How To Build A Money Machine and Create Financial Freedom from Money Master The Game by Tony Robbins
How would you like to make a money machine, that makes money for you 24 hours a day, 7 days a week?
Tony Robbins has a method to do just that, and it’s in his book Money: Master the Game.
The book is actually pretty dense (641 pages!!!), and I’ve read it once and have been listening to it in the car every day.
I’m going to simplify and explain just how Tony Robbins recommends you make your money machine.
Step #1 Tap the Power – Make the Most Important Financial Decision of Your Life
What is that decision?
It’s to Pay Yourself First, and set up automatic savings into a retirement or savings account.
The earlier you start, the more you will make over time if you let it grow through compound interest.
Here’s an example:
Save $40/week and put it towards savings that grows at 8% compounded…in 40 years it will be $581,944!!!!!
So saving and putting the money aside to grow at a compounded rate will make you a large sum of money over time!
He even tells you to put the book down and start your savings plan now.
I’m doing it already.
Go ahead and do it!
Step #2 Break Free: Shattering The 9 Financial Myths
Tony Robbins spends the next section of the book destroying myths that we have about money. They include:
1) “The $13T Lie: Invest With Us, We’ll Beat The Market!” – 96% of actively managed mutual funds fail to beat the market over any sustained period of time.
2) “Our Fees? They’re a Small Price To Pay!” – The average cost (meaning fees) of owning a mutual fund is 3.17% per year!
He has an example to show that $100,000 invested at 1% Annual Fee will grow to $761,225 in 30 years, while at a 3% Annual Fee will only grow to $432,194 in the same amount of time.
3) “Our Returns? What You See Is What You Get”
Mutual Funds using Average Returns are misleading, because the Actual Return is actually lower. It’s a math trick to get you to invest in their mutual fund.
If you add up every number in the Dow Jones Industrial since 1930 and divide by 81 years, the return ‘averages’ 6.31%; however, if you do the math, you get an ‘actual’ return of 4.31%.
4) “I’m Your Broker, And I’m Here to Help”
Your advisor is paid on commissions from selling you financial products.
They get paid more for mutual funds that are more expensive for you.
A lot of them are also not educated or aware of all of the fees and costs, and may be investing in the same expensive funds themselves.
A fiduciary is not a broker, they don’t make money from commissions from financial product sales.
Get a fiduciary advisor here – https://portfoliocheckup.com/
5) “Your Retirement Is Just a 401(K) Away”
Determine how high your 401(K) fees are before you participate by going here – http://www.ShowMeTheFees.com
6) Target-Date Funds: “Just Set It And Forget It”
Target-Date Funds are ready mixed funds that get more conservative the closer you get to the retirement date of the fund.
The problem with them is that they do not guarantee you will have enough money when you retire, however, people who don’t understand them believe that they do.
7) “I Hate Annuities, And You Should Too”
Variable Annuities are not good because they add more fees on top of the fees you are already paying to mutual funds, and the death benefit they offer can be gotten more cheaply with other forms of life insurance.
There are other types of Annuities that can be very beneficial however, to creating lifetime income streams.
8) “You Gotta Take Huge Risks to Get Big Rewards”
Tony Robbins gives the example of Richard Branson and how he decided to launch Virgin Airlines.
He got an arrangement that he would purchase 5 airplanes, and if he did not make a profit, he could return the planes!
He got a Money Back Guarantee.
You don’t have to take huge risks to get big rewards!
In fact, the ultra wealthy hedge their downside, so that if their predictions don’t pan out, they don’t lose…or don’t lose much.
9) “The Lies We Tell Ourselves”
“…the ultimate thing that stops most of us from making significant progress in our lives is not somebody else’s limitations, but rather our own limiting perceptions or beliefs.”
Step #3 What’s the Price of Your Dreams? Make The Game Winnable
Next Tony Robbins has us calculate how much we need for Financial Security, Financial Vitality, Financial Independence, Financial Freedom and Absolute Financial Freedom. CLICK HERE FOR MORE DETAILS.
Then he helps us think of strategies to speed up our journey to our dreams.
My favorite is pre-paying your interest on your mortgage payment one month in advance, to cut your mortgage interest in half, and pay off a 30 year mortgage in just 15 years!
Step #4 Make the Most Important Investment Decision of Your Life
In Step #4, Tony Robbins discusses what to do with your money now that you are finally saving!
This is called Asset Allocation.
“It means dividing up your money among different classes, or types, of investments (such as stocks, bonds, commodities, or real estate) and in specific proportions that you decide in advance, according to your goals or needs, risk tolerance, and stage of life. (p. 298)”
Or in other words “What goes up will come down! Ray Dalio told me point-blank that in your lifetime “it’s almost certain that whatever you’re going to put your money in, there will come a day when you will lose fifty percent to seventy percent. Yikes! (p.301)”
So don’t put all your eggs in one basket.
He goes over various types of investments and then goes into diversification.
Types of Security Bucket Investments are:
1. Cash/Cash Equivalents
2. Bonds
3. CDs
4. Your Home
5. Your Pension
6. Annuities
7. At least one life insurance policy
8. Structured Notes (with 100% principal protection)
Investments for the Risk/Growth Bucket are:
1. Equities (Stocks)
2. High-Yield Bonds (Junk Bonds)
3. Real Estate
4. Commodities
5. Currencies
6. Collectibles
7. Structured Notes (with less than 100% principal protection)
There’s also a Dream Bucket
Save money here so you can follow your dreams!
He also discusses Dollar Cost Averaging and trying to time the market.
He shows studies that show that if you don’t have a lump sum to invest, that making regular small investments in the market will average out the ups and downs, and will mimic the overall market return (Dollar Cost Averaging).
He also shows that people are actually pretty bad at timing, so making regular investments deposits are your best bet (if you don’t have a lump sum to invest).
Step #5 Upside Without The Downside: Create a Lifetime Income Plan
Tony Robbins goes over a bunch of different diversification strategies and finally recommends one which he feels has upside without much downside: the All Seasons Portfolio designed by hedge fund manager Ray Dalio. CLICK HERE for more information on this asset allocation.
The reason he recommends it is that it has steady annual growth and when it loses, it doesn’t lose that much, so you’re less likely to bail out and sell when you shouldn’t.
After all, if you can’t stick to your diversification plan, then it’s worthless.
Then he goes into Annuities and Private Placement Life Insurance and how they can guarantee you a lifetime income stream.
He refers to them as income insurance.
Here are the different types of annuities:
1) Immediate Annuities – you have a chunk of cash, are at retirement age and want a lifetime income stream. He has an example of a 65 year old gentleman with $500,000 in savings. He annuitized it so that it would pay him $2,725/month for the rest of his life.
2) Deferred Income Annuities – You make a lump sum cash payment today, and you will have a guaranteed income that kicks on at a much later date.
3) Fixed Indexed Annuity – You make deposits and your rate of return is tied to how the stock market does, but you get a percentage of the upside, and none of the downside.
4) Hybrid Annuity (Contingent Annuity) – you keep control of your capital and invest it in low cost index funds, but if the market doesn’t do well, the insurance company will step in and begin sending guaranteed income for the remainder of your life.
He mentions that you should avoid Variable Annuities, as they are a much more expensive version of a hybrid annuity.
5) Fixed Indexed Annuity – You make deposits, and remain in control of your cash. If the market goes up, you get a percentage of that, if it goes down you lose nothing. The growth is tax deferred and grows annually. It provides income insurance, or a guaranteed income for life, when you select an optional income rider.
Private Placement Life Insurance (PPLI) is where you put money in an investment account in the funds of your choosing (so you could do the All Seasons Portfolio if you choose), however, since it’s in a life insurance wrapper you don’t pay any taxes on the money.
The insurance wrapper, if structured properly, will allow you to borrow money out without having to pay taxes. You can pay the loan back, let your investment proceeds within the account pay your loan back, or you can let the life insurance proceeds pay it back when you die.
This insurance wrapper will cost money but he gives you an example to show the difference on if you invested outside of PPLI and inside PPLI.
Example:
Healthy 45 yr old male invests 4 annual deposits of $250,000 (totaling $1 Million in 4 years). Makes 10% return and pays taxes. After 40 years he has $7 Million.
Same investment in a PPLI and he will have over $30 Million!!!!
That’s the power of tax savings and compounding!
PPLI is only available to accredited investors who make at least $200,000 a year or have a Net Worth of at least $1 Million.
However, the book mentions that there are similar life insurance strategies offered for lower income and Net Worth individuals through TIAA-CREF at http://www.tiaa-cref.org/public.
I actually called them to find out about them, however, the insurance division is temporarily not selling anymore policies. They said they don’t know when the division will be open again.
Conclusion
Tony Robbins has a lot of great information about how to Build a Money Machine and Create Financial Freedom.
I hope you enjoyed this blog post and if you want to learn more about how our family creates and pays out to our accounts monthly passive income then CLICK HERE!