Reading Tony Robbins is a little bit like watching a strip-tease. Each page a tease to something that is yet upcoming. This book says it has 7 steps to financial freedom but it's really 5 steps. And, we will spare you the strip tease here :-) Nonetheless, there are a few good points that are worth sharing:
Step 1: Commit to saving more.
Step 2: Be knowledgeable:
Lots of choices and concepts to learn and master. Investing & cash management choices, taxes/fees/inflation, risk/reward. Higher risk does not equate to more reward. Concrete actions: a) Review your investments and make a note of the investment returns you have gotten. b) Review your investments and make a note of the fees that are being levied.
Step 3: QUANTIFY what you need for retirement.
Compute three different numbers here: what you need for basic retirement (bare bones expenses for retirement), what you need for vitality retirement (add in some indulgences and luxury), and finally**, independen**ce (or, dream) retirement (all expenses for everything you ever wanted to do).
In "basic", you need to include expenses for housing, utilities, food, transportation and insurance. In "vitality" you add in half your expenses for clothing, entertainment, eating out, travel, hobbies.
Interesting, I found this step to be the most concrete take-away from the book because it allows people not to come up with "finger in the air" estimates for what they will need in retirement but a more concrete set of numbers. We have codified this approach into our free new retirement calculator (which I wrote about here in this sub a few days ago as well) though we have added categories that Tony misses (like health care expenses and property taxes) - which are crucial. Our calculator also handles different asset allocations, etc (see below).
Step 4: Be aware of how your money is allocated
Where do you allocate your money? Stocks, bonds, real estate, other business? Equally important is that once you have chosen an allocation, it is important to periodically rebalance. For example, suppose you had allocated $100 (to make it simple) into $60 for stocks and $40 for bonds. Now after a few years, your stocks have shot up to $105, and bonds are now $45, then your percentages are now 70% in stocks and 30% in bonds. You should, per rebalancing, sell off some of your stocks and buy more bonds to get back to your 60/40 ratio. Selling is never easy but adding to its complexity are the tax implications of selling.
Tony then lists the asset allocations of some of the "greats" like Ray Dalio (Founder of Bridgewater Associates, a large very successful hedge-fund), Jack Bogle (Founder of Vanguard), David Swensen (guy who ran Yale's endowment fund) and a few others.
Buffett allocation: 90% S&P500, 10% bonds.
Ray Dalio "all weather" asset allocation mix: 30% stocks, 15% in intermediate treasuries (7-10 years), 40% in long term treasuries (20-25 year Treasuries), 7.5% in gold and 7.5% commodities.
Jack Bogle asset allocation: 65% in US Total Stock Index fund, 35% in Intermediate Term US Bond Market Index fund.
David Swensen asset allocation: 20% US stocks, 20% real estate, 20% international stocks, 15% long term US Treasuries, 15% US Treasuries TIPS (inflation protected), 10% emerging markets.
Step 5: Create a lifetime income plan.
While asset allocation strategies are key, it is also important to protect yourself so that you don't run out of money during retirement. This is where annuities come in. Annuities come in a dizzying array of options: fixed, index, variable, etc. Research them carefully before putting down your hard-earned money. We are currently researching this ourselves and will author a post on this when we are done so as to summarize our learning.
Good luck!
Submitted May 25, 2018 at 10:45AM by arnexa https://ift.tt/2GON4GH
