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6 things the rich have in common
Legal Disclosure: Tony Robbins is the Chief of Investor Psychology at Creative Planning, Inc., an SEC Registered Investment Advisor (RIA) with wealth managers serving all 50 states. Mr. Robbins receives compensation for serving in this capacity based on increased business derived by Creative Planning from his services. Accordingly, Mr. Robbins has a financial incentive to refer investors to Creative Planning. This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice.
Usually when we hear stories of the behavior of the super-rich it involves shopping sprees, trips to Monaco, or perhaps the occasional lifestyle productivity hack. But how did the American ultra-wealthy become the top 0.01%? Is there a secret formula to obtaining and maintaining wealth?
For four years, Tony Robbins interviewed the world’s top financial minds, on a quest to provide the average person with the blueprint to become financially free. He talked with “money masters” like Mary Callahan Erdoes, considered by many as the most powerful woman in finance, John Bogle, founder of Vanguard and father of the index fund, and Charles Schwab, or “Chuck” as you may remember him from the discount brokerage’s commercials. What Tony found on this epic journey was a pattern of behavior amongst this group of ultra-wealthy individuals — principles that guided their decision-making, and, ultimately, their success.
1. They are obsessed with not losing money.
Remember Warren Buffet’s most famous quote? “Rule #1: Don’t lose money. Rule #2: Never forget rule number one.” The ultra-wealthy live by this maxim; they understand the true cost of losing.
2. They know the value of asymmetrical risk/reward.
The ultra-wealthy will only take small risks for a potentially great reward. Paul Tudor Jones, one of the top ten financial traders in history, will only risk a 1:5 ratio. In other words, he will only risk one dollar to make 5 – or a 500% return. Most investors risk everything hoping to get a 8%, 10% or less return.
3. They know they’ll be wrong.
Each of these individuals were humble (and experienced) enough to know that they would be wrong at least some of the time. As such, they protected their assets by structuring their portfolios in such a way that they will make money even when they are wrong. Whether it is Ray Dalio’s All Seasons Strategy or David Swensen’s $24M Yale endowment asset allocation (both available in the book), money masters know how to make money in every environment.
4. They understand the power of tax efficiency.
By now, this is probably a no-brainer: You don’t get the dollars you earn; you get the dollars you keep. Therefore, invest in such a way that you get to keep as much as legally possible and thus reach your financial goals faster.
5. They are all learning machines.
The learning never stops. Just as the best athletes in the world never stop striving to improve their game, money masters strive for constant, never-ending improvement of their game.
6. They are all givers.
Money masters understand that to cling tightly to the wealth they have built is to live in a scarcity mindset, cut off from others by fear. Instead, they choose to live open-handed to those in greatest need, knowing that wealth is abundant. They have each found their own way to give, understanding that the secret to living is giving.
To learn more secrets of the ultra-wealthy, read Tony’s bestselling book, MONEY: MASTER THE GAME: 7 Simple Steps to Financial Freedom. All proceeds from the book go to Feeding America.