WHATTHEWORLD’SGREATESTFINANCIAL

LEADERSARESAYINGABOUT

TONYROBBINS...

“He has a great gift. He hasthegifttoinspire.”

—BillClinton,formerpresidentoftheUnitedStates

“Tony Robbins is a humanlocksmith—heknowshow toopen your mind to largerpossibilities.Usinghisuniqueinsights into human nature,he’s foundaway to simplifythe strategies of the world’sgreatestinvestorsandcreateasimple 7-step system that

anyonecanuseonthepathtothe financial freedom theydeserve.”

—PaulTudorJonesII,founder,TudorInvestmentCorporation,andlegendarytraderwith28consecutiveyearsofpositivereturnsfor

hisinvestors

“Tony Robbins hasinfluenced millions ofpeople’s lives, including myown. In this book he offers

you insights and strategiesfrom the world’s greatestinvestors. Don’t miss theopportunity to experience thelife-changing value of thisbook.”

—KyleBass,founderofHaymanCapital

Managementandinvestorwhoturned$30millioninto$2billioninthemiddleofthe

subprimecrisis

“In this book, Tony Robbins

brings his unique talent formaking the complex simpleas he distills the concepts ofthebestinvestorsintheworldintopracticallessonsthatwillbenefit both naïve investorsandskilledprofessionals.”

—RayDalio,founderandco–chiefinvestmentofficer,BridgewaterAssociates,#1largesthedgefundinthe

world

“Money: Master the Game

will be a huge help toinvestors . . . Tony Robbinsdropped by my office for a40-minute appointment thatlasted for four hours. It wasthemostprovocative,probinginterviewofmylongcareer,areaction shared, I’m sure, bythe other souls with stronginvestment values and sharpfinancialmindswhopopulatethisfinebook.Thisbookwillenlighten you and reinforceyourunderstandingofhowto

master themoney game and,in the long run, earn yourfinancialfreedom.”

—JohnC.Bogle,founder,theVanguardGroupandtheVanguardindexfunds,#1largestmutualfundsinthe

world

“This book is not the typicalfinancial book in anyway. Itis packed with wisdom andvital philosophies to enrichyour life.A lot of books out

there have more sizzle thansteak to offer. Tony’s isdifferent. This book willchangeyourlife.”

—Dr.DavidBabbel,professoroffinance,WhartonSchooloftheUniversityof

Pennsylvania

“In this book, Tonymasterfully weaves anecdoteand expertise to simplify theprocess of investing forreaders—priming their

financial education andhelping themeffectivelyplanfortheirfuture.”

—MaryCallahanErdoes,CEO,J.P.MorganAsset

Management,$2.5trillioninassetsundermanagement

“Tony Robbins needs nointroduction.Heiscommittedtohelpingmakelifebetterforeveryinvestor.Everyinvestorwill find thisbookextremelyinterestingandilluminating.”

—CarlIcahn,BillionaireActivistandInvestor

“A gold mine ofmoneymakinginformation!”

—SteveForbes,publisherofForbesmagazineandCEO

ofForbes,Inc.

“I have spoken at Tony’sfinancialeventsseveral timesin the last few years, forwhich he paysme a fee.Butupon closer reflection, I

should be the one who payshim a fee. He has theincredible talent of takingcomplex knowledge fromleading financial experts andconvertingitintosimplestepsthat the average man canapply to achieve financialsecurityandfreedom.”

—MarcFaber,winnerofBarron’sRoundtableandpublisheroftheGloom,Boom&Doomreport

“You can’t meet TonyRobbins, and listen to hiswords,withoutbeinginspiredto act. This book will giveyou the strategies to createfinancialfreedomforyourselfandyourfamily.”

—T.BoonePickens,founder,chairman,andCEO

atBPCapitalandTBP;predictedoilprices

accurately18outof21timesonCNBC

“Robbins’s unrelentingcommitment to finding thereal answers to financialsecurity and independence,and his passion for bringingthe insights of theultrawealthy to the averageman, is truly inspiring. Thisbookcouldtrulychangeyourlife.”

—DavidPottruck,formerCEOofCharlesSchwabandbestsellingauthorofStacking

theDeck

"If you’re looking foranswers and you’recommitted to creatingfinancialfreedomforyourselfand your family, then TonyRobbinsisyourman.Getthisbook,changeyourlife.”

—FarnooshTorabi,award-winningauthorof

WhenSheMakesMore:10RulesforBreadwinning

Women

“Sitting in the back of

Financial Destiny nearlytwenty years ago, I was astudent of Tony Robbins’swho had a dream to helpteach and empower onemillionwomen to be smarterwithmoney.ThankstoTony,a year later I would bespeaking on stage at hisevents,writingSmartWomenFinish Rich, and ultimatelycreatingaprogramthatwouldreach millions of womenworldwide. Today there are

more than seven millioncopies of my Finish Richbooksinprint, translatedinto19 languages. Tony changeslives, and he will changeyours. I, like you, will bereading MONEY cover tocover,andsharingitwithmyfriends.”

—DavidBach,nine-timeNewYorkTimes–bestselling

author;titlesincludeTheAutomaticMillionaire,Start

Late,FinishRich,Smart

WomenFinishRich,andSmartCouplesFinishRich;founderofFinishRich.com

“We’ve been selected byForbesasthemostinnovativecompanyintheworldforfourconsecutive years. Ourrevenues are now over $5billion annually. Withoutaccess to Tony and histeachings, Salesforce.comwouldn’texisttoday.”

—MarcBenioff,founder,

chairman,andCEOofSalesforce.com

“Tony’s power issuperhuman . . . He is acatalyst for getting people tochange. I came away with:It’s not about motivation asmuchasitisallowingpeopleto tap into what’s alreadythere.”

—OprahWinfrey,EmmyAward–winningmedia

magnate

“Tony Robbins’s coachinghas made a remarkabledifference inmy lifebothonandoffthecourt.He’shelpedme discover what I’m reallymade of, and I’ve taken mytennis game—and my life—toawholenewlevel!”

—SerenaWilliams,18-timeGrandSlamtennis

championandOlympicgoldmedalist

“Iwasafraidthatmysuccess

would take something awayfrom my family. Tony wasable to turn it around andshow me that I’ve helpedmillions of people. ProbablythemostintensefeelingsI’veeverhad.”

—MelissaEtheridge,two-timeGrammyAward–winningsingerand

songwriter

“No matter who you are, nomatter how successful, no

matter how happy, Tony hassomethingtoofferyou.”

—HughJackman,Emmy–andTonyAward–winning

actor,producer

“If you want to change yourstate, if you want to changeyourresults,thisiswhereyoudoit;Tonyistheman.”

—Usher,GrammyAward–winningsinger,songwriter,entrepreneur

“Working with TonyRobbins, I felt unstoppable.From that moment on, therewas zero doubt in my mindaboutwhatIwantedandhowI was going to achieve it. Iwas so clear about what IwantedthatImadeithappen:Ibecameworldchampion.”

—DerekHough,dancer,choreographer,andfive-time

winnerofABC’sDancingwiththeStars

“Tony Robbins is agenius . . . His ability tostrategically guide peoplethrough any challenge isunparalleled.”

—SteveWynn,CEOandfounderofWynnResorts

“Before Tony, I had allowedmyselftobeputinapositionoffear.AftermeetingTony,Imade a decision not to beafraid anymore. It was anabsolutely game-changing,

life-altering experience. I’mso excited and thankful forTony Robbins and theincredible gift that he gaveme.”

—MariaMenounos,actress,journalist,andTV

personality

“WhatTonyreallygaveme,akid sitting on Venice Beachselling T-shirts, was to takerisks, take action, and reallybecome something. I’m

telling you as someone whohaslivedwiththesestrategiesfor 25 years: I’ll come backfor more again, and again,andagain.”

—MarkBurnett,five-timeEmmyAward–winning

televisionproducer

“What does this man havethat everyonewants?He is a6'7"phenomenon!”

—DianeSawyer,formerABCWorldNewsandGood

MorningAmericaanchor

“Tony Robbins helps youtake that first step tomakingreal change in your life. Ihaveaprettygoodlife,butallofushaveaspectsofourlivesthatwewanttomakegreater.It’slifechanging.Itreallyis.”

—JustinTuck,defensiveend,OaklandRaiders,and

two-timeSuperBowlchampion

“Tony Robbins knows therhythm of success. He is anincredible source ofinspiration, and his methodshave improved the quality ofmylife.Ionlyworkwith thebest,andTonyisthebest.”

—QuincyJones,GrammyAward–winningmusician,

producer

“Tony Robbins provides anamazing vehicle for lookingat your life, mapping out a

mission, and determiningwhat’s holdingyouback andwhat you need to moveforward.”

—DonnaKaran,legendaryfashiondesigner,

founderDKNY

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CONTENTS

EpigraphForewordbyElliotWeissbluth,founderandCEOofHighTower

IntroductionbyMarcBenioff,founderandCEOof

Salesforce.com

SECTION1WELCOMETOTHE

JUNGLE:THEJOURNEYBEGINSWITHTHISFIRST

STEPChapter1.1:It’sYourMoney!It’sYourLife!TakeControl

Chapter1.2:The7SimpleStepstoFinancialFreedom:CreateanIncomeforLife

Chapter1.3:TapthePower:MaketheMostImportantFinancialDecisionofYourLife

Chapter1.4:MoneyMastery:It’sTimetoBreakThrough

SECTION2BECOMETHE

INSIDER:KNOWTHERULESBEFOREYOUGET

INTHEGAMEChapter2.0:BreakFree:Shatteringthe9Financial

MythsChapter2.1:Myth1:The$13TLie:“InvestwithUs.We’llBeattheMarket!”

Chapter2.2:Myth2:“OurFees?They’reaSmallPricetoPay!”

Chapter2.3:Myth3:“OurReturns?WhatYouSeeIsWhatYouGet”

Chapter2.4:Myth4:“I’mYourBroker,andI’mHeretoHelp”

Chapter2.5:Myth5:“Your

RetirementIsJusta401(k)Away”

Chapter2.6:Myth6:Target-DateFunds:“JustSetItandForgetIt”

Chapter2.7:Myth7:“IHateAnnuities,andYouShouldToo”

Chapter2.8:Myth8:“YouGottaTakeHugeRiskstoGetBigRewards!”

Chapter2.9:Myth9:“TheLiesWeTellOurselves”

SECTION3WHAT’STHEPRICE

OFYOURDREAMS?MAKETHEGAME

WINNABLEChapter3.1:What’sthePriceofYourDreams?:MaketheGameWinnable

Chapter3.2:What’sYourPlan?

Chapter3.3:SpeedItUp:1.SaveMoreandInvesttheDifference

Chapter3.4:SpeedItUp:2.

EarnMoreandInvesttheDifference

Chapter3.5:SpeedItUp:3.ReduceFeesandTaxes(andInvesttheDifference)

Chapter3.6:SpeedItUp:4.GetBetterReturnsandSpeedYourWaytoVictory

Chapter3.7:SpeedItUp:5.ChangeYourLife—andLifestyle—fortheBetter

SECTION4

MAKETHEMOSTIMPORTANTINVESTMENTDECISIONOFYOURLIFEChapter4.1:TheUltimateBucketList:AssetAllocation

Chapter4.2:PlayingtoWin:TheRisk/GrowthBucket

Chapter4.3:TheDreamBucket

Chapter4.4:TimingIsEverything?

SECTION5

UPSIDEWITHOUTTHEDOWNSIDE:CREATEALIFETIMEINCOME

PLANChapter5.1:Invincible,Unsinkable,Unconquerable:TheAllSeasonsStrategy

Chapter5.2:It’sTimetoThrive:Storm-ProofReturnsandUnrivaledResults

Chapter5.3:Freedom:CreatingYourLifetime

IncomePlanChapter5.4:TimetoWin:YourIncomeIstheOutcome

Chapter5.5:SecretsoftheUltrawealthy(ThatYouCanUseToo!)

SECTION6INVESTLIKETHE.001%:THE

BILLIONAIRE’SPLAYBOOK

Chapter6.0:Meetthe

MastersChapter6.1:CarlIcahn:MasteroftheUniverse

Chapter6.2:DavidSwensen:A$23.9BillionLaborofLove

Chapter6.3:JohnC.Bogle:TheVanguardofInvesting

Chapter6.4:WarrenBuffett:TheOracleofOmaha

Chapter6.5:PaulTudorJones:AModern-DayRobinHood

Chapter6.6:RayDalio:A

ManforAllSeasonsChapter6.7:MaryCallahanErdoes:TheTrillion-DollarWoman

Chapter6.8:T.BoonePickens:MadetoBeRich,MadetoGive

Chapter6.9:KyleBass:TheMasterofRisk

Chapter6.10:MarcFaber:TheBillionaireTheyCallDr.Doom

Chapter6.11:CharlesSchwab:TalkingtoChuck,

thePeople’sBrokerChapter6.12:SirJohnTempleton:TheGreatestInvestorofthe20thCentury?

SECTION7JUSTDOIT,ENJOYIT,ANDSHAREIT!

Chapter7.1:TheFutureIsBrighterThanYouThink

Chapter7.2:TheWealthofPassion

Chapter7.3:TheFinalSecret

7SimpleSteps:YourChecklistforSuccess

AcknowledgmentsAnthonyRobbinsCompaniesAbouttheAuthorANoteonSourcesIndexPermissions

Tothosesoulswhowillneversettleforlessthantheycanbe,do,share,andgive

Thefuturehasmanynames.Fortheweak,it’sunattainable.Forthefearful,it’sunknown.Forthebold,it’sideal.

—VICTORHUGO

Toavoidcriticism,saynothing,donothing,

benothing.—ARISTOTLE

FOREWORD

As a former litigator withyears of experience workingaroundWallStreet firms, it’sfair to say that a few liars,crooks, and con artists havecrossed my path. Since both

the legal and financial fieldscultivate their share ofprofessional hustlers, I’velearned to quickly separatethegoodactorsfromthebad.I am also a skeptic by

nature. So when TonyRobbins sought me out forthis project because of thecompany I founded in 2007,HighTower,Iwascuriousbutwary.Istherereallyanythingnew to say about personalfinanceandinvesting?Andis

TonyRobbins theman tosayit?I was, of course, aware of

Tony’stremendousreputationasAmerica’snumberonelifeand business strategist. Andlikemany,Iknewthathehasworked with everyone fromUS presidents to billionaireentrepreneurs, transformingtheir personal andprofessional lives along theway.But what I didn’t know

until we met was that TonyRobbinsistherealthing.Theman lives up to the hype ofthe brand. His authenticitywas evident, and his passionwas contagious. Rather thanrehash the sins of thefinancialindustry,Tonycametothisprojectwiththegoalofdemocratizing financialservices and offering tacticsand solutions that hadpreviously been appreciatedand used by only the

wealthiestinvestors.Tony and I hit it off right

away because we share amission of helping empowerpeople to make better, moreinformed financial decisions.That’s the heart of mycompany,andit’swhatdrivesme personally. While thefinancial crisis of 2008brought to light the conflictsand injustices inherent in thefinancial system, few peoplecould come up with real-

world,practicalsolutionsthatwould actually make adifferenceforindividualsandfamilies.Why? Because there’s an

inherent conflict in thesystem.Thelargestfinancialinstitutions are set up tomake a profit forthemselves,nottheirclients.Investors may think they arepaying fees for high-quality,unbiasedadvice.Instead,theyare all too often paying for

theprivilegeofbeingoffereda small sample of “suitable”investment products andservices that are in constantconflict with improving thefirm’sbottomline.HighTowerisasolutionto

these problems, and that’swhyTonyoriginallycame tointerview me for this book.We offer only investmentadvice, and we have aplatform of leadingtechnology, products, and

solutions that meet advisors’and investors’ needs. We donotengage in themany toxicactivities that create conflictsof interest within the majorbanks. We brought togethersome of the nation’s bestfinancial advisors. Simplyput, we built a better modelfor transparent financialadvice.Tony’s mission is to

organize and bring to themasses the most honest and

practicalfinancialsolutions—some of them are even“secrets.”Heunderstandsthatpeople need more thanknowledge—they need aclear road map to afinanciallysecurefuture.The guidance provided

within these pages is theresult of unprecedentedaccesstotheleadingmindsinthe financial world. I don’tknow of anyone other thanTonywhocouldpulloffsuch

a feat. Only Tony, with hiswide range of clientrelationships, his contagiousenthusiasm, and hisunrelenting passion couldhave convinced theseindividuals—among the bestintheindustry—tosharetheirknowledgeandexperience.Likeme,thesepeopletrust

Tonytocapturetheirthinkingand simplify it for a broadaudience. And becauseTony’s passion lies in

empowering people, he isable to take theseconversations from theory toreality, offering tools thatnearly anyone can use toimprove his or her financialsituation.Tony challenged me to

look at the solutions we hadcreated for wealthy investorsandfigureoutawaytomakethemavailableandapplicableto the general public. I’mproud to say that we are

deeplyengagedinavarietyofprojects, and we are excitedaboutthepositiveimpactthattogether we will have on somanypeople.Truetohiscalling,Tonyis

using this book to empowerindividual investors whilesimultaneously helping thosewhohaveslippedthroughthecracksorbeen leftbehindbysociety. While two-thirds ofAmericans are concernedthey won’t have enough to

retire, two million peoplehave lost access to foodstampsinthepastyear.Manyof these individuals don’tknow where their next mealwillcomefrom.Tonyhassteppedintohelp

fill the gap. He’s spokenopenly about his ownexperiencewithhomelessnessandhunger,andiscommittedto improving the lives ofthese often-forgottenpopulations. Tony is

personally committed tofeeding50millionpeoplethisyear, and is working todouble that effort—feeding100 million people—throughmatching contributions fornext year and in the yearsahead.Tony has also partnered

with Simon & Schuster todonate copies of hisbestselling guide Notes fromaFriend:AQuickandSimpleGuide to Taking Charge of

YourLife tothosewhoareinneed and just starting toembark on a new path ofempowerment.His goal is tofeedmindsandbodies.I am honored, humbled,

and grateful to be a part ofthis project and eager to seethe change we can enacttogether.I’mexcitedforyou,the reader. You’re about tomeet the force of nature thatisTonyRobbinsandgoonajourney thatwill trulybe life

changing.

—ELLIOTWEISSBLUTH,

founderandCEO,HighTower

INTRODUCTION

I first met Tony Robbins 25years ago inside a cassettetape. After watching aninfomercialon late-nightTV,I took theplungeandboughthis 30-day self-improvement

program Personal Power. Ilistenedtohistapeseverydayduringmyone-hourcommuteto and from OracleCorporation, back and forthbetween my home in SanFrancisco and our office inRedwood Shores. I was somoved by Tony’swords thatone weekend I stayed homeanddidnothingelsebutlistenagain to all 30 days in justtwo days, and I quicklyunderstood that Tony was

truly an amazingperson, andhis ideas were unlikeanything I had everexperienced before. Tonytransformedme.At the age of 25, as the

youngest vice president atOracle, I was massivelysuccessful—orsoIthought.Iwas making more than $1million a year and driving abrand-newFerrari.Yes,IhadwhatIthoughtwassuccess:agreathomeandan incredible

car and social life.Yet I stillknew I was missingsomething;Ijustdidn’tknowwhat. Tony helped me tobring awareness to where Iwas, and helped me startdefining where I reallywanted to go and the deepermeaningofwhatIwantedmylifetobeabout.Itwasn’tlongbefore I went to Tony’sspecial intensive weekendprogram called Unleash thePowerWithin.That’swhereI

really refined my vision andcommitted to a new level ofmassive action. With that, Idove deeper into TonyRobbins’sworkandlaunchedfull-force on my journey tocreate and buildSalesforce.com.I applied Tony’s insights

and strategies and built anamazingtoolcalledV2MOM,which stands for vision,values, methods, obstacles,andmeasurement.Iuseditto

focus my work, andultimatelymy life, onwhat Ireally wanted. The V2MOMprogram took five of Tony’squestions:1. What do I really want?(Vision.)

2.Whatisimportantaboutit?(Values.)

3. How will I get it?(Methods.)

4. What is preventing mefrom having it?

(Obstacles.)5. How will I know I amsuccessful?(Measurements.)

Tony said to me that thequality of my life was thequality of my questions. Isoon began to modeleverything in my life, mywork, and my future simplyby asking these basicquestions and recording myanswers.Whathappenedwas

amazing.OnMarch8,1999,thefirst

day that we startedSalesforce.com, we wrote aV2MOM,andtodayallofour15,000 employees arerequiredtodothesamething.It creates alignment,awareness, andcommunication, and it’s allbased on what Tony hastaught me over the last twodecades.Tonysaysrepetitionis themother of skill—that’s

wheremasterycomesfrom—and so we keep writing andimprovingourV2MOMs.It’sone of the reasons Forbesmagazine just namedSalesforce.com the “World’sMost Innovative Company”for the fourth year in a row,and Fortune magazine sayswe are the “World’s MostAdmired”softwarecompany,as well as the seventh “BestPlace to Work” in 2014.Todaywe produce $5 billion

a year in revenue, and wecontinuetogrow.Icantrulysaythat there

wouldbenoSalesforce.comwithout Tony Robbins andhisteachings.Thisbookyouareaboutto

read,with its 7SimpleStepstoFinancialFreedom,hasthepotentialtodothesamethingfor you that Tony Robbins’sPersonal Power audioprogram did for me. It isgoing to bring Tony’s

wisdom into your life (alongwiththewisdomof50of themostbrilliant financialmindsin the world!) and give youthe tools you need to makeyour life even better.As youreadMaster the Game, I amsure you will translate whatTonyissayingintoyourownlife, and create your ownmethods to achieve successandrealizefreedom.When Tony told me the

title of this book, the first

thing I said was, “Tony,you’re not about money!You’re about helping peoplecreate an extraordinaryqualityoflife!”I soon discovered this

book really isn’t aboutmoney, it is about creatingthelifeyouwant,andpartofthatisdecidingwhatroleyouwantmoneytoplayinit.Weall have money in our lives;what matters is that youmaster money and it doesn’t

masteryou.Thenyouarefreeto live life on your ownterms.Oneofmyclosestmentors,

GeneralColinPowell,formersecretary of state andchairman of the Joint Chiefsof Staff, said this aboutmoney: “Look for somethingyou love to do and you dowell. Go for it. It will giveyou satisfaction in life. Itcould mean money, but itmay not. It couldmean a lot

oftitles,butitmaynot.Butitwill give you satisfaction.”General Powell and TonyRobbins are saying the samething. The real joy in lifecomesfromfindingyourtruepurpose and aligning it withwhatyoudoeverysingleday.General Powell also urged

me to consider the role ofmoneyasIpursuedmyvisionof creating a softwarecompany that would changetheworld.Hetoldmethatthe

business of business was notjust tomakeaprofitbutalsotodogood—todogoodwhiledoing well. Tony Robbins’sfocus on contribution, even25 years ago, also made astrong impressiononme andinfluenced my thinking.When I startedSalesforce.com,Iaimedtodothreethings:(1)createanewcomputing model forenterprisesnowcalled“cloudcomputing”; (2)createanew

businessmodel for enterprisesoftware based onsubscriptions;and(3)createanewphilanthropicmodel thattightly integrates the successof a companywith its abilitytogiveback.Whathas resultedover the

last 15 years is a companythat today has completelytransformed the softwareindustry and achieved amarketcapitalizationofmorethan $35 billion. However,

thebestdecisionIevermadewasputting1%ofourequity,1% of our profit, and 1% ofour employees’ time into aphilanthropic pursuit calledSalesforceFoundation. It hasresulted in more than $60millioningrantstononprofitsallover theworld,morethan20,000 nonprofits using ourproduct for free, and ouremployees contributing morethan500,000volunteerhoursto their communities. All of

this happened once Tonyhelped me build the tools togain clarity about what Ireally wanted to build, give,andbecome.Andnothinghasmade me happier or broughtmemore satisfaction and joyinmylife.That’s also why I have

joinedTonyinhisquestwiththe nonprofit Swipeoutprogram to provide meals tomorethan100millionpeopleayear;provideclean,disease-

free water to more than 3millionfamiliesaday;andtowork to free both childrenandadultsfromslavery.I’ve sent my parents, my

closest friends, andmymostimportant executives toTony’s seminars to study hiswork, and they have all saidthe same thing: “TonyRobbinsisoneofakind,andwe are lucky to have him inourlives.”Now,withMoney:Master the Game, Tony will

open the same door for youthat he opened for me. I amconfident that with him asyour coach, you too willtransformyourlifeandfindapath to gain everything youreallywant!

—MARCBENIOFF,founderandCEOof

Salesforce.com

SECTION1

WELCOMETOTHEJUNGLE:THEJOURNEYBEGINSWITHTHISFIRST

STEP

CHAPTER1.1

IT’SYOURMONEY!IT’S

YOURLIFE!TAKECONTROL

Moneyisagood

servantbutabadmaster.

—SIRFRANCISBACON

Money.Fewwordshavethepower

to provoke such extremehumanemotions.A lot of us refuse to even

talk about money! Likereligion, sex, or politics, thetopic is taboo at the dinnertable and often off-limits inthe workplace. We might

discuss wealth in politecompany, but money isexplicit. It’s raw. It’s garish.It’s intensely personal andhighly charged. It can makepeople feel guilty when theyhave it—or ashamed whentheydon’t.But what does it really

mean?For some of us, money is

vital and crucial but notparamount.It’ssimplyatool,a source of power used in

service of others and a lifewell lived. Others areconsumedwithsuchahungerfor money that it destroysthem and everyone aroundthem. Some are evenwillingto give up things that are farmore valuable to get it: theirhealth, their time, theirfamily, their self-worth, and,in some cases, even theirintegrity.Atitscore,moneyisabout

power.

We’veallseenhowmoneycan have the power to createorthepowertodestroy.Itcanfund a dream or start a war.You can providemoney as agiftorwielditasaweapon.Itcanbeusedas an expressionofyourspirit,yourcreativity,your ideas—or yourfrustration, your anger, yourhate. It can be used toinfluence governments andindividuals.Somemarryforit—and then find out its real

price.But we all know that on

some level it’s an illusion.Money isn’t even gold orpaper today, it’s zeros andones in banking computers.What is it? It’s like a shape-shifter or a canvas, assumingwhatevermeaningoremotionweprojectonit.In the end, money isn’t

what we’re after . . . is it?What we’re really after arethefeelings,theemotions,we

thinkmoneycancreate:thatfeelingofempowerment,offreedom,ofsecurity,ofhelpingthoseweloveandthoseinneed,

ofhavingachoice,andoffeelingalive.

Moneyiscertainlyoneofthe ways we can turn thedreams we have into therealitywelive.

Butevenifmoneyisjustaperception—an abstractconcept—it doesn’t feel thatwayifyoudon’thaveenoughof it! And one thing is forsure:you either use it, or itusesyou.Youeithermastermoney, or, on some level,moneymastersyou!Howyoudealwithmoney

reflects how you deal withpower. Is it anafflictionorablessing? A game or aburden?

When I was choosing thetitle of this book, a fewpeoplewereactuallyoutragedat the suggestion that moneycouldbeagame.HowcouldIuse sucha frivolous term forsuchaserioustopic!But,hey,let’sgetreal.Asyou’llseeinthe pages to come, the bestway to changeyour life is tofind people who’ve alreadyachieved what you want andthen model their behavior.Want to master your

finances? Find a financialmasterandimitatehowheorshe deals with money, andyou will have found apathwaytopower.I can tell you right now, I

haveinterviewedmanyofthewealthiest people in theworld, and most of them dothink of money as a game.Whyelsewouldanyoneworkten or 12 hours a day afterthey’ve made billions ofdollars? And remember, not

all games are frivolous.Gamesareareflectionoflife.Some people sit on thesidelines, and some play towin. How do you play? Iwant to remindyou, this is agame that you and yourfamilycan’taffordtolose.Mypromisetoyouisthis:

ifyouwillstaywithmeandfollowthe7SimpleStepsinthis book—the steps thathavebeendistilledfromtheworld’s most successful

financial players—you andyour family will win thisgame.Andyoucanwinbig!But to win, you have to

know the rules and learn thebest strategies for successfrom thosewhohavealreadymasteredthegame.Thegoodnews is thatyou

can save years of time—andina fewminutes—bysimplylearning the pitfalls to avoidand the shortcuts toexperiencing lasting success.

The financial industry oftenworks tomake this topic feelincredibly complex, but inreality, onceyougetpast thejargon, it’s relatively simple.Thisbookisyouropportunityto stop being the chess pieceand become the chess playerinthegameofmoney.Ithinkyou’re going to be verysurprised at how, with aninsider’s understanding, youcan easily transform yourfinancial life and enjoy the

freedomyoudeserve.So let’s get to it. Just

imagine what life would belike if you hadmastered thisgamealready.What if money didn’t

matter?Howwouldyoufeelifyou

didn’t have to worry aboutgoing to an office everymorning, or paying the bills,or funding your retirement?Whatwould itbe like to liveyourlifeonyourownterms?

Whatwoulditmeantoknowyou had the opportunity tostart your own business, orthatyoucouldaffordtobuyahome for your parents andsend your kids to college, orhavethefreedomtotraveltheworld?How would you live your

life if you could wake upeach day knowing there wasenough money coming in tocover not only your basicneedsbutalsoyourgoalsand

dreams?The truth is, a lot of us

wouldkeepworking,becausethat’s the way we’re wired.Butwe’ddoitfromaplaceofjoyandabundance.Ourworkwould continue, but the ratrace would end. We’d workbecause we want to, notbecausewehaveto.That’sfinancialfreedom.Butisitapipedream?Is

it really possible for theaverage person—more

importantly, for you—tomakethisdreamareality?Whether you want to live

like the 1% or just have thepeaceofmind fromknowingthat you won’t outlive yoursavings, the truth is you canalways find a way to makethe money you need. How?The secret to wealth issimple: Find a way to domore for others than anyoneelse does. Become morevaluable. Do more. Give

more. Be more. Serve more.And you will have theopportunity to earn more—whether you own the bestfood truck in Austin, Texas,or you’re the top salespersonat your companyor even thefounderofInstagram.But this book isn’t just

about adding value—it’sreally about how to go fromwhereyouaretodaytowhereyoutrulywanttobe,whetherthat’s financially secure,

independent, or free. It’sabout increasing the qualityof your life today bydeveloping the onefundamentalskillthatthevastmajority of Americans haveneverdeveloped: themasteryof money. In fact, 77% ofAmericans—three of everyfour people—say they havefinancial worries, but only40% report having any kindof spending or investmentplan. One in three baby

boomers have less than$1,000saved!Pollsshowthatfewer than one in four trustthe financial system—withgood reason! And stockownership has been hittingrecord lows, particularlyamongyoungpeople.Butthetruth is, you don’t earn yourwaytofreedom.Asyou’llseelater in this book, evenmultimillion-dollar earnerssuch as Godfather directorFrancis Ford Coppola, boxer

MikeTyson,andactressKimBasinger lost it all becausethey didn’t apply thefundamentalsthatyou’llsoonbe learning. You have to beable tonot onlyholdon to aportion of what you earn foryour family, but, moreimportantly, multiply whatyou earn—making moneywhileyousleep.Youhavetomaketheshiftfrombeingaconsumerintheeconomytobecoming an owner—and

you do it by becoming aninvestor.Actually, a lot of us are

alreadyinvestors.Maybeyoufirst got into the game whenGrandma bought you a fewshares of her favorite stockjust for being born, orperhaps your employer auto-enrolled you in thecompany’s 401(k), or maybeyou first became an investorwhen a friend told you toforget the Kindle and buy

Amazonstockinstead.But is this enough? If

you’re reading this now, myguess is that you know theanswer:noway!Idon’thaveto tell you it’s not yourparents’ and grandparents’investment world. The planused to be so simple: go tocollege,get a job,workyourbuttoff,andthenmaybegetabetter job with a biggercorporation. After that, thekeywastofindawaytoadd

value, move up the ladder,invest incompanystock, andretire with a pension.Remember pensions? Apromise of a never-endingincome for life? They’vebecomerelics.You and I both know that

worldisover.Welivelongernow on less money. Newtechnologies keep comingonline, stoking a system thatoften seems designed toseparate us from our money

insteadofhelpingusgrowit.As I write these words,interest rates on our savingshover near zero, while themarkets rise and fall likecorks on the ocean.Meanwhile,we’re facedwithafinancialsystemoflimitlesschoices and mind-bogglingcomplexity.Todaytherearemore than 10,000 mutualfunds,1,400differentETFs,and hundreds of globalstock exchanges to choose

from.Itseemslikeeverydaywe’repitchedmoreandmorecomplex investment“instruments” with analphabet soup of acronyms:CDOs,REITs,MBSs,MLPs,CDSs,CETFs...WTF?How about HFT? That’s

short for high-frequencytrading, where 50% to 70%of the tens of millions oftrades that churn through themarket each day are now

generated by high-speedmachines. What does thatmeanforyou?Ittakesonlyahalf second, or about 500milliseconds, to click yourmouse to complete yourE*Trade order. In that shorttime, the big boys with thesupercomputers will haveboughtandsoldthousandsofshares of the same stockhundreds of times over,making microprofits witheach transaction. Michael

Lewis, bestselling author oftheHFT exposéFlash Boys:AWallStreetRevolt, told 60Minutes, “The United Statesstockmarket, themosticonicmarketinglobalcapitalism,isrigged . . . by a combinationof the stock exchanges, thebig Wall Street banks, andhigh-frequency traders . . .They’re able to identify yourdesire to buy shares inMicrosoft and buy them infront of you and sell them

back to you at a higherprice!” How fast are theseguys?OneHFT firm spent aquarterof abilliondollars tostraighten the fiber-opticcables between Chicago andNewYork,reconstructingthelandscape and literallyterraforming the earth toshave1.4millisecondsoff itstransmission time! But eventhat’s not fast enough. Sometrades already take place inmicroseconds—that’s a

millionth of a second. SoonHFT technology will allowthese trades to happen innanoseconds—abillionthofasecond. Meanwhile, they’relaying cable on the oceanfloor,andthere’seventalkofsolar-powered drones actingas microwave relay stationstoconnectexchangesinNewYorkandLondon.If all of this leaves you

reeling, I’m with you. Whatare your chances of

competingwith flying robotstrading at the speed of light?Wheredoyouturntofindapaththroughthishigh-tech,high-riskmazeofchoices?

Anexpertisanordinarymanawayfromhomegivingadvice.

—OSCARWILDE

The problem is, when itcomes to money (andinvesting), everybody has an

opinion. Everybody’s got atip.Everybodyhasananswer.But I’ll giveyouahint: theyrarely have one that willreally help you. Have younoticed how beliefs aroundmoney are like religion andpolitics? Conversations canget intense and emotional.Especially online, wherepeople without any realknowledge or mastery willpromote their own theoriesandcriticizeothers’strategies

with such vehemence, eventhough they have no proventrack record. It’s like apsychologistonProzactellingyou how you can have afulfilled life. Or an obesepersontellingyouhowtogetthinandfit.Itendtoseparatepundits into those who talkthe talk and those whowalkthewalk. I don’t knowaboutyou,butI’msickandtiredofhearing from all these“experts”whotelluswhat to

do, but haven’t producedresultsintheirownlives.If you thought you were

going to hear from anotherinvestment guru makingcrazy promises, you came tothe wrong place. I’ll leavethat to the financialentertainers who scream atyou about buying the hotteststock,or imploreyoutosaveyour money and put it insome mythical mutual fund.You know the one, where

they promise you’llcontinuously compound yourmoney with 12% annualgrowth. They dole outadvicethattoooftenhasnobasis in reality, and oftentheydon’teveninvestintheproductstheypush.Someofthem might sincerely thinkthey’re helping, but peoplecan be sincere and besincerelywrong.IwantyoutoknowI’mnot

one of those “positive

thinkers” who’s going topump you up with a falseviewoftheworld.Ibelieveinintelligence.Youhave to seethings as they really are butnotworsethantheyare—thatview of life only gives youtheexcusetodonothing.Youmayknowmeasthe“smilingguy with the big teeth” onTV, but I’m not here to tellyou to do a bunch ofaffirmations—I’m the guywho’sfocusedonhelpingyou

digdeep,solverealproblems,and takeyour life to thenextlevel.For 38 years, I’ve been

obsessed with findingstrategies and tools that canimmediately change thequality of people’s lives. Ihave proven theireffectiveness by producingmeasurable results whereothershavefailed.SofarI’vereachedmorethan50millionpeople from 100 different

countries through my books,videos, and audio programs,and another 4million in liveevents.What I’veknownfromthe

beginning is that successleaves clues. People whosucceed at the highest levelarenotlucky;they’redoingsomething differently thaneveryone else does. I’minterested in those people:those who have a relentlesshungertolearnandgrowand

achieve.Don’tgetmewrong.I’m not deluded. I’m awarethere are very few people inthe world who are fit andhealthy and who sustain it.Most people don’t havedecadesofsustainedloveandpassion in their intimaterelationships, nor do theyexperience ongoing gratitudeand joy. There are very fewpeople who maximize theirbusiness opportunities. Andthereareevenfewerwhostart

with little or nothing andbecomefinanciallyfree.But a few do! A few do

havegreatrelationships,greatjoy,greatwealth,andendlessgratitude. I have studied thefewwhodoversus themanywhotalk.Ifyouwanttolookforobstacles,what’swrongisalways available. But so iswhat’sright!Iamahunterofhuman excellence. I seekoutthose individuals who breakthenormsanddemonstrateto

all of us what’s reallypossible. I learn what thosefewextraordinary individualsdo that’s different fromeverybody else, and thenemulatethem.Ifindoutwhatworks, and then I clarify it,simplifyit,andsystematizeitinawaytohelppeoplemoveforward.Eversincethedarkdaysof

2008, when the globalfinancial system nearlymelted down, I’ve been

obsessed with finding a wayto help everyday people takecontrol of their money andfight back against a systemthat’s often been riggedagainst them. The fix hasbeen in for years, and ithasn’t gotten a whole lotbetterwithallthoseso-calledreforms on Capitol Hill. Insomeareas,it’sgottenworse.To find answers, Iinterviewed 50 of the mostbrilliant,influentialplayersin

the world of money. In thisbook, you won’t get talkingheads,andyouwon’tgetmyopinions, either. You’ll hearitstraightfromthemastersofthe game: self-madebillionaires, Nobel laureates,and financial titans. Here’sjust a sampling of a few ofthemastersofmoneythatyouwill be learning from in thepagesahead:•JohnC.Bogle, the85-year-

old sage with 64 years ofstock market history andthe founder of theVanguard Group, thenumber one mutual fundcompanyintheworld;

• Ray Dalio, founder of thelargest hedge fund on theplanet,with$160billioninassets;

•David Swensen, one of thegreatest institutionalinvestors of all time, whogrew Yale University’s

endowmentfrom$1billiontomore than $23.9 billioninlessthantwodecades;

• Kyle Bass, a man whoturned $30 million ininvestments into $2 billionin two years during thesubprimecrisis;

• Carl Icahn, who hasoutperformed WarrenBuffett, the market, andvirtually everyone else inthelastone-,five-,andten-yearcycles;

• Mary Callahan Erdoes,whommanyconsidertobethe most powerful womanin finance. She overseesmore than $2.5 trillion asCEOofJ.P.MorganAssetManagement;and

•CharlesSchwab,who led arevolutiontoopenupWallStreet to individualinvestors,andwhoseiconiccompany now has $2.38trillionundermanagement.

I’ll put you in the roomwith these and many othersuperstarswho get consistentresults, decade after decade,in up markets and down,booms and busts. Togetherwe will uncover the coresecrets to their investmentsuccessandseehowtoapplythem even to the smallestamountofmoney.And here is the key: I

wrote this book based ontimeless wisdom of themost

successful investors in theworld. After all, none of usknows which way theeconomy will be headed bythe time you’re reading thisbook.Will there be inflationordeflation?Abullmarketorabear?The idea is toknowhowtosurviveandthriveinany market condition.These real experts willexplainhow.Plus, they’llbeopening their portfolios toshow you the mix of

investments that they rely onto weather every storm. Andthey’ll answer this question:Ifyoucouldn’tpassonanyofyour financialwealth toyourchildren, but only a set ofprinciples, what would theybe?Thatcouldbethegreatestinheritance of all, and youdon’t have to beoneof theirkidstogetit!

Thesecretofgettingaheadisgettingstarted.

—MARKTWAIN

Get ready, because togetherwe’re about to go on ajourney through 7 SimpleSteps to financial security,independence and freedom!Whether you’re a millennialjust starting out, a babyboomer facing retirement, ora sophisticated investorlooking to keep your edge,this book will offer you apractical blueprint for setting

and achieving your financialgoalsandhelpyoubreakfreefrom whatever limitingbehaviors might be holdingyou back from trueabundance.We’llexplore thepsychology of wealth,something I’ve studied andtaught for nearly fourdecades. We’ll tackle themoneymistakespeoplemake,zeroing in on what keepsthem from following throughon their best-laid plans. And

to make sure you get theresults you desire, I’ve goneto the best behavioraleconomists on earth to findsolutionsthatreallywork—small, simple adjustmentsthat automatically triggeryou todowhatothersneeddiscipline to maintain;strategiesthatcanmakethedifference between retiringcomfortablyordyingbroke.

Let’s face it: so many

smart and accomplishedpeople have put aside thisarea of money because itseems so complicated andoverwhelming. One of the

first people I gave thismanuscript to to review is abrilliantfriendnamedAngelawho has accomplishedmastery inmanyareasofherlife—butnever in theareaofmoney. She told me thatpeople thought she wasamazingbecauseshe’dsailed20,000 miles of ocean insomeof the roughest seasonsmallsailboats.Butsheknewshe neglected her finances,and it embarrassed her. “It

seemed so confusing, and Icouldn’t be competent. Ialready felt defeated, so Igaveup,eventhoughit’snotinmynature.”Butshefoundthat by following the 7SimpleStepsinthisbook,shecould finally get control ofher finances, and itwas easyand painless! “Gosh, I couldsave for my future just bycuttingafewthingsthatdon’tgive me joy,” she told me.Once she started thinking

aboutsaving,shewasabletoset up an automaticinvestment account, and bychapter 2.8, she had alreadytransformedherlife.Afewdayslater,shecame

in to seeme and said, “I gotmyfirst-everbrand-newcar.”Iaskedher,“Howdidyou

doit?”She said, “I began to

realize that I was spendingmore money on my old carforrepairsandgasthanitcost

me to finance a brand-newcar!” You should have seenthelookonherfacewhenshepulled up in a shiny newpearlescent white JeepWrangler.SoIwantyoutoknowthat

this book is not just abouthow to have a comfortableretirement, but also abouthowtohavethequalityoflifeyoudesireanddeservetoday.Youcanlivelifeonyourownterms while you

simultaneously lock in yourfuturequalityof life aswell!The feeling of empowermentand inner strength andcertainty that you experiencewhenyoumaster thisareaofyour life will spill intoeverything else: your career,your health, your emotions,andyourrelationships!Whenyou lack confidence aboutmoney, it unconsciouslyaffects your confidence inotherareastoo.Butwhenyou

take chargeof your finances,it empowers you and excitesyou to take on otherchallenges!What holds us back from

getting startedon the road tofinancial freedom? For a lotofus, likemy friendAngela,it’s the feeling that we’re inover our heads. We’ve beentaught to think, “This is toocomplex” or “This is notmyfield.” Frankly, the system isdesigned to be confusing, so

thatyou’ll giveup control tothe “professionals” who reapenormous fees by keepingyouinthedark.You’regoingtolearninthechaptersaheadhow to prevent that fromhappening, and, mostimportantly, I’m going toshowyou that investingyourway to freedom isn’tconfusingatall.Onereasonpeoplesucceed

is that they have knowledgeother people don’t. You pay

your lawyer or your doctorfor the knowledge and skillsyou don’t have. They alsohave their own speciallanguage that can at timeskeep theminsulatedfromtherestofus.For example, in the

medical world, you mighthearthat225,000peoplehavedied “iatrogenic deaths” inthe past year. According tothe Journal of the AmericanMedicalAssociation (JAMA),

it’s the third largest cause ofdeath in the United States.Iatrogenic. How’s that for ahundred-dollar word? Itsounds important, but whatdoesitevenmean?Isitararetropical disease? A geneticmutation? No, iatrogenicactually refers to aninadvertentdeathcausedbyadoctor, or a hospital, or anincorrect or unnecessarymedicalprocedure.Why don’t they just come

out and say so? Because itdoesn’t serve a medicalinstitution’sintereststoputitinplainlanguagealaypersoncanunderstand.Thefinancialworldhasitsownjargontoo,with specialwords for thingsthat are really additional feesdisguised in language thatwouldmakeit impossibleforyou to realize it is takingmuch more of your moneythanyouwouldeverimagine.I hope you’ll let me be

yourtranslatoraswellasyourguide on this journey.Togetherwe’llbreakthecodeand cut through thecomplexitythatkeepsmostofusfeelinglikeoutsidersintheworldoffinance.Today there is so much

information that even themost sophisticated investorscan feel overloaded.Especially when we realizewhat’s being pushed on usoften has nothing to do with

ourneeds.Sayyou’rehavingsome mild chest pains, andyou Google the word heart.What do you see? It’s notsomething about the heartattackyoumightwanttodealwith right now. Instead, youget Heart, the music groupthat hasn’t had a hit in 20years. How does that helpyou?Myplanistoserveyouby

becoming your personalfinancial search engine—a

smart searchengine,one thatwill filter through all thesuperfluous, even harmfulfinancial information outthere to deliver simple, clearsolutions.Beforeyouknow it,you’ll

beaninsidertoo.You’lllearnwhy chasing returns neverworks,whynobodybeats themarket long-term,1 and whythe vastmajority of financialexperts don’t have a legalresponsibility to serve your

best interests. Crazy, right?You’ll learn why the returnsadvertised by mutual fundsare not the returns youactually earn. You’ll findsolutions that could addliterallymillionsofdollarstoyour lifetime of investingreturns—statistical studiesshow that you can savebetween $150,000 and$450,000 justby readingandapplying the principles ofsection2ofthisbook!You’ll

be putting money back inyourownpocket,notthe“feefactories.” You’ll also learnabout a proven way ofgrowing your money with100% principal protection,and tax free to boot (IRS-approved). This vehicle isfinallyavailable to individualinvestorslikeyou.And here’swhat truly sets

this book apart: I don’t justtell you about investmentstrategies that the

ultrawealthy have and thatyou can’t afford or access;I’ve found ways to makethem affordable andaccessible for you! Whyshould the privileged few bethe only ones to tap intoextraordinary opportunities?Isn’t it time thatwe level theplayingfield?Remember, it’s your

money, and it’s time for youtotakecontrol.

Amoment’sinsightissometimesworthalife’sexperience.—OLIVERWENDELLHOLMES,SR.

Beforewe go on, letme tellyouwhatmovedme towritethis book. If you’vewatchedany of the coverage of mywork over the years, or ifyou’ve read any of mypreviousbooks,youprobablyknow my track record for

creating massive andmeasurable change—helpingpeoplelose30to300pounds,turning around relationshipsthat seem to be at their end,helpingbusinessownersgrowtheircompanies30%to130%in a year. I also help peopleovercomeenormoustragedies—fromcoupleswho’velostachild,tosoldierscomingbackfrom Afghanistan with post-traumatic stressdisorder.Mypassion is helping people

create real breakthroughsin their relationships, theiremotions,theirhealth,theircareers,andtheirfinances.For nearly four decades,

I’ve had the privilege ofcoaching people from everywalk of life, including someofthemostpowerfulmenandwomen on the planet. I’veworkedwithpresidentsoftheUnited States as well aspresidents of smallbusinesses. I’ve coached and

helped transform theperformance of sports stars,from the early days withhockey greatWayneGretzkyto today’s superstar SerenaWilliams. I’ve had theprivilegetoworkwithaward-winning actors with thecoolness of LeonardoDiCaprio and the warmth ofHughJackman.Myworkhastouched the lives andperformances of topentertainers from Aerosmith

to Green Day, Usher toPitbull to LL Cool J. Andbillionairebusinessleadersaswell, such as the casinomagnateSteveWynnandtheinternetwizardMarcBenioff.In fact, Marc quit his job atOracle and began buildingSalesforce.com afterattending one ofmyUnleashthePowerWithinseminarsin1999. Today it’s a $5 billionenterprise and has beennamed the “World’s Most

Innovative Company” byForbes magazine for the lastfour consecutive years. Soobviously my clients don’tcome tome formotivation.They have plenty of thatalready.What they get fromme are strategies that helpthem hit the next level andkeep them at the top of theirgame.Inthefinancialarena,since

1993 I’ve had the honor tocoach Paul Tudor Jones, one

ofthetoptenfinancialtradersin history. Paul predicted theOctober 1987BlackMondaycrash—stillthelargestsingle-dayUS stockmarket decline(by percentage) ever. Whilemarkets plummeted aroundthe world and everyone elsewas losing his shirt, Paul asmuch as doubled hisinvestors’moneyin1987.Hediditagainin2008,bringinghis investors nearly a 30%positive return while the

market plummeted 50%!Myjob working with Paul is tocapture the principles thatguideallhisdecisions.ThenIputthemintoasystemthatheuses daily and, mostimportantly, at critical times.I’m not a positive-thinkingcoach. Quite the opposite:I’m a prepare-for-anythingcoach. I’ve been in touchwithPaul,trackinghistradingevery day through a rollercoaster ofmarket conditions.

From the tech bubble of thelate 1990s to 9/11. From thegrowth in real estate and thecollapse of the subprimemarket to the financialmeltdownof 2008. I’vebeenthere during the subsequentEuropean debt crisis as wellas the largest one-daypercentage crash in goldprices in three decades in2013.In spite of the diversity of

these financial challenges, in

28 full consecutive years,Paul has never had a singlelosing year. I’ve beenworkingwithPaulforthelast21of thoseyears.Heis trulyunmatched in his ability tofind the way to victory. I’vehad the privilege of beingshoulder-to-shoulder withhim while he made moneyconsistently, no matter howvolatile the market. Throughhim, I’ve learnedmoreaboutthe real world of investing

and how decisions are madein tough times than I couldget from a hundred MBAcourses.I’malso incrediblyblessed

to not only work with Paulduring this time but alsoconsider him one of mydearest friends. What I loveandrespectaboutPaulisthathe not only creates financialresults forhimselfbutalso isoneofthemostextraordinaryphilanthropists in the world.

Over the years, I’vewatchedhim grow the Robin HoodFoundation from the simpleidea of harnessing the powerof free markets to alleviatepoverty in New York intowhat Fortune magazine hascalled “one of the mostinnovative and influentialphilanthropicorganizationsofourtime.”SofarRobinHoodhas distributed more than$1.45 billion in grants andinitiatives, changing millions

oflivesintheprocess.I’ve also learned my own

lessons along the way, somethrough the pain of my owntrials and errors—which thisbook isdesigned tohelpyouavoid as much as possible.I’veearnedmyownscarsonWallStreet.Itookacompanypublic when I was 39 yearsoldandwatchedmypersonalnet worth soar to over $400million in a fewweeks—andthen plunge back to earth

with the dot-com crash of2000!But that stock market

“correction” was nothingcompared with what we’veall been through in recentyears. The meltdown of2008–09 was the worsteconomic crisis since theGreat Depression. Do youremember how it feltwhenit looked like our financialworld was coming to anend? The Dow Jones

Industrial Average plunged50%, dragging down your401(k) with it. The bottomfelloutinrealestate,andthepriceofyourhomemayhaveplummeted by 40% ormore.Millions of people lost thegains froma lifetimeofhardwork, andmillionsmore losttheir jobs. During thoseterrible months, I receivedmore phone calls from agreater variety of peopleneeding help than ever

before. I heard from barbersand billionaires. Peoplewould tell me they werelosing their homes, theirsavings were gone, theirchildren couldn’t go tocollege. It just killed mebecause I know what thatfeelslike.I’veworkedhardandbeen

blessed with financialsuccess, but itwasn’t alwaysthatway.Igrewupwithfourdifferent fathers in

California’s dusty SanGabrielValley. I can vividlyremember, as a kid, notpicking up the phone oranswering thedoorbecauseIknewwhowas there—itwasthebillcollector,andwehadno money to pay him. As ateenager, I was embarrassedtohavetowearschoolclothesweboughtfor25centsatthethrift shop. And kids can beprettybrutalwhenyouarenot“hip.” Today the thrift-store

shoppingwould be a sign ofcoolness—go figure! Andwhen I finally got my firstcar, a beat-up 1960Volkswagenbug, thecarhadno reverse, so I parked on ahill, and there was neverenough money for gas.Thankfully,Ididn’tbuythetheory that this is just howlife is. I found a way toovercome mycircumstances. Because ofmy own experiences, I can’t

standtoseeanybodysuffer.Itmakes me crazy. And 2008brought more needlesseconomicsufferingthanIhadseeninmylifetime.Intheimmediateaftermath

of the stock market crash,everybody agreed thatsomething had to be done tofixthesystem.Ikeptwaitingforthosepromisedchangestohappen,butyearslateritwasstill business as usual. Andthe more I learned about the

roots of the financial crisis,theangrierIgot.Mypersonaltipping point came after IwatchedanAcademyAward–winning documentary calledInside Job, narrated by MattDamon,abouttheWallStreetgunslingers who took crazyrisks with our money andnearly toppled the economy.And their penalty? We thetaxpayers bailed them out,and somehow the same castof characters was put in

charge of the recovery. Bythe end of the film, I wasseething with frustration, butI converted my anger into aquestion:“WhatcanIdo?”Thisbookwastheanswer.

Thereisnofriendasloyalasabook.—ERNESTHEMINGWAY

It wasn’t an easy decision. Ihaven’twrittenamajorbookinalmost20years.Lastyear,

onaverage, Iwasonaplaneonce out of every four daystraveling to more than 15countries. I run a dozencompanies and a nonprofit. Ihave four children, anamazingwife,andamissionIloveand live.Tosaymylifeis full would be anunderstatement. BothUnlimitedPowerandAwakenthe Giant Within wereinternational bestsellers, andthat was enormously

gratifying, but I haven’t feltcompelledtowriteagainuntilnow.Why?Iloveliveevents!I love the total-immersionexperience, the immediacyand flexibility ofcommunicatingwith5,000 to10,000 people at a time,goingdeepandkeeping theirfocusedattentionfor50hoursin a weekend. And that in aday and age when mostpeople won’t sit for a three-hour movie that someone

spent$300milliontomake.Ican remember vividly Oprahtelling me that she couldn’tstay formore than twohours—and12hours latershewasstanding on a chair andshoutingtothecamera,“Thisis one of the greatestexperiences of my life!”Usher told me he loved mywork, but certainly hewouldn’t last through anentire weekend. Just likeOprah, he ended up having

the time of his life. Fiftyhours later he said to me,“This is like going to one ofthe greatest concerts of mylife! I was writing notes likecrazy, and you made melaughmyassoff!”My live-event experience

is filled with so muchemotion, music, excitement,and profound insights thatpeople are moved to takemassive action. They don’tjustthink,theydon’tjustfeel,

they change, they transform.And my body language andmyvoice are essential tomystyleofteaching.So,I’vegottoconfess,whenIsitdowntowritewordsonapage, I feellike there’s a gag over mymouth and one hand tiedbehind my back! Heck, IfoundthatIcouldreachmorethan ten million peoplethroughoneTEDTalkalone.So what made me change

mymind?

The financial crisis causedtremendous pain, but it alsomade us reevaluate what’smostimportantinourlives—thingsthathavenothingtodowithmoney.Itwasatimetoget back to basics, to thevalues that have sustainedus through troubled timesbefore. For me, it made meremember the days when Iwas sleeping in my carhomelessand searching foraway to changemy life.How

did I do it? Books! Theyhelped to establish me. I’vealways been a voraciousreader: as a young man, IdecidedIwasgoingtoreadabook a day. I figured leadersare readers. I took a speed-reading course. I didn’t quiteread a book a day, but overseven years, I did readmorethan 700 books to find theanswers to help myself andothers.Booksonpsychology,time management, history,

philosophy, physiology. Iwanted to know aboutanything that couldimmediately change thequalityofmylifeandanyoneelse’s.But the books I read as a

child made the deepestimpression. They were myticketoutofaworldofpain:a world with no compellingfuture. They transported meto a realm of limitlesspossibilities. I can remember

Ralph Waldo Emerson’sessayonself-reliance,andthelines“Thereisatimeineveryman’s education when hearrives at the conviction thatenvy is ignorance; thatimitation is suicide; that hemust take himself for better,for worse, as his portion.”Another was a book by thephilosopher James Allen, AsaMan Thinketh, echoing thebiblical proverb “As a manthinketh,sohisheartwillbe.”

Itcametomeatatimewhenmy mind was a battlefieldfilled with fear. He taughtmethateverythingwecreatein our lives starts withthought.I devoured biographies of

great leaders, great thinkers,great doers, like AbrahamLincoln, Andrew Carnegie,JohnF.Kennedy,andViktorFrankl. I realized that thegreatmen andwomenof theworld had experienced pain

and suffering much greaterthan my own. They weren’tjust lucky, or even fortunate;somehow there wassomething in them, aninvisibleforcethatwouldnotlet them settle for less thantheycoulddo,orbe,orgive.I realized that biography isnot destiny; that my pastwasnotequaltomyfuture.Another favorite was an

American classic from 1937,Napoleon Hill’s Think and

Grow Rich. Hill spent twodecades in the early 20thcentury interviewing 500 ofthe world’s mostaccomplished individuals,from Andrew Carnegie, toHenry Ford, to TheodoreRoosevelt,toThomasEdison,finding out what made themtick.He discovered that theyall shared a relentless focuson their goals, and acombination of burningdesire, faith, and persistence

to achieve them. Hill’smessage that ordinary peoplecould overcome any obstacleto success gave hope to ageneration of readersstruggling through the GreatDepression.Think and GrowRich became one of thebestsellingbooksofalltime.Napoleon Hill’s quest has

been an inspiration to me.Like his classic, this book ismodeled on seeking out thebestof thebest in theworld,

from Warren Buffett to SirRichard Branson—andincluding the man thatexperts in the field havecalled theEdisonofourday:Ray Kurzweil, who inventedthe first digital musicsynthesizers, the firstsoftware to translate text intospeech; he’s the man behindSiri on your iPhone. Hedeveloped a device thatallows the blind to walk thestreets and read road signs

and order from any menu.Today Ray is head ofengineering development forGoogle.ButIwantedtowritea book that went beyond thepsychology and science ofachievementtocomeupwitha real plan, with real toolsthat you coulduse to build abetter future for yourself andyour family. It would be ahandbook, a blueprint, anowner’s manual for the neweconomy.

AsIbegantoreassociatetothe power of a book, Ithought, “I need to put theseanswers in a form that’savailable to anyone.” Andwith today’s technology, thisbook has a few greatadvantages to help push youalong the way. It haselectronic segments whereyoucangoonlinetoseesomeof the men and women Iinterviewed and hear theirwords.Wehaveanappthat’s

designed to trigger you towalk through the 7 SimpleSteps so you don’t just learnthe ideas but follow throughandget thefinancialfreedomyoutrulydeserve.Bytheway,whenIbegan

this adventure, people toldme I was crazy. Many so-called experts—and evenfriends!—warned me I wasnuts to try to bring thecomplexworldoffinancetoawide audience. Even my

publisherbeggedme towriteaboutanythingelse.But I knew I could pull it

off if I found thebest voicestoguidetheway.Mostofthepeople I’ve interviewed heredo not give interviews, or ifthey do them, they’reextremely rare. They mightspeak inDavos, Switzerland,at the World EconomicForum,or for theCouncilonForeign Relations, butbringing their knowledge to

the general population, intheir voices, has never beendone before. Sharing theircritical insights inaway thatanyone could act on becamethemissionofthisbook.I’ve been honored to have

great relationshipswith someofthemostinfluentialpeoplein the world: friends in highplaces who were willing tomake a few calls on mybehalf. Before long I founddoors opening to me, and I

was getting access to themastersofthegame.

Welcometothejungle...

—“WELCOMETOTHEJUNGLE,”GunsN’Roses

SowheredoIstart?Idecidedto start with a person whomostpeoplehaveneverevenheard of, even though he’sbeencalled theSteveJobsofinvesting.But ask any of the

world’s financial leaders,whether they’re thechairwoman of the FederalReserve, the head of aninvestment bank, or thepresidentoftheUnitedStates,and they all knowaboutRayDalio. They read his weeklybriefing. Why? Becausegovernments call to ask himwhat to do, and he investstheir money. Same withpension funds and insurancecompanies. He’s the founder

of Bridgewater Associates,the world’s largest hedgefund, with $160 billion inassets under management(AUM)atatimewhenalargehedge fund might manage$15 billion. It used to take anetworthof$5billionandaninitial $100 millioninvestment just to get in thedoor.Butdon’tbothertrying;hewon’t take yourmoney—or anybody else’s—at thispoint.

Ray Dalio came from anunlikely background, born inQueens,NewYork, toa jazzmusician father and ahomemaker mother. Hestartedasacaddywhopickedup his first stock tips at thelocal golf course. Now he’sworthabout$14billionandisthe 31st richest man in theUnitedStates.Howdidhedoit?Ihadtofindout!Here’samanwhosePureAlpha fund,according to Barron’s, has

lost money only three timesin 20 years, and in 2010 heproduced40%returns forhiskey clients. Over the life ofthe fund (since launching in1991), he’s produced a 21%compounded annual return(before fees). If there’sanyoneIwantedtoask,“Canthe average investor stillmake money in this crazy,volatilemarket?” itwasRay.Sowhenhetoldme,“There’sno question you can still

win,” I was all ears! Howaboutyou?It’s not that easy to get

accesstoRayDalio.Butasitturns out, Ray already knewwho Iwas, andhewasa fanofmywork.Oneafternoon Isat down with him in hissurprisinglymodesthouseona wooded island off theConnecticut coast. He gotright to the point, telling methat individual investors likeyoucanwin—butonlyifyou

don’t try to beat the pros attheirowngame.“What they gotta know,

Tony, is you can win,” hesaid. “But you can’t do it bytryingtobeatthesystem.Youdon’t want to try. I havefifteen hundred employeesandfortyyearsofexperience,andit’satoughgameforme.This is poker with the bestpokerplayersonearth.”Rayis65yearsold,speaks

withasoftNewYorkaccent,

and uses his hands like aconductor when he talks. Heremindedme that poker, likeplayingthemarkets,isazero-sumgame.Foreverywinner,there has to be a loser. “Assoon as you’re in that game,you’renot justplayingpokeragainst the guys across thetable. It’s aworld game, andonly a small percentage ofpeoplemakerealmoneyinit.They make a lot. They maytakemoney away from those

who are not as good at thegame,” he said. “So I wouldsay to your investors, theaverage guy: you don’t wanttobeinthatgame.”I asked Ray, “If you’re

telling people they can’tcompete in thisgame,shouldthey be thinking twice aboutletting someone else play forthem?Whataboutthebrokersand mutual fund managerswho say they can get youbetterreturns?”

“Youthinkyou’regoingtoa doctor, but they’re notdoctors,” he told me. We’retrainedtothrowourtotalfaithintodoctorsanddowhateverthey tell uswithout thinking,hoping they have all theanswers. But RayDalio saysthat typical money managersarenotgoingtohelpyouwinbecause they don’t have theskills or resources to play inthebiggame,either. “If theydid,youwouldn’thaveaccess

tothem.“The Olympics is easy

comparedwithwhatwe do,”Raycontinued.“Thisismorecompetitive. You can go toyour broker-dealer, and youthinkyouhavetosay,‘Isthata smart guy?’ He might besmart. He might care aboutyou.But you’ve got to ask,‘Howmanygoldmedalshashe won?’ You have to bevery, very careful, becausethere are so many people

who’d give you advice, buttheyhave tobegoodenoughto be able to take it awayfromthebestinthegame.”Sowhat’stheanswer?“Instead of trying to

compete, you’ve gotta learnthere is a passive way towin.There’sawaytonotputall your eggs in one basket.It’s a system to protectyourself against alldownsides, because the bestinvestors know they’re going

to be wrong, no matter howsmarttheyare.”Wait a second!RayDalio,

who gets a compoundedreturn of 21%, can still bewrong?“That’s right, Tony, I’m

gonna be wrong,” he said.“We’re all gonna be wrong.So we gotta set up a systemthatprotectsusfromthat.”So, at the end of nearly

three hours together, it wastime for the big question:

“Ray, what is that system?”And Ray said to me, “Tony,the last time I took money,you had to have a five-billion-dollarnetworthtogetaccess tomy knowledge andtheminimuminvestmentwasone hundred million. It’sreally complex, and itchangesalot.”I said, “C’mon, Ray. You

just toldmethatnobodynewcangetaccesstoyouanyway.I know how much you care

aboutpeople. Ifyoucouldn’tpass on your money to yourchildren, and you could passononlya setofprinciplesora portfolio—a system thatwill allow them to makemoneyingoodtimesandbadlike you have—tell me whatthat would look like for theaverageinvestor?”Wewent back and forth a

bit, and in the end, guesswhat?Hewalkedmethroughthesampleidealportfolio,the

exact investment mix thatwould help you maximizereturnswith the least amountof downside volatility in anymarket.What’s a portfolio? If

you’re not familiar with theterm, it’s just a collection ofdiverse investments that youput together to try tomaximize your financialreturns. Ray revealed asimple system of what toinvest in and in what

percentages and amounts.Andwhenwelookedbackinhistory, we found that byusinghisstrategy,youwouldhavemademoney85%ofthetime over the last 30 years(1984 through 2013)! That’sonly four losing years in thelast 30 years (1984 through2013)—withamaximumlossof 3.93% in a year (and anaverage negative year of just1.9%).Andoneofthosefourdown years was just 0.03%,

whichmostwouldchalkuptoa breakeven. In 2008 youwould have been down just3.93% when the rest of themarket lost 51% (from peakto trough)—all by just doingwhatRayhassharedwithus.The plan he shared here hasaveraged a return of justunder 10% per year (net offees), and it’s an investmentplanthatyoucaneasilysetupfor yourself! And it’s onlyone of the systems from the

world’sgreatestinvestorsthatyou’ll learn when you get tosection 6, “Invest Like the.001%: The Billionaire’sPlaybook.”Now, I know you want to

jump ahead right now andlook up the portfolio, but Iwanttoremindyou,thereare7 Simple Steps you have tofollow to make this work. Ifyou haven’t figured outwhereyou’regoingtogetthemoney to invest,youhaven’t

figured out what your goalsare,andyoudon’tknowwhattherulesofthegameare,thenaccesstothebestportfoliointhe world will be worthless.So stay with me, and let’sstay in sequence. There’s amethodtomymadness!How valuable is that

information fromRayDalio?If others have to have $5billion to get access, and itcostyouonlythepriceofthisbook, then it’s not a bad

returnoninvestment!As exciting as it was to

learn his investment system,whatIfoundmostinterestingaboutRayishowhelooksatthe world. He sees it as ajungle, and his life as aconstant,exhilaratingbattle.“The way I look at life,

Tony,we all have somethingwe want, something thatrepresentsagreaterqualityoflife. But to get there, youhave to go through a jungle

filled with challenge. If youpassthroughit,yougettothelife you desire. It’s like I’mononesideofthejungle,”hetoldme.“Andyoucouldhavea terrific job, a terrific life ifyoucancrossthatjungle.Butthere are all of thesedangerous things and theycan all kill you. So, do youstay on one side and have asafelife,ordoyougointothejungle?Howdoyouapproachthatproblem?”

Ray goes into the junglewith very smart and trustedfriends by his side, alwaysasking,“Whatdon’tIknow?”“This is the key thing,” hesaid. “What has been verysuccessful for me throughmy whole life is to not bearrogant about knowing,buttoembracethefactthatI have weaknesses; that Idon’tknowalotaboutthis,that, and the other thing.The more you learn, the

more you realize you don’tknow.”Isthateverthetruth!AndI

was a livingexample. IwentintothisbookthinkingIknewwhat I was doing. After all,I’d had decades ofexperience. But during myfour-year quest to meet thebest investors on earth, I’vebeen humbled over and overagain by how much I didn’tknow. And I found thatunlike the talking headswho

claimtohavealltheanswers,the best are essentiallyhumble. Like Ray Dalio,they’ll tell you what theythink and then admit theycouldbewrong.

Richesarenotanendoflife,butaninstrumentoflife.

—HENRYWARDBEECHER

As my journey continued, I

found my mission wasevolving.At each stop alongthe way, I was discoveringtools, opportunities, andinvestmentproductsavailableto ultrawealthy people thatthe average person neverhears about. And ironically,some of the best ones havevery little risk, or they havelimited risk with what theycall asymmetric risk/reward—whichmeans the investorsget abigupsidepotential for

verylittledownsideexposure.And that’s what the “smartmoney”livesfor.It was exciting for me to

find out about theseopportunities and takeadvantage of some of them,because at this stage of mylife, I’m old enough,fortunate enough, and welloffenoughfinanciallytohavethose choices. But my sonsand my daughter don’t, andsome of my dearest friends

don’t, and, most important,likely neither do you (unlessyou’ve got tens of millionsstashed away and you’re justreadingthistoseewhereRayDalioputshismoney).So I changed from being

just a passive informationgatherer in the world ofinvesting to becoming apassionate advocate for myfriendsand readers. Iwasn’tjust going to tell you aboutsomething that wealthy

people get to do; I wantedto open up theseopportunities for everyone.So I looked for companiesthathavefocusedexclusivelyon the ultrawealthy and thenworked to convince them tocreate new opportunities forinvestors at any economiclevel or any age level. I’veworked to highlight theirservices, and in some cases,I’vegoneallinandpartneredwith themtohelpcreatenew

productsthatwillbeavailableto you for the first time.Butwhat I’m most proud of isthat I’ve persuaded many ofthemtoopenuptheirservicesfor people who are notwealthy—for free! In thepagesthatfollow,you’lllearnabout a revolutionarystrategic venture betweenStronghold WealthManagementandHighTower,the fifth largest investmentadvisory firm in the United

States, which providestransparent, conflict-freeadvice to the ultrawealthy. Itwillnowprovidesomeofthesame extraordinary planningservices at no charge to you,regardless of how much youhavetoinvest.Youwilllearnhow to access acomplimentary onlineplatform that will allow youto test-drive your broker andseeifyou’retrulyoverpayingfor underperformance. I’m

hoping this could be thebeginning of a sea change intheworldofpersonalfinance,a real levelingof theplayingfieldforthefirsttime.Why in the world do they

do this? First, it’s the rightthing to do. People need toknow what they are trulypaying for. Second, theyknowthatpeoplewithlotsofmoneydidn’talwaysstartoutwith lots of money. It’s thesecret to wealth, remember?

Do more for others thananybody else does. And ifHighTower does this for youat this stage of your life,they’re betting you won’tforget them in the future.You’ll become a raving fanandaloyalclientforever.Youget thehelpyouneed

today for no money andHighTower gets a futureclient. That’s financialsynergy. An opportunity tocreate the elusive win-win

that rarely shows up in theworldofWallStreet.

Kindnessinwordscreatesconfidence.Kindnessinthinkingcreatesprofoundness.Kindnessingiving

createslove.—LAO-TZU

One of the great gifts of“mastering the game” is notonlybeingable towinbut to

have enough to make adifference for others. Nomatter how difficult oursituation may be, there arealways people who aresuffering more. Whensomeone creates wealth, it’shis or her privilege, and, Ibelieve, his or herresponsibility,togivebacktothosewho are just beginningthejourneyorthosewhohaveexperienced tragedies thathave knocked them off the

path.AsIwillsharewithyoulater, my family was therecipient of a simple act ofkindness when we literallyhadnofood,andthatchangedmy entire perspective onpeople and life. It helpedshapewhoIamtoday.So for decades I have

worked to give back byfeeding more than 2 millionpeople a year through myAnthony RobbinsFoundation, and for the last

fewyears,mywifeandIhavepersonally matched all theircontributions.Today I’m proud to say

thatakidwhostartedwithnofood personally helps 4million people a year to feelcared for and fed. In total,over 38 years, I’ve had thehonor to feed 42 millionpeople.Iwanttousethisbookasa

vehicle to help you developenough wealth—both

physical and emotional—sothat you can be a force forgood through your economiccontributions aswell as yourtime.Iwilltellyou,though,ifyouwon’tgiveadimeoutofa dollar, you won’t give $1million out of $10 million.The time to give is now!When I had nothing, I beganthis process. The reward isthat if you give, even at thetimes when you think youhave very little, you’ll teach

your brain that there ismorethan enough. You can leavescarcity behind and movetowardaworldofabundance.So I’d like to get you

started on this path. As youreadthisbook,knowthatyouare not only helping yourselfcreateanew financial future,but you are helping those 17million American familieswhofacehungereveryday.2How?Idecidedtodomore

inoneyearthanIhaveinmy

entirelifetime.Inthenameofmyreaders,atthetimeofthispublication, I am donating50millionmeals to themen,women, and children in thiscountry who suffer fromhomelessness. You’d besurprised who these peopleare. Yes, some have beenscarred by memories ofserving in war and some arementally or physicallychallenged. But millions arepeople just like you and me

who had a normal life andthenthelossofajob,ahealthproblem, or a family losspushedthemovertheedgetowhere they could not meettheir financial obligations.Most Americans are only afew lost paychecks awayfrom insolvency. So togetherlet’sreachouttohelp.AsIwaswritingthisbook,

Congressslashed$8.7billionfromthefoodstampbudget.Iwitnessed firsthand the

devastating impact this hadon the volunteers andnonprofit organizations thatwork in the fight againsthunger. That’s why I put up50 million meals, and I’musing my influence to getmatching funds so that wecan provide 100 millionmeals to feed the hungry.You’re welcome to join inand help, but know this:becauseyouboughtthebook,the one you are holding in

yourhandorreadingonyouriPad, you’re personallyfeeding 50 people. My hopeis that by the end of thisbook, you’ll be inspired tomake a small direct donationon your own as well. I haveinformationinthelastchapteron how you can use your“sparechangetohelpchangethe world.” There are somany simple and enjoyableways in which you can giveand create a legacy you can

feeltrulyproudof.

—

Whew, this has been quite afullchapter!Iknowit’salot,but hopefully it doesn’t feellong! Do I have you hookedon what’s really possible foryour life now? Can youimaginewhat itwill feel liketo take yourself from whereyou are today to where youreally want to be? What

would itbe like tohaveyourexperience of money nolonger be a source of stressbut rather a feeling ofexcitement and pride? Ipromiseyou the feelingsyouwillhaveasyouconquerthisareaofyour lifewillcreateanewmomentumnotonlywithfinancial success but also inotherareasof life thatmatterevenmore!Areyouready?One final note, if you’ve

read this far, I want to

compliment you because,unfortunately, you’re in thetop10%ofpeoplewhobuyanonfictionbook.That’sright:statisticsshowthatfewerthan10% of people who buy abook ever read past the firstchapter.Howinsaneisthat?Iwrote this book to be simplebut also to give you theopportunity to go deep—tomaster the game, to arm youwiththeskills tomasteryourfinancial world once and for

all. It’s not meant to be a“littleredbookofinvesting.”So Iwant to inviteyounow,andchallengeyou,tocommitto take the full journey withme through these pages. Ipromiseyou the rewardsyouwillreapwilllastfordecadestocome.Soturnthepageandletme

first give you a quickoverviewofwhat itwill taketohaveanincomeforlife—apaycheck that gives you the

lifeyouhave(or the lifestyleyou desire) without everhaving to work again. Onceyou achieve this, you willworkonlyifandbecauseyouwantto.Let’sgrabanoutlineof the road ahead anddiscover the 7 Simple StepstoFinancialFreedom.

1. Except for a few “unicorns,” a tinyand exclusive group of “financial

wizards” that the general populationdoes not have access to, but I’llintroduceyoutointhechaptersahead.

2.Feedingamerica.com

CHAPTER1.2

THE7SIMPLESTEPSTOFINANCIALFREEDOM:CREATEAN

INCOMEFORLIFE

Ajourneyofa

thousandmilesbeginswithasinglestep.

—LAO-TZU

Tellmesomething:Haveyoueverhadthatexperience,youknow . . . the completelyhumiliating experience ofplayingavideogameagainsta child? Who always wins?

Thechild,ofcourse!Buthowdoesshedoit?Isshesmarter,quicker,stronger?Here’s how it works.

You’revisitingyournieceornephew, and she or he willsay, “Come play it with me,UncleTony!”You immediately protest,

“No, no, I don’t know thisgame. You go ahead andplay.”Andtheysay,“C’mon,it’s

easy! Just let me just show

you.” Then they shoot a fewbad guys when they pop uponthescreen.Youstillresist,so they start pleading.“C’mon! C’mon! Please,please,please!”Youlovethiskid,soyougivein.Thenshesaysthesimplewordsthattellyou you’re being set up:“Yougofirst.”So you decide you’re

gonna make it happen!You’regoingtoshowthiskida thing or two. And then

what? Bam! Bam! Bam! In3.4 seconds, you’re dead.Shot in the side of the head.Smoked.Thenthekidtakesthegun,

and suddenly it’s bam-bam-bam-bam-bam!Thebadguysaredroppingfromtheskyandwhizzingaroundeverycornerin hyperspeed. The kid isanticipating every move andpicking them off—and about45minuteslater,yougetyoursecondturn.

Nowyou’retickedoff,andeven more committed. Thistime you last a full fiveseconds. And she goesanother 45 minutes. Youknowthedrill.So why do these kids

always win? Is it becausetheyhavebetterreflexes?Isitbecause they’re faster? No!It’s because they’ve playedthegamebefore.They already have one of

the greatest secrets towealth

and success in life: theycananticipatetheroadahead.Remember this:

anticipation is the ultimatepower. Losers react; leadersanticipate. And in thefollowing pages, you’ll learntoanticipate from thebestofthe best: the Ray Dalios andthe Paul Tudor Joneses andthe army of 50 otherextraordinary financialleaders who know the roadahead. They’re here to help

you anticipate the problemsandchallengesonthepathtofinancial freedom so youdon’tgethurtalong theway.Like Ray Dalio says, it’s ajungleoutthere,fullofthingsthat can kill you financially,and you need trusted guidesto help you get through it.With their help, we’re goingtolayoutaplanthatwillhelpyouanticipatethechallenges,avoidunnecessarystress,andarrive at your ideal financial

destination.I want to give a quick

overview of where we’regoing and how this book isset up, so you can make thebest use of it. But beforewedo that, let’s be clear aboutour true purpose.This bookis committed to oneprimaryoutcome:tosetyouup so you have an incomefor lifewithouteverhavingto work again. Realfinancial freedom! And the

good news is, it can beachieved by anyone. Even ifyou’re starting out in debt,deep in the hole—noexaggeration—withalittlebitoftime,consistentfocus,andthe right strategies applied,you can get to financialsecurity or evenindependenceinafewyears.Before we walk through

the steps, let’s first take alookatwhybeingfinanciallysecure used to seem so

simple.What’schanged?Andwhatdoweneedtodo?Let’sstart with a little historylesson.

Youcanbeyoungwithoutmoney,butyoucan’tbeoldwithoutit.

—TENNESSEEWILLIAMS

Everything about yourfinancial life seems so muchharder thesedays,doesn’t it?

I’m sure you’ve wonderedwhy it is so difficult to savemoney and retirecomfortably. We’ve come totreat retirement as a given inour society; a sacrosanctstage of life. But let’s notforget that retirement is arelatively new concept. Theidea has really served only ageneration or two—for mostof us, our parents andgrandparents. Before theirtime, folks generally worked

untiltheycouldn’t.Untiltheydied.Do you remember your

history? When was SocialSecurity invented? It wascreated under FranklinDelano Roosevelt during theGreatDepression,whentherewas no social safety net forold and sick people. And“old”wasadifferentconceptback then. The average lifeexpectancy in the UnitedStates was 62 years. That’s

all! And Social Securityretirement benefits weresupposedtokickinatage65,so not everybody wasexpectedtocollect,oratleastnot for very long. In fact,Roosevelt himself didn’t livelongenoughtocashinonhisbenefits (not that he wouldhave needed them). He diedattheageof63.The Social Security Act

eased the suffering ofmillionsofAmericansduring

a time of crisis, but it wasnever intended to become areplacement for retirementsavings—justasupplementtocover the most basic needs.And the system wasn’tdesigned for the world weliveintoday.Here’sthenewreality:There’s a 50% chance

that, among marriedcouples, at least one spousewilllivetotheageof92anda25%chance thatonewill

liveto97.Wow!Weareclosinginon

a life expectancy of age 100prettydamnquick.And with longer lives, we

expect longer—much longer—years for our retirement.Fifty years ago, the averageretirement was 12 years.Someoneretiringtodayatage65isexpectedtoliveto85orlonger. That’s 20-plus yearsof retirement. And that’s theaverage. Many will live

longer and have 30 years ofretirement!

It is not realistic tofinance a 30-yearretirementwith30yearsof work. You can’texpect to put 10% ofyour income aside andthenfinancearetirementthat’sjustaslong.

—JOHNSHOVEN,StanfordUniversityprofessorof

economics

How long do you expect tolive? All the breakthroughswe’re seeing in medicaltechnology might add yearsto your life—decades, even.Fromstemcelltechnology,to3-D printing of organs, tocellular regeneration,technologies are explodingonto the scene. You’ll hearabout them in chapter 7.1,“TheFutureIsBrighterThanYou Think.” It’s a blessing,but are you ready? Many of

usarenot.A recent survey conducted

by Mass Mutual asked babyboomers to name theirnumberonefear.Whatdoyou think itwas?

Death? Terrorism?Pestilence?No,thenumberonefearof

baby boomers was outlivingtheirsavings.(Death, by the way,

checkedinadistantsecond.)The baby boomers have a

right to be scared, and so domillennials. According to anErnst andYoung study, 75%of Americans can expect tosee their assets disappearbefore they die. And theSocialSecuritysafetynet—ifit survives into the nextgeneration—won’t provide areasonable standard of livingon its own. The currentaveragebenefit is $1,294permonth.Howfardoyouthinkthatwillstretchifyoulivein

New York, Los Angeles,Chicago, or Miami? Or howlong will the equivalentsystemwork in your countryif you live in London,Sydney,Rome,Tokyo,HongKong, or New Delhi? Nomatter where you live, ifyou don’t have anothersourceofincome,youcouldend up the best-dressedgreeteratWal-Mart.

It’sobviousthatwe’llneedto

stretchour retirement incomelonger than ever before—smack in themiddleofa flateconomy at a time whenmany are struggling torecoverlostground.Howhavewerespondedto

this growing emergency? Alot of us find theproblem sopainful and overwhelmingthat we just block it out andhopeitgoesaway.Accordingto EBRI, the EmployeeBenefit Research Institute,

48% of all workingAmericans haven’t evencalculated how much moneythey’ll need to retire. Yep,48%! That’s an astoundingnumber: almost half of ushave yet to take one of thefirststepstowardplanningforour financial futures—andour time of reckoning iscoming.So what’s the solution? It

starts with taking Step 1:make the most important

financialdecisionofyourlife.By the time you finish thisbook, you’ll not only havean automated plan forsaving and investing, butalso you’ll know how tocreate income withouthavingtowork.Wait a second! That’s too

good to be true, you’rethinking. And anything thatsounds too good to be trueprobablyis,right?Yet I’m sure you know

there are some exceptions totherule.Whatwouldyousayif I told you that today thereare financial instruments thatwill let you make moneywhen the markets go up andnot lose a penny when theygo down?Twenty years ago,it would have beenimpossible for ordinaryinvestors to imagine such athing. But investors usingthesetoolsin2008didn’tlosea dime or even a night’s

sleep. I have this kind ofsecurity and freedom for myfamily. It’s an amazingfeeling to know you’ll neverrun out of income. And Iwanttomakesureyouhaveitfor yourself and your familyas well. In this book, I willshow you how to create aguaranteed lifetime incomestream.Apaycheckforlifewithout

everhavingtoworkagain.Wouldn’t it be great to

openupyourmailat theendof the month, and instead offinding a statement with anaccount balance you’rehoping hasn’t gone down,youfindacheckinitsplace?Imaginethishappeningeverymonth.That’sincomeforlife,andthere’sawaytogetit.In section 2, we’ll show

you how to build yourinvestments into a sizeablenest egg—what I call acritical mass—that will

enable you to make moneyevenwhileyousleep!Withafew simple strategies, you’llbeabletocreateaguaranteedincome stream, allowing youto build, manage, and enjoyyour ownpersonal “pension”onyourownterms.It’s probably hard for you

to imagine that there’s astructure available today thatcandeliverforyou:• 100% principal protection,

meaningthatyoucan’tloseyourinvestment.

•Thereturnsinyouraccountare directly linked to theupside of the stockmarket(for example, the S&P500). So if the stockmarketgoesup,youget toparticipateinthegains.Butif the market goes down,youdon’tlose!

•Youalsohavetheabilitytoconvert your accountbalance to a guaranteed

income that you’ll neveroutlive.

You can stop imagining—it’s here! It’s one of theopportunities that’s nowavailable for investors likeyou. (And you will find outaboutitinchapter5.3.)To be clear, I’m not

suggesting here that, evenwith income for life, you’llwant to stop working whenyou reach the traditional

retirement age. Chances areyouwon’t.Studies show thatthemoremoneyyouearn,themore likely you are to keepworking.Itusedtobethatthegoalwastogetrichandretireby the age of 40. Now thegoal is to get rich and workuntilyou’re90.Nearlyhalfofall individuals who earn$750,000 per year or moresay theywill never retire, orif they do, the earliest theywouldconsideritisage70.

How about the RollingStones and Mick Jagger atage 71—still rockin’ theworld?Or think of business

moguls like Steve Wynn at72.WarrenBuffettat84.RupertMurdochat83.SumnerRedstoneat91.Atthoseagestheywereall

still running their businessesand crushing it. (Probablystillare.)Maybeyouwillbe,

too.But what happens if we

can’t work, or don’t want towork anymore? SocialSecurityaloneisnotgoingtobemuchofacushionforourretirement.With10,000babyboomersturning65everydayand the ratioofold toyounggetting more and morelopsided, it may not even bearound, at least as we knowit. In 1950 there were 16.5workers paying into the

Social Security system tosupport one person gettingbenefits. Now it’s 2.9workersperrecipient.Does this ratio sound

sustainabletoyou?In an article titled “It’s a

401(k) World,” ThomasFriedman, the New YorkTimes columnist andbestselling author, wrote, “Ifyou are self-motivated,wow,thisworldistailoredforyou.The boundaries are all gone.

But if you’re not self-motivated, thisworldwill beachallengebecausethewalls,ceilings and floors thatprotected people are alsodisappearing. . . . There willbe fewer limits, but alsofewer guarantees. Yourspecific contribution willdefine your specific benefitsmuchmore. Just showing upwillnotcutit.”As for those sweet

employee pensions our

parents and grandparentscountedoninretirement,theytoo are going the way ofblacksmiths and telephoneoperators.OnlyabouthalfofAmerica’s private sectorworkforceiscoveredbyanykind of retirement plan atall, and most of those arenowdo-it-yourself, take-all-the-riskmodels.Ifyou’reamunicipal,state,

or federal employee, youmight still enjoy a

government-backed pension,but with every passing day,there are more folks, likethose from Detroit to SanBernardino,wonderingifthatmoneywillbetherewhenit’stheirtimetocollect.So what’s your retirement

plan?Doyouhaveapension?A 401(k)? An IRA? Todayabout 60 million Americansparticipate in 401(k) plans,totalingover$3.5trillion.Butthey can be a bad, even

disastrous deal for you ifyou’re inoneof thehigh-feeplans that dominate themarket. That’s why, if youare in a 401(k) plan, you’vegottoreadchapter2.5,“Myth5: ‘YourRetirement IsJusta401(k)Away.’ ”Whatyou’lllearn and the simple changesyou can make couldtransform your life—givingyou peace of mind and thecertainty you need today—and mean the difference

betweenretiringearlyandnotbeingabletoretireatall.

DEATHANDTAXES:THEONLY

CONSTANTS

Nottobeoutdonebyvolatilemarkets (moving faster thanthe speed of light, literally),exorbitant (and hidden) fees,

and an outdated pensionsystem, let’snot forget aboutour good old friend the taxman. Oh, the tax man. He’lltake up to 50% (or more!),thank you very much—oneverything you earn. If youthought hidden feeswere theonly drag on accumulatingwealth, you’ve missed thebiggestculpritofall.We all know the drag of

taxes, to some degree, butfewrealizejusthowbigabite

taxes takefromourability toachieve financial freedom.Sophisticated investors havealways known this: it’s notwhat you earn, it’swhat youkeepthatmatters.The greatest investors in

the world understand theimportance of tax efficiency.Just how destructive cantaxes be when compoundedovertime?Let’s try a metaphor: say

you’ve got one dollar, and

somehow you’re able todouble it every year for 20years.Weallknowthisgame.It’s called compounding,right?Afteryearone,you’vedoubledyourdollarto$2.

Yeartwo:$4.Yearthree:$8.Yearfour:$16.Yearfive:$32.

If you had to guess, what

do you think your dollar hasgrowntobyyear20?Don’t cheat and peek

ahead. Take a moment andguess.Through the magic of

compounding, in just twodecadesyourdollarturnsinto(drumroll, please):$1,048,576! That’s theincredible power ofcompounding!As investors, we want to

tap into this power. But, of

course, the game is not thatsimple. In the real world,Caesarwants tobepaidfirst.Thetaxmanislookingforhispiece. So what’s the impactof taxes on the samescenario? Once again, take aguess. If you’re fortunateenough to pay only 33% intaxes per year, what do youthink your dollar has nowgrown to after taxes in 20years?Again, take amoment and

reallyguess.Well, if the tax-free

number was $1,048,576 . . .hmmm.With33%tax,wouldthat be about $750,000? Oreven $500,000? Think again,Kemosabe.Now let’s look at the next

columnandseetheincredibledollar-draining power whenwe take out money for ourtaxes each year beforecompounding—doubling ouraccount.Assuminganannual

taxrateof33%,attheendofthose same 20 years, theactual net amount you’ll endupwithisjustover$28,000!That’s right, $28,000! A

differenceofover$1million—and that doesn’t evenaccount for state taxes! Insome states, such asCalifornia, New York, andNew Jersey, you can expectthe total to be significantlysmallerstill.Sure, this dollar-

doubling, dollar-drainingscenarioisbasedonreturnsyou’ll never see in the realworld—but it illustrateswhat can happen when weneglect to consider theimpact of taxes in ourfinancialplanning.Given the way things are

going inWashington,doyouthink taxes are going to behigherorlowerinthecomingyears?(You don’t even have to

answerthatone!)In section 5, I’m going to

give you the “in” that untilnow was available only tosophisticated investors orultra-high-net-worthindividuals. I’m going toshow you what the smartestinvestorsalreadydo—howtotaketaxesoutoftheequation,using what the New YorkTimes calls “the insider’ssecretfortheaffluent.”It’sanIRS-approved method to

grow your money tax free,andyoudon’thavetoberichor famous to take advantageof it. It could literally helpyou achieve your financialindependence 25% to 50%faster, depending upon yourtaxbracket.

Nopersonisfreewhoisnotmasterof

himself.—EPICTETUS

Butplanornoplan,thefutureis comingon fast.Accordingto the Center for RetirementResearch, 53% of Americanhouseholds are “at risk” fornot having enoughmoney inretirement to maintain theirliving standards.That’smorethan half! And remember,more than a third ofworkershave less than $1,000 savedup for retirement (notincluding pensions and theprice of their home), while

60%havelessthan$25,000.Howcanthisbe?Wecan’t

blame it all on the economy.The savings crisis startedlong before the recent crash.In 2005 the personal savingsrate was 1.5% in the UnitedStates. In 2013 it was 2.2%(after topping 5.5% at theheight of the meltdown).What’s wrong with thispicture? We don’t live inisolation.Weknowweneedtosavemoreand invest.So

whydon’twedoit?What’sholdingusback?Let’s start by admitting

that human beings don’talways act rationally. Someofusspendmoneyonlotterytickets even if we know theodds of winning thePowerball jackpot are 1 in175million, and that we are251 times more likely to behit by lightning. In fact,here’s a statistic that willblow yourmind: the average

American household spends$1,000 a year on lotteries.Now,myfirstreactionwhenIheard this from my friendShlomo Benartzi, thecelebrated professor ofbehavioral finance atUCLA,was,“That’snotpossible!”Infact, I was recently at aseminar and asked theaudience how many hadbought a lottery ticket. In aroom of 5,000 people, fewerthan 50 raised their hands. If

only 50 people out of 5,000aredoingitandtheaverageis$1,000, then there are plentyof people buying way more.Bytheway,therecordisheldby Singapore, where theaverage household spends$4,000 a year. Do you haveanyideawhat$1,000,$2,000,$3,000, $4,000 set aside andcompounded over time couldbeworth to you? In the nextchapter, you’re going todiscover how little money it

takestohaveahalfmilliontoonemilliondollarsormoreinretirement that requiresalmostnotimetomanage.So let’s turn to behavioral

economicsandseeifwecan’tfind some little tricks thatcould make the differencebetween poverty and wealth.Behavioral economists try tofigure out why we make thefinancialmistakeswedoandhow to correct them withouteven our conscious

awareness.Prettycool,huh?Dan Ariely, renowned

professor of behavioraleconomics at DukeUniversity, studies how ourbrains fool us regularly.Human beings evolved todepend on our sight, and ahuge part of our brain isdedicated to vision. But howoftendooureyesdeceiveus?Havealookatthetwotablesbelow.

If I asked youwhich table

is longer, the narrow one onthe left or the fat one on theright, most people wouldnaturally pick the one on theleft. And if youwere one of

them, you’d be wrong. Thelengths of both tables areexactly the same (go on,measure them if you don’tbelieveme).Okay,let’stryitagain.

Which table is longer this

time? Wouldn’t you betanything that the one on theleftisstilllonger?Youknowthe answer, and yet yourbrain continues to deceiveyou.The one on the left stilllooks longer. Your eyeshaven’t caught up with yourbrain. “Our intuition isfooling us in a repeatable,predictable, consistent way,”Ariely said at a memorable

TED Talk. “And there isalmost nothing we can doaboutit.”So if we make these

mistakes with vision, whichin theory we’re decent at,what’s the chance that wedon’t make even moremistakesinareaswe’renotasgood at—financial decisionmaking, for example?Whether or not we think wemake good financialdecisions, or poor ones, we

assume we’re in control ofthe decisions we do make.Sciencewould suggestwe’renot.Justlikethevisualillusions

we’re susceptible to, Arielytoldme later in an interviewthathechalksupmanyofourdecision-making mistakes to“cognitive illusions.” A caseinpoint: Ifyouwere towalkintoyourlocalDepartmentofMotor Vehicles tomorrowand be asked the question

“Doyouwant todonateyourorgans?” what do you thinkyou would say? Some of uswould immediately say yes,and think ourselves selflessand noble. Others mightpauseorbalkorbeturnedoffby the gruesomeness of thequestion and decline. Ormaybe you’d punt and sayyouneed time to think aboutit. Regardless, you’d assumethatyourdecisionisbasedonfree will. You are a

competent and capable adult,qualified to determinewhetherornottodonateyourorganstosavealife.But here’s the thing: a lot

of it depends on where youlive. If you are in Germany,there’s about a one-in-eightchance you’ll donate yourorgans—about 12% of thepopulation does. Whereas inAustria,Germany’snext-doorneighbor, 99% of peopledonate their organs. In

Sweden, 89% donate, but inDenmark,therateisonly4%.What gives? Why such adisparity?Could it be about religion,

orafearfactor?Isitbasedonculture? It turns out theanswer is none of the above.The huge disparity in donorrates has absolutely nothingto dowith you personally oryour cultural heritage. It haseverything to do with thewording on the form at the

DMV.In countries with the

lowest donor rates, likeDenmark,thereisasmallboxthat says,“Checkhere ifyouwant to participate in theorgan donor program.” Incountries with the highestrates, like Sweden, the formsays, “Check here if youdon’t want to participate intheorgandonorprogram.”That’s the secret! Nobody

likes to check boxes. It’s not

thatwe don’twant to donateour organs. That little bit ofinertia makes all thedifferenceintheworld!If a problem is too

overwhelming, we tend tojustfreezeanddonothing.Orwe do what’s been decidedfor us. It’s not our fault. It’sthe way we’re wired. Theproblemwith organ donationis not that people don’t care,it’s that they care so much.The decision is difficult and

complicated, andmany of usdon’tknowwhattodo.“Andbecause we have no ideawhat to do, we just stickwithwhatever ischosenforus,”saysAriely.This samesenseof inertia,

or picking what has beenchosen for us, helps explainwhyonlyathirdofAmericanworkers ever take advantageof available retirement plans.It explainswhy so fewof ushave made a financial plan

for our futures. It seemscomplicated. We’re not surewhattodo,sowepunt,orwedonothingatall.Arielytoldmethatwhenit

comes to the physicalworld,weunderstandourlimitationsand build around them. Weuse steps, ramps, andelevators. “But for somereason, when we designthings like health care andretirementandstockmarkets,we somehow forget the idea

thatweare limited,”he said.“Ithinkthatifweunderstoodour cognitive limitations inthe same way that weunderstand our physicallimitations, even though theydon’t stare us in the face inthe same way, we coulddesignabetterworld.”RememberwhatRayDalio

said about going into thejungle, that the first thing heasked himself was, “Whatdon’t I know?” If you know

your limitations, you canadapt and succeed. If youdon’t know them, you’regoingtogethurt.Mygoal in this book is to

wake people up and givethem the knowledge and thetools to take immediatecontrol of their financiallives. So I’ve created a planthat won’t trip you upbecause it’s too complex, ortoo hard, or time intensive.Why?Because,aswe’veseen

from those DMV forms,complexity is the enemy ofexecution. That’s why I’vedivided this plan into 7Simple Steps and created apowerful new smart phoneapp,completelyfree,toguideyou through them. You candownload it right now bygoing towww.tonyrobbins.com/masterthegameYou can check off yourprogress as you go, andcelebrateyourvictoriesalong

theway.Theappwillsupportyou, answer your questions,and even give you a nudgewhen you need it. Becauseyou’re going to get excitedand have the best intentions,andthenafewdistractionsoranattackofinertiacanknockyou off target. Thisautomatedsystemisdesignedto prevent that. And guesswhat? Once you’re done,you’re done. After yourplan is inplace,you’llhave

tospendonlyanhourorsoonce or twice a year tomakesureyou’reoncourse.So there’s no excuse not tostayon thepath to a lifetimeof financial security,independence,andfreedom—and have plenty of time toenjoy the things that reallymattertoyou!Hopefully, by now your

mindischurning.IknowI’vegivenyoualottothinkaboutso far, but I’m committed to

creating lastingbreakthroughs in yourfinancial life, and Iwantyouto get a clear picture of theroad ahead. So let’s take aquick walk through the 7Simple Steps to FinancialFreedom.If you belong to a

generation raised on blogsand tweets, my guess is thatyou’re saying: “Why don’tyou just put these 7 Steps—and,forthatmatter,thewhole

book!—in one paragraph forme,orevenan infographic?”I could do that.But knowinginformationisnotthesameasowning it and followingthrough. Information withoutexecution is poverty.Remember: we’re drowningin information, but we’restarvingforwisdom.So I want to prepare your

mind for each of the stepsthat are coming. In thisway,you’ll be ready to take the

necessary actions that willguarantee that your path tofinancialfreedomisrealized.This book is designed to

give you mastery over asubject that torments mostpeoplebecause they’venevertaken the time to master thefundamentals that would setthem free. And masterymeans going deep. Anyonecan read something,remember it, and feel likeheorshehaslearnedsomething.

But true mastery requiresthreelevels.The first is cognitive

understanding. It’s yourability to understand theconcept.Anyofuscangetit.Andmanyofusalreadyhavea cognitive understanding ofpersonal finance andinvesting. But that and $3willalmostbuyyouacupofcoffee at Starbucks! What Imean is that information byitselfisnotvaluable.It’sonly

thefirststep.You start getting real

value when you reach thesecond step: emotionalmastery. That’s where youhave heard something withenough repetition, and it’sstimulated enough feelingsinsideyou—desires, hungers,fears, concerns—that nowyou become conscious andcapable of consistently usingwhatyou’velearned.But the ultimatemastery

is physical mastery. Thatmeans you don’t have tothinkaboutwhatyoudo;youractions are second nature.Andtheonlywaytogetitisthrough consistentrepetition.Mygreat teacher,Jim Rohn, taught me thatrepetition is the mother ofskill.I’ll give you a perfect

exampleofwhereI fell shortin this area. In my earlytwenties, I decided I wanted

to get a black belt inmartialarts,andIhadtheprivilegeofmeeting and becoming dearfriendswiththegrandmasterJhoon Rhee. He’s the manwhobroughtTaeKwonDotothis country andwho trainedboth Bruce Lee andMuhammad Ali in the art. ItoldhimIwantedtogainmyblackbeltintheshortesttimein history, and I was willingto do whatever it took interms of practice,

commitment, and disciplineto break the record. Heagreed to travel on the roadwith me to complete mytraining. It was brutal! I’doften finish a seminar andarrive at one o’clock in themorning formy training, andthenworkwiththemasterforanother threeor fourhours. Iwouldhavetogetbyonfourhoursofsleepatmost.One night, after a

particularly long period of

practicing the same exactmove at least 300 times, Ifinally turned to my teacherandasked,“Master,whencanwegoon to thenextmove?”He looked at me sternly andsaid,“Oh,grasshopper,thisisthe next move. The fact thatyou can’t tell the differencebetween themove youmadethistimeandtheoneyoudidbefore shows you are still adabbler. Those finedistinctionsarethedifference

between a master and anamateur. And masteryrequires this level ofrepetition. With eachrepetition you must learnmore,”hesaidwithasmile.Doyouseemypoint?This

book was not designed foryou to skim through in anafternoon.As you read, you’ll notice

that this book is unlikeanything you’ve encounteredbefore because it reflectsmy

unique style of teaching.You’ll be asked a lot ofquestions, and you’llsometimes see facts andphrases that you’ve readbefore.Therewillbea lotofexclamationpoints!Thisisn’tan editing mistake! It’s atechnique designed to markout key ideas and to buildknowledge into your mind,body,andspiritsothatactionbecomes automatic. That’swhen you’ll start seeing

results and reaping therewards that you desire anddeserve. Are you up for thechallenge?And remember: this is not

just a book, it’s a blueprint.Each section is designed tohelp you understand exactlywhere you are in financialterms and help you close thegap between where you arenow and where you trulywant to be. This work isdesignedtoarmyou,not just

for today but for the rest ofyourlife.Iknowyou’llcomeback at different stages totakethingstothenextlevel.

SECTION1:WELCOMETO

THEJUNGLE:THEJOURNEYBEGINSWITHTHISFIRST

STEP

Like all great adventurers,we’llstartbygettingorientedfor the trip. In chapter 1.4,you’ll learn more about thepsychology of wealth, whatholds us back, and somesimple cures.You’ll uncoverwhat it is you’re reallyinvestingfor,andunleashthepower of the best financialbreakthrough strategies.

Then, inthenextchapter,weblast off. Here you’ll takethe first of the 7 SimpleSteps and make the mostimportantfinancialdecisionofyour life.This chapter isa must read. You’ll learnhow, with even the smallestamount of money combinedwith the miracle power ofcompounding, you canabsolutelybecomefinanciallyindependent in your lifewithout ever having tomake

a fortune in annual income.You’llactivatethissystembydecidingonaportionofyourincometosaveandinvestforcompounded interest. You’llbecome not just a consumerin the economy but also anowner—an investor with astake in the future. You’lllearn how to build your ownautomated“moneymachine,”a system that will generateincomeforyoufora lifetimewhileyousleep.

SECTION2:BECOMETHE

INSIDER:KNOWTHERULES

BEFOREYOUGETINTHEGAME

Maybe you’ve heard that oldexpression, “When a manwithmoneymeetsamanwithexperience, themanwith the

experience ends up with themoney,andthemanwiththemoney ends up with theexperience.”Nowthatyou’vedecided to become aninvestor,thissectionexplainsthe critical rules of the gameso thatyoudon’t fallprey tothose players with all theexperience. This road mapshows the way through theinvestment jungle that RayDaliowastalkingabout,withthe worst danger zones

marked with big red Xs.These are the marketingmyths—some people callthem investment lies—thatare often designed tosystematically separate youfrom your money. You’lllearn why the returns themutual funds advertise arenot the returns that youactually receive. I know itsounds crazy,but the1% feethatyouthinkisthetotalcostyou’re paying is really only

oneofmorethantenpotentialfees, and that your averagemutual fund might be eatingup 60% of your potentialreturnsovertime!Remember,in this short section alone,you’llsavebetween$250,000and $450,000 minimum,back in your pocket withoutgettinganybetterreturnsoveryour investment lifetime!And you’ll see that thisamount is all documented—based on studies, not based

onmyopinionorfunnymath.We’ll also discuss thedeceptions that can be a partof target-date funds and no-loadfunds,andarmyouwitha real understanding of howtoprotectyourselffromfirmsthat often tailor theseproducts and strategies fortheir maximum profit—notyours! By the end of thissection you’ll have takenyoursecondstep,andevenifyouonlyhaveasmallamount

ofmoney,you’llbeinvestingitlikeaninsider.

SECTION3:WHAT’STHE

PRICEOFYOURDREAMS?MAKE

THEGAMEWINNABLE

Together we’ll explore yourfinancial dreams, and setsome realistic goals that willmake the game trulywinnable. Most people haveno idea how much moneythey’ll need to achievefinancial security,independence, and freedom.Or the giant numbers theyhave in their heads are sointimidating that they neverevenstartaplantoget there.But in chapter 3.1, you’ll

figure out what you reallywant, and it’s going to beexciting—especially whenyou realize that your dreamsmaybecloserthanyouthink.You’ll not only dream, butyou’ll turn those dreams intoreality—a plan—in chapter3.2. It’sgoing tobedifferentforeveryone,andwehavethesoftware to customize it foryou.You can do it online oron your app, where you cankeepitandchangeitasmany

times as you want until youfindarealisticandachievableplan. And if you’re notgetting to your dreams fastenough,we’regoing to showyou fiveways to speed it upin section 3. By the timeyou’ve taken Step 3, you’llnot only know how to buildwealth for your futureretirement, but how to enjoyitalongtheway.

SECTION4:MAKETHEMOST

IMPORTANTINVESTMENTDECISIONOFYOURLIFE

Nowthatyou’rethinkinglikeaninsider,youknowtherulesof the game, and you’velearned how to make the

game winnable, it’s time tomake the most importantinvestment decision of yourlife: Where do you put yourmoney and in whatproportions?Asset allocationis what every Nobel Prizewinner, every hedge fundmanager, every topinstitutional investor, barnone, toldmewas thekey tosuccessful investing—yetvirtually 99% of Americansknow little or nothing about

it.Why?Maybe it seems toocomplicated. But in chapter4.1, I’m going to make itsimple and also show youwheretogotohaveanexpertassistyouonline.Properassetallocationmeans dividing upwhat you’re investing intobuckets that are secure andgive you peace of mind,versusbucketsthatareriskierbut may have greaterpotential for growth. It’s theultimate bucket list! And

when you complete Step 4,you’ll not only knowhow tobecome wealthy, but how tostaywealthy.

SECTION5:UPSIDEWITHOUTTHEDOWNSIDE:

CREATEALIFETIME

INCOMEPLAN

Whatgoodisinvestingifyoudon’t have any money tospend? Most people havebeen so conditioned to focuson putting more money in a401(k) plan or building theirretirementaccounttheyforgetthat they’ll need to draw itdown as income some day.And since account balancesfluctuate (remember, they

don’t just go up!), we mustcreateandprotectourincomeplan. Remember 2008? Howdo you protect yourself fromthe next crash? How do youset up a portfolio that avoidsgetting whipsawed? How doyou know you won’t end upoutliving yourmoney,whichis so many people’s numberonefear?Youmaybeblessedwith a long life, but it maynotfeellikeablessingifyourun out of money. In this

section we’ll offer specificinsights into one of the best-kept secrets in the financialcommunity and help youdevelopaguaranteedlifetimeincome plan—a certainrevenuestreamthatcanformthe foundation for truefinancial peace of mind.We’ll explorecreativewaysyou can stop or drasticallylimit losses and increaseyour gains—using theinvestment vehicles favored

by banks, large corporations,and some of the world’swealthiest individuals. Whatdo they know that you don’tknow? It’s how to have theupsidewithout thedownside,and to make sure your gainsaren’teatenawaybytaxes.

SECTION6:INVESTLIKETHE

.001%:THEBILLIONAIRE’SPLAYBOOK

We’ll hear what’s good andwhat’s challenging about thestateoftheglobaleconomy—how we got here and whatmay be coming next—fromsomeoftheclearestandmostinfluential thinkers in thefinancial world.Then you’ll

meet the masters of thegame, 12 of the mostcolorfulandbrilliantmindsin finance, and learn whathas guided them throughevery economic condition.We’llaskPaulTudorJoneshowhemadea60%monthlyreturn in 1987 by predictingthe Black Monday crash,whenthemarketwasburningdown around him.And how,21yearslater,hewasabletomake nearly 30% when the

market lost nearly 50% andthe world seemed to befallingapartagain.Pluswe’lllook at how he has avoidedlosses and managed to have28straightprofitableyearsinevery conceivable market,neverlosingadime.Someofthe people you’ll bemeetingin our “Billionaire’sPlaybook,” such as CharlesSchwab, Carl Icahn, T.Boone Pickens, Ray Dalio,and Jack Bogle, struggled

when they were growing up—they weren’t born with asilver spoon in their mouth.So how did they make it tothe top? We’ll ask whatmoney means to them, andwe’ll peek into their actualportfolios.Bythetimeyou’vefinished Step 6, you’ll knowhowthe.001%invests.

SECTION7:

JUSTDOIT,ENJOYIT,AND

SHAREIT

Here we’ll come up with anactionplantohelpyouliveabetter, fuller, richer, morejoyful life. And we’ll talkabout what to do to stay ontarget.Iguaranteewe’llblowyour mind with some of thebreathtaking new

technologies that will makeeven the near future betterthan you think. This is theoppositeofwhatmostpeoplebelieve. According to anNBC–Wall Street Journalpoll, 76% of Americans—anall-time record—think thattheir children’s lives will beworseoffthantheirown!Butyou’re going to get aninsider’s look at what’scoming from some of themost brilliant minds of our

time. We’ll hear from myfriends Ray Kurzweil, theEdison of our age, and PeterDiamandis, creator of the XPrize,aboutnewtechnologiescoming online: 3-D printersthat will transform yourpersonal computer into amanufacturing plant, self-driving cars, exoskeletonsthat enable paraplegics towalk, artificial limbs grownfrom single cells—innovations that will

dramaticallychangeour livesforthebetterintheverynearfuture. I’m hoping this willinspire you, and also showyouthatevenifyousomehowscrew up and don’t get yourfinancial act together, you’llstill have a better quality oflife. And for those with theresources,you’relookingatafuture of limitlesspossibilities.We’ll wrap up with the

simple fact that the secret to

living is giving: sharingwithothers not only gives you agreaterqualityoflifebutalsobrings you a greaterexperienceofjoy.Andyou’lllearn about new technologiesthatmakegivingpainlessandfun. As you feed your mindand build your own wealth,myhopeisthatyou’lldowellenough to help others. Andremember,you’remypartneringivingnow.Andasyou’rereading, someone in need is

beingfed.

Idon’tbelievepeoplearelookingforthemeaningoflifeas

muchastheyarelookingfortheexperienceof

beingalive.—JOSEPHCAMPBELL

I’ve made these 7 SimpleStepstoFinancialFreedomasclear and simple as possibleforyou.Nowit’suptoyouto

take action and followthrough each of the sevensteps,oneatatime,togetthejobdone.Whatdoyouneedtoseeit

through?Whatworksbestforyou? Let’s create a simpleplan together now. Some ofyoumight sit down and readthe whole book over a longweekend—andifyoudo,thenyou’re as crazy and asobsessedasIam,abrotherorsister on the path! If you

don’t have a weekend tospare, consider taking achapter a day or a section aweek. Immerse yourself alittle bit at a time for a fewweeksandyou’llget itdone.Whateverittakes.This is a journey of a

lifetime, a journey worthmastering!Ifyou’rewithme,letthejourneybegin!

CHAPTER1.3

TAPTHEPOWER:MAKETHEMOST

IMPORTANTFINANCIALDECISIONOFYOURLIFE

Mywealthhascome

fromacombinationoflivinginAmerica,some

luckygenes,andcompoundinterest.

—WARRENBUFFETT

Let’skickitingearnow.It’stime to begin our journey bytapping the power that cancreaterealwealthforanyone.

It’s not some get-rich-quickscheme, and it’s not whatmost people think will makethem financially free orwealthy. Most people arelooking to make some “bigscore”—a financial windfall—and then they think they’llbeset.But let’s face it,we’re not

about to earn our way towealth. That’s a mistakemillions ofAmericansmake.We think that if we work

harder, smarter, longer,we’llachieveour financialdreams,but our paycheck alone—nomatter how big—isn’t theanswer.I was reminded of this

fundamentaltruthonarecentvisitwiththenotedeconomistBurtonMalkiel,authorofoneof the classic books onfinance, A Random WalkDownWall Street. I went tosee Malkiel in his office atPrinceton University because

I admired not just his trackrecord but also his no-nonsense style. In his booksand interviews, he comesacrossasastraightshooter—andthedayImethimwasnoexception.Iwantedtogethisinsights on some of thepitfalls facing people at allstages of their investmentlives. After all, this was theguy who helped create anddevelop the concept of indexfunds—awayfortheaverage

investor to match, or mimic,the markets; a way thatanyone, even with a smallamountofmoney,canownapiece of the entire stockmarket and have trueportfolio diversity instead ofbeingstuckwiththeabilitytobuy only a small number ofsharesofstock inoneor twocompanies. Today thiscategory of investmentsaccounts for over $7 trillioninassets!OfallthepeopleI’d

planned to interview for thisbook,hewasoneofthebest-qualified to help me cutthrough the clutter anddoublespeak of Wall Streetand assess our currentinvestmentlandscape.What’s thebiggestmisstep

most of us make right fromthestart?Malkieldidn’tevenhesitatewhenIaskedhim.Hesaid themajorityof investorsfail to take full advantage ofthe incredible power of

compounding—themultiplying power of growthtimesgrowth.Compound interest is

such a powerful tool thatAlbert Einstein once calledit the most importantinvention in all of humanhistory. But if it’s soawesome, I wondered, whydo so few of us take fulladvantage of it? To illustratethe exponential power ofcompounding,Malkielshared

with me the story of twinbrothers William and James,with investment strategiesthatcouldn’thavebeenmoredifferent. He gives thisexample inoneofhisbooks,so Iwas familiarwith it, buttohearhimtellitlivewasanincredibleexperience—alittlelike hearing an 81-year oldBruce Springsteen play anacoustic version of “Born toRun” inhis living room.Thestory supposes that William

andJameshavejustturned65—the traditional retirementage.Williamgotajump-starton his brother, opening aretirement account at the ageof 20 and investing $4,000annually for the next 20years. At 40, he stoppedfunding the account but leftthe money to grow in a tax-free environment at the rateof10%eachyear.James didn’t start saving

for retirement until the ripe

old age of 40, just as hisbrother William stoppedmaking his owncontributions. Like hisbrother, James invested$4,000 annually, also with a10% return, tax free, but hekeptatituntilhewas65—25yearsinall.In sum, William, the

early starter, invested atotal of $80,000 ($4,000peryear × 20 years at 10%),while James, the late

bloomer, invested $100,000($4,000peryear×25 yearsat10%).Sowhichbrotherhadmore

money in his account at theageofretirement?IknewwhereMalkielwas

going with this, but he toldthe story with such joy andpassion that it’s like he wassharing it for the very firsttime. The answer, of course,was the brother who’dstarted sooner and invested

the leastmoney. Howmuchmore did he have in hisaccount? Get this: 600%more!Now, step back for a

moment and put thesenumbers incontext. Ifyou’rea millennial, a Gen Xer, oreven a baby boomer, payclose attention to thismessage—andknow that thisadvice applies to you, nomatterwhereyouareonyourpersonal timeline. If you’re

35 years old and yousuddenly grasp the power ofcompounding, you’ll wishyougotstartedon itat25. Ifyou’re 45, you’ll wish youwere35.Ifyou’reinyour60sor 70s, you’ll think back tothe pile of money you couldhave built and saved if onlyyou’d gotten started on allthatbuildingandsavingwhenyouwereinyour50sand60s.Andonandon.In Malkiel’s example, it

was William, the brotherwho’dgottentheearlystartand stopped saving beforehisbrotherhadevenbegun,who ended up with almost$2.5 million. And it wasJames, who’d saved all thewayuntiltheageof65,whohad less than $400,000.That’s a gap of over $2million!AllbecauseWilliamwas able to tap into theawesome power ofcompounding for an

additional 20 years, givinghim an insurmountable edge—and saddling him with thefamily dinner checks for therestofhislife.

Themanontopofthemountaindidn’tfall

there.—VINCELOMBARDI

Notconvincedthatcompoundinterest,overtime,istheonlysurewaytogrowyourseedof

money into the bumper cropof financial security you’llneed to meet your futureneeds? Malkiel sharedanotherfavoritestorytobringhome his point—and thisone’sfromourhistorybooks.When Benjamin Franklindied in 1790, he left about$1,000 each to the cities ofBoston andPhiladelphia.Hisbequests came with somestrings attached: specifically,themoneywastobeinvested

andcouldnotbe touched for100years.Atthatpoint,eachcity could withdraw up to$500,000 for designatedpublic works projects. Anyremaining money in theaccountcouldnotbetouchedfor another 100 years.Finally, 200 years afterFranklin’sdeath,aperiodoftime that had seen stocksgrow at an averagecompounded rate of 8%,each city would receive the

balance—which in 1990amounted toapproximately$6.5 million. Imagine that$1,000growsto$6.5million,withnomoneyaddedoverallthoseyears.Howdiditgrow?Through

thepowerofcompounding!Yes, 200 years is a long,

long time—but a 3,000%rate of return can be worththewait.Malkiel’s examples show

us what we already know in

ourhearts tobe true: that formost of us, our earnedincome will never bridgethe gap between where weare and where we reallywant to be. Because earnedincomecannevercomparetothepowerofcompounding!

Moneyisbetterthanpoverty,ifonlyforfinancialreasons.

—WOODYALLEN

Still think you can earn yourway to financial freedom?Let’s take a quick look athowit’sworkedoutforsomeof the highest-paid people intheworld:Legendarybaseball pitcher

Curt Schilling earned morethan $100 million in anincredible career thatincluded not one but twoWorld Series championshipsfor theBostonRed Sox. Butthen he poured his savings

intoavideogamestartup thatwent bankrupt—and broughtSchilling down with it. “Ineverbelievedthatyoucouldbeat me,” Schilling toldESPN.“Ilost.”Now he’s $50 million in

debt.Kim Basinger was one of

the most sought-afteractresses of her generation,torching the big screen withindelible roles in such films

as 91/2 Weeks, Batman, andL.A. Confidential, whichearned her an AcademyAward as best supportingactress. At the height of herA-list popularity, she earnedmore than $10 million perpicture—enoughtospend$20million to buy a whole towninGeorgia.Basinger ended up

bankrupt.Marvin Gaye, Willie

Nelson,M.C.Hammer,MeatLoaf—they sold millions ofalbums and filled stadiumswith adoring fans. FrancisFord Coppola? He packedtheatersasthedirectorofTheGodfather,oneofthegreatestAmerican films, which—atleast for a while—held theall-time box office recordwith gross ticket sales of$129million.All had near-brushes with

bankruptcy—Coppola, three

times!EvenMichael Jackson, the

“King of Pop,” whoreportedly signeda recordingcontract worth almost $1billion and sold more than750 million records, wasforced to the brink ofbankruptcy in2007,whenhewasunabletopaybacka$25millionloanonhisNeverlandRanch. Jackson spent moneylike he would never run out—until he finally did. At his

death two years later, hereportedly owed more than$300million.Do you think any of these

ultra-megastars imagined aday when the money wouldstop flowing? Do you thinkthey even consideredpreparingforsuchaday?Have you ever noticed

that no matter how muchyouearn,youfindawaytospendit?Bytheseexamples,it’scleartoseethatyouandI

arenotalone.Weallseemtohaveawayoflivinguptoourmeans—and some of us, I’mafraid, find a way to livebeyond our means. We seethis most of all in the starswho take the biggest falls—like the rich-beyond-their-dreams prizefighters who hitthe canvas with a thud. Justlookattheup-and-down-and-out career of formerheavyweight champ MikeTyson, who made more

money inhis time thananyother boxer in history—nearly a half billiondollars—andwentbankrupt.But five-division world

champion Floyd “Money”Mayweather Jr. is about tobeat Iron Mike’s earningrecord. Like Tyson,Mayweather fought his wayup from hardscrabblebeginnings. In September2013 he scored a guaranteedpurseof$41.5millionforhis

bout against Saúl “Canelo”Álvarez—a record amountthat grew to more than $80million based on pay-per-viewtotals.Andthatwasjustfor one fight! Before thisgiant payday, he’d alreadytopped the Sports Illustrated“Fortunate 50” list rankingthe richest athletes in theUnited States. I loveMayweather personally.He’san extraordinarily giftedathlete—with a work ethic

like few alive. He’s alsoincredibly generous with hisfriends. There is a lot toappreciate in this man! ButMayweather had fought hisway to the top of this listbefore, only to lose hisfortune to wild spendingsprees and bad investments.He is reported to spend sorecklessly, he’s known tocarry around a backpackfilledwith$1million incash—just in case he needs to

makeanemergencydonationtoLouisVuitton.Like so many achievers,

thechampissmartasawhip,and my hope is that he isfollowing better investmentpracticestoday,butaccordingto no less an authority onmoney than 50 Cent,Mayweather’s formerbusiness partner, the champhas no income outside offighting.The rapper summedup the boxer’s financial

strategy in plain terms: “It’sfight, get the money, spendthe money, fight. Fight, getthemoney,spendthemoney,fight.”Sound like a ridiculous

strategy? Unfortunately, wecan all relate at some level.Work, get the money, spendthe money, work—it’s theAmericanway!

Beforeyouspeak,listen.Before you write, think.

Before you spend, earn.Before you invest,investigate. Before youcriticize, wait. Beforeyou pray, forgive.Before you quit, try.Before you retire, save.Beforeyoudie,give.

—WILLIAMA.WARD

Here’s the $41.5 millionquestion: If these individualscouldn’tbuildontheirtalentsand blessings and earn their

way to financial freedom,how can you expect to earnyourway?Youcan’t.But what you can do is

make a simple change instrategyandembraceawholenew mind-set. You have totake control and harness theexponential power ofcompounding. It will changeyourlife!Youhavetomovefrom just working formoney to a world where

moneyworksforyou.It’s time to get off the

sidelines and get into thegame—because, ultimately,wemustallbecomeinvestorsif we want to be financiallyfree.You’re already a

financial trader.Youmightnot think of it in just thisway, but if you work for aliving, you’re trading yourtime for money. Frankly,it’s just about the worst

trade you can make.Why?You can always get moremoney, but you can’t getmoretime.I don’twant to sound like

one of those tearjerkerMasterCardcommercials,butweallknowthat life ismadeup of priceless moments.Moments that you’ll miss ifyou’re trading your time formoney.Sure,fromtimetotime,we

all need to miss a dance

recital or a date night whenduty calls, but our preciousmemoriesaren’talways thereforthetaking.Miss too many of them,

andyoumightstarttowonderwhat it is you’re reallyworkingfor,afterall.

THEULTIMATEATM

So where do you go if youneedmoneyandyou’renotaworld champion fighter witha backpack of large bills?What kind of ATM do youneed to complete thattransaction?Rightnow,I’mbetting,the

primary “moneymachine” inyour life is you. You mighthave some investments, butlet’ssayyouhaven’tsetthemup with income in mind. Ifyou stop working, the

machine stops, the cash flowstops, your income stops—basically, your financialworld comes to a grindinghalt. It’s a zero-sum game,meaning that you get backjustwhatyouputintoit.Lookat it thisway:you’re

an ATM of another kind—only in your case, theacronymmightremindyouofthat lousy “time-for-money”trade. You’ve become anAnti–Time Machine. It

might sound like the stuff ofscience fiction, but formanyofyou,it’sreality.You’vesetthings up so that you giveaway what you value most(time) in exchange for whatyou need most (income)—andifyourecognizeyourselfin this description, trust me,you’re getting the short endofthedeal.Are we clear on this? If

you stopworking, you stopmakingmoney.So let’s take

you out of the equation andlook for an alternativeapproach. Let’s build amoney machine to takeyour place—and, let’s set itup in such a way that itmakes money while yousleep. Think of it like asecond business, with noemployees, no payroll, nooverhead. Its only“inventory”isthemoneyyouput into it. Its only product?A lifetime income stream

that will never run dry—evenifyoulivetobe100.Itsmission?Toprovidea lifeoffinancialfreedomforyouandyour family—or futurefamily,ifyoudon’thaveoneyet.Sounds pretty great,

doesn’t it? If you set up thismetaphorical machine andmaintain it properly, it willholdthepowerofa thousandgenerators. Itwill runaroundthe clock, 365 days a year,

withanextradayduringleapyears—and on the Fourth ofJuly,too.Take a look at the

accompanying graphic, andyou’llgetabetterideahowitworks.As you can see, the

“machine”can’tstartworkinguntil you make the mostimportantfinancialdecisionof your life. The decision?What portion of yourpaycheck you get to keep.

How much will you payyourself—offthetop,beforeyouspendasingledollaronyour day-to-day livingexpenses?Howmuchofyourpaycheck can you (or, moreimportantly, will you) leaveuntouched, no matter whatelse isgoingon inyour life?I really want you to thinkabout thisnumber,becausethe rest of your lifewill bedetermined by yourdecision to keep a

percentage of your incometoday in order to alwayshavemoney for yourself inyourfuture.Thegoalhereisto enable you to step off thenine-to-five conveyor beltandwalkthepathtofinancialfreedom.Thewaytostartoffon that path is to make thissimple decision and begin totapintotheunmatchedpowerof compounding. And thegreatthingaboutthisdecisionis that you get to make it.

You!Nooneelse!

Ican’taffordtowastemytimemaking

money.—JEANLOUISAGASSIZ

Let’sspendsometimeonthisidea, because themoney youset aside for savings willbecome the core of yourentire financial plan. Don’teven thinkof it as savings! Icall it your Freedom Fund,

because freedom is what it’sgoingtobuyyou,nowandinthe future. Understand, thismoney represents just aportionofwhatyouearn.It’sforyouandyourfamily.Savea fixed percentage each payperiod, and then invest itintelligently, and over timeyou’llstartlivingalifewhereyour money works for youinstead of you working foryour money. And you don’thavetowaitfortheprocessto

startworkingitsmagic.Youmightsay,“ButTony,

wheredo Icomeupwith themoney to save? I’m alreadyspending all the money Ihave.” We’ll talk about asimple yet extraordinarytechnique to make savingmoney painless. But in themeantime,letmeremindyouofmy friendAngela, theonewho realized she could driveanewcar forhalf themoneyshewas spending on her old

car.Well,guesswhatshedidwith 50% of the money shewas paying out? She put ittoward her Freedom Fund—herinvestmentforlife.Whenwe started, she thought shecouldn’t save anything; thenext thingyouknowshewassaving 10%. Then she evenaddedanadditional8%fromhersavingsonthecostofthecar for short-term goals aswell! But she never touchesthe10%ofherincomethatis

lockedinforherfuture!

Intheend,itdoesn’tmatterhow much money you earn.Aswehaveseen,ifyoudon’t

set aside some of it, you canloseitall.Buthereyouwon’tjust set it aside stuffedunderyour mattress. You’llaccumulate it in anenvironment you feel certainis safe but still offers theopportunity for it to grow.You’ll invest it—and, if youfollow the Money PowerPrinciples covered in thesepages,you’llwatchitgrowtoakindoftippingpoint,whereit can begin to generate

enough in interest to providethe income you need for therestofyourlife.

You might have heard

some financial advisors callthispileofmoneyanestegg.It is a nest egg, but I call it

yourmoneymachinebecauseifyoucontinuetofeeditandmanage it carefully, it willgrow into a critical mass: asafe, secure pile of assetsinvested in a risk-protected,tax-efficientenvironmentthatearns enoughmoney tomeetyour day-to-day expenses,your rainy-day emergencyneeds, and your sunset daysofretirementspending.Sound complicated? It’s

actuallyprettysimple.Here’s

an easy way to picture it:imagineaboxyou’llfillwithyour investment savings.You’ll put money into itevery pay period—a setpercentage that you get todetermine. Whatever thatnumber is, you’ve got tosticktoit.Ingoodtimesandbad.Nomatterwhat.Why?Because the laws ofcompounding punish evenone missed contribution.Don’t think of it in terms of

what you can afford to setaside—that’s a sure way tosellyourselfshort.Anddon’tput yourself in a positionwhere you can suspend (oreven invade) your savings ifyourincomeslowstoatricklesome months and money istight.What percentage works

for you? Is it 10%? Or15%?Maybe20%?There’sno right answerhere—onlyyour answer. What does

your gut tell you? Whataboutyourheart?If you’re looking for

guidance on this, experts sayyou should plan to save atleast a minimum of 10% ofyour income, although intoday’s economymanyagree15% is a far better number,especially if you’re over theage of 40. (You’ll find outwhyinsection3!)

Cananybody

rememberwhenthetimeswerenothardandmoneynotscarce?

—RALPHWALDOEMERSON

Bynowyoumightbesaying,“This all sounds great intheory, Tony, but I’m spreadthin enough as it is! Everypennyisaccountedfor.”Andyouwouldn’t be alone.Mostpeople don’t think they canafford to save. But frankly,

we can’t afford not to save.Believeme,allofuscanfindthatextramoney ifwereallyhavetohaveitrightnowforarealemergency!Theproblemis in coming up with moneyforourfuture selves,becauseour future selves just don’tseem real.Which iswhy it’sstill so hard to save evenwhen we know that savingcan make the differencebetween retiring comfortablyin our own homes or dying

broke with a tiny bit offinancial support from thegovernment.We’vealreadylearnedhow

behavioral economists havestudied the way we foolourselves about money, andlater in thischapter I’ll sharesome of the ways we cantrickourselves intodoing therightthingautomatically!Buthere’s the key to success:you have to make yoursavings automatic. As

Burton Malkiel told meduring our visit, “The bestway to save is when youdon’t see the money in thefirst place.” It’s true. Onceyou don’t even see thatmoney coming in, you’ll besurprised how many waysyou find to adjust yourspending.InafewmomentsI’llshow

yousomegreat,easywaystoautomateyoursavingssothatthe money gets redirected

before it even reaches yourwallet or your checkingaccount. But first, let’s lookat some real examples ofpeople living from paychecktopaycheckwhomanaged tosave and build real wealtheven when the odds wereagainstthem.

DELIVERINGMILLIONS

Theodore Johnson, whosefirst job was with the newlyformedUnitedParcelServicein 1924, worked hard andmoved his way up in thecompany. He never mademore than $14,000 a year,but here’s the magicformula: he set aside 20%of every paycheck hereceived and everyChristmasbonus,andputitintocompanystock.Hehada number in his head, a

percentage of income hebelieved he needed to savefor his family—just as youwillbytheendofthischapter—andhecommittedtoit.Through stock splits and

good old-fashioned patience,Theodore Johnsoneventually saw the value ofhis UPS stock soar to over$70 million by the time hewas90yearsold.Prettyincredible,don’tyou

think? And the most

incredible part is that hewasn’t a gifted athlete likeMike Tyson or a brilliantdirector like Francis FordCoppola—or even a loftycorporate executive. He ranthepersonneldepartment.Buthe understood the power ofcompoundingatsuchanearlyage that it made a profoundimpact in his life—and, as itturned out, in the lives ofcountless others. He had afamily to support, and

monthly expenses to meet,but to Theodore Johnson, nobill in hismailboxwasmoreimportantthanthepromiseofhisfuture.HealwayspaidhisFreedomFundfirst.At the end of his life,

Johnsonwasabletodosomebeautiful, meaningful thingswith all that money. Hedonatedover$36milliontoavarietyofeducationalcauses,including $3.6 million ingrants to two schools for the

deaf, becausehe’dbeenhardof hearing since the 1940s.He also set up a collegescholarship fund at UPS forthechildrenofemployees.

—

Have you heard the story ofOseola McCarty fromHattiesburg, Mississippi—ahardworkingwomanwithjusta sixth-grade education whotoiled for 75 years washing

and ironing clothes? Shelived simply andwas alwayscareful to set aside a portionof her earnings. “I put it insavings,”sheexplainedofherinvestment philosophy. “Inever would take any of itout. I just put it in. It justaccumulated.”Oh,boy,did thiswoman’s

money accumulate. At 87years old, McCarty madenational news when shedonated $150,000 to the

University of SouthernMississippi to start ascholarship fund. Thiswoman didn’t have thecompelling screen presenceof a Kim Basinger or thedistinctivemusicaltalentofaWillie Nelson, but sheworked hard and knewenoughtoseethathermoneyworkedhard,too.“Iwanttohelpsomebody’s

childgo tocollege,” shesaid—andshewasabletodojust

that,on thebackofhergooddiligence. There was even alittle left over for a smallluxuryitem:sheboughtanairconditionerforherhouse.All the way at the other

end of the spectrum, we seethe rousing example of SirJohn Templeton, one of mypersonalrolemodelsandoneofthegreatestinvestorsofalltime. I had the privilege ofmeeting John andinterviewing him several

timesovertheyears,andI’mincludingourlastinterviewinour “Billionaire’s Playbook.”Here’salittlebackground.Hedidn’tstartoutas“SirJohn.”He came from humblebeginnings in Tennessee.John had to drop out ofcollege because he couldn’taffordthetuition,butevenasa young man, he recognizedthe incremental power ofcompounded savings. Hecommitted to setting aside

50% of what he earned, andthen he took his savings andput it to work in a big way.He studied history andnoticed a clear pattern.“Tony, you find thebargains at the point ofmaximum pessimism,” hetold me. “There’s nothing—nothing—that will maketheprice of a share godownexcept the pressure ofselling.” Think about it.Whenthingsaregoingwellin

the economy, you might getmultipleoffersonyourhouseand you’ll hold out for thehighestprice.Inbullmarkets,it’shardforinvestorstogetagood deal. Why? Whenthings are going well, it’shumannaturetothinkthey’regoing to continue goingwellforever! But when there’s ameltdown,people run for thehills.They’ll give away theirhomes, their stocks, theirbusinesses for next to

nothing.Bygoingagainstthegrain, John, a man whostarted with practicallynothing, became amultibillionaire.How did he do it? Just

whenGermanywas invadingPoland in 1939, plungingEuropeintoWorldWarIIandparalyzing the world withfear and despair, he scrapedtogether $10,000 to invest inthe New York stock market.He bought 100 shares of

everycompany tradingunder$1, including thoseconsidered nearly bankrupt.But he knew what so manypeopleforget:thatnightisnotforever. Financialwinter is aseason, and it’s followed byspring.AfterWWIIendedin1945,

theUS economy surged, andTempleton’s shares explodedinto a multibillion-dollarportfolio!We saw the samekind of growth happen as

the stock market soaredfrom the lows of March2009 to more than 142%growth by the end of 2013.But most people missed it.Why? When things aregoing down, we thinkthey’re going to go downforever—pessimism takesover.I’llshowyouinchapter4.4,“TimingIsEverything?,”a system that can help youkeep your head and continueto investwhen everyone else

is afraid. It’s in these short,volatile periods thatastronomical returns reallybecomeavailable.I tookthoseinsights tomy

Platinum Partners, anexclusive mastermind groupI’d started to support myfoundation, and shared withthem some of the potentialopportunitiesinfrontofthem.Take the Las Vegas SandsCorp. listed on the NewYork Stock Exchange. On

March 9, 2009, its stockprice had dropped to $2.28a share. And today it’s$67.41—a3,000%returnonyourmoney!That’s the power of

learning to invest wheneveryoneelseisafraid.Sowhatcanwelearnfrom

Sir John Templeton? It’samazingwhat research, faith,andactioncandoifyoudon’tlet everybody else’s fearsparalyze you. This is a good

lesson to remember if, asyou’re reading these pages,we’re going through moretoughfinancialtimes.Historyproves that those “down andscary times” are the times ofgreatest opportunities toinvestandwin.He knew if he could set

aside half of his meagerearnings, he’d stake himselfto where he could take fulladvantage of any investmentopportunities.But evenmore

important, he became one ofthe world’s leadingphilanthropists, and after hebecame a British citizen, theQueen of England knightedhim for his efforts. Even indeath, his legacy of givingcontinues:eachyear,theJohnTempleton Foundation givesaway more money in grants“to advance human progressthrough breakthroughdiscoveries”—about$70 million—than the Nobel

Prize Commission awards inadecade.And what’s the great

takeaway of TheodoreJohnson’s story? You don’thave to be a financial geniustobefinanciallyfree.The lesson of Oseola

McCarty’s life? Even a daylaborer can pinch enoughpenniestomakeameaningfuldifference.The lesson of these three

wise investors? By

committing to a simple butsteady code of savings, bydrawing down on yourincomeeachpayperiodandpaying yourself first, there’sa way to tap the power ofcompoundsavingsandletittake you to unimaginableheights.

Themostdifficultthingisthedecisiontoact,therestismerely

tenacity.

–AMELIAEARHART

So how much will youcommit to set aside? ForTheodore Johnson, thatnumber was 20%. For JohnTempleton, it was 50%. ForOseola McCarty, it wassimply a case of pennywisdom:puttingthosepenniesinaninterest-bearingaccountandlettingthemgrow.What about you? Got a

number in mind? Great! It’s

time to decide, it’s time tocommit.It’stimetotakethefirstofthe7SimpleStepstoyour Financial Freedom!The most importantfinancial decision of yourlife needs to bemade rightnow! It’s time for you todecide to become aninvestor, not just aconsumer. To do this, yousimply have to decidewhatpercentage of your incomeyou will set aside for you

andyourfamilyandnooneelse.Once again, this money is

foryou.Foryourfamily.Foryour future. It doesn’t go totheGap or toKate Spade. Itdoesn’t go to expensiverestaurants or a new car toreplacetheonethat’sstillgot50,000 miles to go on theodometer.Trynottothinkofit in terms of the purchasesyou’re not making today.Focus instead on the returns

you’llreaptomorrow.Insteadof going out for dinner withfriends—atacost,say,of$50—why not order in a couplepizzasandbeersandsplitthecost among your group?Trade one good time foranother, save yourself about$40eachtimeout,andyou’llbewayaheadofthegame.What’s that, you say?

Fortydollarsdoesn’t soundlike much? Well, you’reright about that, but do this

once a week, and put thosesavings to work, and youcould take years off yourretirement time horizon. Dothe math: you’re not justsaving $40 aweek, but thisone small shift in yourspending can save youapproximately $2,000 eachyear—and with what younow know, that $2,000 canhelptoharnessthepowerofcompounding and help youtorealizebig,biggainsover

time.How big?How about$500,000 big? That’s right:ahalfmilliondollars!How?If you had BenjaminFranklin’s advisors, they’dtellyoutoputyourmoneyinthe market, and if you toogenerate an 8% compoundedreturnover40years,that$40weekly savings ($2,080 peryear) will net you $581,944!Morethanenoughtoorderanextra pizza—with everythingonit!

Areyoustartingtoseehowthe power of compoundingcanwork for you, evenwithjust a few small, consistentactions? And what if youfoundsomemoreaggressivesavings than $40 a week?Even$100couldmeana$1million difference at thetime you would need itmost!Remember, you can’t

begintotapintotheawesomepower of compounding until

you commit to this all-important savings piece.After all, you can’t becomean investor until you havesomething to invest! It’sbasic: the foundation forcreating wealth, thedifference between being awage earner and an investor,anditstartswithsettingasideaportionofyourincomethatyou lock away automaticallyand keep for yourself andyourfamily.

So what will it be? 10%?12%?15%?20%?Find your threshold and

circleit.Highlightit.Clickonit.Committoit.Makeithappen.Andautomateit!Howdoyouautomateit?

You can start bydownloading our free appfromwww.tonyrobbins.com/masterthegame

It’sagreatwaytobeginyourjourney by setting in placeautomatic reminders tocapture your commitmentsandmakesureyouimplementyournewplan!Ifyouhaven’tdoneityet,doitnow!Itwillhelp guide you through thefollowingeasysteps:• If you get a regularpaycheck, you’ll mostlikely be able to set up anautomated planwith a call

to the human resourcesdepartment, instructing itto send a specificpercentage of yourpaycheck—that you andyoualonechoose—directlytoyourretirementaccount.

• If you already haveautomaticdeductionsgoinginto your 401(k), you canincrease the amount to thepercentage you’ve chosen.(And in the followingsections of this book, I’ll

show you how to makesureyourretirementplanisset up in such a way thatyoucanactually“win”thisgame, tomake sureyou’renotpayinghiddenfeesandthat yourmoney is free togrow in a compoundedenvironment—ideally, tax-deferred or tax free formaximumgrowth.)

Got that taken careof?Outstanding!

• But what about if you’re

self-employed, or if youown your own business orwork on commission? Noproblem. Just set up anautomatic transfer fromyourcheckingaccount.

What if you don’t have aretirement account—a placeto put your dedicatedsavings? Simple: stop rightnow, jump online, and openup a savings or retirementaccount with a bank or

financial institution.You cancheck out this link with lotsof choices tohelpyou locateone that’s a good fit for you(www.tdameritrade.com orwww.schwab.com), or youcan find one on our app.Or,ifyou’refeelinglow-techandlooking to roll up yoursleeves and get started in ahands-on way, simply walkdownthestreetandvisityourbanker.When’sagood time toget

started on this? Would nowbeagoodtime?Goahead,I’llwait...

Ifyoudon’twantto

work,youhavetoworktoearnenoughmoneysothatyouwon’thaveto

work.—OGDENNASH

Great,you’reback.Yougotitdone. Congratulations!You’ve just made the most

importantfinancialdecisionofyourlife—thefirstofthe7Simple Steps to FinancialFreedom. Now you’re onyour way to converting yourdreamsintoreality.In the pages ahead, I’ll

share with you some of thesafest,most certain strategiesto grow your money—in atax-advantaged way! But fornow let’s just lockdown thisbasic savings piece, becauseyour financial future will

flow from your ability tosavesystematically.Most ofyou probably know this, onsome level. But if you knowit, and you’re still not doinganythingabout it—well, thenyou just don’t know it.Contrary to popularwisdom, knowledge is notpower—it’spotentialpower.Knowledge is not mastery.Execution is mastery.Execution will trumpknowledgeeverydayof the

week.

IhatelosingmorethanIevenwanttowin.

—BRADPITTasOaklandA’sgeneralmanagerBillyBeane

inMoneyball

What if, after everythingyou’ve just learned, you stillhaven’ttakenthatfirststeptosetasideapercentageofyourearnings to save forcompoundedinterest?Istheresomethingholdingyouback?

What’s really going on?Could it be that you’re notsystematically saving moneybecause it feels like asacrifice—a loss—instead ofagifttoyourselftodayandinthe future? In my search foranswers, I met with ShlomoBenartzi of the UCLAAnderson School ofManagement.Hesaid,“Tony,the problem is people feellike the future isnot real.Soit’s hard to save for the

future.” Benartzi and hiscolleague, Nobel PrizewinnerRichardThalerof theUniversity of Chicago, cameup with an amazing solutioncalled SaveMore Tomorrow(SMarT) with a simple butpowerful premise: if it hurtstoomuchtosavemoremoneynow—just wait until yournextpayraise.How did they come up

with it? First, Shlomo toldme, they had to address the

challenge of immediategratification, or whatscientistscall“presentbias.”He gave me an example:when he asked a group ofstudentswhethertheywanteda banana or some chocolatefor a snack when they metagain in two weeks, a full75% said they wanted abanana.But twoweeks later,with the choices in front ofthem, 80% picked thechocolate! “Self-control in

the future is not aproblem,” said Shlomo. It’sthesamewithsaving,hetoldme.“Weknowweshouldbesaving.We knowwe’ll do itnext year. But today we goandspend.”As a species, we’re not

only wired to choose todayover tomorrow, but also wehate to feel likewe’re losingout on something. Toillustrate the point, Shlomotold me about a study in

which monkeys—our not-so-distant cousins—were givenan apple while scientistsmeasured their physiologicalresponses. Enormousexcitement! Then anothergroupofmonkeyswasgiventwo apples. They alsodisplayed enormousexcitement. And then onechange was made: themonkeysthatweregiventwoapples had one taken awayfromthem.Theystillhadone

apple, butwhat do you thinkhappened? You guessed it.They were angry as hell!(Scientifically speaking.)Think this happens withpeople, too? In fact, howoften does this happen withthe average person? Weforgetwhatwe alreadyhave,don’t we? Remember thisstudy when I tell you thestory of a billionaire namedAdolf Merckle in the nextchapter. You’ll have a flash

ofinsight.The bottom line is, if we

feel like we’re losingsomething, we avoid it; wewon’t do it. That’s why somany people don’t save andinvest. Saving sounds likeyou’re giving something up,you’re losing somethingtoday. But you’re not. It’sgivingyourselfagifttodayofpeaceofmind,ofcertainty,ofthe large fortune in yourfuture.

So how didBenartzi andThaler get around thesechallenges? They came upwithasimplesystemtomakesaving feel painless. It alignswith our natures.As Shlomosaid in a TED Talk, “SaveMore Tomorrow invitesemployees to save moremaybe next year—sometimein the future when we canimagine ourselves eatingbananas, volunteering morein the community, exercising

more, and doing all the rightthingsontheplanet.”Here’s how it works: you

agree toautomatically saveasmall amount of your salary—10%, 5%, or even as littleas 3%. (This is a number sosmall you won’t even noticethe difference!) Then youcommittosavingmoreinthefuture—but only when youget an increase in pay.Witheachpayraise,thepercentagesaved would automatically

get a little larger, but youwouldn’t feel it as a loss,because you never had it inthefirstplace!Benartzi andThaler first

tested the Save MoreTomorrow plan almost 20years ago at a company inthe Midwest where theblue-collar workers saidthey couldn’t afford tosqueezeanotherdimeoutoftheir paychecks. But theresearcherspersuadedthem

to let their employerautomatically divert 3% oftheir salaries into aretirement account, andthen add 3% more everytime they got a pay raise.The results were amazing!After just five years andthree pay raises, thoseemployeeswhothoughttheycouldn’taffordtosaveweresetting aside just under awhopping 14% of theirpaychecks! And 65% of

them were actually savingan average of 19%of theirsalaries.When you get to 19%,

you’re approaching the kindsof numbers that madeTheodore Johnson, the UPSman, incredibly wealthy. It’spainless, and it works. It’sbeenproventimeandagain.Letmeshowyouthechart

thatShlomouses to illustratethe impact that each increasein savings will have on an

employee’slifestyle.

At3%,there’sanimageofa pair of sneakers—becausethat’s all you’ll be able toafford if you save only 3%!At 4%, there’s a bicycle. Itgoes all the way up to 14%,

where there’s a luxury carandtheclearmessagethatlifeis great! That’s a bigdifference!Now 60% of larger

companies are offering planslike Save More Tomorrow.Findoutifyoursdoes,andifnot,showthisbooktotheHRdepartmentandseeifyoucangetoneputinplace.Ofcourse,you’llstillneed

togooutandactually“earn”your raise—your boss isn’t

likely to hand it to you justbecause you’ve asked nicely.Butonceyoudo,you’re freetoearmarkthefullamountofthe raise, or just a portion,depending on yourcircumstances.Insomecases,if you work for a matchingcompany,youremployerwillhelp to effectively doubleyourcontribution—andyou’llbe well on your way soonenough. In fact, below is alink to an online Save More

Tomorrowcalculatorthatwillallow you to see the impactonyourownfinancialfuture:www.nytimes.com/interactive/2010/03/24/your-money/one-pct-more-calculator.html.If your employer doesn’t

offertheplan,youcansetoneupwithAmerica’sBest401k,and many other 401(k)systems. You could start outwith 5% (although I wouldencourage you to start withno less than 10%, if at all

feasible) automatically goingintoyourFreedomFund,andthen commit to 3% moreeverytimeyougetaraise.Goonline or make one phonecall,anditwillbehappeningfor you. You could do thistodayandlockinyourfuturein the most painless waypossible. There’s no excuseforyounottodoit!Youcaneven go to our app, wherewe’ve prewritten an emailthat you can send to your

boss or head of HR so youcan put this process to workfor you right away. How’sthat for easy? Do it rightnow!But what if you’re self-

employed?What if you ownyour own business, and youfeel like you need to putevery cent into it? Believeme, you’ll find a way.Whatif there was a new tax thatcameout,andyouhadtopay10%more,oreven15%more

to the government? You’dhateit!You’dscreambloodymurder!Butyou’dfindawayto pay it. So think of thispercentage as a tax you “getto pay”—because the moneydoesn’t go toUncleSambuttoyourfamilyandfutureself!Or think of yourself as avendor who’s got to be paidfirst. If it has to be done,you’ll do it.But in this case,it’s something you’re settingaside that is yours and your

family’s to keep forever,right? And remember, youwant to automate it. That’sthewholesecret:earnmore,spendless,andautomateit.

LIKELETTERSOFFIREACROSSTHE

SKY

As a young man, I came

across George SamuelClason’s classic 1926 bookTheRichestMan inBabylon,which offered commonsensefinancial advice told throughancient parables. Irecommend it to everyone.Over the years, one passagehasstayedwithme:“‘Apartof all I earn is mine tokeep.’ Say it in themorningwhenyoufirstarise.Sayitatnoon. Say it at night. Say iteachhourofeveryday.Sayit

to yourself until the wordsstand out like letters of fireacross the sky. Impressyourself with the idea. Fillyourself with the thought.Then take whatever portionseemswise.Letitbenotlessthan one-tenth and lay it by.Arrange your otherexpenditures to do this ifnecessary. But lay thatportionfirst.”

Noonewouldhave

rememberedtheGoodSamaritanifhe’donlyhadgoodintentions.Hehadmoneyaswell.

—MARGARETTHATCHER

Lay that portion first, myfriend.And thenact on it! Itdoesn’t matter what thenumber is, just get started.Ideally, it shouldn’t be lessthan 10%. But as time goesby, make the number mean

something.

THENEXTSTEP

Now that you’ve set up anautomated investment plan—your Freedom Fund, yournew money machine—theremaybetwoquestionsburninginyourmind:First,wheredoI put this money? Andsecond,howmuchamIgoing

to need to achieve financialsecurity or freedom? We’regoingtoanswerbothofthosequestions clearly. And theanswers are going to comefrom the best financialachieversintheworld.But first we need to

understandwhatyou’rereallyinvesting for. What’s behindyour personal desire forfinancial freedom?Andwhatdoes wealth really mean toyou? What are you really

after? So let’s take a quickmoment—just a fewpages—to lookathowyou are goingtomastermoney.

CHAPTER1.4

MONEYMASTERY:IT’STIMETOBREAK

THROUGH

Gratitudeisthesignofnoblesouls.

—AESOP

Moneyisoneofthewayswecan turn the dreamswehaveinto the reality we live.Without enoughmoney, or atruescarcityofit,lifecanfeelmiserable. But when youhave money in your pocket,doeseverythingautomaticallyget better? I think we allknowtheanswer.

Money can’t change whoweare.Allitdoesismagnifyour true natures. If you’remean and selfish, you havemore to be mean and selfishwith. If you’re grateful andloving, you have more toappreciateandgive.Take a moment and think

back to the financialmeltdown of 2008. Trillionsof dollars of stock and homevalues evaporated into thinair.Millionsofjobswerelost

in a matter of months.Whatdidyouexperience?Howdidit hit you?How did it affectyourfamily?Howaboutyourfriends? Some of us reactedwith fear, some with anger,some with resignation, somewith resolve. All theseresponses were not aboutmoney but about us. Theseeventsshinedalightonwhatmoney really means to us.What power we give it.Whether we let money

control us, or whether wetakecontrolofit.

YOURMONEYORYOURLIFE

One of the most powerfulexamples I know from thattime is a gentleman namedAdolf Merckle. In 2007 hewas the 94th richest man in

the world, and the richestman in Germany, with a networth of $12 billion. Heowned the largestpharmaceutical company inEurope,andthenheexpandedhisempireintomanufacturingand construction. He wasproud of what he’daccomplished. He was alsosomethingofaspeculator.In2008hedecidedtomake

abet in thestockmarket.Hewas so certain that

Volkswagenwasgoingdown,he decided to short thecompany. Just one problem:Porschemadeamove tobuyVolkswagen, and the stockprice shot up, not down.Almost overnight, Mercklelostnearlythree-quartersofabillion dollars on that singlegamble.Tomakemattersworse,he

desperatelyneededsomecashtopayoffahugeloan.Butin2008, banks weren’t loaning

money to anyone: not you,not me, not billionaires—notevenotherbanks.So what did Merckle do?

Search for new financing?Cut his expenses? Sell somecompanies at a loss? No.Whenhe realized he’d lost atotalof$3billionandwasnolonger the richest man inGermany, that he had failedhisfamily,hewroteasuicidenoteandwalkedinfrontofaspeedingtrain.

That’s right. He killedhimself.Inatragicirony,hisfamily

discovered only a few dayslater that the loanshe soughthad come through, and hiscompaniesweresaved.Did Adolf Merckle die

becauseofmoney?Ordidhedie because of what moneymeant to him? For Merckle,moneywasanidentity.Itwasa source of significance. Thelossofhisstatusastherichest

man in Germany was toomuchtobear,andhefeltlikea failure—even though therewasstill$9billion left inhispocket!You might be thinking,

“What a waste.” But it maybe a little too easy for us tojudge this man. How oftenhaveweattachedouridentity—orourfutureprospects—tomoney at some level?Probably more than we’d allliketoadmit.

THEBILLIONAIREWHOWANTSTO

DIEBROKE

On the other hand, there arepeoplelikeChuckFeeney,anIrish-American fromElizabeth,New Jersey, and aself-made billionaire. Haveyou ever tried to get throughan airport, anywhere in theworld, and found yourself

luredintoaroomfullofshinybottlesof liquorandperfumeand other tax-free luxuryitems? Duty Free Shopping(DFS). That’s ChuckFeeney’s idea. He startedwith nothing in 1960 andendedupwithasalesempireworth$7.5billion.At one point, Forbes had

listed him, like Merckle, asoneof the richestmen in theworld. But Feeney was sohumble, you would never

have known it. Most of hislife,hedidn’townacarorahome. He flew coach andwore a plastic watch. LikeMerckle, his bank accountwas dwindling—right nowhe’s in his 80s, and Feeneyhasjustover$1millionlefttohis name. But the bigdifference between him andMerckle is that instead oftryingtoholdontoeverylastpenny, Chuck Feeney gaveawayallhismoney.

This is a guywho, for thelast30years,hasmade ithismission to take this vehiclecalled money and use it tochange liveseverywhere.Hisphilanthropy reaches all overthe world, from helping tocreate peace in NorthernIreland, to fighting AIDS inSouth Africa, to educatingkidsinChicago.The most amazing thing

aboutFeeneyis thathediditall anonymously. Feeney

wantednocredit.Infact,onlyrecently has word gotten outthat he’s the man behind alltheseincredibleprojects.Andhe’s still going! ChuckFeeney says his goal is tobounce the last check hewrites.Obviously money meant

very different things forAdolf Merckle and ChuckFeeney. What does moneyreally mean to you? Do youuse money, or does money

useyou?Like I’ve said fromthe beginning: if you don’tmastermoney,atsome level,it’sgoingtomasteryou.

THEULTIMATEGOAL:GIVING

BACK

For me, money was alwaysoutofreachasachild.Itwas

always a source of stressbecause there was neverenough of it. I rememberhaving to knock on theneighbor’s door to ask forfoodformybrotherandsisterandme.Then, on Thanksgiving

DaywhenIwas11yearsold,something happened thatchanged my life forever. Asusual, there was no food inthe house, and my parentswere fighting. Then I heard

someone knocking at thefrontdoor.Iopeneditacrackand saw a man standing onthe steps with grocery bagsfilledwithenough food forabig Thanksgiving dinner. Icouldhardlybelieveit.My fatheralways said that

nobody gave a damn aboutanybody.But all of a suddensomeone I didn’t know,whowasn’taskingforanythinginreturn,waslookingoutforus.Itmademe think, “Does this

mean that strangers care?”And I decided that ifstrangers care about me andmyfamily,Icareaboutthem!“What am I going to do?” Ipromised myself that day, Iwas going to find a way,somehow, someday, to giveback and pay it forward. So,when I was 17, I saved mymoney from working nightsas a janitor and went out onThanksgiving and fed twofamilies. It was one of the

most moving experiences ofmy life. It liftedmy spirit toseefacesturnedfromdespairto joy.Truly, itwasasmuchagifttomeasitwastothem.I didn’t tell anybody what Iwasdoing,but thenextyear,I fed four families. Theneight. I wasn’t doing it forBrownie points, but aftereight, I thought, “Man, Icould use some help.” So Ienlisted some friends, andthey got into it too. It grew

and grew. Now myfoundation feeds 2 millionpeople every year in 36countries, through ourInternational BasketBrigades. Would I haveknown the joy of giving if itwasn’t for that terribleThanksgivingwhenIwas11?Who knows? Some wouldcallitluckorfateorplainoldgood fortune. I see the handofGodinit;Icallitgrace.Here’s what I know: I

learnedthejoyofgiving,andit had nothing to do withmoney. Money is simply avehiclefortryingtomeetourneeds, and not just ourfinancial needs.Much of ourlife is guided by the beliefswedevelopoverthecourseoftime; the story we createabout what life’s about, howwe’re supposed to be, whatwe’resupposedtodoorgive.Ultimately, what’s going tomake us happy or fulfilled.

Everyone has a different“happy.” Some people findhappiness pleasing others,whileothersfindhappinessinpower and domination.Othersdefinetheirhappyasabillion dollars. Some thinkthe way to happiness and ameaningful life is to getcloser to God and give upeverything material. Stillothers think theultimate ideaofhappinessisfreedom.Whateveremotionyou’re

after, whatever vehicle youpursue—building abusiness, getting married,raising a family, travelingthe world—whatever youthink your nirvana is, Ihave found it’s only anattempt by your brain tomeet one or more of sixhumanneeds.Thesesixbasicneedsmake

ustick.Theydriveallhumanbehavior and are universal.Theyaretheforcebehindthe

crazythings(other)peopledoand the great things we do.We all have the same sixneeds, but how we valuethose needs, and in whatorder, determines thedirectionofourlife.Why are the six human

needs so important tounderstand? Well, if you’regoingtobuildwealth,you’vegot to know what you’rereally after—what you’rebuilding it for. Are you

looking for wealth to feelcertain and secure? Are youchasingwealthtofeelspecialand unique? Or are youlooking to have a sense ofcontribution—youwanttodothings for others in a wayyou’veneverbeenable todobefore? Or maybe all of theabove?If you value certainty as

the most important need inyour life, you’re going tomove in a very different

direction, act differently inrelationships, inbusiness andfinance, than if love is yournumber one need. If we getunderneathwhatyou’rereallyafter, it’s not money at all.What you’re really after iswhat you think money isgoing to give you.Ultimately, it’s a set offeelings. And beneath thosefeelingsareneeds.

NEED1:CERTAINTY/COMFORT

Thefirsthumanneedistheneed for Certainty. It’s ourneed to feel incontroland toknowwhat’s coming next sowe can feel secure. It’s theneed for basic comfort, theneedtoavoidpainandstress,and also to create pleasure.Does this make sense? Ourneed for certainty is a

survivalmechanism.Itaffectshowmuch riskwe’rewillingtotakeinlife—inourjobs,inour investments, and in ourrelationships.Thehighertheneed for certainty, the lessriskyou’llbewillingtotakeor emotionallybear. By theway, this is where your real“risktolerance”comesfrom.But what if you’re totally

certain all the time? If youknew what was going tohappen, when it was going

tohappen,howitwasgoingto happen. You knew whatpeople were going to saybefore they said it. Howwould you feel? At firstyou’d feel extraordinary, buteventually you’d be what?Boredoutofyourmind!

NEED2:UNCERTAINTY/VARIETY

So, God, in Her infinitewisdom, gave us a secondhuman need, which isUncertainty. We needvariety.Weneedsurprise.Letmeaskyouaquestion:

Doyoulikesurprises?If you answered “yes,”

you’rekiddingyourself!Youlikethesurprisesyouwant.The ones you don’t wantyou call problems! But youstill need them to put somemuscleinyourlife.Youcan’t

growmuscle—orcharacter—unlessyouhavesomethingtopushbackagainst.

NEED3:SIGNIFICANCE

ThethirdisSignificance,thatbasic human need that droveAdolf Merckle. We all needto feel important, special,

unique,orneeded.Sohowdosome of us get significance?You can get it by earningbillions of dollars orcollecting academic degrees—distinguishing yourselfwith a master’s or a PhD.YoucanbuildagiantTwitterfollowing.Or you can go onTheBachelor or become oneof the nextReal HousewivesofOrangeCounty.Somedoitby putting tattoos andpiercings all over themselves

and in places we don’t wantto know about. You can getsignificance by having moreor bigger problems thananybodyelse.“Youthinkyourhusband’s a dirtbag? Takemine for a day!” Of course,you can also get it by beingmore spiritual (or pretendingto be). Unfortunately, one ofthe fastest ways to getsignificance—that costs nomoney and requires noeducation—is through

violence. If someone puts agun to your head, in thatinstant he becomes the mostsignificant thing in your life,right?Spending a lot of money

canmakeyoufeelsignificant,and so can spending verylittle. We all know peoplewho constantly brag abouttheir bargains, or who feelspecial because they heattheirhomeswithcowmanureand sunlight. Some very

wealthy people gainsignificance by hiding theirwealth. Like the late SamWalton, the founder ofWal-Mart and for a time therichestman inAmerica,whodrove around Bentonville,Arkansas, in his old pickup,demonstrating he didn’t needaBentley—but,ofcourse,hedidhavehisownprivatefleetofjetsstandingby.Significance is also a

moneymaker—that’s where

my dear friend Steve Wynnhas made his fortune. Theman who made Las Vegaswhatitistodayknowspeoplewill pay for anything theybelieve is “the best”—anythingthatmakesthemfeelspecial, unique,or important;anything that makes themstandoutfromthecrowd.Heprovides the most exclusive,luxurious experiencesimaginableinhiscasinosandhotels—they are truly

magnificent and unmatchedin the world. He’s got anightclub called XS (whatelse?) that is the hottest spotin Las Vegas. Even on aweeknight, it has a line outthedoor.Onceyou’rein,youhave the privilege ofpurchasinganordinarybottleof champagne for$700,or ifyouwanttostepupandshoweveryoneyou’reaplayer,youcan spend $10,000 for aspecial“Onococktail”ofrare

vintage cognac and freshorange juice that comeswithawhite-goldnecklace.Hey,itcomes to your table with asparkler, just so everybodyknowsyou’resignificant(andoutofyourmind).

NEED4:LOVEAND

CONNECTION

ThefourthbasicneedisLoveandConnection.Love is theoxygen of life; it’s what weall want and need most.When we love completely,we feel alive, but when weloselove,thepainissogreatthat most people settle onconnection, the crumbs oflove. You can get that senseofconnectionorlovethroughintimacy, or friendship, orprayer, or walking in nature.If nothing else works, you

cangetadog.These first four needs are

what I call the needs of thepersonality.Weallfindwaysto meet these: whether byworking harder, coming upwith a big problem, orcreating stories to rationalizethem. The last two are theneedsof the spirit.These aremore rare—not everyonemeets these. When theseneeds are met, we truly feelfulfilled.

NEED5:GROWTH

Number five is Growth. Ifyou’re not growing, you’rewhat? You’re dying. If arelationshipisnotgrowing,ifa business is not growing, ifyou’renotgrowing,itdoesn’tmatterhowmuchmoneyyouhave in the bank, howmanyfriends you have, howmanypeople love you—you’re not

going to experience realfulfillment. And the reasonwe grow, I believe, is sowehave something of value togive.

NEED6:CONTRIBUTION

That’sbecausethesixthneedisContribution. Corny as it

may sound, the secret toliving is giving. Life’s notabout me; it’s about we.Think about it: What’s thefirst thing you do when youget good or exciting news?You call somebody you loveand share it. Sharingenhances everything youexperience.Lifeisreallyaboutcreating

meaning. And meaning doesnotcome fromwhatyouget,itcomesfromwhatyougive.

Ultimately,whatyougetwillnever make you happy longterm. But who you becomeandwhatyoucontributewill.Now, since this is a book

about your money, thinkabout how money can fulfillthe six human needs. Canmoneygiveuscertainty?Youbet. Variety? Check.Obviouslyitcanmakeusfeelimportant or significant. Butwhat about connection andlove? In the immortal words

of the Beatles, money can’tbuyyou love.But it canbuyyou that dog! And it can,unfortunately, give you afalse sense of connectionbecause it attractsrelationships, although notalways the most fulfillingkind. How about growth?Money can fuel growth inbusinessandinlearning.Andthe more money you have,the more you can contributefinancially.

But here’s what I trulybelieve: if you valueSignificance above all else,moneywillalways leaveyouemptyunlessitcomesfromacontribution you’ve made.And if you’re looking forsignificancefrommoney, it’sa high price to pay. You’relooking for big numbers, butit’s unlikely you’ll find bigfulfillment.The ultimate significance

in life comes not from

something external but fromsomething internal. It comesfrom a sense of esteem forourselves, which is notsomething we can ever getfrom someone else. Peoplecan tell youyou’re beautiful,smart, intelligent, thebest,ortheycantellyouthatyouarethe most horrible humanbeing on earth—but whatmatters is what you thinkabout yourself. Whether ornot you believe that deep

inside you are continuing togrowandpushyourself,todoand give more than wascomfortable or you eventhoughtpossible.There is nothing more

significant than growing andgiving.Sowhilemoneyisanextraordinaryvehicle tomeetmany of our six needs, it’snot the only one. When youare pursuing money, don’tforget why you are pursuingit. You’re trying to meet

some emotional andpsychological desires.Underneath those emotionsare the needs that must befulfilled for your life to beextraordinary.When the astronauts went

towalkonthemoon,imaginethe journey they went on.From being a small childdreaming of someday flyingto outer space, to the daywhen Buzz Aldrin and NeilArmstrong stood on the

moon, looking back at thatextraordinary view of planetEarththatwe’veallseenonlyin pictures. They were thefirsthumanbeingstodoit inthe entire history of thespecies—how incrediblysignificant.What happened next?

Ticker-tape parades. Shakingthe president’s hand. Theywereheroes.And thenwhat?Whatdoyoudoafteryou’vewalked on the moon, and

you’re only 39 years old? Ifyou’ve studied the history ofthe astronauts, or read theirbiographies,you’llknowthatmany of them becameextremely depressed. Why?Because the only way theycould find adventure was bytravelingintospaceorall thewaytothemoon.Theyforgothow to find adventure in asimplesmile.I’mnotgoing topreach to

youanymore,butIwantedto

takethisshorttimetosaythatwhileit’stimetomasteryourmoney, don’t wait to masteryourself.The fastestway tofeel connection, a sense ofhow significant your life is,a deep sense of certaintyand variety, and putyourself in a state whereyoucangivetoothers, istofind a way each day toappreciatemoreandexpectless.Thewealthiestpersononearthisonewhoappreciates.

I interviewed Sir JohnTempleton for the first timewhen I was 33 years old.Remember, he was themultibillionaire who startedwithnothingandmadeallofhis money when everyoneelse was afraid, during theworsttimesinhistory:WWII,Japanafterthewar,andinthelate 1980s and early 1990swhen massive inflation hitparts of South America.Whenotherswere fearful,he

went out and invested. Iasked him, “What’s thesecret to wealth?” And hesaid, “Tony, you know it,and you know it well. Youteach it to everyone. It’sgratitude.” When you’regrateful, there is no fear;whenyou’regrateful,thereisnoanger.SirJohnwasoneofthe happiest and mostfulfilledhumanbeingsIhaveever known. Even though hepassed in 2008, all these

years later his life continuestoinspireothers.Ifyouwanttoberich,start

rich. What can you begrateful for today? Who canyou be grateful for today?Could you even be gratefulforsomeoftheproblemsandthe pain that you’ve beenthrough inyour life?What ifyou took on the new beliefthat everything in lifehappens for a reason and apurpose, and it serves you?

What ifyoubelieved inyourheart of hearts that lifedoesn’t happen to you, ithappens for you? That everystepalongthewayishelpingstrengthen you so that youcan become more, enjoymore,andgivemore.Ifyou’llstart from that place, moneywon’t be the source of yourpleasureoryourpain.Makingmoney will just be a funjourney of mastery, andwealth a great vehicle to

achievewhatmattersmost inlife.But as long as money is

suchapartofour lives, let’sget right back on the moneytrack. As heartfelt as thischapter has been, not all thepeople you’ll meet along thefinancial path will beoperatingfromthebenevolentplace of Growth andContribution!You’regoingtobe entering a world that isfilled with people and

organizations that too oftenwill be looking to takeadvantage of your lack ofexperience andunderstanding. So I want toprepareyouforwhat’sahead.Before we discuss where toputyourmoneyandwhattolookfor,Ihavetoshowyouwhattolookoutfor.There’sareasonwhymost

investorsdonotmakemoneyover time. Iwant toarmyouwith the knowledge that will

both protect you and allowyou to maximize the growthof your investments so youcan achieve true FinancialFreedom faster than youcan imagine. The peace ofmind you deserve will soonbeyours.Turnthepage...

SECTION2

BECOMETHEINSIDER:KNOW

THERULESBEFOREYOUGETINTHEGAME

CHAPTER2.0

BREAKFREE:SHATTERINGTHE

9FINANCIALMYTHS

Rememberthe

goldenrule:hewhohas

thegoldmakestherules.—UNKNOWN

Youhavetolearntherulesofthegame,andthenyouhavetoplaybetterthananyone

else.—ALBERTEINSTEIN

Iknowthatyouwanttojumpright in and learn where toput your money to obtain

financialfreedom.AndIwantto dive in and show you! IabsolutelylightupwhenIseesomeone really “get it” andcome to understand andembracethatthegameistrulywinnable.Butit’snotenoughtojustsaveyourmoney,getagreat return, and reduceyourrisk. You have to know thatthere are a lot of peoplelooking to take a piece ofyour wealth. The system isriddled with loopholes—

whatIwouldcalllandmines—that can blow up yourfinancial future. So in thissection, we’re going to gothrough9Myths—youmightcall them lies—that havebeen marketed to you overthe years. And if you aren’taware of them—if you don’tsee them coming—they willsystematically destroy yourfinancialfuture.This next section is where

thisbookstartstopayoff!In

fact, if you have the averageAmerican salary of $50,000per year, and currently save10% of your income andinvest that money over time,you’ll save $250,000 overyour investment lifetime byjust part of what you willlearn in this section. That’sfive years of your currentlifestyle, at your currentincome, without having toworkasingleday!Andthatisstatistically proven, not a

number I’m pulling out of ahat.Ifyoumakeonly$30,000per year and save just 5%ofyourincomeeachyear,you’llstill save$150,000overyourinvestment lifetime. That’s ahalf decade’s worth of yourcurrent income withouthaving to work for it. Ifyou’re in the $100,000-pluscategory, this section couldput $500,000 to $1 millionbackinyourpocketoveryourlifetime. Sounds like a

massivepromise,huh!?Iwillletthenumbersdothetalkinginthepagesahead.It’s a short section, so pay

attention because you’regoing to want to takeimmediate action. Byshattering these myths, youwill be able to immediately“stop the bleeding” in areaswhereyouneverthoughtyouneeded to. Knowing these 9Myths will protect you andinsure that you get to the

leveloffinancialfreedomthatyou’re truly committed to.Let’sbegin!

WELCOMETOTHEJUNGLE

Whether you are a seasonedinvestor or just beginning tosee yourself as an investor,the jungle that Ray Dalio so

vividly described holds thesame dangers for all of us.Butmost of thedanger liesin the fact that what youdon’tknowcanhurtyou.

THEOFFER

I want you to imagine thatsomeone comes to you withthe following investmentopportunity: hewants you to

put up 100% of the capitaland take 100% of the risk,and if it makes money, hewants 60% or more of theupsidetocometohiminfees.Oh,andbytheway,ifitlosesmoney,you lose, andhe stillgetspaid!Areyouin?I’m sure you don’t need

any time to think thisthrough. It’s a no-brainer.Your gut response has to be,“There’s no way I’m doing

this. How absurd!” The onlyproblem is that if you’re like90% of American investors,you’ve invested in a typicalmutualfund,and,believeitornot, these are the terms towhichyou’vealreadyagreed.That’s right, there is $13

trillion in actively managedmutual funds3 with 265million account holdersaroundtheworld.How in the world do you

convince 92 million

Americans to participate in astrategywhere theywillinglygiveup60%ormoreoftheirpotential lifetime investmentupside with no guaranteedreturn?Tosolvethisriddle,Isatdownwiththe85-year-oldinvestment guru Jack Bogle,the founder of Vanguard,whose 64 years on WallStreet have made himuniquely qualified to shedlight on this financialphenomenon.Hisanswer?

“Marketing!“Tony, it’s simple. Most

peopledon’tdothemath,andthe fees are hidden.Try this:if you made a onetimeinvestment of $10,000 at agetwenty, and, assuming 7%annualgrowthovertime,youwould have $574,464 by thetime you’re nearly my age[eighty]. But, if you paid2.5% in total managementfeesandotherexpenses,yourending account balance

wouldonlybe$140,274overthesameperiod.”“Let’sseeifwe’vegotthis

straight: you provided all thecapital, you took all the risk,yougottokeep$140,274,butyou gave up $439,190 to anactive manager!? They take77% of your potentialreturns?Forwhat?”“Exactly.”

Money Power Principle 1.Don’tgetinthegameunless

youknowtherules!Millionsof investors worldwide aresystematicallymarketeda setof myths—investment lies—that guide their decisionmaking. This “conventionalwisdom”isoftendesigned tokeepyouinthedark.Whenitcomes to your money, whatyou don’t know can—andlikely will—hurt you.Ignorance is not bliss.Ignorance is pain, ignoranceis struggle, ignorance is

giving your fortune away tosomeone who hasn’t earnedit.

AFAILEDEXPERIMENT

It’s not just high-costmutualfunds that are the problem.The example above is just apeek under the sheets at a

system designed to separateyoufromyourmoney.Without exception, every

expert Ihave interviewed forthisbook(fromthetophedgefunds managers to NobelPrizewinners)agreesthatthegame has changed. Ourparentsdidn’thaveafractionof the complexity or dangersto deal with that we havetoday. Why? They had apension—a guaranteedincome for life! They had

CDs that paid conservativebut reasonable rates—not the0.22% you would be paid atthe time of this writing,which won’t even keep upwith inflation.Andsomehadtheprivilegeofputting smallinvestments into blue-chipstocks that paid steadydividends.Thatshiphassailed.The new system, which

reallygot rolling in the early’80s with the introduction of

the 401(k), is an experimentthat’s now been conductedforthemostpartonthesinglelargest generation in UShistory: the baby boomers.How is this experimentworking?“This do-it-yourself

pension system has failed,”said Teresa Ghilarducci, anationally recognized expertin retirement security at theNew School for SocialResearch and an outspoken

critic of the system as weknow it. “It has failedbecauseitexpectsindividualswithout investment expertiseto reap the same results asprofessional investors andmoney managers. Whatresults would you expect ifyou were asked to pull yourown teeth or do your ownelectricalwiring?”What’s changed? We

exchanged our guaranteedretirement pensions with an

intentionally complex andoften extremely dangeroussystem, filled with hiddenfees,whichgaveus“freedomofchoice.”Andsomehow,inthemidstofworkingyourtailoff, providing for yourfamily, staying in shape, andtaking care of the importantrelationshipsinyourlife,youare supposed to become aninvestment professional?You’resupposedtobeabletonavigate this labyrinth of

products, services, andunending risk of your hard-earned money? It’s nearimpossible. That’s why mostpeople give theirmoney to a“professional,” often abroker. A broker who bydefinition works for acompany that is not requiredby law to do what’s in yourbest interest (more on thisbaffling concept in Myth 4).A broker who gets paid tofunnel your money to the

productsthatmaybethemostprofitable for him and/or hisfirm.Now, let me be clear: this

is not another bash-Wall-Street-book. Many of thelarge financial institutionshave pioneered someextraordinary products thatwewillexploreandadvocatethroughoutthisbook.Andthevastmajorityofpeopleinthefinancial services industrycare intensely for their

clients, and more often thannot,theyaredoingwhattheybelieve to be the best thing.Unfortunately, many don’talso understand how the“house”reapsprofitswhetherthe client wins or not. Theyare doing the best they canfor their clients with theknowledge (training) and thetools (products) they havebeen provided. But thesystemisn’tsetupforyourbroker to have endless

options and completeautonomy in findingwhat’sbestforyou.Andthiscouldprovecostly.Giving up a

disproportionate amount ofyour potential returns to feesis justoneof thepitfallsyoumust avoid if you plan onwinning the game. And hereisthebestnewsyet:

THEGAMEISSTILLWINNABLE!

In fact, it’s more thanwinnable—it’s exciting ashell! Yes, there are majorchallenges and more pitfallsyoumust avoid, but considerhow far we have come.Today, with the click of abuttonandaminimalcharge,you can invest in just aboutanything you want anywhere

in the world you want. “It’seasier than it’s ever been todo pretty well,” said JamesCloonan in a recent WallStreet Journal article.Cloonan is founder of thenonprofit AmericanAssociation of IndividualInvestors. “You just have todecidetodotherightthing.”Heck, just 35 years ago

“youhad to spendhours inapublic library or write awayto a company just to see its

financial statements.Brokerage costs and mutual-fundfeeswereoutlandish;taxrates were larcenous,” wroteJason Zweig in his WallStreet Journal article “EvenWhen Stocks Make YouNervous, Count YourBlessings.”Asidefromhigh-frequency

traders, technology hasmadetheworldofinvestingamuchmoreefficientspaceforallofus. And this fits perfectly

with the millennialgeneration, which wouldn’tacceptanythingless.“Forus,it’s all about convenience!”exclaimed Emily, mypersonal assistant, who is a“straight-down-the-fairway”millennial. “There is notolerance for slow orinefficient. We truly wanteverything to be at the touchof a button. We ordereverything on Amazon; weliftonefinger,andit’sdone.I

can stream a movie onNetflix. I can get a carregistration online. I can buystocks online. I can do mypresentation online. Thismorning I took a picture ofmy check and had it in mybankaccountbysix—Ididn’teven have to get out of mypajamas.”

THEHOUSEHAS

THEEDGE

Steve Wynn, the billionairegamblingmogulcreditedwithtransforming Las Vegas intothe entertainment capital ofthe world, is one of mydearest friends. The casinoshe’sbuiltareconsideredtobesomeofthemostmagnificentplaygrounds in the world.Through it all, he’smadehisfortune from one simple

truth:thehousehastheedge.But by no means does hehave a guaranteed victory!On any given night, a high-rolling gambler can takemillions out of Steve’spocket. And they can alsoleave if his “house” doesn’tcompletely captivate them.On the other hand, nearly allmutual fund companies havea stacked deck. They are theultimate casino. They’vecaptured you, you’re going

nowhere, and they areguaranteed revenue whetheryouwinornot.

TWICEBURNED

After 2008, when the USstock market lost more than37%, thefinancialworldwascompletely changed formostAmericans. Even five yearslater, a survey from

Prudential Financial showedthat 44% of Americaninvestorsstill say theywouldnever put theirmoney in thestock market again, while58%saytheylostfaithinthemarket. But the insiders arestill in the game. Why?Because they know better.Theyknowthe“right”waytoplay the game. They knowthat today there are powerfultools and strategies that haveneverexistedbefore.Getthis:

Today you can use a tool,issued and backed by one ofthelargestbanksintheworld,that will give you 100%principal protectionguaranteed by its balancesheet and allow you toparticipate in75% to90%oftheupsideof themarket (theS&P 500) without beingcapped! That is not amisprint.You can participatein up to 90% of the upside,but if the market collapses,

you still get back 100% ofyour money! Sounds toogood to be true? And if aproduct like this did exist,youwouldhavealreadyheardof it, right? Wrong. Thereason? In the past, to evenhearaboutthis,youhadtobein the top 1% of the 1%.These are not “retail”solutions, where they sit onthe shelf. These are customdesigned for those withenoughmoneytopartake.

Thisisjustoneexampleofhow, as an insider, you’llsoon know the new rules ofhow to achieve wealth withminimalrisk.

Riskcomesfromnotknowingwhatyou’re

doing.—WARRENBUFFETT

THEROADLESS

TRAVELED

Thejourneyaheadisonethatrequires your fullparticipation.Togetherweare

going to climb thismountaincalledFinancialFreedom.It’syourpersonalMountEverest.It won’t be easy, and it willrequire preparation. Youdon’theadupEverestwithoutaveryclearunderstandingofthe dangers that lie ahead.Some are known, and somecouldsneakuponyou likeaviolent storm. So before weset foot on themountain,wemust fully grasp what’s onthe path before us.One false

step could mean thedifference betweenwondering how youwill paynext month’s mortgage andan abundant life, free offinancialstress.Wecan’tasksomeone to climb it for us,butwealsocan’tdoitalone.Weneedaguidewhohasourbestinterestsatheart.

THEPINNACLE

The core concept ofsuccessful investing issimple:Growyoursavingstoa point at which the interestfrom your investments willgenerate enough income tosupportyourlifestylewithouthaving to work. Eventuallyyoureacha“tippingpoint”atwhichyoursavingswillhitacritical mass. This simplymeans thatyoudon’thave towork anymore—unless youchoose to—because the

interest and growth beinggenerated by your accountgives you the income youneedforyourlife.Thisisthepinnacle we are climbingtoward.Thegreatnewsisthatif you become an insider,today there are new andunique solutions andstrategies that will accelerateyour climb and even protectyou from sliding backward.But before we explore thesesolutions inmoredepth, let’s

map out our journey withmoreclarity.There are two phases to

your investing game: theaccumulation phase, inwhichyouaresockingawaymoney for growth, and thedecumulation,duringwhichyou are withdrawingincome. The journey up themountain will represent ouraccumulation phase with thegoalofreachingthepinnacle,orcriticalmass.Thegoalisto

stayontopofthemountainaslongaswecan.Totakeintheviewsandbreatheinthefreshair of freedom andaccomplishment. There willbe many hurdles, obstacles,and, if you’re not alert, evenlies, that will prevent youfrom reaching the peak. Toensure our best chance ofsuccess, we will flush theseoutinthepagestocome.And when we enter the

second act of our life, when

it’s time to enjoy what wemade, we will have thefreedom to work only if wewantto.Atthisstagewewillski down the mountain andenjoy ourselves. Spendingtime with the ones we love,building our legacy, andmaking a difference. It’sduringthisphasethatwewilleliminatethenumberonefearof baby boomers: the fear ofoutliving our money. Thissecond phase is rarely

discussed by the assetmanagement industry, whichis focusedonkeepingmoneyinvested.“It’s not about having

some arbitrary amount ofmoney in your account onsome given day,” exclaimedDr. Jeffrey Brown, professoroffinanceattheUniversityofIllinois and consultant to theUS Treasury and the WorldBank.“Ithinkalotofpeoplearegoingtoget toretirement

and suddenly wake up andrealize, ‘You know what? Idid a fairly good job. I haveall this money sitting here,but I don’t knowhow long Iamgoing to live,and Idon’tknow what my investmentreturnsaregoingtobe,andIdon’t know what inflation isgoingtobe.WhatdoIdo?’”After I read one of his

recent Forbes columns, IcalledDr.Browntoseeifhewouldbewilling to sit down

and share specific solutionsforinvestorsofallshapesandsizes. (We’ll hear from Dr.Brown on how to createincomeforlifeandevenhowto make it tax free in hisinterview in section 5,“Upside Without theDownside: Create a LifetimeIncome Plan.”) And whobetter to outline the solutionthanthemanwhoisnotonlyatopacademicexpertbutwasalsooneofonlysevenpeople

appointedby thepresidentoftheUnitedStatestotheSocialSecurityAdvisoryBoard.

BREAKTHECHAINS

In the words of DavidSwensen, one of the mostsuccessful institutionalinvestors of our time, to

have unconventionalsuccess,youcan’tbeguidedby conventional wisdom.Let’s shatter the top ninefinancialmythsthatmisguidethe masses, and, moreimportantly,uncover thenewrulesofmoney,thetruthsthatwillsetyoufinanciallyfree.Let’sstartwith thebiggest

mythofall....

3. According to the websiteInvestopedia:“Activemanagersrelyonanalytical research, forecasts, and theirown judgment and experience inmaking investment decisions on whatsecurities to buy, hold, and sell. Theoppositeofactivemanagementiscalledpassive management, better known as‘indexing.’”

CHAPTER2.1

MYTH1:THE$13TLIE:“INVEST

WITHUS.WE’LLBEATTHEMARKET!”

The goal of the

nonprofessional shouldnotbetopickwinners—neither he nor his“helpers” can do that—but should rather be toown a cross section ofbusinesses that inaggregate are bound todowell.Alow-costS&P500 index fund willachievethisgoal.

—WARRENBUFFETT,2013lettertoshareholders

Whenyoulookattheresultsonanafter-fee,after-taxbasis,overreasonablylongperiodsoftime,there’salmostnochancethatyouendupbeatingtheindex

fund.—DAVIDSWENSEN,

authorofUnconventionalSuccessandmanagerofYaleUniversity’smorethan$23.9

billionendowment

FINANCIALENTERTAINMENT

When you turn on thefinancialnewstoday,youcansee that it is less “news”andmore sensationalism. Talkingheadsdebatewithzeal.Stockpickersscreamtheirhotpicksofthedaywhilesoundeffectssmash, crash, and “kaching!”through our living roomspeakers.Reportersfilm“live

on the scene” directly fromthe trenches of the exchangefloor.Thesystem,paidforbyadvertisers,breedsthefeelingthat maybe we are missingout!Ifonlywehadahot tip.If only we knew the next“must-own”mutual fund thatwould surely be the “5 star”comet. (Mutual funds arerated between 1 and 5 starsby rating authorityMorningstar.)Chasing returns is big

business. Personal financewriter Jane Bryant Quinnonce referred to thissensationalhypeas“financialporn.” Luring us into glossypages where the centerfoldsare swapped with five-starratings and promises ofcarefree walks on the beachandfishingoff thedockwithour grandkids. The bottomline is that advertisers arefightingtogetagrasponourmoney. The war for your

assetsrageson!Sowheredo you put your

money? Who can you trust?Whowillprotectyouandgetyou the best return on yourinvestment?These are the immediate

questions that are sure tocome to mind now thatyou’ve committed tobecoming an investor—nowthat you’ve committed tosockingawayapercentageofyour income. So where do

most people put their moneyforthelonghaul?Usuallythestockmarket.And the stock market has

indeed been the best long-terminvestmentoverthepast100 years. As Steve Forbespointed out at one of myfinancial events in SunValley, Idaho, in 2014, “$1million invested in stocks in1935 is worth $2.4 billiontoday(ifyouheldon).”But the moment you open

anIRAorparticipate inyour401(k) plan at work, therewill be a jolly salesman (orsales process) telling you toparkyourmoney inamutualfund. And by buying anactively managed mutualfund, what exactly are youbuying?You are buying intothe fund manager in hopesthat his or her stock-pickingabilities will be better thanyours. A completely naturalassumption, since we have

insanely busy lives, and ourmethod of picking stockswould be the equivalent ofthrowingdarts!So we hand over our

money to a “five-star”actively managed mutualfund manager who bydefinition is “actively” tryingtobeatthemarketbybeingabetter stock picker than thenext guy. But few firmswilldiscuss what is sometimescalled the $13 trillion lie.

(That’s how much money isin mutual funds.) Are youreadyforthis?An incredible 96% of

actively managed mutualfundsfail tobeatthemarketoveranysustainedperiodoftime!Solet’sbeclear.Whenwe

say “beat the market” as awhole, we are generallyreferring to a stock index.What’s an index, you ask?Someofyoumightknow,but

I don’t want to risk leavinganyone in the dark, so let’sshedalittlelight.Anindexissimply a basket or list ofstocks. The S&P 500 is anindex. It’s a list of the topcompanies (by marketcapitalization) in the UnitedStates, as selected byStandard & Poor’s.Companies like Apple,Exxon,andAmazonmakeupthe list. Each day, theymeasure how all 500 stocks

performed, as an aggregate,and when you turn on thenewsatnight,youhearifthemarket (all the stocks on thelistcollectively)waseitherupordown.Soinsteadofbuyingallthe

stocks individually, or tryingto pick the next highflyer,you can diversify and own apiece of all 500 top stockssimplybyinvestinginalow-cost indexfundthat tracksormimics the index.Onesingle

investment buys you a pieceof the strength of “Americancapitalism.”Inaway,youarebuying into thefact thatoverthe past 100 years, the top-tier companies have alwaysshown incredible resiliency.Even through depressions,recessions, and world wars,they have continued to findwaystoaddvalue,grow,anddrive increasing revenues.And if a company fails tokeep making the grade, it

falls off the list and isreplaced with another topperformer.The point here is that by

investing in the index, youdon’t have to pay aprofessional to try pickingwhichstocksintheindexyoushould own. It’s effectivelybeen done for you becauseStandard & Poor’s hasselected the top 500 already.Bytheway,therearenumberofdifferentindexesoutthere.

ManyofushaveheardoftheDow Jones index, forexample,andwewillexploreotherssoon.

TENTHOUSANDOPTIONS

There are 7,707 differentmutual funds in the UnitedStates (but only 4,900individual stocks), all vyingforachancetohelpyoubeatthemarket.Butthestatisticisworthrepeating:96%willfailto match or beat the marketover any extended period. Isthis groundbreaking news?No,nottoinsiders.Nottothesmart money. As Ray Daliotold me emphatically,“You’renotgoingtobeatthe

market.Noonedoes!Onlyafew gold medalists.” He justhappens to be one of thosemedalists honest enough toissue the warning “Don’t trythisathome.”Even Warren Buffett,

known for his incrediblyunique ability to findundervalued stocks, says thatthe average investor shouldnever attempt to pick stocksor time the market. In hisfamous 2014 letter to his

shareholders, he explainedthatwhenhepassesaway,themoney in a trust for hiswifeshould be invested only inindexessothatsheminimizesher cost and maximizes herupside.Buffett is so sure that

professional stock pickerscan’t win over time that hewas more than happy to puthis money where his mouthis. In January 2008 Buffettmade a $1 million wager

against New York–basedProtégé Partners, with thewinnings going to charity.The bet? Can Protégé pickfivetophedgefundmanagerswhowillcollectivelybeattheS&P 500 index over a ten-year period? As of February2014, the S&P 500 is up43.8%, while the five hedgefundsareup12.5%.Therearestill a few years left, but thelead looks like the world’sfastest man, Usain Bolt,

runningagainstapackofBoyScouts. (Note: for thoseunfamiliarwithwhatahedgefund is, it is essentially aprivate “closed-door” fundfor only high-net-worthinvestors. The managers canhave total flexibility to bet“for” the market and makemoney when it goes up, or“against” the market, andmake money when it goesdown.)

THEFACTSARETHEFACTSARE

THEFACTS

Industry expert RobertArnott, founder of ResearchAffiliates, spent two decadesstudying the top200activelymanaged mutual funds thathad at least $100 millionunder management. Theresultsarestartling:

From1984to1998,afull15 years, only eight out of200fundmanagersbeattheVanguard 500 Index. (TheVanguard 500, put togetherby founder Jack Bogle, is amirrorimageoftheS&P500index.)That’s less than 4% odds

that you pick a winner. Ifyou’veeverplayedblackjack,youknowthegoalistogetasclose to 21 without goingover,or“busting.”According

to Dan and Chip Heath intheir Fast Company article“MadetoStick:TheMythofMutual Funds,” “by way ofcomparison, if you get dealttwo face cards in blackjack(each face card is worth 10,sonowyour total is20), andyour inner idiot shouts, ‘Hitme!’ you have about an 8%chanceofwinning!”Just how badly does

chasing performance hurtus? Over a 20-year period,

December31,1993,throughDecember 31, 2013, theS&P 500 returned anaverage annual return of9.28%. But the averagemutual fund investormadejust over 2.54%, accordingto Dalbar, one of theleading industry researchfirms.Ouch!Anearly80%difference.In real life, this can mean

the difference betweenfinancial freedom and

financial despair. Saidanotherway, if youwere thepersonwhosimplyownedtheS&P 500, you would haveturned your $10,000 into$55,916!Whereasthemutualfund investor, who was soldon the illusion that heor shecouldoutperform themarket,endedupwithonly$16,386.Whythehugeperformance

gap?Because we buy high and

sell low. We follow our

emotions (or our broker’srecommendations) and jumpfrom fund to fund. Alwayslooking for an edge. Butwhen the market falls, whenwe can’t take the emotionalpainanylonger,wesell.Andwhen the market is up, webuy more. As a famousmoney manager namedBarton Biggs observed, “Abull market is like sex. Itfeels best just before itends.”

WISDOMOFAGES

At 82 years young, BurtMalkiel has lived throughevery conceivable market

cycleandnewmarketingfad.When he wrote A RandomWalk Down Wall Street in1973,hehadnoideaitwouldbecome one of the classicinvestment books in history.Thecorethesisofhisbookisthatmarkettimingisaloser’sgame.Insection4,wewillsitdown and you’ll hear fromBurt but for now what youneed to know is that he wasthefirstguytocomeupwiththerationaleofanindexfund,

which, again, does not to trytobeatthemarketbutsimply“mimics,” or matches, themarket.Among investors, this

strategy is called indexing orpassive investing. This styleiscontrarytoactiveinvesting,in which you pay a mutualfundmangertoactivelymakechoicesaboutwhichstockstobuy or sell. The manager istrading stocks—“actively”working with hopes of

beatingthemarket.JackBogle, founder of the

behemoth Vanguard,subsequently bet the futuredirection of his company onthis idea by creating the firstindexfund.WhenIsatdownwith Jack for this book, heechoed why Vanguard hasbecome the largest indexmutual fund manager in theworld. His best single rant:“maximum diversification,minimal cost, and maximum

tax efficiency, low turnover[trading], and low turnovercost, and no sales loads.”How’s that for an elevatorpitch!

SHORTCUT

Now, you might be thinkingthat there must be somepeople who can beat themarket.Whyelsewouldthere

be $13 trillion in activelymanaged mutual funds?Mutual fund managerscertainly have streaks wherethey do, in fact, beat themarket. The question iswhether or not they cansustain that advantage overtime.ButasJackBoglesaid,it all comes down to“marketing!” It’s our humannature to strive to be faster,better, smarter than the nextguy. And thus, selling a hot

fund is not difficult to do. Itsells itself. And when itinevitably turns cold, therewillbeanotherhotonereadytoserveup.Asfor the4%thatdobeat

the market, they aren’t thesame 4% the next timearound. Jack sharedmewithwhat he says is the funniestway to get this point across.“Tony, if you pack 1,024gorillas into a gymnasium,and teach themeach to flipa

coin, one of them will flipheads ten times in a row.Mostwouldcallthatluck,butwhenthathappensinthefundbusiness we call him agenius!” And what are theodds it’s the same gorillaafterthenexttenflips?To quote a study from

Dimensional Fund Advisors,run by 2013 Nobel Prize–winning economist EugeneFama, “So who still believesmarkets don’t work?

Apparently it is only theNorth Koreans, the Cubans,andtheactivemanagers.”4This part of the book is

where anyone reading whoworks in the financialservices industry will eithernod in agreement or figureoutwhichdoortheywillpropopen with these 600 pages!Somewill even be gatheringthetroopstomountanattack.It’s a polarizing issue,withoutadoubt.Weallwant

to believe that by hiring thesmartest and most talentedmutualfundmanager,wewillachieve financial freedommore quickly. After all, whodoesn’twantashortcutupthemountain? And here is thecrazything:As much as everyone is

entitled to his own opinion,nobody isentitled tohisownfacts!Sure, some mutual fund

managerswill say, “Wemay

notoutperformon theupsidebut when the market goesdown, we can take activemeasures to protect you soyouwon’tloseasmuch.”That might be comforting

ifitweretrue.Thegoal ininvestingis to

get themaximumnet returnfor a given amount of risk(and, ideally, the lowestcost). So let’s see how thefund managers did when themarketwas down.And 2008

is as good a place to start asany.Between 2008 and early

2009, the market had itsworstone-yearslidesincetheGreat Depression (51% fromtop to bottom, to be exact).The managers had plenty oftime to make “defensive”moves. Maybe when themarket was down 15%, or25%, or 35%, they wouldhave taken “appropriatemeasures.” Once again, the

factsspeakforthemselves.Whether the fundmanager

was trying to beat the S&PGrowth Index, made up ofcompaniessuchasMicrosoft,Qualcomm, and Google, ortrying tobeat theS&PSmallCap Index, made up ofsmaller companies such asYelp, once again, the stockpickers fell short. Accordingto a 2012 report titled S&PIndices Versus Active FundsScorecard—SPIVA, for short

—theS&P500GrowthIndexoutperformed89.9%oflarge-cap growth mutual funds,whiletheS&P500SmallCap600 Growth Indexoutperformed 95.5% ofsmall-capgrowthmanagers.

THEUNICORNS

Now, having made it clearthat almost nobody beats the

market over time, Iwill giveone caveat. There is a tinygroup of hedge fundmanagers who do theseemingly impossible bybeating the marketconsistently.But theyare the“unicorns,” the rarest of therare. The “magicians.” The“marketwizards.”LikeDavidEinhorn of GreenlightCapital, who is up 2,287%(no, that’snot a typo!) sincelaunching his fund in 1996

and has only one negativeyear on his track record.Butunfortunately, it doesn’t dotheaverageinvestoranygoodto know they are out there,becausetheirdoorsareclosedtonewinvestors.RayDalio’sfund, Bridgewater, hasn’taccepted new investors inover ten years, but when itdid, it required a minimuminvestment of $100 millionand $5 billion in investableassets.Gulp.

Paul Tudor Jones, whohasn’t lostmoney in over 28years, called his investorsrecently and sent back $2billion. When a hedge fundgetstoobig,it’shardertogetinandgetoutofthemarket—harder to buy and sell itsinvestments quickly andeasily.Andbeingslowmeanslowerreturns.

—

Beforeyoubegintothinkthisis a glowing report on hedgefunds,letmebeclear.Forthefifthyear ina row,ending in2012, the vast majority ofhedge fund managers haveunderperformedtheS&P500.According to the financialnews site Zero Hedge, in2012 the average fundreturned 8% as opposed to16% for the S&P 500. In2013hedgefundsreturnedanaverage of 7.4%, while the

S&P 500 soared 29.6%, itsbest year since 1997. I amsure their wealthy clientsweren’t too pleased. And toadd insult to injury, theyusually charge 2% per yearformanagement,take20%ofthe overall profits, and thegainsyoudoreceiveareoftentaxed at the highest ordinaryincometaxrates.Painful.

THEBIGGESTBANKINTHE

WORLD

Nomatterwhataspectoflife,I am always looking for theexceptiontotherule,asthat’swhere outstanding tends tolive. Mary Callahan Erdoesfits that bill. In an industrydominated by men, she hasrisen to the top of the

financialworld.WallStreetisa place where performancespeakslouderthanwords,andErdoes’s performance hasbeen extraordinary. Herconsistent breakthroughresults have led her tobecome the CEO of J.P.Morgan Asset Management,and she now overseesportfoliosthattotalmorethan$2.5 trillion—yes, trillionwithat!We had a fantastic

interview for this book, andshe shared some profoundwisdom,whichwewillcoverin section 6. But when Ibroughtupthestudiesthatnomanager beats the marketover time, she was quick topoint out that many of J.P.Morgan’s fund managershave beaten the market (intheir respective classes) overthepast tenyears.Why?Theexamplessheprovideddidn’tlose as much as the market

when themarketwent down.This difference, she says, iswhat provided the edge theyneeded to stay ahead.Erdoesand many industry expertsagree that certain less-developed, or emerging,marketsprovideopportunitiesforactivemanagerstoget“anedge.” They have theopportunity to gain an evengreater advantage in frontiermarkets—places such asKenya and Vietnam—where

information isn’t astransparentanddoesn’ttravelas fast. Erdoes says this iswhere a firm such as J.P.Morgan has massive reachandresources,andcanuseitson-the-groundcontacts in thecommunitytogiveitvaluableinsightsinrealtime.According to Jack Bogle,

there is no empirical basis toshowthatactivemanagementis more effective for all themajorassetclasses: large-cap

growth, value, core, mid-capgrowth,andsoon.Butitdoesappear that these frontiermarkets present opportunitiesfor active management tosometimes outperform. Willthey continue to outperformgoing forward? Only timewill tell. We do know thatevery active manager, fromRay Dalio to J.P. Morgan,will be wrong at some pointin their attempt tooutperform. Therefore,

developing a system and aproper asset allocation iscrucial.We will address thisinSection 4. Itwill be up toyou to evaluate them foryourself, and don’t forget totakeintoaccountthefeesandthe taxes (which we willdiscussinthenextchapter).

ALLWEATHER

You might be reading thisbook inabullmarket,abearmarket,orasidewaysmarket.Whoknows?Thepointisthatyou need to have yourinvestments set up to standthe test of time. An “AllWeather” portfolio. Thepeople I have interviewedhave donewell in both goodtimesandbad.Andwecanallcount on ups and downs inthe future. Life isn’t aboutwaitingforthestormtopass;

it’saboutlearningtodanceinthe rain. It’s about removingthe fear in this area of yourlifesoyoucanfocusonwhatmattersmost.

WHEN,WHERE,ANDHOW?

SowhatdoestheAllWeatherportfolio look like? “Where

doIputmymoney,Tony?!”First, you don’t have to

wasteyourtimetryingtopickstocks yourself or pick thebestmutual fund.Aportfoliooflow-costindexfundsisthebest approach for apercentage of yourinvestmentsbecausewedon’tknow what stocks will be“best” going forward. Andhow cool to know that by“passively” owning themarket, you are beating 96%

of the world’s “expert”mutual fund managers andnearly as many hedge fundmanagers. It’s time to freeyourself from the burden oftrying to pick the winner ofthe race. As Jack Bogle toldme, in investing it feelscounterintuitive. The secret:“Don’t do something, juststand there!” And bybecoming themarketandnottrying to beat it, you are onthe side of progress, growth,

andexpansion.So far we have referred

many times to “the market”or the S&P 500. ButrememberthattheS&P500isonly one ofmany indexes ormarkets.Most have heard ofthe Dow Jones IndustrialAverage. There are others,suchasacommoditiesindex,a real estate index, a short-termbond index,a long-termbondindex,agoldindex,andso on.Howmuch of each to

buy is criticalandsomethingwewillgettoinsection4. Infact, how would you like tohaveRayDaliotellyouwhathisidealallocationwouldbe?The strategy he shares in thepages ahead has producedjust under 10% annually andmademoneymore than 85%ofthetimeinthelast30years(between1984and2013)! Infact, when the market wasdown 37% in 2008, hisportfolio model was down

only3.93%!IsurewishIhadknownthisbackthen!Or how about David

Swensen, the man who tookYale’s endowment from $1billion to more than $23.9billion while averaging 14%annually? He too shared hisidealallocationforyouinthepages ahead. Pricelessinformation all captured insection 6, “Invest Like the.001%: The Billionaire’sPlaybook.”

So if you look at theseexperts’modelswithout fullyunderstanding assetallocation, it’s likebuildingahouse on aweak foundation.Or if you focus on assetallocation before knowingyour goals, it will be acompletewaste of time.Andmaybe most importantly, ifwedon’tprotectyoufromthepeoplelookingtotakeagoodchunk of your wealth, all islost. That’s why we are

uncovering the 9 Myths—Step2 inour7SimpleStepsto Financial Freedom—sothatyoubecomean“insider.”So that you will know thetruth. And the truth will setyoufree.

ITPAYSTOBEASTAR

Even after everything wehave showed you aboutactively managed mutualfunds, there are undoubtedlythosewhowill say, “Tony, Ihave done my research, andnot toworry. Ionly invest infive-star funds,nothing less.”Oh,really?According to Morningstar,

over the decade endingDecember2009,roughly72%ofallfunddeposits(about$2trillion) flowed to four- and

five-starfunds.Forthosewhoaren’t familiar, Morningstaris the most popular andthorough service forevaluatingmutual funds, andtheyapplyafive-starrankingsystem to their pastperformance. Brokers arestarry-eyedastheysharewithyouthenexthotfund.David Swensen told me

that “the stars are soimportant that mutual fundcompanies are quick to

eliminate funds which fallbelowthefour-starthreshold.For the five-year periodending in 2012, 27% ofdomestic equity funds and23% of international equityfunds were either merged orliquidated; a commonpractice to eliminate a poortrackrecordfromafamilyoffunds.”It’sroutineformutualfund

companies to set upmultiplenewfundstoseewhichoneis

hot and euthanize the others.As Jack Bogle explains, “Afirmwillgooutandstartfiveincubation funds, and theywill try and shoot the lightsoutwithallfiveofthem.Andofcoursetheydon’twithfourofthem,buttheydowithone.So they drop the other fourandtaketheonethatdidverywellpublicwithagreattrackrecord and sell that trackrecord.”Imagine we could adopt

this practice in our owninvesting life? What if youcould pick 5 stocks and iffourwentdownandonlyonewent up, you could pretendallyourlosersdidn’thappen?Andthentellyourfriendsthatyou are the hottest stockpickersinceWarrenBuffett.In addition, the lackluster

performance of these four-and five-star supernovas(dying stars) is wellresearched in a Wall Street

Journal article entitled“Investors Caught with Starsin Their Eyes.” A studywasdoneinwhichtheresearcherswent back to 1999 andstudied the ten-yearsubsequent performance ofthose who bought five-starfunds.Theirfindings?“Ofthe248 mutual stock funds withfive-starratingsatthestartoftheperiod, justfourstillkeptthatrankafter10years.”Howmanytimeshaveyou

pickedashootingstaronlytowatch it burn out? We allhaveatsomepoint.Andherewe see that it’s because wehad less than 2% odds thatthe shooting star wouldn’tfizzle into darkness. We allwant the guy with the hothand,buthistory tellsus thatit’s the hot hand that willinevitablyturncold.Isn’tthatwhyVegasalwayswins!?An “insider” knows that

chasing the highflyer is

chasing the wind. But it’shuman nature to chaseperformance. It’s almostirresistible. Yet the “herd”mentality quite literallyresultsinfinancialdestructionformillionsoffamilies,andIknow that if you are readingthisbook,youarenotwillingto fall victim any longer.You’re becoming an insidernow! And what other coolstrategies do “insiders” use?Let’sfindout.

UPSIDEWITHPROTECTION

In the past 100 years, themarketwasupapproximately70% of the time. But thatleaves 30% of the time thatthe market was down. Sowhileinvestingintheindexesis a great solution for aportion of your money, itshouldn’t be for all of yourmoney.Marketsarevolatileat

times so it onlymakes sensethatyouwillwanttoprotectaportionofyourportfolioiforwhen the markets takeanotherbigdive.Heck, therehavebeentwo50%hitssince2000.One exciting strategy we

will introduce allows us tomakemoneywhenthemarket(index) goes up, yet itsimultaneously guaranteesthat we will not lose ouroriginal investment if the

market goes down. Thecatch? You don’t get tocaptureorparticipateinallofthegains.Mostare indisbeliefwhen

I explain that there are toolsout there that can guaranteethatyoudon’tlosewhilestillgiving you the ability toparticipate in market “wins.”Why haven’t you heard ofthem? Because they aretypically reserved for high-net-worthclients.Iwillshow

you one of the only placeswhere the average investorcan access these. Imagineyourfriendswiththeirbaffledand even suspicious lookswhenyoutellthemyoumakemoneywhenthemarketgoesup but don’t lose moneywhen it goes down. Thisstrategyalonecancompletelychange the way you feelabout investing. It’s yoursafety rope while climbingthemountain when everyone

else is “white knuckling” itwith hope. Imagine thefeeling of certainty, of peaceof mind, knowing that youaren’tatrisk.Howwouldthischangeyourlife?Howwouldyou feel when you open upyour monthly statements?Would you be gritting yourteeth or feel calm andcollected?We’ve only scratched the

surface of the incredibleinsights and tools that lay

ahead, so you must staytuned. But for now, we canrememberthefollowing:•Stockshavebyfarbeenthebest place to be for long-termgrowthovertime.

• Stocks are volatile. In thepagesahead,youwilllearnfrom the “marketmasters”how to “smooth out theride” by investing in anddiversifying acrossmultipledifferentindexes.

•Don’tbesold thatsomeoneisgoingtobeatthemarket.Instead,alignyourselfwiththe market! Once you putyourindexingplaninplace(whichwewill do step bystep), you won’t have tospend your time trying topick which stock to buybecausetheindexwillhavedone it for you. This willsave you a tremendousamount of time and angstintryingtopickawinner.

• Begin to think like aninsider! Never again willyou tolerate the “herd”mentalityinyourownlife.

FEESONFEES

By tapping into thepowerofindexing, by passivelyowning the market, you arealso combatting our secondmyth. Nearly every person I

askdoesn’tknowexactlyhowmuch he or she pays in fees.I’ll admit, I alsodidn’tknowat one stage in my life. Thefee factories have becomemasterful at either hiding thefees or making them appearnegligible. “No big deal.”Nothing could be furtherfrom the truth. Whenclimbing the mountain offinancial freedom you willneed every bit of forwardprogress to succeed. You

can’taffordtotaketwostepsforwardandonestepbackbyletting excessive fees drainyour account. So the realquestion is: Are you fundingyour retirement or someoneelse’s? Turn the page nowandfindout!

4. Active managers rely on their ownjudgment and experience in makinginvestmentdecisionsonwhatstocksor

bonds to buy, hold, and sell. Theybelieve its possible to outperform themarketwiththisapproach.

CHAPTER2.2

MYTH2:“OURFEES?THEY’REASMALLPRICETO

PAY!”

The mutual fundindustry is now the

world’s largestskimming operation, a$7 trillion trough fromwhich fund managers,brokers, and otherinsiders are steadilysiphoning off anexcessive slice of thenation’s household,college, and retirementsavings.”

—SENATORPETERFITZGERALD,cosponsoroftheMutualFundReformActof2004(killedbytheSenate

BankingCommittee)

INSULTTOINJURY

Nothing is more infuriatingthan to be told one price butthen realize that you arepayinganother.Youagreeonthe price of a new car, butwhen it comes down to

signing the documents, acouple thousand in feesmagically appear. Or youcheck out of a hotel anddiscover an additional resortfee, a tourism tax, awirelessinternetfee,feesfortowels—yougetthepoint.It’s frustrating. We feel

trapped. We feel snowed.Strong-armed or simplydeceived into paying morethanweshould.Withthehelpof fine print, the $13 trillion

mutualfundindustryishandsdown the most masterful inthecraftofhidingfees.InaForbes article entitled

“TheRealCost ofOwning aMutual Fund,” Ty Bernickepeels back the layers todissect the actual cost andarrives at a heart-stoppingtotal:The average cost of

owning a mutual fund is3.17%peryear!If3.17%doesn’tsoundlike

abignumbertoyou,thinkofit in light of what we justlearned about becoming orowning the market. Forexample, you can “own” theentire market (let’s say all500 stocks in the S&P 500)for as little as 0.14%—or asthe investmentworld calls it,14 basis points (bps). That’sjust 14 cents for every $100you invest. (JustaquickFYIforyouinsiders:thereare100basis points in 1%, so 50

basis points is 0.5% and soon.)Owning the entire market

is accomplished through alow-cost index fund such asthose offered throughVanguard or DimensionalFund Advisors. And wealreadyknowthatowningthemarket beats 96% of all themutual fund “stock pickers”overasustainedperiod.Sure,you might be willing to pay3%toanextraordinaryhedge

fundmanagerlikeRayDalio,who has a 21% annualizedreturn (before fees) sincelaunchinghisfund!Butwithmost mutual funds, we arepaying nearly 30 times, or3,000%, more in fees, andfor what? Inferiorperformance!!! Can youimagine paying 30 timesmoreforthesametypeofcaryour neighbor owns, and itgoesonly25mphtoboot!This is exactly what is

happening today. Twoneighborsarebothinvestedinthemarket,butoneisshellingoutfistfulsofcasheachyear,while the other is payingpenniesonthedollar.

SAMERETURNS,DIFFERENT

RESULTS—THECOSTOF

IGNORANCE

Three childhood friends,Jason, Matthew, and Taylor,at age 35, all have $100,000to invest. Each selects adifferentmutualfund,andallthree are lucky enough tohave equal performance inthe market of 7% annually.At age 65, they get togethertocompareaccountbalances.On deeper inspection, they

realize that the fees theyhave been paying aredrastically different fromone another. They arepaying annual fees of 1%,2%,and3%respectively.Belowistheimpactoffees

on their ending accountbalance:Jason:$100,000growingat

7%(minus3%inannualfees)=$324,340;Matthew: $100,000

growingat7%(minus2% in

annualfees)=$432,194;andTaylor: $100,000 growing

at 7% (minus 1% in annualfees)=$574,349.Sameinvestmentamount,

same returns, and Taylorhas nearly twice as muchmoney as her friend Jason.Which horse do you bet on?The one with the 100-poundjockey or the 300-poundjockey?“Just” 1% here, 1% there.

Doesn’tsoundlikemuch,butcompounded over time, itcould be the differencebetween your money lastingyour entire life or survivingon government or familyassistance. It’s the differencebetween teeth-clenchinganxiety about your bills orpeace ofmind to live as youwish and enjoy life.Practically, itcanoftenmeanworking a full decade longerbefore you can have the

freedom to quit working ifyouchooseto.AsJackBoglehas shown us, by payingexcessivefees,youaregivingup50%to70%ofyourfuturenestegg.

Now,theexampleaboveishypothetical,solet’sgetabitmore real. Between January1, 2000, and December 31,2012, the S&P 500 was flat.No returns. This period

includes what is often calledthe “lost decade” becausemost people made noprogress but still enduredmassive volatility with therun-upthrough2007,thefreefall in 2008, and the bullmarket run that began in2009. So let’s say you hadyourlifesavingsof$100,000invested. And if you simplyowned, or “mimicked,” themarket during this 12-yearperiod,youraccountwas flat

and your fees wereminimal.But if you paid the 3.1% inaverage annual fees, andassuming your mutual fundmanager could even matchthe market, you would havepaid over $30,000 in fees!!!So your account was down40% (only $60,000 left), butthemarketwasflat.Youputup the capital, you took allthe risk, and they mademoney no matter whathappened.

IAMSMARTERTHANTHAT

Now, you might be readingalong and thinking, “Tony, Iamsmarterthanthat.Ilooked

at the ‘expense ratio’ of mymutual fund(s), and it’s onlyone percent. Heck, I evenhave some ‘no load’ mutualfunds!” Well, I have someswampland in Florida to sellyou!Inallseriousness,thisisthe exact conclusion theywantyoutoarriveat.Likethesleight-of-hand magician, themutual fund companies usethe oldest trick in the book:misdirection.Theywantustofocus on the wrong object

whiletheysubtlyremoveourwatch! The expense ratio isthe “sticker price” mostcommonly reported in themarketing materials. But itcertainly doesn’t tell thewholestory...And let me be the first to

confess that at one stage inmy life, I thought I wasinvesting intelligently, and Iownedmyshareof the“top”five-star actively managedmutual funds. I haddonemy

homework. Looked at theexpense ratios. Consulted abroker. But like you, I ambusy making a living andtaking care of my family. Ididn’t have the time to sitdown and read 50 pages ofdisclosures. The laundry listoffeesisshroudedwithinthefine print. It takes a PhD ineconomicstofigureitout.

PhDINFEES

Just after the 2008 crash,RobertHiltonsmithgraduatedwithaPhDineconomicsanddecided to take a job withpolicy think tank Deēmos.Andlikeallofus,nothinghelearned in college wouldpreparehimforhowtocreatea successful investmentstrategy.So, like most, he started

making dutiful contributionsto his 401(k). But eventhoughthemarketwasrising,his accountwould rarely risewith it. He knew somethingwaswrong, so he decided totake it on as a researchproject for work. First, hestarted by reading the 50-plus-page prospectus of eachofthe20fundsheinvestedin.Incredibly boring and drylegalese designed to be, inHiltonsmith’s words, “very

opaque.”5 There waslanguage he couldn’tdecipher,acronymshehadn’ta clue what they stood for,and, most importantly, acatalogueof17differentfeesthat were being charged.There were also additionalcosts that weren’t direct feesper se but were passed ontoandpaid for by the investorsnonetheless.To better shroud the fees,

Wall Street and the vast

majority of 401(k) planprovidershavecomeupwithsome pretty diverse andconfusing terminology.Assetmanagement fees, 12b-1fees/marketing fees, tradingcosts (brokeragecommissions, spread costs,market impact costs), soft-dollar costs, redemption fees,account fees, purchase fees,record-keeping fees, planadministrative fees, and onand on. Call them what you

want. They all cost youmoney! They all pull youbackward down themountain.After a solid month of

research,Hiltonsmithcametothe conclusion that therewasn’t a chance in hell thathis 401(k) account wouldflourish with these excessiveand hidden fees acting as aholeinhisboat.Inhisreport,titledTheRetirementSavingsDrain: The Hidden &

ExcessiveCostsof401(k)s,hecalculated that the averageworkerwill lose $154,794 to401(k) fees over his lifetime(based on annual income ofapproximately $30,000 peryear and saving 5% of hisincomeeachyear).Ahigher-income worker, makingapproximately $90,000 peryear, will lose upward of$277,000 in fees in his/herlifetime! Hiltonsmith andDeēmos have done a great

social good in exposing thetyranny of compoundingcosts.

DEATHBYATHOUSANDCUTS

In ancient China, death by athousand cuts was thecruelest form of torturebecause of how long the

process took to kill thevictim. Today the victim isthe American investor, andthe proverbial blade is theexcessivefeesthatslowlybutsurelybleedtheinvestordry.DavidSwensenisthechief

investment officer of Yale’sendowment. He has grownthe fund from $1 billion tomore than $23.9 billion, andhe is considered to be theWarren Buffett ofinstitutional investing. When

I sat down with him in hisYaleoffice,Iwasenlightenedyet angered when he sharedthe real truth regarding the“fee factories” that areslaughtering Americans.David shared,“Overwhelmingly, mutualfunds extract enormous sumsfrom investors in exchangefor providing a shockingdisservice.”Laterinthebook,we will sit down and lookover David’s shoulder at his

portfolio recommendations,but it doesn’t matter howgreat your strategy is ifexcessivefeesareerodingthepathbeneathyourfeet.The “asset gathering”

complex and the activelymanaged mutual funds theypeddleare, for themostpart,adisastroussocialexperimentthatbeganwiththeadventofthe 401(k) in the early ’80s.The 401(k) was not a “bad”concept. It was a good idea

for those who wanted to putextramoneyaway.Butitwasjustmeanttobeasupplementto a traditional pension plan.Today there is over $13trillion in managed mutualfunds,muchofwhichisheldinretirementaccountssuchas401(k)sandIRAs.Theyweresupposed to get us to ourretirement goals. They weresupposed to beat themarket.But not only do they rarelybeat themarket, a significant

majority are chargingastronomical fees for theirmediocrity. The aggregate ofthesefeeswillultimatelycosttens of millions of peopletheirqualityoflifeandcouldverywell be the number onedanger and destroyer of yourfinancialfreedom.Soundlikeanoverstatement?Jack Bogle, founder of

Vanguard,says,“Ithinkhighcosts [eroding already lowerreturns]areasmuchofarisk

forinvestorsasthe[economicsituation] in Europe orChina.”

ITGETSWORSE

So let’s recap. Not only willthe vast majority (96%) ofactively managed mutualfunds not beat the market,theyaregoingtochargeusanarmandleg,andextractupto

two-thirds of our potentialnest egg in fees. But here isthe kicker: they are going tohavethenervetolookyouintheeyeandtellyouthat theytruly have your best interestsatheartwhile simultaneouslylobbying Congress to makesurethatisneverthecase.

THETRUTH/SOLUTION

First, you need to knowhowmuch you are paying! Irecommend visiting theinvestment software websitePersonal Fund(www.PersonalFund.com)forits cost calculator, whichanalyzes each of your fundsand looks beyond just theexpenseratiototheadditionalcostsaswell.Keep in mind, these

calculators can only estimatethefees.Theycan’t takeinto

account other costs such astaxes because each person’stax bracket may differ. Youmay also own the mutualfund inside your 401(k), inwhich you won’t be payingtaxes on the growth butinsteadwillbepayinga“planadministrator.” Some 401(k)plans are low-cost, whileothers are hefty withexpenses. The average planadministratorcharges1.3%to1.5% annually (according to

the nonpartisan GovernmentAccountability Office).That’s $1,300 for every$100,000justtoparticipateinthe401(k).Sowhenyouaddthis 1.3% for the planadministration to the totalmutualfundcostsof3.17%,itcan actually be moreexpensive toownafund inatax-free account whencompared with a taxableaccount (awhopping total of4.47%to4.67%peryear)!!!

Think about it: you aresaving 10%, but half of it isbeing paid in fees. Howinsane is that? But as you’lllearnhere, youdon’t have tobe caught in this trap. Bybecominganinsider,youcanput a stop to this thieverytoday. Fees this high are theequivalent of climbingEverest in flip-flops and atank top. You were deadbeforeyougotstarted.

ADD’EMUPNontaxableAccount

TaxableAccount

Expenseratio,0.90%

Expenseratio,0.90%

Transactioncosts,1.44%

Transactioncosts,1.44%

Cashdrag,0.83%

Cashdrag,0.83%

— Taxcost,1.00%

Totalcosts, Totalcosts,

3.17% 4.17%“TheRealCostofOwningaMutualFund,”Forbes,April4,2011

ESCAPE

To escape the fee factories,

you must lower your totalannual fees and associatedinvestment costs to 1.25%orless, on average. Thismeansthe cost of the advice (aregistered investment advisorto help you allocateappropriately, rebalance yourportfolio periodically, and soon) plus the cost of theinvestmentsshouldideallybe1.25% or less. For example,you might be paying 1% orless to the registered

investment advisor and0.20% for low-cost indexfunds like those offeredthroughVanguard(foratotalof1.2%).Andthe1%paidtotheadvisorasafeecanbetaxdeductible. Which meansyour “net”out-of-pocket costisclosetohalf,dependingonyour tax bracket. MostAmericans use a typicalbroker where thecommissions aren’tdeductible, nor are those

expensive fees the mutualfund charges. (We willdiscuss the differencebetween a broker and aregistered investment advisorshortly. You don’t want tomissthisone!)In section3,wewill show

you step by step how todramaticallyreduceyourfeesandlegallyreduceyourtaxes.Andall thatmoneyyou savewill accelerate your path tofinancialfreedom.

NEVERAGAIN

Now that you know how thegameisplayed,nowthatyouhave looked behind thecurtain, make the decisionthat you will never be takenadvantage of again. Resolveright now that you’ll neveragain be one of the many.You’rebecominganinsidernow. You are the chessplayer, not the chess piece.

Knowledge is power, butexecution trumps knowledge,soit’swhatyoudofromherethat will matter. Yes, I willshow you exactly how toreduce your fees, but youmust decide to take thenecessary action. You mustdeclare that you will neveragain pay insane fees forsubpar performance. And ifthisbookcansaveyou2%to3% per year in unnecessaryfees,we just puthundredsof

thousands of dollars, maybeeven millions, back in yourpocket. Said another way,this could get you to yourgoalthatmuchquickerandsave you 5 to 15 years ofaccumulation time so thatyoucanretiresoonerifyousochoose.By simply removing

expensivemutual funds fromyour life and replacing themwith low-cost index fundsyou will have made a major

step in recouping up to 70%of your potential future nestegg!Howexciting!Whatwillthat mean for you and yourfamily? Vanguard has anentiresuiteof low-cost indexfunds (across multipledifferent types of assetclasses) that range between0.05%and0.25%peryear intotal “all-in” costs.DimensionalFundsisanothergreat low-cost index fundprovider. If you don’t have

access to these low-costproviders in your 401(k),wewill show you how to makethat happen. Andwhile low-cost index funds are crucial,determining how much ofeach index fund to buy, andhow to manage the entireportfolio over time, are thekeys to success. We willcoverthatinthepagesahead.Now that you have

resolved to take action, towhom do you turn?Who do

you trust as a guide? Goingback to your broker to helpyousaveonfeesislikegoingto your pharmacist to helpyou get off meds. How doyoufindconflict-freeadvice?And how do you know thatthe guidance you’re gettingisn’tinthebestinterestoftheperson on the other side ofthe desk? Turn the page touncoverMyth3,andlet’sgetanswers to these pressingquestions....

BREAKITDOWNIf you really want to knowhow badly you’re beingabused through hidden fees,take a moment and review asample listbelowof someofthe core fees and costs thatimpact your mutual fundinvestments:

BREAKOUTOFFEES1. Expense Ratio. Thisexpense is themain “price

tag”—the number theywant us focused on.But itcertainly doesn’t tell thewhole story. According toMorningstar, US stockfunds pay an average of1.31% of assets each yearto the fund company forportfolio management andoperatingexpensessuchasmarketing (12b-1 fees),distribution, andadministration. Many ofthe larger funds have

realizedthata1%ballparkexpenseratioiswheretheywant to come in so thatinvestors don’t flinch andbrokers have a good storytosell—Imean,tell.

2. Transaction Costs.Transaction costs are abroad, sweeping categoryand can be broken downfurtherintocategoriessuchas brokerage commissions,market impact costs (thecost ofmoving themarket

as mutual funds trademassive market-movingpositions),andspreadcosts(thedifferencebetweenthebid-and-ask or the buy-and-sell price of a stock).A 2006 study by businessschool professors RogerEdelen,RichardEvans,andGregoryKadlec found thatUS stock mutual fundsaverage 1.44% intransaction costs per year.This means that these

transaction costs areperhapsthemostexpensivecomponent of owning amutual fund, but theindustry has deemed it tootoughtoquantify,andthusit goes unreported in thebrochures.

3. Tax Costs (or 401[k]Costs). Many people areexcited about the “tax-deferred”treatmentoftheir401(k), but for mostemployees,thetaxcosthas

been swapped out with“plan administrative” fees.These are charged inaddition tothefeespaidtothe underlying mutualfunds,andaccordingtothenonpartisan GAO(GovernmentAccountabilityOffice), theaverage plan administratorcharges1.13%peryear! Ifyouownamutualfundinataxable account, theaveragetaxcostisbetween

1.0% and 1.2% annually,accordingtoMorningstar.

4. Soft-Dollar Costs. Soft-dollar tradingisaquidproquo arrangement wherebymutual fund managerschoose to pay inflatedtrading costs so that theoutsidefirmexecutingtheirtrades will then rebate theadditional cost back to thefund manager. It’s arewards program for usinga particular vendor. The

frequentfliermilesofWallStreet. The fund managercanuse these funds topayfor certain expenses suchas research and reports.These are costs the fundmanager would otherwisehave to pay, so the netresultisthatyouandIpay!These are simply well-disguised increases inmanagement revenue thathitthebottomline.They’reunreported and nearly

impossible to quantify, sowe aren’t able to includethem in our equationbelow, but make nomistake,it’sacost.

5. Cash Drag. Mutual fundmanagers must maintain acash position to providedaily liquidity and satisfyany redemptions (selling).Since cash is not invested,itdoesn’tgenerateareturnand thus hurtsperformance.According to

astudytitled“Dealingwiththe Active,” authored byWilliam O’Rielly, CFA,and Michael Preisano,CFA,theaveragecostfromcash drag on large-capstock mutual funds over aten-year time horizon was0.83%peryear.Itmaynotbe a direct fee, but it’s acost that takes away fromyourperformance.

6. Redemption Fee. If youwant to sell your fund

position, you may pay aredemptionfee.This fee ispaid to the fund companydirectly and the USSecurities and ExchangeCommission (SEC) limitsthe redemption fee to 2%.Like the world’s mostexpensive ATM, it couldcostyou$2,000togetbackyour$100,000!

7. Exchange Fee. Somefundschargeafeetomoveorexchangefromonefund

toanotherwithin the samefamilyoffunds.

8.Account Fee. Some fundscharge a maintenance feejusttohaveanaccount.

9.PurchaseFee.Apurchasefee, not to be confusedwitha front-endsales load(commission), is a chargeto purchase the fund thatgoes directly to the fundcompany.

10.Sales Charge (Load) orDeferredSalesCharge.

This charge, typicallypaid to a broker, eithercomes out when youpurchase the fund (so asmaller amount of yourinitial deposit is used tobuy shares in the fund)or you pay the chargewhen you exit the fundandredeemyourshares.

5.RobertHiltonsmith and his research

were featured on a terrific Frontlinedocumentary called The RetirementGamble, which first aired on PBS onApril23,2013.

CHAPTER2.3

MYTH3:“OURRETURNS?WHATYOUSEEISWHAT

YOUGET”

Surprise,thereturns

reportedbymutualfunds

aren’tactuallyearnedbyinvestors.

—JACKBOGLE,founderofVanguard

Mostpeoplearefamiliarwiththe

boilerplatedisclaimerthatpastperformancedoesn’tguaranteefutureresults.Farfewerareawareofhowpast

performancenumbersthemselvescanbe

misleading.—“HOWFUNDS

MASSAGENUMBERS,LEGALLY,”WallStreetJournal,March31,2013

LIPSTICKONAPIG

In2002CharlesSchwabranacleverTVadwherea typical

Wall Street sales manager isgiving amorning pep talk tohis boiler room. “Tell yourclientsit’sredhot!Enfuego!Just don’t mention thefundamentals—they stink.”He wraps up his morningsermonbydanglingcourtsidetickets to the Knicks for thewinning salesman and giveshis final send-off: “Let’s putsomelipstickonthispig!”

GETMYGOODSIDE

In1954DarrellHuffauthoreda book entitled How to Liewith Statistics. He points tothe “countless number ofdodgeswhichareusedtofoolratherthantoinform.”Todaythemutual fund industry hasbeen able to use a trickymethod to calculate andpublish returns that are, as

JackBoglesays,“notactuallyearnedby the investors.”Butbefore we explain thismasterful “sleight of pencil”magic, let’s first understandthe illusion of averagereturns.Belowisachartshowinga

hypotheticalmarketthatisupand down like a rollercoaster.Up50%,down50%,up50%,anddown50%.Thisproducesanaveragereturnof0%. And like you, I would

expectthata0%returnwouldmean that I didn’t lose anymoney. And we would bothbewrong!As you can see by the

chart, if you start with anactual dollar amount (let’suse $100,000), at the end ofthe four-year period, you areactually down $43,750, or43.75%! You thought youwereeven,butinsteadyou’redown 43.75%! Would youeverhaveguessed this?Now

that you’re an insider,beware!Averagereturnshavea built-in illusion, spinning aperformance enhancementthatdoesn’texist.

In a Fox Business articletitled “Solving the Myth ofRate of Return,” Erik Kromexplainshowthisdiscrepancyapplies to the real world:

“Anotherway to lookat it isto review the Dow Jonessince 1930. If you add upeverynumber anddivide itby 81 years, the return‘averages’ 6.31%; however,if you do the math, you getan‘actual’returnof4.31%.Why is this so important? Ifyou invested $1,000 back in1930 at 6.31%, you wouldhave$142,000,at4.31%youwouldonlyhave$30,000.”

THESCALESAREWEIGHTED

Nowthatweseethataveragereturns aren’t a truerepresentation of what weearn, sit back and relaxbecause the grand illusionisn’t over yet. The mathmagicians on Wall Streethave managed to calculatetheir returns to look evenbetter.Howso?

In short, when the mutualfund advertises a specificreturn,it’snot,asJackBoglesays,“thereturnyouactuallyearn.” Why? Because thereturns you see in thebrochure are known as time-weighted returns. Soundscomplicated, but it’s not.(However, feel free to usethat to look brilliant at yournextcocktailparty!)The 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 themarketing department andtakeoutthosefull-pageads!”Butinreality,investorsrarelyhave all their money in thefund at the beginning of theyear. We typically makecontributions throughout theyear—that is, out of everypaycheck into our 401(k).And if we contribute moreduringtimesoftheyearwhen

thefundisperformingwell(acommon theme, we learned,as investors chaseperformance) and less duringtimes when it’s notperforming, we are going tohave a much different returnfromwhatisadvertised.Soifwe were to sit down at theendof theyear and take intoaccount the “real world” ofmakingongoingcontributionsand withdrawals, we wouldfindouthowmuchwereally

made(or lost).Andthisreal-world approach is called thedollar-weighted return.Dollar-weighted returns arewhatwe actually get to keepwhereas time-weightedreturns are what fundmanagers use to fueladvertising.Jack Bogle has been a

continual proponent ofchanging this rule. Hebelieves that investorsshouldsee how much they actually

earned(orlost)basedontheirown personal situation(contributions andwithdrawals included).Sounds like common sense,right? But it’s no surprisewhy mutual funds areresistant.Boglesays:“We’vecompared returns earned bymutual fund investors—dollar-weighted returns—withthereturnsearnedbythefund themselves, or time-weighted returns, and the

investorsseemtolagthefundthemselves by three percentper year.” Wow! So if thefund advertises a 6%return, its investorsachievedcloserto3%.

THETRUTHANDTHESOLUTION

Average returns are like

profile photos for onlinedating. They paint a betterportrait than the reality! Ifyou know the amount youstarted with in yourinvestment and you knowhowmuchyouhavenow,youcan go to a website such asMoneychimp(www.moneychimp.com/calculator/discount_rate_calculator.htmand it will show you exactlywhat the actual return is onyour money over that periodoftime.

You must also rememberthat the returns reported bymutual funds are based on atheoretical person whoinvested all his money onDay1.Thisjustisn’ttrueformost so we can’t deludeourselves into believing thatthe glossy brochure returnsarethesameaswhatwehaveactually received in ouraccount.

THEPATHISCLEAR

Nobody said climbing amountainwouldbeeasy.Butit’s a heck of a lot easierwhen you have a machetecalled “truth” to hack awaytheliesandgrantaclearviewof the path ahead. As aninsider, you are no longerflyingblind.Younowknow that stock-

picking mutual funds don’tbeat the market over anysustained period (especiallyafteryouaccountforfeesandtaxes).Youalsoknowthatfeesdo

matter.And that by loweringyourfees,youcangetbackasmuchas60%to70%ofyourfuture potential nest egg.Howwill this awesome truthimpactyourfuture?Andfinally,youknowthat

average returns don’t paint

the real picture. Actualreturnsmatter.And you nowhave the simple tools tocalculatethem.

—

Your journey to financialfreedom has more thanbegun. You are hitting yourstride,andthetruthsyouhavelearned so far will separateyou from being one of the“sheeple.”

FLYINGSOLO

AsIhavetaughtpeoplethesetools, I often notice thatpeople feel as though theycannolongertrustanyone.Inasense,theyfeelbetrayed,asthey become enlightened andstart to understand the realrulesofthegame.Theythinkthey must now handleeverything on their own andbecome an island unto

themselves because “nobodycanbetrusted.”Thisjustisn’ttrue. There are a number ofincredible financialprofessionals who are full ofintegrity and committed totheir clients’ futures. I havean amazing advisor whom Itrust implicitly to act in mybestinterests,andtogetherwereview and manage myinvestments. Like you, I aminsanelybusyanddon’thavethe time or desire to spend

mydaysmanagingthedetailsofmy portfolio. In reality, ifdone properly, a briefquarterly or twice-a-yearreviewisallthatisneededtogo over your objectives andrebalancetheportfolio.So how do you know the

difference between asalesman and a trustedadvisor? Between a brokerandaguide?Myth4willhelpus quickly determine if theperson on the other side of

thedeskisworkingforyouorthenameon their company’sletterhead.As“DeepThroat”from the Watergate scandalsaid:“Follow the money.

Alwaysfollowthemoney.”

CHAPTER2.4

MYTH4:“I’MYOURBROKER,ANDI’MHERETO

HELP”

“Itisdifficulttoget

amantounderstand

something,whenhissalarydependsonhisnotunderstandingit.”

—UPTONSINCLAIR

LETMEGETTHISSTRAIGHT

Soletusrecap:The mutual funds sold to

me are charging me

astronomical fees that couldstripmeofup to70%ofmyfuturenestegg.Over any sustained period

of time, 96% of activelymanaged mutual funds areunderperforming the market(ortheirbenchmarks).I am being charged 10 to

30 times what it would costme to own a low-cost indexfund and “become,” ormimic,themarket.The returns the mutual

fundsaresellingaretypicallyway better than the returns Iactuallyreceivesincetheyaremarketed as time-weightedreturns, not dollar-weightedreturns. Dollar-weightedreturns are what we actuallyget to keep/spend, whereastime-weighted returns arewhat fund managers use tofueladvertising.And as the grand finale,

your brokerwill look you inthe eye and tell you that he

has your best interests atheart. Because more thanlikely, he sincerely believesheishelpingyou.Hedoesn’tunderstand, nor has he evenbeen educated about theimpact ofwhatwe describedabove. Heck, he is probablyfollowingthesameadviceheis giving you for his ownpersonalfinances.

CHOMP!CHOMP!

Howintheworldcanthevastmajority of Americans bedyingthedeathofathousandcutsbutnotriseup,votewiththeir pocketbooks, and taketheir hard-earned moneyelsewhere? The answer is,they’vebeenkept inthedarkfor decades. Most people Italk to are highly suspiciousof the financial services

industry as a whole and itsdesire to“help”yousucceed.They’ve been burned before.Yet in the face of a constantbarrage of conflictinginformation and marketinghype, they quickly becomeoverwhelmed.Nottomentionthe demands of daily life.Manyhaveputtheirfinanciallives on autopilot and haveaccepted being part of theherd. “Hope” has becometheirstrategy.

There’sasocialcomfortinknowing that you’re notalone. It reminds me ofwatching the DiscoveryChannel and the wildebeestthatcautiouslyapproachesthecrocodile-infestedwater foradrink just minutes after thejawsofacrocclampeddownon his buddy! Is the animalstupid? No! The animalknows that without water itwill die in the blisteringAfrican sun so it takes a

calculated risk. Most of usfeel the sameway.Weknowwe can’t sit on the sidelines,on the edgeof the riverbank,because inflationwilldestroyus ifwe just sit on our cash.So, alongside our neighborsand colleagues, we journeydown to the water withtrepidation, and when weleastexpectit:chomp!A Black Monday. A dot-

combubble.Another2008.All the while, the

brokerage firm with whichwe entrusted our family’squality of life is taking norisk and reaping recordcompensationyearafteryear.As I write this in early

2014, themarket prices havecontinued to grow. From2009 through the end of2013, the market was up131% (including dividendreinvestment).That’sthefifthlargestbullmarketinhistory.People are seeing their

accountbalances riseandaregetting comfortable again.Mutual fund managers andexecutives are raking it in.Butthecrocsarestillfeeding.

PROTECTIONFROMWHOM?

In late 2009 RepresentativesBarneyFrankandChrisDodd

submitted proposedregulation called the “Dodd-Frank Wall Street Reformand Consumer ProtectionAct. One year later, afterintense lobbying by thefinancialservicescommunity,a version of the bill passedwith far less teeth than theoriginal.But nobody stoppedto ask the obvious question:From whom or what exactlydoweneedprotection?Fromthepeoplewetrustto

manage our financial future?Fromthebrokerswhosellusexpensive mutual funds?From the managersthemselves, who play legalbut shadygames to line theirpockets? From the high-frequency traders who are“front running” the marketand pinching millions onepenny at a time? In the lastcouple years alone, we haveseen rogue traders causebillions in losses for banks;

large firms such as MFGlobal misappropriate clientfunds and ultimately declarebankruptcy; insider tradingconvictions from one of theworld’s largest hedge funds;and bank traders criminallyprosecuted for riggingLIBOR (London InterbankOffered Rates), the world’smostwidely used benchmarkforshort-terminterestrates.

THECHEFDOESN’TEATHIS

OWNCOOKING

We are continually sold andinfluenced by thosewho “doas I say, not as I do.” In asobering 2009 study releasedby Morningstar, in trackingover 4,300 actively managedmutual funds, it was foundthat 49% of the managersownednosharesinthefundthey manage. That’s right.Thechefdoesn’teathisown

cooking.Of the remaining 51%,

most own a token amount oftheir funds when comparedwith their compensation andtotal net worth. Remember,these guys earn millions,sometimes tens of millions,fortheirskills:• 2,126ownno shares in thefundtheymanage.

• 159managers had investedbetween$1and$10,000in

theirownfund.• 393 managers investedbetween $10,001 and$50,000.

• 285 managers investedbetween $50,001 and$100,000.

• 679 managers investedbetween $100,001 and$500,000.

• 197 managers investedbetween $500,001 and$999,999.

•413managersinvestedmore

than$1million.

So the obvious questionis,ifthepeoplewhomanagethe fundaren’t investing inthe fund they run, why inthe world would I? Goodquestion!!!The chef doesn’t eat his

own cooking if theingredients are bad or if heknowswhatthekitchenreallylooks and smells like. Thesefund managers are smart—

theyworkunderthehood.

WHEREARETHECUSTOMERS’YACHTS?

Fred Schwed Jr. was aprofessional trader who quitWall Street after losing a lotof hismoney in the crash of1929. In 1940 he wrote the

investmentclassicWhereAretheCustomers’Yachts?,orAGood Hard Look at WallStreet. The joke behind thetitle has been retold manydifferentwaysovertheyears,but in Schwed’s version, asuccessfulWallStreetbrokernamed William Travers isadmiring the many beautifulyachts while on vacation inNewport,RhodeIsland.Eachyacht he inquires abouthappens to belong to a

broker,banker,ortrader.He asks, “Where are the

customers’yachts?”Nearly 75 years have

passed since this story wasfirst published, but it couldhavebeenwrittenyesterday!

WHOMTOTRUST

We have all seen numerousvariations of the same

commercial.Thehusbandandwife, looking concerned, sitacross the desk from theirfinancial advisor. And withthe wisdom of a grandfatherand the look of a man whohas weathered many storms,the hired actor assures themthat with his help, they willbe just fine. “Don’t worry,we’ve got your back. We’llgetyourkidsthroughcollege.We’ll get you that sailboat.We’ll get you that vacation

home.” The insinuation isloud and clear: “Your goalsare our goals.We’re here tohelp.” But the real questionis:Are your interests really

aligned?Does the person with

whom you trust to plan youandyourfamily’sfuturehaveevery incentive to operate inyour best interest? Mostwouldthink“yes”—andmostwould be wrong. And the

answer to this question maybe the difference betweenfailing or succeeding in yourjourney to FinancialFreedom.Whenclimbing themountain, how would youfeel if your guide was moreconcerned about his ownsurvival than yours? AsDavidSwensenremindedme,“Your broker is not yourfriend.”

THESUITABILITYSTANDARD

And here is the truth: thefinancialservicesindustryhasmany caring people of thehighest integrity who trulywant todowhat’s in thebestinterest of their clients.Unfortunately, many areoperatingina“closed-circuit”environment in which thetools at their disposal are

preengineered to be in thebest interests of the “house.”The system is designed toreward them for selling, notfor providing conflict-freeadvice. And the product orfund they sell you doesn’tnecessarily have to be thebestavailable,oreveninyourbest interest. By legaldefinition, all they have todo is provide you with aproductthatis“suitable.”What kind of standard is

“suitable”? Do you want asuitable partner for life?“Honey, how was it for youtonight?”“Eh...thesexwassuitable.”Areyougoingtobepromoted for doing suitablework?Do you fly the airlinewith a “suitable” safetyrecord? Or better yet, “Let’sgo to lunch here; I hear thefoodissuitable.”Yet, according to David

Karp,a registered investmentadvisor, the suitability

standard essentially says, “Itdoesn’t matter who benefitsmore, the client or advisor.As long as an investment issuitable [meets the generaldirection of your goals andobjectives] at the time itwasplaced for the client, theadvisor is held free ofliability.”

THEGOLD

STANDARD

To receive conflict-freeadvice, we must alignourselveswitha fiduciary.Afiduciaryisalegalstandardadopted by a relativelysmall but growing segmentof independent financialprofessionals who haveabandoned their big-boxfirms, relinquished theirbrokerstatus,andmadethe

decision to become aregistered investmentadvisor.Theseprofessionalsgetpaidforfinancialadviceand, by law, must removeany potential conflicts ofinterest (or, at aminimum,disclose them) and put theclient’s needs above theirown.By way of example, if a

registered investment advisortellsaclient tobuy IBMandlaterthatdayhebuysIBMin

his own personal account fora better price, he must givethe client his stock at thelowerpricetrade.Imaginehaving investment

advice where you knew thatthe law protected you fromyouradvisorsteeringyouinaspecific direction or to aspecific fund to make moremoneyoffofyou.One huge additional

advantage?Thefeeyoupayafiduciary for advice may be

tax deductible, depending onyour tax bracket. So a 1%advisory fee could really becloserto0.5%whenyoutakeinto account the deduction.Contrast this with the 2% ormore you pay to a mutualfundmanager,noneofwhichistaxdeductible.

FINDINGAFIDUCIARY

Ifthereisonesinglestepyoucan take today to solidifyyour position as insider, it’sto align yourself with afiduciary; an independentregistered investment advisor(RIAforshort).Most people I ask don’t

know whether “theirinvestment guy/gal” is abroker or a legal fiduciary,but nearly everyone believesthat his investment personshouldhavehisbest interests

at heart. And as Imentionedbefore,theytypicallydohavehis clients’ interests in mindbut they are operatingwithina framework that rewardsthemfor selling.And,by theway, you’ll never hear themreferredtoas“brokers.”Theyare called registeredrepresentatives, financialadvisors, wealth advisors,vicepresidentofthis,that,orthe other thing. In fact, theWall Street Journal reported

finding in excess of twohundred differentprofessional designations forfinancial advisors—morethan half of which are nottracked by the FinancialIndustry RegulatoryAuthority (FINRA), whichoverseeshowinvestmentsarepitchedtoinvestors.Manyofthese financial service“credentials” are purewindow dressing and do notimpartafiduciaryduty.

NOTALLADVICEISGOODADVICE

Aligning yourself with afiduciaryis,byallaccounts,agreat place to start. But thisdoes not necessarily meanthat the professional youselect is going to providegood or even fairly pricedadvice.Andlikeanyindustry,not all professionals haveequal skill or experience. In

fact, 46% of financialplanners have no retirementplan! That’s right. Thecobbler’s kid has no shoes!Over2,400financialplannerswere surveyed anonymouslyin a 2013 study by theFinancial PlanningAssociation,andclosetohalfdon’t practice what theypreach.Heck, I can’t believethey admitted it!!! Truth is,we are living in unchartedterritory. With endless

complexity, central banksprinting money like crazy,and even some governmentsdefaultingon their owndebt,only the elite advisors of theplanning industry know howtonavigatethesewaters.

THEBUTCHERANDTHEDIETITIAN

A good friend of minerecently forwarded me aYouTube video entitled TheButcher vs. the Dietitian, atwo-minute cartoon thateffectively and succinctlyhighlighted the majordifference between a brokerand a legal fiduciary. Thevideo made the glaringlyobvious point that when youwalkintoabutchershop,youarealwaysencouragedtobuymeat. Ask a butcher what’s

for dinner, and the answer isalways “Meat!” But adietitian, on the other hand,will adviseyou to eatwhat’sbest for your health. She hasnointerestinsellingyoumeatif fish is better for you.Brokers are butchers, whilefiduciaries are dietitians.They have no “dog in therace” to sell you a specificproduct or fund. This simpledistinction gives you aposition of power! Insiders

knowthedifference.I did a little digging, and

themanbehindthevideowasElliot Weissbluth, a formerlitigator who 15 years agobecame incensed by theconflicts of interest in theinvestmentindustryandmadeit his mission to provide analternative to the brightestandmost successful advisorsand independent firms. Inother words, choosingindependence should not

mean a sacrifice insophistication and access tothe best solutions. His greatidea caught fire, andHighTowerisnowoneofthelargestindependentregisteredinvestment advisors in thecountry, with nearly $30billion in assets and 13th onInc.magazine’slistoffastest-growing companies. Theexplosive growth ofHighTowershowsthatclientswantadietitian.Theyaresick

of being sold meat and thenrealizingthattheirhealthisinjeopardy.IinterviewedElliotforthis

book and we have sincedeveloped a great friendship.Ididn’thave to twistElliot’sarm to leave frigid Chicagoand joinme for a day of 78-degreeweatheratmyhomeinPalmBeach.

ANAUDACIOUSPROPOSAL

Together we sat onmy backlawn overlooking the oceanand had a long conversationabout the myths beingmarketedandinjusticesbeingdone to the average investor.Elliothasauniquepassion,afervency, to serve investorsby eliminating the self-interestandinherentconflicts

thathavebecomethenorminbigfirms.FromDayOne,hemade thecommitment to fulldisclosure, full transparency,and conflict-free advice inevery aspect of the business.And by not acceptingpayments or kickbacks forselling a product or service,his firm stands in a positionof true power and integrity.Firms compete to work withHighTower, and all of thebenefits are passed down to

the client. What’s reallypowerful is how Elliot grewthe business. First, he built aunique platform that no onethought was possible. Thenhe recruited the best “corneroffice” advisors from thebiggest firms and gave themthe path to the moral highground—the opportunity toquit working for the houseandwork only for the client.And by giving them thefreedomnot to have to serve

two masters, they could dowhatever was in the client’sbest interest, at all times, inalltransactions.There was only one

problem:HighTower was built to

service only the wealthiestAmericans.In fact, all of the top

advisors in the industry arefocused on the wealthy.Makes sense, right? If youmanage money, you want to

manage fewer clients whohave more money. Thisarrangement maximizes yourown profitability. Too manysmall accountsmeans lots ofoverhead and cost. It’s justnot an efficient way to dobusiness.In spite of all that, I

decided to drop a challengeonElliot...

LET’SBLAZEATRAIL

“Elliot, I want you to figureoutawaytodeliverthesamefullytransparent,conflict-freeadvice to anyone who wantsthe service, not just thewealthy. There has to be away, Elliot,” I said, leaningforward on the edge of mychair. “You care sopassionatelyaboutjusticeand

fairness that your ownmission calls you to do thisforeveryone.”Elliotsatbackin his chair. He expected asimple interview and wasnow being asked to deploysome serious resources! Andperhaps more importantly, Ichallenged him to figure outhow to deliver some of thesolutions that are normallyreserved for folks withultrahigh net worth. It wasquite a challenge. To

democratize the bestinvestment advice coupledwith the best availablesolutions.“Oh,andonemorething, Elliot: I think youshouldmakeacomplimentaryreviewservicethatisentirelyfree! People need to knowhow they are being treated!”Elliot took a few deepbreaths.“Geez,Tony!Iknowyou thinkbig,but togearupand make this available toeveryone, at no charge?

Come on!” I just smiled andsaid,“Yes,crazy,isn’tit!Noone else is going to do this.Nobody is showing howpeople are overpaying forunderperformance. My guessis that we could show themusing technology! You havethe resources and the will tomake this happen if youcommit yourself!” I let theconversation end by simplyaskinghimtotakesometimeto think about the impact of

what this could mean forpeople’slivesandtogetbackin touch once he had fullythoughtitthrough.

IT’SDOABLE

Elliot returned to Chicagoandgatheredhistroops.Aftermuchdeliberation,andwithadeep determination to find away, Elliot called me back.

Afterhisteamreviewedsomepatentedtechnologywecouldutilize,hewasconvincedthiscouldbeagamechanger.Buthehadonerequest.Hewouldwant to partner with anextraordinary chiefinvestment officer. One withdecadesofexperienceandthevaluestomatch.Acaptainofthe ship not afraid ofunchartedwaters.Iknewjusttheman...Ajay Gupta is the founder

and chief investment officerof Stronghold WealthManagement, a firm thatprovides “white-glove”service for those of ultrahighnet worth. He is also myregistered investment advisorand has been managing myfamily’s money for oversevenyears.He spent almosttwo decades within theworld’s largest brokeragefirms as the classic corner-office success story. Ajay

cametotheproverbialforkinthe road. His choice? Eitherleave the brokerage worldbehindandcarrythefiduciaryflag or continue to walk thelineoftryingtobeadietitianwithin thewalls of a butchershop. I askedAjaywhatwasthe pivotal moment ofdecision. “It cameas a resultof total frustration,” heconfessed. “There wereinvestmentsthatIknewwerebest for my client, but the

firm wouldn’t allow me toaccess them because theyweren’t ‘approved.’ I didn’twant to steermy client to aninferior investment just so Icould earn more. I treat myclients as my family, and IrealizedthatnolongercouldImake choices by theconstraints imposed bysomeone in a far-off ivorytower.” Ajay’s commitmentwas not just in words. Hegaveupaseven-figurebonus

to leave and start his ownfirm. Not surprisingly, hisentire team and client basefollowed him. After years ofextraordinary performanceand service,Ajay’sdeparturefrom the brokerage worldearned him the notice ofCharles Schwab (a majorservice provider toindependent investmentadvisors). He received asurprisecallfromtheCharlesSchwab headquarters letting

him know that Chuck hadselected him to represent thefaceof themore than10,000independent RIAs inSchwab’s national mediacampaign. Subsequently,AjayarrangedforChuckandme to meet, as he agreed tobe one of the 50 financialmoguls interviewed for thisbook.When I introduced Ajay

andhisteamatStrongholdtoElliot, it was an incredible

alignment of values. Whatwas amazing was how thesum of the whole wasdrastically greater than itsparts. They began amonumental collaborativeeffort.Fornearlyayear,Ajayand Elliot worked togetherwith a common goal: todemocratize the bestinvestment advice and helpAmericans wake up to theirrightto,first,knowwhattheyhavebeensoldandthenmake

the switch to receivetransparent advice. AndStronghold Financial (a newdivision of StrongholdWealth Management) wasborn. So in addition toserving those of high networth,Strongholdnowserveseveryone regardless of howmuchheorshehastoinvest.

LOOKUNDERTHE

HOOD—FORFREE!

My biggest “ask” from Ajayand Elliot was to make itpossible for anyone, not justthewealthy, tobeable to tapinto top-tier advice, research,and planning. But I wantedthemtodoitforfree!!!!Most financial planners

charge $1,000 or more toanalyze your current

investmentassets,assesshowmuch risk you’re taking,quantify your true fees, andput together a new assetallocation. Stronghold’spatentedsystemaccomplishesthisinjustfiveminutes—andit’scompletelyfree!Hereisabitmorehowitworks:When you visit the

website,www.StrongholdFinancial.comthe systemwill allow you to“link” all of your accounts

(even your 401[k] andaccounts you have scatteredatmultiplefirms).Itwillthenanalyze every holding youown, every fee you arepaying, every risk you aretaking. It will give you acomprehensiveanalysisandanew asset allocation. It willalso reveal some of theunique strategies we willreview in section 5 andcomparethemtoyourcurrentapproach. You can take this

complimentary info andimplement it on your own(and the company doesn’tcharge a dime). Or, if youdecidetomoveforward,withtheclickofabutton,youcantransfer your accounts andhaveStrongholdmanageyourwealth, so long as you meetthe minimum account size.For those who becomeclients, there is a team offiduciary advisors that areavailable by phone to guide

you in your journey andanswer any questions youmay have. There are nocommissions, just a fee,which is based on your totalportfolio value. So whetheryou have $2,500 or$25 million doesn’t matter.Advice that was previouslyreservedforthoseofhighnetworth is now at yourfingertips!And if youwouldprefer toworkwith someoneinyourlocalarea,Stronghold

hasanetworkofindependentadvisors in all 50 states whoare aligned with the sameprinciplesandhaveaccess tosome of the unique solutionswe will review in the pagesahead.I am extremely proud of

whatElliot,Ajay,and Ihaveworked together to create: acomplimentary service thatcan impact the entirepopulation! And, quitefrankly,itexistsonlybecause

we were so frustrated by asystem that often uses deceitandmanipulationasweaponsagainstinvestors.It’stimefora changing of the guard. Sowhile I am not currently anowner in Stronghold, at thetimeofpublicationweare inconversations about how Ican become a partner andalign furtherwith itsmissionof serving investors withextraordinary advice andinvestmentsolutions.

FINDINGAFIDUCIARY

I don’t want you to get theimpression thatStronghold isthe only fiduciary. There arethousands out there, andmany of them areoutstanding, so I would liketo give you five key criteriafor finding your ownfiduciary. Below you willalso find a link to the

National Association ofPersonal Financial Advisors(NAPFA). This will allowyou to search thecountry forany fee-only advisor youchoose. One caveat: justbecause they are on the listdoesn’tmeantheyareskilled.Like any profession, be it adoctororateacher,thereisawiderangeofcompetency.Inaddition, in the world ofindependent fiduciaries, sizedoesmatter,somanysmaller

firmsmaynothave the samelevel of access to certaininvestments and/orcompetitivepricing.

DIRECTORYOFFEE-BASEDADVISORS

http://findanadvisor.napfa.org/home.aspx

So, if you choose to findyourownfiduciary,belowarefive key initial criteria youmay want to consider whenselectinganadvisor:1. Make sure the advisor isregisteredwith the stateorthe SEC as a registeredinvestmentadvisororisaninvestment advisorrepresentative (IAR) of aregistered investmentadvisor(RIA).

2. Make sure the registeredinvestment advisor iscompensated on apercentage of your assetsundermanagement,notforbuyingmutualfunds.Makesurethisfeeistheonlyfeeand is completelytransparent. Be sure thereareno12b-1 feesor “pay-to-play”feesbeingpaidascompensation.

3. Make sure the registeredinvestment advisor does

not receive compensationfortradingstocksorbonds.

4. Make sure the registeredinvestment advisor doesnothaveanaffiliationwitha broker-dealer. This issometimes the worstoffense when a fiduciaryalsosellsproductsandgetsinvestment commission aswell!

5.Withanadvisor,youdon’twanttojustgivethemyourmoney directly. You want

to make sure that yourmoney is held with areputable third-partycustodian,suchasFidelity,Schwab, or TDAmeritrade, which offers24/7 online account accessand sends the monthlystatementsdirectlytoyou.

For thosewho arewilling,have the time, and arebrushed up on proper assetallocation (more on this in

section 4), investing on yourown (without a fiduciary)maybeaviableoption,whichcouldalsoresultinadditionalcost savings. The added costof a fiduciary may only bejustifiable if they are addingvalue such as tax-efficientmanagement, retirementincomeplanning, and greateraccess to alternativeinvestments beyond indexfunds.

BUYENRON!

An extremely competentfiduciary in your lifewill domorethanprovidetransparentadvice and investmentsolutions. They shouldprotect you from themarketing “noise” becausehistory shows us that thenoise from a conflictedbroker, or the firm heworksfor, can be extremely

dangerous. Let me share anexamplefromrecenthistory.Remember Enron? The

energy giant with $101billion in annual revenue (in2000) that decided to cookthebooksinhopesofkeepingshareholders happy. The bigbrokersand themutual fundsthat owned the majority ofEnronshareswerebigfansofthe energy giant. My dearfriend and businessmastermind, Keith

Cunningham, is a straightshooter with a classic Texasdrawl.WhenhespeaksatmyBusiness Mastery event, hepulls no punches whenshowing how brokers, withnovestedinterestinhowtheirclients fare,will pouronbadadvice even when thesituation is dire. When heshared with me thebreakdown of how brokerspromoted Enron during itscollapse,Iwasastonished!

In March 2001, just ninemonths before declaringbankruptcy, Enron signaledthat it was having trouble.“Anyonewhowaswilling tolook at the cash flowstatement could see that theywere hemorrhaging cash inspite of what they said itsprofits were!” Keith shoutedto my audience of close to1,000. “But that didn’t stopthebigWallStreetfirmsfromrecommending the stock.”

Belowisachartshowing therecommendations of the big-brand firms in the ninemonths leading up to theEnron Chapter 11. Noticehowtherecommendationtobuyorholdwasmadeuntilthere was literally nothingleft to hold—because thestock had no value; thecompanywasbankrupt!

Needless to say, ifyouaregettingadvice fromabroker,you can expect that theinherent conflicts will show

upinonewayoranother.

LOBBYINGFORPROFITS

Puttingclientinterestsfirstmayseemlikeasimpleconcept,butit’scausingan

uproaronWallStreet.—“WHAT’SNO.1FOR

BROKERS?,”WallStreet

Journal,December5,2010

Sowhyhasn’t the statusquochanged?UnderDodd-Frank,the SEC was required toconduct a study on a“universalfiduciarystandard”across all investment firms.You heard me right. Thepoliticians wanted toconduct a study todetermine if acting in theclient’s best interest is agoodidea.It’satragicomedy

playedoutonCapitolHill.InmyinterviewwithDr.JeffreyBrown, I asked about hisopinion on fiduciarystandards.Who better to askthan the guy who not onlyadvised the Executive Officeof thePresidentbutwas alsobroughtinbyChinatoadviseits Social Security program.“I think anybody that ismanaging money forsomeoneelse—it’svery,veryimportant that they have a

legal and an ethicalresponsibility for doing theright thing and looking outfor other people’s money. Imean, these are reallypeople’s lives we’re talkingabout here at the end of theday,right?”The industry backlash has

been nothing less thanintense. You can hear thegears of the lobbyingmachine spinning at fullspeed as it reminds Capitol

Hill of the generouscampaigncontributions.

THETRUTHANDTHESOLUTION

So now that you know therules of the game, what’s aninvestortodo?Above you have the five

steps of how to evaluate and

findafiduciaryifyouchooseto find your own. As Imentioned, you can visitStronghold(www.StrongholdFinancial.comwhich has a patented onlinesystem which, in just fiveminutes, will provide youwiththefollowing:•Within seconds, the systemwill pull in and reviewyour current holdings(stocks, bonds, andmutual

funds) from all youraccounts, including your401(k).

• The systemwill show howmuchyouarereallypayingand how much less youwill have at retirement ifyou don’t minimize fees.Remember the effect ofcompounding fees wereviewedinchapter2.3!?

•The systemwill showyourrisk exposure. In otherwords, how well did your

portfolio hold up in 2008and other marketdownturns?

• The system will provideconflict-free advice andintroduce you to a numberofportfoliooptions.

• The system will take intoaccount your current taxsituationandrecommendamore tax-efficientallocation.

• If you decide to moveforward, you can quickly

and automatically transferyouraccountstooneoftherecommended third-partycustodians (such as TDAmeritrade, Fidelity, orSchwab). From there, theteam will implement therecommendations andprovide ongoing accountmanagementandservice.

• If you have more than $1millionininvestableassets,youwillhaveaccesstothePrivate Wealth Division,

whichhasgreateraccesstoinvestmentsthatarelimitedtoaccreditedinvestors.

At any time you can alsopick up the phone and speakwith a member of the teamwho is a registered fiduciaryadvisor to answer anyquestions regarding yourpersonalsituation.Oryoucanasktobeconnectedtooneofthe partners in your localarea.

SOWHAT’STHEPLAN?

Wow, we have come a longway! The myths we havealready exposed at this pointremain unknown by the vastmajorityof investors. In fact,even many high-net-worthindividuals aren’t privy tothis insider info. And nowthat we are gaining anunobstructed view, we need

to start to look at the actualstrategies we are currentlyusingtoseeiftheyalignwithourgoals.Let’sstartwiththe401(k).Thatlittlepieceoftaxcode that changed thefinancial world forever!Should we use it or lose it?Let’sfindout.

Though the fiduciaryissue is hotly contestedamong some groups,surveys conducted on

behalf of the SECshowed a majority ofinvestors don’tunderstand whatfiduciary means nor dothey realize brokers andinvestment advisorsoffer different levels ofcare.

—“THEBATTLEOVERBROKERS’DUTYTOTHEIRCLIENTSREACHESASTANDSTILL,”WallStreetJournal,January24,2012

BROKER INDEPENDENTFIDUCIARY

Payingcommissionsforsellingfunds

Payingflatfeeforadvice

Nondeductiblecommissions

Advisoryfees(maybedeductible)

Paidtosell

Legallyboundtoprovideadvicewithdisclosureofanyconflicts

Suitabilitystandard

Fiduciarystandard

Offersbroadarrayofproductsandservicesthatmustbeapprovedbytheemployerandincludesthosewhichareproprietary

Abilitytoaccessallproductsandservices

Constrainedbyemployer

Independent

Actsascustodianofinvestments

Usesthird-partycustodian

CHAPTER2.5

MYTH5:“YOURRETIREMENTISJUSTA401(K)

AWAY”

Babyboomershave

beentheprimarymice

usedinthegreat401(k)retirementexperiment.

—DOUGWARREN,authorofTheSynergyEffect

Many ideas or inventionsstartoffwithgreatintentions.Nuclear fusion opened thedoor to free energy formankindandnowcanbeusedto provide electricity to anentire city. By contrast, if

stuffedintoawarhead, itcanlevelanentirecity.It is often with a dash of

man’s greed and ingenuitythat we can turn somethinggreat into something that cancause more damage thangood. Such is the 401(k). Agreat little piece of tax codethat, if used right, canpowerour retirement for years tocome. But if used as it is inmost of today’s plans, it candamage our chances for

financialfreedom.Andsincethe401(k)isthe

only retirement accountmostpeople will ever have, thischapter could be the mostimportantoneinthisbook.Inthe pages ahead, we willshow how to use the 401(k)systemandnotletthesystemuse you. You will discoverhow to implement much ofwhatwehavelearnedthusfarsothatyour401(k)becomesagreat retirement plan for you

(nota retirementplan for thebroker or the mutual fundmanagers). But first a bit ofbackstoryisimportant.

HOWDIDWEGETHERE?

The 401(k), given to us in1984,gaveustheopportunityto participate in the stock

market. To own a piece ofAmericancapitalism.Andwecould save on our taxes bymaking tax-deductiblecontributions from ourpaychecks.But the 401(k) was never

meant to be the soleretirement plan forAmericans. I reached out toJohn Shoven, professor ofeconomics at Stanford. Hemade it perfectly clear whenwe spoke by phone: “Tony,

you can’t save just threepercent of your income forthirtyyearsandexpecttoliveanother thirty years inretirement with the sameincome you had when youwereworking!”And let’s not forget that

thissocialexperimentisonlya few decades old. We areonly now starting to see agenerationwherethemajoritywill attempt to retire havingused only a 401(k) during

theirlifetime.When we look back at

history,what started out as aloophole for highly paidexecutivestosockawaymorecash became a boon forcompanies that decided toeliminate the cost andobligation of traditionalpensionsandshiftalltheriskandexpensetotheemployee.That’s not to say thatpensions didn’t have theirown problems: for instance,

youcouldn’tmovethemfromjobtojob.Interestingly, employees

didn’t mind taking on thisnew responsibilitybecauseatthetime,stocksweresoaring.Whowantsboringguaranteedpensions when stocks couldmakeusrich?Money then flowed into

themarket like never before.All that new money beingdeposited means lots ofbuying,which iswhat fueled

the bull markets of the ’80sand’90s.Withtrillionsupforgrabs,mutualfundcompaniesbegan an unprecedented warto manage your money. Thestock market was no longerjustaplacewherecompaniesturned to the public toexchangecashforownership.It was no longer a place foronlyhigh-net-worth investorsandsophisticated institutions.It became every man’ssavingsvehicle.

WELCOME,CAPTAIN

Whenthe401(k)cametobe,it represented freedom.Freedom that often gave usthe illusion of control. Andwithmarkets on the rise, wesometimes mistake luck forbeinga“goodinvestor.”Dr. Alicia Munnell, the

director of the Center forRetirement Research at

BostonCollege, isoneof thetop retirement experts in thecountry.Wespokefornearlytwo hours regarding theretirement crises facing thevast majority of Americans.Inherview,“Wewentfromasystem of defined benefits—where people had a pension;theyhadanincomeforlife—to the idea of the 401(k),whichwasobviouslycheaperfor employers. And on thesurface, it seemed like itwas

beneficial to individualsbecause they had morecontrol of their owninvestment decisions.” Buteven Alicia, a formeremployee of the FederalReserve and member of thepresident’s Council ofEconomic Advisers, madesome serious missteps whenitcametoherownretirement.“So, I have a defined benefitplan [guaranteed lifetimeincome] from the Federal

Reserve Bank of Boston.When I was at the Treasury,one of my colleagues said,‘Oh! Take it early. You caninvest that money muchbetter than the FederalReserve can.’ Thatmoney islonggone.”Being solely responsible

foryourinvestmentdecisionsis a scary thought for most(especiallybeforereadingthisbook). As captain of yourfinancial ship, you must

navigate all the availableinvestment choices, generatereturns sufficient enough tosupport your retirement, be apart-time investment expert,and do it all while holdingdown a full-time job orbusinessandraisingafamily.Teresa Ghilarducci of the

New School for SocialResearch authored a brilliantarticleintheNewYorkTimestitled “Our RidiculousApproach to Retirement.” In

itshemanagedtopackallthechallenges we face into asingleparagraph:

Not yet convinced thatfailure is baked into thevoluntary, self-directed,commercially runretirementplanssystem?Consider what wouldhave to happen for it towork for you. First,figureoutwhenyouandyour spousewill be laid

off or be too sick towork.Second,figureoutwhen you will die.Third, understand thatyou need to save 7%ofevery dollar you earn.(Didn’t start doing thatwhen you were 25, andyou are 55 now? Justsave 30% of everydollar.) Fourth, earn atleast 3% above inflationon your investments,every year. (Easy. Just

find the best funds forthe lowest price andhave them optimallyallocated.) Fifth, do notwithdraw any fundswhenyou loseyour job,have a health problem,get divorced, buy ahouse, or send a kid tocollege.Sixth,timeyourretirement accountwithdrawals so the lastcentisspentthedayyoudie.

Yes, the system needs to befixed, and yes, it will taketimeandsomemajorprogressonbothCapitolHillandWallStreet. But the good news isthatforthoseofyouwhoareinformed,youwillbeabletonavigate it. You can use thesystem as an insider would,and let it work to youradvantage.

COMEAGAIN?

So let’sdoa little recap.Wenow know that activelymanaged stock-pickingmutual funds don’t beat themarket. And this is exactlywhat you find in the vastmajorityof401(k)plans (butnot all). We also know thatthese expensive funds chargehefty fees, which can erode50% to 70%of our potential

retirement nest egg.Dependingonyouragetoday,thinkofhowmuchyouhavealready left on the table tothis point? Is it $10,000?$25,000? $100,000? Scary,huh?Now,stickthoseexpensive

mutual funds inside a name-brand 401(k) plan, usuallyoffered by a payroll orinsurance company, and itwill chargeyouawholehostofadditional costs. (See box

on followingpage.)The sumof all these costs forms aninsurmountable headwind.With the vast majority ofplans out there, the odds ofyouwinningthe401(k)gameareslimtonone.

401(k) plans receive thebenefit of tax deferral, butmostareloadedwithupto17different fees and costsbetween the underlying

investments and the planadministration.

COMMUNICATIONEXPENSES•Enrollment(materials)•Ongoing(materials)•Enrollment(meetings)•Investmentadvice

RECORD-KEEPINGANDADMINISTRATIVEEXPENSES•Basefee

•Perparticipantfee•Per-eligibleemployeefee•Distributions•Loansorigination•Loansmaintenance• Semiannual discriminationtesting

•5500filingpackage•Otherexpenses

INVESTMENTEXPENSES•Basefee• Individual (mutual) fund

expenses•Manager/advisorfee• Other asset fees (revenuesharing, wrap,administration,andsoon)

TRUSTEEEXPENSES•Basefee•Per-participantfee•AssetchargeBut now the good news!

With the right 401(k), onethat is lean, mean, and

doesn’t take your green, youcan turn the headwind into atailwind. You can gainmomentum by takingadvantage of what thegovernmentgaveus.

AMERICA’S“BEST”401(K)?

OKAY,PROVEIT!

Once I truly grasped whatJackBoglecalls the“tyrannyof compounding costs,” andrealizedthedestructivepowerof excessive fees, Iimmediately called the headof my human resourcesdepartment to find out thespecificsofourowncompany401(k) plan. I wanted toknowifmyemployees,whoIcare about like my ownfamily, were being taken tothecleaners.Sureenough,we

wereusingahigh-costname-brand plan loaded withexpensive funds andexcessive administration andbroker fees. The brokerassuredme that theplanwastop notch, lean on fees, andright on track. Sure it was!Right on track to make hisBMWleasepayment.Convincedthattherehadto

beabetterplanoutthere,myteamandIbegan todosomeresearch. After a frustrating

processoflookingatabunchof garbage plans, a goodfriendofminereferredmetoa firm calledAmerica’s Best401k. That’s a bold name. Icalled the owner, TomZgainer,andsaid,“Proveit!”In the first fiveminutesof

meeting Tom in person, it’sobvious he has immensepassion about helping peopleget free from crappy, fee-loaded401(k)plans.Hecallsthe 401(k) industry “the

largest dark pool of assetswhere nobody really knowshow or whose hands aregetting greased.” A prettygrim diagnosis of his ownindustry.“Get this,Tony, theindustry has been around forthree decades now, and onlyin2012didserviceprovidersbecome required by law todisclose fees on statements.Butinspiteofthedisclosure,over half of all employeesstill don’t know howmuch

they’re paying!” In fact,67% of people enrolled in401(k)s think there are nofees,and,ofcourse,nothingcould be further from thetruth.“How are you different,

Tom?HowisAmerica’sBesttruly the ‘best,’ as you say?”Having been burned once, Ifelt like Papa Bear lookingafterhiscubsbecauseIknewthis decision would directlyimpact my employees and

their kids. They had alreadybeen paying excessive feesfor years, and I couldn’tallow that to happen again. Icame to find out that, as theowner of the company, I amalso the plan sponsor, and Idiscovereditismylegaldutyto make sure they aren’tgetting taken advantage of.(Moreinthepagesahead.)Tom explained, “Tony,

America’s Best 401(k) onlyallows extremely low-cost

index funds [such asVanguard and DimensionalFunds],andwedon’tgetpaida dime by mutual funds toselltheirproducts.”Ihadjustinterviewed Jack Bogle, andhe confirmed that Vanguarddoesnotparticipateinpayingto play, a common practicewhere mutual funds share intheir revenues to get “shelfspace” in a 401(k) plan. Bytheway,whatthismeanstoyou is that the so-called

choicesonyour401(k)planare not the best availablechoices. They are the onesthat pay the most to beoffered up on the menu ofavailable funds. And guesshowtheyrecouptheircost tobe on the list? High fees, ofcourse. So not only are youfailing to get the bestperforming funds, but alsoyou are typically payinghigher fees for inferiorperformance.

“Okay, Tom. What abouttheotherplanfees?Iwanttosee full disclosure andtransparency on every singlepossiblefee!”Tom proudly produced an

itemized spreadsheet andhanded it across the coffeetable. “The total cost,including the investmentoptions, investmentmanagement services, andrecord-keeping fees, is only0.75%annually.”

“That’s it?No hidden feesor other pop-up-out-of-nowherefees?”Wecutour total fees from

wellover2.5%tojust0.75%(a 70% reduction!). As yourecall from earlier in chapter2, when compounded overtime,thesefeesavingsequateto hundreds of thousands ofdollars—even millions—thatwill end up in the hands ofmy employees and theirfamilies.Thatmakesme feel

so great! Below is a simplechart showing a sample401(k),similartotheonemycompany used to use, versusAmerica’s Best 401k, andhowthosesavingscompounddirectly into my employees’accounts.

Assumptions:$1millionbeginningplanbalance,$100,000inannualcontributions,5%growthrate.

Over $1.2 million goingback to my family and mystaff by making a simpleswitch!Andby theway, thiscalculation is based only onfees and doesn’t take intoaccount that we are beating96% of mutual fundmanagers because we areusing low-cost market-mimickingmutualfunds.

MEGAPHONE

My staff and I were soimpressed that six monthsafter Tom and his teaminstalled my company’s plan(and after I had referred himtoatonofmygoodfriends),Idecided to partner withAmerica’s Best 401k andhelp it get the word out. Iknewthisstoryhadtobetoldinthisbook.Andbecausethe

company charges so little, itcan’t afford to run SuperBowl ads or have its salesreps takeyougolfing.Tom’sgrassroots efforts are gainingmomentum, and I hope toamplifyhisvoice.

NOWIT’STIMETOPULLBACKTHE

CURTAIN

Tomandhis teamhave builta powerful online “FeeChecker” that can pull upyour company’s plan (fromthe company’s tax returnfiling),andwithinseconds, itwill show how yourcompany’s plan stacks upagainst others and what youarereallypayinginfees.Andlike the table above, it willshow you what the costsavings means to you overtime. It’s not uncommon to

uncover hundreds ofthousands of dollars inpotential savings! Visit theFeeCheckeronthefollowingwebsite:http://americasbest401k.com/401k-fee-checker.

NEEDEXTRAMOTIVATION?

As if high fees destroyingyour retirement weren’tenough of a motivation,business owners should bevery concerned andemployees should be “armedwith the truth.” Why?Because the US DepartmentofLabor(DOL)isout infullforce to defend employeesagainst high-fee plans. Andwho is liable? The businessowner! That’s right. Not themutual fund managers. Not

the broker. Not theadministrator of the crappy401(k) plan. It’s thebusinessownerwhocangetinserioushotwater.According to the CFO

Daily News, in 2013“[s]eventy-five percent ofthe 401(k)s audited by theDOL last year resulted inplan sponsors being fined,penalizedorforcedtomakereimbursements for planerrors.And those fines and

penalties weren’t cheap. Infact, the average fine lastyearwas$600,000perplan.That’s a jump of nearly$150Kfromfouryearsago.”And the DOL just hired

another 1,000 enforcementofficersin2014,sowecanallexpect 401(k) plan audits toincrease. I don’t know aboutyou,butthiscertainlygotmyattention.Thanks to class action

attorneys, numerous

corporations are being suedby their own employees.Caterpillar, GeneralDynamics, and Bank ofAmerica, just tonamea few.Even Fidelity, one of thelargest 401(k) providers inthe industry, recentlysettled two class-actionlawsuits for $12 millionafterbeing suedby its ownemployees over excessivefees in its plan. Sure, theseare big companies with a lot

to lose, but it’s really thesmall business owners whoare at greater risk becausesmallerplans(thosewithlessthan $10 million in planassets) have the highest feesofall.

So What Do You Do as aBusiness Owner? First, it’sthe law that you have yourplan“benchmarked”annuallyagainst other plans. The newlaw began in 2012, so it

mightbenewstoyou.Onceayear, the DOL requires thatyou compare your planagainst other “comparable”plans tomakesureyourplanhas reasonable fees. Nearlyevery business owner I askhasnoclueabout this! Isuredidn’t. Do you think theperson who sold you thatexpensive plan is going tocall you about it? Of coursenot!America’s Best 401k will

not only provide you with afree fee analysis but alsoprovide this complimentarybenchmark.IftheDOLwalksinto your office on a Fridayafternoon, don’t let it ruinyour weekend by standingthere like a deer in theheadlights. You want to beabletoconfidentlyhandoveryourplanbenchmark.

WHOTOHOLDTO

THEFIRE?

The DOL is on a rampageand can hold the businessownerover the fire. Ihadnoideathatasabusinessowner,and plan sponsor, I am thelegal fiduciary for the401(k)plan. There are numerouscases where business ownershave become personallyliableforanegregious401(k)plan. By your using a firm

like America’s Best 401k, itwill “install” a professionalfiduciary, which willdramatically alleviate yourliability (and yes, this isincluded in the0.75%annualfee).Anditprovidesongoingbenchmarking as a freeservice.

What toDo If YouAre anEmployee.First,visittheFeeChecker on the America’sBest 401k website

(http://americasbest401k.com/401k-fee-checker) and forward thereport to theowner (oruppermanagement). Truth is, thehighestincomeearnersinanybusiness tend to have thehighest account balances, sothey too have a lot to lose.You are doing your entirecompanyawonderfulservicebyeducatingmanagementonitsownplan.High feesareadrain on everyone’s hard-earned cash, and a possible

changewillaffecteveryone’schancesoffinancialfreedom.Remember, we all need atailwind,notaheadwind.You can alsomarch down

to the HR department andmake certain they read thischapter. If fees aren’t amotivator, remind them thatthey are the fiduciary to youand your fellow colleagues.Theylegallyowe it toyou tomake sure they have a planthat is competitive and in

your best interests. Thatshouldgrabtheirattention!If your employer does not

switch to a low-cost optionand to the extent that youremployerisn’tmatchingyourcontributions, it may makesensetooptout.Ifyoudecidetooptoutbut

still plan on stayingwith thecompany, a good plan willallow for an in-servicedistribution, allowing you toroll your current 401(k)

account into an individualretirement account. Justcheck with your HRdepartment.AnIRAissimplya retirement account held inyournamealone,butyouwillhave much more freedom tochoose the investments. Andfrom there you canimplement some of thesolutions we will review insection3.Also,yourpersonalfiduciary can review thisaccountandexplainyourbest

options.Nowthatweknowhowto

freeourselves fromhigh-costplans riddled withunderperforming mutualfunds,howdowebestutilizea low-cost plan and the taxbenefits that the governmentgivesus?

UNCONVENTIONALWISDOM

If you haven’t noticed, ourgovernment has a spendingproblem. Like an out-of-control teenager with aPlatinum Amex, Uncle Samhas racked up over$17.3 trillion in debt andclose to $100 trillion inunfunded (not paid for yet!)liabilitieswithSocialSecurityand Medicare. So do youthink taxes will be higher orlower in the future?Did youknowthatfollowingtheGreat

Depression, the highestincome tax bracket was over90%?! The truth is, you cantax every wealthy individualand corporation at 100% ofitsincome/profitsandstillfallway short of thegovernment’spromises.TakealookatthisvideoImadeforan eye-opening presentation:http://training.tonyrobbins.com/exclusive-video-tony-robbins-deconstructs-the-national-debt.

Conventional logic, asmost CPAs will attest, is tomaximize your 401(k) (orIRA) contributions for taxpurposes because each dollaris deductible. Which simplymeansyoudon’thave topaytax on that dollar today butwill defer the tax to a laterday.Buthereis theproblem:nobodyknowswhat tax ratesaregoing tobe in the future,and therefore you have noideahowmuchofyourmoney

will be left over to actuallyspend.Imet recentlywith one of

my senior executives on thistopic, and I asked him howmuch he had in his 401(k).He said he was approaching$1 million and feltcomfortablethathecouldliveoffofthisamountifneeded.Iaskedhiminadifferentway:“Howmuch of themillion

dollars in your 401(k) isyours?”

“All of it, of course,” hereplied.“Half, my friend! Half!

Between state and federalincome taxes, you will bespending only half thatamount.”The truth sank in. He sat

back realizing that $500,000is not his. It’s Uncle Sam’s.He was simply investing thegovernment’s moneyalongsidehisown.But then I asked, “How

much is yours if the taxbracket goes up to sixtypercent?” A little mentalmath, and he replied, “Onlyfour hundred thousanddollars, or forty percent, ofthe million will be mine.”Ouch.Butthat’snotpossible,is it? If you look at tax rateson the wealthiest Americansover the last 20 years(between 1990 and 2010),theyarenear the lowest theyhave ever been. The average

forthethreedecadesfromthe1930s through the1950swas70%!Whentaxeswereraisedby Bill Clinton, he raisedthemonallwageearners,notjust the wealthy. With therecord-breakinglevelsofdebtwe have accumulated, manyexperts say taxes will likelybe raised on everyone overthe course of time. In short,thepercentageofyour401(k)balance that will actually beyours to spend is a complete

unknown.And if taxesgoupfromhere,thesliceofthepieyou get to eat gets smaller.And it’s a spiraling effectbecause the less you get tokeepandspend,themoreyouhave to withdraw. The moreyou withdraw, the quickeryourunout.

SENATORWILLIAMROTH:

THEBESTLEGALTAXHAVEN?

A Roth IRA—and morerecently the addition of theRoth 401(k)—is oftenoverlooked, but it is one ofthe best and yet legal “taxhavens” in the face of risingfuture tax rates.AndweoweabigtipofthecaptoSenatorWilliam Roth for theirintroduction back in 1997.

Let’slookathowtheywork.If you were a farmer,

would you rather pay tax onthe seed of your crop or onthe entire harvest once youhave grown it? Most peopleseem to get this questionwrong.Weareconditionedtonot want to pay tax today(and thus defer into thefuture).Theythinkit’sbesttopaytaxontheharvest.Butinreality, ifwe firstpay taxonthe seed, that’s when the

valueofwhat’sbeingtaxedissmallest.Abigharvestmeansabigtax!Ifwepayourtaxesnow on the seed, thenwhatever we have comeharvest time is ours to keep!A Roth account works thisway. We pay our tax today,deposit the after-tax amount,and then never have to paytaxagain!Noton thegrowthand not on the withdrawals.This arrangement protectsyour pie from the

government’s insatiableappetite for more taxrevenues and, mostimportantly, allows you toplanwithcertaintyhowmuchyou actually have to spendwhenyoutakewithdrawals.And here is an incredibly

excitingpieceofnews!With your 401(k)

contributions being Roth-eligible (by checking thebox), you can pay tax todayand let your growth and

withdrawals be free from theIRS’s grabbypaws.Andyoucan give substantially morebecausewhileaRothIRAislimited to $5,500 annually,the Roth 401(k) allows for$17,500 per year. (And youcandobothsimultaneously).6And for the high-income

earner (making more than$122,000 per year), althoughyou can’t use a Roth IRA,there are no incomelimitations on the Roth

401(k). Anyone canparticipate. This is arelatively recent change inour taxcodeandcanprovidequite a benefit for higher-incomeearners.

SAVEMORETOMORROW

So thesecret to the401(k) is

simple:youhavetodoit.Butyou have to do it within acost-efficient plan and takeadvantageoftheRoth401(k)(especially if you believetaxeswillgoupforyouinthefuture). And if you takeadvantageofone thegreatestbreakthroughs in finance: thesystem we covered earliercalledSaveMoreTomorrow.Most people won’t make thecommitment to save moretoday,buttheywillmakethe

commitment to save moretomorrow.Soinessence,youare agreeing in advance thatyour savings rate willincrease each year. Forexample, let’s say today yousave3%ofyoursalary.Thennextyearyouagree togoup1% (for a total of 4%). Andthen you keep “auto-escalating” your savingsamount until you reach acertain cap. America’s Best401k has this auto-escalation

feature built into the system.So not only do you have thelowest possible fees, but youalso have an opportunity tosetyourselfonanacceleratedpathtofinancialfreedom.

BULL’S-EYE!

Now we have a chance tocombineallwehavelearned!Bynowyouhave decided to

setasideapercentageofyourincome, and that may verywell be in your 401(k).Youwant to make absolutelysure that your 401(k) hasthe lowestpossible feesandlow-cost index funds. Youcan see how your companyplan fares by using the FeeChecker on America’s Best401k(http://americasbest401k.com/401k-fee-checker). Once again, ifyou are an employee, you

should make the companyowner (or management)aware of their legalresponsibility to provide themost efficient plan availableand that they are at risk ofgetting into major hot waterwith the Department ofLabor. If you are a businessowner, you are legallyrequired to get the planbenchmarked annually, andAmerica’sBestwillprovideacomplimentary benchmark;

simply take two minutes tofill out this online form:http://americasbest401k.com/request-a-proposal. Here is the greatnews: the typical small planwillsave$20,000peryear infees alone. Bigger plans willsave hundreds of thousands,evenmillions,overthelifeofthe plan, all of which goesdirectly back to theemployees and the owner’spersonal retirement plan aswell.

SEVENFREQUENTLYASKEDQUESTIONS

Stick with me here. We’reabout to start putting ideasinto action. These are theseven most commonquestionsthatcomeupinthecontext of 401(k) plans andIRAs and how to best utilizethem.Herewego!

1.SHOULDIPARTICIPATEINMY401(k)?

To the extent that youremployer matches yourcontributions, you shouldcertainly take advantage ofyour 401(k), as the companyis essentially covering thetaxes for you. And if youthink taxes are going up,checking the box so thatyour contributions receiveRoth tax treatment is theway to go. (A quick sidenote: the 401(k) plan itselfmight be insanely expensive

and the investment optionspoor. If that is the case, youmaynotwanttoparticipateatall! To determine how yourcompany’splanstacksup,gotohttp://americasbest401k.com/401k-fee-checker and click on FeeChecker to assess yourcompany’splan.)Just to be clear, if you

check the box to make yourcontributions Roth-eligible,you will still be investing in

the same investment options(or list of funds), with theonlydifferencebeingthatyouwill pay taxeson the incometoday. But your future nestegg will be completely taxfree when you withdraw.RetirementexpertDr.JeffreyBrown of the University ofIllinois gave me his take onhis own personal finances.“I’d take advantage of everyRoth opportunity I canbecause...I’vespentalotof

timelookingat thelong-termfiscal outlook for the UnitedStates, and you know I am apretty optimistic guy, on thewhole.But Ihave to tellyouthat I cannot envision anysituation inwhichourneedfortaxrevenueinthefutureis not going to be higherthanitistoday.”Taking it one step further,

Dr. Brown has personalguidance for his youngerstudents:“Absolutelypouras

muchmoneyasyoucan intothat Roth because you’regoingtobepayinglittleornotaxesonit,andthensomedayyou could have the greatestincomeever.”If you are one of the few

thatthinkstaxesinfuturewillbelower,youcouldbeinfora huge surprise.“Conventional wisdom” sayswe should be in a lower taxbracketwhenitcomestimetoretire,aswewon’tbeearning

as much. But in reality, ourhomeisoftenpaidoff(sowedon’t have any mortgagedeductions), and the kids arelong gone (sowe don’t haveanydependents).Finally,youmightbeself-

employedandthinkthatallthis401(k)talkisirrelevant.Notso!YoucanstartaSolo401(k),whichisa401(k)foran individual businessowner and his or herspouse.

2.WHATISAROTH401(k),ANDHOWCANIUSEITTOMYADVANTAGE?Isaiditbefore,butit’sworthrepeating: most of today’s401(k) plans allow you tosimply “check a box,” andyour contributions willreceive the Roth taxtreatment. This decisionmeansyoupaytaxtoday,butyouneverpaytaxagain!

3.SHOULDISETUPAROTHIRA?Yes!! You can set up a RothIRA account and contribute$5,500 per year ($6,500 ifyou’re 50 or older).You canevendosoifyouarealreadymaxing out your 401(k)contributions. Opening aRoth IRA is as simple asopening a bank account. TDAmeritrade, Fidelity, andSchwab are three firms thatmake the process incredibly

simple.You can do it onlineinlessthantenminutes.

4.BUTWHATIFIMAKETOOMUCHMONEYFORAROTHIRA?Sadly, you cannot contributetoaRothIRAifyourannualincome is over $114,000 asan individual or more than$191,000 for a marriedcouple (for 2014). But don’tfret, regardless of howmuchyou make, you can still

participate in a Roth 401(k).AndifyouhaveanIRA,youmight want to considerconverting your IRA into aRothIRA,butknowthatyouwillhavetopaytaxtodayonallthegains.

5.SHOULDICONVERTMYTRADITIONALIRATOAROTHIRA?Let’s say you have an IRAwith $10,000. Thegovernmentwillallowyouto

pay the tax today (because itneeds the money), and youwill never have to pay taxagain.ThisprocessiscalledaRoth conversion. So if youare in the 40% bracket, youwouldpay$4,000 today,andyour remaining $6,000 willgrow without tax, and allwithdrawals will be tax free.Some people cringe at theidea of paying tax todaybecause they view it as“their” money. It’s not! It’s

the government’s. By payingthe tax today, you are givingUncle Sam his money backearlier.Andbydoingso,youare protecting yourself andyour nest egg from taxesbeing higher in the future. Ifyoudon’t think taxeswill behigher,youshouldn’tconvert.You have to decide, but allevidence points to the hardfact that Washington willneed more tax revenue, andthebiggestwelltodipintois

the trillions in retirementaccounts.

6.WHATABOUTMYOLD401(k)PLAN(S)WITHPASTEMPLOYERS?Olderplanscaneitherbe leftwith a previous employer or“rolled over” into an IRA.One would leave it with anoldemployeronlyif theplanitself was low cost and hadfavorable investmentoptions.

By rolling over the plan intoan IRA (it takes about tenminutes online to move thefunds from your former plantoathird-partyIRAcustodianlikeTDAmeritrade,Schwab,or Fidelity), you will havegreater control. You caninvest in nearly anyinvestment,not just a limitedmenu itoffers.Andwith thisgreatcontrol,youwillbeabletohireafiduciaryadvisorandimplement some exciting

strategies and solutions wewillreviewinsection3.Withafiduciaryadvisor,youdon’tpay commissions. You payfor advice.And it’s typically1% or less of your investedassets, and remember, youmight be able to deduct itfromyourtaxes.Second, by rolling over

yourold401(k) into an IRA,youwillthenhavetheoptiontoconvertanIRAintoaRothIRA.

7.WHATELSECANIDOIFIAMMAXINGOUTMYPLANSANDWOULDLIKEADDITIONALOPTIONSTOSAVE?Small business owners thatare making a lot of moneyand want to reduce theirtaxes today can benefitgreatlyfromtheadditionofa cash-balance plan on topof their 401(k) plan. Cash-balance (CB) plans are thefastestgrowingofthedefined

benefit pension plans andcould overtake 401(k) planswithin the next few years,according to researchers atSage Advisory Services, aregistered investmentadvisory firm headquarteredinAustin,Texas.Infact,overone third of Fortune 100companies have adopted acash-balanceplan.Sowhatisit? A cash-balance plan isbasically a pension plan. Inother words, the amounts

deposited are earmarked toprovide the business ownerwith future retirementincome.Sowhat’sthebiggestdraw? For a high-incomebusiness owner, not only canshemaxouther401(k)andaprofit-sharing plan, but shecan also add a cash-balanceplan,whichcreatessomeverylarge, fully deductiblecontributions.Onpage156 isa table showing the possibledeductions.

Money Power Principle 2.One of the most importantMoney Power Principles is“You get what youtolerate.” Don’t toleratehavingyourmoney in aplanthat is siphoning off fees tothe benefit of someone else.And we have to rememberthat the 401(k) is only asgoodaswhat’sinsideit.Turnthe page and discover thenextmyth.Because themost

popular place for people toputtheir401(k)moneyisoneof the most misunderstoodinvestmentsofourtime.

6. There are different rules for a RothIRA and a Roth 401(k). According tothe IRS: “If youwere age 50 or older

before2014,andcontributionsonyourbehalf were made only to Roth IRAs,your contribution limit for 2013 willgenerally be the lesser of: $6,500, oryour taxable compensation for theyear.” See “Publication 590 (2013),Individual Retirement Arrangements(IRAs),” “Roth IRAs,”www.irs.gov/publications/p590/ch02.html#en_US_2013_publink1000253532

CHAPTER2.6

MYTH6:TARGET-DATEFUNDS:

“JUSTSETITANDFORGETIT”

Iamincreasingly

nervousabouttarget-

datefundswitheachpassingday.

—JACKBOGLE,founderofinvestor-ownedVanguard

Whenyouarelookingatyour401(k)investmentoptions,doyou ever wonder just howthey came up with that list?Or why your spouse or bestfriendwhoworksacrosstownhasanentirelydifferentmenu

ofchoices?Asthesayinggoes,always

followthemoney.

YOUGOTTAPAYTOPLAY

Intheworldofmutualfunds,the common practice ofsharing in revenues isknownas pay-to-play fees.

According to the WatsonTowersworldwideconsultingfirm, approximately 90% of401(k) plans require pay-to-play fees in exchange forplacing a mutual fund as anavailable option on yourplan’s menu. These pay-to-play fees virtually guaranteethat the client (you and me)gets a limited selection andwill end up owning a fundthat proves profitable for thedistributors (the broker, the

firm, and the mutual fundcompany). Said anotherway,the “choices” you have inyour401(k)planarecarefullycrafted and selected tomaximize profits for thevendors, brokers, andmanagers.Ifonehastopaytoplay, they are going to wantto maximize their profits torecouptheircost.Andtarget-date funds, sometimes calledlifecycle funds, may just bethe most expensive and

widely marketed creation tomake their way into yourplan’s investment options(with the exception beingVanguard’s ultra-low-costversions).

DOTARGET-DATEFUNDSMISSTHE

MARK?

Despite being the fastest-growing segment of themutual fund industry, target-date funds (TDFs) maycompletelymissthemark.The pitch goes like this:

“Just pick the date/year inwhichyouwillretire,andwewill allocate your portfolioaccordingly [the GoldenYears 2035 fund, forexample].Thecloseryougetto retirement, the moreconservativetheportfoliowill

become.”Iamsureyouhaveseen these options in your401(k), and statistics wouldsay that you are likelyinvestedinone.Here is a bit more about

howtheyactuallywork.The fundmanager decides

upona“glidepath,”whichisthe fancy way of describingits schedule for decreasingthe stock holdings (morerisky) and ramping up thebond holdings (traditionally

lessrisky)inanattempttobemore conservative as yourretirementnears.Nevermindthat each manager can pickhis own “glide path,” andthere is no uniform standard.Soundsmore likea“slipperyslope”tome.Thenagain,thisis all built on two giantpresuppositions:1.Bondsaresafe.2. Bonds move in theopposite direction of

stocks,sothatifstocksfall,yourbondswillbetheretoprotectyou.

As Warren Buffett says,“Bonds should come with awarning label.” And sincebondpricesfallwheninterestrates go up, we could seebond prices plummet (andbondmutualfundprices,too)if or when interest rates goup. In addition, numerousindependent studies show

how bonds have strong“correlation” in bad times.Translation:stocksandbondsdon’t always move inopposite directions. Just lookat 2008, when bonds andstocksbothfellhard!Themarketingmessagefor

target-datefundsisseductive.Pick the date, and you don’thave to lookat it ever again.“Set it and forget it.” Justtrust us! We’ve got youcovered.Butdothey?

ONEGIGANTICMISUNDERSTANDING

A survey conducted byBehavioral ResearchAssociates for the investmentconsulting firm Envestnetfound that employees whoinvested in TDFs had somejaw-droppingmisconceptions:• 57% of those surveyed

thought they wouldn’tlose money over a ten-year period. There are nofacts to support thatperception!

• 30% thought a TDFprovided a guaranteedrate of return. TDFs donotgiveyouanyguaranteeof anything, much less arateofreturn!

• 62% thought they wouldbeabletoretirewhentheyear, or “target date,” of

the fund arrives.Unfortunately, this falseperceptionisthecruelestofall.Thedateyousetisyourretirement year “goal.”TDFsarenotaplan togetyou to your goals, butrather just an assetallocation that shouldbecome less risky as yougetclosertoretirement.

Considering that there aretrillionsofdollarsinTDFs,a

huge percentage ofAmericans are in for ashockingsurprise.So what are you really

buyingwithaTDF?Youaresimplybuyingintoafundthathandles your asset allocationforyou.It’sassimpleasthat.Instead of picking from thelist of fund options, you buyone fund, and voilà! It’s “allhandledforyou.”

SORRY,SHENOLONGERWORKS

HERE

After graduating college,David Babbel decided hewantedtoworkfortheWorldBank. It would no doubt bean interesting place to work,but for those fortunateenoughtobeemployedthere,theyalsopaynotaxes!Smart

man. When he applied theyturned him away, saying heneeded a postgraduateeducation in one of sixcategories to land a job. Notone to risk being denied aposition,hedecidedtogogetall six. He has a degree ineconomics, an MBA ininternational finance, a PhDin finance, a PhD minor infoodandresourceeconomics,a PhD certificate in tropicalagriculture, and a PhD

certificate in Latin Americanstudies. When he returnedwith his fistful of diplomas,they told him they weren’thiring Americans due to therecent reduction of financialsupport from Washington tothe World Bank. It was apunchinthegutforhim.Notknowing where to turn, heresponded to a newspaper adfromUCBerkeley.Aftertheyhired him as a professor, helater found out that they ran

the ad to comply withaffirmativeaction,buthadnointention of getting qualifiedcandidatestorespond.Yearslaterhemovedonto

Wharton to teach multiplesubjects related to finance.Butheisn’tjustabookworm.A paper he had written onhow to reduce risk in bondportfolioscaughttheattentionofGoldmanSachs.Hetookaleave of absence and spentseven years running the risk

management and insurancedivision at Goldman Sachs(while still holding down apart-time professorship atWharton). Later he finallyhad a chance to work at theWorld Bank. He has alsoconsultedforboththeUnitedStates Treasury and theFederal Reserve. But whenthe Department of Laborasked him to do acounterstudy on whethertarget-date funds were the

bestdefaultretirementoption,he had no idea the path thatlay ahead. On the other sideoftheproverbialaislewastheInvestment CompanyInstitute (the lobbying armforthemutualfundindustry),which “had paid twomilliondollars for a study and gotexactly what they wanted. Astudythatsaid[TDFs]arethebestthingsinceslicedbread.”Keep in mind that at thispoint, TDFs were just a

concept. A glimmer in theeyeoftheindustry.In his study for the

Department of Labor,conducted with two otherprofessors,oneofwhomwastrained by two Nobellaureates, Babbel comparedTDFs to stable value funds.Stable value funds areultraconservative,“don’thavelosses and historically haveyields[returns]attwopercentto three percent greater than

money market funds.”According to Babbel, theindustry-sponsored study,which painted TDFs in thebest possible light, wasriddled with flaws. To makeTDFs look better than stablevaluefunds,theypumpedoutmore fiction than WaltDisney. For example, theymade an assumption thatstocks and bonds have nocorrelation. Wrong. Bondsandstocksdoindeedmovein

step to a degree and theymove even closer duringtough times. (Bonds andstockshad80%correlationin2008.)Babbel and his team

reviewed the study andpicked it apart. They hadmathematically dissected thereport’sfictionalfindingsandwere prepared to show itsridiculous assumptions thatmadeTDFslooksosuperior.Whenheshoweduponthe

daytopresenthisconclusion,the economists behind thetable, chosen by theDepartmentofLabortojudgebothstudies,“thoughthehadsomegreatpointsthatneededfurther review.” But thesecretary of labor “hadalready made her decisionand then quit the next day.She didn’t even show up atthe meeting she hadscheduled with him.”Dr. Babbel heard that it was

prewired. The industry hasboughtthesealofapprovalitneeded towrite itsown“fat”check.Fast-forward, and by the

endof2013,TDFswereusedby 41% of 401(k)participants, to the tune oftrillions!Notabadreturnfortheinvestmentcommunityfora $2 million investment in astudy Dr. Babbel and hisesteemed economistcolleagues called “heavily

flawed.”A 2006 federal law paved

theway for target-date fundsto become the “default”retirement option of choice.Employers can’t be heldliable for sticking employeemoney in target-date funds.Today well over half of allemployers “auto-enroll” theiremployees into their 401(k).According to research fromFidelity, over 96% of largeemployers use these target-

date mutual funds as thedefaultinvestmentofchoice.

YOUNEVERKNOWWHO’SSWIMMING

NAKEDUNTILTHETIDEGOES

OUT

Imagine that it is early2008,and you are closing in onyour retirement. You haveworked thegrind forover40years to provide for yourfamily; you are lookingforwardtomoretimewiththegrandkids, more timetraveling, and just . . . moretime. By all accounts your401(k) balance is lookinghealthy. Your “2010 target-date funds” are performingnicely, and you trust that

since you are only twoyearsaway from retirement, yourfunds are invested veryconservatively. Millions ofAmericans felt this waybefore 2008 wiped out theirhopes for retirement, or atleastthequalityofretirementtheyhadexpected.Thelistonpage 162 shows the top 20target-date funds (by size)andtheirgut-wrenching2008performances.Rememberthatthese are 2010 target-date

funds,soretirementwasnowonlytwoyearsawayfortheirinvestors. Notice the highpercentage that certain fundschosetoputintostocks(morerisky)even though theyweresupposed to be in the “finalstretch” and thus mostconservative.Tobefair,evenif you are retiring, youmusthave some exposure tostocks, but at the same time,this type of loss could havedevastatedorat leastdelayed

yourplansforretirement.

LESSEROFTWO

EVILS

WhenIsatdowntointerviewmany of the top academicminds in the field ofretirement research, I wassurprised to learn that theywere all in favor of target-datefunds.Wait a second.Howcould

thatbe!?Isharedwitheachof them

much of what you have just

read, and while they didn’tdisagree that there are issueswith TDFs, they pointed tothetimebeforeTDFsexisted,when people were given thechoice to allocate as theywished.Thisarrangementledtomore confusion and, quitefrankly, really poor decisionmaking. The data certainlysupportstheirpoint.In my interview with Dr.

Jeffrey Brown, one of thesmartestmindsinthecountry,

heexplained,“Ifyougobackprior to these things [TDFs],we had a lot of people whowere investing in their ownemployer’s stock. Wayoverconcentratedintheirownemployer’s stock.” HeremindedmeofEnron,wheremanyemployeesput100%oftheir savings in Enron stock,andovernightthatmoneywasgone.When people had 15

differentmutual fundoptions

from which to choose, theywould divide the money upequally (1/15th in each one),which is not agood strategy.Or theywouldgetnervous ifthe market dropped (or sellwhen the market was down)and sit entirely on cash foryears on end. Cash isn’talways a bad position for aportion of your money, butwithina401(k),whenyouarepayingfeesfortheplanitself,youarelosingmoneytoboth

fees and inflation when youhold on to cash. In short, IcanseeDr.Brown’spoint.If the concept of a target-

date fund is appealing, Dr.Brown recommends a low-cost target-date fund such asthose offered by Vanguard.This could be a goodapproach for someone withminimal amounts to invest, averysimplesituation,andtheneed for an advisormightbeoverkill. But if you don’t

wanttouseatarget-datefundand instead have access to alist of low-cost index fundsfrom which to choose, youmight implement one of theasset allocation models youwill learn later in this book.Asset allocation, where topark your money and howtodivide itup, is the singlemost important skill of asuccessful investor. And aswe will learn from themasters, it’s not that

complicated! Low-cost TDFsmightbegreatfortheaverageinvestor, but you are notaverage if you are readingthisbook!If you want to take

immediateactiontominimizefees and have an advisorassist you in allocating your401(k) fundchoices,youcanuse the service at Stronghold(www.strongholdfinancial.comwhich, with the click of abutton will automatically

“peer into” your 401(k) andprovide a complimentaryassetallocation.In addition, many people

think there aren’t manyalternatives to TDFs, but insection 5, you’ll learn aspecific asset allocation fromhedge fund guru Ray Daliothat has producedextraordinary returns withminimal downside. When ateam of analysts back-testedthe portfolio, the worst loss

was just3.93%in the last75years. In contrast, accordingto MarketWatch, “the mostconservative target-dateretirement funds—thosedesigned to produce income—fell on average 17% in2008, and the riskiest target-date retirement funds—designed for those retiring in2055—fell on average awhopping 39.8%, accordingto a recent report fromIbbotsonAssociates.”

ANOTHERONEBITESTHEDUST

We have exposed andconquered yet another mythtogether. I hope by now youare seeing that ignorance isnot bliss. Ignorance is painand poverty in the financialworld. The knowledge youhave acquired in these firstchapterswill be the fuel youwill need to say “Never

again! Never again will I betakenadvantageof.”Soon we will begin to

explore the excitingopportunities, strategies, andvehiclesforcreatingfinancialfreedom, but first we havejust a couple more myths tofreeyoufrom.

CHAPTER2.7

MYTH7:“IHATEANNUITIES,ANDYOUSHOULD

TOO”

TheFedchief’s

largestassetslastyear

weretwoannuities.—“FedChairman

Bernanke’sPersonalFinancesAreNoFrills,”USAToday,July

21,2008

LOVE’EMORHATE’EM?

I came across an online adthatread“Ihateannuitiesand

you should too.” The typicalinternet “hook” promoted afree report on how annuitiesare terrible investments andthat a strategy using stocksand bonds is a much betterapproach for long-termgrowth and security. Ofcourse, the advertiser wasreadily available to sell youhisexpertstockpickingsforafee.What’snotmentioned intheboldprintoftheadisthatthe advertiser is an active-

approachstockpicker.Andaswe’ve already learned fromexperts Warren Buffett, JackBogle,RayDalio, andDavidSwenson—as well asacademic research results—active management isineffective in beating themarket on a consistent basis.Their results are inferior to asimple index, which usuallyhas fees that are 500% to3,000%cheaper,withgreaterperformance. This marketing

strategy oftenworks, though,doesn’t it? Compare yourselfwith what’s perceived as aterribleproduct,andsuddenlyyoursdoesn’tlooksobad.But not everybody hates

annuities...On the flip side, I was

blown away to find that theformer Federal Reservechairman Ben Bernanke,arguably the most influentialman in finance at one point,certainly appreciates the use

of annuities in his personalfinanceplan.Bernankehadtodisclose his investmentsbeforebecomingchairmanofthe Fed. The disclosureshowed that he held arelatively low amount ofstocks and bonds, while hisannuitieswerehistwolargestholdings. My immediatethought was, “What does heknowthatIdon’t?”Sowhichisit?Areannuitiesthebestthing

since sliced bread or just adeal that is good for theinsurance company andbrokers selling them? Theanswer? It really depends onthe type of annuity you ownand the fees the insurancecompany will charge you.Let’sexplore.During the process of

writing this book, I wassearching for the world’smost respected minds toexplore the best ways for

readers to lock in aguaranteed lifetime incomestream; a paycheck for lifewithouthavingtowork.Afterall,isn’tthiswhyweinvestinthe first place? As Iconductedmyinterviews,Dr.David Babbel was a namethatwascontinually“risingtothe top” duringmy research.If you recall from the lastchapter, he is the WhartonprofessorwithmultiplePhDswho advised the secretary of

labor on two studies ontarget-datefunds.Inearly2013hepresented

his own personal story in areport on how he debunkedthe advice of hisWall Streetbuddies,whoencouragedhimtolethisinvestmentsrideandhope for more growth, andcreated a lifetime incomeplan. So instead of risking apenny in stocks or bonds, heused a series of guaranteedincome annuities, staggered

over time, to give him thesafeandsecureretirementhewants and deserves—alifetime income plan. Theannuities he used also gavehima100%guaranteeofhisprincipal,sohedidn’tlosein2000 or in 2008 when themarket crashed. Instead, hewascomfortablyenjoyinghislife, his wife, and hisgrandkids with completepeace of mind that he willneverrunoutofmoney.

I flew to Philadelphia tomeet with Dr. Babbel for a“one-hour” interview, whichturned into four hours. Hisstrategy, which we willhighlight in the “Create anIncomeforLife”chapter,waspowerfulyetsimple.And the“peaceofmind”factor reallycame through, as I could seethe freedom his strategyafforded him. I left with acompletely different view onannuities! Or at least certain

kindsofannuities.Hewasveryclearthat“not

all annuities are createdequal.” There are manydifferent types, each with itsown unique benefits anddrawbacks. There are onesyou should indeed “hate,”but to lump all annuitiesinto one category is tothoughtlessly discriminateagainst the only financialtool that has stood the testoftimeforover2,000years.

THEJULIUSCAESAR

INSURANCECOMPANY

The first lifetime incomeannuities date back 2,000years to the Roman Empire.Citizens and soldiers woulddeposit money into a pool.Those who lived longestwould get increasing income

payments, and those whoweren’t so lucky passed on;thegovernmentwould takeasmall cut, of course. OnemustrendertoCaesarwhatisCaesar’s!The Latin word annua is

where we get our wordannual, because the originalRomans got their incomepayment annually. And, ofcourse,that’swherethewordannuity comes from! How’sthat for “exciting” water

coolertrivia?In the 1600s, European

governments used the sameannuity concept (called atontine), to finance wars andpublicprojects(againkeepingacutofthetotaldeposits).Inthe modern world, the mathand underpinnings of theseproducts are still the same,except governments havebeenreplacedbysomeofthehighest-rated insurancecompanies, including many

thathavebeeninbusinessforwell over 100 years;insurance companies thatstoodthetestoftimethroughdepressions, recessions,world wars, and the latestcreditcrisis.But we must be careful

whenitcomestothedifferenttypes of annuities. Annuitieswere pretty much the sameover those last 2,000 years.There was just one version:the Coca-Cola Classic of

financial solutions. It was asimple contract between youand an insurance company.You gave them yourmoney,and they promised you aguaranteed income or returnon your money. And afteryou made your contribution,you got to decide when tostart receiving incomepayments. The longer youwaited, the higher yourincome payments. And thedayyoubought it,youhada

schedule that showed theexact payment, so there wasnoguessing.

ISITPROGRESSORJUSTCHANGE?

Over the last 50 years,annuities have evolved intomany different types

compared with the originalones offered by Caesar.Sometimes evolution is agood thing. Other times weendupamutant!It’s safe to say that there

are more poor products outtherethangoodones.AsJackBogle says, “I remain arecommender of the annuityconceptually,butyou’dbetterlookat thedetailsbeforeyoudo anything.” So let’s cut tothe chase.Which should you

avoid?

VARIABLEANNUITIESAREINVARIABLYBAD

In 2012 over $150 billionworth of variable annuitieswere sold. To put that inperspective, $150 billion isjust a hair below Apple’s

gross revenue for 2012.Variable annuities haveevolved into the commissiondarling of many largebrokerage firms.Sowhat theheckisavariableannuity?Inshort, it’s an insurancecontract where all of theunderlying deposits areinvestedinmutualfunds(alsoknownassubaccounts).Yep.The same mutual funds thatunderperform themarket andchargeinsanelyhighfees.But

this time the investor buysthem inside of an annuity“wrapper.” Why wouldanyone want to invest inmutual funds through anannuity? Because annuityproducts have special taxbenefits, and the moneyinsidecangrow tax-deferred,just like a 401(k) or IRA.This arrangement isespeciallyattractive,thepitchgoes, if you have alreadymaxed out your 401(k) or

IRA limits and have extracapital to invest. But now,instead of just payingexcessive fees forunderperforming mutualfunds, there are additionalfeesfortheannuityitself.

FEESONTOPOFFEES

So what’s the appeal? Whywould someone buy mutualfunds wrapped inside anannuity just to avoid taxes?Most variable annuitiesguarantee that even if theaccount goes down, yourbeneficiaries will receive atleast the total amount youinvestedoriginally.So ifyouput in $100,000, and themutualfundsdropinvalueto$20,000,yourchildrenwouldstill get $100,000 when you

die. That doesn’t sound likesuch a bad deal until yourealize that you just boughtthe most expensive form oflifeinsuranceavailable.Earlier, in chapter 2.2, we

outlined the laundry list offees you will pay to own anactively managed mutualfund and how these fees candramatically drag down yourperformance. To recap, thetotal of all the fees (expenseratio, transaction costs, soft-

dollar costs, cash drag, salescharges) will averageapproximately 3.1% peryear,accordingtoForbes(ifheldinatax-deferredaccountsuch as a 401[k], IRA, orvariableannuity).That’s $3,100 per year for

every$100,000.Butweain’tdoneyet.When you buy a variable

annuity, not only are youpaying the fees listed abovebut also you have additional

fees paid to the insurancecompany. There is a“mortality expense,”7 whichaccording to Morningstaraverages 1.35% per year, aswellasadministrativechargesthat can run somewherebetween 0.10% and 0.50%peryear.Let’sadd’emup:

Averagemutualfundcosts=3.1%(accordingtoForbesarticle),

Mortalityandexpense=1.35%(average),

Administrativecost=0.25%(average).

A grand total of 4.7% peryear, or $4,700 for every$100,000 you invest! Andthismoneycomesoff thetopbeforeyoumakeadime.Saidanother way, if the fundreturns 4.7%, you didn’tmakeanything!Allof theseadditionalfeesalltoavoidtax

on the gains? Heck, after allthe fees, you probablywon’thave much gain, if any, topaytaxeson!

PAINTEDINTOACORNER

Eventhoughmostpeoplelosemoney in these variableannuities, they feel locked in

and afraid to pull out theirmoney because of the deathbenefit guarantee (theguaranteethat theirheirswillget back the original depositamount). And there areusually heavy surrendercharges, so the insurancecompany might charge youforleavingthepartyearly.Arethereanyexceptionsto

the rule? Only two thatexperts tell me are worthconsidering in so far as one

needs the tax efficiency.Vanguard and TIAA-CREFbothofferextremelylow-costvariable annuities with a listof low-cost index funds tochoose from. They do notchargecommissions,so thereare no surrender charges ifyouwanttocashin.

NOTYOURGRANDPA’S

ANNUITIES

Inchapters5.3and5.4ofthisbook, “Freedom: CreatingYour Lifetime Income Plan”and “Time to Win: YourIncome Is theOutcome,”wewill clearly examinetraditional income annuitiesas well as a relatively newtype of annuity (the fixedindexed annuity) thatprovides some of the highest

andmost compelling incomeguarantees of any financialproduct,whilealsoproviding100% principal protection.By the time you are donewith thisbook,youcanhavethe certainty and peace ofmind of knowing that everymonthwhenyouwalktoyourmailbox, you will bereceiving a paycheck (thatyouwon’thave towork for).And we can accelerate yourpath to financial freedom if

we can eliminate taxes onyour lifetime incomepayments.How,youask?By taking a portion of our

money and combining thepowerofaRothIRAwiththepower of a lifetime incomeannuity.Thismeans thatnomatter what thegovernment does with taxrates, you can rest assuredthat the entire amount youreceiveisspendableincome.That’s right: a legal and

secure tax-free lifetimeincome, with no movingparts or worries aboutmarketvolatility.Thepurposeofthischapter

isnotonlytotellyouwhattoavoid but also to warn youabout getting sucked into themarketing myth that allannuities are bad. The onlyreason why I’m not goingintomoredetailonthepowerof annuities is because youfirst need to understand

where to put your money:asset allocation. Andunderstandingassetallocationwillhelpyouknowwhenandwhere annuities make senseforyou.

THESOLUTION

If you have an annuity,regardless of what type, it’salways beneficial to get a

review by an annuityspecialist.You can reach outto an annuity specialist atLifetime Income(www.lifetimeincome.com),and he or shewill perform acomplimentaryreview,whichwillhelpyou:• discover the pros and consofyourcurrentannuity,

• determine the actual feesyouarepaying,

• assess whether or not the

guarantees are the highestavailable,and

•decidewhethertokeepitorget out of your currentannuityand“exchange”foradifferenttypeofannuity.

Ifyouhaveanannuitythatyoufind isnotgreat, there isa feature called a 1035exchange. It requires somesimple paperwork to move acash balance from oneinsurancecompanytoanother

withoutbeinghitwithataxpenalty. But you must beaware that your currentannuity might have“surrender charges” if youhaven’townedtheannuityforlong enough. It may makesense to postpone anexchange until there are lowornosurrendercharges.Also,you may be forfeiting thedeathbenefitguarantee.Stick with me here, as

there is just one more truth

we must uncover! The lastand final illusion is one thatinsiders are most aware of:the myth that you have totake exorbitant risks tomakegreatreturns.Let’sunmaskMyth8....

7. Fees, included in certain annuity orinsurance products, that serve tocompensate the insurance company forvarious risks it assumes under theannuitycontract.

CHAPTER2.8

MYTH8:“YOUGOTTATAKE

HUGERISKSTOGETBIG

REWARDS!”

Aninvestment

operationisonewhich,uponthoroughanalysis,promisessafetyofprincipalandanadequatereturn.

Operationsnotmeetingtheserequirementsare

speculative.—BENJAMINGRAHAM,TheIntelligentInvestor

HAVINGYOURCAKEAND

EATINGITTOO

Superficially,Ithinkitlookslike

entrepreneurshaveahightoleranceforrisk.Butoneofthemost

importantphrasesinmylifeis“protectthe

downside.”—RICHARDBRANSON,

founderofVirgin

My friend Richard Branson,the founder ofVirgin and itsmany incredible brands,decided to launch VirginAirways in 1984. In trueDavid-versus-Goliathfashion, the master ofmarketingknewthathecould“out market” anyoneincluding the behemothcompetitor British Airways.Tooutsiders,itseemedlikea

huge gamble. But Richard,likemostsmartinvestors,wasmore concerned abouthedging his downside thanhitting a home run. So in abrilliantmove, he bought hisfirst fiveplanesbutmanagedto negotiate the deal of alifetime:ifitdidn’tworkout,he could give back theplanes! A money-backguarantee! If he failed, hedidn’tlose.Butifhewon,hewonbig.Therestishistory.

Not unlike the businessworld, the investment worldwilltellyou,directlyormoresubtly,thatifyouwanttowinbig, you’ve got to take someserious risk. Or morefrighteningly, if you everwant financial freedom, youhave to risk your freedom togetthere.Nothing could be further

fromthetruth.If there is one common

denominator of successful

insiders, it’s that they don’tspeculate with their hard-earned savings, theystrategize. RememberWarren Buffett’s top tworules of investing? Rule 1:don’t lose money! Rule 2:see rule 1. Whether it’s theworld’s top hedge fundtraders like Ray Dalio andPaul Tudor Jones orentrepreneurs like Salesforcefounder Marc Benioff andRichard Branson of Virgin,

without exception, thesebillionaire insiders look foropportunities that provideasymmetric risk/reward. Thisisa fancywayof saying thatthe reward is drasticallydisproportionatetotherisk.Riskalittle,makealot.The best example of

risking very little to make alot is the high-frequencytraders (HFT) who use thelatest technologies (yes, evenflying robots and microwave

towersthatarefasterthanthespeedoflight)tosave1/1000ofasecond!Whatwouldyouguess is their risk/rewardwhile generating 70% of alltrading volume in the stockmarket? I will give you aclue. Virtu Financial, one ofthe largest HFT firms, wasabout to go public, a processthat requires it todisclose itsbusiness model andprofitability. Over the pastfive years, Virtu has lost

money only one day! That’sright.One single trading dayoutofthousands!Andwhatisits risk? Investing in fastercomputers,Isuppose.

TWONICKELSTORUBTOGETHER

My friend and hedge fundguru J. Kyle Bass is best

known for turning a$30 million investment into$2 billion in just two shortyears. Conventional wisdomwould say that hemust havetakenabigriskforreturnsofthatmagnitude.Not so.Kylemade a very calculated betagainst the housing bubblethat was expanding like thekid in Willy Wonka & theChocolate Factory. It wasbound to burst sooner ratherthan later. Remember those

days? When ravenous,unqualified mortgageshopperswereenticed tobuywhatever theycouldget theirhandson.Andwithnomoneydown or so much as anyproof they could afford it.Lenders were lining up toprovide loans knowing theycould package them up andsellthemofftoinvestorswhoreallydidn’tunderstandthem.Thisbubblewaseasy to spotso long as you were on the

outsidelookingin.ButKyle’sbrilliance,whichherevealsinhis interview in section 6, isthatheonlyrisked3centsforeverydollarofupside.How’sthatfortakingatinyriskandreapinggiantrewards?When I spoke with Kyle

recently,hesharedthedetailsof another asymmetricrisk/reward opportunity hehadfoundforhimselfandhisinvestors.The terms?Hehada 95% guarantee of his

investment,butiforwhenthecompanywentpublic,hehadunlimited upside (and heexpected massive returns!).But if it all went south, helostonly5%.Kyle, like all great

investors, takes small risksfor big rewards. Taking aswing for the fencewithnodownside protection is arecipefordisaster.“Kyle, how do I get this

pointacrosstomyreaders?”

“Tony,IwilltellyouhowItaught my two boys: weboughtnickels.”“What was that, Kyle?”

Maybe the phone wasbreaking up. “I could havesworn you just said youboughtnickels.”“Youheardmeright.Iwas

literally standing in theshower one day thinking,‘Where can I get a risklessreturn?’”Most experts wouldn’t

evendreamtothinkofsucha thing. In their mind,“riskless return” is anoxymoron. Insiders likeKyle think differently fromthe herd. And by defyingconventional wisdom, healways looks for smallinvestments to returndisproportionate rewards.The famed hedge fund guru,with one of the biggest winsof the last century, used hishard-earnedmoneytobuy...

well, money: $2 million innickels—enough to fill up asmallroom.Whatgives?While a nickel’s value

fluctuates, at the time of thisinterview Kyle told me,“Tony,theUSnickelisworthabout 6.8 cents today in its‘melt value.’ That means 5centsisreallyworth6.8cents[36%more] in its truemetalvalue.”Crazytothinkwelivein a world where thegovernmentwillspendnearly

9centsintotal(includingrawmaterials and manufacturingcosts) tomake a 5-cent coin.IsanyonepayingattentionupthereonCapitolHill?Clearlythisisn’tsustainable,andoneday Congress will wake upand change the “ingredients”that make up the nickel.“Maybe the next onewill betin or steel. They did thisidenticalthingwiththepennywhen copper became tooexpensive in the early

eighties.”From1909to1982,the penny was made up of95% copper. Today it’smostly zinc with only 2.5%copper. Today one of thoseolder pennies is worth 2cents! (Not in melt value;that’sthepricecoincollectorswould pay!) That’s 100%more than its face value. Ifyou had invested in penniesway back when, you wouldhave doubled your moneywith no risk, and you didn’t

even have to melt thepennies!I admit it sounded

gimmicky at first, but Kylewasdead serious. “If I couldtake my entire cash balanceofmy net worth and press abuttonandturnitintonickels,I would do it right thissecond,” he exclaimed.“Becausethenyoudon’thaveto worry about how muchmoney theyprint.Thenickelwill always be worth a

nickel.” And his cash wouldbe worth 36% more—andlike pennies, likely 100%moreinthefuture,assoonasthe government inevitablycheapensthenickel’srecipe.Kyle was more than an

enthusiast.“WhereelsecanIgetathirty-six-percentrisk-freereturn!IfIamwrong,IstillhavewhatIstartedwith.”Sure,it’sillegaltomeltdownyour nickels (for now), butthepoint is,“Iwon’tneed to

melt it down because oncethey change the way theymake the nickel, the oldnickels become even morevaluable than before becausescarcity sets in as they beginto remove them fromcirculation.”Needless to say, his boys

got the lesson as well as agood workout moving boxesof coins into their storageunit!Now, you might be

thinking, “Well, that’s greatfor Kyle Bass, who hasmillions or even billions justto throw around, but howdoes that apply to me?”Surelyitcan’tbepossiblefornormal investors to haveupside without the downside—to have a protection ofprincipal with major upsidepotential.Thinkagain.Thesameleveloffinancial

creativity that has propelled

high-frequencytrading(HFT)from nonexistent into adominant force in just tenyearshastouchedotherareasof financeaswell.Followingthe 2008 crash, when peopledidn’t have much of anappetiteforstocks,someveryinnovative minds at theworld’s largest banks figuredoutawaytodotheseeminglyimpossible: allow you andme to participate in thegains of the stock market

without risking any of ourprincipal!Before you write this

notion off as crazy, Ipersonallyhaveanote,issuedand backed by one of theworld’s largest banks, thatgives me 100% principalprotection, and if the marketgoes up, I get to keep asignificantchunkofthegainsin the market (withoutdividends).But if themarketcollapses,Igetallmymoney

back.Idon’tknowaboutyou,but I ammore thanhappy togive up a percentage of theupside in exchange forprotecting myself fromstomach-wrenching losses ona portion of my investmentportfolio.But I am getting ahead of

myself.Wehavecometoapointin

theUnitedStateswheremostofusfeelthattheonlyoptionfor us to grow our wealth

involves taking huge risks.That our only availableoption is to white knuckle itthrough the rolling waves ofthe stock market. And wesomehow take solace in thefact that everyone is in thesameboat.Well,guesswhat?It’snot true!Noteveryone isinthesameboat!There are much more

comfortable boats out on thewaterthatareanchoredintheproverbial safe harbor, while

othersaregettingpounded inthe waves of volatility andtakingonwaterquick.So who owns the boats in

theharbor?Theinsiders.Thewealthy. The 1%. Those notwillingtospeculatewiththeirhard-earned money. Butmake no mistake: you don’thave to be in the .001% tostrategizelikethe.001%.

WHODOESN’TWANTTOEATTHECAKETOO?

In the investment world,havingyourcakeandeatingittoo would bemakingmoneywhen themarketgoesupbutnot losing a dime if themarket drops.Weget to ridetheelevatorupbutnotdown.This too-good-to-be-true

concept issoimportant thatIhave devoted an entiresection of this book to it:“Upside Without theDownside: Create a LifetimeIncome Plan.” But for now,this brief appetizer below isdesigned to dislodge yourpreconceivednotionsthatyouand all of your money mustendure the endless waves ofvolatility. Below are threeprovenstrategies(exploredinmore depth in section 5) for

achieving strong returnswhile anchored firmly incalmerwaters.1. Structured Notes. Theseare perhaps one of themore exciting toolsavailable today, but,unfortunately, they arerarely offered to thegeneral public because thehigh-net-worth investorsgobblethemuplikepigeonseed in Central Park.

Luckily,therightfiduciaryis able to grant access forindividuals even withoutlarge sums of investmentcapital.Solistenup.

A structured note issimply a loan to a bank(andtypicallythelargestbanksintheworld).Thebankissuesyouanoteinexchange for lending ityourmoney.At the endof the time period (alsocalled the term), the

bank guarantees to payyou the greater of:100% of your depositback or a certainpercentageof theupsideof the market gains(minusthedividends).That’s right. I get all

my money back if themarketisdownfromtheday I bought the note,butifthemarketgoesupduring the term, I get toparticipateintheupside.

I call these notes“engineeredsafety.”Thecatch? I typically don’tget to keep all of theupside. So you have toask yourself if you’rewillingtogiveuppartofthe upside for downsideprotection.Many peoplewould say yes. Thesesolutions becomeespeciallyvaluablewhenyoucometothatpointinyour life, close to or

duringretirement,whereyou can’t afford to takeany big losses. Whenyoucan’taffordorevensurviveanother2008.For those looking to

take a bit more risk,some notes will allowforevengreaterupsideifyou are willing to takemore risk on thedownside.Forexample,a note available todaywill give you a 25%

downside-protection“airbag.” So themarkethastogodownmorethan25%foryouto lose. And inexchange for takingmore risk, it will giveyoumorethan100%ofthe upside. One noteavailable right nowoffers 140% of theupside if you arewillingtoabsorbalossbeyond 25%. So if the

market was up 10%over the term, youwould get 14% inreturn.So what are the

downsides of structurednotes?First, aguaranteeis only as good as thebacker!Soit’simportantto choose one of thestrongest/largest banks(issuers) in the worldwith a very strongbalance sheet. (Note:

Lehman Brothers was avery strongbankuntil itwasn’t! This is whymany experts utilizeCanadian banks, sincethey tend to have thestrongestfinancials.)Next challenge?Your

timingcouldbewayoff.Let’s say you owned anote with a five-yearterm, and for the firstfour years, the marketwas up. You would be

feeling pretty good atthat point. But if themarket collapses in thefifth year, you will stillget your money back,but you didn’t get tocapture any of thosegains. You also mighthave limited liquidity ifyouneedtosellthenotebefore the end of theterm.It’s also important to

note that not all

structured notes arecreated equal. Like allfinancial products, thereare good versions andbad versions. Most bigretail firms sell younotes that havesubstantialcommissions,underwriting fees, anddistributions fees; all ofthese will take awayfrom your potentialupside. Accessingstructured notes through

a sophisticated, expertfiduciary (a registeredinvestment advisor) willtypicallyhavethosefeesremoved because afiduciary charges a flatadvisory fee. And bystripping out those fees,performance goes up.Afiduciary will also helpyoumake sure youownthenoteinthemosttax-efficient way since thetax ramifications can

vary.2.Market-LinkedCDs.Firstthings first: these are notyour grandpa’s CDs. Intoday’s day and age, withinterest rates so low,traditional CDs can’t evenkeep pace with inflation.This has earned them thenickname “certificates ofdeath” because yourpurchasing power is beingslowly killed. As I writethis, the average one-year

CD pays 0.23% (or 23basis points). Can youimagine investing $1,000dollars for a year andgetting back $2.30? Theaverageinvestorwalksintoabankandiswillingtolaydown and accept 23 bps.But the wealthy investor,aninsider,wouldlaughandtell them to go to hell.That’snotenoughtobuyalatte! Oh, and you stillhave to pay taxes on that

$2.30 return—an evenhigherordinaryincometaxrate (as opposed to theinvestmenttaxrate),whichhistorically is significantlylower!

Traditional CDs arevery profitable for thebanks because they canturn around and lendyourmoney at 10 to 20times the interest ratethey are paying you.Another version of the

insider’sgame.Market-linked CDs

are similar tostructured notes, butthey include insurancefrom the FederalDeposit InsuranceCorporation (FDIC).Hereishowtheywork.Market-linked CDs,

like traditional versions,give you some smallguaranteed return (acoupon) if the market

goesup,butyoualsogetto participate in theupside.Butifthemarketfalls, you get back yourinvestment (plus yoursmall return), and youhad FDIC insurance theentire time. Typically,your money is tied upfor one or two years(whereas structurednotes can be as long asfive to seven years). Togive you a real-life

example,todaythereisamarket-linked CD thatpays the exact sameinterest rate as atraditional CD (0.28%)but also allows you toparticipate in up to 5%of the market gains. Soif the market is up 8%total, you get to keep5%.Inthisexample,youearnedover20timesthereturn of a traditionalCDwiththesameFDIC

protection! But again, ifthe market goes downyou lose nothing. Keepin mind that rates areconstantly changing inthis field. Ratesmay bemoreattractiveatcertaintimes than at others. In2008, when banks werestruggling and lookingfor deposits, they had asweetheart deal that mybuddyAjayGupta,whois also my personal

registered investmentadvisor, couldn’t passup. The note had 100%principalprotectionwithFDIC insurance. Thevalue was linked to abalanced portfolio ofstocks and bonds, andwhen all was said anddone, he averaged 8%peryearwithnorisk!I must warn you

again, however, thataccessing these directly

from a bank will oftenincur a host of chargesand fees. Conversely,accessingthesesolutionsthrough a fiduciaryadvisor will typicallyremove all thecommissions and feesthat a retail firm maycharge, and thus theperformance/terms willbebetterforyou.

3.Fixed IndexedAnnuities.Let me be the first to say

that there are a lot ofcrappyannuityproductsonthe market. But in myresearch and interviewswith some of the topexperts in the country, Idiscovered thatother typesof annuities are used byinsidersasyetanothertooltocreateupsidewithoutthedownside.

Fixed indexedannuities (FIA) are atype of annuity that has

been around since themid-’90s but have onlyrecently exploded inpopularity. A properlystructured fixed indexedannuity offers thefollowingcharacteristics:

• 100% principal protection,guaranteed by theinsurancecompany.Thisiswhy we have to pick aninsurance company with a

high rating and a longhistoryofmakinggoodonits promises—often acenturyormore!

•Upsidewithoutdownside—like structured notes andmarket-linkedCDs,afixedindexedannuityallowsyouto participate when themarketgoesupbutnotloseif the market goes down.All gains are tax deferred,or if it’s owned within aRoth IRA, you won’t pay

taxesonthereturns.• Lastly, and probably mostimportantly, some fixedindexed annuities offer theability tocreatean incomestream that you can’toutlive. A paycheck forlife! Think of thisinvestment as your ownpersonal pension. Forevery dollar you deposit,the insurance companyguarantees you a certainmonthly income payment

whenyoudecidetotrigger,or turn on, your lifetimeincome stream. Insurancecompanieshavebeendoingthis work successfully for200years.Wewillexplorethis strategy in depth insection5,“UpsideWithoutthe Downside: Create aLifetimeIncomePlan.”

AWORDOF

WARNING

Beforewemoveon,letmebevery clear on one point: thisdoes not imply that allversions of these productsandstrategiesaregreat.Somehave high fees, highcommissions,hiddencharges,andonandon.ThelastthingI want is some salesmanusing these fewpages to sellyou something that’s not in

your best interest.Andwhenwe dive into these solutionsinsection5,Iwillgiveyouaspecific list of pitfalls youmustavoidaswellasalistofthingsyouabsolutelywanttomake sure you receive whenutilizingthesesolutions.

YOUGETWHATYOUTOLERATE

Thepointofthischapteristobegin to show you ways inwhich you can have yourcake and eat it too.Sometimes, when you haveendured the choppy watersfor so long, you begin tobelieve that there is no otheroption. This tendency iscalled“learnedhelplessness.”But that’s not the wayinsiders think. From Buffettto Branson, they all look forasymmetric risk/reward.

Insiders are not helpless,nor are you. In every areaof life, you get what youtolerate. And it’s time toraisethestandard.

HOWFARWEHAVECOME

We have made some seriousprogress! Let’s recap the

mythswe have shattered andthetruthswehaveuncoveredthusfar:• We have learned thatnobody beats the market(except for a handful of“unicorns”)!And by usinglow-cost market-mimickingindexfunds,wecan outperform 96% ofmutualfundsandnearlyasmany hedge funds.Welcometothefrontofthe

performancepack!• Since stock-picking mutualfunds are charging usextremely high fees (over3%, on average), we candrop our investment feesby80%oreven90%.Youcouldhavemorethantwiceasmuchmoneywhen youretire or cut years off thetimeitwill takeyoutogetto financial freedom. Letthatsoakinforasecond!

• We have learned the

difference between abutcher and a dietitian—between a broker and afiduciary. And now weknow where to go to gettransparent advice (thatmay also be tax-deductible).

• We learned how todrastically reduce our401(k)feesbyusingalow-cost provider likeAmerica’sBest 401k.Youcan see how your plan

stacks up by using theindustry’s first fee checker(http://americasbest401k.com/401k-fee-checker). Again, thesecost savings willcompound our totalaccount balance and putmoneybackinourfamily’spocket. (For businessowners, we showed howyou can get yourselfcompliantwiththelawanddrastically reduce yourliability.)

•We learned about theRoth401(k) and how we canprotect against rising taxesbypayingthetaxtodayandneverpayingtaxagain(noton the growth or thewithdrawals).

•We learned that target-datefunds (TDFs) are not onlyexpensive but alsomay bemoreaggressiveorvolatilethanyouthink.Andifyouwant to use a TDF, youshould stick with a low-

cost provider likeVanguard. Later, in the“Billionaire’s Playbook,”youwill also learn how toputtogetheryourownassetallocationinsteadofpayingaTDFtodoitforyou.

• We learned that variableannuities are a mutantevolution of a 2,000-year-old financial product butthat other more traditional(fixed) annuities canprovide what no other

product can: a guaranteedlifetimeincomestream!

•Andfinally,welearnedthatwealth without risk is apossibility. Sure, there isrisk in everything, but welearned that certainstructures will allow us toparticipate when themarket goes up and notlosewhenitfalls!

Areyoureyesbeginningtoopen?Hastheblindfoldbeen

removed?Howwillyour lifebe different now that youknow the truth? Shatteringthese myths is thegroundwork for creating truefinancialfreedom.Iwantyouto see, hear, feel, and knowthat the game is winnable. Ifthese myths are unsettling,good! They were for mewhen I first discovered thetruth. Let them drive youforward to make financialfreedom amust in your life,

and to declare that you willnever be taken advantage ofagain.Wewill take it up a notch

andhavesomefuninsection3. It’s here where we willmake our dreams becomemoreofarealitybyputtinginplace a plan that is bothdoable and exciting. And ifit’s not happening fastenoughforyou,wewillshowyou how to speed it up andbring it closer into your

future.But first, the last and final

myth must be put to death.Butunliketheothers,it’snotone that someone else hassold you. It’s the story youhave sold yourself. It’swhatevermythorliehaskeptyoufromtakingactioninthepast. It’s time for abreakthrough! Let’s shatteryourlimitsbydiscoveringthelieswetellourselves.

CHAPTER2.9

MYTH9:“THELIESWETELLOURSELVES”

Seektruthandyouwillfindapath.—FRANKSLAUGHTER

Okay, let’s get real here.We’ve just gone through allof the marketing andinvestment myths that havebeen promoted for years, atgreatexpensetous,andtothebenefit of big institutions.Andmybet is that rightnowyou’reprobably shocked,butyou feel incrediblyempowered. You now knowwhattoavoidandwhattodotosucceed.But there’s one finalmyth

to tackle.Themyth that saysthe reason we’re notsucceeding, not achieving,not growing is because ofsomeone or something elsebeyond our control. Or thealternative thought thatsomehowwejustaren’tmadeof the stuff that can help usmaster this area of our life.But here’s the truth: theultimate thing that stopsmost of us from makingsignificant progress in our

lives is not somebody else’slimitations, but rather ourown limitingperceptionsorbeliefs. No matter howsuccessful we are as humanbeings, no matter how highwe reach personally,professionally, spiritually,emotionally, there’s alwaysanother level. And to getthere, we have to be honestwith ourselves; honest aboutour unconscious fears. WhatdoImean?

Everybody has a fear offailure at some level; attimeswe’veallbeenfearfulthat perhaps we are notenough.Evenwhenweknowwhattodo,ourfearcankeepus from executing our plans.As a result, rather than faceournaturalfears,whatdowedo?Wecomeupwithstories.Stories about why we’re notwhere we want to be. Whywe’re not smart enough,successful enough, thin

enough,richenough,lovedorloving enough. Our storiesalmost always relate tosomething outside ourcontrol, or our lack of somenatural talent or ability. Buttalent and skill are two keyelementstosuccessattainableby anyone who is trulycommitted. You can get theskill if you can get beyondthementallimitsofhowhard,difficult, or “impossible” itmaybetomastersomething.

You’ve made the singlemost important financialdecision of your life bydecidingpreciselyhowmuchyou’regoing to save tobuildyour Freedom Fund—so youcan tap into thatandcreateamoney machine that makesmoneywhile you sleep.Andwe’ve taken the time to lookthrough all of the marketingmyths that can trip you upalong the way. So what’sleft? The last thing out there

standing in our way is oftenour own story, our ownlimitations, our own fears.The final obstacle to face isourselves.That’swhy,for38years, my passion has beenhelping people to breakthrough from what holdsthemback—tohelp themgetfrom where they are now towhere they want to be, andfaster. My whole life hasbeen committed to helpingpeoplecreatebreakthroughs.

And frankly, while lots ofpeople make this stepcomplex,I’vefoundthereareonlythreeelementsthatmakethe difference betweensuccessandfailureinthelongrun––between whether youstay where you are, or youmove forward. Whether youmakeexcusesaboutwhatyoudon’thaveorwhetheryougettoenjoythelifeyoudeserve.

BREAKTHROUGHS

Sowhatisabreakthrough?Abreakthrough is a momentintimewhentheimpossiblebecomes possible—whenyou don’t just talk aboutsomething, but you finallytake massive action and dowhatever it takes to make ithappen.Youmakeamovetotruly change and improveyourworld.

Often it’s frustration,anger,orstressthattriggersabreakthrough. We hit ourthreshold: a point where wesay, “Never again and nomore.”Or inspiration strikes:we meet someone whoinspiresusandthatmakesussee how life can be somuchgreaterthanweeverdreamedpossible. You meet someonewho enjoys life fully, has agreat relationship, isphysically fit or financially

free,andyoudecide,“I’massmart as he or she is. I’mgoing to find a way.” Whatwas acceptable before nolonger is. There’s no goingback now. It’s amazingwhatyou can dowhenyou decideto draw a line in the sand,committoanewgoal,andsetanewstandard.Most people say, “It took

me ten years to make thischange.” But the truth is, itdidn’t take ten years for a

breakthrough. Truetransformation happens in amoment. It may have takenyou ten years to get to thepoint where you were ready,or open, or maybe evenprovoked. But we’ve all hadbreakthroughs in our lives,and those breakthroughshappenedinasinglemoment.We struggle with somethingfor years—a job or a career,our weight or a relationship.We’re miserable until one

day a trigger goes off.Suddenly,“That’sit.”“Iloveyou!”“Iquit!”“I’min!”“Let’sbegin!”Not within a day or an

hour,butinthatmomentyourlife changes—and it changesforever.Have you ever stayed in a

relationship way too long,even though you knew youwere unhappy, and so was

your partner? You came tothe edge of dealing with it,and then the fear of theunknown,ofchange,ofbeingalone, stopped you. The fearof loss and uncertainty keptyou from taking action, andyousettled.Whatever you struggle

with, I know there’s a placewhere you’ve had abreakthrough before. Take amoment to think of one.What’s an area you used to

strugglewith—daily,weekly,monthly, for years or even adecadeormore,untilonedayyou hit your threshold? Youbecame inspired, or fed up,enoughtofinallymakearealdecision to change this areaonce and for all! And youtook massive and immediateactiontomakeachange.Yougot it done. You finallykicked the habit and quitsmoking. Or you left a jobthatmade youmiserable and

startedyourownbusiness.Ormaybeyoufinallydecided tostart exercising and changeyourbodyorgetyourselfoutofthatbadrelationship.I want you to own that

breakthrough. There was atimewhenthingsseemedliketheycouldn’tchange,butyoudid it—you made it happen.You do have the ability tochange everything in yourlife.Nomatter how long it’sbeen this way, you can

change it all in a moment, amoment of real decision, adecision that is acted upon.That’s a breakthrough, andone is waiting for you rightnow.

THREESTEPSTOCREATINGYOURBREAKTHROUGH

There are three steps tocreating a breakthrough:three forces that, together,can massively change anyand every aspect of yourlife.Any one on its own canwork,but ifyouputall threetogether, you will absolutelychangetheaspectofyourlifethatyouchoosetofocuson.What are the three biggest

challenges people face inAmerica?What are the threeareas that show up over and

over again, causing pain inpeople’s lives?Our finances,our relationships, and ourbodies.Howmanypeopledoyou knowwho struggle withmoney, who can’t save, whodon’tearnenough,whospendtoomuch,orwhocan’tfigureoutwhattodonextwiththeircareer? And what aboutrelationships? Men andwomen, we are wired sodifferently—if we don’tunderstand each other, it can

take so much work tomaintain healthy intimaterelationships, to understandwhatourpartner reallyneedsandwants,tocommunicateina loving and supportiveway.And then there are ourbodies. We live in a timewhere themajority of peoplein the Western world aremassively overweight. In theUnitedStates,nearlyseveninten Americans are eitheroverweight (defined by the

Centers for Disease Controland Prevention as having abody mass index of 25.0 to29.9)orobese(havingaBMIof 30.0 or higher). Ourstruggle with fitness andhealth has become a nationalcrisis, and it’s spreadingaround the world asdeveloping countries adoptsome of our lifestyle andeatingpatterns.WhydoIbringthisallup?

What do relationship

challenges and unhealthyeatinghabitshave todowithyour ability to achievefinancial freedom? Well,whatever area you want tocreate a breakthrough in,whether it’s your body, yourrelationships, or this book’sfocus, money, there are onlythree things that you need tolook at. And they are thesame three things no matterwhat kind of breakthroughyou’re hoping to achieve. If

youwanttochangeyourlifeyou have to change yourstrategy,youhavetochangeyourstory,andyouhave tochange your state. Let’sbegin with strategy, becausethat’s where most peoplestart.

THERIGHTSTRATEGY

If you’re with me here now,reading this book, you’re insearch of answers, ofstrategies, to take control ofyour money and secure yourfinancial future. I live forfinding strategies to improveevery area of our lives. I’vespent the past 38 yearsrelentlessly focusing onfindingstrategiesandtoolstoimmediately change thequalityofpeople’slives.I’vebeensuccessfulandimpacted

over50millionpeoplein100countries because I’mobsessedwith finding simplestrategiesthatquicklyleadtobreakthroughs—breakthroughs inrelationships, in finances, incareers, in growingbusinesses, in mind, body,andsoul.I’ve always believed the

best way to get a result, thefastest way, is to findsomeone who has already

accomplished what you’reafter, and model his or herbehavior. If you knowsomeone who used to beoverweight but has kepthimself fit and healthy for adecade, model that person!You have a friend who usedto be miserable in herrelationship and now ispassionateandinlovefortenyearsgoing?Modelher.Youmeet someone who startedwith nothing and has

developed wealth andsustained it through time?Learn from those strategies!These people aren’t lucky.They’re simply doingsomething different than youareinthisareaoflife.I’vespentmyentirelifeas

ahunterofhumanexcellence.So to find a strategy thatworks, you go to the best;those who have provenresults for the long term.And if you follow their

strategies—if you sow thesame seeds, then you’ll reapthesamerewards.This is theessenceofwhatImeanwhenIsay,“Success leavesclues.”And this book is filled withstrategies modeled from theverybest.The other thing the right

strategy can do is save youthemostvaluableresourceofall: time. If you start with aproven plan, the rightstrategy, you can literally

convert decades of struggleinto days of achievement.You can avoid the inevitablefrustration that comes withlearning something for thefirst time by trial and error.Instead,youcangetresultsindays, instead of years, bylearning from people whohave achieved successalready. Why reinvent thewheel?So now there’s the

question about the power of

strategy.Andifyoureadthisbook, you’ll have the bestfinancial strategies that existintheworldtoday. Ipromiseyou that: because they’re notmy strategies, they’re thestrategies of the mostsuccessful investors inhistory. But as obsessed as Iamwithstrategy,Iknowthatstrategyaloneisn’tenough.Why not? There are two

key challenges to thinkingthatstrategyalonecanchange

your life. First, too oftenpeople have the wrongstrategy, which inevitablyends in disappointment.You’re trying to lose weightby eating 500 calories a day—which, of course, isn’tsustainable. Or you’re sureyou’re going to get rich offone hot stock—highlyunlikely.Where do most people go

to learn strategy? Where dowe look for advice and

guidance? Too often fromsomeonewhoisn’tsuccessfulin the very area we want toimprove! How often dopeoplegetrelationshipadvicefromfriendswhoareinlousyrelationships themselves? Orfitness advice from a friendwho struggles with hisweight, too? How manypeople hear the messagereinforced that they can’tchange their body?Why thatmessage? Because they’re

surrounded by friends orfamily who aren’t fit. Thesame is true for financialadvice. Looking to someonewho has not developed realwealthisarecipefordisaster.Itsimplyreinforcesthebeliefthat nothing will work. It’snot that nothing will work—it’sthatthesestrategieswon’twork.

Howeverbeautifulthestrategy,youshould

occasionallylookattheresults.—WINSTON

CHURCHILL

THEPOWEROFSTORY

Let’s go back to our biggestchallenges: our relationships,our bodies, and our finances.Ineachoftheseareas,weget

stuckforoneofthreereasons.First, as we showed above,welacktherightstrategy.Weall know a couple where theguy doesn’t communicate orthe woman never stopstalking. Neither of themunderstands the needs of hisor her partner, much lessmeets thoseneeds.Andwhatabout thefriendwhogoesonfad diets constantly or isalways looking out for amagical way to make a

million bucks—tellinghimself that without it he’llnever be financially free.Without the right strategy,youwill fail. Andwhen youfail, you develop a lousystory:“Mywifewillneverbesatisfied.”“I’llneverlosetheweight.” “The only peoplewhomakemoneyaretheoneswho already have money.”Thoselimitingstorieskeepusfrom finding the rightstrategies,or,evenifwehave

the right strategies, fromexecutingthem.Do you know anyone like

that? You put the answerright in front of their veryeyes, and they still say, “No,that will never workbecause. . .”They’lltellyoua million reasons why itwon’t work—they’ve gotevery excuse in thebook.Soiftherightstrategiesaretherein front of us, why aren’tpeople using them?Why are

they still not achieving theirgoals? Why is it so hard tomaintain a passionaterelationship or lose theweight once and for all?Are70% of Americansoverweight because thestrategy for becoming thin,fit, and healthy is really socomplex? Is the informationhidden and only available tothe 1%, or incrediblyexpensive? Hell, no. Theanswers are available

everywhere: There’s a gymwith someone who caninstruct you within a shortdrive.(Godforbidweweretowalkthere.)Therearetrainersall over the world, some ofwhichwill coachyouonline,whereveryouare!Thewebisfilledwithfreeadvice,and,ofcourse,therearethousandsofbooks on fitness and weightloss available for you todownload right now to youriPad or smartphone. You

havetoworktoavoidfindingthe strategies for becomingfit,strong,andhealthy.So what’s the real

problem? The answer is: wehave to bring in the humanfactor. I always say that80% of success in life ispsychology and 20% ismechanics.Howelsedoyouexplain how someone canknow what he needs to do,wants to do it, has the rightstrategy to get it done, and

stillnottakeaction?Tosolvethis riddle we have to delveinto the psychology ofindividuals: the values,beliefs, and emotions thatdriveus.When someone has the

right strategy in front ofher, and she still doesn’tsucceed, it’s because she’smissing thesecondkey toabreakthrough:thepowerofstory. If you’re not takingaction and the answer is

sitting there in front of you,there’s only one reason:you’vecreatedasetofbeliefsthatyou’vetiedintoastory—a story about why it won’twork,whyitcan’twork,whyit only works for otherpeople. It’s only for the rich,the thin, the lucky, thehappyin relationships. It’s easy tocomeupwithalimitingstory.So why bother to take

action on a strategy that you“know” will fail? Well,

strategy here isn’t theproblem. Your story is. Ahalf-hearted approach thatsays, “It might work, or itmight not . . .”—of course itwon’t!Thatbeliefbecomesaself-fulfillingprophecy.Witha disempowering story,failure is nothing less thanguaranteed. Which, ofcourse, only reinforces yourbelief thatnothingwillwork.Andsothecyclecontinues.But the people who make

changehappen,whogetstuffdone, who accomplish, whoshift, who grow, who learn,they take their strategy andattach a new story to it: astory of empowerment, astory of “I can and I will”instead of “I can’t and Iwon’t.”Itgoesfrombeingastoryoflimitationtoastoryof empowerment: “I willnotbeoneofthemanywhocan’t, I will be one of thefewwhodo.”

There was a time when Iwas 38 pounds overweight,andmy story was, “I’m big-boned.” Which I am. But Iwas also fat. Stories can betrue,butiftheydon’thelpus,if they’re stopping us fromhaving the lifewedesireanddeserve, we have to changethem. We’ve all had lousystoriesinourlives.Idon’tmakeenough.Ican’tsavemore.I’ll never read. I’ve got

dyslexia.My friend Sir Richard

Branson, chairman of theVirgin empire, has dyslexia,but it certainlyhasn’t limitedhis life in any way. Why?Because his belief or storyabout dyslexia wasempowering,notlimiting.Hisstorywasn’t“I’llneverread,”it was “I have dyslexia, so Ihave toworkharder tomakeeverything happen—and Iwill.” You can use your

story,oryourstorycanuseyou. Everybody has got anempoweringstoryifheorshewants to find it. What’swrongwithyourlifeisjustaseasy to find as what’s rightwith your life, when yourstory changes. If yourrelationship isn’t workingout, all the good guys aregone, or they’re gay andyou’renot.Oryou’regayandthey’renot.There’salwaysastory, right? Stories control

our emotions, and emotionsdrive all of our behavior andactions.Letmeaskyouaquestion:

Do youworry aboutmoney?Doesitkeepyouupatnight,stress youout thinking aboutyournextpaycheck,yourcarpayment, your kids’ collegetuition, or whether or notyou’ll ever have enoughmoney to be able to retire?What’s your financial stressreally like? According to the

American Institute ofCertified Public Accountants(AICPA),44%ofAmericans,nearlyhalfofus,report“highlevels” of financial stress.Have you ever thought toyourself, “All this stress justmightkillme?”KellyMcGonigal, a health

psychologist at StanfordUniversity,warned about thedangers of stress for a fulldecade before she realizedthatmaybeitwasheradvice,

rather than stress itself, thatwas sending people to theirgravesfaster.“I’mconvertinga stimulus [stress] that couldbestrengtheningpeopleintoasource of disease.” With abreakthrough inher thinking,and some powerful newresearch, McGonigal made acompleteturnaround.Turnsout,stressmightjust

beourfriend.Justasyouputstressonamuscle tomake itstronger(byliftingweightsor

running),emotionalstresscanmake us physically andpsychologically stronger too.McGonigal now highlightsnew research showing thatwhen you change your mindaboutstress,youcan literallychange your body’s physicalreactiontoit.Inaneight-yearstudy, adults whoexperienced a “lot of stress”and who believed stress washarmful to their health had a43% increase in their risk of

dying. (Thatsurestressedmeout.) However, people whoexperienced an equalamountofstressbutdidnotviewstressasharmfulwereno more likely to die!McGonigalsaysthatphysicalsigns of stress (a poundingheart, faster breathing,breaking out in a sweat)aren’t necessarily physicalevidence of anxiety or signsthat we aren’t coping wellwithpressure.Instead,wecan

interpret them as indicationsthatourbodyisenergizedandpreparingustomeet thenextchallenge. The bottom lineis, science has now proventhat how you think aboutstress matters—the storyyouattachtostress.Tellingyourself it’s good for youinstead of harmful couldmean the differencebetween a stress-inducedheart attack at 50 or livingwellintoyour90s.

Successismyonly

mofooption,failure’snot.

—“LOSEYOURSELF,”Eminem

Sowhat storyhaveyoubeentellingyourselfaboutmoney?What’s stopping you fromachieving your financialdreams? Are you tellingyourself that it’s too early tostart saving? Or too late to

start rebuilding yourinvestments? You’re notmaking enough salary to putanythingaside?Orthesystemisriggedagainstyou,sowhybother trying? Maybe yourstoryis,“Thegovernmenthassaddled us with debt, thefinancial system is inshambles,” or “I’m just notgood with numbers.” Greatnews:youdon’thavetobe!Ifyou’ve got a phone and acalculator or can download

our app on your phone, toanswer six simple questionsabout where you are today,where you want to go, andwhat you’re willing to do togetafinancialplanthatyou’llclearlyunderstandabouthowtobefinanciallyfree.Maybe your story is “It

takes money to makemoney.” One of the firstpeople I shared an earlyversionofthisbookwithhada corebelief of “Iwill never

be financially free unless Ihave away tomake a lot ofmoney.Peoplewhostartwitha lot of money can makemillions, but not me.” Aftershe read the chapter onbuilding your own moneymachine with TheodoreJohnson—who never mademorethan$14,000ayearyetturneditinto$70millionoverhis lifetime—her story wentout the window. Theodorewasn’t lucky. He used a

simple system, the same oneyou’reabouttolearn.Here’s her new story, and

it could be yours: “If I justhappen to use this simplesystemofcompounding,Icanmakealotofmoney,Icangowherever I want, I can livehoweverItrulywant,Icanbefinancially free.Therearenolimits except the ones Iimposeonmyself.”One of my own financial

breakthroughshappenedwith

an importantchange instory.Growing up poor, I alwaysassociated a lack of moneywithpainforeveryone in thefamily. I swore to myselfearlyonIwouldneverhaveachild until I was trulyfinancially successful. Iswore that someday I wouldbe so successful financiallythat my family would neverever experience thehumiliation, frustration, andpainofmychildhoodyearsof

notbeingabletopaythebillsorputfoodonthetable.And I made good on my

promise.BythetimeIwas18years old, I was earning asmuch as $10,000 a month,whichatthetimeseemedlikea huge amount of money. Itstillis.Iwassoexcited,Iranback to my friends from mycommunity, the guys I hadgrownuppoorwith,andsaid,“Let’s go have a blast: let’sfly toEgypt and race camels

betweenthepyramids!”Ihadhadthisdreamasalittleboy.And I could now share thisdream with my friends. ButtheresponsewashardlywhatI was expecting: “Easy foryou, Mr. Rich Man.” Thelevel of disdain I got fromguys I considered to befriendsshookmetomycore.Iwasn’tflauntingmymoney.I simplywanted to sharemyabundance with my friendsand create an experience of

real adventure. But I had toreevaluate. I created a newstory: a belief that said youcandowellbutonlysowell,orelsepeoplewilljudgeyou.If you stand out and do toowellfinancially,peoplewon’tlikeyou.So for years, I didwell in

my life and businesses, butmy income didn’t growsignificantly. Until I finallyhita tippingpoint,a stage inmy life where I thought,

“Thisisridiculous.IfIcouldexpand my intelligence,should I?” My answer was,“Of course!” If I couldexperience and give morelove,shouldI?Ofcourse!IfIcould expand my ability togive,shouldI?Ofcourse.IfIcould earn more and expandmy financial wealth, shouldI? And the answer was, “Ofcourse!” For the first time, Ifelt hesitancy. Why was itthatineveryotherareaofmy

life it seemed natural toexpandandbecomemore,butwhen the issue came tomoney, suddenly it wasdifferent? Why? It made nosense.ButIknewthetruth.Ihad

adeep, unconscious fear thatpeople would judge mebecause I had expanded inthisareaaswell. Iwanted toplease everyone, I wanted tobe loved so badly thatsubconsciously I not only

made doing well financiallysomething wrong but alsosubconsciouslysabotagedmyown success. Like so manypeople, I told myself thatmoneywasnotspiritual.Howcrazy is that? Anyone who’sbecome truly wealthy knowsthe truth—the only way tobecome wealthy, and staywealthy, is to find a way todo more for others thananyone else is doing in anarea that people really value.

If you become a blessing inother people’s lives, you toowill be blessed. Money isonly one of those blessings,butitisablessing.It’ssimplyanother form of freedom andabundance.Money is nothing more

than a reflection of yourcreativity, your capacity tofocus, and your ability toaddvalueandreceiveback.If you can find a way tocreate value—that is, add

value for a massive numberof people—you will have anopportunitytohaveamassiveamount of economicabundanceinyourlife.I had to hit that threshold

where I was tired of livingthatwayandwhereIsawtheabsurdity of trying to fit in.It’s true: if you do wellfinancially, you may belookedatas“the1%.”Inmylife, as a kid, being a part ofthe 1% was something that

wasaspirational.Icamefromthe99%,Ijustwasn’twillingto settle for that, for myfamily or for my life. Butstaying there just to fit in—well, that didn’t make anysense.IdecidedIwastiredofblamingothersformylackoffinancialprogress.ThestoryIhad of my financiallimitationshadtogo.Iwouldlove others, but I would notspendmylifetryingtopleasethem—especially knowing

that to please them I wouldhave to play small. I don’tbelieve in my heart that ourcreator made us for that. ItwastimeformetofindawaytoearnmoreinthesamewayI strove to give more,contribute more, love more,and expand my intellectual,emotional, and spiritualcapacity.With that shift in belief,

suddenly—when it was clearthat thiswas not a should to

conquer this area, but amust—along with the relationalareasoflife,strategiesstartedshowing up in front of me;they’dprobablybeenthereallalong, but because of mymind-set,Iwasblindtothem.Your whole world changeswhenyouchangeyourstory.Change your story,

change your life. Divorcethe story of limitation andmarry the story of thetruth, and everything

changes.Icantellyou:whenyou get rid of the limitingstories, take massive action,and find the strategies thatwork, the results you cancreatearetrulymiraculous.Letme give you one final

example. A dear friend ofmine, Julie, a successfulscreenwriter who gets paidtopdollarforherwork,couldnever seem to make anyfinancial headway. By thetime she and her husband

were in their 50s, they had amodest mortgage on a nicehome, but only about$100,000 in an IRA—way,way short of what they’dneed to retire. And theirmoney was invested in a“socially responsible”mutualfund that charged high feesand ate up most of theirreturns.Julie’s husband, Colin,

wanted to invest moreaggressively, but Julie

wouldn’t even talk aboutfinances with him. She toldhimshehatedWallStreetandeverything it stood for. Infact,thewholeideaofmoneymade her uncomfortable. Toher,moneywasevil.But then a breakthrough

happened. Julie attended myseminar Unleash the PowerWithin(UPW),whereweusethe power of Strategy, Story,and changing the State ofyour mind, body, and

emotions to createbreakthroughs in every areaof people’s lives. UPW isintense:Iusemusic,dynamicmovement,humor,andahostof other tools to put theaudienceinapeakstate—andthat’s when breakthroughshappen.Julie’s goal that weekend

was to turn her financial lifearound. How did she do it?First, she recognized thatsomething had to change, or

she and Colin were lookingforward tosomeverypainful“golden years.” It finally hither that her negative beliefsabout money were creatingconstantpain inhermarriageand in her future, and sheaskedherself,“Wheredidthisstory come from?” And thenJulie did something reallyimportant: she dug downdeep and asked herself, “IsthiswhatIreallybelieve?Wearenotbornbelievingmoney

isgoodorevil.Sowheredidthisbeliefcomefrom?”Shedidn’thave togovery

fartofindtheanswer.BothofJulie’s parents grew upduring the Great Depression.Her mother never got thechance to go to college eventhough her academic scoreswere off the charts. Instead,she worked as a departmentstoreclerkfor$9aweek,anddidn’t dare complain aboutthe lowwages or long hours

on her feet. Julie grew uphearing the stories over andover:howtherichexploitthepoor, how banks and WallStreet stockbrokers destroyedthe economy, how you can’ttrust the stock market. SoJuliemade the association inher brain: “If I become awealthyinvestor,I’llbeabadperson,andmymotherwon’tloveme.”Julierealizedthatthestory

she’d been telling herself

about the evils of wealthwasn’t her story after all; itwas her mother’s story.“Money is the root of allevil,” was her mother’smantra, not hers. Thisrealization jolted her. Thetruth set her free, and thosewords lost all of their powerover her. (In fact, when shedid her homework on thebiblicalphrase,shefoundthatit’snot“Moneyistherootofall evil,” but “the love of

money”aboveall else—love,relationships, contribution—that’s the recipe for surefiredisaster.)It was an amazing

transformation. Once Juliegot past her limiting story,she could sit down with herhusband for the first time totalk about their finances. Hewas thrilled they could bepartners in taking backcontrol of their financial life.Imagine how hard it is to

build wealth when your corebelief is that money is evil.They dumped their high-costmutual funds and transferredtheir IRA to a diverseportfolio of index fundswithVanguard. Then they put inplace a long-term financialplan, like the one you’ll bereading about in thesepages,to finally put them on theroadtofinancialfreedom.Julie and Colin shifted

their story. And what

happened?They learnedhowto play the game and win,theylearnedhowtocreateanincome for life—just likeyou’regoingtodoinchapter5.2. Julie and Colin learnedhowtoputanextra$150,000to$250,000intotheirpocketsovertheirinvestmentlifetimejust by getting out of thoseexpensivemutualfunds.Howgreat do those golden yearslooknow!Remember,youknowthe

answer, and the secret issimple: change your story,change your life. Divorceyourstoryoflimitationandmarry the truth. You canmakeanythinghappen.

YOURSTATE

It’shardtochangeyourstorywhenyou’re in a lousy state.Ifyoufeellikehell,youdon’t

think to yourself, “Life isbeautiful!” Have you everbeen really angry withsomebody, and suddenly youremembered every freakingthing that person ever did toirritate or annoy you? Whenyougo intoanangrystate, itswitches on the part of yourbrain that supports that state,and the story that keeps youtherequicklyappears.Bycontrast, ifyou’veever

fallenheadoverheelsinlove,

can you remember how theworld looked? It was likelooking through rose-coloredlenses: everything waswonderful,right?Rudeclerksdidn’t bother you; cryingbabies seemed cute. That’show a positive state canchange your outlook—yourstory.Yourmentalandemotional

state colors your perceptionand experience of everythingin life. When I work with

anyone—from world-classathletes to high-poweredexecutives—we change hisor her state first. There’s apart of you that, when it’sturnedon,canmakeanythinghappen; but when it’s turnedoff, the world is dead. YouknowwhatI’mtalkingabout,don’t you? You know whenyou get on a roll, andeverything flows justperfectly without your evenhavingtothinkaboutit?You

ace the tennis shot. You sayexactly the right thing in themeeting or walk out of thenegotiationwithexactlywhatyou wanted. On the otherhand, we’ve also allexperienced the opposite:wecouldn’t remember our homeaddress, the name of ourdinnerhost,orspellthewordthe.Icallthatthestupidstate.But a few minutes later, itcomes back to you: youremembertheanswerbecause

yougetinadifferentstate.Thepurposeofthisbookis

nottotryteachingyouhowtochange your state—that’s thebasis of many of my otherbooks and audios, programs,and live events. But in anutshell,youcanimmediatelyandradicallychangehowyoufeel (and not just hope youfeelgood)bylearningthatbychanging your body first,youcanchangeyourmind.I teach many ways to

create immediate change inyour state, but one of thesimplest ways is to changewhatIcallyourphysiology.Youcanchange thewayyouthink by changing the wayyou move and breathe.Emotioniscreatedbymotion.Massive action is the cure toallfear.Thinkaboutit,fearisphysical. You feel it in yourmouth, inyourbody, inyourstomach. So is courage, andyou can move from one to

another in a matter ofmilliseconds if you learn tomakeradicalshiftsinthewayyou move, breathe, speak,and use your physical body.I’ve used these insights foralmost four decades to turnaround some of the world’sgreatest peak-performanceathletes,financialtraders,andbusinessandpoliticalleaders.Lastyear,HarvardUniversitydid a scientific study thatproved the validity of this

approach.Social psychologist and

Harvard professor AmyCuddyoffereda“no-techlifehack” in her famous 2012TEDTalkwhensheaskedtheaudience to change theirposture for two minutes.Cuddy’sresearchshowedthatjust assuming “power poses”or postures of high power(think Wonder Woman withher hands on her hips andlegs firmly planted on the

ground; or the guy in youroffice leaning back in hischair, hands clasped behindhis head, elbows out wide—you know the one) increasedtestosterone (the dominancehormone) by 20%, whilesimultaneously reducingcortisol (the major stresshormone) by 25%. Theimpact of this biochemicalchange immediatelytransforms your willingnessto face fears and take risks.

Allwithinjusttwominutesofchanging your body. InCuddy’s study, 86percent ofthe power posers reportedfeeling more likely to takechances.Butwhenthesecondset of volunteers were askedtostandorsitfortwominutesin more passive poses, withtheir legs and arms crossedtightly, their testosteronelevelsdroppedby10percent,and the stress hormone roseby 15 percent. Far fewer of

these men and women, only60 percent, behavedassertively. Remember, theseweren’t just psychologicalchanges but actualbiochemical changes,hormonal changes. What Ihave taught for 38 years andwhatallofmystudentsknewwas true through experiencewas now validated byscience. What does thismean? It means, basically,you rock. You’ve got some

swagger in your step, you’reready to put yourself on theline, to take the necessaryrisks and shape your world.Two minutes of posing canleadtothechangesthateitherconfigure your brain to beassertive, confident, andcomfortable, or really stressreactive.Our bodies are abletochangeourminds!Therewasatimeinmylife

when I was overweight anddepressed, living in a studio

apartment in Venice,California, staring at theempty furniture and listeningto Neil Diamond records.Pretty scary, huh?Onedayafriendwhohadn’tseenmeina long time stopped by. Hetookonelookatmeandsaid,“Man, what happened toyou?” It snapped me out ofmytrance.Idecidedthenandtheretobreakthepattern.So I put on my running

shoes and grabbed my Sony

Walkman. (Yes, I’m ancientenoughtohaveownedoneofthose.) And in those days,you had to be committed toyour music: you had onealbumtolistento,not10,000songs to choose from. Iturned to the legendary rockband Heart, put on the song“Barracuda,” and let thebeatigniteme. I took off runningwith the determination that Iwasgoing to runashardandasfastasIhadeverruninmy

life, and I wasn’t going tostopuntil I spitupblood.TosayIwasdeterminedtopushmyself beyond my limitswould be a seriousunderstatement.I’msureitmusthavebeen

a hilarious sight, given myexcess 38 pounds and mybeer belly flopping back andforthinthewindasIranlikea banshee. When I literallycouldn’t breathe an ouncemoreofair,Icollapsedonthe

beachandgrabbedajournalIhadbroughtwithme.And inthat state of absoluteconviction, determination,exhilaration, and exhaustion,I sat and wrote downeverythinginmylifeIwouldno longer tolerate. The waymy body was, my laziness,my shallow intimaterelationship, and mydisastrous finances. Rightacrossfromit,IwrotewhatIwas now committed to

creating in my life—and inthat pumped-up, invigoratedstate, I felt certain I couldfindtheway.Withastrongenoughstate,

you will develop a strongstory. My story was: “Thisends here and now; my newlife begins today.” And Imeant itwith everyounceofmy being. I discovered thatwhen you change your stateand your story, you find orcreatetherightstrategytoget

what you’re absolutelycommitted to. That’s howyou create a realbreakthrough—a new statewith a new story and aprovenstrategy.Iwentontolose30pounds

in the next 30 days, and 38pounds total in a little morethan six weeks. I wasmaniacal inmycommitment.I set anewstandard thatdayabout who I was and what Istoodfor.Ithasnotwanedin

the 30-plus years since thatday(andmyweighthasneverreturnedtothatleveleither).I went from earning less

than $38,000 a year to morethan $1million a year just alittlemorethanayearlater.Itwas a level of change Icouldn’t even imaginecreating at the time. Moreimportantly, I regained myemotional and psychologicalfitness—the two forces thattruly change how someone’s

life turns out.Determination,faith,andcouragebegantobethe forces that guided myeveryactiongoingforward.Great strategies can

surround you but they willbe invisible to you unlessyouputyourselfinastrong,determined, andempowered state. A statethat will automatically breedthe beliefs and stories thatyou can, must, and willachieve—and that you are

committed to.With state andstory combined, you’ll notonly find the strategies thatwork, youwill execute themand experience the rewardsyoudesire and deserve.Do Ihave your full attention? Ifthere’s any area of your lifethat you’re living that is farless than the life you desire,it’s time to change one ormoreoftheseelements.Remember:weallgetwhat

wetolerate.Sostoptolerating

excuses within yourself,limitingbeliefsofthepast,orhalf-assed or fearful states.Use your body as a tool tosnap yourself into a place ofsheerwill,determination,andcommitment. Face yourchallenges head on with thecore belief that problems arejustspeedbumpsontheroadto your dreams. And fromthat place, when you takemassive action—with aneffective and proven strategy

—you will rewrite yourhistory.It’s time to no longer be

one of the many but tobecome one of the few. Oneof the fewwho stepup,ownyour true capabilityfinancially and in every areaofyourlife.Mostpeoplestartout with high aspirations butsettle for a life and lifestylefar beneath their truecapabilities. They letdisappointments destroy

them. Disappointment isinevitable when you areattempting to do anything ofgreatscale.Instead, letyourdisappointments drive youto find new answers;discipline yourdisappointments.Learnfromevery failure, act on thoselearnings, and successbecomesinevitable.Sonext timeyoucomeup

with a reasonwhy you can’tdo something, when you

know in your heart that yourspirit is unlimited, callbullshit on yourself. Changeyour state. Change yourfocus.Comebacktothetruth.Adjustyourapproachandgoafterwhatyoureallywant.Okay,deepbreath.Orloud

scream.Getupandshakeandmove.With these9Myths—these past limitations—nowout of our way, it’s time tomoveon toStep 3 on our 7-Step path to Financial

Freedom. We’re going tomake the game winnable bycoming up with a specificnumber—a number thatreflects your exact financialdreams realized. Then we’llcreate a plan, improve thatplan, and findways to speeditupsoyoucanachieveyourfinancial dreams sooner thanyoumayhaveeverimagined.

SECTION3

WHAT’STHEPRICEOFYOURDREAMS?MAKE

THEGAMEWINNABLE

CHAPTER3.1

WHAT’STHEPRICEOFYOURDREAMS?MAKE

THEGAMEWINNABLE

Allmendream,but

notequally.—T.E.LAWRENCE

I usually kick off myfinancial seminars with aquestion:“What’sthepriceofyour dreams?” Then I invitepeopletostandupandtellmewhat it’s going to take forthemtobefinanciallysecure,independent,or free.Mostofthem don’t have a clue.

There’salotofshufflingandsquirming in the room, andthenmaybeafewhandsshootup. In hundreds of seminarswith hundreds of thousandsof people from all walks oflife, I’ve heard just abouteverynumberimaginable.So let me ask you

personally now: How muchmoney will you need to befinancially secure,independent, or free? Justtakeaguess.Youdon’thave

to be right—or even logical.Is it $1 million? $5 million?$500million?Take a secondright now, go with your gut,and write down the number,either in the margin of thisbook, in a notebook app, orjust on a scrap of paper. It’simportant to write it down,because writing it anchors itandmakesitreal.Didyouget it done?Soon

you’llseewhythisstepisanimportantfirstaction.

Now, my experience tellsme that if you’re like mostpeople, thatnumberprobablyfeels a bit large to you rightnow, doesn’t it? Well, keepreading,becausewe’regoingtodoa feweasyexercises tohelp you tame that number.And I’ll bet you’ll find outthat it can be made muchsmaller than you everimagined. In fact, you’regoing to learn there’s notjust one “magic number,”

because there are fivedifferent levels of financialdreams that will set youfree.Andnomatterifyou’rejust starting out or gettingreadytoretire,nomatterhowsolid or shaky your balancesheetisrightnow,Iguaranteeyouthatatleastoneortwoofthose dreams will be withinyour reach. How? It startswith understandingwhat youtrulyneed.Recently, at one of my

high-end programs, a youngman in the back of the roomstooduptonamethepriceofhisdreams.Hethrewbackhisshouldersandannounced,“Abilliondollars.”There were a lot of ooohs

and aaahs from the crowd.This person was in his 20s,one of the youngerparticipantsattheconference,and he probably hadn’tearned his first million yet.So I asked him to consider

what that number reallymeant.Remember in chapter 1.4,

“MoneyMastery:It’sTimetoBreak Through,” when wetalked about how everythingpeople do, they do for areason? Just as a reminder,there are 6 Basic HumanNeeds: Certainty,Uncertainty/Variety,Significance,Connection/Love, Growth,andContribution.Sowhydid

thisyoungmanwantabilliondollars?Whichoftheseneedswas he trying to meet?Certainty? You can getCertaintyinyourlifeforalotless than a billion dollars!HowaboutVariety?Youcanget plenty of Variety with amilliondollars,ormuch less,right? Connection and Love?Hardly. If he gets a billiondollars, therewill be a lot ofpeoplewhowant tobe inhislife, just like lottery winners

who suddenly discoverdozens of relatives and“friends” they never knewthey had. With that kind ofmoney, he’ll get connection,all right, but not theconnections he wants andneeds! Growth andContribution? By hisdemeanor,Idoubtthesewereatthetopofthisyoungman’slist when he named hisnumber.So when you look at the

human needs, which one doyou think drives him themost? Clearly, it’sSignificance.Ashesaid,witha billion dollars, peoplewould take him seriously; hewouldmatter. This might betrue.Buttheproblemiswhenhegetsabillion,itstillwon’tbe enough—because whenyou seek Significance,you’re always comparingyourself with someone else.And there’s always someone

bigger,taller,stronger,faster,richer,funnier,younger,morehandsome, more beautiful,with a bigger yacht, a nicercar, a nicer home. So whilethere’s nothing wrong withsignificance, if youmake ityour number one need,you’llneverbefulfilled.Butratherthanlecturehim,

I decided to show him hecould feel significantwith alot less money—whichwould make his life a lot

easier. After all, he was justpickinghisnumberoutofthesky. Saying he needed $1billionmadehim feel likehewas going after an importantgoal. But the problem is,whenyouhavethishugegoalin your head—if in your gutyoudon’tbelieveit’sgoingtohappen—yourbrainrejectsit.It’slikelivingalie.Haveyoueverdonethis?Comeupwithsome ginormous goal, andthen a voice in your head

popsuptosay,“Whoareyoukidding?”The truth is,you’llnevermake it happenuntil itsinks deep into yoursubconscious—the part ofyourmindsopowerfulthatitmakes your heart beat100,000 times a day withoutyour ever having to thinkaboutit.Have you ever been

driving your car and gottenlost in thought and thensuddenly looked up and

realized, “Holy sh*t, who’sbeen driving my car for thelast five minutes?!”Thankfully, it was theamazing protector of life,yoursubconsciousmind.Togetan ideaofhow this

processworks, takea lookatthe image below. Imagineyour brain divided into anupper half and a lower half;the upper half is theconscious mind, while thelower half is your

subconscious.

Ideas keep trying to lodge

in your head, such as “I’mgoing to make ten milliondollars!”or “I’mgoing tobefinancially free by the time

I’m forty!” But your upper,consciousbraingoes,“Screwyou! There’s no way in hellthat will happen!” It quicklyrejects the big idea andbouncesitbackoutintospacelike a tennis ball. But if youresolve within yourself thesense of absolute certaintythat “I’m going to do this!”andthenyoustarttobuildaplan—somethingextraordinary happens. Youbegintodevelopthecertainty

you can actually achieve it.And with newfoundconfidence,yousuddenlyseethere is away toget itdone.You’ll find a role modelwho’salreadyachievingwhatyou’re after, and you’ll takemassive action. The goalseeps down into yoursubconscious,and itgoestoworktomakeyourdreamareality. That’s when themagichappens!Now, I doubt that you

think you need $1 billion tofulfill your financial dreams.But I’dbewilling tobet thatthenumberyouchose to feelfinancially secure orindependent is prettyintimidating. Almosteverybodymakesthatnumberbigger than it needs to be,because he or she doesn’ttake the time to calculatewhat it really costs to live atdifferent lifestyle levels.Andthat’s why so many never

begintoworktowardit.Theytalkagoodgame,getexcitedaboutit,theytellpeopletheirbigdream,buttheyneveracton it. Why? Becausepsychologically they don’thaveCertainty that they cando it. And Certainty is thefirst human need thatinfluences our behavior oractions.Fact.Ifyou’vefailedtoactinyourfinancialworld,it’s partly because you’reuncertain,you’reunsureasto

what is right or wrong andwhich approach will succeedor fail. Or you’re feelingoverwhelmed by thecomplexityofthesystemthatno one has taken the time towalk you through withclarity. With uncertainty, wedefaulttodoingnothingoratleast procrastinating. We putoff until tomorrow what weneedtodotoday.To help my would-be

billionaire friend identify the

real price of his dreams, sothat they could lodge in hisunconsciousandbecomereal,I asked him some questions.They’re the same kinds ofquestionsI’llbeaskingyouina moment to guide you onyourpath.I started by asking my

young friend what hislifestyle would be like if hehad a billion dollars. Hethought for a moment andthen said, “I’d havemy own

Gulfstream!”“Your own jet!” I said.

“Wherewillyouflyto?”He said, “Well, I live in

New York. I’d probably flydown to the Bahamas. AndI’d probably fly to LA forsomemeetings.”Ihadhimwritedownhow

manytimeshe’dflyinayear,and he figured it wasprobably a maximum of 12flights.Andhowmuchwoulda jet cost him?We looked it

up, and a long-distanceGulfstreamG650 would costhim about $65 million; aslightly used Gulfstream IVwould only set him backabout $10 million. Notincluding fuel, maintenance,andcrew.Thenwelookedupthe cost of chartering aprivate jet instead of owningone: amidsize jetwas all hereallyneededforhimselfandthree familymembers to fly,and that’s around $2,500 an

hour.Hewouldbe flying formaybe100hoursayearforagrand total of $250,000 peryear, or around $5,000 perhour; or $500,000 if hewanted to fly by Gulfstreamon every flight—still far lessthan the annual price ofmaintenance on many jets,and at a cost that would beless than 1% of the cost ofbuyingthatGulfstream.Evenfromthestage,Icouldseehiseyeslightingupandhismind

working.“So what else would you

buy with your billiondollars?”Iasked.“Aprivateisland!”That was something I

couldrelateto.IownasmallislandparadiseinthecountryofFiji. ItwasawilddreamIhadearlyinmylifetofindanescape someday where Icould take my family andfriends and live. Inmy early20s, I traveled to islands all

over the world searching formy Shangri-La. When Iarrived in Fiji, I found it. Aplace with not onlymagnificent beauty butbeautiful souls as well. Icouldn’tafford it at the time,butIboughtapieceofalittlebackpacker resort with 125acres on the island. I reallydidn’thavethemoney,anditprobably wasn’t the bestinvestmentatfirst.ButitwaspartofwhatIcallmyDream

Bucket—something you’lllearnaboutlaterinthisbook.Still, I made it happen, andI’mproudtosaythatovertheyears, I’ve purchased andconverted it into a protectedecologicalpreservewithover500 acres of land and nearlythreemilesofoceanfrontage.I’ve turned Namale ResortandSpa into thenumberoneresort in Fiji for the lastdecade, and it’s consistentlyrated among the top ten

resorts in the South Pacific.But how often do I visit thisparadise? With my crazyschedule, maybe four to sixweeks a year. So my dreamhas come true: everybodyelsehasagreattimethere!Itoldmyyoungfriend,“If

you want to enjoy your ownisland,youmightnotwanttobe in thehotelbusiness.Andtrustme,you’reonlygoingtobethereafewweeksayearatthemost.”We lookedup the

costs and foundouthe couldbuyanislandintheBahamasfor $10 or so—and then hewould have to spend $30million to $40 million tobuild a small resort! Or hecould rentmy friendRichardBranson’s Necker Islandresortforaweekandbringallhisfriendsandfamilyforlessthan$350,000,withastaffof50 people to take care ofthemall. Ifhedid that everyyear for a decade, it would

only cost $3.5millionversus$30 million to $40 million,withnowork tomaintain theproperty.We worked through his

list, and guess how much itwould take to have thelifestylehewants for therestof his life? When we addedup the real cost of even hiswildest dreams, not just hisneeds,itcametoagrandtotalof not $1 billion, not $500million,not$100million,not

$50 million, but $10 millionto have everything hedreamed of having in hislifestyle and never have towork to pay for it—and hisdreams were gigantic! Thedifference between $10million and $1 billion isastronomical. These numbersexistindifferentuniverses.Thechallenge is,whenwe

get to really big numbers,people’s minds don’t fathomwhat they really mean.

There’s a radical differencebetween a million, a billion,anda trillion.EvenPresidentObama uses the termsmillionaires and billionairesin the same breath, as ifthey’re in any way related—they’renot.Letmeproveittoyou. I’mgoing togiveyoualittletest.Iwantyoutothinkand make a first guess as totheanswer.Thisexercisewillhelp you gain perspective ona million versus a billion

versus the figure thegovernment now uses sooften: a trillion. In fact, inWashington, a trillion is thenewbillion,astheysay.My first question is: How

long ago was one millionsecondsago?Takeamoment,even if you don’t know—whatdoyouguess?The answer is: 12 days

ago! How close were you?Don’t feel bad, most peoplehave no clue. If you got it,

congratulations. Now we’regoing to up the ante. Sinceyou now have a perspectiveofwhatamillionis(amillionseconds being 12 days ago),how long ago was a billionseconds ago? Stay with me,come on; make a guess,commit to a number. Theansweris:32yearsago!Howclose were you? For mostpeople, they’repretty faroff.That’s the differencebetweenamillionaireanda

billionaire: 12 days or 32years! Do you see what Imeanbysaying they live in“different universes”? Youcan never say “millionaires”and“billionaires”inthesamebreath and be talking aboutthesamething.Just to complete the

thought: When you hear theUS government has $17trillionindebt,howmuchisatrillion? Well, if a billionseconds was 32 years ago,

how long ago was a trillionseconds? The answer: nearly32,000 years ago (31,689, tobe exact)! When humanswerenotevencalledhumans!Thepointof thisexercise istogetyoutorealizethatweblur large numbers, and ifyou get down to the facts,an extraordinary lifestyleprobablycostslessthanyouthinkitdoes.

But back to our would-be

billionaire. Now, don’t getmewrong:$10millionisstilla hefty sum but probablywithin reach for this youngentrepreneur over the course

of his career. Who knows?He might actually end upwith a billion—if he inventsthenext Instagram.Butwhatif he doesn’t?He could stilllive the extraordinary lifehewasdreamingoffor99%lessmoney thanhe thoughtheneeded.Hewouldn’tneedtobeabillionaire to livelikeone.I’ll be willing to bet that

once you find out the realprice of your dreams, the

numberitwouldtakeforyouto really getwhere youwantto be is a lot less than youthink! And alwaysremember the ultimatetruth: life is not aboutmoney, it’s about emotion.The real goal is to have thelifestyle you want, not thethings. When you die,someone else gets thosethings anyway. They’re notyours. I have no illusions: asmuch as I cherish and enjoy

“my” resort in Fiji, I knowI’m just the caretaker.Someday someone else willown thisproperty.But I lovethat I have nurtured it into adestination where peoplefromallovertheworldcometo experience joy, romance,andadventure.It’spartofmylegacy—andthat’swhatgivesmejoy.Attainingpossessionsis not the goal.Money itselfisnot thegoal.Ourworth isnot measured by the weight

of our bank accounts but,rather, by the weight of oursouls.Thepathtomoney,theplacesmoneycantakeus,thetime and freedom andopportunitymoney can bring—thesearewhatwe’rereallyafter.

Youcanhaveitall.Justnotallatonce.

—OPRAHWINFREY

Take a moment now and

think about what you reallywantyourmoneytobuy.Noteverybody wants to live likeDonald Trump or Floyd“Money” Mayweather! Isyour dream to travel theglobe,exploringancientcitiesorphotographing lions in theSerengeti? Is it owning yourown beach house in theBahamas or a penthouse inNewYork?Isitstartingyourown business—the nextSnapchat, or creating an

extraordinary contribution tohumanity like the nextCharity Water? Is itsomething as simple assending your kids to collegeand having enough left overfor a house in the countrywith a big vegetable garden?Or is your dream just peaceof mind—knowing you canbefreeforeverfromdebtandworry? Wherever yourdreams may take you, I’mgoing to show you a path to

get there. Even if you don’tgetallthewaytothesummit,youcanreachthedreamsthatmatter most to you andcelebrateyourvictoriesalongtheway.Becausemoney isagameofemotions, andwe’regoing to come upwith somenumbers that will ring yourbellsandmakeyousay,“I’mcertain! I promise myself Icangetthere!”Like all journeys, before

yougetstarted,you’llneedto

take stock of where you are.We’llworktogetheronafewsimplecalculations.Ifyou’venevertakenthetimetofigureoutexactlywhatit’sgoingtotaketoachieveyourfinancialgoals, you’re not alone.Often, many of those whohave earned millions ofdollars haven’t developed aplan to sustain their lifestylewithout having to work atleastsomeofthetime.Andaswe’vealreadysaid,morethan

half of Americans haven’teven tried to calculate howmuch money they’ll need toretire, including 46% of allfinancialplanners!Whydon’twe know our basic financialpicture? The number onereason I’ve found, afterhearing from hundreds ofthousands of people from ahundreddifferentcountries,isthat people are afraid toknow.It’s like stepping on the

scale. You know you’vegainedweight, but you don’twanttoknowhowmuch.It’saformofdenial;awaytoputoff making a change. Highschool wrestlers andprofessional boxers step onthatthingeveryday,sothatifthey’re off target on theirweight, they’ll know rightaway and can do somethingabout it.You can’t manageyour health if you can’tmeasure it. And the same

goes foryour finances. Youcan’t reach your financialdreams unless you knowprecisely how much it willtake toget there. I’mhere tohelp you set yourself apartfrom the masses who hidetheir heads in the sandwhenitcomes to theirmoney. Inaminute,we’lldosomequick,easy number crunching tofind out where you are andwhere you need to be. (Ifadding a few figures is a

challenge for you, rememberthat there’s a calculator onyourphone!Andyoucanalsogotoourapp,whichwillaskyou the questions andcalculatethenumbersforyouautomatically. Seewww.tonyrobbins.com/masterthegameButfirst let’s lookat those

fivefinancialdreams.WhenIsay the words “financialsecurity,” “financial vitality,”“financial independence,”“financial freedom,” and

“absolute financial freedom,”do thosesound like theexactsame thing to you? Do theybring up emotions that feeldifferent in your body whenyousay themout loud?Giveit a try. Which one feelshigher: security or vitality?How about vitality orindependence? Independenceor freedom? What aboutabsolute freedom? Each ofthesefivefinancialdreams isincrementallybigger,isn’tit?

And the numbers needed toreach them would bedifferent.Of these five dreams, you

may discover that you arecommitted to only two orthree of them. For somepeople, financial securityalone is life changing andgives them enormousfreedom. And so, indesigning this exercise, I’veincluded these dreams assteps along the road to

absolute financial freedom.Or, if you remember thatmountainearlierinthisbook,as base camps along theclimb to the summit. Andremember, not all of us needorwant to go all theway tothepeakofEverest.Forsomeofus,financialvitalitywouldbe a blessing, andindependence would put usover the moon! Not all ofthese dreams are “musts” foreverybody.

I’m going to invite you toread the five and pick thethree thatmatter toyoumost—what I call the Three toThrive. You’ll have threetargets: short-,medium-, andlong-term goals. It’s set upthis way because we don’tbuild on failure; we buildonlyonsuccess.Ifyou’rejustshooting for the big numberin the distance, it might feeltoo far off, or evenoverwhelming, and as a

result, you may never trulybeginthejourney.Weneedatarget close enough that wecan feel certain it’sachievable, and in therelatively near future. That’swhat gets you to take actionand turn a short-term goalintoreality.Andremembertoclaimyourvictoriesalongtheway. Why wait until you’refinancially independent tocelebrate? Why not win atdifferent stages? That’s what

encourages you, excites you,andgivesyoumomentum.

Ittakesasmuchenergytowishasitdoes

toplan.—ELEANOR

ROOSEVELT

DREAM1:FINANCIAL

SECURITY

What does security mean?Insteadof tellingyouwhat itis, let me ask you: Howamazing would you feel ifthese five things were paidfor as long as you live,without ever having to worktopayforthemagain?1.Yourhomemortgage, foras long as you live—paid

forever.You never have toworkagaintopayforyourhouse!

2.Yourutilitiesforthehome—paid forever. You neverhave to work to pay yourphone bill or to keep thelightson.

3. All the food for yourfamily—paidforever.

4.Yourbasictransportationneeds,

5.Yourbasicinsurancecosts—all of them paid for

without your everworkinganotherdayinyourlife.

I’dbet thatyourqualityoflifewouldbeprettyfulfilling,wouldn’tit?You’dfeelprettysecure if you knew thesethingswerecovered.Now for somegoodnews:

Remember that number youwrote down earlier—theamountyou thought itwouldtake to be financially secureandfree?Itwasprobablynot

as extreme as my billion-dollar friend’s number butprobably felt pretty large,didn’t it?Well, I’ll betwhenyoufigurethesenumbersout,you’re going to be surprisedthat the dream of FinancialSecurity is probably a lotcloser than you think. Or ifyou’re one of the rare fewwho underestimate, you’llhave a reality check, andyou’ll know the precisenumber itwill take to realize

yourfinancialdreams.Ifyouhaven’tdownloaded

our free app already, do itnow. Or use the worksheetbelowandjotdownwhatyoupay for these five itemson amonthly basis. It’s reallysimple: What’s your currentmortgagepayment?(Ifyou’rein an early stage of your lifewhereyoudon’townahomeyet, put your monthly renthere.Or you can estimate orcheck online what your

mortgage payment would beonsomethingthatmaynotbeyour ideal home, but morelike a starter home.) If youhave your records, great.Next, what’s your utility billeach month? Third, what doyou spend on food? Keepgoing, and if you don’t havethe numbers, take a guess—you can always go back andchange them later, but youdon’t want to losemomentum.Let’sreallygeta

number down that’sreasonable. Or pick up yourbank book or go online andget your numbers. Just tokeep the momentum for yourightnowincasethosearen’teasily accessible, letmegiveyouanexample.

Do you remember myfriend Angela, who Iintroduced to you in the firstchapter? She’s 48 years oldand single. She’s trying tofigureoutwhat itwould taketo be financially secure. Herfirst guess was $3 million.Could that be right?Or evenin the ballpark? So I askedher to go through thisexercise, andwrite down herfive basic monthly expenses.Asitturnedout,hernumbers

were almost identical to thenational averages, whichyou’llseeinthelisthere.

1.Rentormortgagepayment:

2.Food,household:

3.Gas,electric,water,phone:

4.Transportation:

5.Insurancepayments:

          Total

Totalbasicmonthlyexpenses:_______×12=__________peryear

(USaveragebasicannualexpenses:$34,668)

Whenshewasdone,Ihadheradd it up and multiply themonthly total by 12. Thatshows the annual incomeshe’ll need to cover theseitems for life—withoutworking—to be financially

secure. As you can see, hernumber of $34,000 isvirtually identical to thenumber for the averageAmerican.Now, how would Angela

be able to have $34,000 ayear without working?Remember, she’s going tobuildamoneymachine.She’sautomated her savings of10% of her income. She’sputting it in a Roth 401(k),where it’s being invested in

low-fee index funds with anestimatedgrowth rate of 6%.(This is thepercent that JackBogle estimates the marketswill return over the nextdecade.However,theaveragestockmarket return has been9.2%over the last 20 years.)We ran it through thewealthcalculator,whichyou’lldointhe next chapter, and shefound out that instead of the$3 million she thought itwould take to achieve

financial security, she wouldneed to accumulate only$640,000 in her FreedomFund to have that $34,000 ayear for therestofher life—less than a quarter of theamount she thought sheneeded!At first she was shocked.

She asked me in disbelief,“That’s all it would take formetohavethis?I’dstillhavetowork, right?” I toldherofcourse she would, but not to

pay for her home, food,utilities, transportation, orbasichealthcare!Bytheway,these five items, on average,represent 65% of mostpeople’sexpenses.SoAngelanow had a way to pay for65%ofheroverheadwithoutworking. And remember,most of us want to dosomething meaningful.Without work, we’re a littlecrazy.We just don’twant tohavetowork!Shecouldwork

part-timetopayfortherestofherexpensesor full-timeandhaveallthatincomeforotherthings. I asked her how thatwould make her feel ifeverything from her home totransportation was paid forwithout her working for therest of her life.“Extraordinary!” she said.“That’s an achievable goal.That’s something I couldfigure out how to makehappen.” I said, “Exactly!”

And what you could see inher eyes was a sense ofcertainty, and because shewascertain,shehadareasontoact.I reminded her, “By the

way, this doesn’t have to beyour ultimate goal. It mightbeyourshort-termgoal.”Forsomepeople,all theywant isfinancial security, likesomeone in a later stage oflifewhomayhavetakenahitin2008.Forsomeonewhois

middle-agedoryoung,you’llblow through this goal—aslong as you knowwhat yournumber is and you act uponthesevenstepsofthisbook.Ifyou’rewondering,bythe

way, how long itwould taketo accumulate whatever yoursecuritynumberis,takeheart.You don’t have to do thiscalculation.We’lldoitinthenext chapter, “What’s YourPlan?,” and if you want, theappwillcalculatethenumber

foryou.Togetherwe’llcreatethree plans: a conservativeplan,amoderateplan,andanaggressive plan. And you’lldecide which of these plansare most manageable andachievable.Remember the aspiring

billionaire? His annualincome for financial securitywas a mere $79,000. A farcry from the billionaireneighborhood. Your numbermightbehigherorlower.All

youneedtoknownowistheannual income you need toachievefinancialsecurity.Ifyou haven’t already done it,calculate the numbers on theappordoitrightherenow.1.Rentormortgagepayment:

$____

month

2.Food,household:

$____

month

3.Gas,electric,water,phone:

$____

month

4.Transportation:$____

month

5.Insurancepayments:

$____

month

6.Total$____

month7.Totalbasicmonthlyexpenses:

_______×12=__________peryear

Bytheway,wecan’tgoontothe next goalwithout talkingabout something that’s asimple requirement, not adream. And it’s somethingalmost everybody should beable to achieve relativelyquickly, though few peoplehave it in place: anemergency/protection fund.According to a Princeton

University–University ofChicagostudyin2014,40%of Americans say theycouldn’t come up with$2,000 if they needed it.Yikes!That’sterrifying!Whydo we need to have anemergencysupplyofcashonhand? What if there’s anunexpected interruption inyourincomeflow?Ithappensin almost everybody’s life atsome point. An interruptioncan be a health problem, it

can be a problem with yourbusiness, it can mean beingdisplaced froma job.Soyouneed some money to coveryourself for somewherebetween three to 12 months.But for most people, threemonths is too short a time,while 12 months may seemlike a lot. So perhaps youstart by putting aside a fewmonths’ overhead, andgraduallybuild toward sixor12 months’ worth. Wouldn’t

it bewonderful to know thatif something happened, youhad a year to be able to getyourself back on track?You’d still have a roofoverhead, food in thecupboard,andthebillswouldgetpaid.Again, this goal is not for

an annual income for life.Once you have that, you’reset. This goal is justemergency cash to protectyouuntilyoudevelopalarge

enough nest egg to take careofyourselfeveryyearfortherest of your life withoutworking, no matter whathappens.How much do you need?

Well, you know what yourmonthlyoverheadis.Sowritedown that number andmemorize it. Again, you cando this exercise on the app,andthenumberwillbesavedfor you and always availableat a glance in your pocket.

My friend Angela, who setaside 10% of her salary tobuild her money machine,started looking into herspending patterns to findmore savings. Rememberhow she realized it wascheaper to buy a brand-newcarthantokeepfixingheroldone? Well, she also found awaytosetasideanadditional8% to build her emergencyprotection fund. Shecompletedher goal, andnow

she sleeps much better atnight!Ifyouhaven’talready,it’s crucial you set up anemergency fund. (And Iguarantee you’ll have somegreatnewideasonhowtodothisafterreadingchapters3.3and3.4,“SpeedItUp.”)Keepthat amount in cash or in asafe place like an FDIC-insuredbankaccount.Now let’s move on to the

next level of dreams. Withsecurity achieved, let’s look

at:

DREAM2:FINANCIALVITALITY

What do I mean by vitality?Thisgoalisamilemarkeronyour path to FinancialIndependence and Freedom.You’re not all the way there

yet, but it’s the place whereyou can be secure and alsohave some extras thrown inthat you can enjoy withouthavingtowork.What do you pay for

clothing every month? Is it$100? $500? $1,000? Howaboutforentertainment(cableTV,movies,concert tickets)?How about going out fordinner? Is it Chili’s or Nobutonight? So for food andentertainment, are you

shellingout$200amonthor$2,000 plus? How aboutsmall indulgences or littleluxuries like a gymmembership, a manicure ormassage, or monthly golfdues? Is it $50, $500, or$1,000 plus? Whatever it isfor you, howwould it feel ifhalf of those costs werealready covered withouthaving towork, for the restof your life? That’s whathappens when you reach

Financial Vitality. Soundslike something worthcelebrating,doesn’tit?Here’s how to calculate

yourFinancialVitality:1.Halfofyourcurrentmonthlyclothingcosts

$____permonth

2.Halfofyourcurrent

monthlydiningandentertainmentcosts

$____permonth

3.Halfofyourcurrentsmallindulgenceorlittleluxurycosts

$____permonth

4.Totaladditionalmonthlyincomefor

$____permonth

vitality5.YoualreadyknowyourmonthlyFinancialSecuritynumber(line6frompage216),soaddthathere

$____permonth

6.Totalmonthlyincome $____

permonth

necessaryforVitality

7.Nowmultiplythatby12andyou’llhavetheannualamountyouneedforfinancialvitality:

$____×12=

__________peryear

Again, just type in these

figures, and all of this mathwill be done for you on theapp.

DREAM3:FINANCIAL

INDEPENDENCE

Pop the champagne, becausewhen you’ve reachedFinancial Independence, you

no longer have to work tohave the same lifestyle youhave today! The annualinterest earned on the returnfrom your savings andinvestments (your FreedomFund) will provide you withthe income that you need—whileyousleep.Youarenowtruly financially independent;that is, independent of work.How amazing would thatfeel? What kind of peace ofmind would that bring you

andyourfamily?Financial Independence

means that money is nowyour slave—you are not theslavetomoney.Moneyworksforyou;youdon’tworkforit.If you don’t like your job,you can tell your boss toshove it. Or you can keeprightonworkingwithasmileon your face and a song inyour heart, knowing thatyou’re working because youwantto,notbecauseyouhave

to.So let’s figure out how

muchmoneyitwouldtaketomaintain your currentlifestyle. This number mightbe really easy to calculatebecause, unfortunately, mostpeoplespendasmuchastheyearn! Or sometimes morethan they earn! If you made$100,000 and you spent$100,000thatyear(includingpaying your taxes) just tomaintain your lifestyle, your

financial independence is$100,000. If you spend lessthan you earn,congratulations!Unfortunately, you are theexception, not the rule. So ifit costs you only $80,000 tolive, on a $100,000 salary,then $80,000 a year is whatyouneedtobeindependent.

Sowhat’syourFinancialIndependencenumber?Gototheapporwriteit

herenow:$_______.Remember, clarity is

power. When your brainknows a real number, yourconscious mind will figureout a way to get there. Younow know the income youneed tobefinanciallysecure,vital, and independent. Solet’s see what happens whenyourdreamsgetbigger.

Daretolivethe

dreamsyouhavedreamedforyourself.

—RALPHWALDOEMERSON

Let me tell you the story ofRonandMichelle,acoupleImet at one of the seminars Ihold every year at my resortin Fiji. They were in theirmid-30s, with two smallchildren. Successful people,they owned a small businessinColorado.Ronwasgreatat

running their business, butneitherofthempaidattentionto their household finances.(That’s why he was in Fijiattending my BusinessMastery event, to grow hisbusiness30%to130%.)Theiraccountant drew up personalfinancial statements for themevery month, but they neverbothered to lookat them!Nowonder they were havingtrouble envisioning the lifethat they wanted—which

turned out to be a life ofcontribution.WhenIaskedRonwhathe

needed to be financially set,as I asked the young would-bebillionaire,hisnumberwas$20 million. I wanted toprovetohimitcouldbealotlower than thatandstillhavean extraordinary quality oflifeforhimandhisfamily,soI walked the couple throughwhat they actually spentevery month. (Bear in mind

that,asbusinessowners,Ronand Michelle’s annualhousehold income is clearlyhigher than the averageAmerican’s.)First we started with

Financial Security, and hetoldmehisfivenumbers:

Mortgageontheirmainhome

$6,000permonth$1,500

Utilities permonth

Transportation$1,200permonth

Food$2,000permonth

Insurance$750permonth$11,450×12=

Total $137,400peryear

So for Financial Security, alltheyneededwas$137,400 inincomeperyear.Wellwithintheir reach! By the way, ifRon wanted to know howmuch he would need toaccumulateinhisnesteggorhis Freedom Fund, mostfinancial planners would tellhim to multiply his annual

income number by 10, oreven15.Buttoday,withsuchlow returns on safe, secureinvestments, that’s notrealistic. Remember, on theway up the mountain (theaccumulation phase), youmightputyourinvestmentsinan aggressive portfolio thatcould give you 7% to 10%.On the way back down themountain (the decumulationphase), you will want yourinvestments in a secure and

less volatile environment,where by nature you wouldlikely get smaller returns. Soitmightbesmartertouse5%as a more conservativeassumption. Ten times yourincome assumes a 10%return. Twenty times yourincomeassumesa5%return.Ron discovered that

financial security would bewithinreach—20×$137,400= $2,748,000—a number farlessthanthe$20millionhe’d

projected.For Financial

Independence, they figuredthey needed $350,000 a yearto maintain their lifestyle atthe current level, becausetheyhadasecondhomeandalotoftoys.Michellewasfondof things with Louis Vuittonlabels on them. So,conservatively, they needed$7million($350,000×20)intheircriticalmasstolivethatway without working. Ron

was amazed to realize thatthis numberwas almost two-thirds less than the $20million he thought it wouldtake! And he’s going to getthere a lot sooner than heimagined,havingtosave$13million less than he’dpreviouslyestimated!

DREAM4:FINANCIAL

FREEDOM

Once you’ve freed yourselffromtheneedtoworkfortherest of your life, how aboutfreeing up your lifestyle?Financial Freedom wouldmean you’re independent,you’ve got everything youhave today, plus two orthree significant luxuriesyouwantinthefuture,andyou don’t have to work to

pay for them either. To getthere you need to askyourself, “What annualincomewouldIneed tohavethe lifestyle I want anddeserve?”What do youwantthe money for? Is it for thefreedom to travel?To own abigger home or a secondvacation home? Maybeyou’vealwayswantedaboator a luxury car? Or do youwant to contribute more toyourcommunityorchurch?

Let’s go back to Ron andMichelle. They were alreadyliving the lifestyle theywanted for $350,000 a year.So,Iasked,whatwouldmakethem feel financially free?Would it be a bigger home?AcondoinAspen?Aboat?YouknowwhatRonsaid?

He’d feel financially free ifhe could donate $100,000 ayear to their church—andmaybe throw ina smallBassfishing boat and a ski

vacation condo in SteamboatSpringsforhisfamily.Itwasanawesomeanswer.

Iwassomovedbyhisgoaltocontribute, I couldn’twait tohelpthemfindawaytomakeit happen. I pointed out thatRon made about $500,000 ayear in income, and spentonly $350,000—he couldalready set aside that kindofmoney for the church if hereally wanted to. But howgreat would it feel if he and

Michelle could make thatkind of contribution withoutworking? Just frominvestmentincomealone?After adding the costs of

financingtheboatandcondo,along with his contribution,for Financial Freedom theywouldhavetoadd$165,000ayear to their number forFinancial Independence. Inotherwords,theywouldneed$515,000 a year (× 20), or$10.2million in theirmoney

machine. But remember, thisnumber represents an evenbetter lifestyle than he hastoday! It’s a lot, but stillroughlyhalfofwhatRonhadthoughttheyneededjusttobeindependent.The world that Ron and

Michellewantedwassoclose—they just didn’t know it.But once you figure out theprice of your dreams, thereare ways you can get therefasterandforlessmoneythan

youeverimagined.Whatwouldittakeforyou

tobefinanciallyfree?Whatitemswouldyouadd

toyourtotal:Asportscar?Asecond home? Or a bigdonation, like Ron andMichelle?Whatevertheyare,writethemdown,andaddthecost to your total forIndependence. That’s theprice of Financial Freedom.Andifitseemstoosteep,justwait. You’ll learn how to

tame that number in thecomingchapters.Here’showRoncalculated

his Financial Freedomnumbers:1.Monthlydonationtochurch

$8,333permonth

2.20'Bassfishingboatcosting$50,000 $530

financedat5%=monthlypaymentof

permonth

3.Familyskicondomortgagecosting$800,000at4.5%=monthlypaymentof

$4,880permonth

4.Monthly

incomeforFinancialIndependence

$29,167permonth

5.TotalmonthlyincomenumberforFreedom

$42,910permonth

6.Nowmultiplythatby12,andyou’llhavetheannual

$42,910×12=

$514,920

amountyouneedforFinancialFreedom

peryear

Whatareyournumbers?

1.Luxuryitem#1permonth

____$____

permonth

2.Luxuryitem#2permonth

____$____

per

month

3.Donationpermonth

____$____

permonth

4.MonthlyincomeforFinancialIndependence(Whatevernumberyoucalculatedannually

$____per

month

dividedby12)

5.TotalmonthlyincomenumberforFinancialFreedom

$____per

month

6.Nowmultiplythatby12,andyou’llhavetheannual $____

peryear

amountyouneedforFinancialFreedom

DREAM5:ABSOLUTEFINANCIAL

FREEDOM

How about AbsoluteFinancial Freedom? Whatwoulditbelikeifyoucoulddo anything you wanted,anytime you wanted? Howwoulditfeelifyouandyourfamily never had to wantfor anything again? If youwere able to give freely andlive completely on your ownterms—not anybody else’s—

andallwithouteverhavingtoworktopayforit.Themoneyyoumakewhile you sleep—your investment income—would provide for yourunlimited lifestyle. Maybeyou would buy your parentsthe home of their dreams, orset up a foundation to feedthe hungry or help clean upthe ocean. Just picture whatyoucoulddo.I asked Ron and Michelle

to tellme thebiggestdreams

they could dream. Whatwould Absolute FinancialFreedom look like for them?Once again, I was deeplymoved when Michelle toldmeherparamountdreamwastobuyaranchandturnitintoachurchcamp.Whatwoulditcost? Ron figured about $2million to buy it, and $1million more forimprovements.I could see the excitement

build in them when we ran

throughthenumbers.If they borrowed the

moneytobuytheranch,theywould need about $120,000($3 million at 4%) a year toservicethedebt.Andthatwasalreadywithinreach!So what else? Ron loved

adventure and travel, andowninghisownplanewasanultimate dream. So I walkedhim through the sameexerciseIdidwithmyyoungwould-be billionaire friend,

and convinced him thatrentingajetwouldgivehimalot of the same convenienceand satisfaction at a fractionof the cost of owning andmaintainingaGulfstreamoraCessna Citation. Do youfollowme?Youdon’thavetoown the jet to have thelifestyle. You don’t have toown the sports team to sit inthe sky box. And you don’thave to pay for the wholeteam to be an owner—you

canbeapartialownerandgetalltheprivileges.That’swhatmyfriendMagicJohnsondidwhen he was part of thegroup thatpurchased theLosAngelesDodgers, alongwithmy friend Peter Guber andseveral other partners inGuggenheim BaseballManagement, which spent$2.15 billion to get the teamand stadium. I can promiseyouMagicdidn’tputin$2.15billion—but he still gets all

the joy, the pride, theexcitement,theinfluence,andthefunofbeinganowner.This thinking can create

the quality of life you wantfor yourself and those youlove. What makes mostpeoplejustdreamersversusthosewho live thedreamisthat dreamers have neverfigured out the price oftheirdreams.Theymakethenumber so big they neverbeginthejourney.Thereisn’t

a dream you can’t realize ifyou’recommittedenoughandcreativeenough,andifyou’rewilling to find a way to addmore value to other people’slivesthananybodyelse.Now, as you can tell, for

most people, this category ismostly for fun. In myseminars, I do this exerciseonly with people who havereallybigdreamsandwanttoknow the price of them. Iunderstand that most people

will never achieve AbsoluteFinancial Freedom, butthere’s power in dreamingand unleashing your desires.Some of these high-octanedreamsmight excite you andmakeyouwanttoearnmore,andhelpyoureachyourgoalsfaster. But there’s anotherreason to do this exercise.You might achieve financialsecuritywithoutworking,andthen by working part-time atsomething you enjoy, you

could be financiallyindependent. Or it’s possibleyou could achieve FinancialIndependence through yourinvestment income and part-timework, allowing yourselfto experience the luxuries ofFinancial Freedom with thatincome.So go for it! Write down

what you would put on thislistorinyourapp.Youneverknow what you could createif your desires were truly

unleashed!Here’showRoncalculated

his Absolute FinancialFreedomnumbers:1. A ranch for church campthat costs $3 million,financed at 4% = monthlypayment of $10,000 permonth

2. A Beechcraft Bonanzaplane that costs $300,000financed at 5% = monthlypayment of $3,181 per

month3. Monthly income numberfor Financial Freedom:$42,910permonth

4. Total monthly income forAbsolute FinancialFreedom: $56,091 permonth

5. Now multiply that by 12,andyou’llhave theannualamount you need forAbsolute FinancialFreedom: $673,092 peryear.

Sofora20-footfishingboat,a$100,000yearlydonationtotheir church, a ski vacationcondo,aplane,and turningaranch into a church camp,plus the lifestyle they havetodaywithouthavingtowork,RonandMichellewouldneedan income of $673,092 peryear. Multiplied by 20, theywould need to achieve acriticalmassof$13.5million.Still a third less than thenumber they thought they

needed for mere security orindependence!Whatareyournumbers?

1.Luxuryitem#1permonth

____$____

permonth

2.Luxuryitem#2permonth

____$____

permonth

3.Luxuryitem#3permonth

____$____

permonth

4.MonthlyincomeforFinancialFreedom(page222)

$____per

month

5.Totalmonthlyincomenumberfor

$____per

AbsoluteFinancialFreedom

month

6.Nowmultiplythatby12,andyou’llhavetheannualamountyouneedforAbsolute

$____peryear

FinancialFreedom

Thereisonlyonethingthatmakesadreamimpossibletoachieve:thefearoffailure.

—PAULOCOELHO

How do all those numbersyou’ve written down look toyounow? Ihope that you’veseen how the price of yourfinancialdreamscanbemuch

smaller than you everthought, and that you’vepicked out three to aim for,including at least one short-term goal and one long-termgoal.Whichofthesedreamsare your Three to Thrive?Themost important formostpeople—the most common“musts”—are Security,Vitality, and Independence.Or for those who want toreach higher, it’s Security,Independence, and Freedom.

If you haven’t already doneit, pick three andwrite themdown. Make them real andput them in your app; keyreminder messages will besenttokeepyouontarget.If you’re a baby boomer

who’shadatoughtimesincethemeltdownof2008,whichone of these dreams is theabsolute must for you?Security, right? Here’s thegoodnews:youmaynothaveas many years to build your

savings and investments to acritical mass, but you canabsolutely have FinancialSecurity, and I’ll show youhow.Maybeyou’ll never getto Independence, but maybeyou will if you make it a“must.” If you’re startingyounger, you’re way ahead.Youmight be able to go forFreedom or even AbsoluteFreedom and not even bestressed about it. But it’simportant to decide what

mattersmosttoyouandknowyournumbers.Why?Becausein a few moments, we’removing on to the nextchapter,whereyou’llbeableto calculate howmany yearsitwilltakeforyoutoachievethese dreams based on howmuch you are saving at areasonable average annualrateofreturn.Andthenwe’llmakeaplantogetthere.Thisiswheretherubbermeetstheroad. I’m going to walk you

through each step, andeverythingwill be automatedfor you. It’s absolutelycritical thatyoukeepmovingforward.I want you to feel

empowered and excited bythejourneyyou’reon.I want you to know that

you’re the creator of yourlife, not just a manager.Sometimes we forget howmuchwe’ve reallycreated inour lives. I don’t care who

you are, I know there areaspectsofyourlifetodaythatonce were just a dream or agoal,orseemedimpossible.Itcould have been a job orhigher-level position youwanted that at the timeseemedbeyondyourreach,ora car that youwere obsessedwith, or a place that youalways wanted to visit.Maybe you even live therenow. Maybe there wassomebody in your life,

someone you never thoughtmight even go out with you,and now you’re married tothem. Instead of being backin those days of dreaming,wondering if this personwouldevermakelovetoyou,perhaps they are beside younow. If so, reach over andgive them a kiss right nowand remember thisrelationship once seemedimpossible, and you createdit.

What’s in your life todaythatwasonceadream?Whatwas a desire you had in thepast that at the time seemeddifficult or impossible toachieve—butnowit’sinyourlife today?Ifyou’regoing toremember that you’re thecreator of your life and notjustthemanagerofyourlife’scircumstances,first,youmustreconnect to the things youhave created consciously.Takeamomentandjotdown

three or four of those things.And takenote, your list doesnotneedtobemadeupofallgiant accomplishments.Sometimes the little thingsthat seem difficult orimpossible, when conqueredor realized, provide us withessential lessons on how toachieve the big things. Also,there may be some things inyour life today that onceseemed difficult orimpossible, and now you

havethem,butyoutakethemfor granted. The law offamiliaritysaysthatifwearearound anything (or anyone)longenough,we tend to takethings just a little bit forgranted. So awaken to yourappreciation, and jot downyourlistnow.Second,youhavetoreview

what steps you took to turnthat dream into your reality.Take a moment right now.Select one of the things you

have achieved. What weresome of the first actions youtook?Jotthemdownnow.I’ve interviewed literally

tens of thousands of peopleabout how they’ve takensomething that seemedimpossible andwoven it intotheirlife.Howdidtheycreateit? How did you? There’s aprocess we all go through.It’samatterofthreesteps.

Step 1: Unleash Your

Hunger and Desire, andAwaken Laser-like Focus.Something happens withinyou: either you becomeinspired by something thatexcitesyousomuchthatyourdesire is completelyunleashed—you becomecompletelyobsessedwithit—and you focus on the objectof your desirewith laser-likeintensity!Yourimaginationisignited. Or you hit a wall, athreshold, a place inside

yourself, and affirm that youwillnolongersettleforlifeasit has been. You make adecision never to go back,and you become ferociouslyfocused on the new life orobjectyoudesire.Itcouldbea job change, a relationshipchange, a lifestyle change.Youunleashyour hunger forit—andwherever focusgoes,energyflows.Haveyoueverexperienced

this?Youboughtanoutfit,or

you bought a car, andsuddenlyyou saw that caroroutfit everywhere? How didthat happen?Because part ofyour subconscious mind,called the reticular activatingsystem, knows this isimportant now, so it noticesanything that relates to it.Those cars and outfits werealways around you, but nowyou’renoticing thembecauseyoursubconsciousmakesyouaware of the very things you

werenotseeingbefore.That’s what’s going to

happenasyou’rereadingthisbook. You’re going to startnoticing the fees charged bymutual funds and hearingaboutassetallocation.You’regoing to start hearing thingsyou’ve never heard before—high-frequency trading!dollar-cost-averaging!—andtheyaregoingtocometolifefor you because now yourbrain knows they’re

important. Anything that’simportant, anything that’sfocusedon,energyflowsintoit. And when you have thatlevel of hunger, desire, andfocus,step2startstohappen.

Step 2: You Take MassiveandEffectiveAction.Ifyourdesire is truly unleashed andyou are obsessively focusedon what you want, you willbe called to do whatever ittakes to make your dream a

reality.Therearenolimitstothe energy and flexibilityyou’ll have in the pursuit ofwhatyouwant.Inyourheart,you know massive action isthecure-all. Ifyou’rewillingtoputintheeffort,you’llgetthere.You’ve done it before,right? Maybe there was atimewhenyoujusthadtoseethe girl you loved, so youborroweda car anddroveallnightthroughasnowstormtovisit her at college. Maybe

youmoved heaven and earthtogetyourchildintothebestschooltosuitherneeds.Ifit’sa “must” and not just a“should,”you’llfindaway.But there’s one caveat, of

course: you need to puteffectiveexecutionbehindallthateffort,right?Whatifyoudrovethroughthatsnowstormwithout amap and ended upin the wrong city? You canthrow all your effort intosaving for the future, but put

your money in a 401(k)loaded with high fees andpoorly performing mutualfunds, and you’ll getnowhere. Or you can investeverything in one companyandwatchthestockdrop40%inaday.Soifyou’rewillingto do whatever it takes, youstillhavetoexecuteyourplancarefully, and keep adaptingyourapproach.Becauseeffortwith effective executioncreates magic. This book is

your map, your blueprint totakeyou fromwhereyouaretoday to where you want tobe financially. Byconsistently taking massiveand effective action, andadapting your approachwheneveritdoesn’tworkandtrying something new, youwill move toward yourdream, but there’s one final,extraordinary element thatplays an important role inwhetheryourdreambecomes

arealityornot.

Step 3: Grace! Some call itluck, coincidence, fate, orGod’s hand. I call it grace:the acknowledgment thatthere’s more in this worldthan just ourselves, and thatperhapsahigherpowergivesus both the privilege of thislife as well as the gifts ofinsight and guidance whenwe’re open to them. It’samazinghow,whenyou take

care of the first two steps,Godor the universe or grace—whateveryouliketocallit—tendstostepinandsupportwhat you’re doing. Thingsflow to you when you doyour part first. We’ve allexperienced the phenomenonof serendipity. Somethinghappens that defiesexplanation, so we call it acoincidence.Wemiss a trainand meet the person we endupmarrying.We fill in for a

friend, and it leads us to thejobofourdreams.Wedidn’tfigure it out in advance,didn’t earn it—it justhappened. To me, that’sgrace. And the more youacknowledge and appreciatethe grace that’s already inyour life, the more youexperience the gifts that arebeyond what you’ve created.I’ve had it happen manytimes inmy life, and I knowit’s real. I also know that

gratitude connects you tograce, and when you’regrateful, there is no anger.When you are grateful, thereisnofear.

So, are you ready to becomethe creator of your life, notjust the manager of yourcircumstances?Doyouknowwhat you’re really investingfor?An income for life!Areyourdreamsbecomingapartof you, a “must” that your

unconsciousmind focusesonnight and day? Are youwilling todowhat it takes tomake them a reality? Thenit’s time to turn thepageanddo what so many others failtodo.It’s time to make a

plan....

CHAPTER3.2

WHAT’SYOURPLAN?

Ifyoudon’tknow

whereyouaregoing,everyroadwillgetyou

nowhere.—HENRYKISSINGER

Congratulations,you’vecomea long way! You’ve takenthree huge steps towardFinancial Freedom. You’vemade the most importantfinancialdecisionofyourlife.You’ve become an investorby committing or expandingthe percentage of yourincome that automaticallygoesintoyourFreedomFund,and you’ve begun to buildyourmoneymachinethatwillset you free. You’ve also

learned how to protectyourselffromthebiggest liesdesignedtoseparateyoufromyour money. Finally, youhave put a price on yourdreams:youknowhowmuchincome it will take to befinancially secure andindependent. Now we’regoing to take what you’velearned about the power ofcompounding and put thoseMoney Power Principles towork.We’re going towork

togethertocreateaplanforyouandyour family that isabsolutely attainable andwithin reach, no matterwhat level of financialdream you’re shooting for:security, vitality, orindependence.There’s one more thing

beforewestart.Ifyou’relikemostpeople,youhatetalkingabout money. But hey, it’sjust us, anyway.Noone elsewillseethesenumbersunless

you decide to share them.What’smostimportantisthatyou be honest with yourself.No rounding up here. Nobendingthetruth.Nolookingatyour“numbers”witharosylens and making yourfinances look a little betterthan they are. And by thesame token, don’t sandbagyourselfeitherbymakingtheplansoconservative thatyoufeel like it’s impossible toachieve. Just level with

yourselfandcommittotakingacandidpictureofwhereyouarenow.That’showtomakethisplanreallywork.

YOUCANPLAYONLYYOUROWN

HAND

A good friend of minerecentlyhadareunionwitha

group of his boyhood palsnearmyhomeinPalmBeach.Theyallgatheredtocelebratetheir50thbirthdays.Theyhadgone to nursery schooltogether and lived down thestreet from one anotherthroughout high school in aLevitt community of tracthomes on Long Island, NewYork. Their fathers were allprofessionals, or owned theirownbusinesses,theirmotherswere all housewives; and

theirhouseholdincomelevelstracked together closely.What struck me most aboutthese lifelong friendshipswere the demographics.During their formative years,thelivesofthesefriendswerein synch, but once theywentaway to college, the youngmen splintered in differentdirections:One went to work for a

leading financial institutiononWallStreet.

One became aphotographer, opening aframeshopinManhattan.Onebuilthomesacrossthe

mid-Atlanticstates.One started a business as

animporteroffinewinesandcraftbeers.One trainedasanengineer

and worked on a civilservant’s salary in SouthFlorida.When they got together,

these lifelong friends

compared notes. Despite thegap in income levels andbank accounts, they were allhappy—not happy inprecisely the same ways, ofcourse, but happy. Theirneeds were met. Many oftheir hopes and dreams aswell.My friend shared the

concepts from an earlymanuscript of this bookwithhis buddies. After a fewbeers,theconversationturned

tomoney,andtheyaskedoneanother the same questionyou answered in the lastchapter: How much moneywould it take to reachfinancial security or fundtheir retirements? The WallStreeter thought he had tosave at least $20 million tomaintain his present lifestylewithout having to work. TheManhattan photographerthought$10millionwoulddothe trick. The real estate

developer thought he couldmanage on $5 million,especially now that his kidswereoutofcollege.Thewinemerchant had recentlyremarried. In spite ofwelcoming a new baby, hewascountingonanesteggof$2 million. And the civilservant, the one who’d beenconditionedtolivewithinhismeansandtolookaheadtoasteadypensionfor therestofhislife,thoughthecouldlive

worry free once his pensionkicked in and he startedcollecting Social Securitybenefits.Whichoneofthesefriends

was closest to achieving hisgoal? Who had the rightnumber and the right plan inplace to help him get there?It’s a trick question, ofcourse. The answer isn’tdriven by money. You don’t“win” the race of life byamassing the biggest pile of

cash or accumulating themost things. And you don’twinbygrabbingaquickleadandcoastingtothefinishline.Howdoyouwin?Youwin

by living on your own terms—aswellandasfullyasyoucan,foraslongasyoucan.You create a plan that

meetsyourneeds, thatworksfor you, and you stick to it.That’s success, plain andsimple. If you’re scrambling,constantly competing with

others’ views of success orfinancial independence andtrying to achieve an elusivegoal, you’re going to fallbehind and becomefrustrated. If you’re chasingsomeoneelse’sgoal,youalsolose. It doesn’t matter howmuch your neighbor has,what kind of car he or shedrives, or the vacation he orshe takes. This plan is aboutyou, only you, and no oneelse.

Thedayyoustop

racingisthedayyouwintherace.—BOBMARLEY

THEILLUSIONOFADVANTAGE

Ever watch track-and-fieldevents in the Olympics? It’seasy to stare at the track just

before the starting gun firesand wonder how the runnerpositioned all theway out infront in the outer lane of thetrack doesn’t have a hugeadvantage. Intellectually, weknow that all the runnersmust run the same distance,butvisuallyoureyesseemtodeceive us. That so-calledlead is called a stagger, andit’s meant to even thedistanceonanovaltrack.Ina400-meter race, there’sagap

ofaboutsixmetersseparatingeachrunner.But, of course, everyone

knows that there’s noadvantage, physically, tobeing all the way out infront on the outside of thetrack, or all theway in thebackontheinside.Youhaveto run the same distanceeither way. Yet theappearance of advantagecanbe a powerful psychologicaledge. Does the guy out in

front thinkhe’sgot the lead?Doesthatgivehimaboostofconfidence, or perhaps takeaway the tiniest fraction ofhis drive? Does the guy allthe way “in back” feel likethe underdog—and then runjust a little bit faster tocompensate?Let’s go back to our five

friends, from the outside-looking-in perspective. Itmight feel like the civilservant is all the way in the

back, lagging behind thefield, and it might seem liketheWallStreetexecutivehasset himself up for a strongfinish, but that’s the illusion,not the reality. No one isahead.There’s no first place or

last place here. Life is not acompetition.Oftenpeopleusemoneyand theacquisitionofthings tomeasurewheretheystand: who’s got the nicerhouse, the fancier car, the

summer home in theHamptons. But the truth is,we can’t predict how longwe’ll live or the state of ourhealth aswe age.The realityis, it doesn’t matter wherewe start. It’s howwe finishthat counts. Here it seemedthat all of these lifelongfriends were headed in theright direction—each on hisown terms, in his own time.That’soneofthereasonstheyfelt sohappywith their lives.

With a little discipline andforesight, they all had a shotat winning the race they’dstarted together, all the waybackinnurseryschool.The same can happen for

you. It doesn’t matter whereyou stand in relation to yourfriends, your family, yourcolleagues,orclients.Allthatmatters is your personaljourney.It’s temptingtolookat others as a yardstick andconvinceyourself thatyou’re

all thewayout in front,withthe appearance of a lead, orresignyourselftothebackofthe pack. But that’s not thepoint. The race of life is amarathon,notasprint.Theonly thing to do is focus onthepathinfrontofyou.Lookahead. Establish your ownpace. Keep moving forward.Andthencreatethatplan.

Theonlypersonyoushouldtrytobebetter

thanisthepersonyouwereyesterday.

—ANONYMOUS

YOURPLAN

Nowthatyouknowthatyouronly competition is yourself,it’s time to come up with aplan and create a financialblueprint. The good news is,all you have to do is answer

sixquestions in theIt’sYourMoneyapp.Usingthiswealthcalculator, you’ll have a firstversion of your plan withinseconds. If you haven’talready downloaded the app,here’s the link:www.tonyrobbins.com/masterthegameThe six questions are

related to two areas: whereyouarenowandwhatyouarecommitted to creating goingforward. The few numbersyou need to answer you can

pull from your records, orperhaps off the top of yourhead.Youmay have to do alittle bit of homework, butmostofthesenumbersshouldbecloseathand—and,ifyoucan’tcomeupwiththemrightnow,it’sokaytousearound-number estimate just to getyou started to keep themomentumgoing.Using these numbers, the

appwillbuildaplan tailoredjust for you, based on

variables you get todetermine: like how muchyou expect your income togrow, how much you’redetermined tosave,andwhatrate of return you expect togetonyourinvestments.Youcan be conservative oraggressive with yourestimates—oryoucanrunthenumbers both ways anddecide on some middleground. And the beauty hereis, once you capture these

numbers, the app will do alltheworkforyou.You’llhavea true blueprint for yourfinancial future, a clear plantofollow.

CHOOSEYOUROWNADVENTURE

The wealth calculator in theapp you’ve just downloaded

isadeviceI’veusedformorethan three decades in myworkshops and seminars. It’ssimple and flexible, and it’shelped millions of peoplecreate financial plans thatworkforthem.It’sbuiltonaseries of conservativeassumptions, but you’re freeto go in and change thoseassumptions if you’d like.You can make them moreconservative or moreaggressive. You’re in

control, so put in numbersthat fit with your lifestyle,your current reality, andyour future dreams. If youdon’t like the picture thatcomes back to you, you canplay with your numbers andchoose a different path tofinancial freedom. In the restof this section, we’ll worktogether to get you specificsteps to speed up your planand insure its success. Thefirstplanyoucomeupwithis

justthat:yourfirstbiteoftheapple. Then we’re going totake it and improve upon itsignificantly in the pagesahead...A few things to keep in

mindbeforewestart:One of the biggest factors

willbeour tax rate,which isradically different for eachone of us. This book is readbypeople all over theworld,so rather than make itcomplex,we’vemade itvery

simple.Whereveryoulive,inthe pages ahead you’ll learnto utilize the tools in yourcountry that give you thegreatest tax efficiency.Wherever possible, youwantto use tax-advantagedaccounts to accumulate yourwealth to generate a greaternetrateofreturn.This calculator will then

show you three potentialscenarios, with differentannualratesofreturnforeach

plan: 4%, 5.5%, and 7%. Aconservativeplan,amoderateplan, and an aggressive plan.Theseratesareafter-taxratesof return. Some might findthese numbers tooconservative, or tooaggressive; again, you canadjust them to any numbersyoulike.How did we get to those

numbers?Onthehighend,ifyou look at the standard setby the Charles Schwab

organization, it will tell youan aggressive return is 10%.Ourapp’saggressivereturnis7%. Why the three-pointdifference? Schwab hasshown that over the past 40years,from1972to2012,themarket has averaged 10%.But our calculator isassumingapproximately30%in taxes, which brings thenumber to just under 7%. Inthe United States, long-terminvestment tax rates are only

20%,not30%—soourappisbeing aggressive on the taxside. Also, remember that ifyou are investing through atax-deferred vehicle like a401(k), IRA, or annuity, youaredeferringtaxes.Soifyouhad a 10% return (as in theSchwabexample),youwouldcontinuetocompoundat10%—with no tax deducted untilwithdrawal.Weareusingourlower returns of 4%, 5.5%,and 7% to provide a buffer

formistakesor future returnsfailing to hit the aggressivemarkyouhadhopedfor.8On the low end, or

conservativeside,ifyoulookat Vanguard, it uses a 4%return after taxes. But we’relooking at things a littledifferently. Most Americanswhohavemoneytoinvestdoit through their 401(k), IRA,or 401(k) Roth. What’s thebest option? We recommendthat you go with a Roth (or

your country’s equivalent),unless you truly are certainyour taxes are going to belower in the future. (Luckyyou!)Governmentsallaroundtheworld, and especially theUnited States, have spentmoneytheydonothave.Howaretheygoingtopayitback?Byraisingtaxes.Sowhilenoone knows for certainwhether taxes will go up ordown,mybet here is they’regoing up. In a Roth, your

returns are 100% yours,meaning that if you’ve got a7%return,youkeepall7%—nocuttothetaxmaneveronthe growth of yourinvestments.Ifyougeta10%return,youkeepall10%.This is why we built the

wealth calculator thisway. Itgives the flexibility to thinkabout returns in a net (after-tax)approach.Youdesigntheplanwithwhatyoubelieveismost appropriate for your

planningpurposes.This wealth calculator is

designed to quicklygiveyoua sense of how differentchoiceswillimpacthowlongit will take you to achieveFinancial Security, Vitality,or Independence. After youcome up with a basic planyou like, you can also getprecisiontoo.AsImentionedearlier, Stronghold(www.StrongholdFinancial.comhas a technology platform to

link all of your investmentaccounts. It will give youimmediate feedback on whatyouractual rateof returnhasbeen on your investments inthe past. (Most people haveno clue!) It will show yourbest performing years, yourworst performing years, andinhowmanyyearsyouhavetakenaloss.Itwillalsoshowyouhowmuchyouarereallypaying in fees, so you’llknowthetrueimpactonyour

future savings. Go there, ifyou like,afteryouhaveyourbasic plan completed on theapp.Ofcourse,withtheapp,the

numbers and your plans arecompletelysecureandremainaccessible to you whereveryou go, on any device. Youcan change your returns atany time, change how muchyou’re willing to save, andseetheimpactinmoments.Oneofthemostpowerful

ways to accelerate the paceat which you achieve yourfinancial goals—and themostpainlesswayIknow—is to implement the SaveMore Tomorrow plan,which has helped over10 million Americans growtheir savings in ways theynever thought possible. Doyou remember how it worksfrom chapter 7.4, “YourMoney Machine”? Youcommit to automatically

taking a percentage of anyraiseyoureceiveinthefutureand adding that to yourFreedomFund.So, for example, let’s say

you’re saving 10% of yourcurrent income toward yourFreedom Fund: you’reinvesting, but you want tofind a way to speed up yourplan. By committing to theSave More Tomorrow plan,the next time you get a 10%raise, 3% would go toward

your Freedom Fund and theotheradditional7%wouldbeavailable for your improvedlifestyle today. Do this threetimesinthenextdecade,andyou could be saving up to19%—almost double whatyouareputtingawaytoday—andatnolosstoyou,becauseit’s all based on additionalfutureincome.Thiswillmakeahugedifferenceinthespeedwith which you can achieveyourfinancialdreams.

To take advantage, justclick on the Save MoreTomorrowoption in the app.One final note: I’ve alsotaken out the value of yourhome from the equation.Now, hold on, before youscreamandyell.Yes,Iknow,for many of you, it’s thelargest investment you have.Ifyouwanttoadditbackin,youcan,butI’vetakenitoutso you have yet anotherconservative cushion. Why?

Becauseyou’llalwaysneedahome to live in. Idon’twantyoutorunthesenumbersandgenerateaplan thatreliesonthe value of your home togenerate income. You maysell your home in ten yearsandrealizeasignificantgain.Or you may stay in yourhomefortherestofyourlife,or you might need todownsize and take somemoney off the table to helppay off an unanticipated

expense. No matter whathappens, your plan isdesigned to keep you afloatno matter what your livingsituationholds.Why all these buffers built

into the system? Because Iwantthesenumberstoberealfor you—not just real in thismoment, but real over time,against any number of real-world events that could setyouback.Iwanttosoftentheblow in case you veer off

course.ButIalsowantyoutoexceed your ownexpectations. Most of all, Iwant you to know withabsolute clarity and certaintythat the projections wegenerate together are trulywithinreach.Ready to dive in? Open

yourapp!

WhenIlookintothefuture,it’ssobrightit

burnsmyeyes.

—OPRAHWINFREY

DRUMROLL,PLEASE...

Now,Iknowyouaregoingtowant to dive right in, hitEnter, and sit backwhile theapp tells youhow the rest ofyour life will play out. Butthat’s actually not the point.The true value of this next

step is to show you what’sout there: what’s realistic,what’spossible,what’sworthdreaming and fighting for. Itlets you try on differentoutcomes, and play withsome of the variables if youwant to create a differentpictureorproduceadifferentresult. In the near term, itgivesyouatrueplanyoucanfollow—a blueprint for yourfinancialfuture.Thinkofitasyourpersonal

financialtrainer.Ittakesyour“real” numbers—yoursavings, your income—andcalculates what they’ll beworth based on a series ofanticipated outcomes. Don’tworry about specificinvestmentstrategiesjustyet.We’ll cover these in section4, but it’s important to getsome idea of how yourmoneycangrowonceitstartstoworkforyou.Remember, the focus is

not onwhereorhowyou’llinvest your money. Thisexerciseisanopportunitytoforecast—to look into thecrystal ball of what’spossible. What would yourfuture look like if you couldrealize a 6% return on yourinvestments? How about 7%or more? How much moneywould you have after 10years?After20?Whatifyousomehowmanaged to hit thejackpot and found a way to

generategainsof9%or10%?Remember, just one of theassetallocationportfoliosyouwill learn in chapter 5.1,“Invincible, Unsinkable,Unconquerable: The AllSeasons Strategy,” hasproduced an average rate ofjust under 10% over the last33years,andlostmoneyonlyfour times (and one of thelosses was only 0.03%)! Sothere are many possibilitiesonce you educate yourself as

to how the top investors onearthconductthemselves.So play around until you

findanumberthatfeelsrightto you—one that you have ahealthydoseofconfidencein.Just a fewminutes of yourtime,andyou’llknowwhatyour savings, with thepower of compounding, atdifferent rates of return,willbringyou.

Itisonlythefirst

stepthatisdifficult.—MARIEDEVICHY-CHAMROND

Congratulations on runningyour first plan. Are youexcited about the results?Concerned? Frustrated? Orencouraged? Over the years,working with countlesspeople from all over theworld, I’ve noticed theirresults tend to place them inroughly one of three

categories:1. Thosewho are young andin debt, wondering howthey’reevergoingtogettofinancial security. What’sbeautiful is that they findouttheycan!

2. Those who think they aredecades away fromfinancial security, and aresurprised—or, frankly,shocked—to learn theyareonlyastone’sthrowaway:

five, seven, tenyearsmax.In fact, some are alreadytherebuthadnoidea.

3.Thosewhostartedlateandare fearful of never beingable to make up for lostground.

Let me share with yousome examples of otherpeople I’ve worked with insimilar situations and showyou how their plans playedout—how they achieved

Financial Security, Vitality;even Independence andFreedom.

ALLGROWNUPBUTSTILL

PAYINGOFFSTUDENTLOANS...

Let’s start with someoneyoungandindebt.Likea lotof millennials today, Marcograduatedwithabigchunkofdebt. As a 33-year-oldengineer earning arespectable $75,000 a year,he was still paying off

$20,000 in student loans.Like so many Americans,Marco felt like his debt wasconsuming his life—hethoughthe’dbepaying it offforever (and probably wouldbe, had he paid only theminimum payments). Marcodid, however, expect hissalary to grow, slowly butsteadily with expected raisesof about 3% to 5% per year.After working together on anew plan for Marco, we

allocated5%ofhisincometopaying off his student loans.AndMarcocommitted3%ofanyandallfutureraisestohisFreedomFund.What did this new plan

give him? How about adebt-freelifeinsevenyears!On top of that, Marco wasgoing to be able to take that5%, once he was debt free,and redirect it toward hissavings to grow andcompoundhisFreedomFund.

With this savings andinvestingplan,Marcocouldreach Financial Security in20 years. That may soundlike a long time, but he’llstill be only 53 years old.And just seven years later,at 60, Marco could reachFinancial Independence—afull five years before he’dever dreamed of retiring,with more annual incomethanheeverimagined!Marcowent from worrying about

never paying off his studentloanstolookingatafutureofreal financial independence.Evenbetter,withinfiveyears,by age 65, with all of hisgrowth and the boost ofSocialSecurityadded,Marcowouldactuallyexperiencehisdefinition of FinancialFreedom—aprospectentirelyunfathomable to him beforerunning his new plan.Remember, he began thisjourney with no assets and

nothingbutdebt!

IFITLOOKSTOOGOODTOBETRUE...ITMIGHT

ACTUALLYBETRUE

Then there’s our second

category of people: thosewho take a look at theirplan and think somethingmust be wrong. Theircalculator is not working!They see that FinancialVitality or Independence ispoppingup far tooquickly.“There’s no way I can gettherethatfast,”theythink.“Ican’t achieve FinancialIndependence in five, seven,oreightyears.That’scrazy!”In theirminds, they’ve got a

good 20 or 30 years of hardwork and nose-to-the-grindstone days ahead ofthem.Where’s the disconnect?

Howisthatpossible?It’s possible because the

numbertheyhadintheirhead—that $10 million or $20million or $30 million pricetag—was totally off base. Ithad nothing to do withreality. Itwas simply a pie-in-the-sky number

representing what theythought they needed to befinancially independent, notwhattheyactuallyneeded.Katherine, a woman who

attended one of my WealthMastery seminars, is a greatexample. She was a savvybusinesswoman who needed$100,000 a year to befinancially secure—a largenumber by many people’sstandards,butnotbyherown.To achieve Financial

Independence, she’d need$175,000 to maintain hercurrent lifestyle withoutworking.Katherineassumedit was going to take morethan20yearstogetthere.Want to know what

happened when she ran hernumbers withmy team? Thefirst thing they uncoveredwas that her current businesswas earning more than$300,000ayearinnetprofitsand growing at nearly 20%

per year. With my team’shelp and a little bit ofresearch, she found that shecould sell her business todayfor six times her currentprofits, or a total of $1.8million. What does thismean?Well, if she sold her

business for$1.8millionandthenreceiveda5%return,herannual investment incomewould be $90,000 per year.She had other investments

already that were providingmore than $10,000 per year,so with a $100,000 annualincome, guess what:Katherine is financiallysecurerightnow!Katherinewasblownaway

—but also confused. Shesaid,“ButTony,Idon’twantto sell my business rightnow!”ItoldherthatIwasn’tencouraging her to, nor didshe have to. But she shoulddeclare victory and realize

that she is financially securetoday.Why?Becauseshehasthe assets to produce theincome she needs right now.Even more exciting, at herbusiness’scurrentgrowthrateof 20% per year, she woulddouble her business in thenext three and a half years.And even if her currentgrowthratewascutinhalftoonly 10% per year, in sevenyears her business would beworth $3.6 million. If she

sells at that point ($3.6million×5%=$180,000peryear in income withoutworking), in three and a halftosevenyears,Katherinewillbe financially independent.Not 20 years! And this waswithout making any otherinvestmentswhatsoever!By the way, one of the

things I show businessowners in my BusinessMastery program is a little-known set of strategies that

allows you to sell a portion(or even a significantmajority) of your businessand yet still run, control,direct,andprofitfromit.Thisallows you to get a largecash-flow bump to secureyour Financial Freedomtoday, while still having theenjoyment and fulfillment ofgrowing the business youlove.

YOUCANBELATETOTHEPARTYANDSTILLWIN

Let’s go back to my friendAngela’s story. Angela isanything but average, butfrom a financial perspective,she represents the averageAmerican.Angelais48yearsold. Having lived a free-spirited life, traveling and

sailing around theworld, shehad never saved or investedin her entire life. Afterfinishingsection1,she’snowcommittedtosaving10%,butshe’s still got a majorchallenge: she’s beginninglateinthegame.(Asshesaid,“I’m almost fifty!”) She haslesstimetotapintothepowerofcompounding.When Angela first

calculated the amount ofincome she’d need for

Financial Security, hernumber came to $34,000 ayear. For FinancialIndependence, she’d need$50,000. At first glance, hernumbers excited her. Theydidn’t have seven zeros, andtheywerenumbersshecouldget her arms around.However, the timingof thosenumbers brought her backdown to earth. Starting latein lifeandsavingonly10%of her income was a plan

that would take Angela 24years to get to FinancialSecurity—if she was 41years old, that would be agreatwin.Shewouldachieveit by 65, but since she wasstarting later, Angela wouldbe 72 years old when sheachieved Financial Security.It was certainly a morecompelling future than if shehadn’t run the plan, and shewas glad to know she couldget there. But she wasn’t

terribly excited by the long,slowroadahead.So what could we do to

speed up that goal? Howcould Angela get toFinancial Security faster?Onewaywouldbetoincreasehersavingsandinvestit.Shewas saving 10% already.Never having saved before,10% seemed like a hugenumber,butbycommittingtothe Save More Tomorrowplan, she could painlessly

savemorewhenshereceivedraisesandaccelerateherplan.Another way to speed thingsup was to take a little morerisk and increase her rate ofreturn to 7% or more. Ofcourse, that heightened riskcouldbringaboutmorelossestoo. But it turned out therewas an even simpler insightwehadoverlooked.LuckyforAngela,shestill

had one more round in herarsenal. She had left out a

huge piece of futureearnings, one that manypeople neglect to include intheir financial planning:SocialSecurity.Angela, already 48, was

only 14 years away fromtaking Social Security at areduced rate and 17 yearsaway from capturing her fullbenefit. She stood to takehome$1,250permonthonceshe turned 62, or about$15,000 a year. So that

$34,000ayearinincomesheneededforFinancialSecuritysuddenly dropped down to$19,000. Now when wereviewed the numbers in theapp,sheshavedafulldecadeoff her timeline. Instead ofgettingtoFinancialSecurityat 72, she was going to getthere at 62! Angela wasgoingtobefinanciallysecurein 14 years, and she wasthrilled.Shenowwouldhaveenoughincomenevertohave

towork again to pay for hermortgage, her utilities, herfood, her transportation, andherbasichealth insurance—areal sense of freedom forAngela.The impossible became

possible.Andguesswhatelsehappened? Once Angelarealized financial securitywas in view, she took thatemotion,thatexcitement,thatmomentum, and she said,“Hey,let’skickitupanotch.

If I can get to FinancialSecurity by sixty-two, let’stake a look at FinancialIndependence. I’m going tofigure out a way to becomefinancially independent, notin my seventies or eightiesbut in my sixties!” And hernumber to reach FinancialIndependence? It was$50,000—only$16,000morea year in income than she’dneedforFinancialSecurity.Angelatookonemorestep.

After reading chapter 3.6,“Get Better Returns andSpeedYourWaytoVictory,”shefoundyetanotherway toaccelerate her plan. Angelawas always extremelyinterested in owning income-producingrealestate,andshelearned some simpleways toinvest in senior housing (orassisted living facilities) thatare available through publicand private real estateinvestment trusts. (These are

coveredinsection4.)Wewillhighlightmoredetailslaterinthebook,but in short, seniorhousingfacilitiesareawaytoown income-producing realestatethatisalsotiedtowhatI call a “demographicinevitability”: a wave of 76million baby boomers whoareagingandwillrequiretheuse of these facilities. Byinvesting$438permonth(or$5,265per year) for the next20 years, and assuming that

she reinvests the income forcompound growth, she willhave accumulated $228,572.(Note: this assumes a 7%income/dividend payment,which is the current rate onmultiple senior housing realestateinvestmenttrusts.)The amount she

accumulates will generate$16,000ofincome(assuminga 7% income payment), andshewon’thavetotapintoherprincipalunlessshewantsto!

One last huge benefit?Angela doesn’t have to payincome tax on the entireincome payment due to thetax deductions fordepreciation.Marco, Katherine, and

Angela are real people justlikeyouandme.Yourplaniswithinreachtoo,andjustlikethem, you might be able toget there sooner than youthink.Don’t let the first planyou’ve runon theappbe the

end-all. Think of it as yourstarting point to make yourdreams happen. In the nextchapters,we’regoingtoshowyou fiveways to speed it upandgetthereevenfaster.

Kitesrisehighestagainstthewind,not

withit.—WINSTON

CHURCHILL

Whetheryou’reexcitedabout

the numbers your plan threwback at you or you’redisappointed about the longhaul ahead, take heart—disappointment isn’t alwaysbad.Itoftenservesasagreatkick in the pants that pushesyoutocreatemassivechange.Remember, it’s notconditionsbutdecisions thatdetermine our lives.Disappointment candriveus,oritcandefeatus.Ichoosetobe driven by it—and I’m

hoping you take the sameview.Mostpeopledon’tevenget to this point in theirplanning, because they don’twant the letdown they’reafraidthey’llexperienceoncethey run their numbers. Butyou’vetakenonthechallengeandthepromiseof thisbook,so you’re not like mostpeople. You’ve chosen to beoneofthefew,notthemany.I vividly remember a

Fourth of July trip I took

more than 20 years agowithmy dear friend Peter Guberand a group of top movieexecutivesthroughNantucketand Martha’s Vineyard. WewereonPeter’sprivateyacht,andacoupleof thesemogulswere throwing around howthey had earned $20 millionand $25 million on a singlefilm that year. My jawdropped—thatnumbersimplyastonished me. Here at 30years old, I thought I was

doing pretty well—that is,untilIhungoutondeckwitha bunch of movie tycoons.These guys had an insanelifestyle, and it didn’t takelongformetogetseducedbytheideaofitall.This experience joltedme,

but it also made me ask adifferentquestion:WhatdidIreally want to create in mylife? And could I possiblyevergetthere?Atthattime,Ididn’t see any way I could

add enough value to otherhuman beings through mycoreskillofcoachingtoevercreate that level of FinancialFreedom.Of course, I was being

totally unfair, comparingmyself and my level ofaccomplishment to thesemen.Iwas30yearsold;Peterand his movie-producingfriendswereall in theirearlyto late 50s. Peter was in theprimeofhiscareer;Iwasjust

beginning mine. He had 52AcademyAwardnominationsandaslewofHollywoodhitsto his name. Sure, I wasmaking a name for myselfand running a successfulbusiness—andchanging lives—but financial success forPeter and his friends andfinancialsuccessformewerelight-yearsapart.Andso,asIcompared myself to thoseguys on the boat, I did whatsomanypeopledounfairly:I

beatmyself up for not beingat the same level ofaccomplishment.But the beauty of that

moment, thatday,was that itputme in a new and strangeenvironment, and somethinginsidemeshifted.Iwassofaroutsideofmycomfortzone.IfeltlikeIdidn’tbelong—likeI didn’t deserve to be there.Have you ever felt like this?It’s amazing what ourmindswill do to us if we don’t

consciouslydirectthem.And yet contrast is a

beautiful thing. When youget around people who areplayingthegameoflifeatahigher level, you either getdepressed, pissed off, orinspired.Thatday,IrealizedI didn’t want a yacht, but Iwas inspired to sharpen mygame.Irealizedtherewassomuchmore I could do, give,and be. The best was yet tocome. I also realized how

incrediblyvaluableitwasforme to get uncomfortable atthat point in my life; to putmyself in an environmentwhere I didn’t feel on top orsuperior.Of course, Peter had none

ofthesethoughts.Hewasjustbringing dear friends on aFourthofJulytripasagiftoflove!Butwhat he had reallydonewasshowmeaworldofunlimited possibilities. Thatexperiencehelpedawakenthe

truth in me. It became clearthat I did have the capabilityto create anything I couldenvision.MaybeIdidn’twanttohavethosesamegrown-uptoys,butIsureashellwantedto have the same types ofchoices for my family.Today,inmyearly50s,thoseimpossible visions havebecomeasimplereflectionofthe reality I now live. And Istilldon’twantayacht!Let’sbeclear.Itisn’tabout

themoney. It’s aboutchoice;about freedom. It’s aboutbeingabletolivelifeonyourterms,notanybodyelse’s.Don’tcomplain.Don’tsayyoucan’t.Don’tmakeupastory.Instead, make a decision

now!Findyourgiftanddeliverit

to as many people aspossible.If you become stronger,

smarter,morecompassionate,

or more skilled, then yourgoalisaworthwhileone.One of my earliest

mentors, Jim Rohn, alwaystaught me, “What you getwill never make you happy;who you become will makeyouveryhappyorverysad.”If each day you make just alittle progress, you will feelthe joy that comes withpersonal growth. And thatleads to perhaps one of themostimportantlessonsIhave

learned about big goals andachievement.Mostpeopleoverestimate

whattheycando inayear,and they massivelyunderestimate what theycan accomplish in a decadeortwo.Thefactis:youarenota

manager of circumstance,you’rethearchitectofyourlife’s experience. Justbecause something isn’t intheforegroundorisn’twithin

striking distance, don’tunderestimate the power ofthe right actions takenrelentlessly.With the power of

compounding, what seemsimpossiblebecomespossible.Rightnow,whetheryou loveyourfinancialplanorhate it,or whether you’re excited orafraid, let’s make it strongertogether. Let’s accelerate itby looking at the fiveelementsthatcanspeeditup.

8.At this time of thiswriting, interestrates have been repressed for anextended period of time.However, theappwillbeupdatedifandwheninterestratesrise.Youarealsowelcomeatanytimetoputinanyrateofreturnthatbestsuits your circumstances and realisticinvestmentreturnobjectives.

CHAPTER3.3

SPEEDITUP:1.SAVEMOREAND

INVESTTHEDIFFERENCE

Ifeverythingseems

undercontrol,you’renot

goingfastenough.—MARIOANDRETTI

Congratulations: you’vejust taken a huge steptoward Financial Freedom!Most people don’t take thetime to consider theircomplete financial pictureand create a plan. And forthosewhodo,itoftenstirsupallkindsofemotions.It’sbig,

it’s scary. I’ve been there, Iget it. But now that you’vedone it, take a moment tosavor your victory. And askyourself this: How do youreally feel about your plan?Doyou feelgoodaboutyouror your family’s future—areyou excited to realize thatyour financial dreams arecloserthanyouimagined?Oris it terrifying to think youmight never get to whereyou’d like to be—are you so

deepindebtyou’restartingtowonderifyou’lleverdigyourwayoutofthemoneypit?Wherever you are, it’s

okay. You’ve come a longway, you’ve made hugestridesand there’sno turningback now. And now thatyou’velearnedtowalk,sotospeak, let’s teachyouhowtorun.The goal of these nextminichapters is to get youthinkingabouthowtomakeyourfinancialdreamscome

true faster than you everthoughtpossible.Dreambig.Make it happen. And thenspeed it up. Have you everhadacrazybusyday,workedyourtailoff,racedagainsttheclock, and then, against allodds, finished early? Thatextra hour or twoof life thatyoureclaimisanabsolutegift—a bonus that makes youfeel liketheworldisonyourside.Youhitthegymandgofor a run, head out for

cocktailswithfriends,orracehome to tuck the little onesintobed.I travel like mad; I’m in

different countries, ondifferent continents, crossingtimezonesandflyingaroundthe world like the businessequivalent of a HarlemGlobetrotter. If I arrivesomewhere early, if I’ve gotanextrawindowinmyweekto refocus my energies orspend time with my wife or

myfamily,I’menergizedandexcited. I just found someextratime!What if that extra time

could last more than just anhour or two? What if youcould find not just an extrahour in your day, but,financially, find twoyears ofsavings in your life? Or fiveyears?Maybe even a decadeof life where you have thefreedom of not having towork to support your

lifestyle? That’s the promiseof these pages. Even if yourcurrentplandoesn’tlooklikeit can get you there, thesechapterscanshowyouhowtoshift your plan and find thatopening in your life—thatextramoney, that extra time,thatultimatefreedom.

Hewhogainstimegainseverything.—BENJAMINDISRAELI

If you’re going to speedthings up, there are five corestrategies.Youcandoanyorallofthem—it’syourchoice.Anyoneofthembyitselfcansignificantly speed up thetempo with which youachieve your dreams offinancial security,independence, or freedom.Putacoupleofthemtogether,andyou’llbeunstoppable.

Youcanberichby

havingmorethanyouneed,orbyneedingless

thanyouhave.—JIMMOTT

STRATEGY1:SAVEMOREAND

INVESTTHEDIFFERENCE

The first way to speed up

yourplanistosavemoreandinvest those savings forcompound growth. I know, Iknow, that’s not what youwant to hear. Maybe you’reeven thinking, “Tony, I’mspending every dime I have.There’snowayIcanpossiblysave more under anycircumstances.” If that’s true,beforewetalkaboutanythingelse, let’srememberthemostfundamental strategy youlearned back in chapter 2.9,

“Myth 9: The Lies We TellOurselves”:thebeststrategyto get around your beliefsystem is to develop a newbelief! You can’t squeezewater from a rock, but youcanchangeyourstory.Even if you’re convinced

you have no room to save,Nobel Prize winner RichardThalershowedusthatwecanall Save More Tomorrow.Remember those blue-collarworkerswho said they could

never save? And just fiveyears and three pay raiseslater, they were saving 14%.And 65% of them weresavingasmuchas19%!Youcandothis,andyoucanmakeit painless if you use thatstrategy. Let’s attack somefreshstrategiesrightnow.What if—in one fell

swoop,inonesinglemove—you could save a hugechunk of money towardyour Financial Freedom,

and it wouldn’t cost you adimemore?Doyoulikethatidea?Let’stakealookatoneof the biggest investments inyour life: your home. Ifyou’re like millions ofAmericans, home ownershipis important, something youeither aspire to or currentlytake great pride in. Whetheryou live in Portland, Maine,or Portland, Oregon, yourhouse probably takes thebiggest bite out of your

monthlyapple.Howwouldyoufeelifyou

couldsaveanextra$250,000,$500,000,oreven$1million,from your home? Soundimpossible? No, I’m nottalking about refinancingyourmortgageatalowerrate,although that is one painlesswaytosavehundredsoreventhousandsofdollarsamonth.

THEBANKER’SSECRET

Youdon’t have towait for amarket downtick to savemoneyonyourmortgage.Bythe time you’re reading this,rates may be on their wayback up anyway. You canstill cut your mortgagepayments in half, however,starting as soon as nextmonth, without involving

the bank or changing theterms of your loan. How?Let me ask you a simplequestion. Let’s say you’reapplying for a home loan,whichwouldyouprefer?

Option 1: 80% of yourcombined mortgagepayments goes towardinterest;orOption 2: a 30-yearfixed rate mortgage at6%.

Goaheadandthinkaboutitfor a moment. What do youthink? Are you tempted byoption 2? Does option 1soundcrazy?Didyou followthe crowd and choose option2?Ordidyououtsmartusallandchooseoption1?The answer: it doesn’t

matter. They’re identical.Whenyousignyournameonthe dotted line and take onthat 30-year fixed-ratemortgageat6%,fully80%of

yourmortgagepaymentswillgotowardinterest.Didn’tseethat one coming, did you?Howmuch does that interestexpensewindupcostingyouoverthecourseofyourloan?Is it 30%more? 40%more?50%more?Lifeshouldbesogood.Youwanttoknowthebanker’s secret? Yourinterest payments will tackon an additional 100% ormore to your loan value.Thathalf-million-dollarhome

you buy actually ends upcosting you amillion dollarsafterinterestpayments.Ifyoubuya$1millionhome?Thatcosts over $2 million onceinterest payments are addedin! Take a look at the chartbelow to see the impact ofinterest expense on yourhomepurchase.Theexampleis a $1million home, but nomatterwhatpriceyoupayforyour home, the ratio ofimpact is the same. Interest

paymentswilldoublethecostovertime.

For most people, theirmortgageis thesinglelargestexpense, and with the vastmajority of your paymentgoing toward interest, I bet

you’re not surprised to learnthat the average American,whenyouadd increditcardsandautoloans,spends34.5%ofevery take-homedollaroninterest expense. And that’sjust the average—manypeoplespendmore!So how can you cut down

that enormous interestpayment? How can youdecrease the interest expenseyou rack up over time—andtakethatmoneyandfunnelit

to your Freedom Fund? Theanswer is so simple it mightsurpriseyou.If you have a traditional

fixed-rate mortgage, all youhave to do is make earlyprincipal payments over thelifeoftheloan.Prepayyournextmonth’sprincipal,andyoucouldpayoffa30-yearmortgage in 15 years inmanycases!Does thatmeandouble your monthlypayments? No, not even

close!Here’sthekey:

Money Power Principle 3.Cut your mortgagepayments in half!The nexttime you write yourmonthly mortgage check,writeasecondcheckfortheprincipal-only portion ofnextmonth’spayment.It’s money you’ll have to

pay anyway the followingmonth,sowhynottakeitoutof your pocket a couple of

weeks early and enjoy someserious savings down theroad?Fully80%to90%,andin some cases evenmore, ofyour early payments will beinterestexpenseanyway.Andon average, most Americanseither move or refinancewithin five to seven years(andthenstarttheinsanityallover again with a new homemortgage).“It’s a pity,” mortgage

expertMarcEisenson,author

of The Banker’s Secret, toldtheNew York Times. “Thereare millions of people outthere who faithfully maketheir regular mortgagepayments because they don’tunderstand...thebenefitsofpocket-changeprepayments.”Let’s take a look at an

example(inthetableonpage252). The average Americanhome is $270,000—but thisstrategy works whether your

home costs $500,000 or $2million. A 30-year loan on$270,000 at 6% requires aninitial monthly payment of$1,618. With this technique,you would also write asecond check for an extra$270—nextmonth’sprincipalbalance—a very smallnumber, relatively speaking.Thatsecondcheckof$270ismoney you’ll never payinterest on. To be clear,you’re not paying extra

money; you’re simplyprepaying next month’sprincipalatouchsooner.Hold yourself to this pay-

it-forward strategy eachmonth, and, again, you’ll beable to pay off a 30-yearmortgage in just 15 years—cutting the total cost of yourhome by close to 50%.Whynotprepaythat$270,andcutthe life of your mortgage inhalf? So if you have amillion-dollar home, that’s a

half million dollars back inyour pocket! How muchwould that accelerate yourjourney to FinancialFreedom?!

BABY,YOUCANDRIVEMYCAR

It’snotjustourhomeswherewe can save big bucks. Oneof my sons was dying for aBMW. After years ofcovetingthe“ultimatedrivingmachine,”hefinallywentoutand leased a brand-newBeemer with all theperformanceoptions.Hewasthrilledwithhispurchase.Heloved that car: he loved theway it drove, what it saidabout him, what itrepresented.Itwasapointof

pride and aspiration, and itannouncedhisarrival—inhisownmind,atleast.On theflipside, thatBMW

costhima fortune!He couldhave made a monthly housepayment with what he waspayingforthatcar.Ayearortwo later, the car got a littledinged up, and, no surprise,lostsomeof its luster.At30,and newly engaged, hedecidedhewantedtolookforahomeforhimandhisfuture

wife.When he did themath,he almost croaked. That$1,200paymentforhisBMWX6 (with a twin turbo V8)could have literally coveredanentirehousepayment.He realized he no longer

needed the same ego strokethat came from driving aluxury car. It was justtransportation, after all. Hesawthathecouldputhimselfin a Volkswagen Passat or aMini Cooper, and it might

even be nicer, newer, morefuelefficient.Ontopofthat,muchofthe

joy that he got from drivingthat car also disappeared.Hefound joy elsewhere: in theidea of building a new life,putting down roots with thewomanhe loved, andbuyinga home. Getting rid of theBMW was no longer asacrifice;instead,itbecameaconscious decision to spendhismoneyelsewhereandstart

building a financially securefuture.Now, if you’re a car

aficionadoandlovecars(asIdo),I’mnottellingyoutogoout and drive aVolkswagen.For many guys, that shinyblackFerrari,Porsche,or thenewTeslaisjusttoomuchtoresist. And if your plan isgetting you to where youwant to be financially, by allmeans, drive whatever caryou want. But if you’re not

getting there, or you’re notgetting there fast enough,then maybe it’s time torethinkyourwheelsandseeifyou can find somemeaningful savings to putintoyourFreedomFund.Remember Angela? She

read an early copy of thismanuscript and came homewith a new car—her firstbrand–new car ever! Take alookathernumbers:shewasable to trade in her old car

and save $400 a month, oralmost $5,000 a year, to puttoward her savings and startcompoundingrightaway.

WHATELSECANYOUDO?

Houses and cars aren’t theonly places where we cansave. Where else can you

work at axing expenses inyour life that no longer giveyouvalue?Iknowtheideaofliving on a budget is totallyunappealingtomostpeople.Idon’t want to be put on abudgetandmyguessisyoudon’t either.Butwhat I dobelieve in is a spendingplan. I like the idea ofplanning how to spend mymoney so that it gives methemost joyandhappinessbut also ensures my

financial freedom longterm.Now, to be fair, if you’re

oneofthosepeoplewhosays,“Screw it, I’m not going tosave; I’m just going to focuson earning more,” then youcan just go ahead and skipright over to the nextminichapter on earningmoreand adding value. If the ideaof saving just completelyexhaustsorboresyou,you’vegot four other strategies to

helpyouspeedthingsup,andIdon’twantyoutomissthembecause saving isn’t for you.Butifyoudo,staywithme.Ipromise you that littlethings can make a bigdifference long term—theyadduptosurprisinglygiantnumbers.To be fair, Amazon and

brick-and-mortar bookstoreshave entire sections filledwith books on how to savemore money. Dave Ramsey

is a very caring man withseveralbooksinthisarea,andSuze Orman is anotherauthor worth investigating ifyou are looking to findsavings. But we’re going totake a few pages here tohighlight the best simplestrategiesnow.One thing is for sure: you

can create a spending planthat helps you decide inadvance how and where tospend your money to give

youthegreatestreturnstodayandinthefuture.Remember chapter 1.3,

“Tap the Power,” where welooked at how ordering inpizza with friends instead ofgoing out to dinner couldsave you $40 a week, or$2,080 a year? At an 8%return, that turns into morethan$500,000over40years.Ahalfmilliondollars!That’sa whole different retirementpicture than most Americans

have today. That kind ofmoney, on its own or addedto our 401(k), can certainlyhelp make us rethink ourdailyGrandeskimlattewithashotofvanilla.Financial expert David

Bachisagoodfriendofminewhogothisstartbyattendingoneofmy financial seminarsmore than 20 years ago. Hemadeadecisiontopursuehisdream of helping peoplebecome financially

independent, and just a fewyearslater,Ihiredhimforhisfirst paid speech. Today,through his passion anddedication, he’s helpededucate over four millionpeoplethroughhisbestsellingbook The AutomaticMillionaire:APowerfulOne-StepPlan toLive andFinishRich, which includes theconcept of creating wealththroughfindingwhathecallsyour “LatteFactor.”And it’s

not just about coffee: theLatte Factor is simply ametaphor for all those smallpurchases thatwedon’t evenconsider—thingswewindupwasting our money onwithoutevenrealizing it.Butifyouareacoffeefiend,howmuchisthataddictioncostingyou? Let’s say you’re acasual “user”: at $4 a day,you’re effectively giving upalmost $56,500 of savings at6%interestover20years.For

a single drink! But let’s bereal: the Starbucks loyalistdoesn’t go just once a day.What about the realevangelistswhoaretheretwoor three times a day? Takeyour$4habitandboostitto$10 a day, and now you’redrinking away over$141,250 in savingsover20years. That’s the cost of afour-yearcollegeeducation!What if you’re a purist?

You don’t binge on caffeine;

your body is a temple. Butbottled water is your thing.Got any Fiji or Evianenthusiasts out there? Orfrankly,evenifyoujuststockup on Poland Spring atCostco, how much are youspending on bottled waterevery year?A youngwomanI work with, whom I adoreand who considers herselfvery socially conscious, isabout togetmarriedtoaguywho regularly buys 12-packs

of 1.5-liter bottles ofSmartwater. How smart isthat?Hebuysthemthreeatatime, 36 big bottles in total,which lasts him about twoweeksandsetshimback$75.He’s spending $150 amonthon water, almost $1,800 ayear—onsomethinghecouldgetfreefromthetap,orfilterwith a Brita water filtersystem and a few Nalgenebottlesfor$50to$60ayear.Forget that he’s killing our

planet; he’s also killing hiswallet. I know her fiancéwouldbemuchhappierifthat$1,800ayearwasgoing intotheir savings account andcompounding annually. At8% over 40 years, that’s$503,605 being pissed away—literally.I’mnotsayingyouhaveto

giveupbottledwateror stopgettingcoffee,butthesavingsare there somewhere. Isn’t ittimetofindthem?

Andfinally,let’snotforgetabout our impulse purchases:you know, the ones that feelgreat in themoment, like thepricey work bag or thebeautiful Hermès tie. Lisa, ayoung mom from Nashville,hasatasteforthefinerthingsin life. She drives herhusband batty with herimpulse purchases. She’llcomehomewithagreatnewdress or an amazing pair ofboots, and her husband will

invariablyask,“Weretheyonsale?” or “Did you checkonlinetoseeifyoucouldgetthem cheaper?”After severalspats, Lisa and her husbandagreed on a new plan.WhenLisa found herselfunexpectedly at Saks FifthAvenue or Jimmy Choo,she’dtakeaphotoofhernext“must-have” and send it toher husband. He had twoweeks to find her a betterprice online; otherwise she’d

order her purchase over thephone at full retail. But asLisa sheepishly admitted tome,over80%ofthetime,hedid find whatever she waslooking for—at often at 20%or30%cheaper.So take a page from Lisa

and her husband and checkout all the online rewardsprograms that can save youreal money. Upromise.comhelps you earn cash back forcollege from your everyday

spending, from onlinepurchases to dining out andbooking travel. You can putthose savings toward astudentloan,savingsaccount,or529collegesavingsplan,atax-deferred savings plan setup by parents for their kids’collegetuition.Andifcollegehas passed or it’s not apriority,butcashis,therearehundreds of other cash-backwebsites out there—Extrabux, Ebates, Mr.

Rebates—all of which cansave you 10% to 30% onpurchases at thousands ofonlinestores.AsforLisaandherhusband,theyputalltheirsavings back into theirUpromise account, and noweveryone feels better aboutthatpairofstilettos.Attheendoftheday,the

question to ask yourself isthis: Do my expenses, bigand small, bring me thethrilltheyoncedid? It’snot

about depriving yourself; it’saboutadjustingyourspendinghabits to mirror your corevalues and indulge only theexperiences that truly matterto you. That deliberatespendingallowsyoutoinvestin a quality of life that issustainable and brings youjoy. Whether you’ve got 20,30, or 40 years to invest, nomatter where you are, howmuch you can save, or howmanyyears you’ve got to do

it, you can take advantageoftheunparalleledpowerofcompounding. Financialsecurity, financialindependence—whateveryourgoals,youwillgettherea whole lot faster when youput your money to work foryou.It’s not about lifestyle, it’s

about timing.Why not makesimple changes today toinsure you have more thanenough down the road to

continue to fund yourlifestyle and your dreams?Youcanstillenjoylife’sfinerpleasures—but you’re incontrol now. You get tochoose how to allocate yourfunds and where to get thebiggest bang for your buck.Whether you’re going totackleyourmortgageexpenseor trade in those fancywheels, make your onlinepurchasesworkforyouordoa little better on your

everyday expenses—it’s inthere. Real, meaningfulsavings, to the tune ofhundreds of thousands ofdollars toamilliondollarsormorearethereforyoutofindandtoreinvest.Nowlet’sturnthepageand

uncover the fastest way Iknow to speed up your planand achieve financialindependence faster. Let’slearntoearnmore.

MINDFULSAVINGS

Here’s a quick-and-easy six-step exercise to get youthinkingmoreaggressively—more purposefully—aboutsaving:1. Brainstorm about all therecurring expenditures thatyou could eliminate orreduce to cut your

expenses. Car insurance,cell-phone bills, lunchmoney, movie tickets.Thinkaboutwhereyoucanmakechanges.

2.Howmuch do these itemsoractivitiescost?Highlightthe most significant ofthese expenditures and

make a note of theassociated costs. Next,calculate how many timesper week you indulge inthis expense and take areality-checksnapshot.

3.Now,onascale from0 to10 (with 0 representingnone and 10 representingextremely pleasurable),how much joy do you getfrom each of the itemsabove?Attachanumbertoeach activity or item to

help you associate thesecoststoyourlife.

4. Next, think of what itwould feel like to haveAbsolute FinancialFreedom. Remember howyou responded to thatconcept back in chapter3.1: “What’s the Price ofYour Dreams? Make theGame Winnable”?Remember how it madeyou feel? But at the sametime, remember that this

was a feeling youexperiencedintheabstract,in theory. Here it’s closeenough to taste. Whatwould you be able toenjoy,have,do,be,orgiveif you were absolutelyfinanciallyfree?

5. Decide which is moreimportant to you: the joyyou receive from therecurring expenditures onyour list or the feeling ofAbsolute Financial

Freedom. Remember thatlifeisabalance.Youdon’thave to cut out everythingfromyour list tomove theneedle on that feeling offreedom.

6. Write down at least threeexpenditures you areresolved to eliminate.Calculate how muchmoney this will save youoverthecourseof thenextyear.

CHAPTER3.4

SPEEDITUP:2.EARNMOREAND

INVESTTHEDIFFERENCE

Trynottobecomea

manofsuccess,but

rathertrytobecomeamanofvalue.—ALBERTEINSTEIN

Okay, let’s kick into secondgear. If saving is oneway tospeed up your plan, there isan even faster way thatliterallyhasnolimits—ifyouunleash your creativity andfocus, and become obsessedwith finding a way to do

more for others than anyoneelse. That’s how you earnmore and shift into the fastlanetofreedom.

DRIVINGATRUCKTOFINANCIALFREEDOM?

When Iwas growing up,mymother had a great plan for

me. She wanted me tobecome a truck driver. Shehad seen these ads ontelevision, over and over, forTruckmaster truck drivingeducationschool.Shetoldmethat with a little training, Icouldqualifyasatruckdriverand make up to $24,000 ayear. Wow, $24,000! Thatwas twice what my dad wasearningasaparkingattendantin downtown LA. Shethought that this would

provideagreatfutureforme.She worked into her salespitch that I’d have thefreedom to be on the openroad and drive. It actuallyappealed to me on a certainlevel: the idea that I couldjustturnonmymusicandgo—kindofacoolthoughtfora14-year-old kid who wasn’tevendrivingyet.I’dhavetheopportunity to get up and goinstead of being stuck in anunderground parking garage

for30-plusyears.ButafterallofthemiseryI

had witnessed, all of theshame associated with fourdifferent fathers, of neverhaving enough money forclothing or food, I realized Icouldneverdriveatrucklongenoughorfarenoughtoallowme toescape thepainof thatsituation. In my head, IdecidedthattherewasnowayinmylifetimeIwouldhaveafamily that would suffer this

way.Ontopofthat,Iwantedtousemymindandmyheart.Iwantedtogetinthegameoflifeatadifferentlevel.I looked around and

wonderedhowotherpeople’slives could be so vastlydifferent frommyown.Whywerewestrugglingconstantlyto make ends meet, to stayahead of the bill collector—choosing between cannedbeans or spaghetti withketchup because we couldn’t

affordtomatosauce?Andyet,inthesamecity,notfarfromus,kidsIwenttohighschoolwith were taking fancyvacations and studying onpicture-perfect collegecampuses—living a life wellbeyondmywildestdreams—a life so obviously differentfrom the one we would everexperience. What did theyknow that we didn’t know?What were they doingdifferently from my father

andmother?I became obsessed. How

wasitpossiblethatsomeonecould earn twice as muchmoney in the same amountof time? Three times asmuch?Ten timesasmuch?It seemed crazy! From myperspective, it was anunsolvableriddle.

INVESTIN

YOURSELF

I was working as a janitor,and Ineededextramoney.Aman my parents knew, andwhommyfatherhadcalleda“loser,” had become quitesuccessfulinashortperiodoftime, at least in financialterms.Hewasbuying,fixing,and flipping real estate inSouthern California andneededakidon theweekend

to help him move furniture.That chance encounter, thatfateful weekend of workingmytailoff,ledtoanopeningthat would change my lifeforever. His name was JimHannah. He took notice ofmy hustle and drive.When Ihad a moment, I asked him,“How did you turn your lifearound?Howdidyoubecomesosuccessful?”“I did it,” he said, “by

going to a seminar by aman

namedJimRohn.”“What’saseminar?” I asked. “It’s aplace where a man takes tenortwentyyearsofhislifeandall he’s learned and hecondensesit intoafewhoursso that you can compressyears of learning into days,”he answered. Wow, thatsounded pretty awesome.“How much does it cost?”“Thirty-five dollars,” he toldme.What!?Iwasmaking$40aweek as a part-time janitor

while going to high school.“Canyougetmein?”Iasked.“Sure!”hesaid.“ButIwon’t—because you wouldn’tvalue it if youdidn’t pay forit.” I stood there,disheartened. How could Iever afford $35 for threehourswiththisexpert?“Well,if you don’t think you’reworth the investment, don’tmakeit,”hefinallyshrugged.Istruggledandstruggledwiththat one—but ultimately

decidedtogofor it. It turnedout to be one of the mostimportant investments of mylife. I tookaweek’spayandwent to a seminar where ImetJimRohn—themanwhobecamemylife’sfirstmentor.I sat in an Irvine,

California, hotel ballroomlisteningtoJim,riveted.Thissilver-haired man literallyechoedthequestionsthathadbeenburninginmymind.He,too, had grown up poor,

wondering, even though hisfather was a goodman, whyhis father struggled so hardonly to suffer while othersaround him prospered. Andthen, suddenly, he answeredthe question I had beenasking myself literally foryears.“What’s the secret to

economicsuccess?Thekey,”hesaid,“istounderstandhowto become more valuable inthemarketplace.

“Tohavemore,yousimplyhavetobecomemore.“Don’t wish it was easier;

wishyouwerebetter.“For things tochange,you

havetochange.“For things to get better,

youhavetogetbetter!“We get paid for bringing

value to the marketplace. Ittakes time . . . but we don’tgetpaidfortime,wegetpaidforvalue.America isunique.It’saladdertoclimb.Itstarts

down here, at what? About$2.30anhour.Whatwas thetopincomelastyear?Theguywho runs Disney—$52million! Would a companypay somebody $52 million ayear? The answer is: ofcourse! If you help acompany make a billiondollars, would they pay you$52 million? Of course! It’schicken feed! It’s not thatmuchmoney.“Is it really possible to

become that valuable? Theanswer is: of course!” Andthen he let me in on theultimatesecret.“Howdoyoutruly becomemore valuable?Learn to work harder onyourself than you do onyourjob.“So can you personally

becometwiceasvaluableandmake twice as much moneyin the same time? Is itpossible to become ten timesas valuable and make ten

times as much money in thesame time? Is that possible?Of course!” And then hepausedandlookeddirectlyinmy eyes and said, “All youhave to do to earn moremoney in the same amountof time is simply becomemorevaluable.”And there it was! There

was my answer. Once I gotthat,itturnedmylifearound.That clarity, that simplicity,thewisdomofthosewords—

theyhitme likea100-poundbrick. Those are the exactwords I’ve heard Jim Rohnspeak probably a hundredtimes. I have carried them inmy heart every day since,includingthedaythatIspokeathisfuneralin2009.That man, that seminar,

thatday—whatJimRohndidwasputmebackincontrolofmyown future.Hemademestop focusing on what wasoutside of my control—my

past, the poverty, otherpeople’s expectations, thestate of the economy—andtaughtmetofocusinsteadonwhat I could control. I couldimprovemyself; I could finda way to serve, a way to domore,awaytobecomebetter,a way to add value to themarketplace. I becameobsessedwithfindingwaystodo more for others thananyoneelsewasdoing,inlesstime. That began a never-

endingprocess thatcontinuesto thisday!At itsmostbasiclevel, it provided a pathwayto progress that continues todrive and lead every singledecision Imake and action Itake.In the Bible, there is a

simple tenet that says there’snothing wrong with wantingto be great.9 If you wish tobecome great, learn tobecome the servant ofmany. Ifyoucan findaway

to serve many people, youcanearnmore.Findawaytoservemillionsofpeople,youcanearnmillions.It’sthelawofaddedvalue.And if the gospel of

WarrenBuffettismoreyourthing than biblical verse, theOracleofOmahais famousfor saying that the mostpowerfulinvestmentheevermade in his life, and thatanyone can make, is aninvestment in himself. He

talks about investing inpersonal development books,ineducatinghimself,andhowa Dale Carnegie coursecompletely changed his life.Buffett once told me thisstory himself when we wereontheTodayshowtogether.Ilaughed and asked him tokeep telling that story. “It’sgood for business,” I said,grinning.ItookJimRohn’smessage

toheartandbecameobsessed

—I would never stopgrowing, never stop giving,never stop trying to expandmy influence ormy capacitytogiveanddogood.Andasaresult, over the years, I’vebecomemore valuable in themarketplace.TothepointthatI’m extremely fortunateenough today that financesare no longer an issue inmylife. I’m not unique. Anyonecan do the same—if you letgo of your stories about the

past, and break through yourstories about the present andits limits. Problems arealways available, but so isopportunity.

What does the Americanincome ladder look liketoday? My bet is Jim Rohncouldn’t have imagined thatin 2013, the low end of theladder would be $7.25 anhour($15,080annually)andthat the high-end earner of

the year would beAppaloosa Managementfounder and hedge fundleader David Tepper, whoearned $3.5 billion inpersonalincome.Howcouldany human beingmake even$1 billion a year, much less$3.5 billion? Why such anincredibly low income forsomepeopleandsuchahigh-income opportunity forothers? The answer is themarketplace puts very little

value on being a cashier atMcDonald’s ($7.77 an hour)becauseitrequiresaskillthatcanbelearnedinafewhoursby almost anyone. However,successfully expandingpeople’sfinancialreturnsinasignificant way is a muchmore rare and valued set ofskills.WhenmostAmericansaregetting less than33basispoints (a third of 1%)annually as a return on theirmoney from the bank,David

Tepper delivered a 42%returnforhis investors in thesame time! How valuablewerehiscontributionstotheireconomic lives? If he gotthem a 1% return, he wouldhave been 300% morevaluable. A 42% returnmeans he added 12,627%moreeconomicvaluetotheirlives!So how about you? What

are you going to do to add

more value to themarketplace? How are yougoing to ensure abundanceratherthanstruggle?Ifwe’regoing to make a radicalshift and take you fromwhere you are today towhere you want be—tofinancial freedom—thenthis path is the mostpowerful one I know to getyouthere.Now,beforeyoustartyour

rallying cryof objections, let

me just say: I know thatthings are different today. Iknow it’s a challenging timefor the economy. I knowwe’ve lost two million jobssince2008,and theones thatare coming back are mostlyservice or low-paying jobs.And yes, I realize thatincomes have been stagnantsincethe1990s.Guess what interest rates

and unemployment lookedlike in 1978, when I started

mycareer?Withintwoyears,interest rates hadskyrocketed! My firstinvestment, a fourplex inLong Beach, California, hadan 18% mortgage. Can youimagine interest ratesat18%today to buy a home? We’dhave a revolt on the WhiteHouse lawn. But history iscircular—always has been,alwayswillbe.Yes, incomesarestagnant,ifyoudon’tfinda way to geometrically add

morevalue.Butifyoufindaway to add value, incomesmove in one direction, andthat’salwaysup.During the Great

Recession, 8.8 million jobswere lost. In 2008, 2.3million jobswere lost in thatyear alone! Unemploymentpeaked at 10%. Butremember, that 10%unemployment rate is anaverage.Someportionsofthepopulation had

unemployment levels over25%, but for those making$100,000 per year or more,what would you guess wastheirunemploymentrate?Theanswer: close to 1%! Thelesson? If you truly developskills that are needed in thecurrent marketplace—if youconstantly improve andbecome more valuable—someonewill employ you oryou’ll employ yourself,regardless of the economy.

And if you employ yourself,your raise becomes effectivewhenyouare!Even today, it’s a totally

different story in SiliconValley,wherejobsareforthetaking. Technologycompanies can’t fill theiropenings fast enough; theycan’t find enough qualifiedpeople.Jobsareoutthere,butyou and I need to retool ourskill sets—retool ourselves—sothatwebecomevaluablein

the new marketplace. I canpromise you this: most ofthose “old jobs” aren’tcomingback.Let’slookathistory.Inthe

1860s, 80% of Americanswere farmers. Today 2% ofthe US population work infarming and agriculture, andwe feed the entire world.New technology disruptedeverything—suddenly onefarmer could do the work of500. Many people struggled,

many lost their jobs. Forthose who didn’t adapt, theindustrial revolution was anincredibly painful time. Butthat very same technologythat brought along steampower and machine tools,whichdisplacedpeopleintheshort term, made the qualityof life of everyone aroundthemexponentiallybetterandprovided more jobs at ahigherlevelofincome.Today’s new technologies

are causing massivedisruptiononceagain.Oxfordresearchers say that almosthalfofAmerica’soccupationsare at risk of becomingautomated (translation:replaced) within the next 20years! You and I have toretool to a different level. Ipromise you, 150 years ago,noonecouldhavefathomedadaywhentherewouldbejobscalled socialmediamarketer,stem cell scientist, and

robotics engineer. No onecould imagine that anelectrician or a plumberwouldmake$150,000ayear,orthatafactoryworkercouldlearn how to use a computerto automate a machine andearn$100,000intheprocess.But just because peoplecouldn’t imagine it, didn’tmeanitwouldn’thappen.I meet people everyday

whotellmethejobmarketisfrozen, or they’ve been laid

offandfearthey’llneverfindwork again. But I’m here totell you it’s not the market,it’s you. You can increaseyour earnings potential—anyone can. You can addvaluetothemarketplace.Youcan learnnewskills,youcanmaster your own mind-set,youcangrowandchangeanddevelop,andyoucanfindthejobandeconomicopportunitythatyouneedanddeserve.But ifyour job isgoing to

beobsoleteinthenextfiveorten years, it’s time to thinkabout making a pivot andtrying something new. Apivot is what Silicon Valleycallsitwhenyougofromonebusiness to another, usuallyafteracolossalfailure.Ifyou’rereadingthisbook

right now, you’re a personwho looks for answers, forsolutions, for a better way.There are hundreds of waysyou can retool your skill set.

Youcandoitbygoingafteracollege education, a tradeeducation, or self-education.You can earn $100,000 tomillions a year, and not byjust going and spending aboatload of money on afour-year college degree(thatcanputyou$100,000ormore in debt). Millions ofjobs are available in thiscountry, but there is also amajor skills gap. Accordingto Mike Rowe, host of

Discovery Channel’s DirtyJobs, there are about 3.5million jobs available rightnow, and only 10% of themrequire a four-year degree.That means that the other90% of them requiresomethingelse:training,skill,or a willingness to get dirty,perhaps, but mostly awillingness to learn a newand useful trade. AccordingtoRowe,“That’salwaysbeenforsale,butit’skindoffallen

out of [our country’s]narrative.”Retooling is both exciting

and scary. Exciting becauseof the opportunity to learn,grow, create, and change.Exciting once you realize“I’m valuable; I have acontribution to make; I’mworth more.” Scary becauseyou think, “How am I goingto do this?” Remember JimRohn’swords:“For things tochange, you have to change.

Forthingstogetbetter,youhave to get better.” Retoolorbethefool.Getridofyourstory of limitation and shiftintohighgear.People often say to me,

“Tony, that’s great if youhave your own business oryou work in a companywhere it’sgrowing.Butwhatif you’re in a traditionallylow-payingjob,andyoulovewhatyoudo?What ifyou’rea teacher, what then?” Let’s

stepoutsideourownlimitingthinking,andletmegiveyoua perfect example of aschoolteacher who used tostruggle, but because of hispassionandhisdesiretohelpmore students, he found away to add more value andearnmorethanmostteachersever dream about. The reallimitation in our earnings isnever our job—it’s ourcreativity, our focus, and ourcontribution.

CREATIVITY,CONTRIBUTION,ANDTHEKOREAN

ROCKSTAR

If youeverhad a third-gradeteacher who inspired you totry something new, or aneighth-grade teacher whobelieved in your own childbeyond measure, you knowthe power of a single role

model in the life of a child.Our teachers are one of ourgreatest yet mostunderappreciated andunderpaid assets.Sowhat doyoudoifyou’reateacher,oryouhaveasimilar jobwhereyour upside potential seemsto be limited? As a teacher,how can one think aboutadding value to more thanjust 30 students in theclassroom?Isthereawayyoumightbeabletoaddvalueto

hundreds of students,thousands of students, evenmillions?There are plenty of

schoolteachers who think,“I’ll never make enoughmoney doing what I love.”Thereisbroadagreementthatwe as society don’t valueteachers in the way that weshould.Butaswenowknow,that limiting belief holdspeople back.KimKi-hoon isateacherinSouthKoreawho

refusedtobuyintothatstory.Unlikemost teachers,Kim

Ki-hoon isknownas a “rockstar” in SouthKorea.Kim isone of the most successfulteachers in his country.Howdidhebecomesosuccessful?Heworkedharderonhimself,onhisabilitytoteach,thanhedidonhisjob.Sixty years ago, according

totheWallStreetJournal,themajority of South Koreanswere illiterate. The country

realized it needed to takemassive and dramatic action.Today teachers there areconstantly encouraged tostudy, to innovate, to teachthe same class in a newwayevery day. They’re taught tolearn from one another,mentoroneanother—findthebest techniques to add morevalue. The result?Today 15-year-oldsinSouthKorearanksecondinreading,andwitha93% graduation rate—

compared with just 77% intheUnitedStates.Ki-hoon took that model

and ran with it. He putenormous time into findingthe best teachers, studyingtheirpatterns,learninghowtocreate breakthroughs. Hefound a way to help hisstudents learn faster, better,smarter—and not just hisstudents but also students allacross the country. Whyfocus on just helping 30

students? he thought, Whynot help as many as I can?With the advent oftechnology, he realized hecould put his classes onlineand make his passion forteaching and learningavailabletoeveryone.Today Ki-hoon works

about 60 hours a week, butonly three hours of those areforgivinglectures.Theother57 hours are spentresearching, innovating,

developing curriculum, andresponding to students.“TheharderIwork,themoreI make,” he says. And heworks hardest to becomebetter for the people heserves. Ki-hoon records hisclasses on video, andcirculates them on theinternet, where students logon at the rate of $4 an hour.Howdoesheknowitworks?How does he know he’sadding more value than

anyoneelse?Themarketplacealways tells you your trueworth or value. Guess howmanypeoplebuyhisclasses?Last year, his annualearnings topped $4million!The more value Ki-hoonoffers via online classes andtutorials, the more studentssignup.And,itfollows,morestudents means more money—inthiscase,alotmore.A teacher earning $4

million. How does that

compare to the bestschoolteacheryouknow?Ki-hoon’s story shatters thebelief that our professionlimitsus.He’spartofthe1%not because he’s lucky, notbecause he was in the rightplace at the right time, notbecause he chose a lucrativeprofession. No, Ki-hoon is awealthyman,partof the1%,becausehehasneverstoppedlearning, never stoppedgrowing, never stopped

investinginhimself.

THEULTIMATEMULTITASKER

But what if you’re not anentrepreneur? What if youhaveabsolutelynointerest inhanging up your ownshingle?Whatifyouworkincorporate America or even

forasmallbusiness?Canyoustill figure out a way to addmorevalueandincreaseyourearningpotential?Letmetellyou about a young woman.Daniela worked in amarketing department doingart design anddidn’t see anyclear path towardmoving upin her company. She wasextremely talented, but moreimportantly, shewas hungry.Shewasconstantlylookingtodo more and give more; it

was just her nature. And soshe often helped hercolleagues with visual arts.Andthenshewantedtolearnabout marketing, so shestarted studying marketingandofferedtohelp.Andthen,of course, she realized shedidn’t really know anythingabout social media—but theopportunities there seemedhuge, so she decided toeducate herself on socialmediaaswell.

After a few years,Danielawas doing many of the jobsof her coworkers. And theyforgotthatshewasofferingagift, and they started to takeher for granted. A newpattern emerged where, atfive o’clock, when jobs withkey deadlines were still notdone,sheworkedaloneatherdeskasherassociatesslippedoutthedoor.Shedidn’twantto stay late, but she wasn’tgoingtolet thecompanyand

their clients down. When itwasclearhercolleagueswereactually taking advantage ofher drive and ambition, shereachedher limit.“I’mdoingthree people’s jobs plus myown!” But instead of gettingangry,Danieladecideditwasanopportunity.What did she do? Daniela

approachedherCEOandlaiditontheline:“RightnowI’mdoing the work of fourpeople. I’ve gone to courses,

I’ve learned and taughtmyself about visual arts,marketing, and social media.I’m not here to throwanybodyunder the bus, but Ican save you fifty percent ofyour marketing cost rightnow and eliminate threepeoplebytakingontheirjobsmyself. And I’ll do a betterjob, too. I don’t need you totrustmeonthis:letmeprovemyselftoyou.Letthemkeepdoing their jobs for six

months, and I’ll do myassignments and theirs, soyou’ll have two differentexamples to pick from. Youdecidewhat’sbest.”AllDanielaaskedwasthat

if she did a better job, aftersix months, her boss wouldgive her more responsibilityand double her pay. Andguess what? She did it: sheproved herself on the visualartandmarketingfronts,withgreat copywriting and a

successful social mediacampaign. Daniela showedthatnotonlycouldshehandlethe extra work, but also shecould run circles around thecompetition—she couldoutperform them all. Sheadded enough value that thecompanyrealizeditcouldpayone person twice as muchmoney, and still cut its costsin half. Themarketplace hadspoken.

Happinessisnotinthemerepossessionofmoney;itliesinthejoyofachievement,inthethrillofcreativeeffort.

—FRANKLIND.ROOSEVELT

OPPORTUNITYISEVERYWHERE

How are you going to add

more value to the world?How are you going tocontribute more, earn more,and increase your impact?There are hundreds, if notthousands, of stories ofaverage individuals who sawa problem, looked at thingsjustalittlebitdifferently,andwent on to transform entireindustries or create entirelynew markets. They weren’tentrepreneurs; they were justpeople like you and me,

people who wouldn’t settle.Intheworldweliveintoday,no industry or product isimmune: the intersection ofall things digital—theinternet, social media, andtechnology—theinterconnectedness of everyperson and everything onearth. That means that eventhebiggestcompaniesandthemost mature or stablebusinesses are ripe fordisruption. Enter Nick

Woodman.

RIDINGTHEWAVE

Who would have predictedthat Kodak, the corporatetitanthatdominatedtheworldof photography in the 20thcentury, would be caughtflatfooted when digital

imaging came on the scene?Kodak invented digitalphotography. And yet after124 years in business, thecompanyfiledforbankruptcyin 2012—a move that had adisastrousrippleeffectontheeconomy in and aroundRochester,NewYork,whereover50,000jobswerelost.But those same massive

technological and culturalchanges that killed Kodakprovided a huge opportunity

foraCaliforniasurfernamedNick Woodman. Woodmanwas obsessed with surfing.His absolute love of anddevotion to the sport, alongwithhisdriveandhishunger,enabledhim to findaway toaddvalue.Chances are you’ve never

heard of Woodman, but hehad thebrilliant idea to strapa waterproof camera to hiswristwhile riding thewaves.All Woodman set out to do

was find a way to enjoy hissurfing after it happened.With digital photographycoming out, he started totinker with cameras to see ifhe could make them morewaterproof and capturebetter-quality video. And astechnology changed, hecontinued to tinker. Andtinker.HeendedupinventingtheGoPro, a tiny, broadcast-quality, clip-on-and-take-anywheredigitalcamera.

This cool little device isnow on the head of everyextreme sports person in theworld.Whetheryou’re ridinga bike, paddling throughrapids, snowboarding, orcatching the waves, theGoPro allows you to capturethemagic of your adrenalinerush and share it witheveryone you love.Woodman’s timing couldn’thave been better: he beganmarketing the GoPro just as

peoplestarteduploadingtheirvideos to YouTube andFacebook. He created aproducthewantedtouseandfigured he couldn’t be theonly guy needing one.Woodmanfiguredouthowtoaddvaluetomillionsof livesby making the newtechnology convenient, fun,and affordable. Ultimately,Woodman got in front of atrend.Thattrendwasactivelysharing digitally whatever

was there. One of the keysecretsifyoureallywanttobecome wealthy: get infront of a trend.Today thesurfer from San Diego,California, isworthover$1billion.

ANEW“CATEGORY”IS

BORN

Back in 2010, Matt Lauerinvited me to join him for aspecial roundtable discussionabout where the economywas headed. I was joiningWarren Buffett and theworld’syoungestfemaleself-made billionaire: a womannamed Sara Blakely. Anyopportunity to discuss theeconomywithWarrenBuffettwas a huge privilege, butwhat I didn’t bank on wasbeing totally blown away by

Sara’sstory.Blakely didn’t disrupt an

industrysomuchascreateanentirely new one. A formerWalt Disney Worldemployee, Sara was gettingready for a party when sherealized she didn’t have theright underwear for a pair offittedwhitepants.Ratherthangocommando,shedecidedtotake matters into her ownhands. Armed with nothingmore than a pair of scissors

and a whole lot of sass, shecutthefeetoffhercontrol-toppantyhose, and, voila, a newindustrywasborn.Ofcourse, itdidn’thappen

overnight, and it didn’thappen easily. Sara sharedwithme thatoneof themostimportant secrets to hersuccess was that from anearlyage,herfatheractuallyencouraged her to “fail!”But he defined failure not asfailuretoachievearesult...

but failure to try.Around thedinner table, hewould ask ifshe had failed today, and hewastrulyexcitedifshehad—because he knew that meantshe was on the path tosuccess. “Tony, it just tookawaymy fear of trying,” shetoldme.Down and out in a dead-

endoffice-productssales job,Blakely invested all themoney she had in theworld,$5,000, and set out to create

body wear that would workfor her. “I must have heard‘no’ a thousand times,” shesaid.But shedidn’t listen. Inaddition to the $5,000 sheinvested, she saved $3,000(which she didn’t have) onlegalfeesbywritingherownpatentfromatextbook.Ultimately, the company

she founded, Spanx, createdan entirely new category ofproducts called “shapewear”and has inspired a cultlike

following among womenworldwide. According to mywife, put on a pair to pull inall your “its and bits,” andyou’ll take three inches offyourwaistlineimmediately.With Oprah Winfrey’s

blessing,Spanxturnedfromasmall business into aworldwide sensation. TodaySpanx is worth over abillion dollars, and thebrand now includes over200 products that help

women look and feel great.Ever the optimist, Sara triedtoworkhermagiconme:shetriedtogetmetowearapairof her new Spanx for menwhenweweretogetherontheToday show. I thanked herand mentioned gently thatperhapsshedidn’tunderstandthemalemarketaswellasthefemale market. But I remaininspired by her example. Inthe end, Spanx for men hasalso taken off—no thanks to

me. Today Blakely owns100% of her company, haszero debt, and has nevertaken on outsideinvestment. In 2012 Timemagazinenamedheroneofits “100 Most InfluentialPeopleintheWorld.”Like Nick Woodman, she

sawaneedandmoved to fillit. She refused to be limitedbyherownstoryandfoundawaytoaddvalue.You can too! You don’t

have to start a billion-dollarcompany, disrupt an entirecategory, ormake$4millionasateacheronline.Youdon’tevenhavetotakeonfourjobsat once. But if these peopleare capable of doing that,couldn’t you find a way tomakeanextra$500or$1,000amonth? Or maybe even anextra $20,000, $50,000, oreven $100,000 or more ayear?Couldn’tyoufigureouthow to unleash your own

creativity, contribution, andfocus to add more value tothe marketplace and put thatmoney in your FreedomFund? You can. The time tobeginisnow....

Findawaytoearnorsaveanextra $500 per month, or$6,000ayear.Ifitisinvestedatan8%returnover40years,it is worth $1.5 million—rememberourpizzaexample.If you find a way to earn

$1,000permonth,or$12,000a year, that’s worth $3million in your nest egg. Ifyoufindawaytoearn$3,000permonth,or$36,000ayear,that’s worth $9 million inyour nest egg. What’s thelesson? Go add value, earnmore, and invest yourearnings, and you can createanyleveloffinancialfreedomyoutrulydesire.

9. “Instead, whoever wants to becomegreat among you, must be yourservant,” Matthew 20:26, NewInternationalVersion.

CHAPTER3.5

SPEEDITUP:3.REDUCEFEES

ANDTAXES(ANDINVESTTHEDIFFERENCE)

Wehavewhatit

takestotakewhatyouhave.

—SUGGESTEDIRSMOTTO

“Youmustpaytaxes.Butthere’snolawthatsaysyougottaleave

atip.”—MORGANSTANLEYADVERTISEMENT

So now you’re rocking and

rolling—you’re speeding upyour path to financialfreedom by saving more andearning more! What’s left?Doesn’t that cover it?Actually,no.Younowknowas an insider that it’s notwhatyouearnthatmatters,it’swhatyoukeep.Ourthirdstrategy for speeding thingsup is to getmoremoney outof your investments byreducingyour feesand taxes,and reinvesting the

difference.Remember our three

childhood friends fromchapter 2.2, “Myth 2: ‘OurFees? They’re a Small PricetoPay!’ ”?Theyall invested$100,000attheageof35andearned a 7% return on theirinvestment.Buteachonewassubject to a different set offees—and the differencebetweenthe1%,2%,and3%feescameout tohundredsofthousands of dollars.Taylor,

who paid just 1% in fees,accumulatedalmosttwiceasmuchmoney as her friendJason,whopaid3%infees.Her investment grew to$574,349, while he was leftwithonly$324,340!Remember, those hidden

feesonmutualfundsaveragean astronomical 3.17%. Thedifference between owninghigh-cost, fee-laden mutualfunds versus low-cost indexfundscould literallycostyou

a decade’s worth of yourlife’s work—talk aboutslowing you down on yourpath to Financial Freedom!And to add insult to injury,studies show that the highfees that come along withthose mutual funds almostnever lead to increasedperformance.

So stay away fromexcessive fees. Run for thehills. Find low-cost indexfunds to invest in and heedthe warning of Jack Bogle,

who showed us that payingthrough-the-nose fees caneatupasmuchas50%to70%ofyour future nest egg! Themantra is simple: take themoney you save on fees andreinvest it for compoundedgrowth. This strategy isanotherfastlanetofreedom.And what about an even

bigger bite of your savings?Doyouknowwhatthesinglelargest bite to come out ofyournesteggis?Surveysays:

taxes!Over the course of our

lives, theaverageAmericanpays more than half of hisor her income to anassortmentoftaxes:incometax, property tax, sales tax,taxatthepump,andsoon.(According to what manyexperts estimate, currently,that’s 54.25 cents perdollar.)Goodol’UncleSam.Andwe’renotdoneyet.After 54.25% has been

lopped off for the tax man,youcanalsosaygood-byetoanother17.25%ofeachdollaryouearn in interest and fees.Gotacar,ahouse,anycreditcard or student loan debt? InApril 2014 the average UShousehold had credit carddebtofover$15,000;studentloan debt of over $33,000;and mortgage debt of over$150,000.Asanation,weareuptooureyeballsindebt.

The fact is, on average,approximately one-third oftheincomeyouhaveleftaftertaxeswillbespentonpayingdowninterest!That leaves you with

(drumroll, please) awhopping 28.5% of yourhard-earned income leftover to pay for everythingelse in life: food, clothing,shelter, education, healthcare, travel, entertainment,andanythingelseyouhappen

tostumbleuponatthemalloronAmazon!Plus,outofthissame number, you have tofind a way to save andinvest for FinancialFreedom, or at least someformofretirementincome!Becoming more efficient

withyourtaxesisonewaytoget back some of that 54%you’ve given away. Keepmore of your hard-earnedincome,andthat’smoneythatyou could invest and

compound to achieve yourvision of Financial Freedomquicker.In fact, if you’re a high-

income earner, living in ahigh-income state likeCalifornia(asIusedto),yourtotal tax bill (includingincome,investment,payroll,Obamacare, and SocialSecurity) clocks in at 62%.Whichmeansthatunlessyouhaveanefficienttaxstrategy,yougettokeeponly38cents

outofeverydollaryouearn.There’s no good reason to

paymorethanyouhaveto—in fact, it’s your right as anAmerican not to pay morethanyouhaveto.AsBillingsLearned Hand, one of themost influential judges of alltime,stated:

Anyonemayarrangehisaffairs so that his taxesshall be as low aspossible;heisnotbound

to choose that patternwhich best pays theTreasury. There is noteven a patriotic duty toincrease one’s taxes.Overandoveragain theCourts have said thatthere is nothing sinisterinsoarrangingaffairsasto keep taxes as low aspossible. Everyone doesit, rich and poor alikeand all do right, fornobodyowesanypublic

duty to pay more thanthelawdemands.

I follow Judge Hand’swisdom. I don’t believe inpaying any more than Iabsolutely have to, andneither should you. Icontinually look for legal,ethicalways to lowermy taxbill,andIdomybesttomakeuse of government initiativesthat allow me to build mynest egg in a tax-free

environment.I learnedfromthoseI interviewedthat taxefficiencyisoneofthemostdirect pathways to shortenthetimeittakestogetfromwhereyouarenowtowhereyouwanttobefinancially.

Iamproudtobepayingtaxesinthe

UnitedStates.Theonlythingis,Icouldbejustasproudforhalfofthe

money.

—ARTHURGODFREY

Let’sbeclear:I’mapatriot.Ilove America. I am one ofmillions of examples of theAmerican Dream, and I’mhappy (well, perhaps nothappy, but proud) to paymytaxes. Yet I pay millions ofdollars in taxes every year.My tax bill is more than Iever thought I’d earn in alifetime,much less inayear.But I know from Yale’s

DavidSwensenthat thereareonlythreeforcesthatcanhelpyou achieve the greatestreturns:1.Assetallocation,2.Diversification,3.Taxefficiency.

It helps, of course, thatDavid runs a nonprofitorganization, but for the restof us, even with current taxlaws, there are ways to

maximize investment returnsandminimizeyourtaxbill.

Money Power Principle 4.Tax efficiency is one of thesimplest ways tocontinuously increase thereal returns on yourportfolio. Tax efficiencyequals faster financialfreedom.(Readeralert:Ifyourbrain

isgoingtoblurasItalkabouttaxes, I get it! Then simply

jumpimmediatelytothenextchapter so you don’t losemomentum. But be sure toschedule a time to sit downwith your fiduciary and/or ataxexpert to learnhow tobemost tax efficient with yourinvestments.Ifyou’rewillingto go for it, the next fourpages offer some simple taxdistinctions that, whenunderstood,willallowyoutokeep more of your investedincome and achieve your

financialdreamsfaster.)

PICKYOURTAX!

What if you realized that asmall amount of taxknowledge could save youfromneedlesslypaying30%of what you earned to thetaxman?Howmuch fastercould you achieve yourfinancialgoals?

You need to pay closeattention to three types oftaxesasaninvestor:1.OrdinaryIncomeTax.

As stated, if you’re ahigh-income earner,your combined federaland state income taxesarenearingorexceeding50%.

2.Long-TermCapitalGains.This is a tax oninvestments, which is

only 20% if you holdyour investment forlonger than one yearbeforeyousell.

3.Short-TermCapitalGains.This is a tax oninvestment gains if theinvestmentissoldbeforeyou have held it for aminimum of one year.Today the rates arecurrently the same asordinary income taxes.Ouch!

Now that you know thepowerofcompounding,I’msure you realize howcompounding your growthafter takinga50%taxbiteas opposed to a 20% taxbitecanmeanthedifferencebetween arriving at yourfinancial goals a decadeearlyornevergettingthereatall.Want to understand the

realimpactofthis?

• If you’re getting an 8%gross return on yourmutualfund,you’repayingasmuch as 3% in fees onaverage—let’s call it 2%,conservatively.

•Sonowyour8%returnnetsyou 6% after fees. Butwe’renotdoneyet.

• If you’re a high-incomeearner from California orNew York with a 50%federal and state ordinaryincome tax, you’re left

with closer to 3%on yourinvestment after all thesefeesandtaxes.

Remember you get tospend only what you keep;ifyou investwitha3%netreturn, it takes 24 years todoubleyourmoney.If you made the same

investment in an index fund,your 8% return would havefees in the range of 10 to 50basis points (or 0.10% to

0.50%). We’ll go for thelarger number just to beconservative.Thatmeansyouhave a 7.5% return (8% -0.5% = 7.5%), but since theindex is not tradingconstantly, you defer all tax,andsoyournetreturnfortheyearis7.5%.Thatmeansyoucanreinvestthosereturnsandtap into the incredible powerof compounding without thetaxmaninterfering.If you conscientiously

manage your investmentsfor tax efficiency, your7.5% allows you to doubleyour investments in 9.6years instead of 24 years!Now do you see theimportance of both tax andfeeefficiency?Sohowdoyouloweryour

tax bill and keep more ofyour earnings so you cancompoundyourinvestmentsand achieve your idea ofFinancialFreedomfaster?

• Make sure that whereverpossible, you invest in away that allows you todefer your taxes (401[k],IRA, annuity, definedbenefit plan) so that youcompoundtaxfreeandpaytax only at the time yousell the investment. Or setup a future tax-freeenvironment by growingyourinvestmentsinaRoth.

• When you do sell any

investment held outside ofatax-deferredaccount(likean IRA), make sure youhold for a minimum of ayear and a day in order toqualify for the lower long-term capital gains rate(again, at the time of thiswritingtherateis20%).

ONEMORETHING:BEWARE

OFMUTUALFUNDS

Formostpeople,ahomesaleisusuallyaonce-or twice-a-decade thing, and youraccountant or tax expert caneasily explainhow todo thismost tax-efficiently.But let’stake a look at mutual funds.Do you know what thosemutual fund managers ofyours are doing every day?

They’re trading. They arebuyingandsellingstocksandbondsonadaily,monthly,orquarterly basis. This is whattheindustrycalls“turnover.”According to Charlie

Farrell of CBSMarketWatch, “Soalthough their marketingmaterial encouragesinvestors to buy and hold,the managers certainlydon’t practice what theypreach. What they really

mean is buyandhold theirmutual fund, while theytrade your retirementsavingslikecrazy.”Experts say that the vast

majority of mutual funds donot hold on to theirinvestments for a full year.Why else would you buythem other than hoping theycan trade their way to betterperformance?And you knowwhat that means? Unlessyou’re holding all of your

mutual funds inside your401(k), you’re typicallypayingordinaryincometaxesonanygains.10In short, there’s a good

chance you’re beingcharged35%,45%,orupto50%ormoreinincometax,depending on what stateyouliveinandyourincomelevel. All this tax, and youdidn’tevensellyourmutualfund! So instead of keeping

all your gains and havingthem continue to compoundtaxdeferred,youaretakingadevastating hit to yourcompounding ability that iscompletely avoidable if youunderstandtaxefficiency.Even if you’ve maxed out

your401(k)andIRA,youcanstill make investments in aformthatallowsyoutodefertaxes. Index funds do notconstantly trade individualcompanies; they usually hold

a fixed basket of companiesthatchangesonlyiftheindexthat the fund tracks actuallychanges—whichisrare.As a result, if you’re

investing in an index longterm, you’re not taking thetax bite each year; instead,you’re deferring the taxes,since you haven’t soldanything. That money canremain in the fund andcontinue to compoundearningstoitsowner:you!

Yourfiduciaryoragreattax expert can help youunderstandallthewaysyoucan produce more netgrowth in your FreedomFund so that yourcompounding process ismaximized.Remember,thiscan save you years or evendecades!And finally, in section 5,

there is a strategy that you’lllearnabout inthe“SecretsoftheUltrawealthy”chapterthat

you can use, too: an IRS-approved method that willmake a huge difference byallowing you to compoundyour investments and helpyou keep your nest egg taxfree.Thiscouldallowyou toachieve your financial goalsup to 25% to 50% fasterwithout taking any greaterinvestmentrisks!HaveIgotyourattention?I

hope so. Because it’s yourmoney and it’s your life!

Don’t let anyone take it orwaste it! So you now havethree fast-track strategies tospeedupthepaceandwinthemoneygame:1. Save more and invest thedifference.

2.Earnmore(addvalue)andinvestthedifference.

3.Reduce feesand taxesandinvestthedifference.

Now it’s time to turn on

the juice and take a quicklookatsomeofthewaysyoucan increase what yourinvestmentsearn....

10. However, in certain situations, thegainsmaybelong-termifthefundheldthepositionforanextendedperiod.

CHAPTER3.6

SPEEDITUP:4.GETBETTERRETURNSAND

SPEEDYOURWAYTOVICTORY

Ifyou’reprepared,

andyouknowwhatittakes,it’snotarisk.Youjusthavetofigureouthowtogetthere.Thereisalwaysawaytoget

there.—MARKCUBAN

How do you get a greaterreturn while still reducingrisk? Most people think thatin order to get high returns,

you have to take huge risks.But the greatest investorsknow that’s simply not thecase. Remember Kyle Bassfromchapter2.8,“YouGottaTakeHuge Risks to Get BigRewards”? He blew thehigh-risk,high-returnmythout of the water withsomething calledasymmetricrisk/reward.That’s a fancy term for a

pretty simple concept. Howdo you explain it? Kyle

turned $30 million into $2billion by finding aninvestmentopportunitywhereheriskedonly3centsfortheopportunity to make $1—more accurately, $3 millionfor a $100 million upside—andexpandedthatrisk/rewardratio intobillions.Rememberhow he taught his sons tomake “riskless” investmentswith significant upside bybuying nickels? The upside(reward) is way bigger than

the downside (risk) on thisdeal, which makes itasymmetric.OneofPaulTudorJones’s

greatest successes is that heknows he can be wrong andstillbesuccessful,becauseheuses asymmetric risk/rewardto guide his investmentdecisions. He’s alwayslooking for what he calls a5:1 investment—where if herisks $1, he believes he canmake$5.

Jones is willing to risk $1million when his researchshowshe’s likelytomake$5million. Of course, he couldbewrong. But if he uses thesame5:1formulaonhisnextinvestment, and he’ssuccessful,hewillhavemade$5 million, minus the firstinvestmentlossof$1million,for a net investment gain of$4million.Using this formula of

constantlyinvestingwherehe

has the opportunity forasymmetric rewards for therisk he’s taking, Paul couldbe wrong four out of fivetimes and break even. If heloses$1millionfourtimesina row trying to make $5million,he’llhavelostatotalof $4 million. But when thefifth decision is a success,with a single home run he’searned back his total $5million investment. Thegreatest investors in history

know how tomaximize theirreturns—they know how tosetthegameuptowin.You’ll learn more about

what Paul teaches in section6, “Invest Like the .001%:The Billionaire’s Playbook,”and in my interview withhim.Heisgoingtosharewithyouhis“$100,000MBA,”orthe most important thingshe’s learned about investing—oneofwhich is how tobewrongandstillwin!

So asymmetric risk/rewardis the firstway to get higherreturns. The second way?You’ll learn more about thisin chapter 4.1 on assetallocation, but for now, justknow that if real estate’smantra is “Location!Location!Location!”thenthemantra for getting betterreturnswhile reducingrisk is“Diversification!Diversification!Diversification!” Effective

diversification not onlyreduces your risk but alsooffers you the opportunity tomaximizeyourreturns.Asset allocation is theone

thing that every investmentprofessional I’ve talked to,thebestintheworld,hassaidisthekeyfactorinwhereyouend up financially. It’s themost important skill, and it’sthe onemost investors knowlittleabout.Soinchapter4.1,“The Ultimate Bucket List:

Asset Allocation,” you’regoing to learn the power ofassetallocationandbeabletoimplement its gifts to benefityou and your family for therest of your life. On top ofthat, you’re going to see insection 6 the exact assetallocation of some of themost successful investors inthe world who haveconsistently produced thehighestreturns.Yes, you read that right:

you’ll be able to model theexact strategies of the bestinvestors on the planet.You’llhaveRayDalio’sassetallocation! Obviously, pastperformance doesn’tguaranteefutureperformance,but in thecaseofRayDalio,your strategy is coming fromone of the greatest investorsof all time, and his focus isgettingyouthegreatestreturnwiththeleastamountofrisk.Dalio has been estimating

every type of market andfindingwhat the best ratio isthrough asset allocation forover 20 years. He has morethan $160 billion in assetsunder management and arecord of only three losingyearsoutofthelast22.Afterreading this book, you willlearn a strategy that is basedon Ray’s groundbreakingapproach for the world’swealthiest individuals,institutions,andgovernments.

HOWFASTCANYOUGO?

It’s probably pretty obviousthat we’d all like betterreturns. But what’s lessobviousisthemassiveimpactthat better returns have onyour time horizon forinvesting. The “rule of 72”says that it takes 72 years todouble your money at a 1%compounded rate. So if

you’ve got $10,000 to investat1%compounded,youmaynot be around to see thatmoney double. You can cutthat timeline in half bydoublingyourrateto2%,andinhalfagainbydoublingthatrate to 4%! So what’s thedifference between a 10%return and a 4% return? A10% return doubles every7.2 years; a 4% returndoubles every 18 years! Ifyouwant to radically change

yourplanandgettofinancialfreedominsevenyearsversus18 years, you can. Or 14yearsinsteadof36!Thosearethe types of differences thatare possible when you learnhowtogetbetterreturns.Andthemostimportantthingistoget these greater returnswithout taking significantlygreater risks whereverpossible. You’re looking forthat asymmetric risk/rewardthat all great investors seek.

It’s elusive, but it’s outthere, and this is just onemore way that you canspeed up your approach torealizing your dreams.(Take a look at the table onpage284toseehowfast—orslow—your money willdouble.)Your next question is

likely, “Where do I startlooking for my ownasymmetric risk/rewardopportunities?” Sometimes

theyturnupintheunlikeliestplaces. For me—maybebecause I grew up inSouthern California—I’vealways believed in includingreal estate as a keycomponentofmyportfolio.Ifyou ever turn on the news,it’s hard not to notice thedemographic shift that’staking place in this countryrightnow,with10,000peopleturning 65 every day. Theboomers are hitting

retirement in droves. In theback of my mind, I alwaysknewtherehadtobeawaytoprovidesomeofmycapitaltohelp expand quality facilitiesforpeopleentering this stageof life, while providing aprofit for me. But it wasn’tuntil I visited my wife’sgrandmother in Vancouver,British Columbia, that Iconnected the dots for afuture investment inretirementcommunities.

Mywife,myBonniePearl—my “Sage”—is the love ofmy life. Her family is myfamily. Her grandma Hildawasmygrandma.Ilovedherdearly. After being marriedfor 58 years, her husbanddied, and we all watched asshe suffered. For ten years,Hildacriedherselftosleepatnight. She was living on herown, proud and independent,but heart-achingly lonely,missing her life partner. We

didn’t have the heart to puther in a home, yet withHilda’s dementia worsening,BonniePearl’smom,Sharon,was determined to find her ahome with the best possiblecare.We had heard that some

retirement communities werepretty spectacular, and afterweeks of looking, Sharonfinally found a communitythat gave theFourSeasons arunforitsmoney—thisplace

is amazing. I always said I’dstaythere,andIdon’tsaythataboutmanyplaces.Soguesswhathappenedto

Grandmomaftermoving intohernewdigs?Forgetthatshetraded up to a beautiful newapartment with modernamenities and 24-hour care.That was just the tip of theiceberg. More amazing thanthat,shebeganasecondlife!At 88 years old, shetransformed into a new

womanandfellinloveagain.A 92-year-old Italiancaptured her heart. (“I don’tlet him under my shirt yet,buthe triesall the time,”shesaid with a grin.) They hadfour beautiful years togetherbeforehepassedaway,and Ikid you not, at his funeral,she met her next beau. Herlast decadewas filled with aqualityoflifeshenevercouldhave envisioned. She foundhappiness, joy, love, and

friendship again. It was anunexpectedlastchapterofherlife and a reminder that loveis the ultimatewealth. It canshowupunexpectedanytime,anywhere—anditisnevertoolate.Grandmom’s story opened

up the realization that therewasarealneedforretirementcommunities that wereeffectively staffed andbeautiful just like hers. HowcouldIfindawaytoinvestin

an opportunity like that?Obviouslyjustwalkingintoahome and asking to invest isprobably not the mosteffective strategy. So I wenttomypersonal advisor,AjayGuptaatStronghold,andtoldhim what I believed in andwhat I was looking for. Hefound an opportunity wheremyinvestmentnotonlystoodto make a great return butalso aligned with my valuesandbeliefsandwithabroader

trend in the market. Manyexperts look at this categoryas a “demographicinevitability”because the75-year-old age segment willgrow by 84% between 2010and 2030. Demand will begreaterthansupply!Ajay found an investment

company run by an amazingentrepreneur who builds,invests, and manages high-endseniorlivingfacilities.Hestarted with nothing and has

built it into a $3 billionenterprise.He finds the sites,puts up as much as half themoney himself, and thenrounds up a small group ofinvestors to put up the rest.Here’s what I get inexchange: I get a preferredreturn on my money (whichare income payments eachmonth) based on theprofitability of the facility.Thiscanrange6%to8%peryear, and because it’s real

estate, I also get the taxbenefit of depreciation,whichmeans I don’t have topay income tax on the entireincomepayment.Plus, Iowna piece of the real estate,which, over the long term, Ibelievewillincreaseinvalue.Iget toparticipate in theexitstrategy when the investorgroup eventually sells thefacility. To be clear, thisspecific investment is limitedto investors who are

accredited11 andmeet certainnet worth/incomerequirements. But don’t fret!For those who arenonaccredited, there arepublicly traded REITs (realestate investment trusts) thatfocus solely on owning abasket of properties aroundthe country. These can bepurchased for as little as$25a share at the time of thiswriting and offer dividend

(income) payments eachquarter. Do your homeworkand/or have a fiduciaryadvisorhelpyoufindthebestavailable.Ifseniorhousingseemsout

of reach, another strategy inreal estate is lending yourmoneywith a first trust deedas security. In the chapteronasset allocation, I’ll describeto you an example of howinvestors who need moneywill take short-term loans at

high rates—for example, aone-yearloanfor8%or10%,and you get the first trustdeedascollateral.Whendoneeffectively,youcanloan,say,$50,000ona$100,000home,or $500,000 on a $1 millionhome,andthepropertycoulddrop 50%, and you’d still bein good shape. While othersare collecting 3% and 4%returns, you’re getting 8% to10%.Once you start focusing

passionately onways to savemore, earnmore, reduce feesand taxes, and find betterreturns with even less risk,you’ll be amazed at howmany new opportunitiesyou’ll discover. Again, agreat fiduciary advisorwon’tjustguideyou;heor shecanalso help you to findinvestmentopportunitieswiththat magical asymmetricrisk/rewardthatallsuccessfulinvestorsseek.

Okay,we’recoming to thehome stretch of this section.This final stepcanmassivelyincrease the speed at whichyou achieve your mostimportant financial goals.Plus, it’s fun to dream andexplore.You’regoingtolovethe journey of this nextchapter.Let’sdiscover...

11. For an individual to be considered

an accredited investor, hemust have anetworthofat leastUS$1million,notincluding the value of his primaryresidence; or have income of at least$200,000 each year for the last twoyears (or $300,000 together with aspouseifmarried).

CHAPTER3.7

SPEEDITUP:5.CHANGEYOURLIFE—AND

LIFESTYLE—FORTHEBETTER

Myfavoritethingsin

lifedon’tcostanymoney.It’sreallyclearthatthemostpreciousresourceweallhaveis

time.—STEVEJOBS

What would happen if, forjust a moment, youconsideredmakingachange?Abigchange,likepickingupand moving to another city?

You could be living large inBoulder, Colorado, for whatyou’re paying just in rent inNew York City or SanFrancisco.Thecostofhomes,food, taxes, and so on differwildly depending on whereyou live. Our country—ourworld—is one of boundlessopportunity waiting for youto explore. So why not takeoff the blinders just for amomenttoconsiderwhatlifecouldbelikeifyoulivedina

newcityortown?Areyoufreezingyourbutt

offintheMidwestwinters,orbattling the heat of thesummer in Atlanta,wondering year after yearwhy you don’t hoof it to abetter climate? As a nativeson of Southern California,I’malwaysamazedbypeoplewhospendtheirlivesfreezingto death in the Arctic tundraof Minneapolis or Chicago.And even if you don’t care

abouttheweather,you’vegotto care about your cost ofliving.Amillion-dollarhomein Washington, DC, costs afraction of that in Raleigh,North Carolina—a city ratedas the third best place forbusiness and careers byForbes, not to mention ahigh-techandeducationalhub(that also has greatweather).Or what about somethingmorelocal:amovefromSanFranciscotoSanDiego?You

can stay in the great state ofCalifornia and still cut yourhousingcostsby32%.It’s one thing to be tax-

efficient inyour investments;it’sanothertobetax-efficientin your life. You’re trying tosave 5% here, 10% there.What about saving 10% or15% or more in everythingyou do by moving to a lessexpensive city or a tax-friendlystate?Thinkaboutallthe additional money you’d

have to invest, share, donateifitdidn’tgostraighttorent,food, or transportation. Onesinglemovecouldgiveyoua10% to 30% increase inyour income. If you’realready saving 10%, with amoveyounowcansave20%to 40% without spending anadditionaldime.Thischangeinyoursavingsratewillputsome rocket fuel in yourmoney machine that willmassively improve thepace

at which you achievefinancialfreedom.I know what you’re going

tosay:“Move toanewcity?You’vegottobecrazy,Tony.Ican’tjustpickupandmove!Ihavea job, Ihavefamily, Ihave friends; I’ve lived mywhole life in Dallas.” (OrSeattle orMiamiorDenver.)Butifyousawthatyoucouldsave ten years of yourinvesting life, reach yourFinancial Freedom goals a

decade sooner or evenmore,mightitbeworthit?Generations of Americans

havelookedatretirementasatimetopickupandmovetoawarmer climate, a lessexpensive city, or to abeautiful, low-key place likeBoise, Idaho, or Greenville,South Carolina, to breatheclean air and enjoy theoutdoors.Butwhywaituntilretirement? Why notchange your zip code

today?Whynotfindaplaceto raise your family thatallows you to reduce yourcost of living and elevateyour quality of life at thesame time, while you’reyoung enough for both youand your children to reaptherewards?Ifyou’restillshakingyour

head no, I get it. I was withyou on this one, actually—until recently. I grew up inCalifornia and never

imagined living anywhereelse. Even when I startedtraveling extensively andbuying homes and propertiesallover theworld,Californiawasalwaysmyhomebase.Then in 2012 California

raised taxes on the highestincomeearnersbymore than30%, to 13.3%. After alifetimeofpayingthroughthenose on state income taxes(historically among the mostpunishinginthecountry),the

tax situation got evenworse.My effective tax rate—afterfederal and state incometaxes, Social Security,investment taxes, payrolltaxes,andtheObamacaretax—shotupto62%.ThatmeantI was left with 38 cents onevery dollar. Just 38 cents!And on top of that, the newstateincometaxincreasewasmade retroactive, meaningthat I was going to have topayadditional taxon income

I had already earned thatyear. They changed the rulesof the game after the fact! Ihad reached my limit—thiswas outrageous. Because ofmytravelandthetimeIspentin my other homes, I wasliving in California for only90 days out of the year! Just90 days for literally amultimillion-dollar state taxbill?Californiawasnolongersustainable for me—I’d hadenough!

I had played by the rules,and the rules had come backto bite me. But instead offeeling sorry for myself, Ivoted with my conscience—orwithmyfeet,Ishouldsay.Along with thousands ofothers,SageandIrealizedwewere no longer welcome inCalifornia. So we decided totaketheplungeandlookforanew place to live. (In fact,California has lost over $30billion in annual income tax

revenue over the last twodecades to states such asNevada,Arizona, Texas, andWisconsin.Ifyouwanttoseehowbigthistrendisandhowmany people are movingfrom high-tax to low-taxstates, go towww.howmoneywalks.com.)Weturneditintoakindof

treasure hunt. We looked atplaces like Lake Tahoe,where we really liked themountains, the mix of

seasons, and the small-townvibe; and Austin, Texas,where music, energy, andhigh tech come together tocreate the fabric of aninnovative and connectedcommunity.We looked at Florida too,

reluctantly. All I knew ofFlorida were alligators andold people. But that’s thestereotype, not the reality.WhatwefoundinsteadwasaparadiseinPalmBeach.After

looking at 88 properties inthree states in just threeweeks (I told you I’m amassive-action guy), wefound the only brand-newhome on the water in PalmBeach. Two acres, nearly200feetofoceanfrontageonone side, and the AtlanticIntracoastalWaterwayon theother, with a 50-foot boatdock. I feel like I’m back inmy home in Fiji—it’sextraordinary. Sage has

everything she wants closeby: world-class restaurants,shopping, easy access to theentireEastCoast, and all theprivacyandserenityoflivingonan island righthere in theUnitedStates.Of course, the price tag

was way higher than I everwanted or imagined payingfor a home. But Florida hasnostateincometax.Wewentfrom13.3% state income taxin California to nothing—

nada, zip. So here’s thekicker: with the state taxeswe’re saving every year, weare literally paying off ourentirenewhomeinsixyears!Did you catch that? We’repaying for our entire homeoutofthetaxsavingswenowget as residents of theSunshineState instead of theGoldenState.Kindofmakesyou think we should havedone it sooner, huh? Betterlatethannever.

Andifthatweren’tenough(which it is!), we’vemassively improved ourquality of life in the bargain.Everydaywepinchourselvesas we wake up withmagnificent weather: 78degreeswithacoolbreezeoffthe ocean andwater you canmelt into, it’s so warm. Infact,SageandIhavebecomealmost evangelical in ourenthusiasm for our newhome; we tell friends and

familytothinkaboutmovingdown to Palm Beach to joinus. My youngest son hasalready moved here. Two ofmy dearest friends in theworldareon theirwaydownfrom Connecticut and NewYork, and they’re here tostay. And, of course, even ifthey’d decided not to movehere,wewould have happilytaken our tax savings andflown them all out here tovisitusinparadiseanyway!

So whether or not youdecide to join us in PalmBeach,there’sanewzipcodeout there that might be justrightforyou.Youdon’thaveto wait for retirement to getthere. From Nashville,Tennessee, to Portland,Oregon, and from Augusta,Maine, to Ann Arbor,Michigan, there arehundredsof affordable havens foryoung and old alike: retireeslooking to stretch their

savingsandcontinuetoenjoya rich, rewarding lifestyle;and young professionalslooking to jump-start orreimagine their careers.Check out U.S. News &WorldReport’sfeatureonthebestplacestoliveforaslittleas $75 a day(http://money.usnews.com/money/retirement/articles/2013/10/15/the-best-places-to-retire-on-75-a-day).Also seriously considerthesevenstateswherethere’sno state income tax at all:

Alaska, Florida, Nevada,South Dakota, Texas,Washington, and Wyoming.Or try Tennessee and NewHampshire, where only yourdividend and interest incomeare taxed at the state level.The Memphis and Nashvillemusic scenes and moremoney in your pocket—howbaddoesthatsound?

GIVEYOURGLOBEASPIN

And while we’re at it, whynot thinkall theway outsidethe box on this one? Forgetjusta10%to20%increaseinyour spending power, howabout cutting your cost ofliving by a third, or in half?Getoutyourglobeandgiveitaspin—andthinkaboutsomeof the beautiful (and

beautifullyaffordable) placesyou could live if only youexpandedyourhorizons.There are huge

opportunities all over theworld to improve yourlifestyle and lower yourexpenses, in places such asBali, Fiji, Uruguay, CostaRica—if you have thecourage and the freedom togo for it! You can rent anextraordinary apartment inthe mountains outside of

Buenos Aires, Argentina, fora fraction of what it wouldcostforastudiowalk-upinamajorUScity.Youcanmoveto the Czech Republic andfind a room just offWenceslasSquareinPrague’sNewTown area, the heart ofthecity’sculturalcommunity.Remember my BMW-

lovingson?Afterhetradedinhisfancywheelsforachanceat a better lifestyle, hedecided to think really big.

Hewentdown toCostaRicaforacoupleofdaysandwascompletely blown away bythe extraordinary culture.Turns out there is a hugeEnglish-speaking communityin Costa Rica—tons of ex-pats who discovered theirmoney went a lot furtherdownthere,theirdayswerealittlericher, theirnightsmoreexciting.AndCostaRicaisn’tjust a place to relax andunwind.Someofour leading

companies have establishedimportantbasesofoperationsthere. Procter & Gamble,Heinz, Microsoft, Intel—thelist goes on and on, whichmeans there are countlesscareeropportunitiesavailable.Life can be an adventure.

Take a trip and explore aforeign city with an eyetoward moving there. Turnyournextvacationintoafact-findingexpedition,where theendgameis to tryonawhole

new way of life. You don’thave to live in a box and gothrough the same motionseach and every day. Youdon’t have to worry aboutmakingyourrentorcoveringyour basic expenses if youopen yourself up to the ideaof massive change. Liftyourself from your comfortzone and spend 60%, 70%,even80%lessmoney,gettingyou to your goal of financialfreedom that much faster.

And while you’re at it,improve the quality of yourlifeinanexponentialway.Even if amove across the

worldseemstooradicalnow,think about this option overthe long term—a five-yearplan or a ten-year plan, ormaybe a retirement plan.Why not at least openyourself to the idea thatthere’s a beautiful andaffordable place out therewaitingtobediscovered?Our

world is dynamic—it’schangingconstantly.Theideathatamovewouldbebadforyour kids is a thing of thepast. We live in a globaleconomy; what an amazingexperience to give your kidsan opportunity to see theworld, learn a new language,adapt to a new culture. Youcan make a family decisionaboutcreatingabetterqualityoflifeforeveryone.

Lifeislikeabicycle.Tokeepyourbalance,youmustkeepmoving.

—ALBERTEINSTEIN

Attheendof theday, it’sallabout being more efficientandmoreeffectivewithyourearnings and your savingsandspeedingupyourpath toFinancial Freedom. You canfind a way to improve thequality of your life whilereducing your cost of living

simultaneously. It’s theultimatewin-win.At the endof the day, the bestinvestment you can make istheoneyoumakeinyourselfandyourlifestyle.

Wow, you’ve taken threegiant steps toward FinancialFreedom:Step 1. You’ve made themost important financialdecisionofyourlife.

You’ve decided tobecome an investor, notmerely a consumer.You’ve committed apercentage of yourincome to save andinvest in your FreedomFund, and you’veautomatedit.

Step 2. You’ve become aninsiderwhoknowstherulesofthegame.

You’ve debunked the 9

Myths, and you’ll neverbe taken advantage ofagain.

Step 3. You’ve made thegamewinnable.• You know exactly howmuch money it will takefor you to achieveFinancial Security,Independence, orFreedom. You know yourThree to Thrive: yourshort-term, medium-term,

andlong-termgoals.•You’ve come up with aninitial financial plan anda timeline forachievement.You’veusedthe app to calculateapproximately how long itwill take you to meetfinancialgoalsyou’remostcommittedto.

•You’ve reviewed the fiveways to speed up yourplan. Ideally, you’vebegun to brainstorm ways

to apply these insights tosock awaymoremoney orkeep more money in yourfinancial Freedom Fund.This can help you reachyour cherished financialgoalsevenquicker.

So what’s next? Step 4answers the obviousquestion that’s probablyburning in your mind:“Where do I put mymoney? What specific

investments will maximizemy upside and protect meagainst the downside?” It’stime to make the mostimportant investmentdecision of your life. It’stime to learn the power ofassetallocation...

SECTION4

MAKETHEMOSTIMPORTANTINVESTMENTDECISIONOFYOURLIFE

CHAPTER4.1

THEULTIMATEBUCKETLIST:

ASSETALLOCATION

Nevertestthedepth

oftheriverwithboth

feet.—WARRENBUFFETT

Say you’ve got your moneymachine cranking: your bossjust gave you an unexpected$10,000 bonus, or perhapsyou suddenly came into a$100,000 inheritance. Whatwouldyoudowithit?Wouldyou put it in your savingsaccount or your IRA? Invest

in a virtual pocketful ofBitcoin? Bid on a case ofvintagewineoneBay?FlytoVegasandbet it allona rollof the dice? Or maybe buy100 shares of Apple stock?Would you put it all in oneplaceorspreaditaround?The answer to that last

question is the key to yourfinancialfuture.Asset allocation is the

most important investmentdecision of your lifetime,

more important than anysingle investment you’regoing to make in stocks,bonds,realestate,oranythingelse. What’s the difference?Well, the financial decisionsyou’ve already made—toautomatically invest apercentage of your incomefor compound returns—getsyou in the game. But onceyoudecidetogetinthegame,nowyou’vegottostayinthegame—for the long term!

You can lose it all if youaren’t careful about whereyou put your money.Anybody can becomewealthy; asset allocation ishowyoustaywealthy.But don’t just take it from

me.ListentoDavidSwensen,the rock star of institutionalinvesting. Remember, he’sthe guy who grew Yale’sportfolio from $1 billion tomore than $23.9 billion byachieving a 13.9% average

annual return across threedecades of bear and bullmarkets. Nobody does itbetter.WhenIsatdownwithhim in his office in NewHaven, Connecticut, I asked,“Whatarethemostimportantinsights investors must haveto achieve financialfreedom?”He told me thatthere are only three toolsfor reducing your risk andincreasing your potentialforfinancialsuccess:

1. Security selection—stockpicking;

2. Market timing—short-termbetsonthedirectionofthemarket;and

3. Asset allocation—yourlong-term strategy fordiversifiedinvesting.

Before I could even askabout the first two, he madeone thing perfectly clear:“Overwhelmingly, the most

importantofthethreeisassetallocation,” he said. “Itactuallyexplainsmorethanahundredpercentof returns intheinvestmentworld.”Waitasecond:Howcoulditbemorethan 100%? Because thosefees, taxes, and losses thatcome along with stockpicking and market timingputadragonyourprofits.Asset allocation is more

thandiversification.Itmeansdividing up your money

among different classes, ortypes, of investments (suchas stocks, bonds,commodities,orrealestate)and in specific proportionsthat youdecide inadvance,according to your goals orneeds, risk tolerance, andstageoflife.Wow, that’s a mouthful,

isn’tit?Yet it’s the key to success

orfailurefortheworld’sbestfinancial players, including

every single one of theinvestors and traders Iinterviewed for this book.Paul Tudor Jones swears byit. Mary Callahan Erdoes,perhaps the most powerfulwoman onWall Street, leads22,000financialprofessionalswhoselivelihoodsdependsonit. Ray Dalio, who foundedthe largest hedge fund in theworld and is nowworth $14billionpersonally,livesit.This chapter takes a

complexsubjectandmakesitsimple enough foryou to acton and positively affect yourinvestmentreturnsfortherestof your life, so give it yourfullcommitmentandfocus!Itdoesn’t matter if you haveonly$1,000thatyou’regoingto save and invest or $1million.Theprinciplesyou’reabout to learn are critical tostartapplyingimmediately.Ifyou think you know themalready,it’stimetotakethem

tothenextlevel.Let’s talk about why asset

allocationissocrucialtoyourinvestmentplan,andhowyoucan start making it work foryoutoday.

Anyonewhothinksthere’ssafetyinnumbershasn’tlookedatthestockmarketpages.

—IRENEPETER

How many times have you

picked what looks like thefastest line at the grocerystore,butitturnsouttobetheslowest?Orhowoftendoyouswitch to the fast lane in atrafficjamandwatchthecarsin the slow lane whiz pastyou? You think you’regetting there faster, and thenyou’re wrong. And whatabout intimate relationships?In spite of how much youknow about yourself andwhat you believe and value,

have you ever chosen the“wrong” partner? We allknow that decision can havean extraordinary impact onthequalityofyourlife!Thesamethingcanhappen

with your investments.Except that when you makemistakes with your nest egg,if it’s too big a mistake, it’sall over. It can mean losingyour home. Or still lookingforworkwhenyou’re70.Orhaving no money for your

children’s education. That’swhy this chapter is soimportant.Asset allocation is the one

key skill that can set youapart from 99% of allinvestors.Andguesswhat?Itwon’tcostyouadime.DavidSwensenlikestoquoteHarryMarkowitz, theNobel Prize–winning father of modernportfolio theory, to whom Ialso reached out to interviewfor this book. He said

famously, “Diversification isthe only free lunch.” Why?Because spreading yourmoney across differentinvestments decreases yourrisk, increases your upsidereturnsovertime,anddoesn’tcostyouanything.We’ve all heard the old

adage “Don’t put all youreggs in one basket.” Well,asset allocation protects youfrom making that financialmistake.Itsoundslikesucha

basic rule, but how manypeople do you know whoviolateit?Ihavea friendwhogot so

excited about Apple that heput all his money in thecompany.Forawhile, itwasthe most successful stock inthe world—until it droppedby40%inamatterofweeks.Ouch. Then there’s anotherfriend who was in her 30swhen she quit her job as atelevision executive, sold her

house in Los Angeles at theheight of the real estatemarket boom, and used themoney to open a rustic dinerin Wyoming. She investedwhat was left in high-riskstocks and junk bonds,thinking the interest wouldprovide enough income tosupport her.And it did for awhile. But the stock marketcrash of 2008 wiped out herentire savings. She had tofold up her teepee and go

back to work as a freelancerfor a fraction of what sheusedtomake.

We’ve all heard horror

stories from the economicmeltdown. Maybe you know

somebabyboomerswhohadalltheirmoneytiedupinrealestate before the bottom fellout. Or a couple who wereready to retire with their401(k) full and their target-date funds about to mature.Theyhad theRVpickedout,the boat in the driveway, theitinerarydrawnupwithvisitsto the grandkidsmarked out.Then the financial worldunraveled. Their net worthwas cut nearly in half, and

their dream of retirementturned into 20more years ofwork.These stories are

heartbreaking, and I want tomake sure nothing like thateverhappenstoyou.Andthegoodnewsis,itneverhasto.That’s why I wrote thischapter: so that you’ll notonlybeprotectedbutalsocangrowyournesteggfaster.What’sthesimpleandcore

investment lesson here?

What goes up will comedown! Ray Dalio told mepoint-blank that in yourlifetime “it’s almost certainthatwhateveryou’regoingtoputyourmoneyin,therewillcome a day when you willlose fifty percent to seventypercent.” Yikes! That meansany investment you pick isgoing to lose half to two-thirds or more of its value!And don’t most peopletypically favor one type of

investment because they feelthey“know”moreabout thatarea,orbecauseit’scurrentlyproviding a “hot” return?Some people tend to put alltheir money in real estate,others in stocks, bonds, orcommodities. If you don’tdiversify enough, you standto lose your shirt! Are youhearing me? No matter howwellyouplan,therewillbeaday of reckoning for everytypeofasset.So,diversifyor

die. But if you diversifywell,you’llwin!By now I’m sure you’re

crystal clear about theconsequences of notdiversifying!Nowwouldyoulike to hear about theincredibleimpactoftherightdiversification? It’s almostlike having a license to printmoney. I know that’s anexaggeration, but imaginewhatitwouldfeellikeifyouknew you were making

money while you sleep, andthatyourdiversificationgaveyou true peace of mindregardless of the economicclimate.Here’s a real example.

Howwouldyoufeelif,inthatDefconenvironmentof2008,when stock markets werelosing more than $2 trillion,bondswere tanking, and realestatewasfallingthroughthefloor, you could have had anasset allocation where your

maximum loss was just3.93%?Thisexampleisnotafantasy. This is the power ofasset allocation that I’vementioned several times inthis book, and I’m going todemonstrateit toyoushortly.Betteryet,what if in the last30yearsofyourlife(between1984 and 2013), your assetallocation was so powerfulthatyoulostmoneyonlyfourtimes,withanaveragelossofjust 1.9%, and never more

than 3.93%? Remember,everyone else during thosethree decades was riding thewild wave of inflation anddeflation. In the last decadealone, we had two marketdropsofnearly50%,yetyouwould have coasted throughthestormwithoutasinglegutcheck and still averaged acompoundedannual returnofjust under 10%. I’m notdescribing a hypotheticalsituation. What I’m

describingtoyouisanactualportfolio, a specific assetallocation, designed by RayDalio.SoonI’llshowyoutheexact formula that hasproducedthesemind-blowingresults. But before you canuse it, you have tounderstand the coreprinciples laid out in thischapter.

Rule1:don’tlosemoney.

Rule2:seeRule1.—WARRENBUFFETT’S

RULESOFINVESTING

I can’t say it enough: goodpeople often fail becausetheydotherightthingatthewrong time. Buying a house—is it the right thing to do?Most experts would say yes.Butin2006,itwasthewrongtime! So the question is: Ifwe’reallgoingtobewrongsome of the time,where do

we put our money? That’swhere asset allocation comesin.Here’s another way to

think about it: when you’retrying to build a winningteam in sports, you have toknowthecapabilitiesofeachplayer.Youhavetoknowhisstrengths and weaknesses.Youhave todecidewhoyoucan count on in differentsituations. Now, say yourportfolio is the team, and

your investment choices arethe players. Asset allocationhelps you choose who startsand at which positions.Ultimately, it’s the rightmix at the right time thatbringsyouvictory.Asset allocationoffersyou

a set of guiding principles: aphilosophy of investing tohelpyoudecidewhere toputFreedomFundmoneyoryournest egg and in whatproportions.

Think of it as takingchunks of your money andputting them into twoseparate investment bucketswith different levels of riskandreward.Oneofthesefirsttwo buckets is a safeenvironment foryourmoney,but it’s not going to growveryfastthere.Youmightgetboredwith it, but it’s secure,sothatwhenyouneedit, it’sthere. The second bucket issexierbecauseitcangiveyou

the opportunity for muchquickergrowth,butit’srisky.In fact, you have to beprepared to lose everythingyouputinhere!Sohowmuchgoesineach

bucket? It depends on howmuch time you’ve got togrow your investments andhow much risk you’rewilling to take. You’ve gottoaskyourself,“Howmuchrisk can Iafford to take atmy stage in life?” But

remember, you’re notdiversifying just to protectyourself. You want toenhance your results: to findtheidealblendofinvestmentsthatwillmakeyouthrive,notjustsurvive!But, hey, if we’re willing

toadmitit,manypeoplehavemore than enough stress intheir daily lives withoutadding a ton of anxietyworrying about theirinvestmentsdayandnight.A

significant part of financialsecurity or even freedom ispeace of mind, that feelingthat you don’t have to thinkaboutmoney.Thefirstbucketwill give you certainty inyour life, which, after all, isthe first basic human need.And that’s why I call it theSecurity/Peace of MindBucket. It’swhere youwantto keep the part of your nesteggyoucan’taffordtolose—or even imagine losing

without waking up in a coldsweat! It’s a sanctuary ofsafe investments that youlock up tight—and thenhidethekey.

Idon’tgamble,becausewinninga

hundreddollarsdoesn’tgivemegreatpleasure.Butlosingahundreddollarspissesmeoff.

—ALEXTREBEK,hostofJeopardy!

Taking a financial hit notonly lightens our wallets butalso can steal the joy fromour lives. Remember thatbehavioral economics studywith the monkeys and theapples?Amonkeywashappyifhewasgivenanapple.Butif he was given two apples,andthenonewastakenaway,hefreakedout—eventhough,in the end, he still had anapple. Humans are the sameway. Research on human

emotion shows that themajorityofpeoplearoundtheworld underestimate howbadly they feel when theylose. The pleasure of ourvictories is dwarfed by thepain of our failures and ourlosses. Sowe all have to setup a Security/Peace ofMindBucket to protect ourselvesfrom taking the kind of hitsthatwillnotonlysetusbackfinanciallybutalsowillmakeusmiserable.

Tofamiliarizeyouwiththekind of investments that areconsideredabitmoresecure,let’s lookateightbasic typesof assets (investment optionsor resources) that mightbelong in this SecurityBucket. This is just asampling.It’snotmeanttobeeverything that would fit inthis bucket.But as you read,you will notice a pattern:none of these types ofinvestments tends to have

extreme volatility—meaningthat its value doesn’t tend tofluctuate much—especiallycompared with things you’llsee later in the Risk/GrowthBucket. (Although, as we’veall experienced, there areshortperiodsinhistorywherevirtuallyall investmentshaveincreasedvolatility.LaterRayDalio will show us how toprepare for thisaswell!)Butthis quick list is designed toget you to think about your

investmentsinthefuture,andgive you a feel for whatmightgohere.Askyourself,“Before I invest, is thisputting me at risk? Is thissomething I’d be better offhaving in my Risk/GrowthBucket or in my SecurityBucket?”Solet’stakealookatwhat

this isallabout,startingwiththefirstandperhapsthemostimportant place to put aportion of your money: the

Security/Peace of MindBucket. What assets wouldyou want to put in here?Remember, thisbucket is theslow but steady contender,like the turtle in the race tofinancial freedom. Becausetheturtleoftenwins!Andyouhave to treat it like yoursacred temple of savings andinvestments—because whatgoes in here doesn’t comeout.Andbeforeyougoon,bear

inmindthat thebeginningofthis chapter has somefundamentals: the blockingand tackling of assetallocation. If you’re asophisticated investor, youcan scan through the list ofinvestment options becauseyou probably already knowwhat they are, and you cansaveyourself some time.ButI didn’t want to leave outanyone. Besides, you mightfind a distinction or two that

you’llfindvaluable.Solet’sdivein.

1. Cash/Cash Equivalents.At some time in our lives,everyoneofuswillneedacushiontocoverourneedsincaseofanemergencyora sudden loss of income.No matter your incomelevel, you need someliquidity—orinstantaccesstocash.Isitpossibletoberichinassetsandfeelpoor

because you don’t havecash or liquidity? A lot ofpeoplewerecaughtshortin2008whenthebanksfrozeup and stopped lending(even to one another), andreal estate seemedimpossible to sell. In fact,according to a 2011 study,half of all Americanswouldstruggle tocomeupwith$2,000inacrisissuchas an unexpected medicalbill, legalcost,orhomeor

car repair. So you needsome cash to make surethatdoesn’thappentoyou.Thinkabout it: itwouldn’ttake a lot of focusor a lotof savings for you to bebetter off than more thanhalfofAmerica!

But once you’vedecided howmuch cashyou need to have onhand,wheredoyoukeepit? Most of us choosebank accounts that are

insuredby theFDIC forbalances of up to$250,000.Unfortunately, brick-and-mortar banks payalmost no interest thesedays—the last time Ichecked, some were aslow as 0.01%!—whileonline banks have beenoffering slightly higherrates. Maybe not ideal,butatleastweknowthemoney is safe and

available.You alsomaywant to keep some ofthat cash in a safeplaceor for safety near yourhome—you know,“under yourmattress”—in a hidden safe in casethere’s an earthquake orhurricane or some otherkind of emergency, andtheATMsstopworking.Other tools for cash

equivalents includemoney market funds—

therearethreetypes,andif you want to learnmore, see the box fordetails.

For largeramountsofmoneythatweneedtokeepsafeandliquid, you can buy intoultra-short-terminvestments called cashequivalents.The most well-known are good oldmoneymarketfunds.Youmayevenalready own one. These are

basically mutual funds madeup of low-risk, extremelyshort-term bonds and otherkinds of debt (which you’lllearn more about in amoment). They can be greatbecause you get a somewhathigher rate of return than aboring old bank account, butyoustillgetimmediateaccesstoyourcash24hoursaday—and there are some that evenletyouwritechecks.By the way, most banks

offer money market depositaccounts, which are not thesameasmoneymarketfunds.These are like savingsaccountswherethebanksareallowedtoinvestyourmoneyin short-term debt, and theypay you a slightly betterinterestrateinreturn.There’susually a minimum depositrequired or other restrictions,low rates, and penalties ifyour balance falls too low.But they are insured by the

FDIC,whichisagoodthing.Andthatsetsthemapartfrommoney market funds, whicharenot guaranteed and couldpotentiallydropinvalue.But if you want to keep

yourmoney safe, liquid, andearninginterest,oneoptionisa US Treasury moneymarket fund with checkingprivileges. True, these fundsaren’t insured by the FDIC,butbecausetheyaretiedonlyto US government debt and

not to any corporations orbanks that might default, theonly way you can lose yourmoney is if the governmentfails to pay its short-termobligations. If that happens,there is no US government,andallbetsareoffanyway!2.Bonds.We all knowwhata bond is, right? When Igive you my bond, I giveyoumyword.Mypromise.When I buy a bond, you

give me your word—yourpromise—to return mymoneywith a specific rateofinterestafterXperiodoftime (the maturity date).That’s why bonds arecalled “fixed-incomeinvestments.” The income—or return—you’ll getfrom them is fixed at thetime you buy them,dependingonthelengthoftime you agree to holdthem. And sometimes you

can use those regularinterest payments(dividends) as incomewhilethebondmatures.Soit’slikeasimpleIOUwithbenefits, right? But thereare zillions of bonds andbond funds out there; notall but many are rated byvarious agencies accordingto their levels of risk. Atthe end of this chapter,you’ll find a quick bondbriefing to find out when

they can be hazardous toyour financial health, andwhen theycanbeuseful—evengreat!—investments.

Bonds can also bekindofconfusing.Likeaseesaw, they increase invaluewheninterestratesgo down, and decreasein value when rates goup.

Afterall,whowantstobuy

an old low-interest-rate bondwhena shinynewbondwitha higher interest rate comes

on the market? But one wayto avoid worrying so muchabout price fluctuations inbonds is todiversifyandbuyinto a low-cost bond indexfund.Andjustremember,notall

bonds are equal. Greece’sbonds are not going to be asstrong as Germany’s.Detroit’smunicipalbondsarenot going to be as strong asthe US Treasury’s. In fact,someinvestmentadvisorssay

theonlycompletelysafebondisonebackedbythefullfaithand credit of the UnitedStates. And you can actuallybuy US bonds calledTreasury inflation-protectedsecurities, or TIPS, that risein value to keep up withinflation through theconsumerprice index.Again,we’ll cover all of this in thebond briefing. And later I’llbe showing you an amazingportfoliothatusesbondfunds

in a totally unique way. Butmeanwhile, let’s consideranother fixed-incomeinvestment thatmight belonginyourSecurityBucket.3. CDs. Remember them?With certificates ofdeposit, you’re the oneloaning the money to thebank.Ittakesyourcashforafixedrateofinterest,andthenreturns it—alongwithyour earnings—after a set

amount of time. BecauseCDs are insured by theFDIC, they’re as safe assavings accounts, and—atthe time of this writing—justaboutasexciting.ButIwrote this book for everyseason, and seasons keepchanging. I don’t knowwhatseasonyou’reinnow,butIcantellyouthisstory:in 1981, when I was 21yearsold,youcouldbuyasix-monthCDfor. . .wait

forit...17%interest!Butyou don’t have to go thatfar back to see how sometypes of CDs, in the rightenvironment, can give youquality returns. Rememberthe story of how myStronghold advisor got asmall fixed rate on aCDin 2009, but it was amarket-linkedCD, whichwasattachedtothegrowthofthestockmarket,andheaveraged 8% interest over

time! That was anunusually good deal, butthere are still ways to getmore bang for your buck(without risking yourprincipal) by investing inthesemarket-linked CDs.(You can go back tochapter 2.8 for a recapabouthowtheywork.)

Sohow’sour teamofassetsdoingsofar?CDs,cash, money marketfunds, and bonds would

be obvious players foryour Security Bucket.But when do you puttheminthegame?Someplayers will do well insome environments andpoorly inothers.What’sthe advantage of thecash player? The cashplayercanjumpintothegameanytime.Youcankeep your money safeand ready to deploywhen the right

investmentcomesalong.Ontheotherhand,ifyouholdtoomuchmoneyincash, your spendingpowerisnotgrowing.Infact,it’sshrinkingduetoinflation each year. Butin deflationary times,like2008,yourcashwillbuy you more. If youhad cash in 2008 andhadthestomachtodoit,youcouldhaveboughtahome for almost 40%

less than that samehouse cost the yearbefore. (By the way,that’s what many hedgefunds did. They boughttens of thousands ofhomes during the downtime, fixed themup andrented them, and thensold thembetween2011and 2014 for a bigprofit.) Many stockscould be bought at asimilar or even greater

discountin2008.What’s the advantage

of the bond player?Depending on the typeof bond, you’ve got aguaranteedrateofreturnthat gives you securitywhen other asset classprices might bedropping. Regular CDs,as I’m writing this in2014, probably don’tinterest you at all, andthey don’t interest me

either. But that playercan do well in high-interest-rateenvironments. Andwhile market-linkedCDs excel when thestock indexes are hot,they’re rock solid inevery environmentbecause you don’t loseprincipal. Here is thedownside of bonds: ifyou want to sell bondsbefore their maturity

date (when you receiveyourfullinvestmentplusinterest), and interestrates have risensignificantly and newbonds provide a higherrate of return, you willhavetounloadthematadiscount.If all this seems

incredibly complex,here’s the good news.RayDalio has created astrategy called All

Seasons, which willshow you how tosucceed with the rightmix of bonds, equities,commodities, and goldinanyeconomicseason.We’ll learn more aboutthatlater.First, understand that

because secure bondsoffer a promised orstated rate of return anda return of principal,they are more secure

than investments thatdonot guarantee either therate of return or theprincipal. But thepromise is only as goodas the bond issuer. Thepoint here is that youneed therightplayer forthe right season in theright proportions and attherighttime.Now let’s take a look

at a fewother assets foryour Security Bucket

teamyoumightnothavethoughtof:

4.Your home goes in here,too. Why? Because it’s asacred sanctuary. Weshouldn’tbe“spendingourhome”! Americans havelearned a hard lesson inrecent years about thedangers of house flippingand using their homes likeATMs.Ahome,ifit’syourprimary residence,shouldn’t be seen as an

investmenttoleverage,andit shouldn’t be counted onto produce a giganticreturn. But wait, haven’twe always been told thatyour home is your bestinvestment because italwaysgoesupinvalue?

In my search foranswers,Isatdownwiththe Nobel Prize–winning economistRobert Shiller, theleading expert on real

estate markets, andcreator of the Case-Shillerhomepriceindexof housing prices. Hisbreakthrough insightswere used to create thefollowing chart. Shillerfound that when headjusted for inflation,US housing prices havebeen nearly flat for acentury! He explodedoneofthebiggestmythsof our time: that home

priceskeepgoingupandup. “Unless there’s abubble,” he told me.And we all know whateventually happens tobubbles.

Ontheotherhand,owningyour home with a fixed-ratemortgage is a hedge againstinflation, and there’s a taxadvantage. What’s more, ifyouownahomeoutright,andyourentoutallorpartofit,itcan be a safe way to earnsomeincome.Also,asyou’llsoon learn, there are somegreat ways to invest in realestate—like first trust deeds,REITs(realestateinvestmenttrusts), senior housing,

income-producing properties,and so on. So nobody’ssuggesting that you give upon real estate investments ifthat’s what you like to do!But it’sprobablyagood ruleof thumb to put them in thenext bucket we’re going totalk about: the Risk/GrowthBucket.Meanwhile, what other

assets might belong inSecurity?

5. Your Pension. Got one?Thisbucket is theplace tokeepitifyou’reoneofthelucky few. Remember theexample of Dr. AliciaMunnell, director of theCenter of RetirementResearch at BostonCollege?Sheliquidatedherpension and took an earlypayout, thinking she couldinvest and get a higherreturn than her pastemployer, the Federal

Reserve. She learned thehard way that you don’twant to risk your lifetimeincome plan, and now sheshares her story as awarningtoothers.

6. Annuities. If you’reyoung, and you hear thisword, you may think thisdoesn’thaveanyvalue foryou. In the past, they tooka lot of money, and youhad to be a certain age inorder to tap into these

investment tools. But asyou’ll learn inchapter5.3,“Freedom: Creating YourLifetime Income Plan,”there are some new toolsyoucanarmyourselfwith.Remember, theseinvestments are insuranceproducts that can give youa guaranteed income forlife. They’re like privatepensions if they’re doneright. But as we’vediscussed, most annuities

out there are terribleinvestmentswith high feesand ridiculous penalties.Most variable annuitiesshould come with morewarnings than a Viagracommercial! But you canfind a few select annuities—which you will learnaboutinsection5—thatareso safe and affordable thatmanyexpertscallthemtheHoly Grail of retirementincome solutions. How’s

that? They can give thekindofreturnsyouenjoyin your Risk/GrowthBucket within the safetyof your Security Bucket.Aguaranteedincomethatwilllastyourlifetimeandnevergodowninvalue!

7.Atleastonelifeinsurancepolicy belongs in yourSecurityBucket,andyoudon’tmesswith it.Why?Got a family? If you die,your family will be taken

care of. Term life willsuffice for most people.However, another type oflife insurance policy,described in section 5,can provide you with anincome for life, tax free,while you’re still alive!Andifstructuredcorrectly,it can also provideenormous tax efficiency.The largest corporationsand the ultrawealthy havebeen using this IRS-

sanctioned approach fordecades. Be sure to checkout chapter 5.5 for detailson how to use this tool toperhaps cut the time ittakes to get to yourfinancial goals by 25% to50%dependingonyourtaxbracket.

8. Structured Notes. Theseproducts have been called“engineered safety” forinvestors. Structured notesare like market-linked

CDs, but they aren’tcovered by FDICinsurance. How do theywork? You lendmoney toabank—usuallyoneofthebiggest banks in theworld—andthebankpromisestogive you back the moneyafter a specified period oftime, plus a percentage ofwhatever gains accumulatein a particular index (say,the S&P 500—minus thedividends—commodities,

gold, REITs, or acombination). Forexample,atthetimeofthiswriting, J.P. Morgan hasa seven-year structurednotewith100%downsideprotection, meaningyou’ll never lose youroriginal investment, plusit gives you 90% of theupside gain of the S&P500. No wonder, as youlearned in chapter 2.8, theultrawealthy often use this

tool to invest. The rightkindofstructurednotecanbe a great way toparticipate in theupsideofthe market withoutworrying about thedownside—especially at astage of life when youcan’t afford to take suchvolatilityrisks.

WhenIsatdownwithMaryCallahanErdoes,CEO of J.P. MorganAsset Management,

with $2.5 trillion undermanagement, she toldme structured notes canbe good investmentchoices, particularly forpeopleafraidtoputtheirmoney in anything afterthe financial meltdownof2008.Andthey’renota gimmick. “A lot oftimes, people will lookat a structured note andsay, ‘That looks toogood to be true,’ ” she

told me. “But you needto understand theproduct from start tofinish. There are nogimmicks, therearenogadgets; it’s just mathinthemarkets. . .Thelonger you don’t needliquidity, the more themarketwillpayyouforthat. If you’re going toput your money awayfor seven years, youshouldbeabletogetthat

muchupside.”Sodostructurednotes

belong in your SecurityBucket? The structurednoteisonlyassecureasthe bank that issues it.ErdoesmadeitclearthatJ.P. Morgan was thelargest bank in theworld. Some fiduciarieswill recommend theRoyal Bank of CanadaorotherCanadianbanks,since they have been

ratedassomeofthebestand safest in the world.(The United States sawmore than 9,400 bankscollapseduringtheGreatDepression and almost500 in the recent GreatRecession.NotonebankfailedinCanada!)So,asalways, you have toweigh the benefitsagainst the risk andmakeyourowndecision.Also,watchout for fees

and complicatedcontracts.Aswe said inchapter 2.8, structurednotes can be a terribleproduct, just likemutualfunds, if there are toomany fees attached. Ifthe issuer is fiscallystrong, you won’t loseyour money. But if thetiming is off, youwon’tmakeanymoney in thattime period. So this ismore of a secure

protection strategy. It’sbest to talk over thisinvestment with yourfiduciary advisor beforejumpingin.

TIMEISONYOURSIDE

Whew! That was a lot. Butremember, if your head is

exploding with all thesechoices, you’re not in thisalone. You can have yourcomplimentary assetallocation (and full portfolioreview) done for you onlineatwww.strongholdfinancial.comor by your own fiduciaryadvisor.But it’s important to

understand the concept ofasset allocation and whichinvestments are available for

each of these buckets so thatyour overall portfolio—yourgroup of investments—reflects your goals and levelof risk tolerance. That wayyou’restillrunningtheshow!At every decision point,you’ll be thinking, “Howmuch am I risking and howmuch am I keeping secure?”That’swherethegameiswonorlost!And, as you’ve already

seen, the biggest challenge

for your Security Buckettoday is: What is reallysecure? We know the worldhas changed, and evenconservativesavershavebeenforced intoriskierandriskierinvestments by crazy-lowinterestrates.It’s temptingtoshoot for bigger returns,especially when the stockmarketisgalloping.Youmaystart thinking, “I’ll never getwhere I need to go fromhere.” But you can if you’re

willingtoplaythelonggame.(And especially if you findsome investments thatguarantee returns withoutrisking principal—whichyou’lllearnaboutsoon.)JustlikeinthatoldRolling

Stones song, time is on yourside when it comes togrowing your wealth. Andtime is certainly the greatestasset for the Security Bucket—even if you start later inlife.Afterall,moreandmore

of us are living into our 80sand 90s, so our investmentscan mature along with us.And if you’re Generation X,Y, or Z—yes, there is aGeneration Z, thepostmillennials!—you’rewayahead of the game! You canstart with a tiny amount andletthemagicofcompoundinggetyouwhereyouwanttogosomucheasier.What happens to the

money in your Security

Bucket remindsmeofanoldgambler’s trick on the golfcourse. The gambler tells hismark, “You play golf? I juststarted playing, and I’m nogood. You want to play tencents a hole?” So the guysays, “Sure, great!” On theway to the first hole, thegambler says, “You know,ten cents is kind of boring.Justtomakeitmorefun,whydon’t we just double the beteveryhole?”Thefirstholeis

10 cents, the second hole is20cents, the thirdhole is40.By the time they get to thefifth hole, it’s $1.60. Thesixth hole is $3.20, andthey’re only one-third of thewaythrough18holes.Bythetimetheygettothe18thhole,how much are they playingfor? How about $13,107!That’s a steep golf bet, evenforDonaldTrump.Andthat’sthemagicofcompoundinginaction.

It’s also what happenswhenyou’reinvestinginyourSecurityBucketoverthelonghaul.Youreinvesttheinterestyou make, and, for a longtime, there seems to be noprogressatall.Butyougettothe 13th hole, and then the14th, and then the 16th, andthen it explodes.Takea lookat the chart on page 312.That’s the exponentialprogressionthatwillworkforyou.

Ofcourse,sittingtight isachallenge for thisgeneration!Asasociety,we’rewiredforinstant rewards, and waitingfor the assets in ourSecurityBucket to increase in valuecan initially feel likewatching grass grow. Andthat’s why we get temptedinto putting toomuch of ourmoney into the next bucket,Risk/Growth. But noteverything in your SecurityBucket has to be dull as

dishwater. If you have atalented and connectedfiduciary advisor, he or shecan show you how to takesomeoftheseboringsecuritytools and eke out a morereasonable return, or even asignificant return if you findtherightenvironment.

Here’sjustoneexampleofwhat my Stronghold advisorfound for me—and it’s anasset that most people

wouldn’t normally put intheir Security Bucket: aresidentialrealestateloan!Itstartswithaguybuilding

a house in Indian Wells,California,whoranintosomefinancial trouble and had tosellittoagroupofinvestors.Ever hear of Indian Wells?It’s like the Beverly Hills ofPalmSprings,whichisoneofthe highest-incomeenvironments per capita intheUnitedStates.Thecity is

beautiful, with extraordinaryweather, surrounded by golfcourses and resorts—anamazingplacetoownahomeor a vacation home. Theinvestment company thatbought the guy’s house buysupdozensofproperties, so itneeds a lot of cash—but thecompany doesn’t need it forlong because it fixes up andresellsthehousesquickly.Tokeep themoney flowing, thecompany needs investors to

give it short-term loans inexchange for first deeds oftrust on the properties itholds.Ever hear about first trust

deeds? If you own a homeand have a mortgage, afinancial institution loanedyou the money to buy yourhouse, and you gave it yourbond to pay it back at acertain rate of return.However, if you don’t keepyourwordandfailtokeepup

the payments, the entity thatowns the mortgage, or trustdeed, has the right to forceyou to sell—and it continuestoreceiveinterestuntilanewowner takes over. As aninvestor, I look for ways toget maximum rewards in asecure environment—a firsttrustdeedstructuredproperlycan be perfect for thispurpose.MyadvisorandIfoundout

thattherealestateinvestment

company was offering thefirst deed of trust on thathouse in Indian Wells ascollateral on a $1 millionloan, which would pay 10%interest for one year. It waswilling to have one investortakethison,orasmanyas25,eachcontributing$40,000. Intheend,Idecidedtoinvestinthe full $1 million myself.Youmightsay,“Wow,that’sa great deal! You get ahundred-thousand-dollar

profit to tie up your moneyfor just one year. But Tony,what’s your risk?” That’sexactly why we did a lot ofresearch. The home, welearned after two qualifiedappraisals, was worth $2millioninitscurrentstate.SoifI’mloaning$1million,thatloanhasa50%loan-to-valueratio, right? Even if thecompany defaults, my $1million is secure because thevalue of the property is $2

million.This was a pretty great

deal, but I’ve also boughtdeeds of trust on smallerhomes.SayI’dfoundastarterhomeintheMidwestthatwasworth$80,000. If I couldgetthe mortgage for $40,000, at50% loan to value, I mightmake the loan. The IndianWells deal was similar, onlyonalargerscale.SoIdecidedto go for it, and I put thatinvestment in my Security

Bucket.Okay, I can already hear

you saying, “Wait a minute,Tony! What if the marketdrops? Doesn’t thatinvestment belong in yourRisk/GrowthBucket?”That’s a great question,

because we’ve just beenthroughoneof theworst realestatecrashesinhistory!Andon the surface, it looks likeyou’d probably put this inyourRiskBucket.Buthere’s

why I think it’s a safeinvestment:in2008,whenthereal estate market just wentthrough the floor, and theworld was upside down, thepricesofhousesinmostpartsof the United States dropped30% to 40%, max. Therewere a few exceptions, suchas some parts of Las Vegas,Phoenix, and Miami, wherethepricesdroppedmore than50%. But all of those placeshad massive price growth

rightbefore thebubbleburst.The IndianWells area didn’texperiencethatsizeofbubble—and while prices dropped31% from 2008 to 2010 (farbelow the 50% mark), thebiggest loss in a single yearwas only 13.6% (from 2008to 2009). And remember,we’re loaning for only oneyear. So if residential realestate didn’t take anythingclose to a 50% hit in IndianWells in 2008, it’s not likely

tohappenthisyear.That’s why I decided to

moveforwardwiththisastheinvestment to put in mySecurity Bucket. It’s theplacewhereyouhave tobecautious.But itdoesn’thaveto be totally boring. Andsometimes the returnscanbevery nice (8% to 10%,whereas many peopletypically settle for1% to4%returns in the SecurityBucket) if you do your

homework!

ItismycontentionthatAesopwaswritingforthetortoisemarket.Hareshavenotimeto

read.—ANITABROOKNER

Boredomcomesfromaboringmind.

—“THESTRUGGLEWITHIN,”Metallica

Now, what if that same

company offered me a 12%return to invest in that $2million property—but for thebetter rate, it wanted me toloanit$1.5millioninsteadof$1million?Thatwouldmaketheloan-to-valueratio75%—obviously I’d get a greaterreturn by taking a greaterrisk. It means if the marketdropped by 25% or more, Imight lose some of myinvestment. Not likely, butpossible. So if I was willing

to take the extra risk for anincrease in returns, it mightbe something I’d consider.But I would not put thisinvestment in my SecurityBucket.Itbelongsinthenextbucket you’re about todiscover: the one that shouldbewrappedinyellowcautiontape and handled with ovenmitts, because if youapproach it thewrongway, Iguaranteeyou’regoingtogetburned! But handled

effectively, it can speed upyour journey to FinancialFreedom.By now you can see why

assetallocationisanart,notascience. The idea of securityis totally subjective. Somepeople think nothing is safe!Otherscanlivewithatinybitof risk and still feel secure.Soyou’vegottolookateachinvestment on an individualbasis.The real payoff of asset

allocation comes when youfigure out the right mix ofhowmuchofyourmoneyyoukeep safe and how muchyou’re willing to risk to getgreater rewards and have thepotential to grow faster. Ininvesting, that’s where youliveordie,succeedorfail.Sowhatpercentagedoyouthinkyou should put in yourSecurity Bucket—in safeinvestments? One-third?Half? Two-thirds? Failure to

secureasignificantportionofyour hard-earned money insafe investments can spellfinancial disaster.Conversely,puttingtoomuchin this bucket cansignificantly slow yourgrowth. How dowe find theright balance? That’s whatwe’ve been working toward.And now that we’ve lockeddown the foundation forsecurity,it’stimetoreallygetin thegame.It’s timetoplay

towin.Asaquicknote,bondscan

be such a potentiallyimportantinvestmentforyourSecurityBucketthatIwantedto give you a quick bondbriefing that might be wellworth your review. If now’snot the right time, rememberthis ishereasa referenceforyou,andskipovertothenextchapter. Keep up themomentum! We’re on ourway to bigger risks and

potentiallybiggerrewards.

AFEWWORDSABOUTBONDS

Gentlemenpreferbonds.

—ANDREWMELLON,founderoftheBankofNew

YorkMellon

Notthatlongago,bondsweresupposed to be the safest,most reliable form ofinvestment. They were thebig guns in the portfolios of

the ultrawealthy, and thebedrock of yourSecurity/Peace of MindBucket for the averageinvestor. But bonds havetaken a bad rap in recentyears, and for good reason.With the US governmentkeepinginterestratesinsanelylow, and some of thecompanies, cities, and evennations that issue bondsteetering on the brink—oreven going bankrupt—they

don’t seem like such a greatdealtoeveryoneanymore.Butmostexpertsstillthink

bondsareanimportantpartofyourinvestmentmix.(Infact,they’re the foundation of themind-blowing portfolio thatworks in all economicclimates, which you’ll learnaboutinchapter5.1.)Solet’slook at the basic kinds ofbonds out there to see whatcanbegreataboutthem—andalsowhattowatchoutfor.

•USTreasuryBonds.Manyinvestment experts,including Yale’s assetallocation wizard DavidSwensen, feel that thesafest bonds are good oldUS Treasuries, becausetheyarebackedbythefullfaith and credit of thegovernment. David toldme, “Treasury bonds arereally there as an anchorfor the portfolio.” But

becausethesebondsaresosafe from default, theyhave smaller returns. Andlike other, less securebonds,theycanfluctuateinprice based on outsideevents—particularly howmuch inflationordeflationis happening at themoment.Sosuddenlywhatyou thought was a bomb-proof investment can blowupinyourface!

Treasuries come in

fourdifferent types (andthey have differentnamesforhowlongtheylasttomaturity).

1. T-bills: These Treasurybills are government debtobligations that come duein less than 12 months.Theyarethebasisformostshort-term bond indexfunds and money marketfunds.

2. T-notes: Treasury notes

matureinonetotenyears,and offer a fixed interestrate (known as “thecoupon”).You get interestpayments on these everysixmonths.

3.T-bonds:SameasT-notes,butTreasurybondsmatureintento30years.

4. TIPS: First created in1997, these Treasuryinflation-protectedsecurities protect youagainst spikes in inflation.

When you buy TIPS, theprincipal (or “par value”)of your bond goes up ordown when the consumerprice index on inflationchanges—andsodoesyoursemiannual interestpayment. So if you buy$10,000 worth of TIPS at1.5% interest, and theCPIdoesn’t change in sixmonths, the “par value”ofyour bond stays the same,andyougeta$150interest

payment. But—and here’sthebeautyofTIPS!—ifthecost of living goes up 2%,your bond is now worth$10,200, and yoursemiannual payment is$153. If you own a lot ofTIPS, and there’s a lot ofinflation, that money canaddup!Here’sachart thatshowsyouhowitworks:

Noticethatthevalueofthe

bond can be adjusted down,too.So ifwego intoanothereconomic recession ordepression, you couldpotentially losesomeofyourprincipal if you need to

liquidateandget thevalueofyourbondtoday.Basically,ifyoubuyTIPS,

you’re betting that we’reheading into a period ofinflation. Does that seemlikely? If you’re not sure(and, really, nobody everknows for sure), you maywant to do what DavidSwensen recommends in hisideal portfolio: becauseTIPSgoup in price when interestrates rise (which usually

happens during inflationarytimes), balance themwith anequal amount of traditionalTreasuries that go down inpricewhen interest rates rise.Thatway,you’reprotectedinanysituation!Of course, the US

government isn’t the onlycountry that issues bonds topayforitsoperations.Andinthe good old days of a fewyears ago, a bond backed bythe full faith and credit of a

sovereign nation used to beconsidered a fairly safe bet.But now that we’ve hadGreece, Spain, and othernationsteeteringondefault—or, like Argentina, plungingover the edge—foreigngovernment bonds havebecome a riskier deal.Foreign bonds are also morevulnerable to inflation risks,and if you buy bonds in anunstable currency, youmightrun into big trouble

exchanging them back intodollars.Most advisors say toleave these investments toexpert traders and hedgefunds.Butwhataboutsomeother

bondsthatcanbringinbetterreturns than plain oldTreasuries?Someofthetypeslisted below are safer thanothers.Youcanfindoutwhatothers think about theirprospects through a ratingsystemthatcategorizesbonds

by the level of risk toinvestors.There are several

internationally recognizedbondratingagencies,suchasMoody’s, Fitch Ratings, andStandard & Poor’s, that usespecial formulas to come upwith credit ratings fordifferentissuers—kindoflikethe way your credit is ratedwhenyouapplyforacarloanor Visa card. For S&P, thegrades range fromAAA (the

highest level of confidencethat a company or countrywon’tdefaulton itsdebts) toBBB (adequate for“investment grade” bonds),and all the way down to D(whichmeansthebondissueris already in default). Thelower the rating, the moreinterest theissuerusuallyhastopaytobondholdersfortherisk that they’re taking. Theexpertly renamed high-yieldbonds, formerly known as

junk bonds, have a rating oflower than BBB, whichmakes them “subinvestmentgrade.”• Corporate Bonds.Corporations issue bondswhen they want to raisemoney to expand, makeacquisitions, paydividends, fund a loss, orany number of reasons.Should you buy corporatebonds? It depends on the

risk.Ifyoupickthewrongbond, you could losemostorallofyourmoney.Eveniconic companies such asTWA and Kodak havegonebankrupt.Ayearafterit declared Chapter 11,Kodak’s unsecured bondsweresellingfor14centsonthedollar.But bonds frommostgiantUScorporationsare still considered safebets. Apple (with an AA+rating) has been selling

high-grade bonds to eagerbuyers—but the interestthose bonds earn is onlyabout 1% higher thancomparableUSTreasuries!Someinvestors,likeDavidSwensen,say,“Whybotherwithcorporatebondswhenyoucanget abetter returnjust buying stock in thecompany?”

But if you’re lookingfor higher yields inbonds, you have lots of

options—as long asthese investments gointo your Risk/GrowthBucket and not yourSecurity Bucket! Forinstance, not everybodyshies away from so-called junk bonds. Youhavetolookateachoneand decide if it’s worththe risk. In May 2014Australia’s largestairline,Qantas,offeredasubinvestment-grade

eight-year bond inAustralian dollars for a7.75% interest rate. Thecompany had its creditrating downgradedbecause of recent lossesand debt problems, butwould you count it out?Or at a more extremelevel,inJanuary2013inthemidstofchaos,therewere people who werebuying one-yearEgyptian Treasury

bills with a“guaranteed” (aguarantee only asstrong as you think anunstable governmentcan make) return of14.4%. Those who didthiswerebettingthattheUS government and theSaudi Arabiangovernment would keepEgyptstableandsolvent.Would therewardsbe

worth the risk of

default? That’s the kindof decision you’d haveto make before buyingthejunkbond.Of course, not many

of us have theexperienceortimetodothis level of research.That’s where a talentedfiduciary advisor who’san expert in the areamight come in handy.But there are alsodomestic and

international high-yieldbond index funds thatcan give you goodreturns while spreadingthe risk among manybonds.

• Municipal Bonds. Howaboutmunis?Whenastate,city, or county needs toraisefundsforabigpublicworks project (sewersystems, hospitals, masstransit), it borrows money

by issuing a bond. In thepast,thesemunicipalbondswereconsideredawin-windeal for everybody,because the interest theypaid was usually exemptfrom federal and possiblystate taxes. But what’sbeen happening to citiesand counties all over theUnited States? SanBernardino and Stockton,California? JeffersonCounty,Alabama?Detroit?

Chicago? All bankrupt oron the verge, and theirbondholderspotentiallyleftholding the bag. Doesn’tsound like such a surethinganymore.Also,wheninterest rates drop,sometimestheissuerofthebond can “call” it in andpay back your principalbefore the bond matures.You lose that guaranteedrate of return you werecountingon.Butonceyou

acknowledge the risks,there can be some greatopportunities inmunicipal bonds if youknowwhere to look. Andthe tax advantages can beoutstanding.

Here’s an examplethat might provevaluabletoyou:afriendof mine recently boughta New York City bondwherehe’sgettinga4%return tax free—which,

for someone in a hightax bracket, is theequivalent of anapproximately7%returnin a taxable bond!Whyisn’t he worried aboutthe risk? These bondsare securedbya lienonfuturetaxrevenues.SoifNewYorkCitygetsintotrouble, ithastheabilityto tax its way out of itand pay him back! Hefeels so good about this

bond that he’s putting itinhisSecurityBucket!Thepoint is, thereare

plenty of municipalbonds that could bevaluable for you—butyou have to educateyourself and sit downwith a registeredinvestment advisor orsome otherknowledgeableinvestment expert whoknowshisorhermunis.

Want to take the guessworkoutofchoosingtherightbondmix for your portfolio?VanguardfounderJackBoglesuggests buying into low-cost, low-fee bond indexfunds that spread out yourrisk because you’ll ownevery part of the bondmarket. You can see howBogle puts this concept towork in his own portfolio insection 6, “Invest Like the

.001%: The Billionaire’sPlaybook.”Nowonwardtogreaterrisk

and potentially greaterreward.

CHAPTER4.2

PLAYINGTOWIN:THE

RISK/GROWTHBUCKET

Thewinnerain’tthe

onewiththefastestcar.

It’stheonewhorefusestolose.

—DALEEARNHARDTSR.

TheRisk/Growth Bucket iswhereeverybodywantstobe.Why?Because it’s sexy! It’sexciting!Youcangetamuchhigherreturninhere—butthekey word is can. You canalso lose everything you’ve

saved and invested. Sowhatever you put in yourRisk/Growth Bucket, youhave tobeprepared to loseaportionorevenallof it ifyou don’t have protectivemeasures in place. How dowe know this? Becauseeverything in life, includingmarkets,runsincycles.Thereare going to beup times anddown times. And anybodywho invests in one particularkind of asset while it’s on a

roll—be it realestate,stocks,bonds, commodities, orwhatever—and thinks thepartywilllastforeverbecause“this time will be different”should get ready for a rudeawakening. When Iinterviewed Jack Bogle forthisbook,he repeatedoneofhismantras:“Marketsalwaysrevert to the mean.” (Thatmeanswhatgoesup isgoingto come down, and viceversa.) And I’m sure Ray

Daliogotyourattentionwhenhe said that whatever yourfavorite investmentmightbe,atsomepointinyourlife,youcancountonitdropping50%to 70% in value. Whilethere’s unlimited potentialfor upside in this bucket,never forget that you couldlose it all (or at least asignificant portion). That’swhy I call this theRisk/Growth Bucket and notthe Growth/Risk Bucket,

because growth is notguaranteed,butriskis!Sowhatinvestmentswould

youputinhere?Here’sasamplingofseven

main asset classes toconsider:1.Equities.Anotherwordforstocks,orownershipsharesof individual companiesorvehicles for owning manyof them at once, likemutual funds, indexes, and

exchange-traded funds(ETFs).

Exchange-traded funds(ETFs)havebeencalledthe“It”girlof the stockmarket, ballooning inpopularity bymore than2,000% from 2001 to2014, and holdingmorethan $2 trillion ininvestments. But whatexactly are they? ETFsare built like mutual

funds or index funds,because they contain adiversified collection ofassets,butyoucantradethem just like individualstocks. Most of themfollow a theme (small-cap stocks, municipalbonds,gold)and/ortracean index. But with anindex or mutual fund,you have to wait untilthe end of the tradingdaytobuyorsell;ETFs

can be traded all daylong.Experts say that ifyou like the idea of anindexfund,butyouwanttobuywhenyouseetheprice is low and sellwhen the price is highduringa tradingsession,an ETF might be foryou. But that’s trading,not investing,and tryingto time a market bringsvery intense and specialrisks.

But there’s anotherdifference: when youbuy shares of an ETF,youarenotbuying theactual stocks, bonds,commodities, orwhatever else isbundled in the fund—you are buying sharesin an investment fundthat owns those assets.That company promisesthat you’ll receive thesame financial outcome

as if you’d owned themyourself. But don’tworry, it sounds morecomplicatedthanitis.A lot of people like

ETFs because they giveyou a tremendousamount of diversity at alow cost. In fact, manyETFs have lower feesthan even comparabletraditional index funds,and sometimes lowerminimum investment

requirements. Andbecause they don’tengage in a lot of thekind of trading thatproduces capital gains,theycanbe taxefficient(although there is amove toward moreactively managed ETFscoming to the market,which makes them lesstaxefficient).Should you invest in

ETFs? Jack Bogle,

founder of Vanguard(which, incidentally,offersmanyETFfunds),toldme he sees nothingwrong with owningbroad-spectrum indexETFs, but hewarns thatsomeare toospecializedfor individual investors.“Youcannotonlybetonthemarket,”he toldme,“but on countries, onindustry sectors. Andyou may be right and

you may be wrong.”DavidSwensenwonderswhy individual investorsshouldbotherwithETFsatall.“I’mabigbelieverin buying and holdingforthelongrun,”hetoldme. “The main reasonyou’dgo intoanETF istotrade.AndsoI’mnotabigfan.”

2. High-Yield Bonds. Youmight also know these asjunk bonds, and there’s a

reasontheycallthemjunk.These are bonds with thelowest safety ratings, andyou get a high-yieldcoupon (higher rate ofreturn than a more securebond) only because you’retaking a big risk. For arefresher,gobackandreadthebondbriefingattheendofthelastchapter.

3.RealEstate.We all knowreal estate can havetremendous returns. You

probably already know alotabout thiscategory,butthere are many ways toinvestinproperty.Youcaninvest in a home that yourent out for an income.You can buy property, fixitup,andthenflipitintheshort term.You can investinfirsttrustdeeds.Youcanbuycommercial real estateoranapartment.Oneofmyfavorites that I mentionedto you already is investing

in senior housing, whereyou get both the incomeandthepotentialgrowthinappreciation as well. Oryou can buy REITs: realestate investment trusts.These are trusts that ownbig chunks of commercialreal estate (or mortgages)and sell shares to smallinvestors, like mutualfunds. REITs trade likestocks, and you can alsobuysharesofaREITindex

fund, which gives you adiversityofmanydifferentREITs.

Forgrowth,theNobeleconomistRobertShillertold me that you’rebetter off investing inREITsthanowningyourown home (whichbelongs in the SecurityBucket, anyway).“Buying an apartmentREIT sounds tome likemaybe a better

investment than buyingyour own house,” hesaid, “because thereseemstobeatilttowardrentingnow.”Thatcouldchange, of course. And,as with any investment,you’vegot to pause andthink, “What am Ibetting on?” You’rebetting that the price ofproperty is going to goupovertime.Butthere’sno guarantee, so that’s

why it’s in theRisk/Growth Bucket. Ifitgoesup, itcouldhaveanicerateofreturn;ifitdoesn’t, yougetnothing—or you could lose itall.When you buy yourown home, you’rebetting that the price ofyour home will go up.Whenyou’rebuyingrealestate that has incomeassociated with it (arentalunit,anapartment

building, commercialreal estate, an REIT, oran index that holdsthese),Shillerpointsoutyou have two ways towin. You make incomealongthewayandif theproperty increases invalue,youalsohave theopportunity to makemoneywhenyousellontheappreciation.

4. Commodities. Thiscategory includes gold,

silver, oil, coffee, cotton,and so on.Over the years,gold has been consideredtheultimatesafehavenformany people, a staple oftheir Security Bucket, andconventional wisdom saidit would only go up invalue during uncertaintimes. Then its pricedroppedmore than25%in2013! Why would youinvest in gold? You couldkeep a small amount in

yourportfoliothatsays,“Incase paper moneydisappears, then this is alittle portion of mysecurity.”Youknow, ifallhell breaks loose, and thegovernment collapsesunderazombieinvasion,atleastyou’vegotsomegold(or silver) coins to buyyourself a houseboat andhead to sea. (On secondthought, can zombiesswim?) Otherwise gold

probably belongs in yourRisk/Growth Bucket.You’d invest in it asprotection against inflationor as part of a balancedportfolio, as we will learnlater on, but you have toaccept the risk. So don’tkid yourself: if you buygold, you’re betting itwillgo up in price. Unlikemany other investments,there’snoincomefromthisinvestment like you might

get in stocks fromdividends or from income-producing real estate orbonds. So gold could be agoodriskorabadone,butit goes in yourRisk/Growth Bucket forsure. This is not an attackongold.Infact,intherighteconomicseason,gold isasuperstarperformer!That’swhy in chapter 5.1,“Invincible, Unsinkable,Unconquerable: The All

Seasons Strategy,” you’llsee why it can beinvaluable to have a smallportion of gold in yourportfolio.

5.Currencies. Got a yen tobuy some yen? Since allcurrency is just “paper,”currency investing is purespeculation. There arepeoplewhomakeafortunein it and even more wholose a fortune. Currencytrading is not for the faint

ofheart.6. Collectibles. Art, wine,coins, automobiles, andantiques, to name a few.Onceagain,thisassetclassrequires very specialknowledgeora lotof timeoneBay.

7. Structured Notes. Whatare these doing in bothbuckets?Because therearedifferent types ofstructured notes. Somehave 100% principal

protection, and those cangoinyourSecurityBucket,aslongastheissuingbankis financially solid. Thenthere are other kinds ofnotes that give you higherpotential returns, but onlypartial protection if theindexdrops.Sayyoubuyanote with 25% protection.That means if the stockmarket drops up to 25%,youdon’tloseadime.Ifitgoes down 35%, you lose

10%. But for taking morerisk, you get more upside:sometimes as much as150%oftheindextowhichit’s tied. Inotherwords, ifthe market went up 10%,you’d receive a 15%return. So there’s potentialfor greater gains, butthere’s definitely increasedrisk. Remember onceagain, structured notesshould be purchasedthrough an RIA, who will

worktostripoutallexcessfees and deliver them toyouintheformofanevengreaterreturn.

Safetydoesn’thappenbyaccident.—FLORIDAHIGHWAY

SIGN

We’venowcoveredasampleof some of the investmentvehicles/assetsthatyoumightfind in a diversified

Risk/Growth Bucket. Youmay be wondering why Ihaven’t includedsomeof themore daring investmentvehiclesofourtime:callandput options, credit-defaultobligations (CDOs), and awholehostofexoticfinancialinstruments available totraders these days. If youbuild up a lot ofwealth, youmay want to have yourfiduciary look into some ofthese vehicles. But just

realize that if you’replaying this game, you’remostlikelynolongerjustaninvestor, you’ve become aspeculator as well. It’swhat’s called momentumtrading, and you have torealize you can loseeverything and more if youplay the game wrong. Andbecause the mantra of thisbook is that the road tofinancial freedom is throughsaving and investing for

compounded growth, I’llleave a discussion of thesemomentumassets foranotherday.

IT’STIMETOGETINTHEGAME

Okay, now you know theplayers that belong in yourallocation buckets, and you

know the key to building awinning team: diversify,diversify, diversify! Butthere’s more. You not onlyhave to diversify betweenyour Security and yourRisk/Growth Buckets, butwithin them as well. AsBurton Malkiel shared withme, you should “diversifyacross securities, acrossassetclasses,acrossmarkets—and across time.” That’showyou trulygetaportfolio

for all seasons!For example,hesaysyouwanttoinvestnotonlyinbothstocksandbondsbut also in different types ofstocks and bonds, many ofthem from different marketsindifferentpartsoftheworld.(We’lltalkaboutdiversifyingacross time in chapter 4.4,“TimingIsEverything?”)And, most experts agree,

the ultimate diversificationtoolforindividualinvestorsisthelow-feeindexfund,which

gives you the broadestexposure to the largestnumbers of securities for thelowestcost.“Thebestwaytodiversifyistoowntheindex,because you don’t have topay all these fees,” DavidSwensen told me. “And youget tax efficiency.” Meaningthat if you’re investingoutside of your IRA- or401(k)-type account, youdon’t get taxed for all thatconstant buying and selling

that goes on in most mutualfunds.

HAVESOMEFUN!

Of course, if you have yourmoneymachineinfullgear,and you have the desire,there’s nothing wrong withsetting aside a tiny percentof your Risk/GrowthBucket to pick some stocks

and do some day trading.“Index your importantmoney, then go have fun,”Burton Malkiel told me.“It’s better than going totheracetrack.”But,hesaid,limityourself to5%or lessof your total assets orportfolio.Isallof thisgivingyouan

ideaofwhatkindofportfoliomix would be best for you?Before you decide, justremember that we all have a

tendency to pile up on theinvestmentsthatwethinkwillgiveusourgreatestvictories.Andeverybodygetsvictories.You know why? Differentenvironments rewarddifferentinvestments.Solet’ssay realestate ishot.You’veinvestedinrealestate,sonowyou’reagenius.Stockmarketis hot? If you have stocks,you’re a genius. Bonds aredoing great? If you havebonds, once again you’re an

investmentmaster.Ormaybeyou just landed in the rightplaceat the right time, right?So you don’t want to getoverconfident. That’s whyasset allocation is soimportant. What do all thesmartest people in the worldsay? “I’m going to bewrong.” So they design theirasset allocation ideally tomakemoneyinthelongtermeven if they’re wrong in theshortterm.

LET’STESTYOURKNOWLEDGE

In the coming pages, I’ll beshowingyoutheportfolios,ortheassetallocations,designedby some of the greatestinvestors of all time. Let’sstart with a sample fromsomeoneyou’vebeenhearingfrom throughout this book:David Swensen, Yale’s$23.9 billion–plus man, a

true master of assetallocation. Would you beinterested in seeing hispersonal portfoliorecommendations? Me too!So when we sat downtogetherinhisofficeatYale,Iaskedhimthekeyquestion:“If you couldn’t leave anymoney to your kids, only aportfolio and a set ofinvestment principles, whatwouldtheybe?”He showed me the asset

allocation that herecommends for individualinvestors—onehe thinkswillhold up against the test oftime. He also recommendsthis portfolio for allinstitutions other than Yale,Stanford, Harvard, andPrinceton. Why? Becausethesefourinstitutionsemployan army of full-time topanalysts.When I sawhis list, Iwas

amazed by how elegant and

simpleitwas.I’veshownyou15 types of assets to choosefrom; he uses only sixcategories,allinindexfunds.I was also surprised by howmuch weight he gave to oneparticular bucket. Can youguess which one? Let’sactivate some of what we’velearned thus far about thedivisionbetweentheSecurityandRisk/GrowthBuckets.Have a look at the box

below and jot down where

each asset class belongs.Check which ones you thinkbelong in the SecurityBucket,whereyouputthingsthat are going to give youmodest returns in exchangeforlowerrisk;andthencheckwhich belong in theRisk/Growth Bucket, wherethere’s greater upsidepotential but also greaterdownside.DavidSwensen

Portfolio

AssetClass(IndexFunds)

PortfolioWeight

Domesticstock 20%International

stock 20%

Emergingstockmarkets 10%

REITs(realestateinvestmenttrusts)

20%

Long-termUSTreasuries

15%

TIPS(Treasuryinflation-protectedsecurities)

15%

Let’s start with the topfour. The first is a broaddomestic stock index,something like the Vanguard500 Index or the Wilshire5000 Total Market Index.

Where would you put it?Does it come with risk?Absolutely. Have you got aguaranteed return?Absolutely not. Could youlose it all? Unlikely—but itcoulddropsignificantly—andithasattimes!Overthelongterm, US stocks certainlyhave a great track record.Rememberhowtheycomparetoowningyourownpersonalreal estate? Equities havedonewellovertime,butthey

are one of the most volatileassetclasses in the short run.In the last 86 years (through2013), the S&P lost money24 times. So stock indexfunds belong in whichbucket? That’s right:Risk/Growth.How about international

stocks?DavidSwensenputsalotofweightinforeignstocksbecause of the diversity theybring to the portfolio. Ifthere’s a slump in America,

business may be booming inEurope or Asia. But noteverybodyagreeswithDavid.Foreign currencies aren’t asstable as good old USgreenbacks, so there’s a“currency risk” in investingin foreign stocks. And JackBogle, the founder ofVanguard, with 64 years ofsuccess, says that owningAmerican companies isglobal. “Tony, the reality isthat among the big

corporations in America,none are domestic,” he toldme. “They’re all over theworld: McDonald’s, IBM,Microsoft, General Motors.So you own an internationalportfolio anyway.”Wheredoforeignstocksbelong?Ithinkwe can agree on theRisk/GrowthBucket,no?Emerging markets? David

Swensen likes to put somemoneyintothevolatilestocksof developing nations, like

Brazil, Vietnam, SouthAfrica, and Indonesia. Youcan get spectacular returns,but you can also loseeverything. Risk/GrowthBucket?Youbet!How about REITs? David

told me he likes “real estateinvestmenttruststhatownbigcentralbusinessdistrictofficebuildings and big regionalmalls and industrialbuildings. They generallythrow off a high-income

component.” So these indexfunds can generate greatreturns, but they rise and fallwith the Americancommercial real estatemarket. Which bucket?You’vegotit:Risk/Growth.Whataboutthelasttwoon

the list: long-term USTreasuriesandTIPS?Dotheyoffer lower returns inexchange for more safety?Spoton!Sowhichbucketdotheybelongin?You’vegotit:

Security.Congratulations! You’ve

justassignedsixmajorassetclasses to their properallocationbuckets,which issomething 99.9% of thepeople you pass on thestreet wouldn’t be able todo!Prettycoolthing,isn’tit?But let’s dig a little deeperheretounderstandwhyDavidchose this mix, and why itmay or may not be right foryou.

First let’s look at theSecurity Bucket. David saidhe chose only US Treasurybonds “because there’s apuritythereinhavingthefullfaith and credit of the USgovernment backing them.”But why did he pick thisparticular combination ofbond funds? Half aretraditional long-termTreasury bonds, and half areinflation-protectedsecurities.I said to David, “You’re

basicallysayingifI’mgoingto be secure, I’m going toprotectmyself against bothinflationanddeflation.”“That’s absolutely right,”

he said. “I can’t believe yousawthat!Alotofpeoplewhoput together bond indexeslump the two together. TheTreasuries are for deflation,like we had in 2008. But ifyou buy regular Treasurybonds,andinflationtakesoff,you’regoingtoenduphaving

losses in your portfolio. Ifyou buy the TIPS, andinflation takes off, you’regoingtobeprotected.”Iwant you tonotice that

David Swensen, like all thebest,doesn’tknowwhich isgoing to happen: inflationordeflation.Soheplansforboth scenarios. You mightsayasyoulookatthis,“Well,yes,fiftypercentforinflationandfiftypercentfordeflation.Doesn’t he just break even?”

It’s not that simple, but yourthinking is quality. He isusing his Security Bucketinvestment as protection thatif his equity investments orreal estate go down, he’slowering his downside byhaving something to offsetsome of those investmentrisks.Sohe’scertaintomakesome money in his SecurityBucket. And he doesn’t losehis principal, so he’spracticing smart Security

Bucket usage.Hewon’t losemoney, but he’ll make someadditional money if thingsinflate or deflate. A verysmartapproach.But I was a bit surprised

that only 30% of his assetallocation goes into theSecurity Bucket, while 70%of his assets go into theRisk/Growth Bucket! Thatseemed pretty aggressive tome for some investors, so Iasked David how it would

workfortheaverageinvestor.“That’s a good question,

Tony,”hesaid.“Equitiesarethe core for portfolios thathave a long time horizon. Imean, if you look at recentlong periods of time—ten,twenty, fifty, one hundredyears—you see that theequity returns are superior tothose that you get in fixedincome.”Historical data certainly

back him up.Have a look at

the visual below that tracesthe returns of stocks andbonds forperiodsof100and200 years. It shows that USstocks have historicallyoutperformed bonds incompounded annual returns.In fact, $1 invested in 1802at 8.3% per annum wouldhave grown to $8.8 millionby the turn of the newmillennium.

So David Swensendesignedhisidealportfoliotobe a wealth-generatingmachine that offers somestability through its

tremendous diversity. Andbecause it takes a long-termview of investing, it has thetime to ride out periodicdropsinthestockmarket.I was curious to see how

this asset allocation mixwouldhavefared in thepast:those volatile 17 years fromApril 1, 1997, when TIPSfirst became available, toMarch 31, 2014. It wasduring those years when theStandard & Poor’s index

performed like a rodeo bull,yet itdropped51%.SoIhada team of financial expertstest its performance againstthe index during those years.Guess what? The Swensenportfolio outperformed thestock market with anannual return of 7.86%!During the bear market of2000through2002,whentheS&P 500 dropped almost50%, Swensen’s portfoliostayed relatively stable, with

a total loss of only 4.572%over those three terribleyears! Like other portfoliosheavy in equities, Swensen’stook a hit in the massivecrash of 2008, but it still didbetter than the S&P 500 bymorethan6%,(losing31%asopposed to 37%) and thenbouncedback. (Note: see theend of this chapter for thespecific methodology tocalculate the returns. Pastperformance does not

guaranteefutureresults.)So, ladies and gentleman,

it’s safe to say that DavidSwensenisoneofthoserareunicorns who can actuallybeat the stockmarket on aconsistentbasis—andinthisportfolio,hedoesitwiththepower of asset allocationalone!Andyouhaveaccessto his best advice, righthere, right now. If that wasallyougotoutofthischapter,I think you’d agree it’s been

worththetime!However,themost important thing tounderstand is this: eventhoughthisportfoliomightdobetterandbemorestablethanthe general market, it is stillan aggressive portfolio thattakes a strong gut becausefew people can take a 35%loss of their lifetime savingsandnotbuckleandsell.Soisit right for you? If you’re ayoung person, you might beveryinterestedinthiskindof

mix,becauseyou’vegotmoretime to recover from anylosses.Ifyou’regettingreadyto retire, this portfoliomightbetooriskyforyou.But not to worry. I’m

going to give you severalother examples of portfoliosin the coming pages,including that one particularallocation mix Ray Dalioshared with me thatpractically knocked me offmy chair! It was so

spectacular that I’ve devoteda whole chapter to it in thenext section. But here’s ahint: its mix was much lessaggressive than Swensen’s,butwhenwetesteditoverthesame time frame, the Dalioportfolio had a higheraverage annual return andsignificantlylessvolatility—it’sasmoothride.Itmaybethe Holy Grail of portfolioconstruction, one that givesyousubstantialgrowthwith

the lowest ratioof risk I’veseen!

Inanymomentofdecision,thebestthingyoucandoistherightthing,thenextbestthingisthewrongthing,andtheworstthingyoucan

doisnothing.—THEODORE

ROOSEVELT

Butfornow,let’sgetbackto

the big picture and look athow you’ll decide your ownbasic numbers: Whatpercentage of your assets areyou going to put at risk, andwhat percentage are yougoing to secure? Before youmakethechoice,youhavetoconsiderthreefactors:•yourstageinlife,•yourrisktolerance,and•youravailableliquidity.

First, howmuch time doyou have ahead of you tobuild wealth and makemistakes with yourinvestments along the waybefore youneed to tap intothem? If you’re younger,onceagain,youcanbemuchmore aggressive becauseyou’llhave longer to recoveryour losses. (Althoughnobody wants to get in thehabitoflosing!)Your percentages also

dependonhowmuchaccessto income you have. If youearna lotofmoney,youcanaffordtomakemoremistakesandstillmakeupforit,right?

GAMESHOWTIME:WHATAREYOUWILLINGTO

RISK?

Andwhen it comes to risk,everyone has radicallydifferentideasaboutwhat’stolerable. Some of us arevery security driven.Remember the 6 HumanNeeds? Certainty is thenumber one need. But someof us crave Uncertainty andVariety; we love to live onthe edge. You have to knowyour personality before youdive in here. So let’s sayyou’re on a game show;

whichofthefollowingwouldyoutake?•$1,000incash• A 50% chance at winning$5,000

• A 25% chance at winning$10,000

• A 5% chance at winning$100,000

Here’s another: you havejust finished saving for aonce-in-a-lifetime vacation.

Threeweeksbeforeyouplanto leave, you lose your job.Wouldyou:•cancelthevacation;• take a much more modestvacation;

• go as scheduled, reasoningthat you need the time toprepareforajobsearch;or

• extend your vacation,becausethismightbeyourlast chance to go firstclass?

Rutgers University hasdeveloped a twenty-question,five-minute online quiz(http://njaes.rutgers.edu/money/riskquizthat can help you identifywhere you fit on the risk-tolerance scale. But the realanswerisinyourgut.For the past 30 years, I’ve

been putting on myWealthMastery seminars, whereI’veworkedwithpeoplefrommore than 100 countries totransformtheirfinanciallives

by putting them in a total-immersion four-day wealth-mastery process. In it, I liketo play a little game withthem called “the moneypass.” From the stage, I tellthe audience to “trademoney” with one another.That’s all I say. There’susually a few moments ofsilent confusion, and thenthey start trading. Somepeoplepulloutadollar,sometake out a twenty, some

people a hundred. You canguess what happens. Peopleare moving around, they’relooking at one another, theydecide how to exchange.Some negotiate, some giveaway all their money, andsome take another person’s$100 bill and give them $1.You can imagine theastonished look on thatindividual’s face. After threeorfourminutesofthistypeoftrading, I say, “Okay, grab a

seat.” And I move on to thenextsubject.Invariably, some guy will

shout, “Hey! I want myhundreddollarsback!”I’ll say, “Who said it was

yourhundred?”Andhe says,“Well, we’re playing agame.” And I say, “Yeah.What made you think thegame was over?” Usually Iget a confused look as theperson sits down, stillfrustrated over the lost $100.

Eventually they get theinsight: their perception oftheir risk tolerance and thereality are in differentuniverses.Thisguy thinkshehas a high tolerance for risk,buthecangetpissedoffoverthe loss of $100. It alwaysamazes me. Imagine if youwere to lose $10,000,$100,000, or $500,000.That’s what aggressiveinvestors can lose in arelatively short period of

time.Peopledon’tknowtheirtrue tolerance for risk untilthey’ve had a real-lifeexperience taking asignificantloss.I’ve taken God-awful

losses—multimillion-dollarhitsatastageinmylifewhenI didn’t have that much tolose,whenthelossesequaledmore than all that I owned.Those gut checks will wakeyou up! But the numbersdon’t matter. You can get

thrown by losing $100 or$1,000.Thepainoflosingfarexceeds the joy of winning.And that’s why it’s great tohave something like the AllSeasons portfolio in yourinvestment arsenal, because,through asset allocationalone, you can significantlyreduce the risk of sizeablelosses.Just as science shows us

that we’re hardwired to hatelosing, it also shows that

humans are not good atassessingourpotentialtowin.Sometimesafteryou’vemadeafewsuccessfulinvestments,youstart thinking, “Hey, I’mgood at this; I can doanything!” It’s just humannature to think you can beatthe system. It’s whatpsychologists callmotivationalbias.Mostofusthink we’re better than wereally are at predictingpatterns and luckier than we

really are when there’s ajackpot at stake. What elsecan explain why so manypeople play the lottery?! Afamous 1981 study atStockholm University foundthat93%ofUSdrivers thinktheirskillsareaboveaverage.There’s even a name for thisphenomenon: “the LakeWobegonEffect,”referringtoauthor Garrison Keillor’smythical townwhere“all thechildren are above average.”

Hey, who doesn’t thinkthey’re above average! Butwhen it comes to money,delusions that you’re betterthan everybody else can killyou.If you’re a man, you’re

guilty of this bias bybiochemistry. Testosteroneequals overconfidence. Studyafter study show thatwomentend to be better investorsbecause they don’toverestimate their abilities to

anticipate the futureaccurately. Sometimesconfidence works againstyou. Just watch little boys.“I’mSuperman!I’mgoingtofly!Watch me jump off thisroof!” Suffice it to say, ifyou’re a woman reading thisbook, you have a built-inadvantage!When the markets are

going up and up and up,investors can be mesmerizedby their returns.Everybody’s

seduced by the possibility ofgrowth, thinking it’s theprobability of growth.That’swhere they get into trouble.As a result, they pour themajorityoralloftheirmoneyinto investments that fit intotheRisk/GrowthBucket—notjust70%butsometimes80%,90%, or 100%. Some evenborrow money to makeinvestments that they believeare going to go up forever,untiltheydon’t.Andbecause

of poor asset allocation,withtoo much of their moneyridingononehorse,theyloseit all or even endup indebt.And the reason people getscrewed is that by the timethey hear that the stockmarket (or gold, or the realestate market, orcommodities, or any othertypeof investment) isagreatplace to go, very often thebubbleisjustabouttoend.Soyou need to put in place a

system to make sure youdon’tgetseducedintoputtingtoo much of your money inanyonemarketorassetclassor too much in yourRisk/GrowthBucket.All of this may sound

pretty basic, especially tosophisticated investors whofeel like they’ve goteverything covered. Butsometimes it’s high-levelinvestors whose strings ofsuccesses send them veering

off course. They forget thefundamentals.Naturally, there will

alwaysbeinvestorswhocan’tlisten to reason, whose“irrational exuberance” runsaway with them. They talkthemselves into believing thebiggest myth of investing:“This time will bedifferent.” Iknowdozensofthese stories, all withunhappy endings. TakeJonathan, a friendwhomade

a fortune in business (andwhose real namewill remainanonymous for his privacy)and then liquidatedeverything to invest in thebooming Las Vegas realestate market. He had someearly wins, so he doubleddown and borrowed likecrazy to keep buildingcondos. Every time Jonathancame to my financialprograms,heheardabout theimportance of putting some

of your wins into yourSecurity Bucket and notputtingallyoureggsintoanyone basket no matter howcompelling the returns mightbe today. Jonathan gavecredittomeandmyBusinessMastery programs for themorethan1,000%increaseinhis business that made allthese investments possible.He made more than $150million selling his company.But he didn’t listen when it

cametotakingmoneyoffthetable and putting it in theSecurity Bucket, and, boy,didhepayaprice.Todayheacknowledges that he let hisego get in the way of hiseardrums.Hewanted to be abillionaire, and he knew hewasontargettobecomeone.But then, do you rememberwhathappenedwhen therealestate market in Las Vegascollapsed? How far didhousing prices go down?

How about 61% between2007 and 2012. Jonathandidn’t just lose everything—he lost a half billion dollarsmorethanhehad.

I sincerely hope all this is

sinkingin.Ifthere’sanythingyou should take away fromthis chapter, it’s this: puttingall of your money in theRisk/Growth Bucket is thekiss of death. It’swhymany

experts estimate that 95% ofinvestors lose money overvirtually any decade.Typically they ride the waveup (in real estate, stocks,gold), and when the wavedisappears, they sink like arock,andthey’repoundedbyfinancial losses during theinevitablecrash.Some people just won’t

listentoadvice.Theyhavetolearn the hard way, if at all.But to avoid those kinds of

painful lessons, and to helpyoudecidewhichoptionsarerightforyou,Ihavetoremindyou that a conflict-free,independent investmentmanager can be the rightchoice. Notice howprofessional athletes, menandwomenatthetopoftheirsport,alwayshavecoachestokeep them at peakperformance? Why is that?Because a coach will noticewhen their game is off, and

can help them make smalladjustments thatcanresult inhugepayoffs.Thesamethingapplies to your finances.Great fiduciary advisors willkeep you on course whenyou’re starting to act like ateenager and chasing returns.They can talk you off theledge when you’re about tomake a fateful investmentdecision.

PICKANUMBER,ANYNUMBER...

Okay, the moment ofreckoning has arrived! Sayyou’ve still got that $10,000bonus in your hand (oryou’ve accumulated$100,000, $200,000,$500,000, or $1 million ormore),andyou’vedecidedtoinvest it all. Knowing whatyouknow so far, howwould

youdivideitup?What’syournew philosophyof investing?What percentage of yourmoneyareyougoingtokeepgrowing in a secureenvironment and whatpercentageareyouwilling torisk for potentially greatergrowth?You’veprobablyheardthat

old rule of thumb (or whatJack Bogle calls a “crudemethod”): invest your age inbonds. In other words,

subtract your age from 100,and that would be thepercentage you should keepin stocks. So if youwere 40years old, 60% should go toequities in your Risk/GrowthBucket and 40% in yourSecurityBucketasbonds.Atage 60, the ratio should be40% stocks and 60% bonds.But those ratios are out ofwhack with today’s reality.The volatility of both stocksandbondshas increased, and

peoplelivealotlonger.So what should it be for

you? Would you like to bemore aggressive with yourrisk, like David Swensen?Witha30%securityand70%risk? That would meanputting30%of your $10,000windfall—$3,000—inSecurityand70%—or$7,000—into your Risk/GrowthBucket. (If you had $1million,youwouldbeputting$300,000 in Security and

$700,000 in Risk/Growth.)Can you really afford thatkind of split? Do you haveenough cash? Do you haveenough time?Areyouyoungenough?Ordoyouneedtobea littlebitmoreconservative,like most pensions are, at60/40? Or is 50/50 right foryou?Areyoucloseenoughtoretirement thatyou’dwant tohave 80% in a secure place,and only 20% in riskierinvestments?Whatmatters is

not what most people do.What matters is what willmeet both your financial andemotionalneeds.Iknow,it’ssuchapersonal

choice,andeventhebrighteststars in finance sometimeshave to think long and hardabout what’s right for themand their families. When Iinterviewed J.P. Morgan’sMary Callahan Erdoes, Iasked her, “What criteriawouldyouuseinbuildingan

asset allocation? And if youhave to build one for yourkids, what would that looklike?”“I have three daughters,”

she told me. “They’re threedifferent ages. They havethree different skill sets, andthose are going to changeover time, and I’mnotgoingto know what they are. Onemight spend more moneythan another. One may wantto work in an environment

where she can earn a lot ofmoney.Anothermaybemorephilanthropic in nature. Onemay have something thathappenstoherinlife,ahealthissue. One may get married,one may not; one may havechildren,onemaynot.Everysinglepermutationwillvaryovertime,whichiswhyevenifIstartedallofthemthefirstday they were born and setout an asset allocation, itwouldhavetochange.

“And that has to changebased on their risk profile,becauseovertime,youcan’thave someone in a perfectasset allocation unless it’sperfect for them. And if, atthe end of the day, someonecomes tomeandsays, ‘All IwantisTreasurybillstosleepwellatnight,’thatmaybethebestanswerforthem.”I said toher, “Because it’s

aboutmeetingtheiremotionalneeds, right? It’s not about

themoneyintheend.”“Exactly, Tony,” she said.

“Because if I cause morestress by taking half thatportfolio and putting it in astockmarket,butthatleadstoa deterioration of thehappinessintheirlives—whyamIdoingthat?”“What is the purpose of

investing?” I asked. “Isn’t itabout making sure that wehave that economic freedomfor ourselves and for our

families?”“That’s right, tobeable to

dothethingsyouwanttodo,”she said. “But not at theexpense of the stress, thestrains, and the discomfortthat goes along with a badmarketenvironment.”So what’s the lesson here

fromoneofthebestfinancialminds in the world? What’smore important even thanbuildingwealth isdoing it ina way that will give you

peaceofmind.So what will it be? Write

down your numbers andmake them real! Are thosepercentagesacomfortablefit?Walkaroundinthem.Liveinthem. Own them! Becausethosepercentagesarethekeytoyourpeaceofmindaswellasyourfinancialfuture.Done?Okay! You’ve just made

the most importantinvestment decision of your

life. And once you knowwhat your percentage is,you don’t want to alter ituntil you enter anew stageof life, or yourcircumstances changedramatically.You’ve got tostick with it and keep theportfolio in balance. I’llshow you how later in thissection.Are you still concerned

about making the rightchoice? Just remember,

you’vegotafiduciarytohelpyou.Andyoudon’tneedtensof thousands, hundreds ofthousands, or millions ofdollars to get started—youcouldgetstartedwithnext tonothing for freewith today’sonlineservices.By the way, I’m not done

withyouyet!Therearewaysto increase your returnswithin these buckets, andwe’regoingtogettothat.Now that you understand

these principles, and you’vemadethisdecisionabouthowmuchyouwanttoputinyourRisk Bucket versus yourSecurity Bucket, let me tellyouthebestnewsofall:afterinterviewing 50 of the mostsuccessful investors in theworld, the smartest financialminds, I’ve uncovered theways in which you can getGrowth-like returns withSecurityBucketprotections.The most important piece of

adviceeveryinvestorItalkedto echoed was, “Don’t losemoney!” But for manyinvestors, that means havingto settle formediocre returnsintheSecurityBucket.Injusta couple of chapters, I’mgoing to sharewith you howtohavetheupsidewithoutthedownside. How to havesignificant growth withoutsignificant risk. I know itsounds crazy, but it’s real,andit’sexciting.

As hard as we’ve workedhere, I’m happy to tell youthat the next chapter is easyand pure pleasure. Now I’mgoingtorevealathirdbucketthat we haven’t talked aboutyet, but you’re going to loveit because it’s fun, inspiring,and can give you a greaterquality of life today, notdecades in the future. Let’sdiscover what’s going to goinyourDreamBucket.

David Swensen provided thespecific percentage for eachasset class, but he did notprovidethespecificindicestorepresent each asset class.Independentanalystsusedthefollowingindicestorepresenteach asset class, and it isassumed that the portfoliowould be rebalancedquarterly. Note that pastresults do not guaranteefuture performance.Instead,Iamprovidingyou

the historical data here todiscuss and illustrate theunderlyingprinciples.

20%Wilshire5000TotalMktTRUSD

20% FTSENAREITAllREITsTR

20%MSCIACWIExUSAGRUSD

15% BarclaysUSLongCreditTRUSD

15%BarclaysUSTreasuryUSTIPSTRUSD

10%MSCIEMPRUSD

CHAPTER4.3

THEDREAMBUCKET

Whenyouceaseto

dream,youceasetolive.—MALCOLMFORBES

What’saDreamBucket? It’swhere you set asidesomething for yourself andthose you love so that all ofyou can enjoy life whileyou’re building your wealth.It’s something for today, nottomorrow! Your DreamBucket is meant to exciteyou,toputsomejuiceinyourlife so youwant to earn andcontribute even more. Thinkoftheitemsyou’resavingforin your Dream Bucket as

strategicsplurges.Whatwouldfloatyourboat

rightnow?Maybeyou’dbuyyourself that pair of ManoloBlahniks you’ve alwayswanted,orafloor-sideseatataMiamiHeatgame.OraVIPtour of Disneyland for thekids. Or you could startfillingthatbucketforabiggerreward:season tickets.A tripto the mountains in thesummer or a ski orsnowboardingvacation in the

winter. A new car—maybeonethatisn’tsopractical,likeaMiniCooperoraMustang.Avacationcondoorhome.I know a millionaire who

alwaysflewcoachbecausehelikedtosaveadollar,buthiswife complained about itconstantly. “We have plentyof money. Why don’t weenjoy it?” she said. It was aconstant source of strifebetween them because theytraveled so much for

business. After attending myWealth Mastery seminar, hedecided to use his DreamBuckettoupgradetobusinessclass when he flew with hisfamily. He discovered it notonlymadehistravellifemorecomfortable but also (evenmore importantly) his homelife as well. Way to flameout, dude! Maybe somedayhe’d like to considercharteringaprivatejetinsteadof flying commercial—and it

mightnotbe as expensive ashethinks.Manypeoplehave a lot of

moneybutnotmuchlifestyle.They spend their liveswatching numbersaccumulateinabankaccountand miss out on the joy andenjoyment they can createandsharealongtheway.I remember that when I

mademyfirstGrowthBuckethits early in my career, myidea of a jackpotwas to buy

two new suits because theywere on sale at a Men’sWarehouse–like store. Ormaybe take a vacation inHawaii. That was a big dealformebackthen!My resort in Fiji was a

muchbiggerdreamthatcametrue. As I shared with you,when I was 24 years old, Ifellinlovewiththeturquoisewaters of the South Pacificislands. It was like my hearthadfoundahome.Iwanteda

refuge for myself and myfriendsandfamily.Now,overtheyears,NamaleResortandSpa has become a prettysizeable asset because I builtitupandturneditintooneofthe top destinations in theSouth Pacific. But that’s justa bonus. In fact, it’s thenumber one resort in Fiji formore than ten years, andOprah selected it as herfavoriteplacetogolastyear.Ajackpotontopofthedream

thatcreatedit.Your dreams are not

designed to give you afinancial payoff, they aredesigned to give you agreater quality of life. Andisn’t that why you’ve filledthe first two buckets in thefirstplace?Butyou’vegottopractice some restraint here,too. If you take all yourmoney and put it only in theDream Bucket, you’re likelyto end up going broke like

Willie Nelson. So it’s amatter of balance. And thejackpots in your DreamBucket don’t have to be justfor yourself. The bestjackpotsaretheonesyougivetoothers.

Dreamsarethetouchstonesofour

character.—HENRYDAVIDTHOREAU

Maybe you’re like me, andyou just love giving gifts.And the best gifts are theonesthatareunexpected.My mother never had

moneywhen shewas young,andwealwaysstruggledasafamily, living in cheaphousingeastofLA,wherethenearly daily smog alertsannouncedonthenewsletusknow it wasn’t safe to walkoutside.And so one day, after my

business started taking off, Iasked my mom to help mecheck out a condo I wasthinking of buying on thewater inHuntingtonBeach. Iwalked her through it andshowed her the magnificentocean views. Then westeppedouton thebeachandbreathedthesaltair.“I really love this place,

butIwantyourfinalword,”Itold her. “What do youthink?”

“Are you kidding?” shesaid.“This is incredible!Canyou imagine coming fromwhere we came from, andnow you’re going to livehere?”“Soyouthinkit’stheright

place,Mom?”“Oh,it’sunbelievable!”Then I handed her the

keys.“What’sthis?”sheasked.“It’syours,Mom.”I’llneverforgetthelookof

astonishmentonher faceandthen tears of joy. My momhas passed away now, but Istillrememberthosemomentsso vividly as some of thefavoriteofmylife.You don’t have to wait.

You could do this, too.Youcan fulfill your dreams. Ifyou want it badly enough,you’llfindaway.Not long after I gave my

motherthatcondo,Imetwitha group of a hundred or so

fifth graders from a poorneighborhood at a school inHouston, Texas. Most ofthem were on a track thatwould never get them tocollege.SoIdecidedthenandtheretomakeacontractwiththem. I would pay for theirfour-yearcollegeeducationifthey kept a B average andstayedoutof trouble. Imadeit clear that with focus,anyone could be aboveaverage,andIwouldprovide

mentoring to support them. Ihad a couple of key criteria:They had to stay out of jail.They couldn’t get pregnantbefore graduating highschool. Most importantly,they needed to contribute 20hours of service per year tosome organization in theircommunity. Why did I addthis? College is wonderful,but what was even moreimportant tomewas to teachthem they had something to

give, not just something togetinlife.IhadnoideahowIwasgoingtopayforitinthelong run, but I wascompletely committed, and Isigned a legally bindingcontract requiring me todeliver the funds. It’s funnyhow motivating it can bewhenyouhavenochoicebutto move forward. I alwayssay, if youwant to take theisland, you have to burnyourboats!SoIsignedthose

contracts. Twenty-three ofthose kids worked with mefrom the fifth grade all theway to college. Severalwenton to graduate school,including law school! I callthem my champions. Todaythey are social workers,businessowners,andparents.Justa fewyearsago,wehada reunion, and I got to hearthe magnificent stories ofhow early-in-life giving toothers had become a lifelong

pattern. How it caused themtobelievetheyhadrealworthinlife.Howitgavethemsuchjoytogive,andhowmanyofthemnowareteachingthistotheirownchildren.I’m telling you this

because you don’t need towait until you’re absolutelyready to fulfill your dream.Youjustdoit,andyoufindaway,andgracewillfindyou.Grace comes when youcommit to doing something

that will serve more thanjust yourself—some wouldcallitluckorcoincidence.Ileave it to you to decidewhat to believe. Just knowthatwhenyougiveyourall,the rewards are infinite. Ireally believe motive doesmatter. But it doesn’t meanthat it can’t benefit you too,right?Jackpots can help you

create more wealth, becausethekeytocreatingwealthis

to unleash your creativityandfindawaytodomoreforothers than anyone else isdoing. If you find a way toadd more value thananyone else, you can alsofind a way to prosperpersonally.Thatcanapplytoyour own life as well as thelives of others. Rememberwhen we talked aboutspeedingupyourplan,howifyouwishtobegreat,learntobecometheservantofmany?

We already know that lifesupports what supports morelife. And by supporting life,you lift yourself up as well,and more bounty comes toyou.

Giveyourselfpeaceofmind.Youdeservetobehappy.Youdeserve

delight.—HANNAHARENDT

So how do you fill your

Dream Bucket? Let’s talkaboutthreeways.First,whenyou score a big hit, like that$10,000 bonus we weretalking about earlier in thelast chapter. Or, second, ifyour Risk/Growth Bucketgets a positive hit, and youscorebig. Just like inVegas,itmightbetimetotakesomeof the risk off the table. Anapproach many of mystudents use is to take thoseprofits, divide them up, and

invest them back in a fixedproportion: say, one-third inSecurity, one-third inRisk/Growth,andone-thirdinDream. In the case of thatbonus, that would be about$3,333 for your DreamBucket.By putting one-third of

your Risk/Growth Bucketmoney intoSecurity, it’s liketakingmoneyoff the table tohelpspeedthegrowthofyourmost secure investments, and

with it your peace of mind.By leaving one-third inGrowth,youcontinue to takerisks with a potential largerupside, but you’re doing itwith your winnings. Byputting one-third in yourDream Bucket, you’recreating a jackpot that youcan enjoy today. This willstimulate and excite you inways that will likely causeyou to want to earn more,save more, and invest even

more effectively—becauseofthe rewards today, not justsomedayinthefuture.The third way to fill your

DreamBucketistosaveasetpercentage of your incomeand sock it away, building itup until you’re able topurchase your dreams—whether that be your firsthome, a car, a vacation, orthosefunlittleitemsthatwilllight you up today.But keepinmind,thisisnottakingany

money out of what you arealready saving for yourFreedomFund.That’s sacredand untouchable money! Butyoucanfindwaystoincreasethe amounts you can put inyourFreedomFundandyourDream Bucket. Here’s aquick reminder from the“SpeedItUp!”chapters:• Save more and invest thedifference.

• Earn more and invest the

difference.• Reduce fees and taxes andinvestthedifference.

•Getbetterreturns.•Changeyourlifestyle.

So you can take some ofthose savings to invest, andsome of those savings tomake your dreams a realitytodayorinthenearfuture.Whatwillbeyourstrategy

to fill this bucket? Will youwait for a bonus or a stock

market score, orwill you setaside a percentage like myfriend Angela? At first shethought she had no moneyshe couldpossibly save eventowardherfinancialfreedom.But by the time she went

through the process of thisbook, she saw that relocatingto Florida would save herenough money in stateincome tax that she couldnow set aside 10% of herincomeforherFreedomFund

and still earmark anadditional 8% for herDreamBucket. The tax man wasnow filling her DreamBucket. How cool is that?Plus,she’sgotbetterweather,too! She went through heraccounts and figured out awaytobecomeevenmoretaxefficient to be able to put anadditional 2% into herFreedom Fund for a total of12%, on top of the 8% shewas saving toward her

dreams.Ifyouwouldhavetoldher

in the beginning that shewould have found a way tosave 20%, she would havesaid you were absolutelycrazy.Buttodayshenotonlyhas her future secured butalso is saving for someimportantdreamsintheshorttermthatexciteher.Hikinginthe Himalayas and rowingacross the ocean.Her degreeis in anthropology, and she’s

always dreamed of spendingtime with famedpaleontologistLouiseLeakeyather institute inKenya.Shewas even invited. She justdoesn’thave themoneyrightnow.But if she sticks to herfiscally sound plan, she will.How cool to be able to befinancially secure andindependent,and,atthesametime, live this life ofadventure? Remember thestrategy of Save More

Tomorrow? You can decidethat in your next salaryincrease,maybe3%couldgoto your Freedom Fund, andmaybe 1.5%or 2% could goto your Dream Fund—especially if there are somedreams that are important toyou now, like saving for thedown payment on your firsthome or a vacation getaway.Therearesomanywaystodoit!But let me tell you the

secret: the most importantthingistomakealistofyourdreams.Put them in order ofimportance, big and small,short term and long term.Write down why you mustachieve them or experiencethem. I’ve found that if youtry to figureoutapercentageto save without reallyknowing what you’re savingfor, it’s not going to happen.The secret is to know whatyou truly want and why you

wantit,andmakeitaburningpassion. Suddenly yourcreativity will be unleashed,and you’ll find new ways toearn more, to save more, toadd more value, to becomemoretaxefficient, tobecomeabetterinvestor,ortomakealifestylechangethatimprovesyour lifeandgivesyousomeofyourdreamstoday,andnotin the future. That’s the keytoitall.But decide today! Take a

momentnowandmakea listof your dreams. Write themdown so theybecome real toyou. How much would yoube willing to save for them?Getexcited,andgetstarted!

Everygreatdreambeginswithadreamer.

—HARRIETTUBMAN

In the end, what percentageof your total assets do youthink should go in your

Dream Bucket? It doesn’thave to be much—maybe aslittle as 5% or 10%. Butplease don’t forget to rewardyourself.Whileit’simportanttokeepyourmoneysafeandgrowing,neverforgettohavefun, togive, and to liveyourlife fully on your path tofinancial freedom. That’swhatit’sallabout.Don’tsaveyour Dream Bucket for “arainy day.”Why not get outandsoakupthesunshine?

Ifyoudon’t,youcouldendup likeacouple thata friendofmine toldme about. Theyscrimped and saved theirwhole lives, and then finallydecided they had enough toafford a fantastic Caribbeancruise.Itwasaweeklongtripon one of those giant cruiseliners, hopping around theislands. You can picture it:theshiphadswimmingpools,a climbing rock, dozens ofrestaurants and discos. The

couple was so excited, butthey still wanted to beprudent with their capital,since they’d worked so hardto save for their retirement.They didn’t want to spendextra money on the lavishmeals.Thetripbyitselfwasabig enough splurge for them.So to save money, theyloaded their suitcases withboxesofcheeseandcrackersto snackonduring thecruiseand vowed to avoid those

expensivedinners.The weather was perfect,

and the couple had a greattimewithall theactivitiesonboard. But every lunch anddinner, when everybody elsewas eating incredible feastsserved up on huge buffettables—shrimp, lobster,prime rib, mountains ofdesserts,andfinewinesfromaroundtheworld—thetwoofthemwentbacktotheirroomand ate the cheese and

crackers. They didn’t mind.They were enjoying the tripof a lifetime, and they wereproudofthemselvesforbeingfrugal. But on the last day,they finally broke down anddecidedtosplurgeandhaveamagnificent final dinnerupstairs! So they tucked intoone of those amazing buffetsandpiledtheirplateswiththebest food they’d had in theirlives.After having multiple

desserts and drinking wine,they asked thewaiter for thebill. And with an astonishedlook on his face, he said,“Whatbill?”Theysaid,“Thebill for this magnificentdinner. The wine, desserts,everything.”The waiter turned to them

with shock and said, “Didn’tyou know the meals comewiththetrip?”The meals came with the

trip. How’s that for a

metaphor?Sodon’tsettle forcheese and crackers on thisjourney;enjoyeverythingthatcomeswithit.Andonemorereminder:so

much of what makes uswealthy is free. RememberwhatSirJohnTempletontoldusearlier:thesecrettowealthisgratitude.It’snotjustwhatwe achieve or accomplish.It’s what we appreciate. It’snot just the adventure of acruise. It’s what we take the

time to enjoy. You can findanadventureandjoyinthoseyoulove,inthedancingeyesof your children, or thejoyous faces of those youlove. There are jackpotseverywhereifyouwakeuptothebeautyofyourlife today.Sodon’tvowtosomedaygetbeyond scarcity; startbeyondit.Realizehowluckyyouareandallthewealthyoupossessin love, joy, opportunities,health, friends, and family.

Don’tgetrich.Startrich.So far we’ve learned how

to allocate our investmentsamong different types andclasses of assets, and to putchunks ofmoney in separatebuckets forSecurity/PeaceofMind and for Risk/Growth.We’ve learned we also needto set aside another chunkofmoney for a Dream Bucketthatwilladdjuicetoourlivesas we build our wealth, andincentives to do better for

ourselvesandothers.Sonowwe have one final, briefchapter to teach you a set ofthree simple skills that canincrease your returns 1% to2% per year and, moreimportantly,makecertainyouavoid the mistakes so manypeoplemakebytryingtotimethe market. Let’s learn howfrom the power ofknowing...

CHAPTER4.4

TIMINGISEVERYTHING?

Wehavemetthe

enemy,andheisus.—POGO

What’s the secret of successfor investors and stand-upcomedians...?Timing.It’severything.The best comics know

exactly when to deliver apunchline.Andthesmartestinvestorsknowjustwhentoenter the market—exceptfor when they don’t! Eventhebestof thebestfail tohitevery beat every single time.Foracomedian,amistake intiming results in an

embarrassing, deathly silencein the house—and maybe afew thrown objects. But ifyou’re an investor, amistake in timing candestroyyournestegg.Soweneedasolutionthatdoesn’trequireustobeapsychic.We’ve already seen how

diversifying your portfolioacross different asset classesand across different marketscan protect you in a volatileeconomy.Buthaven’tweall

hadtheexperienceofbeingat the right place or doingexactly the right thing . . .but at the wrong time? Soby now you might bethinking, “Okay, Tony, sonowIknowhowtodiversifymy investments—butwhat ifmytimingisoff?”I’veaskedmyselfthesame

question.What if I put mymoney in the stock marketat its peak, and it startsdropping?OrifIbuyintoa

bond fund, and the interestrates begin to spike?Marketsarealwaysgoingtofluctuate,andwe’velearnedthat nobody, I meannobody, can consistentlyand successfully predictwhenit’sgoingtohappen.So how do we protect

ourselves from all the upsand downs and reallysucceed?Most investors get caught

upinakindofmobmentality

thathasthemchasingwinnersand running away fromlosers.Mutualfundmanagersdothesamething.It’shumannature to want to follow thepack and not to miss out onanything. “Emotions getahold of us and we, asinvestors, tend to do verystupid things,” the Princetoneconomist Burton Malkieltold me. “We tend to putmoney into themarket andtake it out at exactly the

wrongtime.”

He reminded me of what

happened during the techbubbleat the turnof the21stcentury:“Moremoneywent

into themarket in the firstquarter of 2000, whichturned out to be the top ofthe internet bubble, thaneverbefore,”hesaid.“Thenby the third quarter of2002,when themarketwaswaydown, themoneycamepouring out.” Thoseinvestors who bailed insteadof riding out the slumpmissed out on one of thegreatest upturns of thedecade! “Then in the third

quarter of 2008, whichhappenedtocoincidewiththepeak of the financial crisis,”said Malkiel, “more moneywent out of the market thanever, ever, ever before. Soouremotionsgetaholdofus.Wegetscared.”And who could blame

anyone for being scaredduring that epic crash! InOctober2009,after the stockmarkethadlostmorethan$2trillion in value, and when

hundreds of thousands ofAmericans were losing theirjobseverymonth,MattLaueratNBC’sToday show calledmy office. He asked me tocome on the air the nextmorning to talk about whatviewerscoulddotocopewiththecrisis.I’dknownMattforyears and had been on hisshowanumberoftimes,soofcourse I agreed. When Iarrived on the set, hisproducer told me, “Okay,

you’ve got four minutes topumpthecountryup.”I thought, “Are you

kiddingme?”“Well, pumping people up

is not what I do,” I said. “Itell them the truth.” Andthat’swhatIdid.IwarnedtheToday show audience in twodifferent segments that thestock market meltdown wasnotover,thattheworstcouldstill be coming. How’s thatforpumpingthemup?

“Many stocks that wereselling for fifty dollars notlong ago are selling for tendollars or five dollars, andhere’sthetruth:somemaygodown to a dollar,” I said, asnews anchor Ann Curry’seyes grew wider and wider.But I also told the viewersthat, instead of freaking out,they should fight their fearsandeducatethemselvesaboutpeoplewhohaddonewell intough times. Like Sir John

Templeton,whohadmadeallhis money when marketswere crashing during theGreat Depression. I said thatif you studied history, youknew there was a greatchance, based on whathappened in the ’70s andeven in the ’30s, that in ashort period stocks that hadgonedownto$1wouldgoupagain. They might not getback to $50 for a long time,but,historically,manywould

jump to $5 in a fewmonths.That’s a 400% return, and itcould happen in six months!“Ifyoustaystrongandsmart,and the market continues torecover, you could make athousand percent or more!This could be the greatestinvestment opportunity sinceyou’vebeenalive!”Isaid.It was not exactly the

message the Today showexpectedtohear,butitturnedouttobedead-on.HowdidI

knowthemarketwasgoingto keep dropping? BecauseIwas sobrilliant?Hardly. Iwish I could say that. Therealitywasthatmyfriendandclient Paul Tudor Jones hadbeenwarningme aboutwhatwashappeninginthemarketsalmost a year in advance ofthe crisis.He is one of thoseunicorns who can actuallytime the markets on a fairlyconsistent basis. It’s part ofwhatmade himnot only one

of the most successfulinvestors in history but alegendary figure. Hepredicted the Black Mondaycrash of 1987, and wheneveryone else was freakingout, he helped his clientsmake a 60% monthly returnand200%fortheyear.So you can bet I was

gratefulforPaul’sinsights!Inearly2008hetoldmeastockmarket and real estate crashwascoming,andsoon. Iwas

so concerned that I reachedout to my PlatinumPartners,anexclusivegroupof my clients who I workwiththreetofourtimesayearinintimate,intensivesessionsto transform theirrelationships, businesses, andfinances. I called a surprisemeetingandaskedthemalltofly andmeetme inDubai inApril 2008 to warn themabout the coming crisis andhelp them prepare for it.

Remember, anticipation ispower. With a four- to six-month jump, many of myclients were able to actuallyprofit from one of the worsteconomictimesinhistory.Yes, sure enough, stock

prices plummeted throughoutthe last quarter of 2008. ByMarch 2009, the marketwassobad,Citigroupbankshareshaddropped fromahighof$57to—youguessedit!—asIhadwarned,$0.97.

You could literally own thestock for less than it costyoutotakeyourmoneyoutofoneofitsATMs!Sowhatshouldaninvestor

do in this extraordinary kindof situation? If you believeSir John Templeton’s motto,“Thebestopportunitiescomein times of maximumpessimism,” or WarrenBuffett’s mantra, “Be fearfulwhen others are greedy, andbe greedy when others are

fearful,”itwasagreattimetoscoop up bargains. Why?Because smart, long-terminvestors know that seasonsalways change. They’ll tellyou thatwinter is the time tobuy—andtheearlymonthsof2009 were definitely winter!It’s the time when fortunescan be made, because eventhough it may take awhile,springalwayscomes.Butwhat ifyougotscared

or felt you had to sell when

the markets collapsed? Youmight say, “Tony, what if Ilostmy job in 2008 and hadno other source of income?Or my kid’s tuition was dueand the banks wouldn’t loanme anymoney?” If you soldyourstocksin2008,allIcansay is, I feel yourpain, but Iwish you could have foundanother way to make endsmeet. Individual investorswho liquidated their fundswhen the market plunged

learned an agonizing lesson.Insteadofridingthetidebackup,theylockedintheirlosses—permanently. If and whenthey got back into stocks,they had to pay a muchhigher price, because as youknow,themarketroaredbacktolife.Seeing so many people

lose somuch in such a shorttime,andfeelingthesufferingthat all this created, is whatstarted my obsession with

wanting to bring the mostimportant investment insightsto the general public. Itliterally was the trigger forthebirthofthisbook.It also made me search to

see if the same level offinancial intelligence thatcreated high-frequencytrading (where the HFTinvestors truly have theupsidewithout thedownside)could be harnessed in someway for the good of the

average investor. Remember,the HFT investors makemoney and virtually neverlose.Sowhat’sthegoodnews?

In the upcoming section ofthis book, “UpsideWithoutthe Downside: Create aLifetime Income Plan,”you’re going to learnthere’s a way for you tonever leave the market yetnever take a loss. Why?Because there are financial

tools—insurance products, tobespecific—whereyoudon’thavetoworryabouttimingatall. You make money whenthemarketgoesup,andwhenit goes down 10%, 20%,30%,oreven50%,youdon’tloseadime(according to theguarantees of the issuinginsurance company). Itsounds too good to be true,butinreality,it’stheultimatein creating a portfolio thattruly offers you peace of

mind. For now let me showyou three tools that can helpyou limit many of yourinvestment risks andmaximize your investmentreturns in a traditionalinvestingformat.

Thefutureain’twhatitusedtobe.—YOGIBERRA

Predictionisverydifficult,especially

aboutthefuture.—NIELSBOHR

On March 2, 2009, PaulTudor Jones toldme that themarket was hitting itsabsolute bottom. Priceswould start rising again.Spring was coming. So Itweeted:

Bytheway,itwasthefirsttime I ever tweeted anyinformation on the potentialdirectionofthestockmarket!Asitturnedout,onlyseven

days later, the US stockexchange indexes didexactly that: bottomed outon March 9. Prices startedrisinggraduallyandthentookoff. And sure enough,Citigroup stocks,whichwere$1.05 on March 9, 2009,closedonAugust27,2009,at$5 a share—a 400%increase!12 What anincredible return you couldhave had if you’d managed

your fear and bought wheneveryoneelsewasselling!Now,I’dlovetobeableto

saythatpastmarketbehaviorcanpredict thefuture,or thatPaul Tudor Jones or anyoneelse I know couldcontinuously successfullyforecast thesemarketswings,butitisn’tpossible.Basedonanalysis from those “in theknow,” I put out anotherheads-up warning forpotential challenges in 2010,

this time on video, when itlooked like the market wasoverextendedandheadingforanother correction. I wantedpeople to make a consciousdecisionwhethertheywantedto protect themselves fromthe potential of another hugehit. But this time we werewrong.Nobody could guessthat the US governmentwoulddosomethingthatnogovernment has ever donein human history—it

decided to prop up themarkets by “printing” $4trillion, while telling theworld that it wouldcontinue to do soindefinitely, literally untiltheeconomyrecovered!By magically adding

zeroes to its balance sheet,theFederalReservewasabletopumpcashintothesystemby buying back bonds (bothmortgage-backed bonds andTreasuries) from the big

banks. This keeps interestrates unnaturally low andforces savers and anyonelooking for some sort ofreturn into the stock market.And the Fed kept doing ityear after year. No wonderUS stocks never came downfromthatsugarhigh!

So if you think you cantime the markets, you’rewrong. Even the best in theworld can’t do it every timebecause there will always be

factors they can’t predict.Like stock picking, it’s bestto leavemarket timing to themasterminds who employlargestaffsofanalysts—oneslikePaul,whocanalsoaffordto be wrong because of themany different bets theyplace on the direction of themarkets. But this does notmean you can’t takeadvantage of the conceptbehind market timing—theopportunities of rising and

fallingmarkets—by applyinga couple of simple butpowerful principles thatyou’re about to learn here.Both involve taking yourselfout of the picture andautomating your investmentschedule. “You can’t controlthe market, but you cancontrol what you pay,” BurtMalkiel told me. “You haveto try to get yourself onautomatic pilot so youremotionsdon’tkillyou.”

Farmoremoneyhas

beenlostbyinvestorspreparingfor

corrections,ortryingtoanticipatecorrections,thanhasbeenlostin

correctionsthemselves.—PETERLYNCH

SOWHAT’SANANSWERTOTHE

DILEMMAOFTIMING?

Oneof these techniques isasold as Warren Buffett’soriginal teacher, BenjaminGraham,thedeanofmoderninvesting. Graham, whotaught at Columbia BusinessSchool in the mid–20thcentury, championed a gutsytechnique with a boringname: dollar-cost averaging.

(In fact, Buffett creditsGrahamwith first comingupwith the famous top rule ofinvesting: “Don’t losemoney!”) It’s a systemdesigned to reduce yourchances of making the biginvestment mistakes we allfear: buying something rightbefore it drops in price, orpulling out of an investmentrightbeforeitspricegoesup.We’ve already learned the

first two keys of asset

allocation: diversify acrossasset classes and diversifyacross markets. Butremember,there’sathirdkey:diversify across time. Andthat’s what dollar-costaveraging does for you.Think of it as the way youactivate your asset allocationplan.Asset allocation is thetheory; dollar-costaveraging is how youexecuteit.It’showyouavoidletting your emotions screw

up the great asset allocationplan you’ve just put togetherby either delaying investing—because you think themarket’s too high and youhope it will drop before youget in—or by ignoring orselling off the funds thataren’tproducinggreatreturnsatthemoment.According to the many

fans of dollar-cost averaging—and that includespowerhouses like JackBogle

and Burt Malkiel—it’s thekey to sleeping better atnight, knowing yourinvestments will not onlysurvive unstable markets butalso continue to grow in thelongterm,nomatterwhattheeconomic conditions. Soundgreat? All you need to do ismake equal contributions toall of your investments on aset time schedule, eithermonthlyorquarterly.Easy,right?

But there are twochallengesIhavetowarnyouabout. First, dollar-costaveraging is going to seemcounterintuitive, and youmight feel like you’re goingto be making less moneyusing it.But I’ll showin justa moment that what’scounterintuitive is actually toyour advantage. Remember,the goal is to take emotionout of investing becauseemotion is what so often

destroys investing success,whether it’s greed or fear.Second, there’s been somerecentdebateabout the long-term effectiveness of dollar-cost averaging, and I’ll showwhat both sides are saying.But first, let’s talk about themost common way investorsuseitanditspotentialimpact.Whenyou investonaset

schedule, with the sameamount of money investedeach month or week in

exact accordancewith yourasset allocation plan, thefluctuations of the marketworktoincreaseyourgains,not decrease them. If youhave $1,000 to invest eachmonth, and you have a 60%Risk/Growth and 40%Security asset allocation,you’re going to put $600 inyourRisk/GrowthBucketand$400inyourSecurityBucketregardless of what’shappenedtoprices.Volatility

through time can becomeyourfriend. This partmightseem counterintuitive. ButBurtMalkielgavemeagreatexampleofhowitworks:Here’sagreattest.Takea

moment and give me yourbestanswer to thisquestion:Suppose you’re putting$1,000 a year into an indexfundforfiveyears.Whichofthese two indexes do youthink would be better foryou?

Example1•Theindexstaysat$100pershareforthefirstyear.

•Itgoesdownto$60thenextyear.

•Itstaysat$60thethirdyear.• Then in the fourth year, itshootsupto$140.

• In the fifthyear, it endsupat $100, the same placewhereyoustarted.

Example2• The market is at $100 thefirstyear.

•$110thesecondyear.•$120thethird.•$130thefourth,and•$140thefifthyear.

So, which index do youthinkendsupmakingyouthemostmoney after five years?Your instincts might tellyou that you’ddobetter inthe second scenario, with

steady gains, but you’d bewrong. You can actuallymake higher returns byinvesting regularly in avolatilestockmarket.Think about it for a

moment: in example 1, byinvestingthesameamountofdollars, you actually get tobuy more shares when theindexwas cheaper at $60, soyou owned more of themarket when the price wentbackup!

Here’sBurtMalkiel’schartthatshowshowithappens:

After five years of a

steadily rising market, your$5,000turnsinto$5,915.Notbad.

Butinthatvolatilemarket,you make 14.5% more inprofit, winding up with$6,048!Theproblem,Malkieltold me, is that most peopledon’t let the first scenariowork for them. “When themarket falls, they say, ‘Ohmy God! I’m going to sell!’So you have to keep yourhead and keep a steadycourse.”Investors learned a hard

lesson during the first ten

yearsof the2000s,orwhat’sknown in financial circles asthelostdecade.IfyouputallyourmoneyintotheUSstockmarket at the beginning of2000, you got killed. Onedollar invested in the S&P500 on December 31, 1999,was worth 90 cents by theendof2009.ButaccordingtoBurt Malkiel, if you hadspreadoutyourinvestmentsthrough dollar-costaveraging during the same

timeperiod,youwouldhavemademoney!Malkiel authored a Wall

Street Journal article titled“ ‘Buy and Hold’ Is Still aWinner,” in which heexplained that if you werediversifiedamongabasketofindex funds, including USstocks, foreign stocks, andemerging-market stocks,bonds, and real estate,between the beginning of2000 and the end of 2009, a

$100,000 initial investmentwould have grown to$191,859. That’s over 6.7%annuallyduringalostdecade.“Dollar-cost averaging is

howyoumakethevolatilityof the market work foryou,”hetoldme.Everyone from Warren

Buffett’s mentor BenjaminGraham to Burt Malkiel andmany of the most respectedacademics certainly make acase for using dollar-cost

averaging when you’reinvesting a percentage ofyoursteadystreamofincome.But if you have a lump sumto invest, it may not be thebest approach. If this is yourcurrent situation, read thebreakout box in this chaptertitled“Dollar-CostAveragingVersus Lump-SumInvesting.”Whatdollar-costaveraging

reallymeansissystematicallyputting the same amount of

money across your fullportfolio—not just the stockportion.Remember, volatility can

be your friend with dollar-costaveraging,anditcanalsoallow for another techniquethat will keep you on track,“rebalancing,” which we’lladdressinamoment.So what’s the best way to

put dollar-cost averaging towork for you? Luckily,mostpeople who have 401(k)s or

403(b)s that automaticallyinvest the same amount on afixed time schedule alreadyreap the benefits of dollar-cost averaging. But if youdon’t have an automatedsystem, it’s easy to set oneup. I have a self-employedfriend who set up her owntax-advantaged retirementaccount with Vanguard, andshe’s instructed it toautomatically deduct $1,000from her bank account every

month to distribute amongher diversified index funds.She knows she might notalways have the discipline tobuy when one market feelstoohighoranotherdropstoolow, so she takes herself outof the picture. She’s a long-term investor who doesn’tworryabout timinganymore,because her system isautomated,andthedecisionisoutofherhands.There’s a way to make

dollar-cost averaging eveneasier, and that’s by settingup an account withStronghold, where it will dothisforyouautomatically.Also, remember, in the

nextsectionI’ll showyouanextraordinary tool that canprotect you from losing yourprincipal in these volatiletimes. Where, even if yourtimingisallwrong,youdon’tlose a dime in the stockmarket. And if you’re right,

you win even bigger. Butbeforewegetthere,let’shavealookatasecondtime-testedpatternof investing thatwillprotectyoursavingsandhelpyoumaximize your FreedomFund as you build truewealth.

THEPATTERNTOAVOID:THE

AVERAGEPERSON’S

APPROACHTOINVESTING!AREBALANCING

ACT

David Swensen and BurtMalkiel sometimes takedifferent approaches tofinance. But there’s one

lessontheybothtoldme,andall the other experts I’veinterviewed agree on this: tobeasuccessfulinvestor,youneed to rebalance yourportfolio at regularintervals.Youhave to takea lookat

your buckets and make sureyourassetallocationsarestillin the right ratio. From timeto time, a particular part ofone of your buckets maygrow significantly and

disproportionally to the restof your portfolio and throwyououtofbalance.Say you started out with

60% of your money in yourRisk/GrowthBucketand40%of your money in yourSecurity Bucket. Six monthslater,youcheckyouraccountbalances and find out thatyour Risk/Growthinvestments have taken off,and they no longer represent60%ofyourtotalassets—it’s

more like 75%. And nowyour Security Bucket holdsonly 25% instead of 40%.Youneedtorebalance!Like dollar-cost averaging,

rebalancing is a techniquethatseemssimpleatfirst,butitcantakealotofdiscipline.And unless you rememberhow important and effectiverebalancing is inmaximizingyour profits and protectingagainst your losses, you’llfind yourself getting caught

up in themomentumofwhatseems to be working in themoment. You’ll behypnotized into the illusionthat your current investmentsuccesses will continueforever, or that the currentmarket (stock market, realestate market, bond market,commodity market) can goonlyinonedirection:up.This pattern of emotion

and psychology is whatcausespeopletostaywithan

investment too long and endup losing theverygains theyweresoproudoforiginally.Ittakes discipline to sellsomething when it’s stillgrowing and invest thatmoney into something that’sdown in price or growingmore slowly, but thiswillpower is what makessomeoneagreatinvestor.Apowerfulexampleofthis

principle was the day I wasvisitingwith investment icon

Carl Icahn. It was justannouncedthathehadmadeaprofit of nearly $800millionon his Netflix stocks. He’dbought the majority of hisshares at $58 the previousyear and was now sellingthem for $341 a share. Hisson, Brett, who works withCarl and who originallybrought this investmentopportunity to him, protestedthe selling of the stock. Hewas certain that Netflix had

moregrowthaheadofit.Carlsaid he agreed, but theirportfolio needed to berebalanced. If they didn’trebalance, they could findthemselveslosingsomeoftheextraordinaryprofitsthattheygained. Carl took his 487%profit and reinvested thoseprofitsintootherassetsinhisportfolio, while keeping 2%of his Netflix shares to takeadvantage of any potentialgrowth. Some of that money

he used to buy $2.38 trillionin a little company calledApple,whichhebelievedwasundervalued at the time. Hesold high and bought low.And rebalancing was a keypartofthatprocess.

IFBILLIONAIRESDOIT,MAYBEYOUSHOULD

TOO!

Sowhatdoyoudoifyoufindthat you’re out of balance?You were 60% Risk/Growthand 40%Security, but aswedescribed above, your stockshave soared, and you’re now75%/25% as a result. In thiscase, your rebalancing actionplanrequiresyoutoshiftyourregular contributions to theRisk/Growth Bucket into

Securityuntilthe25%isbackup to 40%. Or you have todivert theprofitsorevensellsome of the Growth/Riskinvestments thatareboomingand reinvest them back intobonds or first trust deeds orwhatever combination ofassetsyou’rekeepinginyourSecurityBucket.But thiscanbe agonizing, especially if,say, REITs are roaring, orinternational stocks aresuddenly going through the

roof.Whowants to jumpoffwhen you’re riding a rocket?All you want is more! Butyou have to take some ofthose assets off the table toreduce your exposure to riskand make certain that youkeep some of the gains orprofitsyou’vemade.Just like dollar-cost

averaging,you’vegot to takeyour emotions out of thepicture. Portfolio rebalancingmakesyoudotheoppositeof

what you want to do. Ininvesting, that’s usually therightthingtodo.Let’s take a real-world

example:sayit’s thesummerof 2013, and the S&P 500index is lurching back torecord-breaking levels, whilebonds are still coughing upmeager returns.Doyouwantto sell your stocks and buybonds?Noway!Buttherulesof rebalancing say that’sexactly what you have to do

to keep your original ratio—even though a voice insideyouisshouting,“Hey,stupid!Why are you putting moneyintothosedogs?!”The rules of rebalancing

don’t guarantee you’re goingto win every time. Butrebalancing means you’regoing to win more often. Itincreasesyourprobabilitiesofsuccess. And probabilitiesthrough time are whatdominate the success or

failure of your investmentlife.Sophisticated investors

alsorebalancewithinmarketsandassetclasses,andthatcanbeevenmorepainful.Say you owned a lot of

Apple stock back in July2012. It would have seemedinsane to sell those shares,which had been surging—up44% in the previous twoquarters—and were worthmore than $614 per share.

But if Apple stock isdominating your portfolio(remember, it has grown44%, and it’s put you out ofbalance, likely significantly),the rules of rebalancing saythat you have to sell someApple togetyour ratio right.Ouch. But you would havethanked yourself the sametime next year. Why? Applestocks took a roller coasterride,plummetingfromahighof $705 per share in

September 2012, to a low of$385thefollowingApril,andending at $414 in July 2013—a 41% loss that youavoided because yourebalanced.How often should you

rebalance? Most investorsrebalance once or twice ayear. Mary Callahan Erdoesof J.P. Morgan told me shebelievesrebalancingissuchapowerful tool thatshedoesit“constantly.” What does that

mean? “That’s as often asyour portfolio gets out ofwhackwith theplan thatyouoriginallyput inplace,or theadjustedplanbasedonwhat’shappened in the world. Andthat shouldn’t be set. Itshould be a constantevaluation, but not anobsessiveevaluation.”BurtMalkiel, on the other

hand, likes to ride themomentum of bull markets.Headvisesrebalancingonly

once a year. “I don’t wanttojustbetrigger-happyandsell something because it’sgoingup,”hesaid.“Iliketogivemy good asset class atleastayearintherun.”However often you do it,

rebalancing can not onlyprotect you from too muchrisk—it can dramaticallyincrease your returns. Justlikedollar-costaveraging,thediscipline once again makesyou invest in

underperforming assetswhentheir prices are low, so thatyou own lots of them whentheir prices go up. Yourprofitsgetpassedalongtotheother players on your team,like theball inanLALakersmotion offense, or relayrunners passing the baton onthe way to victory at thefinishline.Thenumberoftimesyou

rebalance does have animpact on your taxes,

however. If yourinvestmentsarenotinatax-deferred environment, andyou rebalance an asset youhave owned less than ayear, you’ll typically payordinary income taxesinstead of the lower long-terminvestmenttaxrate!Ifrebalancingseemsalittle

intimidating,thegoodnewsisthisworkcanbedoneforyouautomatically by Strongholdoranyotherfiduciaryadvisor

you choose. He or she willguide you on being tax-efficient while still tappingintothepowerofrebalancing.Sonowyou’velearnedtwo

time-tested ways to reduceyour risk and increase yourreturns just through assetallocation. But there’s stillone final trick that can takethestingoutofyourlosses—andyourtaxes!

IT’SHARVESTTIME

So what happens when it’sportfolio-rebalancing time,and you have to sell somestocks that aren’t in your401(k) or other tax-advantaged account? UncleSam will have his hand outfor part of your profits. Arethecapitalgainstaxesmakingyou crazy? Listen, there’s a

perfectly legal way for youto lower those taxes whilekeeping your portfoliobalanced: tax-lossharvesting. The benefit youget by tax-loss harvesting isthat you reduce your taxes,and that increases yournetreturn! In essence, you usesome of your inevitablelosses to maximize your netgains.Burt Malkiel believes that

tax-loss harvesting can

increase your annual rate ofreturnbyasmuchas1%peryear, so it’s certainly worthinvestigating.Billionaires and big

institutions increase theirreturns this way, althoughfew ordinary investors takeadvantage of these powerfultechniques. Few know ofthem,andeventhosewhodomay think rebalancing andtax harvesting sound toocomplicated to try on their

own.Not toworry!You canget access to your ownfiduciaryadvisororaccesstosoftware that will make it aseasy as ordering a pizzaonline, or at least updatingyour Facebook securitysettings.Now, bear in mind, my

goal is to make investingsimple foreveryone, and thissection is probably the onethat tested your brain themost! So first,

congratulations on stickingwithme.Thisstufffeelsverytechnical, and most peopleavoiditliketheplague.Ifyoufeel a bit overwhelmed byasset allocation and the ideaof dollar-cost averaging,rebalancing, and tax-lossharvesting, I want you toknow all of this can beautomated for you. But it’sstill helpful to understandwhat these strategies are andthe principle reasons why

they’reeffective.Just remember four

things from this section ofthebook:1. Asset allocation iseverything! So you wantto diversify between yourSecurity Bucket and yourRisk/Growth Bucket. Youwant to diversify acrossasset classes, markets, andtime.

2. You don’t want to

hesitate to get in themarket trying to haveperfect timing; instead,use dollar-cost averagingand know that volatilitycan be your friend,providing opportunities tobuy investments cheaplywhen the market is down.This technique willincrease your portfolio’svalue when the marketscomebackup.

3. Have a Dream Bucket

that gives you emotionaljuice and excitement soyou can experience thebenefitsofyour investingprowessintheshorttermandmidterminsteadofjustsomedayfarinthefuture.

4.Use rebalancing and taxharvesting to maximizeyour returns andminimizelosses.

When I first brought upthatIwasgoingtoteachasset

allocation and theseadditional refining strategiesin this book, many of myfriends in the financialworldsaid, “You’re crazy! It’s justtoo complex. The averageperson won’t understand it,and few will even take thetime to read it.” My answerwassimple:“I’mhereforthefewwhodoversus themanywho talk.” It takes hunger topush yourself to mastersomething new. But in the

case ofmastering investmentprinciples, it truly is worththeeffort.Evenifyouhavetoread something a couple oftimes to get it down, therewards can be immense—itcould mean saving years ofyour life without having towork. More importantly,masteringthesewillgiveyoua greater sense ofempowerment and peace ofmindtoday.Mastering this section is a

lotliketryingtolearntodrivea stick-shift car for the firsttime.What?!I’msupposedtofigure out how to use theaccelerator, the brake, theclutch,thestick,therearviewmirror, the steering wheel,andwatch the road too?Areyou kidding me?! But afterawhile,you’redrivingthecarwithoutthinkingaboutit.Well, we’ve already come

a longway togetheron the7Simple Steps to Financial

Freedom. Let’s check inwherewearenow:1. You’ve made the mostimportant financialdecision of your life bydeciding to save apercentage of yourincome—your FreedomFund—and invest itautomatically forcompounded interest.Haveyouactedonthisyetby setting up an auto-

deduct account? If not, doittoday!

2.You’ve learned the rulesof investing and how toavoid Wall Street’s ninebiggestmarketing/investmentmyths. You’re becomingthe chess player, not thechesspiece.

3. You’ve taken the thirdstep on your path tofinancial freedom bymaking the game

winnable. There are threestages within this step:Number one, you’vecalculated your top threefinancial goals, which formany people are financialsecurity, vitality, andindependence. Numbertwo, you have a planwithrealnumbers.Andnumberthree, you’ve looked forandareimplementingwaysto speed it up so you canenjoy your rewards even

sooner.4. In this section, you’vemadethemost importantinvestment decision ofyour life by allocatingyour assets into aportfolio with a specificpercentage into differentbuckets (Security,Risk/Growth, Dream).You’ve diversified, andyouhaveaplan thatwillfuel your financialdreams.

You’re already light-yearsaheadofotherAmericans(orinvestors anywhere in theworld) when it comes tounderstanding your financesand managing your money.And if you’re anything likethe men and women whohavebeengraciousenoughtoread this book in manuscriptform,youmightalreadybesoexcited by what you’velearned that you’re jumpingup and down and grabbing

your friendsby thecollars toshowthemsomeof thewaysyou’ve learned that they canaddhundredsofthousandsofdollars, or even millions, totheir lifetime investmentearnings. So you might besurprisedtolearn:youain’tseen nothin’ yet! I promiseyou,thebestisstilltocome.And everything from hereon out is much easier thanthissection!Nowthatyou’rethinking

and acting like an insider,I’ll show you how to trulyinvestlikeone.Let’sfindouthowyoucanbesuccessfulinany financial environmentandhowyoucantapintothepower of the upside withoutthe downside, creating alifetimeincomestream.

DOLLAR-COSTAVERAGINGVERSUSLUMP-SUMINVESTING

But is it the best approach if

you have a lump sum toinvest?What do you do if you

have a sudden windfall, likethat$10,000bonuswetalkedabout earlier in this section?Orwhatifyougota$50,000insurancepayout?Doyouusedollar-cost averaging toinvest it over a set timeschedule of months or evenyears, or do you invest in alumpsum?Here’s where the

controversy comes in. Someinvestment advisors haveturned against dollar-costaveraging because, as evenBurtMalkiel admits, it’s notthe most productive strategyfor investing in the stockmarket when it keeps goingstraight up—like it’s beendoing in the years followingtherecentGreatRecession.You would have made

more money by investing“everything”atthebeginning

ofthebullmarketthanifyouhad doled out your moneyover five years. That’sobvious, right? And therehave been recent studies,includingonebyVanguardin2012, showing that in rollingten-yearperiodsoverthepast80 years in theUS,UK, andAustralian stock markets,lump-sum investing hasoutperformed dollar-costaveraging more than two-thirdsofthetime.

Why is this true? Becauseyou’re putting more of yourmoney to work sooner andover a longer period of time,and limiting your tradingfees. Onetime lump-suminvesting gives you theopportunity for greaterpotential growth but alsogreater overall loss whenmarkets drop. Researchshows that lump-suminvesting over the long term,whendiversifiedsuccessfully,

is more profitable. But byhow much? In the end, theaverage increased returnswere no more than 2.3%more. And remember thestatistics that Burt Malkielshared with us for the 2000-to-2010 lost decade period—in that case, if you hadinvested $1 in the S&P 500on December 31, 1999, tenyears later itwasworth only90 cents. But if you diddollar-cost averaging, you

mademoneyduringthatsameperiod.What would you do?Would you plunk down thewhole ten grand as soon asyou got it? Or would youkeepitinamoresecureplaceand invest $1,000 a monthover tenmonths?Or$50,000overtwoyears?Ifthemarketkeeps going up and up, youmightloseoutonsomegains.But behavioral economicstells us you won’t have asmuch regret as you would if

the market crashed two daysafteryou’dinvesteditall!So it’s totally up to you.

Once again, I’m not here togiveyoumyopinion,justthebest insights available fromthe best experts. For mostpeople,lump-suminvestingisnot an issue because theydon’t have a significant sumto invest! If that’s yoursituation, you’ll stillmaximize your returns byinvesting in a diversified

portfolio with dollar-costaveraging.

12.Ifyoulookonmostoftoday’sstockcharts,youmaysee thatCitigroupwasselling for $10.50 on March 9, 2009,and$50.50onAugust27,2009.Thisisnot accurate. These charts have beenreformatted to reflect the fact that onMay 6, 2011, Citigroup did a reversestock split. Every ten shares of stockthat was selling for $4.48 on May 5werecombined intooneshareof stockworth$44.80a share,whichended the

day at $45.20, for a small gain pershare. Thus 29 billion shares ofCitigroup were converted into just2.9 billion shares in order to raise theprice per share. Or as theWall StreetJournal stated on May 10, 2011,“Citigroupbecamea$40stockthefirsttime since 2007, as its share priceappeared to risemore than850% fromFriday’s close. One catch: Investorsdidn’tearnadime.”

SECTION5

UPSIDEWITHOUTTHEDOWNSIDE:

CREATEALIFETIME

INCOMEPLAN

CHAPTER5.1

INVINCIBLE,UNSINKABLE,

UNCONQUERABLE:THEALLSEASONS

STRATEGY

Invincibilityliesin

thedefense.—SUNTZU,TheArtof

War

There are events in our livesthatforevershapeourviewofthe world. Mile markers onour journey that,whetherweknewitornot,havegivenusthe lens through which wenowseetheworld.Andwhatwe choose to allow those

events to mean to us willripple through our behaviorand decision making for therestofourlives.If you grew up in the

Roaring Twenties, your lifewasshapedbyprosperityandgrandeur. It was the days oftheGreatGatsby. But if yougrew up during the GreatDepression, your life wasshaped by struggle andanxiety. Growing up in asevere economic “winter”

forced you to become asurvivor.Today’sgenerationshavea

completely differentexperienceoftheworld.Theyhave grown up in incredibleprosperity, even if theirincomes don’t land them inthe 1%. We all get thebenefits of living in an on-demandworld.We can havegroceries delivered to ourdoor,depositchecksfromthecomfort of our pajamas, and

watchthousandsoftelevisionchannels whenever andwherever we choose. Mygranddaughter hasn’t learnedto tie her shoes, but at agefourshecannavigateaniPadas well as I can, and shealready knows that Googlecan answer any question shehas on a moment’s notice!This is also the era ofpossibility, where a start-uplikeWhatsApp,withonly50or so employees, can disrupt

an industry and sell for $19billion!Without a doubt, our lives

areshapedbytheseasonsandeventsthroughwhichwelive,butmoreimportantly, it’s themeaningwegivethoseeventsthat will determine ourultimatetrajectory.

THE1970S

Ray Dalio, now 65, came ofage in the 1970s. It was atime of violent change inseasons and arguably theworst economic environmentsince the Great Depression.High unemployment wasaccompanied by massiveinflation, causing interestrates to skyrocket into thehigh teens. Remember Isharedwithyou thatmy firstmortgage coming out of theinflation of the 1970s was a

whopping 18% interest!Therewasalsoan“oilshock”in 1973, as an embargocaught the United States offguard, causing oil prices torise from $2.10 a barrel to$10.40.Noonewaspreparedforthis.Justafewyearslater,thegovernmentimposedodd-even rationing,where peoplewere forced not only to waitin lineat thepump forhoursbut alsowere allowed to gasuponlyonoddor evendays

ofthemonth!Itwasaseasonof political strife as faith inour government dwindledafterVietnamandWatergate.In1974PresidentNixonwasforcedtoresignandwaslaterpardoned by his successor,former vice president GeraldFord, for any wrongdoing(wink,wink).In 1971 Ray Dalio was

fresh out of college and aclerkontheNewYorkStockExchange. He saw bull and

bear markets come in shortbursts and create massivevolatility in different assetclasses. Tides changedquickly and unexpectedly.Raysawthehugeopportunitybutwasequallyorevenmoreaware of the enormous risksthat came with the territory.As a result, he becameferociously committed tounderstanding how all thesescenarios and movementswere intertwined. By

understandinghowthebiggereconomic“machine”worked,he would ultimately figureout how to avoid thosecataclysmic losses that doomsomanyinvestors.All of these events shaped

young Ray Dalio toultimately become theworld’s largest hedge fundmanager. But the seminalmoment that most shapedRay’s investment philosophyhappened on a hot night in

August1971,whenasurpriseaddressfromPresidentNixonwould change the financialworldasweknowit.

ANIXONNIGHT

Allthreemajornetworkshadtheir broadcasting interruptedunexpectedlyas thepresidentoftheUnitedStatessuddenlyappeared in living rooms

across America. In a seriousand agitated state, hedeclared, “I directedSecretary [John] Connally tosuspend temporarily theconvertibility of the dollar togold.” In one brief sentence,just 14 words, PresidentNixon announced to theworld that the dollar as weknew it would never be thesameagain.Nolongerwouldthe dollar’s value be tieddirectly to gold. Remember

FortKnox?Itused tobe thatfor every paper dollar, thegovernment would have theequivalent value of physicalgold stocked away safely.And with Nixon’sdeclaration, the dollar wasnow just paper. Imagine youhad a treasure chest filledwithgold,onlytoopenitoneday and find a yellow papersticky note that said simply“IOU.”Nixon was saying that the

dollar’s value would now bedetermined by whatever we(the market) deemed itsworth. This news alsoshocked foreigngovernmentsthat had held huge sums ofdollars, believing that theyhad the option to convert togold at any time. Overnight,Nixon removed that optionfrom the table (once againliving up to his nickname“Tricky Dick”). Oh, he alsoissueda10%surchargeonall

imports to keep the UnitedStatescompetitive.Andlikeablizzard in late October,Nixon’s address signified achange in seasons of epicproportions.Ray was watching the

president’s address from hisapartment and couldn’tbelievewhat hewashearing.What were the implicationsof Nixon’s decision to taketheUnitedStatesoffthegoldstandard? What did it mean

for markets? What did thismeanfortheUSdollaranditspositionintheworld?One thingRay thought for

sure:“Itmeans thedefinitionofmoneyisdifferent.Iwouldhave thought maybe it’s acrisis!” He was certain thatwhen he walked onto thetrading floor the nextmorning,themarketwassuretoplummet.Hewaswrong.To his amazement, the

DowJoneswasupnearly4%that next day, as stockssoared to the highest single-daygaininhistory.Goldalsoskyrocketed as well! It wascompletelycounterintuitivetowhat most experts wouldexpect.Afterall,wehad justbrokenoursacredpromise totheworldthatthesepiecesofpaperwithdeadpresidentsonthem were actually worthsomething of value. Surelythis change wouldn’t inspire

confidence in the USeconomyorgovernment.Thiswas a head scratcher. Thismarket boom eventuallybecameknownasthe“Nixonrally.”But it wasn’t all great

news.By letting thevalueofthe dollar be determined by“whatever we all think it’sworth,” an inflationary stormbrewed on the horizon. Rayelaborates:“Butthenin1973,it set up the ingredients for

the first oil shock.We neverhad an oil shock before.Wenever had inflation to worryaboutbefore.Andallofthosethings became, in a sense,surprises. And I developed amodus operandi to expectsurprises.” It’s the surprisesthat we can’t afford, orstomach. It’s the next 2008.It’s thenextshockwavesureto rumble through ourmarkets.The Nixon rally was a

catalyst for Ray: thebeginning of a lifelongobsession to prepare foranything—the unknownaround every corner. Hismission was to study everyconceivable marketenvironment and what thatmeant for certaininvestments. This is his coreoperating principle thatallows him to manage theworld’s largest hedge fund.Not espousing that heknows

all.Quite the opposite.He isinsatiably hungry tocontinually discover what hedoesn’t yet know. Becausewhat’s obvious is obviouslywrong. The prevailingthought is usually the wrongthought.Andsince theworldis continually changing andevolving, Ray’s journey touncover the unknown is anever-endingendeavor.

ULTIMATEINVESTORNIRVANA

What you are about to readcould very well be the mostimportant chapter in theentirebook.Yes,yes,Iknow,I said that before. And it’strue that if you don’t knowthe rules of the game, youwill get crushed. And if you

don’t think like an insider,conventional wisdom willleadyoutoaccept thefateofthe herd. And if you don’tdecide on a percentage andautomate your savings, youwill never get the rocket offthe ground. Yet Iwholeheartedly believe thatthere is nothing in this bookthat tops Ray’s strategy forthe largest returns possiblewiththeleastamountofrisk.This is Ray’s specialty. This

is what Ray is known forthroughouttheworld.The portfolio you are

going to learn about in thepages ahead would haveprovidedyouwith:1.Extraordinary returns—nearly 10% annually(9.88%tobeexact,netoffees) forthe last40years(1974through2013)!

2. Extraordinary safety—you would have made

moneyexactly85%ofthetime over the last 40years! There were onlysix lossesduringthose40years, and the averagelosswasonly1.47%.Twoof the six losses werebreakeven, for all intentsand purposes, as theywere 0.03% or less. Sofrom a practicalperspective, you wouldhave lost money fourtimesin40years.

3. Extraordinary lowvolatility—the worst lossyou would haveexperienced during those40 years was only –3.93%!

Remember WarrenBuffett’s ultimate laws ofinvesting?Rule 1: don’t losemoney. Rule 2: see rule 1.TheapplicationofthisruleisRay’sgreatestgenius.Thisiswhy he is the Leonardo da

Vinciofinvesting.Anybody can show you a

portfolio(inhindsight)whereyoucouldhavetakengiganticrisks and received bigrewards. And if you didn’tfold like a paper bag whenthe portfolio was down 50%or 60%, you would haveended up with big returns.This advice is goodmarketing,but it’snot realityformostpeople.Icouldn’tfathomthatthere

was away for the individualinvestor (likeyouandme) tohavestockmarket–likegains,yet simultaneously have astrategy that would greatlylimit both the frequency andsize of the losses in nearlyevery conceivable economicenvironment. Can youimagine a portfolio modelthat declined just 3.93% in2008, when the world wasmeltingdownandthemarketwasdown50%fromitspeak?

A portfolio where you canmore than likely be safe andsecure when the next gut-wrenching crash wipes outtrillions in America’s 401(k)accounts?Thisisthegiftthatliesinthepagesahead.(Notethat past performance doesnot guarantee future results.Instead, I am providing youthe historical data here todiscuss and illustrate theunderlyingprinciples.)Butbeforewedivein,and

beforeyoucanappreciatethebeauty and power of Ray’sguidance,let’sunderstandthebackstory of one of themostincredible investors andassetallocators towalk the planet.Let’s learnwhy governmentsand the world’s largestcorporations have Ray onspeed dial so they canmaximize their returns andlimittheirlosses.

I’MLOVIN’IT

Nineteen eighty-three was abadyear for chickens. Itwasthe year that McDonald’sdecided to launch the wildlysuccessful “ChickenMcNugget.” They were sucha hit that it took a fewyearsto work out supply-chainissues because they couldn’tget their hands on enoughbirds.But if itwasn’t for the

genius of Ray Dalio, theChickenMcNugget wouldn’tevenexist.How does the world of

high finance intersect withthe fast-food-selling clown?Because when McDonald’swanted to launch the newfood,itwasnervousabouttherising cost of chicken andhaving to up its prices—notan option for its budget-conscious clientele. But thesuppliers weren’t willing to

give a fixed price for itschickens because they knewthat it wasn’t the chickensthat are expensive. It’s thecost of feeding them all thatcornandsoymeal.Andif thefeed costs rose, the supplierswouldhavetoeatthelosses.McDonald’s called Ray,

knowingthatheisoneoftheworld’s most gifted mindswhen it comes toeliminatingor minimizing risk whilemaximizing upside—and he

rang up a solution. He puttogether a custom futurescontract (translation: aguarantee against futurerising prices of corn andsoymeal) that allowedsuppliers to be comfortableselling their chickens for afixedprice.Bonappétit!Ray’sexpertiseextendsfar

beyond the boardrooms ofmajor corporations. Just howfar does his wisdomreverberate throughout the

world? In 1997, when theUS Treasury decided toissue inflation-protectedbonds (today, they arecommonlyknownasTIPS),officialscametoRay’sfirm,Bridgewater, to seekadviceon how to structure them.Bridgewater’srecommendations led to thecurrentdesignofTIPS.Ray is more than just a

money manager. He is amaster of markets and risk.

Heknowshowtoputtogetherthe pieces to tilt the odds ofwinning drastically in favorofhimandhisclients.So how does Ray do it?

What’shissecret?Let’ssitatthe feet of this economicmasterandlethimtakeusonajourney!

INTELLECTUALNAVYSEALS

Remember the junglemetaphor Ray gave us wayback in chapter 1? As Raysees it, togetwhatwe reallywant in life, we have to gothrough the jungle to get tothe other side. The jungle isdangerous because of theunknowns.It’sthechallengeslurking around the next bendthatcanhurtyou.So,inorderto get to where you want togo, you have to surroundyourself with the smartest

minds that you also respect.Ray’s firm, Bridgewater, ishis personal team of “junglemasters.” He has more than1,500 employees who arealmost as obsessed as Raywith figuring out how tomaximize returns andminimizerisk.As I mentioned early on,

Bridgewater is the world’slargest hedge fund, withnearly $160 billion under itswatch. This amount is

astonishing,consideringmost“big”hedgefunds thesedayshover around $15 billion.Althoughtheaverageinvestorhas never heard of Ray, hisname echoes in the halls ofthe highest places. Hisobservations, a daily report,arereadbythemostpowerfulfigures in finance, from theheads of central banks tothoseinforeigngovernments,andeven thepresidentof theUnitedStates.

There is a reason why theworld’sbiggestplayers, fromthe largest pension funds tothesovereignwealthfundsofforeigncountries, investwithRay. And here is a clue: it’snot “conventional wisdom.”He thinks way outside thebox. Heck, he shatters thebox. And his voraciousappetite to continually learnand challenge theconventional and find “thetruth” is what propelled Ray

from his first office (hisapartment) to a sprawlingcampus in Connecticut. Hisjungle team at Bridgewaterhas been called a group ofintellectual Navy SEALS.Why?BecausebyworkingatBridgewater, you are goingthrough the junglewithRay,arm in arm. The culturerequires you to be creative,insightful, and courageous—always able to defend yourposition or views. But Ray

also requires that you havethewillingnesstoquestionoreven attack anything youconsider faulty. The missionistofindoutwhatistrueandthen figure out the best waytodealwithit.Thisapproachrequires “radical openness,radical truth, and radicaltransparency.” The survival(and success) of the entirefirmdependsonit.

ALPHADOG

RayDalioputhimselfon themap with the extraordinary(andcontinual)successofhisPure Alpha strategy.Launched in 1991, thestrategynowhas$80billionand has produced a mind-boggling 21% annualizedreturn (before fees weretakenout),andwithrelativelylowrisk.Thefund’sinvestors

includetheworld’swealthiestindividuals,governments,andpensionfunds. It’s the1%ofthe 1% of the 1%, and the“club”hasbeenclosedtonewinvestorsformanyyears.ThePure Alpha strategy isactively managed, meaningthat Ray and his team arecontinuously looking foropportunistic investments.They want to get in at theright time and get out at theright time. They aren’t just

riding the markets, whichwas evidenced by a 17%gain (before fees) in 2008while many hedge fundmanagerswereclosingtheirdoors or begging investorsnottopullout.Theinvestorsin the Pure Alpha strategywant big rewards and arewilling to take risks—albeitstill limiting their risk asmuchashumanlypossible.

CHILDRENANDCHARITY

With incredible successmanaging the Pure Alphastrategy, Ray has built upquiteasizeablepersonalnestegg.Backinthemid-’90s,hebegan to think about hislegacy and the funds hewanted to leave behind, buthe wondered, “What type ofportfolio would I use if I

wasn’t around to activelymanage the money anylonger?” What type ofportfolio would outlive hisown decision making andcontinue to support hischildren and philanthropiceffortsdecadesfromnow?Ray knew that

conventional wisdom andconventional portfoliomanagementwouldleavehimin the hands of amodel thatcontinuallyshowsthatitcan’t

survivewhentimesgettough.So he began to explorewhether or not he could puttogetheraportfolio—anassetallocation—that would dowell in any economicenvironment in the future.Whether it’s another brutalwinter like 2008, adepression,a recession,orsoon. Because nobody knowswhat will happen five yearsfromnow, letalone20or30yearsout.

Theresults?A completely new way to

look at asset allocation. Anew set of rules. And onlyaftertheportfoliohadbeentested all the way back to1925, and only after itproduced stellar results forRay’spersonalfamilytrust,in a variety of economicconditions, did he begin toofferittoaselectgroup.Solong as they had theminimum $100 million

investment, of course. Thenew strategy, known as theAll Weather strategy, madeits public debut in 1996, justfour years before a massivemarketcorrectionputittothetest. It passed with flyingcolors.

QUESTIONSARETHEANSWER

We’ve all heard the maxim“Ask and you shall receive!”But if you ask betterquestions, you’ll get betteranswers! It’s the commondenominator of all highlysuccessful people. Bill Gatesdidn’t ask, “How do I buildthe best software in theworld?”Heasked,“HowcanI create the intelligence [theoperating system] that willcontrol all computers?” Thisdistinction isonecore reason

why Microsoft became notjust a successful softwarecompany but also thedominant force in computing—stillcontrollingnearly90%of the world’s personalcomputer market! However,Gateswasslowtomaster thewebbecausehisfocuswasonwhat was inside thecomputer, but the “GoogleBoys,” Larry Page andSergeyBrin,asked,“Howdowe organize the entire

world’s information andmake it accessible anduseful?” As a result, theyfocused on an even morepowerfulforceintechnology,life, and business. A higher-level question gave them ahigher-level answer and therewardsthatcomewithit.Togetresults,youcan’t justaskthe question once, you haveto become obsessed withfindingitsgreatestanswer(s).The average person asks

questions such as “Howdo Iget by?” or “Why is thishappening to me?” Someeven ask questions thatdisempower them, causingtheir minds to focus on andfind roadblocks instead ofsolutions. Questions like“How come I can never loseweight?” or “Why can’t Ieverhangon tomymoney?”onlymovethemfartherdownthepathoflimitation.I have been obsessed with

the question of how do Imakethingsbetter?HowdoIhelp people to significantlyimprove the quality of theirlives now? This focus hasdrivenmefor38yearstofindor create strategies and toolsthat can make an immediatedifference. What about you?What question(s) do you askmore than any other?Whatdoyoufocusonmostoften?What’s your life’sobsession? Finding love?

Making a difference?Learning? Earning?Pleasing everyone?Avoiding pain? Changingthe world? Are you awareofwhat you focus onmost;your primary question inlife? Whatever it is, it willshape, mold, and directyour life. This book answersthe question, “What do themosteffectiveinvestorsdotoconsistently succeed?” Whatare the decisions and actions

of those who start withnothingbutmanage tocreatewealth and financial freedomfortheirfamilies?Inthefinancialworld,Ray

Daliobecameobsessedwithaseries of better-qualityquestions. Questions that ledhim to ultimately create theAllWeatherportfolio.It’stheapproach you are about tolearn here and has thepotential to change yourfinancial life for the better

forever.“Whatkindofinvestment

portfoliowouldoneneedtohave to be absolutelycertain that it wouldperformwell in good timesand in bad—across alleconomicenvironments?”This might sound like an

obviousquestion,and,infact,many “experts” and financialadvisors would say that thediversified asset allocationthey are using is designed to

do just that. But theconventional answer to thisquestion is why so manyprofessionalsweredown30%to50%in2008.Wesawhowmany target-date funds gotslaughtered when they weresupposed to be set up to bemore conservative as theirownersnearedretirementage.We saw Lehman Brothers, a158-year-old bedrockinstitution, collapse withindays.Itwasatimewhenmost

financialadvisorswerehidingundertheirdesksanddodgingclientphonecalls.Onefriendofminejokedpainfully,“My401(k) is now a 201(k).”Allthe fancy software that theindustry uses—the “MonteCarlo” simulations thatcalculateallsortsofpotentialscenarios in the future—didn’t predict or protectinvestors from the crash of1987, the collapse of 2000,the destruction of 2008—the

listgoeson.If you remember those

days back in 2008, thestandard answers were “Thisjusthasn’thappenedbefore,”“Weareinunchartedwaters,”“It’sdifferentthistime.”Raydoesn’t buy those answers(which is why he predictedthe 2008 global financialcrisis and made money in2008).Make no mistake, what

Ray calls “surprises” will

always look different fromthe time before. The GreatDepression, the 1973 oilcrisis, the rapid inflation ofthe late ’70s, the Britishsterling crisis of 1976,BlackMondayin1987,thedot-combubble of 2000, the housingbustin2008,the28%dropingold prices in 2013—all ofthese surprises caught mostinvestments professionalsway off guard. And the nextsurprise will have them on

theirheelsagain.Thatwecanbesureof.But in 2009, once the

smoke had cleared and themarket started to bounceback, very few moneymanagers stopped to ask iftheir conventional approachto asset allocation and riskmanagementmighthavebeenwrongtobeginwith.Manyofthem dusted themselves off,gotbackinthesellingsaddle,andprayed that thingswould

just get back to “normal.”But remember Ray’smantra,“Expectsurprises,”and his core operatingquestion, “What don’t Iknow?” It’s not a questionofwhetherornottherewillbe another crash, it is aquestionofwhen.

MARKOWITZ:THESECRETTO

MAXIMIZINGRETURNS

HarryMarkowitzisknownasthefatherofmodernportfoliotheory. He explains thefundamental concept behindthe work that won him theNobel Prize. In short,investments in a portfolioshould not just be looked atindividually, but rather as agroup.Thereisatrade-offfor

risk and return, so don’t justlistentooneinstrument,listento the entire orchestra. Andhow your investmentsperform together, how wellthey are diversified, willultimately determine yourreward. This advice mightsound simple now, but in1952 this thinking wasgroundbreaking. At somelevel, this understanding hasinfluenced virtually everyportfolio manager from New

YorktoHongKong.Like all great investors,

Ray stood on Markowitz’sshoulders, using his coreinsights as a basis forthinking about the design ofany portfolio or assetallocation. But he wanted totake it to another level. Hewas sure that he could add acouple more key distinctions—pull a couple key levers—and create his owngroundbreaking discovery.

He took his four decades ofinvesting experience androunded up his troops tofocustheirbrainpoweronthisproject. Ray literally spentyears refining his researchuntil he had arrived at acompletely new way to lookat asset allocation. Theultimate in maximizingreturns and minimizing risk.And his discoveries havegiven him a new level ofcompetitive advantage—an

advantage that will soonbecomeyours.Up until this book’s

publication, Ray’s life-altering, game-changingapproach has been for theexclusive benefit of hisclients. Governments,pension plans, billionaires—all get the extraordinaryinvestment advantages youare about to learn—throughRay’s All Weather strategy.As I mentioned, it’s where

Ray has serious skin in thegame. It’s where he investsall of his family and legacymoney alongside the“Security Buckets” of themost conservative andsophisticated institutions inthe world. Like Ray, I alsonow invest a portion of myfamily’s money in thisapproach, as well as myfoundation’s money, becauseas you’ll begin to see, it hasproduced results in every

economic environment overthe last 85 years. Fromdepressionsandrecessions,totimesofinflationordeflation;ingoodtimesandinbad,thisstrategy has found a way tomaximize opportunity.Historically it appears to beone of the best approachespossible to achieving mywisheslongafterIamgone.

GAMEDAY

To be able to sit with yetanother of the greatinvestment legends of ourtimewas truly a gift. I spentclose to 15 hours studyingand preparing for my timewith Ray, combing overeveryresourceIcouldgetmyhands on (which was tough,because he typically avoidsmedia and publicity). I dug

up some rare speeches hegave to world leaders atDavos and the Council onForeign Relations. I watchedhis interview with CharlieRose of 60 Minutes (one ofhis only major mediaappearances). I watched hisinstructional animated videoHow the Economic MachineWorks—In Thirty Minutes(www.economicprinciples.orgIt’s a brilliant video I highlyencourage you to watch to

really understand how theworld economy works. Icombed through every whitepaperandarticleIcouldfind.I read and highlightedvirtually every page of hisfamoustextPrinciples,whichcovers both his life andmanagement guidingprinciples. This was anopportunityofalifetime,andI wasn’t going to walk inwithout being completelyprepared.

Whatwassupposedtobeaone-hour interview quicklyturnedintonearlythree.Littledid IknowRaywasa fanofmy work and had beenlistening to my audioprogramsforalmost20years.What an honor! We wentdeep. We were pitching andcatching on everything frominvesting to how the worldeconomic machine reallyworks. Ibeganwitha simplequestion: “Is the game still

winnable for the individualinvestor?”“Yes!” he said

emphatically. But youcertainlyaren’tgoingtodoitlistening to your brokerbuddy. And you certainlyaren’tgoingtodoitbytryingto time the market. Timingthe market is basicallyplayingpokerwith thebestplayers in the world whoplay round the clock withnearly unlimited resources.

Thereareonlysomanypokerchips on the table. “It’s azero-sum game.” So to thinkyou are going to take chipsfrom guys like Ray is morethan wishful thinking. It’sdelusional. “There is aworldgame going on, and only ahandful actually makemoney, and they make a lotby taking chips from theplayerswho aren’t as good!”Astheoldsayinggoes,ifyouhavebeenatapokertablefor

a while, and you still don’tknowwho the sucker is: it’syou!Ray put the final warning

stamp on trying to beat/timethemarket:“You don’t wanttobeinthatgame!”“Okay, Ray, so we know

we shouldn’t try to beat thebest players in theworld. Solet me ask you what I haveasked every person I haveinterviewed for this book: Ifyou couldn’t leave any of

your financialwealth toyourchildren but only a portfolio,a specific asset allocationwith a list of principles toguide them, what would itbe?”Ray sat back, and I could

see his hesitancy for amoment. Not because hedidn’t want to share, butbecause we live in anincredibly complex world ofrisk and opportunity. “Tony,that’s just too complex. It’s

veryhardformetoconveytothe average individual in ashort amount of time, andthings are constantlychanging.” Fair enough.Youcan’t cram 47 years ofexperience into a three-hourinterview.ButIpressedhimabit...“Yeah, I agree, Ray. But

youalsojusttoldmehowtheindividual investor is notgoing to succeed by using atraditional wealth manager.

So help us understand whatwecandotosucceed.Weallknow that asset allocation isthemostimportantpartofoursuccess,sowhataresomeofthe principles that youwould use to createmaximum reward withminimalrisk?”And that’s when Ray

began to open up and sharesome amazing secrets andinsights.His first stepwas toshatter my “conventional

wisdom” and show me thatconventionalwisdomonwhatis a “balanced” portfolio isnotbalancedatall.

Thesecretofallvictoryliesintheorganizationofthe

nonobvious.—MARCUSAURELIUS

UNBALANCED

Most advisors (andadvertisements) willencourage you to have a“balancedportfolio.”Balancesounds like a good thing,right?Balancetellsusthatwearen’t taking too much risk.And that our more riskyinvestmentsareoffsetbyourmore conservative ones. Butthequestionlingers:Why did most

conventional balancedportfoliosdrop25%to40%

when thebottom fell outofthemarket?The conventional balanced

portfolios are divided upbetween50%stocksand50%bonds(ormaybe60/40ifyouare a bitmore aggressive, or70/30 if you are even moreaggressive). But let’s stickwith50/50forthesakeofthisexample.Thatwouldmeanifsomeone has $10,000, hewouldinvest$5,000instocksand $5,000 in bonds (or

similarly, $100,000 wouldmean $50,000 in bonds and$50,000 in stocks—you gettheidea).By using this typical

balanced approach, we arehopingforthreethings:1. We hope stocks will dowell.

2. We hope bonds will dowell.

3. We hope both don’t godown at the same time

whenthenextcrashcomes.

It’s hard not to notice thathope isthefoundationofthistypicalapproach.Butinsiderslike Ray Dalio don’t rely onhope. Hope is not a strategywhen it comes to yourfamily’swell-being.

RISKYBUSINESS

Bydividingupyourmoneyin50% stocks and 50% bonds(or some general variationthereof), many would thinkthat they are diversified andspreading out their risk.Butin reality, you really aretakingmuchmoreriskthanyouthink.Why?Because,asRaypointedoutemphaticallymultiple times during ourconversation, stocks arethree timesmore risky (akavolatile)thanbonds.

“Tony, by having a fifty-fifty portfolio, you reallyhave more like ninety-fivepercent of your risk instocks!”Belowisapiechartof the 50/50 portfolio. Theleft side shows how themoneyisdividedupbetweenstocks and bonds inpercentage terms. But theright side shows how thesame portfolio is divided upintermsofrisk.

So with 50% of your“money” in stocks, it seemsrelatively balanced at firstglance. But as shown here,you would have closer to95% or more at “risk”because of the size andvolatility of your stock

holdings.Thus,ifstockstank,thewholeportfolio tanks.Somuchforbalance!How does this concept

translatetoreallife?From 1973 through 2013,

the S&P 500 has lostmoneynine times, and thecumulative losses totaled134%! During the sameperiod,bonds(representedbytheBarclaysAggregateBondindex) lost money just threetimes, and the cumulative

losseswerejust6%.Soifyouhad a 50/50 portfolio, theS&P 500 accounted for over95%ofyourlosses!“Tony,” Ray said, “when

you look at most portfolios,they have a very strong biastodowell in good timesandbad in bad times.” And thusyour de facto strategy issimplyhoping that stocks goup. This conventionalapproach to diversifyinginvestments isn’tdiversifying

atall.I had never heard this

conceptofbalanceversusriskexplainedso simply.As I satthere, I started to think backto my own investments andwhereImayhavemadesomewrongassumptions.So let me ask you, how

does this understandingmake you feel about your“balanced”portfolionow?Does this change your

viewastowhatitmeanstobe

diversified? I sure hope so!Most people try to protectthemselves by diversifyingtheamountofmoneytheyputintocertaininvestmentassets.Onemightsay,“Fiftypercentof my money is in ‘risky’stocks (with perhaps greaterupside potential if things gowell)and fiftypercentofmymoney is going in ‘secure’bonds to protectme.”Ray isshowing us that if yourmoneyisdividedequally,yet

your investments are notequalintheirrisk,youarenotbalanced!Youare really stillputting most of your moneyatrisk!Youhavetodivideupyour money based on howmuch risk/reward there is—not just in equal amounts ofdollars in each type ofinvestment.You now know something

that 99% of investors don’tknow and that mostprofessionals don’t know or

implement! But don’t feelbad.Raysaysmostofthebiginstitutions,withhundredsofbillionsofdollars,aremakingthesamemistake!

RAINMAKER

Ray was now on a roll andwas systematically dissectingeverything I had been taughtorsoldovertheyears!

“Tony, there is anothermajor problem with thebalanced portfolio ‘theory.’It’sbasedaroundagiantand,unfortunately, inaccurateassumption. It’s thedifference betweencorrelationandcausation.”Correlation is a fancy

investment word for whenthings move together. Inprimitivecultures,theywoulddanceinanattempttomakeitrain. Sometimes it actually

worked! Or so they thought.Theyconfusedcausationwithcorrelation. In other words,theythoughttheirjumpingupanddowncausedtherain,butit was actually justcoincidence. And if ithappened more and moreoften, theywouldbuildsomefalse confidence around theirability to predict thecorrelation between theirdancingandtherain.Investment professionals

often buy into the samemythology. They say thatcertain investments are eithercorrelated (move together)oruncorrelated (have nopredictablerelationship).Andyes, at times they might becorrelated, but like therainmaker, it’s often justhappenstance.Ray and his team have

shown that all historical datapoint to the fact that manyinvestments have completely

random correlations. The2008 economic collapsedestroyed this glaringassumption when almost allasset classes plummeted inunison. The truth is,sometimes they movetogether, sometimes theydon’t. So when theprofessionals try to createbalance, hoping stocks movein the opposite direction ofbonds, for example, it’s acomplete crapshoot. But this

faulty logic is theunderpinning of what mostfinancial professionals use astheir“truenorth.”Ray has clearly

uncovered some glaringholesinthetraditionalassetallocationmodel. If hewerea professor at an IvyLeagueschoolandhadpublishedthiswork, he probably wouldhave been nominated for aNobel Prize! But in thetrenches—in the jungle—is

whereRaywouldratherlive.

THEFOURSEASONS

When I talked with DavidSwensen, Yale’s chiefinvestmentofficer,hetoldmethat “unconventionalwisdomistheonlywayyoucan succeed.” Follow the

herd, and you don’t have achance. Oftentimes peoplehear the same advice orthinking over and over againand mistake it for the truth.But it’s unconventionalwisdom that usually leads tothetruthandmoreoftenleadstoacompetitiveadvantage.And here is where Ray’s

second piece ofunconventionalwisdomcamecrashing in. “Tony, whenlookingbackthroughhistory,

thereisonethingwecanseewith absolute certainty:every investment has anideal environment inwhichit flourishes. In otherwords, there’s a season foreverything.”Take real estate, for

example. Look back to theearly2000s,whenAmericanswere buying whatever theycould get their hands on(including people with littlemoney!). But they weren’t

just buying homes because“interest rates were low.”Interestrateswereevenlowerin 2009, and they couldn’tgive houses away. Peoplewerebuyingduringtheboombecause priceswere inflatingrapidly. Home prices wererising every single month,and they didn’twant tomissout.BillionaireinvestingiconGeorgeSorospointedoutthat“Americanshaveaddedmorehousehold mortgage debt in

the last six years [by 2007]than in the prior life of themortgage market.” That’sright,moreloanswereissuedinsixyears thanin theentirehistoryofhomeloans.In Miami and many parts

of South Florida, you couldput down a deposit, andbecauseofinflationaryprices,before the condo was evenfinished being built, youcould sell it for a sizeableprofit. And what did people

do with that home equity?TheyusedtheirhomelikeanATM and spent it, and thatmassive spending stimulatedthe profitability ofcorporations and the growthof the economy. Soros citedsome staggering numbers:“Martin Feldstein, a formerchairman of the Council ofEconomic Advisers,estimated that from 1997through 2006, consumersdrew more than $9 trillion

in cash out of their homeequity.” To put this inperspective, in just six years(from 2001 to 2007),Americans added morehousehold mortgage debt(about $5.5 trillion) than intheprior lifeof themortgagemarket,whichismorethanacentury old. Of course, thisnational behavior is not asustainablewaytolive.Whenhome prices dropped like arock,sodidspendingandthe

economy.In summary,which season

or environment canpowerfully drive homeprices?Inflation.Butin2009we experienced deflation,when prices sank, and manymortage holders were leftwith a home underwater—worth less than what theyowed. Deflation drops thepriceofthisinvestmentclass.How about stocks? They

too perform well during

inflation. With inflationcomes rising prices. Higherprices mean that companieshavetheopportunitytomakemore money. And risingrevenues mean growth instockprices.Thishasproventrueovertime.Bonds are a different

animal. Take US Treasurybonds, for example. If wehave a season of deflation,which is accompanied byfalling interest rates, bond

priceswillrise.Ray then revealed the

most simple and importantdistinctionof all.Thereareonly four things that movethepriceofassets:1.inflation,2.deflation,3. rising economic growth,and

4. declining economicgrowth.

Ray’sviewboilsitdowntoonly four different possibleenvironments, or economicseasons, that will ultimatelyaffect whether investments(assetprices)goupordown.(Exceptunlikenature,thereisnot a predetermined order in

which the seasons willarrive.)Theyare:1. higher than expectedinflation(risingprices),

2. lower than expectedinflation(ordeflation),

3. higher than expectedeconomicgrowth,and

4. lower than expectedeconomicgrowth.

When you look at a stock(or bond) price today, the

price already incorporateswhat we (the market)“expect” about the future.Raysaid tome,“Tony, thereis a literal picture of thefuture when you look atpricestoday.”Inotherwords,the price of Apple’s stocktoday incorporates theexpectationsofinvestorswhobelieve the company willcontinue to grow at a certainpace. This is why you mayhave heard that a stock will

fallwhenacompanysaysthatits future growth (earnings)will be lower than it hadinitiallyexpected.“It’sthesurprises thatwill

ultimately determine whichassetclasswilldowell.Ifwehave a real good growthsurprise, that would be verygoodforstocksandnotgreatfor bonds. For bonds, if wehave a surprise drop ininflation,itwouldbegoodforbonds.”

If there are only fourpotential economicenvironmentsorseasons,Raysaysyoushouldhave25%ofyourriskineachofthesefourcategories. He explains: “Iknowthat therearegoodandbadenvironmentsforallassetclasses. And I know that inone’slifetime,therewillbearuinous environment for oneof those asset classes. That’sbeentruethroughouthistory.”This is why he calls this

approach All Weather:because there are fourpossible seasons in thefinancial world, and nobodyreally knows which seasonwill come next. With thisapproach, each season, eachquadrant, is covered all thetime, so you’re alwaysprotected. Ray elaborates: “Iimagine four portfolios,eachwith an equal amountofriskinthem.ThatmeansI would not have an

exposure to any particularenvironment.” How cool isthat? We aren’t trying topredict the future, becausenobody knows what thefuture holds. What we doknow is that there only fourpotential seasons we will allface.Byusingthisinvestmentstrategy, we can know thatweareprotected—notmerelyhoping—and that ourinvestmentsareshelteredandwill do well in any season

thatcomesourway.Bob Prince, the co-chief

investment officer atBridgewater, describes theuniqueness of the AllWeather approach: “Todaywecanstructureaportfoliothat will do well in 2022,even though we can’tpossibly know what theworld will look like in2022.”I honestly sat there with

myjawopenbecausenobody

hadeverdescribedtomesuchasimpleyetelegantsolution.Itmakesperfectsensetohaveinvestments, divided upequally by risk, that will dowell in all seasons but howyou actually accomplish thisisthegoldenticket.“So we know the four

potential seasons, but whichtype of investment willperformwellineachoftheseenvironments?” Rayresponded by categorizing

themintoeachseason.Belowisachartthatmakesiteasytobreakdownvisually.

TWODOWN,ONETOGO

On the surface, assetallocation might sometimesfeelcomplex,evenwhenyouunderstand theprinciples thatRay has laid out.But there’sone thing I know for sure:complexity is the enemy ofexecution. If you and I areactually going to getourselves to follow throughwith this process and receivethe rewards, I had to find awaytomakethisadviceevensimpler.

So I said to Ray, “Whatyouhavesharedwithushereis invaluable. A completelydifferent way of looking atasset allocation. By now weall know asset allocation isone of the single mostimportant keys to allsuccessful investing. But thechallenge for the averageinvestor—and even for thesophisticated investor—ishow to take these principlesand translate them into an

actualportfoliowiththemosteffective percentages of eachasset class. It will be toocomplex for ninety-ninepercentofustofigureout.Soitwouldbeahugegiftifyoucould share the specificpercentages that peoplewould invest in each assetclass so that their riskwouldbe divided equally amongseasons!”Ray looked at me, and I

could see thewheels turning.

“Tony, it’s not really thatsimple.” Ray explained thatin his All Weather strategy,they use very sophisticatedinvestment instruments, andthey also use leverage tomaximizereturns.I understood where Ray

wascoming from, so I askedhim for a more simplifiedversion: “Can you give methe percentages that theaverage person can do,without any leverage, to get

thebestreturnswiththeleastamount of risk? I know it’snotgoingtobeyourabsoluteperfect asset allocationbecause I’m putting you onthespottocreateitrighthereandnow.ButRay, your bestestimate will certainly begreater than most people’sbest plan. Could you give aversion of the All Weatherportfolio that readers coulddo on their own or with thehelpofafiduciaryadvisor?”

Rayhastakenonveryfewinvestorsinthelasttenyears,and the last time he did, youhad to be an institutionalinvestor with $5 billion ininvestable assets, and yourinitial investment needed tobe a minimum of $100million just to get Ray’sadvice. This helps youunderstand what a big ask Iwasmaking.ButIknowhowmuchhecaresaboutthelittleguy. He certainly hasn’t

forgotten his roots as a self-made man from humblebeginnings in Queens, NewYork.“Ray,Iknowyou’vegota

huge heart to help, so let’sgive folks a recipe forsuccess. You won’t takeanybody’s money, even ifthey are worth five billiondollars today. Help yourbrothers and sisters out!” Isaidwithabigsmile.And then something

magicalhappened.IlookedinRay’seyes,and

asmilecameacrosshis face.“All right, Tony. It wouldn’tbeexactorperfect,butletmegive you a sample portfoliothat theaveragepersoncouldimplement.”Andthenslowlyhe began to unfold the exactsequence for what hisexperience shows will giveyou and me the increasedprobability of the highestreturn in any market

environment, as long as welive,withtheleastamountofrisk.

DRUMROLL,PLEASE

Youareabouttoseetheexactasset allocation built by amanwhommanycallthebestasset allocator to walk the

planet.Aself-mademanwhobuilt himself from nothingfinancially to a net worth ofover $14 billion, and whomanages $160 billion a yearand produces annual returnsof more than 21% for hisinvestors (before fees). Herehesharesnotonlywhichtypeof investment but also whatpercentageofeachassetclassyou need to win! In fact, ifyoulookonline,manypeoplehave tried to replicate a

version of this based uponRay’sprevious interviews. Infact, there is a whole newcategory of investmentproducts now called “RiskParity,” based on Ray’sinnovations. Many funds orstrategies say they were“inspired” by Ray’sapproach, but nobodyreceived the specificallocation like Ray providedhere. Many of the replicaswere down as much as 30%

or more in 2008. More like“some weather” than “AllWeather,” if you ask me. Afake Rolex will never be aRolex. (A quick note: thestrategybelowisnotthesameas Ray’s All Weatherstrategy, of course. As hesaid, his fund uses moresophisticatedinvestmentsandalso uses leverage. But thecore principles are the same,and the specific percentagesaredesigneddirectlybyRay,

andnooneelse,so let’s callthis portfolio herein the“AllSeasons”portfolio.)

GIVEMETHENUMBERS

“Sotellme,Ray,whatarethepercentagesyouwouldputinstocks? What percentage ingold? And so on.” He

graciously proceeded tosketch out the followingbreakdown:First, he said, we need

30%instocks(forinstance,the S&P 500 or otherindexes for furtherdiversification in thisbasket). Initially thatsounded low to me, butremember, stocks are threetimesmore risky thanbonds.And who am I to second-guess the Yoda of asset

allocation!?“Then you need long-term

government bonds. Fifteenpercent in intermediateterm [seven- to ten-yearTreasuries] and fortypercent in long-term bonds[20- to 25-yearTreasuries].”“Why such a large

percentage?”Iasked.“Because this counters the

volatility of the stocks.” Iremembered quickly it’s

about balancing risk, not thedollaramounts.Andbygoingout to longer-term (duration)bonds, this allocation willbring a potential for higherreturns.He rounded out the

portfoliowith 7.5% in goldand 7.5% in commodities.“Youneedtohaveapieceofthatportfoliothatwilldowellwith accelerated inflation, soyouwouldwantapercentagein gold and commodities.

These have high volatility.Because there areenvironments where rapidinflationcanhurtbothstocksandbonds.”Lastly, the portfolio must

be rebalanced. Meaning,whenonesegmentdoeswell,you must sell a portion andreallocatebacktotheoriginalallocation. This should bedoneatleastannually,and,ifdoneproperly, itcanactuallyincrease the tax efficiency.

ThisispartofthereasonwhyI recommend having afiduciary implement andmanage this crucial, ongoingprocess.

GRATITUDE

Wow! There it was in blackand white. Ray hadmasterfully and graciouslyprovided a game-changingrecipe that would impact thelives of millions ofAmericans. Do you realizethe level of generosity thisman provided both you andme that wonderful day?GivingfromtheheartisatthecoreofwhoRayis.Whichiswhy I wasn’t the least bitsurprisedtolearnlaterthathe

and his wife, Barbara, havesigned the Giving Pledge—acommitment by the world’swealthiest individuals, fromBillGates toWarrenBuffett,to give away themajority oftheir wealth throughphilanthropy.

DOIHAVEYOURATTENTIONNOW?

When my own investmentteam showed me the back-tested performance numbersof thisAll Seasons portfolio,Iwasastonished.Iwillneverforget it. I was sitting withmy wife at dinner andreceiveda textmessagefrommy personal advisor, AjayGupta, that read, “Did yousee the email with the back-tested numbers on theportfolio that Ray Dalioshared with you?

Unbelievable!” Ajaynormally doesn’t text me atnight, so I knew he couldn’twait toshare.Assoonasourdinner date was over Igrabbed my phone andopenedtheemail...

CHAPTER5.2

IT’STIMETOTHRIVE:STORM-PROOFRETURNSANDUNRIVALED

RESULTS

Ifnomistakehave

youmade,yetlosingyouare...adifferentgame

youshouldplay.—YODA

THEPROOFISINTHEPUDDING

It’ssafetosaythatinthepast80-plus years, we haveexperienced every possible

economic season and morethan a handful of surprises,fromtheGreatDepression tothe Great Recession andeverything in between. Sohow did the All Seasonsportfolio perform? As Imentioned,Itookittoateamof analysts to have it testedextensively all the way backto 1925! The resultsastonishedeveryone.We already saw in the

previouschapterhow theAll

Seasonsapproachdidover40years, so let’s dig a littledeeper.But let’s takea lookathowitdidduringwhatIcall the “modernperiod”—the 30 years from 1984through2013.Theportfoliowasrocksolid:13•Justunder10%(precisely9.72%, net of fees)average annualizedreturn. (It’s important tonote that this is the actual

return, not an inflatedaveragereturn.)

• You would have mademoney just over 86% ofthe time. That’s only fourdown/negative years. Theaveragelosswasjust1.9%,and one of the four losseswasjust0.03%(essentiallya break-even year)—soeffectively you wouldhave lost money onlythreeoutof30years.

•Theworstdownyearwas

–3.93%in2008(whentheS&P 500 wasdown37%!).

•Investornerdalert!Standarddeviation was just 7.63%.(Thismeansextremelylowriskandlowvolatility.)

Why did we select themodern period from 1984?This time frame marks thebeginningof the401(k)plan,when every Americanbecame an investor and no

longer was the stock marketjust for thesophisticated.Forsome perspective, 30 yearsago, there was no WorldWide Web. Heck, the first“portable” handheld cellphonescameoutin1984.TheMotorola DynaTac was abeige brick that cost nearly$4,000. The plan itself alsocost $50 a month and 50cents per minute, but youcouldtalkonlyfor30minutesbefore the battery died. I

know because I’m ancientenough to be one of the firstproudowners.But let’snotpointout just

the positives. Let’s look athowtheportfolioheldupinthe worst times: theeconomic winters. Thisanalysis is what the industrycallsstresstesting.If you look at what I call

the “historical period,” from1939 to 2013 (75 years),consider these startling stats.

(Please note that in order togo back further in time, wehadtousedifferent“indexes”to represent the assetallocation because certainindexes didn’t exist prior to1983. See the end of thechapter fora full explanationonthemethodologyused.)

Let’s go back evenfurther,allthewayto1927,which includes the worstdecade in our economichistory, the GreatDepression:

If a house is deemed storm-proof, the onlyway to knowfor sure is to endure the testof time and the worst ofstorms. Below is a chartshowing the seven worstdropssince1935.Asyouwill

see, theAllSeasonsportfoliowasactuallyupintwooutofseven of those “winters”!And the losses it did sustainwere relatively small incomparisonwiththeUSstockmarket. Talk about buckingthe trend. While winter waskicking everyone’s butt, thisportfoliowouldhaveallowedyoutospendthewinterskiingor snowboarding andenjoyingyourhotchocolate!

Ifyou lookathow theAll

Seasonsportfoliowouldhaveperformedagainst themarketin more recent years, the

difference is even greater!From January 1, 2000,through March 31, 2014,the All Seasons portfoliodestroyedthereturnsofthemarket (the S&P 500).During this time frame, weenduredallkindsofwhatRaycalls “surprises”: the techcrash, the credit crisis, theEuropeandebt crisis, and thelargest single-year drop ingold (down 28% in 2013) inmorethanadecade.Thistime

frame includes what expertscall thelostdecade, inwhichtheS&P500was flat for tenyears, from the beginning of2000totheendof2009.Takea look at the difference inhowhisdesignperformed:

BURN’EMDOWN

It’s fascinating and quite sadthat we live in a timewhere

themediaissalivatingtotakedown anyone considered tobe “best in class.” Cultureseems to lift them onto apedestalofperfectiononlytohope they come crashingdown.Whetherit’sanathlete,aCEO,oramoneymanager,any falsemove or seeminglyslight crack in the armor isexploitedtothefullest.Stonethem in the town square oftelevisionandtheinternet.I found it mind boggling

thatwithmore than 30 yearsof stellar returns, Ray’s AllWeather strategy receivedintensecriticismwhenhewasdown approximately 4% in2013. A whopping 4%. Notthewhopping37%hitthattheS&P took just a few yearsearlier. Remember, based onhistory, the All Seasonsapproachwilltakelosses,butthegoal is tominimize thosedramatic drops. Let’s behonest: you could buy into

this portfolio and see a lossthefirstyear.Thisportfolioisnot meant to shoot out thelights. It’s a long-termapproach for the smoothestpossible ride. It would be amistake to judge it by anysingleyear,ratherweneedtoevaluate itsoverall long-termperformance—like any otherinvestment opportunity. Atthetimeof thiswriting(mid-2014), the media is back onthe Dalio bandwagon, as his

All Weather fund was up11%throughJune.Imagine, all this media

attention over a 4% loss?Nevermindthatover thelastfiveyears,between2009and2013, the All Weather hasaveraged over 11% per year,even including this singledown year! But the fact helost even a small amountwhen themarketwas up andthat he received big mediaattention shows how his

incredible performance hasbecome expected. You areonly as good as your last “atbat” when it comes to thefinancial media. Howridiculous. Never mind thefact that Ray’s clients haveenjoyed incredible returnsyear after year, decade afterdecade, as the New Yorkerreported in a 2011 article onBridgewater called“MasteringtheMachine”:“In2007,Daliopredicted

that the housing-and-lending boom would endbadly. Later that year, hewarned the BushAdministration that manyoftheworld’slargestbankswere on the verge ofinsolvency. In 2008, adisastrousyearformanyofBridgewater’s rivals, thefirm’s flagship Pure Alphafundrose in value by 9.5%after accounting for fees.Last year, the Pure Alpha

fund rose 45%, the highestreturn of any big hedgefund.”The point is, there are a

number of pundits who willsit back and criticize anystrategy youmay deploy. Toechomy favorite quote fromDr.DavidBabbel, “Let themcriticize;letussleep.”

GOODQUESTIONS

When it comes to the AllWeather approach, thebiggest question from thebloggers is: What happenswhen interest rates go up?Won’t the government bondsgo down and cause a loss tothe portfolio because of thelarge percentage allocated tobonds?It’s a fair question, but

deserves more than a soundbite from an armchairquarterback. First, remember

that by having a largeallocationtobonds, it’snotabet on bonds alone. Thisportfolio spreads your riskamong the four potentialeconomicseasons.Ray showed us that the

point is not to plan for aspecific season or pretend toknowwhat season is comingnext. Remember, it’s thesurprises thatwillcatchmostoffguard.In fact, many have been

trying to proselytize andpredict the next season bycalling for interest rates torisequickly.Afterall,weareatall-time lows.YetMichaelO’Higgins, author of thefamous book Beating theDow,saysthatpeoplemaybewaiting quite some time forany significant interest rateincreases,sincetheFedhasahistoryofsuppressinginterestratesforlongperiodstokeepcosts of borrowing low: “To

thegreatnumberofinvestorswhobelieveinterestrateswillinevitability go higher in thecoming year (2014),remember that the US Fedkept long (duration) ratesbelow3%for22yearsfrom1934to1956.”TheFedhaskeptrateslow

since 2008, so who knowshow long interest rates willremain low. Nobody can tellyou with certainty. In early2014, when everyone was

expecting rates to rise, theydroppedyetagainandcauseda spike in US bond prices.(Remember, as rates godown,pricesgoup.)

HOWDIDTHEALLSEASONS

PERFORMINARISING-INTERESTRATEMARKET?

A revealing exercise is tolook back in history at whathappened to the All Seasonsportfolio during a seasonwheninterestratesroselikeahotairballoon.After interestrates declined for manydecades, the 1970s broughtrapid inflation. Despiteskyrocketing interest rates,the All Seasons portfoliohadjustasinglelosingyearin the 1970s and had anannualizedreturnof9.68%

during the decade. Thisincludes enduring the back-to-back drops of 1973 and1974, when the S&P lost14.31% and then another25.90%loss,foracumulativelossof40.21%.So let’s not let the talking

heads persuade us to believethattheyknowwhatseasoniscoming next. But let’scertainly prepare for allseasons and the series ofsurprisesthatlayahead.

LET’SGETREAL

One final and crucialadvantageof theAllSeasonsportfolio has a much morehuman element.Many criticswill point out that if youcouldstomachmorerisk,youmighthavebeenable tobeatthis All Seasons approach.Andtheywouldberight.Butthe point of the All Seasonsportfolio is to reduce

volatility/risk while stillmaximizinggains!If you are younger and

havealongertimehorizon,oryou are willing to stomachmorerisk,youcouldstilltakeadvantageof theAllSeasonsfoundation but make a smalladjustment in the stocksversus bonds to, hopefully,produce a greater return.Butkeepinmind,byaddingmorestocks and decreasing yourbonds, this change will

increase risk/volatility andhaveyoubettingmoreononeseason (in which you hopestockswillgoup).Inthepast,thishasworkedquitewell.Ifyou visit the Strongholdwebsite, you can see how,over time, by adding morestocks, the portfolio wouldhave produced a greaterreturns but also producedgreater downside in certainyears. But here is what’sincredibly interesting. When

compared with a standard60%/40% balanced portfolio(60% in the S&P 500 and40% in the BarclaysAggregate Bond index), theAll Seasons approach, withmore stock exposure,outperformedhandily—andyou would have to haveaccepted nearly 80% morerisk (standard deviation)with the traditional 60/40portfolio to still achieveresults that would still fall

slightly short of the AllSeasons with increasedequityfocus.But let’s be honest with

ourselves.Ourstomachliningis much weaker than we leton.The research firmDalbarrevealed the truth about ourappetite for risk.For the20-yearperiodfromDecember31, 1993, to December 31,2013,theS&P500returned9.2% annually, but theaverage mutual fund

investor averaged just over2.5%, barely beatinginflation.14 To put this inperspective,youwouldhavereceived a better return byinvestinginthree-monthUSTreasuries (which is nearlya cash equivalent) andavoided the stomach-turningdrops.Why did the average

investorleavesomuchonthetable?

Dalbar president LouisHarvey says investors “movetheirmoneyinandoutofthemarket at the wrong times.They get excited or theypanic, and they hurtthemselves.”One of the more startling

examples is a studyconducted by Fidelity on theperformance of its flagshipMagellan mutual fund. Thefundwasrunbyinvestment

legend Peter Lynch,15 whodelivered an astonishing29%averageannualreturnbetween1977and1990.ButFidelity found that theaverage Magellan investoractually lost money!!! Howintheworld?Fidelityshowedthatwhenthefundwasdown,peoplewouldcashin—scaredof the possibility of losingmore.Andwhenthefundwasup again, they would come

runningbackliketheprodigalinvestor.Here is the reality: most

people couldn’t stomachanother2008withoutsellingsome or all of theirinvestments. It’s humannature. So when people talkaboutbetterperformance, forthemostparttheyaretalkingabout a fictitious investor;onewithnervesofsteelandadrawer full ofTums.Case inpoint: I was reading

MarketWatch recently andcame across an article byMark Hulbert. Mark’sfinancial publication tracksthe performance ofsubscription newsletters thattell investors exactly how totrade the markets. The bestperforming newsletter over20 years was up 16.3%annually! Outstandingperformance, tosaytheleast.Butwith theupscomemajordowns. As Mark explains,

“[T]hat high-flyingperformance can be stomachchurning, with hisperformance during thedownturns of the last threemarket cycles—since2000—among the very worst of hispeers. During the 2007–09bearmarket,forexample,theservice’s average modelportfolio lost nearly two-thirds of its value.” Two-thirds?!That’s66%!Canyouimagine investing $100,000

andnowseeingonly$33,000on your monthly statement?Or $1 million of your lifesavings reduced to just$333,000? Would you havewhite knuckled it and heldon?When Mark asked the

newsletter publisher aboutwhether or not investorscouldactuallyhangonduringthe roller coaster ride, heprovided quite theunderstatement by saying, in

an email, that his approachisn’t for an investor who“bails out of his/her broadlydiversified portfolio the firsttimeaworryarises.”I would call a 66% drop

more than “a worry.” Hemakes it sound like us meremortals are prone tooverreaction, as though Ijumped out of a moving carwhen the check engine lightcameon.Remember,a66%loss would require nearly

200%gainsjusttogetbackto even—just to recoup theportion of your nest eggthatitmayhavetakenyourentirelifetosave!

Without exception, the“money masters” Iinterviewed for this book areobsessedwithnotlosingtheirmoney.They understand thatwhen you lose, you have tomake significantly more togetbacktowhereyoustarted—togetbacktobreakeven.The reality is, if we are

being honest with ourselves,we all make emotionaldecisions about our

investments. We are allemotionalcreatures,andeventhe best traders in the worldare always fighting the innerfear. This All Seasonsportfolio protects you notonly from any potentialenvironment but also fromyourself!!! It provides“emotional scaffolding” tokeep you from making poordecisions.Ifyourworstdownyear in the last 75 yearswas3.93%,whatis thelikelihood

that you would have freakedoutandsoldeverything?Andin2008,when theworldwasburning down but your AllSeasons portfolio was downjust 3.93% while everyoneelse seemed to be meltingdown, how peaceful wouldhaveyoufelt?So there you have it! The

All Seasons recipe from themaster chef Ray Dalio. Andrather than wait until youhave a $5 billion net worth,

you get access here, for thefew dollars you invested inthis book! He has simplifiedit by taking out the leverageand also making it a morepassive approach (not tryingto beat the market by beingthebestpickerorpredictorofwhat’scomingnext).Youarewelcome to implement thisportfolio yourself, but if youdo, let me just add a fewpointsofcaution:

•Thelow-costindexfundsorETFs you choose willchange the performance.It’scrucialtofindthemostefficient and cost-effectiverepresentations for eachpercentage.

•Theportfoliowillneedtobemonitored continually andrebalancedannually.

• The portfolio is not taxefficient at times. It’simportant to use yourqualified accounts

(IRAs/401[k]s) or othertax-efficient structures tomaximize tax efficiencyappropriately. You couldalsousealow-costvariableannuity like the onesoffered byTIAA-CREForVanguard.(However,thoseare the only two thatexperts seem to agree areworththecost.)

ALLSEASONS+LIFETIMEINCOME

The team at Stronghold(www.strongholdfinancial.comcurrentlyusestheAllSeasonsportfolio as one of themanyoptions available to theirclients. Some readers willwant to implement this ontheir own, while others will

be better served using theexpertise and assistance of afiduciary advisor likeStronghold. Please takeaction in whatever formsupportsyoumost.

TAKEMASSIVEACTION

Theballisnowinyourcourt.

If you have a better strategythat has proven effective tominimize downside andmaximizeupside,maybeyoushould be running your ownhedge fund. You now arearmedwithinfotodothisonyour own, or if you choose,you can have a fiduciaryimplement and monitor thisfor you as part of acomprehensiveplan.If youwant to create your

ownpersonalplaninlessthan

five minutes, go to thewebsite now(www.strongholdfinancial.comto see how your currentportfolio approach stacks upagainstavarietyofstrategies,including the All Seasonsapproachprovidedhere.

LET’STAKEYOURBROKERFORA

TESTDRIVE

Stronghold’s complimentaryanalysis allows you to “lookunder thehood”and findouthow much you are reallypaying in fees and how yourcurrentinvestmentsarereallyperforming. It will alsohighlight how much riskyou’re currently taking aswellasyourtrueperformanceoverthepast15years,during

whichwehaveseentwonear50% declines (2000–02 and2008–09)!If you choose to take

action, you can transfer youraccountsonlineandbegintheprocess today. If not, you’llhave all the information youneedforfree.

WHATABOUTMY401(K)?

The All Seasons approachcan be implemented in yourexisting 401(k) plan so longas there are fund choicesavailable that represent therecommended investments.Thisyoucandoonyourownorwiththehelpofanadvisor.IfyouuseStronghold, itwillautomatically link your401(k) account to youroverall plan and make surethatthe401(k)portfolioissetup correctly. Again,

America’s Best 401k canprovide you with the AllSeasonsstrategyaswell.

INCOMEISTHEOUTCOME

Whew! Wow, we covered aton of territory in these lasttwo chapters. But by now Ithinkyoucanseewhy.What

youhold in your hands is aninvestment plan with a trackrecord of “smooth” returnsthat is second to none! Youcan implement it in a fewminutes, and you no longerhave to live with the worryabout the ups and downs ofthe market. Of course,nobody knows what thefuture holds, but historywouldtellusthatbydoingso,youwillbesetup todowelland be protected in any

environment.Sonowlet’sgobacktoour

“personal Everest” metaphorofinvesting.ByusingtheAllSeasons strategy, you havethe best odds of having asmooth and steady climb tothe top. Yes there will besurprises, but youwill be setup to succeed over the longterm. Now remember, onceyouhavebuiltupthevalueofyour investments toacriticalmasswhereyouhaveenough

to be financially free, youwill need to ultimately turnyour nest egg (thoseinvestments) into aguaranteed income stream—your own lifetime incomeplan. A paycheck for lifewithout ever having to workagain. That’s ultimatelywhere financial freedomcomes from. Let’s turn thepagenowandlearnwhy“AllSeasons + Income for LifeCan = Real Financial

Freedom.”Let’slearnhowtocreateanincomeforlife!

HOWDOESHEDOIT?How does Ray Dalio keepgenerating suchextraordinarily consistentreturns? He has learned thatthisgianteconomyisonebigmachine, and everything islinked together in someway.Sometimes it’s obvious,many timesnot.Hecan lookatthemachineandknowthat

there are predictable patternshe can take advantage of. Infact, the culmination of hisfindings on the economicmachine is packed into abrilliant30-minutevideothat,in my opinion, should berequired viewing for everyAmerican! Ray decided toproduce the video only tomake an impact on societyand help demystify theeconomics that make ourworld go round. Take the

timetowatchit,andyouwillbe glad you did:www.economicprinciples.org.

HOWDIDWECALCULATETHE

RETURNS?In order to insure theaccuracy and credibility ofthe results produced by theAll Seasons portfolio sharedhere,ateamofanalyststestedthisportfoliousingtheannual

historic returns of low-cost,broadly diversified indexfundswherepossible.Whyisthis important to you? Byusing real fund data asopposed to theoretical datafrom a constructed index, allthe returns listed in thischapter are fully inclusive ofannual fund fees and anytracking error present in theunderlying funds. This hasthe benefit of showing yourealistic historic returns for

the All Seasons portfolio (asopposedtotheoreticalreturnsthat are sometimes used inback-testing). This insuresthat the investment holdingsand numbers used in back-testingthisportfoliowereandareaccessibletotheeverydayman on the street and notonlyavailabletomultibillion-dollarWallStreetinstitutions.Where they were unable touse actual index fund databecausethefundsdidn’texist

at that time, they usedbroadlydiversifiedindexdatafor each asset class andadjusted the returns for fundfees. Note that they usedannual rebalancing in thecalculationsandassumedthatthe investments were held ina tax-free account with notransaction costs. Finally, Iwould like to thank CliffSchoeman, Simon Roy, andthe entire Jemstep team fortheir in-depth analysis and

coordinationwithAjayGuptaat Stronghold WealthManagement in this effort.(Past performance does notguaranteefutureresults.)

13. This assumes the portfolio wasrebalanced annually. Past performancedoes not guarantee future results.Instead, as I mentioned prior, I amprovidingyouthehistoricaldataheretodiscuss and illustrate the underlyingprinciples.

14.Source:RichardBernsteinAdvisorsLLC, Bloomberg, MSCI, Standard &Poor’s, Russell, HFRI, BofA MerrillLynch, Dalbar, FHFA, FRB, FTSE.TotalReturnsinUSD.

15. I had the privilege to interviewPeter Lynch on his core investingprinciples while he was on his greatwinning streak, when he spoke at myWealth Mastery program in the early1990s.

CHAPTER5.3

FREEDOM:CREATINGYOUR

LIFETIMEINCOMEPLAN

LifetimeIncomeStreamKeyto

RetirementHappiness—TIME,July30,2012

Ihaveenoughmoneytoretire

comfortablyfortherestofmylife.Problemis,Ihavetodienextweek.

—ANONYMOUS

In 1952 Edmund Hillary ledthe first expedition tosuccessfully climb Mount

Everest, a feat once thoughtto be impossible. TheQueenofEnglandpromptlyknightedhim, making him “Sir”Edmund Hillary for hisamazingtrek.Despite his

accomplishment, manypeople believe Sir EdmundHillarymaynothavebeenthefirstperson to reach thepeakof Everest. In fact, it iswidely believed that GeorgeMallory may have been the

firstpersontoreachthepeak,nearly30yearsprior!So, if George Mallory

reached the peak of MountEverest in 1924, why didEdmund Hillary receive allthe fame—including beingknightedbytheQueen?Because Edmund Hillary

didn’t just make it to thepeak, he also successfullymade it back down themountain. George Mallorywas not so lucky. Like the

vast majority of those whohave died on Everest, it wascoming down that provedfatal.

INVESTINGFORWHAT,EXACTLY?

I often ask people, “Whatareyouinvestingfor?”Theresponsesarewideand

diverse:“Returns.”“Growth.”“Assets.”“Freedom.”“Fun.”RarelydoIheartheanswer

that matters most:Income!!!!!Weallneedanincomethat

we can count on. Consistentcash flow that shows up inour account every singlemonth, like clockwork. Can

youimagineneverworryingagain about how you willpay your bills or whetheryour money will run out?Or having the joy andfreedom of traveling withouta care in the world? Nothaving to worry aboutopening your monthlystatements and praying themarket holds up?Having thepeace of mind to givegenerously to your church orfavorite charity and not

wonder if therewill bemorewherethatcamefrom?Weallknow intuitively: income isfreedom!Shout it from the hilltops

likeMelGibsoninthemovieBraveheart: “Income isfreedom!!!”And lack of income is

stress. Lack of income isstruggle. Lack of income isnot an acceptable outcomefor you and your family.Makethisyourdeclaration.

Dr. Jeffrey Brown,retirement expert andadvisorto the White House, said itbest in a recent Forbesarticle: “[I]ncome is theoutcomethatmattersmostforretirementsecurity.”The wealthy know that

their assets (stocks, bonds,gold, and so on) will alwaysfluctuate in value. But youcan’t“spend”assets.Youcanonly spend cash. The year2008 was a time when there

were lots of people withassets (real estate, inparticular) that wereplummetinginprice,andtheycouldn’tsell.Theywereasset“rich” and cash “poor.” Thisequation often leads tobankruptcy. Alwaysremember that income istheoutcome.By the end of this section,

you will have the certaintyandthetoolsyouneedtolockdownexactlytheincomeyou

desire. This is what I call“income insurance.” Aguaranteedwaytoknowforcertainthatyouwillhaveapaycheck for life withouthavingtoworkfor it inthefuture—to be absolutelycertain that you will neverrunoutofmoney.Andguesswhat? You get to decidewhen you want your incomecheckstobegin.There are many ways to

skintheproverbialcat,sowe

will review a couple ofdifferent methods for gettingthe income insurance thatmakessenseforyou.One of the more exciting

structures for locking downincome has other powerfulbenefitsaswell.Itistheonlyfinancial vehicle on theplanetthatcangiveyouthefollowing:• 100% guarantee on yourdeposits.16(Youcan’tlose

your money, and youkeeptotalcontrol.)

• Upside without thedownside: your accountvalue growthwill be tiedto the market, so if themarket goes up, you getto participate in thegains. But if the marketgoesdown,youdon’t loseadime.

• Tax deferral on yourgrowth. (Remember thedollar-doubling example?

Tax efficiency was thedifference between having$28,466 or more than$1million!)

• A guaranteed lifetimeincomestreamwhereyouhave control and get todecidewhentoturniton.

• Get this: the incomepayments can be madetax-free if structuredcorrectly.

• No annual managementfees.

You get all of thesebenefits by using a modernversion of a 2000-year-oldfinancial tool! How is thispossible? Iamsure it soundstoogood tobe true,butstickwith me. It’s not! I use thisapproach,andIamexcitedtosharethedetailswithyou.As we have highlighted

throughout the book, thefinancial future that youenvision is very much likeclimbingMountEverest.You

will work for decades toaccumulateyourcriticalmass(climbing to the top), butthat’s only half the story.Achieving critical masswithout having a plan andstrategy for how to turn itintoincomethatwilllasttherest of your lifetime willleave you like GeorgeMallory: dead on the backsideofamountain.

ANEWAGE

We are, without a doubt, inunchartedwaters. In the past30 years, the concept ofretirement has transformedradically. Heck, even asrecentlyasthelate’80s,over62% of workers had apension plan. Rememberthose? On your last day ofwork, you got a gold watchand the first of your

guaranteed lifetime incomechecks. Today, unless youwork for the government, apension is a relic; a financialdinosaur. Now, for better orworse, you are captain ofyour own ship. You areultimately responsible forwhether or not your moneywill last. That’s quite aburden to bear. Throw inmarket volatility, excessivefees, inflation, and medical“surprises,” and you quickly

start to understand why somany are facing a massiveretirement crisis. Manypeople, including yourneighborsandcolleagues,aregoing to face the reallikelihood of outliving theirmoney. Especially with theprospectoflivinglongerthaneverbefore.

IS80THENEW50?

Along,fruitfulretirementisaconcept that’s only a fewgenerations old. If you recallfrom our discussion earlier,when President FranklinRoosevelt created SocialSecurity in1935, theaveragelife expectancy was just 62.And the payments wouldn’tkickinuntilage65,soonlyasmall percentage wouldactually receive SocialSecurity benefits to beginwith.

At the time, the SocialSecurity system madefinancial sense because therewere 40 workers(contributors) for everyretiree collecting benefits.That means there were 40people pulling the wagon,with only 1 sitting in theback. By 2010, the ratio haddropped to only 2.9 wagonpullers for every retiree. Themath doesn’t pencil out, butsince when has that stopped

Washington?Today the average life

expectancyforamaleis79,while the average femalewill live to 81. For amarriedcouple,atleastonespousehasa25%chanceofreachingage97.

BUTWAIT,THERE’SMORE!

You could be living waylonger than even theseestimates. Think how far wehave come in the past 30years with technology. Fromthe floppy disk tonanotechnology. Todayscientists are using 3-Dprinting to generate neworgans out of thin air.Researchers can use humancells, scraped gently fromyour skin, to “print” anentirely new ear, bladder, or

windpipe!17 Science fictionhas become reality. Laterwe’ll hear directly from myfriend Ray Kurzweil, theThomas Edison of our ageand currently the head ofengineeringatGoogle.Whenasked how advances in lifesciences will affect lifeexpectancies,hesaid:“Duringthe2020s,humans

will have the means ofchangingtheirgenes;notjust

‘designer babies’ will befeasible, but designer babyboomers through therejuvenation of all of one’sbody’s tissues and organs bytransforming one’s skin cellsinto youthful versions ofevery other cell type. Peoplewill be able to ‘reprogram’their own biochemistry awayfrom disease and aging,radically extending lifeexpectancy.”Those are exciting words

for us boomers!!! Wrinklesbedamned!Wemayallsoonbe drinking from theproverbialfountainofyouth.But the implications for

our retirement are clear.Ourmoneyhasto lastevenlonger that we may think.Can you imagine if Ray isright, and us boomers liveuntil we are 110 or 120?Imagine the type oftechnology thatwill alter thelifespan ofmillennials.What

if 110 or 115 is in yourfuture?Nothingwillbemoreimportant than guaranteedlifetime income. A paycheckthatyoucan’toutlivewillbethebestassetyouown.

WhenIwasyoung,Ithoughtthatmoneywasthemostimportantthinginlife;nowthatIamold,Iknowthatitis.

—OSCARWILDE

THE4%RULEISDEAD

In the early 1990s, aCalifornia financial plannercameupwithwhat he calledthe “4% rule.” The gist isthat if you wanted yourmoneytolastyourentirelife,you could take out 4% peryear if you had a “balancedportfolio” invested in 60%stocks and 40% bonds. And

you could increase theamount each year to accountforinflation.“Well, it was beautiful

while it lasted,” recounts a2013 Wall Street Journalarticleentitled“SayGoodbyeto the 4% Rule.” Why thesudden death?Becausewhenthe rule came into existence,government bonds werepaying over 4%, and stockswere riding the bull! If youretired in January 2000, and

you followed the traditional4%rule,youwouldhavelost33%ofyourmoneyby2010,and, according to T. RowePriceGroup, youwouldnowhaveonly a29%chance thatyour money would last yourlifetime.Orspokeninamoredirectway,you’dhavea71%chanceoflivingbeyondyourincome. Broke and old arenottwothingsthatmostofuswould like to experiencetogether.

Today we are living in aworld of globally suppressedinterest rates, which is, ineffect, a war on savers. Andmost certainly a war onseniors. How can one retiresafelywhen interest ratesarenear 0%?Theymust ventureoutintounsafeterritorytotryto find returns for theirmoney. Like the story of thethirst-strickenwildebeest thatmust venture down to thecrocodile-infested waters to

seek out a drink. Dangerlurks, and those who needpositivereturnstolive,topaytheir bills, becomeincreasinglyvulnerable.

CRITICALMASSDESTRUCTION

Nomatterwhatanyonetellsyou,orsellsyou,thereisn’t

a single portfolio manager,broker,orfinancialadvisorwho can control theprimary factor that willdetermineifourmoneywilllast.It’sthefinancialworld’sdirtylittlesecretthatveryfewprofessionals know. And ofthose who do, very few willever dare bring it up. In myusual direct fashion, I put itsmack dab in the middle ofthe table when I sat downwithlegendJackBogle.

RememberJackBogle?Heis the founder of theworld’slargest mutual fund,Vanguard, and about asstraightforward as a mancouldbe.Whenwespokeforfour hours in hisPennsylvania office, Ibrought up the dirty littlesecret,andhecertainlydidn’tsugarcoat his opinion orthoughts. “Some thingsdon’tmake me happy to say, butthere isa lotteryaspect toall

of this:whenyouwereborn,when you retire, and whenyour children go to college.Andyouhavenocontroloverthat.”What lottery is he talking

about?It’s the big luck of the

draw: What will the marketbe doingwhen you retire? Ifsomeoneretiredinthemid-1990s, he was a “happycamper.”Ifheretiredinthemid-2000s, he was a

“homeless camper.” Boglehimselfsaid inanearly2013CNBC interview that, overthe next decade, we shouldpreparefortwodeclinesofupto 50%. Holy sh*t! Butmaybe we shouldn’t besurprisedbyhisprediction.Inthe 2000s, we have alreadyexperienced twodrawdowns of nearly 50%.And let’s not forget that ifyou lose 50%, you have tomake100%justtogetback

toeven.The risk we all face, the

dirty little secret, is thedevastating concept ofsequence of returns. Soundscomplicated, but it’s not. Inessence,theearliestyearsofyour retirement will defineyour later years. If yousuffer investment losses inyour early years ofretirement,whichisentirelyamatter of luck, your odds ofmaking it the distance have

fallenoffthecliff.You can do everything

right:findafiduciaryadvisor,reduce your fees, invest taxefficiently, and build up aFreedomFund.But when it’s time to ski

down the backside of themountain, when it’s time foryoutotakeincomefromyourportfolio,ifyouhaveonebadyearearlyon,yourplancouldeasily go into a tailspin. Afew bad years, and you will

find yourself back at workand selling that vacationhome. Sound overlydramatic? Let’s look at ahypothetical example of howthe sequence of returns riskplaysoutovertime.

JOHNBITTHEDOG

Johnbit thedog.ThedogbitJohn. Same four words, butwhen arranged in a differentsequence, they have anentirely different meaning.EspeciallyforJohn!John is now 65 and has

accumulated $500,000 (farmore than the averageAmerican) and is ready toretire. Like most Americansnearingretirement,John is ina “balanced” portfolio (60%stocks,40%bonds),which,as

we learned from Ray Dalio,isn’t balanced at all! Sinceinterest rates are so low, the4% rule won’t cut it. Johndecides that he will need totake out 5%, or $25,000, ofhis nest egg/Freedom Fundeachyear tomeethis incomeneeds for his most basicstandard of living. Whenadded to his Social Securitypayments,he“should”bejustfine. And he must alsoincrease his withdrawal each

year (by 3%) to adjust forinflation because each yearthe same amount of moneywill buy fewer goods andservices.AsJohn’sluckwouldhave

it, he experiences somemarket losses early on. Infact, three bad years kick offthebeginningofhisso-calledgolden years. Not such ashinystart.

In five short years, John’s$500,000hasbeencutinhalf.And withdrawing moneywhen the market is downmakes it worse, as there isless in theaccount togrowifor when the market comesback. But life goes on, andbillsmustbepaid.Fromage70onward,John

has many solid positive/upyears in the market, but thedamage has already beendone.Theroadtorecoveryis

justtoosteep.Byhislate70s,he sees the writing on thewall and knows that he willrun out. By age 83, hisaccount value has collapsed.In the end, he can withdrawjust $580,963 from hisoriginal $500,000 retirementaccount.Inotherwords,after18 years of continuedinvestingduringretirement,he has just an additional$80,000toshowforit.Buthereisthecrazything:

duringJohn’stumbledownthe mountain, the marketaveraged over 8% annualgrowth.That’saprettygreatreturn, by anyone’sstandards!Here’s the problem: the

market doesn’t give youaverageannualreturnseachyear. It gives you actualreturnsthatworkouttoanaverage. (Remember ourdiscussions about thedifference between real and

average returns in chapter2.3, “Myth 3: ‘Our Returns?What You See IsWhat YouGet’ ”?) And “hoping” youdon’tsufferlossesinyearsinwhich you can’t afford themisnotaneffectivestrategyforsecuring your financialfuture.

FLIP-FLOP

Susanisalsoage65,andshetoo has $500,000. And likeJohn, she will withdraw 5%,or $25,000 per year, for herincome, and she too willincrease her withdrawalslightly each year to adjustfor inflation. And to trulyillustratetheconcept,weusedthe exact same investmentreturns, but we simplyflipped the sequence ofthose returns. We reversedtheordersothatthefirstyear

becomes the last year andviceversa.By merely reversing the

order of the returns, Susanhas an entirely differentretirement experience. Infact, by the time she is 89,she has withdrawn over$900,000 in incomepayments and still has anadditional$1,677,975leftinheraccount!Sheneverhadacareintheworld.Two folks, same amount

for retirement, samewithdrawal strategy: one isdestitute, while the other isabsolutelyfreefinancially.

And what’s even moremind boggling: they bothhad the same averagereturn (8.03% annually)overthe25-yearperiod!How is this possible?

Because the “average” is thetotal returns divided by thenumberofyears.Nobody can predict what

will happen around the nextcorner. Nobody knows whenthe market will be up andwhenitwillbedown.

Now, imagine if John andSusan both had incomeinsurance. John would haveavoided an ulcer, knowingthat as his account dwindled,he had a guaranteed incomecheck at the end of therainbow. Susan would havesimplyhadmoremoneytodowith as she pleases. Maybetake an extra vacation, givemore to her grandkids, orcontribute to her favoritecharity. The value of income

insurance cannot beoverstated! And whencoupledwith theAllSeasonsportfolio, you have quite apowerfulcombination.

6DEGREESOFSEPARATION

YoumightrecallfromearlierinthebookwhenIintroduced

WhartonprofessorDr.DavidBabbel.Heisnotonlyoneofthemostwell-educatedmenIhave ever met but also agentleandcaringsoulwithagrounding faith. And heprefers David over “Doctor”or“Professor.”Hereisaquickrefresheron

David’s accomplishedbackground. He has sixdegrees! A degree ineconomics, an MBA ininternational finance, a PhD

in finance, a PhD minor infoodandresourceeconomics,a PhD certificate on tropicalagriculture, and a PhDcertificate in Latin Americanstudies. He has taughtinvestment at Berkeley andtheWharton School for over30years.Hewasthedirectorofresearchinthepensionandinsurance division forGoldman Sachs. He hasworked for the World Bankand consulted for the US

Treasury, the FederalReserve, and theDepartmentof Labor. To say he knowshis stuff is to say MichaelJordan knows how to playbasketball.David isalso theauthorof

a polarizing report in whichhe lays out his own personalretirement plan. When itcametimeforDavidtoretire,he wanted a strategy thatwould give him peace ofmind and a guaranteed

income for life. Heremembered that income isthe outcome. And he alsowiselytookintoconsiderationother factors such as notwanting to make complexinvestment decisions in hisolderyears.Heconsideredallhisoptionsanddrewuponhisvast knowledge of risk andmarkets. He even consultedwith his friends and formercolleagues on Wall Street tocompare strategies. In the

end, David decided that thebestplaceforhishard-earnedretirement money wasannuities!Whoa!Waitasecond.HowcouldBabbelcommit

what hisWall Street buddiescall “annuicide”? Annuicidebeing the term that brokersfirst coined for a client whowithdraws money from thestockmarketandusesage-oldinsurance companies toguarantee a lifetime income.

Brokers see it as anirreversible decision that nolonger allows them togenerate revenues from yourinvestment.Thedeathoftheirprofits.Come to think of it,when

was the last time yourbroker talked to you aboutcreating a lifetime incomeplan? Probably never. WallStreet typically has nointerest in promotingconcepts related to

withdrawal. To them,withdrawal is a four-letterword. Here is the irony: yourepresentalifetimeofincomefor thebrokerso longasyouneverleave.

Americansshouldconvertatleasthalfoftheirretirementsavings

intoanannuity.—USTREASURYDEPARTMENT

Dr. Jeffrey Brown knows athingortwowhenitcomestocreating a lifetime incomeplan.He is an advisor to theUS Treasury and the WorldBank, and is one of thepeople calledonbyChina tohelpevaluateitsfutureSocialSecuritystrategy.Hewasalsooneofonlysevenindividualsappointedby thepresidentoftheUnitedStatestotheSocialSecurityAdvisoryBoard.Jeff has spent most of his

professional career studyinghow to provide people anincomeforlife.Whatdidheresolve? That annuities areone of the most importantinvestment vehicles wehave.JeffandIhadafascinating

three-hour interview aroundincome planning and howbaffling it is to him thatincome is omitted frommostfinancial planningconversations. How is it

possible that incomeinsurance is barely discussedin the offices of mostfinancial planners, nor is itincluded as an option inside401(k) plans, the primaryretirement vehicle forAmericans?I asked him, “How do

people find a way to protectthemselves so they reallyhaveanincomeforlifewhenthey are living longer thanever before? They’re retiring

at sixty-five, and todaythey’ve got twenty or thirtyyears of retirement incomeneedsaheadofthem,buttheirfinancial plan won’t last thatlong.What’sthesolution?”“The good news, Tony, is

we actually do know how toaddress this problem,” hesaid. “We’ve just got to getpeople to change the waythey are thinking aboutfunding their retirement.There are products out there

in ‘economist land’ that wecallannuities,whichbasicallyallow you to go to aninsurance company and say,‘Youknowwhat?Iamgoingto takemymoney and put itwith you, you’re going tomanageit,growit,andyou’regoingtopaymebackincomeeverymonth for as long as Ilive.’ The easiest way tounderstand this is, it’sexactlywhatSocialSecuritydoes. With Social Security,

youknow,you’repaying inover your lifetime whileyou’re working, and thenwhen you retire, you getpaid back income everymonth for as long as youlive. You don’t have to belimited by Social Security;youcanexpandyourlifetimeincomebydoingthisonyourownaswell.”Jeff and his team

performedastudywheretheycomparedhowannuitieswere

described, or “framed,” andhow the shaping of thatconversation completelychangedpeople’s perceptionsof theirneedordesire for anannuity.First, they portrayed them

thewaystockbrokersdo:asa“savings” account orinvestment with relativelylow levels of return. Notsurprisingly, only 20% ofpeople found themattractive.Soundfamiliar?Youcanhear

thebrokersaying,“Annuitiesareabadinvestment!”But when they changed

justahandfulofwordsanddescribed the actual andrealbenefits of an annuity,the tide changed. Bydescribing the annuity as atool that gives you aguaranteed income for therest of your life, more than70% found them attractive!Who doesn’t want incomeinsurance thatkicks in ifyou

have burned through yoursavings?Maybe your cost ofliving was greater than youexpected.Maybe you had anunexpected medicalemergency. Or maybe themarket didn’t cooperate withits timing of returns.What agift to know that your futureincome checks are just aphonecallaway.Andtodayarevolutionized

financial industryhas createda whole new set of annuity

opportunities. Many of thesepay you returns that mimicthe performance of the stockmarket but carry none of itsdownside losses. Annuitiesaren’t just for your grandpaanymore. Turn the page,andletmeshowyouthefivetypesofannuitiesthatcouldchangeyourlife.

16. Insurance guaranty associations

provide protection to insurance policyholders and beneficiaries of policiesissued by an insurance company thathas become insolvent and is no longerable tomeet itsobligations.All states,theDistrictofColumbia,andPuertoRico have insurance guarantyassociations. Insurance companies arerequired by law to bemembers of theguaranty association in states inwhichthey are licensed to do business. Eachstatehasitsownmaximumamountthatyou are covered up to, and in moststates, that varies per person up to$300,000to$500,000.

17. Dr. Anthony Atala, director of theWakeForest Institute forRegenerative

Medicine, has been creating andimplanting organs like this for morethanadecade.

CHAPTER5.4

TIMETOWIN:YOURINCOMEISTHEOUTCOME

Thequestionisn’tat

whatageIwanttoretire,it’satwhatincome.

—GEORGEFOREMAN

Annuitieshave longbeen thewhippingboyofthefinancialindustry. When I first heardthe concept of using anannuity a few years ago, Iscoffed. I had beenconditioned to believe thatannuities are bad news. Butwhen challenged, I didn’treally have a solid reasonwhyIthoughttheywerebad.I was simply picking up mytorch and pitchfork like therestofthemob.

But the conversation hasbeen shifting. Imagine mysurprisewhenIwashandeda2011 issue of Barron’s withthiscoverline:“Best Annuities—Special

Report—Retirement: WithTheir Steady IncomePayments, Annuities AreSuddenlyHot.”Barron’s? The classic

investmentmagazine,withanannuity cover story! Is theskyfalling?Iflippedopenthe

pages, and there it was inblackandwhite:“Now, as baby boomers

approach retirement withfreshmemoriesofbigmarketlosses, many sharp financialadvisors are recommendingan annuity as an importantpartofanincomeplan.”Wow.Annuitieshavebeen

given quite the promotionlately. From your grandpa’sannuity stuffed away in adusty drawer to the hottest

product recommended bysharp financial advisors. Butguess what? Annuities arenot just for retirees anylonger.Moreoften,youngerindividuals are starting touse annuities, specificallythose where the growth istiedtoamarketindex(suchastheS&P500),asa“safe-money”alternative.Tobeclear,theyarenotan

alternative to investing in thestockmarket,oraway to try

to beat the market. Wealready made it quite clearthat nobody beats themarketover time, andas JackBogleand so many others haveechoed, using a low-costindex fund is the bestapproach to investing in themarkets. But certainannuities, specifically those“linked” to market returns,can replaceother safe-moneyalternatives such as CDs,bonds, Treasuries, and so on

—and offer superiorreturns.But I am getting ahead of

myself! Let’s take amomentto do a quick overview as towhat’s available today andwhat’scomingsoon.First, let’sbeclear:there

are really only two generalcategories of annuities:immediate annuities anddeferredannuities.

IMMEDIATEANNUITIES

Immediate annuities are bestused for those at retirementage or beyond. If you aren’tthere yet, you can skip overthis page and go right todeferredannuities,oryoucankeep reading because thismightbeapplicable forsomespecial people in your life,such as your parents or

grandparents.Simply put, immediate

annuities beat every otherpotential vehicle forproviding a guaranteedlifetime income for onereason: a concept calledmortality credits. I know itsounds gruesome, but it’sreally not. Remember howannuities got their start 2000years ago in the time ofCaesar? For hundreds ofyears, insurance companies

have successfully guaranteedlifetime incomes formillionsof people because when abunch of people buy animmediate annuity, somepeople will die early, whileothers will live a long time.By “pooling” the risk, theannuity buyer who lives along time gets the benefit,while those who die earlyleave some money on thetable.Butbeforeweshunthepotential of leaving some

moneyonthetable,let’slookat the power of annuitieswhenwieldedappropriately.

2,750%MOREINCOME

My son Josh has been in thefinancialservicesindustryhisentire adult life. He wastelling me a story about a

clientofhiswhocametohimready to retire. He had justturned 65, and over hislifetime he had managed tosock away about $500,000.He needed a secure incomestream, and he felt takingrisksinthemarketwasnotanoption. Sadly, his formerbrokerhadhimallocatedtoavery aggressive portfolio,whichresultedinanear50%drawdownin the 2008 crash.It wiped out hundreds of

thousands of dollars that hadtaken him a full decade ofhardworktosockaway.Andlike so many other people,he’d barely gotten back toeven, and now he was moreafraid than ever of runningoutofmoney.He wanted his income

checks to start immediately.So Josh began to walk himthroughhislimitedoptions.•Hecouldgotoabank,anda

CDwould pay him 0.23%(or 23 basis points) peryear. This arrangementwouldgivehim$95.80permonth in fully taxableincome for a $500,000deposit.That’sawhopping$1,149 a year—beforetaxes.Don’t spend it all inoneplace!

•Bondswouldpayhimcloserto 3% per year, or about$15,000 a year beforetaxes, but the risk that

option would entail wouldbe if interest rates rise.Thiswouldcausethevalueofhisbonds(hisprincipal)toshrink.

• Josh showed him that a$500,000 deposit into animmediate lifetime incomeannuity, asof todaywouldpayhim$2,725permonthor $32,700 per year,guaranteed for life!18That’s a 2,750% increase

over CDs and an 118%increase over bonds,withouttheirrisk.

At today’s lifeexpectancies, thismanhas atleast 14 more years to live,and ifRayKurzweil is right,he could live well beyondthat! When he added thisguaranteed income to hisSocial Security payments, hehad more than enough tomaintain his standard of

living and could spend histime focused on whatmattered most to him: hisgrandchildrenandfishing.Do you see the power

here? When compared withanyothertypeof“surething”investment, he will certainlyrunoutofmoney.Butwithanimmediate annuity, which isreally a form of incomeinsurance, he has protectionforlife.Critics will say, “Yes, but

if you die early, they keepyour money! You will haveleftthatmoneyonthetable.”When I asked David Babbelabout this concern, hisresponsewasswiftandblunt:“If you are dead, whocares?!What’s painful is ifyou live too long with noincome—that’s when you’llreallysuffer.”Andifyouarereally worried aboutpremature death, you canselect an option where the

insurance company willrefund your heirs the sameamount you put in. (Thisarrangement, however, willdecrease the size of yourincomepayments, so there isa trade-off.) Or as Davidrecommends, use aninexpensive term lifeinsurance policy. So if youlive a long fruitful life, youwinbecauseyouhaveincomeinsurance. Or God forbid, ifyou pass early, with a life

insurance policy, your heirswinaswell.

CONTROLISANILLUSION

We all love control. Butcontrol is often an illusion.We think we have controloverourhealth,ourfinances,our kids—okay, maybe not

ourkids.Butweallknowthatthingscanchangeintheblinkofaneye.Astormcancauseyourhousetoflood(asitdidto my brand-new home inFlorida after a torrential rainhad my wife and I wadingthrough12inchesofwateratthreeinthemorning).Oryoucouldgetacallbackfromthedoctor after a supposedlyroutinecheckup.Thepointis,control is often more of anillusionthanareality.

Stockbrokers will tell youthat by handing your moneyto an insurance company inexchange for a lifetimeincome, you are “losingcontrol” of your principal.Let’slookatthisalittlemorethoughtfully. Say you are60 years old and haveaccumulateda$1millionnestegg.Your broker advises thetraditionalapproachofstocksandbonds,andyouapplythe4% rule for your income

(which means you’ll be abletotakeout$40,000peryear).The reality is you will needevery bit of that $40,000 topay your bills. You knowyour money needs to beinvested, so you really can’taffordtotouchyourprincipal.And what happens if themarket drops? You don’twanttosellatthebottom,butat the same time, you mayalsofeelthatyoucan’taffordmore losses at this stage of

life.You are between a rockand a hard place. This so-calledcontrol isan illusion.Floating with the whims ofthe market waves andhoping the tide turns inyour favor can be a recipefordisaster.Remember,ourfocusisnot

just on asset growth. Ourthemeis:guaranteedincomeforlife!

Itisbettertohavea

permanentincomethantobefascinating.

—OSCARWILDE

DEFERREDANNUITIES

Okay, so we said there aretwo general types ofannuities. You now knowwhatanimmediateannuityis:you give your money to an

insurance company, and itimmediately starts to provideyouwithanincomeforlife.Theothertypeofannuity

iscalledadeferredannuity.This simply means you givethe insurance companymoney either in one lumpsumoroveraperiodofyears,and instead of receiving animmediate income, yourreturns are reinvested in atax-deferred environment sothat when you’re ready you

can, at will, turn on theincome stream you want forthe rest of your life. Youliterally have a schedule forwhat your income will bewhen you’re 40, 50, 60—foreveryyearofyourlife.While there are many

different versions ofimmediate annuities, withdifferent terms and rewardsthatvarybythecompanythatputsthemout,similarly,thereare a variety of types of

deferred annuities. Here’sthe good news, though:thereareroughlyonlythreeprimary types of deferredannuities. Once you knowthese three different types,along with yourunderstanding of immediateannuities, you willfundamentally understandwhat your options are, andyou will be able to tap intothe power of this safe-moneyvehicle.

So let’s make it as simpleas 1, 2, 3. There are threetypes of deferred annuities.Theyare:1. Fixed annuity: This iswhere you get a fixed,guaranteed rate of returneveryyear (independentofany stock market ups ordowns), very much likeyou would receive with aCD or bond, but the ratesaredifferent.

2. Indexed annuity: This iswhereyourrateofreturnistied to how the stockmarketdoes,butyougetapercentageoftheupsideofthemarket(notall)withnodownside and nopossibilityofloss.

3. Hybrid “indexed”annuity:Thisiswhereyouget the benefits of anindexed annuity with theaddition of a “lifetimeincome” rider. This

lifetime income featuregives you the ability toturn on a paycheck forlife! (Note: technicallyspeaking, there isn’t aproduct called a “hybrid.”However, it has become acommon name amongprofessionals to describethe category, whichincludes the lifetimeincomefeature.)

HOWSAFEARE

ANNUITIES?THEPOWEROFINCOMEINSURANCEA guarantee is only as goodastheinsurancecompanythatissues it, so highly ratedinsurancecompaniesarekey.Many of the top companieshave over 100 years in thebusiness, succeeding in spiteof depressions, recessions,and world wars. But withover 1,000 insurancecompanies in the UnitedStates, it’s really only a

handfulthatcommandthetopratings. I asked Dr. JeffreyBrown about the safety ofannuities and people’sconcern that the insurancecompanycouldgounder.“Yes,thisisaconcernthat

a lot of people have,” heacknowledged. “I start byreassuring the people that tomy knowledge—and I’vebeen studying this for, youknow,fifteenyearsormore—Idon’tknowofanyonewho’s

everactuallylostmoneyinanannuityproduct,andtherearea lot of reasons for that.Depending on what stateyou’rein,thereareinsuranceguarantyassociationsrunbythe state insurancedepartments that willguarantee up to a certainamount/depositoftheproductyou buy. And the way thesework is essentially everyinsurance company thatoperates in that state is

basically agreeing to insurealltheotherones.”Each state has its own

limits,buttheguaranteecanbe as high as $500,000, forwhichyouareinsuredagainstloss in the rare event of aninsurance company failure.How rare? According to theFDIC (Federal DepositInsuranceCorporation), therewere 140 bank closures in2009 alone, yet not a singlemajor insurance company

wentunder.

VARIABLEANNUITIES

There isone typeofdeferredannuity I deliberately didn’tmentionabove,andthatisthevariable annuity. The reasonfor that is, nearly everyexpertIinterviewedforthis

book agreed that variableannuitiesshouldbeavoided.They are extremelyexpensive,andtheunderlyingdeposits are invested inmutual funds (also known assubaccounts).Sonotonlyareyoupaying

fees for stock-pickingmutualfunds (which don’t beat themarket and can averageupwardof3%inannualfees),you are also paying theinsurance company (between

1% and 2% annually). Theseproductscanbetoxic,andyetbrokersmanage to sell about$150 billion in new depositseach year. I spentmore timeaddressing variable annuitiesin chapter 2.7, “Myth 7: ‘IHate Annuities, and YouShould Too.’ ” Feel free toflipbackforarefresher.

So let’s take a few

moments and go a littledeeper with each of thesethreeoptions.

FIXEDANNUITIES

A fixed deferred annuityoffers a specific guaranteedrate of return (for instance,3% or 4%) for a specificperiodoftime(suchasfiveortenyears).Themoneygrowstaxdeferred,andattheendofthe term, you have a fewoptions. You can walk awaywith your money, you can“rollyourmoney”intoanew

annuity and keep the taxprotection,oryoucanconvertyour account balance into aguaranteed lifetime income.Therearenoannualfees inafixed deferred annuity. Youwill know in advance whatyourgrowthwillbeattheendoftheterm.Prettysimple, right?These

rates of return might not beterribly exciting in today’smarket,but theychangewithinterestrates.Andatleastthis

type of annuity has taxefficiency, so handledproperly, this can increaseyour net rate of returnsignificantly.But let me share with you

something quite a bit moreinteresting:

THELONGERYOUWAIT,THEMORE

YOUGET

Whatifyou’reyoungandjustgetting started building yourfinancialfuture,oryou’reatastageof lifewhereyoudon’tneedincometodaybutyou’reconcerned that yourinvestment income may notlast as long as you live?Remember,ifsomeoneretirestoday at 65, he or she mayhave 20 or 30 years of

income needs. Trying tofigure out how tomake yourmoney last that long is afairlydauntingtask.Soanewapproach called longevityinsurance has becomeincreasingly popular. Theseproducts allow you to createincomeinsuranceso thatyouhave guaranteed rates ofincome from, for example,age 80 or 85 until yourpassing. Knowing you havean income starting at that

later stage gives you thefreedom to have to plan foronly 15 years of retirementinstead of 20 or 30. Let megiveyouanexample:In a 2012 Wall Street

Journalarticletitled“HowtoCreateaPension(withaFewCatches),” writer AnneTergesen highlights thebenefits of putting away$100,000 today (for a maleage65)intoadeferred fixed-incomeannuity.Thismanhas

other savings andinvestments,which he thinkswilllasthimtoage85andgethim down the mountainsafely.Butifhelivespast85,his income insurancepaymentswill begin, and theamounts he receives will bestaggeringly large comparedwithhowmuchheputin.“Currently, a 65-year-old

man paying $100,000 for animmediate fixed annuity canget about $7,600 a year for

life . . .Butwitha longevitypolicy [a long-term deferredfixed-income annuity—Iknow the language is long]thatstartsissuingpaymentsatage85,hisannualpayoutwillbe $63,990, New York Lifesays.”Wow. At age 65, if he

makes a onetime deposit ofjust $100,000, his paymentsat age 85 are close to$64,000 per year! Why isthissovaluable?Becauseat

age 85, if he lives anotherten or 15 years, hewill get$64,000 every year,dwarfing his initialinvestment.Butthebestpartis that he has to make hisinitial savings andinvestments last only 20years,not30or35.Andwiththe volatility of markets andthe inevitable challenge ofsequenceof returns, this taskcanbechallengingforalmostanyone.

Iranthesenumbersmyself,and since I am only 54, mypaymentsatage85wouldbe$83,000peryearforthesameonetime $100,000 deposittoday! (And you don’t havetohavea$100,000lump-sumpayment. It can be sizablysmaller, which would alsoprovide a smaller income.)ThatmeansifIliveuntilIam95,Iwouldreceive$830,000in payments (10 years ×$83,000) for my $100,000

deposit. And I don’t have towait until age 85 to turn onthe income. The day I makethe deposit, I’m given aschedule of what the annualincome payments will be atany age I want to begintaking income. If I felt Ineeded or wanted money atage65or75, Iknowexactlyhow much that’s worth tome.19Income insurance, when

structured correctly and aspart of an overall plan, is anincredible tool that reversesoreliminatestheriskoflivingtoo long and becoming aburden on your familymembers. When I met withAlicia Munnell, director ofthe Center for RetirementResearch at Boston College,she echoed my enthusiasm:“Somanypeople that Iworkwith are very excited aboutand positive about the

advanced-life deferredannuity, which is essentiallylongevityinsurance.”At my annual financial

event inSunValley, Idaho, Iinterviewed famed publisherSteve Forbes. I asked himabout his own approach topersonalfinance,andevenhesaid that he has longevityinsuranceinplace!Onemoreverycoolthing?

TheIRSlooksveryfavorablyon these deferred income

annuities, so you don’t haveto pay tax on the entireincome payment (because agoodchunkofthepaymentisconsidered a return of youroriginaldeposit).

THEULTIMATEINCOMESOLUTION

It’sbeensaidthatifyougiveaman a hammer, everythingbecomesanail.Thisistosaythat the solution outlinedbelow, as exciting as it is, isnot the be-all and end-allsolution, nor is it foreveryone or every situation.It’s part of an overall assetallocation.Myobjectivehereis to outline a powerfulfinancial product, a hybridannuity, that gives us greatupside potential during its

growth phase but alsoprovides a guaranteedlifetime income down theroad,whenwecrestthetopofthe mountain and begin the“secondact”ofourlives.It’scalled a fixed indexedannuity(FIA).To be clear, there are two

relatively new types ofdeferred annuities that havesurged in popularity sincethey were introduced in theearly1990s:

1.theindexedannuity,wherethe rate of your return istied to a stock index,and...

2. the even more popularhybrid version, whereyou get both a fixed rateof return and the optionof a return tied to thegrowth of the stockmarketindexaswellasaguaranteed lifetimeincome feature. These

hybrid annuities are morecommonly known as fixedindexed annuities, with alifetime income rider or aguaranteed minimumwithdrawal benefit. (I toldyou we’d make sense ofthis alphabet soup offinancialterms.)

In 2013 alone, theseannuities collected over $35billion indeposits. In fact,aswe were wrapping up this

book, fixed indexed annuitydepositswereatrecordlevelsthroughthefirsthalfof2014,with over $24 billion in newdeposits, a 41% growth over2013. Why this recordgrowth?•Inafixedindexedannuity,your deposits remainentirely in your control.You are not giving upaccesstoyourcash.

• It offers the potential for

significantly higherannualreturnsthanothersafe-moneysolutionssuchasCDsorbonds.

• It provides a 100%guarantee20 of yourprincipal—you can’t losemoney.

• The growth is tax-deferred, providingmaximum compoundedgrowth for the expansionofyourFreedomFund.

• It provides incomeinsurance, or aguaranteed income forlife, when you select anoptionalincomerider.

As I alluded to earlier,these structures offer upsidewithout the downside. Gainswithnolosses.Inmanyways,they are an antidote to theproblem of sequence ofreturns.Howdotheywork?

Firstofall,afixedindexedannuity is fixed, whichmeans your account isguaranteed never to godown. No matter whathappens, you will not loseyouroriginaldeposit.That’shalf the battle! However,instead of getting a smallguaranteed rateof return likea traditional fixed annuity,your “base account” growthisdeterminedby tracking thegainsofastockmarketindex

such as the S&P 500. As anexample,iftheS&P500goesup 8% in a given year, youwould get to keep (or“participate in”) a certainpercentage of that gain,whichistypicallysubjecttoacap.Forexample, if yourcap was 5%, you wouldreceivea5%credit toyourbase account value.21 Inotherwords, there is a “cap”or a “ceiling” in most

annuitiesonhowmuchofthegain you get to keep. Butconversely, if the marketgoesdowninthatyear,youdon’tloseadime!In recent years, there

have been a few uniqueproducts that allow you tokeep 100% of themarket/index gains and,yes, still avoid the downyears! There is no cap onyour upside. What’s thecatch? Instead of putting a

caponyourannualgains,theinsurancecompanywillsharein a small portion of yourgains (1.5%, inmany cases).So let’s say the index/marketwas up 8% in a given year;you would receive 6.5%added to your account, andthe insurancecompanykeeps1.5%.Or if themarket has astronger year, with gains of14%,youget tokeep12.5%.Many experts I spoke withanticipatethattheseuncapped

annuitiesmaybethefuture.Okay, butwhat happens if

themarketgoesdown?If the market index

drops, even if it’s one ofthose nasty 20%, 30%, or50% drawdown years, youdon’tloseadime.Yougettoavoid all the bad years andonly participate in the upyearsofthemarketindex.Now,Iknowwhatyouare

thinking. It’s exactly what Iwas thinking when I first

heard of these products:“How in the world caninsurance companies giveyou the upside with nodownside?”“There is no magic here,”

saidDr.BabbelwhenIaskedhim the same question. Heexplained that the insurancecompany parks the bulk ofyourmoneysafelyinitscashreserves, never actuallyinvesting it in the stockmarket. This is how it

guarantees your principal.Theremainderisusedtobuy“options”onthestockmarketindex and to cover expenses.So if the market is up, youreceive your portion of thatgain. If it goes down, theoptions “expire,” but youdon’t lose—and neither doesthe insurance company.Win,win.

LOCKINYOURGAINS

In addition to having theupsidewithout thedownside,these FIAs have anotherspecial benefit. Look, we alllove opening our stockaccountstatementsandseeingour account balance on therise. But we never reallyknow if those dollars willtrulybeourstospendoneday

or if another market dropcouldwashawaythosegains.Oneof thehugebenefits ofan FIA is that each andevery year, any gains orupside are locked in, andnow this becomes our newfloor. For example, if I earn6.5% on my $100,000account,Inowhave$106,500locked in. Never can I losethat $6,500 in growth. Eachand every year, the accountwill be either flat, because I

amguaranteednot topartakein market losses, or theaccount will be up. Like anelevator that only goes up,thisuniquefeatureoflockingin gains each year is apowerful tool for our safemoney.

INCOME!INCOME!

INCOME!

As powerful a tool as theseFIAscanbeforasafe-moneyreturn, it’s their ability tosimultaneously provide youa guaranteed lifetimeincome stream that makesmakethemsodarnattractive.And while I like fixedindexed annuities for thereasons above (principalguarantees, tax efficiency,

upside without downside), Ihave come to love them forthe guaranteed incomeaspects.Thisiswhathappenswhen we elect to add aguaranteed lifetime incomerider. Let me translate intoEnglish.No matter how your

accountperforms,evenifitisflat or up moderately overmanyyears, theadditionofaguaranteed lifetime incomerider ensures that you will

receive a guaranteed annualincome stream when youdecide to turn it on,regardlessofwhathappenstoyourbaseaccount.Get this: I have an

annuityinwhichtheincomeaccount is guaranteed togrowat7%peryearfor20years with no market risk.The day I went to buy it, Ireceivedan incomeschedule,so that whenever I decide toturn it on, I will know

exactlyhowmuch incomeIam guaranteed for the restof my life (no matter howlongIlive).AndthelongerIwait, the more my incomeaccount will grow, and thus,the higher the incomepayments will be. Thisaccount has become animportantpartofmySecurityBucket. Again, sounds toogood to be true, right? I hadmy fiduciary advisor digbeneath the surface, and he

discovered that not only wasit legit, but also it wasattracting billions in annualdeposits from baby boomerslikeme.After all, who wouldn’t

want a product with a 7%guaranteed return in theirincome account whilesimultaneously avoidingmarket risk, sequence-of-returns risk, and so on?Remember, this was early2009, when the market was

melting down. There wasseeminglynosuch thingasasafe place. And otherguaranteed vehicles likeCDscame with tiny returns. Asyouprobablyrecall,therewasapanic in theair,andpeoplewere scouring the world forfinancial safety. I found outlaterthatthisspecificproductbecame the fastest-sellingannuity on the planet at thetime.After I made the

investment, my next thoughtwas,“HowdoIsetthisupformykids andgrandkids?Thisistoogoodtobetrue.”So what’s the catch? I

came to find out that theinsurance companies offerthisproductonlyifyouareinyour mid-50s or older. Theycan’t offer 7% forever, sothey give a maximum of 20years.Ifyouareyounger,theinsurancecompanyobviouslycan’taffordtogiveyoua7%

returninyourincomeaccountforever. Also, this annuityrequires a sizeable lump-sumdepositupfront.Iwasbaffledandfrustrated. If thisproductis this powerful for someonemy age, it would be evenmore powerful for someonein his 20s, 30s, or 40s whohassomuchtimetoallowhisdeposits to compound. Thatday,Imadeitmymissiontocreate an affordablesolutionforyoungerpeople.

Whereelsecouldtheybuildasecure lifetime income planthat would allow them tocarveaclearpathtofinancialfreedomwithoutallthestressandvolatilityofthemarket?

YOURPERSONALJACKPOT

Cody Foster and his two

partners,DavidCallanan andDerek Thompson, are livingHoratioAlgerstories.In2005thesethreebuddiessataroundCody’s kitchen table insleepyTopeka,Kansas.Theyhadpooled their life savings,and with $135,000 in thebank, they decided to launchAdvisors Excel. You mightneverhaveheardofAdvisorsExcel, because it doesn’tservice the end consumer.The firm services only top-

tier financial advisors. And“service” is theunderstatement of the year.Advisors Excel works withthe top insurance companiesto give financial advisorsaccesstothemostinnovativeand secure annuities in thecountry. You could think oftheir company as the advisortotheadvisors.Fast-forwardjustnineshort

years.AdvisorsExcelisnowthe largest annuity

wholesaler in the country,with nearly $5 billion inannual deposits. In anindustry of firms that havebeen around for decades,AdvisorsExceldominates.Inthe company’s shortexistence, it’s grown soquickly that the threefoundershaveoutgrowntheiroffice space five separatetimes!Theirfirstlocationwasinthebasementofadentist’soffice(wheretheyusedboxes

as amakeshift desk for theirfirst employee). Today theyare in an 80,000-square-footstate-of-the-art facility. Whoknows how long until theyoutgrowthatspace!WhenyoumeetCody,you

would never know that thishumble man from Topekaowns a multibillion-dollarcompany. He is salt of theearthandhasn’tforgottenhisroots,orthegraceofGodthathe credits for his success. I

metCodyforthefirsttimeinmy hotel in San Jose,California, the morning afterhe attended a 6,000-personUnleash the Power Withinevent. We had been broughttogether for this meeting bymy son Josh. The meetingwasscheduledforanhourbutended up going three hours(not uncommon in myworld!).Idovein...“Cody,IhaveanideathatI

believe can transform thelivesofmillionsofpeoplebyhelping them reach theirfinancial goals sooner andwith a whole lot less stressandrisk.”“Okay,shoot,”hesaidand

inchedtotheendofhischairinanticipation.“I want to see if we can

take what’s available forwealthy older folks and givethe same opportunity toyounger people who may or

maynot have a lot to invest.A fixed indexed annuitywhere younger people couldcontributemonthly,similartohowtheywoulda401(k),andknow that for every dollarthey contribute, they areguaranteed a lifetime incomestream. A personal pensionplan.”Cody sat back.He seemed

slightlyskeptical.This was outside the box

byamile.

I went into full-on“seminar-style”assaultmode.I gave him my mostpassionatepleaastowhythissolution could be a gamechanger. Engaging with themillennials is the Holy Grailfor the financial servicesindustry, as they areindependent self-thinkers andnotoriously tough to reach.And studies show that theyaren’t huge fans of the stockmarket. Just as they were

getting their feet wet, thecrash of 2008 wiped out thelittle they had saved. Evenworse,onestudybyLIMRA,the largest trade associationfor the life insurance andfinancial services industry,foundthatGenXerslost55%of their median net worthbetween 2005 and 2010!Ouch. Now they wantguarantees! They wantprotection. They wantincome. And they want it to

beeasy.Cody began to nod. He

understood what I wasthinking,buthealsoknewthechallenges. After all, he hasbeen in this industry sincegraduatingcollegeandknowsintimately the limitations andstrengths of each of thebiggest insurance companiesintheworld.“Tony, I can see what

you’re going after, but youneed to understand the

business. Insurancecompanies can’t do this forsomebody younger becausewhat makes lifetime incomeannuities work, and whatmakes the insurancenumberswork, is that they are drivenby understanding mortalityrates. And at fifty-five, theyknow your lifespan, onaverage, and they can makefinancial decisions based onthat. It’s harder to do it atforty-five or thirty-five or,

heck,twenty-five.”I had anticipated this

answerandhadanidea:“What if you gave them a

guaranteethattheywon’tlosetheir money, first andforemost? And since it costsmore to insure their futureincome,whynotgivethemasmaller annual growthguarantee and thenadd to itwhatever upside the index inthestockmarketbrings?Thatcouldendupbeingmorethan

seven percent, especially foryounger people in theirtwenties, thirties, or forties,because they have so muchtime for their investments tocompound. Most peopleknow that, over time, thestock market has producedthe greatest growth, but theproblem is the risk of thosenasty market drops! Youcould give them upsidewithout the downside ontheir deposits and a

guaranteedincomeforlife.“Youstillhave tomakeit

affordablebynotrequiringalump-sum payment up front,but instead, only smallmonthly payments in theamount they choose. Withthis approach, the insurancecompanywon’thavetoworryabout superlong lifeexpectancies, and the clienthas the potential for a muchhigher income stream sincethemajorityof the income is

tiedtothemarketupside.”Cody liked the idea

because over long periods oftime,themarketwillperformforinvestors,especiallywhenyou are participating only inthe up years. But one majorhurdleremained:“Tony,thewayIseeit,this

product would need to beefficient and lean. Buttraditionally, the mostexpensive aspect whenpricing an annuity is the

commission. Insurancecompanies pay commissionsup front from their ownpocket so they aren’tdeductedfromthecustomer’saccount. So for this towork,insurance companies can’tafford to pay large amountsof compensation to sell this,whichmeansitistoughtogettraditional agents to sell it.It’sacatch-22.”Again, I had a counter

prepared.

“What if they don’t payanyup-frontcommissions?”Iasked.“Thinkoutsidetheboxin terms of sales. Fifty yearsago, life insurance was solddoor to door. Today you cando it online and never speakto a salesman—and as aresult, it’s nowultraconvenient and cheaperthan ever before. This newannuity should follow suit.Younger ages actually prefernottotalktoanyone!Cutout

themiddleman!“This should be as simple

asgoingonline,decidinghowmuch money you want toinvestpermonth, andhavingit deducted automaticallyfrom your checking account.Set it and forget it. The sitecould project exactly howmuch income it will providefor you at any future age—fifty, fifty-five, sixty—dependingonhowmuchyoucan afford to set aside.With

just a few clicks, a personcould be set up with anincome plan for life. Theydon’thavetoberichoroldtotake advantage. Heck, theycould even track it with anappontheiriPhone.”Cody was catching the

vision. So I asked him,“Cody, how many lives doyou think this could impact?How many lives could betouchedifyouguysusedyoursway with the insurance

companiestocreateaproductthat anyonecouldaccessandwould provide them with amore secure financialfuture?”Cody smiled. “Over the

years? Millions! Tens ofmillions!ThevastmajorityofAmerica!” My words hadstruck a chord with thissmall-town farm boy whogrewup on the lower end ofthe middle class. Cody isincredibly benevolent with

his wealth and wantseveryone to get a fair shot.Especially a fair shot atfinancialfreedom.Codyleftthehotel.Hewas

onfire.He leftonamission:to see if he could use hisinfluence to convince theworld’s largest insurancecompanies to build a“lifetime income plan”solutionforyoungeragesandwith smaller depositrequirements.

FAST-FORWARD

Just a few years back, theminimumageformostfixedindexedannuitieswas50or55, depending on thecompany, and mostrequired a minimum$20,000 to $50,000 deposit.And finding a guaranteedlifetimeincomeriderfortheyounger marketplace(below 50) was virtually

impossible.Butthegamehasnow officially changed. I’mproud to report to you thatthrough the efforts of mypartnership with AdvisorsExcel, we have managed toget some of the largestinsurance companies in theworld to begin to set up andbuild new, revolutionaryproducts for you, regardlessofyourageorincomelevel.These new FIAs provide

benefitssuchas:

• Guarantee of yourprincipal: whatevermoney you’ve invested,you’llneverlose.

• The upside without thedownside: you participatein 100% of the stockmarket index growth.That’s right: 100% of theupside with no downside,no chance of loss, and nocaponyourwinnings.Theinsurance company simply

shares in your profits bytaking a small “spread”(rangingbetween1.25%to1.75%).Ifthemarketisup10%, and it keeps 1.5%,you get 8.5% credited toyour account value.Conversely,ifthemarketis down in a given year,the insurance companydoes not keep anything,andyoudon’tloseadimeorpay any fees!Youpaythe spread only if you

makemoney.

To understand howpowerful this arrangementreally is, I came up with ametaphorwhen Iwas havingdinner with a buddy at theWynnEncoreinLasVegas.Ilooked out over the casinofloor and said to my friend,“Imagine if this casinohadaspecialgamingtablereservedonly for VIPs. The ruleswould be that you could

gamble all night, and youwouldneverloseadollar.Nomatter what happened, SteveWynn would guarantee thatyou would leave with whatyou started—a guarantee ofyourprincipal.“If you win, you get to

keep all your gains with theexception that the house getsto keep 1.5% of yourwinnings. How much wouldyou bet? How long wouldyou play for if you knew

youcouldn’tlose,andifyouwon, you just had to pay asmall portion of yourupside?”He smiled and said, “As

muchIcould,foraslongasIcould!” I laughed. “Me too!”That’sexactlywhatthisfixedindexed annuity does, andnow it’s no longer limited toolder people with lots ofmoney.•There are also no annual

managementfeesorsalescharges that come out ofyouraccount.

• If you’d like to have aguaranteed income forlife, you can select thatoptional income rider aswell. When you do this,you’ll have two accountsthat compete with eachother: (1) a base accountthat accumulates as thestock market grows andlocks in its returns each

year, as we describedearlier; and (2) an incomeaccount where, dependingupon the issuing insurancecompany, you’ll have aguaranteedrateofreturnora combination of aguarantee and marketperformance. To yourbenefit, the income you’llreceive will be based onwhicheveraccountislargerat the timeyoudecideyouwanttheincome.

Most importantly,on topofallthis,Codywasabletoinfluence the insurancecompanies to eliminate thelump-sum payment andmake this financial vehicleavailable to almost anyone.Thedaysofneeding$25,000to $50,000 to get started aregone.Nowyoucanstartwitha small initial deposit as lowas$300.Youcanevensetuptheconvenienceofamonthlyauto-deductionprogram from

a checking account so thatyour Freedom Fund isgrowing every month into a“personal pension”—anincomeforlife.Even if you have a very

smallamountornoamountinother investments, thisproductcanbeaphenomenalplace to start.Why?Becauseitgivesyoutheupsideof thestock market index withoutthe downside. Imagineknowing that for every

dollar you contribute, youare guaranteeing yourself alifetime incomestream.Themore you save, the higheryourincomewillbe.Andyouare guaranteed not to loseyourdeposits!Since there are thousands

of income annuity productswith awide range of incomepayouts, Cody and his teamhaveestablishedawebsite toeducate and empower youwhenitcomestofindingand

selecting the right annuityproducts for your specificsituation:www.lifetimeincome.com.By visiting

LifetimeIncome, just a fewsimplestepswillallowyoutoquicklyandeasilysetupyourlifetime incomeplan.Withinseconds, you can calculateyour potential futureincomebasedonhowmuchyou can afford tocontribute. Regardless of

your age, the system willrevealthebestapproachforyouandshowyou themostcompetitive incomepayoutsavailable.Sowhetheryouareyounger and want a flexible,smallermonthlycontribution,orifyouareover50andhavea lump sum and are lookingfor longevity insurance, thesystemwill guide you to thebest income solution. Youhave the option to set it uponline,overthephonewitha

specialist, or be connected toan annuity advisor in yourhometown.Lifetime Incomehas a network of over 500annuity specialists in all50states.Itwillalsoprovidea free reviewandanalysisofany existing annuities youmight have to see if youshouldhangontotheoneyouhaveortransferyouraccountvalue toadifferent insurancecompany in a tax-freeexchange.

As I mentioned, whencoupledwith theAllSeasonsportfolio, the right lifetimeincomeproductisapowerfultool! Lifetime Income is theexclusiveannuityproviderforStronghold. So if an annuityis just a portion of youroverall asset allocation (andjust part of your SecurityBucket), you can also accessthese same products throughStronghold. It will connectyoutoanannuityspecialist.

TOOLSOFTHE.001%

We have come a long way!Not only do we have themind-set of an insider, wehavethetoolsoftheinsiders!Inthissectionalone,wehavelearned a powerful portfoliomodel from icon Ray Daliothat has proven resilientthroughout every economicseasonsince1925.Andmost

people have to invest $100million to get his insights!We can be confident that hisportfolio model will surviveandoverthelongtermthriveinallenvironments.We have also learned how

correctly structured incomeinsurance, an annuity, cangive us a paycheck for lifewithouthavingtoworkforit.And not only that, but withthe right fixed indexedannuity, our deposits can

participate in 100% of theupside of the market/indexbut avoid losses when themarket goes down! ASecurity Bucket with someexcitement. Although thereare many approaches toachievefinancialfreedom,theone-two punch of an AllSeasons portfolio and thecertainty of a guaranteedlifetime income stream is apowerful combination forpeaceofmind.

But once you build yourwealth,youalsomustprotectit for you and your children.Theultrawealthyprotecttheirwealth with an entourage ofextremely sophisticatedadvisors. Sowho orwhat dothey protect it from? Let’sfind out the secrets of theultrawealthyinchapter5.5!

FREQUENTLYASKEDQUESTIONS

Here are a handful of

common questions that seemtocomeupwhenpeoplelearnaboutfixedindexedannuities:

What happens if I die“early”?If you die before turning onyour income stream, yourentire account balance is leftto your heirs. This is a hugebenefit over a traditionalincomeannuity.Whenyoudodecide to eventually turn onyour lifetime income stream

(with a simple phone call),youdonot forfeityourentireaccount to the insurancecompany. Your heirs wouldstillgetyouraccountbalanceminus any income paymentsyouhadtakentothatpoint.

Can I take out money incaseofanemergency?Most FIAs allow you towithdraw up to 10% to 15%of your account without anypenalty or surrender charge.

Keep in mind, if you makethis withdrawal prior to age591/2, you will be charged a10% penalty by the IRS,which is standard for anyinvestmentthatgivesyoutaxdeferralonthegrowth.Ifyouneed all your money back,you can surrender yourannuity and get your moneyout (plus any growth).However, this withdrawalmayincurasurrendercharge,

depending on how long youhave owned the annuity. Asurrender charge is really aself-imposed penalty becauseyou are taking back yourmoney early. The typicalschedulewillstartat10%andgodownby1%peryearuntilyoureach0%.Soifyouhaveheld the annuity for fiveyears, youwould have a 5%charge if you surrender thecontractandgetbackallyourmoney. Any money invested

in this vehicle should beconsidered money investedforthelongterm.

WhatarethefeeswithinanFIA?There are no annualmanagement fees withdrawnfromyouraccount.However,if you select the guaranteedlifetime income rider, theannual fee for this rangesbetween 0.75% and 1.25%annually, depending on each

company’s individualofferings.

Can I put my IRA moneyintoanannuity?Yes,youcanusemoneyfromyour IRA (or Roth IRA), oryou can also use after-taxdollars (money you havealready paid tax on) to fundan annuity. This scenario isalso known as qualified ornonqualified dollars, both ofwhichcanbeused.

What is the cap on myaccountgrowth,andhowisitdetermined?The cap, the ceiling on howmuch of the market growthyou get to keep, is typicallytied to interest rates. Ifinterest rates are higher, thecap is high (and vice versa).Some newer products offer100%upsidewithnocap,butthey take a small spread,which is a share of yourupside/profits.Ifthemarketis

up10%,youmightget8.75%credited to your account(whichmeanstheinsurerkepta 1.25% spread). But if themarket goesdown, it doesn’ttake anything, and you don’tlose a dime. I like theseuncapped strategies becausethey give the highest upsidepotentialinagivenyear.

To what underlyingmarketswillmyaccountbe“linked”?

ThemostpopularindexistheS&P500.But newer indexesare being added quitefrequently. For example,some accounts can be linkedto the Barclays DynamicBalanced Index (a mix ofstocks and bonds) or theMorgan Stanley DynamicAllocationIndex(amixof12different sectors). Someindexes are even tied tocommodities.

WhatfactorswilldeterminehowmuchincomeIget?The amount that youcontribute to the annuity, thelength of time before youdecidetoaccessyourincomestream, and your age at thetime your income begins arethe primary factors that willultimately contribute to theamount of income you’llreceive.However,thebiggestfactor is the product youselect.Everyannuitycontract

is different in the amount ofcontractually guaranteedincomeitwillprovide,soit’simportantyouunderstandthisbeforeyoupullthetrigger.

WhatisthetaxtreatmentofanFIA?The growth within your FIAis tax deferred. When youturn on the income stream,you will be paying ordinaryincome tax rates on thelifetime income payments.

Because the government isgivingyoutaxdeferral,itwillpenalize you if you takemoney out before you reachage 59. If you own the FIAwithin a Roth IRA, there nowill be no tax on either thegains or the lifetime incomestream.

Here’s what you can avoidwith a fixed index annuity:the benefits of getting theupside without the downside

becomes incredibly powerfulwhen you look back at thehistoryofWallStreetcrashes.What’s astonishing is justhow long it took for themarket to recover—forinvestors to get back tobreakeven.Justforfun,takealookatsomeofthehistoryofthe stock market crashes—andremember,with this typeof investment, you can avoidallofthese.

1901–1903•TheDowfell46percent.•RecoveredbyJuly1905.•Total time to recovery: twoyears.

1906–1907•TheDowfell49percent.• Recovered by September1916.

•Totaltimetorecovery:nineyears.

1916–1917

•TheDowfell40percent.• Recovered by November1919.

•Total time to recovery: twoyears.

1919–1921•TheDowfell47percent.• Recovered by November1924.

•Totaltimetorecovery:threeyears.

1929–1932

•TheDowfell89percent.• Recovered by November1954.

• Total time to recovery: 22years.

1939–1942•TheDowfell40percent.•RecoveredbyJanuary1945.•Totaltimetorecovery:threeyears.

1973–1974•TheDowfell45percent.

• Recovered by December1982.

•Totaltimetorecovery:eightyears.

2000–2002•TheDowfell36percent.• Recovered by September2006.

•Totaltimetorecovery:fouryears.

2008–2009•TheDowfell52percent.

•RecoveredbyApril2011.•Total time to recovery: twoyears.

18. The effective tax on income fromimmediate annuities is dependent onwhat the IRS calls the exclusion ratio.Aportionofyourincomepaymentsaredeemed a return of your principal andthus“excluded”fromtax.

19. Obviously, if I start the annuityincomesooner,at65or70,theincomeIreceivewillbelessthanat85.

20.Remember,therearestateinsuranceguarantees as well as corporateguarantees.

21. Participation rates and caps willdependontheindividualproducts.

CHAPTER5.5

SECRETSOFTHEULTRAWEALTHY(THATYOUCAN

USETOO!)

It’sviewedasan

insider’ssecretforthe

affluent:alegalwaytoinvest...allwithoutpayingtaxesonthe

gains.—NEWYORKTIMES,February9,2011

ANEWWORLDRECORD

In early 2014 the Guinness

Book of World Recordsannounced that a new worldrecord had been established.No, it wasn’t for the TallestMan in the World, or theWorld’s Longest Fingernails.It was a record that wentlargelyunnoticed:“Mystery Billionaire Buys

Record-Breaking $201Million Life InsurancePolicy.”Why in theworldwould a

billionairebuylifeinsurance?

Won’thiskidsbe just fine ifhe passes away prematurely?Orwasthemediamissingthepoint? Believe it or not, theultrawealthy do indeed buyastronomical amounts of lifeinsurance, but it’s not thebillionaires who buy themost. The biggest buyers arebanksand largecorporations,from Wal-Mart to WellsFargo.Asanexample,WellsFargo’s balance sheet shows$18.7 billion of its Tier 1

capital deposited in lifeinsurance cash value (as ofMay 27, 2014). By the way,Tier 1 capital is the coremeasureofabank’sfinancialstrength!Contrarytowhatthemedia says, corporations andthe ultrawealthy are notlooking to benefit fromanyone’s death. What theyreally want is a place topark their cash in an IRS-sanctioned vehicle thatallows them to grow their

investments tax free. Soundtoo good to be true? In fact,it’s very much like a RothIRAintermsoftaxtreatment.Youpaytaxeswhenyouearnyour money (income), butonce you deposit your after-tax dollars within a specifictype of life insurance policy,the IRS says you aren’trequired to pay taxes as itgrows; and if structuredcorrectly (more below), youaren’t required to pay taxes

whenyoupulloutmoney.Sowhile it is life insurance, it’sreallydesignedtobenefityouwhileyouarealive!If it’s good enough for

billionaires and the world’slargest corporations, it’sprobablygoodenoughforus!Let’s dive in and figure outhowtotakethispowerfultax-planning tool and accelerateour path toward financialfreedom.

RICHMAN’SROTH

The strategy in the pagesahead, known as privateplacement life insurance(PPLI), has been called “thesecret of the affluent” by theNew York Times—and forgoodreason.Iwasintroducedto this tool by two of thewealthiestindividualsIknow.But you don’t have to be

ultrawealthy to takeadvantage. Many high-income earners, such asdoctors, lawyers, and smallbusiness owners will findtremendous value in thepages ahead, but those withas little as a few thousand toinvestwilllearnhowtocreateaversionofthestructurethatwill provide all the samebenefits. Here are theastounding benefits availabletoall:

•unlimiteddepositamounts(with no incomelimitations)

• no tax on the growth ofyourinvestments

• no tax when accessed (ifstructuredcorrectly)and

• any money left over foryour heirs cannot betaxed.

Let’s not just breeze overthis as a pretty cool strategy.

This is essentially removingpartorallyournesteggfromthe tax system entirely!Never again will you paytax on growth of yourinvestments or the moneyyou access within thisstructure. This is why themediasometimescallsPPLIthe “rich man’s Roth.”Consider this quote from theWallStreetJournal:

The main attraction:

Because the investmentsare held within aninsurancewrapper,gainsinside the policy areshielded from incometaxes—as is the payoutupon death. What’smore,policyholdersmaybe able to access theirmoney during theirlifetimesbywithdrawingorborrowingfunds, tax-free, from the policy,depending on how it’s

set up . . . One bigreasonforthegrowth:Inrecentyears,theInternalRevenue Service hasissuedaseriesofrulingsandregulationsthathavelaid out more clearlywhat’s allowable andwhat’s not in private-placement life insuranceand annuities. That, inturn, has removeduncertainty amonginsuranceandinvestors.

By taking taxes out of theequation, the time it takesto reach your critical massand financial independencewill be massivelyaccelerated. No longer doyouhavetoworryabouthowmuch of your money willactually be yours to spendafter the tax man takes hisbite of your apple. In fact,oneof thebiggest challengesinknowinghowmuchmoneyyou will really need in the

futureistheunknownofwhattaxrateswillbeforyouinthefuture. Remember, taxes caneasilyberaised,andsuddenlythe amount of spendableincome you have shrinks. Ifyou’replanningona50%taxrate,butinthefuturetaxesonthewealthy increase to 70%,or you’re currently at 30%and taxes grow to 50% foryour income class, theamount of money youthought would get you to

financial freedom will nolongergetyouthere.Let’s look at an example

ofhowyoucanusethistooltoachievefinancialsecurityorindependenceinlessthanhalf the time. Or double theamount of spendable cashyou have if you keep thesameinvestmenthorizon.Ifyou’reahigh-endearner,

likeadoctor,dentist, lawyer,or smallbusinessowner,youmay be fortunate enough to

earn $250,000 per year ofpretax income. As a high-income earner, that meansthat after tax (assuming a50% combined federal andstate rate), you will netapproximately$125,000.Thisistheamountyouneedtodayto support your currentlifestyle. It’s your totalspendable income.Traditional financialplanning would say youneedtoaccumulate20times

your current income, or $5million in critical mass, togenerate$250,000ofpretaxincome (assuming a 5%withdrawalrate).Butifyouaren’t required to pay tax,and the actual income youneed is $125,000 withouttaxes, you really need toaccumulate only 20 times$125,000, or a total criticalmass of just $2.5 millionwithin this structure. Thatmeans youget to your goal

50%fasteroryouget twicethespendableincomeifyoureach your original goal ofcritical mass in the sametime.Now,ifyoumake$50,000

a year, youmay be saying,“So what? Isn’t that nicefor the rich man orwoman?”Staywithmeherewhile I explain how thisworks for the rich, and thenI’ll show you how to makethis work for anyone who

wants to get to his or herfinancialgoals30%to50%faster—and all with thetotal support of the IRS,just as it supports 401(k)sorRoths.

ISN’TLIFEINSURANCEEXPENSIVE?

When my attorney initiallytoldmeaboutPPLI,Ihadanimmediate aversion to thewords life insurance. Likemost, I had been soldexpensive “retail” lifeinsurance in the past andwasn’t going to be takenagain.She went on to explain,

“Tony,thisisnotyourtypicalretail life insurance. Youcan’t buy this off the shelffrom a salesman with well-

coiffedhairandagoldRolex.This is an institutionallypriced policy with nocommissions, no surrendercharges, or other nonsenseyou encounter from retailagents. Think of it as an‘insurance wrapper’ you arebuying to place around yourinvestments. And because ofthe specific tax code, whichhas been around for manydecades, all of your depositswillbelegallyshelteredfrom

taxinthisinsurancewrapper.They can be invested in avarietyofdifferentfunds,andyou will not pay tax on thegrowth or when you accessyourcashifwedoitright.”

TAX-FREECOMPOUNDING

Compounded over time, the

advantage of privateplacement life insurance isastounding. Let’s look at anexampleofhow the identicalinvestment compares whenwrapped inside of PPLIversus taking the standardapproach of paying tax eachyear.Let’s take a healthy male,

age45,andassumehemakesfour annual deposits of$250,000 (for a totalcontribution of $1 million

over fouryears). Ifhemakesa 10% return and has to paytaxeachandeveryyear,after40 years, his total accountbalance will be $7 million.Not bad, right? But if hewraps the investment withinprivate placement lifeinsurance and pays arelatively small amount forthe cost of insurance, hisendingbalance(cashvalue)isjust over $30 million! Sameinvestment strategy, but he

is left with more than fourtimes (or 400%) as muchmoney for him and hisfamily simply by using thetax code to his advantage.(Please note that there arevery strict rules around theinvestment management,which must be done by athird-party investmentprofessional, not the policyowner.)By the way, this same

powerful advantage applies

even to smaller investmentamounts. This iscompounding without taxes!But then I wanted to know,“What about when I wanttoaccessmymoney?”

TAKINGOUTMONEY

The power of PPLI is that

you don’t have to worryaboutwhattaxratesareinthefuture. During the course ofyourinvestmentlifetime,youwillneveragainpaytaxesonthe gains that are within thispolicy.Butwhat if you needthe cash? Well, like anyvehicle in which thegovernmentgrantsthebenefitof taxdeferral,youwillhaveto pay tax if you take awithdrawal. But—and it’s ahuge but—you also have the

abilityto“borrow”fromyourpolicy. In other words, youcan call the insurancecompany and access yourcash value, but it’s legallydeemedandactuallyisaloan—and loans are not taxable.You can repay the loans at afuture date of your choosingor allow the life insuranceproceeds topayoff the loanswhen you pass away. It’s alegitimate loan, and it doesgetpaidoff.Onemore huge

benefit to stack on? Lifeinsurance death benefitproceeds are income tax freewhen your kids receive thebenefit.

DOYOUQUALIFY?

In order to access PPLI, youmust be what’s called an

accredited investor22 and thetypical minimum annualdeposits are $250,000 for aminimum of four years.However, there is a“version” of PPLI that isnow available tononaccredited investorswith as little as a fewthousandto invest.Foundedin1918byvisionaryAndrewCarnegie to serve teachers,TIAA-CREF “functions

without profit to thecorporation or itsshareholders.” It now offersfinancial services to thegeneral public, but TIAA-CREF’s unique not-for-profitstructure allows it to offer alifeinsuranceproductwithnosales or surrender charges.The underlying investmentoptions within the policyinclude low-cost index funds(such as Dimensional FundAdvisors), which is in

keeping with what we havelearnedfrommanyexpertsinthebook.Andthetaxbenefitsarenodifferentfromwhatwehave learned regardingPPLI.Remember, being a no-loadproductwith no commission,there won’t be insuranceagents knocking down yourdoor to sell you thisproduct,so you will need to visit itswebsite (www.tiaa-cref.org/public)andacquireiton your own or ask a

fiduciary advisor to helpguide you in setting up apolicy.As a fiduciary, your

representative cannot takecommissions.Ifsheisskilledin this area and has a fullunderstanding of how to setup this tax-efficient strategy,shewillbedoingyouagreatservice. Depending on yourcurrent tax rate, it couldhelpyou achieve your goals 30%to 50% faster with no

additional risk. Of course, ifyou are a Stronghold client,we have a team that canarrange all these details foryou.

THE“BILLIONAIRE’SPLAYBOOK”

Whatajourneywehavebeen

on!Weconquered the junglewith Ray Dalio and learnedhow a portfolio designed forall seasons has provided asmooth ride for nearly 75years. We learned how tocreate a guaranteed lifetimeincome plan and achieveupsidewithoutdownsidewithincome insurance. Andfinally,welearnedhowarareno-load life insurance policycangiveus the equivalentofa Roth IRA without income

or deposit limitations. Nowit’s time for the opportunity—the gift—to sit down andlearn directly from some ofthemostbrilliantmindsinthefinancial universe; to hearwhat has shaped them intowho theyare todayandwhatthey would teach theirchildren on how to besuccessful investors. So let’sturn the page and meet themasters.

LIVINGTRUSTOne more quick butimportant note aboutprotecting your family: thewealthy are diligent aboutplanning to protect theirfamilies.Oneofthesimplestthingsyoucandotoprotectyourfamilyistoestablishaliving revocable trust. Thekey benefit to using a livingtrust to ownyour core assets(your home, brokerageaccount, and so on) is that if

you pass away, those assetswillavoidprobate—acostlyand lengthy procedure ofallowing the courts to sortthrough your assets (andmake everything publicrecord).Butunlike awill, alivingtrustcanalsoprotectyou and your family whileyouarealive.Ifyoubecomeill or incapacitated, you caninclude an incapacity clausethatallowssomeonetostepinand handle your bills and

otheraffairs.Don’tletexpertstell you that a living trustcosts thousands.You cangeta template document for freeby visitinghttp://getyourshittogether.org.Chanel Reynolds started thisnonprofit site after herhusbandwas killed in a bikeaccident, and she wanted tomake sure that nobody elsewent through the sameexperience of beingunprepared. If you want to

understand more about howsimple and important livingtrustsare,gotohersite.In addition, if you want

assistance, you can alwaysfind an expensive attorney,but you can also useLegalZoomandsetuponeforaslittleas$250withthehelpof its attorneys(www.legalzoom.com/living-trusts/living-trusts-overview.html).I’mincludingthisreminder

for you here because eventhough this book is notdesigned to be an estate-planningtool,one importantresponsibilityweallhave istomakesurethatwhateverwealth we build, howeverlargeorsmallitmaybe,ourfamiliesbenefit from itanddon’t get stuck in a legalprocess that drains the giftfromourheirs.Asyoubeginto succeed, please seek outquality assistance when

thinking about estateplanning, but in themeantime, don’t wait to setup a living trust. Everyoneneedsone.

22. In order to qualify for privateplacement life insurance, you must beanaccredited investor.Thismeansyoumust have a net worth of at least $1million(notincludingthevalueofyourprimary residence), or you have anincome of at least $200,000 each year

for the last two years (or $300,000combinedwithyourspouse).

SECTION6

INVESTLIKETHE.001%:THE

BILLIONAIRE’SPLAYBOOK

CHAPTER6.0

MEETTHEMASTERS

Therearenotmore

thanfiveprimarycolors,yetincombinationtheyproducemorehuesthan

caneverbeseen.

—SUNTZU,TheArtofWar

Four years ago, I began anamazing journey to find away for individual investorslike you to take control ofyourmoney in a system thatseems rigged against you. Ivowed to bring you the bestpossibleinformationfromthemost knowledgeable and

influential experts in theworld.What a trip it’s been!Since then, I’ve interviewedmore than 50 self-madebillionaires, Nobel Prizewinners, investment titans,bestselling authors,professors, and financiallegends,askingthemsomeofthesamequestionsyou’daskifyouwere in the roomwithme.Here’sasampling:“What is your competitive

advantageininvesting?What

setsyouapart?Whatinsightshaveallowedyoutodominatethe markets decade afterdecade?”“Is the game still

winnable? How canindividual investors thrive inthe volatility of today’seconomy?”“What are the biggest

challenges around the worldand what are the biggestopportunities for investorstoday?”

And, perhaps the mostimportant of all, “If youcouldn’t leave any of yourmoney to your children, butonly a portfolio or a set offinancialprinciplestopassonto help them thrive, whatwoulditbe?”Their answers excited me,

shockedme,sometimesmademe laugh. Other times theymoved me to tears. It wasbeyond any universityeducationonecould imagine.

It was the ultimate PhD ininvesting, straight from thetrenches. Where my“professors” were movingmarkets and shaping theworld economy while theywere coaching me one-on-one.My mission has been to

synthesize the best of allthey’ve shared into anintegrated, simple 7-stepfinancial blueprint. One thatyou could use in a practical

waytomovefromwhereyouare now to where you trulywanttobe.I wish I could bring them

alltoyou,buttheirvoicesareall captured in these pages,whether quoted directly ornot.Theamountof time I’vespent with each of themrangedfromthemorethan20years I’ve counted PaulTudor Jones as my dearfriend and client, to aninformal 20 minutes with

Warren Buffett, whom Igrabbed for a shortconversation in thegreenroom while we werefilming a series of segmentstogetherfortheTodayshow.Most of the interviews

werescheduledforanhourorlessbutturnedintothree-andfour-hour sessions. Why?Because each of thesefinancialgiantswasinterestedingoingdeepwhenheorshesaw that I wasn’t there just

for some shallow questions.Mymissiontoserveyou, theindividual investor, movedthem. They were allincrediblygenerouswiththeirprecioustime.

—

Thediversityof conversationwas extraordinary. I had theprivilegeofbringing togethersome of the most brilliantfinancialminds in theworld.

One of the more interestingencounters occurred at myfinancial conference in SunValley, Idaho. I interviewedLarrySummers, formerly theUSsecretaryoftheTreasury,director of the NationalEconomic Council, andadvisor to President Obamain the midst of the worldeconomic crisis. We talkedabout what was done andwhatneedstobedonetoturnaround the US economy.

Publisher and formerRepublican presidentialcandidate Steve Forbes waslistening to Summers andraised his hand with aquestion. You can onlyimagine the respectful“sparks”thatflew.Another moment: when I

learned that Carl Icahn hadbeenafanofJackBogle’sforyears,buttheyhadnevermet.I had the privilege ofintroducing these two titans.

Between them, they havemore than a century ofinvesting experience. Jackinvited me to join them forthemeeting,but Iwasoutofthecountry.Wouldn’tithavebeen amazing to be a fly onthat wall when they finallymet?The crazy part is, after all

the timeI’vespentwitheachof these experts, you’ll seeonly five to ten pages foreach interview as opposed to

the average 75-pagetranscript. To keep thissection under 9,000 pages,I’mincludinghighlightsfromjust 11 of the interviews.Well, 11 plus one bonus.Even though he’s passedaway,Icouldn’tleaveouttheinterview I conducted withSir John Templeton, one ofthe greatest investors of alltime and an extraordinarysoul.Likeallexperts,themoney

masters you’ll be hearingfrom in these pages havedifferent views of what thenear-term future might hold,and they have differentopinionsonwhichinvestmentvehicles they favor most.Some are short-term traders;some like to hold long term.Some think the index is thewaytogo,whileothersswearyoucanmakemoremoneyinarbitrage. So even thoughthey disagree sometimes on

tactics, we can applaud howoften these money masterstake different paths to thesamegoals.And one thing is for

certain: all of them are greatleaders.Take the exceptionalMary Callahan Erdoes, wholeads 22,000 financialprofessionals,includingsomeof the finest portfoliomanagers in the world,overseeing an astonishing$2.5 trillion in assets for J.P.

Morgan Asset Management.Or Chuck Schwab, whotransformed an industry withhis obsession to serve andprotecttheindividualinvestor—building a company with8.2 million client brokerageaccountsand$2.38 trillion inassets served by 300 officesaroundtheworld.Thepagesaheadwillshow

youthattherearemanywaysto win—many ways tosucceed financially and

becomewealthy in theworldweliveintoday.Eventhougheach of these financiallegends has a distinctapproach, I found that theyshare at least four commonobsessions:1.Don’t Lose. All of thesemasters, while driven todeliver extraordinaryreturns, are even moreobsessedwithmaking surethey don’t lose money.

Even the world’s greatesthedgefundmanagers,whoyou’d think would becomfortable taking hugerisks, are actually laserfocusedonprotecting theirdownside.FromRayDaliotoKyleBasstoPaulTudorJones—if you don’t lose,you live to fight anotherday. As Paul said, “I caredeeply about makingmoney.IwanttoknowI’mnot losing it . . .Themost

important thing for me isthat defense is ten timesmore important thanoffense...Youhavetobevery focused on thedownside at all times.”And this statement comesfrom a guy who’s mademoneyforhisclientsfor28consecutive years. It’s sosimple, but I can’temphasize it enough.Why?If you lose 50%, ittakes100%togetbackto

where you started—andthat takes something youcannevergetback:time.

2.Risk a Little to Make aLot. While most investorsare trying to findaway tomakea“good”return,eachof these hall of famers,without exception, looksfor something completelydifferent:homeruns!Theylivetouncoverinvestmentswhere theycanriska littleandmakealot.Theycallit

asymmetricrisk/reward.You’ll note how Sir

John Templeton’s pathto great gains with theleast risk was not bybuyingthemarketbutbywaiting until—as the18th-century Englishnobleman BaronRothschild put it—thereis“blood in the streets,”and everybody isdesperate to sell. That’swhen you pick up the

best bargains. PaulTudor Jones, on theother hand, followstrends in the market.But, as he says in hisinterview, he doesn’tmakeaninvestmentuntilhe can potentially get areturn of at least $5 forevery $1 he risks. Andthat, he says, is a$100,000 MBA in anutshell! InKyleBass’sinterview, you’ll learn

howhe figuredout howto risk just 3% to make100% returns. And howhe parlayed that victoryinto more than a 600%return!

3.Anticipate andDiversify.The best of the bestanticipate; they find theopportunityforasymmetricrisk/reward.Theyreallydotheir homework until theyknowin theirgut that theyare right—unless they’re

not! And to protectthemselves, they anticipatefailure by diversifying.Because in the end, allgreat investors have tomake decisions withlimited information. WhenI interviewed Kyle Bass’sformer partner Mark Hart,he told me, “A lot ofbrilliant people areterrible investors. Thereason is that they don’thave the ability to make

decisions with limitedinformation. By the timeyou get all theinformation, everyoneelseknowsit,andyounolonger have the edge.”T. Boone Pickens says itthis way: “Most peoplesay, ‘Ready? Aim!Aim! . . .’ But they neverfire.”

4. You’re Never Done.Contrary to what mostpeople would expect, this

groupofachieversisneverdone! They’re never donelearning, they’re neverdoneearning,they’reneverdone growing, they’renever done giving! Nomatter how well they’vedone or how well they’vecontinuedtodo,theyneverlose their hunger—theforcethatunleasheshumangenius.Mostpeoplewouldthink, “If I had all thismoney, I would just stop.

Why keep working?”Because each believes,somewhere in his or hersoul, that “to whommuchis given, much isexpected.” Their labor istheirlove.

Just like thesemoneymasters invest indifferentways,theygiveback in different ways.They share their time,they share their money,they create foundations,

they invest in others.Each of them has cometo realize that truemeaning in life comesfromgiving.Theyfeelaresponsibility to usetheir gifts to serveothers. As WinstonChurchill said, “Wemake a living by whatwe get.Wemake a lifebywhatwegive.”Whatunites them is theultimate truth that life is

about more than whatyou have. It’s reallyabout what you have togive.

So how will theBillionaire’s Playbook serveyou as an investor? ItmeansthatyoucansitbymysideasIask12ofthegreatestmindsin finance how you canuncover your own path tofinancial freedom. You’llgain insight into how they

becamethetitleholdersinthefieldoffinance,andhowyoutoo have to stay alert and beready for anything thathappens. You’ll learninvestment strategies thatwill prepare you for allseasons, for times ofinflation and deflation, ofwarandpeace,and,asJackBogle puts it, “times ofsorrowandjoy.”

CHAPTER6.1

CARLICAHN:MASTEROFTHE

UNIVERSE

TheMostFeared

ManonWallStreet

Question: When is a single

tweetworth$17billion?Answer: When Carl Icahn

says Apple is undervaluedand announces he’s buyingthestock.Within an hour of Icahn’s

tweetinthesummerof2013,Apple stock had jumped 19points. The market got themessage: whenever thebillionaire businessman takesan interest inacompany, it’stime to buy. Four monthslater, Time magazine put his

face on the cover with theheadline “Master of theUniverse.” It went on to saythathe’s“themost importantinvestor in America.” That’sright. In the past fourdecades, Icahn’s ventureshave earned 50% more thanthat other investment icon,Warren Buffett. A recentanalysis by Kiplinger’sPersonal Finance shows thatwhile most people think ofBuffett as providing the

greatest returns through time,if you’d invested with Icahnin 1968, in 2013 you wouldhave had a compoundedreturn of 31% versusBerkshire Hathaway—Buffett’s company—with“only”a20%return.Icahn’sbusinessskillshave

made him one of the richestmen in the world—at lastcheck of the Forbes list, hewas27th,withanetworthofmore than $23 billion—and

he’s made billions more forordinary shareholders whoinvest in his diversifiedholding company, IcahnEnterprises LP (NASDAQ:IEP), or own stock in thecompanies he targets. Thesecret to his success? Evenhis critics will tell youCarlIcahn doesn’t just look foropportunities in business—hemakesthem.But most outsiders still

thinkofhimasaWallStreet

caricature, a ruthless vulturecapitalist who pillagescompanies for personal gain.When you Google the termcorporate raider, Icahn’sname autofills in the searchbar.But Carl Icahn is

challenging that creaky oldstereotype. Icahn thinks ofhimself as a “shareholderactivist.” What does thatmean?“Wegoinandshinealight on public companies

that are not givingshareholders the value theydeserve,” he told me. Hisobsession, he says, is to stopthe abuse of stockholders byimproving corporategovernance andaccountability—whichmakesAmericancompaniesstrongerand therefore the Americaneconomystronger.The New York Times

describes him this way: “Byrattling corporate boards,

mountingtakeovereffortsandloudly jostling for change atcompanies, he has built amultibillion-dollar fortune,inspiring fear among chiefexecutives and admirationamonghisfellowinvestorsintheprocess.”Icahn buys up shares of

top-heavy orunderperforming companiesand thenputs themonnoticethat it’s time to step up theirgame—or face a proxy fight

forcontroloftheboard.Heseeshimself inabattle

with those who use thecoffers of public companiesto enrich themselves at theexpense of the shareholders.“Tony, people have no ideahowthey’regettingscrewed,”he said, adding that averageinvestors aren’t aware of theabuses that go on behind theclosed doors of boardrooms.Butpartoftheproblemisthatshareholders don’t believe

they have the power tochange things because theydon’t think like owners.Icahn, however, knows thepower of leverage—and he’snotafraidtouseit.

$24BILLIONFORCOCA-COLA

MANAGEMENTINCENTIVES?

An example of the kind ofaction that public companyboardstakethatoutrageIcahncan be found in his recentcriticismofCoca-Cola.Cokewas planning to dilute thecompany’s stock value byissuing $24 billion in new,discounted shares. Thereason? To finance hugecompensation packages fortopmanagement.Thiswouldweaken the retirementinvestments of ordinary

investors, including teachersand firefighters, because somanypeoplehaveCokestockintheirretirementportfolios.Icahnwrote an editorial in

Barron’s blasting thecompanyforthescheme,andcalling outWarren Buffett—Coca-Cola’s single largestshareholder and a boardmember—for not votingagainstthemove.“Toomanyboard members think of theboard as a fraternity or club

where you must not rufflefeathers,” Icahn wrote. “Thisattitude serves to entrenchmediocremanagement.”Buffett responded that he

had abstained from the votebutwas opposed to the plan,and that he had been quietlytalking tomanagement aboutreducing its excessive payproposal—buthedidn’twantto “go to war” with Cokeovertheissue.In contrast, Carl Icahn is

always ready for war. He’sbeen in the trenches manytimesbefore,makingrunsoncompanies as diverse as USSteel,Clorox,eBay,Dell,andYahoo. But this time wasdifferent: instead of Icahn, ayoungerfundmanagernamedDavid Winters was buyingstock and leading the chargeagainst Coke’s management.To the dismay of overpaidCEOs everywhere, a newgeneration of “activist

investors” is taking up thefight Icahn started decadesago.Naturally, Carl Icahn has

ticked off a lot of corporatedynamos, enemies with bigclout in themedia. So you’lloften hear his critics sayingthat he’s only in it for themoney,orthathe“pumpsanddumps” stocks, sacrificinglong-termcorporategoals forshort-term profits. But Icahnpoints out that this is

ridiculous, in that he oftenholds his positions for muchlonger than people realize—sometimes 10, 15, even 30years.Andwhenhedoestakecontrol of a company, itsvalue continues to rise foryears, even after he’s left.Thisclaimhasbeenborneoutby a study conducted byHarvard Law Schoolprofessor Lucian Bebchuk,who analyzed 2,000 activistcampaigns from 1994 to

2007. It concluded that“operating performanceimproves following activistinterventions.”Thestudyalsofoundthatnotonlywerethereno detrimental long-termeffects,butinstead,fiveyearslater thesefirmscontinued tooutperform.Carl Icahn isn’t after the

head of every CEO inAmerica. He’s oftenacknowledged that there aresome extraordinary

leadership teams out there,andexecutiveswhomaximizecompanyresourcesandmakethe economy more resilient.But he’s always looking forways to make themanagement—even of themost popular and well-runcorporations—moreresponsivetoshareholders.Take thatApple tweet, for

example. He told me hewasn’t trying to drive up theprice and sell his stock. (In

fact, on the day of ourinterview, he bought a largeamountofApplestock.)Andhe wasn’t trying to interferewith the company’smanagement—which hethinksissolid.Thetweetwasjust part of a campaign topressureAppletoreturn$150billionof its cash reserves toits shareholders asdividends.The company eventuallyexpanded its capital returnprogram to over $130 billion

in April 2014, including anincrease in its sharerepurchase authorization to$90 billion from thepreviously announced $60billion level. At the sametime, Apple announced anincrease to its quarterlydividend and a seven-for-onestock split. Today it is 50%higherthanthedayhedidthetweet.Icahn is a CEO himself,

owning 88% of a public

company, Icahn Enterprises.The company’s stock hasdone amazingly well, evenduring the so-called lostdecade.If you’d invested inIcahn Enterprises fromJanuary1,2000,toJuly31,2014,youwouldhavemadea total return of 1,622%,comparedwith 73%on theS&P500index!CarlIcahnwasn’tborninto

this life.He sayshegrewup“in the streets” of Far

Rockaway, New York. Hismother was a teacher; hisfather, a former law studentand a frustrated opera singerwhoworked as a cantor at alocal synagogue. Carl playedpokertopayforhisexpensesat Princeton, where hemajored in philosophy.Aftera brief attempt at medicalschoolandastintinthearmy(andmorepoker),herealizedthathisgreatesttalentwasformaking money. Corporate

America has never been thesame.Icahn is now 78 years old

andthinkingabouthislegacy.He’sbeenbusywritingop-edpieces and giving selectinterviewsabouttherightsofinvestors and shareholders.But, frankly, he’s sick ofbeing misunderstood andquotedoutofcontext.Whichis why, not knowing who Iwas or my true intent, heaskedthatmyvideocrewnot

filmourinterviewandstated,“I’llgiveyouafewminutes.”To my great relief, Icahn

warmed up after those firstawkward moments, and twoand a half hours later I waslingering with him in thehallwayandbeingintroducedtoGail,hisextraordinarywifeof 15 years. Carl is verydifferent from his publicpersona. He’s funny andcurious, even grandfatherly.His friends say he’s

mellowed a bit. But he stilltalks with a Queens accent,andhestillhasthesharpedgeofaNewYorkstreetbrawler.Icahn says he’s not the kindof guy who gives up.Especially when he’s foundsomethingworthfightingfor.

Youcomefromafamilyofmodestmeans,andyouwenttopublicschoolsinaroughpartofQueens.Didyouhave

TR: agoalwhenyoustartedout,thatyouweregoingtobecomeoneofthebestinvestorsofalltime?

I’maverycompetitiveguy.Passionateorobsessive,whateveryouwanttocallit.Andit’smynaturethatwhateverIdo,Itrytobethebest.WhenIwasapplyingtocolleges,myteachers

CI:

toldme,“Don’tevenbotherwiththeIvyLeague.Theydon’ttakekidsfromthisarea.”Itooktheboardsanywayandgotintoallofthem.IchosePrinceton.Myfatherhadofferedtopayforeverything,thenhebackedoutandwouldonlypaytuition,which—ifyoubelieveit—was$750ayearbackthen.Isaid,“SowheredoI

sleep?HowdoIeat?”Myparentssaid,“You’resosmart,you’llfigureitout.”

TR: Sowhatdidyoudo?

IgotajobasabeachboyataclubintheRockaways.Iwasagoodbeachboy!Thecabanaownersusedtosay,“Heykid,joinourpokergameandlose

CI:

yourtipsfortheweek.”AtfirstIdidn’tevenknowhowtoplay,andtheycleanedmeout.SoIreadthreebooksonpokerintwoweeks,andafterthatIwastentimesbetterthananyofthem.Tomeitwasabiggame,bigstakes.EverysummerIwonabout$2,000,whichwaslike$50,000backinthe’50s.

TR: Howdidyougetstartedinbusiness?

CI:

AftercollegeIjoinedthearmy,whereIkeptplayingpoker.Icameoutwithmaybe$20,000savedupandIstartedinvestingitonWallStreetin1961.Iwaslivinggood,hadthisgorgeousmodelgirlfriendandIboughtawhiteGalaxie

convertible.Thenthemarketcrashedin1962,andIlosteverything.Idon’tknowwhatwentfirst,thegirlfriendorthecar!

TR:

Ireadthatyougotbackinthemarket,sellingoptions,thengoingintoarbitrage.

IborrowedmoneytobuyaseatontheNew

CI:

YorkStockExchange.Iwasahotshotguy.Myexperiencetaughtmethattradingthemarketisdangerous,anditwasfarbettertousemymathematicalabilitytobecomeanexpertincertainareas.Bankswouldloanme90%ofthemoneyIneededforarbitrage,becausebackthen,inrisklessarbitrage,ifyouwere

good,youliterallycouldn’tlose.AndIwasstartingtomakebigmoney,$1.5to$2millionayear.

TR:

I’dlovetotalktoyouaboutasymmetricreturns.Wereyoualsolookingforthosewhenyoubegantakingoverundervaluedcompanies?

Istartedlookingatthese

companiesandreallyanalyzingthem.Itellyou,it’ssortoflikearbitrage,butnobodyappreciatesthat.Whenyoubuyacompany,whatyou’rereallybuyingareitsassets.Soyou’vegottolookatthoseassetsandaskyourself,“Whyaren’ttheydoingaswellastheyshouldbe?”Fully90%ofthetime,the

CI:

reasonismanagement.Sowewouldfindcompaniesthatweren’twellrun,andIhadenoughmoneythatIcouldcomeinandsay:“I’mtakingyouoverunlessyouchange,orunlesstheboarddoesX,Y,orZ.”Alotoftimestheboardsaid,“Okay.”Butsometimesthemanagementwouldfightusandperhapsgoto

court.VeryfewpeoplehadthetenacityIhad—orwerewillingtoriskthemoney.Ifyoulookedatit,itappearedthatwewereriskingalotofmoney,butweweren’t.

TR:Butyoudidn’tseeitasriskybecauseyouknewtheasset’srealvalue?Youlookforrisk/rewardintheworld,right?

CI:

Everythingisriskandreward.Butyou’vegottounderstandwhattheriskis,andalsounderstandwhattherewardis.MostpeoplesawmuchmoreriskthanIdid.Butmathdoesn’tlie,andtheysimplydidn’tunderstandit.

TR: Whynot?Becausethereweretoo

CI: manyvariablesandtoomanyanalyststhatcouldswayyouropinion.

TR:They’remakingitharderforyoutobeatthemthesedays.Notreally.Thesystemissoflawedthatyoucan’tgetmediocremanagersout.Here’sanexample:let’ssayIinheritanicevineyardonbeautifulland.Six

CI:

monthslaterIwanttosellit,becauseit’snotmakinganymoney.ButI’vegotaproblem:theguywhomanagesthevineyardisneverthere.He’splayinggolfallday.Buthewon’tgiveuphisjobrunningthevineyard.Andhewon’tletanybodylookatthevineyardbecausehedoesn’twanttoseeitsold.Youmightsayto

me,“Whatareyou,crazy?Getthepolice,kickhimout!”Butthat’sthetroublewithpubliccompanies:youcan’tdoitwithoutaverydifficultfight.

TR:TherulesmakeithardtokicktheCEOoffyourproperty.

That’sthetrouble:theshareholdersof

CI:

corporationshavegreatdifficultybeingheard,butatIEPwefightandoftenwin.Onceinpower,sometimeswefindtheCEOisnotsobad.Butthebottomlineis:thewaypubliccompaniesaregovernedisreallybadforthiscountry.Therearesomanyrulesthatkeepyoufrombeinganactivist.Therearemany

barrierstogettingcontrol,butwhenwedo,allshareholders,astherecordshows,generallydoverywell.Additionally,whatwedoisalsoverygoodfortheeconomy,becauseitmakesthesecompaniesmoreproductive,andthisisnotjustshortterm.Sometimeswedon’tsellfor15to20years!

TR: What’sthesolution?Getridofthepoisonpills[thatissuemorestockatadiscountifanyoneshareholderbuystoomuch]andgetridofthestaggeredboardelectionssotheshareholderscandecidehowtheywantthecompanyrun.Weshouldmakethesecompaniesbe

CI:

accountableandhavetrueelections.Eveninpolitics,asbadasitis,youcangetridofthepresidentifyouwantedto.He’sonlythereforfouryearsatatime.Butatourcompanies,itisveryhardtogetridofaCEOevenifheorsheisdoingaterriblejob.OftenCEOsgetthattopjobbecausethey’reliketheguyincollegewho

wastheheadofthefraternity.Hewasn’tthesmartestguy,buthewasthebestsocialguyandaverylikeableguy,andsohemovedupthroughtheranks.

TR:

Sometimesyoudon’tneedaproxyfighttochangethedirectionofacompany.YouboughtalotofstockinNetflixrecently,almost10%,andyoumade$2billionintwoyears.Thatwasmyson,Brett,andhispartnerwhodidit.Idon’tknowmuchabouttechnology,buthe

CI: showedmein20minuteswhyitwasagreatdeal.AndIjustsaid,“Buyeverythingyoucan!”Itwasn’treallyanactivistplay.

TR:

Whatdidyousee?Whatdidheshowyouinthose20minutesthatmadeyouknowthatthestockwasthatundervalued?Simple:mostofthegreatexpertswere

CI:

worriedaboutthewrongthing.Atthatmoment,Netflixhad$2billioninfeescomingineveryyear.Butthosefeesaren’tontheirbalancesheet.Andso,alltheseexpertsweresaying,“Howaretheygoingtogetmoneytopayforcontent?”Well,they’vegotthe$2billioncomingin!Andgenerallysubscribersare

loyalforlongerthanyouwouldimagine!Itwouldtakemuchlongerthanmostpeoplethoughttoputthehugecashflowinjeopardy,nomatterwhathappened.

TR: ButyounevertriedtotakeoverNetflix?Theythoughttheyweregoingtohaveaproxyfight.ButIsaid,“Reed[Hastings,Netflix

CI:

cofounderandCEO],I’mnotgoingtohaveaproxyfightwithyou.Youjustgotahundred-pointmove!”ThenIaskedthemiftheyknewtheIcahnrule.Theysaid,“What’sthat,Carl?”Isaid,“Anybodywhomakesmeeighthundredmillioninthreemonths,Idon’tpunchtheminthemouth.”

TR:[Laughs.]Youcashedoutaportionofthestocktowardtheendof2013.

CI:

Whenthestockgotto$350,Idecidedtotakesomeoffthetable.ButIdidn’tsellitall.

TR:Whatisthebiggestmisconceptionaboutyou?

Ithinkpeopledon’t

CI:

understand,ormaybeIdon’tunderstand,myownmotivations.Whileitmaysoundcorny,Ireallydothinkthatatthispointinmylife,Iamtryingtodosomethingtokeepourcountrygreat.IwantmylegacytobethatIchangedthewaybusinessisdone.Itbothersmethatsomanyofourgreatcompanies

aresobadlymanaged.IwanttochangetherulessothattheCEOandboardsaretrulyaccountabletotheirshareholders.

TR:

YouandyourwifehavesignedtheGivingPledge.Whatothertypesofphilanthropyareyoumostpassionateabout?

Igivealot,butIlike

CI:

doingmyownthing.Ijustput$30millionintocharterschoolsbecauseincharterschoolstheprincipalandteachersareaccountable.Asaresult,acharterschoolruncorrectlygivesourchildrenamuchbettereducationthantheygenerallygetinpublicschools.Weareagreatcountry,but,sadly,thewaywerunour

companiesandoureducationalsystem,forthemostpart,isdysfunctional.Ihopetousemywealthtoaidmeinbeingaforceinchangingthis.Sadly,ifwedon’t,weareontheroadtobecomingasecond-ratecountryorevenworse.

CHAPTER6.2

DAVIDSWENSEN:A$23.9BILLIONLABOROFLOVE

ChiefInvestment

Officer,YaleUniversity,andAuthorof

UnconventionalSuccess:

AFundamentalApproachtoPersonal

Investment

David Swensen is probablythe best-known investoryou’ve never heard of. He’sbeendescribedastheWarrenBuffett of institutionalinvesting.Over the courseofhis celebrated tenure asYale’s chief investmentofficer,he’sturned$1billioninassetsintomorethan$23.9billion, boasting 13.9%annual returns along theway

—a record unmatched bymany of the high-flyinghedgefundsthathavetriedtolure him away over the last27years.As soon as you meet

Swensen, you realize thathe’snotinitforthemoney—he’s in it for the love of thegame and a sense of serviceto a great university. Andhe’s got the paycheck toprove it: his worth in theprivate sector would be

exponentially higher thanwhatheearnsatYale.Athiscore,Swensen isan

inventor and a disruptor.HisYale model, also known asthe endowment model, wasdevelopedwith his colleagueand former student DeanTakahashi, and is anapplication of modernportfolio theory. The idea istodivideaportfolio intofiveorsixroughlyequalpartsandinvesteachinadifferentasset

class. The Yale model is along-termstrategythatfavorsbroad diversification and abiastowardequities,withlessemphasis on lower-returnassetclassessuchasbondsorcommodities. Swensen’spositionon liquidity has alsobeen called revolutionary—he avoids rather than chasesliquidity,arguingthatitleadstolowerreturnsonassetsthatcould otherwise be investedmoreefficiently.

Beforehisdaysastherockstarof institutional investing,Swensen worked on WallStreet for bond powerhouseSalomon Brothers. Manycredit him with structuringthe world’s first currencyswap, a trade between IBMandtheWorldBank,whichineffect led to the creation ofthe interest rate andultimatelycredit-defaultswapmarkets,representingover$1trillion in assets today. But

don’tholdthatagainsthim!I had the privilege of

sittingdownwithSwensenathis Yale office, and before Iventured up the hallowedhalls of that storiedinstitution, I did what anygood student would do: Ispent the night beforecramming.Notwantingtobeanythinglessthanprepared,Iabsorbed 400 pages ofUnconventional Success,Swensen’s manifesto on

personal investing anddiversification, before themeeting. What follows is anedited and abridged versionof our nearly four-hourinterview.

TR:

Youworkonbehalfofoneofthelargestinstitutionsinthiscountry,yetyouhaveadeepinterestinandcommitmenttotheindividualinvestor.Talk

tomeaboutthat.

DS:

I’mbasicallyanoptimisticperson,butwhenitcomestotheworldthatindividualinvestorsface,it’samess.

TR: Whyisthat?Thefundamentalreasonthatindividualsdon’thavethetypesofchoicestheyshould

DS:

haveisbecauseoftheprofitorientationinthemutualfundindustry.Don’tgetmewrong,I’macapitalist,andIbelieveinprofits.Butthere’safundamentalconflictbetweentheprofitmotiveandfiduciaryresponsibility—becausethegreatertheprofitsfortheserviceprovider,thelowerthereturnsforthe

investor.

TR:

Whenwe’retalkingaboutfiduciaryresponsibility,notallinvestorsevenknowwhatthatmeans.Whatwe’rereallytalkingaboutis:youhavetoputinvestors’interestsaheadofyourown.

Theproblemisthatthemanagersofthemutual

DS:

fundsmakemoremoneywhentheygatherhugepilesofassetsandchargehighfees.Thehighfeesareindirectconflictwiththegoalofproducinghighreturns.Andsowhathappensoverandoveragainistheprofitswinandtheinvestorseekingreturnsloses.Thereareonlytwoorganizationswherethatconflictdoesn’t

exist,andthey’reVanguardandTIAA-CREF.Bothoperateonanot-for-profitbasis—they’relookingoutfortheinvestors’interests,andthey’restrongfiduciaries.Andfiduciaryresponsibilityalwayswins.Becausemutualfundsspectacularlyunderperformthe

TR:

market.I’vereadthatfrom1984to1998,onlyabout4%offunds[withover$100millioninassetsundermanagement(AUM)]beattheVanguard500.Andthat4%isn’tthesameeveryyear—amoresimplewayofsayingthatisthat96%ofallmutualfundsfailtobeatthemarket.

DS:

Thosestatisticsareonlythetipoftheiceberg.Therealityisevenworse.Whenyoulookatpastperformance,youcanonlylookatthefundsinexistencetoday.

TR: Survivors.Exactly.Thosestatisticssufferfromsurvivorshipbias.Overthelasttenyears,hundredsofmutualfundshavegone

DS:

outofbusinessbecausetheyperformedpoorly.Ofcourse,theydon’ttakethefundswithgreatreturnsandmergethemintofundswithlousyreturns.Theytakethefundswithlousyreturnsandmergethemintofundswithgreatreturns.

TR: Sothe96%isn’taccurate?DS: It’sworse.

TR: Wow.

DS:

There’sanotherreasontheinvestor’srealityisworsethanthenumbersyoucite,andthat’sbecauseofourownbehavioralmistakeswemakeasindividualinvestors.Individualstendtobuyfundsthathavegoodperformance.Andtheychasereturns.Andthenwhenfunds

performpoorly,theysell.Andsotheyendupbuyinghighandsellinglow.Andthat’sabadwaytomakemoney.

TR: What’stherealityofchasingreturns?

DS:

Alotofithastodowithmarketing.Nobodywantstosay,“Iownabunchofone-andtwo-starfunds.”Theywanttoownfour-starfunds.

Andfive-starfunds.Andbragaboutitattheoffice.

TR: Ofcourse.

Butthefour-andfive-starfundsaretheonesthathaveperformedwell,nottheonesthatwillperformwell.Ifyousystematicallybuytheonesthathaveperformedwellandselltheonesthathave

DS:performedpoorly,you’regoingtoendupunderperforming.Soaddtoyourstatisticsthatmorethan90%offundsfailtomatchthemarket,andthenaddinthewaypeoplebehave—theyfurtherdepresstheirreturnsbelowthemarket.

Sochasingreturnsisaguaranteedwaytohave

TR: alowerreturnorlosemoney?

DS:

Thosefactorsthatrandomlycausesomethingtoperformwellarejustaslikelytoreversethemselvesandcausewhathadperformedwelltoperformpoorly—it’scalledreversiontothemean.

TR: Okay,sowhatcaninvestorsdotohelptheircause?

DS:

Thereareonlythreetools,orlevers,thatinvestorshaveto[increase]returns.Thefirstisassetallocation:Whatassetsareyougoingtoholdinyourportfolio?Andinwhichproportionsareyougoingtoholdthem?The

secondismarkettiming.Areyougoingtotrytobetonwhetheroneassetclassisgoingtoperformbetterintheshortrunrelativetotheotherassetclassesyouhold?

TR:Areyougoingtobeinbonds,orstocks,orrealestate?Yes,thoseshort-termmarket-timingbets.Andthethirdtoolissecurity

DS:

selection.Howareyougoingtostructureyourbondportfolioorstockportfolio?Andthat’sit.Thosearetheonlythreetoolswehave.Theoverwhelminglymostimportant[asyoufiguredout]isassetallocation.

TR: Ireadthatinyourbook,anditblewmeaway.OneofthethingsIlove

DS:

teachingmystudentsatYaleisthatassetallocationactuallyexplainsmorethan100%ofreturnsininvesting!Howcanthatbetrue?Thereasonis,whenyouengageinmarkettiming,itcostsyoumoney;it’snotsomethingyoucanplayforfree.Everytimeyoubuyorsell,youpayabroker.Sothere’sa

leakageinfeesandcommissionspaid—whichreducesoverallreturns.Andthesameistrueforsecurityselection.

TR:

Sothistakesusbacktoindexfundsandapassiveapproachtoinvesting.

Right.Theactivemanagerschargehigher

DS:

feeswithpromisesofbeatingthemarket,butwe’veseenit’safalsepromisemoreoftenthannot.Youcantakeapassiveapproachandownthewholemarket.Andyoucanbuytheentiremarketforavery,verylowfee.

TR: Howlow?Lessthan20basispoints.Andyoucanget

DS:

itthroughamutualfundofferedbyVanguard.Soifyoucanimplementyourinvestmentwithlow-cost,passivelymanagedindexedfunds,you’regoingtobeawinner.

TR:You’renotpayingfees,andyou’renottryingtobeatthemarket.Plus,yougetanotherbenefit:yourtaxbillis

DS:

goingtobelower.Thisishuge.Oneofthemostseriousproblemsinthemutualfundindustry,whichisfullofseriousproblems,isthatalmostallmutualfundmanagersbehaveasiftaxesdon’tmatter.Buttaxesmatter.Taxesmatteralot.

TR: Isthereanybiggerbillwefaceinourlives?

DS:

No.Andthisspeakstotheimportanceoftakingadvantageofeverytax-advantagedinvestmentopportunitythatyoucan.Youshouldmaximizeyourcontributionsifyou’vegota401(k),ora403(b)ifyouworkforanonprofit.Youshouldtakeeveryopportunitytoinvestinatax-

deferredway.

TR:Howdowesetupthemostefficientassetallocation?

DS:

Anybodywho’stakenfreshmaneconomicshasprobablyheard“Thereain’tnosuchthingasafreelunch.”ButHarryMarkowitz,whompeoplecallthefatherofmodernportfoliotheory,saysthat“diversification

isafreelunch.”TR: Whyisthat?

DS:

Becauseforanygivenlevelofreturn,ifyoudiversify,youcangeneratethatreturnwithalowerrisk;orforanygivenlevelofrisk,ifyoudiversify,youcangenerateahigherreturn.Soit’safreelunch.Diversificationmakesyourportfoliobetter.

TR:What’stheminimumdiversificationyouneed?Therearetwolevelsofdiversification.Oneisrelatedtosecurityselection.Ifyoudecidetobuyanindexfund,youarediversifiedtothemaximumextentpossiblebecauseyouownthewholemarket.That’soneofthe

DS:

beautiesoftheindexfund,andit’soneofthewonderfulthingsJackBogledidforinvestorsinAmerica.Hegavethemtheopportunityinalow-costwaytobuythewholemarket.Butfromanasset-allocationperspective,whenwetalkaboutdiversification,we’retalkingaboutinvestinginmultipleassetclasses.

TherearesixthatIthinkarereallyimportantandtheyareUSstocks,USTreasurybonds,USTreasuryinflation-protectedsecurities[TIPS],foreigndevelopedequities,foreignemerging-marketequities,andrealestateinvestmenttrusts[REITs].Whydoyoupickthose

TR: sixversusothers?Andwhat’syourportfolioallocation?Equitiesarethecoreforportfoliosthathavealongtimehorizon.Equitiesareobviouslyriskierthanbonds.Iftheworldworksthewayit’ssupposedtowork,equitieswillproducesuperiorreturns.It’snottruedayinanddayout,

DS: orweekinandweekout,orevenyearinandyearout,butoverreasonablylongperiodsoftime,equitiesshouldgeneratehigherreturns.Ihaveastraw-manportfolioinmybook,and70%oftheassetsinthereareequities[orequity-like],and30%arefixedincome.Let’sstartwiththe

TR:

equitysideoftheportfolio:the70%.Oneofyourrulesfordiversificationistoneverhaveanythingweightedmorethan30%,isthatcorrect?

DS: Yes.

TR: Andsoyouputthefirst30%where?

USstocks.OneofthethingsIthinkthat’sreallyimportantiswe

DS:

shouldneverunderestimatetheresilienceoftheUSeconomy.It’sverypowerful.Andnomatterhowmuchthepoliticianstryandscrewitup,there’sanunderlyingstrengththere.AndIneverwanttobetagainstthat.

Andthat’swhyyou’resoheavilyweighted,

TR:70%,towardgrowth.NotjustintheUSeconomybutinoverallbusinessaroundtheworld.

DS:

AndthenIprobablyput10%inemergingmarkets,15%inforeigndevelopment,and15%inrealestateinvestmenttrusts.

TR: Tellmeaboutthe30%

fixed-incomesecurities.

DS:

I’vegotalloftheminTreasurysecurities.Halfofthemaretraditionalbonds.Theotherhalfareininflation-protectedTIPS.IfyoubuyregularTreasurybonds,andinflationtakesoff,you’regoingtoendupwithlosses.

TR: Peoplegetconfusedby

that,unfortunately.

DS:

WhenIfirststartedonWallStreet,Iremembergoingtomyfirstclientmeetingsandwhisperingtomyselfoverandoveragain,“Interestratesup,pricesdown.”Ididn’twanttogetthatwrong.Thatwouldhavebeenreallyembarrassing.

Cananindividual

TR: investormakemoneyintoday’smarket?That’sthebeautyofhavingalong-termbuy-and-holdstrategy.That’swhyyoudiversify.I’mnotsmartenoughtoknowwherethemarketsaregoingtogo.Inthelate’90s,peoplesaid,“Whydidyoutakeallthistroubletodiversifyyour

DS:

portfolio?AllyouneededtodowasowntheS&P500.”Andwhattheyweredoingwas,theywerelookingatthebestassetclass,anditjusthappenedtobeourequitymarket.Andtheysaid,“Everythingyoudidwasawasteoftime.”ButthatwastheAmericanexperience.Andthat’snottheonlyexperienceintheworld.

Andif,atthebeginningofthe1990s,youwereaJapaneseinvestorwhoputallyourmoneyintheJapanesemarket,attheendofthe’90s,you’dbemiserable.You’renevergoingtohavethereturnthat’sequaltothebestindividualassetclassreturn,andyouneverknowwhatthatassetclassisgoingtobe

beforethefact.

TR:

Whatdoyousaytothebabyboomersoutthere,theoneswhoarefacingretirementinthenot-too-distantfuture?Unfortunately,Ithinkmostindividualsdon’thaveanyideahowmuchmoneytheyneedtosavefortheirretirement.Ireallyworrythatalotofpeoplewilllookattheir

DS: 401(k)accountandsay,“Ihavefiftythousanddollarsorahundredthousand—that’salotofmoney.”Butifyou’retalkingaboutfinancingaretirement,it’snotalotofmoney.

TR:Alotofpeoplearen’tgoingtobeabletoretirewhentheywanttoretire.

Theonlywaypeople

DS:

cangettotherightplaceistoeducatethemselves.AndI’mthrilledyou’retryingtohelppeoplegettheknowledgethattheyneedinordertomakeintelligentdecisions.

TR:

Iunderstandthatyouwentthroughatoughhealthtime.What’snextforyou?Aboutayearago,Iwasdiagnosedwithcancer.I

DS:

didn’thaveabucketlist.Ididn’twanttoquitandtravelaroundtheworld.IwantedtokeepondoingwhatIcouldtosupporttheuniversity.ManageYale’sportfolioaslongasIcoulddoit.Andthat’swhatI’mdoing.Ilovemyjob.

TR: That’sawesome.

IthinkYaleisoneoftheworld’sgreat

DS:institutions.AndifIcandoanythingtomakeitastrongerplaceandabetterplace,thenmaybeIwillhavemadeadifference.

TR:

David,thankyou,thishasbeenextraordinary.IfeellikeIwenttoYaleandtookaclassonportfolioconstruction.

DS: Well,youdid.

CHAPTER6.3

JOHNC.BOGLE:THEVANGUARDOFINVESTING

CreatoroftheIndexFund;FounderandformerCEOoftheVanguardGroup

If you haven’t read any ofJack Bogle’s books orlistened to his no-nonsensecommentary on TV, thenyou’ve been missing out onan American treasure.

Fortune magazine namedBogle one of the fourinvestment giants of the20th century. He’s beencompared with BenjaminFranklinforhisinventivenessand civic spirit. Some sayhe’s done more for theindividual investor thananyone in the history ofbusiness.How did he do it? When

Jack Bogle founded theVanguard Group in 1974,

index funds were just anacademic theory. But Boglewas willing to bet hiscompany on the idea thatlow-cost, low-fee mutualfunds that tracked theperformance of the wholestock market wouldoutperform most managedfunds year after year. Why?Because investors as agroup can’t beat themarket, because they arethe market. Talk about a

disrupter! At first, his indexfunds were mocked as“Bogle’s Folly.” Acompetitor even called theideaun-American.But Bogle brushed off his

critics and went on to buildVanguard into the largestmutual fund managementfirmin theworld,with$2.86trillion in assets undermanagement. How big isthat? If Vanguard were acountry, its economy would

be the same size as GreatBritain’s! And now,accordingtoMorningstar,USindex funds represent morethan a third of all equitymutualfundinvestments.Jack Bogle was born in

New Jersey in 1929, right atthe start of the GreatDepression. His familywasn’t wealthy, but Boglewas smart enough to get ascholarship to Princeton,where he served meals to

otherstudentstohelppayhisway. He wrote his seniorthesis in economics aboutmutual funds, hinting at thepath he would later carve inthe industry. And he neverforgotwhata friend toldhimduring a summer job as astock runner: “Bogle, I’mgoing to tellyoueverythingyouneedtoknowaboutthestockmarket:nobodyknowsnothin’.”After graduating magna

cumlaude, in1951hejoinedthe Wellington ManagementCompany in Philadelphia,where he rose to becomepresident.Butduringthe“go-go” years of the mid-1960s,Bogle merged with amanagement group he hopedwouldpumpuphis business.“It was the worst mistake ofmylife,”hetoldme.Thenewpartnersranthemutualfundsintothegroundandthenusedtheirseatsontheboardtofire

Bogle.Sowhatdidhedo?Instead

of accepting defeat, Bogleturned that failure into hisgreatest victory, one thatchangedthefaceofinvesting.Becauseofthelegalstructureof mutual funds, Bogle wasstillinchargeofWellington’sfunds, which were separatefrom the managementcompany, with a somewhatdifferent board of directors.He stayed on as the funds’

chairman, but he wasn’tallowedtomanagethem.“Sohowdo Iget into investmentmanagementwithoutbeinganinvestmentmanager?”hesaidduring our interview.“You’ve already figured outthe answer. Start anunmanaged fund.We calleditanindexfund;InameditVanguard. At firsteverybody thought itwas ajoke.” Incredible! If JackBogle hadn’t made that

mistake,hewouldneverhavefounded Vanguard, andmillions and millions ofindividual investors mightneverhavehad thechance toavoid excessive fees and addbillions of dollars to theircollectivereturns.I sat downwith this living

legend in his office on theVanguard campus inMalvern, Pennsylvania, as awinter storm bore down onthe East Coast. He still goes

to work every day at theVanguardresearchcenterthathe’s headed since steppingdown as senior chairman in2000. Jack shook my handwiththegripofamanhalfhisage. Maybe that’s because a1996 heart transplant gavehim a new lease on life tocontinue what he calls a“crusade to give investors afairshake.”What follows is an edited

and abridged version of our

four-hourconversation.

TR:Tellme,Jack,wheredoesyourdrivecomefrom?Frommyearliestmemoriesofmyyouth,Ihadtowork.Istartedworkingatninedeliveringnewspapersaroundtheblock.Ialwayslovedit.I’msomethingofan

JB:introvert,andafterworkingallthetime,youdon’thavetomakealotofidleconversation.AndIhaveacompetitivestreak.Thatkindofspoilingforagoodfight—evenwhenyoudon’tneedone—makesupforalot.

TR:

Youstartedyourcareeratatraditionalmutual

fundmanagementcompany.

JB:

Iwasyoung,IwasnotwiseenoughtolearnthelessonsofhistorythatIshouldhaveknown,ortoactonthem.Ithoughttherewassuchathingasapermanentlygoodinvestmentmanager;thereisnot.Theycomeandgo.

TR: Whyisthat?

JB:

There’sanawfullotofluckrelativetoskill.Investingis95%luckand5%skill.AndmaybeifI’mwrong,it’s98and2.

TR: Nottoinsultanyactivemanagers!Look,youputaround1,024peopleflippingcoinsinaroom.Youtell

JB:

themalltoflip,andoneofthose1,024isgoingtoflipheadstentimesinarow.Andyou’dsay,“Whataluckyguy.”Right?Butinthefundbusiness,you’dsay,“Whatagenius.”[Laughs.]Youcanevenhavegorillasdoit,andtheoutcomeisexactlythesame!Whatdidyoumean

TR: whenyousaid,“There’sabigdifferencebetweenasmartguyandagoodinvestor”?

JB:

Well,firstofall,investorsareaverage.Let’sstartwiththat.Verysimple.Andmostindividualinvestorspaytoomuchfortheprivilegeofbeingaverage.

TR: How’sthat?

Activemanagementisgoingtocostyouaround2%all-infortheaveragefund(includingthe1.2%averageexpenseratio,transactioncosts,cashdrag,andsalescharges).Sothatmeansina7%market,they’llget5.[Anindexfundthatcosts0.05%meansthatyougeta6.95%return.]At6.95%,youturn$1

JB: intoabout$30over50years.Butat5%,youget$10insteadof$30.Andwhatdoesthatmean?Itmeansyouputup100%ofthecash,youtook100%oftherisk,andyougot30%ofthereward.That’swhathappenswhenyoulookatreturnsoverthelongterm.Peopledon’t,butthey’regoingtohavetolearnto

dothat.

TR:

Theydon’tseethecompoundingofcostsandcompoundingoffees.

Peopleouttherereallyshouldunderstandwhythey’rebuyingstocks.It’sforthedividendyield,andit’sfortheearningsgrowth.Thefactisthatoverthelongterm,halfofthe

JB:

returninthestockmarkethascomefromdividends.Andthat’swhereallthefund’sexpensescomefrom.Sothinkaboutthisforaminute,Tony:Thegrossyieldoftheaverageequityfundis2%.Theaverageequityfundhasanexpenseratioof1.2%.They’regoingtotakethatoutofthatyield.Soyou’regetting

ayieldof0.8%.Themanageristakinghalfofyourdividendstopayhimself!Andthisindustryisconsumingeverybitof60%ofdividends.Andsometimes100%andsometimesmorethan100%.YoucanseewhyI’msuchapaininthetailtotheindustry.Yettherearestill100

TR: millionpeopleinvestedinactivelymanagedmutualfunds.Howisthathumanlypossible?Well,neverunderestimatethepowerofmarketing.Backin2000,wechecked,andtheaveragefundthatwasadvertisedinMoneymagazinethenhadanannualreturnof41%.Manyofthesefunds—

JB:perhapsmost—arenolongeraround.Investorsexpecttheirsmartmanagerwillbesmartforever,butitwon’thappen.Theyexpectthathe’sgenerated20%returns,he’llcontinuetogenerate20%.Andthat’sjustridiculous;itcan’thappen,itwon’thappen.

TR:

Vanguardismanagedonlytobenefititsfundshareholders,whoactuallyownthecompany.Areyouasupporteroftheuniversalfiduciarystandard?I’mademander,andImaybeoneoftheveryfirst.TheInvestmentCompanyInstitute[themutualfundindustry’s

lobbyingorganization]says,“Wedon’tneedafederalstandardoffiduciaryduty.Weareafiduciary.”Well,numberone,thenwhydotheyobjecttoit?That’saninterestingquestion.Butnumbertwo,they

don’tunderstandwehavethisconflictoffiduciaryduties.Themanagerofapublicly

JB:

heldfirmlike,say,BlackRockhastwosetsoffiduciaryduties.OneisfiduciarydutytotheshareholdersoftheBlackRockmutualfunds,tomaximizetheirreturns.AndtheotheristhefiduciarydutytoearnthemostmoneytheypossiblycanforthepublicownersofBlackRock.AndsoBlackRockCEO

LaurenceD.Finkhastheconsummatedilemma.Tomaximizethereturntomutualfundshareholders,hemustlowerfees.ButtomaximizethereturntotheownersofBlackRock,hemustincreasefees.Sothey’retryingtodoboth.Andthecompanyismakingmoremoneythanever.

TR: Howironic.

JB: Isthisagreatcountry,orwhat?

TR:

What’snext,inyourmind,overthenexttenyearsthatiscompellingand/orchallenging?

IseecorporateAmericacontinuingtogrow.And,remember,thestockmarketisaderivative.It’saderivativeofthevalue

JB:

createdbyourcorporations.Theyearnmoney,andthey’regoingtocontinuetoearnmoney.Theymayearnalittleless,buttheywillstillgetbiggerandbigger,moreandmoreefficient.Sothey’llcontinuegrowing,probablyataslowerratethanwe’reaccustomedto,butstillahealthyrate.

TR:

Primarilybecausespendingwilldecreasebasedondemographics,orbecausewe’vejustborrowedsomuchthatwehavetostillgetourhouseinorder?Westillhavetodeleverage.There’stoomuchborrowinginthecountry.There’snotreallytoomuchleverageonthecorporateside.

JB:

Corporatebalancesheetsareinprettygoodshape.Butgovernmentbalancesheets,includingfederal,state,andlocal,arealloverextended.Andwe’vegottodosomethingaboutthat.Oneofthebigrisks—

oneofthebigquestions,really—istheFederalReservenowhasinroundnumbers$4trillioninreserves.

That’s$3trillionmorethanusual,withabout$3trillionhavingbeenacquiredinthelastfive,sixyears.Andthathastobeunwound.Andit’snotcleartoanybodyexactlyhowthat’sgoingtohappen.Buteverybodyknowsithastohappensoonerorlater.Howconcernedshould

TR: webeaboutanotherfinancialcrisis?Ifyou’rethinkingnotasanaverageinvestorbutassomeonewhoisthinkingaboutthebigpicture,neverloseyoursenseofhistory.Don’tthinkitwon’trepeatitself.AsMarkTwainsays,“Historymaynotrepeatitself,butitrhymes.”Sowedoface

JB: thepossibilityofaseriousworldfinancialcrisis.Evenaworlddepression.Whatarethechancesofaworlddepression?I’dsaymaybeoneinten.Butit’snotoneinathousand.SoIdon’tlookatitaslikely,butanyonethatsays“Itcan’thappenhere”iswrong—

TR: —isnotpayingattentiontohistory.

JB:

Yes.So,basically,useyourGod-givencommonsense.Notgettingcarriedawaybythefadsandfashionsofthemoment.Andnotgettingcarriedawaybythemomentarygyrationsinthemarkets,stocksorbond.

Inyour64yearsinthe

TR:

business,you’vegonethrougheverytypeofmarket.Howdoyoutakethehumanemotionalelementoutofinvesting?

JB:

Noneofuscan,includingme.I’mtryingto.Peoplesay,“Howdoyoufeelwhenthemarketgoesdown50%?”Isay,honestly,Ifeelmiserable.Iget

knotsinmystomach.SowhatdoIdo?Igetoutacoupleofmybookson“stayingthecourse”andrereadthem!

TR:

Ifyoucouldn’tpassonanymoneytoyourkidsorgrandkids,butyoucouldpassonsomeprinciples,whatwouldtheybe?

Iwouldsay,tobegin

JB:

with,payattentiontowhereyourassetsareinvested.Chooseyourassetallocationinaccordancewithyourrisktoleranceandyourobjectives.Numbertwowouldbe,diversify.Andbesureanddiversifythroughlow-costindexfunds.Therearealotofhigh-costonesoutthere.Weshouldn’tforgetthat.Anddon’ttrade.

Don’tdosomething—juststandthere!Nomatterwhat!Andyou’llbeabletoresistthattemptationmoreeasilyifyouhadalittlebitmoreofyourassetsallocatedtobondsthanyouthinkyoushould.

TR:Whatotheradvicedoyouhaveforinvestors?

Don’topentheWall

StreetJournal!Don’twatchCNBC!Wekidaboutit.IdointerviewsonCNBCalot,andIkeepwonderingwhytheykeepaskingmeback.Icanhandlesomewherebetween40secondsand50secondsofJimCramer.Alltheyellingandscreamingandbuythisandsellthat.That’sadistractiontothe

JB:

businessofinvesting.Wespendtoomuchtime,focustoomuchofourenergyonallthesethingstodowithinvesting,whenyouknowwhattheoutcome’sgoingtobe.You’regoingtogetthemarketreturnplusorminussomething.Mostlyminus.Andsowhyspendallthistimetryingtotradethe

Standard&Poor’s500alldaylonginrealtime,asanearlymarketingcampaignforthefirstETF[exchange-tradedfund]suggested?Anybodywhois

doingthatshouldgetalife.Takethekidsouttothepark.Takeyourwifeouttodinner.Ifallelsefails,readagoodbook.

TR: Whatdoesmoneymean

toyou?Ilookatmoneynotasanendbutameanstoanend.There’sagreatstoryaboutthetwowritersKurtVonnegutandJoeHeller.TheymeetatapartyonShelterIsland.KurtlooksatJoeandsays,“Thatguy,ourhostoverthere,hemadeabilliondollarstoday.He’smade

JB:

moremoneyinonedaythanyoumadeoneverysinglecopyofCatch-22.”AndHellerlooksatVonnegutandsays,“That’sokay,becauseIhavesomethinghe,ourhost,willneverhave.Enough.”I’mleavingmykids

enoughsotheycandoanythingthattheywant,butnotsomuchtheycandonothing.Ioften

saytothem,“SometimesIwishthatyouwouldhavegrownupwithalltheadvantagesIhad.”Andtheirfirstreactionwas,“Don’tyoumeandisadvantages?”“No,kid,Idon’t.Imeanadvantages.Gettingalongintheworld,workingyourwaythroughitall.”Ittookyearsforthe

TR:conceptofindexingtotakehold,andnowindexfundsaretakingtheindustrybystorm.How’sitfeeltoberight?Well,peoplesay,youmustbeveryproud.Lookatwhatyoubuilt.AndItellthem,therewillbetimeforthat,Ithink,someday.Butnotyet.Ithinkit’s

JB:

Sophocleswhosaid,“Onemustwaituntiltheeveningtoenjoythesplendoroftheday.”Andmyeveningisn’thereyet.Youknow,I’vegotto

confesstoyou,Ishouldhavebeendeadalong,longtimeago.IhadeightheartattacksbeforeIgottheheart[transplant].Myheartstopped.AndIhaveno

righttobearound.Butitisabsolutelyfabuloustobealive.Idon’tspendalotoftimethinkingaboutthis.ButIrealizethatIamseeingwhatIbelieveisthetriumphofindexing.Andreallyarevolutionininvestorpreferences.There’snotanyquestionaboutthat.It’sgoingtochangeWallStreet.WallStreet’sgettinga

lotsmaller.I’mnotsureIunderstandthethingfully,butI’mguessingifIweredead,Iwouldn’tbeseeingit.

TR: Willyoueverretire,bytheway?

JB:

ProbablymorelikelytobeinGod’shandsthanmine.I’menjoyingmyself,andthrivingonmymissiontogiveinvestorsafairshake.

Jack Bogle Portfolio CorePrinciples1. Asset allocation inaccordance with yourrisk tolerance and yourobjectives.

2.Diversifythroughlow-costindexfunds.

3. Have as much in bondfunds as your age. A“crude” benchmark, hesays.

Jack is in his 80s and has40% of his total portfolioinvestedinbonds.Butaveryyoungpersoncouldbe100%equities.So in my total portfolio,

includingbothmypersonaland retirement accounts,about60%ofmyassetsarein stocks, mostly inVanguard’s stock indexfunds. The rest is splitbetween Vanguard’s TotalBond Market Index Fund

and tax-exempt [municipalbond] funds.Mymunicipalbond holdings are splitabout two-thirds inVanguard’s Intermediate-Term Tax-Exempt Fundand about one-third inVanguard’s Limited-TermTax-Exempt Fund [limitedbeing somewhere betweenshortandintermediate;alittlebitlongerfortheextrayield].Iwon’tneedtodrawonthe

money,Ihope,inmytaxable

portfolio. And those are stillnice tax-exempt yields,around3%orso,whichistheequivalentof5%forsomeoneinmytaxbracket,andIdon’tneedanymore than that. I’mhappytogetit.I worry a little bit, of

course, about the solidity ofthe municipal bond market,butI’vedecidedthatwithourtop-notch analysts here atVanguard, they should beokay. In my tax-deferred

portfolio, which is mylargest asset, my bondassets are largely inVanguard’s Total BondMarket Index Fund. Thatincludes long-, intermediate-,andshort-termbonds.ItholdsTreasury, mortgage, andcorporatebonds.I’m very satisfiedwith the

returns onmy total portfolio.Afteranawful17%declinein2008[theS&P500wasdown37% that year, more than

twice as much], my returnshave been consistentlypositive, averaging almost10% per year. I’m happy tosimply “stay the course” andrideitallout.

CHAPTER6.4

WARRENBUFFETT:THEORACLEOFOMAHA

TheLegendWho’sSaidItAll;CEO,

BerkshireHathaway

IwasinthegreenroomoftheTodayshow,waitingtogoonthe air, when in walked themanhimself:WarrenBuffett,one of the greatest investors

of the20thcenturyand,with$67.6billiontohisname,thethird wealthiest man in theworld.Wewerescheduled toappear (together with Spanxfounder Sara Blakely andfuture secretary of Housingand Urban DevelopmentJulianCastro)inaroundtablediscussion with Matt Lauerabout economic success andourviewson thedirectionoftheUSeconomy.I’vealwaysbeen a huge fan ofBuffett’s.

Like millions of investorsaround the world, I’ve beeninspiredbythestoryofhowahumble stockbroker fromNebraska turned a failingNewEnglandtextilebusinesscalled Berkshire Hathawayinto the fifth largest publiclyheld company in the world,with assets of nearly a halftrillion dollars and holdingsin everything from Geicoinsurance to See’s Candies.His not-so-secret to success

hasbeen“value investing”:asystem he learned andperfected from his mentorBen Graham. It revolvesaround looking forundervalued companies andbuying stock with theexpectation it will rise inprice over the long term. It’sone of the simplest forms ofasymmetric risk/reward, andone that requires atremendous amount ofresearch, skill, and cash—

which is one of the reasonsBuffett pursued insuranceholdings that throw off greatcash flow and thusinvestmentopportunities.Not only has Buffett been

phenomenally successful inbusiness, but also he’sbecome one of the mostgenerous philanthropists inhistory, pledging 99% of hisvast personal fortune tocharity through the Bill andMelinda Gates Foundation.

He’s also probably the mostquotable—and quoted—business leader ever, andyou’ve already read somepriceless nuggets of hiswisdom sprinkled throughoutthesepages.When I finally had him in

the same room with me, Icouldn’tresisttheopportunityto tell him about this bookproject. Perhapswe could sitdown for an interview abouthow the individual investor

can win in this volatileeconomy?Helookedupatmewitha

twinkleinhiseye.“Tony,”hesaid, “I’d love to help you,but I’m afraid I’ve alreadysaid everything a person cansayonthesubject.”It was hard to argue with

that. Since 1970, he’s beenputting out an eagerlyawaited annual letter to hisshareholdersfilledwithplain-spoken investing advice and

commentary.Plus,therehavealreadybeennearly50bookspublished with his name onthe jacket—even a few ofthem written by Buffetthimself!Still,Ipressedahead.“But now that you’ve

announced you’re leavingalmost all of your wealth tocharity,whatkindofportfoliowould you recommend foryour family to protect andgrowtheirowninvestments?”

He smiled again andgrabbed my arm. “It sosimple,” he said. Indexing isthewaytogo.InvestingreatAmerican businesses withoutpaying all the fees of amutual fund manager andhang on to those companies,and you will win over thelongterm!”Wow! The most famous

stockpicker in theworldhasembraced index funds as thebest and most cost-effective

investmentvehicles.Later, even after Steve

Forbes and Ray Dalioreached out on my behalf toencourage Warren to have amore detailed interview withme,heletmeknowtherewasnoneed.Warrentoldmethateverything he had to sayabout investing that’simportant is alreadypublished. All he would tellan individual investor todayistoinvestinindexfundsthat

give you exposure to thebroad market of the bestcompanies in the world andhold on to them for the longterm.Iguessrepetition is themother of skill. I got it,Warren! In this year’s letterto the shareholders, Warrenemphasized the same adviceto all investors once again!What’s his asset allocation?Beloware the instructionshehasleftforhiswifeandtheirtrustafterhehaspassed:

“Put10%...inshort-termgovernment bonds and 90%in a very low-cost S&P 500index fund. (I suggestVanguard’s.) I believe thetrust’s long-term results fromthispolicywillbesuperiortothose attained by mostinvestors—whether pensionfunds, institutions, orindividuals—who employhigh-feemanagers.”Jack Bogle is very happy

about this advice! America’s

most respected investor isendorsing the strategy Jackhas promoted for almost 40years!Remember,Buffettmadea

$1millionwageragainstNewYork–based Protégé PartnersbettingthatProtégécouldnotpick five top hedge fundmanagers who willcollectivelybeattheS&P500indexoveraten-yearperiod?Again, as of February 2014,the S&P 500 was up 43.8%,

while the five hedge fundswereup12.5%.The Oracle of Omaha has

spoken!

CHAPTER6.5

PAULTUDORJONES:A

MODERN-DAYROBINHOOD

Founder,Tudor

InvestmentCorporation;

Founder,RobinHoodFoundation

One of the most successfultraders of all times, Paul

Tudor Jones started his ownfirm at the age of 26, aftercutting his teeth tradingcotton in the commodity“pits.”Paul has defied gravity,

having produced 28 straightfull years of wins. He islegendary for predictingBlack Monday, the 1987stockmarketcrashthatsawa22%dropinasingleday(stillthe largest percentage stockmarket drop in any day in

history). At a time when therest of the world wasexperiencing a meltdown,Paul and his clients captureda 60% monthly return and anearly 200% return for theyear!Paul is one of my closest

friends and personal heroes.I’vebeenprivilegedtobehispeak-performance coachsince1993—21ofhis28fullconsecutiveyearsofwinsandthe majority of his trading

career. What’s even moreimpressive tome than Paul’sstunning financial success ishis heartfelt obsession toconstantly find ways to giveback and make a difference.As the founder of the iconicRobin Hood Foundation,Jones has inspired andenrolledsomeofthesmartestand wealthiest investors intheworldtoattackpovertyinNewYorkCity.PaulandtheRobin Hood team do this

workwiththesameanalyticalrigor that hedge fundbillionaires typically reservefor financial investments.Since 1988, RobinHood hasinvestedover$1.45billionincity programs. And just likeJones’s relentless pursuit ofasymmetric returns in hisfinancial life (he’ll share hisrule of 5 to 1 in amoment),his foundation work is nodifferent. Robin Hood’soperating and administrative

costs are covered 100% byboardparticipation,sodonorsearna15-to-1returnon theirinvestment in theircommunity!AsEricSchmidt,executive chairman ofGoogle, says, “There isliterally no foundation, noactivity, that is moreeffective!”Jones himselfwill tell you

he’satrader,notatraditionalinvestor, but like his formeremployer,E.F.Hutton,when

Jones talks, people listen.Asamacrotrader,hestudiestheimpact of fundamentals,psychology, technicalanalysis, flows of funds, andworldeventsandtheirimpacton asset prices. Instead offocusingonindividualstocks,he bets on trends that areshaping the world—from theUnited States to China; fromcurrencies to commodities tointerest rates. He is soughtout by some of the most

influential financial leaderson the planet: financeministers, central bankofficials, and think tanksaroundtheworld.I met Paul for this

interview at the magnificentcampus in Greenwich,Connecticut, for his TudorInvestment family. Duringthe interview, we dug downfor the most valuableinvestment principles he hasto share to benefit you, the

individual investor. As aresult,Paulisabouttogiveushis “$100,000 businesseducation,” theoneheshareswithhisownfamilyoftradersanda fewuniversitystudentsfortunate enough to hear hismessage each year. All thiswisdominjustsixpages.

TR:

Paul,whatyou’vedoneininvesting,intrading,isextraordinary:28consecutivewins—28

yearswithoutaloss.Howdoesamortaldothat?We’reallproductsofourenvironment.Istartedoutasacommoditytraderin1976.Thegreatthingaboutbeingacommoditytrader—tradingcotton,soybeans,orangejuice—isthat[those]

PTJ:

marketsarehugelyimpactedbyweather.Inaspaceofthreeorfouryears,you’dhavehugebullmarketsandhugebearmarkets.Iveryquicklylearnedthepsychologyofthebullmarketandthebearmarket,andhowquicklytheycouldchange.Whattheemotionswerelikewhentherewerelows.I

sawfortunesmadeandlost.IsatthereandwatchedBunkerHunttakea$400millionpositioninsilverto$10billionin1980,whichmadehimtherichestmanonearth.Thenhewentfrom$10billionbackdownto$400millioninfiveweeks.

TR: Wow!SoIlearnedhow

PTJ:

quicklyitcanallgoaway;howpreciousitiswhenyouhaveit.Themostimportantthingformefromthatisthatdefenseistentimesmoreimportantthanoffense.Thewealthyouhavecanbesoephemeral;youhavetobeveryfocusedonthedownsideatalltimes.

TR: Absolutely.

PTJ:

Whenyouhaveagoodpositioninsomething,youdon’tneedtolookatit;itwilltakecareofitself.Whereyouneedtobefocusediswhereyou’relosingmoney,andthat’sactuallywhenpeoplegenerallydon’twanttolook:“Myaccount’sgoingdown.Idon’tevenwanttoopenit.”SoI’vecreatedaprocessovertime

wherebyriskcontrolisthenumberonesinglemostimportantfocusthatIhave,everydaywalkingin.IwanttoknowI’mnotlosingit.

TR:

Whatdoyouthinkarethebiggestmythsthatthegeneralpopulationhasaboutinvesting?Whathurtsthem?Youcaninvestforthe

PTJ:

longterm,butyou’renotgoingtonecessarilybewealthyforthelongterm—becauseeverythinghasapriceandacentralvalueovertime.Butit’saskingalot,Ithink,ofanaverageinvestortounderstandvaluationmetricsallthetime.Thewaythatyouguardagainstthat—guardagainstthefactthat

maybeyou’renotthemostinformedpersonofeveryassetclass—isyourunadiversifiedportfolio.

TR: Ofcourse.Here’sastoryI’llneverforget.Itwas1976,I’dbeenworkingforsixmonths,andIwenttomyboss,cottontraderEliTullis,andsaid,“I’vegottotrade,I’ve

PTJ:

gottotrade.”Andhesaid,“Son,you’renotgoingtotraderightnow.MaybeinanothersixmonthsI’llletyou.”Isaid,“No,no,no—I’vegottotraderightnow.”Hegoes,“Now,listen,themarketsaregoingtobehereinthirtyyears.Thequestionis,areyou?”

TR: Howperfect.

PTJ:

Sotheturtlewinstherace,right?Ithinkthesinglemostimportantthingthatyoucandoisdiversifyyourportfolio.Diversificationiskey,playingdefenseiskey,and,again,juststayinginthegameforaslongasyoucan.

TR:

Followingupondiversification,howdoyouthinkaboutasset

allocationintermsofplayingdefense?There’snevergoingtobeatimewhereyoucansaywith[absolute]certaintythatthisisthemixIshouldhaveforthenextfiveortenyears.Theworldchangessofast.Ifyougoandlookrightnow,thevaluationsofbothstocksandbondsinthe

PTJ: UnitedStatesarebothridiculouslyovervalued.Andcashisworthless,sowhatdoyoudowithyourmoney?Well,there’satimewhentohold’emandatimewhentofold’em.You’renotgoingtonecessarilyalwaysbeinasituationtomakealotofmoney,wheretheopportunitiesaregreat.

TR: Sowhatdoyoudo?

PTJ:

Sometimesyoujusthavetosay,“Gee!There’snovaluehere,there’snothingcompelling.I’mgoingtobedefensiveandrunaportfoliowhereIdon’thaveanygreatexpectations.I’mgoingtobeinapositionwhereIdon’tgethurt,andifandwhenvalues

dorise,I’llhavesomefirepowertodosomething.”

TR:Okay,anyspecificstrategiesforprotectingyourportfolio?

IteachanundergradclassattheUniversityofVirginia,andItellmystudents,“I’mgoingtosaveyoufromgoingtobusinessschool.

Here,you’regettingahundred-grandclass,andI’mgoingtogiveittoyouintwothoughts,okay?Youdon’tneedtogotobusinessschool;you’veonlygottoremembertwothings.Thefirstis,youalwayswanttobewithwhateverthepredominanttrendis.Youdon’teverwanttobeacontrarianinvestor.

PTJ: ThetwowealthiestguysintheUnitedStates—WarrenBuffettandBillGates—howdidtheygettheirmoney?BillGatesgothismoneybecauseheownedastock,Microsoft,anditwentupeighthundredtimes,andhestayedwiththetrend.AndWarrenBuffett,hesaid,‘Okay.I’mgoingtobuygreatcompanies.I’m

goingtoholdthesecompanies,andI’mnotgoingtosellthembecause—correctlyandastutely—compoundinterestorthelawofcompoundingworksinmyfavorifIdon’tsell.’”

TR:

Andsohemadehismoneyfromthecashflowofallhisinsurancecompanies.

PTJ:

Hesatthroughoneofthegreatestbullrunsinthehistoryofcivilization.Hewithstoodthepainofgain.

TR:Amazing.Somynextquestionis,howdoyoudeterminethetrend?MymetricforeverythingIlookatisthe200-daymovingaverageofclosing

PTJ:

prices.I’veseentoomanythingsgotozero,stocksandcommodities.Thewholetrickininvestingis:“HowdoIkeepfromlosingeverything?”Ifyouusethe200-daymovingaveragerule,thenyougetout.Youplaydefense,andyougetout.IgothroughthisexercisewhenI’mteachingaclasson

technicalanalysis.I’lldrawahypotheticalchartliketheonebelow—itwillgoallthewaytothetoponacleansheetofpaperonawhiteboard.

AndthenIask,“Okay,allyouknowiswhatyouseerighthere.Howmanypeoplewanttobelongandstaylongonthischart?”Andabout60%willraisetheirhands,yes.Andhowmanywanttogetoffthisinvestmentandsellit?Then40%orsowillsaygetout.AndIsay,“You40%shouldnevereverinvestyour

ownmoneyinyourentirelife!Becauseyou’vegotthiscontrarianbug,andit’sthegreatestwaytoruinthattherepossiblyis.Itmeansyou’regoingtobuyeverybrand—you’regoingtobuythingsthatgotozeroandsellthingsthatgotoinfinity,andoneday,you’regoingtodie.”

TR:

That’sgreat,makestotalsense.Infact,yousaysomeofyourgreatestvictorieshavebeenturningpoints,right?That’swhat’sbeendifferentaboutyou.

PTJ:Right,thecrashof1987.Imademymoneyonthedayofthecrash.Okay,youhavetotell

TR:

meaboutthat.That’sconsideredoneofthetopthreetradesofalltime,inallhistory!Mostpeoplewouldbethrilledwitha20%annualreturn;youmade60%onthattradealonethatmonth.Didyourtheoryaboutthe200-daymovingaveragealertyoutothatone?

Yougotit.Ithadgone

PTJ: underthe200-daymovingtarget.Attheverytopofthecrash,Iwasflat.

TR: Soyouwaiteduntilitturned?PTJ: Yes,absolutely.

TR:

That’samazing!I’mblownawaybythatone.Soyoudon’tconsideryourselftobearisktaker,andyoufocusonhowtoprotect

constantlyandhowtoalignwiththetrend.What’sthesecondthoughtforstudents?

PTJ: Fivetoone.

TR: Asymmetricrisk/reward?Exactly.FivetoonemeansI’mriskingonedollartomakefive.Whatfivetoonedoesisallowyoutohaveahitrateof20%.Ican

PTJ:

actuallybeacompleteimbecile.Icanbewrong80%ofthetime,andI’mstillnotgoingtolose—assumingmyriskcontrolisgood.Allyou’vegottodoisjustberightonetimeoutoffive.Thehardpartisthatthat’snothowweinvest.Thewaythathumannatureis,we’reneverreallycalculated

aboutourentrypoints.We’reneverreallythoughtfulaboutwherewegiveinandwhatarewereallyrisking.

AndPaul,youarenotwrong80%ofthetime!Sinceassetallocationissoimportant,letmeaskyou:Ifyoucouldn’tpassonanyofyourmoneytoyourkidsbutonlyaspecificportfolio

TR: andasetofprinciplestoguidethem,whatwoulditbe?I’maskingthistohelppeoplegetamodelofhowtheaveragepersoncanlookatinvestingthroughyoureyes.

Igetverynervousabouttheretailinvestor,theaverageinvestor,becauseit’sreally,

PTJ:

reallyhard.Ifthiswaseasy,iftherewasoneformula,onewaytodoit,we’dallbezillionaires.Oneprincipleforsurewouldbegetoutofanythingthatfallsbelowthe200-daymovingaverage.Investingwithafive-to-onefocusanddisciplinewouldbeanother.Buthere’swhatIdoknow.You’vegottogo

interviewRayDalio.Heknowsbetterthananybody.Ifyou’relookingforassetallocation,he’stheoneguywhodoesitbetterthananybody.

He’snextonmylist,thanks!Okay,let’sshiftgears.You’vehadthisphenomenalsuccessinyourlife,you’relegendary,andyou’re

TR: sohumbleaboutit.Tellmeaboutgivingback:What’sdrivenalloftheamazingphilanthropicworkthatyoudo?Whatcontinuestodriveyoutomakeadifferenceinsomanypeople’slives?

Asayoungchild,I’dgonetothishugeoutdoorvegetablemarketinMemphis,andIrememberallofa

PTJ:

suddenlookingup,andmymommywasgone.Andwhenyou’refouryearsold,yourmotheriseverything.Andthisextraordinarilykind,veryold,verytallblackmancameoverandsaid,“Don’tworry.We’regoingtofindyourmama.Don’tcry,we’regoingtofindher.You’regoingtobehappyinaminute.”He

tookmyhandandwalkedmedownthoseroadsuntil,finally,hesawmymother,andshestartedlaughingbecauseshecouldseeIwascrying.

TR: Wow.Youneverforgetstufflikethat.God’severyaction,thoselittleactionsbecomesomuchbigger,andthen

PTJ:theybecomemultiplicative.Weforgethowimportantthesmallestactioncanbe.Forme,Ithink,itkindofspawnedalifetimeoftryingtoalwaysrepaythatkindness.That’ssobeautiful,Paul;Iseeandfeelthedepthofimpactofthatmomentonyourlife

TR:

evennow.Yougotusbothontheedgeoftears.Thankyou.Lastquestionforyou:mostpeoplehaveanillusionthatiftheyhaveenoughmoney,stressgoesaway.Isittrue?Doesfinancialstressevergoaway?

PTJ: Thatdaystillhasnotcome.Okay.That’swhatI

TR: wantedtohear.

Theproblemis,likeanything,it’sneverenough.FinancialstressrightnowformeisthattherearesomanycausesthatIbelievein.Myfinancialstressrelatestobeingabletogivetothethingsthatmakemehappy,thatcreatepassioninmylife,andthatarereally

PTJ:

exciting.There’sahugeconservationprojectthatI’vejustdiscoveredaboutamonthagothatIprobablycan’tafford.Thetimeframeonthisis100years,atleast.AndI’mthinking,“OhmyGod!IfIwentandboughtthistimberoperation,andletthatlandheal,andrestoredit.Onehundredyearsfromthatday—it’s

goingtobeoneofthemostbreathtakinglybeautifulplaces!ThisiswhereGodwouldhavespokentoAdam;ithastobetheGardenofEden.”AndI’mthinking,“Okay,Ican’taffordit,butIreallywanttodoit.Ibettergooutthereandworkmyassoff,becauseitwillbethebestcontributionIcan

maketosomeoneonehundredyearsfromnow.Theywon’tknowwhodidit,butthey’lllovethatspotandthey’llbesohappy.”

TR: Thankyou,Paul.Iloveyou,brother.

CHAPTER6.6

RAYDALIO:AMANFORALL

SEASONS

FounderandCo-

ChiefInvestmentOfficer,Bridgewater

Associates

Ray Dalio has been part ofthe DNA of this book fromthemomentIfirstsatdowntointerview him at hisConnecticuthome.Ourinitialmeeting went on for nearlythree hours of pitching andcatching ideas abouteverything from the benefitsof meditation (“It gives meequanimity,”saidRay)totheworkings of the economy

(“It’s a simple machine”). Ialready knew the astoundingtrack record of his $160billion hedge fund,Bridgewater Associates, thebiggest in the world. I knewthat Ray manages risk betterthan anyone else on theplanet,andthathe’sthego-toguy for world leaders andhuge financial institutionswhentheyneedasafeharborin the volatile marketplace.ButIhadnoideathatwhenI

asked him the same questionthat I asked every financialsuperstar in thisbook—Whatportfolio would you leaveyour children if you couldn’tleave them money?—thatRay’s answerwould turn outto be the Holy Grail I wasseeking when I first beganthis quest. What was it?Nothing less than aninvestmentplanforindividualinvestors like you to growyour nest egg, and one that

wouldworkinallseasonsandwithout risking your lifesavings.Untilnow,onlyRayDalio’s clients had access tohis magic formula forinvesting success in everyseason. His generosity inchoosing this time and placefor sharing it with the worldleaves me astonished andgrateful.I don’t need to go into

Ray’s background here.You’ve been on this journey

withhimfromthefirstpagesof this book, and if you’vegottenthisfar,you’vealreadyread chapters 5.1 and 5.2,“Invincible, Unsinkable,Unconquerable: The AllSeasons Strategy” and “It’sTime to Thrive: Storm-ProofReturns and UnrivaledResults,”which tell his storyand lay out the basis for hisentire portfolio. I was goingto list it here, but it’s not aspowerfulwithoutthecontext.

If you jumped ahead, don’tcheat!Gobackandreadthosechapters.Theywillblowyourmindandchangeyourlife!Ifyou’vereadthemalready,it’stimetoimplement.RayDalioisthemasterofAllSeasons.

CHAPTER6.7

MARYCALLAHANERDOES:THETRILLION-

DOLLARWOMAN

CEO,J.P.Morgan

AssetManagement

Division

Mary Callahan Erdoes mayonlybefivefoottwo,butshecasts a long shadow as CEOof one of the largest assetmanagement groups in theworld, at the biggest bank inthe United States. Forbesmagazine has called her “therare female comet in themale-dominatedfirmamentofWall Street” and listed heramong the 100 MostPowerful Women in theWorld.Since2009,whenshe

took over J.P. Morgan’sAsset Management Division,it’sgrownbymorethanhalf-a-trillion-with-a-T dollars—more than a 30% increase!Today Erdoes oversees themanagement of $2.5 trillioninvested by foundations,central banks, pension funds,and some of the world’swealthiest individuals. She’softenmentionedinthemediaas being on the short list tosucceed JPMorgan Chase

CEOJamieDimon.Whilemostofthevoicesin

this book advocate thatpassive, low-fee moneymanagement brings the bestresults for individualinvestors over time, Erdoesmakes a case that funds thatare actively managed by thebestmindsinthebusinessareworth the fees they charge.She says the proof is in theloyalty of their satisfiedclients, as well as the new

business they continue toattract.Money management is in

Erdoes’s blood. She was thefirstbornchildandonlygirlina large Irish Catholic familyin Winnetka, Illinois. Herfather, Patrick Callahan, wasan investment banker withLazard Freres in Chicago.Maryexcelledatmathinhighschool—while also winningequestrianmedals—andwentontobecometheonlyfemale

math major in her class atGeorgetown University. Shemet her husband, PhilipErdoes,while theywerebothearning MBAs at HarvardBusinessSchool.As a financial services

executive,Erdoeshasbrokenthe mold in more ways thanone:inabusinessfamousforaggressive management, hercolleagues describe her stylewith words such as “loyal,”“team-oriented,” and

“caring.” When she wascoming up at J.P. Morgan,she was known for flyingacross the country to meetwithclientswhoneededextrahelpinmanagingtheirassets.Now47yearsoldandpartofthe highest level ofmanagement in a firm with260,000 employees, she ishonored as much for herextraordinary leadership asforherfinancialbrilliance.Our meeting took place at

J.P. Morgan’s worldheadquarters in the classicUnion Carbide Building,overlookingParkAvenueandtheskyscrapersofManhattan.As I rode the elevator to theconference room, J.P.MorganAssetManagement’scommunications director,Darin Oduyoye, told me astorythattouchedmedeeply,and illustrated the kind ofperson I was about to meet.Oduyoye had always wanted

tobeabroadcasterbuttookajob in J.P. Morgan’s mutualfund division beforetransferring to publicrelations.WhenErdoesaskedhim to be a producer of adaily morning meetingbroadcast for wealthmanagement employees allover the world, he wasshocked.“I don’t know enough

aboutinvesting!”heobjected.“Well, you told me you

always wanted to be inbroadcasting,” she said.“Now you get to be a talk-showproducer!”“Shesawmore inme than

I saw in myself,” Darin toldme.Itdoesn’tmatterwhatthey

do for the company, Erdoesgoesoutofherway toknoweach of her employees. Butshe still carves out the timeperiodically to have lunchwith her three young

daughters and pick them upfrom school most days.That’s theway she rolls, anditmakeshertheextraordinaryleader—and human being—thatsheis.

TR:

Youleadoneofthelargestmanagementgroupsintheworld.Tellmealittleaboutyourjourney,thechallengesyoufaced,andtheprinciplesthat

guideyou.Idon’tthinkyoucanlayoutapathinlifetogetexactlywhereyouwanttogo.Alotofithappensbyaccidentorcircumstance.IrememberwhenI

wasgivenmyfirststock:UnionCarbide.Itwasabirthdaygiftfrommygrandmother.IthinkIwassevenoreight—

oldenoughtorememberandyoungenoughnottoknowwhattodowithit.Thefirstthingshe

toldmewas,“Youdon’tsellthis.”I’mnotsureifIagreewiththatnow!Butshesaid,“Thisisthevalueofcompounding.Ifyoukeepthis,itwillhopefullygrowovertime,andyouwillhave

ME:

somethingmuchlarger.”Thatalsoingrainedinmeatanearlyagetheimportanceofsavingandstartedmethinkingaboutmoneymanagement.IalreadyknewIhadaknackfornumbers,sotheconceptofsavingversusspendingwasapowerfuloneforme.Ithelpedthatmy

fatherworkedintheindustry,andIspentalotofweekendswithhimatworkplaying“office.”Isatathisdesk,andIhadmybrothersathisassistant’sdesk!Wehadgoodfungrowingup,andIthinkthatshowedmehowinterestingandexcitingfinancialservicescouldbe,andthatitwasn’t

somethingtobefearfulof.Thatwasveryhelpfulearlyinlife.

TR:

Youworkinabusinessthathasbeendominatedbymen.Whatweresomeofthebiggestchallengesthatyou’vefacedalongtheway?

Moneymanagementisanindustrywhereresultsspeakfor

ME:

themselves.It’savirtuouscycle:ifyouperformforyourclients,they’llinvestmoremoneywithyou,andtheirmoneywillmakemoney—again,theideaofcompoundingthatIlearnedfrommygrandmother.Sobecauseofthefocusonperformance,moneymanagementisa

businessthatfostersequality.Ifyouperform,youwillsucceed.

TR: What’sleadership?Howdoyoudefineit?It’simportantnottoconfusemanagementwithleadership.Forme,leadershipmeansnotaskinganyonetodoanythingIwouldn’tdomyself.It’swakingup

everymorningtryingtomakeyourorganizationabetterplace.ItrulybelievethatIworkforthepeopleofJ.P.MorganAssetManagement,nottheotherwayaround,andbecauseofthat,Itrytoseebeyondwhatpeopleevenseethemselves.Havingbeena

portfoliomanager,clientadvisor,and

ME: businessleader,Iknowwhatwe’recapableofachievingforclients.SoIconsideritmyjobnotjusttoleadourteamsbuttogetinthetrenchesalongsidethemandjointhemonthejourney.Ithinkinmanyways

you’reeitherbornwithleadershipornot,butthatdoesn’tmeanyou’renotconstantly

workingatit,honingit,andfiguringoutwhatworksandwhatdoesn’t.Thestyleofleadershipwillchangewithdifferentpeopleordifferentsituations,butthebasictenetsofleadershipareconsistent.IrecentlyinterviewedDr.RobertShiller,whojustwontheNobel

TR:

Prizeineconomics,andhewastalkingaboutallthegoodthatfinancialinstitutionsdointheworldthatpeopletakeforgranted.Whydoyouthinktheirreputationshaveshifted,andwhatcanbedonetoturnitaround?Followingthefinancialcrisis,it’seasytounderstandwhysome

peoplelosttrustintheindustry.Inhindsight,thereweresomethingsthatneededtochange—productsthatweretoocomplexorconfusing.Butoverall,thefinancialservicesindustrycontributesalottotheworld.Weprovidecompanieswithcapitaltogrow,whichultimatelyfuelsemployment.Wehelp

ME:

individualssaveandinvesttheirhard-earnedmoneysotheycandothingslikebuyahouse,payforcollege,orretiremorecomfortably.Wesupportlocalcommunitiesbothfinanciallyandthroughtheintellectualandphysicalcapitalofourpeople.I’mincrediblyproud

tobepartofthe

industryandevenproudertobepartofJ.P.Morgan.Wehave260,000peoplewhoworkhardforclientseverydayandalwaysstrivetodotherightthing.Wehaveasayingthatifyouwouldn’tletyourgrandmotherbuyaproduct,thenit’sprobablynotabusinessweshouldbein.It’sasimplisticyetimportant

waytolookatthings.

TR:

It’sasensitiveissue,I’msure,butifyoulistentoRayDalio,youlistentoJackBogle,DavidSwensen,WarrenBuffett—theyallsayactivemanagementdoesn’tworkoverthelongterm.That96%ofactivemanagersdon’tbeattheindex.Iwantedtogetyourviewonit

becauseyourperformancehasbeenextraordinary.Oneofthebiggestchallengesaboutsuccessfulinvestingisthere’snosuchthingasaone-size-fits-allapproach.Butifyoulookattheworld’smostsuccessfulportfoliomanagers,you’llfindthatmanyofthem

ME:

managemoneyactively,buyingandsellingcompaniesinwhichtheythinkthattheyhaveaddedinsight.Theirtrackrecordshaveproventhatactivemanagement,compoundedoverlongperiodsoftime,makesaverylargedifferenceinyourportfolio.Whatanactivemanagercandoislookattwoseemingly

similarcompaniesandmakeajudgment,basedonextensiveresearch,aboutwhichisthebetterlong-terminvestment.We’vesurroundedourselvesatJ.P.MorganAssetManagementwithmanagerswhohavedonethatsuccessfullyforasustainedperiodoftime,andthat’swhywehave$2.5trillionin

assetsthatpeopleaskustohelpthemmanage.

TR:

Greatinvestorsareinvariablylookingforasymmetricrisk/reward,right?Andtheultrawealthyhavealwaysdonethis.Buttellme,howdoestheaverageinvestortodaygetwealthwithoutrisk,oratleastwealthwithlittlerisk,ifthey’renot

alreadyultrawealthy?Itisnotaboutawealthlevel,it’saboutbeingwellrounded,welladvised,andstickingtoaplan.Whathappenstoooftenispeoplestartwithadiversifiedplan,butasmarketconditionschange,theytrytotimethemarketssotheyaregettingeithermoreupsideopportunitiesor

ME:betterprotectioninunfavorableconditions.Butthat’saverydangerousthingtodobecauseit’simpossibletopredicteveryscenario.Whatawell-

diversifiedportfoliodoesishelpyoucapturethosetailrisks[risksthatcanbringgreatrewards],andifyousticktothatplan,you

cancreateatremendousamountofwealthoverthelongterm.

TR:

Whataresomeofthebiggestopportunitiesforinvestorstodayandthelargestchallengesthattheyneedtopreparefor?

Ithinkthatwewilllookbackatthetimethatwe’relivinginright

nowandsay,“Thatwasagreattimetohaveinvested.”Wehavesomuchliquidityinthesystemtotakecareofalotofthethingsthatwentwrong.Butinvestingoverthenextfiveyears—particularlythosewithlong-termgrowthprospects—areopportunitiestoconsiderrightnow.Mostinvestorstoday

ME:

wantincome,temperedvolatility,andliquidity.There’sstillthehangovereffectsof2008,wheremanyareconcernedabout,“IfIneedmymoneyrightaway,canIgetit?”Ifyoudon’tneeditrightaway,getitinvested.Itwillserveyouverywelloverthecomingyears,andyouwilllookbackandbeincredibly

thankfulthatyoudidit.Inaddition,the

industryhasmadealotofchangesinrulesandregulationstoattempttoinsurebetterconditionsforthefuture.That’snottosaytherewon’tbemarketanomalies,butthesystemisbetter,andsoitshouldbesafer.

I’veaskedthisofevery

TR:

multibillionairethatI’vespokenwithwhostartedwithnothing:Doesfinancialstressevergoawayforyou?

ME:

Financialstressnevergoesawayforpeopleregardlessoftheleveloftheirwealthorsuccess.

TR: Whyisthat?Becausenomatterwhatstageyou’rein,you

ME:

wanttomakesureyouareusingyourmoneymosteffectively,whetherthat’spayingforhealthcareandyourfamily’swell-being,orinsuringyouareinvestingyourmoneyproperlyforfuturegenerationsortofulfillphilanthropicgoals.

TR:Isthereanantidotetothatstress?Whatisit

foryou?

ME:

Forme,it’sallaboutkeepingthingsinperspectiveandfocusingonthethingsyoucancontrol,likeinsuringthatyou’redoingasmuchasyoucaneverydayandgivingityourall.Youcanneverbeoutofbalanceintakingcareofyourselfasaperson,

takingcareofyourworkasaprofessional,takingcareofyourfamily,takingcareofyourfriends,yourmind,yourbody.It’sokayforthingstogetoutofwhackeveryonceinawhile,buttheycan’tstayoutofwhack.

TR:

Ifallyoucouldpassontoyourchildrenwasasetofrulesand/ora

portfoliostrategyoranassetallocationstrategy,whatwoulditbe?Investforthelongtermandonlytakemoneyoutwhenyoutrulyneedit.Specificportfolioconstructionwillbedifferentfordifferentpeople.Forexample,Ihavethreedaughters.They’rethreedifferentages.Theyhavethree

ME:

differentskillsetsthatwillchangeovertime.Onemightspendmoremoneythananother.Onemightbemorefrugal.Onemaywanttoworkinanenvironmentwhereshecanearnalotofmoney.Anothermaybemorephilanthropicinnature.Onemaygetmarried,onemaynot;onemayhavechildren,onemaynot—sothey’ll

havedifferentdependents.Everysinglepermutationwillvaryovertime,whichiswhyevenifIstartedallofthemthefirstdaytheywerebornandsetoutanassetallocation,itwouldhavetochange.

TR: Howoldareyourgirls?

ME: Eleven,ten,andseven.They’relotsoffun.Frommyunderstanding

TR: ofwhatI’veread,youbelievein“work-lifeintegration.”Tellmealittlebitaboutthat.Ihavethegreatfortuneofworkingatacompanythatisverysupportiveoffamiliesandgivespeoplealotofflexibilitytodowhatworksbestforthem.Sowhetherthatmeansloggingoffalittleearly

ME: tocatchyourchild’ssoccergamebutthenreconnectinglaterintheeveningtofinishaproject,orbringingthekidstotheofficeontheweekendslikemydadusedtowithme,youhavetheoptiontodowhat’sbestforyouandyourfamily.Likeyoudidatyourfather’soffice!And

TR: they’resittingbehindyourdesk,preparingforthefuture.

ME:

Exactly.Myworklifeandfamilylifeareallonething,andI’malwaysdeterminedtogetthemostoutofbothofthem.

CHAPTER6.8

T.BOONEPICKENS:MADETOBERICH,

MADETOGIVE

ChairmanandCEOofBPCapital

Management

T.BoonePickens,dubbedthe“Oil Oracle” by CNBC, hasalways been ahead of histime. In the early 1980s, hewas the original corporateraider—although“shareholder activist” hasalways been the term he’spreferred.His early focus onmaximizing shareholdervalue, virtually unheardof atthe time, has long since

become a standard ofAmerican corporate culture.As Fortune magazinedeclared, “Boone’s oncerevolutionary ideas [are] socompletely taken for grantedthat they have becomelinchpinsoftheeconomy.”By the early 2000s,

Pickens had become a hedgefund manager, making hisfirst billion after turningseventy—with a secondcareer investing in energy

assets.Inthenextdecadeanda half, he’d turn that billioninto$4billion—$2billionofwhichhe’dloseagain,and$1billion of which he’d giveaway.Ever the optimist, Boone

recentlymarried for the fifthtime, and at 86, he’s got ahuge social media presenceand shows no signs ofslowing down. After fallingoff the Forbes 400 list lastyear, he sent a famous tweet

declaring, “Don’t worry. At$950million, I’mdoingfine.Funny, my $1 billioncharitable giving exceedsmynetworth.”When I spoke tohim regarding his net worth,hesaid,“Tony,youknowme;I’mgoingtogettheothertwobillion back in the nextcoupleofyears.”Boone, a Depression-era

baby,startedwithnothing.At12, he delivered papers andquickly expanded his route

from 28 to 156 papers, laterciting his boyhood job as anearly introduction to“growing by acquisition.”After graduating fromOklahoma State University(then known as OklahomaA&M)in1951withadegreein geology, Pickens built anenergy empire in Texas. By1981, his Mesa PetroleumCorporation had become oneof the largest independentoilcompanies in the world. His

corporate takeovers of the1980s were the stuff oflegend, with Gulf Oil,Phillips Petroleum, andUnocal being some of hismostfamoustakeovertargets.ButPickens’sfortunes(and

fortune)werealwaysshifting.When he left Mesa in 1996,afteradownwardspiralinthecompany’s profits, manycounted him out—he wouldsoon lose 90% of hisinvestingcapital.ButPickens

went on to stage one of thegreatest comebacks in hisindustry, turning hisinvestment fund’s last $3millionintobillions.While almost everyonewe

hear from these days isfocused primarily on twoasset classes, stocks andbonds, Boone’s BP Capitalfund isdifferent:he’sbettingonthedirectionoftheenergyfutures and derivativesmarkets.Andwhilethisbook

is devoted to helping youachieve financialindependence, Boone saysour dependence on foreignoil is the single greatestthreat not only to nationalsecurity but also to oureconomic well-being.Always one to be ahead ofthe curve, Boone is on acrusade today to free thiscountryfromourdependenceon OPEC oil and usher in anew wave of energy policy

withhisPickensPlan.I’vebeenafanofBoone’s

for as long as I canremember, and I’m nowprivileged to call him afriend. He’s been graciousenough to speak at many ofmy wealth events. Whatfollowsbelowisanexcerptofour latest conversationsaround building wealth,protecting America’s energyfuture, and his humblebeginnings.

TR:

ThefirstthingIhavetostartwithistheincrediblestoryofyourbirth.Youoftensayyou’rethe“luckiestguyintheworld,”andyoureallymeanit.Tellmeaboutthat.Mymomgotpregnantin1927,andIshowedupinMay1928,inasmalltowninrural

Oklahoma.Andthedoctorsaidtomyfather,“Tom,you’regoingtohavetomakeatoughdecisionhere—whetheryourwifeoryourchildsurvives.”Andmydadsaid,“Youcan’tdothat.Surelyyoucanfigureouthowtogetthebabywithoutlosingeitheroneofthem.”Andtheluckythingwas,thatof

TBP:

twodoctorsinthatsmalltown,mymom’sdoctorwasasurgeon.Andhesaid,“Well,Tom,whatyou’reaskingmetodoisaCaesareansection.I’veneverdoneit.I’veseenit.I’vereadaboutit,andI’llshowyouhowmuchI’veread.”Sohetookhimacrosstheroomandshowedhimapageandahalfhe

hadonCaesareansections.“Tom,thisisallIhavetogoon,”hesaid.Mydadreaditandlookedathim.“Ithinkyoucandoit.”Theykneltdownandprayed.Andthenhetalkedthatdoctorintodeliveringmethatday,in1928,viaCaesarean.

TR: Wow!

TBP:Itwas30yearslaterbeforetheydidanotherCaesareaninthathospital.

TR:

Howincrediblethatyourfatherhadthecouragenottoacceptwhatotherpeopletoldhimwhenitcametothelifeanddeathofthoseheloved.Hehadthecouragetosaythereisanotherway,

andhewouldn’tbend.Thatcertainlyhasinfluencedyourlife,hasn’tit,Boone?Youdon’ttakenoforananswer,doyou?

TBP: No,Idon’t.

TR:

Well,yourfatheristheultimaterolemodelofsomebodywhohadthepowertomakeatoughdecision.You’rehere,andyourmamalived

aswell.Whatabeautifulstory.Inowunderstandthereferenceto“LuckiestGuyintheWorld.”

TBP: Yep.

TR:

You’vealsobeendeeplyimpactedbytheconceptofhonesty,whichformanypeople,unfortunately,inthefinancialindustry,isn’tacore

principle.Talktomeaboutthat.

Tony,Iwasonmypaperroute[asaboy]whenIlookeddown,andsomethingcaughtmyeye,anditwasabillfoldinthegrass.AndIrecognizeditasaneighbor’sofsomeoneonmypaperroute,soIknockedonthedoorofhishouse,

TBP: andIsaid,“Mr.White,I’vefoundyourbillfold.”Andhesaid,“Ohmygosh,thisisveryimportanttome,thankyou.Iwanttorewardyou.”Andhegavemeadollar,whichIcouldn’tbelieve.Imean,adollarwasalotofmoneybackthen.

TR: Ofcourse.

TBP: Itwas1940.Iwas11yearsold.TR: Wow.

SoIwenthome,andIwasveryhappy,andIstartedtotellmymomandmyauntandmygrandmamystory—thatMr.Whitehadgivenmeadollar.Andtheywereallshakingtheirheads.Icouldtelltheydidn’tlikethe

TBP:story,andIsaid,“Don’tyouunderstand?HewashappythatIfoundhisbillfoldandtookittohim.”Andmygrandmotherlookedatmeandsaid,“Son,you’renotgoingtoberewardedforhonesty.”SoitwasdecidedformetotakethedollarbacktoMr.White.

TR:

That’sawesome!Somakingtoughdecisionsandhonesty—thosetwovalueshavereallyshapedyou.Irememberreadingaquotefromyouthatinspiredmeasakid.I’vealwaysbeenfascinatedbywhatmakessomeonealeaderversusafollower,andyousaidyoualwayslivedyour

lifeonyourownterms.AndIthinkIrememberyousayingthatthesecrettoleadershipwasbeingdecisive.

TBP:

WetriedtotakeoverGulfOilin1984,andIthoughtitwasaveryweakmanagementteam.AndIsaid,“Theseguyscan’tevenpullthetrigger.They

justaim,aim,aim,andtheyneverfire!”

TR:That’sgreat.Soyou’reabletofiremorequickly?

TBP:

Alotofpeoplegetputinleadershippositions,anditdrivesmecrazybecausetheydon’tmakedecisions.Theydon’twanttomakedecisions;theywouldlikesomebodytodoit

forthem.IfeellikethedecisionsImakewillbegood,andI’llseegoodresults.

TR:

Well,thattheoryhascertainlyprovenitselftrue.Youbecameabillionairebyunderstandingenergyandtakingadvantageofit.

I’m19of21accurate

TBP: predictionsonoilprices.

TR: Wow,19outof21?TBP: OnCNBC,yes.

TR:

That’sabsolutelyincredible.Andyougot$4-a-gallongasolineright,yes?Noonethoughtitwouldgothathighbackin2011.

WhenIspokeatyour

TBP:

event,Tony,backin2011inSunValley,Istuckmyneckoutandsaidweweregoingtosee$120abarrelbyFourthofJulyweekend,whichwedid.Iremembersayingglobaldemandwasgoingtohit90billionbarrelsaday,andthepricewasgoingtohavetogouptomeetthatlevelofdemand.

TR:

ManyofmyPlatinumPartnersmadealotofmoneybettingonthatprediction,Boone.Yougavethemasyntheticoptionfortakingadvantageofthatrun-up.Itwasspot-on,thankyou.Sogivenyourtrackrecord:oneofthethemesI’veseenoverandoverwithmanyofthegreatest

investorshasbeenafocusonasymmetricrisk/reward.Howdoyouthinkaboutreducingyourriskormakingsureit’sworththereward?What’syourphilosophyonthat?

YougetanMBA,that’swhatthey’llteachyou:cutyourdownsideandgive

TBP: yourselfagreaterupside,andthepayoffwillcome.Ineverapproachinvestingthatway.

TR: Really?Listen,somedealsarebetterthanothers,andIthinkwedoagoodjobanalyzingrisk.ButIcan’ttellyouspecificallyhowIarriveatadecision.I

TBP: knowifIhitit,I’mgoingtoknockitoutofthepark.Andonthesameone,maybeIstrikeout.Iamwillingtotakebigriskstomakebigrewards.

Okay,understood.Soletmeaskyouthis:Ifyoucouldn’tpassonanyofyourfinancialwealth,butallyoucouldpassontoyour

TR: childrenwasaninvestmentphilosophy,oraportfoliostrategy,whatwoulditbe?Howwouldyouencouragethemsothattheycouldhavewealthlongterm?

Ireallybelievethatifyou’vegotagoodworkethic,youprobablypassiton.Andifyouhaveagoodeducationtogoalong

TBP:

withagoodworkethic,ifyou’rewillingtoworkhard;Ibelieveyoucangetthere.IthinkthegoodworkethiccametomefromasmalltowninOklahoma.Isawmygrandmotherandmotherandfatherallworkhard;Isawpeopleallaroundmeworkhard.Isawthosewhogotagood

educationmakemoremoney.

TR:

Itsoundslikeratherthanteachthemaportfolioyouwanttoteachthemamind-set,aworkethic.

TBP: That’sright.

TR:

You’vemadeandlostbillions.Whatismoneytoyou?Whatiswealth?

TBP:Well,IcantellyouwhenIknewIwaswealthy.

TR: Whenwasthat?

TBP: WhenIhad12birddogs.

TR: Andhowoldwereyou?

TBP: Iwas50.TR: Really!

Iwashuntingoneday.I’dalwayshadbird

TBP:

dogs,andI’dalwaysbeenaquailhunter.Mydadwas,andIwastoo.ButIhadonebirddoginthebackyard,andwhenIdidbetter,Ihadtwo.WhenIgot12birddogs,Ihadakennel.AndonedayIsaid,“Youknow,I’marichguy.I’vegot12birddogs!”

Andyou’veusedthat

TR:

wealthtodosomuchgoodforthiscountry.Iknowthatyouareoneofthemostgenerousuniversitybenefactorsofalltime,havinggivenover$500milliontoyouralmamater,OklahomaStateUniversity,whichisabsolutelyincredible.

MygoalhasalwaysbeentomakeOSU

TBP: morecompetitive,inathleticsandacademics.Iamprivilegedtogivetomyalmamater.

TR:

Wasn’tyour2005gifttoOSUathleticsthesinglelargestinNCAAhistory?

TBP: That’scorrect.That’sjustamazing.AndIknowthat’sjust

TR:

partofyourcontributionandgiving,whichIsoadmire.Let’sswitchgearsandtalkaboutenergyindependence.Youmadeyourfortuneintheoilindustry.You’renotthemostlikelycandidatetobepreachingoilindependenceforthiscountry,andyetthat’sbeenyourmissionfor

thepastsevenyears.TellmeaboutthePickensPlan.

TBP:

Here’sthething,Tony.Americaisaddictedtooil.Andthataddictionthreatensoureconomy,ourenvironment,andournationalsecurity.It’sbeengettingworseeverydecade.In1970weimported24%of

ouroil.Todayit’snearly70%,andgrowing.

TR:Wow.Soyou’retryingtomoveusawayfromthat.Well,we’veputoursecurityinthehandsofpotentiallyunfriendlyandunstableforeignnations.Ifwearedependingonforeignsourcesfornearly70%

TBP: ofouroil,weareinaprecariouspositioninanunpredictableworld.Andoverthenexttenyears,thecostwillbe$10trillion—itwillbethegreatesttransferofwealthinthehistoryofmankind.

TR: That’sincredible.Sowhat’sthesolution?Wecanmakehuge

TBP:

gainsbyupgradingtorenewablesourcesofenergy,butthatdoesn’tsolveourOPEC23problem.OPECactuallyhasnothingtodowithrenewables;windandsolararenottransportationfuels.That’swherenaturalgascomesin.Seventypercentofalltheoilusedeverydayinthe

worldgoesfortransportationuse.Theonlythingthatwe’vegottotakeoutOPECisnaturalgasorourownoil.

TR: Sowhatdowedo?Weimportabout12millionbarrelsaday,fiveofwhichcomefromOPEC.Weneedtoproducemorenaturalgashereinthe

TBP:

UnitedStatestogetridoftheOPECoil.Andwehavetheresourcestodoit.Tony,we’resittingonahundred-yearsupplyofnaturalgashereinAmerica.We’vegotatleast4trillionbarrelsofoilequivalent(BOE).That’sthreetimestheamountoftheoilreservesthatSaudiArabiahas.Ifwedon’t

capitalizeonthat,we’regoingtogodownasthedumbestcrabthatevercametotown.

TR: That’sincredible.

TBP:

Andnaturalgasissocheaprightnow.A$100-barrelofoilisequivalentto[about]$16ofnaturalgas—we’veneverseen$16naturalgas.Whether

it’sfortrucking,orpowergeneration,anybodythatusesenergytodayhastoconsidernaturalgas.

TR:

Iknowyou’vespentatonofyourowntime,energy,andmoneyonthePickensPlan.You’vetakenyourcasetotheAmericanpublicandbankrolledanationalcampaignand

mediablitz.Whatdoyouthink—isitgoingtowork?

TBP:

IlaunchedthisplaninWashington,DC,in2008,andI’vespent$100millionofmyownmoneyonthis.IfeellikeI’vedoneeverythingIcouldonthis,andyes,we’regoingtogetanenergyplanforAmerica.

TR:

Italkalotaboutassetallocationinthisbook.Virtuallyallofyourassetsareinenergy;that’sbeenmostofyourlife,correct?

TBP:

That’sright,butinenergyyouhavelotsofdifferentsectors.Weinvestacrosstheenergyspectrumbutdon’tgobeyondthat.

TR:

Sothat’syourversionofassetallocation.Ifyouwereanindividualinvestortoday,andyouhad,let’ssay,$50,000toinvest,wherewouldyouputit?Downstream,youhaveexplorationcompaniesandrefineriesandall.Mostofmytimehasbeenspentupstream,ontheexploringand

TBP:

producingsideoftheequation.Butrightnow,naturalgasissocheap.It’sveryinteresting;that’stheplacetobe.Overall,Ithinktheoilandgasindustryhasafabulousfuture,becauseoftechnology.Theadvancementswe’vemadeintechnologyhavebeenunbelievable.Our

countrytodaylooksalotbetterfromastandpointofnaturalresourcesthanwedidtenyearsago.Ididn’tfeelthiswaytenyearsago.Ididn’tfeelnearasconfidentasIdotoday.

TR: Tellmewhatdrivesyou,Boone?

Youknow,Tony,what

TBP:

drivesmeatthispointisthatIliketomakemoney.Ilikegivingitaway—notasmuchasmakingit,butit’saclosesecond.IfirmlybelievethatoneofthereasonsIwasputhereonthisearthwastobesuccessful,tomakemoney,andbegenerouswithit.

TR: Begenerous?

TBP:

Oneofmygoalsistogiveaway$1billionbeforeIdie.YouknowWarrenBuffett’sandBillGates’sGivingPledge?Theycalledmeupandaskedmetojoin.AndIsaid,“IfyoulookatFortunemagazinefrom1983,whydon’tyoujoinmyclub,whereIsaidIwasgoingtogiveninetypercent

away?”TR: That’sspectacular.

EverydayIgototheoffice,andIlookforwardtogoingtotheoffice.That’sthewayithasbeenthroughoutmylife.Andso,myworkiseverythingtome.Butyousaythat,“No,myfamilyiseverythingtome.Youcan’tsaythat.”It’sjust

TBP: allfun.WhenI’mwithmyfamily,it’sfun.WhenI’mworking,it’sfun.Theresultsaren’tperfect,butthey’regoodenoughtomakeyouthinkthenextdayisgoingtobeahomerun.Theymaynotbe,butIstillthinkeverydaywillbe.

Youinspireme,likeyouinspiresomany

TR:

peoplearoundtheworld.I’minspiredbyyourpassionandintensity.At86,Boone,withsomanyextraordinaryaccomplishments,youjustkeepongrowingandgiving.

TBP:

Thankyou,Tony,you’vebeenasuccessfulmantoo,andhelpedsomany

people—probablyhelpedalotmorethanIhave.

TR: Oh,Idon’tknow.

TBP: Butwe’rebothwinnersbecausewedogive.

TR:

Yes,Iagree.Iloveyoudearly,myfriend.Thankyou.

23. Organization of the PetroleumExporting Countries, which includeSaudi Arabia, Iran, Iraq, Kuwait, andothers.

CHAPTER6.9

KYLEBASS:THEMASTEROFRISK

Founder,Hayman

CapitalManagement

As a competitive diver,KyleBass understands the basiclaw of physics. He knowswell that what goes up mustcome down. That’s why in2005 he began to askquestions about the boomingUS housing market—questionsnooneelsethoughttoask,like,“Whathappensifhousing prices don’t keepgoing up [forever]?” Those

questions led him to makeoneof thebiggestbets in theworld on the impendinghousingcrashof2008andtheeconomic meltdown thatfollowed. That trade wouldearnhimhisfirstbillion.Basswouldgoontomakea600%returnonhismoneyinjust18months and secure his placeas one of the brightest, mostthoughtful hedge fundmanagersofhistime.Kyle does very few

interviews, but it turned outmy work had inspired himwhile hewas still in college,so I had the privilege offlying out to Texas to sitdown with him in hisskyscraper buildingoverlooking the great city ofDallas.Bassisoneofthefewfinancial powerhouses whoviewshisdistance fromNewYork City as a competitiveadvantage. “We don’t getbogged down by the noise,”

hesays.Bass is humble and

approachable. When I askedhim about the questioningthatledhimtobetagainstthehousing market, he replied,“Tony, this isn’t rocketscience,thisisjustsomeidiotfrom Dallas askingquestions.”Bass lives with his wife

and family and serveson theboard of trustees of theUniversity of Texas

InvestmentManagementCo.,helping tooverseeoneof thelargestpublic endowments inthe country, with over $26billion in assets. You’vealready learned about Bassand his nickels: he’s the guywho taught his children thelesson of asymmetricrisk/reward by buying up $2million worth of nickels andearninga25%returnonDayOne of his investment. Infact, Bass says he’d put his

entire net worth in nickels ifhecouldfindthatmanycoinsonthemarkettobuy!Nickels aside, Bass’s

relentless focus onasymmetric risk/reward hasled to two of the biggestreturn bets of the century: inboth the housing market andthe European debt crisis thatbeganin2008.Andhe’sgotathird bet under way that hesays is even bigger. Whatfollows is an excerpt of our

two-and-a-half-hourconversationinhisdowntownoffice.

TR: Tellmealittleaboutyourself.Iwasaspringboardandplatformdiver,whichpeoplethinkisintenselyphysical.Butit’s90%mental.It’sbasicallyyouversusyourself.Forme,itwasvery

KB:

rewarding.Ittaughtmehowtobedisciplinedandhowtolearnfrommyfailures.It’sreallyhowyoudealwithfailurethatdefinesyouasaperson.Ihavealovingmotherandalovingfather,buttheyneversavedanymoney.IsworeIwouldneverbelikethat.Myparentsbothsmoked;IsworeIwouldneversmoke.For

me,I’vealwaysbeendrivenharderbythenegativethingsinmylifeversusthepositive—therearemanycongruenciesinmylifeandyourteachings.

TR:

Absolutely.WhenIlookattheonecommondenominatorthatmakessomebodysucceed,beyondeducationortalent,it’shunger.

KB: Hungerandpain.

TR:

Thehungercomesfromthepain.Youdon’tgetreallyhungrywhenit’sbeeneasy.

KB: That’sright.

TR:Soyourhungerdroveyoutostartyourownfund.Itwas2006,right?

KB: Correct.Thethingthat’ssoamazingtomeisthe

TR: speedatwhichyoustartedproducingreturns.

KB: Thatwaslucky.

TR:Youhad20%thefirstyearand,like,216%thenextyear,right?That’sright.ItwasjustfortuitousthatearlyonIsawwhatwasgoingoninthemortgagemarket.Ibelieveinthesaying“Luckiswhere

KB:

preparationmeetsopportunity.”IthinkImighthavereadthatinoneofyourbookswhenIwasincollege.Well,Iwasprepared.IliketothinkthatIwasluckyandintherightplaceattherighttimebecauseIhadallmyresourcesdedicatedtothatinthemoment.Alotofpeopleknew

TR:about[thehousing]problemanddidn’tactonit.Whatwasdifferentaboutyou?Whatreallymadeyousucceedinthatarea?Ifyourememberbackthen,moneywasbasically“free.”In2005and2006,youcouldgetaLIBOR-plus-250termloan[meaning,averycheaploan],andyou

KB:

andIcouldgobuyanycompanywewantedwithalittlebitofequityandatonofdebt.IwasonthephonewithmyfriendandcolleagueAlanFournieratthetime,andweweretryingtofigureouthownottolosebettingagainsthousing.Andthepunditskeptsaying,“Housingisaproductofjobgrowthandincome

growth,”soaslongasyouhadincomegrowthandjobgrowth,homepriceswouldkeepgoingup.That,ofcourse,wasflawedthinking.

TR: Yes,asweallfoundout.IhadameetingattheFederalReserveinSeptemberof2006,andtheysaid,“Look,Kyle,you’renewtothis.You

havetorealizethatincomegrowthdriveshousing.”AndIsaid,“Butwait,housinghasmovedinperfecttandemwithmedianincomeforfiftyyears.Butinthelastfouryears,housinghasgoneup8%ayear,andincomeshavemovedonly1.5%,sowe’refiveorsixstandard

KB:deviations24fromthemean.”Tobringthoserelationshipsbackinlineagain,incomeswouldhavetogoupalmost35%,orhousinghadtodrop30%.SoIcalledaroundallthedesksonWallStreet,andIsaid,“Iwanttoseeyourmodel.Showmewhathappensifhomepricesgouponly

fourpercentayear,twopercentayear,orzeropercent.”Therewasn’toneWallStreetfirm,notone,inJuneof2006thathadamodelthatcontemplatedhousingbeingflat.

TR: Areyouserious?KB: Notone.

TR: TheseguysjustdranktheirownKool-Aid.

SoinNovemberof2006,IaskedUBStoputforthamodelthathadflathomeprices.Andtheirmodelsaidthatlossestothemortgagepoolwouldbe9%.[Amortgagepoolisagroupofmortgageswithsimilarmaturitiesandinterestratesthatwerelumpedtogetherintoasinglepackage,or

KB:

security,calledamortgage-backedsecurity.Thesesecuritieswereassignedahighcreditratingandthensoldtoinvestors—foranexpectedreturn.Assuminghousepricescontinuedtogoup,thepoolwoulddeliverhighreturns.]Butifhomepricesdidn’tgoup,iftheyjustsatstill,thesethingsweregoingto

lose9%.IcalledAlanFournierofPennantCapitalManagement[heformerlyworkedforDavidTepper’sAppaloosaManagement],andIsaid,“Thisisit.”AndwhenIformedthegeneralpartnerofmysubprimefunds,InameditAFGP—afterAlanFournier,becauseofthephonecallwe

had.Becauseforme,thatphonecallflippedtheswitch.

TR:

Wow.Andcanyoutellmewhattherisk-rewardratioofthatbetforyouandAlanwas?

KB:

Basically,Icouldbetagainsthousingandonlypay3%ayear.IfIbetadollar,andhomepriceswentup,allIcouldlosewasthree

cents!

TR:

Amazing.Sotherisk—thepricetobetagainsthousing—wastotallyoutofwhack.

KB: Yep.Itonlycostme3%.

TR:

Becauseeveryonethoughtthemarketwouldgoupforever.Andtheupside?Ifhousingstayedflator

KB: wentdown,I’dmakethewholedollar.

TR:So3%downsideifyouwerewrong,100%upsideifyouwereright.Yes.Andit’sagoodthingIdidn’tlistentoeverymortgageexpertImetwith.Theyallsaid,“Kyle,youhavenoideawhatyou’retalkingabout.Thisisn’tyourmarket.Thiscan’t

KB:

happen.”Isaid,“Okay.Well,that’snotagoodenoughreasonforme,becauseI’vedonealotofworkonthis,andImaynotunderstandeverythingyouunderstand.”ButIcouldseetheforestforthetrees.Andthepeoplethatliveinthatmarket,alltheycouldseewerethetrees.

TR: Youunderstoodthecoreofrisk/reward.

KB:

Ialsoheardthisalot:“Well,thatcan’thappenbecausethewholefinancialsystemwouldcrash.”Thatstillwasn’tgoodenoughformeeither.Thatbias—thepositivebiasthatweallhaveisbuiltin;it’sinnateinhumannature.Youwouldn’tgetoutof

bedifyouweren’tpositiveaboutyourlife,right?It’sabiaswehaveashumanstobeoptimistic.

TR:Itworksforuseverywherebutinthefinancialworld.

KB: That’sexactlyright.What’sevenmoreamazingisthataftercallingthehousingbust,youwerealsoright

TR: aboutEuropeandGreece.Howdidyoudothat?Again,I’mtryingtounderstandthepsychologyofhowyouthink.Inmid-2008,post–BearStearns,rightbeforeLehmanwentbankrupt,wesatinherewithmyteamandsaid,“Okay,what’sgoingonthroughoutthiscrisisis

thattheriskintheworld—thatusedtobeonprivatebalancesheets—ismovingtothepublicbalancesheets.Solet’sgetawhiteboardandlet’sreconstructthepublic[government]balancesheetsofthenations.Let’slookatEurope,let’slookatJapan,let’slookattheUnitedStates.Let’slookeverywherethere’s

KB: alotofdebt,andlet’strytounderstand.”SoIthought,“IfI’mBenBernanke[headoftheFedatthetime]orJean-ClaudeTrichet,presidentoftheEuropeanCentralBank,andIwanttogetmyarmsaroundthisproblem,whatdoIdo?HowdoIdoit?Well,here’swhatI’ddo:I’dlookatmyownbalance-

sheetdebtsasacountry.AndthenIneedtoknowhowbigmybankingsystemisinrelationtotwothings:myGDP[grossdomesticproduct],andtomygovernmentrevenue.”

TR: Makessense.Sowebasicallylookedatabunchofdifferentcountriesandasked,

KB:

“Howbigisthebankingsystem?Howmanyloansareoutthere?”Thenwetriedtofigureouthowmanyofthemweregoingtogobad,andthenback-solvedforhowbaditwasgoingtobeforusasacountry.SoItoldmyteamtogocallsomefirmsandfindouthowbigthosecountries’bankingsystemswere.

Guesshowmanyfirmshadahandleonthatmid-2008?

TR: Howmany?

KB: Zero.Notone.Andwecalledeverybody.TR: Wow!

SoIdugintothewhitepapersonsovereign[country]debtandreadthemall.Theyaremostlyfocusedonemergingeconomies,

KB: becausehistorically,itwasemergingnationsthatrestructuredtheirsovereignbalancesheets.

TR: Developednationsonlyrestructuredpostwar.Right.Twocountriesspendafortunetogotowar;theyrunupdebts,andtothevictorgothespoilsandtotheloser

KB: wentdefeat,everytime.That’showtheworldworks.Inthiscase,itwasthelargestaccumulationofdebtinpeacetimeinworldhistory.

TR: Amazing.Sohowbigisthebankingsystem?Wewentoutthereandgatheredthedataandusedtwodenominators:

KB: GDPandcentralgovernmenttaxrevenue.Andthiswasahugelearningprocessbecausewehadneverdoneitbefore.

TR: Itsoundslikenobodyelsehad.Thisisn’trocketscience,Tony.ThisissomeidiotinDallassaying,“HowdoIgetmyarmsaroundthe

KB: problem?”Andsowedidthework,andIcameupwithcharts,andIsaid,“Rankthemworsttobest.”Whoisthesingleworstentryonthatsheet?

TR: Iceland?

KB:Right,Icelandwentfirst.Whowasnext?Itwasn’trocketscience.

TR: Greece?![Kylenodsyes.]

TR: Wow.

KB:

Sowedidallthiswork,andIlookedattheanalysis,andIsaid,“Thiscan’tberight.”Iwasbeinghyperbolictomyteam.Iwassaying,“Ifthisisright,youknowwhat’sgoingtohappennext.”

TR: Correct.SothenIasked,“Wherearetheinsurance

KB:

contractstradingonIrelandandGreece?”andmyteamsaid,“Greeceiselevenbasispoints.”Elevenbasispoints!That’s11/100thsof1%.AndIsaid,“Well,weneedtogobuyabillionofthatone.”

TR: Wow,that’sincredible.

KB: Mindyou,thisisthird-quarter2008.

TR: Thewritingwasonthewallatthatstage.

KB:

IcalledProfessorKennethRogoffatHarvardUniversity,whodidn’tknowmefromAdam.AndIsaid,“I’vespentseveralmonthsconstructingaworldbalancesheetandtryingtounderstandthis.”Isaid,“Theresultsofourconstruct,

they’retoonegativeforme.”Iliterallysaid,“IthinkImustbemisinterpretingthese.CouldIcomesitdownandsharewithyoutheresultsofmywork?”andhesaid,“Byallmeans.”

TR: That’sgreat.SoIspenttwoandahalfhourswithhiminFebruaryof2009.And

KB:

I’llneverforget:hegottothesummarypage,withachartofallthedata,andhesatbackinhischair,puthisglassesup,andsaid,“Kyle,Icanhardlybelieveit’sthisbad.”AndI’mimmediatelythinking,“Ohshit!Allofmyfearsarebeingconfirmedbythefatherofsovereignbalancesheetanalysis.”Soifhe

wasn’tthinkingaboutit,doyouthinkBernankeandTrichetwere?Noonewasthinkingaboutthis;therewasnocohesiveplan.

TR: None?

KB:Hewasdealingwithcurveballsastheywerebeingthrown.

TR:

That’sjustunbelievable.SoIhavetoaskaboutJapan,becauseIknow

that’swhatyou’refocusedonnow.

KB:

Rightnow,thebiggestopportunityintheworldisinJapan,andit’swaybetterthansubprimewas.Thetimingislesscertain,butthepayoffismultiplesofwhatthesubprimemarketwas.Ibelievetheworld’sstresspointisJapan.Andit’s[about]the

cheapestit’severbeenrightnow—meaning,[tobuy]akindofinsurancepolicy.

TR: Yes,andwhatisitcostingyou?

KB:

Well,thetwothingstotakeintoaccountfortheoptionspricingmodelare(1)therisk-freerateandthe(2)volatilityoftheunderlyingasset.Soimagineiftheturkey

usedthistheory.Ifheweregauginghisrisk[ofbeingkilled]baseduponthehistoricalvolatilityofhislife,itwouldbezerorisk.

TR: Right.

KB: UntilThanksgivingDay.TR: Untilit’stoolate.

WhenyouthinkaboutJapan,there’sbeenten

KB:

yearsofsuppressedpricesandsubduedvolatility.Thevolatilityismid-singledigits.It’saslowasanyassetclassintheworld.Therisk-freerateisone-tenthof1%.Sowhenyouaskthepriceonanoption,theformulabasicallytellsyouitshouldbefree.

TR: Right.

KB:

SoiftheJapanesebondsmoveup150basispointsto200basispoints[1.5%to2%],it’sover.Thewholesystemdetonates,inmyopinion.

TR: Wow.

KB:

Butmytheoryis,Ihavealwayssaidtoourinvestors,“Ifitmovestwohundredbasispoints,it’sgoingto

movefifteenhundred.”TR: Right.

KB:It’seithergoingtositstillanddonothing,orit’sgoingtoblowapart.

TR:

Thisallplaysintoyourideaof“tailrisk.”Tellmewhattailriskis;notmanyinvestorsfocusonit.

IfyoulookatwhatI’mdoing,I’mspending

KB:

threeorfourbasispointsayearonJapan.That’sfour-hundredthsof1%,okay?IfI’mrightaboutthebinarynatureofthepotentialoutcomeofthesituationthere,thesebondsaregoingtotradeat20%yieldsorhigher.SoI’mpayingfour-tenthsof1%foranoptionthatcouldbeworth2,000%!Tony,therehasnever

beenamoremissed-priceoptionthat’sexistedintheworld’shistory.Now,that’smyopinion.Icouldbewrong.SofarIam,bytheway.

TR: You’rewrongontiming.

I’lltellyouwhat.Icanbewrongfortenyears,andifI’mrighttenyearsfromnow,itwas

KB:

still100%oddsonthattobetherebeforeithappened.Andpeoplesaytome,“Howyoucanbetonthat,becauseit’sneverhappenedbefore?”AndIsay,“Well,howcanyoubeaprudentfiduciaryifIgiveyouthescenarioIjustlaidout,andnotdothis?ForgetwhetheryouthinkI’mrightorwrong.WhenIshow

youthecost,howdoyounotdothat?Ifyourhomeisinanareathatispronetofire,and200yearsagotherewasabigfirethatwipedeverythingout,howdoyounotpayforhomeowner’sinsurance?”

TR:

Gotit,that’sawesome.Soletmeaskyouthis:Doyouconsideryourselftobea

significantrisktaker?KB: No.

TR:

Ididn’tthinkso;that’swhyIasked.Whydoyousayyou’renotarisktaker?

KB:

Letmerephrasethat.Significantrisktakermeanswecanloseallofourmoney.Ineversetmyselfupfortheknockoutpunch.

TR:

Tellmethis:Ifyoucouldnotpassonanyofyourmoneytoyourchildren,butyoucanonlypassonaportfolioandasetofrules,whatwouldthatlooklikeforyourkids?

KB:

I’dgivethemacouplehundredmilliondollars’worthofnickelsbecausethentheywouldn’thavetoworry

aboutanything.

TR:

They’redone,theirinvestmentportfolioisdone.OhmyGod,that’swild.Whatgivesyouthemostjoyinlife?

KB: Ihavemykids.TR: That’sawesome!KB: Ahundredpercent.

TR:Kyle,thankyou.Isoenjoyedthis,andIlearnedalot!

24. In finance, standard deviation isappliedtotheannualrateofreturnofaninvestmenttomeasuretheinvestment’svolatility. Standard deviation is alsoknown as historical volatility and isused by investors as a gauge for theamountofexpectedvolatility.

CHAPTER6.10

MARCFABER:THEBILLIONAIRETHEYCALLDR.

DOOM

DirectorofMarc

FaberLimited;Publisher

ofGloom,Boom&Doomreport

The fact that Marc Faber’sinvestment newsletter iscalled the Gloom, Boom &Doom reportshouldgiveyoua hint about his outlook onmarkets! But this Swissbillionaire isn’t your averagebear. Marc, who’s been afriend of mine for manyyears,isacolorful,outspokencontrarian who follows theadvice of the 18th-century

investor Baron Rothschild:“Thebesttimetobuyiswhenthere’s blood in the streets.”AndlikeSirJohnTempleton,he hunts for bargains thateverybody else ignores oravoids. That’swhy,while somany are focused on the USstock market, Marc Faberlooks almost exclusively toAsia for his growthinvestments.He’salsoabluntcritic of all central banks,particularly the US Federal

Reserve,whichheblamesfordestabilizing the world’seconomy by flooding it withtrillions of dollars, virtually“printed”outofthinair.Marc has earned the

nickname “Dr. Doom” bycontinuallypredictingthatthemost popular assets areoverpriced and headed forcollapse. As the SundayTimes of London wrote,“Marc Faber says the thingsnobody wants to hear.” But

he’s often been right,especially in 1987, when hemade a huge fortuneanticipating the US stockmarketcrash.Faber’s father was an

orthopedic surgeon, and hismothercamefromafamilyofSwiss hoteliers. He earned aPhD in economics at theUniversity of Zurich, andstarted his financial careerwith the global investmentfirm White Weld &

Company. By 1973, he hadtransferredtoAsia,andneverlooked back. Fromhis officeinHongKongandhisvillainChiang Mai, Thailand, Marchashadafrontrowseattotheincredible transformation ofChina from a communistquagmire to the growthengine that drives the wholeregion. He’s now consideredone of the leading experts inAsianmarkets.Marc is known for his

eccentricity—he gleefullyacknowledges his reputationas a “connoisseur of theworld’s nightlife”—and is apopular speaker at financialforums and on cable newsshows. He’s a member ofthe prestigious Barron’sRoundtable, where,according to independentobservers, hisrecommendations have hadthe highest returns, almost23% per annum, for 12

years inarow.Marc is alsotheauthorofseveralbooksonAsia,andthedirectorofMarcFaberLimited,aHongKong–based advisory andinvestmentfund.MarcspeaksEnglishwithagravellySwissaccent and never takeshimself too seriously. Here’san excerpt from my onstageinterviewwithhimatmySunValley economic conferencein2014.

TR:

Whatwouldyousayarethethreebiggestinvestmentliesthatarestillpromotedintheworldtoday?Well,Ithinkeverythingisalie!It’salwaysverysimple!But,Imean,look:I’vemetalotofveryhonestpeopleandsoforth,butunfortunately,inyourlifetime,youwillcome

MF:

acrossmoresalesman-typefinancialadvisors.Youshouldreallyhavepeoplethatareveryhonest.ButIcantellyouthisfromexperience:everybodywillalwayssellyourdreaminvestments,andmyexperiencehasbeen,beingthechairmanofmanydifferentinvestmentfunds,usuallytheclientsmake

verylittlemoney.Butthemanagersofthefundandthepromoters,theyallwalkawaywithalotofmoney.Allofthem.

TR: Whereshouldinvestorsturn?Therearedifferenttheoriesintheinvestmentworld.Thereareessentiallytheefficient-markettheory

MF:

proponents.Theysaythatmarketsareefficient.Inotherwords,whenyouinvest,thebestisjusttobuyanindex.Andtheindividualselectionofsecuritiesisbasicallyuseless.ButIcantellyou,Iknowmanyfundmanagersthathaveactuallysignificantlyoutperformedthemarketsovertime,

significantly.Ibelievethatsomepeoplehavesomeskillsatanalyzingcompaniesbecausethey’reeithergoodaccountantsortheyhaveskills.

TR: Whatdoyouthinkofthemarketsthesedays?Ithinkthere’sstillriskintheemergingworld,andit’sstilltooearlytobuytheircurrenciesand

stocks—andit’stoolatetobuytheUS.Idon’twanttobuytheS&Pindexafteritreaches1,800.Idon’tseeanyvalue.Sobestistogodrinkinganddancinganddonothing!Doyouunderstand?ItwasJesseLivermore[afamousearly-20th-centurytrader]whosaid,“Themostmoneymadeisbydoingnothing,sitting

MF:

tight.”Sittingtightmeansyouhavecash.Inyourlife,the

importantthingisnottolosemoney.Ifyoudon’tseereallygoodopportunities,whytakebigrisks?Somegreatopportunitieswilloccureverythree,four,orfiveyears,andthenyouwanttohavemoney.TherewasahugeopportunityinUS

housingpricesattheendof2011.Actually,Iwroteaboutthis.IwenttoAtlantatolookathomes,andthenPhoenix.Idon’twanttolivethere,buttherewasanopportunity.Buttheopportunityclosedveryquickly,andtheindividualswereatadisadvantagebecausethehedgefundscamein[withcash]—theprivate

equityguys,theyjustboughtthousandsofhomesaway.

TR: Doyouseedeflationorinflationcoming?

Theinflation-deflationdebateismisplaced,inmyview,inthesensethatinflationshouldbedefinedasanincreaseinthequantityofmoney.Ifthemoneyin

circulationincreases,asaresultcreditincreases,wehavemonetaryinflation.Thisistheimportantpoint:monetaryinflation.Thenwehavethesymptomsofthismonetaryinflation,andthesesymptomscanbeverydiverse.Itcanbeanincreaseinconsumerprices,itcanbeanincreaseinwages,but

again,it’snotassimpleasthatbecauseintheUS,wehave,inmanysectorsactually,adeclineinwagesinrealtermsoverthelast20or30yearsalready,inflationadjusted.ButwhataboutthewagesinVietnamandinChina?InChina,wageshavebeengoingupattherateofsomethinglike20%or25%perannum

MF:andalsoelsewhereinemergingeconomies.Sotoansweryour

question,inasystem,wecanhavedeflationincertainthings,andassetsandgoodsandpricesandevenservicesandinflationinothers.It’sveryseldomthatintheworldeverythingwillgoupinpriceatthesamerateoreverythingwillcollapseinpriceat

thesamerate.Usually,ifyouespeciallyhaveafiatcurrencysystem,thosewhocanprintmoney,andwhatyouwillhaveisthemoneydoesn’treallydisappear.Itjustgoesintosomethingelse.Whatcandisappeariscredit—that’swhyyoucouldhaveanoverallpricelevelthatwouldbedeclining.

Butforusinvestors,weessentiallywanttoknowwhichpriceswillgoup.Like,“Isthepriceofoilgoingtogoupordown?”Becauseifitgoesup,thenmaybeIwanttoownsomeoilshares;andifitgoesdown,Imaywanttoownsomethingelse.Whatwouldyousuggestwouldbethe

TR: assetallocationtotakeadvantageofintheenvironmentwe’reinrightnowandtoprotectyourself?

MF:

Well,myassetallocationusedtobe25%shares[stocks],25%gold,25%cashandbonds,and25%realestate.NowIhavereducedmystockpositionsasa

percentageofthetotalassets.IhavemorecashthanIwouldnormallyhave.IincreasedtherealestateinVietnam,andIincreasedtheequityportfolioinVietnam.

TR:Sowhatmightthatlookliketodaythen,percentage-wise,outofcuriosity?Well,Imean,it’s

MF: difficulttotellbecauseit’ssobig.

TR:Areyoutalkingaboutportfolioorsomethingelse?

MF:

[Laughs.]No,thethingisthis:Idon’tknow!Imean,I’mnotcountingeverythingeveryday.

TR:Well,whatwoulditlooklikeroughly?

Roughly,Ithinkbonds

MF:

andcashwouldbenowsomethinglike30%,35%.Andthenstocksmaybe20%;thenrealestate,Idon’tknow,30%;andgold25%.It’smorethan100%,butwhocares?I’mtheUSTreasury!

TR:

Weknowwhyyoulikecash.Whataboutbonds,whenmanypeopleareafraidthey’reatthe

lowestleveltheycanbe?ThebondsItraditionallyholdareemerging-marketbonds.Thecorporatebondsarealsomostlyindollarsandeuros.ButIwanttoexplainthisveryclearly.Theseemerging-marketbondshaveaveryhighequitycharacter.Ifthestock

marketsgodown,thevalueofthesebondsalsodecline.Like,in2008,theytumbledlikejunkbonds.Sothey’remorelikeequitiesthanTreasuries.Iownsomeofthese.That’swhywhenIsayI’vealowequityexposureof20%,myequityexposurethroughthesebondsisprobablymorethan20%—maybe30%.

MF:

Ithinksometimesasaninvestor,wemakeamistakethatwehavetoomuchconfidenceinourview,becausemyviewisirrelevantforthewholemarketplace,doyouunderstand?Themarketwillmoveindependentlyofmyview,soImaynotbeoptimisticaboutTreasuries,butIcouldseeaconditionunder

whichTreasurieswouldactuallybequiteagoodinvestmentevenforafewyears.Youwillonlyearnyour2.5%or3%.Butthatmaybeahigherreturninaworldwhereassetpricesgodown.Doyouunderstand?Ifthestockmarketgoesdownforthenextthreeyearsby,say,5%perannumor10%perannum,and

youhavethisyieldof2.5%to3%,thenyou’llbetheking.

TR:Whataboutotherassetclasses?

There’salotofspeculationforhigh-endrealestate;high-endrealestateisatanincrediblyinflatedlevel.Ibelievealltheseinflatedlevels—I’mnot

MF: sayingtheycan’tgoanyhigher,butIamsuggestingthatonedaythey’llcomedownmeaningfully.Andthatinthatcondition,youwanttohavesomethingthatisahedge.

TR:Youhaveaquarterofyourassetsingold.Why?Actually,whatisinterestingiswhenI

toldthistoaudiencesbefore2011[whenpricesstarteddropping],peoplesaid,“Marc,ifyou’resopositiveaboutgold,whywouldyouonlyhave25%ofyourmoneyingold?”Isaid,“Well,maybeI’mwrong,andIwanttobediversifiedbecausethegoldpricehasalreadyhadabigmoveandisdueforconsolidation.”

MF:Goldisprobablytosomeextentahedge,butnotaperfecthedgeinanasset-deflationscenarioifyouhaveitinphysicalform.Butit’sprobablyabetterinvestmentthanalotofotherilliquidassets.Itwillprobablyalsogodowninprice,butlessthanotherstuff.Treasurybonds,forafewyearsatleast,

shoulddookayinadeflationscenarioforassetprices—atleastuntilthegovernmentgoesbankrupt!

TR:

Lastquestion.Ifyoucouldn’tpassonmoneytoyourkids,onlyasetofprinciplestobuildaportfolio,whatwouldtheybe?

Ithinkthemost

importantlessonIwouldgiveachildoranyoneis:it’snotimportantwhatyoubuy;it’sthepriceatwhichyoupayforsomething.Youhavetobeverycarefulaboutbuyingthingsatahighprice.Becausethentheydrop,andyou’rediscouraged.Youhavetokeepcoolandhavemoneywhenyour

neighborsandeverybodyelseisdepressed.Youdon’twanttohavemoneywheneverybodyelsehasmoney,becausetheneverybodyelsealsocompetesforassets,andtheyareexpensive.Iwouldalsosay,

look,Ipersonallythinkwehaveingeneralnoclueaboutwhatwill

MF:

happeninfiveortenminutes’time,letaloneinayear’stimeortenyears’time.Wecanmakecertainassumptions,andsometimestheylookfineandsometimesthey’rebadandsoforth,butwereallydon’tknowforsure.That’swhyasaninvestor,Iwouldsayyoushouldbediversified.

Now,noteveryinvestorcandothatbecausesomeinvestors,theyinvestintheirownbusiness.IfIhaveabusinesslikeI’mBillGates,thenIputallmymoneyinMicrosoft—andthatwas,forawhile,atleast,averygoodinvestment.Probablyformostpeople,thebestistohavetheirownbusiness

andtoinvestinsomethingwheretheyhaveaspecialedgecomparedwiththerestofthemarket;wheretheyhaveaninsider’sknowledge.That’swhatIwoulddo.Orgivemoneytoaportfoliomanager.Ifyou’reverylucky,hewillnotloseyourmoney,butyouhavetobeverylucky.

CHAPTER6.11

CHARLESSCHWAB:

TALKINGTOCHUCK,THEPEOPLE’SBROKER

Founderand

ChairmanofCharlesSchwabCorporation

You’ve seen the ads: ahandsome, white-haired manlooks directly at you throughthe camera and urges you to“own your tomorrow.” Ormaybe you remember the

ones where cartoon peopleask questions about theirinvestments, and a balloonpopsupencouraging them to“TalktoChuck.”That’sthestyle of personalengagement and opennessthat’skeptCharlesSchwabat the pinnacle of thediscount brokerageindustry for the past 40years,andhashelpedbuilda financial empire with$2.38trillioninclientassets

under management, 9.3million brokerage accounts,1.4 million corporateretirement plan participants,956,000 banking accounts,and a network serving 7,000registered investmentadvisors.Before Chuck Schwab

camealong, ifyouwantedtobuy some stocks, you had togo through a cartel oftraditional brokers orbrokerage firms that charged

exorbitant fees for everytrade.But in 1975,when theSecurities and ExchangeCommission forced theindustry to deregulate,Schwab created one of thefirst discount brokerages andpioneered a whole new wayof doing business that shookWallStreettoitscore.Heledan investor revolution,wheresuddenly individuals couldparticipate fully in themarkets without costly

middlemen. While clubbybrokerageslikeMerrillLynchraised their trading fees,Charles Schwab slashed—oreveneliminated—hisfeesandoffered an array of no-frillsservices that put the clients’interests first and establishedthemodelforanewindustry.Later he led the charge intoelectronic trading, and hecontinues to pioneerinnovations that educate andempower investors to make

theirowndecisions.At age 76, Chuck Schwab

comes across withtremendous humility andintegrity. “People seem tohave confidence in us,” hetold me. “We try to treateveryone with the sense thatwe are trustworthy and weneed to take care of theirassets in a very cautiousway.”It’s possible that Chuck’s

modestyandquietconfidence

come from a life spentovercoming a series ofchallenges, beginning with astruggle with dyslexia—alearning disability he shareswith a surprising number ofultrasuccessful businessleaders, from RichardBranson of theVirginGroupto John Chambers of CiscoSystems. Despite his readingdifficulties, Chuck graduatedfromStanfordUniversityandearned an MBA from

StanfordBusinessSchool.Helaunchedhiscareerinfinancein 1963 with an investmentnewsletter. Chuck embracedhis status as a Wall Streetoutsider and planted his flagin his native California,establishing his brokeragefirm in San Francisco in1973.Sincethen, theCharlesSchwab Corporation hasridden thewildbull andbearmarkets of the past fourdecades,bouncingback from

the crashes of 1987, 2001,and 2008 that wiped outlesser firms, taking on theslew of copycat companiesthat eroded its market share,always finding ways toinnovate and grow in everyenvironment.Although he turned over

the reins as CEO in 2008,Chuck stays active in thecompanyas its chairmanandlargest single shareholder.According toForbes,Chuck

Schwab has a personalfortuneof$6.4billion.Withhis wife and his daughter,Carrie Schwab-Pomerantz,he’sbeenincrediblyinvolvedin the family’s privatefoundations, which supportentrepreneurial organizationsworkingineducation,povertyprevention, human services,and health. He’s alsochairman of the SanFrancisco Museum ofModernArt.

Chuck Schwab and I bothhavecrazy schedules,butwewere finally able to meet inhisSanFranciscoofficesjustas this bookwas about to goto press. Here are someexcerpts from thatconversation:

EveryoneknowsthenameCharlesSchwab.Theyknowtheinstitution.Butmostpeopledon’treally

TR: knowyourstory.Iwonderifyouwouldjustshareafewhighlights?Iunderstandyoustartedbecominginterestedininvestingasearlyasthirteen?That’sright.WhenIwasthirteen,itwasrightafterWorldWarII,andtheworldwasn’ttoorich.Mydadwasasmall-townlawyerin

CS:

California’sSacramentoValley,andcertainlyourfamilywasn’tveryrich.IthoughtI’dbebetteroffinlifeifIhadmoremoney,soIhadtofigureouthowtomakemoney.Italkedtomydadaboutit,andheencouragedmetoreadbiographiesofthefamouspeopleinAmerica.Andtheyallseemedtodosomething

aboutinvesting.SoIsaid,“Man,that’sforme!”SowhenIwas13,I

startedachickencompany.Raisedchickensandallthat.AndthenIdidabunchofotherlittlebusinesskindsofthings.SoIknewalotaboutbusinessandstartedthinkingabouthowbusinessesfunctionand

operate.

TR:

Whatwasyouroriginalvision?Andwhatwereyourfirstrealpracticalsteps?Givemehighlights,ifyouwould,togivepeopleasenseofyourjourney.Well,Iwasquiteluckyearlyinthejourney.Istartedoutasafinancialanalyst,andIhadsomeupsanddownsalongthe

CS:

way.Iwasabout35,andIhadalotofexperiencebeforeIreallystartedthecompanyin1973.Andasaresult,Iknewsomeofthehandicapsofthefinancialbusiness.Includingwhytheydidn’ttreatpeoplewellenough.Itwasbecausetheywerereallyfocusedonmakingthemselvesmoney—butnotongivingtheinvestorafair

shake.Theyalwaysthoughtabouttheirinstitutionandmakingmoneyfirst.Isaid,“Aha!There’sgonnabeadifferentway!”

TR:

WhathasbeenthecompetitiveadvantageatCharlesSchwabovertheyears?Imean,ifyoulookatthesizeoftheNorthAmericaninvestmentmarket,I

thinkit’sabout$32trillion.Andyouguyshavetorepresentasizeableamount.

We’reprobably5%to10%oftheretailmarket.Somethinglikethat.Butyouknow,asIgotintobusiness,Iwantedtolookateveryproduct,everyservicethatweofferclients,throughclients’eyes.Wewould

designaproductlikeano-loadmutualfund.Wediditinabigway.Wemadeitfreeforpeopletobuyno-loadfundsthroughus,yearsago.Peoplewouldsay,

“Well,howareyougonnamakemoneyatthat?”Sowefiguredoutawaytomakesomemoneyatit.Weworkedwiththemutualfund

CS:companiesandconvincedthemtopayusalittlefeeoutoftheirmanagementfees.Andourclientswouldbenefitfromit.Anditflourished.Sotheindividualgotagreatadvantagebybuyingaplethoraofno-loadmutualfundsfornofee.Wedidthesamekindofanalysisalongthewayforotherthingsthatwe

did.Welookedatitfirstthroughtheclients’eyes.ButWallStreetdid

justthereverse.Theyalwaysmadeadecision:“Howmuchmoneycanwemakeonthisfirst?Okay,let’sdoit.Let’sgosellit,boys.”That’sthewaytheymadedecisions.Wewerecompletelytheopposite.

TR: Hasthatshifted?Orisitstillthesame?

CS:

It’sstillthesame.Andthat’swhyit’saprettyinterestingmarketforus.Youknow,wehavesortofanunlimiteddestiny,Ithink,tocontinuetotreattheclientastheking.Andmakesurewedoeverythingthat’sintheirinterestsfirst.Yes,we

willmakealittlebitofmoney.Whichwedo,ofcourse.We’reaprofit-makingorganization.Butfirst,wethinkabouttheclient.

TR:

Whatdoyouthinkarethetwoorthreemythsthatyoutrytopointouttothemtopayattentiontosotheydon’tgetsuckedinwhentheythinkaboutinvesting?

Well,it’ssoeasy.I’vewatcheditinWallStreetsomanytimes.Youseetheabusesthatcomeabout.Somereallyfancybrokercomesalongandsays,“Ma’am,wouldyouliketomakesomemoney?”Ofcourse,weallsay,“Yes!”Andthenyougetengagedintheconversation.“Theseguyshavethebest

CS:

widgetyou’veeverseeninyourlife.Andit’sgonnabejustlikeanotherApple.”Soweall,naturally,sortoflistentothestory,thensay,“Okay,I’llputsomemoneyintothat.”Well,theprobability

ofthatworkingoutisabout1in10,000.It’slike,whydon’tyoujustgotothehorses?Orbuyalotteryticketthatday?

That’llsatisfyyourspeculativething.Puttherealmoneyyouhaveintoanindexfund,whereyouknowtheoutcomeisgoingtobehighlypredictableandreturnswillbereallyquitegood.

TR:

Somanypeoplewillgethurtbecausetheydon’tknowthingsandtheydon’taskquestions.And

you’reoneofthefirstpeopletosay,“Askquestions.”

CS: Right.

TR:

Butveryfewpeopleknowthequestionstoask.Youknow,theyseeamutualfund,andtheyseeitsreturn.Andtheythinkthat’sthereturntheyreceive.AndasyouandIbothknow,that’sjustnottrue.

It’sjustnottrue.It’snever.Anythingofthepastisneverpromisedforthefuture.Buttherearereasonswhyweputoutapamphlet,awhitepaperonindexfunds.Wetalkaboutthereasonwhystocksarethegreatestplace,really,tohavelong-terminvestments.Andthereasonwhyisthat

CS:

companiesareinbusinesstogrow.EveryboardI’veeverbeenon—andI’vedonesixorsevendifferentFortune500boards—everyconversationattheboardmeetingisaboutgrowth.Howcanwegrowthiscompany?Ifyoudon’tgrow,youfirethemanagement.Getanewmanagementteamin.

Now,thatbuildingoverthereisabeautifulbuilding.Butyoucomeback100yearsfromnow.Thatbuildingwouldstillbethesamesize.Orbeknockeddown.Butitdoesn’tgrow.Onlycompaniesgrow.Andthat’swhyit’safantasticthingtogotostocks.And,ofcourse,inourcase,wetrytoencouragepeople

togointoindexfunds,sotheygetabroadblendofindustriesandstocksandsoforth.Thentheyhave—

TR: —thelowestcosts.

CS:

Thelowestcosts,andtheygetahighdegreeofcertaintythatthey’regoingtodoaswellastheindexwilldo.Andifyoulookatanyindustriesoverthelast

100years,they’vedoneextraordinarilywellovertimeandbroughtgreatreturnstoclients.

TR:

IfyoulistentoVanguard’sJackBogleorsomebodylikeDavidSwensenfromYale,theyallsaypassivemanagementisthewaytogo.Because96%ofallmutualfundsdonotmatchtheindexovera

ten-yearperiodoftime.Buthowdoyoufeelaboutitfortheaverageinvestor:passiveversusactive?Well,I’mamixedinvestor.Iinvestinalotofindividualstocks.ButIhavethetime.Ihavetheexpertise.Ihavetheeducation.But98%ofpeopledon’tfocusonthat.Theyhaveother

CS:

thingsinlifetodo,ratherthanfussaroundwithinvestmentsasIhavedone,orWarrenBuffetthas.Youknow,theyareprofessionals,andthey’redoctors.Orlawyers.They’rewhatever.Weneedallthosepeopletomakeasuccessfulsociety.Andmaybe2%ofusreallyknowaboutinvesting.Sotherestofthepeople

needsomehelpandadvice.That’swhatIlearnedearlyon,andthat’swhatwedotoday.Andthe98%shouldreallypredominantlygointoindexfunds,inmyview.Theyhavethemostpredictableoutcomes.Betterthantheywouldeverdobytryingtopickdifferentthings,whichisverydifficulttodo.Andthen

dotheirotherjobtoo.Youcan’tdoboth.

TR:

Theotherpartis,peoplejustdon’trealizewhatthecostis,asJackBoglepointsout.Forevery1%overthelifetimeofinvesting,it’s20%ofyourmoneyyou’regivingup.

CS: Yeah.It’sover.

TR: Giveup2%,that’s40%.Giveup3%,that’s60%.

CS:That’sawholelot.Andonanafter-taxbasis,itreallymountsup.

TR:

EverymajorinvestorthatIspoketotalksofthefactthatassetallocationisthesinglemostimportantinvestmentdecisionapersoncanmake.Youdealwithsomanydifferenttypesofinvestors.What

philosophydoyoutrytohaveyourteamapplytohelppeopleunderstandwhattheirassetallocationshouldbe?Well,it’sactuallyprettyeasytoday.Itwasn’tthattrue40yearsago.Nowwehaveindexfundsthatwementioned.AndETFs.Soyoucangetdifferentslicesofthemarketso

CS:

youcanhaveplentyofdiversification.Youwantenergystocks?YoucangetanenergyETF.Youwantmedicaldevices?Youcandothat.And,ofcourse,Itendtobelieveyoushouldbediversifiedamongtheverybiggestandtenbiggestindustrygroupings.Andthat’swhatyougenerallygetinageneralindexfund.

Yougetallofthem,becauseyouneverknow.Sometimeselectronicequipmentwillbegoing,zoomingrightup.Oilmightnotbedoingsowell.Butnextyear?Oilisindemand,sooilpricesaregoingup.Andthatdoeswell.Andsoonandsoforth.Butitallowsyoutogetthebalanceofthebenefitsofeachofthese

sectors.

TR:

HowdoyoufeelaboutinvestinginAmericaversusinternational,whenyou’retryingtocreatethatassetallocation?That’sanotherlevelofsophistication,whichIthinkeverybodyshouldhaveintheirportfolio.Somechunkdevotedtointernational,because

CS:

theverysimplefactis,Americaisgrowingatabout2%to3%perannumnow.Therearemanyothercountriesthatarebeginningto,fromChinatoIndonesiatoJapan,havebettergrowththanAmerica.Sothat’swhereyou’regonnagetyourreturns,wherethereisbettergrowth,frankly.Buteventhoughthe

Americaneconomyisonlygrowing2%,therearesomepartsofoureconomythatarereallygrowingquitefast.Soobviouslyyouwanttobeattractedtothemtoo.

TR:

Wheredoyouseetheworldgoinginthenexttenyears?Whatdoyouthinkthoseopportunitiesandchallengesareforinvestors?

CS:

Ithinkthereareenormousopportunitiesaheadofusstill.Despitehowslowthingsaregoingrightnow.ItwillexplodeoncewegetthekindofpoliciesIthinkwilleventuallygetbackin.Becausethere’snowayyou’regonnatakethegrowthcomponentoutofAmerica.Theinnovationgoingonin

thiscountryisprofound.Imean,IliveintheSanFranciscoarea,whereit’sjustgoing,bustingattheseamswhereveryouwalk.It’sthere.

TR:

AreweinamarketbubblewiththeFedcontrollingratesthewaytheyare?Whereyouwouldhavetotakesignificantrisktoseerewards?Themarket

seemstobetheonlyplaceforthemoneytogo.Howlongdoesthatlast?Well,I’mnotagreatfanofthepresentpolicyoftheFederalReserve.Ithinkmanipulatingrates,aslongastheyhave,isreallynottherightdecision.AndIguessitdoescreatethepotentialandthepossibilityof

CS:

somekindofbubble.Itwon’tbeforever.Wewillprobablypayapriceforit.Butit’snotapermanentissue.Andsothere’llbesomehighinflationordownmarkets.Therewillbeaconsequenceforwhatwe’redoingnow.Butwe’llgetthroughit.Aswedoeverytimethere’rebaddecisionsmadebypolicymakers.

TR:

Theyallhaveadifferentlanguageforit,butforeverysinglemajorinvestorintheworld,oneoftheircompetitiveadvantagesisasymmetricrisk/reward.Theytakealittlerisktotrytogetabigreward.Howdoestheaverageinvestordothattoday?Isthereanyinsightyoucangivethem?

CS:

Well,Ithinkit’sallcomingbacktotheanswer:Wherecanyougetthebestgrowth?Understandingthefundamentalsofgrowthiscruciallyimportanttogetlong-termreturns.Now,inthecaseofWarrenBuffett,helearnedthatatayoungage.Hejustbuyscompanies,andhe

neversells.Why?Companieskeepgrowing.Theyjustkeepgrowing.Andhegetsricherandricher.

TR: Hedoesn’tpaytaxes.

CS:Andhedoesn’tpaytaxes.Ifyoudon’tsell,youdon’tpaytaxes!

TR: That’sprettyawesome.

CS:That’shismystery.Themythhasbeensolved!Hedoesn’tsell!

TR: Ibelieveyouhavefivechildren.CS: Andtwelvegrandkids.

TR:

Twelvegrandkids!Tellme:Ifyoucouldleavenoneofyourmoneytoyourchildren,butyoucouldonlyleaveasetofinvestmentprinciplesandmaybeaportfolio,whatwouldbeyouradvicetothem?

Well,Ithinkitreally

startswithearningyourownmoney.Havingsuccessinthat.Andtheconceptofputtingsomemoneyaside.•Makesureyougettherighteducation.Andhopefullyitfitsintothemarketplace,wherejobsarebeingcreated.

•You’vegottohaveawell-payingjob,whicharenotthat

CS: plentifultoday.•Andthenputtingthemoneyasideinyour401(k)orIRA.Ittakesgivingupthings.Notbuyingthatcar.Givingupthatvacation.Havingsomethingsetaside.

•Andthenyoucouldbegindoingtheproperinvesting.It’saprettysimple

formula.Lotsofpeople

don’trealizeit,buthopefullyyoucanteachpeopletodothat.

TR: [Laughs.]HopefullyIcan!Youknow,Ibelieveinleavingsomething.Makingsurethekidsareeducated,butnotsizeablesumsofmoney.Don’ttakeawaytheirsenseoftheirownopportunity,theirown

CS:

egodevelopment.Theirownkindsofthingsthatwillfulfillthem.Youhavetobeareallycuriousperson.Makesureeveryoneofyourkidsisreallycurious.Andit’snotnecessarilyaboutmakingmoney.Havingcomefroma

backgroundofnomoneyandnowealth,Iclearlyknowthedifference.Andof

course,inthelast20years,I’vehadthebenefitofsuccess,whichallowsmeincrediblechoices.Formywifeandme,wetakeavacationwithoutworryingaboutthecostofit.Havingagoodtime.Ienjoymysports.Ilovemygolf.Anditgoesonandonandon.Andsowewanttoperpetuatethissuccess.

Wewantournextgenerationstohavewhatwehad,andthensome.

TR:

You’vedealtwithsomanysuccessfulpeople.You’vestudiedsuccessfulcompaniesandtheindividualswhodrivetheirgrowth.Whatdoyouthinkisthesinglemostimportantfactor?Youknow,maybeit’s

CS:

99%necessity.Butlotsofpeopleoutthereintheworldreallydoneedmoreresources.Buttheydon’thavetheeducation.Somehowtheydidn’thavethemotivation.Maybetheydon’tsenseopportunityinfrontofthem.Howtoperceivetheopportunitythatisrightthere?Youlookaroundattheseotherguyswhohave

beensuccessful,andyouthink,“Icandothattoo.”Howdoyousensethat?Idon’tknow.

TR:

You’re76now,andyoudidn’tfindoutyouweredyslexicuntilyouwereinyour40s,right?

CS: Right.

TR:

Alotofpeoplethinkofthatasalimitontheirlife.Howcomeitwasneveralimittoyou?

CS:

Maybe,thankGod,thatIdidn’tknowwhenIwasakid!Butmysonwasjuststartingschoolwhenwetookhimfortesting[andfoundouthewasdyslexic].Isaid,“OhmyGod.AllthethingsthatIhadtodealwithatageseven,eight,andnine,he’sdealingwithnow!”AnditwasveryclearthatIwasalso

dyslexic,sothatsolvedalotofmyissueswhenIthoughtbackaboutmyearlyschooling.Thealphabetwasimpossibleforme.Myreading—eventothisday,Idon’treadnovels.Ireadnothingbutnonfiction.

TR:Wow.Sowhatallowedyoutosucceedinthefinancialbusiness,then?Well,Iwasprettygood

CS:

atmath.AndIwasprettygoodwithpeople.Iwasn’tagreatwriter,butIhadpeoplearoundmewhoweregreatwriters.Soyoulearnveryquickly:youcan’tdoitallyourself.Youneedtohavepeoplearoundyouwhoarebetterthanyouareatmostotherthings.Butyouhavetobeabletoinspirethepeople

aroundyoutoworktogetherforwhateveryourcommonpurposeis.Andthat’swhatI’vebeenabletodoalltheseyears.

TR: What’syourpassion?I’mtotallypassionateaboutthenecessityforpeopletoearnandsaveandgrowbecauseoftheresponsibilityweallhaveforourown

CS:

retirements.Andgoodnessgracious,we’regonnalive,youknow.I’minmyseventies.Buttheprobabilitynowislivingto90,95.It’salongtimetobeinretirement.Andsoyou’vegottoputasidealotofassets,Ithink,inordertolivecomfortably.PeopleItalkedtowho

TR: knewyou20yearsagosayyourpassionisasgreatorgreaterthaniteverwas.

CS: Probablygreater.[Laughs.]

TR:

Wow.Whyisthat?Howhaveyoumaintainedthat?Howhasthatcontinuedtoexpand?Well,Ihaveseen,forinstance,whatyoucandowithphilanthropy.

CS:

Andhowyoucanreallyhelppeople.Bybeingsuccessful.Well,Icouldn’tdoitifIwasnotsuccessful.Iwouldn’thavetheresourcestodoitwith.ButIcanmakethingshappenindifferentways.Whetherit’sissuesarounddyslexia.Icanhelpkids.Orincharterschools,wecanhelpkids.Orifit’sin

museums,helpbuildbetterandbiggerplacesforpeopletocomeandseeandviewart.Ithinkoneofthe

greatfulfillmentsofachievinggreatsuccessisbeingableto,inyourlifetime,givebacktothings;thatitreallyenhancesmany,manytimes,youknow,whatpeoplecanreallyenjoy,andyourself.

TR:

Ifsomeonewasstartingoutbrandnew,whatwouldbetheadvantageyouwouldtrytogivethem,lookingtostartabusiness?Howdoyougofromthevisionofayoungmanthatyouwere,whosaid,“Iwanttoreallyhelppeoplelookoutforthecustomer,”tobuildingamultitrillion-dollar

business?Whatwouldyoutellpeopletheyshouldreallyfocuson?Well,gettingalltheeducationandthepracticalexperience.Andthenhavingthepatiencetodoitdayinanddayout.Dayinanddayout.It’snoteasy,letmetellyouthat.It’sliketherestaurateurservinggreatfoodeverymeal.

CS:

It’snoteasy.Butthat’showyoumakeagreatrestaurant.That’showyoumakeagreatcardealership.Serviceeveryday.Youcan’tmisstheball.You’vegottahittheballoutoftheparkeveryday.Withservice.Andthesamewithtechnology.Inourlifetime,we’veseenmanycompaniesgointhetankbecausethey

weren’tabletoinnovate.Oractually,theydidn’tfigureoutaproductorservicethatreallyservedthecustomerwell.Theylosttheircustomers.Neverloseacustomer.Figurethatoneout.Lastquestion.I’msureitwillbe20or30yearsfromnow,becauseyou’retakingcareofyourselfandyourhealth,

TR: andyou’resopassionate,buthowdoyouwanttoberemembered?What’syourlegacyforyouandwhatyou’vebuiltoverthislifetime?Well,I[have]avarietyofthem,ofcourse.Formyfamilyandsoforth.Intermsoftheprofessionalside,Ifeelreallyproudaboutthe

CS:

factthatIreallymadeahugechangetothepracticeofWallStreet.Thisisaninstitutionthat’sbeenaroundforacouplehundredyears.Andwe,thislittlecompanyontheWestCoast,tookthemonindifferentways.Andreallymadeachangeinthecharacterofhowtheytreatclients.Andthey’redoingamuch

betterjob.Notasgoodasweare![Laughs.]Butthey’redoingamuchbetterjobandaremuchmorethoughtfulabouthowtheytreattheirclients.

TR: Youledbyexample.CS: Thanksverymuch.

TR: Blessingstoyou.Thankyouforyourtime.

CHAPTER6.12

SIRJOHNTEMPLETON:THE

GREATESTINVESTOROFTHE20THCENTURY?

Founderof

TempletonMutualFunds;Philanthropist;

Creatorofthe£1MillionTempletonPrize

Sir John Templeton wasn’tjustoneofthegreatestmoneymasters of all time, he wasone of the greatest humanbeingswhoever lived.AndI

had the honor of countinghim as one of my mentors.His motto, “How little weknow, how eager to learn,”guided his long and dazzlinglifeasaninvestmentpioneer,iconoclast, spiritual seeker,and philanthropist. Sir Johnwasknownforhisabilitytolook at the most difficultsituations in the world andfind a way to takeadvantage of them for thegreatergood.

John Templeton was notalways known as “Sir John.”He came from humblebeginningsinasmalltowninTennessee, where he wasreared to value thrift, self-sufficiency, and personaldiscipline. He worked hisway through Yale andOxford, and got his first jobonWallStreetin1937,inthedepths of the GreatDepression. He was theoriginal contrarian, who

believed in buying shares at“the point of maximumpessimism.”When everyoneelse thought the world wasgoing to end, John thoughtit was the right time toinvest. When everyone elsethought,“OhmyGod!Theseare the greatest times inhistory!”—that was when itwastimetosell.He first put his theory to

the test in the fall of 1939.With the Depression still

raging and Hitler’s troopsrollingintoPolandatthestartof World War II, JohnTempletondecidedtotakeallthemoney he had saved andborrow some additionalmoneyaswell andbuy$100worth of every stock valuedat$1orlessontheNewYorkexchanges. That portfoliobecame the basis of a vastpersonal fortune and assetmanagement empire.He alsobecame a pioneer in

internationalinvesting.WhiletherestofAmericansrefusedto look beyond US borders,Johnwas scouring the worldforopportunities.Andashisfortunegrew,so

didhiscommitmenttogivingback.In1972heestablishedthe world’s largest annualaward given to anindividual, bigger than theNobel Prize, honoringspiritual achievements.Mother Teresa was the first

recipient of the TempletonPrize. His foundation alsofunded research in scienceand technology, and in 1987Queen Elizabeth knightedhim for his enormouscontributionstohumanity.SirJohncontinuedtospeak

andwriteandinspiremillionswith his humble message ofintegrity, entrepreneurship,andfaith,rightuptothetimeofhisdeathin2008attheageof 95. (Incidentally, he had

accurately predicted thecollapse of the housingbubble that year.) Thefollowing is an excerpt fromaninterviewIconductedwithhim just months before hispassing. His kindness shinesthrough in every answer, ashe shares his philosophy thatthe same qualities that makeyou a great investor can alsomake you a great humanbeing.

TR:

SirJohn,mostpeopleseemtobeeithermoneyorientedorspirituallyoriented—theyhavetobeoneortheother—butyouseemtohavefoundawaytointegratethesetwoinatrulynaturalandrealwayinyourlife.Canpeopleintegratebothintheirlives?Definitely!Thereisno

disparity.Wouldyouwanttodealwithabusinessmanyoucouldnottrust?No!Ifamanhasareputationfornotbeingtrustworthy,peoplewillrunawayfromhim.Hisbusinesswillfail.Butifanothermanhashighethicalprinciples,highspiritualprinciples,hewilltrytogivetohiscustomersandhisemployeesmore

JT:

thantheyexpect.Ifso,hewillbepopular.Hewillhavemorecustomers.Hewillmakemoreprofit.Hewilldomoregoodintheworld,andtherebyhewillprosperhimselfandhavemorefriendsandbemorerespected.Soalwaysstartoutto

givemorethanisexpectedfromyou,totreattheotherperson

morethanfairly,andthatisthesecretofsuccess.Nevertrytotakeadvantageofanyoneortoholdanyonebackintheirownprogress.Themoreyouhelpothers,themoreprosperousyouwillbepersonally.

TR:

Whatwasyourfirstinvestment?Whatdrewyoutoit,andhowdidit

turnout?IwasjustgettingstartedwhenitwasthebeginningoftheSecondWorldWarinSeptember1939.Wehadjustfinishedtheworld’sgreatestdepressionandthereweremanybankruptcompanies.Butawarcausesademandforalmosteveryproduct,so

JT:

duringawaralmosteverycompanywillprosperagain.SoIgaveastockbrokeranordertobuy$100worthofeverystockonbothexchangessellingfor$1orless,andtherewere104ofthem.Andoutofthose,Imadeaprofiton100andlostmoneyononlyfour.Sothreeyearslater,

whenmywifeandIhad

anopportunitytotakeoverthissmallpracticeofaretiringinvestmentcounselor,wehadthesavingsneededtodothat!WebeganwithnoclientsinRadioCityinNewYorkandworkedtherefor25years,continuingtosave50centsoutofeverydollarsothatwecouldbuildupourassetsforourretirementandfor

charity.

TR:

Wow!Andyougotquiteabitofareturnsaving50centsoutofeverydollar,SirJohn.Mostpeopletodaywouldsay“That’simpossible!Ican’tsavefiftypercentofmymoneyandinvestit.”Butthat’showyoubuiltfromnothing,andyoudidthisduringtheDepression!I’vealso

readthatifsomeoneinvested$100,000dollarswithyou[in1940],neverputanotherdimein,andforgotaboutthemoney,by1999,thatwouldhavebeenworth$55million!Isthattheaccuratenumber?

JT:Yes,providedtheyreinvestedtheirdistributions.

TR:

Letmeaskaboutyourinvestingphilosophy:inthepast,you’vesaidtome,“Notonlydoyoubuyatmaximumpessimism,butyouwanttosellatthepeakofoptimism.”Isthatcorrect?

That’scorrect.There’sagoodsayingthere,Tony.“Bearmarketsstartonthetimeofpessimism.

JT:

Theyriseonthetimeofskepticism.Theymatureonthetimeofoptimism,andtheyendonthetimeofeuphoria!”Thatalwayshappensineverybullmarket,andithelpsyoudeterminewhereyouare.Ifyoujusttalkwithenoughinvestorstofindtheirpsychology,youcantellwhetherthemarketisstillsafeata

lowlevelorhighatadangerouslevel.

TR:Whatdoyouthinkisthesinglebiggestmistakeinvestorsmake?Thegreatmajorityofpeopledonotbuildupanywealthbecausetheydonotpracticetheself-disciplineofsavingsomeoftheirincomeeverymonth.Butbeyondthat,once

JT:

you’vesavedthatmoney,thenyouhavetoinvestitwiselyingoodbargains,andit’snoteasy.It’sveryrareforanyoneperson,particularlyanyonepersonworkinginjusttheirsparetime,toselecttherightinvestments.Anymorethanyouwouldwanttobeyourownmedicaldoctororyourown

lawyer,it’snotwisetotrytobeyourowninvestmentmanager.It’sbettertofindthebestprofessionals;thewisestsecurityanalysttohelpyou.WhenIwastalkingtosomeofyourassociatesdownintheBahamas,Iwasaskingthem,“Whatdoesheinvestin?”andtheysaid,“Anything!

TR:

He’llbuyatreeifhethinkshecangetagooddealonit.”ThenIsaid,“Howlongwillhehangontoit?”andtheysaid,“Forever!Basicallyuntilit’sworthmore!”SirJohn,howlongdoyouhangontoaninvestmentbeforeyouknowtoletitgo?Howdoyouknowifyou’vemadeamistake?Howdoyouknowwhenit’s

timetoactuallyliquidate?Thatisoneofthemostimportantquestions!Manypeoplewillsay,“Iknowwhentobuy,butIdon’tknowwhentosell.”Butoverthese54yearsthatI’vebeenhelpinginvestors,IthinkIhavetheanswer,andthatis:yousellanassetonlywhenyouthinkyou

JT: havefoundadifferentassetthat’sa50%betterbargain.Yousearchallthetimeforabargain,andthenyoulookatwhatyounowown.Ifthere’ssomethinginyourpresentlistthatisa50%lessgoodbargainthantheoneyoufound,youselltheoldoneandbuythenewone.Buteventhen,you’renotrightallthetime.

TR:

SirJohn,whyshouldAmericansfeelgoodaboutinvestingoutsidetheirowncountry?

Thinkaboutthis:ifourjobistofindthebestopportunities,surelywewillfindmoreopportunitiesifwedonotlimitourselvestojustanyonenation.Likewise,perhapswewillfindbetter

JT:

opportunitiesifweareabletolookeverywhereratherthanjustonenation.Butmostimportantisthatitdoesreduceyourriskbecauseeverynationhasbearmarkets.Usuallytwiceevery12years,there’saseverebearmarketinamajornation,buttheydonotoccuratthesametime.Soifyouarediversified,

havingyourassetsinmanynations,youdonothavetosufferthroughthebearmarketinonenationasapersonwhohadallofhiseggsinonebasketwould.Wehavealways

advisedourinvestorstobediversified—notonlydiversifiedintomorethanonecorporationanddiversifiedintomorethanoneindustry,but

alsodiversifiedintomorethanonenationinorderthattheywillgetgreatersafetyandgreaterpotentialprofit.

TR:

Whatdoyouthinkitisthathasseparatedyoufromalltheotherinvestorsoutthere?What’smadeyouoneofthegreatestinvestorsofalltime?

JT:

Thankyou.Idonotregardmyselfasthat.We’venotalwaysbeenright.Nooneis,butwehavetriedtobealittlebetterthantheothercompetitorsandtogivemorethanisexpectedfromusandalwaystotrytoimproveourmethods,tousenewmethodsinordertostayaheadofthecompetition.Ifthere’s

anysecretinitatallitisthis:donottrytobeago-getter.Trytobeago-giver!

TR:

SirJohn,there’ssomuchfearouttheretodayonsomanylevelsofsociety.Howdowedealwithfear?Toovercomefear,thebestthingistobeoverwhelminglygrateful.Ifyouwakeup

JT:

eachmorningandthinkoffivenewthingsforwhichyou’reoverwhelminglygrateful,you’renotlikelytobefearful,you’relikelytoradiateyouroptimism,yourattitudeofgratitude,you’relikelytodothingsinabetterway,drawmorepeopletoyou.SoIwouldthinkanattitudeofgratitude

willpreventalifeoffear.

TR:

Iwouldlovetohearthroughyourownperception:WhoisSirJohnTempleton?Whatisyourlifereallyabout?Intheend,howdoyouwanttoberemembered?Iamastudent,alwaystryingtolearn.Iamasinner.Allofusare.I’vetriedtobebetter

JT:

daybyday,andparticularlyItrytokeepaskingmyself,“WhatarethepurposesofGod?WhydidGodcreatetheuniverse?WhatdoesGodexpectofhischildrenhere?”Andtheclosestyoucancomeinjustafewwordsis:Heexpectsustogrowspiritually.Hegivesustrialsandtribulationsjustlikeyouhave

examinationsinschool,becauseitmayhelpyoutogrowintoagreatersoulthanyouwouldhaveotherwise.Solifeisachallenge.Lifeisanadventure.It’samarvelous,excitingadventure.AllofusshoulddotheverybestwecanaslongastheLordallowsustobeonthisplanet.

SECTION7

JUSTDOIT,ENJOYIT,ANDSHAREIT!

CHAPTER7.1

THEFUTUREISBRIGHTERTHAN

YOUTHINK

Thepointoflivingis

tobelievethebestisyettocome.

—PETERUSTINOV

Why do most people pursuewealth? It’s because they’reafter agreaterqualityof life.AndonethingIknowbeyonda shadow of a doubt is thatanybody can deal with atoughtodayifheorshefeelscertain that tomorrow hasgreaterpromise.Weallneedacompelling

future.So if you’re wondering

why we would take time totalk about the future and

technological breakthroughsin a financial book, it’sbecause technology is ahidden asset that every dayiscompounding itscapacitytoenrichyourlife.There are breakthroughs

occurring today and in themonths and short years tocome that will revolutionizethe quality of your life andthe lives of everyone else onearth.Thistideoftechnologywill offer the opportunity for

allboatstorise.Andinfinancialterms,you

know what’s really great?The cost of technology isdecreasing while its capacityis geometrically expanding!Whatdoesthatmeanforyou?Itmeansthatevenifyoustartbuilding wealth late in life,you will likely still have agreat quality of life in thefuture, for even less moneythanyoumightthink.Also,learningaboutthese

trends in technologies canawaken you to some of thegreatest investmentopportunities of yourlifetime. These technologiesare growing exponentially.Thetimetopayattentiontothemisrightnow.My hope is that this

chapter will also inspire youto take greater care ofyourselfandyour family,notonly financially but alsoperhaps physically as well.

Withoutphysicalhealth,thereis no wealth. Being aroundlong enough to takeadvantage of some of thesehuge advances in technologyshould be a priority—especially after you hearabout some of the changesthat are unfolding as wespeak.Solet’stakeabriefjourney

together and explore thecutting edge of ourtechnological future. I’ll say

inadvance:thischaptertakesanunabashedlypositiveview.But it’snot justbasedonmyenthusiasm—but ratherreflects the work of some ofthe greatest scientists on theface of the earth. Not thosewho just predict, but thosewho deliver what theypredict.Individualswhohavedoneeverything fromdecodethehumangenome,todesignthe first digital voicerecognition system, to

develop commercial spaceshuttles that fly people backand forth to the InternationalSpaceStation.Now, I acknowledge that

manypeoplehaveadifferent,more skeptical view oftechnology. And perhapsthey’ll be right. Some lookinto the future and see aTerminator-style dystopia ofkiller robots and geneticallyaltered Frankenfoods. Otherslook forward to a world of

flying cars, like they had inThe Jetsons; or androidhelpers, like Star Wars’s C-3PO; ormeat and vegetablesthatcanbegrownfromsinglecells to feed the world’shungry. None of theseextreme scenarios has cometo pass yet. I choose to lookat how technology will beused to make a massivedifference in the quality ofour lives. I also understandthat people often fear new

technologies and worry thatwe’regoingtoofast.After all, there has always

been a “dark side” to theseadvances—often becausethese technologies initiallyput people out of jobs untilthey adapt to new forms ofemployment. As StevenRattner, the influentialfinancier and columnist,pointed out in theNew YorkTimes, evenQueenElizabethIofEnglandrefusedtopatent

a 16th-century knittingmachinebecauseitwouldputher “poor subjects” out ofwork. But according toRattner, “The trick is not toprotect old jobs . . . but tocreate new ones. And sincethe invention of the wheel,that’swhathasoccurred.”Most of the time, these

new tools have been used toenhance human life. Andtoday some of the biggestchallengesintheworld,from

too much carbon dioxide inthe air, to a lack of freshwater, to a scarcity offarmland,arebeingsolvedbynew technologies. And allthis seems to be happeningovernight. But throughouthistory, therehasalsobeenaminority who will take anytool or technology and use itas a weapon. Electricity canlight up a city or killsomeone. But there aremillions more streetlights

thanelectricchairs.ABoeingjetliner can carry us acrossoceansorbeusedas abombto murder thousands—butthere are millions moreflightsthanhijackings.It’s natural for human

beings to fear the new andunknown, and to focus onworst-case scenarios. Ourbrains arewired for survival,andthat’showwe’vemadeitas a species. But ourimaginationscanalsoholdus

back. Science fiction hasmade many fear futuristictechnologies, like artificialintelligence. But actualscientistsandfuturistssuchasRay Kurzweil, PeterDiamandis, and JuanEnriquez see advancedtechnologies as anopportunity for humanity toevolve and transform intosomethingbetter.Soifyou’reirritatedbyan

optimistic future, you should

moveon to thenext chapter!Butifyou’reapersonwhoistruly interested in knowinghow technology is shapingourlives,Ithinkthiswillhelpyou understand what’savailable andwhat’s coming.ThewayIlookatit,youcanchoosetobefearfulaboutthefuture,oryoucanembraceit.But nothing is going tochangeit.Why?Because the future

isalreadyhere.

Thebestwayto

predictthefutureistoinventit.—ALANKAY

EverytenminutesinAmericasomeone is horribly burned.They’rerushedtothehospitalin searing pain—one of themost intense pains a humanbody can suffer. The nursesscrub away the blistered andcharred flesh and cover the

wound with cadaver skin tokeepthepersonfromdyingofinfection. Can you imaginethe skin off a dead body puton top of your own?! If thepatient survives, the scarringcanbebrutal.I’msureyou’veseen faces, arms, and legsscarred beyond recognition.Sometimes there aremultiplesurgeries, and healing cantakeyears.So imagine how one night

Matt Uram, a 40-year-old

state trooper, finds himselfabout to become another oneof those grim statistics. Hislifealteredforever.How? He’s next to a

bonfirewhensomeonethrowsa cup of gasoline on theflames, and the burns coverhis right arm and the rightsideofhisheadandface.Thedoctorsandnursesmovefast,cleaning off the blisteredskin, disinfecting Matt’swounds, applying salves.

Normallyhewouldbe in theburn unit for weeks ormonths, going through thesameagonizingprocesstwicea day. Instead, a team ofspecialists goes toworkwitha new technique. Theyharvest a layer of healthycells from unburned patchesof his own skin. No cadaverskinforMatt!Thesecellsarecultured, and before long, aspray gun is gently paintingthewoundswithasolutionof

Matt’sownstemcells.Three days later, his arms

and face are completelyhealed. (And thismiraclehastobeseentobebelieved!Goto www.youtube.com/watch?v=eXO_ApjKPaI and see thedifference.) There’s barely ascarvisibleonhim.Iknowitsounds like a scene from asci-fi film. But it’s a realstory that took place inPittsburgh just a few yearsago.

While the technique thathealed Matt Uram is still inclinical trials in the UnitedStates, a similar stem cellprocedure has already beenused on hundreds of burnvictims in Europe andAustralia.Amazing, isn’t it?!Nowthere’sevena“bio-pen”that allows surgeons to drawhealthy cells on layers ofbone and cartilage. The cellsmultiply and grow intonerves, muscle, and bones,

healing the damaged section.The technology allows thesurgeon to place cellswherever he or she wantsthem, in an instant. And thisis just another one of theincredible new therapiescoming online and becomingmoreaffordableforeveryone.If you hadn’t already

noticed:theworldweliveintodayisaplaceofeverydaymiracles, and change ishappening so fast that

sometimes we don’t evennotice it. Or maybe we justtakeitforgranted.Butifyouweretodescribe

theworldof2015toapersonback in 1980, just 35 yearsago, he would think whatyou’re doing is magic!Sprayingonstemcells?Hell,it would be amiracle just totalktosomeoneonthephonewhile you were driving inyourcar,right?We’reusedtotheideathat

we can predict tomorrow bylooking at what happenedtoday or yesterday. But thatcan’tbedoneanymore.Untilvery “recently,” change wasvery rare, and so slow that itwas measured in eras: theBronze Age, the Iron Age,and so on. Now change isexponential. That means it’sspeeding up, making hugeleaps forward in shorterperiods of time. It meanswe’re making tools that can

transform the quality of ourlives faster and better, andthey’reavailabletojustabouteveryone.Theaveragepersontoday

already has options therichest pharaoh in Egyptnever dreamed of. Imaginewhathewouldhavegiven tobeable to fly in the sky in achair or in a bed to anotherpart of the world in a fewhours, instead of monthsfightingtheoceans?Nowyou

can do that for $494 onVirginAtlanticAirways.Even a pharaoh couldn’t

spend$200milliontomakeamovietoentertainhimselffortwo hours. And yet everyweek,multiplenew filmsarecomingoutthatwecanenjoyin the theater for $10 (or$9.99permonthonNetflix).Let’s face it, we’re living

in one of the mostextraordinary times on earth.We’ve seen the lifespan of

humanbeings in the last 100yearsgofrom31yearsoldto67 years old—more thandoubling. In the same time,theaveragepercapitaincome(adjusted for inflation) ofevery person on this planettripled. One hundred yearsago, the majority ofAmericans used to spend43%ofeachdayworkingjusttoget food.Now,becauseofadvances in agriculture anddistribution,it’s7%.

YOU’VEGOTMAIL!

ThefirsttimeImetPresidentBillClintonbackintheearly1990s, I vividly remembersitting down with him andsaying, “You know, Mr.President, maybe there’s away we could communicateelectronically.” He lookedpuzzled, so I said, “I’vestarted using this new thing

called email. I’ve got anaccount on AOL. Do youhaveone?”Andthepresidentsaid, “Oh, I’ve heard aboutthat!”Buttherewasnoemailaccount for the president ofthe United States back then.Now the phone that anAmazonian tribesman carriesaround the jungle has moreinstantcomputingpowerthanClintonhadathisdisposalasleader of the free world. Hecangoonlinetobuysupplies

forhiscowsorpayhischild’sschool fees. He can translatelanguages.Ifhewants,hecanaccess free courses ineconomics from Yale andmathfromMIT.We’relivingin awhole different universenow, and we’re just at thebeginningofthebeginning.

And things are getting

better,faster,everyday.“Thefuture isgoing tobeawholelot better than you think,”says my dear friend Peter

Diamandis, founder of theXPrize Foundation, aerospaceengineer, medical doctor,entrepreneur, and all-aroundgreat human being.“Humanity is now entering aperiod of radicaltransformation, in whichtechnology has the potentialtosignificantlyraisethebasicstandards of living for everyman,woman,andchildontheplanet.”What does this mean for

you? It means that even ifyou screw up and don’tfollow through on anythingyou’velearnedinthesepages,in the future you’ll still beable to enjoy a better qualityof life than you everimagined, even if you don’thavealargeincome.Andforthosewhodo,thepossibilitiesarelimitless.

Thekeytoabundanceismeeting

limitedcircumstanceswithunlimitedthoughts.

—MARIANNEWILLIAMSON

Technology is going tochange what we think of asscarcity. It’s the commondenominator that makes usfearful. The idea that therewon’t be enoughofwhatweneed and what we value:water, food, money,resources, time, space, joy,

and love. Why do peoplewant to be wealthy? Theybelieve if they are, they’llalways have enough, thatthey’ll never have to gowithout. It’s a fear that’shardwiredintoourbrains.But scarcitydoesn’thave

to be a permanentcondition. Technology canchangeit.Didyouknowthatthere was a time when therarest,mostpreciousmetalonEarth was . . . aluminum?

That’s right! Separating theelement fromclayused tobeincredibly difficult andexpensive. Aluminum wasthe ultimate status symbol in19th-century France. At animperial banquet, NapoléonIII served the king of Siamwith aluminum utensilsinsteadoftheusualgold.Butby the end of the century,scientists figured out how toprocess aluminum on amassscale, and the light,

inexpensive metal suddenlyfloodedthemarket.Peter Diamandis likes to

use the storyof aluminum topoint out that scarcity is afunction of our ability—orlack of ability—to accessresources. He wrote anextraordinary book,Abundance: The Future IsBetterThanYouThink,whichcoversin300orsopagestheconcepts that this chapter istryingtocaptureinjustafew.

Here’sagreatmetaphorfromthe book about howtechnology can overcomescarcity: “Imagine a giantorange tree packed withfruit,”Peterwrites.“IfIpluckall of the oranges from thelower branches, I ameffectively out of accessiblefruit—oranges are nowscarce. But once someoneinventsapieceoftechnologycalledaladder,I’vesuddenlygot new reach. Problem

solved. Technology is aresource-liberatingmechanism.”Given the way our world

population is growing, we’llneed to be liberating thoseresources faster than ever.That exponential change weweretalkingabout?Here’sanexample:• It took a little more than200,000 years—or untilthe year 1804—for the

population of humanbeingstomultiplytoatotalof1billionpeople.

• It took only 123 years(1927) for the humanpopulation to double to 2billionpeople.

• But it took just 33 years(1960)before therewere3billion people on theplanet!

• It took a mere 14 years(1974) for another billiontobeadded,foratotalof4

billionpeople.

This growth has notstopped. In spite of China’sone-child-per-family policyfor its 1.3 billion population,and all the other efforts tostop world populationgrowth, in the last 40 yearsalone,we’veaddedmorethan3 billion more people!That’s 300%more people inthese four decades than itoriginally took200,000years

to achieve! Today there are7.2 billion people on theplanet! If we keep going atour current pace of growth,scientists estimate, thepopulationwillbe9.6billionby2050.How can the Earth sustain

so many people? If we keepconsuming our naturalresources at the current rate,accordingtoJimLeapeoftheWorldWideFundforNatureInternational,asquotedinthe

WallStreetJournal, “Weareusing 50% more resourcesthantheEarthcansustainablyproduce, and unless wechange course, that numberwill grow fast—by 2030,even two planets will not beenough.”Human ingenuity and

technology together have away of keeping up with ourneeds.I remember a time when

we thought wewere running

outofoil.Intheearly1970s,when I was a junior in highschool,therewasanoilcrisisin the Middle East. If yourecall, gas was rationed onodd or even days. I waswondering ifwe’drunoutoffuel before I even got mylicense! Then one day inschool, my engineeringteacher said, “Let me readyouanarticle.”Ihadalreadyseen theTimemagazinewitha report from the Club of

Rome, scaring the daylightsout of everybody withpredictionsthatouroilsupplywould last only a few moreyears, and the wholeeconomy would collapse.This article sounded just likethat,usingthesamelanguageofgloomanddoom.Thenheshowed us what he’d beenreading: a newspaper articlefrom the 1850s about an oilcrisis. And the oil theyweretalking aboutwas . . . whale

oil!In the 19th century,whale

blubber was themain sourceof lamp oil. You couldn’tlight your home without it.But whales were beingoverfished, people wereworried about shortages ofoil, and prices were goingthrough the roof. But whathappened in 1859?Crude oilwas discovered inPennsylvania. A whole newsource became available.

Beforelong,wehadkerosenelamps and then internalcombustion engines. The oilcrisis of 1973? Technologyhad already eased thatscarcity.Newexplorationandextraction techniques wereopening up vast quantities offossil fuels. And now withsideways drillingtechnologies, we have moregasthanSaudiArabiahasoil!Suchtechnologieschangenotonlyaneconomybutcanalso

have an impact ongeopolitical power. For thefirst time inalmostadecade,in 2013 the United Statesproduced more domestic oilthan it imported from theMiddleEast.Thefutureisinalternatives

suchaswindpower,biofuels,and—the grand-slam winner—solar energy.According tothe inventor and futurist RayKurzweil, all of the world’senergyneedscanbemetwith

1/10,000thofthesunlightthatfalls on the Earth each day.The challenge has been tocapture and store that powerfor a competitive cost. Raypredictsthatthecostperwattof solar energy will be lessthanoilandcoalinjustafewyears.

Whatweneedismorepeoplewhospecializeintheimpossible.

—THEODOREROETHKE

Let’spauseforamomentandthink:Wherewillallthisnewtechnology come from? It’salready been bubbling out ofthe usual places: SiliconValley, NASA, the DefenseAdvanced Research ProjectsAgency (DARPA), and theworld’sgreatuniversitiesandlaboratories. But more andmore,do-it-yourselfinventorsareusingthevastresourcesof

theinternettofindwaystodothings faster and better andcheaper.Let me tell you about a

teenager I met who isrevolutionizing the world ofprostheticsfromalab—inhisbedroom! EastonLaChappelle was running arobotics program for NASAwhen he was 17, and hedidn’t have to go to amajoruniversity to learnengineering—he had the

internet.Easton grew up in a tiny

town in southwesternColorado where there wasn’tmuch for a kid to do, so heentertainedhimselfbytearingup and reassemblinghousehold gadgets. When hewas 14, he decided to buildhis own robotic hand. Hey,why not? There was no biglibrary in town,nouniversitynearby, so he scouredwebsites like Instructables

andHackIt! to teachhimselfelectronics, programming,andmechanics.Thenheusedobjectshehadlyingaround—Legos, fishing line, electricaltape,smallhobbymotors,andaNintendoPowerGlove—tobuildaprototype.By the timehewas16,he

had refined his design bygettingaccesstoa3-Dprinterand creating a mechanicalhand out of layers of plastic.He entered his invention at

the state science fair, and itwas there that Easton hadwhat he calls his “aha!”moment. He met a seven-year-oldgirlwithaprostheticarm that cost her parents$80,000.Shewouldneedtwomore over her lifetime.Easton thought, “Who canafford that?” Besides, themechanical hand attached tothe arm had only one sensorand one motion. His devicewasmuchmoresophisticated,

with five flexible fingers.Thenandthere,hedecidedtocreate a simple, functional,and affordable prosthetic tohelp amputees like this littlegirl.Easton went back to his

bedroom lab and built a fullrobotic limb that replicatedthe motion and strength of ahuman arm. Even moreamazing,hecameupwithanEEG headset that convertselectronic brainwaves into

Bluetoothsignals thatcontrolit. (Yes, these things don’tjust exist in sci-fi movies.)The arm weighs one-thirdlessthanthe$80,000version,and it’s much stronger. Infact, a person using this armcan curl more than300 pounds! A giantimprovement on the pasttechnology. So what do youthinkhisnewinventioncoststo make as opposed to the$80,000 limb? $20,000?

$5,000? $1,500? How about$250?!After meeting President

Obamain thesummerbeforehis 18th birthday, Eastoninterned with NASA atHouston’s Johnson SpaceCenter, where he led a teamworking on robotics for theInternational Space Station.BytheendofAugust,Eastonwas already thinking, “I’mout of here. These guys aretoo slow!” He missed

building the things hedesigned, and therewere toomany layers of bureaucracy.Hewent back home to workon building a roboticexoskeleton for a boy in hishigh school who wasparalyzed from the waistdown after an accident.Eastonwantedhimtowalkathisgraduation.When I read about

Easton’s exoskeleton project,I knew I had to contact him.

I’ve been working with thesurvivors of recent massshootings, including themassacres at Newtown,Connecticut, and Aurora,Colorado. I’ve helped manyof them work to turn theirlives around in the aftermathof such unimaginable loss,including Ashley Moser, apregnant mother whowatched the insane killermurder her six-year-olddaughterbeforeheturnedthe

gun on her. The two bulletshe pumped into Ashley’sbody killed her unborn babyand left her paralyzed fromthewaist down.When Imether, she was filled withsuicidal thoughts. I flew herfamily and medical team toour Unleash the PowerWithinevent,andtogetherweworked to create anenvironment where thisremarkable young womancould begin her emotional

healing.I want Ashley to walk

again! So I reached out toEastonandofferedtofundhisproject. Since then we’vegone into business togethertocreatelow-costprostheticdevices thatcanbeusedallover theworld andmakeamassive difference inpeople’s lives. No matterwhere they live, no matterhowmuchmoney they have.That’s Easton’s mission.

(And by the way, Easton’shigh school friend isscheduled to graduate in2015,andEastonreports thathe is currently on track tomake sure he walks to thepodium. Easton’s goal is anexoskeleton so thin andflexible that it can be wornunder clothing! You mightnotknowsomeoneiswearingone.)Easton’sothermissionisto

spread the word to young

peopleallovertheworldthatthey too can become themakersof technology insteadofjustconsumers.“Everyonecanbeacreator,”Eastontoldme. “With access to theinternet and 3-D technology,kids can do anything theywant. They don’t have torestrict themselves bythinking, ‘I have to go tocollege to be successful,there’s really no other way.’You really do have other

options.”There’s no doubt that

Easton LaChappelle is anextraordinary person. Itwould be safe to call him agenius. But how many otherEastons do you think are outthere—in places like India,Tanzania, Australia,Dagestan, Uruguay,Singapore—logging on totheircomputersanddreamingupwaystoimprovetheworldwelivein?Eastonusedopen-

source technology to sharehis first robotic hand design,so people all over the worldcould copy it and improve itiftheywanted.Nowallofuscan be our own publishersand creators and share ourideas with anyone with aninternetconnection.The floodgates have been

opened, ushering in one ofthegreatestrevolutionsofourtime—whatpeoplearecallingthe MakerBot Era or the

Maker Revolution. EastonLaChappelleissimplyoneofthe many people at theforefront of an explosion ofdo-it-yourself (DIY)innovationfueledbythewildgrowth in technology. ChrisAnderson, CEO of 3-DRobotics, calls it the “NewIndustrial Revolution.” Nowthe whole world can learnwhat students learn atHarvard, MIT, and Stanford.They can interact with the

very best teachers—and oneanother—sharing ideas andtechniques, and makingdevices and supplyingservices that used to costmillions of dollars forhundredsofdollars.Each year, Maker Faires

are held all aroundAmerica,bringing together inventors,hobbyists, engineers,students,teachers,artists,andentrepreneursinwhat’scalled“theGreatestShow(andTell)

on Earth.” In 2013 over540,000 people attended 100MakerFairesglobally,andin2014MakerMedia,creatorofthe faires, is expecting thatnumber to climb to 140Maker Faires. PresidentObama recently hosted aMaker Faire at the WhiteHouse, where a 17-footroboticgiraffenamedRussellgreetedhim,andthepresidenttoured a tiny portable houseand played a keyboardmade

of bananas. He also metMarc Roth, from SanFrancisco,whowaslivingina homeless shelterwhen hestarted going to a local“TechShop”tolearnhowtouse 3-D printers and lasercutters. Sixteen monthslaterhehadstartedhisownlaser-cutting business, andnow runs a program toteach high-tech skills toothers who need a freshstart.

Obama also gave a shout-out to two tween-age girlsfrom North Carolina whostarted a robotics companyinstead of getting a paperroute. Their motto: “If youcan imagine it, then you candoit—whateveritis.”“And that’s a pretty good

motto for America,” Obamatold the crowd. “This is acountry that imagined arailroad connecting acontinent, imagined

electricitypoweringourcitiesand towns, imaginedskyscrapers reaching into theheavens and an internet thatbringsusclosertogether.”Hechallenged every company,college, and community tosupport theseMakers. “Ifwedo,Iknowwe’regoingtobeabletocreatemoregoodjobsin the years to come. We’regoing to create entire newindustries that we can’t yetimagine.”

This Maker Revolution isbeing made possible by theexplosion of newtechnologies and themassiveexpansionoftheinternet.Tenyears ago, the internetconnected 500 millionpeople; today it connects 2billion people. Within sixyears, experts estimateanother 3 billion will bejoining theweb, for a totalof 5billionpeople. Imaginethe power of that much

connected and unleashedcreativityacross theplanet!The first internet was theinternet of military agenciesandcolleges.Thenitwasthedot-com internet ofcompanies; then it was theinternet of ideas; then, withsocial media, it was theinternetofrelationships.Nowit’s the internet of things, ofall things. Computers andsensors are embedded ineverydayobjects,transmitting

messages back and forth toone another. Machines areconnectingtoothermachines,which are in turn connectingto us and uniting everythingin one powerful globalnetwork.And3-Dprinting ishow this internet will betransformed and expandedbeyondourcraziestdreams.

3-DPRINTING:

SCIENCEFICTIONTOSCIENCEFACT

You know the “replicators”they use in those Star Trekmovies to synthesizehamburgers and hot coffeeoutof thinaironthestarshipEnterprise? Well, scientistssay we’re not that far fromcreatingtherealthing!We’vealready been talking a lotabout 3-D printing, but it’s

hardtograspwhatapowerfultechnology it can becomeuntilyou’veseenitinaction.3-D printing is really acatchall phrase for digitalmanufacturing, and the“printers” are actuallyminifactories that usecomputer files as blueprintsto create three-dimensionalobjects layer by layer. Theprinterscanuseatleast200different liquefied orpowdered materials,

including plastic, glass,ceramic, titanium, nylon,chocolate—and even livingcells. What can you makewith them? A betterquestion is:Whatcan’tyoumakewith them?!So far3-Dprinters have been used tocreate running shoes, goldbracelets, airplane parts,tableware, bikinis, guitars,and solar panels—not tomention human tracheas,ears, and teeth. As you’ve

alreadylearned,thereare3-Dprinters, small enough to fitinto a teenager’s bedroom,that are capable of turninglayersofsyntheticgoopintoafunctioning prosthetic limb.Andtherearehangar-sized3-D printers in China that canprint out ten houses a dayusing layers of concretemixed with recycledconstructionwaste.Thecost?Just $5,000 per home, andthere’s almost no labor

required!Perhaps even more

importantly, NASA haspartnered with AmericaMakes, a network of 3-Dprinting companies, tosponsor a worldwidecompetitiontoaddressoneofhumanity’s greatestchallenges: the need forshelter, especially emergencyshelter, in times of naturaldisaster such as hurricanes,tsunamis, and earthquakes.

Imagine3-Dprintersprintingout homes on the spot, usinglocal materials in hours, notmonths. The impact of thistechnology, effectively used,islimitless.Someday you might be

able to print your owncustom-fit blue jeanswithoutleaving your house, whileremote villages in theHimalayas will be able todownloadpatternsfromthecloudandprinttools,water

pumps, school supplies—anything they need. Sowillspace travelers.Ofcourse,asnew technologies like 3-Dprinting come online, oldones will be disrupted, andsome businesses maydisappear. There won’t bemuch need for spare-partswarehouses anymore, willthere? And much less needfor shipping. Great for theplanet—but not so good ifyou’reatruckdriver.Experts

project that 3.5million truckdrivers will be without a jobin the United States alonebecause therewill be roboticself-driving trucks that canoperate24hoursadayversusthe eight hours a human candrivebeforehaving to take abreak.Also, there’snosalaryto pay after you make yourinitial investment in the self-drivingtruck.Asoldindustriesfallaway,

new ones will arise.We just

need the education andtraining and mind-set toembracechangeandmeetthedemands of the new,emergingeconomy.But 3-D printing is only

one technology that’s part ofthe extraordinary growththat’s going to change thequality of your life.Nanotechnology, robotics,and tissue regeneration arethree others towatch.And ifyou’rewonderingwhywe’re

talking about all this—weknow that technologicaladvances that offer solutionsfor our most pressingproblemswillkeephappeningnomatterwhat theeconomicseasonmaybe,whetherwe’reexperiencing inflation ordeflation,orwhetherwe’reatwaroratpeace.Heard about the

demographic wave? Theconsumer spending of 77million baby boomers has

beendrivingtheUSeconomyfor decades. But now 10,000boomersareturning65everysingle day. And that’smorphed into a potentialretirement crisis wave, asmost have not saved theirmoneyandhavenopensions.We have a debt wave

buildinginthiscountrythat’slarger than anything in thehistory of the world: $17trillion in debt and a $100trillion worth of unfunded

liabilities, betweenMedicare,Medicaid, Social Security,andothercommitments.There’s an environmental

wave, even if you don’tbelieve in climate change.And clearly we’reoverfarming our land. Buthowever big these wavesmay be, the technologywave is even bigger. Thetechnologywave promises tolift all boats and carry thewhole world into a more

abundantfuture.

“I think those trends of

technology tend to be biggerthan any crisis,” the futuristand venture capitalist JuanEnriquez said at one of myrecenteconomicconferences.

“While everybody wasworried about the KoreanWar and the Cold War,people were buildingtransistors. While everybodywas worried about WorldWar II, people were makingantibiotics. Most of thoseadvancementshavehadmoreofanimpactonyourlifeandmy life than the wars or theupsorthedowns.”Our problems come in

waves, but so do the

solutions.

I’msurfingthegiantlifewave.

—WILLIAMSHATNER

Nobodyunderstandsthisideabetter than my friend RayKurzweil, the inventor,author,andentrepreneur.Oneofthemostbrilliantmindsonthe planet, he’s been calledthe Thomas Edison of ourage. Yet you’ve probably

never heard his name unlessyou’reaTEDTalkjunkie,orif you study the lineup atGoogle,whereRayisheadofengineering. But RayKurzweil has affected yourlife in more ways than youcould ever imagine. If youlistentotunesonyourphone,on the internet—anywhere—he’s the guy you can thank.He created the first digitalmusic.Ifyou’veeverdictatedan email to Siri or other

voice-to-text systems, that’sbecauseofRay.I remember meeting Ray

Kurzweilnearly20yearsagoandlisteningwithamazementas he described the future. Itseemed like magic then, butit’s all real now.Self-drivingcars. A computer that couldbeat the world’s greatestchessmaster.Hehadalreadyinventedanopticalcharacter-recognition system to createthe first reading machine for

the blind—Stevie Wonderwas his first customer. Nowhe wanted to help blindpeople read street signs andnavigate cities without help,and go into restaurants andorder off the menu using alittledevicethesizeofapackof cigarettes.He toldme theyear it was going to happen:2005.“Howdoyouknow,Ray?”

Iasked.“You don’t understand,

Tony. Technology feeds onitself, and it gets faster andfaster. It growsexponentially.”HeexplainedhowMoore’s

law—a principle that showsthat the processing power ofcomputersdoubles every twoyears,whileitscostdecreasesat the same rate—doesn’twork justwithmicrochips. Itcan be applied to allinformation technologies—and eventually all aspects of

ourlives.What does that mean?

When things growexponentially, instead ofincreasing in a linear orarithmetic pattern (1, 2, 3, 4,5, 6 . . .) they arecontinuously doubling: 1, 2,4, 8, 16, 32, and so on. Sotheir rate of growth getsfaster and faster. But aswe’ve discovered, thisconcept is hard for us tograsp. It’s not the way

humanswerebuilttothink.“First of all, exponential

growth is radically differentfromourintuition,”Raysays.“We have an intuition aboutthe future hardwired in ourbrains.Athousandyearsago,whenwewalked through thesavannah and we saw ananimal coming at us out ofthe corner of our eye, wemade a linear prediction ofwhere that animal would beintwentysecondsandwhatto

do about it.” But with anexponential progression, theanimalwouldtakeafewslowsteps, speed up, and thensuddenly be on the nextcontinent.Peter Diamandis offers

anothermetaphor:“IfIsaytoyou, ‘Take thirty linearsteps,’normallyyou’regoingto end up about 30 metersaway. But if I say to you,‘Insteadoftakingthirtylinearsteps, take thirty exponential

steps.’How farwill you go?Howaboutabillionmeters?That’s twenty-six timesaroundtheplanet!”Once you understand

exponentialgrowth,saysRay,its trajectory is predictable.He knows when thetechnology will catch upwithhisvision.Hepredictedthe launch date for his firstpocket-sized reader for theblind, and other products.Ray often speaks at my

seminars, and he told usrecently how he accuratelypredicted one of the mostincredible discoveries of ourtime: the mapping of thehumangenome.“I predicted that the

genome project would finishwithin fifteen years when itwasstartedin1990becauseIrealized the progress wouldbe exponential,” he said.Butskepticsthoughtitwouldtakea century to break the

complex human code. Aftersevenandahalfyears,only1% of the project wasfinished.According toRay,“The skeptics were stillgoingstrong,saying, ‘I toldyou this wasn’t going towork. You’re halfwaythrough the project, andyou’ve only finished onepercent of it. This is afailure.’ ” But Ray pointedout thatwasn’ta failure: itwas right on schedule!

“Exponential growth is notdramatic at first. You’redoubling these tiny littlenumbers. It looks likenothing is happening. Butby the time you get to onepercent, you’re only sevendoublings away from onehundred percent.” Thegenome was successfullysequencedin2003,aheadofschedule.So, what’s next? We’ve

already seen how stem cells

can regrow human skinwithout thepainandscarsofskin grafts, and how theabundant energy of the sunandwindcanbeharnessedtofuel our future. But whataboutothergreatchallenges?Lackof freshwater is one

of the biggest concerns forpopulations growing likecrazy in dry regions of theplanet, and shortages areeverywhere, from LosAngeles,California,toLagos,

Nigeria. According to theUN, more than 3.4 millionpeopledieeachyearbecauseof water-borne diseases. Butnew desalinizationtechnologies are turningseawater into tap water fromAustralia to Saudi Arabia.Already an Israeli companycalled Water-Gen ismanufacturingamachinethatextractscleanwateroutofair,and it uses only two cents’worth of electricity to

produce each liter of water.And in remote villages thathave no electricity, there’s anew kind of water towerthatusesonlyitsshapeandnatural materials to pullmoisture out of the air andturnitintodrinkingwater.The amazing inventor

DeanKamen(bestknownforthe Segway scooter) haspartnered with Coca-Cola tobring the world an energy-efficientmachinethesizeofa

dorm-room refrigerator thatvaporizes dirty water andmakes it clean and safe. It’scalled the Slingshot—as in aDavid-sized solution to aGoliath of a problem. Withinnovations such as these,before long the problem ofwaterscarcitywillbesolved,period.How about food? Ray

Kurzweil says new foodtechnologies are emergingthat will overcome the twin

challengesof too littlearableland and agriculturalpollution. How? By farmingvertically instead ofhorizontally.Ray envisions aworld in the next 15 years“where we grow plantsvertically,andalsogrowmeatwithout the slaughtering ofanimals, by using in-vitrocloning of muscle tissue incomputerizedfactories—allatvery low costs, with highnutritional qualities and

without environmentalimpact.” No insecticides. Nomore nitrogen pollution. Nomoreneed tokillanimals forprotein. Wow! That soundsimpossible, but Ray says it’srealandit’scoming.With these basic needs

under control, humans willhave the chance to livemorefulfilling lives—especially ifwemeet theotherchallengesthat Ray Kurzweil believeswe can solve: health and

aging.

Ageisanissueofmindovermatter.Ifyoudon’tmind,itdoesn’t

matter.—MARKTWAIN

All these changes we’vetalked about arerevolutionary, but accordingtoJuanEnriquez,thechangesthat technology will bring tothe future of health carewill

blow your mind more thananythingelse.Life,asitturnsout, is an informationtechnology.Howcanthatbe?Well,weknowthatourDNAismade up of a sequence ofchemical bases labeled (ifyou remember your lifescience homework) A, C, T,and G. In other words, thebuilding blocks of life itselfcan be expressed as a code.Andcodescanbealtered.Orcreated. As in making

artificial life. Which is whatCraig Venter, the humangenome pioneer, was able todo in 2010. Juan Enriquezwaspartofhisteam.WhenJuanspokeatoneof

my recent seminars, I asked,“How did you and CraigVenterfirstcomeupwiththisidea of creating artificiallife?”He chuckled and said, “A

bunch of us were havingdrinks at a bar in Virginia,

and after the fourth scotch,somebody said, ‘Wouldn’t itbecool ifyoucouldprogramacellfromscratch,justinthesame way as you program acomputer chip from scratch?What would happen?’ ” Hepaused. “That only took fiveyearsandthirtymillionbucksto find out!” First, they tookall the gene code out of amicrobe.Thentheyinsertedanewgenecode,anditbecamea different species.

Incidentally,it’sthefirstlife-form with a websiteembeddedinitsgeneticcode.As Craig Venter put it whenhe announced thebreakthrough: “This is thefirst self-replicating speciesthatwe’vehadontheplanetwhose parent is acomputer.”AsRayKurzweilexplains,

our genes are like softwareprogramsthatcanbechangedto switch behaviors on and

off.What does thatmean? Itmeans that we can use cellsas little machines andprogram them to build otherthings—including more ofthemselves. “This softwaremakes its own hardware. Nomatter how I program aThinkPad, I will only haveone ThinkPad tomorrowmorning, not a thousandThinkPads.ButifIprogramabacteria, Iwill have abillionbacteria tomorrow,” Juan

said.It sounds insane, like

somethingoutofamovie,but—asIkeepremindingmyself—this isn’t science fiction.The technique is alreadybeing used to produceclothing. “All the stuff youare now wearing—thatbreathable, stretchable stufflike Under Armour?” Juansaid. “All that is now beingmade from bacteria, not outof petrochemicals.” In Japan,

bacteria is growing syntheticsilkthat’sstrongerthansteel.And genetically altered farmanimals are already beingused as medical factories. InNewEngland, there’sadairywherecowsproducemilkthatmaybeabletotreatcancer.

Whateverthemindofmancanconceiveandbelieve,itcanachieve.

—NAPOLEONHILL

I told you, it’s a whole newworld, and it’s going to be awild ride. Advances innanotechnology and 3-Dprinting mean that medicaldevicesthesizeofbloodcellsmay someday be travelingthrough your body, fightingconditions like Parkinson’sdisease and dementia.Nanoscale computerizedimplants will replace thebiological nerve cellsdestroyed by disease. And

microscopic cochlearimplantswillnotonlyrestorehearing but also improve it,so that humans will hear asmany notes as whales cansing. According to Ray,work is already being doneto create geneticallyenhanced red blood cellsthat may one day carryenough oxygen to allow adiver to last 40 minutesunderwater on one breath—or to save a soldier’s life

onthebattlefield.Scientists are working on

ways to use 3-D printers tocreate custom organs andotherbodypartsforyouwhenyou need them, eliminatingthe need for dangerous,expensive donor transplants.Dr. Anthony Atala, directorof the Wake Forest Institutefor Regenerative Medicine,says,“Intheory,anythingthatisgrown inside thebodycanbe grown outside the body.”

Dr.Atalahasalreadycreatedfully functioning humanbladders in the lab andcompleted the transplants. Inthelast15years,noneofthetissuesmadefromstemcellshas ever been rejected bythe body. He and others arealready working on morecomplex organs, like hearts,kidneys, and livers. Sosomeday, if a heart attack orvirus damages your heartvalves, your doctors will be

able to order you up somenew ones. Or maybe they’lljust grow you a new heartfromafewofyourskincells!Ifyouhavemeans,someof

these miraculous cures areavailable already. There’ssomething called“extracellular matrix,” orECM, made of cells from apig’s bladder. When youapply it to injured humantissue, thematrix coaxes ourown stem cells to regrow

muscles, tendons, even bone.It’s been used already toregrow fingertips! Thisextraordinarysubstanceexistsright now. It’s not availabletoeveryoneyet,butitwillbesoon.The concept behind

regenerative therapies issimple: our body alreadyknows how to regrow itsparts; we just have to learnhowtoturnonthestemcellsthat already live inside us.

We already know that whenwe lose our baby teeth,another setgrows in.Butdidyou realize that, according toDr.StephenBadylakfromtheUniversity of Pittsburgh, if anewborn loses a finger,another one can grow in itsplace up to the age of two?We lose that ability as wegrowolder,sothequestionis:How do we stimulate it?Salamanders grow backtheir tails—whynothuman

limbsorspinalcords?Whenwefigureouthowtoharnessthe full power of stem cells,the medical and cosmeticapplicationsarelimitless.Ray Kurzweil says that if

we’regoingtotakeadvantageof these medicalbreakthroughsandextendourlives,we’dbetter start takingcare of ourselves right now.The idea is to live longenough for the technology tocatch up. If you’re a

millennial, you mightexperienceit.Ifyou’reababyboomer,it’stimetogetontheelliptical machine and starteating right. Ray has eventeamed up with a medicaldoctor to write a book titledTranscend: Nine Steps toLiving Well Forever, withstrategies to optimize yourhealthandkeepyourselfalivelong enough to tap into thetechnology that will furtherextendyourlifespan.

His immediate goal is tostick around long enough tosee the day when computersbecomesmarterthanhumans.Thatdayiscomingsoon.

COMPUTERS“R”US

What takes us hours toabsorb, computers can

alreadydoinseconds.Butby2020, says Ray, a $1,000computer will have the fullcapacityofahumanmind.By2030, it will be able toprocess the knowledge of allhumanmindscombined.By then,wewon’t be able

to recognize the differencebetween human and artificialintelligence, he says, but wewon’t have anything to fear.Why? Because computerswillhavebecomeapartofus,

making us smarter, morepowerful, healthier, andhappier.Don’t think that canhappen? How do you feelwhen you don’t have yoursmartphone nearby? A littlelost? It’s because thattechnology and all thatconnectivity have alreadybecome parts of our lives.The smartphone has becomean“outboardbrain”—it’sourportable memory center,storing so much of our

personal informationas tobeindispensable. And we’ll bemoving frommobile phones,towearables, to implantablesoverthenext20years.So think a little further

ahead.Imagineaworldwhereyou won’t have to read thisbook—youcanjustuploaditscontent intoyourbrain. (AndIsuspectthatbynowyouarewishing the future was herealready. Especially with thismonster-sized book!) Or

imagine a world where youcan upload your mind, yourthoughts, and yourpersonalitytothecloudtobepreserved forever? That’sroughly the time when RayKurzweil and other greatthinkers and futurists believethat humans and machineswillmerge.Thisepicmomentis called “the Singularity”(aka“theRapturefornerds”).When will it happen—if itdoes? Ray predicts the

Singularity will be here by2045.

Thosewhohavea“why”tolive,canbearwithalmostany“how.”

—VICTORFRANKL

If technology solves theproblems that make ourresources scarce, will we besafer,freer,happier?Youbet.Scarcity brings out thesurvival instincts in human

beings; it activates that deeppartofthereptilianbrainthatmakesyoubelieveit’syouorme. That fight-or-flightmechanism can help ussurvive,butitoftencanbringout the worst side of peoplein a “civilized” society. Thebrainwehave is twomillionyears old. It hasn’t evolvedthatmuch.Soaggressionandwar will always be a bigchallenge. But with lessscarcity, perhaps there’s less

ofatriggertosparkviolence.There’sstatisticalevidence

to show that more access totechnology can make peoplehappier. The World ValuesSurvey has shown that from1981 to2007,happiness rosein 45 of the 52 countriesstudied.Andwhatwasgoingonduringthoseyears?That’sright. The digital revolution.The technology wave wasspreading across the globe—or what the report calls “the

transition from industrial toknowledge societies.” Socialscientistshaveinterpretedthisindextomeanthat“economicdevelopment,democratization, and risingsocial tolerance haveincreased theextent towhichpeople perceive that theyhave free choice, which inturn has led to higher levelsof happiness around theworld.”Thesamesurveysaidthat more money doesn’t

make people happier. Someof the happiest people camefrom the poorest countries;citizens of the Philippinesconsider themselves happierthan people in the UnitedStates.Happiness has moretodowithvalues thanwithGDP.We all know that

subsistence labor robs us ofour most preciouscommodity: time. RememberwhenImentionedthatnottoo

long ago most Americanswere farmers, and spent80%of their time digging in theground for food; now wespendabout7%ofeverydayearning money for food?With more technology,there’s more time on ourhands,andthatmeansthere’smore opportunity to learn, togrow, toconnectwithothers,and togive—allpursuits thatfulfillusashumanbeings.Butthere’salsoadarkside

tothegiftoftime.Artificial intelligence and

robotic devices are going tobe taking onmore andmoreof the tasks humans nowperform. A study by OxfordUniversityfoundthat47%ofthecurrentUSlabormarketisatriskofbeingmechanizedinthe future. In essence,Oxford’s experts are sayingthathalfofallworkersmightone day be replaced byrobots! That means society

will have to reboot to createmeaningful work foreverybody, and we are allgoing to have to step up tolearnnewskills.It’sgoingtobe a difficult transition, noquestionaboutit.But what happens in the

future if work itselfdisappears,andcomputersdoall the labor andmost of thethinking? When all there isforus todo is ridearound inself-drivingvehiclesandwait

for drones to deliver thegroceries? When there’snothing to push back againsttogiveusstrength?That’saninterestingquestion.More than a decade ago, I

discussed this question withRayKurzweil,andhetoldmethe story about a TwilightZone episode that he’d seenas a child. I don’t know ifyou’re old enough torememberTheTwilightZone,but it was a very interesting

series, and the shows alwayshadacreepytwistattheend.In this episode, a guy wholoves to gamble dies andwakes up with a friendly“guide” in awhite suit athisside. This guide, this angel,who’s more like a butler,takes him to a luxuriouscasino—which is thisgambler’s idea of heaven.He’susheredintoanamazingsuite,andheopenstheclosetto find it overflowing with

incredible suits and fancyshoes. They all fit himperfectly. His guide opens adrawer, and it’s stuffed withcash, more than he’s everseen before. So the gamblergetsdressed,goesdownstairsto the gaming tables, andeverybody knows his name.Everybody smiles at him.He’ssurroundedbygorgeouswomen. It’s his ultimatefantasy! He plays blackjack,andhits21 the first time.He

wins.This is great!He rakesin the chips. The next time:21.Next time:21.Ten timesin a row. It’s extraordinary!He turns around and playscraps, and he wins, wins,wins. He has huge piles ofchips.Allhehas todoisaskfor drinks, steaks, women,and they appear. Everythinghe’severwanted,hegets.Hegoes to sleep that night . . .we’ll just say,not alone, andveryhappy.

Thisgoesondayafterdayafterday.Afterafewmonths,he’s playing at the blackjacktable, and the dealer says,“Blackjack!”The gambler screams, “Of

courseit’sblackjack!”The dealer says, “Twenty-

one!Youwin!”“Of course! I always win!

I’m sick of this! Iwin everytime, no matter whathappens!” He looks at hisguide in the white suit and

asks to speak to the headangel.When the head angel

appears, themanunleashes atirade: “I’m so bored I’mgoing out of my mind! Youknow what? There must besome mistake. I’m not thatgood a person. I’m in thewrong place. I don’t deservetobeinheaven!”And the angel’s smile

suddenly curdles as he says,“What makes you think

you’reinheaven...?”Sowhathappenswhenwe

get everything we want withlittle effort?After awhile, itwould be like hell, wouldn’tit? Then we’d have a newproblem:Wherewillwefindmeaning in a world ofabundance?Somaybeinthefuture,yourproblemwon’tbescarcity. And the solutionwon’tjustbeanabundanceofmaterial things. As PeterDiamandis says, “Abundance

isn’t about providingeveryoneontheplanetwithalife of luxury—rather, it’saboutprovidingallwithalifeofpossibility.”So in our final chapters

together,let’slookatthecoreofwhatisgoingtogiveyourlife lasting meaning.Something that can give youjoy whether you’re facingenormous challenges orextraordinaryopportunities;asourceofstrength indifficult

economic times or abundantones. Let’s uncover theultimatewealthof fulfillmentand meaning. Let’s learn totapintothewealthofpassion.

CHAPTER7.2

THEWEALTHOFPASSION

Manisonlygreat

whenheactsfrompassion.

—BENJAMINDISRAELI

We’ve come a long waytogether, haven’t we? It’sbeenan incredibleadventure,andI’mhonoredandgratefulthat you’ve chosen to makethisjourneywithme.By now you’ve navigated

the money myths that blockyour way to financialfreedom; climbed themountainofsuccessfulsavingand investing on the way toachieving your financialdreams; and learned new

ways to safely glide to asecure future where you canwork only because youwantto work, not because youhavetowork.You’ve met some

remarkablefinancialgeniusesand incrediblehumanbeings,such as Ray Dalio, PaulTudor Jones, Mary CallahanErdoes, Carl Icahn, DavidSwensen,JackBogle,CharlesSchwab,anddozensofothersto help guide you on your

path.I’mhopingyou’llreturnto the7SimpleStepsyou’velearnedinthisbookagainandagainthroughoutyourlife, tokeepyourselfontarget.Also,I’mprovidinganactionlistattheendofthissectiontohelpyou track and sustain yourprogress. In addition, you’llfind a simple remindersystem built into our app tokeepyouontarget.Usetheseas a way to insure that youremain committed to the

simple principles that willsecureyour freedom.Pickingupthisbookandreviewingitinthefuturemightbeausefulway to remind yourself thatyou are not a creature ofcircumstancebutacreatorofyour life. Remember,knowledge is not power—action is! Execution trumpsknowledge every day of theweek!For me, this journey has

been the culmination of

decades of learning andteaching, and this book istrulyalaboroflove.It ismyheartfeltgifttoyou.Myhopeisthatyoudosowellthatyoucan also pass on this gift toothers. Because the greatestgift of life is to live it forsomething that outlasts it: alegacythatcontinuestogrowbeyondouryears.And as we begin to

complete this journeytogether,Iwanttomakesure

thatIdon’tleaveyouwithoutremindingyouofwhatthisallhasreallybeenabout.

Happinessisnotsomethingready-made.Itcomesfromyourown

actions.—DALAILAMAXIV

Ithasbeenmygreatprivilegeto work with people fromeverywalkof life: leaders inpolitics, finance,

entertainment,andsports,butalso in the religious andspiritual world. I’ve workedin the Middle East, where Ibrought young Israelis andPalestinians together in aleadership program in theWest Bank. At first theyexpressed a seething hatredforoneanother—butwithinaweek, they’d become greatfriends (and in nine yearshave continued to work onvarious peace projects in

supportofoneanother).Asaresult,theDalaiLama

came to visit ourSunValleyhomeand later invitedme toaninterfaithpeaceconferencein San Francisco in 2006. Ittook place during a week inApril when three greatreligious faiths observed oneof theirhighholidays:Easterfor Christians, Passover forJews, and, for Muslims,Mawlidan-Nabi,thebirthdayof Muhammed. The timing

was significant, as theconference aimed to promotecompassion and betterunderstanding among all thegreatreligions.TheDalaiLama,drapedin

deep red and saffron robes,greetedmeintheballroomoftheMarkHopkinsHotelwitha warm embrace and a bellylaugh. He radiated warmthand joy—like a walking,breathing embodiment of the“artofhappiness”heteaches.

There were about 1,000people attending theconference, but I had thehonorofsittinginanintimatemeetinghehostedwithabout25 of the world’s toptheologians and spiritualleaders: Hindus, Buddhists,Episcopalians, NativeAmericans, Catholics, Jews,Sunnis, and Shiites—the listwenton.It was a fascinating

experience because it started

out as most of theseconferences do, witheverybody being wonderfuland kind and gracious. Butthen we got into the nitty-grittyofhumanlivesandage-old conflicts—and ideologyanddogmastartedboilingupfrombeneaththesurface.Theconversation got a littleheated, with everybodytalking at once and nobodyreallylistening.Finally, the Dalai Lama

raised his hand like a littleboyinclass.Hewasn’tupsetatall,buthejustkeptwavinghis hand with a serene,amused smile on his face.Gradually, people saw him,andyoucouldtelltheywerealittleembarrassedforarguingandignoringtheirhost.Whenthey finally becamequiet, hedroppedhisarm.“Ladies and gentlemen,

one thing we can all agreeuponinthisroom,”theDalai

Lama said. “The great faithsof the world are representedhere, and many of us areconsidered to be leaders ofthose faiths. We all havegreat pride in our individualtraditions. But I think wedon’t want to lose sight ofwhat the purpose of ourreligions is, and what thepeople we represent reallywant.” He paused for effectandsaid,“Whattheyallwantis to be happy!” What’s the

common denominator, heasked, between the goatherderinAfghanistanandthefinancial trader inNewYorkCity;thetribalchiefinAfricaand the mother of ten inArgentina; the fashiondesigner in Paris and theweaver in Peru? “They allwanttobehappy.”“That’s the essence of

everything,” His Holinesssaid. “If what we do createsmore unhappiness, then

we’vetrulyfailed.”But what is it that creates

happiness?I’ve always taught that

success without fulfillmentistheultimatefailure.It’s important to remember

whatyou’rereally,trulyafter:that sense of joy, freedom,security, or love—whateveryouwant tocall it.Eachoneof us finds a pathway webelievewillleadtohappiness,fulfillment, or meaning. And

there are so many paths.Some look for happinessthroughreligion,ornature,orrelationships. Others think agreatbody,money,prominentdegrees,children,orbusinessaccomplishments will makethemhappy.But truewealth,asyouandIknowdeepinoursouls, cannot be measuredonlybythesizeofyourbankaccount or the number ofassets you have acquired orgrown.

So what’s the final secret,thekeytoarichlife?Enjoyitand share it! But first youmust take action. As thesayinggoes,ifwhatyoulearnleads to knowledge, youbecome a fool; but if whatyoulearnleadstoaction,youcan become wealthy.Remember: rewards come inaction,notindiscussion.So before you put down

this book, go over the finalchecklist and make sure

you’venailed those7SimpleStepsandareonyourwaytobuilding the life you desireanddeserve.Then take a breath and

rememberwhatit’sallabout.

Wealthistheabilitytofullyexperiencelife.

—HENRYDAVIDTHOREAU

We all know there aremanykinds of wealth: emotional

wealth; relationship wealth;intellectual wealth; physicalwealth,intheformofenergy,strength, and vitality; and, ofcourse, spiritual wealth: thesense that our life has adeeper meaning, a highercalling beyond ourselves.One of the biggest mistakeswe human beings make iswhenwe focus onmasteringone form of wealth at theexpenseofalltherest.Thisbookhasnever really

been justaboutmoney.Whatit’sreallyaboutiscreatinganextraordinaryqualityoflife—lifeonyourterms.Untilnowwe’ve zeroed in on how tomaster the game of moneyand financial independencebecause money can have asignificant effect oneverything from ourpsychology, to our health, toour intimate relationships.But it’s important torememberthatit’simpossible

toliveanextraordinarylifeifyou don’t also master thegame of relationships, thegame of fulfillment, and thegameofhealth.Being the richest man in

thegraveyardisnotthegoal.I will never forget taking

mychildren toseeCirqueduSoleil when the troupe cametoourhometowninDelMar,California, almost threedecades ago. We werefortunate enough to get VIP

tickets with floor seats rightnext to the stage. You couldalmost reach out and touchtheperformers.Justbeforetheshowbegan,

I noticed three prime seatswerestillopenbesideus,andIthought,“Wow,someoneisgoing to miss out on anamazingshow.”Butaminuteor two later, a giant man,walking with the help of acaneandtwoassistants,camedownthestairs.Hemusthave

weighed at least 400pounds.When he sat down, he tookup the three empty seats andwas wheezing and sweatingfrom the short walk to thefront row. I felt so bad forthis man—and for mydaughter, who was beingcrushed by his body spillingover that third seat and ontoher! I overheard a personbehindmewhisperingthathewas the richest man inCanada. It turns out he was

one of the richest men inCanada—financially. Abillionaire, no less! Yet inthat moment, I couldn’t helpthinking about the pain hemust live in—all because heputsomuchofhisfocusintomoney while neglecting hishealth and the physicalwealth of his body. He wasliterally killing himself! Andbyfailingtomastermorethanone aspect of his life, hecouldn’tenjoywhathehad—

not even a simple, magicaleveningatthetheater.

Wecanonlybesaidtobealiveinthosemomentswhenour

heartsareconsciousofourtreasures.

—THORNTONWILDER

What’s the point of massiveachievement if your life hasno balance? And what’s thepoint ofwinning the game if

you never take the time tocelebrate and appreciate thelife you have? There’snothing worse than a richperson who’s chronicallyangry or unhappy. There’sreally no excuse for it, yet Iseethisphenomenonsooften.It’stheresultofanextremelyunbalanced life—one withtoomuchexpectationandnotenough appreciation forwhat’s already here.Withoutgratitudeandappreciationfor

what we already have, we’llnever know true fulfillment.As Sir John Templeton said,“If you’ve got a billiondollars and you’reungrateful, you’re a poorman. If youhavevery littlebutyou’regratefulforwhatyou have, you’re trulyrich.”How do you cultivate

gratitude?Startby lookingatthe force that controls yourmindandemotions.

Our decisions ultimatelycontrol the quality of ourlives. In all the years I’veworked with people, I’vefound that there are threekeydecisions thatwemakeevery moment of our lives.If we make these decisionsunconsciously, we end upwithliveslikethemajorityofpeople,whotendtobeoutofshape physically, exhaustedemotionally, and often boredwith or too comfortable in

their intimate relationships—not to mention financiallystressed.But if you make these

decisions consciously, youliterally can change yourlife in an instant! What arethe three decisions thatdetermine thequalityofyourlife? That determine whetheryou feel rich or poor in anygivenmoment?The first oneis:

DECISION1:WHATAREYOUGOINGTOFOCUS

ON?

Ineverymomentofourlives,there are millions of thingswe can focus on. We canfocus on the things that arehappening right here, rightnow, or onwhat wewant tocreateinthefuture,orwecan

put our focus back on thepast.Wecandirectourfocusto solving a big challenge orto appreciating the beauty ofthis moment, or to feelingsorry for ourselves aboutsome disappointingexperience.Ifwedon’tdirectour focus consciously, theenvironmentwe’reintendstomakeconstantdemandstogetourattention.There are hundreds of

billions of dollars spent on

advertising, trying to get thispreciouscommodityofyours.The news tries to get yourfocus by telling you thescariest story: “Your childcoulddie from drinking fruitjuice! Film at eleven!” orsome other ridiculous claim.Why?Becauseas theysayinthe media, “If it bleeds, itleads.” If that’s not enough,we live in a social mediaworldwherethebuzzinyourpocketisconstantlycallingto

you. But here is the key:where focus goes, energyflows. What you focus on,and your pattern of focus,shapeyourwholelife.Let’s look at two of these

patterns that control and canimmediately shift your levelof joy,happiness, frustration,anger,stress,orfulfillment.The first question is:

Whichdoyoutendtofocusonmore—whatyouhaveorwhat’s missing from your

life?I’msureyouthinkaboutbothsidesof thiscoin,but ifyou had to look at yourhabitual thoughts, where doyou tend to spend most ofyourtime?Even those of us who are

inthemostdifficultsituationshave plenty in our lives thatwe can appreciate. If you’restrugglingfinancially,mightit be worthwhile torememberthat ifyoumakeanincomeof just$34,000a

year,youareactuallyinthetop1%of allwage earnersin the world? Yes, theaverage annual income onthe planet is only $1,480 amonth. In fact, almost halfthe world, or more than 3billion people, live on lessthan$2.50perday,whichisa littlemore than $900 peryear. The average drink atStarbucks is $3.25. If youcan afford that, you’respending more with one

purchase of a cup of coffeethan what half the planethastoliveonforoneday.That puts things in

perspective, doesn’t it? So ifyou want to occupy WallStreetbecauseyou resent theso-called1%,youmightstopto consider that 99% of therest of theworldmightwanttooccupyyour“terrible”life!

But in all seriousness,rather than focusing on whatwe don’t have andbegrudging those who arebetterofffinancially,perhaps

we should acknowledge thatthere’ssomuchtobegratefulfor in our lives that hasnothing to do with money.We canbe grateful for ourhealth, our friends, ouropportunities, our minds,and the fact that we get todrive on roads that wedidn’t have to build, readbooks we didn’t have totakeyearstowrite,andtapinto the internet that wedidn’thavetocreate.

Where do you tend to putyour focus? On what youhaveoronwhat’smissing?A pattern of appreciating

what you have will create anew level of emotionalwell-being and wealth. And myguessisthatifyou’rereadingthisbook,youmaybeoneofthose people who alreadynotices what you have. Butthe real question is, do youtake time to deeply feelgrateful in your mind, body,

heart,andsoul?That’swherethe joy and the gifts will befound. Not with justintellectualappreciationorbythe acquisition of anotherdollar,oranother$10million.Now let’s consider a

second pattern of focus thatimpacts the quality of yourlife: Do you tend to focusmore on what you cancontrol or what you can’tcontrol? I know the answerwillbecontextual,asitcould

change from moment tomoment, but I’m asking youoverall:Whatdoyou tend todomoreoften?Behonest.If you focus on what you

can’t control, there’s noquestionyou’regoingtohavemore stress in your life.Youcaninfluencemanyaspectsofyour life, but you can’tcontrol the markets, thehealth of those you careabout,ortheattitudesofyourchildren—asanyonewhohas

livedwithatwo-year-oldora16-year-oldknows!Yes, we can influence

many things, but we can’tcontrol them. The more wefeel out of control, the morefrustratedwebecome.Infact,self-esteemcanbemeasuredby how much we feel wecontroltheeventsinourlifeversus feeling that life’seventsarecontrollingus.Now,assoonasyoubegin

to focus on something, your

brain has to make a seconddecision,whichis:

DECISION2:WHATDOESTHIS

MEAN?

What does this mean?Ultimately, how we feelaboutourliveshasnothingtodo with the events of our

lives, or with our financialcondition,orwhathasorhasnot happened to us. Thequality of our lives iscontrolled by the meaningswegivethesethings.Mostofthetimewe’reunawareoftheimpact of these quickmeaning decisions that areoften made in ourunconsciousmind.When something happens

that disrupts your life—a caraccident,ahealthissue,alost

job—doyoutendtothinkit’sthe end or the beginning? Ifsomeoneconfrontsyou, isheor she “insulting” you,“coaching” you, or truly“caring” for you? Does this“devastating” problem meanthatGodispunishingyou,orchallenging you, or is itpossiblethisproblemisagiftfromGod?Yourlifebecomeswhatever meaning you giveit. Because with eachmeaning comes a unique

feeling or emotion, and thequality of our lives is whereweliveemotionally.Meanings don’t just affect

the way we feel; they affectall of our relationships andinteractions. Some peoplethink the first ten years of arelationship is just thebeginning; that they’re justnow getting to know eachother,andit’sreallyexciting.It’s an opportunity to godeeper.Otherpeoplecouldbe

ten days into a relationship,and the first time they havean argument, they think it’stheend.Now tell me, if you think

this is the beginning of arelationship,areyougoingtobehave the sameway as if itweretheend?Thatoneslightshift in perception, inmeaning, can change yourwholelifeinamoment.Inthebeginningofarelationship,ifyou’re totally in love and

attracted, what will you dofor the other person? Theanswer is:anything! If he orshe asks you to take out thetrash,youmight leap toyourfeet and say, “Anything thatlights you up, sweetheart!”But after seven days, sevenyears, or seventy years,peoplesaythingslike,“Whatthe hell do you think I am,your janitor?!” And theywonderwhathappenedtothepassion in their life. I’ve

often shared with coupleshaving trouble in theirrelationships that if you dowhatyoudidinthebeginningof the relationship, therewon’tbe an end! Because inthe beginning of therelationshipyouwereagiver,not an accountant. Youweren’t weighing constantlythe meaning of who wasgiving more. Your entirefocuswasjustlightingupthatperson, and his or her

happinessmadeyou feel likeyourlifewasfilledwithjoy.Let’s look at how these

first twodecisions, focusandmeaning, often combine tocreate one of modernsociety’s biggest afflictions:depression.I’msureyoumustwonderhowit’spossiblethatso many people who are“rich” and famous—witheveryresourceyoucouldeverdesire—could ever bedepressed. How is it that so

many of those who werebeloved by millions ofpeople, and have tens ofmillions of dollars or more,have even taken their ownlives?We’veseenitoverandover again withextraordinarily intelligentindividuals, frombusinessmentoentertainerstocomedians. How is thispossible, especially with allofthemoderntreatmentsandmedicationsavailabletoday?

In my seminars, I alwaysask, “How many of youknow someone who is onantidepressants and is stilldepressed?” Everywherearoundtheworld, inroomsof 5,000 to 10,000 people,I’ll see about 85% to 90%of the room raise theirhands.Howisthatpossible?After all, you’re giving themadrugthatshouldmakethembetter.Well, theseantidepressants

do comewith labelswarningthat suicidal thoughts are apossible side effect. Butperhaps the real challenge is,nomatterhowmuchyoudrugyourself, if you focusconstantly onwhat you can’tcontrol in your life andwhat’s missing, it’s not hardto findyourself in despair. Ifyou add to that a meaninglike“lifeisnotworthliving,”you have an emotionalcocktail that no

antidepressantwillbeable toovercomeconsistently.ButIcantellyoubeyonda

shadowofadoubtthatifthatsame person can come upwith a new meaning—areason to liveorabelief thatallof thiswasmeant tobe—thenhewill be stronger thananything that has everhappened to him. If she canfocus consistently on whoneeds her, wants her, lovesher, what she still wants to

give to this world, thenanyone can be shifted. Howdo I know? Because in 38yearsofworkingwithpeople,I’venever lostone tosuicideout of the thousands I’vedealt with. And knock onwood—there are noguarantees—hopefully Ineverwill.Butwhenyoucanget people to shift theirhabitual focus andmeanings,there’s no longer a limit onwhat a person’s life can

become.25A change of focus and a

change in meaning canliterally change yourbiochemistry inamatterofminutes. Learning tomaster this becomes anemotional game changer.Howelsecanyouexplainthepower and beauty of peoplelike the great therapist andthinker Victor Frankl and somany others who made it

through the horrors ofAuschwitz? They foundmeaning even in theirextreme suffering. It was ahigher meaning, a deepermeaningthatkeptthemgoing—notonlytosurvivebutalsoto save the lives of somanyothersinthefuturebysaying,“This will never happenagain.” We can all findmeaning, even in our pain.And when we do, we maystill experience pain, but the

sufferingisgone.Sotakecontrol,andalways

remember: meaning equalsemotion, and emotionequals life. Chooseconsciously andwisely. Findthe empowering meaning inanything, and wealth in itsdeepest sense will be yourstoday.

DECISION3:

WHATAMIGOINGTODO?

Oncewecreateameaning inour minds, it creates anemotion, and that emotionleads to a state in which wemake our third decision:WhatamIgoingtodo?Theactions we take arepowerfully shaped by theemotional states we’re in. Ifwe’re angry, we’re going to

behave quite differently thanif we’re feeling playful oroutrageous.If you want to shape your

actions, the fastest way is tochange what you focus onand change the meanings tosomethingmoreempowering.Buteventwopeoplewhogetin an angry statewill behavedifferently. Some will pullback when they’re angry;others push through. Somepeople express anger quietly

or loudly or violently. Somesuppress itonly to look forapassive-aggressiveopportunity to regain theupper hand, or even exactrevenge. Some peopleconfronttheirangerbygoingtothegymandworkingout.Where do these patterns

come from? We tend tomodel our behavior on thepeople inour liveswhomwerespect, enjoy, and love. Thepeople who frustrated or

angered us? We often rejecttheir approaches, but far toooften find ourselves fallingback into the pattern thatwewitnessed over and overagainandwere sodispleasedbyinouryouth.It’s very useful to become

aware of what your patternsarewhenyougetfrustratedorangryor sador feel lonely—because you can’t changeyour pattern if you’re notaware of it. In addition, now

that you’re aware of thepower of these threedecisions, you might startlooking for role models whoare experiencing what youwant out of life. I promiseyou, those who havepassionate relationships havea totally different focus andcomeupwithtotallydifferentmeanings for challenges inthe relationship than peoplewho are constantly bickeringor fighting. Or those who

judge each other constantly.It’snotrocketscience.Ifyoubecome aware of thedifferences in how peoplemake these three decisions,you’ll have a pathway thatcan help you create apermanentpositivechange inanyareaofyourlife.

Attheageof18,Imadeupmymindtoneverhaveanotherbaddayinmylife.Idove

intoanendlessseaofgratitudefromwhichI’veneveremerged.

—DR.PATCHADAMS

Howcanyouuse these threedecisions to enhance thequality of your life? It turnsout that what we focus on,whatemotionalstateswetendtolivein,andwhatwedocanall be conditioned, or“primed,” into our liveswitha simple routine. After all,

you don’t want to merelyhope that positive emotionsjust show up; you want tocondition yourself to live inthem. It’s like an athletedeveloping a muscle. Youmust train yourself if youwanttohaveanextraordinaryquality of fulfillment,enjoyment, happiness, andachievementinyourpersonal,professional, and intimatelives.Youmusttrainyourselfto focus, feel, and find the

mostempoweringmeanings.Thispracticeisrootedina

concept in psychology calledpriming, in which words,ideas, and sensoryexperiences color ourperceptions of the world andaffect our emotions,motivations,andactions.What if you were to

discover that many of thethoughts that you think areyour thoughts are simplyconditionedbyenvironmental

triggers, or in some casesmanipulated consciously byothers who understand thepower of priming? Let megiveyouanexample.Two psychologists

conductedastudy26 inwhichastrangerhandedthesubjectseitheramugofhotcoffeeora cup of iced coffee. Thesubjects were asked to readaboutahypotheticalcharacterand asked to describe the

character’s true nature. Theresults were astonishing!Thosewhoweregiventhehotcoffeedescribedthecharacteras “warm” and “generous,”while the iced-coffee holdersdescribed him as “cold” and“selfish.”In another study at the

University of Washington,womenofAsiandescentweregiven a mathematics test.Before the test, they took abrief questionnaire. If they

were asked to list theirethnicity, the women scored20%higheron themath test.Butforthosewhowereaskedto fill in gender instead ofethnicity, the simple act ofwritingthattheywerefemaleproduced significantly lowerscores. That’s the power ofpriming in the form ofcultural conditioning. Itaffects our unconsciouspatterns—shrinking orunleashingourtruepotential.

We can make use of thisphenomenonbydevelopingasimple ten-minute dailypractice to prime our mindsand hearts for gratitude—theemotionthateliminatesangerand fear. Remember, ifyou’re grateful, you can’t beangry simultaneously. Youcan’t be fearful and gratefulsimultaneously. It’simpossible!I begin every day with a

minimum of ten minutes. I

stop, close my eyes, and forapproximately three minutesreflect on what I’m gratefulfor:thewindonmyface,thelove in my life, theopportunities and theblessingsIexperience.Idon’tfocus just on big things; Imake a point not only tonotice,butalsotodeeplyfeelan appreciation for the littlethingsthatmakeliferich.Forthe next threeminutes, I askfor health and blessings for

all those I love, know, andhave the privilege to touch:my family, friends, clients,and the stranger I may meettoday. Sending love,blessings, gratitude, andwishes for abundance to allpeople.Ascornyasitsounds,it’stherealcircleoflife.Ispendtheremainingtime

on what I call my “Three toThrive”: three things that Iwant to accomplish. Ienvisionthemasiftheywere

already achieved and feel asense of celebration andgratitudeforthem.Primingisan important gift to yourself—if you did it for ten days,you’d be hooked. (Here’s alink to get you started:www.tonyrobbins.com.)This simple practice is

important because a lot ofpeople say they’re grateful,buttheydon’ttaketimetobegrateful.It’ssoeasyinlifetolose track of the beauty and

grace of what we alreadyhave!Ifwedon’tconsciouslydo something each day toplant the right seeds in ourmind, then the “weeds oflife”—frustration, anger,stress, loneliness—tend tocreep in. You don’t have toplant weeds; they growautomatically. My teacherJimRohntaughtmeasimpleprinciple: every day, standguard at the door of yourmind, and you alone decide

whatthoughtsandbeliefsyoulet into your life. For theywill shape whether you feelrich or poor, cursed orblessed.In the end, if we’re going

totrulybehappy,wehavetogetoutsideofourselves.The human mind is an

amazing thing. It’s asurvival mechanism, so ittends to look for what’swrong,what toavoid,whatto look out for. You may

have evolved, but yourbrain is still a 2-million-year-old structure, and ifyouwanttobefulfilledandhappy, that’s not its firstpriority. You have to takecontrolof it.And the fastestway to do that—besidespriming—is to step into thehighest of the 6 HumanNeeds,thetwospiritualneedsthat fulfill human beings:GrowthandContribution.The core reason that I

believeweallhaveadesiretogrowisbecausewhenwedo,we have something to give.That’s where life has itsdeepest meaning. “Getting”mightmakeyoufeelgoodfora moment, but nothing beatsthe nirvana of havingsomething to give that youknow deeply touchessomeone or somethingbeyondyourself.

Everyonecanbe

great,becauseeveryonecanserve.

—DR.MARTINLUTHERKINGJR.

Ifit’sreallytruethatgivingiswhat makes us feel fullyalive, then perhaps theultimate test of this theory iswhat life is like for thosewilling togive their lives forsomething they believe in.Oneofmygreatestheroesofthe last century was civil

rights leader Martin LutherKing Jr. Recently his eldestson and namesake, MartinLuther King III, was in Fijifor my Date with Destinyevent. I had the opportunityof sharing with him howmuch his dad inspired mebecause he lived his life onpure passion—he knewwhathe was made for. Even as achild,Irememberhearinghiswords:“Amanwhohasnotfoundsomethinghewilldie

forisnotfittolive.”Realwealthisunleashedin

yourlifethemomentyoufindsomethingyoucaresodeeplyforyouwillgiveityourall—even your life, if necessary.This is themoment inwhichyou will have truly escapedthe tyranny of your ownmind, your own fears, yourown sense of limitation. Abigorder, I know.But I alsoknow that most of us wouldgive our lives for our

children, our parents, or ourspouses. Those who havefound a mission thatpossesses them havediscoveredawealthofenergyand meaning that has nomatch.

THEWEALTHOFPASSION

You’veprobablyheardofthePakistani teenager MalalaYousafzai. She was shot intheheadbyTalibanterroristsbecause she had the audacityto insist that girls have therighttogotoschool.Abulletpierced her eye socket andbounced around her skull,nearly killing her.Miraculously it missed herbrain. Malala survived herhorrific injuries and hasbecome an international

activist for the empowermentofgirlsandwomen.Themanwho shot her remains free,andtheTalibanstillthreatensto kill her. But she openlydefies them. In a speechbefore theUnitedNationsonher16thbirthday,Malalasaidshe has no fear. “Theythought that the bulletwouldsilence us, but they failed.Andout of this silence camethousands of voices. Theterrorists thought that they

would change my aim andstop my ambitions, butnothing changed in my life,except this: weakness, fear,and hopelessness died.Strength, fervor, andcouragewasborn.”In an interview with

Malala, CNN’s ChristianeAmanpour asked the youngwoman if she feared for herlife. Malala replied, “Thething is, they can kill me.They can only kill Malala.

Butitdoesnotmeanthattheycankillmycauseaswell;mycauseofeducation,mycauseof peace, and my cause ofhuman rights. My cause ofequality will still besurviving. . .Theyonlycanshoot a body, but theycannotshootmydreams.”This 16-year-old young

woman has mastered thosethreedecisions.She’sfocusedonwhatmatters.She’s foundamissionbeyondherself that

gives her life meaning. Andheractionsarefearless.While we might not be

called toputour liveson theline like Malala, we can allchoose to live fearlessly,passionately, and withboundless gratitude. So let’sturn the page and finish ourwealth-building journeytogether with the mostimportant lesson of all: thefinalsecret.

25. Ifyou’d like,youcangoonline towww.tonyrobbins.comandseesomeofthese interventions. We’ve evenfollowed people three and five yearslatertoshowthatthechangeslasted.Itwill give you an idea of how you canmasterthemeaninginyourownlife.

26. The study was funded by theNational Institutes of Health, andcoauthored by John A. Bargh (Yale)and LawrenceWilliams (University ofColorado).

CHAPTER7.3

THEFINALSECRET

Wemakealivingby

whatweget.Wemakealifebywhatwegive.

—WINSTONCHURCHILL

As we take these final stepsof our journey together, Iwant to invite you to thinkabout what you are mostpassionate about in thisworld. What do you carefor most deeply? Whatexcites you? What legacywould light you up? Whatcould you do today thatwould make you proud?What action could you takethatwouldbeasignaltoyourown spirit that your life is

being livedwell?And if youwere truly inspired, whatwould you like to create orgive?All these questions bring

us closer to the final secretof true wealth. But—andhere’s the deal—part of thekey may seemcounterintuitive.We’vespenta lot of time talking abouthow to master money, save,invest, and build a criticalmass that can ultimately

create freedom and increasethequalityofyourlife.Butatthesametime,we’veallbeentaught that money cannotbuyhappiness.Asonestudyattests, most people believethat if their income doubled,their happiness would alsodouble. But the study’sfindings proved that, inreality,peoplewhowentfromearning $25,000 per year to$55,000 per year reportedonly a 9% increase in

happiness. Additionally, oneof the most widely quotedstudiesonthesubject tellsusthat once you make a solidmiddle-class salary—about$75,000 per year inAmerica—earning more moneydoesn’t make anymeasureable difference in aperson’slevelofhappiness.“So,what’sthepoint?”you

mightask.The truth is:more recent

studies have proven that

money can make ushappier. Scientists haveshownthat“spendingaslittleas five dollars a day cansignificantly change yourhappiness.” How so? Well,it’s not the amount ofmoney you spend, but howyou decide to spend it thatmatters. “Every dayspending choices unleash acascade of biological andemotional effects that aredetectable right down to

saliva,” reports Harvard’sElizabeth Dunn and MichaelNorton in theirbrilliant2013book, Happy Money: TheScienceofSmarterSpending.“While having more moneycan provide all kinds ofwonderful things—fromtastier food to saferneighborhoods—its realpower comes not in theamountbuthowwespendit.”They have scientifically

proven that there are many

differentwaysyoucanspendyourmoneythatwillactuallyincrease your happinesssignificantly. I won’t revealthemallhereandwillleaveittoyou topickup theirbook,but three of the mostimportantare:1. Investing in experiences—suchastravel,learninganew skill, or taking somecourses, rather thanacquiring more

possessions.2.Buying time for yourself—“Whenever we canoutsourceourmostdreadedtasks (from scrubbingtoilets to cleaning gutters),money can transform theway we spend our time,freeing us to pursue ourpassions!”

But can you guess thegreatestthingyoucandowithyour money that will bring

you massively increasedhappiness?3. Investing in others—That’s right. Giving ourmoney away actuallymakesusreallyhappy!

Research shows that themore you give to others, thehappier you are. And themoreyouhave,themoreyouare able to give. It’s avirtuous cycle. Dunn and

Norton demonstrate throughtheir own scientific studiesthat people get moresatisfactionspendingmoneyon others than they dospending it on themselves.And the benefits “extend tonot only subjective well-being, but also objectivehealth.”In other words, giving

makes you both happierandhealthier.According to the authors,

this phenomenon spanscontinents and cultures, richcountriesandpoor,people inthe highest and lowestincome groups, young andold,“fromaCanadiancollegestudentpurchasingascarfforher mother, to a Ugandanwoman buying lifesavingmalaria medication for afriend.” Again, the datashowsthatthesizeofthegiftdoesn’treallymatter.In one of their studies, the

authors handed participantseither $5 or $20 to spend bytheendoftheday.Halfweretold to buy something forthemselves; the others wereinstructedtousethemoneytohelp somebody else. “Thatevening, people who hadbeen assigned to spend themoney on someone elsereported [significantly]happier moods over thecourse of the day than didthose people assigned to

spend the money onthemselves,”theywrote.The authors’ colleague,

psychologist Lara Aknin ofSimon Fraser University,conducted another study inwhich she handed out $10Starbucks gift cards to hersubjects.•Somewere instructed togointo Starbucks alone anduse the gift card onthemselves.

• Somewere told touse thegift card to take anotherpersonoutforcoffee.

•Somewere told togivethegift card away tosomeone else, but theyweren’t allowed to go toStarbuckswiththatperson.

• Some were told to takeanotherpersonwiththemto Starbucks but to usethe card only forthemselves,not thepersonwiththem.

At the end of the day,which subjects do you thinkreported being happiest?You’rerightifyoupickedtheones who were there inStarbucks when they treatedsomeone else to a cup ofcoffee. According to theauthors, people are happiestwhentheyconnectwiththosetheyhelp,and“seehowtheirgenerousactionshavemadeadifference.”The happiness we feel

from helping others is notonly more intense, but itlasts longer too. When Ibrought up the topic ofmoney and happiness in myinterview with renownedbehavioral economics expertDan Ariely, he told me, “Ifyouaskpeople,‘Whatwouldmake you happy: buyingsomething for yourself, orbuying something forsomebody else?’ they say,‘Oh, something for myself.’

But that’s not true. Researchshows that when people buysomething for themselves,they get happy for a fewminutes or usually a fewhours.Butiftheybuyevenasmallgift for somebodyelse,the giver’s happiness lasts aminimum to the end of theday, but often the happinesscan carry over for days orevenweeksonend.”Dan also told me about a

“beautiful experiment” in

which employees of acertaincompanyweregivenbonusesinthe$3,000range.Some people got thebonuses to spend onthemselves.And somewereinstructedtogivethemoneyaway. Guess who washappier?“Sixmonthsdowntheline,

the peoplewhogave it awayreported being much happierthanthegroupthatkeptitforthemselves,” Dan said. “I

mean, think about whatgivingisallabout,right?It’san amazing thing thatconnects you to otherpeople...andthere’sacycleof benefits that comes fromthat.”When you give away

money, especially if you dosomething for a strangerversus if you do somethingfor someone you love, thelevel of multiplied happinessis geometric. It’s the

equivalent of doubling ortriplingyoursalary.Inmyownexperience,I’ve

witnessed so many amazingthings that happenwhen yougive. When you get beyondyour own survival andsuccess mechanisms to aworldwhereyou’relivingformore than just yourself,suddenly your fear, yourfrustration, your pain andunhappinessdisappear.Itrulybelieve thatwhenwegiveof

ourselves, then life, God,grace—whateveryouwant tocall it—steps in and guidesus. Remember, life supportswhatever supports more oflife.Let me give you an

example of how a youngboy’s lifewas reignited afterhisheartandsoulwerenearlycrushed in the aftermath ofthehorrificschoolshootinginNewtown,Connecticut.Hisisastoryoffindingpurposeand

inspirationandareleasefrompain through the act ofgiving.

APOWERBEYONDPAIN

JT Lewis will never forgetDecember 14, 2012. Thatmorning a deranged shooterbroke into Sandy Hook

Elementary School with adeathwishforhimselfand26others, including 20 childrenrangingfromagesfivetoten.At one point during therampage, JT’s six-year-oldbrother, Jesse, noticed theshooter’s weapon hadjammed and shouted for hisclassmates to run.Thatbravelittle boy saved many livesthat morning, but,unfortunately, not his own.The gunman turned on Jesse

andshothimdead.Imagine the devastation if

Jesse were your son. Orbrother.Ihadtheprivilegeofmeeting 13-year-old JT, andhis and Jesse’s mother,Scarlett, when I flew toNewtown on the firstanniversary of the massacreto help a group of survivorscopewiththeongoingimpactof this devastating tragedy.As I expected, so many ofthese families were tortured

with grief. But I wasastonished to talk to JT andlearn how his pain andsuffering had beentransformed through a singleinteraction with a group ofextraordinary Rwandanorphans. These young boysandgirlshadheardaboutJT’sloss andwanted to reach outacross the globe to share amessageofhealing.These orphans had all

survived one of the worst

tragedies in history. In 1994,massgenocideinRwandaledto the death of asmany as 1million Tutsis, who werekilledbytheirHutuneighborsinroughly100days.DuringaSkype call, one of the girls,Chantal, told JT how sorryshe was for the loss of hisbrother.Butshewantedhimto know that no one cantake away joy andhappiness from your life,only you; the shooter does

nothavethatpower.She thenwent on to share

herownstoryofhowshewasonlyeightyearsoldwhenshehad been forced to witnessthe horrendous sight of herparentsbeinghackedtodeathbymenwithmachetes. Nextthe killers turned on her,slashing her neck andthrowing her tiny body in amass grave. Buried beneaththe ground, bleedingprofusely and terrified, but

filled with a will to survive,Chantal clawed her way outof that shallow grave andmade her way to freedom inthe mountains above hervillage. Hiding in the darkforest, she could look downon the community she oncecalled home, as flamesswallowedhouseafterhouse,and the air echoed withscreams of the people sheloved. She lived on grass foramonthwhileshewaitedfor

thekillingtostop.Certainlyyouwouldexpect

a child forced to witness themurder of her own parentswouldbeemotionallyscarredforlife.Onewouldexpectherto live in anger and fear, butshe doesn’t. She is a masterof the three decisions thatshapeourlives.As she told JT, “I know

youdon’tbelieve itnow,butyoucanhealimmediatelyandlive a happy and beautiful

life. It simply requirestraining yourself to, everyday, be grateful, forgiving,and compassionate. Gratefulforwhatyoudohave,insteadof focusing on what youdon’t. You must forgive theshooter and his family andfind a way to serve others,and you will be freed fromyour pain.” Her face wasfilled with a joy greaterthan JT could have everimagined.Asbadashis life

was, the horror shedescribedwasmore intensethan anything he couldconceive. If she could befree of her pain, then socould he.Andnowwas thetime.But how would he do it?

He decided he must find away to give back to thisyoung soul who had reachedacross thousands of miles tosend him love on his day ofneed. Chantal found her

reason to live, her passionand sense of purpose, indeciding toprotect, love,andraise some of the otheryounger orphans of thegenocide. This became hermission,anditfreedherfromfocusing on herself or anysenseofloss.Her example of service to

otherstouchedJTdeeply,andhe became obsessedwith theidea of giving. He decidedthathelpingtocreateabetter

future for this extraordinarygirl was his mission. Hebegan towork day and nightto raise money to put herthrough college. Withinseveralmonths, this 13-year-old boy was able to Skypeback and announce that hehad raised $2,100—enoughmoney to send Chantal tocollege for a year! She wasincredibly touched. But likemany young people,especially in the thirdworld,

university was simply not apractical option for her,especially as she had alreadystarted her own smallbusiness as a shopkeeper.(And as you might imaginefromawomanwithherspirit,she is quite a successfulentrepreneur!) So, in thecontinued spirit of giving,Chantal passed this amazinggift on to her best friend,Betty, another orphan whohad also been on the call to

encourageJT.I was so moved by JT’s

commitmentthatIdecidedonthe spot to provide theadditional three years ofcollegeforBetty,andsupportChantal by providing her thefunding to build a new shopandapermanentresidencefortherestofheradoptedorphanfamily.Today we’re all working

together to expand theresources available for many

moreof the75,000orphanedchildren who survived thegenocide.27The lesson here is this:

human beings can overcomeour pain when we choose tosee life’s beauty and find away to give of ourselves.Thatiswherethehealinggiftcomes from. The key isfinding something that willinspire you to want to give.Thatsenseofmission—that’s

the ultimate power in life.That’s when you trulybecome wealthy—that iswhenyoumove fromamerelife of enjoyment to a life ofjoyandmeaning.

GIVINGISHEALING

Ofcourse,givingmeansmore

than just giving money. It’salso giving your time, it’sgiving your emotion, it’sgiving your presence to yourkids, to your family, to yourhusbandoryourwife,toyourfriends, to your associates.Our work is also our gift.Whether thatgift isasong,apoem, building amultinational business,serving as a counselor, ahealthcare provider, or ateacher, we all have

something to give. In fact,after love, one of the mostsacred gifts we can give isour labor. And volunteeringyourtime,givingyouruniquelevel of caring, and sharingyourskillswillalsogiveyousignificant“returns.”My friend Arianna

Huffington cites studies inher brilliant bookThrive thatshow how the act of givingactually improves yourphysical and mental health.

One example I love inparticular is the 2013 studyfrom Britain’s University ofExeter Medical School thatreveals how volunteering isassociatedwithlowerratesofdepression, higher reports ofwell-being, and a 22%reduction in death rates! Shealso writes, “Volunteering atleast once a week yieldsimprovements to well-beingtantamount to your salaryincreasing from $20,000 to

$75,000!”So what’s the final secret

towealth?It’sthatgiving inany form builds wealthfasterthangettingeverwill.I don’t care how powerfulany of us are as individuals,whether you’re a businesstitan, political leader,financial mogul, orentertainment icon—thesecret toafulfilledlife isnotonlytodowellbutalsotodogood. After all, we all know

the story of how society hasbeen transformed bymagnificently wealthyindividualswhowokeuponemorningandrealized,“Lifeisaboutmorethanjustme.”

Beingtherichestmaninthecemeterydoesn’tmattertome.Goingtobedatnightsayingwe’vedone

somethingwonderful,that’swhatmattersto

me.—STEVEJOBS

Beforethe19thcentury,mostcharity was handled byreligiousorganizations—untilsteel magnate AndrewCarnegie came along. Kingsandnoblesandthewealthiestfamiliesweren’t interested ingiving back to theircommunities; for the mostpart,theyjustwantedtohangon to their money for

themselves and their heirs.Manybusinessmensharedthesamebelief.ButCarnegieledthe other “robber barons” ofhisera tocreatephilanthropyas we’ve come to know ittoday.Carnegie was a ruthless

businessman,buthemadethesteel that built the railroadsand skyscrapers thattransformedAmerica.Hehadto addvalue tobeprofitable,so society benefitted, and so

did he. In his lifetime, hebecametherichestmanintheworld.Buttherecameastagein his life where he hadgotten all the things that hewanted and then some. Hehad so much money that hebegan to realize that it hadvery little meaning—unlesshe used it for somethingbeyond himself. SoCarnegiespent the first half of his lifeaccumulating money and thesecond half giving it away.

He described his personaltransformation in an essay(and later a book) that’s stillworth reading called TheGospelofWealth.Myfriend,NobelPrizewinnerandYaleeconomics professor RobertShiller, insists that all of hisstudents read it because hewants them to know thatcapitalism can be a force forgood. Carnegie’s essaychanged society, influencedhis peers, and even

challenged theincomprehensible wealth ofhis greatest rival, John D.Rockefeller. Inspired by afierce competitive spirit,Rockefeller began shovelingmountains of money intosome of the nation’s greatestfoundations.Carnegiecreatedanewstandard:astandardofmeasuring your significancenotbywhatyouhavebutbywhatyougive.Hisfocuswaseducation. In fact, during his

lifetime, Carnegie’scontributions doubled thenumber of libraries in theUnited States, and providedso much of the intellectualgrowth and capital of oursociety before the internetcameintobeing.Our friend Chuck Feeney

became a modern Carnegie,givingawayalmostallofhis$7.5 billion fortune—excepthe chose to keep quiet aboutituntilrecently!

BythetimeIcametomeetChuck, hewas83 and in thefinalstageofhislife.Hehaddifficulty speaking forextendedperiodsof time,butin his presence is found anexperience more profoundthan words. In his presence,you feel the power of a lifewell lived.You can see it inthe joy in his eyes, in thesmilethatflashessoeasilyforhim, in the kindness thatemanatesfromhisheart.

Chuck Feeney, in turn,inspired another generation.ManysayTedTurnerwasthenext to reignite this form oflarge-scale philanthropy withhis $1 billion pledge to theUnited Nations. Since then,BillGatesandWarrenBuffetthave joined forces to createthe Giving Pledge to inspirethe world’s wealthy to leaveat least half of their fortunestocharity.Atlastcount,morethan 120 billionaires had

signedup, including someofthe ultrawealthy individualsin this book, such as RayDalio,T.BoonePickens,SaraBlakely,CarlIcahn,andPaulTudor Jones. (See thewebsite, athttp://givingpledge.org, toread some of the movingletters they wrote toaccompanytheirgifts.)T. Boone Pickens told me

he’sgottenabitcarriedawaywith his philanthropy. He’d

recently given nearly a halfbillion dollars to his almamater, Oklahoma StateUniversity, bringing his totalcharitable gifts to over$1 billion. However, herecentlytooksomelossesthatloweredhisnetworthto$950million—just shy of thatbillion he gave away! ButBooneisnotconcerned.Afterall, he’s only 86 years old.“Don’tworry,Tony,”hesaid.“I’m planning on earning

anothertwobillioninthenextfewyears.”Hefeelsnosenseof loss, because the joy he’sreceived in giving ispriceless.In modern times, the

richest and the mostinfluentialmenandwomeninthe world have tackled theworld’s big problems.Carnegie took on education.Bill and Melinda Gates takeon scholarship andpreventable epidemics.

Bono’s passion is forgivingthe debt that enslaves thirdworld countries. But do youhave to be a billionaire or arockstar tosolvetheworld’sgreatest problems? Not intoday’sinterconnectedworld.If we work together throughtheuseoftechnology,wecaneach do a little bit and stillhaveahugeimpact.

SWIPEOUTHUNGER,SWIPEOUTDISEASE,SWIPEOUTSLAVERY

I’m not sure what yourpassion is, but one area Ipersonally feeldeepempathyforischildrenandfamiliesin

need.Youneedtohaveiceinyour veins not to feel for achild who is suffering. Solet’s takeaminute to lookatthreeof thebiggestproblemsaffecting children and theirfamilies today, and whatimmediate,concretestepswecould easily take to make adifference.The first is hunger. Who

do you think goes to bedhungry each night in therichest country in the

world?AccordingtotheUSCensus Bureau, asstaggeringas it sounds,onein four American childrenundertheageoffivelivesinpoverty, and almost one inten lives inextremepoverty(which is defined as anannual income below$11,746,or$32aday,forafamilyoffourtoliveon).Fifty million Americans,

including nearly 17 millionchildren,liveinfood-insecure

homes—or as Joel Berg ofNew York’s CoalitionAgainst Hunger told TheresaRileyofMoyers&Company,homes that “don’t haveenough money to regularlyobtain the food they need”;that “are rationing food andskipping meals. Whereparents are going withoutfood to feed their children.”At the same time,Congresshas cut $8.7 billion ofannual SNAP benefits—

whatused tobecalled foodstamps—eliminating morethanaweek’sworthofmealsevery month for a halfmillionAmericanfamilies.I lived in one of those

homes;ourswasoneofthosefamilies. That’s where mypassion tomake a differencein this area comes from. Iknow those aren’t juststatistics; those are humanbeingswhoaresuffering.I’ve already shared with

you how my life wastransformed oneThanksgiving Day when Iwas 11 years old. Again, itwasn’t just receiving foodthat changed my life, it wasthe fact thata strangercared.That simple act has had anexponential effect. I’vecontinued to pay that giftforwardbyfeeding42millionpeopleoverthelast38years.ThekeyisIdidn’twaituntilIcould handle this huge

problem on a large scale. Ididn’t wait until I becamewealthy.Istartedtoattacktheproblem where I was, withwhatlittleIhad.At first it was a financial

stretch to feed just twofamilies, but then I becameinspired and I doubled mygoal—to feed four. The nextyearitwaseight,then16.Asmy companies and influencegrew, it became a million ayear, then2million.Just like

investmentscompound,sodoinvestments in giving—andthey provide an even greaterreward. The privilege ofbeinginaplacewheretodayIamable todonate50millionmeals,andinpartnershipwithyouandothers,providemorethan 100 million meals, isbeyonddescription.Iwastheguy who had to be fed, andnow through grace andcommitment,it’smyhonortofeed others and to multiply

the good that was done formeandmyfamily.There’s nothing like the

powerofthehumansoulonfire. Along the way, caringtouched me, and so didbooks. They transported mefromaworldof limitation toa life of possibility as Ientered the minds of authorswho had already transformedtheir lives. In that tradition, Iapproached my publisher,Simon & Schuster, and let

them know that I wanted tofeed not just bodies but alsominds. They have joined mein this mission by donatingmy simple change-your-lifebook called Notes from aFriend,whichIwrotetohelpsomeone in a tough place toturn his or her life aroundwith practical advice,strategies, and inspirationalstories. To match theinvestment you’ve made inbuying this book, my

publisher has pledged toprovideacopyofNotes fromaFriend to a person in needthrough my partners atFeeding America. They arethe nation’s largest networkoffoodbanksandconsideredto be the most effectivecharity in the United Statesforfeedingthehomeless.ButnowI’dliketoaskyou

to consider partnering withme in a way that wouldcontinue to do these good

works foryears to come. It’sa simple strategy that canprovide100millionmealsnotonly this year but also everyyearforthosehungryfamiliesin need. It doesn’t require asubstantial donation. Theplan I’m proposing offersyou the opportunity tochange and save lives byeffortlessly giving awayyour spare change. How?Join me in the campaign toSwipeOut hunger, SwipeOut

disease, and SwipeOutslavery!

USEYOURSPARECHANGETOCHANGETHE

WORLD

So I have an offer for you.My goal in this bookwas tohelp you understand the

distinctions, insights, skills—andgiveyouaplan—thatcantruly empower you to createlasting financial security,independence,orfreedomforyou and your family. I’mobsessedwithfindingwaystoadd more value to your lifethan you could ever imaginewithonebook(althoughabigone, Imust admit). I want itto inspire you to get beyondscarcity and become awealthyman orwoman right

now!Andthatoccursthedaythatyoustartgivingwith joyin your heart—wherever youare financially—not becauseyouhaveto,notoutofguiltor demand, but because itexcitessomepartofyou.AccordingtotheBureauof

Labor Statistics of the USDepartment of Labor, thereare124millionhouseholdsintheUSthatspendanaverageof $2,604 per year onentertainment—that’s more

than $320 billion a year juston entertainment. Imagine ifjustsomeofthismoneywentto solving previouslyintractable problems likehunger, human trafficking,andaccesstocleanwater?IntheUS, it takesonedollar toprovide ten meals to needyindividuals. Imagine helpingtoprovide100,000,000mealsa year! That’s only a littleover $10 million—just.0034%ofwhatwespendon

entertainment!It’spenniesonthedollar—America’spocketchange! So I partnered withsomegreatmindsinbusinessandmarketing,includingBobCaruso (social capitalist andformermanaging partner andCOO of one of the top 100hedge funds in the world,Highbridge CapitalManagement) and my dearfriend Marc Benioff(philanthropist, founder, andCEO of Salesforce.com) to

build the technology thatallows you to easily andpainlessly put those penniestoworktosavelives.In less than aminute, you

can go online and opt in toSwipeOut(www.swipeout.com),sothatevery time you use yourcredit cards anywhere in theworld, the price of yourpurchase will automaticallyround up to the nearest

dollar.28Thatamountwillgodirectly to an approved andeffective charity that willreport back to you withstories of the lives you havetouched.Here’showitworks:if you paid $3.75 for yourStarbucks, $0.25 would berouted to preselectedcharities. For an averageconsumer, this change addsuptojustunder$20amonth.You can put a limit onwhat

you give, butwe do ask thatyoukeep it at aminimumof$10.Want to know what your

impact would be? For about$20amonth:• you could provide 200meals for hungryAmericans (that’s 2,400mealsperyear!);or

•youcouldprovideaclean,sustainable source ofwater for ten children in

Indiaeachmonth—that’s120 children per yearthat you personallyprotect from awaterborneillness;or

• you could make a downpaymentonrescuingandrehabilitating a youngCambodian girltraffickedintoslavery.

These are the three bigissues facing children andfamilies. In America, it’s

hunger. Which is why ourfocus is on swiping outhunger with our partnerFeedingAmerica.But the biggest challenge

for children in the world isdisease. Did you know thatdisease caused bycontaminated water is theworld’s leading killer,accounting for 3.4 milliondeaths per year, according tothe World HealthOrganization (WHO)? In

fact, every 20 seconds,another child dies from awaterborne disease—andmore have perished thanthe total number of peoplewho’ve died in all thearmedconflictssinceWorldWarII.This is why the second

commitment of SwipeOut isto swipe out waterbornedisease and provide cleanwaterforasmanychildrenaspossible worldwide. There

areavarietyoforganizationswithsustainablesolutionsoutthere, and some require aslittle as $2 a person toprovide these children andtheir families with a reliablesupplyofcleanwater.

WHAT’STHEPRICEOFFREEDOM?

Throughout this book,we’vebeen working to make surethatyoucanachievefinancialfreedom. What aboutinvesting a tiny fraction ofwhat you spend each monthto help secure freedom forone of the 8.4 millionchildren in theworld trappedin slavery? In 2008 ABCNews correspondent DanHarriswentundercovertoseehow long and how much itwould take to buy a child

slave.He leftNewYork andten hours later was in Haitinegotiatingtobuyachildfor$150. As he said, in themodernworld,itcostslesstobuyachildthananiPod.It’s unimaginable to even

consider this happening toour own children or anyonewe love.But try to imaginethe impact of your actionsfreeingahuman life,a soulthat has been enslaved foryears. There are no words.

And once again, you canknow that as you sleep, yourcontribution is empoweringthose who are winning thisfighteveryday.Sohowdowetacklethese

huge challenges? Each of ustogether,a littlebitata time.This year, you and I and afew of our friends are goingto feed 100 million people.Butwouldn’t it be incredibleto feed 100 million peopleeach year in a sustainable

way? I provide fresh waterfor 100,000 people a day inIndia—it’s one of mypassions. Wouldn’t it beamazing for us together toprovide3millionpeoplewithcleanwateradayandgrowitfrom there? Or how abouttogether freeing 5,000children who had beenenslaved,andsupportingtheireducation and a path to ahealthylife?That’s what the power of

just 100,000 of us can do.JustasIbuiltmyfoundation,this mission could growgeometrically. If over adecadeormorewecouldfinda way to grow to a millionmembers, that would be abillion meals provided eachyear, 30 million people withclean water, or 50,000children freed from slavery.These figures would beextraordinary, but in truth,even one child’s life saved

wouldbeworthalltheeffort.So what’s your vision?

Most people overestimatewhat they can do in a yearandoftenunderestimatewhatthey can do in a decade ortwo.I can tell you that when I

started on my own missionand fed two families, I wasexcited.Mygoalwas to feed100 families inneed.Then itgrewto1,000.Then100,000.Then1million.Themorewe

grow,themoreweseewhat’spossible. It’s up to us. Willyoujoinme?Putyourchangetowork,and let’schange theworld.

Ihavefoundthatamongitsotherbenefits,givingliberatesthesoul

ofthegiver.—MAYAANGELOU

Whether you sign up withSwipeOut or another

organization,makeadecisionto takeasmallportionof themoney you earn, or of yourtime, andconsciouslychooseto invest it in something thatdoesn’t benefit you directly,butrathergoestosomeoneinneed. This decision is notabout being right or wrong,it’s not about looking good,it’s about real wealth—trulyfeeling more alive andgenuinelyfulfilled.In Happy Money, Dunn

and Norton wrote that whengivingoutsideofourselvesisdone right, “when it feelslike a choice, when itconnectsuswithothers,andwhen it makes a clearimpact—even small giftscan increase happiness,potentially stirring adomino effect ofgenerosity.”Movedbythispotencyof

“prosocial spending” (thatis, gifts for others and

donations to charity) DanAriely and his wife wereinspiredtoputintopracticea simple system that theyand their two sons couldadhere to together as afamily. When the kids gettheirallowances,theyhavetodivide the money amongthreejars.Jar1isforthemselves.Jar 2 is for somebody

theyknow.Jar 3 is for somebody

theydon’tknow.Notice that two-thirds of

those jars are for prosocialspending,becausethat’swhatwillmakethekidshappy.Allthree jars are great, but theArielys were careful to setaside an equal portion forpeople they don’t know.Spending on friends andfamily is beautiful, becauseit’sgivingtopeopleyoulove,but philanthropy is the thirdjar, and that can be themost

satisfyingandimportantformofgiving.Icanalsotellyouthereare

extraordinary positiveconsequences for those whogive when it isn’t easy. Itprimesourbrain;ittrainsandconditions us to know thatthere’s more than enough.Andwhen our brain believesit,weexperienceit.Sir John Templeton, not

only the world’s greatestinvestor but also one of the

greatesthumanbeings,sharedsomethingwithmealmost30years ago: he said that he’snever known anyone whotithed—meaning the persongave 8% or 10% of what heearned to religious orcharitable organizations overa ten-year period—whodidn’t massively grow hisfinancial wealth. But here’stheproblem:everybodysays,“I’ll give when I’m doingbetter.” And I used to think

that way too. But I’ll testifyto this: you deserve to startwherever you are today.You’ve got to start the habitof giving even if you thinkyou’renotready;evenifyouthinkyoudon’thaveanythingtospare.Why?Because,as Isaid to you in the very firstchapter of this book, if youdon’t give a dime out of adollar, you’re not going togive $1 million out of $10million,or$10millionoutof

$100million.How will you fuel your

legacy of giving? Will yougive your time and energy?Will you tithe a portion ofyour earnings? Or will youstartbytakingaminutetogoonline and sign up withSwipeOut and have yourchange become invested inchanging lives? If you’reinspired,please do this nowwhile you are connected tothe impact you can have.

And remember: the personyouwillbegivingthemosttomight very well be yourself.A life as a philanthropistbegins with a single smallstep.Let’stakeittogether.

Idon’tthinkofallthemisery,butofthe

beautythatstillremains.—ANNEFRANK

By theway, Iwasn’t alwaysas conscious of the meaning

ofgratitudeandgiving.Iusedto live in scarcity. Lookingback, my life hasn’t alwaysbeen easy, but it’s alwaysbeen blessed. I just didn’trecognize it at the time.BecauseIgrewupfinanciallypoor, I was always workingtomake sure I could achieveat the highest level. But Ididn’t realize thatachievementcomesinspurts.It takes a long time not

only to learn something but

also to truly master it—towhere it becomes soingrained that it becomes apart of your life. So when Iwas just starting out, Isuffered a series of setbacks.How did I react? Let’s justsay not with the grace of anenlightened soul! I wasconstantlyangry,frustrated—pissed off! Because nothingwas going my way. And Iwasrunningoutofmoney!Then one night around

midnight, I was driving onthe 57 Freeway near theTemple Avenue off-rampnear Pomona, California,wondering, “What’s wrong?I’mworking sohard.What’smissing?WhyamIfailingsomiserably in getting what Iwant? Why isn’t thisworking?” Suddenly tearsstarted to well in my eyes,and I pulled over to the sideof the road. I dug out thejournal I always carriedwith

me—Istillhaveittothisday—and started scribblingfuriously by the dashboardlight. I wrote in giant lettersonafullpagethismessagetomyself:“THESECRETTOLIVINGISGIVING.”Yes! I realized I’d

forgottenthat’swhatlifewasabout. I’d forgotten that thisis where all the joy is found—thatlifeisn’tjustaboutme.It’saboutwe.WhenIpulledbackon the

freeway, I was inspired andrefocused and reignited witharenewedsenseofmission.Istarteddoingwellforawhile.But,unfortunately,whatIhadwritten that night was just aconcept, really—an insightthat I hadn’t yet fullyembodied. Then I startedrunningintomorechallenges,and six months later, I hadlost everything financially.Before long, I found myselfat what I thought was the

lowestpointofmylife,livingon the floorof a400-square-foot bachelor apartment inVenice, California, seethingwith resentment. I had falleninto the trap of blamingeveryone else for the naturalchallenges that show upwhenever you go afterreasonably large goals. Idecided that I had beenmanipulated by a variety ofpeople who had takenadvantageofme.“Ifitwasn’t

for them,”my ego said, “I’dbeingreatshape!”SoIthrewmyself a pity party. And theangrier andmore frustrated Ibecame, the lessproductive Ibecame.ThenIstartedtoeatasmy

way of escaping—all thiscrappy and ridiculous fastfood.Igainedover38poundsin just a few months; that’snot easy to do. You have toeattonsoffoodandnotmovemuchtopullthatoff!Ifound

myselfdoingthingsIusedtomakefunofinotherpeople—like watching daytimetelevision.IfIwasn’teating,Iwas watching soap operas. Igot pulled into the showGeneral Hospital—if you’reold enough to rememberwhen Luke and Laura gotmarried,Iwasthere!It’s humorous (and a bit

humiliating!) to look backand see how far down I haddropped. I was down to my

last $19 and some change,and I didn’t have anyprospects. And I wasparticularly pissed off at afriend who had borrowed$1,200 fromme when I wasdoingwell, but never paid itback. Now I was broke, butwhen I asked for themoney,he’d turned his back on me.He wasn’t answering mycalls!Iwasfurious, thinking,“What thehellamIgoing todo!How am I even going to

eat?”But I was always

pragmatic. I thought, “Okay,when I was seventeen andhomeless,howdidIgetby?”I’d go to a smorgasbord andloadupontheall-you-can-eatbuffet for as little money aspossible. That gave me anidea.My apartment wasn’t that

far from a beautiful placecalledMarinadelRey,whereLA’s wealthy dock their

yachts.Therewasarestaurantcalled El Torito that had afabulousbuffetforabout$6.Ididn’t want to waste anymoneyongasorparking,soIwalked the threemiles to therestaurant,which sat rightonthe marina. I took a seat bythe window and loaded upplate after plate of food,eating like there was notomorrow—which mighthavebeenthecase!WhileIate,Iwaswatching

the boats going by anddreaming about what lifecouldbelike.Mystatestartedto change, and I could feellayers of anger melting offme.As I finishedmymeal, Inoticed a small boy dressedupinalittlesuit—hecouldn’thavebeenmorethansevenoreight years old—opening thedoor for his young mother.Then he proudly led her totheir table and held out herchair. He had a special

presence.Thiskidseemedsopure and so good. He wassuch a giver—you could tellby the respectful, lovingwayhe treated his mom. I wasdeeplymoved.After I paid my check, I

walkedovertotheirtableandsaidtotheboy,“Excuseme,Ijustwanttoacknowledgeyoufor being such anextraordinary gentleman. It’samazing how you’re treatingyourladylikethis.”

“She’s my mom,” heconfided.“Oh my God!” I said.

“That’sevencooler!Andit’sgreatthatyou’retakinghertolunch!”He paused and in a quiet

voice said, “Well, I reallycan’t,because I’monlyeightyearsold—andIdon’thaveajobyet.”“Yes,youaretakingherto

lunch,” I said. And in thatmoment, I reached into my

pocket, took all the money Ihadleft—maybeagrandtotalof $13 and some change—andputitdownonthetable.He looked up at me and

said,“Ican’ttakethat.”“Ofcourseyoucan,”Itold

him.“Why?”I looked at himwith a big

smileandsaid,“BecauseI’mbiggerthanyouare.”He stared up at me,

shocked, and then he started

to giggle. I just turned andwalkedoutthedoor.I didn’t just walk out of

that door, I flew home! Ishould have been freakingout, because I didn’t have adimetomyname,butinsteadIfelttotallyfree!That was the day my life

changedforever.That was the moment I

becameawealthyman.Something inside of me

finallygotpast thefeelingof

scarcity. Iwas finally freeofthisthingcalledmoneythatIhad let terrorize me. I wasable to give everythingwithout any fear. Somethingbeyond my mind, somethingdeep inmyspiritknewthat I—asweallare—wasguided.And thismoment wasmeanttobe.Justasyou’remeanttobe reading these words rightnow.I realized I had been so

busy trying to get that I had

forgotten to give. But now Ihad recovered myself; I hadrecoveredmysoul.I gave away my excuses,

the blaming others, andsuddenly I wasn’t angryanymore. I wasn’t frustrated.You might also have said Iwasn’tverysmart!BecauseIhad no idea in hell where Iwas going to get my nextmeal.Butthatthoughtwasn’teven in my head. Instead, Ifeltanoverwhelmingsenseof

joythatIwasreleasedfromanightmare—the nightmare ofthinkingmylifewasdoomedbecauseofwhatotherpeoplehad“done”tome.That night, I committed to

a plan of massive action. Idecided exactly what I wasgoing to do and how to getmyself employed. I feltcertain I’dmake it happen—but I still didn’t know whenmy next paycheck wouldarriveor,evenmoreurgently,

mynextmeal.And then a miracle

happened.Thenextmorning,the old traditional snail mailarrived,andIfoundaspecialletterinmymailbox.Initwasa handwritten note from myfriendsayinghewassosorryhe’d been avoidingmy calls.Ihadbeenthereforhimwhenhe needed me, and he knewthat I was in trouble. So hewas paying me backeverything he owed. Plus a

littlemore.I looked inside the

envelope, and there was acheck for $1,300. It wasenoughtolastmeamonthormore! I cried, I was sorelieved.AndthenIthought,“Whatdoesthismean?”I don’t know if it was

coincidence, but I chose tobelieve that those two eventswere connected, and that Ihad been rewarded becausenotonlyhadIgivenbutIhad

alsowanted to give. Not outof obligation or fear—it wasjustanofferingfrommyheartand soul to another youngsoulonthepath.And I can tell you

honestly, I’ve had manytough days in my life,economically andemotionally—as we all have—butI’venevergonebacktothat feelingof scarcity, and Ineverwill.The ultimate message of

this book is very simple. It’sthe sentence Iwrotedown inmyjournalon thesideof thefreeway. The final secret ofwealthis:thesecret to livingisgiving.Givefreely,openly,easily,

and enjoyably. Give evenwhen you think you havenothing to give, and you’lldiscover there is an ocean ofabundance inside of you andaround you. Life is alwayshappening for you, not to

you.Appreciatethatgift,andyou are wealthy, now andforever.Understanding this truth

broughtmebacktowhatI’mmade for, what we’re allmade for: to be a force forgood.Iwasbroughtbacktoalife of deep meaning,constantly looking to fulfillmy prayer—and that is eachday to be a blessing in thelives of all those people Imeetandhavetheprivilege

toconnectwith.Even though I may not

have met you personally, Iwrote this book from thatsame state, asking andpraying that each chapter,each page, each concept,would be a deeper step inhelping you to experiencemoreof theblessingsofwhoyou are, and more of theblessingsinwhatyouareabletocreateandgiveinthislife.My heartfelt wish and the

purpose of this book is togive you yet another way toexpand and deepen thequality of your life and thelivesofallthoseyouhavetheblessingtoloveandtouch.Inthis, it’s been a privilege toserveyou.And I look forward to

someday, hopefully, crossingpaths—either being able tomeet you and serve you atoneofmyeventssomewherein theworld, or justmeeting

you on the street. I will beexcitedtohearhowyouusedthese principles to enhanceyourlife.Andso,aswepart, Iwant

to leave youwith a blessing,andawish thatyour lifewillforever be filled withabundance. I wish for you alifeofjoy,passion,challenge,opportunity, growth, andgiving. I wish for you anextraordinarylife.

Withloveandblessings,

TONYROBBINS

27. We train psychologists andprofessional coaches who learn corepractical and psychological skills tomakeadifferenceduringthesecrises.Ifyou are qualified and would like tovolunteerduringa timeofcrisis, reachouttotheAnthonyRobbinsFoundation(www.anthonyrobbinsfoundation.org).

28. Using patented technology withbank-levelsecurity.

Live life fully whileyou’re here. Experienceeverything.Takecareofyourself and yourfriends. Have fun, becrazy, be weird. Go outand screw up! You’regoingtoanyway,soyoumight as well enjoy theprocess. Take theopportunity to learnfromyourmistakes:find

the cause of yourproblemandeliminateit.Don’t try to be perfect;just be an excellentexample of beinghuman.

—TONYROBBINS

7SIMPLESTEPS:YOURCHECKLISTFORSUCCESS

Here’s a quick checklist foryou touseanytimeyouwantto see where you are andwhatstillneedstobedoneto

move you along the path tofinancial freedom. Take alook at the 7 Simple Stepsand make sure that you notonly understand them buthavealsoactivatedthem.

Step1:MaketheMostImportantFinancialDecisionofYourLife

1.Didyoumakethedecisiontobecomean investor, notjustaconsumer?

2. Have you committed aspecific percentage ofsavings that always goestoward your FreedomFund?

3.Have you automated it? Ifnot, do it now:www.tdameritrade.com orwww.schwab.com.

4. If the amount you’recommitting now is small,

have you committed toyour employer to use theSave More Tomorrowprogram? Seehttp://befi.allianzgi.com/en/befi-tv/pages/save-more-tomorrow.aspx.

Step2:BecometheInsider:KnowtheRulesBeforeYouGet

intheGame

1.Doyouknowthe9Myths,andareyounowprotected?Here’saminitest:

a.Whatpercentageofmutualfunds beat the market (ortheir benchmark) over anytenyears?

b.Dofeesmatter,andwhat’sthe average mutual fundfee?

c.Ifyoupay1%versus3%in

fees, how much of adifference does it make toyourfinalnestegg?

d. Have you taken yourbroker for a test drive?Have you gone online andseen what your currentcosts are, how much riskyou have in your currentinvestments,andhowyourcurrent investmentstrategyhascomparedover the last15yearswithothersimple,inexpensiveoptions?

e. Do you know thedifference betweenadvertisedreturnsandwhatyouactuallyearn?

f.Doyouknowthedifferencebetween a broker and afiduciary?

g.Are target-date fundsyourbestoption?

h. How do you maximizeyour 401(k), and shouldyou elect to use a Roth401(k)?

i. Do you have to take huge

riskstomakebigrewards?Whataresomeofthetoolsthat will allow you to getthe upside of the marketwithout the downsidelosses?

j.Haveyou identified anyofthe limiting stories oremotions that have heldyoubackorsabotagedyouin the past, and have youbroken their pattern ofcontrolinyourlife?

2. Do you have a fiduciary

now representing andguiding you? If not, goonline and find one athttp://findanadvisor.napfa.org/home.aspxor go to Stronghold andreview its servicesapproach(www.StrongholdFinancial.com

3. If youowna company, oryou’reanemployeewitha401(k) plan, have youtaken 30 seconds to checkhow your fees comparewiththerestofthemarket?

Go tohttp://americasbest401k.com/401k-fee-checker.

4.Ifyou’reabusinessowner,have you met your legalrequirement to benchmarkyour 401(k) against othercomparable plans?Remember,theDepartmentof Labor has reported that75% of the 401(k)s itaudited resulted in anaverage penalty of$600,000

(www.americasbest401k.com

Step3:MaketheGameWinnable

1. Have you made the gamewinnable?

a. Have you found out whatyour real numbers are?Haveyoufiguredoutwhatit’sreallygoingtotakefor

you to achieve financialsecurity, vitality, andindependence? Have youcalculatedit?

b.Ifnot,gobackanddothatright now. Or if you wantto revisit them, go backanddothenumbersnoworgo toyour app,whereyoucan keep the numbers inyourpocket, and itwill becalculated in a fewminutes. You can do it injustafewminutes.

c. Remember, clarity ispower. Seewww.tonyrobbins.com/masterthegame

2. Once you’ve got thenumbers,didyouuseyourwealthcalculatorandcomeup with a plan that showsyouhowmanyyearsitwilltake in a conservative,moderate,or anaggressiveplan to achieve financialsecurity or independence?If not, give yourself thegift.Go to the app and do

thisnow.3.Haveyou lookedoverandmade any decisions aboutthe five elements of howyoucanspeedupyourplanand achieve financialsecurity or independenceevenfaster?

a.Savemore:• Have you looked at theplaces you could save?Your mortgage? Dailypurchases?

• Have you implemented a

SaveMoreTomorrowplanso that you don’t have togiveupanythingtoday,butwhen you get additionalincomeinthefuture,you’llsave more? Go tohttp://befi.allianzgi.com/en/befi-tv/pages/save-more-tomorrow.aspx.

•Have you found somethingthat you could cut downeasily in order to increaseyour savings? Is it the$40pizza? Is it the water

bottle? Is it Starbucks?And have you calculatedhow much more moneyyou’ll have in yourFreedom Fund and howmuch faster you canachieve your goals bydoingthis?Remember,$40aweekcanequal$500,000over an investmentlifetime.Youdon’thavetodo any of these if you’realreadyontarget,buttheseare options if you’re not

yet on target to achieveyourfinancialgoals.

b. Earn more. Have youfoundways to increase thevalue you can add toothers? Do you need toretool yourself and switchto a different industry?Whatarethewaysyoucanadd more value and growmore so you can givemore?

c. Save in fees and taxes.Have you come up with a

way to apply what we’vetaught you to reduce yourfees and/or reduce yourtaxes?

d. Get better returns. Haveyou found away to investwith greater returnswithout undue risk? Haveyou reviewed any of theportfoliosthatareherethatmight enhance yourearnings and protect youfrom those gut-wrenchingdownturnsinthemarket?

e. Change your life—andimprove your lifestyle.Haveyouconsideredanewlocation with an evenbetter lifestyle? Have youconsideredputtingyourselfin a place where youreduce or eliminate statetaxes and then put all ofthatmoneytowardbuildingwealth and your family’sfinancial security andfreedom?

Step4:MaketheMostImportantInvestmentDecisionofYourLife

1.Haveyoudecidedonassetallocationsothatyouneverputyourselfinapositiontolose too much? (Not allyour eggs are in onebasket,right?)

2. Have you decided what

percentagebelongs inyourSecurity Bucket and whatspecific types ofinvestmentyou’llusetobesafe and still maximizereturns? Are youdiversifying with differenttypesofinvestmentswithintheSecurityBucket?Haveyou decided whatpercentageofyour savingsor investment capital willgointheSecurityBucket?

3. Have you decided what

percentagebelongs inyourRisk/Growth Bucket andwhat specific types ofinvestments you’ll use tomaximize returns yet stilllimityourdownsideasbestas possible? Are youdiversified with yourRisk/GrowthBucket?

4. Have you evaluated youractual risk toleranceeffectively? Did you takethe test developed byRutgers

(http://njaes.rutgers.edu/money/riskquiz5.Have you considered yourstage of life and whetheryoushouldbemoreorlessaggressive based on thelengthof timeyouhave tosaveand invest? (Ifyou’reyoung, you can lose a bitmore because you havemore time to recover; ifyou’reclosertoretirement,you have less time torecover, and perhaps youneedmoreinyourSecurity

Bucket.)6. Have you evaluated theamount and size of yourcashflowandwhetherthatwill play a role in yourlevel of conservativenessor aggressiveness in yourassetallocation?

7.Haveyouresolvedtheratioof Security versusRisk/Growth as apercentage of your overallinvestments? 50/50?60/40? 70/30? 30/70?

40/60?80/20?8.Have you come upwith alistofshort-termandlong-termgoals foryourDreamBucketthatexciteyou?Doyou have to wait untilsomeday in the future, ordo you have some thingsyou’re going to makehappenrightaway?

9. Have you established away to fund your DreamBucketwith either a smallamount of savings or a

portion of the profits ofwindfallsfromsuccessesinyourRisk/GrowthBucket?

10. Rebalancing and dollar-costaveraging:

a. Are you consistentlycommitting the sameamount of money toinvestments regardless ofwhether the market ismoving up or down?Remember, timing themarketneverworks.

b. Are you continually

rebalancing your portfolio,ordoyouhavea fiduciarydoing this for you? Eitherway, this is crucial tooptimizing returns andminimizingvolatility.

Step5:CreateaLifetimeIncomePlan

1.ThepowerofAllSeasons:

a.Haveyoutakenthetimetoread, understand, and takeaction on the powerfulinsights that Ray Daliogave us with his AllSeasons approach? He hasbrought successfulinvestment returns 85% ofthe time and lost moneyonlyfourtimesin30years,butnevermorethan3.93%todate!

b. Have you gone toStronghold and taken five

minutestoseewhatkindofreturns you’re getting onyour current investmentscomparedwithAllSeasons(andotherportfolios)or tosee what it would take toset up an All Seasonsportfolioinminutes?

2.IncomeInsurance:a. Have you done the mostimportant thing of all?Have you made sure thatyou will not run out ofincomeaslongasyoulive?

Have you established aguaranteedlifetimeincomeplan?

b. Do you know thedifference between animmediate annuity and adeferred annuity, andhave you selected whichmight be right for youdependingonyourstageinlife?

c. Have you reviewed andinitiated a hybrid annuityor tapped into the upside-

without-the-downsidestrategy that’s nowavailable to anyoneregardless of age andwithout any lump-sumpaymentwhatsoever?

d.Haveyougoneonline andfoundouthowmuchfutureincomeyoucouldhaveforaslittleas$300amonthormore? If not, go towww.lifetimeincome.comorcallanannuityspecialistatStronghold.

3. Secrets of theUltrawealthy:

a.Haveyouinvestigatedhowto drastically cut theamountof timeitwill takeyou to achieve financialfreedom by 30% to 50%through the use of tax-efficient life insurancestrategies? Remember,PPLI (private placementlife insurance) is great forhighnetworth,butanyonecanusethepoliciesoffered

through TIAA-CREF withminimal deposit amounts.Ifyouhaven’tyetexploredthese tools, reach out to aqualified, expert fiduciarytoday or contactStronghold for a freeanalysis.

b. Have you invested the$250tosetupalivingtrustso that your family isprotected and your assetswill go to them withoutgoing through a year of

probate? Have youprotected your wealth notonly for your currentgeneration but also yourgrandchildren and yourgreatgrandchildren?

Step6:InvestLikethe.001%

1.Haveyoutakenthetimeto

absorb some of the shortinterviews with 12 of thesmartest financial peopleon earth, the greatestinvestorsinhistory?

2.Who is the“Masterof theUniverse” in the financialworld? What kind ofreturns has he gottencompared with anyoneelse, including WarrenBuffett,andhowcouldyouinvest with him if youwantedto?

3.What did you learn aboutasset allocation fromYale’sDavidSwensen?OrJ.P. Morgan’s MaryCallahanErdoes?

4. What did you learn fromthe indexing master JackBogle?OrfromDr.Doom,MarcFaber?

5.Didyoucapturethesimplestrategy that WarrenBuffett now recommendsforeveryone, includinghiswifeandherlegacytrust?

6. Did you absorb theimportance of how to getasymmetricreturns?

7. Did you absorb the$100,000 MBA that PaulTudor Jones gave you bynever making aninvestmentoflessthanfiveto one and always tappingintothepowerofthetrend?

8. Did you check out RayDalio’sHowtheEconomicMachineWorks—In ThirtyMinutes video? If not,

watch it now atwww.economicprinciples.org

9. Did you soak in theconcepts of Kyle Bass’ssolutiononinvestingwhereyou cannot lose money?Remember the power ofnickels? Whereinvestmentsareguaranteedforever by the USgovernment, and you’llhave a potential upside ofanywhere from 20% to30%?

10. Did you take in the corelessons from CharlesSchwab, and Sir JohnTempleton’s gift thatcontinues to give ofbeing able to know thattheworstenvironmentisyour greatestopportunity—tobemostoptimistic when theworld is“ending” like itdidinWorldWarII,likeit did in inflation inSouth America, like it

did in the Depression,like it did in JapanafterWorldWar II? Did youabsorb his true corestrategic philosophy thatmade him the firstinternational investmentbillionaireinhistory?

11.Whatactionscanyoutaketoday to start investinglikethe.001%?

Step7:JustDoIt,EnjoyIt,andShareIt!

1.YourHiddenAsset:a.Haveyouconnectedtothetruth that the future is amagnificentplace?

b. It will be filled withexciting challenges.Opportunities andproblemsare always there,

butareyouclearthatthereis a wave of technologythatisgoingtocontinuetoinnovate and empower usas individuals andenhancethe quality of life forhuman beings all over theearth?

2. Have you given yourselfthe ultimate gift—thecommitment to bewealthynow, not someday in thefuture—by appreciatingand developing the daily

habit of priming yourappreciation of what youalready have and buildingonthatsuccess?

3. Would you tradeexpectation forappreciation? And haveyou committed to a life ofprogress?Progress equalshappiness. Life is aboutgrowingandgiving.

4.Haveyoufiguredoutwhatyou’re here to serve andwhat the higher purpose is

for your life? Have youbegun to think about yourlegacy?

5. Have you decided toconvertyourpocketchangeintomassivechange in theworld? If so, go towww.swipeout.com now,take one minute, andstarttheprocessofsavingliveswhileyouenjoyyourown.

6. Are you embodying thetruth that makes you

wealthy in this moment:the secret to living isgiving?

This is a quick overviewchecklist for maximizing thepages you’ve read. If there’sanythingyou’vemissed,giveyourself the gift of goingback and absorbing it andalso remember, repetition isthemotherofskill.Actioniswhere all your power isfound.

So, my dear friend, comehereandknowthatyou’renotalone.You can tap into yourown resources, or I’ve alsomade a ton of supportresources available here aswell: the website, the app,Stronghold,LifetimeIncome,andAmerica’sBest401k.Butwhatever you do, make sureyou take action and makesure that the people guidingyou have your best interestsin mind. Finding the right

fiduciaryis theplacetostart.The right one can help youcreateorrefineyourplan.This list is not everything;

it’s just a great checklist totrigger you to keep growingand keep implementing.Rememberthatknowledgeisnotpower,executionis.Justmake a little bit of progresseach day or each week, andbeforeyouknowit,yourpathto financial freedom will berealized.

I look forward to meetingyou inperson somedaysoon.Until then, step up, keepmoving forward, master thegame,andlivewithpassion.

ACKNOWLEDGMENTS

When I sat down to makenoteofall theindividualsforwhomIamsograteful,Iwascompletely overwhelmed. Ihad just finished writing a600-plus-page book! But

acknowledgingeveryonewhohad helped get me here stillstood as a daunting task.Where would I ever begin?Sitting here, this undertakingfeelsmostlikesomethingyouwould see at the end of amovie: hundreds of namesscrolling and key scenesflashing in tribute to thesuperstars. So many peoplehaveplayedsomanyroles toget me to this deeplyfulfillingmoment.

As I review the 4-yearjourney—and,frankly,the30years that ledmehere—Iseethefacesandfeelthegraceofso many extraordinaryindividuals.Iwon’tbeabletoacknowledgethemall,butI’dlike to start close to homewith the people who havetouchedmylifemostdeeply.First, my family. Of

course, this begins with thelove of my life, mymagnificent wife, Bonnie

Pearl—my Sage. “My girl.”She’sthenever-endingsourceof the joy and happiness inmylife.IfeelthatSHEistheultimaterewardforthe“goodkarma” that has come fromserving tens of millions ofpeople over thedecades.Shetellsmeshewasborntoloveme, and all I can say is thatGod has truly blessed mewiththeloveofthisbeautifulsoul.Toherparents,BillandSharon—Mom and Dad—

thank you for creating andraising this amazing woman.You have provided me withthe greatest gift of my life:your daughter, the greatestsource of love I’ve everknown or could ever evenimagine. Thank you for allthe loveyoupoured intoher,and for loving me as yourown. You both live lives ofsuch real true contribution,and you both inspire meevery single day. My dear

brother-in-lawScotty (who isreally my brother) for hiswarrior-like courage and hisconstant focus on raisingstandards and making surethat we’re able to reach outandservemoresouls.Andtoeach of my four children,Jairek,Josh,Jolie,andTyler,whoineverystageinmylifehave brought me inspiration,love,andareasontobemore.Ialsogivethankstothegraceof our creator. And for my

passionately intense mother,who imparted extraordinarystandards,andthefourfatherswho each impacted my lifeuniquely. Tomy brother andsister, Marcus and Tara, andall of my extended family, Iloveyou.To my core team at

Robbins ResearchInternational that allows meeach day the privilege toexplore, integrate, constantlycreate, test, and retest new

insights, tools,strategies,andpathways to improving thequality of people’s livesworldwide. To Sam Georgesand Yogesh Babla—myconfidants who look out forme and all of our companieswhileI’mtravelingtheglobe.To my dear friends andprotectors Mike Melio and“General Jay” Garrity. ToShari, Rich, Marc, Brook,Terri, and all the rest of ouramazing, loyal, and mission-

drivenexecutivestaff.Tomyoutstanding creative team—especially the remarkablemanager and creative partnerDiane Adcock—you areamazing, andourbright lightKatie Austin, I love you. Toall personnel at San DiegoHQandfarbeyondwhoworkwith me every day acrossdepartments at RRI and allourpartnersthatmakeuptheAnthonyRobbinsCompanies.Thankyoutoeachofyoufor

allthatyoudoinourquesttoconstantly work to createbreakthroughs for people intheir business, finances,health, emotions, timemanagement, and personalrelationships. We are heretogether to change lives.Wearecalledtoriseup.WedriveFinancial, Business, andultimately Human Elevation.We are catalysts of the spirit—this is the gift we are allmade for. I feel so fortunate

toworkwithyou aswehelpmakeadifferenceinpeople’slivesallovertheworld!Extraspecial thanks to ourvolunteer staff and all of ourcrew—and especially ourroadwarriors,who travel theearth making everythinghappen behind the scenes.Our events could not happenwithout you, and our entireteam is grateful for the giftsyou give. Also thanks to allthe wives and husbands who

loanout their family tousaswe span the globe and toJoseph McLendon III, ScottHarris,JoeWilliams,MichaelBurnett, Richard andVeronica Tan, and Salim forproviding the leverage totouch even more livesworldwide.My life has been

powerfully shaped by deepfriendshipswithfourbrilliantmen. To my dear friend andbrother Paul Tudor Jones, I

thank you for more than 21yearsofbeingarolemodelofhow to find your way tovictorynomatterhowbigthechallenge! The only thinggreater thanPaul’s legendarytradingability is thedepthofhisloveandgenerosity.Heisa soul driven completely tomake a difference in theworld;andhedoeseveryday.To Peter Guber, who hasbeen one of my dearestfriends in life, and a creative

force of nature whosegenerosity also knows nolimits. Peter, you constantlyinspire me to see what’spossible! Thank you for allthe laughter, your coaching,yourlove,andtheprivilegetobeyourfriendthroughoutthedecades. To Marc Benioff,mybrotheronthepath.Youramazing mind, youunconquerable heart, yourconstant innovation inbusiness, and your

remarkable philanthropiceffortsexcitemeandmillionsof others entrusted to upholdthe standard you’ve set sosuccessfully and continue tosustainatSalesforce.com.I’mproud to partner with you inchanging lives. I love you,man. To Steve Wynn, thankyou for your love and forbeinganimpeccable,brilliantcreator that nothing on earthcan stop! You truly are agenius, and yet so humble.

You’re always looking outfor those you love. The wayyou take a vision and turn itinto reality excites everyonearoundyou.Tobeyourfriendis such a gift. Each day IspendwithyouisanotherdayI am inspired to take mygametoanotherlevel.Through my events and

appearances, I am affordedthe opportunity to meethundreds of thousands ofpeople each year who have

touched my life. But thisbook, at its core, wasuniquely shaped by a groupofmorethan50extraordinarysouls whose insights andstrategies have touched meand all those who will readthese pages. To those whoshared their time and life’swork in our interviewsessions, I am eternallygrateful. To Ray Dalio, forthe unique gift you gave inthis book by providing the

averageinvestorwithan“all-seasons”investmentapproachbased on the insights of thegenius of your famous “AllWeather” strategy. Ray gaveus the gift of a simplifiedsystem that creates what, atleast historically, hasprovided investors thesmoothest possible ride overthe long-term financial path.The value of Ray’s “secretsauce” is beyond measure,but just one reflection of his

inherentgenerosity.To Jack Bogle, for

investing 64 years of his lifeand having a relentless focuson what’s right for theinvestor:yourcommitmenttocreate index funds haschanged investing as weknow it for everyone in theworld. Thank you for givingmefourhoursinwhatprovedto be one of the most raw,honest, and insightfulinterviews that I’ve had the

privilege toparticipate in.ToT. Boone Pickens, for beingthe absolute epitome ofhonest Americanindividualism and cowboycourage. To Kyle Bass, forshowing us all that massiverewards do not requiremassive risks. To Sir JohnTempleton,blesshissoul,forthemanydecadesheinspiredme with his insights that intimes of “maximumpessimism” we are offered

ourgreatestopportunities.ToMarc Faber, for his always-innovative investing adviceand, most of all, hisexuberance. To the fearlessCarl Icahn, for his unbridledboldness, courage, andpassion—for challenging thestatus quo and bringingextraordinaryreturnsforyourinvestors. To Mary CallahanErdoes, the trillion-dollarwomanfromJ.P.Morgan,forbeing such an extraordinary

example of the power ofservant leadership, and formodeling howwe can all beextraordinary inbusiness andyetstillsoconnectedtowhatreallymattersmost.To all the extraordinary,

insightful academics andbusinessmen andbusinesswomen. From Nobellaureates likeRobert SchillerandHarryMarkowitz toDanAriely(MIT)and the tandemof Shlomo Benartzi and

Richard Thaler, whose SaveMore Tomorrow allowsindividuals to get around thecognitive and emotionallimitations that most humanbeings find themselvesentrapped by. To Dr. DavidBabbel, your focus onlifetime income and yourliving example helped shapeabigpartofthisbook.BurtonMalkiel,youareatreasuretothis country. Your originalfocus on indexing set the

stageforaworldof financialchoice, andyour straight talkis a bright spot in asometimes dark and murkyfinancial world. To AliciaMunnell (Boston College),Teresa Ghilarducci (NewSchool), Dr. Jeffrey Brown,and Dr. David Babbel(Wharton): thank you foryour astute insights into ourretirement system—you arerevolutionaries. To SteveForbes and to Harvard

professor and formersecretary of the TreasuryLarrySummers,forgivingustwo hours of extraordinaryand lively debate—showingus all an “across-the-aisle”look at howwegot here andwhatAmericaneeds todo toturn thingsaround.ToDavidSwensen—the rock star ofinstitutional investing—foropening Yale’s sacred doorsand allowing me to share inhis extraordinarily effective

investment approach, but,more importantly, forstandingasashiningexampleof how our labor is areflection of our love. Hisworkisagiftandhisconstantpersonalfocusonwhathecangivetouchesmetothisday.To Warren Buffett, for

forging the way for us all.Thank you for being such astraight shooter. While Iwould have loved to havespentmoretimewithyou,the

brief meeting we shared onthe Today show struck achorddeepwithin.When theOracle of Omaha says thatindexingis theway, it leavesverylittleroomforargument!To Elliot Weissbluth, for

hiswillingnesstotakeonthischallenge far before thesubject was ever breached.You’ve worked to bring truetransparencyandconflict-freeadvice to the wealthy, andnow you shoulder a crusade

to democratize opportunitiesfor the average individualinvestor regardless of his orher economic capabilities.Elliot is a real example ofintegrity, courage, andintrinsic commitment to dowhat is right. Thank you foryourpartnership.Thanks to all those who

provided interviews, or whogave of their time at myPlatinum Partnership WealthEvents, and for those who

have shared your insightsover the years andwhohaveservedasexamplesofwhatispossible—youall inspireme,andyourwisdomisechoedinthese pages in so manydifferentways.Thanksandgratitudetomy

dearfriendJohnPaulDeJoria(who once lived out of hiscar, too!). Thanks to themaverick Marc Cuban, toCharles Schwab, SaraBlakely, Reid Hoffman, Sir

Richard Branson, ChuckFeeney,EvanWilliams,PeterLynch,RayChambers,DavidWalker,EddieLampert,TonyHsieh, Tony Tan, MichaelMilken, Mark Hart, MitchKaplan, Luca Padulli, HarryDent, Robert Prechter,Michael O’Higgins, JimRodgers, James Grant, EricSprout, Mike Novogratz,Stanley Druckenmiller,George Soros, Sir RogerDouglass, Domingo Cavallo,

Daniel Cloud,GeoffreyBatt,JoshuaCopperRamo,RusselNapier, EmadMostaque, Dr.DonnyEpstein,TomZgainer,and, of course, Ajay Gupta!Special thanks to AdamDavidson, Alex Blumberg,and Helen Olin for theinsightful views of what isunjust andwhat can be donewith the crazy, connected,and volatile financial worldthat now dominates all ourlives.

My deepest thanks to mypartnersatSimon&Schuster,whomovedheavenandearthtomeetthisinsanetimeline.Iwas so committed to gettingthisbookout,andthesizeofit grew geometrically as Iinterviewed more and moreof the world’s greatestfinancial minds. First toJonathanKarp, president andpublisher, for his vision andwillingness to supportmeonthis endeavor, and for

spearheading the Simon &Schuster team that helped usedit and publish this beast inrecord time—we must havebroken some kind of record.And it could only have beendone with the help of theeditors: Ben Loehnen andPhilBashe.Thanks to all who have

helped us spread the wordaboutthislaboroflove.FromHeidi Krupp, to JeniferConnelly, to Jan Miller and

ShannonMarven, toSuzanneDonahue and Larry Hughes,to Mark Thompson, MatMiller,toFrankLuntzandhisamazing team, David Bach,and my dear friend DeanGraziosi, inaddition toallofmy marketing partners likeBrendon Burchard, JeffWalker, Frank Kern, JoePolish, Brett Ratner, MikeKoenigs, Tim Ferriss,GaryVaynerchuck, EbenPagan, Russell Brunson,

Dean Jackson, Marie Forleo,Chris Brogan, Jay Abraham,Jason Binn, David MeermanScott,ScottKlososky,andsomany others. My deepestthankstoPraveenNarra,CliffWilson,andallthepartnersatappdevelopmentforbuildingouramazingsmartphoneapp.To the media icons who

have so lovingly spread themessage, especially OprahWinfrey, Ellen DeGeneres,and Dr. Oz. To my dear

partners—who feelmore likemy family—at ImpactRepublic, for the all-nightmarathons on book coversand the like; a special shout-out to Kwaku, and my dearbrothers “PMF” ChrisJennings and Bob Caruso.Thank you Jarrin Kirksey,Sybil Amuti, and the entireImpact Republic team notonly for your dedication tothisbookbutalsoforhelpingusrefineourabilitytoriseup

and reach millions morepeople every passing year. Iloveandappreciateyouall!And,ofcourse,themission

of this book is to serve notonly those who will bereading it but also the manythat society has forgotten.Andsomydeepest thanks toeveryone at the AnthonyRobbins Foundation and ourstrategic partners—mostimportantly Brian Berkopecand all our partners at

SwipeOut,andDanNesbitatFeeding America for helpingus coordinate this never-before-attempted approach toprovide 100 million meals:the distribution of my initialdonation of 50millionmealsand the efforts of all thoseworking tirelessly to securematching funds that willenable the delivery of 50millionmore.Deep thanks tomy partner Cody Foster, andthe whole Advisors Excel

team, for being one of thefirst to step up—not only tocreate distinct, new incomesolutions for people but alsofor their trailblazingcommitment to provide 10million meals before anyoneelsedid.For insights into

technologyandthefuture,mydeep thanks to my dearvisionary friends PeterDiamandis and RayKurzweil. It’s always a

privilege to spend time witheither of these extraordinarymen.Theyprovideawindowinto a future reality that fewon earth can even bear toimagine,andtheyworkeveryday to make that world areality. Ray and Peter, youabsolutely blow me away,and it’s been a privilege topartner with you atSingularityUniversity and inthe new Global Learning XPrize.I’mexcitedaboutwhat

we’ll create together.Thanksagainfortheinsightswewereable to share in this book.Thanks also to EastonLaChappelle for brimmingwithcreativeambitionforthegreater good, and to JuanEnriquezforshowingushoweven what we call “life” isbeing redesigned andrefashioned into freshopportunityaswespeak.To those aroundme doing

all the little things thatmake

the biggest difference: DearMs. Sarah, Steph, andStephanie.Bulavinaka tomyFijianfamily.AndtoAndrea,Maria, andTony, forhelpingpreserve a sacred sanctuaryamidacrazylife.Finally, and most

importantly, I thankmy coreresearchteam,withoutwhomthere is no way this bookwouldhavebeenwritten:StartingwithmysonJosh,

whose lifetime in the

financial business hasprovided invaluable insights.I have delighted in ourmiddle-of-the-nightbrainstorming sessions tryingto figure out how to bringmore value to individualinvestors. Our time hasbrought me more joy andexcitement than I could haveimagined—not only in whatwe’ve been able to createtogether but also in thebeautiful time that we’ve

shared throughout thisproject.And to the four other

people this book could nothave been written without:JennDawes,whose inhumancapacity to capture mythoughts, almost at the speedI speak them, is what keepsthe structure organized,connected, communicated,and from splitting at theseams!I’meternallyindebtedtoyou,andIloveyou.

Finally to MaryanneVollers and Jodi Glickman,for caring so deeply and foryourwillingnesstoworkwithme throughmany a sleeplessnight, refining and editingthismanuscript.And to Mary Buckheit,

whose dedication and lovekeptmegoinginsomeofthemost exhausting moments ofthis long, arduous process,givingbirthtothe“treasures”webothknowwilltouchlives

for decades to come. I loveyou and give youmy eternalappreciation.To the grace that has

guided this entire process,and to whatever Godunleashed inside me at anearlystageofmylifethathasmademeneversatisfiedwithwhatis,andtobesoinsanelyobsessedwithahungerandadrive to serve at the highestlevel possible. To thatwhichis always reminding me that

it’snotonlythebigthingsbutalso the little things thatmatter. And for the privilegeof my readers and all thosewhohaveeverput their faithin me by making aninvestment in a product, or aservice,ortakingthatleapoffaith tocomeattendaneventwheretheygavemethemostvaluable resource they have:their faith, their trust, andtheir time. To partner withthem, taking back control of

their lives; taking it towhatever level itwas, and towhatever level it deserves tobe.Andtoallthosefriendsand

teachersalongthepathofmylife—too many to mention,some famed and someunknown, whose insights,strategies,example,love,andcaring are the shoulders Ihave had the honor to standon.Onthisday,Igivethankstoyouall,andIcontinuemy

never-ending quest to eachdaybeablessing in the livesof all those I have theprivilege to meet, love, andserve.

ANTHONYROBBINS

COMPANIES

ANTHONYROBBINS

FOUNDATION

The Anthony RobbinsFoundation is a nonprofitorganization created toempower individuals andorganizations to make asignificant difference in thequalityoflifeforpeopleoftenforgotten by society: ouryouth, the homeless andhungry, prisoners, and the

elderly. Its internationalcoalitionof caringvolunteersprovides the vision,inspiration, cutting-edgeresources, and specificstrategiesneededtoempowerthese important members ofsociety.What began nearly 40

years ago as one man’sindividual effort to feed twofamilieshasnowgrownintoamovement. The foundationwas built upon the belief

system that regardless ofstature,onlythosewhohavelearnedthepowerofsincereand selfless contributionwillexperiencelife’sdeepestjoy: true fulfillment.Connecting, inspiring, anddemonstrating true leadershipthroughout the world, thefoundation’s global impact isprovided through aninternational coalition ofcaringdonorsandvolunteers.Alloftheauthor’sprofits

from Money: Master theGamehavebeendonated inadvance to the TonyRobbins 100 Million MealChallenge, whereindividuals, corporations,and philanthropists alikeare invitedtoparticipate inmatching Tony Robbins’sdonationof50millionmealsto feed hungry families inneed. For over 38 years,Tonyhascommittedhis timeand resources to feeding 42

million people across thenation and around theworld.Inspired by a stranger’sgenerosity to feed his ownfamily years ago, Tony hasnow partnered with FeedingAmerica in conjunctionwithSwipeOut(www.swipeout.com), andSalesforce.com to donateover100millionmealswithinayear;thefirstprogramofitskind.

www.moneymasterthegame.com

SWIPEOUT

Let your spare changechange the world. What ifevery time we made apurchase, ithelpedsomeone?What if our small, ordinarydaily transactions helpedmakeanextraordinaryimpact

across the globe? What ifyour credit card was aweapon against globalinjustice? In less than aminute, the SwipeOut appallows consumers to connecttheir credit/debit cards to thepatented system that willautomatically round up eachconsumer purchase to thenearest dollar. All of thespare change—100%—willbe channeled to the world’smost pressing problems

facing children and thoseaffected by extreme poverty:hunger, disease, and slavery.Our partners include TonyRobbins as well as MarcBenioff, founder ofSalesforce.com.

www.swipeout.com

INTERNATIONALBASKETBRIGADE

The International BasketBrigade is built on a simplenotion: “one small act ofgenerosityon thepart ofonecaring person can transformthe lives of hundreds.”Whatbegan as Tony’s individualefforttofeedfamiliesinneedhas now grown into theAnthony RobbinsFoundation’s InternationalBasket Brigade, providingbaskets of food and

household items for morethan 2 million peopleannually incountriesallovertheworld.

GLOBALYOUTHLEADERSHIPSUMMIT

The Anthony Robbins

Foundation Global YouthLeadershipSummit is a five-day program that providesparticipants aged 14 to 17withanenvironmentdesignedtoboost them into leadershiproles that will change theirlives and communities.Global Youth LeadershipSummit’s format includessmall-group discussions,hands-on service learningexperiences, leadershipsimulation games, and

exercises designed to enablesummit participants toidentify their own particularleadershipstrengths.

THECHALLENGE

Life is a gift, and all of uswho have the ability mustremember that we have theresponsibility to give

something back.Contributions can trulymakea difference. Please join usnow and commit to helpingthose less fortunate enjoy agreaterqualityoflife.The Anthony RobbinsFoundation’s charter isfulfilled through theseprograms and others likethem. People interested inmoreinformationmaycall1-800-554-0619 or visit us

online atwww.anthonyrobbinsfoundation.org

STRONGHOLDWEALTH

MANAGEMENT

Stronghold WealthManagement LLC andStrongholdFinancialLLCareboth SEC-registeredinvestment advisors firms.

They provide fiduciaryadvisory services withcomplete transparency as thecore operating principle.They do not chargecommissions. Combinedwith extraordinary service,a personal touch, andunparalleled solutions,Stronghold seeks to helppeople across a widespectrum of investableassets, and it also providescomplimentary portfolio

analysis through itsproprietary web platform.Stronghold can be reachedat

www.StrongholdFinancial.com

ABOUTTHEANTHONYROBBINS

COMPANIES

The Anthony RobbinsCompanies (ARC) is analliance of diversified

“impact-focused”organizations dedicated toproviding extraordinaryworld-classevents,programs,products, and services thatimprovethequalityoflifeforindividuals and organizationsworldwide. Founded byAmerica’s number one lifeand business strategist, TonyRobbins, ARC is composedof more than a dozencompanies with combinedrevenue exceeding $5 billion

a year. While diverse incharacterization and businesslines,allARCcompaniesarealigned in the mission ofhuman, business, andfinancialelevation.

HUMANELEVATIONCOMPANIES

ROBBINSRESEARCH

INTERNATIONAL(RRI)

Reaching intomore than100countries, RRI conductspublicandcorporateseminarsall over the world on topicsranging from peakperformance and lifetransformation to businessgrowthandfinancialmastery.Tony Robbins conducts hislive Unleash the PowerWithin events withtranslation in sevenlanguages. One of the mostsought-after experiences

offered by RRI is Robbins’syear-round MasteryUniversity, BusinessMastery, and PlatinumPartner programs. Based on38 years of modeling themostsuccessfulindividualsinthe world of business andpeak performance, thesecourses offer specificbreakthrough strategies andacourse of work that helpindividuals transform theirlives and help business

owners to grow theircompanies 30% to 130%within the first 12 months.RRI offers a variety ofindividual and total-immersion coachingexperiences that helpindividuals and organizationscreate breakthrough results.RRI has been honored toengage with some of theworld’s most extraordinaryindividualsthroughitsevents,programs, and coaching:

PresidentBillClinton,SerenaWilliams, Hugh Jackman,Oprah Winfrey, MelissaEtheridge, Quincy Jones,Anthony Hopkins, Pat Riley,Usher,Pitbull,MarkBurnett,Brett Ratner, Derek Hough,andDonnaKaran, andmanyprofessional sports teams,rangingfromtheNBAto theNFL, have enjoyed theimpact of Tony Robbins’swork.

NAMALERESORTANDSPA

This exclusive South Pacificresort and spa has served asTony Robbins’s personalescape for more than 25

years. Encircled by a naturalcoral reef and crystal-clearturquoise waters, the idyllicdestination promises to relaxand romance its guests, whoflock fromaround theworld.In 2013 Oprah selectedNamale as the number oneplace to go in the world.Visitors choose this 500-acreprivateislandparadiseto escape and de-stress,pampered by the uniquecombinationofserenityand

excitement. Namale isconsistently ranked amongthe top ten resort spas intheentireSouthPacific,andits intimate charmplaces itamong the top fivehoneymoon resorts in theworld. A tropical paradisewith three miles of oceanfrontage, tropical rainforests,waterfalls, and extraordinarydiving and snorkeling sights,NamaleResortandSpahostsonly 20 couples at a time,

with over 125 staff to servethem.Nowondersomeoftheworld’s most influentialexecutives and celebritieshave found their bliss atNamale, including actorsRussell Crowe, EdwardNorton, Anthony Hopkins,andMegRyan;entrepreneurJeffBezos;producerQuincyJones; fashion icon DonnaKaran; and NBA coachPatRiley—just to name a few.The resort’sworld-class staff

is committed to providingguests with an authenticFijian vacation experience.Namale is where everyrequest ismet, everywant isanticipated, and everyexpectation is exceeded. Formore information, guests cancall USA (1-800-727-3454),international (1-858-381-5177), or visit online atwww.namalefiji.com.

ROBBINS-MADANES:CENTERFORSTRATEGIC

INTERVENTION

Anthony Robbins and CloéMadanes joined forces totrain therapists andprofessional coaches in themost effective and integratedtools for creating personal,family, and organizationalbreakthroughs. Together theyhave trained more than15,000therapistsandcoachesworldwide. Therapists aretrained in the exactmethodology of TonyRobbins intervention

strategies and are tested foreffectiveness over the courseof one year—or, for moreadvanced mentoring, threeyears.Thecenter’smissionisto find solutions tointerpersonal conflicts, toprevent violence, and tocontributetothecreationofamore cohesive and civilcommunity. A strategicinterventionist navigates avariety of scenarios rangingfrom individual problems to

those of the family, the peergroup, the organization, andthelargersocialsystem.

www.robbinsmadanes.com

FORTUNE

PRACTICEMANAGEMENT

Fortune Management is thenation’s leading practicemanagement company.Combining the expertise ofTony Robbins with thebusiness expertise of FortuneManagement, clients learnhow to enhance theirpractice’s brand, increasereferral-based business,

increase patient volume andretention, and stay ahead ofthe competition. Fortuneprovides an unparalleledcombination of coaching,consulting, and trainingthroughcustomizedseminars,personal coaching, andsupport systems designed toenrich the professional,personal, and financial livesof health care practitioners.Our mission is to provideprofessionalhealthcareteams

with management expertise,resources, and solutions thatwill significantly improvetheirpractice.

www.fortunemgmt.com

UNLIMITEDTOMORROW

Unlimited Tomorrow, atechnology and innovationcompany founded by EastonLaChappelle, producesproducts that enable humansto do the impossible. Thecompanycurrentlyfocusesonconstructing affordable,lightweight,low-profile“exo-suits” and “exoskeletons”(robotic suit arms and legs).These suits will make itpossible for paralyzedindividuals towalk again.At

age 14, founder EastonLaChappelle made his firstrobotic hand built fromLegos, fishing wire, andelectrical tubing. With hisgradual improvement, thehand turned into an arm, andthen advanced to a 3-D-printed inventionoperatedbythemind.After an encounteratasciencefairwithaseven-year-oldgirlwhoseprostheticarmcost$80,000(andwouldneedtobereplacedwhenshe

outgrewit),LaChappellewasinspired to turnhisprototypeintoapracticalandaffordabledevice. Not only were hisdesigns amazingly effective,but also they have reducedthe cost to less than $1,000.President Barack Obamainvited LaChappelle to theWhite House and shookhands with one of his arms.He has traveled the worldspreading themessage of theunlimited tomorrow we all

have available to us,includingaTEDTalk.EastonhasevenworkedatNASAonthe Robonaut project,developing a new teleroboticinterface.

www.unlimitedtomorrow.com

BUSINESSANDFINANCIALELEVATION

COMPANIES

CLOUDCOACHINGINTERNATIONAL

CloudCoaching Internationalis a dynamic, award-winningbehavioral integration

service.We utilize the cloudto drive maximum targeted-sales increases withsustainable growth forenterprise-levelorganizations. By combiningthemosteffectiveCRMtoolswith optimized sales andsales management processes,we insure rapid andsustainablesalesperformanceimprovement. In 2013CloudCoaching InternationalwasthewinnerofElearning!

magazine’s “Best ofElearning! Award for SalesTraining.” We have servedmore than 50% of Fortune500 companies and haveover three decades ofprovenexperience.

www.CloudCoachingInternational.com

ADVISORSEXCEL

At Advisors Excel, launchedin2005,ourmissionistoaddunending value to the topindependent financialadvisors we serve across all50 states. With a focus onretirement income planning,ARC has partnered withAdvisors Excel to build andpromote additional productsand services that will help

create a guaranteed lifetimeincome plan for the millionsof Americans who haveuncertainty regarding theirretirement income future.Today Advisors Excel hasgrowntobecomethenation’slargestannuitywholesaler.

www.AdvisorsExcel.com

LIFETIMEINCOME

Lifetime Income, anadditional joint venture withAdvisors Excel, is a trustedsourceforhelpingindividualscreate and access apersonalized guaranteedlifetime income plan. Byusing the power ofguaranteed income annuities—andnewformsoflongevityinsurance—theonline systemwill help individualsformulate a “personalpension” plan that best fits

their goals and source thehighest income payoutsavailable. Lifetime Incomehas a network of over 500retirement income specialistsacrossall50states.

www.LifetimeIncome.com

AMERICA’SBEST401K

America’s Best 401k (AB401k) is a revolutionarycompany that is disruptingthe status quo of high-cost401(k) plans that plague thevast majority of Americanbusinesses, their employees,and their respective families.America’s Best 401kcombinesexceptionalvalue,

high-touch service, ultra-low-cost investment options(index funds), and astraightforward andtransparent fee structure.Wealso provide employerfiduciary protection, all ofwhich are strategicallycombined to create anunparalleled and cost-efficientsolution.

www.americasbest401k.com

MYPOWERCFO

Formore than threedecades,Tony Robbins has helpedbusiness owners maximizegrowth and save costs.RecentlyARCpartneredwithsome of the most reputableglobal accounting firms toprovide virtual CFO services

fora fractionof the full-timeequivalent cost.MyPowerCFOwascreatedtohelp companies maximizeprofitability, expose cash“leaks,” and revealinefficienciesinordertotaketheimmediatestepstorectifytheir challenges (along withthe assistance of aprofessional). MyPowerCFOoffers a free tax-efficiencyanalysis forcompanies in theUnited States, United

Kingdom,andAustralia.

www.MyPowerCFO.com

MyPowerCFO PartnersInclude

MARCUMLLP

Established in1951,MarcumLLP is one of the largestindependent publicaccounting and advisoryservices firms in the UnitedStates. Ranked 15thnationally, Marcum LLP haspartneredwithTonyRobbinstooffertheresourcesof1,300professionals, including over160 partners in 23 officesthroughout theUnitedStates,Grand Cayman, and China.Headquartered in New York

City,thefirm’spresencerunsdeep,withfull-serviceofficeslocated strategically inmajorbusinessmarkets.

www.MarcumLLP.com

HWFISHER&COMPANY

HW Fisher & Company,Tony Robbins’s UK partner,

is a commercially astuteLondon-based organizationwith a personal, partner-ledservice aimed atentrepreneurial small andmedium enterprises (SMEs),large corporates, and high-net-worth individuals.Foundedin1933,thepracticeis composed of 29 partnersand approximately 260 staff,supplyinga rangeofservicesspanning audit, corporatetaxation, private client

services, VAT, businessrecovery, and forensicaccounting.

www.hwfisher.co.uk

HALLCHADWICK

Hall Chadwick is TonyRobbins’s Australian partner

and the fifth largestaccounting group inAustralia, servicingclients inevery major capital city.Since 1886, Hall Chadwickhas provided leading-edgesolutions,andhasanenviablereputation for its customerservice. Hall Chadwick isalso a member of the AGNInternational accountinggroup, an association ofindependentaccountingfirmsfrom around the world. The

AGN network has aninternational presencerepresentedbymorethan500offices in more than 83countries,withatotalofmorethan 9,500 partners and staffworldwide.

www.hallchadwick.com.au

ABOUTTHEAUTHOR

TONY ROBBINS is abestselling author,

entrepreneur, andphilanthropist.Formore than37 years, millions of peoplehave enjoyed the warmth,humor, and thetransformational power ofMr. Robbins’s business andpersonaldevelopmentevents.Heis thenation’s#1lifeandbusiness strategist. He’scalled upon to consult andcoach with some of theworld’s finest athletes,entertainers, Fortune 500

CEOs,andevenpresidentsofnations.Robbins is a founderofor

partner inmore than adozencompanies in industries asdiverse as a 5-star Fijianisland resort to custom 3D-printed prosthetic limbs.Through the AnthonyRobbins Foundation and hismatchingfunds,Tonyfeeds4millionpeopleperyear in56countries. He has alsoinitiated programs in more

than 1,500 schools, 700prisons, and 50,000 serviceorganizationsandshelters.HelivesinPalmBeach,Florida.

MEETTHEAUTHOR,WATCHVIDEOSANDMOREAT

SimonandSchuster.comauthors.simonandschuster.com/Tony-

Robbins

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ANOTEONSOURCES

Since this book expanded tomorethan600pages,inorderto be efficient on additionalspace, we put thebibliography online. To

access it simply go totonyrobbins.com/masterthegame

INDEX

absolutefinancialfreedom,211,223–25,257–58

abundance,572Abundance(Diamandis),555,572accreditedinvestors,286,447achievement,227–30,246action,228,582–86,616Adams,HunterDoherty“Patch,”583addedvalue,193,261,262–63,265,

268,269,272,343,595,611advantage,illusionof,232–33adventure:

choosing,234–37lifeas,291

AdvisorsExcel,431–35Aerosmith,15Aesop,71Agassiz,JeanLouis,56agriculture,andtechnology,264Aknin,Lara,590Aldrin,Buzz,78Ali,Muhammad,42Allen,James,19Allen,Woody,52AllSeasonsstrategy,306,369–92,

393–405,613balancedportfolio,381–84,398cautionsfor,402

environmentsin,386–88expectationsfor,397and401(k),402,403–4andinterestrates,398–99long-termapproachof,397maximizingreturnsin,379nameof,390percentages(allocation),333,

378,390–91performanceof,392,393–96,

398–99,404,405questionson,376–78realityof,399–402,405riskvs.balance,382–83simplicityin,388videoabout,404–5

AllWeatherportfolio,100–101,377–78,387–89

andAllSeasons,390;seealso

AllSeasonsstrategyÁlvarez,Saúl“Canelo,”53Amanpour,Christiane,587AmericaMakes,561AmericanDream,276America’sBest401k,68,143,144–45,

146–48,404FeeChecker,145,148,151–52,

181Anderson,Chris,559Andretti,Mario,247Angelou,Maya,601annuities,165–71,419–41

advancedlifedeferredannuity,427

“annuicide,”416–17capon,429,439deathbenefitguarantee,169,171deferred,420,423,427,428

emergencywithdrawals,438–39fees,168–69,308,434,439fixeddeferredannuity,425,426–

27fixedindexedannuities(FIAs),

170,179,423,427–31,435–37

guaranteedlifetimeincomestreamfrom,166,170,179,181,308,418,421,422,424,430–31,436,438,448

immediate,420–22incomeamountfrom,440ofinsurancecompanies,167andlifeincomeplan,416–18,

419–41linkedtomarketreturns,420andmortalityrates,433questionsabout,438–41

safetyof,424inSecurity/PeaceofMind

Bucket,308,438surrendercharges,169,171taxbenefitsof,168,235,4401035exchange,171variable,168,181,308,424–25

AnthonyRobbinsFoundation,26,593nanticipation,powerof,30Apple,297,318,458,461Arendt,Hannah,343Ariely,Dan,38–39,40,590–91,601Armstrong,Neil,78Arnott,Robert,95artificialintelligence(AI),569,570AsaManThinketh(Allen),19assetallocation,45,170,282–83,295–

320artof,314–15

Bogle’sviewson,482,483–84Dalio’sideasof,seeDalio,Raydefinitionof,296anddiversification,296,297–

300,355,363,364,378,472–73,482

DreamBucket,346,347,613Faber’sviewson,526–27factorsin,331–32,337and401(k)s,163importanceof,295inthepast,330payoffof,315andrebalancing,359–62,363andretirement,159andrisk,159,382–83Risk/GrowthBucket,326,336–

39,612Security/PeaceofMindBucket,

302,310,328–29,338,612Swenson’sportfolio,326–31,

339Swenson’sYalemodel,276,469,

471–74wheretoputmymoney,292

Atala,Anthony,410n,568AutomaticMillionaire,The(Bach),254averagereturns,116–18,119AwakentheGiantWithin(Robbins),18Babbel,David,159–61,166,397,416,

421,429Bach,David,254Bacon,SirFrancis,3Badylak,Stephen,568bankaccounts,302Barron’sRoundtable,524

Basinger,Kim,6,52,61Bass,J.Kyle,10,173–75,281,455,

456,514–22,514BeatingtheDow(O’Higgins),398Bebchuk,Lucian,461Beecher,HenryWard,24behavioraleconomics,38,301Benartzi,Shlomo,37,66–67benchmarks,146–47Benioff,Marc,15,173,599Berg,Joel,597BerkshireHathaway,459,486Bernanke,Ben,165–66,518,520Berra,Yogi,352Biggs,Barton,96billionairesvs.millionaires,208–10BlackMondaycrash(1987),15,46–47,

350,488,493Blakely,Sara,270–71,485

Bogle,JohnC.,454,457,476onactivevs.passive

management,100,165,533–34

onannuities,168onassetallocation,482,483–84author’sinterviewwith,47,85,

321,411–12,476–84onbonds,336ondollar-costaveraging,355onETFs,322onfees,107,110,274andindexfunds,97,320,419–

20,473,487oninternationalportfolios,328onmutualfunds,102,116,118,

144,157,533–34andVanguard,10,95,97,144,

328,411

Bohr,Niels,352Bolt,Usain,95bonds,315–20

corporate,318–19cumulativelossesin,383anddeflation,386emerging-market,527foreigngovernment,317,319guaranteedrateofreturnin,306high-yield(junk),318,323indexfunds,305,319,320andinterestrates,158,304,315investingyouragein,336municipal,319–20mutualfunds,158pricefluctuationsin,305ratingsystemfor,318andsafety,158inSecurity/PeaceofMind

Bucket,303–5,306,315–20andstocks,158,160,329–30T-bills,316T-bonds,316TIPS,316–17T-notes,316USTreasuries,305,316–18,

328–29,400,473,474Bono,596Branson,Richard,172,173,190,208,

530break-evenpoint,401breakthroughs,184–85

compounding,192–93creating,186–99instory,188–95instrategy,187–88,199inyourstate,196–99

BridgewaterAssociates,21,99,374–

75,397,496–97Brin,Sergey,377brokers,86–87,112,121–37

discountbrokerages,530Enronpromotedby,133–34andfiduciaries,126–28,137,180salescharge(load)paidto,115suitabilitystandard,125–26

Brookner,Anita,314Brown,Jeffrey,90–91,135,152–53,

162,163,407,417–18,424Buffett,Warren,10,34,102,459,485

author’sinterviewwith,454,485–87

onbonds,158buyinggreatcompanies,486,

491,492,536andCoca-Cola,460andcompounding,49

anddollar-costaveraging,358andGivingPledge,392,512,595onindexfunds,92,95,487oninvestinginoneself,262onmarketfluctuations,351onrisk,89rulesofinvesting,173,300,373andToday,270,485

BusinessMastery,241–42businessowners:

andautomaticsavings,65,69cash-balanceplans,155and401(k)s,146–48,152,153,

181Butchervs.theDietitian,The

(YouTube),127–28,180California,taxesin,288–89

Callahan,Patrick,499Callanan,David,431callandputoptions,325Campbell,Joseph,48Canada,strongbanksin,177,310Carnegie,Andrew,19,447,594–95Carnegie,Dale,262carownership,252–53Caruso,Bob,598cash-backwebsites,255–56cash-balance(CB)plans,155,156cash/cashequivalents,302–3

holdingtoomuchin,306tax-freegrowthof,442–43

cashdrag,115Castro,Julian,485causationvs.correlation,384CDs:

market-linked,178–79,305,306

inSecurity/PeaceofMindBucket,305,306

certainty/comfort,75,206Chambers,JohnT.,530Chantal(Rwandanorphan),592–93childslavery,600China,deathbyathousandcutsin,109Churchill,Winston,188,244,457,588clarity,aspower,611Clason,GeorgeSamuel,69Clinton,Bill,553Cloonan,James,87clothing,breathable,567cloudcomputing,xxviiClubofRome,556Coca-Cola,460,566Coelho,Paulo,225cognitiveillusions,38–39cognitivelimitations,41

cognitiveunderstanding,42collectibles,324commodities,324communityservice,342–43complexity,41,206compounding,35–36,49–52,58,256,

364fees,106–9,479financialbreakthroughof,192–

93ruleof72in,283savings,60,62–65,238,280andtaxes,235,277–78,279,

445–46andtime,311,312

Connally,JohnB.,372connection,77consumerspending,213,562contrast,245

contribution,77–78,266–67,585control,illusionof,422,580Coppola,FrancisFord,6,52–53,60corporatebonds,318–19correlationvs.causation,384cortisol,197CostaRica,movingto,291costcalculator,111creativity,193,266–67credit-defaultobligations(CDOs),325criticalmass,33,58,89,90,408Cuban,Mark,281Cuddy,Amy,197Cunningham,Keith,133–34currencies,324,328,353currencyrisk,328currencyswap,469Curry,Ann,350

DalaiLama574–75Dalio,Ray,10,21–24,25,30,41,84,

94,106,496onactivemanagement,165andAllSeasons/AllWeather,

306,370,371–72,374–92,404,448,613

andassetallocation,101,163,282–83,296,298,299,331,379,383–84,388,389,412,494

author’sinterviewwith,47,448,455,496–97

andBridgewater,21,99,374–75,397,496–97

andfuturescontract,374HowtheEconomicMachine

Works,380andMcDonald’s,373–74portfolioof,23,101,372–73,

390–91,437andPureAlpha,375–76,397andRisk/Reward,173andvolatility,301,321

Damon,Matt,17deathbyathousandcuts,109,122debt,239–40,275decisions:

financial,295investment,295,364ourlivesdeterminedby,244,246

definedbenefitplans,155deflation,329,385,386,526demographicinevitability,285demographicwave,562denial,211

depreciation,285–86depression,581–82,594Diamandis,Peter,47,551,554–55,564,

572DiCaprio,Leonardo,15DimensionalFunds,113,143Dimon,Jamie,499discipline,199,543Disraeli,Benjamin,248,573diversification,325–26,527–28

andassetallocation,296,297–300,355,363,364,378,472–73,482

andassetclasses,355,363,383,473,490–91

andindexfunds,49,357,473,483

andlong-terminvestment,474andreturns,276,282,297

andrisk/reward,297,300,379,383,456,472–73

andvolatility,104Dodd,Chris,122Dodd-FrankWallStreetReformand

ConsumerProtectionAct(2009),122–23,135

dollar-costaveraging,355–59,363,365–66,613

dollar-weightedreturns,118–19,121DowJonesIndustrialAverage,101DreamBucket,207,339,340–47,363

assetallocation,346,347,613andcommunityservice,342–43filling,343–44,613andgifts,341–42andlifestyle,341listyourdreams,345stateyourgoals,345

strategicsplurgesin,340Dunn,Elizabeth,589,601DutyFreeShopping(DFS),72Earhart,Amelia,63Earnhardt,DaleSr.,321earnings,andinvestment,259–72Ebates,256Edelen,Roger,114Edison,ThomasA.,19education,264,265–66

teachers,266–67effort,228EgyptianTreasurybills,319Einhorn,David,99Einstein,Albert,50,83,259,292Eisenson,Marc,251ElizabethI,queenofEngland,550

ElizabethII,queenofEngland,541emergency/protectionfund,216–17,

302emergingmarkets,100,358,473,527Emerson,RalphWaldo,19,59,219Eminem,191emotion,191,209,210,301,355,402,

582,594emotionalmastery,42empowerment,190endowmentmodel,469energypolicy,506,509,510–12,556–

57Enriquez,Juan,551,563,566Enron,133–34,162–63entrepreneurs:

andautomaticsavings,65,69cash-balanceplanfor,155and401(k)s,146–48,152,153,

181environment,investment,385–88Epictetus,37equities,322–23,329–30,473Erdoes,MaryCallahan,10,99–100,

455,498onassetallocation,296,337,504author’sinterviewwith,100,

309,337–38,498–504onleadership,501onlong-terminvestment,504onrebalancing,361onstructurednotes,309–10

Europe,economiesin,518–20Evans,Richard,114exchange-tradedfunds(ETFs),322–23execution,41,65,228,388,616expectations,334,387expenseratio,108,113

expenses,cutting,253–56Extrabux,256extracellularmatrix(ECM),568Faber,Marc,523–28,523Facebook,270failuretotry,271Fama,Eugene,98Farrell,Charlie,279fate,228–29,343fear:

ofbeingjudged,193dealingwith,544–45offailure,183–84,225,301physicaleffectsof,196oftheunknown,185,211

FederalDepositInsuranceCorporation(FDIC),178–79,302,305

FederalReserve,354,481,524,535FeeChecker,145,148,151–52,181FeedingAmerica,598,599Feeney,Chuck,72–73,595fees,87,104,236

ofannuities,168–69,308,434,439

compounding,106–9,479costcalculator,111in401(k)s,111,114,141,142,

143–46,148,151–52,181onindexfunds,112,165,278ofmutualfunds,105–15,119,

121,141,180,273,278,479nondeductible,112inpensions,86reducing,273–80andrisk/reward,177,180instructurednotes,310

Feldstein,Martin,385fiduciary,126–33

advicefrom,126,286,319,338,362

brokersvs.,126–28,137,180Butchervs.Dietitian,127–28,

180andcommissions,447criteriafor,132–33,135–36,480finding,126–27,132independent,336andstructurednotes,177–78

fiduciaryresponsibility,47050Cent,54fight-or-flightresponse,570financialadvisors,126–27financialblueprint,233–34financialcrashes,46–47,350,440–41,

488–89,493,514–15,524;seealso

financialmeltdownfinancialdreams,203–29

absolutefinancialfreedom,211,223–25,257–58

DreamBucket,207,340–47exact,realizationof,199,212–15figuringthepriceof,224financialfreedom,211,217,

220–22,292financialindependence,211,

217,218–20,292financialsecurity,211,212–17,

292financialvitality,211,217–18levelsof,203lifestyle,209–10magicof,206andmillionairesvs.billionaires,

208–10

questionsabout,206–8realpriceof,209–10ThreetoThrive,211–12,225–26andyoursubconscious,206

financialfreedom,5–6,30,70,83,211,217,220–22,249,263,292,364,600

absolutefinancialfreedom,211,223–25,257–58

financialindependence,211,217,218–20,292

financialmeltdown(2008–2009),15,16–17,18,47,71,88,98,175,264,298,299,309,313–14,330,349,378,384,397

financialmyths,83–91,364,609annuities,165–71brokers,121–37fees,105–15

401(k)s,138–56lieswetellourselves,183–99,

249mutualfunds,92–104returns,116–20risk/rewards,172–82target-datefunds,157–64

financialsecurity,211,212–17,292emergency/protectionfund,216–

17,302incomefor,215–16,407–8

financialvitality,211,217–18Fink,LaurenceD.,480firsttrustdeeds,286,312–13Fitzgerald,Peter,105fixedindexedannuities(FIAs),170,

179,423,427–31,435–37FlashBoys(Lewis),7focus,227,262,266,578–80,581,582,

583–84foodstamps,27,597foodtechnologies,566Forbes,Malcolm,340Forbes,Steve,427,454Ford,Henry,19foreigncurrencies,324,328,353foreigngovernmentbonds,317,319foreignstocks,328,473,535Foster,Cody,431–374%rule,411,413401(k)systems,138–56

America’sBest401k,68,143,144–45,146–48,181,404

andassetallocation,163benchmarkedplans,146–47businessownersresponsiblefor,

146–48,181class-actionlawsuitsabout,146

contributionlimits,156asfailedexperiment,86,110,

138–39fees,111,114,141,142,143–46,

148,151–52,181frequentlyaskedquestionsabout,

152–55in-servicedistributionof,148investmentinmutualfunds,93,

110,114,139,141,144optingoutof,148withpastemployers,154–55paytoplay,157planadministrator,111,114rollingoverintoIRAs,154–55Roth401(k),150–51,152–53,

154,235Solo401(k),153andtarget-datefunds,161

andtaxes,149–50,152,235,472403(b),472Fournier,Alan,516,517Frank,Anne,602Frank,Barney,122Frankl,Viktor,19,569,582Franklin,Benjamin,51,63,476FreedomFund,56–57,60,68,70,184,

218,230,237,364Friedman,Thomas,34frontiermarkets,100future,549–72,615futurescontract,374Gates,Bill,377,392,491–92,512,

595–96GatesFoundation,486,596Gaye,Marvin,52

genomeproject,565Ghilarducci,Teresa,86,140givingback,73–74,77–78,79–80,262,

341–43,457,494,538,585–86,589–90,594–96,601–2,605–6

GivingPledge,392,466,512,595Godfrey,Arthur,276God’shand,228–29,343gold,324,371,396,527–28GoPro,270GospelofWealth,The(Carnegie),595grace,228–29,343Graham,Benjamin,172,355,358,486gratitude,79,229,347,544–45,577,

579,585,592GreatDepression,31,310,350,369,

378GreatRecession,264Greece,economyof,518–20

GreenDay,15Gretzky,Wayne,15growth:

ashumanneed,77,585possibilityvs.probabilityof,334

Guber,Peter,244–45GunsN’Roses,20Gupta,Ajay,130–31,178–79,285,405Hammer,M.C.,52Hand,Learned,276Hannah,Jim,260happiness,233,269,343,570,574–75,

585,588–91,615HappyMoney(DunnandNorton),589,

601Harris,Dan,600Hart,Mark,456

Hastings,Reed,465Heath,DanandChip,95hedgefunds,21,95,99,101,180,306,

375Hemingway,Ernest,17HighbridgeCapitalManagement,599high-frequencytrading(HFT),7,123,

173,175,351–52HighTower,25–26,128high-yieldbonds,318,323Hill,Napoleon,19,567Hillary,Edmund,406Hiltonsmith,Robert,108–9history,350,481Holmes,OliverWendellSr.,14home:

averagepriceof,252hedgeagainstinflation,308investmentin,237,249,307

mortgagepaymentson,249–51,385

inSecurity/PeaceofMindBucket,306–8

taxadvantagein,308housingcrash(2008),514–15,516–18HowtheEconomicMachineWorks

(Dalio),380HowtoLiewithStatistics(Huff),116Huff,Darrell,116Huffington,Arianna,594Hulbert,Mark,400–401humanneeds,74–78

certainty/comfort,75,206contribution,77–78,266–67,585growth,77,585loveandconnection,77significance,76–77,204uncertainty/variety,75

Hunt,Bunker,490Icahn,Carl,10,47,360,454,458–67,458

IcahnEnterprises(IEP),461,465–67ignorance,85immediategratification,66impulsepurchases,255income:

accessto,332actual,274–75consistent,407forfinancialsecurity,215–16,

407–8lifetimeincomeplan,46,613–14minimumwage,263asoutcome,407,419spendable,444–45

stagnant,263incomeinsurance,407–8,415–16,427,

437–38,613–14indexfunds,93–95,103,279,486–87

bond,305,319,320diversificationin,49,357,473,

483fees,112,165,278low-cost,92,94,101,106,112,

113,163,180,274,326,472passivelymanaged,97,472,533replacingmutualfundswith,

113,165indexing(passiveinvesting),97indexingplan,104inertia,40inflation,329,386,413,474,525–26informationoverload,41in-servicedistribution,148

InsideJob(documentary),17inspiration,245insuranceguarantyassociations,408n,

424interestrates,235n,264,310,353,411

andAllSeasons,398–99andbonds,158,304,315andCDs,178long(duration)rates,398

InternationalBasketBrigades,74internetbubble,349internetexpansion,560–61investmentadvisor,registered,112investmentportfolio,seeportfolioinvestments:

accumulationphase,89,90automatedsystemof,358–59,

364withbrokers,86–87

capitalgainson,278coreconceptof,90criticalmassof,33decumulationphase,89,90earningsand,259–72environmentfor,385–88andfees,87,105–15,534fixed-income(bonds),304goalof,98long-term,93,104,329–30,351,

474,504lump-sum,365–66mistakesin,297offer,84passive(indexing),97patternsof,359,404purposeof,70,338,406–7inrealestate,283–86,308,323rebalancing,359–62,363,393n,

402,613returnon,116–20,238,278,

281–86savingsand,58,90,247–58,292secure,301surprisesin,387timehorizonfor,283whatgoesupwillcomedown,

298–99inyourself,260–66

Investopedia,84ninvestors:

accredited,286,447becoming,6–7,230,292expectationsof,387individual,380womenas,334

IRAs,93,110,148andannuities,439

401(k)srolledoverinto,154–55RothIRA,150,153–54,236,

278,442andtaxes,235,236

irrationalexuberance,334–35It’sYourMoney,234Jackman,Hugh,15jackpots,343Jackson,Michael,53Jagger,Mick,34Japan,economyof,520–21JhoonRhee,42–43Jobs,Steve,287,594Johnson,Theodore,60,62,67,192JohnTempletonFoundation,62Jones,PaulTudor,15–16,30,99,455,488

onassetallocation,296,493–94onasymmetricrisk/reward,173,

281–82,493author’sinterviewwith,46–47,

456,488–95andBlackMonday,15,46–47,

350,488,493ondiversification,490–91marketforecasting,352,353,

354,489,492andRobinHoodFoundation,16,

489J.P.Morgan,309,498–99,501–2junkbonds,318,323Kadlec,Gregory,114Kamen,Dean,566Karp,David,125–26

Kay,Alan,551Keillor,Garrison,334Kennedy,JohnF.,19Ki-hoon,Kim,266–67King,MartinLutherJr.,586Kissinger,HenryA.,230knowledge,aspotentialpower,65Kodak,269,318Krom,Erik,117Kurzweil,Ray,47,410,421,551,557,

563–67,568–69,571LaborDepartment,U.S.(DOL),146–

47,152LaChappelle,Easton,557–59LakeWobegonEffect,334Lao-Tzu,26,29LasVegasSandsCorp.,62

Lauer,Matt,270,349–50,485Lawrence,T.E.,203leadership,501Leape,Jim,556learnedhelplessness,180Lee,Bruce,42LehmanBrothers,378Lewis,JT,591–93Lewis,Michael,7LIBOR(LondonInterbankOffered

Rates),123,516lieswetellourselves,183–99,249

andbreakthroughs,184–99andfearoffailure,183–84andfearofunknown,185

life:asadventure,291artificial,566balancein,258,577

decisionsin,244,246asinformationtechnology,566qualityof,37,292,538,576,

577,580–82,583raceof,233youascreatorof,226,229,246yourstagein,331–32

lifecyclefunds,157lifeexpectancy,31–32,409,538lifeinsurance:

borrowingfrom,446–47deathbenefitproceedsfrom,447PPLI,443–48inSecurity/PeaceofMind

Bucket,309lifestyle,209–10,218

changing,287–92,612andDreamBucket,341movingtoanotherplace,288–91

437LifetimeIncomeplan,46,170–71,308,

406–18,613–14annuities,416–18,419–41incomeinsurance,415–16John’scase,412–14Susan’scase,414–16

Lincoln,Abraham,19liquidity,302,331Livermore,Jesse,525livingtrust,448–49LLCoolJ,15Lombardi,Vince,51longevityinsurance,426–27“lostdecade,”107,357,366,396lottery:

inretirement,412spendingmoneyon,37,334

loveandconnection,77

luck,228–29,343,412Lynch,Peter,354,400Magellanfund,400MakerRevolution,559–61Malkiel,Burton,49–52,59,96–97,326,

354,356–58oncompounding,50–52ondiversification,325ondollar-costaveraging,355,

358,365,366andindexfunds,49,97onrebalancing,359,361ontax-lossharvesting,362

Mallory,George,406,409MarcusAurelius,381marketing,85,97,102markettiming,97,296

Markowitz,Harry,297,379,472Marley,Bob,232mastery:

executionas,65levelsof,42

Mayweather,Floyd“Money”Jr.,53–54,210

McCarty,Oseola,60–61,62,63McDonald’s,373–74McGonigal,Kelly,190–99meaning,575,580–82MeatLoaf,52Medicare/Medicaid,149Mellon,Andrew,315Merckle,Adolf,66,71–72,73Metallica,314MFGlobal,123Microsoft,377millionairesvs.billionaires,208–10

minimumwage,263mobmentality,348–49momentumtrading,325money:

asabstractconcept,3–4compounding,35–36,49–52,58,

60,62–65,256,364controlof,14criticalmassof,33,58,89,90,

408doubling,283,284emergency/protectionfund,216–

17,302andemotion,209,210andfinancialfreedom,5–6andhappiness,588–91lossof,336loveof,asrootofevil,195tomakemoney,192

masteryof,6,71nestegg,58,257andpower,3asreflectionofcreativity,193forretirement,32,210–11spendingplan,253–56astool,3tradingtimefor,54whatyouearnvs.whatyoukeep,

273wheretoput,seeassetallocationworryabout,190–91

Moneyball,65Moneychimp,119moneymachine,184,192,230,254

savingsas,55–70moneymarketdepositaccounts,303moneymarketfunds,303moneymasters:

advicefrom,455–57author’sinterviewswith,453–55

moneypass,333MoneyPowerPrinciples,57,230

1.Knowtherules,85,609–102.Yougetwhatyoutolerate,1553.Prepayyourmortgage,251–524.Taxefficiency,277

monthlyoverhead,215–16Moore’slaw,564Morningstar,102mortalityexpense,169mortgage-backedsecurities,517mortgageloans,249–51,385

intereston,250prepaymentof,251–52trustdeeds,313

mortgagepool,517Moser,Ashley,558–59

motivationalbias,333–34Mott,Jim,248MountEverest,406moving:

toanothercountry,290–91toanotherstate,288–90

Mr.Rebates,256multitasking,267–69municipalbonds,319–20Munnell,Alicia,139–40,308,427Murdoch,Rupert,83mutualfunds,92–104

accountfee,115activelymanaged,93,95,100,

110,124,165,479–80,502andannuities,168,424–25associatedcostsof,112averagereturns,116–18bond,158

cashdrag,115costcalculator,111deferredsalescharge,115dollar-weightedreturnon,118–

19exchangefee,115expenseratio,108,113failuretobeatthemarket,93–94,

96,101,106feesof,105–15,119,121,141,

180,273,278,479and401(k)s,93,110,114,139,

141,144high-cost,85,105,112indexfunds,94moneymarketfunds,303noload,108offer,84options,163

paytoplay,144,157promiseofprotectionin,98purchasefee,115ratingsof,92,102–3redemptionfee,115retirementaccountsin,93,110,

114,141returnsoninvestment,116–19,

400salescharge(load),115soft-dollarcosts,114–15asstackeddeck,88stock-picking,119,180andsurvivorshipbias,470taxcosts,111,114,119,279,

472as$13trillionlie,93,97time-weightedreturns,118–19transactioncosts,114

turnoverin,279–80NamaleResortandSpa,207,341nanotechnology,562,567NapoléonIII,555NASA,557,561Nash,Ogden,65NationalAssociationofPersonal

FinancialAdvisors(NAPFA),132nationaldebt,149naturalresources,556NeckerIsland,208Nelson,Willie,52,61,341nestegg,58,257Netflix,465–66Nixon,RichardM.,370–71Nixonrally,371–72Norton,Michael,589,601

NotesfromaFriend(Robbins),597–98numbers:

offbase,240–41“real,”238,364

Obama,Barack,208,560Oduyoye,Darin,499–500O’Higgins,Michael,398oil,506,509,510–11,556–57onlinerewardsprograms,255–56OPEC,506,511opportunity,269opticalillusions,38–39organdonation,39–40O’Rielly,William,115Orman,Suze,254Page,Larry,377

PalmBeach,Florida,289–90passion,573–87passiveinvesting(indexing),97paycheck,automaticdeductionsfrom,

64paytoplay,144,157pennywisdom,63pensions,34–35,409

cash-balanceplans,155,156definedbenefitplans,155do-it-yourself,86hiddenfeesin,86inSecurity/PeaceofMind

Bucket,308PersonalFund,111PersonalPower(Robbins),xxviPeter,Irene,297philanthropy,392,457,466,486,489,

494,538,595–96,601;seealso

givingbackphotography,269–70physicalmastery,42physiology,changing,196–99Pickens,T.Boone,47,456,505–13,505,596

Pitbull,15Pitt,Brad,65pivot,265plan:

building,206,230–46,247choosingyouradventure,234–37financialblueprint,233–34illusionofadvantage,232–33latetotheparty,242–44playingyourownhand,231–32proven,187ratesofreturnfor,235savingsasfoundationof,56–57

speedingup,seespeedituptimelinefor,292toogoodtobetrue,240–42

PlatinumPartners,62,350–51,509populationgrowth,555–56portfolio,23,101

AllWeather,seeAllSeasonsstrategy;AllWeatherportfolio

assetallocationin,seeassetallocation

balanced,381–82,384,398,412diversityin,seediversificationrebalancing,358,359–62,363,

393n,402,61360/40,399seealsoinvestments

portfoliotheory,297,379,469possibilities,245

posture,improving,197poverty,596–98,599Powell,Colin,xxviiPreisano,Michael,115presentbias,66priming,584–85Prince,Bob,387privateplacementlifeinsurance(PPLI),

443–48accessingmoneyin,446–47investmentmanagement,446

probabilities,361probate,avoiding,448ProtégéPartners,95,487PureAlpha,375–76,397Qantas,318qualityoflife,37,292,538,576,577,

580–82,583questions,wordingof,40Quinn,JaneBryant,92Ramsey,Dave,254RandomWalkDownWallStreet,A

(Malkiel),49,96–97Rattner,Steven,550realestate:

andfinancialmeltdown,313–14,514–15,516–18

firsttrustdeeds,286,312–13investmentin,283–86,308,323residentialrealestateloan,312–

14realestateinvestmenttrusts(REITs),

286,323,328,473rebalancing,358,359–62,363,393n,

402,613redemptionfee,115Redstone,Sumner,34registeredinvestmentadvisor(RIA),

126repetition,42residentialrealestateloan,312–14retirement:

automaticsavingsfor,64–65beingunpreparedfor,90–91contributionlimits,156financialadvisorsfor,126–27401(k)s,see401(k)sindividualmanagementof,140inertiainplanningfor,40investmentinmutualfunds,93,

110,114,141IRAs,93,110,148moneyneededfor,32,210–11

andmovingtoanotherplace,288outlivingyourmoneyin,32,421pensions,34–35,86qualityoflifein,37,538savingfor,37sequenceofreturnsin,412andSocialSecurity,31–32,34andtarget-datefunds,158,159,

162–63andtechnology,410

retirementcommunities,investmentin,284–86,308

RetirementSavingsDrain,The(Hiltonsmith),109

retooling,264,265–66returnoninvestment,116–20,281–86

actualreturns,119,414assetallocation,282–83asymmetricrisk/reward,281–82

averagereturns,116–18,119,415

diversification,276,282,297dollar-weightedreturns,118–19,

121doublingyourmoney,283,284maximizing,379sequenceofreturns,412time-weightedreturns,118–19,

121reversiontothemean,321,471RichestManinBabylon,The(Clason),

69Riley,Theresa,597riskaversion,400–401Risk/GrowthBucket,321–39

andassetallocation,326,336–39,612

beingpreparedtolose,321

collectibles,324commodities,324currencies,324diversification,325–26equities,322–23factorstoconsider,331–36high-yield(junk)bonds,323realestate,323structurednotes,324–25

risklessreturn,174RiskParity,390risk/reward,172–82

andassetallocation,159,326,336–39,383

asymmetric,25,173,174,180,281–82,283,456,486,493–94,515–16,535–36

andbalance,382–83,390diversification,297,300,379,

383,456,472–73market-linkedCDs,178–79markettiming,296Risk/GrowthBucket,321–39securityassubjectiveconcept,

314–15Security/PeaceofMindBucket,

301–20securityselection,296structurednotes,176–78

risktolerance,331,332–36,399–401Robbins,BonniePearl,284Robbins,Tony:

finalwordsofadvice,607interviewswithmasters,453–55;seealsospecificnames

storyofpovertytowealth,602–6RobinHoodFoundation,16,489robotics,562

Rockefeller,JohnD.,595Roethke,Theodore,557Rogoff,Kenneth,520Rohn,Jim,42,246,260–62,263,266,

585rolemodel,206RollingStones,34RomanEmpire,annuitiesin,167Roosevelt,Eleanor,212Roosevelt,FranklinD.,31,269,409Roosevelt,Theodore,19,331Roth,Marc,560Roth,William,150Roth401(k),150–51,152–53,154,235RothIRA,150,153–54,236,278,442Rothschild,Baron,456,523Rowe,Mike,265RoyalBankofCanada,177,310ruleof72,283

RutgersUniversity,risk-tolerancescale,332

Rwandanorphans,592–93S&Pindexfunds,92,93–94,95–96,98,

99,101,105,107,182,330,354,357,383,394–95,396,474

15,173SalesforceFoundation,xxviiSandyHookElementarySchool,591–

92SaveMoreTomorrow(SMarT),66–68,

151,236–37,249savings,55–70

automatic,59,64–65,69–70compounding,60,62–65,238,

280creatingwealth,64

criticalmassof,90cuttingexpenses,253–56disciplineof,543financialplanfoundedon,56–57investment,58,90,247–58,292mindful,256–58payingyourselffirst,62andpayraises,67,68percentageof,59,63,68–69rateof,37forretirement,37asultimateATM,55

Schilling,Curt,52Schwab,Charles,10,47,116,130,235,

455,529–39,529Schwed,FredJr.,124SecuritiesandExchangeCommission

(SEC),135,530security,subjectiveconceptof,314–15

Security/PeaceofMindBucket,301–20annuities,308,438assetallocation,302,310,328–

29,338,612bonds,303–5,306,315–20cash/cashequivalents,302–3CDs,305,306andcompounding,311,312home,306–8lifeinsurance,309pension,308structurednotes,309–10timeonyourside,310–15

securityselection,471,472self-employment:

andautomaticsavings,65,69andSolo401(k),153

self-esteem,580self-fulfillingprophecy,189–90

seniorhousing,investmentin,284–86,308

sequenceofreturns,412serendipity,228–29service,538–39,586,6167SimpleSteps,23,41,43–48

assetallocation,45,292,295,612–13

decidesavingspercentage,45–46,63–66,609

investlike.001%,46–47,614–15justdoit,47,615–16knowtherules,44,85,609–10lifetimeincomeplan,46,613–14makethegamewinnable,45–46,

610–12timing,348–49turndreamsintoreality,212–25

shareholders,459–60,461,464

Shiller,Robert,307,323,501,595Shoven,John,31,139significance,76–77,204SiliconValley,264,557Sinclair,Upton,12160/40,399Slaughter,Frank,183slavery,child,600smallbusiness:

andautomaticsavings,65,69cash-balanceplanfor,155and401(k)s,146–48,152,153,

181SocialSecurity,243,409,418

asgovernmentliability,149andretirement,31–32,34

SocialSecurityAct,31soft-dollartrading,114–15Solo401(k)s,153

Soros,George,385SouthKorea,educationin,266–67Spanx,271speculation,172,325speeditup,611

changeyourlife,287–92andDreamBucket,344earnandinvest,259–72getbetterreturns,281–86prepayingyourmortgage,251–

52reducefeesandtaxes,273–80saveandinvest,247–58

spendingplan,253–56SPIVA,98stablevaluefunds,160stagger(lead),232state,physical,changing,196–99stockindex,93–94

stockmarket:diversityin,104andinflation,386long-terminvestmentin,93,104,

329–30,351volatilityin,104,382,390

stockpicking,119,180,296stocks:

andbonds,158,160,329–30employer’s,162–63foreign,328,473,535poisonpills,464

story:changing,194–95,249ofempowerment,190limiting,188–95new,192powerof,188–95asself-fulfillingprophecy,189–

90tippingpointin,193

strategy:breakthroughin,187–88,199savemoreandinvestthe

difference,248–58stress:

emotional,191financial,190–91physicalsignsof,191,197

StrongholdFinancial,130–32,135,163,236,310,358,403

StrongholdWealthManagement,25,130

structurednotes,176–78,309–10,324–25

studentloans,239–40subaccounts,168,424subconsciousmind,205–6

success:cluesleftby,9,187destroyedbyemotion,355psychologyof,189andunconventionalwisdom,

384–85withoutfulfillment,575suitabilitystandard,125–26

Summers,Larry,454SunTzu,369,453survivalinstinct,570,585Swensen,David,91,468,533

onactivemanagement,165onassetallocation,296,469,

471–74author’sinterviewwith,295–96,

384,468–75onbonds,316,317,318onbrokers,125

onETFs,322–23andindexfunds,92,472onmutualfunds,102,110,470–

71,472portfolioof,326–31,337,339,

473–74onrebalancing,359onreturns,276–77onreversiontothemean,471onrisk/reward,295–96UnconventionalSuccess,469andYaleendowmentfund,10,

101,110,295,468–69Yalemodel,276,469,471–74

SwipeOut,596–600,602TaeKwonDo,42–43Takahashi,Dean,469

target-datefunds(TDFs),157–64,181glidepathsof,158low-cost,163misconceptionsabout,159,162–

64performanceof,161–62,163andretirement,158,159,162–63stablevaluefundsvs.,160

tax-advantageaccounts,235,472taxefficiency,287–89,402taxes,35–37

capitalgains,277andcompounding,235,277–78,

279,445–46deferring,235,236,278,279,

408anddepreciation,285–86andexclusionratio,421nand401(k)s,149–50,152,235,

472future,149–50,153,236andhomeownership,308income,277,290andmovingtoanotherplace,

288–90andmutualfunds,111,114,119,

279,472andplanning,235–36andPPLI,444andrebalancing,362reducing,273–80

taxlossharvesting,362–63T-bills,316T-bonds,316teachers,266–67technology,87

andagriculture,264artificialintelligence(AI),569,

570cloudcomputing,xxviicomputers“R”us,569–71disruptioncausedby,264–65email,553andenergy,556–57exponentialgrowthof,564–65food,566genomeproject,565ashiddenasset,549–53andinternetexpansion,560–61jobsin,264andlivingstandards,554–55MakerRevolution,559–61medical,410,551–52,557–59,

562,566–68nanotechnology,562,567robotics,562SwipeOut,596–600,602

3-Dprinting,410,561–62,567,568

technologywave,562–63TEDTalks,18,39,67Templeton,SirJohn,61–62,350,351,

456,524,540author’sinterviewswith,61,79,

455,540–45ongratitude,79,347,544–45,

577andphilanthropy,62,541,542,

602andsavings,62,63,542–43ontrust,542

1035exchange,171Tepper,David,263,517Teresa,Mother,541Tergesen,Anne,426–27testosterone,197,334

Thaler,Richard,66–67,249Thatcher,Margaret,69ThinkandGrowRich(Hill),19$13trillionlie,93,97Thompson,Derek,431Thoreau,HenryDavid,341,5763-Dprinting,410,561–62,567,568ThreetoThrive,211–12,225–26,292,

585TIAA-CREF,169,402,447–48,470Tier1capital,442time:

andcompounding,311,312diversifyingagainst,355valueof,287,570

time-weightedreturns,118–19,121timing,62,256,348–66

anddollar-costaveraging,355–59,363,365–66,613

gettinginfrontofatrend,270andlong-terminvesting,351market,97,296,300,354,380,

471–72mistakein,177,348andmobmentality,348–49andpatternsofinvesting,359andprobabilities,361andrebalancing,359–62andtaxlossharvesting,362–63andvolatility,363

tippingpoint,90,193TIPS(Treasuryinflation-protected

securities),305,316–17,328,329,374,473,474

tithing,602T-notes,316Today,349–50,485tontines,167

training,retoolingourskillsets,264,265

transformation,185,195Trebek,Alex,301Trichet,Jean-Claude,518,520Truckmastertruckdrivingschool,259Trump,Donald,210trust,absenceof,119–20,125,542trustdeeds,313Tubman,Harriet,345Tullis,Eli,491Turner,Ted,595TWA,318Twain,Mark,11,481,566Tyson,Mike,6,53,60uncertainty/variety,75UnconventionalSuccess(Swensen),

469unemployment,264,265unicorns,14n,99,180,331,350UnitedParcelService(UPS),60UnitedStates:

incomeladderin,263nationaldebtof,149,236stateswithnoincometax,290

UnleashthePowerWithin(UPW),15,194,559

UnlimitedPower(Robbins),18255–56Uram,Matt,551–52Usher,15,18Ustinov,Peter,549USTreasurybonds,305,316–18,328–

29,400,473,474USTreasurymoneymarketfundwith

checkingprivileges,303

V2MOMs,xxvivalue,added,193,261,262–63,265,

268,269,272,343,595,611valueinvesting,486VanguardGroup:

annuities,169,402foundingof,470,476–78indexfunds,95,97,113,143,

144,157,472mutualfunds,10,477returnaftertaxes,235target-datefund,163,181

variety/uncertainty,75Venter,Craig,566–67Vichy-Chamrond,Mariede,238VirginAirways,173volatility,104,301,321,356,358,363,

382,390wage,minimum,263Walton,Sam,76Ward,WilliamA.,54Warren,Doug,138water,potable,565–66,599–600wealth:

creationof,64finalsecretof,588–606growing,176keeping,295kindsof,576andlivingtrust,448–49secretsofultrawealthy,442–49,

614tithing,602withoutrisk,181

wealthcalculator,234,236,611WealthMasteryseminars,332–33Weissbluth,Elliot,128–31whaleblubber,556WhereAretheCustomers’Yachts?

(Schwed),124Wilde,Oscar,8,410,422Wilder,Thornton,577Williams,Serena,15Williams,Tennessee,30Williamson,Marianne,554Winfrey,Oprah,18,210,237,271,341Winters,David,460women,asinvestors,334Wonder,Stevie,564Woodman,Nick,269–70,271work:

minimumwage,263nothavingto,217,218

payraises,67,68skillsneededfor,264unemployment,264,265

workethic,509–10WorldWideFundforNature,556Wynn,Steve,15,34,76,88XPrize,47,554XS,LasVegas,76–77Yalemodel,276,469,471–74yourself,investin,260–66Yousafzai,Malala,586–87YouTube,270Zgainer,Tom,143Zweig,Jason,87

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