaping of that conversation completely changed people’s perceptions of their need or desire for an annuity.

First, they portrayed them the way stockbrokers do: as a “savings” account or investment with relatively low levels of return. N ot surprisingly, only 20% of people found them attractive. Sound familiar? Y ou can hear the broker saying, “Annuities are a bad investment!”

But when they changed just a handful of words and described the actual and real benefits of an annuity, the tide changed. By describing the annuity as a tool that gives you a guaranteed income for the rest of your life, more than 70% found them attractive! W ho doesn’t want income insurance that kicks in if you have burned through your savings? Maybe your cost of living was greater than you expected. Maybe you had an unexpected medical emergency. Or maybe the market didn’t cooperate with its timing of returns. W hat a gift to know that your future income checks are just a phone call away.

And today a revolutionized financial industry has created a whole new set of annuity opportunities. Many of these pay you returns that mimic the performance of the stock market but carry none of its downside losses. Annuities aren’t just for your grandpa anymore. T urn the page, and let me show you the five types of annuities that could change your life.

16.               Insurance guaranty associations provide protection to insurancepolicy holders and beneficiaries of policies issued by an insurance company that has become insolvent and is no longer able to meet its obligations. All states, the D istrict of C olumbia, and Puerto Rico have insurance guaranty associations. Insurance companies are required by law to be members of the guaranty association in states in which they are licensed to do business. E ach state has its own maximum amount that you are covered up to, and in most states, that varies per person up to $300,000 to $500,000.

17.               D r. Anthony Atala, director of the W ake F orest Institute for R egenerative Medicine, has been creating and implanting organs like this for more than a decade.

C HAPT E R 5.4

T IME T O W IN : Y O U R IN C O ME IS T H E

O U T C O ME

T he question isn’t at what age I want to retire, it’s at what income.

— G E O R G E F O R E MAN

Annuities have long been the whipping boy of the financial industry. W hen I first heard the concept of using an annuity a few years ago, I scoffed. I had been conditioned to believe that annuities are bad news. But when challenged, I didn’t really have a solid reason why I thought they were bad. I was simply picking up my torch and pitchfork like the rest of the mob.

But the conversation has been shifting. Imagine my surprise when I was handed a 2011 issue of Barron’s with this cover line:

“Best Annuities—Special R eport—R etirement: W ith T heir Steady Income Payments, Annuities

Are Suddenly H ot.”

Barron’s? T he classic investment magazine, with an annuity cover story! Is the sky falling? I flipped open the pages, and there it was in black and white:

“N ow, as baby boomers approach retirement with fresh memories of big market losses, many sharp financial advisors are recommending an annuity as an important part of an income plan.”

W ow. Annuities have been given quite the promotion lately. From your grandpa’s annuity stuffed away in a dusty drawer to the hottest product recommended by sharp financial advisors. But guess what? Annuities are not just for retirees any longer. More often, younger individuals are starting to use annuities, specifically those where the growth is tied to a market index (such as the S& P 500), as a “safemoney” alternative.

T o be clear, they are not an alternative to investing in the stock market, or a way to try to beat the market. W e already made it quite clear that nobody beats the market over time, and as Jack Bogle and so many others have echoed, using a low-cost index fund is the best approach to investing in the markets. But certain annuities, specifically those “linked” to market returns, can replace other safe-money alternatives such as C D s, bonds, T reasuries, and so on—and offer superior returns.

But I am getting ahead of myself! L et’s take a moment to do a quick overview as to what’s available today and what’s coming soon.

F irst, let’s be clear: there are really only two general categories of annuities: immediate annuities and deferred annuities.

IMME D IAT E AN N U IT IE S

Immediate annuities are best used for those at retirement age or beyond. If you aren’t there yet, you can skip over this page and go right to deferred annuities, or you can keep reading because this might be applicable for some special people in your life, such as your parents or grandparents.

Simply put, immediate annuities beat every other potential vehicle for providing a guaranteed lifetime income for one reason: a concept called mortality credits. I know it sounds gruesome, but it’s really not. Remember how annuities got their start 2000 years ago in the time of C aesar? For hundreds of years, insurance companies have successfully guaranteed lifetime incomes for millions of people because when a bunch of people buy an immediate annuity, some people will die early, while others will live a long time. By “pooling” the risk, the annuity buyer who lives a long time gets the benefit, while those who die early leave some money on the table. But before we shun the potential of leaving some money on the table, let’s look at the power of annuities when wielded appropriately.

2,750% MORE IN C OME

My son Josh has been in the financial services industry his entire adult life. H e was telling me a story about a client of his who came to him ready to retire. H e had just turned 65, and over his lifetime he had managed to sock away about $500,000. H e needed a secure income stream, and he felt taking risks in the market was not an option. Sadly, his former broker had him allocated to a very aggressive portfolio, which resulted in a near 50% drawdown in the 2008 crash. It wiped out hundreds of thousands of dollars that had taken him a full decade of hard work to sock away. And like so many other people, he’d barely gotten back to even, and now he was more afraid than ever of running out of money.

H e wanted his income checks to start immediately. So Josh began to walk him through his limited options.

•    H e could go to a bank, and a C D would pay him 0.23% (or 23 basis points) per year. T his arrangement would give him $95.80 per month in fully taxable income for a $500,000 deposit. T hat’s a whopping $1,149 a year—before taxes. D on’t spend it all in one place!

•    Bonds would pay him closer to 3% per year, or about$15,000 a year before taxes, but the risk that option would entail would be if interest rates rise. T his would cause the value of his bonds (his principal) to shrink.

•    Josh showed him that a $500,000 deposit into an immediate lifetime income annuity, as of today would pay him $2,725 per month or $32,700 per year, guaranteed for life!¹⁸ T hat’s a 2,750% increase over C D s and an 118% increase over bonds, without their risk.

At today’s life expectancies, this man has at least 14 more years to live, and if Ray K urzweil is right, he could live well beyond that! W hen he added this guaranteed income to his Social Security payments, he had more than enough to maintain his standard of living and could spend his time focused on what mattered most to him: his grandchildren and fishing.

D o you see the power here? W hen compared with any other type of “sure thing” investment, he will certainly run out of money. But with an immediate annuity, which is really a form of income insurance, he has protection for life.

C ritics will say, “Y es, but if you die early, they keep your money! Y ou will have left that money on the table.” W hen I asked D avid Babbel about this concern, his response was swift and blunt: “If you are dead, who cares?! W hat’s painful is if you live too long with no income—that’s when you’ll really suffer.” And if you are really worried about premature death, you can select an option where the insurance company will refund your heirs the same amount you put in. (T his arrangement, however, will decrease the size of your income payments, so there is a trade-off.) Or as D avid recommends, use an inexpensive term life insurance policy. So if you live a long fruitful life, you win because you have income insurance. Or G od forbid, if you pass early, with a life insurance policy, your heirs win as well.

C ON T ROL IS AN IL L U SION

W e all love control. But control is often an illusion. W e think we have control over our health, our finances, our kids—okay, maybe not our kids. But we all know that things can change in the blink of an eye. A storm can cause your house to flood (as it did to my brand-new home in Florida after a torrential rain had my wife and I wading through 12 inches of water at three in the morning). Or you could get a callback from the doctor after a supposedly routine checkup. T he point is, control is often more of an illusion than a reality.

Stockbrokers will tell you that by handing your money to an insurance company in exchange for a lifetime income, you are “losing control” of your principal. L et’s look at this a little more thoughtfully. Say you are 60 years old and have accumulated a $1 million nest egg. Y our broker advises the traditional approach of stocks and bonds, and you apply the 4% rule for your income (which means you’ll be able to take out $40,000 per year). T he reality is you will need every bit of that $40,000 to pay your bills. Y ou know your money needs to be invested, so you really can’t afford to touch your principal. And what happens if the market drops? Y ou don’t want to sell at the bottom, but at the same time, you may also feel that you can’t afford more losses at this stage of life. Y ou are between a rock and a hard place. T his so-called control is an illusion. F loating with the whims of the market waves and hoping the tide turns in your favor can be a recipe for disaster.

Remember, our focus is not just on asset growth. Our theme is: guaranteed income for life!

It is better to have a permanent income than to be fascinating.

— O SC AR W IL D E

D E FE RRE D AN N U IT IE S

Okay, so we said there are two general types of annuities. Y ou now know what an immediate annuity is: you give your money to an insurance company, and it immediately starts to provide you with an income for life.

T he other type of annuity is called a deferred annuity. T his simply means you give the insurance company money either in one lump sum or over a period of years, and instead of receiving an immediate income, your returns are reinvested in a tax-deferred environment so that when you’re ready you can, at will, turn on the income stream you want for the rest of your life. Y ou literally have a schedule for what your income will be when you’re 40, 50, 60—for every year of your life.

W hile there are many different versions of immediate annuities, with different terms and rewards that vary by the company that puts them out, similarly, there are a variety of types of deferred annuities. H ere’s the good news, though: there are roughly only three primary types of deferred annuities. Once you know these three different types, along with your understanding of immediate annuities, you will fundamentally understand what your options are, and you will be able to tap into the power of this safe-money

vehicle.

So let’s make it as simple as 1, 2, 3. T here are three types of deferred annuities. T hey are:

1.     F ixed annuity: T his is where you get a fixed, guaranteed rate of return every year (independent of any stock market ups or downs), very much like you would receive with a C D or bond, but the rates are different.

2.     Indexed annuity: T his is where your rate of return is tied to how the stock market does, but you get a percentage of the upside of the market (not all) with no downside and no possibility of loss.

3.     H ybrid “indexed” annuity: T his is where you get the benefits of an indexed annuity with the addition of a “lifetime income” rider. T his lifetime income feature gives you the ability to turn on a paycheck for life! (N ote: technically speaking, there isn’t a product called a “hybrid.” H owever, it has become a common name among professionals to describe the category, which includes the lifetime income feature.)

H OW SAFE ARE AN N U IT IE S? T H E POW E R

OF IN C OME IN SU RAN C E

A guarantee is only as good as the insurance company that issues it, so highly rated insurance companies are key. Many of the top companies have over 100 years in the business, succeeding in spite of depressions, recessions, and world wars. But with over 1,000 insurance companies in the U nited States, it’s really only a handful that command the top ratings. I asked D r. Jeffrey Brown about the safety of annuities and people’s concern that the insurance company could go under.

“Y es, this is a concern that a lot of people have,” he acknowledged. “I start by reassuring the people that to my knowledge—and I’ve been studying this for, you know, fifteen years or more—I don’t know of anyone who’s ever actually lost money in an annuity product, and there are a lot of reasons for that. D epending on what state you’re in, there are insurance guaranty associations run by the state insurance departments that will guarantee up to a certain amount/deposit of the product you buy. And the way these work is essentially every insurance company that operates in that state is basically agreeing to insure all the other ones.”

E ach state has its own limits, but the guarantee can be as high as $500,000, for which you are insured against loss in the rare event of an insurance company failure. H ow rare? According to the FD IC (Federal D eposit Insurance C orporation), there were 140 bank closures in 2009 alone, yet not a single major insurance company went under.

VARIABL E AN N U IT IE S

T here is one type of deferred annuity I deliberately didn’t mention above, and that is the variable annuity. T he reason for that is, nearly every expert I interviewed for this book agreed that variable annuities should be avoided. T hey are extremely expensive, and the underlying deposits are invested in mutual funds (also known as sub accounts).

So not only are you paying fees for stock-picking mutual funds (which don’t beat the market and can average upward of 3% in annual fees), you are also paying the insurance company (between 1% and 2% annually). T hese products can be toxic, and yet brokers manage to sell about $150 billion in new deposits each year. I spent more time addressing variable annuities in chapter 2.7, “Myth 7: ‘I H ate Annuities, and Y ou Should T oo.’ ” Feel free to flip back for a refresher.

So let’s take a few moments and go a little deeper with each of these three options.

FIX E D AN N U IT IE S

A fixed deferred annuity offers a specific guaranteed rate of return (for instance, 3% or 4% ) for a specific period of time (such as five or ten years). T he money grows tax deferred, and at the end of the term, you have a few options. Y ou can walk away with your money, you can “roll your money” into a new annuity and keep the tax protection, or you can convert your account balance into a guaranteed lifetime income. T here are no annual fees in a fixed deferred annuity. Y ou will know in advance what your growth will be at the end of the term.

Pretty simple, right? T hese rates of return might not be terribly exciting in today’s market, but they change with interest rates. And at least this type of annuity has tax efficiency, so handled properly, this can increase your net rate of return significantly.

But let me share with you something quite a bit more interesting:

T H E L ON G E R Y OU W AIT , T H E MORE Y OU

G E T

W hat if you’re young and just getting started building your financial future, or you’re at a stage of life where you don’t need income today but you’re concerned that your investment income may not last as long as you live? Remember, if someone retires today at 65, he or she may have 20 or 30 years of income needs. T rying to figure out how to make your money last that long is a fairly daunting task. So a new approach called longevity insurance has become increasingly popular. T hese products allow you to create income insurance so that you have guaranteed rates of income from, for example, age 80 or 85 until your passing. K nowing you have an income starting at that later stage gives you the freedom to have to plan for only 15 years of retirement instead of 20 or 30. L et me give you an example:

In a 2012 Wall Street J ournal article titled “H ow to C reate a Pension (with a Few C atches),” writer Anne

T ergesen highlights the benefits of putting away $100,000 today (for a male age 65) into a deferred fixedincome annuity. T his man has other savings and investments, which he thinks will last him to age 85 and get him down the mountain safely. But if he lives past 85, his income insurance payments will begin, and the amounts he receives will be staggeringly large compared with how much he put in.

“C urrently, a 65-year-old man paying $100,000 for an immediate fixed annuity can get about $7,600 a year for life . . . But with a longevity policy [a long-term deferred fixed-income annuity—I know the language is long] that starts issuing payments at age 85, his annual payout will be $63,990, N ew Y ork L ife says.”

W ow. At age 65, if he makes a onetime deposit of just $100,000, his payments at age 85 are close to $64,000 per year! W hy is this so valuable?

Because at age 85, if he lives another ten or 15 years, he will get $64,000 every year, dwarfing his initial investment. But the best part is that he has to make his initial savings and investments last only 20 years, not 30 or 35. And with the volatility of markets and the inevitable challenge of sequence of returns, this task can be challenging for almost anyone.

I ran these numbers myself, and since I am only 54, my payments at age 85 would be $83,000 per year for the same onetime $100,000 deposit today! (And you don’t have to have a $100,000 lump-sum payment. It can be sizably smaller, which would also provide a smaller income.) T hat means if I live until I am 95, I would receive $830,000 in payments (10 years × $83,000) for my $100,000 deposit. And I don’t have to wait until age 85 to turn on the income. T he day I make the deposit, I’m given a schedule of what the annual income payments will be at any age I want to begin taking income. If I felt I needed or wanted money at age 65 or

75, I know exactly how much that’s worth to me.¹⁹

Income insurance, when structured correctly and as part of an overall plan, is an incredible tool that reverses or eliminates the risk of living too long and becoming a burden on your family members. W hen I met with Alicia Munnell, director of the C enter for Retirement Research at Boston C ollege, she echoed my enthusiasm: “So many people that I work with are very excited about and positive about the advanced-life deferred annuity, which is essentially longevity insurance.”

At my annual financial event in Sun Valley, Idaho, I interviewed famed publisher Steve Forbes. I asked him about his own approach to personal finance, and even he said that he has longevity insurance in place!

One more very cool thing? T he IRS looks very favorably on these deferred income annuities, so you don’t have to pay tax on the entire income payment (because a good chunk of the payment is considered a return of your original deposit).

T H E U L T IMAT E IN C OME SOL U T ION

It’s been said that if you give a man a hammer, everything becomes a nail. T his is to say that the solution outlined below, as exciting as it is, is not the be-all and end-all solution, nor is it for everyone or every situation. It’s part of an overall asset allocation. My objective here is to outline a powerful financial product, a hybrid annuity, that gives us great upside potential during its growth phase but also provides a guaranteed lifetime income down the road, when we crest the top of the mountain and begin the “second act” of our lives. It’s called a fixed indexed annuity (F IA).

T o be clear, there are two relatively new types of deferred annuities that have surged in popularity since they were introduced in the early 1990s:

1.    the indexed annuity, where the rate of your return istied to a stock index, and . . .

2.    the even more popular hybrid version, where you get both a fixed rate of return and the option of a return tied to the growth of the stock market index as well as a guaranteed lifetime income feature. T hese hybrid annuities are more commonly known as fixed indexed annuities, with a lifetime income rider or a guaranteed minimum withdrawal benefit. (I told you we’d make sense of this alphabet soup of financial terms.)

In 2013 alone, these annuities collected over $35 billion in deposits. In fact, as we were wrapping up this book, fixed indexed annuity deposits were at record levels

through the first half of 2014, with over $24 billion in new deposits, a 41% growth over 2013. W hy this record growth?

•    In a fixed indexed annuity, your deposits remain entirely in your control. Y ou are not giving up access to your cash.

•    It offers the potential for significantly higher annual returns than other safe-money solutions such as C D s or bonds.

•    It provides a 100% guarantee²⁰ of your principal —you can’t lose money.

•    T he         growth        is       tax-deferred,       providing maximum compounded growth for the expansion of your F reedom F und.

•    It provides income insurance, or a guaranteed income for life, when you select an optional income rider.

As I alluded to earlier, these structures offer upside without the downside. G ains with no losses. In many ways, they are an antidote to the problem of sequence of returns.

H ow do they work?

First of all, a fixed indexed annuity is fixed, which means your account is guaranteed never to go down. N o matter what happens, you will not lose your original deposit. T hat’s half the battle! H owever, instead of getting a small guaranteed rate of return like a traditional fixed annuity, your “base account” growth is determined by tracking the gains of a stock market index such as the S&P 500. As an example, if the S&P 500 goes up 8% in a given year, you would get to keep (or “participate in”) a certain percentage of that gain, which is typically subject to a cap. F or example, if your cap was 5% , you would receive a 5% credit to your base account value.²¹ In other words, there is a “cap” or a “ceiling” in most annuities on how much of the gain you get to keep. But conversely, if the market goes down in that year, you don’t lose a dime!

In recent years, there have been a few unique products that allow you to keep 100% of the market/index gains and, yes, still avoid the down years! T here is no cap on your upside. W hat’s the catch? Instead of putting a cap on your annual gains, the insurance company will share in a small portion of your gains (1.5% , in many cases). So let’s say the index/market was up 8% in a given year; you would receive 6.5% added to your account, and the insurance company keeps 1.5% . Or if the market has a stronger year, with gains of 14% , you get to keep 12.5% . Many experts I spoke with anticipate that these uncapped annuities may be the future.

Okay, but what happens if the market goes down?

If the market index drops, even if it’s one of those nasty 20% , 30% , or 50% drawdown years, you don’t lose a dime. Y ou get to avoid all the bad years and only participate in the up years of the market index.

N ow, I know what you are thinking. It’s exactly what I was thinking when I first heard of these products: “H ow in the world can insurance companies give you the upside with no downside?”

“T here is no magic here,” said D r. Babbel when I asked him the same question. H e explained that the insurance company parks the bulk of your money safely in its cash reserves, never actually investing it in the stock market. T his is how it guarantees your principal. T he remainder is used to buy “options” on the stock market index and to cover expenses. So if the market is up, you receive your portion of that gain. If it goes down, the options “expire,” but you don’t lose—and neither does the insurance company. W in, win.

L OC K IN Y OU R G AIN S

In addition to having the upside without the downside, these FIAs have another special benefit. L ook, we all love opening our stock account statements and seeing our account balance on the rise. But we never really know if those dollars will truly be ours to spend one day or if another market drop could wash away those gains. O ne of the huge benefits of an F IA is that each and every year, any gains or upside are locked in, and now this becomes our new floor. For example, if I earn 6.5% on my $100,000 account, I now have $106,500 locked in. N ever can I lose that $6,500 in growth. E ach and every year, the account will be either flat, because I am guaranteed not to partake in market losses, or the account will be up. L ike an elevator that only goes up, this unique feature of locking in gains each year is a powerful tool for our safe money.

IN C OME ! IN C OME ! IN C OME !

As powerful a tool as these FIAs can be for a safe-money return, it’s their ability to simultaneously provide you a guaranteed lifetime income stream that makes make them so darn attractive. And while I like fixed indexed annuities for the reasons above (principal guarantees, tax efficiency, upside without downside), I have come to love them for the guaranteed income aspects. T his is what happens when we elect to add a guaranteed lifetime income rider. L et me translate into E nglish.

N o matter how your account performs, even if it is flat or up moderately over many years, the addition of a guaranteed lifetime income rider ensures that you will receive a guaranteed annual income stream when you decide to turn it on, regardless of what happens to your base account.

G et this: I have an annuity in which the income account is guaranteed to grow at 7% per year for 20 years with no market risk. T he day I went to buy it, I received an income schedule, so that whenever I decide to turn it on, I will know exactly how much income I am guaranteed for the rest of my life (no matter how long I live). And the longer I wait, the more my income account will grow, and thus, the higher the income payments will be. T his account has become an important part of my Security Bucket. Again, sounds too good to be true, right? I had my fiduciary advisor dig beneath the surface, and he discovered that not only was it legit, but also it was attracting billions in annual deposits from baby boomers like me.

After all, who wouldn’t want a product with a 7% guaranteed return in their income account while simultaneously avoiding market risk, sequence-of-returns risk, and so on? Remember, this was early 2009, when the market was melting down. T here was seemingly no such thing as a safe place. And other guaranteed vehicles like C D s came with tiny returns. As you probably recall, there was a panic in the air, and people were scouring the world for financial safety. I found out later that this specific product became the fastest-selling annuity on the planet at the time.

After I made the investment, my next thought was, “H ow do I set this up for my kids and grandkids? T his is too good to be true.”

So what’s the catch? I came to find out that the insurance companies offer this product only if you are in your mid-50s or older. T hey can’t offer 7% forever, so they give a maximum of 20 years. If you are younger, the insurance company obviously can’t afford to give you a 7% return in your income account forever. Also, this annuity requires a sizeable lump-sum deposit up front. I was baffled and frustrated. If this product is this powerful for someone my age, it would be even more powerful for someone in his 20s, 30s, or 40s who has so much time to allow his deposits to compound. T hat day, I made it my mission to create an affordable solution for younger people. W here else could they build a secure lifetime income plan that would allow them to carve a clear path to financial freedom without all the stress and volatility of the market?

Y OU R PE RSON AL JAC K POT

C                  ody Foster and his two partners, D avid C allanan and

D                  erek T hompson, are living H oratio Alger stories. In2005 these three buddies sat around C ody’s kitchen table in sleepy T opeka, K ansas. T hey had pooled their life savings, and with $135,000 in the bank, they decided to launch Advisors E xcel. Y ou might never have heard of Advisors E xcel, because it doesn’t service the end consumer. T he firm services only top-tier financial advisors. And “service” is the understatement of the year. Advisors E xcel works with the top insurance companies to give financial advisors access to the most innovative and secure annuities in the country. Y ou could think of their company as the advisor to the advisors.

Fast-forward just nine short years. Advisors E xcel is now the largest annuity wholesaler in the country, with nearly $5 billion in annual deposits. In an industry of firms that have been around for decades, Advisors E xcel dominates. In the company’s short existence, it’s grown so quickly that the three founders have outgrown their office space five separate times! T heir first location was in the basement of a dentist’s office (where they used boxes as a makeshift desk for their first employee). T oday they are in an 80,000-square-foot state-of-the-art facility. W ho knows how long until they outgrow that space!

W hen you meet C ody, you would never know that this humble man from T opeka owns a multibillion-dollar company. H e is salt of the earth and hasn’t forgotten his roots, or the grace of G od that he credits for his success. I met C ody for the first time in my hotel in San Jose,

C alifornia, the morning after he attended a 6,000-person U nleash the Power W ithin event. W e had been brought together for this meeting by my son Josh. T he meeting was scheduled for an hour but ended up going three hours (not uncommon in my world!).

I dove in . . .

“C ody, I have an idea that I believe can transform the lives of millions of people by helping them reach their financial goals sooner and with a whole lot less stress and risk.”

“Okay, shoot,” he said and inched to the end of his chair in anticipation.

“I want to see if we can take what’s available for wealthy older folks and give the same opportunity to younger people who may or may not have a lot to invest.

A fixed indexed annuity where younger people could contribute monthly, similar to how they would a 401(k), and know that for every dollar they contribute, they are guaranteed a lifetime income stream. A personal pension plan.”

C ody sat back. H e seemed slightly skeptical.

T his was outside the box by a mile.

I went into full-on “seminar-style” assault mode. I gave him my most passionate plea as to why this solution could be a game changer. E ngaging with the millennials is the H oly G rail for the financial services industry, as they are independent self-thinkers and notoriously tough to reach. And studies show that they aren’t huge fans of the stock market. Just as they were getting their feet wet, the crash of 2008 wiped out the little they had saved. E ven worse, one study by L IMRA, the largest trade association for the life insurance and financial services industry, found that G en X ers lost 55% of their median net worth between 2005 and 2010! Ouch. N ow they want guarantees! T hey want protection. T hey want income. And they want it to be easy.

C ody began to nod. H e understood what I was thinking, but he also knew the challenges. After all, he has been in this industry since graduating college and knows intimately the limitations and strengths of each of the biggest insurance companies in the world.

“T ony, I can see what you’re going after, but you need to understand the business. Insurance companies can’t do this for somebody younger because what makes lifetime income annuities work, and what makes the insurance numbers work, is that they are driven by understanding mortality rates. And at fifty-five, they know your lifespan, on average, and they can make financial decisions based on that. It’s harder to do it at

forty-five or thirty-five or, heck, twenty-five.”

I had anticipated this answer and had an idea:

“W hat if you gave them a guarantee that they won’t lose their money, first and foremost? And since it costs more to insure their future income, why not give them a smaller annual growth guarantee and then add to it whatever upside the index in the stock market brings? T hat could end up being more than seven percent, especially for younger people in their twenties, thirties, or forties, because they have so much time for their investments to compound. Most people know that, over time, the stock market has produced the greatest growth, but the problem is the risk of those nasty market drops! Y ou could give them upside without the downside on their deposits and a guaranteed income for life.

“Y ou still have to make it affordable by not requiring a lump-sum payment up front, but instead, only small monthly payments in the amount they choose. W ith this approach, the insurance company won’t have to worry about superlong life expectancies, and the client has the potential for a much higher income stream since the majority of the income is tied to the market upside.”

C ody liked the idea because over long periods of time, the market will perform for investors, especially when you are participating only in the up years. But one major hurdle remained:

“T ony, the way I see it, this product would need to be efficient and lean. But traditionally, the most expensive aspect when pricing an annuity is the commission. Insurance companies pay commissions up front from their own pocket so they aren’t deducted from the customer’s account. So for this to work, insurance companies can’t afford to pay large amounts of compensation to sell this, which means it is tough to get

traditional agents to sell it. It’s a catch-22.” Again, I had a counter prepared.

“W hat if they don’t pay any up-front commissions?” I asked. “T hink outside the box in terms of sales. Fifty years ago, life insurance was sold door to door. T oday you can do it online and never speak to a salesman—and as a result, it’s now ultraconvenient and cheaper than ever before. T his new annuity should follow suit. Y ounger ages actually prefer not to talk to anyone! Cut out the middleman!

“T his should be as simple as going online, deciding how much money you want to invest per month, and having it deducted automatically from your checking account. Set it and forget it. T he site could project exactly how much income it will provide for you at any future age—fifty, fifty-five, sixty—depending on how much you can afford to set aside. W ith just a few clicks, a person could be set up with an income plan for life. T hey don’t have to be rich or old to take advantage. H eck, they could even track it with an app on their iPhone.”

C ody was catching the vision. So I asked him, “C ody, how many lives do you think this could impact? H ow many lives could be touched if you guys used your sway with the insurance companies to create a product that anyone could access and would provide them with a more secure financial future?”

C ody smiled. “Over the years? Millions! T ens of millions! T he vast majority of America!” My words had struck a chord with this small-town farm boy who grew up on the lower end of the middle class. C ody is incredibly benevolent with his wealth and wants everyone to get a fair shot. E specially a fair shot at financial freedom.

C ody left the hotel. H e was on fire. H e left on a mission: to see if he could use his influence to convince the world’s largest insurance companies to build a “lifetime income plan” solution for younger ages and with smaller deposit requirements.

FAST -FORW ARD

Just a few years back, the minimum age for most fixed indexed annuities was 50 or 55, depending on the company, and most required a minimum $20,000 to $50,000 deposit. And finding a guaranteed lifetime income rider for the younger marketplace (below 50) was virtually impossible. But the game has now officially changed. I’m proud to report to you that through the efforts of my partnership with Advisors E xcel, we have managed to get some of the largest insurance companies in the world to begin to set up and build new, revolutionary products for you, regardless of your age or income level.

T hese new FIAs provide benefits such as:

•    G uarantee of your principal: whatever money you’ve invested, you’ll never lose.

•    T he upside without the downside: you participate in 100% of the stock market index growth. T hat’s right: 100% of the upside with no downside, no chance of loss, and no cap on your winnings. T he insurance company simply shares in your profits by taking a small “spread” (ranging between 1.25% to 1.75% ). If the market is up 10% , and it keeps 1.5% , you get 8.5% credited to your account value. C onversely, if the market is down in a given year, the insurance company does not keep anything, and you don’t lose a dime or pay any fees! Y ou pay the spread only if you make money.

T o understand how powerful this arrangement really is, I came up with a metaphor when I was having dinner with a buddy at the W ynn E ncore in L as Vegas. I looked out over the casino floor and said to my friend, “Imagine if this casino had a special gaming table reserved only for VIPs. T he rules would be that you could gamble all night, and you would never lose a dollar. N o matter what happened, Steve W ynn would guarantee that you would leave with what you started—a guarantee of your principal.

“If you win, you get to keep all your gains with the exception that the house gets to keep 1.5% of your winnings. H ow much would you bet? H ow long would you play for if you knew you couldn’t lose, and if you won, you just had to pay a small portion of your upside?”

H e smiled and said, “As much I could, for as long as I could!” I laughed. “Me too!” T hat’s exactly what this fixed indexed annuity does, and now it’s no longer limited to older people with lots of money.

•    T here are also no annual management fees or sales charges that come out of your account.

•    If you’d like to have a guaranteed income for life, you can select that optional income rider as well. W hen you do this, you’ll have two accounts that compete with each other: (1) a base account that accumulates as the stock market grows and locks in its returns each year, as we described earlier; and (2) an income account where, depending upon the issuing insurance company, you’ll have a guaranteed rate of return or a combination of a guarantee and market performance. T o your benefit, the income you’ll receive will be based on whichever account is larger at the time you decide you want the income.

Most importantly, on top of all this, C ody was able to influence the insurance companies to eliminate the lump-sum payment and make this financial vehicle available to almost anyone. T he days of needing $25,000 to $50,000 to get started are gone. N ow you can start with a small initial deposit as low as $300. Y ou can even set up the convenience of a monthly auto-deduction program from a checking account so that your Freedom Fund is growing every month into a “personal pension”—an income for life.

E ven if you have a very small amount or no amount in other investments, this product can be a phenomenal place to start. W hy? Because it gives you the upside of the stock market index without the downside. Imagine knowing that for every dollar you contribute, you are guaranteeing yourself a lifetime income stream. T he more you save, the higher your income will be. And you are guaranteed not to lose your deposits!

Since there are thousands of income annuity products with a wide range of income payouts, C ody and his team have established a website to educate and empower you when it comes to finding and selecting the right annuity products for your specific situation: www.lifetimeincome.com.

By visiting L ifetimeIncome, just a few simple steps will allow you to quickly and easily set up your lifetime income plan. W ithin seconds, you can calculate your potential future income based on how much you can afford to contribute. R egardless of your age, the system will reveal the best approach for you and show you the most competitive income payouts available. So whether you are younger and want a flexible, smaller monthly contribution, or if you are over 50 and have a lump sum and are looking for longevity insurance, the system will guide you to the best income solution. Y ou have the option to set it up online, over the phone with a specialist, or be connected to an annuity advisor in your hometown. L ifetime Income has a network of over 500 annuity specialists in all 50 states. It will also provide a free review and analysis of any existing annuities you might have to see if you should hang on to the one you have or transfer your account value to a different insurance company in a taxfree exchange.

As I mentioned, when coupled with the All Seasons portfolio, the right lifetime income product is a powerful tool! L ifetime Income is the exclusive annuity provider for Stronghold. So if an annuity is just a portion of your overall asset allocation (and just part of your Security Bucket), you can also access these same products through Stronghold. It will connect you to an annuity specialist.

T OOL S OF T H E .001%

W e have come a long way! N ot only do we have the mind-set of an insider, we have the tools of the insiders! In this section alone, we have learned a powerful portfolio model from icon Ray D alio that has proven resilient throughout every economic season since 1925. And most people have to invest $100 million to get his insights! W e can be confident that his portfolio model will survive and over the long term thrive in all environments.

W e have also learned how correctly structured income insurance, an annuity, can give us a paycheck for life without having to work for it. And not only that, but with the right fixed indexed annuity, our deposits can participate in 100% of the upside of the market/index but avoid losses when the market goes down! A Security Bucket with some excitement. Although there are many approaches to achieve financial freedom, the one-two punch of an All Seasons portfolio and the certainty of a guaranteed lifetime income stream is a powerful combination for peace of mind.

But once you build your wealth, you also must protect it for you and your children. T he ultrawealthy protect their wealth with an entourage of extremely sophisticated advisors. So who or what do they protect it from? L et’s find out the secrets of the ultrawealthy in chapter 5.5!

FRE QU E N T L Y ASK E D QU E ST ION S

H ere are a handful of common questions that seem to come up when people learn about fixed indexed annuities:

W hat happens if I die “early”?

If you die before turning on your income stream, your entire account balance is left to your heirs. T his is a huge benefit over a traditional income annuity. W hen you do decide to eventually turn on your lifetime income stream (with a simple phone call), you do not forfeit your entire account to the insurance company.

Y our heirs would still get your account balance minus any income payments you had taken to that point.

C an I take out money in case of an emergency? Most FIAs allow you to withdraw up to 10% to 15% of your account without any penalty or surrender charge. K eep in mind, if you make this withdrawal prior to age 59¹/₂, you will be charged a 10% penalty by the IRS, which is standard for any investment that gives you tax deferral on the growth. If you need all your money back, you can surrender your annuity and get your money out (plus any growth). H owever, this withdrawal may incur a surrender charge, depending on how long you have owned the annuity. A surrender charge is really a self-imposed penalty because you are taking back your money early. T he typical schedule will start at 10% and go down by 1% per year until you reach 0% . So if you have held the annuity for five years, you would have a 5% charge if you surrender the contract and get back all your money. Any money invested in this vehicle should be considered money invested for the long term.

W hat are the fees within an F IA?

T here are no annual management fees withdrawn from your account. H owever, if you select the guaranteed lifetime income rider, the annual fee for this ranges between 0.75% and 1.25% annually, depending on each company’s individual offerings.

C an I put my IR A money into an annuity?

Y es, you can use money from your IRA (or Roth IRA), or you can also use after-tax dollars (money you have already paid tax on) to fund an annuity. T his scenario is also known as qualified or nonqualified dollars, both of which can be used.

W hat is the cap on my account growth, and how is it determined?

T he cap, the ceiling on how much of the market growth you get to keep, is typically tied to interest rates. If interest rates are higher, the cap is high (and vice versa). Some newer products offer 100% upside with no cap, but they take a small spread, which is a share of your upside/profits. If the market is up 10% , you might get 8.75% credited to your account (which means the insurer kept a 1.25% spread). But if the market goes down, it doesn’t take anything, and you don’t lose a dime. I like these uncapped strategies because they give the highest upside potential in a given year.

T o what underlying markets will my account be “linked”?

T he most popular index is the S&P 500. But newer indexes are being added quite frequently. For example, some accounts can be linked to the Barclays D ynamic Balanced Index (a mix of stocks and bonds) or the

Morgan Stanley D ynamic Allocation Index (a mix of 12 different sectors). Some indexes are even tied to commodities.

W hat factors will determine how much income I get?

T he amount that you contribute to the annuity, the length of time before you decide to access your income stream, and your age at the time your income begins are the primary factors that will ultimately contribute to the amount of income you’ll receive. H owever, the biggest factor is the product you select. E very annuity contract is different in the amount of contractually guaranteed income it will provide, so it’s important you understand this before you pull the trigger.

W hat is the tax treatment of an F IA?

T he growth within your FIA is tax deferred. W hen you turn on the income stream, you will be paying ordinary income tax rates on the lifetime income payments. Because the government is giving you tax deferral, it will penalize you if you take money out before you reach age 59. If you own the FIA within a Roth IRA, there no will be no tax on either the gains or the lifetime income stream.

H ere’s what you can avoid with a fixed index annuity: the benefits of getting the upside without the downside becomes incredibly powerful when you look back at the history of W all Street crashes. W hat’s astonishing is just how long it took for the market to recover—for investors to get back to breakeven. Just for fun, take a look at some of the history of the stock market crashes—and remember, with this type of investment, you can avoid all of these.

1901–1903

•   T he D ow fell 46 percent.

•   Recovered by July 1905.

•   T otal time to recovery: two years.

1906–1907

•   T he D ow fell 49 percent.

•   Recovered by September 1916.

•   T otal time to recovery: nine years.

1916–1917

•   T he D ow fell 40 percent.

•   Recovered by N ovember 1919.

•   T otal time to recovery: two years.

1919–1921

•   T he D ow fell 47 percent.

•   Recovered by N ovember 1924.

•   T otal time to recovery: three years.

1929–1932

•   T he D ow fell 89 percent.

•   Recovered by N ovember 1954.

•   T otal time to recovery: 22 years.

1939–1942

•   T he D ow fell 40 percent.

•   Recovered by January 1945.

•   T otal time to recovery: three years.

1973–1974

•   T he D ow fell 45 percent.

•   Recovered by D ecember 1982.

•   T otal time to recovery: eight years.

2000–2002

•   T he D ow fell 36 percent.

•   Recovered by September 2006.

•   T otal time to recovery: four years.

2008–2009

•   T he D ow fell 52 percent.

•   Recovered by April 2011.

•   T otal time to recovery: two years.

18.               T he effective tax on income from immediate annuities is dependent on what the IR S calls the exclusion ratio. A portion of your income payments are deemed a return of your principal and thus “excluded” from tax.

19.               O bviously, if I start the annuity income sooner, at 65 or 70, theincome I receive will be less than at 85.

20.               R emember, there are state insurance guarantees as well as corporate guarantees.

21.               Participation rates and caps will depend on the individual products.

C HAPT E R 5.5

SE C RE T S O F T H E U L T RAW E AL T H Y

(T H AT Y O U C AN U SE T O O !)

It’s viewed as an insider’s secret for the affluent: a legal way to invest . . . all without paying taxes on the gains.

— NE W Y ORK T IME S, F ebruary 9, 2011

A N E W W ORL D RE C ORD

In early 2014 the Guinness Book of World Records announced that a new world record had been established. N o, it wasn’t for the T allest Man in the W orld, or the W orld’s L ongest Fingernails. It was a record that went largely unnoticed:

“Mystery Billionaire Buys Record-Breaking $201

Million L ife Insurance Policy.”

W hy in the world would a billionaire buy life insurance? W on’t his kids be just fine if he passes away prematurely? Or was the media missing the point? Believe it or not, the ultrawealthy do indeed buy astronomical amounts of life insurance, but it’s not the billionaires who buy the most. T he biggest buyers are banks and large corporations, from W al-Mart to W ells F argo. As an example, W ells Fargo’s balance sheet shows $18.7 billion of its T ier 1 capital deposited in life insurance cash value (as of May 27, 2014). By the way, T ier 1 capital is the core measure of a bank’s financial strength! C ontrary to what the media says, corporations and the ultrawealthy are not looking to benefit from anyone’s death. W hat they really want is a place to park their cash in an IR S-sanctioned vehicle that allows them to grow their investments tax free. Sound too good to be true? In fact, it’s very much like a Roth IRA in terms of tax treatment. Y ou pay taxes when you earn your money (income), but once you deposit your after-tax dollars within a specific type of life insurance policy, the IRS says you aren’t required to pay taxes as it grows; and if structured correctly (more below), you aren’t required to pay taxes when you pull out money. So while it is life insurance, it’s really designed to benefit you while you are alive!

If it’s good enough for billionaires and the world’s largest corporations, it’s probably good enough for us! L et’s dive in and figure out how to take this powerful taxplanning tool and accelerate our path toward financial freedom.

RIC H MAN ’S ROT H

T he strategy in the pages ahead, known as private placement life insurance (PPL I), has been called “the secret of the affluent” by the New York T imes—and for good reason. I was introduced to this tool by two of the wealthiest individuals I know. But you don’t have to be ultrawealthy to take advantage. Many high-income earners, such as doctors, lawyers, and small business owners will find tremendous value in the pages ahead, but those with as little as a few thousand to invest will learn how to create a version of the structure that will provide all the same benefits. H ere are the astounding benefits available to all:

•    unlimited deposit amounts (with no income limitations)

•    no tax on the growth of your investments

•    no tax when accessed (if structured correctly) and

•    any money left over for your heirs cannot be taxed.

L et’s not just breeze over this as a pretty cool strategy. T his is essentially removing part or all your nest egg from the tax system entirely! N ever again will you pay tax on growth of your investments or the money you access within this structure. T his is why the media sometimes calls PPL I the “rich man’s R oth.” C onsider this quote from the Wall Street J ournal:

T he main attraction: Because the investments are held within an insurance wrapper, gains inside the policy are shielded from income taxes—as is the payout upon death. W hat’s more, policyholders may be able to access their money during their lifetimes by withdrawing or borrowing funds, taxfree, from the policy, depending on how it’s set up . . . One big reason for the growth: In recent years, the Internal Revenue Service has issued a series of rulings and regulations that have laid out more clearly what’s allowable and what’s not in private-placement life insurance and annuities. T hat, in turn, has removed uncertainty among insurance and investors.

By taking taxes out of the equation, the time it takes to reach your critical mass and financial independence will be massively accelerated. N o longer do you have to worry about how much of your money will actually be yours to spend after the tax man takes his bite of your apple. In fact, one of the biggest challenges in knowing how much money you will really need in the future is the unknown of what tax rates will be for you in the future. Remember, taxes can easily be raised, and suddenly the amount of spendable income you have shrinks. If you’re planning on a 50% tax rate, but in the future taxes on the wealthy increase to 70% , or you’re currently at 30% and taxes grow to 50% for your income class, the amount of money you thought would get you to financial freedom will no longer get you there.

L et’s look at an example of how you can use this tool to achieve financial security or independence in less than half the time. Or double the amount of spendable cash you have if you keep the same investment horizon.

If you’re a high-end earner, like a doctor, dentist, lawyer, or small business owner, you may be fortunate enough to earn $250,000 per year of pretax income. As a high-income earner, that means that after tax (assuming a 50% combined federal and state rate), you will net approximately $125,000. T his is the amount you need today to support your current lifestyle. It’s your total spendable income. T raditional financial planning would say you need to accumulate 20 times your current income, or $5 million in critical mass, to generate $250,000 of pretax income (assuming a 5% withdrawal rate). But if you aren’t required to pay tax, and the actual income you need is

$125,000 without taxes, you really need to accumulate only 20 times $125,000, or a total critical mass of just $2.5 million within this structure. T hat means you get to your goal 50% faster or you get twice the spendable income if you reach your original goal of critical mass in the same time.

N ow, if you make $50,000 a year, you may be saying, “So what? Isn’t that nice for the rich man or woman?” Stay with me here while I explain how this works for the rich, and then I’ll show you how to make this work for anyone who wants to get to his or her financial goals 30% to 50% faster—and all with the total support of the IR S, just as it supports 401(k)s or R oths.

ISN ’T L IFE IN SU RAN C E E X PE N SIVE ?

W hen my attorney initially told me about PPL I, I had an immediate aversion to the words life insurance. L ike most, I had been sold expensive “retail” life insurance in the past and wasn’t going to be taken again.

She went on to explain, “T ony, this is not your typical retail life insurance. Y ou can’t buy this off the shelf from a salesman with well-coiffed hair and a gold Rolex. T his is an institutionally priced policy with no commissions, no surrender charges, or other nonsense you encounter from retail agents. T hink of it as an ‘insurance wrapper’ you are buying to place around your investments. And because of the specific tax code, which has been around for many decades, all of your deposits will be legally sheltered from tax in this insurance wrapper. T hey can be invested in a variety of different funds, and you will not pay tax on the growth or when you access your cash if we do it right.”

T AX -FRE E C OMPOU N D IN G

C ompounded over time, the advantage of private placement life insurance is astounding. L et’s look at an example of how the identical investment compares when wrapped inside of PPL I versus taking the standard approach of paying tax each year.

L et’s take a healthy male, age 45, and assume he makes four annual deposits of $250,000 (for a total contribution of $1 million over four years). If he makes a 10% return and has to pay tax each and every year, after 40 years, his total account balance will be $7 million. N ot bad, right? But if he wraps the investment within private placement life insurance and pays a relatively small amount for the cost of insurance, his ending balance (cash value) is just over $30 million! Same investment strategy, but he is left with more than four times (or 400% ) as much money for him and his family simply by using the tax code to his advantage. (Please note that there are very strict rules around the investment management, which must be done by a thirdparty investment professional, not the policy owner.)

By the way, this same powerful advantage applies even to smaller investment amounts. T his is compounding without taxes! But then I wanted to know, “W hat about when I want to access my money?”

T AK IN G OU T MON E Y

T he power of PPL I is that you don’t have to worry about what tax rates are in the future. D uring the course of your investment lifetime, you will never again pay taxes on the gains that are within this policy. But what if you need the cash? W ell, like any vehicle in which the government grants the benefit of tax deferral, you will have to pay tax if you take a withdrawal. But—and it’s a huge but—you also have the ability to “borrow” from your policy. In other words, you can call the insurance company and access your cash value, but it’s legally deemed and actually is a loan—and loans are not taxable. Y ou can repay the loans at a future date of your choosing or allow the life insurance proceeds to pay off the loans when you pass away. It’s a legitimate loan, and it does get paid off. One more huge benefit to stack on? L ife insurance death benefit proceeds are income tax free when your kids receive the benefit.

D O Y OU QU AL IFY ?

In order to access PPL I, you must be what’s called an accredited investor²² and the typical minimum annual deposits are $250,000 for a minimum of four years. H owever, there is a “version” of PPL I that is now available to nonaccredited investors with as little as a few thousand to invest. Founded in 1918 by visionary Andrew C arnegie to serve teachers, T IAAC RE F “functions without profit to the corporation or its shareholders.” It now offers financial services to the general public, but T IAA-C RE F’s unique not-for-profit structure allows it to offer a life insurance product with no sales or surrender charges. T he underlying investment options within the policy include low-cost index funds (such as D imensional Fund Advisors), which is in keeping with what we have learned from many experts in the book. And the tax benefits are no different from what we have learned regarding PPL I. Remember, being a no-load product with no commission, there won’t be insurance agents knocking down your door to sell you this product, so you will need to visit its website (www.tiaa-cref.org/public) and acquire it on your own or ask a fiduciary advisor to help guide you in setting up a policy.

As a fiduciary, your representative cannot take commissions. If she is skilled in this area and has a full understanding of how to set up this tax-efficient strategy, she will be doing you a great service. D epending on your current tax rate, it could help you achieve your goals 30% to 50% faster with no additional risk. Of course, if you are a Stronghold client, we have a team that can arrange all these details for you.

T H E “BIL L ION AIRE ’S PL AY BOOK ”

W hat a journey we have been on! W e conquered the jungle with Ray D alio and learned how a portfolio designed for all seasons has provided a smooth ride for nearly 75 years. W e learned how to create a guaranteed lifetime income plan and achieve upside without downside with income insurance. And finally, we learned how a rare no-load life insurance policy can give us the equivalent of a Roth IRA without income or deposit limitations. N ow it’s time for the opportunity—the gift— to sit down and learn directly from some of the most brilliant minds in the financial universe; to hear what has shaped them into who they are today and what they would teach their children on how to be successful investors. So let’s turn the page and meet the masters.

 

L IVIN G T RU ST One more quick but important note about protecting your family: the wealthy are diligent about planning to protect their families. O ne of the simplest things you can do to protect your family is to establish a living revocable trust. T he key benefit to using a living trust to own your core assets (your home, brokerage account, and so on) is that if you pass away, those assets will avoid probate—a costly and lengthy procedure of allowing the courts to sort through your assets (and make everything public record). But unlike a will, a living trust can also protect you and your family while you are alive. If you become ill or incapacitated, you can include an incapacity clause that allows someone to step in and handle your bills and other affairs. D on’t let experts tell you that a living trust costs thousands. Y ou can get a template document for free by visiting http://getyourshittogether.org. C hanel Reynolds started this nonprofit site after her husband was killed in a bike accident, and she wanted to make sure that nobody else went through the same experience of being unprepared. If you want to understand more about how simple and important living trusts are, go to her site.

In addition, if you want assistance, you can always find an expensive attorney, but you can also use L egalZ oom and set up one for as little as $250 with the help of its attorneys (www.legalzoom.com/livingtrusts/living-trusts-overview.html).

I’m including this reminder for you here because even though this book is not designed to be an estateplanning tool, one important responsibility we all have is to make sure that whatever wealth we build, however large or small it may be, our families benefit from it and don’t get stuck in a legal process that drains the gift from our heirs. As you begin to succeed, please seek out quality assistance when thinking about estate planning, but in the meantime, don’t wait to set up a living trust. E veryone needs one.

22. In order to qualify for private placement life insurance, you must be an accredited investor. T his means you must have a net worth of at least $1 million (not including the value of your primary residence), or you have an income of at least $200,000 each year for the last two years (or $300,000 combined with your spouse).

SE C T ION 6

IN VEST L IK E T H E .001% : T H E BIL L ION AIRE’S PL AYBOOK

C HAPT E R 6 .0

ME E T T H E MAST E RS

T here are not more than five primary colors, yet in combination they produce more hues than can ever be seen.

— SU N T Z U , T he Art of W ar

Four years ago, I began an amazing journey to find a way for individual investors like you to take control of your money in a system that seems rigged against you. I vowed to bring you the best possible information from the most knowledgeable and influential experts in the world. W hat a trip it’s been! Since then, I’ve interviewed more than 50 self-made billionaires, N obel Prize winners, investment titans, bestselling authors, professors, and financial legends, asking them some of the same questions you’d ask if you were in the room with me. H ere’s a sampling:

“W hat is your competitive advantage in investing? W hat sets you apart? W hat insights have allowed you to dominate the markets decade after decade?”

“Is the game still winnable? H ow can individual investors thrive in the volatility of today’s economy?”

“W hat are the biggest challenges around the world and what are the biggest opportunities for investors today?”

And, perhaps the most important of all, “If you couldn’t leave any of your money to your children, but only a portfolio or a set of financial principles to pass on to help them thrive, what would it be?”

T heir answers excited me, shocked me, sometimes made me laugh. Other times they moved me to tears. It was beyond any university education one could imagine. It was the ultimate PhD in investing, straight from the trenches. W here my “professors” were moving markets and shaping the world economy while they were coaching me one-on-one.

My mission has been to synthesize the best of all they’ve shared into an integrated, simple 7-step financial blueprint. One that you could use in a practical way to move from where you are now to where you truly want to be.

I wish I could bring them all to you, but their voices are all captured in these pages, whether quoted directly or not. T he amount of time I’ve spent with each of them ranged from the more than 20 years I’ve counted Paul T udor Jones as my dear friend and client, to an informal 20 minutes with W arren Buffett, whom I grabbed for a short conversation in the greenroom while we were filming a series of segments together for the T oday show.

Most of the interviews were scheduled for an hour or less but turned into three- and four-hour sessions. W hy? Because each of these financial giants was interested in going deep when he or she saw that I wasn’t there just for some shallow questions. My mission to serve you, the individual investor, moved them. T hey were all incredibly generous with their precious time.

—

T he diversity of conversation was extraordinary. I had the privilege of bringing together some of the most brilliant financial minds in the world. One of the more interesting encounters occurred at my financial conference in Sun Valley, Idaho. I interviewed L arry Summers, formerly the U S secretary of the T reasury, director of the N ational E conomic C ouncil, and advisor to President Obama in the midst of the world economic crisis. W e talked about what was done and what needs to be done to turn around the U S economy. Publisher and former Republican presidential candidate Steve Forbes was listening to Summers and raised his hand with a question. Y ou can only imagine the respectful “sparks” that flew.

Another moment: when I learned that C arl Icahn had been a fan of Jack Bogle’s for years, but they had never met. I had the privilege of introducing these two titans. Between them, they have more than a century of investing experience. Jack invited me to join them for the meeting, but I was out of the country. W ouldn’t it have been amazing to be a fly on that wall when they finally met?

T he crazy part is, after all the time I’ve spent with each of these experts, you’ll see only five to ten pages for each interview as opposed to the average 75-page transcript. T o keep this section under 9,000 pages, I’m including highlights from just 11 of the interviews. W ell, 11 plus one bonus. E ven though he’s passed away, I couldn’t leave out the interview I conducted with Sir John T empleton, one of the greatest investors of all time and an extraordinary soul.

L ike all experts, the money masters you’ll be hearing from in these pages have different views of what the near-term future might hold, and they have different opinions on which investment vehicles they favor most. Some are short-term traders; some like to hold long term. Some think the index is the way to go, while others swear you can make more money in arbitrage. So even though they disagree sometimes on tactics, we can applaud how often these money masters take different paths to the same goals.

And one thing is for certain: all of them are great leaders. T ake the exceptional Mary C allahan E rdoes, who leads 22,000 financial professionals, including some of the finest portfolio managers in the world, overseeing an astonishing $2.5 trillion in assets for J.P. Morgan Asset Management. Or C huck Schwab, who transformed an industry with his obsession to serve and protect the individual investor—building a company with 8.2 million client brokerage accounts and $2.38 trillion in assets served by 300 offices around the world.

T he pages ahead will show you that there are many ways to win—many ways to succeed financially and become wealthy in the world we live in today. E ven though each of these financial legends has a distinct approach, I found that they share at least four common obsessions:

1.     D on’t L ose. All of these masters, while driven to deliver extraordinary returns, are even more obsessed with making sure they don’t lose money. E ven the world’s greatest hedge fund managers, who you’d think would be comfortable taking huge risks, are actually laser focused on protecting their downside. From Ray D alio to K yle Bass to Paul T udor Jones—if you don’t lose, you live to fight another day. As Paul said, “I care deeply about making money. I want to know I’m not losing it . . . T he most important thing for me is that defense is ten times more important than offense . . . Y ou have to be very focused on the downside at all times.” And this statement comes from a guy who’s made money for his clients for 28 consecutive years. It’s so simple, but I can’t emphasize it enough. W hy? If you lose 50% , it takes 100% to get back to where you started—and that takes something you can never get back: time.

2.     R isk a L ittle to Make a L ot. W hile most investors are trying to find a way to make a “good” return, each of these hall of famers, without exception, looks for something completely different: home runs! T hey live to uncover investments where they can risk a little and make a lot. T hey call it asymmetric risk/reward.

Y ou’ll note how Sir John T empleton’s path to great gains with the least risk was not by buying the market but by waiting until—as the 18th-century E nglish nobleman Baron Rothschild put it—there is “blood in the streets,” and everybody is desperate to sell. T hat’s when you pick up the best bargains. Paul T udor Jones, on the other hand, follows trends in the market. But, as he says in his interview, he doesn’t make an investment until he can potentially get a return of at least $5 for every $1 he risks. And that, he says, is a $100,000 MBA in a nutshell! In K yle Bass’s interview, you’ll learn how he figured out how to risk just 3% to make 100% returns. And how he parlayed that victory into more than a 600% return!

3.     Anticipate and D iversify. T he best of the best anticipate; they find the opportunity for asymmetric risk/reward. T hey really do their homework until they know in their gut that they are right—unless they’re not! And to protect themselves, they anticipate failure by diversifying. Because in the end, all great investors have to make decisions with limited information. W hen I interviewed K yle Bass’s former partner Mark H art, he told me, “A lot of brilliant people are terrible investors. T he reason is that they don’t have the ability to make decisions with limited information. By the time you get all the information, everyone else knows it, and you no longer have the edge.” T . Boone Pickens says it this way: “Most people say, ‘Ready? Aim! Aim! . . .’ But they never fire.”

4.     Y ou’re N ever D one. C ontrary to what most people would expect, this group of achievers is never done! T hey’re never done learning, they’re never done earning, they’re never done growing, they’re never done giving! N o matter how well they’ve done or how well they’ve continued to do, they never lose their hunger—the force that unleashes human genius. Most people would think, “If I had all this money, I would just stop. W hy keep working?” Because each believes, somewhere in his or her soul, that “to whom much is given, much is expected.” T heir labor is their love.

Just like these money masters invest in different ways, they give back in different ways. T hey share their time, they share their money, they create foundations, they invest in others. E ach of them has come to realize that true meaning in life comes from giving. T hey feel a responsibility to use their gifts to serve others. As W inston C hurchill said, “W e make a living by what we get. W e make a life by what we give.” W hat unites them is the ultimate truth that life is about more than what you have. It’s really about what you have to give.

So how will the Billionaire’s Playbook serve you as an investor? It means that you can sit by my side as I ask 12 of the greatest minds in finance how you can uncover your own path to financial freedom. Y ou’ll gain insight into how they became the titleholders in the field of finance, and how you too have to stay alert and be ready for anything that happens. Y ou’ll learn investment strategies that will prepare you for all seasons, for times of inflation and deflation, of war and peace, and, as Jack Bogle puts it, “times of sorrow and joy.”

C HAPT E R 6 .1

C ARL IC AH N : MAST E R O F T H E

U N IV E RSE

T he Most Feared Man on W all Street

Question: W hen is a single tweet worth $17 billion?

Answer: W hen C arl Icahn says Apple is undervalued and announces he’s buying the stock.

W ithin an hour of Icahn’s tweet in the summer of 2013, Apple stock had jumped 19 points. T he market got the message: whenever the billionaire businessman takes an interest in a company, it’s time to buy. Four months later, T ime magazine put his face on the cover with the headline “Master of the U niverse.” It went on to say that he’s “the most important investor in America.” T hat’s right. In the past four decades, Icahn’s ventures have earned 50% more than that other investment icon, W arren Buffett. A recent analysis by Kiplinger’s Personal Finance shows that while most people think of Buffett as providing the greatest returns through time, if you’d invested with Icahn in 1968, in 2013 you would have had a compounded return of 31% versus Berkshire H athaway —Buffett’s company—with “only” a 20% return.

Icahn’s business skills have made him one of the richest men in the world—at last check of the Forbes list, he was 27th, with a net worth of more than $23 billion— and he’s made billions more for ordinary shareholders who invest in his diversified holding company, Icahn E nterprises L P (N ASD AQ: IE P), or own stock in the companies he targets. T he secret to his success? E ven his critics will tell you C arl Icahn doesn’t just look for opportunities in business—he makes them.

But most outsiders still think of him as a W all Street caricature, a ruthless vulture capitalist who pillages companies for personal gain. W hen you G oogle the term corporate raider, Icahn’s name autofills in the search bar.

But C arl Icahn is challenging that creaky old stereotype. Icahn thinks of himself as a “shareholder activist.” W hat does that mean? “W e go in and shine a light on public companies that are not giving shareholders the value they deserve,” he told me. H is obsession, he says, is to stop the abuse of stockholders by improving corporate governance and accountability— which makes American companies stronger and therefore the American economy stronger.

T he New York T imes describes him this way: “By rattling corporate boards, mounting takeover efforts and loudly jostling for change at companies, he has built a multibillion-dollar fortune, inspiring fear among chief executives and admiration among his fellow investors in the process.”

Icahn buys up shares of top-heavy or underperforming companies and then puts them on notice that it’s time to step up their game—or face a proxy fight for control of the board.

H e sees himself in a battle with those who use the coffers of public companies to enrich themselves at the expense of the shareholders. “T ony, people have no idea how they’re getting screwed,” he said, adding that average investors aren’t aware of the abuses that go on behind the closed doors of boardrooms. But part of the problem is that shareholders don’t believe they have the power to change things because they don’t think like owners. Icahn, however, knows the power of leverage— and he’s not afraid to use it.

$24 BIL L ION FOR C OC A-C OL A MAN AG E ME N T IN C E N T IVE S?

An example of the kind of action that public company boards take that outrage Icahn can be found in his recent criticism of C oca-C ola. C oke was planning to dilute the company’s stock value by issuing $24 billion in new, discounted shares. T he reason? T o finance huge compensation packages for top management. T his would weaken the retirement investments of ordinary investors, including teachers and firefighters, because so many people have C oke stock in their retirement portfolios.

Icahn wrote an editorial in Barron’s blasting the company for the scheme, and calling out W arren Buffett —C oca-C ola’s single largest shareholder and a board member—for not voting against the move. “T oo many board members think of the board as a fraternity or club where you must not ruffle feathers,” Icahn wrote. “T his attitude serves to entrench mediocre management.”

Buffett responded that he had abstained from the vote but was opposed to the plan, and that he had been quietly talking to management about reducing its excessive pay proposal—but he didn’t want to “go to war” with C oke over the issue.

In contrast, C arl Icahn is always ready for war. H e’s been in the trenches many times before, making runs on companies as diverse as U S Steel, C lorox, eBay, D ell, and Y ahoo. But this time was different: instead of Icahn, a younger fund manager named D avid W inters was buying stock and leading the charge against C oke’s management. T o the dismay of overpaid C E Os everywhere, a new generation of “activist investors” is taking up the fight Icahn started decades ago.

N aturally, C arl Icahn has ticked off a lot of corporate dynamos, enemies with big clout in the media. So you’ll often hear his critics saying that he’s only in it for the money, or that he “pumps and dumps” stocks, sacrificing long-term corporate goals for short-term profits. But Icahn points out that this is ridiculous, in that he often holds his positions for much longer than people realize— sometimes 10, 15, even 30 years. And when he does take control of a company, its value continues to rise for years, even after he’s left. T his claim has been borne out by a study conducted by H arvard L aw School professor L ucian Bebchuk, who analyzed 2,000 activist campaigns from 1994 to 2007. It concluded that “operating performance improves following activist interventions.”

T he study also found that not only were there no detrimental long-term effects, but instead, five years later these firms continued to outperform.

C arl Icahn isn’t after the head of every C E O in America. H e’s often acknowledged that there are some extraordinary leadership teams out there, and executives who maximize company resources and make the economy more resilient. But he’s always looking for ways to make the management—even of the most popular and well-run corporations—more responsive to shareholders.

T ake that Apple tweet, for example. H e told me he wasn’t trying to drive up the price and sell his stock. (In fact, on the day of our interview, he bought a large amount of Apple stock.) And he wasn’t trying to interfere with the company’s management—which he thinks is solid. T he tweet was just part of a campaign to pressure Apple to return $150 billion of its cash reserves to its shareholders as dividends. T he company eventually expanded its capital return program to over $130 billion in April 2014, including an increase in its share repurchase authorization to $90 billion from the previously announced $60 billion level. At the same time, Apple announced an increase to its quarterly dividend and a seven-for-one stock split. T oday it is 50% higher than the day he did the tweet.

Icahn is a C E O himself, owning 88% of a public company, Icahn E nterprises. T he company’s stock has done amazingly well, even during the so-called lost decade. If you’d invested in Icahn E nterprises from January 1, 2000, to July 31, 2014, you would have made a total return of 1,622% , compared with 73% on the S& P 500 index!

C arl Icahn wasn’t born into this life. H e says he grew up “in the streets” of Far Rockaway, N ew Y ork. H is mother was a teacher; his father, a former law student and a frustrated opera singer who worked as a cantor at a local synagogue. C arl played poker to pay for his expenses at Princeton, where he majored in philosophy. After a brief attempt at medical school and a stint in the army (and more poker), he realized that his greatest talent was for making money. C orporate America has never been the same.

Icahn is now 78 years old and thinking about his legacy. H e’s been busy writing op-ed pieces and giving select interviews about the rights of investors and shareholders. But, frankly, he’s sick of being misunderstood and quoted out of context. W hich is why, not knowing who I was or my true intent, he asked that my video crew not film our interview and stated, “I’ll give you a few minutes.”

T o my great relief, Icahn warmed up after those first awkward moments, and two and a half hours later I was lingering with him in the hallway and being introduced to G ail, his extraordinary wife of 15 years. C arl is very different from his public persona. H e’s funny and curious, even grandfatherly. H is friends say he’s mellowed a bit. But he still talks with a Queens accent, and he still has the sharp edge of a N ew Y ork street brawler. Icahn says he’s not the kind of guy who gives up. E specially when he’s found something worth fighting for.

T R : Y ou come from a family of modest means, and you went to public schools in a rough part of Queens. D id you have a goal when you started out, that you were going to become one of the best investors of all time?

C I: I’m a very competitive guy. Passionate or obsessive, whatever you want to call it. And it’s my nature that whatever I do, I try to be the best. W hen I was applying to colleges, my teachers told me, “D on’t even bother with the Ivy L eague. T hey don’t take kids from this area.” I took the boards anyway and got into all of them. I chose Princeton. My father had offered to pay for everything, then he backed out and would only pay tuition, which—if you believe it—was $750 a year back then. I said, “So where do I sleep? H ow do I eat?” My parents said,

“Y ou’re so smart, you’ll figure it out.” T R : So what did you do?

C I: I got a job as a beach boy at a club in the Rockaways.

I was a good beach boy! T he cabana owners used to

say, “H ey kid, join our poker game and lose your tips for the week.” At first I didn’t even know how to play, and they cleaned me out. So I read three books on poker in two weeks, and after that I was ten times better than any of them. T o me it was a big game, big stakes. E very summer I won about $2,000, which was like $50,000 back in the ’50s.

T R : H ow did you get started in business?

C I: After college I joined the army, where I kept playing poker. I came out with maybe $20,000 saved up and I started investing it on W all Street in 1961. I was living good, had this gorgeous model girlfriend and I bought a white G alaxie convertible. T hen the market crashed in 1962, and I lost everything. I don’t know what went first, the girlfriend or the car! T R : I read that you got back in the market, selling options, then going into arbitrage.

C I: I borrowed money to buy a seat on the N ew Y ork Stock E xchange. I was a hotshot guy. My experience taught me that trading the market is dangerous, and it was far better to use my mathematical ability to become an expert in certain areas. Banks would loan me 90% of the money I needed for arbitrage, because back then, in riskless arbitrage, if you were good, you literally couldn’t lose. And I was starting to make big money, $1.5 to $2 million a year.

^{T R :} I’d love to talk to you about asymmetric returns. W ere you also looking for those when you began taking over undervalued companies?

C I: I started looking at these companies and really analyzing them. I tell you, it’s sort of like arbitrage, but nobody appreciates that. W hen you buy a company, what you’re really buying are its assets. So you’ve got to look at those assets and ask yourself, “W hy aren’t they doing as well as they should be?” Fully 90% of the time, the reason is management. So we would find companies that weren’t well run, and I had enough money that I could come in and say: “I’m taking you over unless you change, or unless the board does X , Y , or Z .” A lot of times the board said, “Okay.” But sometimes the management would fight us and perhaps go to court. Very few people had the tenacity I had—or were willing to risk the money. If you looked at it, it appeared that we were risking a lot of money, but we weren’t.

T R : But you didn’t see it as risky because you knew the asset’s real value?

C I: Y ou look for risk/reward in the world, right? E verything is risk and reward. But you’ve got to understand what the risk is, and also understand what the reward is. Most people saw much more risk than I did. But math doesn’t lie, and they simply didn’t understand it.

^{T R :} W hy not?

C I: Because there were too many variables and too many analysts that could sway your opinion.

T R : T hey’re making it harder for you to beat them these days.

C I: N ot really. T he system is so flawed that you can’t get mediocre managers out. H ere’s an example: let’s say I inherit a nice vineyard on beautiful land. Six months later I want to sell it, because it’s not making any money. But I’ve got a problem: the guy who manages the vineyard is never there. H e’s playing golf all day. But he won’t give up his job running the vineyard. And he won’t let anybody look at the vineyard because he doesn’t want to see it sold. Y ou might say to me, “W hat are you, crazy? G et the police, kick him out!” But that’s the trouble with public companies: you can’t do it without a very difficult fight.

T R : T he rules make it hard to kick the C E O off your property.

C I: T hat’s the trouble: the shareholders of corporations have great difficulty being heard, but at IE P we fight and often win. Once in power, sometimes we find the C E O is not so bad. But the bottom line is: the way public companies are governed is really bad for this country. T here are so many rules that keep you

from being an activist. T here are many barriers to getting control, but when we do, all shareholders, as the record shows, generally do very well.

Additionally, what we do is also very good for the economy, because it makes these companies more productive, and this is not just short term.

Sometimes we don’t sell for 15 to 20 years!

T R : W hat’s the solution?

C I: G et rid of the poison pills [that issue more stock at a discount if any one shareholder buys too much] and get rid of the staggered board elections so the shareholders can decide how they want the company run. W e should make these companies be accountable and have true elections. E ven in politics, as bad as it is, you can get rid of the president if you wanted to. H e’s only there for four years at a time. But at our companies, it is very hard to get rid of a

C E O even if he or she is doing a terrible job. Often C E Os get that top job because they’re like the guy in college who was the head of the fraternity. H e wasn’t the smartest guy, but he was the best social guy and a very likeable guy, and so he moved up through the ranks.

T R : Sometimes you don’t need a proxy fight to change the direction of a company. Y ou bought a lot of stock in N etflix recently, almost 10% , and you made $2 billion in two years.

C I: T hat was my son, Brett, and his partner who did it. I don’t know much about technology, but he showed me in 20 minutes why it was a great deal. And I just said, “Buy everything you can!” It wasn’t really an activist play.

T R : W hat did you see? W hat did he show you in those 20 minutes that made you know that the stock was that undervalued?

C I: Simple: most of the great experts were worried about the wrong thing. At that moment, N etflix had $2 billion in fees coming in every year. But those fees aren’t on their balance sheet. And so, all these

experts were saying, “H ow are they going to get money to pay for content?” W ell, they’ve got the $2 billion coming in! And generally subscribers are loyal for longer than you would imagine! It would take much longer than most people thought to put the huge cash flow in jeopardy, no matter what happened.

T R : But you never tried to take over N etflix?

C I: T hey thought they were going to have a proxy fight. But I said, “Reed [H astings, N etflix cofounder and C E O], I’m not going to have a proxy fight with you. Y ou just got a hundred-point move!” T hen I asked them if they knew the Icahn rule. T hey said, “W hat’s that, C arl?” I said, “Anybody who makes me eight hundred million in three months, I don’t punch them in the mouth.”

T R : [L aughs.] Y ou cashed out a portion of the stock toward the end of 2013.

C I: W hen the stock got to $350, I decided to take some off the table. But I didn’t sell it all.

T R : W hat is the biggest misconception about you?

C I: I think people don’t understand, or maybe I don’t understand, my own motivations. W hile it may sound corny, I really do think that at this point in my life, I am trying to do something to keep our country great. I want my legacy to be that I changed the way business is done. It bothers me that so many of our

great companies are so badly managed. I want to change the rules so that the C E O and boards are truly accountable to their shareholders.

T R : Y ou and your wife have signed the G iving Pledge. W hat other types of philanthropy are you most passionate about?

C I: I give a lot, but I like doing my own thing. I just put $30 million into charter schools because in charter schools the principal and teachers are accountable. As a result, a charter school run correctly gives our children a much better education than they generally get in public schools. W e are a great country, but, sadly, the way we run our companies and our educational system, for the most part, is dysfunctional. I hope to use my wealth to aid me in being a force in changing this. Sadly, if we don’t, we are on the road to becoming a second-rate country or even worse.

C HAPT E R 6 .2

D AV ID SW E N SE N : A $23.9 BIL L IO N

L ABO R O F L O V E

C hief Investment Officer, Y ale U niversity,and Author of U nconventional Success: A

Fundamental Approach to Personal Investment

D    avid Swensen is probably the best-known investor you’ve never heard of. H e’s been described as the W arren Buffett of institutional investing. Over the course of his celebrated tenure as Y ale’s chief investment officer, he’s turned $1 billion in assets into more than $23.9 billion, boasting 13.9% annual returns along the way—a record unmatched by many of the high-flying hedge funds that have tried to lure him away over the last 27 years.

As soon as you meet Swensen, you realize that he’s not in it for the money—he’s in it for the love of the game and a sense of service to a great university. And he’s got the paycheck to prove it: his worth in the private sector would be exponentially higher than what he earns at Y ale.

At his core, Swensen is an inventor and a disruptor. H is Y ale model, also known as the endowment model, was developed with his colleague and former student D ean T akahashi, and is an application of modern portfolio theory. T he idea is to divide a portfolio into five or six roughly equal parts and invest each in a different asset class. T he Y ale model is a long-term strategy that favors broad diversification and a bias toward equities, with less emphasis on lower-return asset classes such as bonds or commodities. Swensen’s position on liquidity has also been called revolutionary—he avoids rather than chases liquidity, arguing that it leads to lower returns on assets that could otherwise be invested more efficiently.

Before his days as the rock star of institutional investing, Swensen worked on W all Street for bond powerhouse Salomon Brothers. Many credit him with structuring the world’s first currency swap, a trade between IBM and the W orld Bank, which in effect led to the creation of the interest rate and ultimately creditdefault swap markets, representing over $1 trillion in assets today. But don’t hold that against him!

I had the privilege of sitting down with Swensen at his Y ale office, and before I ventured up the hallowed halls of that storied institution, I did what any good student would do: I spent the night before cramming. N ot wanting to be anything less than prepared, I absorbed 400 pages of U nconventional Success, Swensen’s manifesto on personal investing and diversification, before the meeting. W hat follows is an edited and abridged version of our nearly four-hour interview.

T R : Y ou work on behalf of one of the largest institutions in this country, yet you have a deep interest in and commitment to the individual investor. T alk to me about that.

D S: I’m basically an optimistic person, but when it comes to the world that individual investors face, it’s a mess.

T R : W hy is that?

D S: T he fundamental reason that individuals don’t have the types of choices they should have is because of the profit orientation in the mutual fund industry. D on’t get me wrong, I’m a capitalist, and I believe in profits. But there’s a fundamental conflict between the profit motive and fiduciary responsibility— because the greater the profits for the service provider, the lower the returns for the investor.

T R : W hen we’re talking about fiduciary responsibility, not all investors even know what that means. W hat we’re really talking about is: you have to put investors’ interests ahead of your own.

D S: T he problem is that the managers of the mutual funds make more money when they gather huge piles of assets and charge high fees. T he high fees are in direct conflict with the goal of producing high returns. And so what happens over and over again is the profits win and the investor seeking returns loses. T here are only two organizations where that conflict doesn’t exist, and they’re Vanguard and T IAA-C RE F. Both operate on a not-for-profit basis —they’re looking out for the investors’ interests, and they’re strong fiduciaries. And fiduciary responsibility always wins.

T R : Because mutual funds spectacularly underperform the market. I’ve read that from 1984 to 1998, only about 4% of funds [with over $100 million in assets under management (AU M)] beat the Vanguard 500. And that 4% isn’t the same every year—a more simple way of saying that is that 96% of all mutual funds fail to beat the market.

D S: T hose statistics are only the tip of the iceberg. T he reality is even worse. W hen you look at past performance, you can only look at the funds in existence today.

T R : Survivors.

D S: E xactly. T hose statistics suffer from survivorship bias. Over the last ten years, hundreds of mutual funds have gone out of business because they performed poorly. Of course, they don’t take the funds with great returns and merge them into funds with lousy returns. T hey take the funds with lousy returns and merge them into funds with great returns.

T R : So the 96% isn’t accurate?

D S: It’s worse.

T R : W ow.

D S: T here’s another reason the investor’s reality is worse than the numbers you cite, and that’s because of our own behavioral mistakes we make as individual investors. Individuals tend to buy funds that have good performance. And they chase returns. And then when funds perform poorly, they sell. And so they end up buying high and selling low. And that’s a bad way to make money.

T R : W hat’s the reality of chasing returns?

D S: A lot of it has to do with marketing. N obody wants to say, “I own a bunch of one- and two-star funds.” T hey want to own four-star funds. And five-star funds. And brag about it at the office.

T R : Of course.

D S: But the four- and five-star funds are the ones that have performed well, not the ones that will perform well. If you systematically buy the ones that have performed well and sell the ones that have performed poorly, you’re going to end up underperforming. So add to your statistics that more than 90% of funds fail to match the market, and then add in the way people behave—they further depress their returns below the market.

T R : So chasing returns is a guaranteed way to have a lower return or lose money?

D S: T hose factors that randomly cause something to perform well are just as likely to reverse themselves and cause what had performed well to perform poorly—it’s called reversion to the mean.

T R : Okay, so what can investors do to help their cause? D S: T here are only three tools, or levers, that investors have to [increase] returns. T he first is asset allocation: W hat assets are you going to hold in your portfolio? And in which proportions are you going to hold them? T he second is market timing. Are you going to try to bet on whether one asset class is going to perform better in the short run relative to the other asset classes you hold?

T R : Are you going to be in bonds, or stocks, or real estate?

D S: Y es, those short-term market-timing bets. And the third tool is security selection. H ow are you going to structure your bond portfolio or stock portfolio? And that’s it. T hose are the only three tools we have. T he overwhelmingly most important [as you figured out] is asset allocation.

T R : I read that in your book, and it blew me away.

D S: One of the things I love teaching my students at Y ale is that asset allocation actually explains more than 100% of returns in investing! H ow can that be true? T he reason is, when you engage in market timing, it costs you money; it’s not something you can play for free. E very time you buy or sell, you pay a broker. So there’s a leakage in fees and commissions paid—which reduces overall returns. And the same is true for security selection.

T R : So this takes us back to index funds and a passive approach to investing.

D S: Right. T he active managers charge higher fees with promises of beating the market, but we’ve seen it’s a false promise more often than not. Y ou can take a passive approach and own the whole market. And you can buy the entire market for a very, very low fee.

T R : H ow low?

D S:

L ess than 20 basis points. And you can get it through a mutual fund offered by Vanguard. So if you can implement your investment with low-cost, passively managed indexed funds, you’re going to be a winner.

T R : Y ou’re not paying fees, and you’re not trying to beat the market.

D S: Plus, you get another benefit: your tax bill is going to be lower. T his is huge. One of the most serious problems in the mutual fund industry, which is full of serious problems, is that almost all mutual fund managers behave as if taxes don’t matter. But taxes matter. T axes matter a lot.

T R : Is there any bigger bill we face in our lives?

D S: N o. And this speaks to the importance of taking advantage of every tax-advantaged investment opportunity that you can. Y ou should maximize your contributions if you’ve got a 401(k), or a 403(b) if you work for a nonprofit. Y ou should take every opportunity to invest in a taxdeferred way.

T R : H ow do we set up the most efficient asset allocation? D S: Anybody who’s taken freshman economics has probably heard “T here ain’t no such thing as a free lunch.” But H arry Markowitz, whom people call the father of modern portfolio theory, says that

“diversification is a free lunch.”

T R : W hy is that?

D S: Because for any given level of return, if you diversify, you can generate that return with a lower risk; or for any given level of risk, if you diversify, you can generate a higher return. So it’s a free lunch. D iversification makes your portfolio better.

T R : W hat’s the minimum diversification you need? T here are two levels of diversification. One is related to security selection. If you decide to buy an index D S:

fund, you are diversified to the maximum extent possible because you own the whole market. T hat’s one of the beauties of the index fund, and it’s one of the wonderful things Jack Bogle did for investors in America. H e gave them the opportunity in a lowcost way to buy the whole market. But from an assetallocation perspective, when we talk about diversification, we’re talking about investing in multiple asset classes. T here are six that I think are really important and they are U S stocks, U S T reasury bonds, U S T reasury inflation-protected securities [T IPS], foreign developed equities, foreign emerging-market equities, and real estate investment trusts [RE IT s].

T R :

W hy do you pick those six versus others? And what’s your portfolio allocation?

D S: E quities are the core for portfolios that have a long time horizon. E quities are obviously riskier than bonds. If the world works the way it’s supposed to work, equities will produce superior returns. It’s not true day in and day out, or week in and week out, or even year in and year out, but over reasonably long periods of time, equities should generate higher returns. I have a straw-man portfolio in my book, and 70% of the assets in there are equities [or equity-like], and 30% are fixed income.

T R : L et’s start with the equity side of the portfolio: the 70% . One of your rules for diversification is to never have anything weighted more than 30% , is that correct?

D S: Y es.

T R : And so you put the first 30% where?

D S: U S stocks. One of the things I think that’s really important is we should never underestimate the resilience of the U S economy. It’s very powerful. And no matter how much the politicians try and screw it up, there’s an underlying strength there. And I never want to bet against that.

T R : And that’s why you’re so heavily weighted, 70% , toward growth. N ot just in the U S economy but in overall business around the world.

D S: And then I probably put 10% in emerging markets, 15% in foreign development, and 15% in real estate investment trusts.

T R : T ell me about the 30% fixed-income securities.

I’ve got all of them in T reasury securities. H alf of them are traditional bonds. T he other half are in D S: inflation-protected T IPS. If you buy regular

T reasury bonds, and inflation takes off, you’re going to end up with losses.

T R : People get confused by that, unfortunately.

D S: W hen I first started on W all Street, I remember going to my first client meetings and whispering to myself over and over again, “Interest rates up, prices down.” I didn’t want to get that wrong. T hat would have been really embarrassing.

T R : C an an individual investor make money in today’s market?

D S: T hat’s the beauty of having a long-term buy-andhold strategy. T hat’s why you diversify. I’m not smart enough to know where the markets are going to go. In the late ’90s, people said, “W hy did you take all this trouble to diversify your portfolio? All you needed to do was own the S&P 500.” And what they were doing was, they were looking at the

best asset class, and it just happened to be our equity market. And they said, “E verything you did was a waste of time.” But that was the American experience. And that’s not the only experience in the world. And if, at the beginning of the 1990s, you were a Japanese investor who put all your money in the Japanese market, at the end of the ’90s, you’d be miserable. Y ou’re never going to have the return that’s equal to the best individual asset class return, and you never know what that asset class is going to be before the fact.

T R : W hat do you say to the baby boomers out there, the ones who are facing retirement in the not-toodistant future?

D S: U nfortunately, I think most individuals don’t have any idea how much money they need to save for their retirement. I really worry that a lot of people will look at their 401(k) account and say, “I have fifty thousand dollars or a hundred thousand—that’s a lot of money.” But if you’re talking about financing a retirement, it’s not a lot of money.

T R : A lot of people aren’t going to be able to retire when they want to retire.

D S: T he only way people can get to the right place is to educate themselves. And I’m thrilled you’re trying to help people get the knowledge that they need in order to make intelligent decisions.

^{T R :} I understand that you went through a tough health time. W hat’s next for you?

About a year ago, I was diagnosed with cancer. I didn’t have a bucket list. I didn’t want to quit and D S:

travel around the world. I wanted to keep on doing what I could to support the university. Manage Y ale’s portfolio as long as I could do it. And that’s what I’m doing. I love my job.

T R : T hat’s awesome.

D S: I think Y ale is one of the world’s great institutions. And if I can do anything to make it a stronger place and a better place, then maybe I will have made a difference.

T R : D avid, thank you, this has been extraordinary. I feel like I went to Y ale and took a class on portfolio construction.

D S: W ell, you did.

C HAPT E R 6 .3

JO H N C . BO G L E : T H E V AN G U ARD O F

IN V E ST IN G

C reator of the Index Fund; Founder and former C E O of the Vanguard G roup

If you haven’t read any of Jack Bogle’s books or listened to his no-nonsense commentary on T V, then you’ve been missing out on an American treasure. F ortune magazine named Bogle one of the four investment giants of the 20th century. H e’s been compared with Benjamin Franklin for his inventiveness and civic spirit. Some say he’s done more for the individual investor than anyone in the history of business.

H ow did he do it? W hen Jack Bogle founded the Vanguard G roup in 1974, index funds were just an academic theory. But Bogle was willing to bet his company on the idea that low-cost, low-fee mutual funds that tracked the performance of the whole stock market would outperform most managed funds year after year. W hy? Because investors as a group can’t beat the market, because they are the market. T alk about a disrupter! At first, his index funds were mocked as “Bogle’s Folly.” A competitor even called the idea unAmerican.

But Bogle brushed off his critics and went on to build Vanguard into the largest mutual fund management firm in the world, with $2.86 trillion in assets under management. H ow big is that? If Vanguard were a country, its economy would be the same size as G reat Britain’s! And now, according to Morningstar, U S index funds represent more than a third of all equity mutual fund investments.

Jack Bogle was born in N ew Jersey in 1929, right at the start of the G reat D epression. H is family wasn’t wealthy, but Bogle was smart enough to get a scholarship to Princeton, where he served meals to other students to help pay his way. H e wrote his senior thesis in economics about mutual funds, hinting at the path he would later carve in the industry. And he never forgot what a friend told him during a summer job as a stock runner: “Bogle, I’m going to tell you everything you need to know about the stock market: nobody knows nothin’.”

After graduating magna cum laude, in 1951 he joined the W ellington Management C ompany in Philadelphia, where he rose to become president. But during the “gogo” years of the mid-1960s, Bogle merged with a management group he hoped would pump up his business. “It was the worst mistake of my life,” he told me. T he new partners ran the mutual funds into the ground and then used their seats on the board to fire Bogle.

So what did he do? Instead of accepting defeat, Bogle turned that failure into his greatest victory, one that changed the face of investing. Because of the legal structure of mutual funds, Bogle was still in charge of

W ellington’s funds, which were separate from the management company, with a somewhat different board of directors. H e stayed on as the funds’ chairman, but he wasn’t allowed to manage them. “So how do I get into investment management without being an investment manager?” he said during our interview. “Y ou’ve already figured out the answer. Start an unmanaged fund. W e called it an index fund; I named it V anguard. At first everybody thought it was a joke.” Incredible!

If Jack Bogle hadn’t made that mistake, he would never have founded Vanguard, and millions and millions of individual investors might never have had the chance to avoid excessive fees and add billions of dollars to their collective returns.

I sat down with this living legend in his office on the Vanguard campus in Malvern, Pennsylvania, as a winter storm bore down on the E ast C oast. H e still goes to work every day at the Vanguard research center that he’s headed since stepping down as senior chairman in 2000. Jack shook my hand with the grip of a man half his age. Maybe that’s because a 1996 heart transplant gave him a new lease on life to continue what he calls a “crusade to give investors a fair shake.”

W hat follows is an edited and abridged version of our four-hour conversation.

T R : T ell me, Jack, where does your drive come from? JB: F rom my earliest memories of my youth, I had to work. I started working at nine delivering newspapers around the block. I always loved it. I’m something of an introvert, and after working all the time, you don’t have to make a lot of idle conversation. And I have a competitive streak. T hat kind of spoiling for a good fight—even when you don’t need one—makes up for a lot.

T R :

Y ou started your career at a traditional mutual fund management company.

JB: I was young, I was not wise enough to learn the lessons of history that I should have known, or to act on them. I thought there was such a thing as a permanently good investment manager; there is not. T hey come and go.

T R : W hy is that?

JB: T here’s an awful lot of luck relative to skill. Investing is 95% luck and 5% skill. And maybe if I’m wrong, it’s 98 and 2.

T R : N ot to insult any active managers!

JB: L ook, you put around 1,024 people flipping coins in a room. Y ou tell them all to flip, and one of those 1,024 is going to flip heads ten times in a row. And you’d say, “W hat a lucky guy.” Right? But in the fund business, you’d say, “W hat a genius.” [L aughs.] Y ou can even have gorillas do it, and the outcome is exactly the same!

T R : W hat did you mean when you said, “T here’s a big difference between a smart guy and a good investor”?

JB: W ell, first of all, investors are average. L et’s start with that. Very simple. And most individual investors pay too much for the privilege of being average.

T R : H ow’s that?

JB: Active management is going to cost you around 2% all-in for the average fund (including the 1.2% average expense ratio, transaction costs, cash drag, and sales charges). So that means in a 7% market, they’ll get 5. [An index fund that costs 0.05% means that you get a 6.95% return.] At 6.95% , you turn $1 into about $30 over 50 years. But at 5% , you get $10 instead of $30. And what does that mean? It means you put up 100% of the cash, you took 100% of the risk, and you got 30% of the reward. T hat’s what happens when you look at returns over the long term. People don’t, but they’re going to have to learn to do that.

T R : T hey don’t see the compounding of costs and compounding of fees.

JB: People out there really should understand why they’re buying stocks. It’s for the dividend yield, and it’s for the earnings growth. T he fact is that over the long term, half of the return in the stock market has come from dividends. And that’s where all the fund’s expenses come from. So think about this for a minute, T ony: T he gross yield of the average equity fund is 2% . T he average equity fund has an expense ratio of 1.2% . T hey’re going to take

that out of that yield. So you’re getting a yield of

0.8% . T he manager is taking half of your dividends to pay himself! And this industry is consuming every bit of 60% of dividends. And sometimes 100% and sometimes more than 100% . Y ou can see why I’m such a pain in the tail to the industry.

T R : Y et there are still 100 million people invested in actively managed mutual funds. H ow is that humanly possible?

JB: W ell, never underestimate the power of marketing. Back in 2000, we checked, and the average fund that was advertised in Money magazine then had an annual return of 41% . Many of these funds— perhaps most—are no longer around. Investors expect their smart manager will be smart forever, but it won’t happen. T hey expect that he’s generated 20% returns, he’ll continue to generate 20% . And that’s just ridiculous; it can’t happen, it won’t happen.

T R : Vanguard is managed only to benefit its fund shareholders, who actually own the company. Are you a supporter of the universal fiduciary standard?

JB: I’m a demander, and I may be one of the very first. T he Investment C ompany Institute [the mutual fund industry’s lobbying organization] says, “W e don’t need a federal standard of fiduciary duty. W e are a fiduciary.” W ell, number one, then why do they object to it? T hat’s an interesting question.

But number two, they don’t understand we have this conflict of fiduciary duties. T he manager of a publicly held firm like, say, BlackRock has two sets of fiduciary duties. One is fiduciary duty to the shareholders of the BlackRock mutual funds, to maximize their returns. And the other is the fiduciary duty to earn the most money they possibly can for the public owners of BlackRock. And so BlackRock C E O L aurence D . Fink has the consummate dilemma. T o maximize the return to mutual fund shareholders, he must lower fees. But to maximize the return to the owners of BlackRock, he must increase fees. So they’re trying to do both. And the company is making more money than ever.

T R : H ow ironic.

JB: Is this a great country, or what?

T R : W hat’s next, in your mind, over the next ten years that is compelling and/or challenging?

JB: I see corporate America continuing to grow. And, remember, the stock market is a derivative. It’s a derivative of the value created by our corporations. T hey earn money, and they’re going to continue to earn money. T hey may earn a little less, but they will still get bigger and bigger, more and more efficient. So they’ll continue growing, probably at a slower rate than we’re accustomed to, but still a healthy rate.

T R : Primarily because spending will decrease based on demographics, or because we’ve just borrowed so much that we have to still get our house in order? JB: W e still have to deleverage. T here’s too much borrowing in the country. T here’s not really too much leverage on the corporate side. C orporate balance sheets are in pretty good shape. But government balance sheets, including federal, state, and local, are all overextended. And we’ve got to do something about that.

One of the big risks—one of the big questions, really—is the Federal Reserve now has in round numbers $4 trillion in reserves. T hat’s $3 trillion more than usual, with about $3 trillion having been acquired in the last five, six years. And that has to be unwound. And it’s not clear to anybody exactly how that’s going to happen. But everybody knows it has to happen sooner or later.

T R : H ow concerned should we be about another financial crisis?

JB: If you’re thinking not as an average investor but as someone who is thinking about the big picture, never lose your sense of history. D on’t think it won’t repeat itself. As Mark T wain says, “H istory may not repeat itself, but it rhymes.” So we do face the

possibility of a serious world financial crisis. E ven a world depression. W hat are the chances of a world depression? I’d say maybe one in ten.

But it’s not one in a thousand. So I don’t look at it as likely, but anyone that says “It can’t happen here” is wrong—

T R : —is not paying attention to history.

JB: Y es. So, basically, use your G od-given common sense. N ot getting carried away by the fads and fashions of the moment. And not getting carried away by the momentary gyrations in the markets, stocks or bond.

T R : In your 64 years in the business, you’ve gone through every type of market. H ow do you take the human emotional element out of investing?

JB: N one of us can, including me. I’m trying to. People say, “H ow do you feel when the market goes down 50% ?” I say, honestly, I feel miserable. I get knots in my stomach. So what do I do? I get out a couple of my books on “staying the course” and reread them!

T R : If you couldn’t pass on any money to your kids or grandkids, but you could pass on some principles, what would they be?

I would say, to begin with, pay attention to where your assets are invested. C hoose your asset allocation

^JB: in accordance with your risk tolerance and your objectives. N umber two would be, diversify. And be sure and diversify through low-cost index funds. T here are a lot of high-cost ones out there. W e shouldn’t forget that. And don’t trade. D on’t do something—just stand there! N o matter what! And you’ll be able to resist that temptation more easily if you had a little bit more of your assets allocated to bonds than you think you should.

T R : W hat other advice do you have for investors?

JB: D on’t open the Wall Street J ournal! D on’t watch C N BC ! W e kid about it. I do interviews on C N BC a lot, and I keep wondering why they keep asking me back. I can handle somewhere between 40 seconds and 50 seconds of Jim C ramer. All the yelling and screaming and buy this and sell that. T hat’s a distraction to the business of investing. W e spend too much time, focus too much of our energy on all these things to do with investing, when you know what the outcome’s going to be. Y ou’re going to get the market return plus or minus something. Mostly minus. And so why spend all this time trying to trade the Standard & Poor’s 500 all day long in real time, as an early marketing campaign for the first E T F [exchange-traded fund] suggested?

Anybody who is doing that should get a life. T ake the kids out to the park. T ake your wife out to dinner. If all else fails, read a good book.

T R : W hat does money mean to you?

JB: I look at money not as an end but a means to an end. T here’s a great story about the two writers K urt Vonnegut and Joe H eller. T hey meet at a party on Shelter Island. K urt looks at Joe and says, “T hat guy, our host over there, he made a billion dollars today. H e’s made more money in one day than you made on every single copy of Catch-22.” And H eller looks at Vonnegut and says, “T hat’s okay, because I have something he, our host, will never have.

E nough.”

I’m leaving my kids enough so they can do anything that they want, but not so much they can do nothing. I often say to them, “Sometimes I wish that you would have grown up with all the advantages I had.” And their first reaction was,

“D on’t you mean disadvantages?” “N o, kid, I don’t. I mean advantages. G etting along in the world, working your way through it all.”

T R : It took years for the concept of indexing to take hold, and now index funds are taking the industry by storm. H ow’s it feel to be right?

JB: W ell, people say, you must be very proud. L ook at what you built. And I tell them, there will be time for that, I think, someday. But not yet. I think it’s Sophocles who said, “One must wait until the

evening to enjoy the splendor of the day.” And my evening isn’t here yet.

Y ou know, I’ve got to confess to you, I should have been dead a long, long time ago. I had eight heart attacks before I got the heart [transplant]. My heart stopped. And I have no right to be around. But it is absolutely fabulous to be alive. I don’t spend a lot of time thinking about this. But I realize that I am seeing what I believe is the triumph of indexing. And really a revolution in investor preferences. T here’s not any question about that. It’s going to change W all Street. W all Street’s getting a lot smaller. I’m not sure I understand the thing fully, but I’m guessing if I were dead, I wouldn’t be seeing it.

T R : W ill you ever retire, by the way?

JB: Probably more likely to be in G od’s hands than mine. I’m enjoying myself, and thriving on my mission to give investors a fair shake.

Jack Bogle Portfolio C ore Principles

1.   Asset allocation in accordance with your risk tolerance and your objectives.

2.   D iversify through low-cost index funds.

3.   H ave as much in bond funds as your age. A “crude”benchmark, he says.

Jack is in his 80s and has 40% of his total portfolio invested in bonds. But a very young person could be 100% equities.

So in my total portfolio, including both my personal and retirement accounts, about 60% of my assets are in stocks, mostly in

V anguard’s stock index funds. T he rest is split between V anguard’s T otal Bond Market Index F und and tax-exempt [municipal bond] funds. My municipal bond holdings are split about two-thirds in V anguard’s Intermediate-T erm T ax-E xempt F und and about one-third in

V anguard’s L imited-T erm T ax-E xempt F und [limited being somewhere between short and intermediate; a little bit longer for the extra yield].

I won’t need to draw on the money, I hope, in my taxable portfolio. And those are still nice tax-exempt yields, around 3% or so, which is the equivalent of 5% for someone in my tax bracket, and I don’t need any more than that. I’m happy to get it.

I worry a little bit, of course, about the solidity of the municipal bond market, but I’ve decided that with our top-notch analysts here at Vanguard, they should be okay. In my tax-deferred portfolio, which is my largest asset, my bond assets are largely in

V anguard’s T otal Bond Market Index F und.

T hat includes long-, intermediate-, and short-term

 

bonds. It holds T reasury, mortgage, and corporate bonds. I’m very satisfied with the returns on my total portfolio. After an awful 17% decline in 2008 [the S&P 500 was down 37% that year, more than twice as much], my returns have been consistently positive, averaging almost 10% per year. I’m happy to simply “stay the course” and ride it all out.

 

C HAPT E R 6 .4

W ARRE N BU FFE T T : T H E O RAC L E O F

O MAH A

T he L egend W ho’s Said It All; C E O,

Berkshire H athaway

I was in the greenroom of the T oday show, waiting to go on the air, when in walked the man himself: W arren Buffett, one of the greatest investors of the 20th century and, with $67.6 billion to his name, the third wealthiest man in the world. W e were scheduled to appear (together with Spanx founder Sara Blakely and future secretary of H ousing and U rban D evelopment Julian C astro) in a roundtable discussion with Matt L auer about economic success and our views on the direction of the U S economy. I’ve always been a huge fan of Buffett’s. L ike millions of investors around the world, I’ve been inspired by the story of how a humble stockbroker from N ebraska turned a failing N ew E ngland textile business called Berkshire H athaway into the fifth largest publicly held company in the world, with assets of nearly a half trillion dollars and holdings in everything from G eico insurance to See’s C andies. H is not-so-secret to success has been “value investing”: a system he learned and perfected from his mentor Ben G raham. It revolves around looking for undervalued companies and buying stock with the expectation it will rise in price over the long term. It’s one of the simplest forms of asymmetric risk/reward, and one that requires a tremendous amount of research, skill, and cash—which is one of the reasons Buffett pursued insurance holdings that throw off great cash flow and thus investment opportunities.

N ot only has Buffett been phenomenally successful in business, but also he’s become one of the most generous philanthropists in history, pledging 99% of his vast personal fortune to charity through the Bill and Melinda G ates Foundation. H e’s also probably the most quotable —and quoted—business leader ever, and you’ve already read some priceless nuggets of his wisdom sprinkled throughout these pages.

W hen I finally had him in the same room with me, I couldn’t resist the opportunity to tell him about this book project. Perhaps we could sit down for an interview about how the individual investor can win in this volatile economy?

H e looked up at me with a twinkle in his eye. “T ony,” he said, “I’d love to help you, but I’m afraid I’ve already said everything a person can say on the subject.”

It was hard to argue with that. Since 1970, he’s been putting out an eagerly awaited annual letter to his shareholders filled with plain-spoken investing advice and commentary. Plus, there have already been nearly 50 books published with his name on the jacket—even a few of them written by Buffett himself!

Still, I pressed ahead.

“But now that you’ve announced you’re leaving almost all of your wealth to charity, what kind of portfolio would you recommend for your family to protect and grow their own investments?”

H e smiled again and grabbed my arm. “It so simple,” he said. Indexing is the way to go. Invest in great American businesses without paying all the fees of a mutual fund manager and hang on to those companies, and you will win over the long term!”

W ow! T he most famous stock picker in the world has embraced index funds as the best and most cost-effective investment vehicles.

L ater, even after Steve Forbes and Ray D alio reached out on my behalf to encourage W arren to have a more detailed interview with me, he let me know there was no need. W arren told me that everything he had to say about investing that’s important is already published. All he would tell an individual investor today is to invest in index funds that give you exposure to the broad market of the best companies in the world and hold on to them for the long term. I guess repetition is the mother of skill. I got it, W arren! In this year’s letter to the shareholders, W arren emphasized the same advice to all investors once again! W hat’s his asset allocation? Below are the instructions he has left for his wife and their trust after he has passed:

“Put 10% . . . in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions, or individuals—who employ high-fee managers.”

Jack Bogle is very happy about this advice! America’s most respected investor is endorsing the strategy Jack has promoted for almost 40 years!

Remember, Buffett made a $1 million wager against N ew Y ork–based Protégé Partners betting that Protégé could not pick five top hedge fund managers who will collectively beat the S&P 500 index over a ten-year period? Again, as of February 2014, the S&P 500 was up 43.8% , while the five hedge funds were up 12.5% . T he Oracle of Omaha has spoken!

C HAPT E R 6 .5

PAU L T U D O R JO N E S: A MO D E RN -D AY

RO BIN H O O D

Founder, T udor Investment C orporation;

Founder, Robin H ood Foundation

One of the most successful traders of all times, Paul

T udor Jones started his own firm at the age of 26, after cutting his teeth trading cotton in the commodity “pits.”

Paul has defied gravity, having produced 28 straight full years of wins. H e is legendary for predicting Black Monday, the 1987 stock market crash that saw a 22% drop in a single day (still the largest percentage stock market drop in any day in history). At a time when the rest of the world was experiencing a meltdown, Paul and his clients captured a 60% monthly return and a nearly 200% return for the year!

Paul is one of my closest friends and personal heroes. I’ve been privileged to be his peak-performance coach since 1993—21 of his 28 full consecutive years of wins and the majority of his trading career. W hat’s even more impressive to me than Paul’s stunning financial success is his heartfelt obsession to constantly find ways to give back and make a difference. As the founder of the iconic Robin H ood Foundation, Jones has inspired and enrolled some of the smartest and wealthiest investors in the world to attack poverty in N ew Y ork C ity. Paul and the Robin H ood team do this work with the same analytical rigor that hedge fund billionaires typically reserve for financial investments. Since 1988, Robin H ood has invested over $1.45 billion in city programs. And just like Jones’s relentless pursuit of asymmetric returns in his financial life (he’ll share his rule of 5 to 1 in a moment), his foundation work is no different. Robin H ood’s operating and administrative costs are covered 100% by board participation, so donors earn a 15-to-1 return on their investment in their community! As E ric Schmidt, executive chairman of G oogle, says, “T here is literally no foundation, no activity, that is more effective!”

Jones himself will tell you he’s a trader, not a traditional investor, but like his former employer, E . F. H utton, when Jones talks, people listen. As a macro trader, he studies the impact of fundamentals, psychology, technical analysis, flows of funds, and world events and their impact on asset prices. Instead of focusing on individual stocks, he bets on trends that are shaping the world—from the U nited States to C hina; from currencies to commodities to interest rates. H e is sought out by some of the most influential financial leaders on the planet: finance ministers, central bank officials, and think tanks around the world.

I met Paul for this interview at the magnificent campus in G reenwich, C onnecticut, for his T udor Investment family. D uring the interview, we dug down for the most valuable investment principles he has to share to benefit you, the individual investor. As a result, Paul is about to give us his “$100,000 business education,” the one he shares with his own family of traders and a few university students fortunate enough to hear his message each year. All this wisdom in just six pages.

T R : Paul, what you’ve done in investing, in trading, is extraordinary: 28 consecutive wins—28 years without a loss. H ow does a mortal do that?

PT J: W e’re all products of our environment. I started out as a commodity trader in 1976. T he great thing about being a commodity trader—trading cotton, soybeans, orange juice—is that [those] markets are hugely impacted by weather. In a space of three or four years, you’d have huge bull markets and huge bear markets. I very quickly learned the psychology of the bull market and the bear market, and how quickly they could change. W hat the emotions were like when there were lows. I saw fortunes made and lost. I sat there and watched Bunker H unt take a $400 million position in silver to $10 billion in 1980, which made him the richest man on earth. T hen he went from $10 billion back down to $400 million in five weeks.

T R : W ow!

PT J: So I learned how quickly it can all go away; how precious it is when you have it. T he most important thing for me from that is that defense is ten times more important than offense. T he wealth you have can be so ephemeral; you have to be very focused on the downside at all times.

T R : Absolutely.

PT J:

W hen you have a good position in something, you don’t need to look at it; it will take care of itself. W here you need to be focused is where you’re losing money, and that’s actually when people generally don’t want to look: “My account’s going down. I don’t even want to open it.” So I’ve created a process over time whereby risk control is the number one single most important focus that I have, every day walking in. I want to know I’m not losing it.

T R : W hat do you think are the biggest myths that the general population has about investing? W hat hurts them?

PT J: Y ou can invest for the long term, but you’re not going to necessarily be wealthy for the long term— because everything has a price and a central value over time. But it’s asking a lot, I think, of an average investor to understand valuation metrics all the time. T he way that you guard against that—guard against the fact that maybe you’re not the most informed person of every asset class—is you run a diversified portfolio. T R : Of course.

PT J: H ere’s a story I’ll never forget. It was 1976, I’d been working for six months, and I went to my boss, cotton trader E li T ullis, and said, “I’ve got to trade,

I’ve got to trade.” And he said, “Son, you’re not going to trade right now. Maybe in another six months I’ll let you.” I said, “N o, no, no—I’ve got to trade right now.” H e goes, “N ow, listen, the markets are going to be here in thirty years. T he question is, are you?”

T R : H ow perfect.

PT J: So the turtle wins the race, right? I think the single most important thing that you can do is diversify your portfolio. D iversification is key, playing defense is key, and, again, just staying in the game for as long as you can.

T R : Following up on diversification, how do you think about asset allocation in terms of playing defense?

PT J: T here’s never going to be a time where you can say with [absolute] certainty that this is the mix I should have for the next five or ten years. T he world changes so fast. If you go and look right now, the valuations of both stocks and bonds in the U nited States are both ridiculously overvalued. And cash is worthless, so what do you do with your money? W ell, there’s a time when to hold ’em and a time when to fold ’em. Y ou’re not going to necessarily always be in a situation to make a lot of money, where the opportunities are great.

T R : So what do you do?

^{PT J:} Sometimes you just have to say, “G ee! T here’s no value here, there’s nothing compelling. I’m going to be defensive and run a portfolio where I don’t have any great expectations. I’m going to be in a position where I don’t get hurt, and if and when values do rise, I’ll have some firepower to do something.”

T R : Okay, any specific strategies for protecting your portfolio?

PT J: I teach an undergrad class at the U niversity of Virginia, and I tell my students, “I’m going to save you from going to business school. H ere, you’re getting a hundred-grand class, and I’m going to give it to you in two thoughts, okay? Y ou don’t need to go to business school; you’ve only got to remember two things. T he first is, you always want to be with whatever the predominant trend is. Y ou don’t ever want to be a contrarian investor. T he two wealthiest guys in the U nited States—W arren Buffett and Bill G ates— how did they get their money? Bill G ates got his money because he owned a stock, Microsoft, and it went up eight hundred times, and he stayed with the trend. And W arren Buffett, he said, ‘Okay. I’m going to buy great companies. I’m going to hold these companies, and I’m not going to sell them because—correctly and astutely—compound interest

or the law of compounding works in my favor if I don’t sell.’ ”

T R : And so he made his money from the cash flow of all

his insurance companies.

PT J: H e sat through one of the greatest bull runs in the history of civilization. H e withstood the pain of gain.

T R : Amazing. So my next question is, how do you determine the trend?

PT J: My metric for everything I look at is the 200day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. T he whole trick in investing is: “H ow do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. Y ou play defense, and you get out. I go through this exercise when I’m teaching a class on technical analysis. I’ll draw a hypothetical chart like the one below—it will go all the way to the top on a clean sheet of paper on a white board.

 And then I ask, “Okay, all you know is what you see right here. H ow many people want to be long and stay long on this chart?” And about 60% will raise their hands, yes. And how many want to get off this investment and sell it? T hen 40% or so will say get out. And I say, “Y ou 40% should never ever invest your own money in your entire life! Because you’ve got this contrarian bug, and it’s the greatest way to ruin that there possibly is. It means you’re going to buy every brand— you’re going to buy things that go to zero and sell things that go to infinity, and one day, you’re going to die.”

T R : T hat’s great, makes total sense. In fact, you say some of your greatest victories have been turning points, right? T hat’s what’s been different about you.

PT J: Right, the crash of 1987. I made my money on the day of the crash.

T R : Okay, you have to tell me about that. T hat’s considered one of the top three trades of all time, in all history! Most people would be thrilled with a 20% annual return; you made 60% on that trade alone that month. D id your theory about the 200-day moving average alert you to that one?

PT J: Y ou got it. It had gone under the 200-day moving target. At the very top of the crash, I was flat.

T R : So you waited until it turned?

PT J: Y es, absolutely.

T R : T hat’s amazing! I’m blown away by that one. So you don’t consider yourself to be a risk taker, and you focus on how to protect constantly and how to align with the trend. W hat’s the second thought for students?

PT J: Five to one.

T R : Asymmetric risk/reward?

PT J: E xactly. F ive to one means I’m risking one dollar to make five. W hat five to one does is allow you to have a hit rate of 20% . I can actually be a complete imbecile. I can be wrong 80%

of the time, and I’m still not going to lose— assuming my risk control is good. All you’ve got to do is just be right one time out of five. T he hard part is that that’s not how we invest. T he way that human nature is, we’re never really calculated about our entry points. W e’re never really thoughtful about where we give in and what are we really risking.

T R : And Paul, you are not wrong 80% of the time! Since asset allocation is so important, let me ask you: If you couldn’t pass on any of your money to your kids but only a specific portfolio and a set of principles to guide them, what would it be? I’m asking this to help people get a model of how the average person can look at investing through your eyes.

PT J: I get very nervous about the retail investor, the average investor, because it’s really, really hard. If this was easy, if there was one formula, one way to do it, we’d all be zillionaires. One principle for sure would be get out of anything that falls below the 200-day moving average. Investing with a five-toone focus and discipline would be another. But here’s what I do know. Y ou’ve got to go interview Ray D alio. H e knows better than anybody. If you’re looking for asset allocation, he’s the one guy who does it better than anybody.

T R : H e’s next on my list, thanks! Okay, let’s shift gears. Y ou’ve had this phenomenal success in your life, you’re legendary, and you’re so humble about it. T ell me about giving back: W hat’s driven all of the amazing philanthropic work that you do? W hat continues to drive you to make a difference in so many people’s lives?

PT J: As a young child, I’d gone to this huge outdoor vegetable market in Memphis, and I remember all of a sudden looking up, and my mommy was gone. And when you’re four years old, your mother is everything. And this extraordinarily kind, very old, very tall black man came over and said, “D on’t worry. W e’re going to find your mama. D on’t cry, we’re going to find her. Y ou’re going to be happy in a minute.” H e took my hand and walked me down those roads until, finally, he saw my mother, and she started laughing because she could see I was crying.

T R : W ow.

PT J: Y ou never forget stuff like that. G od’s every action, those little actions become so much bigger, and then they become multiplicative. W e forget how important the smallest action can be. F or

me, I think, it kind of spawned a lifetime of trying to always repay that kindness.

T R : T hat’s so beautiful, Paul; I see and feel the depth of impact of that moment on your life even now. Y ou got us both on the edge of tears. T hank you. L ast question for you: most people have an illusion that if they have enough money, stress goes away. Is it true? D oes financial stress ever go away?

PT J: T hat day still has not come.

T R : Okay. T hat’s what I wanted to hear.

PT J: T he problem is, like anything, it’s never enough. Financial stress right now for me is that there are so many causes that I believe in. My financial stress relates to being able to give to the things that make me happy, that create passion in my life, and that are really exciting. T here’s a huge conservation project that I’ve just discovered about a month ago that I probably can’t afford. T he time frame on this is 100 years, at least. And I’m thinking, “Oh my G od! If I went and bought this timber operation, and let that land heal, and restored it. One hundred years from that day—it’s going to be one of the most breathtakingly beautiful places! T his is where G od would have spoken to Adam; it has to be the G arden of E den.” And I’m thinking, “O kay, I can’t afford it, but I really want to do it. I

better go out there and work my ass off, because it will be the best contribution I can make to someone one hundred years from

now. T hey won’t know who did it, but they’ll love that spot and they’ll be so happy.”

T R : T hank you, Paul. I love you, brother.

C HAPT E R 6 .6

RAY D AL IO : A MAN FO R AL L SE ASO N S

Founder and C o-C hief Investment Officer, Bridgewater Associates

Ray D alio has been part of the D N A of this book from the moment I first sat down to interview him at his C onnecticut home. Our initial meeting went on for nearly three hours of pitching and catching ideas about everything from the benefits of meditation (“It gives me equanimity,” said Ray) to the workings of the economy (“It’s a simple machine”). I already knew the astounding track record of his $160 billion hedge fund, Bridgewater Associates, the biggest in the world. I knew that Ray manages risk better than anyone else on the planet, and that he’s the go-to guy for world leaders and huge financial institutions when they need a safe harbor in the volatile marketplace. But I had no idea that when I asked him the same question that I asked every financial superstar in this book—W hat portfolio would you leave your children if you couldn’t leave them money?—that Ray’s answer would turn out to be the H oly G rail I was seeking when I first began this quest. W hat was it? N othing less than an investment plan for individual investors like you to grow your nest egg, and one that would work in all seasons and without risking your life savings. U ntil now, only Ray D alio’s clients had access to his magic formula for investing success in every season. H is generosity in choosing this time and place for sharing it with the world leaves me astonished and grateful.

I don’t need to go into Ray’s background here. Y ou’ve been on this journey with him from the first pages of this book, and if you’ve gotten this far, you’ve already read chapters 5.1 and 5.2, “Invincible, U nsinkable, U nconquerable: T he All Seasons Strategy” and “It’s

T ime to T hrive: Storm-Proof Returns and U nrivaled Results,” which tell his story and lay out the basis for his entire portfolio. I was going to list it here, but it’s not as powerful without the context. If you jumped ahead, don’t cheat! G o back and read those chapters. T hey will blow your mind and change your life! If you’ve read them already, it’s time to implement. Ray D alio is the master of All Seasons.

C HAPT E R 6 .7

MARY C AL L AH AN E RD O E S: T H E

T RIL L IO N -D O L L AR W O MAN

C E O, J.P. Morgan Asset Management D ivision

Mary C allahan E rdoes may only be five foot two, but she casts a long shadow as C E O of one of the largest asset management groups in the world, at the biggest bank in the U nited States. Forbes magazine has called her “the rare female comet in the male-dominated firmament of W all Street” and listed her among the 100 Most Powerful W omen in the W orld. Since 2009, when she took over J.P. Morgan’s Asset Management D ivision, it’s grown by more than half-a-trillion-with-a-T dollars— more than a 30% increase! T oday E rdoes oversees the management of $2.5 trillion invested by foundations, central banks, pension funds, and some of the world’s wealthiest individuals. She’s often mentioned in the media as being on the short list to succeed JPMorgan C hase C E O Jamie D imon.

W hile most of the voices in this book advocate that passive, low-fee money management brings the best results for individual investors over time, E rdoes makes a case that funds that are actively managed by the best minds in the business are worth the fees they charge. She says the proof is in the loyalty of their satisfied clients, as well as the new business they continue to attract.

Money management is in E rdoes’s blood. She was the firstborn child and only girl in a large Irish C atholic family in W innetka, Illinois. H er father, Patrick C allahan, was an investment banker with L azard Freres in C hicago. Mary excelled at math in high school—while also winning equestrian medals—and went on to become the only female math major in her class at G eorgetown U niversity. She met her husband, Philip E rdoes, while they were both earning MBAs at H arvard Business School.

As a financial services executive, E rdoes has broken the mold in more ways than one: in a business famous for aggressive management, her colleagues describe her style with words such as “loyal,” “team-oriented,” and “caring.” W hen she was coming up at J.P. Morgan, she was known for flying across the country to meet with clients who needed extra help in managing their assets. N ow 47 years old and part of the highest level of management in a firm with 260,000 employees, she is honored as much for her extraordinary leadership as for her financial brilliance.

Our meeting took place at J.P. Morgan’s world headquarters in the classic U nion C arbide Building, overlooking Park Avenue and the skyscrapers of Manhattan. As I rode the elevator to the conference room, J.P. Morgan Asset Management’s communications director, D arin Oduyoye, told me a story that touched me deeply, and illustrated the kind of person I was about to meet. Oduyoye had always wanted to be a broadcaster but took a job in J.P. Morgan’s mutual fund division before transferring to public relations. W hen E rdoes asked him to be a producer of a daily morning meeting broadcast for wealth management employees all over the world, he was shocked.

“I don’t know enough about investing!” he objected.

“W ell, you told me you always wanted to be in broadcasting,” she said. “N ow you get to be a talk-show producer!”

“She saw more in me than I saw in myself,” D arin told me.

It doesn’t matter what they do for the company, E rdoes goes out of her way to know each of her employees. But she still carves out the time periodically to have lunch with her three young daughters and pick them up from school most days. T hat’s the way she rolls, and it makes her the extraordinary leader—and human being—that she is.

T R : Y ou lead one of the largest management groups in the world. T ell me a little about your journey, the challenges you faced, and the principles that guide you.

ME : I don’t think you can lay out a path in life to get exactly where you want to go. A lot of it happens by accident or circumstance.

I remember when I was given my first stock: U nion C arbide. It was a birthday gift from my grandmother. I think I was seven or eight—old enough to remember and young enough not to know what to do with it.

T he first thing she told me was, “Y ou don’t sell this.” I’m not sure if I agree with that now! But she said, “T his is the value of compounding. If you keep this, it will hopefully grow over time, and you will have something much larger.” T hat also ingrained in me at an early age the importance of saving and started me thinking about money management. I already knew I had a knack for numbers, so the concept of saving versus spending was a powerful one for me.

It helped that my father worked in the industry, and I spent a lot of weekends with him at work playing “office.” I sat at his desk, and I had my brothers at his assistant’s desk! W e had good fun growing up, and I think that showed me how interesting and exciting financial services could be, and that it wasn’t something to be fearful of. T hat was very helpful early in life.

T R : Y ou work in a business that has been dominated by men. W hat were some of the biggest challenges that you’ve faced along the way?

ME : Money management is an industry where results speak for themselves. It’s a virtuous cycle: if you perform for your clients, they’ll invest more money with you, and their money will make money—again,

the idea of compounding that I learned from my grandmother. So because of the focus on performance, money management is a business that fosters equality. If you perform, you will succeed.

T R : W hat’s leadership? H ow do you define it?

ME : It’s important not to confuse management with leadership. For me, leadership means not asking anyone to do anything I wouldn’t do myself. It’s waking up every morning trying to make your organization a better place. I truly believe that I work for the people of J.P. Morgan Asset Management, not the other way around, and because of that, I try to see beyond what people even see themselves.

H            aving been a portfolio manager, client advisor,and business leader, I know what we’re capable of achieving for clients. So I consider it my job not just to lead our teams but to get in the trenches alongside them and join them on the journey.

I                think in many ways you’re either born withleadership or not, but that doesn’t mean you’re not constantly working at it, honing it, and figuring out what works and what doesn’t. T he style of leadership will change with different people or different situations, but the basic tenets of leadership are consistent.

^{T R :} I recently interviewed D r. Robert Shiller, who just won the N obel Prize in economics, and he was talking about all the good that financial institutions do in the world that people take for granted. W hy do you think their reputations have shifted, and what can be done to turn it around?

ME : Following the financial crisis, it’s easy to understand why some people lost trust in the industry. In hindsight, there were some things that needed to change—products that were too complex or confusing. But overall, the financial services industry contributes a lot to the world. W e provide companies with capital to grow, which ultimately fuels employment. W e help individuals save and invest their hard-earned money so they can do things like buy a house, pay for college, or retire more comfortably. W e support local communities both financially and through the intellectual and physical capital of our people.

I’m incredibly proud to be part of the industry and even prouder to be part of J.P. Morgan. W e have 260,000 people who work hard for clients every day and always strive to do the right thing. W e have a saying that if you wouldn’t let your grandmother buy a product, then it’s probably not a business we should be in. It’s a simplistic yet important way to look at things.

^{T R :} It’s a sensitive issue, I’m sure, but if you listen to Ray

D alio, you listen to Jack Bogle, D avid Swensen, W arren Buffett—they all say active management doesn’t work over the long term. T hat 96% of active managers don’t beat the index. I wanted to get your view on it because your performance has been extraordinary.

ME : One of the biggest challenges about successful investing is there’s no such thing as a one-size-fitsall approach. But if you look at the world’s most successful portfolio managers, you’ll find that many of them manage money actively, buying and selling companies in which they think that they have added insight. T heir track records have proven that active management, compounded over long periods of time, makes a very large difference in your portfolio. W hat an active manager can do is look at two seemingly similar companies and make a judgment, based on extensive research, about which is the better long-term investment. W e’ve surrounded ourselves at J.P. Morgan Asset Management with managers who have done that successfully for a sustained period of time, and that’s why we have $2.5 trillion in assets that people ask us to help them manage.

T R :

G reat investors are invariably looking for asymmetric risk/reward, right? And the ultrawealthy have always done this. But tell me, how does the average investor today get wealth without risk, or at least wealth with little risk, if they’re not already ultrawealthy?

ME : It is not about a wealth level, it’s about being well rounded, well advised, and sticking to a plan. W hat happens too often is people start with a diversified plan, but as market conditions change, they try to time the markets so they are getting either more upside opportunities or better protection in unfavorable conditions. But that’s a very dangerous thing to do because it’s impossible to predict every scenario.

W hat a well-diversified portfolio does is help you capture those tail risks [risks that can bring great rewards], and if you stick to that plan, you can create a tremendous amount of wealth over the long term.

T R : W hat are some of the biggest opportunities for investors today and the largest challenges that they need to prepare for?

ME : I think that we will look back at the time that we’re living in right now and say, “T hat was a great time to have invested.” W e have so much liquidity in the system to take care of a lot of the things that went wrong. But investing over the next five years— particularly those with long-term growth prospects —are opportunities to consider right now. Most investors today want income, tempered volatility, and liquidity. T here’s still the hangover effects of 2008, where many are concerned about, “If I need my money right away, can I get it?” If you don’t need it right away, get it invested. It will serve you very well over the coming years, and you will look back and be incredibly thankful that you did it.

In addition, the industry has made a lot of changes in rules and regulations to attempt to insure better conditions for the future. T hat’s not to say there won’t be market anomalies, but the system is better, and so it should be safer.

T R : I’ve asked this of every multibillionaire that I’ve spoken with who started with nothing: D oes financial stress ever go away for you?

ME : Financial stress never goes away for people regardless of the level of their wealth or success.

T R : W hy is that?

ME : Because no matter what stage you’re in, you want to make sure you are using your money most effectively, whether that’s paying for health care and your family’s well-being, or insuring you are investing your money properly for future generations or to fulfill philanthropic goals.

^{T R :} Is there an antidote to that stress? W hat is it for you?

ME : For me, it’s all about keeping things in perspective and focusing on the things you can control, like insuring that you’re doing as much as you can every day and giving it your all. Y ou can never be out of balance in taking care of yourself as a person, taking care of your work as a professional, taking care of your family, taking care of your friends, your mind, your body. It’s okay for things to get out of whack every once in a while, but they can’t stay out of whack.

T R : If all you could pass on to your children was a set of rules and/or a portfolio strategy or an asset allocation strategy, what would it be?

ME : Invest for the long term and only take money out when you truly need it. Specific portfolio construction will be different for different people. For example, I have three daughters. T hey’re three different ages. T hey have three different skill sets that will change over time. One might spend more money than another. One might be more frugal. One may want to work in an environment where she can earn a lot of money. Another may be more philanthropic in nature. One may get married, one

may not; one may have children, one may not—so they’ll have different dependents. E very single permutation will vary over time, which is why even if I started all of them the first day they were born and set out an asset allocation, it would have to change.

T R : H ow old are your girls?

ME : E leven, ten, and seven. T hey’re lots of fun.

T R : From my understanding of what I’ve read, you believe in “work-life integration.” T ell me a little bit about that.

ME : I have the great fortune of working at a company that is very supportive of families and gives people a lot of flexibility to do what works best for them. So whether that means logging off a little early to catch your child’s soccer game but then reconnecting later in the evening to finish a project, or bringing the kids to the office on the weekends like my dad used to with me, you have the option to do what’s best for you and your family.

T R : L ike you did at your father’s office! And they’re sitting behind your desk, preparing for the future. ME : E xactly. My work life and family life are all one thing, and I’m always determined to get the most out of both of them.

C HAPT E R 6 .8

T . BO O N E PIC K E N S: MAD E T O BE

RIC H , MAD E T O G IV E

C hairman and C E O of BP C apital Management

T . Boone Pickens, dubbed the “Oil Oracle” by C N BC , has always been ahead of his time. In the early 1980s, he was the original corporate raider—although “shareholder activist” has always been the term he’s preferred. H is early focus on maximizing shareholder value, virtually unheard of at the time, has long since become a standard of American corporate culture. As Fortune magazine declared, “Boone’s once revolutionary ideas [are] so completely taken for granted that they have become linchpins of the economy.”

By the early 2000s, Pickens had become a hedge fund manager, making his first billion after turning seventy—with a second career investing in energy assets. In the next decade and a half, he’d turn that billion into $4 billion—$2 billion of which he’d lose again, and $1 billion of which he’d give away.

E ver the optimist, Boone recently married for the fifth time, and at 86, he’s got a huge social media presence and shows no signs of slowing down. After falling off the Forbes 400 list last year, he sent a famous tweet declaring, “D on’t worry. At $950 million, I’m doing fine. Funny, my $1 billion charitable giving exceeds my net worth.” W hen I spoke to him regarding his net worth, he said, “T ony, you know me; I’m going to get the other two billion back in the next couple of years.”

Boone, a D epression-era baby, started with nothing. At 12, he delivered papers and quickly expanded his route from 28 to 156 papers, later citing his boyhood job as an early introduction to “growing by acquisition.” After graduating from Oklahoma State U niversity (then known as Oklahoma A&M) in 1951 with a degree in geology, Pickens built an energy empire in T exas. By 1981, his Mesa Petroleum C orporation had become one of the largest independent oil companies in the world. H is corporate takeovers of the 1980s were the stuff of legend, with G ulf Oil, Phillips Petroleum, and U nocal being some of his most famous takeover targets.

But Pickens’s fortunes (and fortune) were always shifting. W hen he left Mesa in 1996, after a downward spiral in the company’s profits, many counted him out— he would soon lose 90% of his investing capital. But Pickens went on to stage one of the greatest comebacks in his industry, turning his investment fund’s last $3 million into billions.

W hile almost everyone we hear from these days is focused primarily on two asset classes, stocks and bonds, Boone’s BP C apital fund is different: he’s betting on the direction of the energy futures and derivatives markets. And while this book is devoted to helping you achieve financial independence, Boone says our dependence on foreign oil is the single greatest threat not only to national security but also to our economic well-being. Always one to be ahead of the curve, Boone is on a crusade today to free this country from our dependence on OPE C oil and usher in a new wave of energy policy with his Pickens Plan.

I’ve been a fan of Boone’s for as long as I can remember, and I’m now privileged to call him a friend. H e’s been gracious enough to speak at many of my wealth events. W hat follows below is an excerpt of our latest conversations around building wealth, protecting America’s energy future, and his humble beginnings.

T R : T he first thing I have to start with is the incredible story of your birth. Y ou often say you’re the “luckiest guy in the world,” and you really mean it. T ell me about that.

T BP: My mom got pregnant in 1927, and I showed up in May 1928, in a small town in rural Oklahoma. And the doctor said to my father, “T om, you’re going to have to make a tough decision here—whether your wife or your child survives.” And my dad said, “Y ou can’t do that. Surely you can figure out how to get the baby without losing either one of them.” And the lucky thing was, that of two doctors in that small town, my mom’s doctor was a surgeon. And he said, “W ell, T om, what you’re asking me to do is a C aesarean section. I’ve never done it. I’ve seen it. I’ve read about it, and I’ll show you how much

I’ve read.” So he took him across the room and showed him a page and a half he had on C aesarean sections. “T om, this is all I have to go on,” he said. My dad read it and looked at him. “I think you can do it.” T hey knelt down and prayed. And then he talked that doctor into delivering me that day, in 1928, via C aesarean.

T R :     W ow!

T BP: It was 30 years later before they did another C aesarean in that hospital.

T R : H ow incredible that your father had the courage not to accept what other people told him when it came to the life and death of those he loved. H e had the courage to say there is another way, and he wouldn’t bend. T hat certainly has influenced your life, hasn’t it, Boone? Y ou don’t take no for an answer, do you?

T BP: N o, I don’t.

T R :     W ell, your father is the ultimate role model of somebody who had the power to make a tough decision. Y ou’re here, and your mama lived as well. W hat a beautiful story. I now understand the reference to “L uckiest G uy in the W orld.”

T BP: Y ep.

T R : Y ou’ve also been deeply impacted by the concept of honesty, which for many people, unfortunately, in

the financial industry, isn’t a core principle. T alk to me about that.

T BP: T ony, I was on my paper route [as a boy] when I looked down, and something caught my eye, and it was a billfold in the grass. And I recognized it as a neighbor’s of someone on my paper route, so I knocked on the door of his house, and I said, “Mr. W hite, I’ve found your billfold.” And he said, “Oh my gosh, this is very important to me, thank you. I want to reward you.” And he gave me a dollar, which I couldn’t believe. I mean, a dollar was a lot of money back then.

T R :     Of course.

T BP: It was 1940. I was 11 years old.

T R :     W ow.

T BP: So I went home, and I was very happy, and I started to tell my mom and my aunt and my grandma my story—that Mr. W hite had given me a dollar. And they were all shaking their heads. I could tell they didn’t like the story, and I said, “D on’t you understand? H e was happy that I found his billfold and took it to him.” And my grandmother looked at me and said, “Son, you’re not going to be rewarded for honesty.” So it was decided for me to take the dollar back to Mr. W hite.

T R :     T hat’s awesome! So making tough decisions and honesty—those two values have really shaped you. I remember reading a quote from you that inspired me as a kid. I’ve always been fascinated by what makes someone a leader versus a follower, and you said you always lived your life on your own terms. And I think I remember you saying that the secret to leadership was being decisive.

T BP: W e tried to take over G ulf Oil in 1984, and I thought it was a very weak management team. And I said, “T hese guys can’t even pull the trigger.

T hey just aim, aim, aim, and they never fire!” T R : T hat’s great. So you’re able to fire more quickly?

T BP: A lot of people get put in leadership positions, and it drives me crazy because they don’t make decisions. T hey don’t want to make decisions; they would like somebody to do it for them. I feel like the decisions I make will be good, and I’ll see good results.

W ell, that theory has certainly proven itself true.

T R : Y ou became a billionaire by understanding energy and taking advantage of it.

T BP: I’m 19 of 21 accurate predictions on oil prices.

T R :     W ow, 19 out of 21?

T BP: On C N BC , yes.

T R : T hat’s absolutely incredible. And you got $4-agallon gasoline right, yes? N o one thought it would

go that high back in 2011.

T BP: W hen I spoke at your event, T ony, back in 2011 in Sun Valley, I stuck my neck out and said we were going to see $120 a barrel by Fourth of July weekend, which we did. I remember saying global demand was going to hit 90 billion barrels a day, and the price was going to have to go up to meet that level of demand.

T R : Many of my Platinum Partners made a lot of money betting on that prediction, Boone. Y ou gave them a synthetic option for taking advantage of that run-up. It was spot-on, thank you. So given your track record: one of the themes I’ve seen over and over with many of the greatest investors has been a focus on asymmetric risk/reward. H ow do you think about reducing your risk or making sure it’s worth the reward? W hat’s your philosophy on that? T BP: Y ou get an MBA, that’s what they’ll teach you: cut your downside and give yourself a greater upside, and the payoff will come. I never approach investing that way.

T R :     Really?

T BP: L isten, some deals are better than others, and I think we do a good job analyzing risk. But I can’t tell you specifically how I arrive at a decision. I know if I hit it, I’m going to knock it out of the

park. And on the same one, maybe I strike out. I am willing to take big risks to make big rewards.

T R :     Okay, understood. So let me ask you this: If you couldn’t pass on any of your financial wealth, but all you could pass on to your children was an investment philosophy, or a portfolio strategy, what would it be? H ow would you encourage them so that they could have wealth long term?

T BP: I really believe that if you’ve got a good work ethic, you probably pass it on. And if you have a good education to go along with a good work ethic, if you’re willing to work hard; I believe you can get there. I think the good work ethic came to me from a small town in Oklahoma. I saw my grandmother and mother and father all work hard; I saw people all around me work hard. I saw those who got a good education make more money.

T R :     It sounds like rather than teach them a portfolio you want to teach them a mind-set, a work ethic.

T BP: T hat’s right.

T R :     Y ou’ve made and lost billions. W hat is money to you? W hat is wealth?

T BP: W ell, I can tell you when I knew I was wealthy.

T R :    W hen was that?

T BP: W hen I had 12 bird dogs.

T R :     And how old were you?

T BP: I was 50.

T R :     Really!

T BP: I was hunting one day. I’d always had bird dogs, and I’d always been a quail hunter. My dad was, and I was too. But I had one bird dog in the backyard, and when I did better, I had two. W hen I got 12 bird dogs, I had a kennel. And one day I said, “Y ou know, I’m a rich guy. I’ve got 12 bird dogs!”

T R : And you’ve used that wealth to do so much good for this country. I know that you are one of the most generous university benefactors of all time, having given over $500 million to your alma mater, Oklahoma State U niversity, which is absolutely incredible.

T BP: My goal has always been to make OSU more competitive, in athletics and academics. I am privileged to give to my alma mater.

T R : W asn’t your 2005 gift to OSU athletics the single largest in N C AA history?

T BP: T hat’s correct.

T R : T hat’s just amazing. And I know that’s just part of your contribution and giving, which I so admire. L et’s switch gears and talk about energy independence. Y ou made your fortune in the oil industry. Y ou’re not the most likely candidate to be preaching oil independence for this country, and

yet that’s been your mission for the past seven years. T ell me about the Pickens Plan.

T BP: H ere’s the thing, T ony. America is addicted to oil. And that addiction threatens our economy, our environment, and our national security. It’s been getting worse every decade. In 1970 we imported 24% of our oil. T oday it’s nearly 70% , and growing.

T R :      W ow. So you’re trying to move us away from that.

T BP: W ell, we’ve put our security in the hands of potentially unfriendly and unstable foreign nations. If we are depending on foreign sources for nearly 70% of our oil, we are in a precarious position in an unpredictable world. And over the next ten years, the cost will be $10 trillion—it will be the greatest transfer of wealth in the history of mankind.

T R :    T hat’s incredible. So what’s the solution?

T BP: W e can make huge gains by upgrading to renewable sources of energy, but that doesn’t solve our OPE C ²³ problem. OPE C actually has nothing to do with renewables; wind and solar are not transportation fuels. T hat’s where natural gas comes in. Seventy percent of all the oil used every day in the world goes for transportation use. T he

only thing that we’ve got to take out OPE C is natural gas or our own oil.

T R :     So what do we do?

T BP: W e import about 12 million barrels a day, five of which come from OPE C . W e need to produce more natural gas here in the U nited States to get rid of the OPE C oil. And we have the resources to do it. T ony, we’re sitting on a hundred-year supply of natural gas here in America. W e’ve got at least 4 trillion barrels of oil equivalent (BOE ). T hat’s three times the amount of the oil reserves that Saudi Arabia has. If we don’t capitalize on that, we’re going to go down as the dumbest crab that ever came to town.

T R :    T hat’s incredible.

T BP: And natural gas is so cheap right now. A $100barrel of oil is equivalent to [about] $16 of natural gas—we’ve never seen $16 natural gas. W hether it’s for trucking, or power generation, anybody that uses energy today has to consider natural gas. T R :                I know you’ve spent a ton of your own time, energy, and money on the Pickens Plan. Y ou’ve taken your case to the American public and bankrolled a national campaign and media blitz. W hat do you think—is it going to work?

T BP:

I launched this plan in W ashington, D C , in 2008, and I’ve spent $100 million of my own money on this. I feel like I’ve done everything I could on this, and yes, we’re going to get an energy plan for America.

T R : I talk a lot about asset allocation in this book. Virtually all of your assets are in energy; that’s been most of your life, correct?

T BP: T hat’s right, but in energy you have lots of different sectors. W e invest across the energy spectrum but don’t go beyond that.

T R : So that’s your version of asset allocation. If you were an individual investor today, and you had, let’s say, $50,000 to invest, where would you put it?

T BP: D ownstream, you have exploration companies and refineries and all. Most of my time has been spent upstream, on the exploring and producing side of the equation. But right now, natural gas is so cheap.

It’s very interesting; that’s the place to be. Overall, I think the oil and gas industry has a fabulous future, because of technology. T he advancements we’ve made in technology have been unbelievable. O ur country today looks a lot better from a standpoint of natural resources than we did ten years ago. I didn’t feel this way ten years ago. I didn’t feel near as confident as I do today.

T R :    T ell me what drives you, Boone?

T BP: Y ou know, T ony, what drives me at this point is that I like to make money. I like giving it away— not as much as making it, but it’s a close second. I firmly believe that one of the reasons I was put here on this earth was to be successful, to make money, and be generous with it.

T R :     Be generous?

T BP: One of my goals is to give away $1 billion before I die. Y ou know W arren Buffett’s and Bill G ates’s G iving Pledge? T hey called me up and asked me to join. And I said, “If you look at Fortune magazine from 1983, why don’t you join my club, where I said I was going to give ninety percent away?”

T R :    T hat’s spectacular.

T BP: E very day I go to the office, and I look forward to going to the office. T hat’s the way it has been throughout my life. And so, my work is everything to me. But you say that, “N o, my family is everything to me. Y ou can’t say that.” It’s just all fun. W hen I’m with my family, it’s fun. W hen I’m working, it’s fun. T he results aren’t perfect, but they’re good enough to make you think the next day is going to be a home run. T hey may not be, but I still think every day will be.

T R :

Y ou inspire me, like you inspire so many people around the world. I’m inspired by your passion and intensity. At 86, Boone, with so many extraordinary accomplishments, you just keep on growing and giving.

T BP: T hank you, T ony, you’ve been a successful man too, and helped so many people—probably helped a lot more than I have.

T R :      Oh, I don’t know.

T BP: But we’re both winners because we do give.

T R :     Y es, I agree. I love you dearly, my friend. T hank you.

23. O rganization of the Petroleum E xporting C ountries, which include Saudi Arabia, Iran, Iraq, K uwait, and others.

C HAPT E R 6 .9

K Y L E BASS: T H E MAST E R O F RISK

Founder, H ayman C apital Management

As a competitive diver, K yle Bass understands the basic law of physics. H e knows well that what goes up must come down. T hat’s why in 2005 he began to ask questions about the booming U S housing market— questions no one else thought to ask, like, “W hat happens if housing prices don’t keep going up [forever]?” T hose questions led him to make one of the biggest bets in the world on the impending housing crash of 2008 and the economic meltdown that followed. Bass would go on to make a 600% return on his money in just 18 months and secure his place as one of the brightest, most thoughtful hedge fund managers of his time.

K yle does very few interviews, but it turned out my work had inspired him while he was still in college, so I had the privilege of flying out to T exas to sit down with him in his skyscraper building overlooking the great city of D allas. Bass is one of the few financial powerhouses who views his distance from N ew Y ork C ity as a competitive advantage. “W e don’t get bogged down by the noise,” he says.

Bass is humble and approachable. W hen I asked him about the questioning that led him to bet against the housing market, he replied, “T ony, this isn’t rocket science, this is just some idiot from D allas asking questions.”

Bass lives with his family and serves on the board of trustees of the U niversity of T exas Investment Management C o., helping to oversee one of the largest public endowments in the country, with over $26 billion in assets. Y ou’ve already learned about Bass and his nickels: he’s the guy who taught his children the lesson of asymmetric risk/reward by buying up $2 million worth of nickels and earning a 25% return on D ay One of his investment. In fact, Bass says he’d put his entire net worth in nickels if he could find that many coins on the market to buy!

N ickels aside, Bass’s relentless focus on asymmetric risk/reward has led to two of the biggest return bets of the century: in both the housing market and the E uropean debt crisis that began in 2008. And he’s got a third bet under way that he says is even bigger. W hat follows is an excerpt of our two-and-a-half-hour conversation in his downtown office.

T R : T ell me a little about yourself.

K B: I was a springboard and platform diver, which people think is intensely physical. But it’s 90% mental. It’s basically you versus yourself. For me, it was very rewarding. It taught me how to be disciplined and how to learn from my failures. It’s really how you deal with failure that defines you as a person. I have a loving mother and a loving father, but they never saved any money. I swore I would never be like that. My parents both smoked; I swore I would never smoke. For me, I’ve always been driven harder by the negative things in my life versus the positive—

there are many congruencies in my life and your teachings.

T R : Absolutely. W hen I look at the one common denominator that makes somebody succeed, beyond education or talent, it’s hunger.

K B: H unger and pain.

T R : T he hunger comes from the pain. Y ou don’t get really hungry when it’s been easy.

K B: T hat’s right.

T R : So your hunger drove you to start your own fund. It was 2006, right?

K B: C orrect.

T R : T he thing that’s so amazing to me is the speed at which you started producing returns.

K B: T hat was lucky.

T R : Y ou had 20% the first year and, like, 216% the next year, right?

K B: T hat’s right. It was just fortuitous that early on I saw what was going on in the mortgage market. I believe in the saying “L uck is where preparation meets opportunity.” I think I might have read that in one of your books when I was in college. W ell, I was prepared. I like to think that I was lucky and in the right place at the right time because I had all my resources dedicated to that in the moment.

T R :

A lot of people knew about [the housing] problem and didn’t act on it. W hat was different about you? W hat really made you succeed in that area?

K B: If you remember back then, money was basically “free.” In 2005 and 2006, you could get a L IBORplus-250 term loan [meaning, a very cheap loan], and you and I could go buy any company we wanted with a little bit of equity and a ton of debt. I was on the phone with my friend and colleague Alan Fournier at the time, and we were trying to figure out how not to lose betting against housing. And the pundits kept saying, “H ousing is a product of job growth and income growth,” so as long as you had income growth and job growth, home prices would keep going up. T hat, of course, was flawed thinking.

T R : Y es, as we all found out.

K B: I had a meeting at the Federal Reserve in September of 2006, and they said, “L ook, K yle, you’re new to this. Y ou have to realize that income growth drives housing.” And I said, “But wait, housing has moved in perfect tandem with median income for fifty years. But in the last four years, housing has gone up 8% a year, and incomes have moved only 1.5% , so we’re five or six standard deviations²⁴ from the mean.” T o bring those relationships back in line again, incomes would have to go up almost 35% , or housing had to drop 30% . So I called around all the desks on W all Street, and I said, “I want to see your model. Show me what happens if home prices go up only four percent a year, two percent a year, or zero percent.” T here wasn’t one W all Street firm, not one, in June of 2006 that had a model that contemplated housing being flat.

T R : Are you serious?

K B: N ot one.

T R : T hese guys just drank their own K ool-Aid.

K B: So in N ovember of 2006, I asked U BS to put forth a model that had flat home prices. And their model said that losses to the mortgage pool would be 9% . [A mortgage pool is a group of mortgages with similar maturities and interest rates that were lumped together into a single package, or security, called a mortgage-backed security. T hese securities were assigned a high credit rating and then sold to investors—for an expected return. Assuming house prices continued to go up, the pool would deliver high returns.] But if home prices didn’t go up, if they just sat still, these things were going to lose 9% .

I called Alan Fournier of Pennant C apital

Management [he formerly worked for D avid T epper’s Appaloosa Management], and I said, “T his is it.” And when I formed the general partner of my subprime funds, I named it AF G P—after Alan Fournier, because of the phone call we had. Because for me, that phone call flipped the switch.

T R : W ow. And can you tell me what the risk-reward ratio of that bet for you and Alan was?

K B: Basically, I could bet against housing and only pay 3% a year. If I bet a dollar, and home prices went up, all I could lose was three cents!

T R : Amazing. So the risk—the price to bet against housing—was totally out of whack.

K B: Y ep. It only cost me 3% .

T R : Because everyone thought the market would go up forever. And the upside?

K B: If housing stayed flat or went down, I’d make the whole dollar.

T R : So 3% downside if you were wrong, 100% upside if you were right.

K B: Y es. And it’s a good thing I didn’t listen to every mortgage expert I met with. T hey all said, “K yle, you have no idea what you’re talking about. T his isn’t your market. T his can’t happen.” I said, “Okay. W ell, that’s not a good enough reason for me, because I’ve done a lot of work on this, and I may not understand everything you understand.” But I could see the forest for the trees. And the people that live in that market, all they could see were the trees.

T R : Y ou understood the core of risk/reward.

K B: I also heard this a lot: “W ell, that can’t happen because the whole financial system would crash.” T hat still wasn’t good enough for me either. T hat bias—the positive bias that we all have is built in; it’s innate in human nature. Y ou wouldn’t get out of bed if you weren’t positive about your life, right? It’s a bias we have as humans to be optimistic.

T R : It works for us everywhere but in the financial world.

K B: T hat’s exactly right.

T R : W hat’s even more amazing is that after calling the housing bust, you were also right about E urope and G reece. H ow did you do that? Again, I’m trying to understand the psychology of how you think.

In mid-2008, post–Bear Stearns, right before

K B: L ehman went bankrupt, we sat in here with my team and said, “Okay, what’s going on throughout this crisis is that the risk in the world—that used to be on private balance sheets—is moving to the public balance sheets. So let’s get a white board and let’s reconstruct the public [government] balance sheets of the nations. L et’s look at E urope, let’s look at Japan, let’s look at the U nited States. L et’s look everywhere there’s a lot of debt, and let’s try to understand.” So I thought, “If I’m Ben Bernanke [head of the Fed at the time] or Jean-C laude

T richet, president of the E uropean C entral Bank,

and I want to get my arms around this problem, what do I do? H ow do I do it? W ell, here’s what I’d do:

I’d look at my own balance-sheet debts as a country. And then I need to know how big my banking system is in relation to two things: my G D P [gross domestic product], and to my government revenue.”

T R : Makes sense.

K B: So we basically looked at a bunch of different countries and asked, “H ow big is the banking system? H ow many loans are out there?” T hen we tried to figure out how many of them were going to go bad, and then back-solved for how bad it was going to be for us as a country. So I told my team to go call some firms and find out how big those countries’ banking systems were. G uess how many firms had a handle on that mid-2008?

T R : H ow many?

K B: Z ero. N ot one. And we called everybody.

T R : W ow!

K B: So I dug into the white papers on sovereign [country] debt and read them all. T hey are mostly focused on emerging economies, because historically, it was emerging nations that restructured their sovereign balance sheets.

T R : D eveloped nations only restructured postwar.

K B: Right. T wo countries spend a fortune to go to war; they run up debts, and to the victor go the spoils and to the loser went defeat, every time. T hat’s how the world works. In this case, it was the largest accumulation of debt in peacetime in world history.

T R : Amazing.

K B: So how big is the banking system? W e went out there and gathered the data and used two denominators: G D P and central government tax revenue. And this was a huge learning process because we had never done it before. T R : It sounds like nobody else had.

K B: T his isn’t rocket science, T ony. T his is some idiot in D allas saying, “H ow do I get my arms around the problem?” And so we did the work, and I came up with charts, and I said, “Rank them worst to best.” W ho is the single worst entry on that sheet?

T R : Iceland?

K B: Right, Iceland went first. W ho was next? It wasn’t rocket science.

T R : G reece?!

[Kyle nods yes.]

T R : W ow.

K B: So we did all this work, and I looked at the analysis, and I said, “T his can’t be right.” I was being

hyperbolic to my team. I was saying, “If this is right, you know what’s going to happen next.”

T R : C orrect.

K B: So then I asked, “W here are the insurance contracts trading on Ireland and G reece?” and my team said, “G reece is eleven basis points.” E leven basis points! T hat’s 11/100ths of 1% . And I said, “W ell, we need to go buy a billion of that one.” T R : W ow, that’s incredible.

K B: Mind you, this is third-quarter 2008.

T R : T he writing was on the wall at that stage.

K B: I called Professor K enneth Rogoff at H arvard U niversity, who didn’t know me from Adam. And I said, “I’ve spent several months constructing a world balance sheet and trying to understand this.” I said, “T he results of our construct, they’re too negative for me.” I literally said, “I think I must be misinterpreting these. C ould I come sit down and share with you the results of my work?” and he said, “By all means.”

T R : T hat’s great.

K B: So I spent two and a half hours with him in February of 2009. And I’ll never forget: he got to the summary page, with a chart of all the data, and he sat back in his chair, put his glasses up, and said, “K yle, I can hardly believe it’s this bad.” And I’m

immediately thinking, “Oh shit! All of my fears are being confirmed by the father of sovereign balance sheet analysis.” So if he wasn’t thinking about it, do you think Bernanke and T richet were? N o one was thinking about this; there was no cohesive plan.

T R : N one?

K B: H e was dealing with curveballs as they were being thrown.

T R : T hat’s just unbelievable. So I have to ask about Japan, because I know that’s what you’re focused on now.

K B: Right now, the biggest opportunity in the world is in Japan, and it’s way better than subprime was. T he timing is less certain, but the payoff is multiples of what the subprime market was. I believe the world’s stress point is Japan. And it’s [about] the cheapest it’s ever been right now— meaning, [to buy] a kind of insurance policy.

T R : Y es, and what is it costing you?

K B: W ell, the two things to take into account for the options pricing model are (1) the risk-free rate and the (2) volatility of the underlying asset. So imagine if the turkey used this theory. If he were gauging his risk [of being killed] based upon the historical volatility of his life, it would be zero risk.

T R : Right.

^{K B:} U ntil T hanksgiving D ay.

T R : U ntil it’s too late.

K B: W hen you think about Japan, there’s been ten years of suppressed prices and subdued volatility. T he volatility is mid-single digits. It’s as low as any asset class in the world. T he risk-free rate is one-tenth of 1% . So when you ask the price on an option, the formula basically tells you it should be free.

T R : Right.

K B: So if the Japanese bonds move up 150 basis points to 200 basis points [1.5% to 2% ], it’s over. T he whole system detonates, in my opinion.

T R : W ow.

K B: But my theory is, I have always said to our investors, “If it moves two hundred basis points, it’s going to move fifteen hundred.”

T R : Right.

K B: It’s either going to sit still and do nothing, or it’s going to blow apart.

T R : T his all plays into your idea of “tail risk.” T ell me what tail risk is; not many investors focus on it.

K B: If you look at what I’m doing, I’m spending three or four basis points a year on Japan. T hat’s fourhundredths of 1% , okay? If I’m right about the binary nature of the potential outcome of the

situation there, these bonds are going to trade at 20% yields or higher. So I’m paying four-tenths of 1% for an option that could be worth 2,000% !

T ony, there has never been a more mispriced option that’s existed in the world’s history. N ow, that’s my opinion. I could be wrong. So far I am, by the way.

T R : Y ou’re wrong on timing.

K B: I’ll tell you what. I can be wrong for ten years, and if I’m right ten years from now, it was still 100% odds on that to be there before it happened. And people say to me, “H ow you can bet on that, because it’s never happened before?” And I say, “W ell, how can you be a prudent fiduciary if I give you the scenario I just laid out, and not do this? Forget whether you think I’m right or wrong. W hen I show you the cost, how do you not do that? If your home is in an area that is prone to fire, and 200 years ago there was a big fire that wiped everything out, how do you not pay for home owner’s insurance?”

T R : G ot it, that’s awesome. So let me ask you this: D o you consider yourself to be a significant risk taker?

K B: N o.

T R : I didn’t think so; that’s why I asked. W hy do you say you’re not a risk taker?

K            B:

L             et me rephrase that. Significant risk taker meanswe can lose all of our money. I never set myself up for the knockout punch.

T R : T ell me this: If you could not pass on any of your money to your children, but you can only pass on a portfolio and a set of rules, what would that look like for your kids?

K B: I’d give them a couple hundred million dollars’ worth of nickels because then they wouldn’t have to worry about anything.

T R : T hey’re done, their investment portfolio is done. Oh my G od, that’s wild. W hat gives you the most joy in life?

K B: I have my kids.

T R : T hat’s awesome!

K B: A hundred percent.

T R : K yle, thank you. I so enjoyed this, and I learned a lot!

24. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment’s volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.

C HAPT E R 6 .10

MARC FABE R: T H E BIL L IO N AIRE T H E Y C AL L D R. D O O M

D irector of Marc Faber L imited; Publisher of Gloom, Boom & D oom report

T he fact that Marc Faber’s investment newsletter is called the Gloom, Boom & D oom report should give you a hint about his outlook on markets! But this Swiss billionaire isn’t your average bear. Marc, who’s been a friend of mine for many years, is a colorful, outspoken contrarian who follows the advice of the 18th-century investor Baron Rothschild: “T he best time to buy is when there’s blood in the streets.” And like Sir John T empleton, he hunts for bargains that everybody else ignores or avoids. T hat’s why, while so many are focused on the U S stock market, Marc Faber looks almost exclusively to Asia for his growth investments. H e’s also a blunt critic of all central banks, particularly the U S Federal Reserve, which he blames for destabilizing the world’s economy by flooding it with trillions of dollars, virtually “printed” out of thin air.

Marc has earned the nickname “D r. D oom” by continually predicting that the most popular assets are overpriced and headed for collapse. As the Sunday T imes of L ondon wrote, “Marc Faber says the things nobody wants to hear.” But he’s often been right, especially in 1987, when he made a huge fortune anticipating the U S stock market crash.

Faber’s father was an orthopedic surgeon, and his mother came from a family of Swiss hoteliers. H e earned a PhD in economics at the U niversity of Z urich, and started his financial career with the global investment firm W hite W eld & C ompany. By 1973, he had transferred to Asia, and never looked back. From his office in H ong K ong and his villa in C hiang Mai, T hailand, Marc has had a front row seat to the incredible transformation of C hina from a communist quagmire to the growth engine that drives the whole region. H e’s now considered one of the leading experts in Asian markets.

Marc is known for his eccentricity—he gleefully acknowledges his reputation as a “connoisseur of the world’s nightlife”—and is a popular speaker at financial forums and on cable news shows. H e’s a member of the prestigious Barron’s R oundtable, where, according to independent observers, his recommendations have had the highest returns, almost 23% per annum, for 12 years in a row.

Marc is also the author of several books on Asia, and the director of Marc Faber L imited, a H ong K ong–based advisory and investment fund. Marc speaks E nglish with a gravelly Swiss accent and never takes himself too seriously. H ere’s an excerpt from my onstage interview with him at my Sun Valley economic conference in 2014.

T R : W hat would you say are the three biggest investment lies that are still promoted in the world today?

^{MF :} W ell, I think everything is a lie! It’s always very simple! But, I mean, look: I’ve met a lot of very honest people and so forth, but unfortunately, in your lifetime, you will come across more salesmantype financial advisors. Y ou should really have people that are very honest. But I can tell you this from experience: everybody will always sell your dream investments, and my experience has been, being the chairman of many different investment funds, usually the clients make very little money. But the managers of the fund and the promoters, they all walk away with a lot of money. All of them.

T R : W here should investors turn?

MF : T here are different theories in the investment world. T here are essentially the efficient-market theory proponents. T hey say that markets are efficient. In other words, when you invest, the best is just to buy an index. And the individual selection

of securities is basically useless. But I can tell you, I know many fund managers that have actually significantly outperformed the markets over time, significantly. I believe that some people have some skills at analyzing companies because they’re either good accountants or they have skills.

T R : W hat do you think of the markets these days?

MF : I think there’s still risk in the emerging world, and it’s still too early to buy their currencies and stocks—

and it’s too late to buy the U S. I don’t want to buy the S&P index after it reaches 1,800. I don’t see any value. So best is to go drinking and dancing and do nothing! D o you understand? It was Jesse

L ivermore [a famous early-20th-century trader] who said, “T he most money made is by doing nothing, sitting tight.” Sitting tight means you have cash.

In your life, the important thing is not to lose money. If you don’t see really good opportunities, why take big risks? Some great opportunities will occur every three, four, or five years, and then you want to have money. T here was a huge opportunity in U S housing prices at the end of 2011. Actually, I wrote about this. I went to Atlanta to look at homes, and then Phoenix. I don’t want to live there, but there was an opportunity. But the opportunity closed very quickly, and the individuals were at a disadvantage because the hedge funds came in [with cash]—the private equity guys, they just bought thousands of homes away.

T R : D o you see deflation or inflation coming?

MF : T he inflation-deflation debate is misplaced, in my view, in the sense that inflation should be defined as an increase in the quantity of money. If the money in circulation increases, as a result credit increases, we have monetary inflation. T his is the important

point: monetary inflation. T hen we have the symptoms of this monetary inflation, and these symptoms can be very diverse. It can be an increase in consumer prices, it can be an increase in wages, but again, it’s not as simple as that because in the U S, we have, in many sectors actually, a decline in wages in real terms over the last 20 or 30 years already, inflation adjusted. But what about the wages in Vietnam and in C hina? In C hina, wages have been going up at the rate of something like 20% or 25% per annum and also elsewhere in emerging economies.

So to answer your question, in a system, we can have deflation in certain things, and assets and goods and prices and even services and inflation in others. It’s very seldom that in the world everything will go up in price at the same rate or everything will collapse in price at the same rate. U sually, if you especially have a fiat currency system, those who can print money, and what you will have is the money doesn’t really disappear. It just goes into something else. W hat can disappear is credit—that’s why you could have an overall price level that would be declining.

But for us investors, we essentially want to know which prices will go up. L ike, “Is the price of oil going to go up or down?” Because if it goes up, then maybe I want to own some oil shares; and if it goes down, I may want to own something else.

T R : W hat would you suggest would be the asset allocation to take advantage of in the environment we’re in right now and to protect yourself?

MF : W ell, my asset allocation used to be 25% shares [stocks], 25% gold, 25% cash and bonds, and 25% real estate. N ow I have reduced my stock positions as a percentage of the total assets. I have more cash than I would normally have. I increased the real estate in Vietnam, and I increased the equity portfolio in Vietnam.

T R : So what might that look like today then, percentagewise, out of curiosity?

MF : W ell, I mean, it’s difficult to tell because it’s so big. T R : Are you talking about portfolio or something else?

MF : [L aughs.] N o, the thing is this: I don’t know! I mean, I’m not counting everything every day.

T R : W ell, what would it look like roughly?

MF : Roughly, I think bonds and cash would be now something like 30% , 35% . And then stocks maybe 20% ; then real estate, I don’t know, 30% ; and gold 25% . It’s more than 100% , but who cares? I’m the U S T reasury!

T R : W e know why you like cash. W hat about bonds, when many people are afraid they’re at the lowest level they can be?

MF : T he bonds I traditionally hold are emerging-market bonds. T he corporate bonds are also mostly in dollars and euros. But I want to explain this very clearly. T hese emerging-market bonds have a very high equity character. If the stock markets go down, the value of these bonds also decline. L ike, in 2008, they tumbled like junk bonds. So they’re more like equities than T reasuries. I own some of these. T hat’s why when I say I’ve a low equity exposure of 20% , my equity exposure through these bonds is probably more than 20% —maybe 30% .

I think sometimes as an investor, we make a mistake that we have too much confidence in our view, because my view is irrelevant for the whole marketplace, do you understand? T he market will move independently of my view, so I may not be optimistic about T reasuries, but I could see a condition under which T reasuries would actually be quite a good investment even for a few years. Y ou will only earn your 2.5% or 3% . But that may be a higher return in a world where asset prices go down. D o you understand? If the stock market goes down for the next three years by, say, 5% per annum or 10% per annum, and you have this yield of 2.5% to 3% , then you’ll be the king.

T R :

W hat about other asset classes?

MF : T here’s a lot of speculation for high-end real estate; high-end real estate is at an incredibly inflated level. I believe all these inflated levels—I’m not saying they can’t go any higher, but I am suggesting that one day they’ll come down meaningfully. And that in that condition, you want to have something that is a hedge.

T R : Y ou have a quarter of your assets in gold. W hy?

Actually, what is interesting is when I told this to

MF : audiences before 2011 [when prices started dropping], people said, “Marc, if you’re so positive about gold, why would you only have 25% of your money in gold?” I said, “W ell, maybe I’m wrong, and I want to be diversified because the gold price has already had a big move and is due for consolidation.” G old is probably to some extent a hedge, but not a perfect hedge in an asset-deflation scenario if you have it in physical form. But it’s probably a better investment than a lot of other illiquid assets. It will probably also go down in price, but less than other stuff. T reasury bonds, for a few years at least, should do okay in a deflation scenario for asset prices—at least until the government goes bankrupt!

T R :

L ast question. If you couldn’t pass on money to your kids, only a set of principles to build a portfolio, what would they be?

MF : I think the most important lesson I would give a child or anyone is: it’s not important what you buy; it’s the price at which you pay for something. Y ou have to be very careful about buying things at a high price. Because then they drop, and you’re discouraged. Y ou have to keep cool and have money when your neighbors and everybody else is depressed. Y ou don’t want to have money when everybody else has money, because then everybody else also competes for assets, and they are expensive.

I would also say, look, I personally think we have in general no clue about what will happen in five or ten minutes’ time, let alone in a year’s time or ten years’ time. W e can make certain assumptions, and sometimes they look fine and sometimes they’re bad and so forth, but we really don’t know for sure. T hat’s why as an investor, I would say you should be diversified.

N ow, not every investor can do that because some investors, they invest in their own business. If I have a business like I’m Bill G ates, then I put all my money in Microsoft—and that was, for a while, at least, a very good investment. Probably for most people, the best is to have their own business and to invest in something where they have a special edge compared with the rest of the market; where they have an insider’s knowledge. T hat’s what I would do. Or give money to a portfolio manager. If you’re very lucky, he will not lose your money, but you have to be very lucky.

C HAPT E R 6 .11

C H ARL E S SC H W AB: T AL K IN G T O C H U C K , T H E PE O PL E ’S BRO K E R

Founder and C hairman of C harles Schwab

C orporation

Y ou’ve seen the ads: a handsome, white-haired man looks directly at you through the camera and urges you to “own your tomorrow.” Or maybe you remember the ones where cartoon people ask questions about their investments, and a balloon pops up encouraging them to

“T alk to C huck.” T hat’s the style of personal engagement and openness that’s kept C harles Schwab at the pinnacle of the discount brokerage industry for the past 40 years, and has helped build a financial empire with $2.38 trillion in client assets under management, 9.3 million brokerage accounts, 1.4 million corporate retirement plan participants, 956,000 banking accounts, and a network serving 7,000 registered investment advisors.

Before C huck Schwab came along, if you wanted to buy some stocks, you had to go through a cartel of traditional brokers or brokerage firms that charged exorbitant fees for every trade. But in 1975, when the Securities and E xchange C ommission forced the industry to deregulate, Schwab created one of the first discount brokerages and pioneered a whole new way of doing business that shook W all Street to its core. H e led an investor revolution, where suddenly individuals could participate fully in the markets without costly middlemen. W hile clubby brokerages like Merrill L ynch raised their trading fees, C harles Schwab slashed—or even eliminated—his fees and offered an array of no-frills services that put the clients’ interests first and established the model for a new industry. L ater he led the charge into electronic trading, and he continues to pioneer innovations that educate and empower investors to make their own decisions.

At age 76, C huck Schwab comes across with tremendous humility and integrity. “People seem to have confidence in us,” he told me. “W e try to treat everyone with the sense that we are trustworthy and we need to take care of their assets in a very cautious way.”

It’s possible that C huck’s modesty and quiet confidence come from a life spent overcoming a series of challenges, beginning with a struggle with dyslexia—a learning disability he shares with a surprising number of ultrasuccessful business leaders, from Richard Branson of the Virgin G roup to John C hambers of C isco Systems. D espite his reading difficulties, C huck graduated from

Stanford U niversity and earned an MBA from Stanford

Business School. H e launched his career in finance in 1963 with an investment newsletter. C huck embraced his status as a W all Street outsider and planted his flag in his native C alifornia, establishing his brokerage firm in San Francisco in 1973. Since then, the C harles Schwab C orporation has ridden the wild bull and bear markets of the past four decades, bouncing back from the crashes of 1987, 2001, and 2008 that wiped out lesser firms, taking on the slew of copycat companies that eroded its market share, always finding ways to innovate and grow in every environment.

Although he turned over the reins as C E O in 2008, C huck stays active in the company as its chairman and largest single shareholder. According to Forbes, C huck Schwab has a personal fortune of $6.4 billion. W ith his wife and his daughter, C arrie SchwabPomerantz, he’s been incredibly involved in the family’s private foundations, which support entrepreneurial organizations working in education, poverty prevention, human services, and health. H e’s also chairman of the San Francisco Museum of Modern Art.

C huck Schwab and I both have crazy schedules, but we were finally able to meet in his San Francisco offices just as this book was about to go to press. H ere are some excerpts from that conversation:

T R : E veryone knows the name C harles Schwab. T hey know the institution. But most people don’t really know your story. I wonder if you would just share a few highlights? I understand you started becoming interested in investing as early as thirteen?

C S: T hat’s right. W hen I was thirteen, it was right after W orld W ar II, and the world wasn’t too rich. My dad was a small-town lawyer in C alifornia’s Sacramento Valley, and certainly our family wasn’t very rich. I thought I’d be better off in life if I had more money, so I had to figure out how to make money. I talked to my dad about it, and he encouraged me to read biographies of the famous people in America. And they all seemed to do something about investing. So I said, “Man, that’s for me!”

So when I was 13, I started a chicken company. Raised chickens and all that. And then I did a bunch of other little business kinds of things. So I knew a lot about business and started thinking about how businesses function and operate.

T R : W hat was your original vision? And what were your first real practical steps? G ive me highlights, if you would, to give people a sense of your journey.

C S: W ell, I was quite lucky early in the journey. I started out as a financial analyst, and I had some ups and downs along the way. I was about 35, and I had a lot of experience before I really started the company in 1973. And as a result, I knew some of the handicaps of the financial business. Including why they didn’t treat people well enough. It was because they were really focused on making themselves money—but not on giving the investor a fair shake. T hey always thought about their institution and making money first. I said, “Aha! T here’s gonna be a different way!”

T R : W hat has been the competitive advantage at C harles Schwab over the years? I mean, if you look at the size of the N orth American investment market, I think it’s about $32 trillion. And you guys have to represent a sizeable amount.

C S: W e’re probably 5% to 10% of the retail market. Something like that. But you know, as I got into business, I wanted to look at every product, every service that we offer clients, through clients’ eyes. W e would design a product like a noload mutual fund. W e did it in a big way. W e made it free for people to buy no-load funds through us, years ago.

People would say, “W ell, how are you gonna make money at that?” So we figured out a way to make some money at it. W e worked with the mutual fund companies and convinced them to pay us a little fee out of their management fees. And our clients would benefit from it. And it flourished. So the individual got a great advantage by buying a plethora of no-load mutual funds for no fee. W e did the same kind of analysis along the way for other things that we did. W e looked at it first through the clients’ eyes.

But W all Street did just the reverse. T hey always made a decision: “H ow much money can we make on this first? Okay, let’s do it. L et’s go sell it, boys.” T hat’s the way they made decisions. W e were completely the opposite.

H as that shifted? Or is it still the same?

T R :

C S: It’s still the same. And that’s why it’s a pretty interesting market for us. Y ou know, we have sort of an unlimited destiny, I think, to continue to treat the client as the king. And make sure we do everything

that’s in their interests first. Y es, we will make a little bit of money. W hich we do, of course. W e’re a profit-making organization. But first, we think about the client.

T R : W hat do you think are the two or three myths that you try to point out to them to pay attention to so they don’t get sucked in when they think about investing?

C S: W ell, it’s so easy. I’ve watched it in W all Street so many times. Y ou see the abuses that come about. Some really fancy broker comes along and says, “Ma’am, would you like to make some money?” Of course, we all say, “Yes!” And then you get engaged in the conversation. “T hese guys have the best widget you’ve ever seen in your life. And it’s gonna be just like another Apple.” So we all, naturally, sort of listen to the story, then say, “Okay, I’ll put some money into that.”

W ell, the probability of that working out is about 1 in 10,000. It’s like, why don’t you just go to the horses? Or buy a lottery ticket that day? T hat’ll satisfy your speculative thing. Put the real money you have into an index fund, where you know the outcome is going to be highly predictable and returns will be really quite good.

T R : So many people will get hurt because they don’t know things and they don’t ask questions. And you’re one of the first people to say, “Ask questions.”

C S: Right.

T R : But very few people know the questions to ask. Y ou know, they see a mutual fund, and they see its return. And they think that’s the return they receive. And as you and I both know, that’s just not true.

C S: It’s just not true. It’s never. Anything of the past is never promised for the future. But there are reasons why we put out a pamphlet, a white paper on index funds. W e talk about the reason why stocks are the greatest place, really, to have long-term investments. And the reason why is that companies are in business to grow. E very board I’ve ever been on—and I’ve done six or seven different Fortune 500 boards— every conversation at the board meeting is about growth. H ow can we grow this company? If you don’t grow, you fire the management. G et a new management team in.

N ow, that building over there is a beautiful building. But you come back 100 years from now. T hat building would still be the same size. Or be knocked down. But it doesn’t grow. Only companies grow. And that’s why it’s a fantastic thing to go to stocks. And, of course, in our case, we try to encourage people to go into index funds, so they get a broad blend of industries and stocks and so forth. T hen they have—

T R : —the lowest costs.

C S: T he lowest costs, and they get a high degree of certainty that they’re going to do as well as the index will do. And if you look at any industries over the last 100 years, they’ve done extraordinarily well over time and brought great returns to clients.

T R : If you listen to Vanguard’s Jack Bogle or somebody like D avid Swensen from Y ale, they all say passive management is the way to go. Because 96% of all mutual funds do not match the index over a ten-year period of time. But how do you feel about it for the average investor: passive versus active?

C S: W ell, I’m a mixed investor. I invest in a lot of individual stocks. But I have the time. I have the expertise. I have the education. But 98% of people don’t focus on that. T hey have other things in life to do, rather than fuss around with investments as I have done, or W arren Buffett has. Y ou know, they are professionals, and they’re doctors. Or lawyers. T hey’re whatever. W e need all those people to make a successful society. And maybe 2% of us really know about investing. So the rest of the people need some help and advice. T hat’s what I learned early on, and that’s what we do today. And the 98% should really predominantly go into index funds, in my view. T hey have the most predictable outcomes. Better than they would ever do by trying to pick different things, which is very difficult to do. And then do their other job too. Y ou can’t do both.

T R : T he other part is, people just don’t realize what the cost is, as Jack Bogle points out. For every 1% over the lifetime of investing, it’s 20% of your money you’re giving up.

C S: Y eah. It’s over.

T R : G ive up 2% , that’s 40% . G ive up 3% , that’s 60% .

C S: T hat’s a whole lot. And on an after-tax basis, it really mounts up.

T R : E very major investor that I spoke to talks of the fact that asset allocation is the single most important investment decision a person can make. Y ou deal with so many different types of investors. W hat philosophy do you try to have your team apply to help people understand what their asset allocation should be?

C S: W ell, it’s actually pretty easy today. It wasn’t that true 40 years ago. N ow we have index funds that we mentioned. And E T Fs. So you can get different slices of the market so you can have plenty of diversification. Y ou want energy stocks? Y ou can get an energy E T F. Y ou want medical devices? Y ou can do that. And, of course, I tend to believe you should be diversified among the very biggest and ten biggest industry groupings. And that’s what you generally get in a general index fund. Y ou get all of them, because you never know. Sometimes electronic equipment will be going, zooming right up. Oil might not be doing so well. But next year? Oil is in demand, so oil prices are going up. And that does well. And so on and so forth. But it allows you to get the balance of the benefits of each of these sectors.

T R : H ow do you feel about investing in America versus international, when you’re trying to create that asset allocation?

C S: T hat’s another level of sophistication, which I think everybody should have in their portfolio. Some chunk devoted to international, because the very simple fact is, America is growing at about 2% to 3% per annum now. T here are many other countries that are beginning to, from C hina to Indonesia to

Japan, have better growth than America. So that’s

where you’re gonna get your returns, where there is better growth, frankly.

But even though the American economy is only growing 2% , there are some parts of our economy that are really growing quite fast. So obviously you want to be attracted to them too.

T R : W here do you see the world going in the next ten years? W hat do you think those opportunities and challenges are for investors?

C S: I think there are enormous opportunities ahead of us still. D espite how slow things are going right now. It will explode once we get the kind of policies I think will eventually get back in. Because there’s no way you’re gonna take the growth component out of America. T he innovation going on in this country is profound. I mean, I live in the San Francisco area, where it’s just going, busting at the seams wherever you walk. It’s there.

T R : Are we in a market bubble with the Fed controlling rates the way they are? W here you would have to take significant risk to see rewards? T he market seems to be the only place for the money to go. H ow long does that last?

C S: W ell, I’m not a great fan of the present policy of the Federal Reserve. I think manipulating rates, as long as they have, is really not the right decision. And I

guess it does create the potential and the possibility of some kind of bubble. It won’t be forever. W e will probably pay a price for it. But it’s not a permanent issue. And so there’ll be some high inflation or down markets. T here will be a consequence for what we’re doing now. But we’ll get through it. As we do every time there’re bad decisions made by policymakers. T R : T hey all have a different language for it, but for every single major investor in the world, one of their competitive advantages is asymmetric risk/reward. T hey take a little risk to try to get a big reward. H ow does the average investor do that today? Is there any insight you can give them?

C S: W ell, I think it’s all coming back to the answer:

W here can you get the best growth?

U nderstanding the fundamentals of growth is crucially important to get long-term returns.

N ow, in the case of W arren Buffett, he learned that at a young age. H e just buys companies, and he never sells. W hy? C ompanies keep growing. T hey just keep growing. And he gets richer and richer.

T R : H e doesn’t pay taxes.

C S: And he doesn’t pay taxes. If you don’t sell, you don’t pay taxes!

T R : T hat’s pretty awesome.

C S: T hat’s his mystery. T he myth has been solved! H e doesn’t sell!

T R : I believe you have five children.

C S: And twelve grandkids.

T R : T welve grandkids! T ell me: If you could leave none of your money to your children, but you could only leave a set of investment principles and maybe a portfolio, what would be your advice to them?

C S: W ell, I think it really starts with earning your own money. H aving success in that. And the concept of putting some money aside.

•   Make sure you get the right education. Andhopefully it fits into the marketplace, where jobs are being created.

•   Y ou’ve got to have a well-paying job, which arenot that plentiful today.

•   And then putting the money aside in your 401(k)or IRA. It takes giving up things. N ot buying that car. G iving up that vacation. H aving something set aside.

•   And then you could begin doing the properinvesting.

It’s a pretty simple formula. L ots of people don’t realize it, but hopefully you can teach people to do that.

T R : [L aughs.] H opefully I can!

C S:

Y ou know, I believe in leaving something. Making sure the kids are educated, but not sizeable sums of money. D on’t take away their sense of their own opportunity, their own ego development. T heir own kinds of things that will fulfill them. Y ou have to be a really curious person. Make sure every one of your kids is really curious. And it’s not necessarily about making money.

H aving come from a background of no money and no wealth, I clearly know the difference. And of course, in the last 20 years, I’ve had the benefit of success, which allows me incredible choices. For my wife and me, we take a vacation without worrying about the cost of it. H aving a good time. I enjoy my sports. I love my golf. And it goes on and on and on. And so we want to perpetuate this success. W e want our next generations to have what we had, and then some.

T R : Y ou’ve dealt with so many successful people. Y ou’ve studied successful companies and the individuals who drive their growth. W hat do you think is the single most important factor?

C S: Y ou know, maybe it’s 99% necessity. But lots of people out there in the world really do need more resources. But they don’t have the education. Somehow they didn’t have the motivation. Maybe they don’t sense opportunity in front of them. H ow

to perceive the opportunity that is right there? Y ou look around at these other guys who have been successful, and you think, “I can do that too.” H ow do you sense that? I don’t know.

T R : Y ou’re 76 now, and you didn’t find out you were dyslexic until you were in your 40s, right?

C S: Right.

T R : A lot of people think of that as a limit on their life. H ow come it was never a limit to you?

C S: Maybe, thank G od, that I didn’t know when I was a kid! But my son was just starting school when we took him for testing [and found out he was dyslexic]. I said, “Oh my G od. All the things that I had to deal with at age seven, eight, and nine, he’s dealing with now!” And it was very clear that I was also dyslexic, so that solved a lot of my issues when I thought back about my early schooling. T he alphabet was impossible for me. My reading—even to this day, I don’t read novels. I read nothing but nonfiction. T R : W ow. So what allowed you to succeed in the financial business, then?

C S: W ell, I was pretty good at math. And I was pretty good with people. I wasn’t a great writer, but I had people around me who were great writers. So you learn very quickly: you can’t do it all yourself. Y ou need to have people around you who are better than you are at most other things. But you have to be able

to inspire the people around you to work together for whatever your common purpose is. And that’s what I’ve been able to do all these years.

T R : W hat’s your passion?

C S: I’m totally passionate about the necessity for people to earn and save and grow because of the responsibility we all have for our own retirements. And goodness gracious, we’re gonna live, you know. I’m in my seventies. But the probability now is living to 90, 95. It’s a long time to be in retirement. And so you’ve got to put aside a lot of assets, I think, in order to live comfortably.

T R : People I talked to who knew you 20 years ago say your passion is as great or greater than it ever was.

C S: Probably greater. [L aughs.]

T R : W ow. W hy is that? H ow have you maintained that? H ow has that continued to expand?

C S: W ell, I have seen, for instance, what you can do with philanthropy. And how you can really help people. By being successful. W ell, I couldn’t do it if I was not successful. I wouldn’t have the resources to do it with.

But I can make things happen in different ways.

W hether it’s issues around dyslexia. I can help kids.

Or in charter schools, we can help kids. Or if it’s in museums, help build better and bigger places for people to come and see and view art.

I think one of the great fulfillments of achieving great success is being able to, in your lifetime, give back to things; that it really enhances many, many times, you know, what people can really enjoy, and yourself.

T R : If someone was starting out brand new, what would be the advantage you would try to give them, looking to start a business? H ow do you go from the vision of a young man that you were, who said, “I want to really help people look out for the customer,” to building a multitrillion-dollar business? W hat would you tell people they should really focus on?

C S: W ell, getting all the education and the practical experience. And then having the patience to do it day in and day out. D ay in and day out. It’s not easy, let me tell you that. It’s like the restaurateur serving great food every meal. It’s not easy. But that’s how you make a great restaurant. T hat’s how you make a great car dealership. Service every day. Y ou can’t miss the ball. Y ou’ve gotta hit the ball out of the park every day. W ith service. And the same with technology. In our lifetime, we’ve seen many companies go in the tank because they weren’t able

to innovate. Or actually, they didn’t figure out a product or service that really served the customer well. T hey lost their customers. Never lose a customer. Figure that one out.

T R : L ast question. I’m sure it will be 20 or 30 years from now, because you’re taking care of yourself and your health, and you’re so passionate, but how do you want to be remembered? W hat’s your legacy for you and what you’ve built over this lifetime?

C S: W ell, I [have] a variety of them, of course. For my family and so forth. In terms of the professional side, I feel really proud about the fact that I really made a huge change to the practice of W all Street. T his is an institution that’s been around for a couple hundred years. And we, this little company on the W est C oast, took them on in different ways. And really made a change in the character of how they treat clients. And they’re doing a much better job. N ot as good as we are! [L aughs.] But they’re doing a much better job and are much more thoughtful about how they treat their clients.

T R : Y ou led by example.

C S: T hanks very much.

T R : Blessings to you. T hank you for your time.

C HAPT E R 6 .12

SIR JO H N T E MPL E T O N : T H E

G  RE AT E ST IN V E ST O R O F T H E 20T HC E N T U RY ?

Founder of T empleton Mutual Funds;

Philanthropist; C reator of the £1 Million

T empleton Prize

Sir John T empleton wasn’t just one of the greatest money masters of all time, he was one of the greatest human beings who ever lived. And I had the honor of counting him as one of my mentors. H is motto, “H ow little we know, how eager to learn,” guided his long and dazzling life as an investment pioneer, iconoclast, spiritual seeker, and philanthropist. Sir John was known for his ability to look at the most difficult situations in the world and find a way to take advantage of them for the greater good.

John T empleton was not always known as “Sir John.” H e came from humble beginnings in a small town in T ennessee, where he was reared to value thrift, selfsufficiency, and personal discipline. H e worked his way through Y ale and Oxford, and got his first job on W all Street in 1937, in the depths of the G reat D epression. H e was the original contrarian, who believed in buying shares at “the point of maximum pessimism.” W hen everyone else thought the world was going to end, John thought it was the right time to invest. W hen everyone else thought, “Oh my G od! T hese are the greatest times in history!”—that was when it was time to sell.

H  e first put his theory to the test in the fall of 1939.W ith the D epression still raging and H itler’s troops rolling into Poland at the start of W orld W ar II, John T empleton decided to take all the money he had saved and borrow some additional money as well and buy $100 worth of every stock valued at $1 or less on the N ew Y ork exchanges. T hat portfolio became the basis of a vast personal fortune and asset management empire. H e also became a pioneer in international investing. W hile the rest of Americans refused to look beyond U S borders, John was scouring the world for opportunities.

And as his fortune grew, so did his commitment to giving back. In 1972 he established the world’s largest annual award given to an individual, bigger than the N obel Prize, honoring spiritual achievements. Mother T eresa was the first recipient of the T empleton Prize. H is foundation also funded research in science and technology, and in 1987 Queen E lizabeth knighted him for his enormous contributions to humanity.

Sir John continued to speak and write and inspire millions with his humble message of integrity, entrepreneurship, and faith, right up to the time of his death in 2008 at the age of 95. (Incidentally, he had accurately predicted the collapse of the housing bubble that year.) T he following is an excerpt from an interview I conducted with him just months before his passing. H is kindness shines through in every answer, as he shares his philosophy that the same qualities that make you a great investor can also make you a great human being.

Sir John, most people seem to be either money

^{T R :} oriented or spiritually oriented—they have to be one or the other—but you seem to have found a way to integrate these two in a truly natural and real way in your life. C an people integrate both in their lives?

JT : D efinitely! T here is no disparity. W ould you want to deal with a businessman you could not trust? N o! If a man has a reputation for not being trustworthy, people will run away from him. H is business will fail. But if another man has high ethical principles, high spiritual principles, he will try to give to his customers and his employees more than they expect. If so, he will be popular. H e will have more customers. H e will make more profit. H e will do more good in the world, and thereby he will prosper himself and have more friends and be more respected.

So always start out to give more than is expected from you, to treat the other person more than fairly, and that is the secret of success. N ever try to take advantage of anyone or to hold anyone back in their own progress. T he more you help others, the more prosperous you will be personally.

T R : W hat was your first investment? W hat drew you to it, and how did it turn out?

JT : I was just getting started when it was the beginning of the Second W orld W ar in September 1939. W e had just finished the world’s greatest depression and there were many bankrupt companies. But a war causes a demand for almost every product, so during

a war almost every company will prosper again. So I gave a stockbroker an order to buy $100 worth of every stock on both exchanges selling for $1 or less, and there were 104 of them. And out of those, I made a profit on 100 and lost money on only four.

So three years later, when my wife and I had an opportunity to take over this small practice of a retiring investment counselor, we had the savings needed to do that! W e began with no clients in Radio C ity in N ew Y ork and worked there for 25 years, continuing to save 50 cents out of every dollar so that we could build up our assets for our retirement and for charity.

T R : W ow! And you got quite a bit of a return saving 50 cents out of every dollar, Sir John. Most people today would say “T hat’s impossible! I can’t save fifty percent of my money and invest it.” But that’s how you built from nothing, and you did this during the D epression! I’ve also read that if someone invested $100,000 dollars with you [in 1940], never put another dime in, and forgot about the money, by 1999, that would have been worth $55 million! Is that the accurate number?

JT : Y es, provided they reinvested their distributions.

T R :

L et me ask about your investing philosophy: in the past, you’ve said to me, “N ot only do you buy at maximum pessimism, but you want to sell at the peak of optimism.” Is that correct?

JT : T hat’s correct. T here’s a good saying there, T ony.

“Bear markets start on the time of pessimism. T hey rise on the time of skepticism. T hey mature on the time of optimism, and they end on the time of euphoria!” T hat always happens in every bull market, and it helps you determine where you are. If you just talk with enough investors to find their psychology, you can tell whether the market is still safe at a low level or high at a dangerous level.

T R : W hat do you think is the single biggest mistake investors make?

JT : T he great majority of people do not build up any wealth because they do not practice the selfdiscipline of saving some of their income every month. But beyond that, once you’ve saved that money, then you have to invest it wisely in good bargains, and it’s not easy. It’s very rare for any one person, particularly any one person working in just

their spare time, to select the right investments. Any more than you would want to be your own medical doctor or your own lawyer, it’s not wise to try to be your own investment manager. It’s better to find the best professionals; the wisest security analyst to help you.

T R : W hen I was talking to some of your associates down in the Bahamas, I was asking them, “W hat does he invest in?” and they said, “Anything! H e’ll buy a tree if he thinks he can get a good deal on it.” T hen I said, “H ow long will he hang on to it?” and they said, “Forever! Basically until it’s worth more!” Sir John, how long do you hang on to an investment before you know to let it go? H ow do you know if you’ve made a mistake? H ow do you know when it’s time to actually liquidate?

JT : T hat is one of the most important questions! Many people will say, “I know when to buy, but I don’t know when to sell.” But over these 54 years that I’ve been helping investors, I think I have the answer, and that is: you sell an asset only when you think you have found a different asset that’s a 50% better bargain. Y ou search all the time for a bargain, and then you look at what you now own. If there’s something in your present list that is a 50% less good bargain than the one you found, you sell the old one and buy the new one. But even then, you’re not right all the time.

Sir John, why should Americans feel good about investing outside their own country?

T R :

JT : T hink about this: if our job is to find the best opportunities, surely we will find more opportunities if we do not limit ourselves to just any one nation. L ikewise, perhaps we will find better opportunities if we are able to look everywhere rather than just one nation. But most important is that it does reduce your risk because every nation has bear markets. U sually twice every 12 years, there’s a severe bear market in a major nation, but they do not occur at the same time. So if you are diversified, having your assets in many nations, you do not have to suffer through the bear market in one nation as a person who had all of his eggs in one basket would.

W e have always advised our investors to be diversified—not only diversified into more than one corporation and diversified into more than one industry, but also diversified into more than one nation in order that they will get greater safety and greater potential profit.

T R : W hat do you think it is that has separated you from all the other investors out there? W hat’s made you one of the greatest investors of all time?

JT : T hank you. I do not regard myself as that. W e’ve not always been right. N o one is, but we have tried to be a little better than the other competitors and to give more than is expected from us and always to try to improve our methods, to use new methods in order to stay ahead of the competition. If there’s any secret in it at all it is this: do not try to be a gogetter. T ry to be a go-giver!

T R : Sir John, there’s so much fear out there today on so many levels of society. H ow do we deal with fear? JT : T o overcome fear, the best thing is to be overwhelmingly grateful. If you wake up each morning and think of five new things for which you’re overwhelmingly grateful, you’re not likely to be fearful, you’re likely to radiate your optimism, your attitude of gratitude, you’re likely to do things in a better way, draw more people to you. So I would think an attitude of gratitude will prevent a life of fear.

T R : I would love to hear through your own perception: W ho is Sir John T empleton? W hat is your life really about? In the end, how do you want to be remembered?

JT : I am a student, always trying to learn. I am a sinner. All of us are. I’ve tried to be better day by day, and particularly I try to keep asking myself, “W hat are the purposes of G od? W hy did G od create the universe? W hat does G od expect of his children here?” And the closest you can come in just a few words is: H e expects us to grow spiritually. H e gives us trials and tribulations just like you have examinations in school, because it may help you to grow into a greater soul than you would have otherwise. So life is a challenge. L ife is an adventure. It’s a marvelous, exciting adventure. All of us should do the very best we can as long as the L ord allows us to be on this planet.

SE C T ION 7

JUST D O IT , EN JOY IT , AN D

SH ARE IT ! 

C HAPT E R 7.1

T H E FU T U RE IS BRIG H T E R T H AN

Y O U T H IN K

T he point of living is to believe the best is yet to come.

— PE T E R U ST IN O V

W hy do most people pursue wealth? It’s because they’re after a greater quality of life. And one thing I know beyond a shadow of a doubt is that anybody can deal with a tough today if he or she feels certain that tomorrow has greater promise.

W e all need a compelling future.

So if you’re wondering why we would take time to talk about the future and technological breakthroughs in a financial book, it’s because technology is a hidden asset that every day is compounding its capacity to enrich your life.

T here are breakthroughs occurring today and in the months and short years to come that will revolutionize the quality of your life and the lives of everyone else on earth. T his tide of technology will offer the opportunity for all boats to rise.

And in financial terms, you know what’s really great? T he cost of technology is decreasing while its capacity is geometrically expanding! W hat does that mean for you? It means that even if you start building wealth late in life, you will likely still have a great quality of life in the future, for even less money than you might think.

Also, learning about these trends in technologies can awaken you to some of the greatest investment opportunities of your lifetime. T hese technologies are growing exponentially. T he time to pay attention to them is right now.

My hope is that this chapter will also inspire you to take greater care of yourself and your family, not only financially but also perhaps physically as well. W ithout physical health, there is no wealth. Being around long enough to take advantage of some of these huge advances in technology should be a priority—especially after you hear about some of the changes that are unfolding as we speak.

So let’s take a brief journey together and explore the cutting edge of our technological future. I’ll say in advance: this chapter takes an unabashedly positive view. But it’s not just based on my enthusiasm—but rather reflects the work of some of the greatest scientists on the face of the earth. N ot those who just predict, but those who deliver what they predict. Individuals who have done everything from decode the human genome, to design the first digital voice recognition system, to develop commercial space shuttles that fly people back and forth to the International Space Station.

N ow, I acknowledge that many people have a different, more skeptical view of technology. And perhaps they’ll be right. Some look into the future and see a T erminator-style dystopia of killer robots and genetically altered Frankenfoods. Others look forward to a world of flying cars, like they had in T he J etsons; or android helpers, like Star Wars’s C -3PO; or meat and vegetables that can be grown from single cells to feed the world’s hungry. N one of these extreme scenarios has come to pass yet. I choose to look at how technology will be used to make a massive difference in the quality of our lives. I also understand that people often fear new technologies and worry that we’re going too fast.

After all, there has always been a “dark side” to these advances—often because these technologies initially put people out of jobs until they adapt to new forms of employment. As Steven Rattner, the influential financier and columnist, pointed out in the New York T imes, even Queen E lizabeth I of E ngland refused to patent a 16thcentury knitting machine because it would put her “poor subjects” out of work. But according to Rattner, “T he trick is not to protect old jobs . . . but to create new ones.

And since the invention of the wheel, that’s what has occurred.”

Most of the time, these new tools have been used to enhance human life. And today some of the biggest challenges in the world, from too much carbon dioxide in the air, to a lack of fresh water, to a scarcity of farmland, are being solved by new technologies. And all this seems to be happening overnight. But throughout history, there has also been a minority who will take any tool or technology and use it as a weapon. E lectricity can light up a city or kill someone. But there are millions more streetlights than electric chairs. A Boeing jetliner can carry us across oceans or be used as a bomb to murder thousands—but there are millions more flights than hijackings.

It’s natural for human beings to fear the new and unknown, and to focus on worst-case scenarios. Our brains are wired for survival, and that’s how we’ve made it as a species. But our imaginations can also hold us back.

Science fiction has made many fear futuristic technologies, like artificial intelligence. But actual scientists and futurists such as Ray K urzweil, Peter D iamandis, and Juan E nriquez see advanced technologies as an opportunity for humanity to evolve and transform into something better.

So if you’re irritated by an optimistic future, you should move on to the next chapter! But if you’re a person who is truly interested in knowing how

technology is shaping our lives, I think this will help you understand what’s available and what’s coming. T he way I look at it, you can choose to be fearful about the future, or you can embrace it. But nothing is going to change  it. W hy? Because the future is already here.

T he best way to predict the future is to invent it.

— AL AN K AY

E very ten minutes in America someone is horribly burned. T hey’re rushed to the hospital in searing pain— one of the most intense pains a human body can suffer. T he nurses scrub away the blistered and charred flesh and cover the wound with cadaver skin to keep the person from dying of infection. C an you imagine the skin off a dead body put on top of your own?! If the patient survives, the scarring can be brutal. I’m sure you’ve seen faces, arms, and legs scarred beyond recognition. Sometimes there are multiple surgeries, and healing can take years.

So imagine how one night Matt U ram, a 40-year-old state trooper, finds himself about to become another one of those grim statistics. H is life altered forever.

H ow? H e’s next to a bonfire when someone throws a cup of gasoline on the flames, and the burns cover his right arm and the right side of his head and face. T he doctors and nurses move fast, cleaning off the blistered skin, disinfecting Matt’s wounds, applying salves. N ormally he would be in the burn unit for weeks or months, going through the same agonizing process twice a day. Instead, a team of specialists goes to work with a new technique. T hey harvest a layer of healthy cells from unburned patches of his own skin. N o cadaver skin for Matt! T hese cells are cultured, and before long, a spray gun is gently painting the wounds with a solution of Matt’s own stem cells.

T hree days later, his arms and face are completely healed. (And this miracle has to be seen to be believed! G o to www.youtube.com/watch?v=eX O_ApjK PaI and

see the difference.) T here’s barely a scar visible on him. I know it sounds like a scene from a sci-fi film. But it’s a real story that took place in Pittsburgh just a few years ago.

W hile the technique that healed Matt U ram is still in clinical trials in the U nited States, a similar stem cell procedure has already been used on hundreds of burn victims in E urope and Australia. Amazing, isn’t it?! N ow there’s even a “bio-pen” that allows surgeons to draw healthy cells on layers of bone and cartilage. T he cells multiply and grow into nerves, muscle, and bones, healing the damaged section. T he technology allows the surgeon to place cells wherever he or she wants them, in an instant. And this is just another one of the incredible new therapies coming online and becoming more affordable for everyone.

If you hadn’t already noticed: the world we live in today is a place of everyday miracles, and change is happening so fast that sometimes we don’t even notice it. Or maybe we just take it for granted.

But if you were to describe the world of 2015 to a person back in 1980, just 35 years ago, he would think what you’re doing is magic! Spraying on stem cells? H ell, it would be a miracle just to talk to someone on the phone while you were driving in your car, right?

W e’re used to the idea that we can predict tomorrow by looking at what happened today or yesterday. But that can’t be done anymore. U ntil very “recently,” change was very rare, and so slow that it was measured in eras: the Bronze Age, the Iron Age, and so on. N ow change is exponential. T hat means it’s speeding up, making huge leaps forward in shorter periods of time. It means we’re making tools that can transform the quality of our lives faster and better, and they’re available to just about everyone.

T he average person today already has options the richest pharaoh in E gypt never dreamed of. Imagine what he would have given to be able to fly in the sky in a chair or in a bed to another part of the world in a few hours, instead of months fighting the oceans? N ow you can do that for $494 on Virgin Atlantic Airways.

E ven a pharaoh couldn’t spend $200 million to make a movie to entertain himself for two hours. And yet every week, multiple new films are coming out that we can enjoy in the theater for $10 (or $9.99 per month on N etflix).

L et’s face it, we’re living in one of the most extraordinary times on earth. W e’ve seen the lifespan of human beings in the last 100 years go from 31 years old to 67 years old—more than doubling. In the same time, the average per capita income (adjusted for inflation) of every person on this planet tripled. One hundred years ago, the majority of Americans used to spend 43% of each day working just to get food. N ow, because of advances in agriculture and distribution, it’s 7% .

Y OU ’VE G OT MAIL !

T he first time I met President Bill C linton back in the early 1990s, I vividly remember sitting down with him and saying, “Y ou know, Mr. President, maybe there’s a way we could communicate electronically.” H e looked puzzled, so I said, “I’ve started using this new thing called email. I’ve got an account on AOL . D o you have one?” And the president said, “Oh, I’ve heard about that!” But there was no email account for the president of the U nited States back then. N ow the phone that an Amazonian tribesman carries around the jungle has more instant computing power than C linton had at his disposal as leader of the free world. H e can go online to buy supplies for his cows or pay his child’s school fees. H e can translate languages. If he wants, he can access free courses in economics from Y ale and math from MIT . W e’re living in a whole different universe now, and we’re just at the beginning of the beginning.

And things are getting better, faster, every day. “T he future is going to be a whole lot better than you think,” says my dear friend Peter D iamandis, founder of the X Prize Foundation, aerospace engineer, medical doctor, entrepreneur, and all-around great human being. “H umanity is now entering a period of radical transformation, in which technology has the potential to significantly raise the basic standards of living for every man, woman, and child on the planet.”

W hat does this mean for you? It means that even if you screw up and don’t follow through on anything you’ve learned in these pages, in the future you’ll still be able to enjoy a better quality of life than you ever imagined, even if you don’t have a large income. And for those who do, the possibilities are limitless.

T he key to abundance is meeting limited circumstances with unlimited thoughts.

— MAR IAN N E W IL L IAMSO N

T echnology is going to change what we think of as scarcity. It’s the common denominator that makes us fearful. T he idea that there won’t be enough of what we need and what we value: water, food, money, resources, time, space, joy, and love. W hy do people want to be wealthy? T hey believe if they are, they’ll always have enough, that they’ll never have to go without. It’s a fear that’s hardwired into our brains.

But scarcity doesn’t have to be a permanent condition. T echnology can change it. D id you know that there was a time when the rarest, most precious metal on E arth was . . . aluminum? T hat’s right!

Separating the element from clay used to be incredibly difficult and expensive. Aluminum was the ultimate status symbol in 19th-century France. At an imperial banquet, N apoléon III served the king of Siam with aluminum utensils instead of the usual gold. But by the end of the century, scientists figured out how to process aluminum on a mass scale, and the light, inexpensive metal suddenly flooded the market.

Peter D iamandis likes to use the story of aluminum to point out that scarcity is a function of our ability—or lack of ability—to access resources. H e wrote an extraordinary book, Abundance: T he Future Is Better T han You T hink, which covers in 300 or so pages the concepts that this chapter is trying to capture in just a few. H ere’s a great metaphor from the book about how technology can overcome scarcity: “Imagine a giant orange tree packed with fruit,” Peter writes. “If I pluck all of the oranges from the lower branches, I am effectively out of accessible fruit—oranges are now scarce. But once someone invents a piece of technology called a ladder, I’ve suddenly got new reach. Problem solved.

T echnology is a resource-liberating mechanism.”

G iven the way our world population is growing, we’ll need to be liberating those resources faster than ever. T hat exponential change we were talking about? H ere’s an example:

•    It took a little more than 200,000 years—or until the year 1804—for the population of human beings to multiply to a total of 1 billion people.

•    It took only 123 years (1927) for the human population to double to 2 billion people.

•    But it took just 33 years (1960) before there were 3 billion people on the planet!

•    It took a mere 14 years (1974) for another billion to be added, for a total of 4 billion people.

T his growth has not stopped. In spite of C hina’s onechild-per-family policy for its 1.3 billion population, and all the other efforts to stop world population growth, in the last 40 years alone, we’ve added more than 3 billion more people! T hat’s 300% more people in these four decades than it originally took 200,000 years to achieve! T oday there are 7.2 billion people on the planet! If we keep going at our current pace of growth, scientists estimate, the population will be 9.6 billion by 2050.

H ow can the E arth sustain so many people? If we keep consuming our natural resources at the current rate, according to Jim L eape of the W orld W ide Fund for N ature International, as quoted in the Wall Street

J ournal, “W e are using 50% more resources than the E arth can sustainably produce, and unless we change course, that number will grow fast—by 2030, even two planets will not be enough.”

H      uman ingenuity and technology together have a wayof keeping up with our needs.

I          remember a time when we thought we were runningout of oil. In the early 1970s, when I was a junior in high school, there was an oil crisis in the Middle E ast. If you recall, gas was rationed on odd or even days. I was wondering if we’d run out of fuel before I even got my license! T hen one day in school, my engineering teacher said, “L et me read you an article.” I had already seen the T ime magazine with a report from the C lub of Rome, scaring the daylights out of everybody with predictions that our oil supply would last only a few more years, and the whole economy would collapse. T his article sounded just like that, using the same language of gloom and doom. T hen he showed us what he’d been reading: a newspaper article from the 1850s about an oil crisis. And the oil they were talking about was . . . whale oil!

In the 19th century, whale blubber was the main source of lamp oil. Y ou couldn’t light your home without it. But whales were being overfished, people were worried about shortages of oil, and prices were going through the roof. But what happened in 1859? C rude oil was discovered in Pennsylvania. A whole new source became available. Before long, we had kerosene lamps and then internal combustion engines. T he oil crisis of 1973? T echnology had already eased that scarcity. N ew exploration and extraction techniques were opening up vast quantities of fossil fuels. And now with sideways drilling technologies, we have more gas than Saudi Arabia has oil! Such technologies change not only an economy but can also have an impact on geopolitical power. For the first time in almost a decade, in 2013 the U nited States produced more domestic oil than it imported from the Middle E ast.

T he future is in alternatives such as wind power, biofuels, and—the grand-slam winner—solar energy. According to the inventor and futurist Ray K urzweil, all of the world’s energy needs can be met with 1/10,000th of the sunlight that falls on the E arth each day. T he challenge has been to capture and store that power for a competitive cost. Ray predicts that the cost per watt of solar energy will be less than oil and coal in just a few years.

W hat we need is more people who specialize in the impossible.

— T H E O D O R E R O E T H K E

L et’s pause for a moment and think: W here will all this new technology come from? It’s already been bubbling out of the usual places: Silicon Valley, N ASA, the D efense Advanced Research Projects Agency (D ARPA), and the world’s great universities and laboratories. But more and more, do-it-yourself inventors are using the vast resources of the internet to find ways to do things faster and better and cheaper.

L et me tell you about a teenager I met who is revolutionizing the world of prosthetics from a lab—in his bedroom! E aston L aC happelle was running a robotics program for N ASA when he was 17, and he didn’t have to go to a major university to learn engineering—he had the internet.

E aston grew up in a tiny town in southwestern C olorado where there wasn’t much for a kid to do, so he entertained himself by tearing up and reassembling household gadgets. W hen he was 14, he decided to build his own robotic hand. H ey, why not? T here was no big library in town, no university nearby, so he scoured websites like Instructables and H ack It! to teach himself electronics, programming, and mechanics. T hen he used objects he had lying around—L egos, fishing line, electrical tape, small hobby motors, and a N intendo Power G love—to build a prototype.

By the time he was 16, he had refined his design by getting access to a 3-D printer and creating a mechanical hand out of layers of plastic. H e entered his invention at the state science fair, and it was there that E aston had what he calls his “aha!” moment. H e met a seven-yearold girl with a prosthetic arm that cost her parents $80,000. She would need two more over her lifetime.

E aston thought, “W ho can afford that?” Besides, the mechanical hand attached to the arm had only one sensor and one motion. H is device was much more

sophisticated, with five flexible fingers. T hen and there, he decided to create a simple, functional, and affordable prosthetic to help amputees like this little girl.

E aston went back to his bedroom lab and built a full robotic limb that replicated the motion and strength of a human arm. E ven more amazing, he came up with an E E G headset that converts electronic brainwaves into Bluetooth signals that control it. (Y es, these things don’t just exist in sci-fi movies.) T he arm weighs one-third less than the $80,000 version, and it’s much stronger. In fact, a person using this arm can curl more than 300 pounds! A giant improvement on the past technology. So what do you think his new invention costs to make as opposed to the $80,000 limb? $20,000? $5,000? $1,500? H ow about $250?!

After meeting President Obama in the summer before his 18th birthday, E aston interned with N ASA at H ouston’s Johnson Space C enter, where he led a team working on robotics for the International Space Station. By the end of August, E aston was already thinking, “I’m out of here. T hese guys are too slow!” H e missed building the things he designed, and there were too many layers of bureaucracy. H e went back home to work on building a robotic exoskeleton for a boy in his high school who was paralyzed from the waist down after an accident. E aston wanted him to walk at his graduation.

W hen I read about E aston’s exoskeleton project, I knew I had to contact him. I’ve been working with the survivors of recent mass shootings, including the massacres at N ewtown, C onnecticut, and Aurora, C olorado. I’ve helped many of them work to turn their lives around in the aftermath of such unimaginable loss, including Ashley Moser, a pregnant mother who watched the insane killer murder her six-year-old daughter before he turned the gun on her. T he two bullets he pumped into Ashley’s body killed her unborn baby and left her paralyzed from the waist down. W hen I met her, she was filled with suicidal thoughts. I flew her family and medical team to our U nleash the Power W ithin event, and together we worked to create an environment where this remarkable young woman could begin her emotional healing.

I want Ashley to walk again! So I reached out to E aston and offered to fund his project. Since then we’ve gone into business together to create lowcost prosthetic devices that can be used all over the world and make a massive difference in people’s lives. N o matter where they live, no matter how much money they have. T hat’s E aston’s mission. (And by the way, E aston’s high school friend is scheduled to graduate in 2015, and E aston reports that he is currently on track to make sure he walks to the podium. E aston’s goal is an exoskeleton so thin and flexible that it can be worn under clothing! Y ou might not know someone is wearing one.)

E aston’s other mission is to spread the word to young people all over the world that they too can become the makers of technology instead of just consumers. “E veryone can be a creator,” E aston told me. “W ith access to the internet and 3-D technology, kids can do anything they want. T hey don’t have to restrict themselves by thinking, ‘I have to go to college to be successful, there’s really no other way.’ Y ou really do have other options.”

T here’s no doubt that E aston L aC happelle is an extraordinary person. It would be safe to call him a genius. But how many other E astons do you think are out there—in places like India, T anzania, Australia, D agestan, U ruguay, Singapore—logging on to their computers and dreaming up ways to improve the world we live in? E aston used open-source technology to share his first robotic hand design, so people all over the world could copy it and improve it if they wanted. N ow all of us can be our own publishers and creators and share our ideas with anyone with an internet connection.

T he floodgates have been opened, ushering in one of the greatest revolutions of our time—what people are calling the MakerBot E ra or the Maker Revolution. E aston L aC happelle is simply one of the many people at the forefront of an explosion of do-it-yourself (D IY ) innovation fueled by the wild growth in technology. C hris Anderson, C E O of 3-D Robotics, calls it the “N ew Industrial Revolution.” N ow the whole world can learn what students learn at H arvard, MIT , and Stanford. T hey can interact with the very best teachers—and one another—sharing ideas and techniques, and making devices and supplying services that used to cost millions of dollars for hundreds of dollars.

E ach year, Maker Faires are held all around America, bringing together inventors, hobbyists, engineers, students, teachers, artists, and entrepreneurs in what’s called “the G reatest Show (and T ell) on E arth.” In 2013 over 540,000 people attended 100 Maker Faires globally, and in 2014 Maker Media, creator of the faires, is expecting that number to climb to 140 Maker Faires. President Obama recently hosted a Maker Faire at the W hite H ouse, where a 17-foot robotic giraffe named Russell greeted him, and the president toured a tiny portable house and played a keyboard made of bananas.

H e also met Marc R oth, from San F rancisco, who was living in a homeless shelter when he started going to a local “T echShop” to learn how to use 3-D printers and laser cutters. Sixteen months later he had started his own laser-cutting business, and now runs a program to teach hightech skills to others who need a fresh start.

Obama also gave a shout-out to two tween-age girls from N orth C arolina who started a robotics company instead of getting a paper route. T heir motto: “If you can imagine it, then you can do it—whatever it is.”

“And that’s a pretty good motto for America,” Obama told the crowd. “T his is a country that imagined a railroad connecting a continent, imagined electricity powering our cities and towns, imagined skyscrapers reaching into the heavens and an internet that brings us closer together.” H e challenged every company, college, and community to support these Makers. “If we do, I know we’re going to be able to create more good jobs in the years to come. W e’re going to create entire new industries that we can’t yet imagine.”

T his Maker Revolution is being made possible by the explosion of new technologies and the massive expansion of the internet. T en years ago, the internet connected 500 million people; today it connects 2 billion people. W ithin six years, experts estimate another 3 billion will be joining the web, for a total of 5 billion people. Imagine the power of that much connected and unleashed creativity across the planet! T he first internet was the internet of military agencies and colleges. T hen it was the dotcom internet of companies; then it was the internet of ideas; then, with social media, it was the internet of relationships. N ow it’s the internet of things, of all things. C omputers and sensors are embedded in everyday objects, transmitting messages back and forth to one another. Machines are connecting to other machines, which are in turn connecting to us and uniting everything in one powerful global network. And 3-D printing is how this internet will be transformed and expanded beyond our craziest dreams.

3-D PRIN T IN G : SC IE N C E FIC T ION T O SC IE N C E FAC T

Y ou know the “replicators” they use in those Star T rek movies to synthesize hamburgers and hot coffee out of thin air on the starship E nterprise? W ell, scientists say we’re not that far from creating the real thing! W e’ve already been talking a lot about 3-D printing, but it’s hard to grasp what a powerful technology it can become until you’ve seen it in action. 3-D printing is really a catchall phrase for digital manufacturing, and the “printers” are actually minifactories that use computer files as blueprints to create three-dimensional objects layer by layer. T he printers can use at least 200 different liquefied or powdered materials, including plastic, glass, ceramic, titanium, nylon, chocolate—and even living cells. W hat can you make with them? A better question is: W hat can’t you make with them?! So far 3-D printers have been used to create running shoes, gold bracelets, airplane parts, tableware, bikinis, guitars, and solar panels—not to mention human tracheas, ears, and teeth. As you’ve already learned, there are 3-D printers, small enough to fit into a teenager’s bedroom, that are capable of turning layers of synthetic goop into a functioning prosthetic limb. And there are hangar-sized 3-D printers in C hina that can print out ten houses a day using layers of concrete mixed with recycled construction waste. T he cost? Just $5,000 per home, and there’s almost no labor required!

Perhaps even more importantly, N ASA has partnered with America Makes, a network of 3-D printing companies, to sponsor a worldwide competition to address one of humanity’s greatest challenges: the need for shelter, especially emergency shelter, in times of natural disaster such as hurricanes, tsunamis, and earthquakes. Imagine 3-D printers printing out homes on the spot, using local materials in hours, not months. T he impact of this technology, effectively used, is limitless.

Someday you might be able to print your own custom-fit blue jeans without leaving your house, while remote villages in the H imalayas will be able to download patterns from the cloud and print tools, water pumps, school supplies—anything they need. So will space travelers. Of course, as new technologies like 3-D printing come online, old ones will be disrupted, and some businesses may disappear. T here won’t be much need for spare-parts warehouses anymore, will there? And much less need for shipping. G reat for the planet—but not so good if you’re a truck driver. E xperts project that 3.5 million truck drivers will be without a job in the U nited States alone because there will be robotic self-driving trucks that can operate 24 hours a day versus the eight hours a human can drive before having to take a break. Also, there’s no salary to pay after you make your initial investment in the selfdriving truck.

As old industries fall away, new ones will arise. W e just need the education and training and mind-set to embrace change and meet the demands of the new, emerging economy.

But 3-D printing is only one technology that’s part of the extraordinary growth that’s going to change the quality of your life. N anotechnology, robotics, and tissue regeneration are three others to watch. And if you’re wondering why we’re talking about all this—we know that technological advances that offer solutions for our most pressing problems will keep happening no matter what the economic season may be, whether we’re experiencing inflation or deflation, or whether we’re at war or at peace.

H eard about the demographic wave? T he consumer spending of 77 million baby boomers has been driving the U S economy for decades. But now 10,000 boomers are turning 65 every single day. And that’s morphed into a potential retirement crisis wave, as most have not saved their money and have no pensions.

W e have a debt wave building in this country that’s larger than anything in the history of the world: $17 trillion in debt and a $100 trillion worth of unfunded liabilities, between Medicare, Medicaid, Social Security, and other commitments.

T here’s an environmental wave, even if you don’t believe in climate change. And clearly we’re overfarming our land. But however big these waves may be, the technology wave is even bigger. T he technology wave promises to lift all boats and carry the whole world into a more abundant future.

“I think those trends of technology tend to be bigger than any crisis,” the futurist and venture capitalist Juan E nriquez said at one of my recent economic conferences. “W hile everybody was worried about the K orean W ar and the C old W ar, people were building transistors. W hile everybody was worried about W orld W ar II, people were making antibiotics. Most of those advancements have had more of an impact on your life and my life than the wars or the ups or the downs.”

O ur problems come in waves, but so do the solutions.

I’m surfing the giant life wave.

— W IL L IAM SH AT N E R

N obody understands this idea better than my friend Ray K urzweil, the inventor, author, and entrepreneur. One of the most brilliant minds on the planet, he’s been called the T homas E dison of our age. Y et you’ve probably never heard his name unless you’re a T E D T alk junkie, or if you study the lineup at G oogle, where Ray is head of engineering. But Ray K urzweil has affected your life in more ways than you could ever imagine. If you listen to tunes on your phone, on the internet—anywhere—he’s the guy you can thank. H e created the first digital music. If you’ve ever dictated an email to Siri or other voice-totext systems, that’s because of Ray.

I remember meeting Ray K urzweil nearly 20 years ago and listening with amazement as he described the future. It seemed like magic then, but it’s all real now. Selfdriving cars. A computer that could beat the world’s greatest chess master. H e had already invented an optical character-recognition system to create the first reading machine for the blind—Stevie W onder was his first customer. N ow he wanted to help blind people read street signs and navigate cities without help, and go into restaurants and order off the menu using a little device the size of a pack of cigarettes. H e told me the year it was going to happen: 2005.

“H ow do you know, Ray?” I asked.

“Y ou don’t understand, T ony. T echnology feeds on itself, and it gets faster and faster. It grows exponentially.”

H e explained how Moore’s law—a principle that shows that the processing power of computers doubles every two years, while its cost decreases at the same rate —doesn’t work just with microchips. It can be applied to all information technologies—and eventually all aspects of our lives.

       W hat    does    that    mean?    W hen    things     grow

exponentially, instead of increasing in a linear or arithmetic pattern (1, 2, 3, 4, 5, 6 . . .) they are continuously doubling: 1, 2, 4, 8, 16, 32, and so on. So their rate of growth gets faster and faster. But as we’ve discovered, this concept is hard for us to grasp. It’s not the way humans were built to think.

“First of all, exponential growth is radically different from our intuition,” Ray says. “W e have an intuition about the future hardwired in our brains. A thousand years ago, when we walked through the savannah and we saw an animal coming at us out of the corner of our eye, we made a linear prediction of where that animal would be in twenty seconds and what to do about it.” But with an exponential progression, the animal would take a few slow steps, speed up, and then suddenly be on the next continent.

Peter D iamandis offers another metaphor: “If I say to you, ‘T ake thirty linear steps,’ normally you’re going to end up about 30 meters away. But if I say to you, ‘Instead of taking thirty linear steps, take thirty exponential steps.’

H ow far will you go? H ow about a billion meters?

T hat’s twenty-six times around the planet!”

Once you understand exponential growth, says Ray, its trajectory is predictable. H e knows when the technology will catch up with his vision. H e

predicted the launch date for his first pocket-sized reader for the blind, and other products. Ray often speaks at my seminars, and he told us recently how he accurately predicted one of the most incredible discoveries of our time: the mapping of the human genome.

“I predicted that the genome project would finish within fifteen years when it was started in 1990 because I realized the progress would be exponential,” he said. But skeptics thought it would take a century to break the complex human code. After seven and a half years, only 1% of the project was finished. According to R ay, “T he skeptics were still going strong, saying, ‘I told you this wasn’t going to work. Y ou’re halfway through the project, and you’ve only finished one percent of it. T his is a failure.’ ” But R ay pointed out that wasn’t a failure: it was right on schedule! “E xponential growth is not dramatic at first. Y ou’re doubling these tiny little numbers. It looks like nothing is happening. But by the time you get to one percent, you’re only seven doublings away from one    hundred     percent.”    T he   genome      was successfully   sequenced in           2003,          ahead         of schedule.

So, what’s next? W e’ve already seen how stem cells can regrow human skin without the pain and scars of skin grafts, and how the abundant energy of the sun and wind can be harnessed to fuel our future. But what about other great challenges?

L ack of fresh water is one of the biggest concerns for populations growing like crazy in dry regions of the planet, and shortages are everywhere, from L os Angeles, C alifornia, to L agos, N igeria. According to the U N , more than 3.4 million people die each year because of water-borne diseases. But new desalinization technologies are turning seawater into tap water from Australia to Saudi Arabia. Already an Israeli company called W ater-G en is manufacturing a machine that extracts clean water out of air, and it uses only two cents’ worth of electricity to produce each liter of water. And in remote villages that have no electricity, there’s a new kind of water tower that uses only its shape and natural materials to pull moisture out of the air and turn it into drinking water.

T he amazing inventor D ean K amen (best known for the Segway scooter) has partnered with C oca-C ola to bring the world an energy-efficient machine the size of a dorm-room refrigerator that vaporizes dirty water and makes it clean and safe. It’s called the Slingshot—as in a D avid-sized solution to a G oliath of a problem. W ith innovations such as these, before long the problem of water scarcity will be solved, period.

H ow about food? Ray K urzweil says new food technologies are emerging that will overcome the twin challenges of too little arable land and agricultural pollution. H ow? By farming vertically instead of horizontally. Ray envisions a world in the next 15 years “where we grow plants vertically, and also grow meat without the slaughtering of animals, by using in-vitro cloning of muscle tissue in computerized factories—all at very low costs, with high nutritional qualities and without environmental impact.” N o insecticides. N o more nitrogen pollution. N o more need to kill animals for protein. W ow! T hat sounds impossible, but Ray says it’s real and it’s coming.

W ith these basic needs under control, humans will have the chance to live more fulfilling lives—especially if we meet the other challenges that Ray K urzweil believes we can solve: health and aging.

Age is an issue of mind over matter. If you don’t mind, it doesn’t matter.

— MAR K T W AIN

All these changes we’ve talked about are revolutionary, but according to Juan E nriquez, the changes that technology will bring to the future of health care will blow your mind more than anything else. L ife, as it turns out, is an information technology. H ow can that be? W ell, we know that our D N A is made up of a sequence of chemical bases labeled (if you remember your life science homework) A, C , T , and G . In other words, the building blocks of life itself can be expressed as a code. And codes can be altered. Or created. As in making artificial life. W hich is what C raig Venter, the human genome pioneer, was able to do in 2010. Juan E nriquez was part of his team.

W hen Juan spoke at one of my recent seminars, I asked, “H ow did you and C raig Venter first come up

with this idea of creating artificial life?”

H e chuckled and said, “A bunch of us were having drinks at a bar in Virginia, and after the fourth scotch, somebody said, ‘W ouldn’t it be cool if you could program a cell from scratch, just in the same way as you program a computer chip from scratch? W hat would happen?’ ” H e paused. “T hat only took five years and thirty million bucks to find out!” First, they took all the gene code out of a microbe. T hen they inserted a new gene code, and it became a different species. Incidentally, it’s the first lifeform with a website embedded in its genetic code. As C raig Venter put it when he announced the breakthrough: “T his is the first self-replicating species that we’ve had on the planet whose parent is a computer.”

As Ray K urzweil explains, our genes are like software programs that can be changed to switch behaviors on and off. W hat does that mean? It means that we can use cells as little machines and program them to build other things—including more of themselves. “T his software makes its own hardware. N o matter how I program a T hinkPad, I will only have one T hinkPad tomorrow morning, not a thousand T hinkPads. But if I program a bacteria, I will have a billion bacteria tomorrow,” Juan said.

It sounds insane, like something out of a movie, but— as I keep reminding myself—this isn’t science fiction. T he technique is already being used to produce clothing. “All the stuff you are now wearing—that breathable, stretchable stuff like U nder Armour?” Juan said. “All that is now being made from bacteria, not out of petrochemicals.” In Japan, bacteria is growing synthetic silk that’s stronger than steel. And genetically altered farm animals are already being used as medical factories. In N ew E ngland, there’s a dairy where cows produce milk that may be able to treat cancer.

W hatever the mind of man can conceive and believe, it can achieve.

— N APO L E O N H IL L

I told you, it’s a whole new world, and it’s going to be a wild ride. Advances in nanotechnology and 3-D printing mean that medical devices the size of blood cells may someday be traveling through your body, fighting conditions like Parkinson’s disease and dementia. N anoscale computerized implants will replace the biological nerve cells destroyed by disease. And microscopic cochlear implants will not only restore hearing but also improve it, so that humans will hear as many notes as whales can sing. According to R ay, work is already being done to create genetically enhanced red blood cells that may one day carry enough oxygen to allow a diver to last 40 minutes underwater on one breath—or to save a soldier’s life on the battlefield.

Scientists are working on ways to use 3-D printers to create custom organs and other body parts for you when you need them, eliminating the need for dangerous, expensive donor transplants. D r. Anthony Atala, director of the W ake Forest Institute for Regenerative Medicine, says, “In theory, anything that is grown inside the body can be grown outside the body.” D r. Atala has already created fully functioning human bladders in the lab and completed the transplants. In the last 15 years, none of the tissues made from stem cells has ever been rejected by the body. H e and others are already working on more complex organs, like hearts, kidneys, and livers. So someday, if a heart attack or virus damages your heart valves, your doctors will be able to order you up some new ones. Or maybe they’ll just grow you a new heart from a few of your skin cells!

If you have means, some of these miraculous cures are available already. T here’s something called “extracellular matrix,” or E C M, made of cells from a pig’s bladder. W hen you apply it to injured human tissue, the matrix coaxes our own stem cells to regrow muscles, tendons, even bone. It’s been used already to regrow fingertips! T his extraordinary substance exists right now. It’s not available to everyone yet, but it will be soon.

T he concept behind regenerative therapies is simple: our body already knows how to regrow its parts; we just have to learn how to turn on the stem cells that already live inside us. W e already know that when we lose our baby teeth, another set grows in. But did you realize that, according to D r. Stephen Badylak from the U niversity of Pittsburgh, if a newborn loses a finger, another one can grow in its place up to the age of two? W e lose that ability as we grow older, so the question is: H ow do we stimulate it? Salamanders grow back their tails— why not human limbs or spinal cords? W hen we figure out how to harness the full power of stem cells, the medical and cosmetic applications are limitless.

Ray K urzweil says that if we’re going to take advantage of these medical breakthroughs and extend our lives, we’d better start taking care of ourselves right now. T he idea is to live long enough for the technology to catch up. If you’re a millennial, you might experience it. If you’re a baby boomer, it’s time to get on the elliptical machine and start eating right. Ray has even teamed up with a medical doctor to write a book titled T ranscend: Nine Steps to L iving Well Forever, with strategies to optimize your health and keep yourself alive long enough to tap into the technology that will further extend your lifespan.

H is immediate goal is to stick around long enough to see the day when computers become smarter than humans. T hat day is coming soon.

C OMPU T E RS “R” U S

W hat takes us hours to absorb, computers can already do in seconds. But by 2020, says Ray, a $1,000 computer will have the full capacity of a human mind. By 2030, it will be able to process the knowledge of all human minds combined.

By then, we won’t be able to recognize the difference between human and artificial intelligence, he says, but we won’t have anything to fear. W hy? Because computers will have become a part of us, making us smarter, more powerful, healthier, and happier. D on’t think that can happen? H ow do you feel when you don’t have your smartphone nearby? A little lost? It’s because that technology and all that connectivity have already become parts of our lives. T he smartphone has become an “outboard brain”—it’s our portable memory center, storing so much of our personal information as to be indispensable. And we’ll be moving from mobile phones, to wearables, to implantables over the next 20 years.

So think a little further ahead. Imagine a world where you won’t have to read this book—you can just upload its content into your brain. (And I suspect that by now you are wishing the future was here already. E specially with this monster-sized book!) Or imagine a world where you can upload your mind, your thoughts, and your personality to the cloud to be preserved forever? T hat’s roughly the time when Ray K urzweil and other great thinkers and futurists believe that humans and machines will merge. T his epic moment is called “the Singularity” (aka “the Rapture for nerds”). W hen will it happen—if it does? Ray predicts the Singularity will be here by 2045.

T hose who have a “why” to live, can bear with almost any “how.”

— V IC T O R F R AN K L

If technology solves the problems that make our resources scarce, will we be safer, freer, happier? Y ou bet. Scarcity brings out the survival instincts in human beings; it activates that deep part of the reptilian brain that makes you believe it’s you or me. T hat fight-orflight mechanism can help us survive, but it often can bring out the worst side of people in a “civilized” society. T he brain we have is two million years old. It hasn’t evolved that much. So aggression and war will always be a big challenge. But with less scarcity, perhaps there’s less of a trigger to spark violence.

T here’s statistical evidence to show that more access to technology can make people happier. T he W orld Values Survey has shown that from 1981 to 2007, happiness rose in 45 of the 52 countries studied. And what was going on during those years? T hat’s right. T he digital revolution. T he technology wave was spreading across the globe—or what the report calls “the transition from industrial to knowledge societies.” Social scientists have interpreted this index to mean that “economic development, democratization, and rising social tolerance have increased the extent to which people perceive that they have free choice, which in turn has led to higher levels of happiness around the world.” T he same survey said that more money doesn’t make people happier. Some of the happiest people came from the poorest countries; citizens of the Philippines consider themselves happier than people in the U nited States. H appiness has more to do with values than with G D P.

W e all know that subsistence labor robs us of our most precious commodity: time. Remember when I mentioned that not too long ago most Americans were farmers, and spent 80% of their time digging in the ground for food; now we spend about 7% of every day earning money for food? W ith more technology, there’s more time on our hands, and that means there’s more opportunity to learn, to grow, to connect with others, and to give—all pursuits that fulfill us as human beings.

But there’s also a dark side to the gift of time.

Artificial intelligence and robotic devices are going to be taking on more and more of the tasks humans now perform. A study by Oxford U niversity found that 47% of the current U S labor market is at risk of being mechanized in the future. In essence, Oxford’s experts are saying that half of all workers might one day be replaced by robots! T hat means society will have to reboot to create meaningful work for everybody, and we are all going to have to step up to learn new skills. It’s going to be a difficult transition, no question about it.

But what happens in the future if work itself disappears, and computers do all the labor and most of the thinking? W hen all there is for us to do is ride around in self-driving vehicles and wait for drones to deliver the groceries? W hen there’s nothing to push back against to give us strength? T hat’s an interesting question.

More than a decade ago, I discussed this question with

Ray K urzweil, and he told me the story about a T wilight Z one episode that he’d seen as a child. I don’t know if you’re old enough to remember T he T wilight Z one, but it was a very interesting series, and the shows always had a creepy twist at the end. In this episode, a guy who loves to gamble dies and wakes up with a friendly “guide” in a white suit at his side. T his guide, this angel, who’s more like a butler, takes him to a luxurious casino—which is this gambler’s idea of heaven. H e’s ushered into an amazing suite, and he opens the closet to find it overflowing with incredible suits and fancy shoes. T hey all fit him perfectly. H is guide opens a drawer, and it’s stuffed with cash, more than he’s ever seen before. So the gambler gets dressed, goes downstairs to the gaming tables, and everybody knows his name. E verybody smiles at him. H e’s surrounded by gorgeous women. It’s his ultimate fantasy! H e plays blackjack, and hits 21 the first time. H e wins. T his is great! H e rakes in the chips. T he next time: 21. N ext time: 21. T en times in a row. It’s extraordinary! H e turns around and plays craps, and he wins, wins, wins. H e has huge piles of chips. All he has to do is ask for drinks, steaks, women, and they appear. E verything he’s ever wanted, he gets. H e goes to sleep that night . . . we’ll just say, not alone, and very happy.

T his goes on day after day after day. After a few months, he’s playing at the blackjack table, and the dealer says, “Blackjack!”

T he gambler screams, “Of course it’s blackjack!”

T he dealer says, “T wenty-one! Y ou win!”

“Of course! I always win! I’m sick of this! I win every time, no matter what happens!” H e looks at his guide in the white suit and asks to speak to the head angel.

W hen the head angel appears, the man unleashes a tirade: “I’m so bored I’m going out of my mind! Y ou know what? T here must be some mistake. I’m not that good a person. I’m in the wrong place. I don’t deserve to be in heaven!”

And the angel’s smile suddenly curdles as he says,

“W hat makes you think you’re in heaven . . . ?”

So what happens when we get everything we want with little effort? After a while, it would be like hell, wouldn’t it? T hen we’d have a new problem: W here will we find meaning in a world of abundance? So maybe in the future, your problem won’t be scarcity. And the solution won’t just be an abundance of material things. As Peter D iamandis says, “Abundance isn’t about providing everyone on the planet with a life of luxury— rather, it’s about providing all with a life of possibility.”

So in our final chapters together, let’s look at the core of what is going to give your life lasting meaning. Something that can give you joy whether you’re facing enormous challenges or extraordinary opportunities; a source of strength in difficult economic times or abundant ones. L et’s uncover the ultimate wealth of fulfillment and meaning. L et’s learn to tap into the wealth of passion.

C HAPT E R 7.2

T H E W E AL T H O F PASSIO N

Man is only great when he acts from passion.

— BE N JAMIN D ISR AE L I

W e’ve come a long way together, haven’t we? It’s been an incredible adventure, and I’m honored and grateful that you’ve chosen to make this journey with me.

By now you’ve navigated the money myths that block your way to financial freedom; climbed the mountain of successful saving and investing on the way to achieving your financial dreams; and learned new ways to safely glide to a secure future where you can work only because you want to work, not because you have to work.

Y ou’ve met some remarkable financial geniuses and incredible human beings, such as Ray D alio, Paul T udor Jones, Mary C allahan E rdoes, C arl Icahn, D avid Swensen, Jack Bogle, C harles Schwab, and dozens of others to help guide you on your path. I’m hoping you’ll return to the 7 Simple Steps you’ve learned in this book again and again throughout your life, to keep yourself on target. Also, I’m providing an action list at the end of this section to help you track and sustain your progress. In addition, you’ll find a simple reminder system built into our app to keep you on target. U se these as a way to insure that you remain committed to the simple principles that will secure your freedom. Picking up this book and reviewing it in the future might be a useful way to remind yourself that you are not a creature of circumstance but a creator of your life. Remember, knowledge is not power—action is! E xecution trumps knowledge every day of the week!

For me, this journey has been the culmination of decades of learning and teaching, and this book is truly a labor of love. It is my heartfelt gift to you. My hope is that you do so well that you can also pass on this gift to others. Because the greatest gift of life is to live it for something that outlasts it: a legacy that continues to grow beyond our years.

And as we begin to complete this journey together, I want to make sure that I don’t leave you without reminding you of what this all has really been about.

H appiness is not something ready-made. It comes from your own actions.

— D AL AI L AMA X IV

It has been my great privilege to work with people from every walk of life: leaders in politics, finance, entertainment, and sports, but also in the religious and spiritual world. I’ve worked in the Middle E ast, where I brought young Israelis and Palestinians together in a leadership program in the W est Bank. At first they expressed a seething hatred for one another—but within a week, they’d become great friends (and in nine years have continued to work on various peace projects in support of one another).

As a result, the D alai L ama came to visit our Sun Valley home and later invited me to an interfaith peace conference in San Francisco in 2006. It took place during a week in April when three great religious faiths observed one of their high holidays: E aster for C hristians, Passover for Jews, and, for Muslims, Mawlid an-N abi, the birthday of Muhammed. T he timing was significant, as the conference aimed to promote compassion and better understanding among all the great religions.

T he D alai L ama, draped in deep red and saffron robes, greeted me in the ballroom of the Mark H opkins H otel with a warm embrace and a belly laugh. H e radiated warmth and joy—like a walking, breathing embodiment of the “art of happiness” he teaches. T here were about 1,000 people attending the conference, but I had the honor of sitting in an intimate meeting he hosted with about 25 of the world’s top theologians and spiritual leaders: H indus, Buddhists, E piscopalians, N ative Americans, C atholics, Jews, Sunnis, and Shiites— the list went on.

It was a fascinating experience because it started out as most of these conferences do, with everybody being wonderful and kind and gracious. But then we got into the nitty-gritty of human lives and age-old conflicts—and ideology and dogma started boiling up from beneath the surface. T he conversation got a little heated, with everybody talking at once and nobody really listening.

Finally, the D alai L ama raised his hand like a little boy in class. H e wasn’t upset at all, but he just kept waving his hand with a serene, amused smile on his face. G radually, people saw him, and you could tell they were a little embarrassed for arguing and ignoring their host. W hen they finally became quiet, he dropped his arm.

“L adies and gentlemen, one thing we can all agree upon in this room,” the D alai L ama said. “T he great faiths of the world are represented here, and many of us are considered to be leaders of those faiths. W e all have great pride in our individual traditions. But I think we don’t want to lose sight of what the purpose of our religions is, and what the people we represent really want.” H e paused for effect and said, “W hat they all want is to be happy!” W hat’s the common denominator, he asked, between the goat herder in Afghanistan and the financial trader in N ew Y ork C ity; the tribal chief in Africa and the mother of ten in Argentina; the fashion designer in Paris and the weaver in Peru? “T hey all want to be happy.”

“T hat’s the essence of everything,” H is H oliness said. “If what we do creates more unhappiness, then we’ve truly failed.”

But what is it that creates happiness?

I’ve always taught that success without fulfillment is the ultimate failure.

It’s important to remember what you’re really, truly after: that sense of joy, freedom, security, or love— whatever you want to call it. E ach one of us finds a pathway we believe will lead to happiness, fulfillment, or meaning. And there are so many paths. Some look for happiness through religion, or nature, or relationships. Others think a great body, money, prominent degrees, children, or business accomplishments will make them happy. But true wealth, as you and I know deep in our souls, cannot be measured only by the size of your bank account or the number of assets you have acquired or grown.

So what’s the final secret, the key to a rich life? E njoy it and share it! But first you must take action. As the saying goes, if what you learn leads to knowledge, you become a fool; but if what you learn leads to action, you can become wealthy. Remember: rewards come in action, not in discussion.

So before you put down this book, go over the final checklist and make sure you’ve nailed those 7 Simple Steps and are on your way to building the life you desire and deserve.

T hen take a breath and remember what it’s all about.

W ealth is the ability to fully experience life.

— H E N R Y D AV ID T H O R E AU

W e all know there are many kinds of wealth: emotional wealth; relationship wealth; intellectual wealth; physical wealth, in the form of energy, strength, and vitality; and, of course, spiritual wealth: the sense that our life has a deeper meaning, a higher calling beyond ourselves. One of the biggest mistakes we human beings make is when we focus on mastering one form of wealth at the expense of all the rest.

T his book has never really been just about money. W hat it’s really about is creating an extraordinary quality of life—life on your terms. U ntil now we’ve zeroed in on how to master the game of money and financial independence because money can have a significant effect on everything from our psychology, to our health, to our intimate relationships. But it’s important to remember that it’s impossible to live an extraordinary life if you don’t also master the game of relationships, the game of fulfillment, and the game of health.

Being the richest man in the graveyard is not the goal.

I will never forget taking my children to see C irque du Soleil when the troupe came to our hometown in D el Mar, C alifornia, almost three decades ago. W e were fortunate enough to get VIP tickets with floor seats right next to the stage. Y ou could almost reach out and touch the performers.

Just before the show began, I noticed three prime seats were still open beside us, and I thought, “W ow, someone is going to miss out on an amazing show.” But a minute or two later, a giant man, walking with the help of a cane and two assistants, came down the stairs. H e must have weighed at least 400 pounds. W hen he sat down, he took up the three empty seats and was wheezing and sweating from the short walk to the front row. I felt so bad for this man—and for my daughter, who was being crushed by his body spilling over that third seat and onto her! I overheard a person behind me whispering that he was the richest man in C anada. It turns out he was one of the richest men in C anada— financially. A billionaire, no less! Y et in that moment, I couldn’t help thinking about the pain he must live in—all because he put so much of his focus into money while neglecting his health and the physical wealth of his body. H e was literally killing himself! And by failing to master more than one aspect of his life, he couldn’t enjoy what he had—not even a simple, magical evening at the theater.

W e can only be said to be alive in those moments when our hearts are conscious of our treasures.

— T H O R N T O N W IL D E R

W hat’s the point of massive achievement if your life has no balance? And what’s the point of winning the game if you never take the time to celebrate and appreciate the life you have? T here’s nothing worse than a rich person who’s chronically angry or unhappy. T here’s really no excuse for it, yet I see this phenomenon so often. It’s the result of an extremely unbalanced life—one with too much expectation and not enough appreciation for what’s already here. W ithout gratitude and appreciation for what we already have, we’ll never know true fulfillment. As Sir John T empleton said, “If you’ve got a billion dollars and you’re ungrateful, you’re a poor man. If you have very little but you’re grateful for what you have, you’re truly rich.”

H ow do you cultivate gratitude? Start by looking at the force that controls your mind and emotions.

O ur decisions ultimately control the quality of our lives. In all the years I’ve worked with people, I’ve found that there are three key decisions that we make every moment of our lives. If we make these decisions unconsciously, we end up with lives like the majority of people, who tend to be out of shape physically, exhausted emotionally, and often bored with or too comfortable in their intimate relationships—not to mention financially stressed.

But if you make these decisions consciously, you literally can change your life in an instant! W hat are the three decisions that determine the quality of your life? T hat determine whether you feel rich or poor in any given moment? T he first one is:

D E C ISION 1:

W H AT ARE Y OU G OIN G T O FOC U S ON ?

In every moment of our lives, there are millions of things we can focus on. W e can focus on the things that are happening right here, right now, or on what we want to create in the future, or we can put our focus back on the past. W e can direct our focus to solving a big challenge or to appreciating the beauty of this moment, or to feeling sorry for ourselves about some disappointing experience. If we don’t direct our focus consciously, the environment we’re in tends to make constant demands to get our attention.

T here are hundreds of billions of dollars spent on advertising, trying to get this precious commodity of yours. T he news tries to get your focus by telling you the scariest story: “Y our child could die from drinking fruit juice! Film at eleven!” or some other ridiculous claim. W hy? Because as they say in the media, “If it bleeds, it leads.” If that’s not enough, we live in a social media world where the buzz in your pocket is constantly calling to you. But here is the key: where focus goes, energy flows. W hat you focus on, and your pattern of focus, shape your whole life.

L et’s look at two of these patterns that control and can immediately shift your level of joy, happiness, frustration, anger, stress, or fulfillment.

T he first question is: W hich do you tend to focus on more—what you have or what’s missing from

your life? I’m sure you think about both sides of this coin, but if you had to look at your habitual thoughts, where do you tend to spend most of your time?

E ven those of us who are in the most difficult situations have plenty in our lives that we can appreciate. If you’re struggling financially, might it be worthwhile to remember that if you make an income of just $34,000 a year, you are actually in the top 1% of all wage earners in the world? Y es, the average annual income on the planet is only $1,480 a month. In fact, almost half the world, or more than 3 billion people, live on less than $2.50 per day, which is a little more than $900 per year. T he average drink at Starbucks is $3.25. If you can afford that, you’re spending more with one purchase of a cup of coffee than what half the planet has to live on for one day.

T hat puts things in perspective, doesn’t it? So if you want to occupy W all Street because you resent the socalled 1% , you might stop to consider that 99% of the rest of the world might want to occupy your “terrible” life!

But in all seriousness, rather than focusing on what we don’t have and begrudging those who are better off financially, perhaps we should acknowledge that there’s so much to be grateful for in our lives that has nothing to do with money. W e can be grateful for our health, our friends, our opportunities, our minds, and the fact that we get to drive on roads that we didn’t have to build, read books we didn’t have to take years to write, and tap into the internet that we didn’t have to create.

W here do you tend to put your focus? On what you have or on what’s missing?

A pattern of appreciating what you have will create a new level of emotional well-being and wealth. And my guess is that if you’re reading this book, you may be one of those people who already notices what you have. But the real question is, do you take time to deeply feel grateful in your mind, body, heart, and soul? T hat’s where the joy and the gifts will be found. N ot with just intellectual appreciation or by the acquisition of another dollar, or another $10 million.

N ow let’s consider a second pattern of focus that impacts the quality of your life: D o you tend to focus more on what you can control or what you can’t control? I know the answer will be contextual, as it could change from moment to moment, but I’m asking you overall: W hat do you tend to do more often? Be honest.

If you focus on what you can’t control, there’s no question you’re going to have more stress in your life. Y ou can influence many aspects of your life, but you can’t control the markets, the health of those you care about, or the attitudes of your children—as anyone who has lived with a two-year-old or a 16-year-old knows!

Y es, we can influence many things, but we can’t control them. T he more we feel out of control, the more frustrated we become. In fact, self-esteem can be measured by how much we feel we control the events in our life versus feeling that life’s events are controlling us.

N ow, as soon as you begin to focus on something, your brain has to make a second decision, which is:

D E C ISION 2:

W H AT D OE S T H IS ME AN ?

W hat does this mean? U ltimately, how we feel about our lives has nothing to do with the events of our lives, or with our financial condition, or what has or has not happened to us. T he quality of our lives is controlled by the meanings we give these things. Most of the time we’re unaware of the impact of these quick meaning decisions that are often made in our unconscious mind.

W hen something happens that disrupts your life—a car accident, a health issue, a lost job—do you tend to think it’s the end or the beginning? If someone confronts you, is he or she “insulting” you, “coaching” you, or truly “caring” for you? D oes this “devastating” problem mean that G od is punishing you, or challenging you, or is it possible this problem is a gift from G od? Y our life becomes whatever meaning you give it. Because with each meaning comes a unique feeling or emotion, and the quality of our lives is where we live emotionally.

Meanings don’t just affect the way we feel; they affect all of our relationships and interactions. Some people think the first ten years of a relationship is just the beginning; that they’re just now getting to know each other, and it’s really exciting. It’s an opportunity to go deeper. Other people could be ten days into a relationship, and the first time they have an argument, they think it’s the end.

N ow tell me, if you think this is the beginning of a relationship, are you going to behave the same way as if it were the end? T hat one slight shift in perception, in meaning, can change your whole life in a moment. In the beginning of a relationship, if you’re totally in love and attracted, what will you do for the other person? T he answer is: anything! If he or she asks you to take out the trash, you might leap to your feet and say, “Anything that lights you up, sweetheart!” But after seven days, seven years, or seventy years, people say things like, “W hat the hell do you think I am, your janitor?!” And they wonder what happened to the passion in their life. I’ve often shared with couples having trouble in their relationships that if you do what you did in the beginning of the relationship, there won’t be an end! Because in the beginning of the relationship you were a giver, not an accountant. Y ou weren’t weighing constantly the meaning of who was giving more. Y our entire focus was just lighting up that person, and his or her happiness made you feel like your life was filled with joy.

L et’s look at how these first two decisions, focus and meaning, often combine to create one of modern society’s biggest afflictions: depression. I’m sure you must wonder how it’s possible that so many people who are “rich” and famous—with every resource you could ever desire—could ever be depressed. H ow is it that so many of those who were beloved by millions of people, and have tens of millions of dollars or more, have even taken their own lives? W e’ve seen it over and over again with extraordinarily intelligent individuals, from businessmen to entertainers to comedians. H ow is this possible, especially with all of the modern treatments and medications available today?

In my seminars, I always ask, “H ow many of you know someone who is on antidepressants and is still depressed?” E verywhere around the world, in rooms of 5,000 to 10,000 people, I’ll see about 85% to 90% of the room raise their hands. H ow is that possible? After all, you’re giving them a drug that should make them better.

W ell, these antidepressants do come with labels warning that suicidal thoughts are a possible side effect. But perhaps the real challenge is, no matter how much you drug yourself, if you focus constantly on what you can’t control in your life and what’s missing, it’s not hard to find yourself in despair. If you add to that a meaning like “life is not worth living,” you have an emotional cocktail that no antidepressant will be able to overcome consistently.

But I can tell you beyond a shadow of a doubt that if that same person can come up with a new meaning—a reason to live or a belief that all of this was meant to be— then he will be stronger than anything that has ever happened to him. If she can focus consistently on who needs her, wants her, loves her, what she still wants to give to this world, then anyone can be shifted. H ow do I know? Because in 38 years of working with people, I’ve never lost one to suicide out of the thousands I’ve dealt with. And knock on wood—there are no guarantees— hopefully I never will. But when you can get people to shift their habitual focus and meanings, there’s no longer a limit on what a person’s life can become.²⁵

A change of focus and a change in meaning can literally change your biochemistry in a matter of minutes. L earning to master this becomes an emotional game changer. H ow else can you explain the power and beauty of people like the great therapist and thinker Victor Frankl and so many others who made it through the horrors of Auschwitz? T hey found meaning even in their extreme suffering. It was a higher meaning, a deeper meaning that kept them going —not only to survive but also to save the lives of so many others in the future by saying, “T his will never happen again.” W e can all find meaning, even in our pain. And when we do, we may still experience pain, but the suffering is gone.

So take control, and always remember: meaning equals emotion, and emotion equals life. C hoose consciously and wisely. Find the empowering meaning in anything, and wealth in its deepest sense will be yours today.

D E C ISION 3:

W H AT AM I G OIN G T O D O?

Once we create a meaning in our minds, it creates an emotion, and that emotion leads to a state in which we make our third decision: W hat am I going to do? T he actions we take are powerfully shaped by the emotional states we’re in. If we’re angry, we’re going to behave quite differently than if we’re feeling playful or outrageous.

If you want to shape your actions, the fastest way is to change what you focus on and change the meanings to something more empowering. But even two people who get in an angry state will behave differently. Some will pull back when they’re angry; others push through. Some people express anger quietly or loudly or violently. Some suppress it only to look for a passive-aggressive opportunity to regain the upper hand, or even exact revenge. Some people confront their anger by going to the gym and working out.

W here do these patterns come from? W e tend to model our behavior on the people in our lives whom we respect, enjoy, and love. T he people who frustrated or angered us? W e often reject their approaches, but far too often find ourselves falling back into the pattern that we witnessed over and over again and were so displeased by in our youth.

It’s very useful to become aware of what your patterns are when you get frustrated or angry or sad or feel lonely —because you can’t change your pattern if you’re not aware of it. In addition, now that you’re aware of the power of these three decisions, you might start looking for role models who are experiencing what you want out of life. I promise you, those who have passionate relationships have a totally different focus and come up with totally different meanings for challenges in the relationship than people who are constantly bickering or fighting. Or those who judge each other constantly. It’s not rocket science. If you become aware of the differences in how people make these three decisions, you’ll have a pathway that can help you create a permanent positive change in any area of your life.

At the age of 18, I made up my mind to never have another bad day in my life. I dove into an endless sea of gratitude from which I’ve never emerged.

— D R . PAT C H AD AMS

H            ow can you use these three decisions to enhance thequality of your life? It turns out that what we focus on, what emotional states we tend to live in, and what we do can all be conditioned, or “primed,” into our lives with a simple routine. After all, you don’t want to merely hope that positive emotions just show up; you want to condition yourself to live in them. It’s like an athlete developing a muscle. Y ou must train yourself if you want to have an extraordinary quality of fulfillment, enjoyment, happiness, and achievement in your personal, professional, and intimate lives. Y ou must train yourself to focus, feel, and find the most empowering meanings.

T his practice is rooted in a concept in psychology called priming, in which words, ideas, and sensory experiences color our perceptions of the world and affect our emotions, motivations, and actions.

W hat if you were to discover that many of the thoughts that you think are your thoughts are simply conditioned by environmental triggers, or in some cases manipulated consciously by others who understand the power of priming? L et me give you an example.

T wo psychologists conducted a study²⁶ in which a stranger handed the subjects either a mug of hot coffee or a cup of iced coffee. T he subjects were asked to read about a hypothetical character and asked to describe the character’s true nature. T he results were astonishing! T hose who were given the hot coffee described the character as “warm” and “generous,” while the icedcoffee holders described him as “cold” and “selfish.”

In another study at the U niversity of W ashington, women of Asian descent were given a mathematics test. Before the test, they took a brief questionnaire. If they were asked to list their ethnicity, the women scored 20% higher on the math test. But for those who were asked to fill in gender instead of ethnicity, the simple act of writing that they were female produced significantly lower scores. T hat’s the power of priming in the form of cultural conditioning. It affects our unconscious patterns —shrinking or unleashing our true potential.

W e can make use of this phenomenon by developing a simple ten-minute daily practice to prime our minds and hearts for gratitude—the emotion that eliminates anger and fear. Remember, if you’re grateful, you can’t be angry simultaneously. Y ou can’t be fearful and grateful simultaneously. It’s impossible!

I               begin every day with a minimum of ten minutes. Istop, close my eyes, and for approximately three minutes reflect on what I’m grateful for: the wind on my face, the love in my life, the opportunities and the blessings I experience. I don’t focus just on big things; I make a point not only to notice, but also to deeply feel an appreciation for the little things that make life rich. For the next three minutes, I ask for health and blessings for all those I love, know, and have the privilege to touch: my family, friends, clients, and the stranger I may meet today. Sending love, blessings, gratitude, and wishes for abundance to all people. As corny as it sounds, it’s the real circle of life.

I spend the remaining time on what I call my “T hree to T hrive”: three things that I want to accomplish. I envision them as if they were already achieved and feel a sense of celebration and gratitude for them. Priming is an important gift to yourself—if you did it for ten days, you’d be hooked. (H ere’s a link to get you started: www.tonyrobbins.com.)

T his simple practice is important because a lot of people say they’re grateful, but they don’t take time to be grateful. It’s so easy in life to lose track of the beauty and grace of what we already have! If we don’t consciously do something each day to plant the right seeds in our mind, then the “weeds of life”—frustration, anger, stress, loneliness—tend to creep in. Y ou don’t have to plant weeds; they grow automatically. My teacher Jim Rohn taught me a simple principle: every day, stand guard at the door of your mind, and you alone decide what thoughts and beliefs you let into your life. For they will shape whether you feel rich or poor, cursed or blessed.

In the end, if we’re going to truly be happy, we have to get outside of ourselves.

T he human mind is an amazing thing. It’s a survival mechanism, so it tends to look for what’s wrong, what to avoid, what to look out for. Y ou may have evolved, but your brain is still a 2million-year-old structure, and if you want to be fulfilled and happy, that’s not its first priority. Y ou have to take control of it. And the fastest way to do that—besides priming—is to step into the highest of the 6 H uman N eeds, the two spiritual needs that fulfill human beings: G rowth and C ontribution.

T he core reason that I believe we all have a desire to grow is because when we do, we have something to give. T hat’s where life has its deepest meaning. “G etting” might make you feel good for a moment, but nothing beats the nirvana of having something to give that you know deeply touches someone or something beyond yourself.

E veryone can be great, because everyone can serve.

— D R . MAR T IN L U T H E R K IN G JR .

If it’s really true that giving is what makes us feel fully alive, then perhaps the ultimate test of this theory is what life is like for those willing to give their lives for something they believe in. One of my greatest heroes of the last century was civil rights leader Martin L uther K ing Jr. Recently his eldest son and namesake, Martin L uther K ing III, was in Fiji for my D ate with D estiny event. I had the opportunity of sharing with him how much his dad inspired me because he lived his life on pure passion—he knew what he was made for. E ven as a child, I remember hearing his words: “A man who has not found something he will die for is not fit to live.”

Real wealth is unleashed in your life the moment you find something you care so deeply for you will give it your all—even your life, if necessary. T his is the moment in which you will have truly escaped the tyranny of your own mind, your own fears, your own sense of limitation. A big order, I know. But I also know that most of us would give our lives for our children, our parents, or our spouses. T hose who have found a mission that possesses them have discovered a wealth of energy and meaning that has no match.

T H E W E AL T H OF PASSION

Y ou’ve probably heard of the Pakistani teenager Malala Y ousafzai. She was shot in the head by T aliban terrorists because she had the audacity to insist that girls have the right to go to school. A bullet pierced her eye socket and bounced around her skull, nearly killing her. Miraculously it missed her brain. Malala survived her horrific injuries and has become an international activist for the empowerment of girls and women. T he man who shot her remains free, and the T aliban still threatens to kill her. But she openly defies them. In a speech before the U nited N ations on her 16th birthday, Malala said she has no fear. “T hey thought that the bullet would silence us, but they failed. And out of this silence came thousands of voices. T he terrorists thought that they would change my aim and stop my ambitions, but nothing changed in my life, except this: weakness, fear, and hopelessness died. Strength, fervor, and courage was born.”

In an interview with Malala, C N N ’s C hristiane Amanpour asked the young woman if she feared for her life. Malala replied, “T he thing is, they can kill me. T hey can only kill Malala. But it does not mean that they can kill my cause as well; my cause of education, my cause of peace, and my cause of human rights. My cause of equality will still be surviving . . . T hey only can shoot a body, but they cannot shoot my dreams.”

T his 16-year-old young woman has mastered those three decisions. She’s focused on what matters. She’s found a mission beyond herself that gives her life meaning. And her actions are fearless.

W hile we might not be called to put our lives on the line like Malala, we can all choose to live fearlessly, passionately, and with boundless gratitude. So let’s turn the page and finish our wealth-building journey together with the most important lesson of all: the final secret.

25.               If you’d like, you can go online to www.tonyrobbins.com and see some of these interventions. W e’ve even followed people three and five years later to show that the changes lasted. It will give you an idea of how you can master the meaning in your own life.

26.               T he study was funded by the N ational Institutes of H ealth, andcoauthored by John A. Bargh (Y ale) and L awrence W illiams (U niversity of C olorado).

C HAPT E R 7.3

T H E FIN AL SE C RE T

W e make a living by what we get. W e make a life by what we give.

— W IN ST O N C H U R C H IL L

As we take these final steps of our journey together, I

want to invite you to think about what you are most passionate about in this world. W hat do you care for most deeply? W hat excites you? W hat legacy would light you up? W hat could you do today that would make you proud? W hat action could you take that would be a signal to your own spirit that your life is being lived well? And if you were truly inspired, what would you like to create or give?

All these questions bring us closer to the final secret of true wealth. But—and here’s the deal—part of the key may seem counterintuitive. W e’ve spent a lot of time talking about how to master money, save, invest, and build a critical mass that can ultimately create freedom and increase the quality of your life. But at the same time,

we’ve all been taught that money cannot buy happiness. As one study attests, most people believe that if their income doubled, their happiness would also double. But the study’s findings proved that, in reality, people who went from earning $25,000 per year to $55,000 per year reported only a 9% increase in happiness. Additionally, one of the most widely quoted studies on the subject tells us that once you make a solid middle-class salary—about $75,000 per year in America —earning more money doesn’t make any measureable difference in a person’s level of happiness.

“So, what’s the point?” you might ask.

T he truth is: more recent studies have proven that money can make us happier. Scientists have shown that “spending as little as five dollars a day can significantly change your happiness.” H ow so? W ell, it’s not the amount of money you spend, but how you decide to spend it that matters. “E very day spending choices unleash a cascade of biological and emotional effects that are detectable right down to saliva,” reports H arvard’s E lizabeth D unn and Michael N orton in their brilliant 2013 book, H appy Money: T he Science of Smarter Spending. “W hile having more money can provide all kinds of wonderful things— from tastier food to safer neighborhoods—its real power comes not in the amount but how we spend it.”

T hey have scientifically proven that there are many different ways you can spend your money that will actually increase your happiness significantly. I won’t reveal them all here and will leave it to you to pick up their book, but three of the most important are:

1.     Investing in experiences—such as travel, learning a new skill, or taking some courses, rather than acquiring more possessions.

2.     Buying time for yourself—“W henever we can outsource our most dreaded tasks (from scrubbing toilets to cleaning gutters), money can transform the way we spend our time, freeing us to pursue our passions!”

But can you guess the greatest thing you can do with your money that will bring you massively increased happiness?

3.     Investing in others—T hat’s right. G iving our money away actually makes us really happy!

Research shows that the more you give to others, the happier you are. And the more you have, the more you are able to give. It’s a virtuous cycle. D unn and N orton demonstrate through their own scientific studies that people get more satisfaction spending money on others than they do spending it on themselves. And the benefits “extend to not only subjective wellbeing, but also objective health.”

In other words, giving makes you both happier and healthier.

According to the authors, this phenomenon spans continents and cultures, rich countries and poor, people in the highest and lowest income groups, young and old, “from a C anadian college student purchasing a scarf for her mother, to a U gandan woman buying lifesaving malaria medication for a friend.” Again, the data shows that the size of the gift doesn’t really matter.

In one of their studies, the authors handed participants either $5 or $20 to spend by the end of the day. H alf were told to buy something for themselves; the others were instructed to use the money to help somebody else. “T hat evening, people who had been assigned to spend the money on someone else reported [significantly] happier moods over the course of the day than did those people assigned to spend the money on themselves,” they wrote.

T he authors’ colleague, psychologist L ara Aknin of Simon Fraser U niversity, conducted another study in which she handed out $10 Starbucks gift cards to her subjects.

•    Some were instructed to go into Starbucks alone anduse the gift card on themselves.

•    Some were told to use the gift card to take another person out for coffee.

•    Some were told to give the gift card away to someone else, but they weren’t allowed to go to Starbucks with that person.

•    Some were told to take another person with them to Starbucks but to use the card only for themselves, not the person with them.

At the end of the day, which subjects do you think reported being happiest? Y ou’re right if you picked the ones who were there in Starbucks when they treated someone else to a cup of coffee. According to the authors, people are happiest when they connect with those they help, and “see how their generous actions have made a difference.”

T he happiness we feel from helping others is not only more intense, but it lasts longer too. W hen I brought up the topic of money and happiness in my interview with renowned behavioral economics expert D an Ariely, he told me, “If you ask people, ‘W hat would make you happy: buying something for yourself, or buying something for somebody else?’ they say, ‘Oh, something for myself.’ But that’s not true. Research shows that when people buy something for themselves, they get happy for a few minutes or usually a few hours. But if they buy even a small gift for somebody else, the giver’s happiness lasts a minimum to the end of the day, but often the happiness can carry over for days or even weeks on end.”

D an also told me about a “beautiful experiment” in which employees of a certain company were given bonuses in the $3,000 range. Some people got the bonuses to spend on themselves. And some were instructed to give the money away. G uess who was happier?

“Six months down the line, the people who gave it away reported being much happier than the group that kept it for themselves,” D an said. “I mean, think about what giving is all about, right? It’s an amazing thing that connects you to other people . . . and there’s a cycle of benefits that comes from that.”

W hen you give away money, especially if you do something for a stranger versus if you do something for someone you love, the level of multiplied happiness is geometric. It’s the equivalent of doubling or tripling your salary.

In my own experience, I’ve witnessed so many amazing things that happen when you give. W hen you get beyond your own survival and success mechanisms to a world where you’re living for more than just yourself, suddenly your fear, your frustration, your pain and unhappiness disappear. I truly believe that when we give of ourselves, then life, G od, grace—whatever you want to call it—steps in and guides us. Remember, life supports whatever supports more of life.

L et me give you an example of how a young boy’s life was reignited after his heart and soul were nearly crushed in the aftermath of the horrific school shooting in N ewtown, C onnecticut. H is is a story of finding purpose and inspiration and a release from pain through the act of giving.

A POW E R BE Y ON D PAIN

JT L ewis will never forget D ecember 14, 2012. T hat morning a deranged shooter broke into Sandy H ook E lementary School with a death wish for himself and 26 others, including 20 children ranging from ages five to ten. At one point during the rampage, JT ’s six-yearold brother, Jesse, noticed the shooter’s weapon had jammed and shouted for his classmates to run. T hat brave little boy saved many lives that morning, but, unfortunately, not his own. T he gunman turned on Jesse and shot him dead.

Imagine the devastation if Jesse were your son. Or brother. I had the privilege of meeting 13-year-old JT , and his and Jesse’s mother, Scarlett, when I flew to N ewtown on the first anniversary of the massacre to help a group of survivors cope with the ongoing impact of this devastating tragedy. As I expected, so many of these families were tortured with grief. But I was astonished to talk to JT and learn how his pain and suffering had been transformed through a single interaction with a group of extraordinary Rwandan orphans. T hese young boys and girls had heard about JT ’s loss and wanted to reach out across the globe to share a message of healing.

T hese orphans had all survived one of the worst tragedies in history. In 1994, mass genocide in Rwanda led to the death of as many as 1 million T utsis, who were killed by their H utu neighbors in roughly 100 days. D uring a Skype call, one of the girls, C hantal, told JT how sorry she was for the loss of his brother. But she wanted him to know that no one can take away joy and happiness from your life, only you; the shooter does not have that power.

She then went on to share her own story of how she was only eight years old when she had been forced to witness the horrendous sight of her parents being hacked to death by men with machetes. N ext the killers turned on her, slashing her neck and throwing her tiny body in a mass grave. Buried beneath the ground, bleeding profusely and terrified, but filled with a will to survive, C hantal clawed her way out of that shallow grave and made her way to freedom in the mountains above her village. H iding in the dark forest, she could look down on the community she once called home, as flames swallowed house after house, and the air echoed with screams of the people she loved. She lived on grass for a month while she waited for the killing to stop.

C ertainly you would expect a child forced to witness the murder of her own parents would be emotionally scarred for life. One would expect her to live in anger and fear, but she doesn’t. She is a master of the three decisions that shape our lives.

As she told JT , “I know you don’t believe it now, but you can heal immediately and live a happy and beautiful life. It simply requires training yourself to, every day, be grateful, forgiving, and compassionate. G rateful for what you do have, instead of focusing on what you don’t. Y ou must forgive the shooter and his family and find a way to serve others, and you will be freed from your pain.” H er face was filled with a joy greater than JT could have ever imagined. As bad as his life was, the horror she described was more intense than anything he could conceive. If she could be free of her pain, then so could he. And now was the time.

But how would he do it? H e decided he must find a way to give back to this young soul who had reached across thousands of miles to send him love on his day of need. C hantal found her reason to live, her passion and sense of purpose, in deciding to protect, love, and raise some of the other younger orphans of the genocide.

T his became her mission, and it freed her from focusing on herself or any sense of loss.

H      er example of service to others touched JT deeply,and he became obsessed with the idea of giving. H e decided that helping to create a better future for this extraordinary girl was his mission. H e began to work day and night to raise money to put her through college. W ithin several months, this 13-year-old boy was able to Skype back and announce that he had raised $2,100— enough money to send C hantal to college for a year! She was incredibly touched. But like many young people, especially in the third world, university was simply not a practical option for her, especially as she had already started her own small business as a shopkeeper. (And as you might imagine from a woman with her spirit, she is quite a successful entrepreneur!) So, in the continued spirit of giving, C hantal passed this amazing gift on to her best friend, Betty, another orphan who had also been on the call to encourage JT .

I          was so moved by JT ’s commitment that I decided onthe spot to provide the additional three years of college for Betty, and support C hantal by providing her the funding to build a new shop and a permanent residence for the rest of her adopted orphan family.

T oday we’re all working together to expand the resources available for many more of the 75,000 orphaned children who survived the genocide.²⁷

T he lesson here is this: human beings can overcome our pain when we choose to see life’s beauty and find a way to give of ourselves. T hat is where the healing gift comes from. T he key is finding something that will inspire you to want to give. T hat sense of mission—that’s the ultimate power in life. T hat’s when you truly become wealthy—that is when you move from a mere life of enjoyment to a life of joy and meaning.

G IVIN G IS H E AL IN G

Of course, giving means more than just giving money. It’s also giving your time, it’s giving your emotion, it’s giving your presence to your kids, to your family, to your husband or your wife, to your friends, to your associates. Our work is also our gift. W hether that gift is a song, a poem, building a multinational business, serving as a counselor, a healthcare provider, or a teacher, we all have something to give. In fact, after love, one of the most sacred gifts we can give is our labor. And volunteering your time, giving your unique level of caring, and sharing your skills will also give you significant “returns.”

My friend Arianna H uffington cites studies in her brilliant book T hrive that show how the act of giving actually improves your physical and mental health. One example I love in particular is the 2013 study from Britain’s U niversity of E xeter Medical School that reveals how volunteering is associated with lower rates of depression, higher reports of well-being, and a 22% reduction in death rates! She also writes, “Volunteering at least once a week yields improvements to well-being tantamount to your salary increasing from $20,000 to

$75,000!”

So what’s the final secret to wealth? It’s that giving in any form builds wealth faster than getting ever will. I don’t care how powerful any of us are as individuals, whether you’re a business titan, political leader, financial mogul, or entertainment icon—the secret to a fulfilled life is not only to do well but also to do good. After all, we all know the story of how society has been transformed by magnificently wealthy individuals who woke up one morning and realized, “L ife is about more than just me.”

Being the richest man in the cemetery doesn’t matter to me. G oing to bed at night saying we’ve done something wonderful, that’s what matters to me.

— ST E V E JO BS

Before the 19th century, most charity was handled by religious organizations—until steel magnate Andrew C arnegie came along. K ings and nobles and the wealthiest families weren’t interested in giving back to their communities; for the most part, they just wanted to hang on to their money for themselves and their heirs. Many businessmen shared the same belief. But C arnegie led the other “robber barons” of his era to create philanthropy as we’ve come to know it today.

C arnegie was a ruthless businessman, but he made the steel that built the railroads and skyscrapers that transformed America. H e had to add value to be profitable, so society benefitted, and so did he. In his lifetime, he became the richest man in the world. But there came a stage in his life where he had gotten all the things that he wanted and then some. H e had so much money that he began to realize that it had very little meaning—unless he used it for something beyond himself. So C arnegie spent the first half of his life accumulating money and the second half giving it away. H e described his personal transformation in an essay

(and later a book) that’s still worth reading called T he

Gospel of Wealth. My friend, N obel Prize winner and Y ale economics professor Robert Shiller, insists that all of his students read it because he wants them to know that capitalism can be a force for good. C arnegie’s essay changed society, influenced his peers, and even challenged the incomprehensible wealth of his greatest rival, John D . Rockefeller. Inspired by a fierce competitive spirit, Rockefeller began shoveling mountains of money into some of the nation’s greatest foundations. C arnegie created a new standard: a standard of measuring your significance not by what you have but by what you give. H is focus was education. In fact, during his lifetime, C arnegie’s contributions doubled the number of libraries in the U nited States, and provided so much of the intellectual growth and capital of our society before the internet came into being.

        Our    friend   C huck    Feeney    became   a    modern

C arnegie, giving away almost all of his $7.5 billion fortune—except he chose to keep quiet about it until recently!

By the time I came to meet C huck, he was 83 and in the final stage of his life. H e had difficulty speaking for extended periods of time, but in his presence is found an experience more profound than words. In his presence, you feel the power of a life well lived. Y ou can see it in the joy in his eyes, in the smile that flashes so easily for him, in the kindness that emanates from his heart.

C huck Feeney, in turn, inspired another generation. Many say T ed T urner was the next to reignite this form of large-scale philanthropy with his $1 billion pledge to the U nited N ations. Since then, Bill G ates and W arren Buffett have joined forces to create the G iving Pledge to inspire the world’s wealthy to leave at least half of their fortunes to charity. At last count, more than 120 billionaires had signed up, including some of the ultrawealthy individuals in this book, such as Ray D alio,

T . Boone Pickens, Sara Blakely, C arl Icahn, and Paul

T udor         Jones.         (See        the        website,        at

http://givingpledge.org, to read some of the moving letters they wrote to accompany their gifts.)

T . Boone Pickens told me he’s gotten a bit carried away with his philanthropy. H e’d recently given nearly a half billion dollars to his alma mater, Oklahoma State U niversity, bringing his total charitable gifts to over $1 billion. H owever, he recently took some losses that lowered his net worth to $950 million—just shy of that billion he gave away! But Boone is not concerned. After all, he’s only 86 years old. “D on’t worry, T ony,” he said. “I’m planning on earning another two billion in the next few years.” H e feels no sense of loss, because the joy he’s received in giving is priceless.

In modern times, the richest and the most influential men and women in the world have tackled the world’s big problems. C arnegie took on education. Bill and Melinda G ates take on scholarship and preventable epidemics. Bono’s passion is forgiving the debt that enslaves third world countries. But do you have to be a billionaire or a rock star to solve the world’s greatest problems? N ot in today’s interconnected world. If we work together through the use of technology, we can each do a little bit and still have a huge impact.

SW IPE OU T H U N G E R, SW IPE OU T D ISE ASE ,

SW IPE OU T SL AVE RY

I’m not sure what your passion is, but one area I personally feel deep empathy for is children and families in need. Y ou need to have ice in your veins not to feel for a child who is suffering. So let’s take a minute to look at three of the biggest problems affecting children and their families today, and what immediate, concrete steps we could easily take to make a difference.

T he first is hunger. W ho do you think goes to bed hungry each night in the richest country in the world? According to the U S C ensus Bureau, as staggering as it sounds, one in four American children under the age of five lives in poverty, and almost one in ten lives in extreme poverty (which is defined as an annual income below $11,746, or $32 a day, for a family of four to live on).

Fifty million Americans, including nearly 17 million children, live in food-insecure homes—or as Joel Berg of N ew Y ork’s C oalition Against H unger told T heresa Riley of Moyers & Company, homes that “don’t have enough money to regularly obtain the food they need”; that “are rationing food and skipping meals. W here parents are going without food to feed their children.” At the same time, C ongress has cut $8.7 billion of annual SN AP benefits—what used to be called food stamps—eliminating more than a week’s worth of meals every month for a half million American families.

I lived in one of those homes; ours was one of those families. T hat’s where my passion to make a difference in this area comes from. I know those aren’t just statistics; those are human beings who are suffering.

I’ve already shared with you how my life was transformed one T hanksgiving D ay when I was 11 years old. Again, it wasn’t just receiving food that changed my life, it was the fact that a stranger cared. T hat simple act has had an exponential effect. I’ve continued to pay that gift forward by feeding 42 million people over the last 38 years. T he key is I didn’t wait until I could handle this huge problem on a large scale. I didn’t wait until I became wealthy. I started to attack the problem where I was, with what little I had.

At first it was a financial stretch to feed just two families, but then I became inspired and I doubled my goal—to feed four. T he next year it was eight, then 16. As my companies and influence grew, it became a million a year, then 2 million. Just like investments compound, so do investments in giving—and they provide an even greater reward. T he privilege of being in a place where today I am able to donate 50 million meals, and in partnership with you and others, provide more than 100 million meals, is beyond description. I was the guy who had to be fed, and now through grace and commitment, it’s my honor to feed others and to multiply the good that was done for me and my family.

T   here’s nothing like the power of the humansoul on fire. Along the way, caring touched me, and so did books. T hey transported me from a world of limitation to a life of possibility as I entered the minds of authors who had already transformed their lives. In that tradition, I approached my publisher, Simon & Schuster, and let them know that I wanted to feed not just bodies but also minds. T hey have joined me in this mission by donating my simple change-your-life book called Notes from a Friend, which I wrote to help someone in a tough place to turn his or her life around with practical advice, strategies, and inspirational stories. T o match the investment you’ve made in buying this book, my publisher has pledged to provide a copy of Notes from a Friend to a person in need through my partners at Feeding America. T hey are the nation’s largest network of food banks and considered to be the most effective charity in the U nited States for feeding the homeless.

But now I’d like to ask you to consider partnering with me in a way that would continue to do these good works for years to come. It’s a simple strategy that can provide 100 million meals not only this year but also every year for those hungry families in need. It doesn’t require a substantial donation. T he plan I’m proposing offers you the opportunity to change and save lives by effortlessly giving away your spare change. H ow? Join me in the campaign to SwipeOut hunger, SwipeOut disease, and SwipeOut slavery!

U  SE Y OU R SPARE C H AN G E T O C H AN G E T H EW ORL D

So I have an offer for you. My goal in this book was to help you understand the distinctions, insights, skills— and give you a plan—that can truly empower you to create lasting financial security, independence, or freedom for you and your family. I’m obsessed with finding ways to add more value to your life than you could ever imagine with one book (although a big one, I must admit). I want it to inspire you to get beyond scarcity and become a wealthy man or woman right now! And that occurs the day that you start giving with joy in your heart—wherever you are financially—not because you have to, not out of guilt or demand, but because it excites some part of you.

According to the Bureau of L abor Statistics of the U S D epartment of L abor, there are 124 million households in the U S that spend an average of $2,604 per year on entertainment—that’s more than $320 billion a year just on entertainment. Imagine if just some of this money went to solving previously intractable problems like hunger, human trafficking, and access to clean water? In the U S, it takes one dollar to provide ten meals to needy individuals. Imagine helping to provide 100,000,000 meals a year! T hat’s only a little over $10 million—just .0034% of what we spend on entertainment! It’s pennies on the dollar—America’s pocket change! So I partnered with some great minds in business and marketing, including Bob C aruso (social capitalist and former managing partner and C OO of one of the top 100 hedge funds in the world, H ighbridge C apital Management) and my dear friend Marc Benioff (philanthropist, founder, and C E O of Salesforce.com) to build the technology that allows you to easily and painlessly put those pennies to work to save lives.

In less than a minute, you can go online and opt in to SwipeOut (www.swipeout.com), so that every time you use your credit cards anywhere in the world, the price of your purchase will automatically round up to the nearest dollar.²⁸ T hat amount will go directly to an approved and effective charity that will report back to you with stories of the lives you have touched. H ere’s how it works: if you paid $3.75 for your Starbucks, $0.25 would be routed to preselected charities. For an average consumer, this change adds up to just under $20 a month. Y ou can put a limit on what you give, but we do ask that you keep it at a minimum of $10.

W ant to know what your impact would be? For about $20 a month:

•        you could provide 200 meals for hungry

Americans (that’s 2,400 meals per year!); or

•        you could provide a clean, sustainable source of water for ten children in India each month— that’s 120 children per year that you personally protect from a waterborne illness; or

•        you could make a down payment on rescuing and rehabilitating a young C ambodian girl trafficked into slavery.

T hese are the three big issues facing children and families. In America, it’s hunger. W hich is why our focus is on swiping out hunger with our partner Feeding America.

But the biggest challenge for children in the world is disease. D id you know that disease caused by contaminated water is the world’s leading killer, accounting for 3.4 million deaths per year, according to the W orld H ealth Organization (W H O)? In fact, every 20 seconds, another child dies from a waterborne disease—and more have perished than the total number of people who’ve died in all the armed conflicts since W orld W ar II.

T his is why the second commitment of SwipeOut is to swipe out waterborne disease and provide clean water for as many children as possible worldwide. T here are a variety of organizations with sustainable solutions out there, and some require as little as $2 a person to provide these children and their families with a reliable supply of clean water.

W H AT ’S T H E PRIC E OF FRE E D OM?

T hroughout this book, we’ve been working to make sure that you can achieve financial freedom. W hat about investing a tiny fraction of what you spend each month to help secure freedom for one of the 8.4 million children in the world trapped in slavery? In 2008 ABC N ews correspondent D an H arris went undercover to see how long and how much it would take to buy a child slave. H e left N ew Y ork and ten hours later was in H aiti negotiating to buy a child for $150. As he said, in the modern world, it costs less to buy a child than an iPod.

It’s unimaginable to even consider this happening to our own children or anyone we love. But try to imagine the impact of your actions freeing a human life, a soul that has been enslaved for years. T here are no words. And once again, you can know that as you sleep, your contribution is empowering those who are winning this fight every day.

So how do we tackle these huge challenges? E ach of us together, a little bit at a time. T his year, you and I and a few of our friends are going to feed 100 million people.

But wouldn’t it be incredible to feed 100 million people each year in a sustainable way? I provide fresh water for 100,000 people a day in India—it’s one of my passions. W ouldn’t it be amazing for us together to provide 3 million people with clean water a day and grow it from there? Or how about together freeing 5,000 children who had been enslaved, and supporting their education and a path to a healthy life?

T hat’s what the power of just 100,000 of us can do. Just as I built my foundation, this mission could grow geometrically. If over a decade or more we could find a way to grow to a million members, that would be a billion meals provided each year, 30 million people with clean water, or 50,000 children freed from slavery. T hese figures would be extraordinary, but in truth, even one child’s life saved would be worth all the effort.

So what’s your vision? Most people overestimate what they can do in a year and often underestimate what they can do in a decade or two.

I can tell you that when I started on my own mission and fed two families, I was excited. My goal was to feed 100 families in need. T hen it grew to 1,000. T hen 100,000. T hen 1 million. T he more we grow, the more we see what’s possible. It’s up to us. W ill you join me?

Put your change to work, and let’s change the world.

I have found that among its other benefits, giving liberates the soul of the giver.

— MAY A AN G E L O U

W hether you sign up with SwipeOut or another organization, make a decision to take a small portion of the money you earn, or of your time, and consciously choose to invest it in something that doesn’t benefit you directly, but rather goes to someone in need. T his decision is not about being right or wrong, it’s not about looking good, it’s about real wealth—truly feeling more alive and genuinely fulfilled.

In H appy Money, D unn and N orton wrote that when giving outside of ourselves is done right, “when it feels like a choice, when it connects us with others, and when it makes a clear impact—even small gifts can increase happiness, potentially stirring a domino effect of generosity.”

Moved by this potency of “prosocial spending”

(that is, gifts for others and donations to charity) D an Ariely and his wife were inspired to put into practice a simple system that they and their two sons could adhere to together as a family. W hen the kids get their allowances, they have to divide the money among three jars.

Jar 1 is for themselves.

Jar 2 is for somebody they know.

Jar 3 is for somebody they don’t know.

N otice that two-thirds of those jars are for prosocial spending, because that’s what will make the kids happy. All three jars are great, but the Arielys were careful to set aside an equal portion for people they don’t know. Spending on friends and family is beautiful, because it’s giving to people you love, but philanthropy is the third jar, and that can be the most satisfying and important form of giving.

I can also tell you there are extraordinary positive consequences for those who give when it isn’t easy. It primes our brain; it trains and conditions us to know that there’s more than enough. And when our brain believes it, we experience it.

Sir John T empleton, not only the world’s greatest investor but also one of the greatest human beings, shared something with me almost 30 years ago: he said that he’s never known anyone who tithed—meaning the person gave 8% or 10% of what he earned to religious or charitable organizations over a ten-year period—who didn’t massively grow his financial wealth. But here’s the problem: everybody says, “I’ll give when I’m doing better.” And I used to think that way too. But I’ll testify to this: you deserve to start wherever you are today. Y ou’ve got to start the habit of giving even if you think you’re not ready; even if you think you don’t have anything to spare. W hy? Because, as I said to you in the very first chapter of this book, if you don’t give a dime out of a dollar, you’re not going to give $1 million out of $10 million, or $10 million out of $100 million.

H     ow will you fuel your legacy of giving? W ill you give your time and energy? W ill you tithe a portion of your earnings? Or will you start by taking a minute to go online and sign up with SwipeOut and have your change become invested in changing lives? If you’re inspired, please do this now while you are connected to the impact you can have. And remember: the person you will be giving the most to might very well be yourself. A life as a philanthropist begins with a single small step. L et’s take it together.

I         don’t think of all the misery, but of thebeauty that still remains.

— AN N E F R AN K

By the way, I wasn’t always as conscious of the meaning of gratitude and giving. I used to live in scarcity. L ooking back, my life hasn’t always been easy, but it’s always been blessed. I just didn’t recognize it at the time. Because I grew up financially poor, I was always working to make sure I could achieve at the highest level. But I didn’t realize that achievement comes in spurts.

It takes a long time not only to learn something but also to truly master it—to where it becomes so ingrained that it becomes a part of your life. So when I was just starting out, I suffered a series of setbacks. H ow did I react? L et’s just say not with the grace of an enlightened soul! I was constantly angry, frustrated—pissed off! Because nothing was going my way. And I was running out of money!

T hen one night around midnight, I was driving on the 57 Freeway near the T emple Avenue off-ramp near Pomona, C alifornia, wondering, “W hat’s wrong? I’m working so hard. W hat’s missing? W hy am I failing so miserably in getting what I want? W hy isn’t this working?” Suddenly tears started to well in my eyes, and I pulled over to the side of the road. I dug out the journal I always carried with me—I still have it to this day—and started scribbling furiously by the dashboard light. I wrote in giant letters on a full page this message to

myself:     “T H E       SE C R E T       T O       L IV IN G        IS

G      IV IN G .”

Y es! I realized I’d forgotten that’s what life was about. I’d forgotten that this is where all the joy is found—that life isn’t just about me. It’s about we.

W hen I pulled back on the freeway, I was inspired and refocused and reignited with a renewed sense of mission. I started doing well for a while. But, unfortunately, what I had written that night was just a concept, really—an insight that I hadn’t yet fully embodied. T hen I started running into more challenges, and six months later, I had lost everything financially.

Before long, I found myself at what I thought was the lowest point of my life, living on the floor of a 400square-foot bachelor apartment in Venice, C alifornia, seething with resentment. I had fallen into the trap of blaming everyone else for the natural challenges that show up whenever you go after reasonably large goals. I decided that I had been manipulated by a variety of people who had taken advantage of me. “If it wasn’t for them,” my ego said, “I’d be in great shape!” So I threw myself a pity party. And the angrier and more frustrated I became, the less productive I became.

T hen I started to eat as my way of escaping—all this crappy and ridiculous fast food. I gained over 38 pounds in just a few months; that’s not easy to do. Y ou have to eat tons of food and not move much to pull that off! I found myself doing things I used to make fun of in other people—like watching daytime television. If I wasn’t eating, I was watching soap operas. I got pulled into the show General H ospital—if you’re old enough to remember when L uke and L aura got married, I was there!

It’s humorous (and a bit humiliating!) to look back and see how far down I had dropped. I was down to my last $19 and some change, and I didn’t have any prospects. And I was particularly pissed off at a friend who had borrowed $1,200 from me when I was doing well, but never paid it back. N ow I was broke, but when I asked for the money, he’d turned his back on me. H e wasn’t answering my calls! I was furious, thinking, “W hat the hell am I going to do! H ow am I even going to eat?”

But I was always pragmatic. I thought, “Okay, when I was seventeen and homeless, how did I get by?” I’d go to a smorgasbord and load up on the all-you-can-eat buffet for as little money as possible. T hat gave me an idea.

My apartment wasn’t that far from a beautiful place called Marina del Rey, where L A’s wealthy dock their yachts. T here was a restaurant called E l T orito that had a fabulous buffet for about $6. I didn’t want to waste any money on gas or parking, so I walked the three miles to the restaurant, which sat right on the marina. I took a seat by the window and loaded up plate after plate of food, eating like there was no tomorrow—which might have been the case!

W hile I ate, I was watching the boats going by and dreaming about what life could be like. My state started to change, and I could feel layers of anger melting off me. As I finished my meal, I noticed a small boy dressed up in a little suit—he couldn’t have been more than seven or eight years old—opening the door for his young mother. T hen he proudly led her to their table and held out her chair. H e had a special presence. T his kid seemed so pure and so good. H e was such a giver—you could tell by the respectful, loving way he treated his mom. I was deeply moved.

After I paid my check, I walked over to their table and said to the boy, “E xcuse me, I just want to acknowledge you for being such an extraordinary gentleman. It’s

amazing how you’re treating your lady like this.” “She’s my mom,” he confided.

“Oh my G od!” I said. “T hat’s even cooler! And it’s great that you’re taking her to lunch!”

H      e paused and in a quiet voice said, “W ell, I reallycan’t, because I’m only eight years old—and I don’t have a job yet.”

“Y es, you are taking her to lunch,” I said. And in that moment, I reached into my pocket, took all the money I had left—maybe a grand total of $13 and some change— and put it down on the table.

H      e looked up at me and said, “I can’t take that.”“Of course you can,” I told him.

“W hy?”

I          looked at him with a big smile and said, “BecauseI’m bigger than you are.”

H      e stared up at me, shocked, and then he started togiggle. I just turned and walked out the door.

I          didn’t just walk out of that door, I flew home! I should have been freaking out, because I didn’t have a dime to my name, but instead I felt totally free!

T hat was the day my life changed forever.

T hat was the moment I became a wealthy man.

Something inside of me finally got past the feeling of scarcity. I was finally free of this thing called money that I had let terrorize me. I was able to give everything without any fear. Something beyond my mind, something deep in my spirit knew that I—as we all are— was guided. And this moment was meant to be. Just as you’re meant to be reading these words right now.

I realized I had been so busy trying to get that I had forgotten to give. But now I had recovered myself; I had recovered my soul.

I gave away my excuses, the blaming others, and suddenly I wasn’t angry anymore. I wasn’t frustrated. Y ou might also have said I wasn’t very smart! Because I had no idea in hell where I was going to get my next meal. But that thought wasn’t even in my head. Instead, I felt an overwhelming sense of joy that I was released from a nightmare—the nightmare of thinking my life was doomed because of what other people had “done” to me.

T hat night, I committed to a plan of massive action. I decided exactly what I was going to do and how to get myself employed. I felt certain I’d make it happen—but I still didn’t know when my next paycheck would arrive or, even more urgently, my next meal.

And then a miracle happened. T he next morning, the old traditional snail mail arrived, and I found a special letter in my mailbox. In it was a handwritten note from my friend saying he was so sorry he’d been avoiding my calls. I had been there for him when he needed me, and he knew that I was in trouble. So he was paying me back everything he owed. Plus a little more.

I looked inside the envelope, and there was a check for $1,300. It was enough to last me a month or more! I cried, I was so relieved. And then I thought, “What does this mean?”

I don’t know if it was coincidence, but I chose to believe that those two events were connected, and that I had been rewarded because not only had I given but I had also wanted to give. N ot out of obligation or fear—it was just an offering from my heart and soul to another young soul on the path.

And I can tell you honestly, I’ve had many tough days in my life, economically and emotionally—as we all have —but I’ve never gone back to that feeling of scarcity, and I never will.

T he ultimate message of this book is very simple. It’s the sentence I wrote down in my journal on the side of the freeway. T he final secret of wealth is: the secret to living is giving.

G ive freely, openly, easily, and enjoyably. G ive even when you think you have nothing to give, and you’ll discover there is an ocean of abundance inside of you and around you. L ife is always happening for you, not to you.

Appreciate that gift, and you are wealthy, now and forever.

U nderstanding this truth brought me back to what I’m made for, what we’re all made for: to be a force for good. I was brought back to a life of deep meaning, constantly looking to fulfill my prayer—and that is each day to be a blessing in the lives of all those people I meet and have the privilege to connect with.

E ven though I may not have met you personally, I wrote this book from that same state, asking and praying that each chapter, each page, each concept, would be a deeper step in helping you to experience more of the blessings of who you are, and more of the blessings in what you are able to create and give in this life.

My heartfelt wish and the purpose of this book is to give you yet another way to expand and deepen the quality of your life and the lives of all those you have the blessing to love and touch. In this, it’s been a privilege to serve you.

And I look forward to someday, hopefully, crossing paths—either being able to meet you and serve you at one of my events somewhere in the world, or just meeting you on the street. I will be excited to hear how you used these principles to enhance your life.

And so, as we part, I want to leave you with a blessing, and a wish that your life will forever be filled with abundance. I wish for you a life of joy, passion, challenge, opportunity, growth, and giving. I wish for you an extraordinary life.

With love and blessings,

T ON Y ROBBIN S

27.   W e train psychologists and professional coaches who learn corepractical and psychological skills to make a difference during these crises. If you are qualified and would like to volunteer during a time of crisis, reach out to the Anthony R obbins F oundation (www.anthonyrobbinsfoundation.org).

28.   U sing patented technology with bank-level security.

L ive life fully while you’re here. E xperience everything. T ake care of yourself and your friends. H ave fun, be crazy, be weird. G o out and screw up! Y ou’re going to anyway, so you might as well enjoy the process. T ake the opportunity to learn from your mistakes: find the cause of your problem and eliminate it. D on’t try to be perfect; just be an excellent example of being human.

— T O N Y R O BBIN S

7 SIMPL E ST E PS: Y O U R C H E C K L IST FO R SU C C E SS

H ere’s a quick checklist for you to use anytime you want to see where you are and what still needs to be done to move you along the path to financial freedom. T ake a look at the 7 Simple Steps and make sure that you not only understand them but have also activated them.

Step 1: Make the Most Important Financial D ecision of Y our L ife

1.   D id you make the decision to become an investor,not just a consumer?

2.   H ave you committed a specific percentage of savingsthat always goes toward your Freedom Fund?

3.   H ave you automated it? If not, do it now: www.tdameritrade.com or www.schwab.com.

4.   If the amount you’re committing now is small, haveyou committed to your employer to use the Save

          More             T omorrow            program?             See

http://befi.allianzgi.com/en/befi-tv/pages/save-moretomorrow.aspx.

Step 2: Become the Insider: K now the Rules Before Y ou G et in the

G ame

1. D o you know the 9 Myths, and are you now protected? H ere’s a minitest:

a.   W hat percentage of mutual funds beat the market(or their benchmark) over any ten years?

b.  D o fees matter, and what’s the average mutual fund fee?

c.   If you pay 1% versus 3% in fees, how much of adifference does it make to your final nest egg?

d.  H ave you taken your broker for a test drive? H aveyou gone online and seen what your current costs are, how much risk you have in your current investments, and how your current investment strategy has compared over the last 15 years with other simple, inexpensive options?

e.   D o you know the difference between advertisedreturns and what you actually earn?

f.     D o you know the difference between a broker anda fiduciary?

g.   Are target-date funds your best option?

h.  H ow do you maximize your 401(k), and shouldyou elect to use a Roth 401(k)?

i.     D o you have to take huge risks to make big rewards? W hat are some of the tools that will allow you to get the upside of the market without the downside losses?

j.     H ave you identified any of the limiting stories oremotions that have held you back or sabotaged you in the past, and have you broken their pattern of control in your life?

2.   D o you have a fiduciary now representing and guiding you? If not, go online and find one at http://findanadvisor.napfa.org/home.aspx or go to Stronghold and review its services approach (www.StrongholdFinancial.com).

3.   If you own a company, or you’re an employee with a401(k) plan, have you taken 30 seconds to check how your fees compare with the rest of the market? G o to http://americasbest401k.com/401k-fee-checker.

4.   If you’re a business owner, have you met your legalrequirement to benchmark your 401(k) against other comparable plans? Remember, the D epartment of L abor has reported that 75% of the 401(k)s it audited resulted in an average penalty of $600,000 (www.americasbest401k.com).

Step 3: Make the G ame Winnable

1.   H ave you made the game winnable?

a.  H ave you found out what your real numbers are?H ave you figured out what it’s really going to take for you to achieve financial security, vitality, and independence? H ave you calculated it?

b. If not, go back and do that right now. Or if youwant to revisit them, go back and do the numbers now or go to your app, where you can keep the numbers in your pocket, and it will be calculated in a few minutes. Y ou can do it in just a few minutes.

c.  Remember,         clarity         is       power.        See www.tonyrobbins.com/masterthegame.

2.   Once you’ve got the numbers, did you use your wealth calculator and come up with a plan that shows you how many years it will take in a conservative, moderate, or an aggressive plan to achieve financial security or independence? If not, give yourself the gift. G o to the app and do this now.

3.   H ave you looked over and made any decisions aboutthe five elements of how you can speed up your plan and achieve financial security or independence even faster?

a.  Save more:

•    H ave you looked at the places you could save?Y our mortgage? D aily purchases?

•    H ave you implemented a Save More T omorrowplan so that you don’t have to give up anything today, but when you get additional income in

                       the    future,    you’ll     save    more?    G o     to

http://befi.allianzgi.com/en/befi-tv/pages/savemore-tomorrow.aspx.

•    H ave you found something that you could cutdown easily in order to increase your savings? Is it the $40 pizza? Is it the water bottle? Is it Starbucks? And have you calculated how much more money you’ll have in your Freedom Fund and how much faster you can achieve your goals

by doing this? Remember, $40 a week can equal $500,000 over an investment lifetime. Y ou don’t have to do any of these if you’re already on target, but these are options if you’re not yet on target to achieve your financial goals.

b. E arn more. H ave you found ways to increase thevalue you can add to others? D o you need to retool yourself and switch to a different industry? W hat are the ways you can add more value and grow more so you can give more?

c.  Save in fees and taxes. H ave you come up with away to apply what we’ve taught you to reduce your fees and/or reduce your taxes?

d. G et better returns. H ave you found a way to invest with greater returns without undue risk? H ave you reviewed any of the portfolios that are here that might enhance your earnings and protect you from those gut-wrenching downturns in the market?

e.  C hange your life—and improve your lifestyle. H ave you considered a new location with an even better lifestyle? H ave you considered putting yourself in a place where you reduce or eliminate state taxes and then put all of that money toward building wealth and your family’s financial security and freedom?

Step 4: Make the Most Important Investment D ecision of Y our L ife

1.        H ave you decided on asset allocation so that you never put yourself in a position to lose too much?

(N ot all your eggs are in one basket, right?)

2.        H ave you decided what percentage belongs in yourSecurity Bucket and what specific types of investment you’ll use to be safe and still maximize returns? Are you diversifying with different types of investments within the Security Bucket? H ave you decided what percentage of your savings or investment capital will go in the Security Bucket?

3.        H ave you decided what percentage belongs in yourRisk/G rowth Bucket and what specific types of investments you’ll use to maximize returns yet still limit your downside as best as possible? Are you diversified with your Risk/G rowth Bucket?

4.        H ave you evaluated your actual risk tolerance effectively? D id you take the test developed by Rutgers (http://njaes.rutgers.edu/money/riskquiz)?

5.        H ave you considered your stage of life and whetheryou should be more or less aggressive based on the length of time you have to save and invest? (If you’re young, you can lose a bit more because you have more time to recover; if you’re closer to retirement, you have less time to recover, and perhaps you need more in your Security Bucket.)

6.        H ave you evaluated the amount and size of your cashflow and whether that will play a role in your level of conservativeness or aggressiveness in your asset allocation?

7.        H ave you resolved the ratio of Security versus Risk/G rowth as a percentage of your overall investments? 50/50? 60/40? 70/30? 30/70? 40/60? 80/20?

8.        H ave you come up with a list of short-term and longterm goals for your D ream Bucket that excite you? D o you have to wait until someday in the future, or do you have some things you’re going to make happen right away?

9.        H ave you established a way to fund your D ream Bucket with either a small amount of savings or a portion of the profits of windfalls from successes in your Risk/G rowth Bucket?

10.   Rebalancing and dollar-cost averaging:

a.  Are you consistently committing the same amountof money to investments regardless of whether the market is moving up or down? Remember, timing the market never works.

b. Are you continually rebalancing your portfolio, ordo you have a fiduciary doing this for you? E ither way, this is crucial to optimizing returns and

minimizing volatility.

Step 5: C reate a L ifetime Income Plan

1.   T he power of All Seasons:

a.  H ave you taken the time to read, understand, andtake action on the powerful insights that Ray D alio gave us with his All Seasons approach? H e has brought successful investment returns 85% of the time and lost money only four times in 30 years, but never more than 3.93% to date!

b. H ave you gone to Stronghold and taken five minutes to see what kind of returns you’re getting on your current investments compared with All Seasons (and other portfolios) or to see what it would take to set up an All Seasons portfolio in minutes?

2.   Income Insurance:

a.  H ave you done the most important thing of all?H ave you made sure that you will not run out of income as long as you live? H ave you established a guaranteed lifetime income plan?

b. D o you know the difference between an immediate annuity and a deferred annuity, and have you selected which might be right for you depending on your stage in life?

c.  H ave you reviewed and initiated a hybrid annuityor tapped into the upside-without-the-

downside strategy that’s now available to anyone regardless of age and without any lump-sum payment whatsoever?

d. H ave you gone online and found out how muchfuture income you could have for as little as $300 a

month or more? If not, go to www.lifetimeincome.com or call an annuity specialist at Stronghold.

3.   Secrets of the U ltrawealthy:

a.  H ave you investigated how to drastically cut theamount of time it will take you to achieve financial freedom by 30% to 50% through the use of taxefficient life insurance strategies? Remember, PPL I (private placement life insurance) is great for high net worth, but anyone can use the policies offered through T IAA-C RE F with minimal deposit amounts. If you haven’t yet explored these tools, reach out to a qualified, expert fiduciary today or contact Stronghold for a free analysis.

b. H ave you invested the $250 to set up a living trustso that your family is protected and your assets will go to them without going through a year of probate? H ave you protected your wealth not only for your current generation but also your grandchildren and your great grandchildren?

Step 6: Invest L ike the .001%

1.        H ave you taken the time to absorb some of the shortinterviews with 12 of the smartest financial people on earth, the greatest investors in history?

2.        W ho is the “Master of the U niverse” in the financialworld? W hat kind of returns has he gotten compared with anyone else, including W arren Buffett, and how could you invest with him if you wanted to?

3.        W hat did you learn about asset allocation from Y ale’sD avid Swensen? Or J.P. Morgan’s Mary C allahan E rdoes?

4.        W hat did you learn from the indexing master JackBogle? Or from D r. D oom, Marc Faber?

5.        D id you capture the simple strategy that W arren Buffett now recommends for everyone, including his wife and her legacy trust?

6.        D id you absorb the importance of how to get asymmetric returns?

7.        D id you absorb the $100,000 MBA that Paul T udorJones gave you by never making an investment of less than five to one and always tapping into the power of the trend?

8.        D id you check out Ray D alio’s H ow the E conomic Machine Works—In T hirty Minutes video? If not, watch it now at www.economicprinciples.org.

9.        D id you soak in the concepts of K yle Bass’s solutionon investing where you cannot lose money? Remember the power of nickels? W here investments are guaranteed forever by the U S government, and you’ll have a potential upside of anywhere from 20% to 30% ?

10.   D id you take in the core lessons from C harles Schwab, and Sir John T empleton’s gift that continues to give of being able to know that the worst environment is your greatest opportunity—to be most optimistic when the world is “ending” like it did in W orld W ar II, like it did in inflation in South America, like it did in the D epression, like it did in Japan after W orld W ar II? D id you absorb his true core strategic philosophy that made him the first international investment billionaire in history?

11.   W hat actions can you take today to start investinglike the .001% ?

Step 7: Just D o It, E njoy It, and Share It!

1.   Y our H idden Asset:

a.  H ave you connected to the truth that the future isa magnificent place?

b. It will be filled with exciting challenges. Opportunities and problems are always there, but are you clear that there is a wave of technology that is going to continue to innovate and empower us as individuals and enhance the quality of life for human beings all over the earth?

2.   H ave you given yourself the ultimate gift—the commitment to be wealthy now, not someday in the future—by appreciating and developing the daily habit of priming your appreciation of what you already have and building on that success?

3.   W ould you trade expectation for appreciation? Andhave you committed to a life of progress? Progress equals happiness. L ife is about growing and giving.

4.   H ave you figured out what you’re here to serve andwhat the higher purpose is for your life? H ave you begun to think about your legacy?

5.   H ave you decided to convert your pocket change intomassive change in the world? If so, go to www.swipeout.com now, take one minute, and start the process of saving lives while you enjoy your own.

6.   Are you embodying the truth that makes you wealthyin this moment: the secret to living is giving?

T his is a quick overview checklist for maximizing the pages you’ve read. If there’s anything you’ve missed, give yourself the gift of going back and absorbing it and also remember, repetition is the mother of skill. Action is where all your power is found.

So, my dear friend, come here and know that you’re not alone. Y ou can tap into your own resources, or I’ve also made a ton of support resources available here as well: the website, the app, Stronghold, L ifetime Income, and America’s Best 401k. But whatever you do, make sure you take action and make sure that the people guiding you have your best interests in mind. Finding the right fiduciary is the place to start. T he right one can help you create or refine your plan.

T his list is not everything; it’s just a great checklist to trigger you to keep growing and keep implementing. Remember that knowledge is not power, execution is. Just make a little bit of progress each day or each week, and before you know it, your path to financial freedom will be realized.

I look forward to meeting you in person someday soon. U ntil then, step up, keep moving forward, master the game, and live with passion.

AC K N O W L E D G ME N T S

W hen I sat down to make note of all the individuals for whom I am so grateful, I was completely overwhelmed. I had just finished writing a 600-plus-page book! But acknowledging everyone who had helped get me here still stood as a daunting task. W here would I ever begin? Sitting here, this undertaking feels most like something you would see at the end of a movie: hundreds of names scrolling and key scenes flashing in tribute to the superstars. So many people have played so many roles to get me to this deeply fulfilling moment.

As I review the 4-year journey—and, frankly, the 30 years that led me here—I see the faces and feel the grace of so many extraordinary individuals. I won’t be able to acknowledge them all, but I’d like to start close to home with the people who have touched my life most deeply.

First, my family. Of course, this begins with the love of my life, my magnificent wife, Bonnie Pearl—my Sage. “My girl.” She’s the never-ending source of the joy and happiness in my life. I feel that SH E is the ultimate reward for the “good karma” that has come from serving tens of millions of people over the decades. She tells me she was born to love me, and all I can say is that G od has truly blessed me with the love of this beautiful soul. T o her parents, Bill and Sharon—Mom and D ad—thank you for creating and raising this amazing woman. Y ou have provided me with the greatest gift of my life: your daughter, the greatest source of love I’ve ever known or could ever even imagine. T hank you for all the love you poured into her, and for loving me as your own. Y ou both live lives of such real true contribution, and you both inspire me every single day. My dear brother-in-law Scotty (who is really my brother) for his warrior-like courage and his constant focus on raising standards and making sure that we’re able to reach out and serve more souls. And to each of my four children, Jairek, Josh, Jolie, and T yler, who in every stage in my life have brought me inspiration, love, and a reason to be more. I also give thanks to the grace of our creator. And for my passionately intense mother, who imparted extraordinary standards, and the four fathers who each impacted my life uniquely. T o my brother and sister, Marcus and T ara, and all of my extended family, I love you.

T o my core team at Robbins Research International that allows me each day the privilege to explore, integrate, constantly create, test, and retest new insights, tools, strategies, and pathways to improving the quality of people’s lives worldwide. T o Sam G eorges and Y ogesh Babla—my confidants who look out for me and all of our companies while I’m traveling the globe. T o my dear friends and protectors Mike Melio and “G eneral Jay” G arrity. T o Shari, Rich, Marc, Brook, T erri, and all the rest of our amazing, loyal, and mission-driven executive staff. T o my outstanding creative team—especially the remarkable manager and creative partner D iane Adcock —you are amazing, and our bright light K atie Austin, I love you. T o all personnel at San D iego H Q and far beyond who work with me every day across departments at RRI and all our partners that make up the Anthony Robbins C ompanies. T hank you to each of you for all that you do in our quest to constantly work to create breakthroughs for people in their business, finances, health, emotions, time management, and personal relationships. W e are here together to change lives. W e are called to rise up. W e drive Financial, Business, and ultimately H uman E levation. W e are catalysts of the spirit—this is the gift we are all made for. I feel so fortunate to work with you as we help make a difference in people’s lives all over the world! E xtra special thanks to our volunteer staff and all of our crew—and especially our road warriors, who travel the earth making everything happen behind the scenes. Our events could not happen without you, and our entire team is grateful for the gifts you give. Also thanks to all the wives and husbands who loan out their family to us as we span the globe and to Joseph McL endon III, Scott H arris, Joe W illiams, Michael Burnett, Richard and Veronica T an, and Salim for providing the leverage to touch even more lives worldwide.

My life has been powerfully shaped by deep friendships with four brilliant men. T o my dear friend and brother Paul T udor Jones, I thank you for more than 21 years of being a role model of how to find your way to victory no matter how big the challenge! T he only thing greater than Paul’s legendary trading ability is the depth of his love and generosity. H e is a soul driven completely to make a difference in the world; and he does every day. T o Peter G uber, who has been one of my dearest friends in life, and a creative force of nature whose generosity also knows no limits. Peter, you constantly inspire me to see what’s possible! T hank you for all the laughter, your coaching, your love, and the privilege to be your friend throughout the decades. T o Marc Benioff, my brother on the path. Y our amazing mind, you unconquerable heart, your constant innovation in business, and your remarkable philanthropic efforts excite me and millions of others entrusted to uphold the standard you’ve set so successfully and continue to sustain at Salesforce.com. I’m proud to partner with you in changing lives. I love you, man. T o Steve W ynn, thank you for your love and for being an impeccable, brilliant creator that nothing on earth can stop! Y ou truly are a genius, and yet so humble. Y ou’re always looking out for those you love. T he way you take a vision and turn it into reality excites everyone around you. T o be your friend is such a gift. E ach day I spend with you is another day I am inspired to take my game to another level.

T hrough my events and appearances, I am afforded the opportunity to meet hundreds of thousands of people each year who have touched my life. But this book, at its core, was uniquely shaped by a group of more than 50 extraordinary souls whose insights and strategies have touched me and all those who will read these pages. T o those who shared their time and life’s work in our interview sessions, I am eternally grateful. T o Ray D alio, for the unique gift you gave in this book by providing the average investor with an “all-seasons” investment approach based on the insights of the genius of your famous “All W eather” strategy. Ray gave us the gift of a simplified system that creates what, at least historically, has provided investors the smoothest possible ride over the long-term financial path. T he value of Ray’s “secret sauce” is beyond measure, but just one reflection of his inherent generosity.

T o Jack Bogle, for investing 64 years of his life and having a relentless focus on what’s right for the investor: your commitment to create index funds has changed investing as we know it for everyone in the world. T hank you for giving me four hours in what proved to be one of the most raw, honest, and insightful interviews that I’ve had the privilege to participate in. T o T . Boone Pickens, for being the absolute epitome of honest American individualism and cowboy courage. T o K yle Bass, for showing us all that massive rewards do not require massive risks. T o Sir John T empleton, bless his soul, for the many decades he inspired me with his insights that in times of “maximum pessimism” we are offered our greatest opportunities. T o Marc Faber, for his alwaysinnovative investing advice and, most of all, his exuberance. T o the fearless C arl Icahn, for his unbridled boldness, courage, and passion—for challenging the status quo and bringing extraordinary returns for your investors. T o Mary C allahan E rdoes, the trillion-dollar woman from J.P. Morgan, for being such an extraordinary example of the power of servant leadership, and for modeling how we can all be extraordinary in business and yet still so connected to what really matters most.

T o all the extraordinary, insightful academics and businessmen and businesswomen. From N obel laureates like Robert Schiller and H arry Markowitz to D an Ariely (MIT ) and the tandem of Shlomo Benartzi and Richard T haler, whose Save More T omorrow allows individuals to get around the cognitive and emotional limitations that most human beings find themselves entrapped by. T o D r. D avid Babbel, your focus on lifetime income and your living example helped shape a big part of this book. Burton Malkiel, you are a treasure to this country. Y our original focus on indexing set the stage for a world of financial choice, and your straight talk is a bright spot in a sometimes dark and murky financial world. T o Alicia Munnell (Boston C ollege), T eresa G hilarducci (N ew

School), D r. Jeffrey Brown, and D r. D avid Babbel (W harton): thank you for your astute insights into our retirement system—you are revolutionaries. T o Steve Forbes and to H arvard professor and former secretary of the T reasury L arry Summers, for giving us two hours of extraordinary and lively debate—showing us all an “across-the-aisle” look at how we got here and what America needs to do to turn things around. T o D avid Swensen—the rock star of institutional investing—for opening Y ale’s sacred doors and allowing me to share in his extraordinarily effective investment approach, but, more importantly, for standing as a shining example of how our labor is a reflection of our love. H is work is a gift and his constant personal focus on what he can give touches me to this day.

T o W arren Buffett, for forging the way for us all. T hank you for being such a straight shooter. W hile I would have loved to have spent more time with you, the brief meeting we shared on the T oday show struck a chord deep within. W hen the Oracle of Omaha says that indexing is the way, it leaves very little room for argument!

T o E lliot W eissbluth, for his willingness to take on this challenge far before the subject was ever breached. Y ou’ve worked to bring true transparency and conflictfree advice to the wealthy, and now you shoulder a crusade to democratize opportunities for the average individual investor regardless of his or her economic capabilities. E lliot is a real example of integrity, courage, and intrinsic commitment to do what is right. T hank you for your partnership.

T hanks to all those who provided interviews, or who gave of their time at my Platinum Partnership W ealth E vents, and for those who have shared your insights over the years and who have served as examples of what is possible—you all inspire me, and your wisdom is echoed in these pages in so many different ways.

T hanks and gratitude to my dear friend John Paul D eJoria (who once lived out of his car, too!). T hanks to the maverick Marc C uban, to C harles Schwab, Sara Blakely, Reid H offman, Sir Richard Branson, C huck

Feeney, E van W illiams, Peter L ynch, Ray C hambers, D avid W alker, E ddie L ampert, T ony H sieh, T ony T an,

Michael Milken, Mark H art, Mitch K aplan, L uca Padulli, H arry D ent, Robert Prechter, Michael O’H iggins, Jim Rodgers, James G rant, E ric Sprout, Mike N ovogratz, Stanley D ruckenmiller, G eorge Soros, Sir Roger D ouglass, D omingo C avallo, D aniel C loud, G eoffrey

Batt, Joshua C opper Ramo, Russel N apier, E mad Mostaque, D r. D onny E pstein, T om Z gainer, and, of course, Ajay G upta! Special thanks to Adam D avidson, Alex Blumberg, and H elen Olin for the insightful views of what is unjust and what can be done with the crazy, connected, and volatile financial world that now dominates all our lives.

My deepest thanks to my partners at Simon & Schuster, who moved heaven and earth to meet this insane timeline. I was so committed to getting this book out, and the size of it grew geometrically as I interviewed more and more of the world’s greatest financial minds. First to Jonathan K arp, president and publisher, for his vision and willingness to support me on this endeavor, and for spearheading the Simon & Schuster team that helped us edit and publish this beast in record time—we must have broken some kind of record. And it could only have been done with the help of the editors: Ben L oehnen and Phil Bashe.

T hanks to all who have helped us spread the word about this labor of love. From H eidi K rupp, to Jenifer C onnelly, to Jan Miller and Shannon Marven, to

Suzanne    D onahue   and   L arry    H ughes,    to    Mark

T hompson, Mat Miller, to Frank L untz and his amazing team, D avid Bach, and my dear friend D ean G raziosi, in addition to all of my marketing partners like Brendon Burchard, Jeff W alker, Frank K ern, Joe Polish, Brett

Ratner, Mike K oenigs, T im Ferriss, G aryVaynerchuck, E ben Pagan, Russell Brunson, D ean Jackson, Marie Forleo, C hris Brogan, Jay Abraham, Jason Binn, D avid Meerman Scott, Scott K lososky, and so many others. My deepest thanks to Praveen N arra, C liff W ilson, and all the partners at app development for building our amazing smartphone app.

T o the media icons who have so lovingly spread the message, especially Oprah W infrey, E llen D eG eneres, and D r. Oz. T o my dear partners—who feel more like my family—at Impact Republic, for the all-night marathons on book covers and the like; a special shoutout to K waku, and my dear brothers “PMF” C hris Jennings and Bob C aruso. T hank you Jarrin K irksey, Sybil Amuti, and the entire Impact Republic team not only for your dedication to this book but also for helping us refine our ability to rise up and reach millions more people every passing year. I love and appreciate you all!

And, of course, the mission of this book is to serve not only those who will be reading it but also the many that society has forgotten. And so my deepest thanks to everyone at the Anthony Robbins Foundation and our strategic partners—most importantly Brian Berkopec and all our partners at SwipeOut, and D an N esbit at Feeding America for helping us coordinate this never-beforeattempted approach to provide 100 million meals: the distribution of my initial donation of 50 million meals and the efforts of all those working tirelessly to secure matching funds that will enable the delivery of 50 million more. D eep thanks to my partner C ody Foster, and the whole Advisors E xcel team, for being one of the first to step up—not only to create distinct, new income solutions for people but also for their trailblazing commitment to provide 10 million meals before anyone else did.

For insights into technology and the future, my deep thanks to my dear visionary friends Peter D iamandis and Ray K urzweil. It’s always a privilege to spend time with either of these extraordinary men. T hey provide a window into a future reality that few on earth can even bear to imagine, and they work every day to make that world a reality. Ray and Peter, you absolutely blow me away, and it’s been a privilege to partner with you at Singularity U niversity and in the new G lobal L earning X Prize. I’m excited about what we’ll create together. T hanks again for the insights we were able to share in this book. T hanks also to E aston L aC happelle for brimming with creative ambition for the greater good, and to Juan E nriquez for showing us how even what we call “life” is being redesigned and refashioned into fresh opportunity as we speak.

T o those around me doing all the little things that make the biggest difference: D ear Ms. Sarah, Steph, and Stephanie. Bula vinaka to my Fijian family. And to Andrea, Maria, and T ony, for helping preserve a sacred sanctuary amid a crazy life.

Finally, and most importantly, I thank my core research team, without whom there is no way this book would have been written:

Starting with my son Josh, whose lifetime in the financial business has provided invaluable insights. I have delighted in our middle-of-the-night brainstorming sessions trying to figure out how to bring more value to individual investors. Our time has brought me more joy and excitement than I could have imagined—not only in what we’ve been able to create together but also in the beautiful time that we’ve shared throughout this project.

And to the four other people this book could not have been written without: Jenn D awes, whose inhuman capacity to capture my thoughts, almost at the speed I speak them, is what keeps the structure organized, connected, communicated, and from splitting at the seams! I’m eternally indebted to you, and I love you.

Finally to Maryanne Vollers and Jodi G lickman, for caring so deeply and for your willingness to work with me through many a sleepless night, refining and editing this manuscript.

And to Mary Buckheit, whose dedication and love kept me going in some of the most exhausting moments of this long, arduous process, giving birth to the “treasures” we both know will touch lives for decades to come. I love you and give you my eternal appreciation.

T o the grace that has guided this entire process, and to whatever G od unleashed inside me at an early stage of my life that has made me never satisfied with what is, and to be so insanely obsessed with a hunger and a drive to serve at the highest level possible. T o that which is always reminding me that it’s not only the big things but also the little things that matter. And for the privilege of my readers and all those who have ever put their faith in me by making an investment in a product, or a service, or taking that leap of faith to come attend an event where they gave me the most valuable resource they have: their faith, their trust, and their time. T o partner with them, taking back control of their lives; taking it to whatever level it was, and to whatever level it deserves to be.

And to all those friends and teachers along the path of my life—too many to mention, some famed and some unknown, whose insights, strategies, example, love, and caring are the shoulders I have had the honor to stand on. On this day, I give thanks to you all, and I continue my never-ending quest to 

each day be a blessing in the lives of all those I have the privilege to meet, love, and serve.

C HAPT E R 7.1

T H E FU T U RE IS BRIG H T E R T H AN

Y O U T H IN K

T he point of living is to believe the best is yet to come.

— PE T E R U ST IN O V

W hy do most people pursue wealth? It’s because they’re after a greater quality of life. And one thing I know beyond a shadow of a doubt is that anybody can deal with a tough today if he or she feels certain that tomorrow has greater promise.

W e all need a compelling future.

So if you’re wondering why we would take time to talk about the future and technological breakthroughs in a financial book, it’s because technology is a hidden asset that every day is compounding its capacity to enrich your life.

T here are breakthroughs occurring today and in the months and short years to come that will revolutionize the quality of your life and the lives of everyone else on earth. T his tide of technology will offer the opportunity for all boats to rise.

And in financial terms, you know what’s really great? T he cost of technology is decreasing while its capacity is geometrically expanding! W hat does that mean for you? It means that even if you start building wealth late in life, you will likely still have a great quality of life in the future, for even less money than you might think.

Also, learning about these trends in technologies can awaken you to some of the greatest investment opportunities of your lifetime. T hese technologies are growing exponentially. T he time to pay attention to them is right now.

My hope is that this chapter will also inspire you to take greater care of yourself and your family, not only financially but also perhaps physically as well. W ithout physical health, there is no wealth. Being around long enough to take advantage of some of these huge advances in technology should be a priority—especially after you hear about some of the changes that are unfolding as we speak.

So let’s take a brief journey together and explore the cutting edge of our technological future. I’ll say in advance: this chapter takes an unabashedly positive view. But it’s not just based on my enthusiasm—but rather reflects the work of some of the greatest scientists on the face of the earth. N ot those who just predict, but those who deliver what they predict. Individuals who have done everything from decode the human genome, to design the first digital voice recognition system, to develop commercial space shuttles that fly people back and forth to the International Space Station.

N ow, I acknowledge that many people have a different, more skeptical view of technology. And perhaps they’ll be right. Some look into the future and see a T erminator-style dystopia of killer robots and genetically altered Frankenfoods. Others look forward to a world of flying cars, like they had in T he J etsons; or android helpers, like Star Wars’s C -3PO; or meat and vegetables that can be grown from single cells to feed the world’s hungry. N one of these extreme scenarios has come to pass yet. I choose to look at how technology will be used to make a massive difference in the quality of our lives. I also understand that people often fear new technologies and worry that we’re going too fast.

After all, there has always been a “dark side” to these advances—often because these technologies initially put people out of jobs until they adapt to new forms of employment. As Steven Rattner, the influential financier and columnist, pointed out in the New York T imes, even Queen E lizabeth I of E ngland refused to patent a 16thcentury knitting machine because it would put her “poor subjects” out of work. But according to Rattner, “T he trick is not to protect old jobs . . . but to create new ones.

And since the invention of the wheel, that’s what has occurred.”

Most of the time, these new tools have been used to enhance human life. And today some of the biggest challenges in the world, from too much carbon dioxide in the air, to a lack of fresh water, to a scarcity of farmland, are being solved by new technologies. And all this seems to be happening overnight. But throughout history, there has also been a minority who will take any tool or technology and use it as a weapon. E lectricity can light up a city or kill someone. But there are millions more streetlights than electric chairs. A Boeing jetliner can carry us across oceans or be used as a bomb to murder thousands—but there are millions more flights than hijackings.

It’s natural for human beings to fear the new and unknown, and to focus on worst-case scenarios. Our brains are wired for survival, and that’s how we’ve made it as a species. But our imaginations can also hold us back.

Science fiction has made many fear futuristic technologies, like artificial intelligence. But actual scientists and futurists such as Ray K urzweil, Peter D iamandis, and Juan E nriquez see advanced technologies as an opportunity for humanity to evolve and transform into something better.

So if you’re irritated by an optimistic future, you should move on to the next chapter! But if you’re a person who is truly interested in knowing how

technology is shaping our lives, I think this will help you understand what’s available and what’s coming. T he way I look at it, you can choose to be fearful about the future, or you can embrace it. But nothing is going to change  it. W hy? Because the future is already here.

T he best way to predict the future is to invent it.

— AL AN K AY

E very ten minutes in America someone is horribly burned. T hey’re rushed to the hospital in searing pain— one of the most intense pains a human body can suffer. T he nurses scrub away the blistered and charred flesh and cover the wound with cadaver skin to keep the person from dying of infection. C an you imagine the skin off a dead body put on top of your own?! If the patient survives, the scarring can be brutal. I’m sure you’ve seen faces, arms, and legs scarred beyond recognition. Sometimes there are multiple surgeries, and healing can take years.

So imagine how one night Matt U ram, a 40-year-old state trooper, finds himself about to become another one of those grim statistics. H is life altered forever.

H ow? H e’s next to a bonfire when someone throws a cup of gasoline on the flames, and the burns cover his right arm and the right side of his head and face. T he doctors and nurses move fast, cleaning off the blistered skin, disinfecting Matt’s wounds, applying salves. N ormally he would be in the burn unit for weeks or months, going through the same agonizing process twice a day. Instead, a team of specialists goes to work with a new technique. T hey harvest a layer of healthy cells from unburned patches of his own skin. N o cadaver skin for Matt! T hese cells are cultured, and before long, a spray gun is gently painting the wounds with a solution of Matt’s own stem cells.

T hree days later, his arms and face are completely healed. (And this miracle has to be seen to be believed! G o to www.youtube.com/watch?v=eX O_ApjK PaI and

see the difference.) T here’s barely a scar visible on him. I know it sounds like a scene from a sci-fi film. But it’s a real story that took place in Pittsburgh just a few years ago.

W hile the technique that healed Matt U ram is still in clinical trials in the U nited States, a similar stem cell procedure has already been used on hundreds of burn victims in E urope and Australia. Amazing, isn’t it?! N ow there’s even a “bio-pen” that allows surgeons to draw healthy cells on layers of bone and cartilage. T he cells multiply and grow into nerves, muscle, and bones, healing the damaged section. T he technology allows the surgeon to place cells wherever he or she wants them, in an instant. And this is just another one of the incredible new therapies coming online and becoming more affordable for everyone.

If you hadn’t already noticed: the world we live in today is a place of everyday miracles, and change is happening so fast that sometimes we don’t even notice it. Or maybe we just take it for granted.

But if you were to describe the world of 2015 to a person back in 1980, just 35 years ago, he would think what you’re doing is magic! Spraying on stem cells? H ell, it would be a miracle just to talk to someone on the phone while you were driving in your car, right?

W e’re used to the idea that we can predict tomorrow by looking at what happened today or yesterday. But that can’t be done anymore. U ntil very “recently,” change was very rare, and so slow that it was measured in eras: the Bronze Age, the Iron Age, and so on. N ow change is exponential. T hat means it’s speeding up, making huge leaps forward in shorter periods of time. It means we’re making tools that can transform the quality of our lives faster and better, and they’re available to just about everyone.

T he average person today already has options the richest pharaoh in E gypt never dreamed of. Imagine what he would have given to be able to fly in the sky in a chair or in a bed to another part of the world in a few hours, instead of months fighting the oceans? N ow you can do that for $494 on Virgin Atlantic Airways.

E ven a pharaoh couldn’t spend $200 million to make a movie to entertain himself for two hours. And yet every week, multiple new films are coming out that we can enjoy in the theater for $10 (or $9.99 per month on N etflix).

L et’s face it, we’re living in one of the most extraordinary times on earth. W e’ve seen the lifespan of human beings in the last 100 years go from 31 years old to 67 years old—more than doubling. In the same time, the average per capita income (adjusted for inflation) of every person on this planet tripled. One hundred years ago, the majority of Americans used to spend 43% of each day working just to get food. N ow, because of advances in agriculture and distribution, it’s 7% .

Y OU ’VE G OT MAIL !

T he first time I met President Bill C linton back in the early 1990s, I vividly remember sitting down with him and saying, “Y ou know, Mr. President, maybe there’s a way we could communicate electronically.” H e looked puzzled, so I said, “I’ve started using this new thing called email. I’ve got an account on AOL . D o you have one?” And the president said, “Oh, I’ve heard about that!” But there was no email account for the president of the U nited States back then. N ow the phone that an Amazonian tribesman carries around the jungle has more instant computing power than C linton had at his disposal as leader of the free world. H e can go online to buy supplies for his cows or pay his child’s school fees. H e can translate languages. If he wants, he can access free courses in economics from Y ale and math from MIT . W e’re living in a whole different universe now, and we’re just at the beginning of the beginning.

And things are getting better, faster, every day. “T he future is going to be a whole lot better than you think,” says my dear friend Peter D iamandis, founder of the X Prize Foundation, aerospace engineer, medical doctor, entrepreneur, and all-around great human being. “H umanity is now entering a period of radical transformation, in which technology has the potential to significantly raise the basic standards of living for every man, woman, and child on the planet.”

W hat does this mean for you? It means that even if you screw up and don’t follow through on anything you’ve learned in these pages, in the future you’ll still be able to enjoy a better quality of life than you ever imagined, even if you don’t have a large income. And for those who do, the possibilities are limitless.

T he key to abundance is meeting limited circumstances with unlimited thoughts.

— MAR IAN N E W IL L IAMSO N

T echnology is going to change what we think of as scarcity. It’s the common denominator that makes us fearful. T he idea that there won’t be enough of what we need and what we value: water, food, money, resources, time, space, joy, and love. W hy do people want to be wealthy? T hey believe if they are, they’ll always have enough, that they’ll never have to go without. It’s a fear that’s hardwired into our brains.

But scarcity doesn’t have to be a permanent condition. T echnology can change it. D id you know that there was a time when the rarest, most precious metal on E arth was . . . aluminum? T hat’s right!

Separating the element from clay used to be incredibly difficult and expensive. Aluminum was the ultimate status symbol in 19th-century France. At an imperial banquet, N apoléon III served the king of Siam with aluminum utensils instead of the usual gold. But by the end of the century, scientists figured out how to process aluminum on a mass scale, and the light, inexpensive metal suddenly flooded the market.

Peter D iamandis likes to use the story of aluminum to point out that scarcity is a function of our ability—or lack of ability—to access resources. H e wrote an extraordinary book, Abundance: T he Future Is Better T han You T hink, which covers in 300 or so pages the concepts that this chapter is trying to capture in just a few. H ere’s a great metaphor from the book about how technology can overcome scarcity: “Imagine a giant orange tree packed with fruit,” Peter writes. “If I pluck all of the oranges from the lower branches, I am effectively out of accessible fruit—oranges are now scarce. But once someone invents a piece of technology called a ladder, I’ve suddenly got new reach. Problem solved.

T echnology is a resource-liberating mechanism.”

G iven the way our world population is growing, we’ll need to be liberating those resources faster than ever. T hat exponential change we were talking about? H ere’s an example:

•    It took a little more than 200,000 years—or until the year 1804—for the population of human beings to multiply to a total of 1 billion people.

•    It took only 123 years (1927) for the human population to double to 2 billion people.

•    But it took just 33 years (1960) before there were 3 billion people on the planet!

•    It took a mere 14 years (1974) for another billion to be added, for a total of 4 billion people.

T his growth has not stopped. In spite of C hina’s onechild-per-family policy for its 1.3 billion population, and all the other efforts to stop world population growth, in the last 40 years alone, we’ve added more than 3 billion more people! T hat’s 300% more people in these four decades than it originally took 200,000 years to achieve! T oday there are 7.2 billion people on the planet! If we keep going at our current pace of growth, scientists estimate, the population will be 9.6 billion by 2050.

H ow can the E arth sustain so many people? If we keep consuming our natural resources at the current rate, according to Jim L eape of the W orld W ide Fund for N ature International, as quoted in the Wall Street

J ournal, “W e are using 50% more resources than the E arth can sustainably produce, and unless we change course, that number will grow fast—by 2030, even two planets will not be enough.”

H      uman ingenuity and technology together have a wayof keeping up with our needs.

I          remember a time when we thought we were runningout of oil. In the early 1970s, when I was a junior in high school, there was an oil crisis in the Middle E ast. If you recall, gas was rationed on odd or even days. I was wondering if we’d run out of fuel before I even got my license! T hen one day in school, my engineering teacher said, “L et me read you an article.” I had already seen the T ime magazine with a report from the C lub of Rome, scaring the daylights out of everybody with predictions that our oil supply would last only a few more years, and the whole economy would collapse. T his article sounded just like that, using the same language of gloom and doom. T hen he showed us what he’d been reading: a newspaper article from the 1850s about an oil crisis. And the oil they were talking about was . . . whale oil!

In the 19th century, whale blubber was the main source of lamp oil. Y ou couldn’t light your home without it. But whales were being overfished, people were worried about shortages of oil, and prices were going through the roof. But what happened in 1859? C rude oil was discovered in Pennsylvania. A whole new source became available. Before long, we had kerosene lamps and then internal combustion engines. T he oil crisis of 1973? T echnology had already eased that scarcity. N ew exploration and extraction techniques were opening up vast quantities of fossil fuels. And now with sideways drilling technologies, we have more gas than Saudi Arabia has oil! Such technologies change not only an economy but can also have an impact on geopolitical power. For the first time in almost a decade, in 2013 the U nited States produced more domestic oil than it imported from the Middle E ast.

T he future is in alternatives such as wind power, biofuels, and—the grand-slam winner—solar energy. According to the inventor and futurist Ray K urzweil, all of the world’s energy needs can be met with 1/10,000th of the sunlight that falls on the E arth each day. T he challenge has been to capture and store that power for a competitive cost. Ray predicts that the cost per watt of solar energy will be less than oil and coal in just a few years.

W hat we need is more people who specialize in the impossible.

— T H E O D O R E R O E T H K E

L et’s pause for a moment and think: W here will all this new technology come from? It’s already been bubbling out of the usual places: Silicon Valley, N ASA, the D efense Advanced Research Projects Agency (D ARPA), and the world’s great universities and laboratories. But more and more, do-it-yourself inventors are using the vast resources of the internet to find ways to do things faster and better and cheaper.

L et me tell you about a teenager I met who is revolutionizing the world of prosthetics from a lab—in his bedroom! E aston L aC happelle was running a robotics program for N ASA when he was 17, and he didn’t have to go to a major university to learn engineering—he had the internet.

E aston grew up in a tiny town in southwestern C olorado where there wasn’t much for a kid to do, so he entertained himself by tearing up and reassembling household gadgets. W hen he was 14, he decided to build his own robotic hand. H ey, why not? T here was no big library in town, no university nearby, so he scoured websites like Instructables and H ack It! to teach himself electronics, programming, and mechanics. T hen he used objects he had lying around—L egos, fishing line, electrical tape, small hobby motors, and a N intendo Power G love—to build a prototype.

By the time he was 16, he had refined his design by getting access to a 3-D printer and creating a mechanical hand out of layers of plastic. H e entered his invention at the state science fair, and it was there that E aston had what he calls his “aha!” moment. H e met a seven-yearold girl with a prosthetic arm that cost her parents $80,000. She would need two more over her lifetime.

E aston thought, “W ho can afford that?” Besides, the mechanical hand attached to the arm had only one sensor and one motion. H is device was much more

sophisticated, with five flexible fingers. T hen and there, he decided to create a simple, functional, and affordable prosthetic to help amputees like this little girl.

E aston went back to his bedroom lab and built a full robotic limb that replicated the motion and strength of a human arm. E ven more amazing, he came up with an E E G headset that converts electronic brainwaves into Bluetooth signals that control it. (Y es, these things don’t just exist in sci-fi movies.) T he arm weighs one-third less than the $80,000 version, and it’s much stronger. In fact, a person using this arm can curl more than 300 pounds! A giant improvement on the past technology. So what do you think his new invention costs to make as opposed to the $80,000 limb? $20,000? $5,000? $1,500? H ow about $250?!

After meeting President Obama in the summer before his 18th birthday, E aston interned with N ASA at H ouston’s Johnson Space C enter, where he led a team working on robotics for the International Space Station. By the end of August, E aston was already thinking, “I’m out of here. T hese guys are too slow!” H e missed building the things he designed, and there were too many layers of bureaucracy. H e went back home to work on building a robotic exoskeleton for a boy in his high school who was paralyzed from the waist down after an accident. E aston wanted him to walk at his graduation.

W hen I read about E aston’s exoskeleton project, I knew I had to contact him. I’ve been working with the survivors of recent mass shootings, including the massacres at N ewtown, C onnecticut, and Aurora, C olorado. I’ve helped many of them work to turn their lives around in the aftermath of such unimaginable loss, including Ashley Moser, a pregnant mother who watched the insane killer murder her six-year-old daughter before he turned the gun on her. T he two bullets he pumped into Ashley’s body killed her unborn baby and left her paralyzed from the waist down. W hen I met her, she was filled with suicidal thoughts. I flew her family and medical team to our U nleash the Power W ithin event, and together we worked to create an environment where this remarkable young woman could begin her emotional healing.

I want Ashley to walk again! So I reached out to E aston and offered to fund his project. Since then we’ve gone into business together to create lowcost prosthetic devices that can be used all over the world and make a massive difference in people’s lives. N o matter where they live, no matter how much money they have. T hat’s E aston’s mission. (And by the way, E aston’s high school friend is scheduled to graduate in 2015, and E aston reports that he is currently on track to make sure he walks to the podium. E aston’s goal is an exoskeleton so thin and flexible that it can be worn under clothing! Y ou might not know someone is wearing one.)

E aston’s other mission is to spread the word to young people all over the world that they too can become the makers of technology instead of just consumers. “E veryone can be a creator,” E aston told me. “W ith access to the internet and 3-D technology, kids can do anything they want. T hey don’t have to restrict themselves by thinking, ‘I have to go to college to be successful, there’s really no other way.’ Y ou really do have other options.”

T here’s no doubt that E aston L aC happelle is an extraordinary person. It would be safe to call him a genius. But how many other E astons do you think are out there—in places like India, T anzania, Australia, D agestan, U ruguay, Singapore—logging on to their computers and dreaming up ways to improve the world we live in? E aston used open-source technology to share his first robotic hand design, so people all over the world could copy it and improve it if they wanted. N ow all of us can be our own publishers and creators and share our ideas with anyone with an internet connection.

T he floodgates have been opened, ushering in one of the greatest revolutions of our time—what people are calling the MakerBot E ra or the Maker Revolution. E aston L aC happelle is simply one of the many people at the forefront of an explosion of do-it-yourself (D IY ) innovation fueled by the wild growth in technology. C hris Anderson, C E O of 3-D Robotics, calls it the “N ew Industrial Revolution.” N ow the whole world can learn what students learn at H arvard, MIT , and Stanford. T hey can interact with the very best teachers—and one another—sharing ideas and techniques, and making devices and supplying services that used to cost millions of dollars for hundreds of dollars.

E ach year, Maker Faires are held all around America, bringing together inventors, hobbyists, engineers, students, teachers, artists, and entrepreneurs in what’s called “the G reatest Show (and T ell) on E arth.” In 2013 over 540,000 people attended 100 Maker Faires globally, and in 2014 Maker Media, creator of the faires, is expecting that number to climb to 140 Maker Faires. President Obama recently hosted a Maker Faire at the W hite H ouse, where a 17-foot robotic giraffe named Russell greeted him, and the president toured a tiny portable house and played a keyboard made of bananas.

H e also met Marc R oth, from San F rancisco, who was living in a homeless shelter when he started going to a local “T echShop” to learn how to use 3-D printers and laser cutters. Sixteen months later he had started his own laser-cutting business, and now runs a program to teach hightech skills to others who need a fresh start.

Obama also gave a shout-out to two tween-age girls from N orth C arolina who started a robotics company instead of getting a paper route. T heir motto: “If you can imagine it, then you can do it—whatever it is.”

“And that’s a pretty good motto for America,” Obama told the crowd. “T his is a country that imagined a railroad connecting a continent, imagined electricity powering our cities and towns, imagined skyscrapers reaching into the heavens and an internet that brings us closer together.” H e challenged every company, college, and community to support these Makers. “If we do, I know we’re going to be able to create more good jobs in the years to come. W e’re going to create entire new industries that we can’t yet imagine.”

T his Maker Revolution is being made possible by the explosion of new technologies and the massive expansion of the internet. T en years ago, the internet connected 500 million people; today it connects 2 billion people. W ithin six years, experts estimate another 3 billion will be joining the web, for a total of 5 billion people. Imagine the power of that much connected and unleashed creativity across the planet! T he first internet was the internet of military agencies and colleges. T hen it was the dotcom internet of companies; then it was the internet of ideas; then, with social media, it was the internet of relationships. N ow it’s the internet of things, of all things. C omputers and sensors are embedded in everyday objects, transmitting messages back and forth to one another. Machines are connecting to other machines, which are in turn connecting to us and uniting everything in one powerful global network. And 3-D printing is how this internet will be transformed and expanded beyond our craziest dreams.

3-D PRIN T IN G : SC IE N C E FIC T ION T O SC IE N C E FAC T

Y ou know the “replicators” they use in those Star T rek movies to synthesize hamburgers and hot coffee out of thin air on the starship E nterprise? W ell, scientists say we’re not that far from creating the real thing! W e’ve already been talking a lot about 3-D printing, but it’s hard to grasp what a powerful technology it can become until you’ve seen it in action. 3-D printing is really a catchall phrase for digital manufacturing, and the “printers” are actually minifactories that use computer files as blueprints to create three-dimensional objects layer by layer. T he printers can use at least 200 different liquefied or powdered materials, including plastic, glass, ceramic, titanium, nylon, chocolate—and even living cells. W hat can you make with them? A better question is: W hat can’t you make with them?! So far 3-D printers have been used to create running shoes, gold bracelets, airplane parts, tableware, bikinis, guitars, and solar panels—not to mention human tracheas, ears, and teeth. As you’ve already learned, there are 3-D printers, small enough to fit into a teenager’s bedroom, that are capable of turning layers of synthetic goop into a functioning prosthetic limb. And there are hangar-sized 3-D printers in C hina that can print out ten houses a day using layers of concrete mixed with recycled construction waste. T he cost? Just $5,000 per home, and there’s almost no labor required!

Perhaps even more importantly, N ASA has partnered with America Makes, a network of 3-D printing companies, to sponsor a worldwide competition to address one of humanity’s greatest challenges: the need for shelter, especially emergency shelter, in times of natural disaster such as hurricanes, tsunamis, and earthquakes. Imagine 3-D printers printing out homes on the spot, using local materials in hours, not months. T he impact of this technology, effectively used, is limitless.

Someday you might be able to print your own custom-fit blue jeans without leaving your house, while remote villages in the H imalayas will be able to download patterns from the cloud and print tools, water pumps, school supplies—anything they need. So will space travelers. Of course, as new technologies like 3-D printing come online, old ones will be disrupted, and some businesses may disappear. T here won’t be much need for spare-parts warehouses anymore, will there? And much less need for shipping. G reat for the planet—but not so good if you’re a truck driver. E xperts project that 3.5 million truck drivers will be without a job in the U nited States alone because there will be robotic self-driving trucks that can operate 24 hours a day versus the eight hours a human can drive before having to take a break. Also, there’s no salary to pay after you make your initial investment in the selfdriving truck.

As old industries fall away, new ones will arise. W e just need the education and training and mind-set to embrace change and meet the demands of the new, emerging economy.

But 3-D printing is only one technology that’s part of the extraordinary growth that’s going to change the quality of your life. N anotechnology, robotics, and tissue regeneration are three others to watch. And if you’re wondering why we’re talking about all this—we know that technological advances that offer solutions for our most pressing problems will keep happening no matter what the economic season may be, whether we’re experiencing inflation or deflation, or whether we’re at war or at peace.

H eard about the demographic wave? T he consumer spending of 77 million baby boomers has been driving the U S economy for decades. But now 10,000 boomers are turning 65 every single day. And that’s morphed into a potential retirement crisis wave, as most have not saved their money and have no pensions.

W e have a debt wave building in this country that’s larger than anything in the history of the world: $17 trillion in debt and a $100 trillion worth of unfunded liabilities, between Medicare, Medicaid, Social Security, and other commitments.

T here’s an environmental wave, even if you don’t believe in climate change. And clearly we’re overfarming our land. But however big these waves may be, the technology wave is even bigger. T he technology wave promises to lift all boats and carry the whole world into a more abundant future.

“I think those trends of technology tend to be bigger than any crisis,” the futurist and venture capitalist Juan E nriquez said at one of my recent economic conferences. “W hile everybody was worried about the K orean W ar and the C old W ar, people were building transistors. W hile everybody was worried about W orld W ar II, people were making antibiotics. Most of those advancements have had more of an impact on your life and my life than the wars or the ups or the downs.”

O ur problems come in waves, but so do the solutions.

I’m surfing the giant life wave.

— W IL L IAM SH AT N E R

N obody understands this idea better than my friend Ray K urzweil, the inventor, author, and entrepreneur. One of the most brilliant minds on the planet, he’s been called the T homas E dison of our age. Y et you’ve probably never heard his name unless you’re a T E D T alk junkie, or if you study the lineup at G oogle, where Ray is head of engineering. But Ray K urzweil has affected your life in more ways than you could ever imagine. If you listen to tunes on your phone, on the internet—anywhere—he’s the guy you can thank. H e created the first digital music. If you’ve ever dictated an email to Siri or other voice-totext systems, that’s because of Ray.

I remember meeting Ray K urzweil nearly 20 years ago and listening with amazement as he described the future. It seemed like magic then, but it’s all real now. Selfdriving cars. A computer that could beat the world’s greatest chess master. H e had already invented an optical character-recognition system to create the first reading machine for the blind—Stevie W onder was his first customer. N ow he wanted to help blind people read street signs and navigate cities without help, and go into restaurants and order off the menu using a little device the size of a pack of cigarettes. H e told me the year it was going to happen: 2005.

“H ow do you know, Ray?” I asked.

“Y ou don’t understand, T ony. T echnology feeds on itself, and it gets faster and faster. It grows exponentially.”

H e explained how Moore’s law—a principle that shows that the processing power of computers doubles every two years, while its cost decreases at the same rate —doesn’t work just with microchips. It can be applied to all information technologies—and eventually all aspects of our lives.

       W hat    does    that    mean?    W hen    things     grow

exponentially, instead of increasing in a linear or arithmetic pattern (1, 2, 3, 4, 5, 6 . . .) they are continuously doubling: 1, 2, 4, 8, 16, 32, and so on. So their rate of growth gets faster and faster. But as we’ve discovered, this concept is hard for us to grasp. It’s not the way humans were built to think.

“First of all, exponential growth is radically different from our intuition,” Ray says. “W e have an intuition about the future hardwired in our brains. A thousand years ago, when we walked through the savannah and we saw an animal coming at us out of the corner of our eye, we made a linear prediction of where that animal would be in twenty seconds and what to do about it.” But with an exponential progression, the animal would take a few slow steps, speed up, and then suddenly be on the next continent.

Peter D iamandis offers another metaphor: “If I say to you, ‘T ake thirty linear steps,’ normally you’re going to end up about 30 meters away. But if I say to you, ‘Instead of taking thirty linear steps, take thirty exponential steps.’

H ow far will you go? H ow about a billion meters?

T hat’s twenty-six times around the planet!”

Once you understand exponential growth, says Ray, its trajectory is predictable. H e knows when the technology will catch up with his vision. H e

predicted the launch date for his first pocket-sized reader for the blind, and other products. Ray often speaks at my seminars, and he told us recently how he accurately predicted one of the most incredible discoveries of our time: the mapping of the human genome.

“I predicted that the genome project would finish within fifteen years when it was started in 1990 because I realized the progress would be exponential,” he said. But skeptics thought it would take a century to break the complex human code. After seven and a half years, only 1% of the project was finished. According to R ay, “T he skeptics were still going strong, saying, ‘I told you this wasn’t going to work. Y ou’re halfway through the project, and you’ve only finished one percent of it. T his is a failure.’ ” But R ay pointed out that wasn’t a failure: it was right on schedule! “E xponential growth is not dramatic at first. Y ou’re doubling these tiny little numbers. It looks like nothing is happening. But by the time you get to one percent, you’re only seven doublings away from one    hundred     percent.”    T he   genome      was successfully   sequenced in           2003,          ahead         of schedule.

So, what’s next? W e’ve already seen how stem cells can regrow human skin without the pain and scars of skin grafts, and how the abundant energy of the sun and wind can be harnessed to fuel our future. But what about other great challenges?

L ack of fresh water is one of the biggest concerns for populations growing like crazy in dry regions of the planet, and shortages are everywhere, from L os Angeles, C alifornia, to L agos, N igeria. According to the U N , more than 3.4 million people die each year because of water-borne diseases. But new desalinization technologies are turning seawater into tap water from Australia to Saudi Arabia. Already an Israeli company called W ater-G en is manufacturing a machine that extracts clean water out of air, and it uses only two cents’ worth of electricity to produce each liter of water. And in remote villages that have no electricity, there’s a new kind of water tower that uses only its shape and natural materials to pull moisture out of the air and turn it into drinking water.

T he amazing inventor D ean K amen (best known for the Segway scooter) has partnered with C oca-C ola to bring the world an energy-efficient machine the size of a dorm-room refrigerator that vaporizes dirty water and makes it clean and safe. It’s called the Slingshot—as in a D avid-sized solution to a G oliath of a problem. W ith innovations such as these, before long the problem of water scarcity will be solved, period.

H ow about food? Ray K urzweil says new food technologies are emerging that will overcome the twin challenges of too little arable land and agricultural pollution. H ow? By farming vertically instead of horizontally. Ray envisions a world in the next 15 years “where we grow plants vertically, and also grow meat without the slaughtering of animals, by using in-vitro cloning of muscle tissue in computerized factories—all at very low costs, with high nutritional qualities and without environmental impact.” N o insecticides. N o more nitrogen pollution. N o more need to kill animals for protein. W ow! T hat sounds impossible, but Ray says it’s real and it’s coming.

W ith these basic needs under control, humans will have the chance to live more fulfilling lives—especially if we meet the other challenges that Ray K urzweil believes we can solve: health and aging.

Age is an issue of mind over matter. If you don’t mind, it doesn’t matter.

— MAR K T W AIN

All these changes we’ve talked about are revolutionary, but according to Juan E nriquez, the changes that technology will bring to the future of health care will blow your mind more than anything else. L ife, as it turns out, is an information technology. H ow can that be? W ell, we know that our D N A is made up of a sequence of chemical bases labeled (if you remember your life science homework) A, C , T , and G . In other words, the building blocks of life itself can be expressed as a code. And codes can be altered. Or created. As in making artificial life. W hich is what C raig Venter, the human genome pioneer, was able to do in 2010. Juan E nriquez was part of his team.

W hen Juan spoke at one of my recent seminars, I asked, “H ow did you and C raig Venter first come up

with this idea of creating artificial life?”

H e chuckled and said, “A bunch of us were having drinks at a bar in Virginia, and after the fourth scotch, somebody said, ‘W ouldn’t it be cool if you could program a cell from scratch, just in the same way as you program a computer chip from scratch? W hat would happen?’ ” H e paused. “T hat only took five years and thirty million bucks to find out!” First, they took all the gene code out of a microbe. T hen they inserted a new gene code, and it became a different species. Incidentally, it’s the first lifeform with a website embedded in its genetic code. As C raig Venter put it when he announced the breakthrough: “T his is the first self-replicating species that we’ve had on the planet whose parent is a computer.”

As Ray K urzweil explains, our genes are like software programs that can be changed to switch behaviors on and off. W hat does that mean? It means that we can use cells as little machines and program them to build other things—including more of themselves. “T his software makes its own hardware. N o matter how I program a T hinkPad, I will only have one T hinkPad tomorrow morning, not a thousand T hinkPads. But if I program a bacteria, I will have a billion bacteria tomorrow,” Juan said.

It sounds insane, like something out of a movie, but— as I keep reminding myself—this isn’t science fiction. T he technique is already being used to produce clothing. “All the stuff you are now wearing—that breathable, stretchable stuff like U nder Armour?” Juan said. “All that is now being made from bacteria, not out of petrochemicals.” In Japan, bacteria is growing synthetic silk that’s stronger than steel. And genetically altered farm animals are already being used as medical factories. In N ew E ngland, there’s a dairy where cows produce milk that may be able to treat cancer.

W hatever the mind of man can conceive and believe, it can achieve.

— N APO L E O N H IL L

I told you, it’s a whole new world, and it’s going to be a wild ride. Advances in nanotechnology and 3-D printing mean that medical devices the size of blood cells may someday be traveling through your body, fighting conditions like Parkinson’s disease and dementia. N anoscale computerized implants will replace the biological nerve cells destroyed by disease. And microscopic cochlear implants will not only restore hearing but also improve it, so that humans will hear as many notes as whales can sing. According to R ay, work is already being done to create genetically enhanced red blood cells that may one day carry enough oxygen to allow a diver to last 40 minutes underwater on one breath—or to save a soldier’s life on the battlefield.

Scientists are working on ways to use 3-D printers to create custom organs and other body parts for you when you need them, eliminating the need for dangerous, expensive donor transplants. D r. Anthony Atala, director of the W ake Forest Institute for Regenerative Medicine, says, “In theory, anything that is grown inside the body can be grown outside the body.” D r. Atala has already created fully functioning human bladders in the lab and completed the transplants. In the last 15 years, none of the tissues made from stem cells has ever been rejected by the body. H e and others are already working on more complex organs, like hearts, kidneys, and livers. So someday, if a heart attack or virus damages your heart valves, your doctors will be able to order you up some new ones. Or maybe they’ll just grow you a new heart from a few of your skin cells!

If you have means, some of these miraculous cures are available already. T here’s something called “extracellular matrix,” or E C M, made of cells from a pig’s bladder. W hen you apply it to injured human tissue, the matrix coaxes our own stem cells to regrow muscles, tendons, even bone. It’s been used already to regrow fingertips! T his extraordinary substance exists right now. It’s not available to everyone yet, but it will be soon.

T he concept behind regenerative therapies is simple: our body already knows how to regrow its parts; we just have to learn how to turn on the stem cells that already live inside us. W e already know that when we lose our baby teeth, another set grows in. But did you realize that, according to D r. Stephen Badylak from the U niversity of Pittsburgh, if a newborn loses a finger, another one can grow in its place up to the age of two? W e lose that ability as we grow older, so the question is: H ow do we stimulate it? Salamanders grow back their tails— why not human limbs or spinal cords? W hen we figure out how to harness the full power of stem cells, the medical and cosmetic applications are limitless.

Ray K urzweil says that if we’re going to take advantage of these medical breakthroughs and extend our lives, we’d better start taking care of ourselves right now. T he idea is to live long enough for the technology to catch up. If you’re a millennial, you might experience it. If you’re a baby boomer, it’s time to get on the elliptical machine and start eating right. Ray has even teamed up with a medical doctor to write a book titled T ranscend: Nine Steps to L iving Well Forever, with strategies to optimize your health and keep yourself alive long enough to tap into the technology that will further extend your lifespan.

H is immediate goal is to stick around long enough to see the day when computers become smarter than humans. T hat day is coming soon.

C OMPU T E RS “R” U S

W hat takes us hours to absorb, computers can already do in seconds. But by 2020, says Ray, a $1,000 computer will have the full capacity of a human mind. By 2030, it will be able to process the knowledge of all human minds combined.

By then, we won’t be able to recognize the difference between human and artificial intelligence, he says, but we won’t have anything to fear. W hy? Because computers will have become a part of us, making us smarter, more powerful, healthier, and happier. D on’t think that can happen? H ow do you feel when you don’t have your smartphone nearby? A little lost? It’s because that technology and all that connectivity have already become parts of our lives. T he smartphone has become an “outboard brain”—it’s our portable memory center, storing so much of our personal information as to be indispensable. And we’ll be moving from mobile phones, to wearables, to implantables over the next 20 years.

So think a little further ahead. Imagine a world where you won’t have to read this book—you can just upload its content into your brain. (And I suspect that by now you are wishing the future was here already. E specially with this monster-sized book!) Or imagine a world where you can upload your mind, your thoughts, and your personality to the cloud to be preserved forever? T hat’s roughly the time when Ray K urzweil and other great thinkers and futurists believe that humans and machines will merge. T his epic moment is called “the Singularity” (aka “the Rapture for nerds”). W hen will it happen—if it does? Ray predicts the Singularity will be here by 2045.

T hose who have a “why” to live, can bear with almost any “how.”

— V IC T O R F R AN K L

If technology solves the problems that make our resources scarce, will we be safer, freer, happier? Y ou bet. Scarcity brings out the survival instincts in human beings; it activates that deep part of the reptilian brain that makes you believe it’s you or me. T hat fight-orflight mechanism can help us survive, but it often can bring out the worst side of people in a “civilized” society. T he brain we have is two million years old. It hasn’t evolved that much. So aggression and war will always be a big challenge. But with less scarcity, perhaps there’s less of a trigger to spark violence.

T here’s statistical evidence to show that more access to technology can make people happier. T he W orld Values Survey has shown that from 1981 to 2007, happiness rose in 45 of the 52 countries studied. And what was going on during those years? T hat’s right. T he digital revolution. T he technology wave was spreading across the globe—or what the report calls “the transition from industrial to knowledge societies.” Social scientists have interpreted this index to mean that “economic development, democratization, and rising social tolerance have increased the extent to which people perceive that they have free choice, which in turn has led to higher levels of happiness around the world.” T he same survey said that more money doesn’t make people happier. Some of the happiest people came from the poorest countries; citizens of the Philippines consider themselves happier than people in the U nited States. H appiness has more to do with values than with G D P.

W e all know that subsistence labor robs us of our most precious commodity: time. Remember when I mentioned that not too long ago most Americans were farmers, and spent 80% of their time digging in the ground for food; now we spend about 7% of every day earning money for food? W ith more technology, there’s more time on our hands, and that means there’s more opportunity to learn, to grow, to connect with others, and to give—all pursuits that fulfill us as human beings.

But there’s also a dark side to the gift of time.

Artificial intelligence and robotic devices are going to be taking on more and more of the tasks humans now perform. A study by Oxford U niversity found that 47% of the current U S labor market is at risk of being mechanized in the future. In essence, Oxford’s experts are saying that half of all workers might one day be replaced by robots! T hat means society will have to reboot to create meaningful work for everybody, and we are all going to have to step up to learn new skills. It’s going to be a difficult transition, no question about it.

But what happens in the future if work itself disappears, and computers do all the labor and most of the thinking? W hen all there is for us to do is ride around in self-driving vehicles and wait for drones to deliver the groceries? W hen there’s nothing to push back against to give us strength? T hat’s an interesting question.

More than a decade ago, I discussed this question with

Ray K urzweil, and he told me the story about a T wilight Z one episode that he’d seen as a child. I don’t know if you’re old enough to remember T he T wilight Z one, but it was a very interesting series, and the shows always had a creepy twist at the end. In this episode, a guy who loves to gamble dies and wakes up with a friendly “guide” in a white suit at his side. T his guide, this angel, who’s more like a butler, takes him to a luxurious casino—which is this gambler’s idea of heaven. H e’s ushered into an amazing suite, and he opens the closet to find it overflowing with incredible suits and fancy shoes. T hey all fit him perfectly. H is guide opens a drawer, and it’s stuffed with cash, more than he’s ever seen before. So the gambler gets dressed, goes downstairs to the gaming tables, and everybody knows his name. E verybody smiles at him. H e’s surrounded by gorgeous women. It’s his ultimate fantasy! H e plays blackjack, and hits 21 the first time. H e wins. T his is great! H e rakes in the chips. T he next time: 21. N ext time: 21. T en times in a row. It’s extraordinary! H e turns around and plays craps, and he wins, wins, wins. H e has huge piles of chips. All he has to do is ask for drinks, steaks, women, and they appear. E verything he’s ever wanted, he gets. H e goes to sleep that night . . . we’ll just say, not alone, and very happy.

T his goes on day after day after day. After a few months, he’s playing at the blackjack table, and the dealer says, “Blackjack!”

T he gambler screams, “Of course it’s blackjack!”

T he dealer says, “T wenty-one! Y ou win!”

“Of course! I always win! I’m sick of this! I win every time, no matter what happens!” H e looks at his guide in the white suit and asks to speak to the head angel.

W hen the head angel appears, the man unleashes a tirade: “I’m so bored I’m going out of my mind! Y ou know what? T here must be some mistake. I’m not that good a person. I’m in the wrong place. I don’t deserve to be in heaven!”

And the angel’s smile suddenly curdles as he says,

“W hat makes you think you’re in heaven . . . ?”

So what happens when we get everything we want with little effort? After a while, it would be like hell, wouldn’t it? T hen we’d have a new problem: W here will we find meaning in a world of abundance? So maybe in the future, your problem won’t be scarcity. And the solution won’t just be an abundance of material things. As Peter D iamandis says, “Abundance isn’t about providing everyone on the planet with a life of luxury— rather, it’s about providing all with a life of possibility.”

So in our final chapters together, let’s look at the core of what is going to give your life lasting meaning. Something that can give you joy whether you’re facing enormous challenges or extraordinary opportunities; a source of strength in difficult economic times or abundant ones. L et’s uncover the ultimate wealth of fulfillment and meaning. L et’s learn to tap into the wealth of passion.

C HAPT E R 7.2

T H E W E AL T H O F PASSIO N

Man is only great when he acts from passion.

— BE N JAMIN D ISR AE L I

W e’ve come a long way together, haven’t we? It’s been an incredible adventure, and I’m honored and grateful that you’ve chosen to make this journey with me.

By now you’ve navigated the money myths that block your way to financial freedom; climbed the mountain of successful saving and investing on the way to achieving your financial dreams; and learned new ways to safely glide to a secure future where you can work only because you want to work, not because you have to work.

Y ou’ve met some remarkable financial geniuses and incredible human beings, such as Ray D alio, Paul T udor Jones, Mary C allahan E rdoes, C arl Icahn, D avid Swensen, Jack Bogle, C harles Schwab, and dozens of others to help guide you on your path. I’m hoping you’ll return to the 7 Simple Steps you’ve learned in this book again and again throughout your life, to keep yourself on target. Also, I’m providing an action list at the end of this section to help you track and sustain your progress. In addition, you’ll find a simple reminder system built into our app to keep you on target. U se these as a way to insure that you remain committed to the simple principles that will secure your freedom. Picking up this book and reviewing it in the future might be a useful way to remind yourself that you are not a creature of circumstance but a creator of your life. Remember, knowledge is not power—action is! E xecution trumps knowledge every day of the week!

For me, this journey has been the culmination of decades of learning and teaching, and this book is truly a labor of love. It is my heartfelt gift to you. My hope is that you do so well that you can also pass on this gift to others. Because the greatest gift of life is to live it for something that outlasts it: a legacy that continues to grow beyond our years.

And as we begin to complete this journey together, I want to make sure that I don’t leave you without reminding you of what this all has really been about.

H appiness is not something ready-made. It comes from your own actions.

— D AL AI L AMA X IV

It has been my great privilege to work with people from every walk of life: leaders in politics, finance, entertainment, and sports, but also in the religious and spiritual world. I’ve worked in the Middle E ast, where I brought young Israelis and Palestinians together in a leadership program in the W est Bank. At first they expressed a seething hatred for one another—but within a week, they’d become great friends (and in nine years have continued to work on various peace projects in support of one another).

As a result, the D alai L ama came to visit our Sun Valley home and later invited me to an interfaith peace conference in San Francisco in 2006. It took place during a week in April when three great religious faiths observed one of their high holidays: E aster for C hristians, Passover for Jews, and, for Muslims, Mawlid an-N abi, the birthday of Muhammed. T he timing was significant, as the conference aimed to promote compassion and better understanding among all the great religions.

T he D alai L ama, draped in deep red and saffron robes, greeted me in the ballroom of the Mark H opkins H otel with a warm embrace and a belly laugh. H e radiated warmth and joy—like a walking, breathing embodiment of the “art of happiness” he teaches. T here were about 1,000 people attending the conference, but I had the honor of sitting in an intimate meeting he hosted with about 25 of the world’s top theologians and spiritual leaders: H indus, Buddhists, E piscopalians, N ative Americans, C atholics, Jews, Sunnis, and Shiites— the list went on.

It was a fascinating experience because it started out as most of these conferences do, with everybody being wonderful and kind and gracious. But then we got into the nitty-gritty of human lives and age-old conflicts—and ideology and dogma started boiling up from beneath the surface. T he conversation got a little heated, with everybody talking at once and nobody really listening.

Finally, the D alai L ama raised his hand like a little boy in class. H e wasn’t upset at all, but he just kept waving his hand with a serene, amused smile on his face. G radually, people saw him, and you could tell they were a little embarrassed for arguing and ignoring their host. W hen they finally became quiet, he dropped his arm.

“L adies and gentlemen, one thing we can all agree upon in this room,” the D alai L ama said. “T he great faiths of the world are represented here, and many of us are considered to be leaders of those faiths. W e all have great pride in our individual traditions. But I think we don’t want to lose sight of what the purpose of our religions is, and what the people we represent really want.” H e paused for effect and said, “W hat they all want is to be happy!” W hat’s the common denominator, he asked, between the goat herder in Afghanistan and the financial trader in N ew Y ork C ity; the tribal chief in Africa and the mother of ten in Argentina; the fashion designer in Paris and the weaver in Peru? “T hey all want to be happy.”

“T hat’s the essence of everything,” H is H oliness said. “If what we do creates more unhappiness, then we’ve truly failed.”

But what is it that creates happiness?

I’ve always taught that success without fulfillment is the ultimate failure.

It’s important to remember what you’re really, truly after: that sense of joy, freedom, security, or love— whatever you want to call it. E ach one of us finds a pathway we believe will lead to happiness, fulfillment, or meaning. And there are so many paths. Some look for happiness through religion, or nature, or relationships. Others think a great body, money, prominent degrees, children, or business accomplishments will make them happy. But true wealth, as you and I know deep in our souls, cannot be measured only by the size of your bank account or the number of assets you have acquired or grown.

So what’s the final secret, the key to a rich life? E njoy it and share it! But first you must take action. As the saying goes, if what you learn leads to knowledge, you become a fool; but if what you learn leads to action, you can become wealthy. Remember: rewards come in action, not in discussion.

So before you put down this book, go over the final checklist and make sure you’ve nailed those 7 Simple Steps and are on your way to building the life you desire and deserve.

T hen take a breath and remember what it’s all about.

W ealth is the ability to fully experience life.

— H E N R Y D AV ID T H O R E AU

W e all know there are many kinds of wealth: emotional wealth; relationship wealth; intellectual wealth; physical wealth, in the form of energy, strength, and vitality; and, of course, spiritual wealth: the sense that our life has a deeper meaning, a higher calling beyond ourselves. One of the biggest mistakes we human beings make is when we focus on mastering one form of wealth at the expense of all the rest.

T his book has never really been just about money. W hat it’s really about is creating an extraordinary quality of life—life on your terms. U ntil now we’ve zeroed in on how to master the game of money and financial independence because money can have a significant effect on everything from our psychology, to our health, to our intimate relationships. But it’s important to remember that it’s impossible to live an extraordinary life if you don’t also master the game of relationships, the game of fulfillment, and the game of health.

Being the richest man in the graveyard is not the goal.

I will never forget taking my children to see C irque du Soleil when the troupe came to our hometown in D el Mar, C alifornia, almost three decades ago. W e were fortunate enough to get VIP tickets with floor seats right next to the stage. Y ou could almost reach out and touch the performers.

Just before the show began, I noticed three prime seats were still open beside us, and I thought, “W ow, someone is going to miss out on an amazing show.” But a minute or two later, a giant man, walking with the help of a cane and two assistants, came down the stairs. H e must have weighed at least 400 pounds. W hen he sat down, he took up the three empty seats and was wheezing and sweating from the short walk to the front row. I felt so bad for this man—and for my daughter, who was being crushed by his body spilling over that third seat and onto her! I overheard a person behind me whispering that he was the richest man in C anada. It turns out he was one of the richest men in C anada— financially. A billionaire, no less! Y et in that moment, I couldn’t help thinking about the pain he must live in—all because he put so much of his focus into money while neglecting his health and the physical wealth of his body. H e was literally killing himself! And by failing to master more than one aspect of his life, he couldn’t enjoy what he had—not even a simple, magical evening at the theater.

W e can only be said to be alive in those moments when our hearts are conscious of our treasures.

— T H O R N T O N W IL D E R

W hat’s the point of massive achievement if your life has no balance? And what’s the point of winning the game if you never take the time to celebrate and appreciate the life you have? T here’s nothing worse than a rich person who’s chronically angry or unhappy. T here’s really no excuse for it, yet I see this phenomenon so often. It’s the result of an extremely unbalanced life—one with too much expectation and not enough appreciation for what’s already here. W ithout gratitude and appreciation for what we already have, we’ll never know true fulfillment. As Sir John T empleton said, “If you’ve got a billion dollars and you’re ungrateful, you’re a poor man. If you have very little but you’re grateful for what you have, you’re truly rich.”

H ow do you cultivate gratitude? Start by looking at the force that controls your mind and emotions.

O ur decisions ultimately control the quality of our lives. In all the years I’ve worked with people, I’ve found that there are three key decisions that we make every moment of our lives. If we make these decisions unconsciously, we end up with lives like the majority of people, who tend to be out of shape physically, exhausted emotionally, and often bored with or too comfortable in their intimate relationships—not to mention financially stressed.

But if you make these decisions consciously, you literally can change your life in an instant! W hat are the three decisions that determine the quality of your life? T hat determine whether you feel rich or poor in any given moment? T he first one is:

D E C ISION 1:

W H AT ARE Y OU G OIN G T O FOC U S ON ?

In every moment of our lives, there are millions of things we can focus on. W e can focus on the things that are happening right here, right now, or on what we want to create in the future, or we can put our focus back on the past. W e can direct our focus to solving a big challenge or to appreciating the beauty of this moment, or to feeling sorry for ourselves about some disappointing experience. If we don’t direct our focus consciously, the environment we’re in tends to make constant demands to get our attention.

T here are hundreds of billions of dollars spent on advertising, trying to get this precious commodity of yours. T he news tries to get your focus by telling you the scariest story: “Y our child could die from drinking fruit juice! Film at eleven!” or some other ridiculous claim. W hy? Because as they say in the media, “If it bleeds, it leads.” If that’s not enough, we live in a social media world where the buzz in your pocket is constantly calling to you. But here is the key: where focus goes, energy flows. W hat you focus on, and your pattern of focus, shape your whole life.

L et’s look at two of these patterns that control and can immediately shift your level of joy, happiness, frustration, anger, stress, or fulfillment.

T he first question is: W hich do you tend to focus on more—what you have or what’s missing from

your life? I’m sure you think about both sides of this coin, but if you had to look at your habitual thoughts, where do you tend to spend most of your time?

E ven those of us who are in the most difficult situations have plenty in our lives that we can appreciate. If you’re struggling financially, might it be worthwhile to remember that if you make an income of just $34,000 a year, you are actually in the top 1% of all wage earners in the world? Y es, the average annual income on the planet is only $1,480 a month. In fact, almost half the world, or more than 3 billion people, live on less than $2.50 per day, which is a little more than $900 per year. T he average drink at Starbucks is $3.25. If you can afford that, you’re spending more with one purchase of a cup of coffee than what half the planet has to live on for one day.

T hat puts things in perspective, doesn’t it? So if you want to occupy W all Street because you resent the socalled 1% , you might stop to consider that 99% of the rest of the world might want to occupy your “terrible” life!

But in all seriousness, rather than focusing on what we don’t have and begrudging those who are better off financially, perhaps we should acknowledge that there’s so much to be grateful for in our lives that has nothing to do with money. W e can be grateful for our health, our friends, our opportunities, our minds, and the fact that we get to drive on roads that we didn’t have to build, read books we didn’t have to take years to write, and tap into the internet that we didn’t have to create.

W here do you tend to put your focus? On what you have or on what’s missing?

A pattern of appreciating what you have will create a new level of emotional well-being and wealth. And my guess is that if you’re reading this book, you may be one of those people who already notices what you have. But the real question is, do you take time to deeply feel grateful in your mind, body, heart, and soul? T hat’s where the joy and the gifts will be found. N ot with just intellectual appreciation or by the acquisition of another dollar, or another $10 million.

N ow let’s consider a second pattern of focus that impacts the quality of your life: D o you tend to focus more on what you can control or what you can’t control? I know the answer will be contextual, as it could change from moment to moment, but I’m asking you overall: W hat do you tend to do more often? Be honest.

If you focus on what you can’t control, there’s no question you’re going to have more stress in your life. Y ou can influence many aspects of your life, but you can’t control the markets, the health of those you care about, or the attitudes of your children—as anyone who has lived with a two-year-old or a 16-year-old knows!

Y es, we can influence many things, but we can’t control them. T he more we feel out of control, the more frustrated we become. In fact, self-esteem can be measured by how much we feel we control the events in our life versus feeling that life’s events are controlling us.

N ow, as soon as you begin to focus on something, your brain has to make a second decision, which is:

D E C ISION 2:

W H AT D OE S T H IS ME AN ?

W hat does this mean? U ltimately, how we feel about our lives has nothing to do with the events of our lives, or with our financial condition, or what has or has not happened to us. T he quality of our lives is controlled by the meanings we give these things. Most of the time we’re unaware of the impact of these quick meaning decisions that are often made in our unconscious mind.

W hen something happens that disrupts your life—a car accident, a health issue, a lost job—do you tend to think it’s the end or the beginning? If someone confronts you, is he or she “insulting” you, “coaching” you, or truly “caring” for you? D oes this “devastating” problem mean that G od is punishing you, or challenging you, or is it possible this problem is a gift from G od? Y our life becomes whatever meaning you give it. Because with each meaning comes a unique feeling or emotion, and the quality of our lives is where we live emotionally.

Meanings don’t just affect the way we feel; they affect all of our relationships and interactions. Some people think the first ten years of a relationship is just the beginning; that they’re just now getting to know each other, and it’s really exciting. It’s an opportunity to go deeper. Other people could be ten days into a relationship, and the first time they have an argument, they think it’s the end.

N ow tell me, if you think this is the beginning of a relationship, are you going to behave the same way as if it were the end? T hat one slight shift in perception, in meaning, can change your whole life in a moment. In the beginning of a relationship, if you’re totally in love and attracted, what will you do for the other person? T he answer is: anything! If he or she asks you to take out the trash, you might leap to your feet and say, “Anything that lights you up, sweetheart!” But after seven days, seven years, or seventy years, people say things like, “W hat the hell do you think I am, your janitor?!” And they wonder what happened to the passion in their life. I’ve often shared with couples having trouble in their relationships that if you do what you did in the beginning of the relationship, there won’t be an end! Because in the beginning of the relationship you were a giver, not an accountant. Y ou weren’t weighing constantly the meaning of who was giving more. Y our entire focus was just lighting up that person, and his or her happiness made you feel like your life was filled with joy.

L et’s look at how these first two decisions, focus and meaning, often combine to create one of modern society’s biggest afflictions: depression. I’m sure you must wonder how it’s possible that so many people who are “rich” and famous—with every resource you could ever desire—could ever be depressed. H ow is it that so many of those who were beloved by millions of people, and have tens of millions of dollars or more, have even taken their own lives? W e’ve seen it over and over again with extraordinarily intelligent individuals, from businessmen to entertainers to comedians. H ow is this possible, especially with all of the modern treatments and medications available today?

In my seminars, I always ask, “H ow many of you know someone who is on antidepressants and is still depressed?” E verywhere around the world, in rooms of 5,000 to 10,000 people, I’ll see about 85% to 90% of the room raise their hands. H ow is that possible? After all, you’re giving them a drug that should make them better.

W ell, these antidepressants do come with labels warning that suicidal thoughts are a possible side effect. But perhaps the real challenge is, no matter how much you drug yourself, if you focus constantly on what you can’t control in your life and what’s missing, it’s not hard to find yourself in despair. If you add to that a meaning like “life is not worth living,” you have an emotional cocktail that no antidepressant will be able to overcome consistently.

But I can tell you beyond a shadow of a doubt that if that same person can come up with a new meaning—a reason to live or a belief that all of this was meant to be— then he will be stronger than anything that has ever happened to him. If she can focus consistently on who needs her, wants her, loves her, what she still wants to give to this world, then anyone can be shifted. H ow do I know? Because in 38 years of working with people, I’ve never lost one to suicide out of the thousands I’ve dealt with. And knock on wood—there are no guarantees— hopefully I never will. But when you can get people to shift their habitual focus and meanings, there’s no longer a limit on what a person’s life can become.²⁵

A change of focus and a change in meaning can literally change your biochemistry in a matter of minutes. L earning to master this becomes an emotional game changer. H ow else can you explain the power and beauty of people like the great therapist and thinker Victor Frankl and so many others who made it through the horrors of Auschwitz? T hey found meaning even in their extreme suffering. It was a higher meaning, a deeper meaning that kept them going —not only to survive but also to save the lives of so many others in the future by saying, “T his will never happen again.” W e can all find meaning, even in our pain. And when we do, we may still experience pain, but the suffering is gone.

So take control, and always remember: meaning equals emotion, and emotion equals life. C hoose consciously and wisely. Find the empowering meaning in anything, and wealth in its deepest sense will be yours today.

D E C ISION 3:

W H AT AM I G OIN G T O D O?

Once we create a meaning in our minds, it creates an emotion, and that emotion leads to a state in which we make our third decision: W hat am I going to do? T he actions we take are powerfully shaped by the emotional states we’re in. If we’re angry, we’re going to behave quite differently than if we’re feeling playful or outrageous.

If you want to shape your actions, the fastest way is to change what you focus on and change the meanings to something more empowering. But even two people who get in an angry state will behave differently. Some will pull back when they’re angry; others push through. Some people express anger quietly or loudly or violently. Some suppress it only to look for a passive-aggressive opportunity to regain the upper hand, or even exact revenge. Some people confront their anger by going to the gym and working out.

W here do these patterns come from? W e tend to model our behavior on the people in our lives whom we respect, enjoy, and love. T he people who frustrated or angered us? W e often reject their approaches, but far too often find ourselves falling back into the pattern that we witnessed over and over again and were so displeased by in our youth.

It’s very useful to become aware of what your patterns are when you get frustrated or angry or sad or feel lonely —because you can’t change your pattern if you’re not aware of it. In addition, now that you’re aware of the power of these three decisions, you might start looking for role models who are experiencing what you want out of life. I promise you, those who have passionate relationships have a totally different focus and come up with totally different meanings for challenges in the relationship than people who are constantly bickering or fighting. Or those who judge each other constantly. It’s not rocket science. If you become aware of the differences in how people make these three decisions, you’ll have a pathway that can help you create a permanent positive change in any area of your life.

At the age of 18, I made up my mind to never have another bad day in my life. I dove into an endless sea of gratitude from which I’ve never emerged.

— D R . PAT C H AD AMS

H            ow can you use these three decisions to enhance thequality of your life? It turns out that what we focus on, what emotional states we tend to live in, and what we do can all be conditioned, or “primed,” into our lives with a simple routine. After all, you don’t want to merely hope that positive emotions just show up; you want to condition yourself to live in them. It’s like an athlete developing a muscle. Y ou must train yourself if you want to have an extraordinary quality of fulfillment, enjoyment, happiness, and achievement in your personal, professional, and intimate lives. Y ou must train yourself to focus, feel, and find the most empowering meanings.

T his practice is rooted in a concept in psychology called priming, in which words, ideas, and sensory experiences color our perceptions of the world and affect our emotions, motivations, and actions.

W hat if you were to discover that many of the thoughts that you think are your thoughts are simply conditioned by environmental triggers, or in some cases manipulated consciously by others who understand the power of priming? L et me give you an example.

T wo psychologists conducted a study²⁶ in which a stranger handed the subjects either a mug of hot coffee or a cup of iced coffee. T he subjects were asked to read about a hypothetical character and asked to describe the character’s true nature. T he results were astonishing! T hose who were given the hot coffee described the character as “warm” and “generous,” while the icedcoffee holders described him as “cold” and “selfish.”

In another study at the U niversity of W ashington, women of Asian descent were given a mathematics test. Before the test, they took a brief questionnaire. If they were asked to list their ethnicity, the women scored 20% higher on the math test. But for those who were asked to fill in gender instead of ethnicity, the simple act of writing that they were female produced significantly lower scores. T hat’s the power of priming in the form of cultural conditioning. It affects our unconscious patterns —shrinking or unleashing our true potential.

W e can make use of this phenomenon by developing a simple ten-minute daily practice to prime our minds and hearts for gratitude—the emotion that eliminates anger and fear. Remember, if you’re grateful, you can’t be angry simultaneously. Y ou can’t be fearful and grateful simultaneously. It’s impossible!

I               begin every day with a minimum of ten minutes. Istop, close my eyes, and for approximately three minutes reflect on what I’m grateful for: the wind on my face, the love in my life, the opportunities and the blessings I experience. I don’t focus just on big things; I make a point not only to notice, but also to deeply feel an appreciation for the little things that make life rich. For the next three minutes, I ask for health and blessings for all those I love, know, and have the privilege to touch: my family, friends, clients, and the stranger I may meet today. Sending love, blessings, gratitude, and wishes for abundance to all people. As corny as it sounds, it’s the real circle of life.

I spend the remaining time on what I call my “T hree to T hrive”: three things that I want to accomplish. I envision them as if they were already achieved and feel a sense of celebration and gratitude for them. Priming is an important gift to yourself—if you did it for ten days, you’d be hooked. (H ere’s a link to get you started: www.tonyrobbins.com.)

T his simple practice is important because a lot of people say they’re grateful, but they don’t take time to be grateful. It’s so easy in life to lose track of the beauty and grace of what we already have! If we don’t consciously do something each day to plant the right seeds in our mind, then the “weeds of life”—frustration, anger, stress, loneliness—tend to creep in. Y ou don’t have to plant weeds; they grow automatically. My teacher Jim Rohn taught me a simple principle: every day, stand guard at the door of your mind, and you alone decide what thoughts and beliefs you let into your life. For they will shape whether you feel rich or poor, cursed or blessed.

In the end, if we’re going to truly be happy, we have to get outside of ourselves.

T he human mind is an amazing thing. It’s a survival mechanism, so it tends to look for what’s wrong, what to avoid, what to look out for. Y ou may have evolved, but your brain is still a 2million-year-old structure, and if you want to be fulfilled and happy, that’s not its first priority. Y ou have to take control of it. And the fastest way to do that—besides priming—is to step into the highest of the 6 H uman N eeds, the two spiritual needs that fulfill human beings: G rowth and C ontribution.

T he core reason that I believe we all have a desire to grow is because when we do, we have something to give. T hat’s where life has its deepest meaning. “G etting” might make you feel good for a moment, but nothing beats the nirvana of having something to give that you know deeply touches someone or something beyond yourself.

E veryone can be great, because everyone can serve.

— D R . MAR T IN L U T H E R K IN G JR .

If it’s really true that giving is what makes us feel fully alive, then perhaps the ultimate test of this theory is what life is like for those willing to give their lives for something they believe in. One of my greatest heroes of the last century was civil rights leader Martin L uther K ing Jr. Recently his eldest son and namesake, Martin L uther K ing III, was in Fiji for my D ate with D estiny event. I had the opportunity of sharing with him how much his dad inspired me because he lived his life on pure passion—he knew what he was made for. E ven as a child, I remember hearing his words: “A man who has not found something he will die for is not fit to live.”

Real wealth is unleashed in your life the moment you find something you care so deeply for you will give it your all—even your life, if necessary. T his is the moment in which you will have truly escaped the tyranny of your own mind, your own fears, your own sense of limitation. A big order, I know. But I also know that most of us would give our lives for our children, our parents, or our spouses. T hose who have found a mission that possesses them have discovered a wealth of energy and meaning that has no match.

T H E W E AL T H OF PASSION

Y ou’ve probably heard of the Pakistani teenager Malala Y ousafzai. She was shot in the head by T aliban terrorists because she had the audacity to insist that girls have the right to go to school. A bullet pierced her eye socket and bounced around her skull, nearly killing her. Miraculously it missed her brain. Malala survived her horrific injuries and has become an international activist for the empowerment of girls and women. T he man who shot her remains free, and the T aliban still threatens to kill her. But she openly defies them. In a speech before the U nited N ations on her 16th birthday, Malala said she has no fear. “T hey thought that the bullet would silence us, but they failed. And out of this silence came thousands of voices. T he terrorists thought that they would change my aim and stop my ambitions, but nothing changed in my life, except this: weakness, fear, and hopelessness died. Strength, fervor, and courage was born.”

In an interview with Malala, C N N ’s C hristiane Amanpour asked the young woman if she feared for her life. Malala replied, “T he thing is, they can kill me. T hey can only kill Malala. But it does not mean that they can kill my cause as well; my cause of education, my cause of peace, and my cause of human rights. My cause of equality will still be surviving . . . T hey only can shoot a body, but they cannot shoot my dreams.”

T his 16-year-old young woman has mastered those three decisions. She’s focused on what matters. She’s found a mission beyond herself that gives her life meaning. And her actions are fearless.

W hile we might not be called to put our lives on the line like Malala, we can all choose to live fearlessly, passionately, and with boundless gratitude. So let’s turn the page and finish our wealth-building journey together with the most important lesson of all: the final secret.

25.               If you’d like, you can go online to www.tonyrobbins.com and see some of these interventions. W e’ve even followed people three and five years later to show that the changes lasted. It will give you an idea of how you can master the meaning in your own life.

26.               T he study was funded by the N ational Institutes of H ealth, andcoauthored by John A. Bargh (Y ale) and L awrence W illiams (U niversity of C olorado).

C HAPT E R 7.3

T H E FIN AL SE C RE T

W e make a living by what we get. W e make a life by what we give.

— W IN ST O N C H U R C H IL L

As we take these final steps of our journey together, I

want to invite you to think about what you are most passionate about in this world. W hat do you care for most deeply? W hat excites you? W hat legacy would light you up? W hat could you do today that would make you proud? W hat action could you take that would be a signal to your own spirit that your life is being lived well? And if you were truly inspired, what would you like to create or give?

All these questions bring us closer to the final secret of true wealth. But—and here’s the deal—part of the key may seem counterintuitive. W e’ve spent a lot of time talking about how to master money, save, invest, and build a critical mass that can ultimately create freedom and increase the quality of your life. But at the same time,

we’ve all been taught that money cannot buy happiness. As one study attests, most people believe that if their income doubled, their happiness would also double. But the study’s findings proved that, in reality, people who went from earning $25,000 per year to $55,000 per year reported only a 9% increase in happiness. Additionally, one of the most widely quoted studies on the subject tells us that once you make a solid middle-class salary—about $75,000 per year in America —earning more money doesn’t make any measureable difference in a person’s level of happiness.

“So, what’s the point?” you might ask.

T he truth is: more recent studies have proven that money can make us happier. Scientists have shown that “spending as little as five dollars a day can significantly change your happiness.” H ow so? W ell, it’s not the amount of money you spend, but how you decide to spend it that matters. “E very day spending choices unleash a cascade of biological and emotional effects that are detectable right down to saliva,” reports H arvard’s E lizabeth D unn and Michael N orton in their brilliant 2013 book, H appy Money: T he Science of Smarter Spending. “W hile having more money can provide all kinds of wonderful things— from tastier food to safer neighborhoods—its real power comes not in the amount but how we spend it.”

T hey have scientifically proven that there are many different ways you can spend your money that will actually increase your happiness significantly. I won’t reveal them all here and will leave it to you to pick up their book, but three of the most important are:

1.     Investing in experiences—such as travel, learning a new skill, or taking some courses, rather than acquiring more possessions.

2.     Buying time for yourself—“W henever we can outsource our most dreaded tasks (from scrubbing toilets to cleaning gutters), money can transform the way we spend our time, freeing us to pursue our passions!”

But can you guess the greatest thing you can do with your money that will bring you massively increased happiness?

3.     Investing in others—T hat’s right. G iving our money away actually makes us really happy!

Research shows that the more you give to others, the happier you are. And the more you have, the more you are able to give. It’s a virtuous cycle. D unn and N orton demonstrate through their own scientific studies that people get more satisfaction spending money on others than they do spending it on themselves. And the benefits “extend to not only subjective wellbeing, but also objective health.”

In other words, giving makes you both happier and healthier.

According to the authors, this phenomenon spans continents and cultures, rich countries and poor, people in the highest and lowest income groups, young and old, “from a C anadian college student purchasing a scarf for her mother, to a U gandan woman buying lifesaving malaria medication for a friend.” Again, the data shows that the size of the gift doesn’t really matter.

In one of their studies, the authors handed participants either $5 or $20 to spend by the end of the day. H alf were told to buy something for themselves; the others were instructed to use the money to help somebody else. “T hat evening, people who had been assigned to spend the money on someone else reported [significantly] happier moods over the course of the day than did those people assigned to spend the money on themselves,” they wrote.

T he authors’ colleague, psychologist L ara Aknin of Simon Fraser U niversity, conducted another study in which she handed out $10 Starbucks gift cards to her subjects.

•    Some were instructed to go into Starbucks alone anduse the gift card on themselves.

•    Some were told to use the gift card to take another person out for coffee.

•    Some were told to give the gift card away to someone else, but they weren’t allowed to go to Starbucks with that person.

•    Some were told to take another person with them to Starbucks but to use the card only for themselves, not the person with them.

At the end of the day, which subjects do you think reported being happiest? Y ou’re right if you picked the ones who were there in Starbucks when they treated someone else to a cup of coffee. According to the authors, people are happiest when they connect with those they help, and “see how their generous actions have made a difference.”

T he happiness we feel from helping others is not only more intense, but it lasts longer too. W hen I brought up the topic of money and happiness in my interview with renowned behavioral economics expert D an Ariely, he told me, “If you ask people, ‘W hat would make you happy: buying something for yourself, or buying something for somebody else?’ they say, ‘Oh, something for myself.’ But that’s not true. Research shows that when people buy something for themselves, they get happy for a few minutes or usually a few hours. But if they buy even a small gift for somebody else, the giver’s happiness lasts a minimum to the end of the day, but often the happiness can carry over for days or even weeks on end.”

D an also told me about a “beautiful experiment” in which employees of a certain company were given bonuses in the $3,000 range. Some people got the bonuses to spend on themselves. And some were instructed to give the money away. G uess who was happier?

“Six months down the line, the people who gave it away reported being much happier than the group that kept it for themselves,” D an said. “I mean, think about what giving is all about, right? It’s an amazing thing that connects you to other people . . . and there’s a cycle of benefits that comes from that.”

W hen you give away money, especially if you do something for a stranger versus if you do something for someone you love, the level of multiplied happiness is geometric. It’s the equivalent of doubling or tripling your salary.

In my own experience, I’ve witnessed so many amazing things that happen when you give. W hen you get beyond your own survival and success mechanisms to a world where you’re living for more than just yourself, suddenly your fear, your frustration, your pain and unhappiness disappear. I truly believe that when we give of ourselves, then life, G od, grace—whatever you want to call it—steps in and guides us. Remember, life supports whatever supports more of life.

L et me give you an example of how a young boy’s life was reignited after his heart and soul were nearly crushed in the aftermath of the horrific school shooting in N ewtown, C onnecticut. H is is a story of finding purpose and inspiration and a release from pain through the act of giving.

A POW E R BE Y ON D PAIN

JT L ewis will never forget D ecember 14, 2012. T hat morning a deranged shooter broke into Sandy H ook E lementary School with a death wish for himself and 26 others, including 20 children ranging from ages five to ten. At one point during the rampage, JT ’s six-yearold brother, Jesse, noticed the shooter’s weapon had jammed and shouted for his classmates to run. T hat brave little boy saved many lives that morning, but, unfortunately, not his own. T he gunman turned on Jesse and shot him dead.

Imagine the devastation if Jesse were your son. Or brother. I had the privilege of meeting 13-year-old JT , and his and Jesse’s mother, Scarlett, when I flew to N ewtown on the first anniversary of the massacre to help a group of survivors cope with the ongoing impact of this devastating tragedy. As I expected, so many of these families were tortured with grief. But I was astonished to talk to JT and learn how his pain and suffering had been transformed through a single interaction with a group of extraordinary Rwandan orphans. T hese young boys and girls had heard about JT ’s loss and wanted to reach out across the globe to share a message of healing.

T hese orphans had all survived one of the worst tragedies in history. In 1994, mass genocide in Rwanda led to the death of as many as 1 million T utsis, who were killed by their H utu neighbors in roughly 100 days. D uring a Skype call, one of the girls, C hantal, told JT how sorry she was for the loss of his brother. But she wanted him to know that no one can take away joy and happiness from your life, only you; the shooter does not have that power.

She then went on to share her own story of how she was only eight years old when she had been forced to witness the horrendous sight of her parents being hacked to death by men with machetes. N ext the killers turned on her, slashing her neck and throwing her tiny body in a mass grave. Buried beneath the ground, bleeding profusely and terrified, but filled with a will to survive, C hantal clawed her way out of that shallow grave and made her way to freedom in the mountains above her village. H iding in the dark forest, she could look down on the community she once called home, as flames swallowed house after house, and the air echoed with screams of the people she loved. She lived on grass for a month while she waited for the killing to stop.

C ertainly you would expect a child forced to witness the murder of her own parents would be emotionally scarred for life. One would expect her to live in anger and fear, but she doesn’t. She is a master of the three decisions that shape our lives.

As she told JT , “I know you don’t believe it now, but you can heal immediately and live a happy and beautiful life. It simply requires training yourself to, every day, be grateful, forgiving, and compassionate. G rateful for what you do have, instead of focusing on what you don’t. Y ou must forgive the shooter and his family and find a way to serve others, and you will be freed from your pain.” H er face was filled with a joy greater than JT could have ever imagined. As bad as his life was, the horror she described was more intense than anything he could conceive. If she could be free of her pain, then so could he. And now was the time.

But how would he do it? H e decided he must find a way to give back to this young soul who had reached across thousands of miles to send him love on his day of need. C hantal found her reason to live, her passion and sense of purpose, in deciding to protect, love, and raise some of the other younger orphans of the genocide.

T his became her mission, and it freed her from focusing on herself or any sense of loss.

H      er example of service to others touched JT deeply,and he became obsessed with the idea of giving. H e decided that helping to create a better future for this extraordinary girl was his mission. H e began to work day and night to raise money to put her through college. W ithin several months, this 13-year-old boy was able to Skype back and announce that he had raised $2,100— enough money to send C hantal to college for a year! She was incredibly touched. But like many young people, especially in the third world, university was simply not a practical option for her, especially as she had already started her own small business as a shopkeeper. (And as you might imagine from a woman with her spirit, she is quite a successful entrepreneur!) So, in the continued spirit of giving, C hantal passed this amazing gift on to her best friend, Betty, another orphan who had also been on the call to encourage JT .

I          was so moved by JT ’s commitment that I decided onthe spot to provide the additional three years of college for Betty, and support C hantal by providing her the funding to build a new shop and a permanent residence for the rest of her adopted orphan family.

T oday we’re all working together to expand the resources available for many more of the 75,000 orphaned children who survived the genocide.²⁷

T he lesson here is this: human beings can overcome our pain when we choose to see life’s beauty and find a way to give of ourselves. T hat is where the healing gift comes from. T he key is finding something that will inspire you to want to give. T hat sense of mission—that’s the ultimate power in life. T hat’s when you truly become wealthy—that is when you move from a mere life of enjoyment to a life of joy and meaning.

G IVIN G IS H E AL IN G

Of course, giving means more than just giving money. It’s also giving your time, it’s giving your emotion, it’s giving your presence to your kids, to your family, to your husband or your wife, to your friends, to your associates. Our work is also our gift. W hether that gift is a song, a poem, building a multinational business, serving as a counselor, a healthcare provider, or a teacher, we all have something to give. In fact, after love, one of the most sacred gifts we can give is our labor. And volunteering your time, giving your unique level of caring, and sharing your skills will also give you significant “returns.”

My friend Arianna H uffington cites studies in her brilliant book T hrive that show how the act of giving actually improves your physical and mental health. One example I love in particular is the 2013 study from Britain’s U niversity of E xeter Medical School that reveals how volunteering is associated with lower rates of depression, higher reports of well-being, and a 22% reduction in death rates! She also writes, “Volunteering at least once a week yields improvements to well-being tantamount to your salary increasing from $20,000 to

$75,000!”

So what’s the final secret to wealth? It’s that giving in any form builds wealth faster than getting ever will. I don’t care how powerful any of us are as individuals, whether you’re a business titan, political leader, financial mogul, or entertainment icon—the secret to a fulfilled life is not only to do well but also to do good. After all, we all know the story of how society has been transformed by magnificently wealthy individuals who woke up one morning and realized, “L ife is about more than just me.”

Being the richest man in the cemetery doesn’t matter to me. G oing to bed at night saying we’ve done something wonderful, that’s what matters to me.

— ST E V E JO BS

Before the 19th century, most charity was handled by religious organizations—until steel magnate Andrew C arnegie came along. K ings and nobles and the wealthiest families weren’t interested in giving back to their communities; for the most part, they just wanted to hang on to their money for themselves and their heirs. Many businessmen shared the same belief. But C arnegie led the other “robber barons” of his era to create philanthropy as we’ve come to know it today.

C arnegie was a ruthless businessman, but he made the steel that built the railroads and skyscrapers that transformed America. H e had to add value to be profitable, so society benefitted, and so did he. In his lifetime, he became the richest man in the world. But there came a stage in his life where he had gotten all the things that he wanted and then some. H e had so much money that he began to realize that it had very little meaning—unless he used it for something beyond himself. So C arnegie spent the first half of his life accumulating money and the second half giving it away. H e described his personal transformation in an essay

(and later a book) that’s still worth reading called T he

Gospel of Wealth. My friend, N obel Prize winner and Y ale economics professor Robert Shiller, insists that all of his students read it because he wants them to know that capitalism can be a force for good. C arnegie’s essay changed society, influenced his peers, and even challenged the incomprehensible wealth of his greatest rival, John D . Rockefeller. Inspired by a fierce competitive spirit, Rockefeller began shoveling mountains of money into some of the nation’s greatest foundations. C arnegie created a new standard: a standard of measuring your significance not by what you have but by what you give. H is focus was education. In fact, during his lifetime, C arnegie’s contributions doubled the number of libraries in the U nited States, and provided so much of the intellectual growth and capital of our society before the internet came into being.

        Our    friend   C huck    Feeney    became   a    modern

C arnegie, giving away almost all of his $7.5 billion fortune—except he chose to keep quiet about it until recently!

By the time I came to meet C huck, he was 83 and in the final stage of his life. H e had difficulty speaking for extended periods of time, but in his presence is found an experience more profound than words. In his presence, you feel the power of a life well lived. Y ou can see it in the joy in his eyes, in the smile that flashes so easily for him, in the kindness that emanates from his heart.

C huck Feeney, in turn, inspired another generation. Many say T ed T urner was the next to reignite this form of large-scale philanthropy with his $1 billion pledge to the U nited N ations. Since then, Bill G ates and W arren Buffett have joined forces to create the G iving Pledge to inspire the world’s wealthy to leave at least half of their fortunes to charity. At last count, more than 120 billionaires had signed up, including some of the ultrawealthy individuals in this book, such as Ray D alio,

T . Boone Pickens, Sara Blakely, C arl Icahn, and Paul

T udor         Jones.         (See        the        website,        at

http://givingpledge.org, to read some of the moving letters they wrote to accompany their gifts.)

T . Boone Pickens told me he’s gotten a bit carried away with his philanthropy. H e’d recently given nearly a half billion dollars to his alma mater, Oklahoma State U niversity, bringing his total charitable gifts to over $1 billion. H owever, he recently took some losses that lowered his net worth to $950 million—just shy of that billion he gave away! But Boone is not concerned. After all, he’s only 86 years old. “D on’t worry, T ony,” he said. “I’m planning on earning another two billion in the next few years.” H e feels no sense of loss, because the joy he’s received in giving is priceless.

In modern times, the richest and the most influential men and women in the world have tackled the world’s big problems. C arnegie took on education. Bill and Melinda G ates take on scholarship and preventable epidemics. Bono’s passion is forgiving the debt that enslaves third world countries. But do you have to be a billionaire or a rock star to solve the world’s greatest problems? N ot in today’s interconnected world. If we work together through the use of technology, we can each do a little bit and still have a huge impact.

SW IPE OU T H U N G E R, SW IPE OU T D ISE ASE ,

SW IPE OU T SL AVE RY

I’m not sure what your passion is, but one area I personally feel deep empathy for is children and families in need. Y ou need to have ice in your veins not to feel for a child who is suffering. So let’s take a minute to look at three of the biggest problems affecting children and their families today, and what immediate, concrete steps we could easily take to make a difference.

T he first is hunger. W ho do you think goes to bed hungry each night in the richest country in the world? According to the U S C ensus Bureau, as staggering as it sounds, one in four American children under the age of five lives in poverty, and almost one in ten lives in extreme poverty (which is defined as an annual income below $11,746, or $32 a day, for a family of four to live on).

Fifty million Americans, including nearly 17 million children, live in food-insecure homes—or as Joel Berg of N ew Y ork’s C oalition Against H unger told T heresa Riley of Moyers & Company, homes that “don’t have enough money to regularly obtain the food they need”; that “are rationing food and skipping meals. W here parents are going without food to feed their children.” At the same time, C ongress has cut $8.7 billion of annual SN AP benefits—what used to be called food stamps—eliminating more than a week’s worth of meals every month for a half million American families.

I lived in one of those homes; ours was one of those families. T hat’s where my passion to make a difference in this area comes from. I know those aren’t just statistics; those are human beings who are suffering.

I’ve already shared with you how my life was transformed one T hanksgiving D ay when I was 11 years old. Again, it wasn’t just receiving food that changed my life, it was the fact that a stranger cared. T hat simple act has had an exponential effect. I’ve continued to pay that gift forward by feeding 42 million people over the last 38 years. T he key is I didn’t wait until I could handle this huge problem on a large scale. I didn’t wait until I became wealthy. I started to attack the problem where I was, with what little I had.

At first it was a financial stretch to feed just two families, but then I became inspired and I doubled my goal—to feed four. T he next year it was eight, then 16. As my companies and influence grew, it became a million a year, then 2 million. Just like investments compound, so do investments in giving—and they provide an even greater reward. T he privilege of being in a place where today I am able to donate 50 million meals, and in partnership with you and others, provide more than 100 million meals, is beyond description. I was the guy who had to be fed, and now through grace and commitment, it’s my honor to feed others and to multiply the good that was done for me and my family.

T   here’s nothing like the power of the humansoul on fire. Along the way, caring touched me, and so did books. T hey transported me from a world of limitation to a life of possibility as I entered the minds of authors who had already transformed their lives. In that tradition, I approached my publisher, Simon & Schuster, and let them know that I wanted to feed not just bodies but also minds. T hey have joined me in this mission by donating my simple change-your-life book called Notes from a Friend, which I wrote to help someone in a tough place to turn his or her life around with practical advice, strategies, and inspirational stories. T o match the investment you’ve made in buying this book, my publisher has pledged to provide a copy of Notes from a Friend to a person in need through my partners at Feeding America. T hey are the nation’s largest network of food banks and considered to be the most effective charity in the U nited States for feeding the homeless.

But now I’d like to ask you to consider partnering with me in a way that would continue to do these good works for years to come. It’s a simple strategy that can provide 100 million meals not only this year but also every year for those hungry families in need. It doesn’t require a substantial donation. T he plan I’m proposing offers you the opportunity to change and save lives by effortlessly giving away your spare change. H ow? Join me in the campaign to SwipeOut hunger, SwipeOut disease, and SwipeOut slavery!

U  SE Y OU R SPARE C H AN G E T O C H AN G E T H EW ORL D

So I have an offer for you. My goal in this book was to help you understand the distinctions, insights, skills— and give you a plan—that can truly empower you to create lasting financial security, independence, or freedom for you and your family. I’m obsessed with finding ways to add more value to your life than you could ever imagine with one book (although a big one, I must admit). I want it to inspire you to get beyond scarcity and become a wealthy man or woman right now! And that occurs the day that you start giving with joy in your heart—wherever you are financially—not because you have to, not out of guilt or demand, but because it excites some part of you.

According to the Bureau of L abor Statistics of the U S D epartment of L abor, there are 124 million households in the U S that spend an average of $2,604 per year on entertainment—that’s more than $320 billion a year just on entertainment. Imagine if just some of this money went to solving previously intractable problems like hunger, human trafficking, and access to clean water? In the U S, it takes one dollar to provide ten meals to needy individuals. Imagine helping to provide 100,000,000 meals a year! T hat’s only a little over $10 million—just .0034% of what we spend on entertainment! It’s pennies on the dollar—America’s pocket change! So I partnered with some great minds in business and marketing, including Bob C aruso (social capitalist and former managing partner and C OO of one of the top 100 hedge funds in the world, H ighbridge C apital Management) and my dear friend Marc Benioff (philanthropist, founder, and C E O of Salesforce.com) to build the technology that allows you to easily and painlessly put those pennies to work to save lives.

In less than a minute, you can go online and opt in to SwipeOut (www.swipeout.com), so that every time you use your credit cards anywhere in the world, the price of your purchase will automatically round up to the nearest dollar.²⁸ T hat amount will go directly to an approved and effective charity that will report back to you with stories of the lives you have touched. H ere’s how it works: if you paid $3.75 for your Starbucks, $0.25 would be routed to preselected charities. For an average consumer, this change adds up to just under $20 a month. Y ou can put a limit on what you give, but we do ask that you keep it at a minimum of $10.

W ant to know what your impact would be? For about $20 a month:

•        you could provide 200 meals for hungry

Americans (that’s 2,400 meals per year!); or

•        you could provide a clean, sustainable source of water for ten children in India each month— that’s 120 children per year that you personally protect from a waterborne illness; or

•        you could make a down payment on rescuing and rehabilitating a young C ambodian girl trafficked into slavery.

T hese are the three big issues facing children and families. In America, it’s hunger. W hich is why our focus is on swiping out hunger with our partner Feeding America.

But the biggest challenge for children in the world is disease. D id you know that disease caused by contaminated water is the world’s leading killer, accounting for 3.4 million deaths per year, according to the W orld H ealth Organization (W H O)? In fact, every 20 seconds, another child dies from a waterborne disease—and more have perished than the total number of people who’ve died in all the armed conflicts since W orld W ar II.

T his is why the second commitment of SwipeOut is to swipe out waterborne disease and provide clean water for as many children as possible worldwide. T here are a variety of organizations with sustainable solutions out there, and some require as little as $2 a person to provide these children and their families with a reliable supply of clean water.

W H AT ’S T H E PRIC E OF FRE E D OM?

T hroughout this book, we’ve been working to make sure that you can achieve financial freedom. W hat about investing a tiny fraction of what you spend each month to help secure freedom for one of the 8.4 million children in the world trapped in slavery? In 2008 ABC N ews correspondent D an H arris went undercover to see how long and how much it would take to buy a child slave. H e left N ew Y ork and ten hours later was in H aiti negotiating to buy a child for $150. As he said, in the modern world, it costs less to buy a child than an iPod.

It’s unimaginable to even consider this happening to our own children or anyone we love. But try to imagine the impact of your actions freeing a human life, a soul that has been enslaved for years. T here are no words. And once again, you can know that as you sleep, your contribution is empowering those who are winning this fight every day.

So how do we tackle these huge challenges? E ach of us together, a little bit at a time. T his year, you and I and a few of our friends are going to feed 100 million people.

But wouldn’t it be incredible to feed 100 million people each year in a sustainable way? I provide fresh water for 100,000 people a day in India—it’s one of my passions. W ouldn’t it be amazing for us together to provide 3 million people with clean water a day and grow it from there? Or how about together freeing 5,000 children who had been enslaved, and supporting their education and a path to a healthy life?

T hat’s what the power of just 100,000 of us can do. Just as I built my foundation, this mission could grow geometrically. If over a decade or more we could find a way to grow to a million members, that would be a billion meals provided each year, 30 million people with clean water, or 50,000 children freed from slavery. T hese figures would be extraordinary, but in truth, even one child’s life saved would be worth all the effort.

So what’s your vision? Most people overestimate what they can do in a year and often underestimate what they can do in a decade or two.

I can tell you that when I started on my own mission and fed two families, I was excited. My goal was to feed 100 families in need. T hen it grew to 1,000. T hen 100,000. T hen 1 million. T he more we grow, the more we see what’s possible. It’s up to us. W ill you join me?

Put your change to work, and let’s change the world.

I have found that among its other benefits, giving liberates the soul of the giver.

— MAY A AN G E L O U

W hether you sign up with SwipeOut or another organization, make a decision to take a small portion of the money you earn, or of your time, and consciously choose to invest it in something that doesn’t benefit you directly, but rather goes to someone in need. T his decision is not about being right or wrong, it’s not about looking good, it’s about real wealth—truly feeling more alive and genuinely fulfilled.

In H appy Money, D unn and N orton wrote that when giving outside of ourselves is done right, “when it feels like a choice, when it connects us with others, and when it makes a clear impact—even small gifts can increase happiness, potentially stirring a domino effect of generosity.”

Moved by this potency of “prosocial spending”

(that is, gifts for others and donations to charity) D an Ariely and his wife were inspired to put into practice a simple system that they and their two sons could adhere to together as a family. W hen the kids get their allowances, they have to divide the money among three jars.

Jar 1 is for themselves.

Jar 2 is for somebody they know.

Jar 3 is for somebody they don’t know.

N otice that two-thirds of those jars are for prosocial spending, because that’s what will make the kids happy. All three jars are great, but the Arielys were careful to set aside an equal portion for people they don’t know. Spending on friends and family is beautiful, because it’s giving to people you love, but philanthropy is the third jar, and that can be the most satisfying and important form of giving.

I can also tell you there are extraordinary positive consequences for those who give when it isn’t easy. It primes our brain; it trains and conditions us to know that there’s more than enough. And when our brain believes it, we experience it.

Sir John T empleton, not only the world’s greatest investor but also one of the greatest human beings, shared something with me almost 30 years ago: he said that he’s never known anyone who tithed—meaning the person gave 8% or 10% of what he earned to religious or charitable organizations over a ten-year period—who didn’t massively grow his financial wealth. But here’s the problem: everybody says, “I’ll give when I’m doing better.” And I used to think that way too. But I’ll testify to this: you deserve to start wherever you are today. Y ou’ve got to start the habit of giving even if you think you’re not ready; even if you think you don’t have anything to spare. W hy? Because, as I said to you in the very first chapter of this book, if you don’t give a dime out of a dollar, you’re not going to give $1 million out of $10 million, or $10 million out of $100 million.

H     ow will you fuel your legacy of giving? W ill you give your time and energy? W ill you tithe a portion of your earnings? Or will you start by taking a minute to go online and sign up with SwipeOut and have your change become invested in changing lives? If you’re inspired, please do this now while you are connected to the impact you can have. And remember: the person you will be giving the most to might very well be yourself. A life as a philanthropist begins with a single small step. L et’s take it together.

I         don’t think of all the misery, but of thebeauty that still remains.

— AN N E F R AN K

By the way, I wasn’t always as conscious of the meaning of gratitude and giving. I used to live in scarcity. L ooking back, my life hasn’t always been easy, but it’s always been blessed. I just didn’t recognize it at the time. Because I grew up financially poor, I was always working to make sure I could achieve at the highest level. But I didn’t realize that achievement comes in spurts.

It takes a long time not only to learn something but also to truly master it—to where it becomes so ingrained that it becomes a part of your life. So when I was just starting out, I suffered a series of setbacks. H ow did I react? L et’s just say not with the grace of an enlightened soul! I was constantly angry, frustrated—pissed off! Because nothing was going my way. And I was running out of money!

T hen one night around midnight, I was driving on the 57 Freeway near the T emple Avenue off-ramp near Pomona, C alifornia, wondering, “W hat’s wrong? I’m working so hard. W hat’s missing? W hy am I failing so miserably in getting what I want? W hy isn’t this working?” Suddenly tears started to well in my eyes, and I pulled over to the side of the road. I dug out the journal I always carried with me—I still have it to this day—and started scribbling furiously by the dashboard light. I wrote in giant letters on a full page this message to

myself:     “T H E       SE C R E T       T O       L IV IN G        IS

G      IV IN G .”

Y es! I realized I’d forgotten that’s what life was about. I’d forgotten that this is where all the joy is found—that life isn’t just about me. It’s about we.

W hen I pulled back on the freeway, I was inspired and refocused and reignited with a renewed sense of mission. I started doing well for a while. But, unfortunately, what I had written that night was just a concept, really—an insight that I hadn’t yet fully embodied. T hen I started running into more challenges, and six months later, I had lost everything financially.

Before long, I found myself at what I thought was the lowest point of my life, living on the floor of a 400square-foot bachelor apartment in Venice, C alifornia, seething with resentment. I had fallen into the trap of blaming everyone else for the natural challenges that show up whenever you go after reasonably large goals. I decided that I had been manipulated by a variety of people who had taken advantage of me. “If it wasn’t for them,” my ego said, “I’d be in great shape!” So I threw myself a pity party. And the angrier and more frustrated I became, the less productive I became.

T hen I started to eat as my way of escaping—all this crappy and ridiculous fast food. I gained over 38 pounds in just a few months; that’s not easy to do. Y ou have to eat tons of food and not move much to pull that off! I found myself doing things I used to make fun of in other people—like watching daytime television. If I wasn’t eating, I was watching soap operas. I got pulled into the show General H ospital—if you’re old enough to remember when L uke and L aura got married, I was there!

It’s humorous (and a bit humiliating!) to look back and see how far down I had dropped. I was down to my last $19 and some change, and I didn’t have any prospects. And I was particularly pissed off at a friend who had borrowed $1,200 from me when I was doing well, but never paid it back. N ow I was broke, but when I asked for the money, he’d turned his back on me. H e wasn’t answering my calls! I was furious, thinking, “W hat the hell am I going to do! H ow am I even going to eat?”

But I was always pragmatic. I thought, “Okay, when I was seventeen and homeless, how did I get by?” I’d go to a smorgasbord and load up on the all-you-can-eat buffet for as little money as possible. T hat gave me an idea.

My apartment wasn’t that far from a beautiful place called Marina del Rey, where L A’s wealthy dock their yachts. T here was a restaurant called E l T orito that had a fabulous buffet for about $6. I didn’t want to waste any money on gas or parking, so I walked the three miles to the restaurant, which sat right on the marina. I took a seat by the window and loaded up plate after plate of food, eating like there was no tomorrow—which might have been the case!

W hile I ate, I was watching the boats going by and dreaming about what life could be like. My state started to change, and I could feel layers of anger melting off me. As I finished my meal, I noticed a small boy dressed up in a little suit—he couldn’t have been more than seven or eight years old—opening the door for his young mother. T hen he proudly led her to their table and held out her chair. H e had a special presence. T his kid seemed so pure and so good. H e was such a giver—you could tell by the respectful, loving way he treated his mom. I was deeply moved.

After I paid my check, I walked over to their table and said to the boy, “E xcuse me, I just want to acknowledge you for being such an extraordinary gentleman. It’s

amazing how you’re treating your lady like this.” “She’s my mom,” he confided.

“Oh my G od!” I said. “T hat’s even cooler! And it’s great that you’re taking her to lunch!”

H      e paused and in a quiet voice said, “W ell, I reallycan’t, because I’m only eight years old—and I don’t have a job yet.”

“Y es, you are taking her to lunch,” I said. And in that moment, I reached into my pocket, took all the money I had left—maybe a grand total of $13 and some change— and put it down on the table.

H      e looked up at me and said, “I can’t take that.”“Of course you can,” I told him.

“W hy?”

I          looked at him with a big smile and said, “BecauseI’m bigger than you are.”

H      e stared up at me, shocked, and then he started togiggle. I just turned and walked out the door.

I          didn’t just walk out of that door, I flew home! I should have been freaking out, because I didn’t have a dime to my name, but instead I felt totally free!

T hat was the day my life changed forever.

T hat was the moment I became a wealthy man.

Something inside of me finally got past the feeling of scarcity. I was finally free of this thing called money that I had let terrorize me. I was able to give everything without any fear. Something beyond my mind, something deep in my spirit knew that I—as we all are— was guided. And this moment was meant to be. Just as you’re meant to be reading these words right now.

I realized I had been so busy trying to get that I had forgotten to give. But now I had recovered myself; I had recovered my soul.

I gave away my excuses, the blaming others, and suddenly I wasn’t angry anymore. I wasn’t frustrated. Y ou might also have said I wasn’t very smart! Because I had no idea in hell where I was going to get my next meal. But that thought wasn’t even in my head. Instead, I felt an overwhelming sense of joy that I was released from a nightmare—the nightmare of thinking my life was doomed because of what other people had “done” to me.

T hat night, I committed to a plan of massive action. I decided exactly what I was going to do and how to get myself employed. I felt certain I’d make it happen—but I still didn’t know when my next paycheck would arrive or, even more urgently, my next meal.

And then a miracle happened. T he next morning, the old traditional snail mail arrived, and I found a special letter in my mailbox. In it was a handwritten note from my friend saying he was so sorry he’d been avoiding my calls. I had been there for him when he needed me, and he knew that I was in trouble. So he was paying me back everything he owed. Plus a little more.

I looked inside the envelope, and there was a check for $1,300. It was enough to last me a month or more! I cried, I was so relieved. And then I thought, “What does this mean?”

I don’t know if it was coincidence, but I chose to believe that those two events were connected, and that I had been rewarded because not only had I given but I had also wanted to give. N ot out of obligation or fear—it was just an offering from my heart and soul to another young soul on the path.

And I can tell you honestly, I’ve had many tough days in my life, economically and emotionally—as we all have —but I’ve never gone back to that feeling of scarcity, and I never will.

T he ultimate message of this book is very simple. It’s the sentence I wrote down in my journal on the side of the freeway. T he final secret of wealth is: the secret to living is giving.

G ive freely, openly, easily, and enjoyably. G ive even when you think you have nothing to give, and you’ll discover there is an ocean of abundance inside of you and around you. L ife is always happening for you, not to you.

Appreciate that gift, and you are wealthy, now and forever.

U nderstanding this truth brought me back to what I’m made for, what we’re all made for: to be a force for good. I was brought back to a life of deep meaning, constantly looking to fulfill my prayer—and that is each day to be a blessing in the lives of all those people I meet and have the privilege to connect with.

E ven though I may not have met you personally, I wrote this book from that same state, asking and praying that each chapter, each page, each concept, would be a deeper step in helping you to experience more of the blessings of who you are, and more of the blessings in what you are able to create and give in this life.

My heartfelt wish and the purpose of this book is to give you yet another way to expand and deepen the quality of your life and the lives of all those you have the blessing to love and touch. In this, it’s been a privilege to serve you.

And I look forward to someday, hopefully, crossing paths—either being able to meet you and serve you at one of my events somewhere in the world, or just meeting you on the street. I will be excited to hear how you used these principles to enhance your life.

And so, as we part, I want to leave you with a blessing, and a wish that your life will forever be filled with abundance. I wish for you a life of joy, passion, challenge, opportunity, growth, and giving. I wish for you an extraordinary life.

With love and blessings,

T ON Y ROBBIN S

27.   W e train psychologists and professional coaches who learn corepractical and psychological skills to make a difference during these crises. If you are qualified and would like to volunteer during a time of crisis, reach out to the Anthony R obbins F oundation (www.anthonyrobbinsfoundation.org).

28.   U sing patented technology with bank-level security.

L ive life fully while you’re here. E xperience everything. T ake care of yourself and your friends. H ave fun, be crazy, be weird. G o out and screw up! Y ou’re going to anyway, so you might as well enjoy the process. T ake the opportunity to learn from your mistakes: find the cause of your problem and eliminate it. D on’t try to be perfect; just be an excellent example of being human.

— T O N Y R O BBIN S

7 SIMPL E ST E PS: Y O U R C H E C K L IST FO R SU C C E SS

H ere’s a quick checklist for you to use anytime you want to see where you are and what still needs to be done to move you along the path to financial freedom. T ake a look at the 7 Simple Steps and make sure that you not only understand them but have also activated them.

Step 1: Make the Most Important Financial D ecision of Y our L ife

1.   D id you make the decision to become an investor,not just a consumer?

2.   H ave you committed a specific percentage of savingsthat always goes toward your Freedom Fund?

3.   H ave you automated it? If not, do it now: www.tdameritrade.com or www.schwab.com.

4.   If the amount you’re committing now is small, haveyou committed to your employer to use the Save

          More             T omorrow            program?             See

http://befi.allianzgi.com/en/befi-tv/pages/save-moretomorrow.aspx.

Step 2: Become the Insider: K now the Rules Before Y ou G et in the

G ame

1. D o you know the 9 Myths, and are you now protected? H ere’s a minitest:

a.   W hat percentage of mutual funds beat the market(or their benchmark) over any ten years?

b.  D o fees matter, and what’s the average mutual fund fee?

c.   If you pay 1% versus 3% in fees, how much of adifference does it make to your final nest egg?

d.  H ave you taken your broker for a test drive? H aveyou gone online and seen what your current costs are, how much risk you have in your current investments, and how your current investment strategy has compared over the last 15 years with other simple, inexpensive options?

e.   D o you know the difference between advertisedreturns and what you actually earn?

f.     D o you know the difference between a broker anda fiduciary?

g.   Are target-date funds your best option?

h.  H ow do you maximize your 401(k), and shouldyou elect to use a Roth 401(k)?

i.     D o you have to take huge risks to make big rewards? W hat are some of the tools that will allow you to get the upside of the market without the downside losses?

j.     H ave you identified any of the limiting stories oremotions that have held you back or sabotaged you in the past, and have you broken their pattern of control in your life?

2.   D o you have a fiduciary now representing and guiding you? If not, go online and find one at http://findanadvisor.napfa.org/home.aspx or go to Stronghold and review its services approach (www.StrongholdFinancial.com).

3.   If you own a company, or you’re an employee with a401(k) plan, have you taken 30 seconds to check how your fees compare with the rest of the market? G o to http://americasbest401k.com/401k-fee-checker.

4.   If you’re a business owner, have you met your legalrequirement to benchmark your 401(k) against other comparable plans? Remember, the D epartment of L abor has reported that 75% of the 401(k)s it audited resulted in an average penalty of $600,000 (www.americasbest401k.com).

Step 3: Make the G ame Winnable

1.   H ave you made the game winnable?

a.  H ave you found out what your real numbers are?H ave you figured out what it’s really going to take for you to achieve financial security, vitality, and independence? H ave you calculated it?

b. If not, go back and do that right now. Or if youwant to revisit them, go back and do the numbers now or go to your app, where you can keep the numbers in your pocket, and it will be calculated in a few minutes. Y ou can do it in just a few minutes.

c.  Remember,         clarity         is       power.        See www.tonyrobbins.com/masterthegame.

2.   Once you’ve got the numbers, did you use your wealth calculator and come up with a plan that shows you how many years it will take in a conservative, moderate, or an aggressive plan to achieve financial security or independence? If not, give yourself the gift. G o to the app and do this now.

3.   H ave you looked over and made any decisions aboutthe five elements of how you can speed up your plan and achieve financial security or independence even faster?

a.  Save more:

•    H ave you looked at the places you could save?Y our mortgage? D aily purchases?

•    H ave you implemented a Save More T omorrowplan so that you don’t have to give up anything today, but when you get additional income in

                       the    future,    you’ll     save    more?    G o     to

http://befi.allianzgi.com/en/befi-tv/pages/savemore-tomorrow.aspx.

•    H ave you found something that you could cutdown easily in order to increase your savings? Is it the $40 pizza? Is it the water bottle? Is it Starbucks? And have you calculated how much more money you’ll have in your Freedom Fund and how much faster you can achieve your goals

by doing this? Remember, $40 a week can equal $500,000 over an investment lifetime. Y ou don’t have to do any of these if you’re already on target, but these are options if you’re not yet on target to achieve your financial goals.

b. E arn more. H ave you found ways to increase thevalue you can add to others? D o you need to retool yourself and switch to a different industry? W hat are the ways you can add more value and grow more so you can give more?

c.  Save in fees and taxes. H ave you come up with away to apply what we’ve taught you to reduce your fees and/or reduce your taxes?

d. G et better returns. H ave you found a way to invest with greater returns without undue risk? H ave you reviewed any of the portfolios that are here that might enhance your earnings and protect you from those gut-wrenching downturns in the market?

e.  C hange your life—and improve your lifestyle. H ave you considered a new location with an even better lifestyle? H ave you considered putting yourself in a place where you reduce or eliminate state taxes and then put all of that money toward building wealth and your family’s financial security and freedom?

Step 4: Make the Most Important Investment D ecision of Y our L ife

1.        H ave you decided on asset allocation so that you never put yourself in a position to lose too much?

(N ot all your eggs are in one basket, right?)

2.        H ave you decided what percentage belongs in yourSecurity Bucket and what specific types of investment you’ll use to be safe and still maximize returns? Are you diversifying with different types of investments within the Security Bucket? H ave you decided what percentage of your savings or investment capital will go in the Security Bucket?

3.        H ave you decided what percentage belongs in yourRisk/G rowth Bucket and what specific types of investments you’ll use to maximize returns yet still limit your downside as best as possible? Are you diversified with your Risk/G rowth Bucket?

4.        H ave you evaluated your actual risk tolerance effectively? D id you take the test developed by Rutgers (http://njaes.rutgers.edu/money/riskquiz)?

5.        H ave you considered your stage of life and whetheryou should be more or less aggressive based on the length of time you have to save and invest? (If you’re young, you can lose a bit more because you have more time to recover; if you’re closer to retirement, you have less time to recover, and perhaps you need more in your Security Bucket.)

6.        H ave you evaluated the amount and size of your cashflow and whether that will play a role in your level of conservativeness or aggressiveness in your asset allocation?

7.        H ave you resolved the ratio of Security versus Risk/G rowth as a percentage of your overall investments? 50/50? 60/40? 70/30? 30/70? 40/60? 80/20?

8.        H ave you come up with a list of short-term and longterm goals for your D ream Bucket that excite you? D o you have to wait until someday in the future, or do you have some things you’re going to make happen right away?

9.        H ave you established a way to fund your D ream Bucket with either a small amount of savings or a portion of the profits of windfalls from successes in your Risk/G rowth Bucket?

10.   Rebalancing and dollar-cost averaging:

a.  Are you consistently committing the same amountof money to investments regardless of whether the market is moving up or down? Remember, timing the market never works.

b. Are you continually rebalancing your portfolio, ordo you have a fiduciary doing this for you? E ither way, this is crucial to optimizing returns and

minimizing volatility.

Step 5: C reate a L ifetime Income Plan

1.   T he power of All Seasons:

a.  H ave you taken the time to read, understand, andtake action on the powerful insights that Ray D alio gave us with his All Seasons approach? H e has brought successful investment returns 85% of the time and lost money only four times in 30 years, but never more than 3.93% to date!

b. H ave you gone to Stronghold and taken five minutes to see what kind of returns you’re getting on your current investments compared with All Seasons (and other portfolios) or to see what it would take to set up an All Seasons portfolio in minutes?

2.   Income Insurance:

a.  H ave you done the most important thing of all?H ave you made sure that you will not run out of income as long as you live? H ave you established a guaranteed lifetime income plan?

b. D o you know the difference between an immediate annuity and a deferred annuity, and have you selected which might be right for you depending on your stage in life?

c.  H ave you reviewed and initiated a hybrid annuityor tapped into the upside-without-the-

downside strategy that’s now available to anyone regardless of age and without any lump-sum payment whatsoever?

d. H ave you gone online and found out how muchfuture income you could have for as little as $300 a

month or more? If not, go to www.lifetimeincome.com or call an annuity specialist at Stronghold.

3.   Secrets of the U ltrawealthy:

a.  H ave you investigated how to drastically cut theamount of time it will take you to achieve financial freedom by 30% to 50% through the use of taxefficient life insurance strategies? Remember, PPL I (private placement life insurance) is great for high net worth, but anyone can use the policies offered through T IAA-C RE F with minimal deposit amounts. If you haven’t yet explored these tools, reach out to a qualified, expert fiduciary today or contact Stronghold for a free analysis.

b. H ave you invested the $250 to set up a living trustso that your family is protected and your assets will go to them without going through a year of probate? H ave you protected your wealth not only for your current generation but also your grandchildren and your great grandchildren?

Step 6: Invest L ike the .001%

1.        H ave you taken the time to absorb some of the shortinterviews with 12 of the smartest financial people on earth, the greatest investors in history?

2.        W ho is the “Master of the U niverse” in the financialworld? W hat kind of returns has he gotten compared with anyone else, including W arren Buffett, and how could you invest with him if you wanted to?

3.        W hat did you learn about asset allocation from Y ale’sD avid Swensen? Or J.P. Morgan’s Mary C allahan E rdoes?

4.        W hat did you learn from the indexing master JackBogle? Or from D r. D oom, Marc Faber?

5.        D id you capture the simple strategy that W arren Buffett now recommends for everyone, including his wife and her legacy trust?

6.        D id you absorb the importance of how to get asymmetric returns?

7.        D id you absorb the $100,000 MBA that Paul T udorJones gave you by never making an investment of less than five to one and always tapping into the power of the trend?

8.        D id you check out Ray D alio’s H ow the E conomic Machine Works—In T hirty Minutes video? If not, watch it now at www.economicprinciples.org.

9.        D id you soak in the concepts of K yle Bass’s solutionon investing where you cannot lose money? Remember the power of nickels? W here investments are guaranteed forever by the U S government, and you’ll have a potential upside of anywhere from 20% to 30% ?

10.   D id you take in the core lessons from C harles Schwab, and Sir John T empleton’s gift that continues to give of being able to know that the worst environment is your greatest opportunity—to be most optimistic when the world is “ending” like it did in W orld W ar II, like it did in inflation in South America, like it did in the D epression, like it did in Japan after W orld W ar II? D id you absorb his true core strategic philosophy that made him the first international investment billionaire in history?

11.   W hat actions can you take today to start investinglike the .001% ?

Step 7: Just D o It, E njoy It, and Share It!

1.   Y our H idden Asset:

a.  H ave you connected to the truth that the future isa magnificent place?

b. It will be filled with exciting challenges. Opportunities and problems are always there, but are you clear that there is a wave of technology that is going to continue to innovate and empower us as individuals and enhance the quality of life for human beings all over the earth?

2.   H ave you given yourself the ultimate gift—the commitment to be wealthy now, not someday in the future—by appreciating and developing the daily habit of priming your appreciation of what you already have and building on that success?

3.   W ould you trade expectation for appreciation? Andhave you committed to a life of progress? Progress equals happiness. L ife is about growing and giving.

4.   H ave you figured out what you’re here to serve andwhat the higher purpose is for your life? H ave you begun to think about your legacy?

5.   H ave you decided to convert your pocket change intomassive change in the world? If so, go to www.swipeout.com now, take one minute, and start the process of saving lives while you enjoy your own.

6.   Are you embodying the truth that makes you wealthyin this moment: the secret to living is giving?

T his is a quick overview checklist for maximizing the pages you’ve read. If there’s anything you’ve missed, give yourself the gift of going back and absorbing it and also remember, repetition is the mother of skill. Action is where all your power is found.

So, my dear friend, come here and know that you’re not alone. Y ou can tap into your own resources, or I’ve also made a ton of support resources available here as well: the website, the app, Stronghold, L ifetime Income, and America’s Best 401k. But whatever you do, make sure you take action and make sure that the people guiding you have your best interests in mind. Finding the right fiduciary is the place to start. T he right one can help you create or refine your plan.

T his list is not everything; it’s just a great checklist to trigger you to keep growing and keep implementing. Remember that knowledge is not power, execution is. Just make a little bit of progress each day or each week, and before you know it, your path to financial freedom will be realized.

I look forward to meeting you in person someday soon. U ntil then, step up, keep moving forward, master the game, and live with passion.

AC K N O W L E D G ME N T S

W hen I sat down to make note of all the individuals for whom I am so grateful, I was completely overwhelmed. I had just finished writing a 600-plus-page book! But acknowledging everyone who had helped get me here still stood as a daunting task. W here would I ever begin? Sitting here, this undertaking feels most like something you would see at the end of a movie: hundreds of names scrolling and key scenes flashing in tribute to the superstars. So many people have played so many roles to get me to this deeply fulfilling moment.

As I review the 4-year journey—and, frankly, the 30 years that led me here—I see the faces and feel the grace of so many extraordinary individuals. I won’t be able to acknowledge them all, but I’d like to start close to home with the people who have touched my life most deeply.

First, my family. Of course, this begins with the love of my life, my magnificent wife, Bonnie Pearl—my Sage. “My girl.” She’s the never-ending source of the joy and happiness in my life. I feel that SH E is the ultimate reward for the “good karma” that has come from serving tens of millions of people over the decades. She tells me she was born to love me, and all I can say is that G od has truly blessed me with the love of this beautiful soul. T o her parents, Bill and Sharon—Mom and D ad—thank you for creating and raising this amazing woman. Y ou have provided me with the greatest gift of my life: your daughter, the greatest source of love I’ve ever known or could ever even imagine. T hank you for all the love you poured into her, and for loving me as your own. Y ou both live lives of such real true contribution, and you both inspire me every single day. My dear brother-in-law Scotty (who is really my brother) for his warrior-like courage and his constant focus on raising standards and making sure that we’re able to reach out and serve more souls. And to each of my four children, Jairek, Josh, Jolie, and T yler, who in every stage in my life have brought me inspiration, love, and a reason to be more. I also give thanks to the grace of our creator. And for my passionately intense mother, who imparted extraordinary standards, and the four fathers who each impacted my life uniquely. T o my brother and sister, Marcus and T ara, and all of my extended family, I love you.

T o my core team at Robbins Research International that allows me each day the privilege to explore, integrate, constantly create, test, and retest new insights, tools, strategies, and pathways to improving the quality of people’s lives worldwide. T o Sam G eorges and Y ogesh Babla—my confidants who look out for me and all of our companies while I’m traveling the globe. T o my dear friends and protectors Mike Melio and “G eneral Jay” G arrity. T o Shari, Rich, Marc, Brook, T erri, and all the rest of our amazing, loyal, and mission-driven executive staff. T o my outstanding creative team—especially the remarkable manager and creative partner D iane Adcock —you are amazing, and our bright light K atie Austin, I love you. T o all personnel at San D iego H Q and far beyond who work with me every day across departments at RRI and all our partners that make up the Anthony Robbins C ompanies. T hank you to each of you for all that you do in our quest to constantly work to create breakthroughs for people in their business, finances, health, emotions, time management, and personal relationships. W e are here together to change lives. W e are called to rise up. W e drive Financial, Business, and ultimately H uman E levation. W e are catalysts of the spirit—this is the gift we are all made for. I feel so fortunate to work with you as we help make a difference in people’s lives all over the world! E xtra special thanks to our volunteer staff and all of our crew—and especially our road warriors, who travel the earth making everything happen behind the scenes. Our events could not happen without you, and our entire team is grateful for the gifts you give. Also thanks to all the wives and husbands who loan out their family to us as we span the globe and to Joseph McL endon III, Scott H arris, Joe W illiams, Michael Burnett, Richard and Veronica T an, and Salim for providing the leverage to touch even more lives worldwide.

My life has been powerfully shaped by deep friendships with four brilliant men. T o my dear friend and brother Paul T udor Jones, I thank you for more than 21 years of being a role model of how to find your way to victory no matter how big the challenge! T he only thing greater than Paul’s legendary trading ability is the depth of his love and generosity. H e is a soul driven completely to make a difference in the world; and he does every day. T o Peter G uber, who has been one of my dearest friends in life, and a creative force of nature whose generosity also knows no limits. Peter, you constantly inspire me to see what’s possible! T hank you for all the laughter, your coaching, your love, and the privilege to be your friend throughout the decades. T o Marc Benioff, my brother on the path. Y our amazing mind, you unconquerable heart, your constant innovation in business, and your remarkable philanthropic efforts excite me and millions of others entrusted to uphold the standard you’ve set so successfully and continue to sustain at Salesforce.com. I’m proud to partner with you in changing lives. I love you, man. T o Steve W ynn, thank you for your love and for being an impeccable, brilliant creator that nothing on earth can stop! Y ou truly are a genius, and yet so humble. Y ou’re always looking out for those you love. T he way you take a vision and turn it into reality excites everyone around you. T o be your friend is such a gift. E ach day I spend with you is another day I am inspired to take my game to another level.

T hrough my events and appearances, I am afforded the opportunity to meet hundreds of thousands of people each year who have touched my life. But this book, at its core, was uniquely shaped by a group of more than 50 extraordinary souls whose insights and strategies have touched me and all those who will read these pages. T o those who shared their time and life’s work in our interview sessions, I am eternally grateful. T o Ray D alio, for the unique gift you gave in this book by providing the average investor with an “all-seasons” investment approach based on the insights of the genius of your famous “All W eather” strategy. Ray gave us the gift of a simplified system that creates what, at least historically, has provided investors the smoothest possible ride over the long-term financial path. T he value of Ray’s “secret sauce” is beyond measure, but just one reflection of his inherent generosity.

T o Jack Bogle, for investing 64 years of his life and having a relentless focus on what’s right for the investor: your commitment to create index funds has changed investing as we know it for everyone in the world. T hank you for giving me four hours in what proved to be one of the most raw, honest, and insightful interviews that I’ve had the privilege to participate in. T o T . Boone Pickens, for being the absolute epitome of honest American individualism and cowboy courage. T o K yle Bass, for showing us all that massive rewards do not require massive risks. T o Sir John T empleton, bless his soul, for the many decades he inspired me with his insights that in times of “maximum pessimism” we are offered our greatest opportunities. T o Marc Faber, for his alwaysinnovative investing advice and, most of all, his exuberance. T o the fearless C arl Icahn, for his unbridled boldness, courage, and passion—for challenging the status quo and bringing extraordinary returns for your investors. T o Mary C allahan E rdoes, the trillion-dollar woman from J.P. Morgan, for being such an extraordinary example of the power of servant leadership, and for modeling how we can all be extraordinary in business and yet still so connected to what really matters most.

T o all the extraordinary, insightful academics and businessmen and businesswomen. From N obel laureates like Robert Schiller and H arry Markowitz to D an Ariely (MIT ) and the tandem of Shlomo Benartzi and Richard T haler, whose Save More T omorrow allows individuals to get around the cognitive and emotional limitations that most human beings find themselves entrapped by. T o D r. D avid Babbel, your focus on lifetime income and your living example helped shape a big part of this book. Burton Malkiel, you are a treasure to this country. Y our original focus on indexing set the stage for a world of financial choice, and your straight talk is a bright spot in a sometimes dark and murky financial world. T o Alicia Munnell (Boston C ollege), T eresa G hilarducci (N ew

School), D r. Jeffrey Brown, and D r. D avid Babbel (W harton): thank you for your astute insights into our retirement system—you are revolutionaries. T o Steve Forbes and to H arvard professor and former secretary of the T reasury L arry Summers, for giving us two hours of extraordinary and lively debate—showing us all an “across-the-aisle” look at how we got here and what America needs to do to turn things around. T o D avid Swensen—the rock star of institutional investing—for opening Y ale’s sacred doors and allowing me to share in his extraordinarily effective investment approach, but, more importantly, for standing as a shining example of how our labor is a reflection of our love. H is work is a gift and his constant personal focus on what he can give touches me to this day.

T o W arren Buffett, for forging the way for us all. T hank you for being such a straight shooter. W hile I would have loved to have spent more time with you, the brief meeting we shared on the T oday show struck a chord deep within. W hen the Oracle of Omaha says that indexing is the way, it leaves very little room for argument!

T o E lliot W eissbluth, for his willingness to take on this challenge far before the subject was ever breached. Y ou’ve worked to bring true transparency and conflictfree advice to the wealthy, and now you shoulder a crusade to democratize opportunities for the average individual investor regardless of his or her economic capabilities. E lliot is a real example of integrity, courage, and intrinsic commitment to do what is right. T hank you for your partnership.

T hanks to all those who provided interviews, or who gave of their time at my Platinum Partnership W ealth E vents, and for those who have shared your insights over the years and who have served as examples of what is possible—you all inspire me, and your wisdom is echoed in these pages in so many different ways.

T hanks and gratitude to my dear friend John Paul D eJoria (who once lived out of his car, too!). T hanks to the maverick Marc C uban, to C harles Schwab, Sara Blakely, Reid H offman, Sir Richard Branson, C huck

Feeney, E van W illiams, Peter L ynch, Ray C hambers, D avid W alker, E ddie L ampert, T ony H sieh, T ony T an,

Michael Milken, Mark H art, Mitch K aplan, L uca Padulli, H arry D ent, Robert Prechter, Michael O’H iggins, Jim Rodgers, James G rant, E ric Sprout, Mike N ovogratz, Stanley D ruckenmiller, G eorge Soros, Sir Roger D ouglass, D omingo C avallo, D aniel C loud, G eoffrey

Batt, Joshua C opper Ramo, Russel N apier, E mad Mostaque, D r. D onny E pstein, T om Z gainer, and, of course, Ajay G upta! Special thanks to Adam D avidson, Alex Blumberg, and H elen Olin for the insightful views of what is unjust and what can be done with the crazy, connected, and volatile financial world that now dominates all our lives.

My deepest thanks to my partners at Simon & Schuster, who moved heaven and earth to meet this insane timeline. I was so committed to getting this book out, and the size of it grew geometrically as I interviewed more and more of the world’s greatest financial minds. First to Jonathan K arp, president and publisher, for his vision and willingness to support me on this endeavor, and for spearheading the Simon & Schuster team that helped us edit and publish this beast in record time—we must have broken some kind of record. And it could only have been done with the help of the editors: Ben L oehnen and Phil Bashe.

T hanks to all who have helped us spread the word about this labor of love. From H eidi K rupp, to Jenifer C onnelly, to Jan Miller and Shannon Marven, to

Suzanne    D onahue   and   L arry    H ughes,    to    Mark

T hompson, Mat Miller, to Frank L untz and his amazing team, D avid Bach, and my dear friend D ean G raziosi, in addition to all of my marketing partners like Brendon Burchard, Jeff W alker, Frank K ern, Joe Polish, Brett

Ratner, Mike K oenigs, T im Ferriss, G aryVaynerchuck, E ben Pagan, Russell Brunson, D ean Jackson, Marie Forleo, C hris Brogan, Jay Abraham, Jason Binn, D avid Meerman Scott, Scott K lososky, and so many others. My deepest thanks to Praveen N arra, C liff W ilson, and all the partners at app development for building our amazing smartphone app.

T o the media icons who have so lovingly spread the message, especially Oprah W infrey, E llen D eG eneres, and D r. Oz. T o my dear partners—who feel more like my family—at Impact Republic, for the all-night marathons on book covers and the like; a special shoutout to K waku, and my dear brothers “PMF” C hris Jennings and Bob C aruso. T hank you Jarrin K irksey, Sybil Amuti, and the entire Impact Republic team not only for your dedication to this book but also for helping us refine our ability to rise up and reach millions more people every passing year. I love and appreciate you all!

And, of course, the mission of this book is to serve not only those who will be reading it but also the many that society has forgotten. And so my deepest thanks to everyone at the Anthony Robbins Foundation and our strategic partners—most importantly Brian Berkopec and all our partners at SwipeOut, and D an N esbit at Feeding America for helping us coordinate this never-beforeattempted approach to provide 100 million meals: the distribution of my initial donation of 50 million meals and the efforts of all those working tirelessly to secure matching funds that will enable the delivery of 50 million more. D eep thanks to my partner C ody Foster, and the whole Advisors E xcel team, for being one of the first to step up—not only to create distinct, new income solutions for people but also for their trailblazing commitment to provide 10 million meals before anyone else did.

For insights into technology and the future, my deep thanks to my dear visionary friends Peter D iamandis and Ray K urzweil. It’s always a privilege to spend time with either of these extraordinary men. T hey provide a window into a future reality that few on earth can even bear to imagine, and they work every day to make that world a reality. Ray and Peter, you absolutely blow me away, and it’s been a privilege to partner with you at Singularity U niversity and in the new G lobal L earning X Prize. I’m excited about what we’ll create together. T hanks again for the insights we were able to share in this book. T hanks also to E aston L aC happelle for brimming with creative ambition for the greater good, and to Juan E nriquez for showing us how even what we call “life” is being redesigned and refashioned into fresh opportunity as we speak.

T o those around me doing all the little things that make the biggest difference: D ear Ms. Sarah, Steph, and Stephanie. Bula vinaka to my Fijian family. And to Andrea, Maria, and T ony, for helping preserve a sacred sanctuary amid a crazy life.

Finally, and most importantly, I thank my core research team, without whom there is no way this book would have been written:

Starting with my son Josh, whose lifetime in the financial business has provided invaluable insights. I have delighted in our middle-of-the-night brainstorming sessions trying to figure out how to bring more value to individual investors. Our time has brought me more joy and excitement than I could have imagined—not only in what we’ve been able to create together but also in the beautiful time that we’ve shared throughout this project.

And to the four other people this book could not have been written without: Jenn D awes, whose inhuman capacity to capture my thoughts, almost at the speed I speak them, is what keeps the structure organized, connected, communicated, and from splitting at the seams! I’m eternally indebted to you, and I love you.

Finally to Maryanne Vollers and Jodi G lickman, for caring so deeply and for your willingness to work with me through many a sleepless night, refining and editing this manuscript.

And to Mary Buckheit, whose dedication and love kept me going in some of the most exhausting moments of this long, arduous process, giving birth to the “treasures” we both know will touch lives for decades to come. I love you and give you my eternal appreciation.

T o the grace that has guided this entire process, and to whatever G od unleashed inside me at an early stage of my life that has made me never satisfied with what is, and to be so insanely obsessed with a hunger and a drive to serve at the highest level possible. T o that which is always reminding me that it’s not only the big things but also the little things that matter. And for the privilege of my readers and all those who have ever put their faith in me by making an investment in a product, or a service, or taking that leap of faith to come attend an event where they gave me the most valuable resource they have: their faith, their trust, and their time. T o partner with them, taking back control of their lives; taking it to whatever level it was, and to whatever level it deserves to be.

And to all those friends and teachers along the path of my life—too many to mention, some famed and some unknown, whose insights, strategies, example, love, and caring are the shoulders I have had the honor to stand on. On this day, I give thanks to you all, and I continue my never-ending quest to each day be a blessing in the lives of all those I have the privilege to meet, love, and serve.AN T H O N Y RO BBIN S C O MPAN IE S

AN T H ON Y ROBBIN S FOU N D AT ION

T he Anthony Robbins Foundation is a nonprofit organization created to empower individuals and organizations to make a significant difference in the quality of life for people often forgotten by society: our youth, the homeless and hungry, prisoners, and the elderly. Its international coalition of caring volunteers provides the vision, inspiration, cutting-edge resources, and specific strategies needed to empower these important members of society.

W hat began nearly 40 years ago as one man’s individual effort to feed two families has now grown into a movement. T he foundation was built upon the belief system that regardless of stature, only those who have learned the power of sincere and selfless contribution will experience life’s deepest joy: true fulfillment. C onnecting, inspiring, and demonstrating true leadership throughout the world, the foundation’s global impact is provided through an international coalition of caring donors and volunteers.

All of the author’s profits from Money: Master the G ame have been donated in advance to the T ony R obbins 100 Million Meal C hallenge, where        individuals,           corporations,       and

philanthropists alike are invited to participate in matching T ony R obbins’s donation of 50 million meals to feed hungry families in need. For over 38 years, T ony has committed his time and resources to feeding 42 million people across the nation and around the world. Inspired by a stranger’s generosity to feed his own family years ago, T ony has now partnered with F eeding America in conjunction with SwipeO ut (www.swipeout.com), and Salesforce.com to donate over 100 million meals within a year; the first program of its kind.

www.moneymasterthegame.com

SW IPE OU T

L et your spare change change the world. W hat if every time we made a purchase, it helped someone? W hat if our small, ordinary daily transactions helped make an extraordinary impact across the globe? W hat if your credit card was a weapon against global injustice? In less than a minute, the SwipeOut app allows consumers to connect their credit/debit cards to the patented system that will automatically round up each consumer purchase to the nearest dollar. All of the spare change—100% —will be channeled to the world’s most pressing problems facing children and those affected by extreme poverty: hunger, disease, and slavery. Our partners include T ony Robbins as well as Marc Benioff, founder of Salesforce.com.

www.swipeout.com

IN T E RN AT ION AL BASK E T BRIG AD E

T he International Basket Brigade is built on a simple notion: “one small act of generosity on the part of one caring person can transform the lives of hundreds.” W hat began as T ony’s individual effort to feed families in need has now grown into the Anthony Robbins Foundation’s International Basket Brigade, providing baskets of food and household items for more than 2 million people annually in countries all over the world.

G L OBAL Y OU T H L E AD E RSH IP SU MMIT

T he Anthony Robbins Foundation G lobal Y outh L eadership Summit is a five-day program that provides participants aged 14 to 17 with an environment designed to boost them into leadership roles that will change their lives and communities. G lobal Y outh L eadership Summit’s format includes small-group discussions, hands-on service learning experiences, leadership simulation games, and exercises designed to enable summit participants to identify their own particular leadership strengths.

T H E C H AL L E N G E

L ife is a gift, and all of us who have the ability must remember that we have the responsibility to give something back. C ontributions can truly make a difference. Please join us now and commit to helping those less fortunate enjoy a greater quality of life.

T he Anthony Robbins Foundation’s charter is fulfilled through these programs and others like them. People interested in more information may call 1-800-554-0619 or visit us online at www.anthonyrobbinsfoundation.org.

ST RO N G H O L D W E AL T H

MAN AG E ME N T

Stronghold W ealth Management L L C and Stronghold Financial L L C are both SE C -registered investment advisors firms. T hey provide fiduciary advisory services with complete transparency as the core operating principle. T hey do not charge commissions. C ombined with extraordinary service, a personal touch, and unparalleled solutions, Stronghold seeks to help people across a wide spectrum of investable assets, and it also provides complimentary portfolio analysis through its proprietary web platform. Stronghold can be reached at

www.StrongholdFinancial.com.

ABO U T T H E AN T H O N Y RO BBIN S

C O MPAN IE S

T he Anthony Robbins C ompanies (ARC ) is an alliance of diversified “impact-focused” organizations dedicated to providing extraordinary world-class events, programs, products, and services that improve the quality of life for individuals and organizations worldwide. Founded by America’s number one life and business strategist, T ony Robbins, ARC is composed of more than a dozen companies with combined revenue exceeding $5 billion a year. W hile diverse in characterization and business lines, all ARC companies are aligned in the mission of human, business, and financial elevation.

H U MAN E L E VAT ION C OMPAN IE S

ROBBIN S RE SE ARC H IN T E RN AT ION AL (RRI) Reaching into more than 100 countries, RRI conducts public and corporate seminars all over the world on topics ranging from peak performance and life transformation to business growth and financial mastery. T ony Robbins conducts his live U nleash the Power W ithin events with translation in seven languages. One of the most sought-after experiences offered by RRI is Robbins’s year-round Mastery U niversity, Business Mastery, and Platinum Partner programs. Based on 38 years of modeling the most successful individuals in the world of business and peak performance, these courses offer specific breakthrough strategies and a course of work that help individuals transform their lives and help business owners to grow their companies 30% to 130% within the first 12 months. RRI offers a variety of individual and total-immersion coaching experiences that help individuals and organizations create breakthrough results. RRI has been honored to engage with some of the world’s most extraordinary individuals through its events, programs, and coaching: President Bill C linton, Serena W illiams, H ugh Jackman, Oprah W infrey, Melissa

E theridge, Quincy Jones, Anthony H opkins, Pat Riley,

U sher, Pitbull, Mark Burnett, Brett Ratner, D erek H ough, and D onna K aran, and many professional sports teams, ranging from the N BA to the N FL , have enjoyed the impact of T ony Robbins’s work.

N AMAL E RE SORT AN D SPA

T his exclusive South Pacific resort and spa has served as T ony Robbins’s personal escape for more than 25 years. E ncircled by a natural coral reef and crystal-clear turquoise waters, the idyllic destination promises to relax and romance its guests, who flock from around the world. In 2013 O prah selected N amale as the number one place to go in the world. V isitors choose this 500-acre private island paradise to escape and de-stress, pampered by the unique combination of serenity and excitement. N amale is consistently ranked among the top ten resort spas in the entire South Pacific, and its intimate charm places it among the top five honeymoon resorts in the world. A tropical paradise with three miles of ocean frontage, tropical rainforests, waterfalls, and extraordinary diving and snorkeling sights, N amale Resort and Spa hosts only 20 couples at a time, with over 125 staff to serve them. N o wonder some of the world’s most influential executives and celebrities have found their bliss at N amale, including actors R ussell C rowe,

E dward N orton, Anthony H opkins, and Meg R yan; entrepreneur Jeff Bezos; producer Q uincy

Jones; fashion icon D onna K aran; and N BA coach Pat R iley—just to name a few. T he resort’s world-class staff is committed to providing guests with an authentic Fijian vacation experience. N amale is where every request is met, every want is anticipated, and every expectation is exceeded. For more information, guests can call U SA (1-800-727-3454), international (1-858381-5177), or visit online at www.namalefiji.com.

ROBBIN S-MAD AN E S: C E N T E R FOR

ST RAT E G IC IN T E RVE N T ION

Anthony Robbins and C loé Madanes joined forces to train therapists and professional coaches in the most effective and integrated tools for creating personal, family, and organizational breakthroughs. T ogether they have trained more than 15,000 therapists and coaches worldwide. T herapists are trained in the exact methodology of T ony Robbins intervention strategies and are tested for effectiveness over the course of one year—or, for more advanced mentoring, three years. T he center’s mission is to find solutions to interpersonal conflicts, to prevent violence, and to contribute to the creation of a more cohesive and civil community. A strategic interventionist navigates a variety of scenarios ranging from individual problems to those of the family, the peer group, the organization, and the larger social system.

www.robbinsmadanes.com

FORT U N E PRAC T IC E MAN AG E ME N T

Fortune Management is the nation’s leading practice management company. C ombining the expertise of T ony Robbins with the business expertise of Fortune Management, clients learn how to enhance their practice’s brand, increase referral-based business, increase patient volume and retention, and stay ahead of the competition. Fortune provides an unparalleled combination of coaching, consulting, and training through customized seminars, personal coaching, and support systems designed to enrich the professional, personal, and financial lives of health care practitioners. Our mission is to provide professional health care teams with management expertise, resources, and solutions that will significantly improve their practice.

www.fortunemgmt.com

U N L IMIT E D T OMORROW

U nlimited T omorrow, a technology and innovation company founded by E aston L aC happelle, produces products that enable humans to do the impossible. T he company currently focuses on constructing affordable, lightweight, low-profile “exo-suits” and “exoskeletons” (robotic suit arms and legs). T hese suits will make it possible for paralyzed individuals to walk again. At age 14, founder E aston L aC happelle made his first robotic hand built from L egos, fishing wire, and electrical tubing. W ith his gradual improvement, the hand turned into an arm, and then advanced to a 3-D -printed invention operated by the mind. After an encounter at a science fair with a seven-year-old girl whose prosthetic arm cost $80,000 (and would need to be replaced when she outgrew it), L aC happelle was inspired to turn his prototype into a practical and affordable device. N ot only were his designs amazingly effective, but also they have reduced the cost to less than $1,000. President Barack Obama invited L aC happelle to the W hite H ouse and shook hands with one of his arms. H e has traveled the world spreading the message of the unlimited tomorrow we all have available to us, including a T E D T alk. E aston has even worked at N ASA on the Robonaut project, developing a new telerobotic interface.

www.unlimitedtomorrow.com

BU SIN E SS AN D FIN AN C IAL E L E VAT ION C OMPAN IE S

C L OU D C OAC H IN G IN T E RN AT ION AL

C loudC oaching International is a dynamic, awardwinning behavioral integration service. W e utilize the cloud to drive maximum targeted-sales increases with sustainable growth for enterprise-level organizations. By combining the most effective C RM tools with optimized sales and sales management processes, we insure rapid and sustainable sales performance improvement. In 2013 C loudC oaching International was the winner of E learning! magazine’s “Best of E learning! Award for

Sales T raining.” W e have served more than 50% of F ortune 500 companies and have over three decades of proven experience.

www.C loudC oachingInternational.com

AD VISORS E X C E L

At Advisors E xcel, launched in 2005, our mission is to add unending value to the top independent financial advisors we serve across all 50 states. W ith a focus on retirement income planning, ARC has partnered with Advisors E xcel to build and promote additional products and services that will help create a guaranteed lifetime income plan for the millions of Americans who have uncertainty regarding their retirement income future. T oday Advisors E xcel has grown to become the nation’s largest annuity wholesaler.

www.AdvisorsE xcel.com

L IFE T IME IN C OME

L ifetime Income, an additional joint venture with Advisors E xcel, is a trusted source for helping individuals create and access a personalized guaranteed lifetime income plan. By using the power of guaranteed income annuities—and new forms of longevity insurance—the online system will help individuals formulate a “personal pension” plan that best fits their goals and source the highest income payouts available. L ifetime Income has a network of over 500 retirement income specialists across all 50 states.

www.L ifetimeIncome.com

AME RIC A’S BE ST 401K

America’s Best 401k (AB 401k) is a revolutionary company that is disrupting the status quo of high-cost 401(k) plans that plague the vast majority of American businesses, their employees, and their respective families.

America’s Best 401k combines exceptional value, high-touch service, ultra-low-cost investment options (index funds), and a straightforward and transparent fee structure. W e also provide employer fiduciary protection, all of which are strategically combined to create an unparalleled and cost-efficient solution.

www.americasbest401k.com

MY POW E RC FO

For more than three decades, T ony Robbins has helped business owners maximize growth and save costs. Recently ARC partnered with some of the most

reputable global accounting firms to provide virtual C FO services for a fraction of the full-time equivalent cost. MyPowerC FO was created to help companies maximize profitability, expose cash “leaks,” and reveal inefficiencies in order to take the immediate steps to rectify their challenges (along with the assistance of a professional). MyPowerC FO offers a free tax-efficiency analysis for companies in the U nited States, U nited K ingdom, and Australia.

www.MyPowerC FO.com

MyPowerCFO Partners Include

MARC U M L L P

E stablished in 1951, Marcum L L P is one of the largest independent public accounting and advisory services firms in the U nited States. Ranked 15th nationally, Marcum L L P has partnered with T ony Robbins to offer the resources of 1,300 professionals, including over 160 partners in 23 offices throughout the U nited States, G rand C ayman, and C hina. H eadquartered in N ew Y ork C ity, the firm’s presence runs deep, with full-service offices located strategically in major business markets.

www.MarcumL L P.com

H W FISH E R & C OMPAN Y

H W Fisher & C ompany, T ony Robbins’s U K partner, is a commercially astute L ondon-based organization with a personal, partner-led service aimed at entrepreneurial small and medium enterprises (SME s), large corporates, and high-net-worth individuals. Founded in 1933, the practice is composed of 29 partners and approximately 260 staff, supplying a range of services spanning audit, corporate taxation, private client services, VAT , business recovery, and forensic accounting.

www.hwfisher.co.uk

H AL L C H AD W IC K

H all C hadwick is T ony Robbins’s Australian partner and the fifth largest accounting group in Australia, servicing clients in every major capital city. Since 1886, H all C hadwick has provided leading-edge solutions, and has an enviable reputation for its customer service. H all C hadwick is also a member of the AG N International accounting group, an association of independent accounting firms from around the world. T he AG N network has an international presence represented by more than 500 offices in more than 83 countries, with a total of more than 9,500 partners and staff worldwide.

www.hallchadwick.com.au

ABO U T T H E AU T H O R

T ON Y ROBBIN S is a bestselling author, entrepreneur, and philanthropist. For more than 37 years, millions of people have enjoyed the warmth, humor, and the transformational power of Mr. Robbins’s business and personal development events. H e is the nation’s #1 life and business strategist. H e’s called upon to consult and coach with some of the world’s finest athletes, entertainers, Fortune 500 C E Os, and even presidents of nations.

Robbins is a founder of or partner in more than a dozen companies in industries as diverse as a 5-star Fijian island resort to custom 3D -printed prosthetic limbs.

T hrough the Anthony Robbins Foundation and his matching funds, T ony feeds 4 million people per year in 56 countries. H e has also initiated programs in more than 1,500 schools, 700 prisons, and 50,000 service organizations and shelters. H e lives in Palm Beach, Florida.

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