WHATTHEWORLD’SGREATESTFINANCIALLEADERSARESAYINGABOUT

TONYROBBINS...

“It’srarethatanoutsiderstealsthespotlightandbecomesarespectedvoiceofimpactinthefinancialindustry.Robbinsdoesitagainwithanewbooktoprepareusandhelpusprofitfromtheinevitablecrashesandcorrectionstocome.”

—AnthonyScaramucci,founder,SkyBridgeCapital;cohostofWallStreetWeek

“Remarkably, Robbins has produced a book that will appeal to both thebeginnerandthemostsophisticatedmoney jockeyoverseeingmultibillionsofdollarsinassets.IftherewereaPulitzerPrizeforinvestmentbooks,thisonewouldwin,handsdown.”

—SteveForbes,publisherofForbesmagazineandCEOofForbesInc.

“Robbins is the best economicmoderator that I’ve everworkedwith.Hismission to bring insights from the world’s greatest financialminds to theaverageinvestoristrulyinspiring.”

—AlanGreenspan,formerFederalReservechairmanunderfoursittingpresidents

“Tony came tomy office for a 45-minute interview that ended up lastingfourhours.Itwasoneofthemostwide-rangingandprobinginterviewsI’vedoneinmy65-yearcareer inthemutual fundindustry.Tony’senergyandpassion are contagious and energizing; I knew right away his book wouldhaveahugeimpactoninvestors.”

—JohnC.Bogle,founder,theVanguardGroup,whichhasover$3trillioninassetsundermanagement

“In this book, Tony Robbins brings his unique talent for making thecomplexsimpleashedistillstheconceptsofthebestinvestorsintheworldinto practical lessons that will benefit both naïve investors and skilledprofessionals.”

—RayDalio,founderandco–chiefinvestmentofficer,BridgewaterAssociates,andthe#1hedgefundinvestorintheworld“TonyRobbins

needsnointroduction.Heiscommittedtohelpingmakelifebetterforeveryinvestor.Everyinvestorwillfindthisbookextremelyinterestingand

illuminating.”

—CarlIcahn,billionaireactivistinvestor

“You can’t meet Tony Robbins and listen to his words without beinginspired to act. This book will give you the strategies to create financialfreedomforyourselfandyourfamily.”

—T.BoonePickens,founder,chairman,andCEOofBPCapitalManagementandTBPInvestmentsManagement;predictedoilprices

accurately18outof21timesonCNBC

“Tonymasterfullyweavesanecdoteandexpertisetosimplifytheprocessofinvesting for readers—priming their financial education and helping themeffectivelyplanfortheirfuture.”—MaryCallahanErdoes,CEO,JPMorganAssetManagement;$2.4trillion

inassetsundermanagement“TonyRobbinsisahumanlocksmith—heknowshowtoopenyourmindtolargerpossibilities.Usinghisunique

insightsintohumannature,he’sfoundawaytosimplifythestrategiesoftheworld’sgreatestinvestorssothatanyonecanhavethefinancialfreedomthey

deserve.”

—PaulTudorJonesII,founder,TudorInvestmentCorporation,andoneofthetoptentradersinhistory

“Robbins’unrelentingcommitment to finding therealanswers to financialsecurityand independence,andhispassion forbringing the insightsof the

ultrawealthy to the averageman, is truly inspiring. This book could trulychangeyourlife.”

—DavidPottruck,formerCEOofCharlesSchwabCorporationandbestsellingauthorofStackingtheDeck:HowtoLeadBreakthroughChange

AgainstAnyOdds“TonyRobbinshasinfluencedmillionsofpeople’slives,includingmyown.Inthisbook,heoffersyouinsightsandstrategiesfrom

theworld’sgreatestinvestors.Don’tmisstheopportunitytoexperiencethelife-changingvalueofthisbook.”

—KyleBass,founderofHaymanCapitalManagementandinvestorwhoturned$30millioninto$2billioninthemiddleofthesubprimecrisis

WHATLEADERSFROMOTHERINDUSTRIESARESAYINGABOUTTONYROBBINS...

“Hehasagreatgift.Hehasthegifttoinspire.”—BillClinton,formerpresidentoftheUnitedStates

“Tony’s power is superhuman. . . . He is a catalyst for getting people tochange.”

—OprahWinfrey,EmmyAward–winningmediamagnate

“We’vebeenselectedbyForbesasthemostinnovativecompanyintheworldfor four consecutiveyears.Our revenues arenowover$7billionannually.Without access to Tony and his teachings, Salesforce.com wouldn’t existtoday.”

—MarcBenioff,founder,chairman,andCEOofSalesforce.com

“TonyRobbins’coachinghasmadearemarkabledifferenceinmylifebothonandoffthecourt.He’shelpedmediscoverwhatI’mreallymadeof,andI’vetakenmytennisgame—andmylife—toawholenewlevel!”—SerenaWilliams,22-timeGrandSlamtennischampionandOlympicgold

medalist

“Iwas afraid thatmy successwould take something away frommy family.Tonywas able to turn it aroundand showme that I’vehelpedmillionsofpeople.ProbablythemostintensefeelingsI’veeverhad.”

—MelissaEtheridge,two-timeGrammyAward–winningsingerandsongwriter

“Nomatterwhoyouare,nomatterhowsuccessful,nomatterhowhappy,Tonyhassomethingtoofferyou.”

—HughJackman,Emmy–andTonyAward–winningactorandproducer

—HughJackman,Emmy–andTonyAward–winningactorandproducer

“Ifyouwanttochangeyourstate,ifyouwanttochangeyourresults,thisiswhereyoudoit:Tonyistheman.”

—Usher,GrammyAward–winningsinger,songwriter,entrepreneur

“Tony Robbins is a genius . . . His ability to strategically guide peoplethroughanychallengeisunparalleled.”

—SteveWynn,CEOandfounderofWynnResorts

“WhatTonyreallygaveme,akidsittingonVeniceBeachsellingT-shirts,wastotakerisks,takeaction,andreallybecomesomething.I’mtellingyouassomeonewhohas livedwiththesestrategies for25years: I’llcomebackformoreagainandagainandagain.”

—MarkBurnett,five-timeEmmyAward–winningtelevisionproducer

“What does this man have that everyone wants? He is a six-foot-sevenphenomenon!”—DianeSawyer,formerABCWorldNewsandGoodMorningAmericaanchor

ThankyoufordownloadingthisSimon&SchustereBook.

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CONTENTS

EpigraphIntroduction:SteveForbes,publisherofForbesmagazineandCEOofForbesInc.Foreword:JackBogle,legendaryinvestorandfounderofVanguard

SECTIONIWEALTH:THERULEBOOK

Chapter1:UNSHAKEABLE

PowerandPeaceofMindinaWorldofUncertaintyChapter2:WINTERIS COMING . . . BUTWHEN?

TheseSevenFactsWillFreeYoufromtheFearofCorrectionsandCrashes

Chapter3:HIDDENFEESANDHALF-TRUTHS

HowWallStreetFoolsYouintoOverpayingforUnderperformance

Chapter4:RESCUINGOURRETIREMENTPLANS

WhatYour401(k)ProviderDoesn’tWantYoutoKnowChapter5:WHOCANYOUREALLYTRUST?

PullingBacktheCurtainontheTricksoftheTrade

SECTIONIITHEUNSHAKEABLE PLAYBOOK

Chapter6:THECOREFOUR

FourPrinciplesThatCanHelpGuideEveryInvestmentDecisionYouMake

Chapter7:SLAYTHEBEAR

HowtoNavigateCrashesandCorrectionstoAccelerateYourFinancialFreedom

SECTIONIIITHEPSYCHOLOGYOFWEALTH

Chapter8:SILENCINGTHEENEMYWITHIN

TheSixBiggestMistakesInvestorsMakeandHowtoAvoidThem

Chapter9:REALWEALTH

MakingtheMostImportantDecisionofYourLife

CreativePlanningAcknowledgmentsTonyRobbinsCompaniesAppendix

YourChecklistsforSuccess:FortifyingYourKingdom—HowtoProtectYourAssets,BuildYourLegacy,andInsureAgainsttheUnknown

AboutTonyRobbinsIndex

Tothosesoulswhowillneversettleforlessthantheycanbe,do,share,andgive

Thisbookisdesignedtoprovideinformationthattheauthorbelievestobeaccurateonthesubjectmatteritcovers,butitissoldwiththeunderstandingthat neither the author nor the publisher is offering individualized advicetailored to any specific portfolio or to any individual’s particularneeds, orrendering investment advice or other professional services such as legal oraccounting advice.A competent professional’s services should be sought ifone needs expert assistance in areas that include investment, legal, andaccounting advice. This publication references performance data collectedovermany timeperiods.Past resultsdonotguarantee futureperformance.Additionally,performancedata, inadditionto lawsandregulations,changeover time,which could change the status of the information in this book.This book solely provides historical data to discuss and illustrate theunderlyingprinciples.Additionally,thisbookisnotintendedtoserveasthebasisforanyfinancialdecision;asarecommendationofaspecificinvestmentadvisor;orasanoffertosellorpurchaseanysecurity.Onlyaprospectusmaybeusedtooffertosellorpurchasesecurities,andaprospectusmustbereadandconsideredcarefullybeforeinvestingorspendingmoney.Nowarrantyismade with respect to the accuracy or completeness of the informationcontainedherein,andboththeauthorandthepublisherspecificallydisclaimanyresponsibilityforanyliability,loss,orrisk,personalorotherwise,whichisincurredasaconsequence,directlyorindirectly,oftheuseandapplicationofanyof thecontentsof thisbook. In the text that follows,manypeople’snamesandidentifyingcharacteristicshavebeenchanged.

Legal disclosure: Tony Robbins is a board member and chief of investorpsychologyatCreativePlanningInc.,anSECregisteredinvestmentadvisor(RIA) with wealth managers serving all fifty states. Mr. Robbins receivescompensationforservinginthiscapacitybasedonincreasedbusinessderivedby Creative Planning from his services. Accordingly, Mr. Robbins has afinancialincentivetoreferinvestorstoCreativePlanning.Moreinformationregardingrankingsand/oraccoladesforCreativePlanningcanbefoundat:http://getasecondopinion.com/rankings.

Wastenomoretimearguingaboutwhatagoodmanshouldbe.Beone.

—MARCUSAURELIUS

Moneyisonlyatool.Itwilltakeyouwhereveryouwish,butitwillnotreplaceyouasthedriver.

—AYNRAND

INTRODUCTION

SteveForbes,publisherof ForbesmagazineandCEOofForbesInc.

Thisshort,wisdom-rich,andcrisplywrittenbookcouldn’tbemoretimely.Even better, its insights and recommendations are timeless. Investors and,more important, thosewho currently are not investing should read it andtakewhatitsaystoheart.

Neverhavewehad such a longbullmarket thathasbeen accompaniedfrom the beginning by such caution and outright pessimism about thedurabilityoftherise.Thestockmarketnevergoes inastraight line,upordown,andeverydipithastakensince2009hasbeenmetwithwailsofwoethatweareinforanotherhorrificslide.Aresultofthisaversiontoinvestingis that tensofmillionsofpeoplewhoshouldbe in themarket,particularlymillennials, are not. Tony Robbins aptly points out that regarding theaccumulation of assets, especially for retirement, they are making a verycostlylong-termmistakebystayingonthesidelines.

Whathelpsmakethisvolumesocredibleisthattheauthorisupfrontindealingwiththepervasiveanxietiesaboutoureconomicfuture,worriesthatmade the 2016 election cycle so stunning. He acknowledges that, yes,eventuallywewillexperiencearealbearmarket.Butthepossibilityofsuchan event is no reason for individuals to stay away and simply sit on theirhands.Bigdownturnsinthemarkethappenperiodically,butthelong-termtrend of stocks has always been upward. By taking to heart the truth thatemotionsareenemynumberonewhenitcomestoinvesting,individualscandevise strategies thatwill enable them tooutperform themarketandmostprofessionalmanagers.

Robbinscarefullyandthoughtfully showshowyoucanbe themasterofyour investment fate instead of sitting fearfully on the sidelines or gettingwhipsawedbyreactingtomarketvolatilityinpanicky,damagingways.Whatshouldyoudowhen stocksplummet?Howcanyou findopportunitywhen everyone else sees disaster? He provides sensible rules that willkeepyoufrommakingcostlymistakesand,evenbetter,explainswhatactionsto take—such as recalibrating your allocation of assets—that can lay thefoundationforfulsomefuturereturns.

Enemynumbertwoisfees.Expensescomenotonlyfromadvertisedcostsbut also from a variety of hidden charges.Thanks to compounding, theseoutlays over time can literally reduce your nest egg by hundreds ofthousandsofdollars.Rememberthateachdollarinexpensesmeansonelessdollarthatcangrowincomingyears.Thisiswhyyoushouldtakeacarefullookatyour401(k)todiscoverwhatexactionsmightbeeatingawayatit,liketermites do with a house. Even index funds can hit you with unnecessarycharges.Asforapopularinvestmentinstrument,annuities,theirchargescandotoyourmoneywhatGodzilladidtocities.Aninformedinvestorwillbeafarricherinvestor.

A lot of regulatory changes are taking place in the world of managingmoney,mostnotablyfromtheUSDepartmentofLabor(DOL).Thisbookhelpfullywalksyouthroughthese.

Finally,Robbinsmakesthepointthatwealthcreationisnotanendinandofitselfbutisacrucialaspectofachievingapurposefullife,atruthtoooftenignored.MygrandfatherB.C.Forbes,whofoundedourcompanyjustaboutacenturyago,observedinthefirstissueofthemagazinethatbearshisnamethat“thepurposeofbusinessistoproducehappiness,nottopileupmoney.”

We can hope only that more people, especially the younger ones juststarting their working careers, will take Robbins’s investment message toheart:getin!

He’sright.Millennialsaremakingthesamemistakeapreviousgenerationmadedecadesago—agenerationthatwasscarredbythecatastropheoftheGreat Depression. Those folks’ fear of stocks was all too understandable.From 1929 to 1932, the Dow Jones Industrial Average went down whattodaywouldbe theequivalentof17,000points!That’s aplungeof almost90%.The 1930s was plagued by high unemployment. Then cameWorldWarII.NowondermostAmericansvowednevertogonearastock.

YetafterWWII,theUnitedStatesenteredagreatperiodofprosperity.Stock prices went upmanyfold. Sadly, all toomany people stayed out oroverinvestedinseeminglysafebonds;theycouldhardlyknowthatthedebtmarketwasstartingwhatturnedouttobea35-yearbearmarket.Investorslost staggering sums to the inflation that pummeled the bonds’ principle.Thesepeoplemissedoutonafantasticopportunitytoenrichtheirlives.

Sonever forget about these two ferocious foes of stockmarket success:fearandfees.

Will this sagebookmakeTonyRobbins rich?No.All theproceedsaregoing to Feeding America, which provides free meals to those who needthem. In this, Robbins exemplifies a basic truth that is often ignored:commerce and philanthropy are not polar opposites; they are two sides ofthesamecoin.Infreemarkets,yousucceedonlybyprovidingaproductorservice that others want—that is, you prosper by meeting the needs andwantsofothers.Philanthropyisaboutmeetingtheneedsofothers.Theskillsets required in each of these spheres may differ, but the fundamentalobjective is the same. In fact, successful businesspeople often becomesuccessfulphilanthropists.BillGatesisonlyoneexampleofmany.

Tony Robbins demonstrates that by creating resources, by producingsomething, you gain the means to help others. His book will be yourinvaluable guide to enabling you todo the same—andon a scale youmayneverhavethoughtpossible.

FOREWORD

JohnC.Bogle,founderofVanguard,whichhasmorethan$3trillioninassetsundermanagement

As2016began,IstartedmySaturdaymorningreadingtheNewYorkTimeswhile eating breakfast. After scanning the front page (and pulling out thecrossword puzzle for later), I turnedmy attention to the business section.Displayed prominently at the top of section B1 was Ron Lieber’s YourMoney column, which featured essential money management strategieswrittenonindexcardsbysixpersonalfinanceexperts.

Ron’spointwastoshowthateffectivemoneymanagementdoesnotneedtobecomplicated,withthekeypointsofmanagingyourmoneyfittingonasingleindexcard.Fiveoutofthesixindexcardsaddressedthetopicofhowtoinvestyoursavings,andeachgavethesamesimpleadvice:investinindexfunds.

That message is getting through to investors. In 1975 I created theworld’sfirst indexmutualfund,andI’vebeensingingitspraiseseversince.Inthoseearlydays,Iwasalonevoicewithoutmuchofanaudience.Todayanenormouschoirhasdevelopedtohelpmespreadtheword.Investorsarehearingourvoices loudandclear, andarevotingwith their feet—inotherwords,theirdollars.

Since the end of 2007,mutual fund investors have added almost $1.65trilliontotheirholdingsofequityindexfundswhilereducingtheirholdingsofactivelymanagedmutualfundsby$750billion.Thatswingof$2.4trillionininvestorpreferencesoverthelastnineyearsis,Ibelieve,unprecedentedinthehistoryofthemutualfundindustry.

Overthepast sevenyears,TonyRobbinshasbeenonamissiontohelptheaverage investorwinthegame,preachthemessageof indexfunds,andtell investors to stop overpaying for underperformance. In his journey, hehasspokentosomeofthegreatestmindsinfinance.AlthoughI’mnotsureIbelong in that category, Tony came to my office at Vanguard to get mythoughts on investing. Let me tell you, Tony is a force of nature! Afterspending just a fewminuteswithTony, I completelyunderstandhowhe’sbeenabletoinspiremillionsofpeopleallovertheworld.

Wehad such a great time speakingwith each other that our scheduled45-minute interview ended up lasting four hours. It was one of the mostwide-rangingandprobing interviewsI’vedoneinmy65-yearcareer inthemutual fund industry. Tony’s energy and passion are contagious andenergizing; I knew right away his book would have a huge impact oninvestors.

ButevenIunderestimatedjusthowbiganimpactTonywouldhave.Hisfirstbookon investing,Money:Master theGame,has soldoveronemillioncopies and spent sevenmonths at the top of theNewYorkTimes BusinessBestSellerslist.NowhereturnswithUnshakeable,whichissuretoaddevenmorevaluetoreaders.Unshakeablepresentsinsightsfromsomeofthemostimportant figures in the investingworld, such asWarrenBuffett andYaleendowment fund manager David Swensen. BothWarren and David havesaid time and again that index funds are the best way for investors tomaximize their chances of investment success. This book will help thatmessagereachevenmoreinvestors.

Index funds are simple.Rather than try to time themarketoroutguessotherprofessionalmoneymanagersabouttheprospectsofindividualstocks,index funds simplybuy andhold all of the stocks in abroadmarket indexsuchas theS&P500. Index fundsworkbyparing thecostsof investing tothebare-bonesminimum.Theypayno fees to expensivemoneymanagersand haveminimal trading costs, as they follow the ultimate buy-and-holdstrategy.Wecan’tcontrolwhatthemarketswilldo,butwecancontrolhowmuch we pay for our investments. Index funds allow you to invest, atminimalcost,inaportfoliodiversifiedtothenthdegree.

Think about it this way: all investors as a group own the market andtherefore share themarket’s gross return (before costs).By simplyowningthe entire market, index funds also earn the market’s return at minimalannual cost: as low as 0.05% of the amount you invest. The rest of themarketisactive,withinvestorsandmoneymanagersfuriouslytradingbackandforthwithoneanother,tryingtooutperformthemarket.Yettheytoo,asagroup,owntheentiremarketandearnthemarket’sgrossreturn.Allofthat trading is enormously expensive. The fund managers demand (andreceive) huge fees, while Wall Street takes a cut from all that frenziedtrading.Theseandotherhiddenfeescaneasilyadduptoover2%eachyear.

Soindexfundinvestorsreceivethegrossmarketreturnminusfeesaslowas0.05%orless,whileactiveinvestorsasagroupwillreceivethesamegross

return minus 2% or more.The gross return of the market minus the cost ofinvestingequalsthenetreturntoinvestors.This“costmattershypothesis”isallyou need to know to understand the benefits of index investing. Over aninvestmentlifetime,thisannualdifferencereallyaddsup.Mostyoungpeoplejust starting their careers will be investing for 60 years or more.Compounded over that time frame, the high costs of investing canconfiscateanastounding70%ofyourlifetimereturns!

This cost differential substantially understates the costs incurred by somany investors—especially investors in403(b)and401(k) retirementplans.As Tony points out in chapter 3, this extra layer of fees (often largelyhidden) confiscates an additional staggering proportion of the returnsdeliveredbyyourfunds.

I’mexcitedtoaddmysmallcontributiontothisbookandsupportTonyinbeingavoiceforgood.I’mthrilledtohavespentawonderfulafternoonconversing with him. I’m humbled to have the opportunity to spread thegospelofindexing,tohelpthehonest-to-God,down-to-earthhumanbeingswhoaresavingforasecureretirementorfortheirchildren’seducation.

With flair and depth, Tony covers the history of investment risks andreturns, and successful investors shouldunderstand this history.That said,history,astheBritishpoetSamuelTaylorColeridgewrote,isbut“alanternonthestern,whichshinesonlyonthewavesbehindus,”andnotonwhereweareheaded.Thepastisnotnecessarilyprologuetothefuture.

Welive inanuncertainworld,andfacenotonlytherisksoftheknownunknownsbut also theunknownunknowns: theones that “wedon’t knowwe don’t know.” Despite these risks, if we are to have any chance formeeting our long-term financial goals, invest we must. Otherwise we’recertain to fall short.Butwedon’thave toputup100%of the capital andtake100%oftheriskonlytoreceive30%ofthereward(oftenfarless).Bybuying low-cost, broad-market index funds (and holding them “forever”),youcanguarantee thatyouwill receiveyour fair shareofwhateverreturnsthefinancialmarketsprovideoverthelongterm.

SECTION1

WEALTH:THERULEBOOK

CHAPTER 1

UNSHAKEABLE

PowerandPeaceofMindinaWorldofUncertainty

un·shake·ableAnunwaveringandundisputedconfidence;asteadfastcommitmenttothetruth;presence,peaceofmind,andacalmamidstthestorm

Whatwoulditfeelliketoknowinyourmind,inyourheart,andintheverydepthofyoursoulthatyou’llalwaysbeprosperous?Toknowwithabsolutecertaintythatnomatterwhathappensintheeconomy,stockmarket,orrealestate,you’llhave financial security for therestofyour life?Toknowthatyou’llpossessanabundancethatwillenableyounotonlytotakecareofyourfamily’sneedsbutalsotodelightinthejoyofhelpingothers?

We all dream of achieving that tremendous inner peace, that comfort,that independence, that freedom. In short, we all dream of beingunshakeable.

Butwhatdoesitreallymeantobeunshakeable?It’snot justamatterofmoney.It’sastateofmind.Whenyou’retruly

unshakeable,youhaveunwaveringconfidenceevenamidstthestorm.It’snotthatnothingupsetsyou.Wecanallgethooked.Butyoudon’tstaythere.Nothing rattles you for any lengthof time.Youdon’t allow fear totake youover. If you’re knockedoff balance, you find your center quicklyandregainyourinnercalm.Whenothersareafraid,youhavethepresenceofmindtotakeadvantageoftheturmoilswirlingallaroundyou.Thisstateofmindallowsyoutobealeader,notafollower.Tobethechessplayer,notthe chess piece. To be one of the fewwho do, not one of themany whomerelytalk!

Butisitevenpossibletobecomeunshakeableinthesecrazytimes?Orisitjustapipedream?

Doyourememberhowyoufeltin2008whenthefinancialcrisissavagedtheglobaleconomy?Doyourememberthefear,theanxiety,theuncertaintythat gripped us all when theworld seemed to be falling apart?The stockmarket collapsed, maybe crushing your 401(k). The property market wasbeatentoapulp,maybewreckingthevalueofyourhomeorthatofsomeone

youlove.Bigbanksfelloverliketoysoldiers.Millionsofgood,hardworkingpeoplelosttheirjobs.

I can tell you right now, I’ll never forget the suffering and terror Iwitnessedallaroundme.Isawpeoplelosetheirlifesavings,getkickedoutoftheir homes, and not have the money to send their kids to college. Mybarber toldme that his businesswas in tatters because people didn’t evenwant to spendmoney getting their hair cut. Even some ofmy billionaireclients called me in a panic because their cash was all tied up, the creditmarketshadfrozen,anditsuddenlylookedliketheymightbeindangeroflosing everything.Fearwas like a virus, spreading everywhere. It began totakeoverpeople’slives,infectingmillionswithasenseoftotaluncertainty.

Wouldn’t it be wonderful if all that uncertainty had ended in 2008?Didn’t you think the world would be back to normal by now? That theglobaleconomywouldbebackontrackandgrowingdynamicallyagain?

But the truth is,we’re still living in a crazyworld.All these years later,central bankers are still fighting an epic battle to revive economic growth.They’restillexperimentingwithradicalpoliciesthatwe’veneverseenintheentirehistoryoftheglobaleconomy.

YouthinkI’mexaggerating?Well,thinkagain.First-worldcountriessuchasSwitzerland,Sweden,Germany,Denmark,andJapannowhave“negative”interest rates. You know how insane that is? The whole purpose of thebanking system is for you tomake aprofit by loaningmoney tobanks, sotheycanlenditouttoothers.Butpeoplearoundtheworldnowhavetopaybankstoaccepttheirhard-earnedsavings.TheWallStreetJournalwantedtodiscoverwhentheworldlastexperiencedaperiodofnegativeyields.Sothenewspapercalledaneconomichistorian.Youknowwhathetoldthem?It’sthefirsttimethishashappenedin5,000yearsofbankinghistory.

That’showfarwe’vecomefromlivinginanormalworld:borrowersgetpaid to borrow, and savers get punished for saving. In this upside-downenvironment, “safe” investments such as high-quality bonds offer suchterrible returns that you wonder if someone’s having a laugh at yourexpense. I recently learned that the finance arm of Toyota had issued athree-year bond that yields just 0.001%. At that rate, it would take you69,300yearstodoubleyourmoney!

Ifyou’restrugglingtomakesenseofwhatallthismeansforthefutureoftheglobaleconomy,jointheclub.HowardMarks,alegendaryinvestorwho

oversees nearly $100 billion in assets, recently told me, “If you’re notconfused,youdon’tunderstandwhat’sgoingon.”

You know we’re living in strange times when even the greatestfinancialmindsadmittobeingconfused.Forme,thisrealitywasdrivenhome emphatically last year when I arranged a meeting of my PlatinumPartners:anintimategroupoffriendsandclientswhogatheronceayeartogainfinancialinsightsfromthebestofthebest.

Wehad already listened to theopinionsof seven self-madebillionaires.Butnowitwastimetohearfromamanwho,fortwodecades,hadwieldedmore economic power than anyone else alive. I was seated in one of twoleatherwingbackchairsonastageinaconferenceroomattheFourSeasonshotel inWhistler, BritishColumbia.Outside the snowwas falling gently.The man sitting across from me was none other than Alan Greenspan,formerchairmanoftheUSFederalReserve.AppointedbyPresidentRonaldReagan in 1987, Greenspan ultimately served as the Fed chief to fourpresidentsbeforeretiring in2006.Wecouldhardlyhaveasked foramoreexperienced insider to cut through the confusion and shed light on thefutureoftheeconomy.

Asourtwo-hourconversationdrewtoaclose,Ihadonefinalquestionforthismanwhohadseenitall,whohadguidedtheUSeconomythroughthickandthinfor19years.“Alan,you’vehad90yearsonthisplanetandhaveseenincredible changes in the world economy,” I began. “So, in this world ofintensevolatilityandinsanecentralbankingpoliciesaroundtheglobe,whatistheonethingyouwoulddoifyouwerestilltheFedchairmantoday?”

Greenspan paused for a while. Finally, he leaned forward and said:“Resign!”

HOWTOFINDCERTAINTYINANUNCERTAINTIME

What are you supposed to do when even an economic icon of AlanGreenspan’s stature is tempted to throwuphishands indismay,unable tomakesenseofwhat’sgoingonorguesswhereitwillend?Ifhecan’tfigureitout,howonearthcanyouandIpredictwhatwillhappen?

Ifyou’refeelingstressedandconfused,Iunderstand.Butletmetellyouthegoodnews:thereareafewpeoplewhodohavetheanswers—afewbrilliant financialmindsthathave figuredouthowtomakemoney ingoodtimesandbad.Afterspendingsevenyearsinterviewingthesemasters

of the financialgame, I’mgoing tobringyou their answers, their insights,their secrets, so you can understand how to win even in these incrediblyuncertaintimes.

AndI’ll tellyou this:oneof thegreatest lessonsI’ve learned fromthesemoneymastersisthatyoudon’thavetopredictthefuturetowinthis game. Etch that idea into your big, beautiful brain, because it’simportant.Reallyimportant.

Here’swhatyoudohavetodo:youhaveto focusonwhatyoucancontrol,notonwhatyoucan’t.Youcan’t controlwhere theeconomy isheadedandwhether the stockmarketwill soarorplunge.But thatdoesn’tmatter!Thewinnersofthefinancialgameknowthat theycan’tcontrolthefuture,either.Theyknowtheirpredictionswilloftenbewrongbecausetheworld is just too complex and fast changing for anybody to foresee thefuture.But, as you’ll learn in thepages to come, they focus so intentlyonwhat they can control that they’ll thrive no matter what happens to theeconomyorthefinancialmarkets.Andwiththehelpoftheirinsights,you’llthrive,too.

Controlwhatyoucancontrol.That’s the trick.Andthisbookwillshowyouexactlyhowtodoit.Aboveall,you’llfinishthebookwithastrategicplanthatprovidesyouthetoolstohelpyouwinthegame.

Weallknowthatwe’renotgoingtobecomeunshakeablethroughwishfulthinking, or by lying to ourselves, or by merely thinking positive, or byputting photos of exotic cars on our “vision boards.” It’s not enough tobelieve. You need the insights, the tools, the skills, the expertise, and thespecificstrategiesthatwillempoweryoutoachievetrueandlastingprosperity.Youneedtolearntherulesofthefinancialgame,whotheplayersare,whattheiragendasare,whereyoucangethurt,andhowyoucanwin.Thisknowledgecansetyoufree.

Thebigpurposeof this smallbook is toprovideyouwith thatessentialknowledge.Itwillgiveyouacompleteplaybookforfinancialsuccess,sothatyouandyourfamilywon’teveragainhavetoliveinfearanduncertaintybutcanenjoythejourneywithtruepeaceofmind.

Manypeoplejustdabbleinandoutwhenitcomestotheirfinanciallives,and theypayanenormousprice for it.That’snotbecause theydon’tcare.It’s because they get swamped by all the stresses and strains of their dailylives.Plus, they don’t have expertise in this area, so it seems intimidating,confusing, and overwhelming. None of us likes putting effort into things

thatmakeusfeelunsuccessfulandoutofourdepth!Whenpeopleareforcedto make financial decisions, they often act out of fear—and any decisionmadeinastateoffearislikelytobewrong.

Butmycommitmenthereistobeyourcoach,toguideyouandhelpyou,so you can put together an action plan that gets you fromwhere you aretoday towhereyouwant tobe.Maybeyou’reababyboomerwhoworriesthatyoucan’tget to financial securitybecauseyoustarted too late.Maybeyou’reamillennialwho thinks, “I’vegot somuchdebt, I’llneverbe free.”Maybeyou’reasophisticatedinvestorwho’slookingforanedgesoyoucanbuild a legacy that benefits generations to come. Whoever you are andwhateverstageoflifeyou’reat,I’mheretoshowyouthatthereisaway.

If you commit to stay withme through the pages of this book, Ipromisetoprovideyouwiththeknowledgeandtoolsyouneedtogetthe jobdone.Onceyouabsorbthis informationandputyourplan inplace, it will likely take you only an hour or two each year to keepthingsontarget.

Thisisanareaoflifethatrequirescommitment.Butifyou’recommittedtounderstandingandharnessingthe insights in thisbook, therewardswillbe incredible.Howmuch stronger andmore confidentwill you feelwhenyou know the rules that govern the financial world?When you have thatknowledge,thatmastery,thenyoucanmakesmartfinancialdecisionsbasedon real understanding. And decisions are the ultimate power. Decisionsequal destiny. The decisions youwill be equipped tomake after readingthisshortbookcanbringyouawholenewlevelofinnerpeace,fulfillment,comfort,andfinancialfreedomthatmosthumansonlydreamofachieving.Iknowthatsoundslikehyperbole.Butasyou’lldiscoverforyourself,it’snot.

MEETTHEMONEYMASTERS

My life’s obsession is to help people create the life of their dreams. Mygreatest pleasure is to show themhow to rise frompain to power. I can’tbear toseeotherssuffer,becauseIknowhowit feels. Igrewupdirtpoor,with four different fathers over the years, andwith amother whowas analcoholic.Ioftenwenttobedhungry,notknowingifthere’dbeanythingtoeatthenextday.WehadsolittlemoneythatIboughtT-shirtsfor25centsat the thrift store and went to high school in Levi’s cords that were fourinches too short forme. To supportmyself, I worked as a janitor at two

banksinthemiddleofthenight,andthencaughtabushomeandsleptforroughly four to five hours before dragging myself back to school eachmorning.

TodayI’mblessedwithfinancialsuccess.ButIcantellyourightnow,I’llneverforgetwhatitwasliketoliveinthatstateofconstantanxietyaboutthefuture. In those days, I was trapped by my circumstances and filled withuncertainty. Sowhen I sawwhat happened to people during the 2008–09financialcrisis,therewasnowayIcouldturnmybackonthem.

WhatdrovemecrazywasthatmuchofthateconomicmayhemhadbeencausedbytherecklesswaysofasmallminorityofbadactorsonWallStreet.Yetnobodyinapositionofpowerandprivilegeseemedtopayanypriceforthe pain that was created. Nobody went to jail. Nobody addressed thesystemic issuesthathadmadetheeconomysovulnerable inthefirstplace.Nobodyseemedtobelookingoutfortheregularpeoplewhoborethebruntofthisfinancialchaos.Isawthemgettingusedandabusedeveryday,andIcouldn’ttakeitanymore.

That launchedmeon a quest to figure out how I couldhelp people togaincontrolovertheirfinanciallivessothey’dneveragainbepassivevictimsofagametheydidn’tunderstand.Ihadonekeyadvantage:personalaccesstomanyofthegiantsofthefinancialworld.IthelpedthatI’vecoachedPaulTudorJones,oneof thegreatest tradersofall time.Paul,anextraordinaryphilanthropist,abrilliantthinker,andadearfriend,helpedtoopenalotofdoorsforme.

Over seven years, I interviewed more than 50 masters of the financialuniverse.Theirnamesmaymeannothingtoyou.Butinthefinancialworld,theseguyshavethestarpowerandthenamerecognitionofcelebritiessuchasLeBronJames,RobertDeNiro,JayZ,andBeyoncé!

ThelistoflegendswhoendedupsharingtheirinsightswithmeincludesRayDalio, themost successfulhedge fundmanager inhistory; JackBogle,the founder of Vanguard and the revered pioneer of index funds; MaryCallahanErdoes,whooversees$2.4trillioninassetsatJPMorganChase&Co.; T. Boone Pickens, the billionaire oil tycoon; Carl Icahn, America’smost formidable “activist” investor; David Swensen, whose financialwizardry transformed Yale into one of the world’s wealthiest universities;JohnPaulson,ahedgefundmanagerwhopersonallyearned$4.9billion in2010; andWarren Buffett, the most celebrated investor ever to walk theearth.

If you don’t know these names, you’re not alone. Unless you work infinance, you’re probablymore aware of how your fantasy football team isdoingorwhat’sinyourNet-a-Portershoppingcart.Butyou’rereallygoingto want these financial titans to be on your radar, too, because they canliterallychangeyourlife.

The result of all that research was my 670-page behemoth of a book,Money:MastertheGame.Tomydelight,itskyrocketedtonumberoneontheNewYorkTimesBusinessBestSellers listandhas soldmore thanamillioncopies since its publication in 2014. The book has also received anextraordinaryarrayofendorsementsfromthefinancialelite.CarlIcahn,notan easy man to win over, declared, “Every investor will find this bookextremely interesting and illuminating.” JackBoglewrote, “Thisbookwillenlightenyouandreinforceyourunderstandingofhowtomasterthemoneygameand,inthelongrun,earnyourfinancialfreedom.”SteveForbeswrote,“If there were a Pulitzer Prize for investment books, this one would win,handsdown.”

I’dliketothinkthispraisewasatestamenttomyliterarybrilliance!Butthe success ofMoney:Master the Game really reflects the generosity of allthosefinancialgiantsinsittingdownwithmeforhoursonendandsharingtheirknowledge.Anyonewho takes the time to studyandapplywhat theytoldmeshouldattainhugefinancialrewardsthatcanlastalifetime.

Sowhy bother towrite a second book on how to achieve your financialambitions? After all, there are plenty of easier andmore painless ways tospendmytimethanwritingbooks.Like,say,sellingmyorgansontheblackmarket. But,my goal is to empower you, the reader, while alsomaking adifferenceformillionsofforgottenpeoplewhoareindesperateneed.

I’vedonatedallmyprofitsfromMoney:MastertheGameandnowforthisbook, Unshakeable, to provide free meals for the hungry through mypartnership with Feeding America, the nation’s most effective charity forfeedingthehungry.Sofar,betweenthesebooksandtheadditionalpersonaldonationsI’vemadeoverthelasttwoyears,we’veprovidedover250millionfreemeals to families inneed. In thenexteightyears, Iplan tobring thattotal to a billionmeals. If you’re holding this book, you’ve contributed tothat cause. Thanks! And feel free to buy copies for all your friends andfamily!

Beyondthatmission,IhavethreeurgentreasonsforwritingUnshakeable.First,Iwanttoreachasmanypeopleaspossiblebywritingashortbookthat

youcanreadinacoupleofeveningsoraweekend.Ifyouwanttogodeeper,Ihopeyou’llalsoreadMoney:MastertheGame,butIunderstandifthatbigmonster seems intimidating. Unshakeable is designed to be a concisecompanion that contains all of the essential facts and strategies youneedtotransformyourfinanciallife.

In writing a short book that’s quick and easy to read, I’m looking toincreasethe likelihoodthatyou’llnotonlymasterthismaterialbutalsoacton it. People love to say that knowledge is power. But the truth is thatknowledge isonlypotential power.Youand Ibothknow that it’suseless ifyoudon’tactonit.Thisbookgivesyouapower-packedactionplanthatyoucanputintoeffectimmediately—becauseexecutiontrumpsknowledgeeverydayoftheweek.

My second reason for writing Unshakeable is that I see so much feararoundmetoday.HowareyouandIgoingtomakesmart,rationalfinancialdecisions ifwe’re fullof fear?Even ifyouknowwhat todo, fearkeepsyoufrom doing it. I’m concerned that you might make the wrong moves ifyou’refearful,damagingyourselfandyourfamilyinwaysthatIbelieveareentirelyavoidable.Step-by-step, thisbookwillenableyoutosystematicallyfreeyourselffromthatfear.

BABY,IT’SCOLDOUTSIDE!

AsIwritethis,thestockmarkethasrisenforsevenandahalfyearsinarow,making this the second-longest bull market in US history. There’s awidespread sense that we’re due for a fall, that what goes up must comedown, that winter is coming. By the time you read this, the market mayalreadyhave tumbled.But,aswe’lldiscuss in thenextchapter, the truth isthatnobody—Irepeat,nobody—canaccuratelypredictwithanyconsistencywhere the financial markets are headed. That includes all those smooth-talkingTVpundits,thoseWallStreeteconomistsinpinstripesuits,andallthoseotherhigh-paidpurveyorsofsnakeoil.

Weallknowthatwinteriscoming,thatthestockmarketwillfallagain.Butnoneofusknowswhenwinteriscomingorhow severe itwillbe.Doesthatmeanwe’repowerless?Notatall.Unshakeablewillshowyouhowthemastersofthefinancialworldpreparethemselves—howtheyprofitbyanticipatingwinter insteadof just reacting to it.As a result, you’ll beable to benefit from the very thing that harms those who are

unprepared.Askyourselfthis:Whenanicestormcomes,doyouwanttobetheonewho’sstuckoutside,freezinginthebittercold?Ordoyouwanttobetheonewho’swrappedupwarmlybythefire,toastingmarshmallows?

Let me give you a recent example of how it pays to be prepared. InJanuary2016thestockmarketplummeted.Inamatterofdays,$2.3trillionwentupinsmoke.Forinvestors, itwastheworstten-daystarttoayearinhistory.Theworldwasfreakingout,convincedthattheBigOnewasfinallyhere! ButRayDalio, themost successful hedge fundmanager of all time,haddone somethingpriceless inMoney:Master theGame:he’d sharedwithmeauniqueinvestmentportfoliothatcouldprosperin“allseasons.”

In themiddle of thismarket nosedive, Ray was inDavos, Switzerland,wheretheglobalelitegathereachyeartodiscussthestateoftheworld.HewentonTV,appearingagainstthebackdropofasnow-coveredmountain,toexplain how people could protect themselves from this terrifying turmoil.His advice? They should pick up a copy of my book, Money: Master TheGame. “Tony Robbins did the layman’s version of this all-weatherportfolio,”heexplained.“Thatmightbehelpfulforpeople.”

Sowhatwouldhavehappenedifyou’dfollowedRay’sadviceandbuilttheall-weather portfolio described inmybook?While the Standard&Poor’s(S&P) 500 stock index (a list of the top five hundred companies in theUnitedStates)dropped10%in the first fewdaysof2016,youwouldhaveactuallymadeasmallprofit (justunder1%).Thisportfolio isnotmeanttobeone-size-fits-all,norisitintendedtobethegreatestperformer.It’smeantto provide a smoother ride for those unable to stomach the volatility of aportfoliowithahigherpercentageof stocks (whichcanalso lead tohigherreturns).

Butwhat’sreallyamazingisthatthisportfolioforallseasonswouldhavemademoney 85%of the time over the last 75 years.That’s the power ofhavingtherightstrategy—astrategythatcomesdirectlyfromoneofthebestintheworld.

AVOIDTHESHARKS

My third reason for writing this book is that I want to show you how toavoid getting eaten by sharks. As we’ll discuss later, one of the biggestobstacles toachieving financial success is thedifficultyof figuringoutwhoyoucanandcannottrust.

Thereareplentyoffantastichumanbeingsworkinginthefinancialfield—peoplewhoalwaysremembertheirmom’sbirthday,whoarekindtodogs,and who have impeccable personal hygiene. But they’re not necessarilylookingoutforyourbestinterests.Mostpeoplewhoyouthinkareprovidingunbiasedfinancial“advice”areactuallybrokers,eveniftheyprefertogobyothertitles.Theymakeheftycommissionsbysellingproducts,whetherit’sstocks,bonds,mutualfunds,retirementaccounts,insurance,orwhateverelsemightpayfortheirnexttriptotheBahamas.Asyou’llsoonlearn,onlyatinysubset of advisors is legally required to put your best interests ahead of itsown.

AfterwritingMoney:MastertheGame,Isawonceagainhoweasyitistoget fooledbyWallStreet.PeterMallouk, a certified financial planner andattorneywhomIrespecttremendously,arrangedameetingwithmetosharewhat he cryptically described as “some crucial information.” TheinvestmentmagazineBarron’s ratedPeter andhis company,CreativePlanning,thenumberoneindependentfinancialadvisorinAmericain2013,2014,and2015,whileForbesnameditthetopinvestmentadvisorin theUnited States in 2016 (based on 10-year growth), andCNBCrankeditasthenumberoneUSwealthmanagementfirmin2014and2015.WhensomeonewithPeter’sexpertiseand reputation reachesout tome,IknowthatI’lllearnsomethingofrealvalue.

PeterflewspeciallyfromhishomeinKansastomeetmeinLosAngeles,where Iwas conducting anUnleash thePowerWithin event. Itwas therethat he dropped the bomb, explaining how some financial “advisors” whomarketthemselvesasstraightshooterswereactuallyexploitingagreyareainthe law to sell products that benefited themselves. They claimed to befiduciaries:asmallminorityofadvisorswhoarelegallyobligatedtoputtheirclients’ interests first. In reality, they were unscrupulous salespeople whoprofited by misrepresenting themselves. Unshakeable will give you all theinformation you need to protect yourself fromwolves in sheep’s clothing.Equallyimportant,we’llgiveyouthetoolsandcriteriatohelpyouidentifyhonest,conflict-freeadvisorswhowilltrulylookoutforyourbestinterests.

ThatmeetingformedthebasisofaclosefriendshipwithPeterandledtohis becoming the coauthor of this book. You couldn’t ask for a moreknowledgeable,honest,orstraight-talkingguideforthisjourney.Hetellsitlikeitis,andheknowswherethebodiesareburied!

Peter’s firm, which manages $22 billion in assets, is unique. Manybillionaires have what’s called a “family office”: an in-house team thatprovides themwith sophisticated advice on everything from investing andinsurancetotaxpreparationandestateplanning.Peteroffersthissamelevelofcomprehensiveadvicetoclientswithassetsof$500,000ormore:doctors,dentists, lawyers, small business owners. They’re the heartbeat of theAmericaneconomy,andhebelievestheydeservenolesscareandattentionthantheultrarich.

IwassoimpressedwithPeter’svisionincreatinga“familyofficeforall”that I joined the board of Creative Planning, became its chief of investorpsychology,andengaged the firmtomanagemy investmentsand financialplanning.IthenapproachedPeterwitharadicalidea:Wouldhebewillingtocreateadivisionthatprovidesthesametypeofcomprehensiveservicetoclientswhoareearlyintheirwealth-buildingjourney—thosewithaslittleas$100,000 in total assets? Peter, who sharesmy commitment to helping asmanypeopleaspossible,hasdoneexactlythat.

I’m happy to tell you that his company will provide a review of yourcurrent situation and goals and, at no cost, help you create a customizedfinancial plan. You may decide that you’d prefer to handle your financesalone.Butifyoueverdecidethatitmightbehelpfultogetasecondopinionfrom the top-ranked firm in the country, you’re welcome to reach out toCreativePlanning,atwww.getasecondopinion.com.

THEROADAHEAD

Before we go any further, I want to quickly show you amap of the roadahead,soyoucanseeforyourselfhowthechaptersthatfollowwillhelpyou.Unshakeable is divided into three sections.The first is yourRuleBook forWealth&FinancialSuccess.Whystartwitharulebook?Becauseifyoudon’tknowtherulesofthegame,howcanyouexpecttowin?

Whatholdsmanyofusbackisafeelingthatwe’reinoverourheads.Itdoesn’thelpthatthefinancialworldseemsoverwhelminglycomplex.Therearemore than40,000 stocks to choose from in theworld today, including3,700onvariousUSstockexchanges.Bytheendof2015,thereweremorethan9,500mutualfundsinAmericaalone,whichmeanstherearefarmorefunds here than stocks! How ridiculous is that? Add to that nearly 1,600exchange-tradedfunds,andyou’refacedwithsomanydifferent investment

choices that yourhead starts to spin.Can you imagine standing at an ice-creamcounterandhavingtochoosefrom50,000flavors?

YouandIneedsomerobustrulessothatwecanbringordertothischaos.Asyou’lldiscoverinchapter3,oneofthesimplestyetmostimportantrulesisthis:feesmatter.

The vast majority of mutual funds are actively managed, which meansthey’rerunbypeoplewhoattempttopickthebest investmentsat thebesttime. Their goal is to “beat the market.” For example, they’ll attempt tooutperform an unmanaged basket of leading stocks such as the S&P 500index,whichisjustoneofmanydifferentindexesthattrackspecificmarketsthroughout theworld.But thedifference is, activelymanagedmutual fundcompanies charge fat fees in return for this service. Sounds fair enough,right?

Theproblem is,most fundsdoa terrific jobofcharginghigh feesbutaterriblejobofpickingsuccessfulinvestments.Onestudyshowedthat 96% of mutual funds failed to beat the market over a 15-yearperiod.ITheresult?Youoverpayforunderperformance.It’slikepayingfor a Ferrari and then driving home from the dealership in a beaten-uptractorsplatteredwithmud.

HEDGEFUNDSVS.MUTUALFUNDSVS.INDEXFUNDS

For thoseunfamiliar,ahedge fund isaprivate fundavailableonly tohigh-net-worth investors.Themanagers have complete flexibility to bet onbothdirections of themarket (upor down).They charge heftymanagement fees (typically 2%) and share in the profits (typically 20% ofprofitsgotothemanager).Amutualfundisapublicfundavailabletoanyone.Inmostcases,theyareactivelymanagedbya teamwhoassemblesaportfolioof stocks,bonds,orotherassetsandcontinually trades their holdings inhopes tobeat the “market.”An index fund is also a publicfundbut requiresno “active”managers.The fund simplyowns all the stocks in the index (forexample,theywouldownall500stocksintheS&P500index).

Evenworse,thosefeesaddupmassivelyovertime.Ifyouoverpayby1%a year, itwill cost you 10 years’worth of retirement income.IIOncewe’veshownyouhowtoavoidfundsthatoverchargeandunderperform,youcouldeasilysaveyourselfasmuchas20yearsofincome.

Ifthat’sallyoulearnfromthefirstsectionofthisbook,itwilltransformyour future. But there’s much more. As we mentioned earlier, we’ll alsoshowyouhowtoavoidsalespeoplewhoprovideself-serving“advice”that’shazardous to your financial health, and how to find sophisticated advisors

whoaren’tconflicted.Asthesayinggoes,“Whenapersonwithexperiencemeets a personwithmoney, the personwith experience ends upwith themoney; and the person with money ends up with an experience.” We’llshowyouhowtonavigatethisgamesoyou’llnevergettakenagain.

The second section ofUnshakeable is a financial playbook. It willshowyouexactlywhattodosoyoucanputyouractionplaninplacerightnow. Most important, you’ll learn the “Core Four”: a set of simple yetpowerfulprinciplesthatarederivedfrommyinterviewswithmorethan50oftheworld’sgreatest investors.Thoughtheyhavemanydifferentwaysofmakingmoney,I’veobservedthattheyallsharethesefundamentaldecision-making principles. I’ve found the Core Four transformational in my ownfinanciallife,andI’mexcitedtomakethisknowledgeavailabletoyou,too.

Next,you’lllearnto“slaythebear”:inotherwords,tobuildadiversifiedportfoliosothatyournesteggwon’tbedestroyedwhenabearmarketfinallycomes.Infact,you’ll learntoprofitmassivelyfromtheopportunitiesthatfearandturmoilcreate.Whatmostpeopledon’trealizeisthatinvestmentsuccessislargelyamatterofsmart“assetallocation”—ofknowingpreciselyhowmuch of yourmoney to put in different asset classes such as stocks,bonds,realestate,gold,andcash.Thegreatnewsisthatyou’ll learntodothisfrommoneymasterslikeRayDalio,DavidSwensen,andourveryownPeterMallouk.

Ifyoualreadyknowabitaboutinvesting,youmaybewondering—asonefinancial journalist asked me recently—“Isn’t it just a simple matter ofbuying and holding index funds?”Well, Dalio, Swensen,Warren Buffett,andJackBoglealltoldmethatindexingisthesmarteststrategyforregularpeoplelikeyouandme.IIIOnereasonwhyisthatindexfundsaredesignedtomatchthereturnsofthemarket.Unlessyou’reasuperstarlikeWarrenorRay, you’re better off capturing thatmarket return instead of trying—andalmostcertainlyfailing—tobeatthemarket.Evenbetter,indexfundschargeminusculefees,savingyouafortuneoverthelongrun.

I wish it were that simple, though. As a lifelong student of humanbehavior,Icantellyouthis:mostpeoplefinditreallyhardtosittightandstayinthemarketwheneverythingisgoinghaywire.Buyandholdtendstogoout thewindow.Ifyouhavenervesof steel likeBuffettorBogle, that’sgreat. But if youwant to know how themajority of people behave understress, just check out a study by Dalbar, one of the financial industry’sleadingresearchfirms.

Dalbarrevealedthegiganticdiscrepancybetweenthemarket’sreturnsandthereturnsthatpeopleactuallyachieve.Forinstance,theS&P500returnedan averageof 10.28%ayear from1985 to2015.At this rate, yourmoneydoubleseverysevenyears.Thankstothepowerofcompounding,you’dhavemadeakillingjustbyowninganindexfundthattrackedtheS&P500overthose30years.Let’ssayyou’dinvested$50,000in1985.Howmuchwouldithavebeenworthby2015?Theanswer:$941,613.61.That’sright.Almostamillionbucks!

Butwhilethemarketreturned10.28%peryear,Dalbarfoundthattheaverageinvestormadeonly3.66%ayearoverthosethreedecades!At that rate, your money doubles only every 20 years. The result?Instead of that million-dollar windfall, you ended up with only$146,996.

What explains this massive performance gap? In part, it’s thedisastrouseffectofexcessivemanagementfees,outrageousbrokeragecommissions, and other hidden costs that we’ll discuss in chapter 3.Theseexpensesareaconstantdrainonyour returns—theequivalentof a merciless vampire sucking your blood each night while you’reasleep.

Butthere’sanotherculprit,too:humannature.AsyouandIknow,we’reemotionalcreatureswithagift fordoingcrazystuffunder the influenceofemotions such as fear and greed. As the legendary Princeton UniversityeconomistBurtonMalkiel toldme: “Emotions get aholdof us, andwe, asinvestors, tend to do very stupid things.” For example, “we tend to putmoney into the market and take it out at exactly the wrong time.” Youprobablyknowpeoplewhogotcarriedawayduringabullmarketandtookreckless riskswithmoney theycouldn’t afford to lose.Youmayalsoknowpeoplewhogotscaredandsoldalltheirstocksin2008,onlytomissoutonhugegainswhenthemarketreboundedin2009.

I’vespentalmost fourdecadesteachingthepsychologyofwealth.So, inthe thirdsectionofUnshakeable, I’ll showyouhowtoadjustyourbehaviorand avoid common mistakes that are driven by emotion. Why is this soimportant? Because you can’t apply the winning strategies in this bookunlessyoulearnto“silencetheenemywithin.”

Then,togetherwe’llanswerwhatmaybethemostimportantquestionsofall.What are you really after? How do you achieve the ultimate level ofhappinessyoudesireinyourlife?Isitreallymoneyyou’rechasing,orisit

the feelings that you thinkmoney can create?Many of us believe—orfantasize—that money will bring us to a point where we finally feel free,secure, excited, empowered, alive, and joyful. But the truth is, you canachieve that beautiful state right now, regardless of your level of materialwealth.Sowhywaittobehappy?

Finally, in the appendix, we’ve included an invaluable roadmap to usewith your financial advisors and attorney.These four checklistswill guideyou in protecting your assets, building your financial legacy, and insuringagainsttheunknown.Plus,you’lldiscoverevenmorewaystosaveontaxes!

THESNAKEANDTHEROPE

But first I want to tell you about the very next chapter, because I’mconvincedthatitwillchangeyourfinanciallife.Infact,evenifyoureadonlychapter2andignoreeverythingelseinthisbook,you’regettingontracktoreapamazingrewards!

AsImentionedearlier,thisisatimeoftremendousuncertaintyformostpeople. The global economy is still limping along after all these years.Middle-classsalarieshavestagnatedfordecades.Technologyisdisruptingsomanyindustriesthatwedon’tevenknowwhat jobswillexist inthefuture.And then there’s that nagging feeling that a bearmarket is overdue afteryearsof strong returns. I don’t knowabout you,but all this uncertainty ismakingmanypeople fearful—andthisprevents themfrombuildingwealthbyinvestinginthefinancialmarketsandbecominglong-termownersofthiseconomy,notjustconsumers.

The next chapter is the antidote to that fear.We’ll walk you throughseven specific facts that will transform your understanding of how themarketworks,andoftheeconomicandemotionalpatternsdrivingit.You’lllearnthatcorrectionsandcrashesoccurwithsurprisingregularitybutneverlast.The best investors prepare for this volatility—these dramatic ups anddowns—and turn it to their advantage. Once you understand thesepatterns, you can act without fear, not because you’re in denial butbecauseyouhavetheknowledgeandclarityofmindtomaketherightdecisions.

This remindsme of an old story youmay remember about a Buddhistmonk traveling home one night on a rural path. He catches sight of apoisonous snake blocking his way, panics, and runs for dear life in theoppositedirection.Thenextmorning,hereturnstothissceneofterror.Butnow,inthebrightnessofday,herealizesthatthecoiledsnakeinhispathwasjustaharmlesspieceofrope.

Chapter 2will show you that your own anxiety is equally unfounded—thatthesnakeyoufearisreallyjustarope.Whydoesthismattersomuch?Because you can’t win this game unless you have the emotionalfortitudetoget in itand stay in it for the longterm.Onceyourealizethatthere’snosnakeblockingyourway,youcanwalkcalmlyandconfidentlyonthepathtofinancialfreedom.

Areyouready?Thenlet’sbegin!

THEMOBILEAPPANDPODCAST

Thereareacoupleofadditionalresourcestoaccelerateyourjourney.First,wecreatedamobileappcontainingvideos,planning tools, andapersonalizedcalculator thatwillhelpyoudiscoverhowmuchyouneed toaccumulate inorder toachievedifferent levelsof financial securityandfreedom. Second is the Unshakeable podcast. Peter Mallouk and I recorded a series of briefconversationsaroundthecoreprinciplesofbecomingUnshakeable.

www.Unshakeable.com

I. Industry expert Robert Arnott, founder of Research Affiliates, studied the performance over 15yearsofall203activelymanagedmutualfundsthathadatleast$100millionundermanagement.

II. Thisassumes two investorswitha starting investmentof$100,000,equal returnsof8%over30years, but with 1% fees and 2% fees, respectively. Assuming an equal withdrawal amount atretirement,theinvestorpaying2%infeeswillrunoutofmoney10yearssooner.

III. According to the financial website Investopedia: “Active managers rely on analytical research,forecasts,andtheirownjudgmentandexperienceinmakinginvestmentdecisionsonwhatsecuritiestobuy,hold,andsell.Theoppositeofactivemanagementiscalledpassivemanagement,betterknownas‘indexing.’ ”

CHAPTER 2

WINTERISCOMING...BUTWHEN?

TheseSevenFactsWillFreeYoufromtheFearofCorrectionsandCrashes

Thekeytomakingmoneyinequitiesisnottogetscaredoutofthem.—PETERLYNCH,whoreturned29%ayearasafamedfundmanageratFidelityInvestments

Power.Theability to shapeand influence life’scircumstances.The fuel toproduce extraordinary results.Where does it comes from?Whatmakes apersonpowerful?Whatcreatespowerinyourownlife?

Whenhumans livedashunter-gatherers,wehadnopower.Wewereatthe mercy of nature. We could be ripped apart by vicious predators ordestroyedbybrutalweatherwheneverweventuredintothewildtohuntorscavengeforfood.Andfoodwasn’talwaysthere.Butgradually,overmanythousands of years, we developed an invaluable skill: we learned torecognize—andutilize—patterns.

Mostimportant,weobservedthepatternsoftheseasons.Andwelearnedtotakeadvantageofthembyplantingcropsattherighttime.Thiscapabilitymovedusfromscarcitytoabundance—toawayoflifeinwhichcommunitiesand eventually cities and civilizations could flourish. Our gift for patternrecognitionliterallychangedthecourseofhumanhistory.

Alongtheway,wealsolearnedavitallyimportantlesson:we’renotrewardedwhenwedotherightthingatthewrongtime.Ifyouplantinwinter, you’ll get nothing but pain, no matter how hard you work. Tosurviveandthrive,youandIhavetodotherightthingattherighttime.

Our capacity for pattern recognition is also the number one skillthat can empower us to achieve financial prosperity. Once yourecognizethepatternsinthefinancialmarkets,youcanadapttothem,utilizethem,andprofitfromthem.Thischapterwillgiveyouthatpower.

Themajorityofinvestorsfailtotakefulladvantageoftheincrediblepowerofcompounding—themultiplyingpowerofgrowthtimesgrowth.

—BURTONMALKIEL

Before we get to the heart of this chapter, let’s just take two minutes todiscussafundamentalconceptthatI’msureyoualreadyknow,butonethatweneedtoutilizeandmaximizeinordertobuildlastingwealth.

The first pattern we need to recognize is that there’s a miraculouslypowerfulwaytobuildwealththat’savailabletoallofus—onethatWarrenBuffett has harnessed to amass a fortune that now stands at $65 billion.What’shissecret?It’ssimple,saysBuffett:“MywealthhascomefromacombinationoflivinginAmerica,someluckygenes,andcompoundinterest.”

I can’t vouch for your genes, though I’m guessing they’re pretty good!WhatIdoknowforsureisthatcompoundingisaforcethatcancatapultyouto a life of total financial freedom. Of course, we all know aboutcompounding,but it’sworthremindingourselves justhowimpactful itcanbewhenwetrulyunderstandhowtomakeitworkforus.Infact,ourabilityto recognize and utilize the power of compounding is the life-changingequivalent of our ancestors’ discovery that they could produce bountifulharvestsbyplantingcropsattherighttime!

Let’s illustrate the tremendous impact of compounding with just onesimple but mind-blowing example. Two friends, Joe and Bob, decide toinvest$300amonth.Joegetsstartedatage19,keepsgoingforeightyears,and then stops adding to this pot at age 27. In all, he’s saved a total of$28,800.

Joe’smoney thencompounds at a rateof10%ayear (which is roughlythe historic return of theUS stockmarket over the last century).By thetime he retires at 65, how much does he have? The answer:$1,863,287. In other words, that modest investment of $28,800 hasgrowntonearlytwomillionbucks!Prettystunning,huh?

HisfriendBobgetsofftoaslowerstart.Hebeginsinvestingexactlythesameamount—$300amonth—butdoesn’tgetstarteduntilage27.Still,he’sadisciplinedguy,andhekeepsinvesting$300everymonthuntilhe’s65—aperiodof39years.Hismoneyalsocompoundsat10%ayear.Theresult?Whenheretiresat65,he’ssittingonanesteggof$1,589,733.

Let’s think about this for a moment. Bob invested a total of$140,000,almost five timesmore than the$28,800 that Joe invested.YetJoehasendedupwithanextra$273,554.That’sright:Joeendsupricher thanBob, despite the fact that henever invested a dime aftertheageof27!

What explains Joe’s incredible success? Simple. By starting earlier, thecompoundinterestheearnsonhisinvestmentaddsmorevaluetohisaccountthanhecould ever add on his own. By the time he reaches age 53, the compound

interest on his account adds over $60,000 per year to his balance. By thetime he’s 60, his account is growing bymore than $100,000 per year! Allwithoutaddinganotherdime.Bob’stotalreturnonthemoneyheinvestedis1,032%,whereasJoe’sreturnisaspectacular6,370%.

Nowlet’simagineforamomentthatJoedidn’tstopinvestingatage27.Instead,likeBob,hekeptadding$300amonthuntilhewas65.Theresult:he ends up with a nest egg of $3,453,020! In other words, he has $1.86millionmorethanBobbecausehestartedinvesting8yearsearlier.

That’s the awesome power of compounding.Over time this forcecanturnamodestsumofmoneyintoamassivefortune.

Butyouknowwhat’samazing?Mostpeoplenevertakefulladvantageofthissecretthat’slyinginfullview,thiswealth-buildingmiraclethat’ssittingthererightinfrontoftheireyes.Instead,theycontinuetobelievethattheycanearntheirwaytoriches.It’sacommonmisperception—thisbeliefthat,ifyourearnedincomeisbigenough,you’llbecomefinanciallyfree.

Thetruthis,it’snotthatsimple.We’veallreadstoriesaboutmoviestars,musicians, and athletes who earned more money than God yet ended upbrokebecausetheydidn’tknowhowto investthatincome.Afteraseriesoflousyinvestments,therapper50Centrecentlydeclaredbankruptcy—despitehavinghadanetworthestimatedat$155million.ActressKimBasinger,attheheightofherpopularity,waspullinginmorethan$10millionperfilm.Andyetshealsoendedupbankrupt.EventheKingofPop,MichaelJackson,whoreportedlysignedarecordingcontractworthalmost$1billionandsoldmore than 750million records, supposedly owedmore than $300millionuponhisdeathin2009.

AmountInvested: RateofReturn:

3,600 10%

$300/monthly($3,600annually)growingat10%

Age Joe Amount Bob Amount

19 3,600 3,960 - -

20 3,600 8,316 - -

21 3,600 13,108 - -

22 3,600 18,378 - -

23 3,600 24,176 - -

24 3,600 30,554 - -

25 3,600 37,569 - -

26 3,600 45,286 - -

27 - 49,815 3,600 3,960

28 - 54,796 3,600 8,316

29 - 60,276 3,600 13,108

30 - 66,303 3,600 18,378

31 - 72,934 3,600 24,176

32 - 80,227 3,600 30,554

33 - 88,250 3,600 37,569

34-

97,075 3,600 45,286

-

35 - 106,782 3,600 53,775

36 - 117,461 3,600 63,112

37 - 129,207 3,600 73,383

38 - 142,127 3,600 84,682

39 - 156,340 3,600 97,110

40 - 171,974 3,600 110,781

41 - 189,171 3,600 125,819

42 - 208,088 3,600 142,361

43 - 228,897 3,600 160,557

44 - 251,787 3,600 180,573

45 - 276,966 3,600 202,590

46 - 304,662 3,600 226,809

47 - 335,129 3,600 253,450

48 - 368,641 3,600 282,755

49 - 405,506 3,600 314,990

50 - 446,056 3,600 350,449

51 - 490,662 3,600 389,454

52 - 539,728 3,600 432,360

53 - 593,701 3,600 479,556

54 - 653,071 3,600 531,471

55 - 718,378 3,600 588,578

56 - 790,216 3,600 651,396

57 - 869,237 3,600 720,496

58 - 956,161 3,600 796,506

59 - 1,051,777 3,600 880,116

60 - 1,156,955 3,600 972,088

61 - 1,272,650 3,600 1,073,256

62 - 1,399,915 3,600 1,184,542

63 - 1,539,907 3,600 1,306,956

64 - 1,693,897 3,600 1,441,612

65 - $1,863,287 3,600 1,589,733

Advantageofinvestingearly: $273,554

The lesson? You’re never going to earn your way to financialfreedom. The real route to riches is to set aside a portion of yourmoneyandinvestit,sothatitcompoundsovermanyyears.That’showyou become wealthy while you sleep. That’s how you make moneyyourslave insteadofbeingaslavetomoney.That’showyouachievetruefinancialfreedom.

By now, you’re probably thinking to yourself, “Yeah, but how muchmoneydoIhavetosetasideinordertoreachmyfinancialgoals?”That’sagreat question! As mentioned, to help you answer it, we’ve developed amobile app that youcanuse to figureout exactlywhatyou’llneed to saveandinvest.It’savailableatwww.unshakeable.com.

Everyone’s situation is unique, so I’d recommend sitting down with afinancialadvisortodiscussyourspecificgoalsandhowtoreachthem.ButIwant to warn you,most advisors grossly underestimate howmuchmoneyyou’relikelytoneedtobefinanciallysecure,independent,orfree.Somesayyoushouldhaveanesteggthat’stentimeswhatyouearncurrently.Others,whoareabitmorerealistic,sayyou’llneedfifteentimes.Inotherwords,ifyou’re making $100,000, you’ll need $1.5 million. If you’re making$200,000,you’llneed$3million.Yougettheidea.

Inreality,thenumberyoushouldreallyaimforis20timesyourincome.So,ifyoucurrentlyearn$100,000,you’llneed$2million.Itmaysoundlike

alot,butrememberthatourfriendJoegottherewithamere$28,000,andmybetisyou’llhavemuchmorethanthistoinvestoverthecomingyears.

You can read about this in greater detail in Money: Master the Game,whichhasanentiresectiononthissubject.AsIexplainthere,it’seasytogetoverwhelmed when you look at a huge number like this. But it’s lessintimidatingwhenyoustartwithaneasiertarget.Forexample,maybeyourfirstgoalisfinancialsecurity—nottotalindependence.Howwouldyoufeelif you could cover the cost of your mortgage, food, utilities,transportation, and insurance, allwithout everworking again?Prettygreat, right?Thegoodnews is, thisnumber isusually40%less thanultimate financial independence, where everything you need is paidfor, and thus you can hit it quicker.Once you hit that target, you’llhavebuiltupsomuchmomentumthatthebiggernumberwon’t feellikesuchastretch.

Buthowareyougoingtogetthere?First,you’vegottosaveandinvest—become an owner, not just a consumer. Pay yourself first by taking apercentageofyourincomeandhavingitdeductedautomaticallyfromyourpaycheck or bank account. This will build your Freedom Fund: thesource of lifetime income that will allow you to never have toworkagain.My guess is you’re already doing this. Butmaybe it’s time to giveyourselfaraise:increasewhatyousavefrom10%ofyourincometo15%,orfrom15%to20%.

Forsomepeople,10%mayseemimpossiblerightnow.Maybeyou’reatastageinyourlifewhenyouhavestudentloansormajorobligationstoyourfamily or a business.Nomatterwhat your situation, you have to take thefirst step and get underway. There’s a provenmethod called “SaveMoreTomorrow,”whichIdescribeindetail inChapter1.3ofMoney:MastertheGame.Youstartbysaving just3%andgraduallyraisethis to15%or20%overtime.

Nowthatyou’vesavedit,whereareyougoingtoinvestforthemaximumreturnssothatyoureachyourtargetfaster?

Thesinglebestplacetocompoundmoneyovermanyyearsisinthestockmarket. In chapter 6, we’ll discuss the importance of putting together adiversifiedportfolio that includesotherassets.But fornow,we’regoing tofocusonthestockmarket.Why?Becausethisisincrediblyfertileland!Likeour ancestors, we need to plant our seedswherewe can reap the greatestharvest.

WHERESHOULDIPUTMYMONEY?

AsyouandIbothknow,thestockmarkethasmademillionsofpeoplerich.Overthelast200years,despitemanyupsanddowns,it’sbeenthebestplaceforthelong-terminvestortobuildwealth.IButyouneedtounderstandthemarket’s patterns. You need to understand its seasons. That’s what thischapterisallabout.

What’s the biggest financial questionon all of ourminds today? Inmyexperience, we’re all searching for answers to pretty much the samequestion:“WhereshouldIputmymoney?”

This question has become more urgent lately because all of theanswersseemunappealing.Inaneraofcompressedinterestrates,youearnnothingwhenyoukeepyourcashinasavingsaccount.Ifyoubuya high-quality bond (for example, if you lendmoney to the Swiss orJapanese governments), you’ll earn less than nothing! There’s a jokegoingaroundthattraditionallysafeinvestmentslikethesenowoffer“return-freerisks”insteadof“risk-freereturns!”

What about stocks? Hundreds of billions of dollars from all over theglobehavepouredintotheUSstockmarket,whichmanypeopleregardasarelatively safehaven in anuncertainworld.But that’s createdevengreateruncertaintybecauseUSstockprices—andvaluations—havesoaredoverthepastsevenandahalfyears,fuelingfearsthatthemarketisboundtoplunge.Even people who’ve done well in this rising market are worried that thewholethingcouldfold,thatthere’snothingproppingitupexceptthecentralbanksandtheircrazypolicies!

Sowhatshouldyoudo?Prepareforastockmarketmeltdownbysellingeverythingandrunningtothehills?Keepallofyourmoneyincash(earningzilch)andwaittill themarketplummetssoyoucanbuyinat lowerprices?Buthowlongcanyouwait?Whataboutallthoseunfortunatesoulswho’vealreadywaitedforyears,missingtheentirebullmarket?Orshouldyoustayinthemarket,sittight,closeyoureyes,andassumethe“braceposition”asyou prepare for impact? I told you: none of these options sounds thatenticing!

Asyouknow,humanshaveatoughtimehandlinguncertainty.Sohowarewe supposed to make intelligent decisions in this environment whereeverything seems uncertain?What canwe do ifwe have no ideawhen the

market will plunge—when the financial equivalent of winter will finallyarrive?

But I’ve got news for you: we do know when winter will arrive.How?Becausewhenwelookbackatthestockmarketoveranentirecentury,wediscoverthisextraordinaryfact:financialwintercomes,onaverage,everyyear.

Onceyoustart torecognize long-termpatterns like this,youcanutilizethem.Evenbetter,yourfearofuncertaintymeltsawaybecauseyouseethatimportantaspectsof the financialmarketsaremuchmorepredictable thanyou’deverrealized.

So,we’regoingtowalkyouthroughsevenfactsthatwillshowyouhowthemarketswork.You’ll learnthatcertainpatternsrepeatagainandagain.Andyou’lllearntobaseyourdecisionsonanunderstandingofthoseprovenpatterns—justlikeourancestorswhodiscoveredthatplantingseedsinspring

was a winning strategy. Of course, nothing is ever entirely certain infarming, financialmarkets,or life!Somewinters arrive sooner, some later;somearesevere,somemild.Butwhenyoustickwithaneffectiveapproachover many years, your probability of success increases massively. Whatseparatesthemoneymastersfromthecrowdisthisabilitytofindawinningstrategyandstickwithit,sotheoddsarealwaysstronglyintheirfavor.

Onceyouunderstandthesevenindisputablefactswe’reabouttoexplain,you’ll know how the financial seasons work. You’ll know the rules of thegame—theprinciples onwhich it’s based.Thiswill give you an enormousedge, since evenmany experienced and sophisticated investors don’t knowthesefacts.Armedwiththisknowledge,youcangetinthegame,stayinit,andwin.Bestof all, these factswill free you fromall of the fear andanxietythatdominatemostpeople’sfinanciallives.That’swhywecallthemFreedomFacts.

And let me tell you, the ability to invest without fear is criticallyimportant.Why?Becausesomanypeoplearesoparalyzedbyfearthattheycanbarelybringthemselvestodiptheirtoesinthewater.They’reterrifiedthat the stock market will crash and wash away all of their hard-earnedsavings. They’re terrified that stocks will nosedive right after they invest.They’reterrifiedthatthey’llgethurtbecausetheydon’tknowwhatthey’redoing.Butasyou’llsoondiscover,allthosefearswillquicklyfallawayonceyouunderstandthepatternoffactsthatwe’regoingtorevealoverthenextfewpages.

Butbeforewegetstarted,letmequicklyexplainsomeinvestmentjargon.When any market falls by at least 10% from its peak, it’s called acorrection—apeculiarlyblandandneutraltermforanexperiencethatmostpeople relish about asmuch asdental surgery!When amarketfallsbyatleast20%fromitspeak,it’scalledabearmarket.

We’llbeginbysharingsomesurprisingFreedomFactsaboutcorrections.Thenwe’ll turn our attention to bearmarkets.Finally,we’ll explain themost important fact of all: the biggest danger isn’t a correction or abearmarket,it’sbeingoutofthemarket.

FreedomFact1:OnAverage,CorrectionsHaveOccurredAboutOnceaYearSince1900

HaveyoueverlistenedtothepunditsonCNBCorMSNBCtalkingabout

the stockmarket? Isn’t it amazing how dramatic they canmake it sound?They love talking about volatility and turmoilbecause feardrawsyou intotheir programming. They’re constantly analyzing minicrises thatprognosticatorspredictcouldtriggermarketmayhem.ThecrisisinquestionmightbeunrestintheMiddleEast,slumpingoilprices,thedowngradingofUS debt, a “fiscal cliff,” a budget standoff, Brexit, a China slowdown, orwhatever else they canmilk for excitement. And by the way, if you don’tunderstandthesethings,don’tworry:mostoftheseexpertsdon’teither!

Idon’tblame them forpeddlingdrama. It’s their job.Butbetweenyouandme,noneofthisisreallythatexciting.Alotofitisjusthypeduptostopyoufromreachingforyourremotecontrol.Thetrouble is,all thisbabble,all this drama, all this emotion can make it hard for us to think clearly.Whenwehearthese“experts”speakingingravevoicesaboutthepossibilityofacorrectionoracrashoracrisis, it’seasytobecomeanxiousbecause itsoundsliketheskyisabouttofall.ItmightmakeforgoodTV,butthelastthingyouandIwantistomakefear-basedfinancialdecisions.Sowehavetoremoveasmuchemotionaspossiblefromthisgame.

Insteadofgettingdistractedbyallthisnoise,ithelpstofocusonafewkeyfacts that trulymatter.For example, on average, there’s been amarketcorrectioneveryyearsince1900.WhenIfirstheardthis,Iwasfloored.Justthinkaboutit:ifyou’re50yearsoldtodayandhavealifeexpectancyof85, you can expect to live through another 35 corrections.Toput itanother way, you’ll experience the same number of corrections asbirthdays!

Whydoes thismatter?Because it shows you that corrections are just aroutinepartofthegame.Insteadoflivinginfearofthem,youandIhavetoaccept them as regular occurrences—like spring, summer, fall, andwinter.Andyouknowwhatelse?Historically,theaveragecorrectionhaslastedonly54days—lessthantwomonths!Inotherwords,mostcorrectionsareoveralmostbeforeyouknowit.Notthatscary,right?

Still,when you’re in themidst of a correction, youmight find yourselfbecomingemotionalandwantingtosellbecauseyou’reanxioustoavertthepossibility of more pain. You’re certainly not alone. These widespreademotionscreateacrisismentality.Butit’simportanttonotethat,intheaveragecorrectionoverthe last100years, themarkethas fallenonly13.5%. From 1980 through the end of 2015, the average drop was14.2%.

Itcanfeelprettyuncomfortablewhenyourassetsaretakingthatkindofahit—andtheuncertaintyleadsmanypeopletomakebigmistakes.Buthere’swhat you have to remember: if you hold tight, it’s highly likely that thestormwillsoonpass.

FreedomFact2:LessThan20%ofAllCorrectionsTurnIntoaBearMarket

When the market starts tumbling—especially when it’s down more than10%—manypeoplehittheirpainthresholdandstarttosellbecausethey’rescared that this drop could turn into a death spiral.Aren’t they just beingsensibleandprudent?Actually,notsomuch.Itturnsoutthatfewerthanone in five corrections escalate to the point where they become a bearmarket.Toputitanotherway,80%ofcorrectionsdon’tturnintobearmarkets.

If you panic andmove into cash during a correction, youmay well bedoing so right before themarket rebounds.Once youunderstand that thevastmajorityofcorrectionsaren’tthatbad,it’seasiertokeepcalmandresistthetemptationtohittheejectbuttonatthefirstsignofturbulence.

FreedomFact3:NobodyCanPredictConsistentlyWhethertheMarketWillRiseorFall

Themediaperpetuatesamyththat,ifyou’resmartenough,youcanpredictthemarket’smovesandavoiditsdowndrafts.Thefinancialindustrysellsthesamefantasy:economistsand“marketstrategists”frombiginvestmentbanksconfidentlypredictwheretheS&P500willstandattheendoftheyear,asiftheyhaveacrystalballor(equallyunlikely)superiorinsight.

NewsletterwritersalsolovetoactlikeNostradamusandwarnyouofthe“comingcrash,”hopingyou’llfeelcompelledtosubscribetotheirservicessoyoucanavoidthisfate.Manyofthemmakethesamedirepredictionseveryyear until they’re occasionally right, as anyonewould be. After all, even amanwithabrokenwatchcan tell you thecorrect time twiceaday.Theseself-proclaimed seers then use that “accurate” prediction to marketthemselvesas thenextgreatmarket timer.Unlessyou’rewise to this trick,it’seasytofallforit.

Some of these folks may actually believe in their own powers ofprediction;othersarejustslicksalesmen.Sotakeyourpick:Aretheyidiotsorliars?Icouldn’tpossiblysay!ButI’lltellyouthis:ifyou’reevertemptedto take themseriously, just remindyourselfof thisclassicremark fromthephysicist Niels Bohr: “Prediction is very difficult, especially about thefuture.”

I’mnotsurehowyoufeelaboutthetoothfairyortheEasterBunny.Butwhenitcomestoourfinances,it’sbesttofacefacts.Andthefactis,nobodycan consistentlypredictwhethermarketswill rise or fall. It’s delusional tothinkthatyouorIcouldsuccessfully“timethemarket”byjumpinginandoutattherightmoments.

If you’re not convinced, here’s what two of the wisest masters of thefinancial world think of market timing and the challenge of predictingmarketmovements. JackBogle, the founderofVanguard,whichhasmorethan $3 trillion in assets undermanagement, has said, “Sure, it would begreattogetoutofthestockmarketatthehighandbackinatthelow,butin65yearsinthebusiness,Inotonlyhavenevermetanybodythatknewhowtodoit,I’venevermetanybodywhohadmetanybodythatknewhowtodoit.”AndWarrenBuffetthassaid,“Theonlyvalueofstockforecastersistomakefortune-tellerslookgood.”

Still, I have to confess, it’s fun to watch all these market pundits,commentators, and economists make fools of themselves by trying topinpointacorrection.Lookatthechartonthefollowingpage,andyou’llseewhat I mean. One of my favorite examples is economist Dr. NourielRoubini, who predicted (wrongly) that there’d be a “significant” stockmarket correction in 2013. Roubini, one of the best-known forecasters ofour time, was nicknamed “Dr.Doom” because of hismany prophecies ofdisaster. He successfully predicted the 2008 market meltdown.Unfortunately, he also warned of a recession in 2004 (wrongly), 2005(wrongly),2006(wrongly),and2007(wrongly).

Inmyexperience,marketseerslikeRoubiniarecleverandarticulate,andtheirargumentsareoftencompelling.But they thrivebyscaringthe livingdaylights out of you—and they’ve beenwrong again and again and again.Sometimestheygetitright.Butifyoulistentoalloftheirscarywarnings,you’llenduphidingunderyourbed,clutchingatinboxcontainingyourlifesavings.Andletmetellyouasecret:historically,that’snotbeenawinningstrategyforlong-termfinancialsuccess.

MerchantsofDoom

Ifyou’dlike,takeamomentandlookatthese33failedpredictionsbyself-appointedmarketforecasters.Eachofthenumbersbelowcorrespondstothedate of the prediction in the graph. The common pattern is they’re allpredictingthatthemarketwillgodownwhenit’sactuallygoingup.

1.“MarketCorrectionAhead,”BertDohmen,DohmenCapitalResearchGroup,March7,2012.

2.“StocksFlirtwithCorrection,”BenRooney,CNNMoney,June1,2012.

3.“10%MarketCorrectionLooms:DiginorBailOut?,”MattKrantz,USAToday,June5,2012.

4.“Asignificantequity-pricecorrectioncould,infact,betheforcethatin2013tipstheUSeconomyintooutrightcontraction,”NourielRoubini,RoubiniGlobalEconomics,July20,2012.

5.“PrepareforStockMarketCrash2013,”JonathanYates,moneymorning.com,June23,2012.

6.“Dr.Doom2013Prediction:RoubiniSaysWorseGlobalEconomicTurmoilApproaching;FiveFactorstoBlame,”KukilBora,

InternationalBusinessTimes,July24,2012.7.“WatchoutforaCorrection—orWorse,”MarkHulbert,

MarketWatch,August8,2012.8.“Wethinkwearesetupforan8–10%correctioninthemonthof

September,”MaryAnnBartels,BankofAmerica–MerrillLynch,August22,2012.

9.“It’sComing:OneProSeesBigStockSelloffin10Days,”JohnMelloy,CNBC,September4,2012.

10.“Warning:StockCorrectionMayBeComing,”HibahYousuf,CNNMoney,October4,2012.

11.“I’mgoingaroundtowntellingmyhedgefundclientsthattheUSeconomyisheadedintorecession,”MichaelBelkin,BelkinLimited,October15,2012.

12.“FiscalCliffBluesMayLeadtoCorrection,”CarolineValetkevitchandRyanVlastelica,Reuters,November9,2012.

13.“WhyaSevereStockMarketCorrection’sImminent,”MitchellClark,LombardiFinancial,November14,2012.

14.“Bysummer,wegetanothercrash,”HarryDent,DentResearch,January8,2013.

15.“AStockMarketCorrectionMayHaveBegun,”RickNewman,U.S.News&WorldReport,February21,2013.

16.“SluggishEconomyMaySignalCorrection,”MaureenFarrell,CNNMoney,February28,2013.

17.“Ithinkacorrectioniscoming,”ByronWien,Blackstone,April4,2013.

18.“Market’sLongOverdueCorrectionSeemstoBeStarting,”JonathanCastle,ParagonWealthStrategies,April8,2013.

19.“5WarningSignsofaComingMarketCorrection,”DawnBennett,BennettGroupFinancialServices,April16,2013.

20.“StockMarketWarningSignsBecomingOminous,”SyHarding,StreetSmartReport.com,April22,2013.

21.“Don’tbuy—sellriskassets,”BillGross,PIMCO,May2,2013.22.“Thismaynotbethetimetosprintawayfromrisk,butitisthetime

towalkaway,”MohamedEl-Erian,PIMCO,May22,2013.

23.“We’redueforacorrectionsoon,”ByronWien,Blackstone,June3,2013.

24.“Doomsdaypoll:87%RiskofStockCrashbyYear-End,”PaulFarrell,MarketWatch,June5,2013.

25.“StockShrink:MarketHeadingforSevereCorrection,”AdamShell,USAToday,June15,2013.

26.“Don’tBeComplacent—AMarketCorrectionIsOnItsWay,”SashaCekerevac,InvestmentContrarians,July12,2013.

27.“ForTwoMonths,MyModelsHaveToldMeThatJuly19thWouldBetheStartofaBigStockMarketSell-Off,”JeffSaut,raymondjames.com,July18,2013.

28.“SignsofaMarketCorrectionAhead,”JohnKimelman,Barron’s,August13,2013.

29.“CorrectionWatch:HowSoon?HowBad?HowtoPrepare?,”KevinCook,Zacks.com,August23,2013.

30.“IThinkThere’saDecentChanceStocksWillCrash,”HenryBlodget,BusinessInsider,September26,2013.

31.“5ReasonstoExpectaCorrection,”JeffReeves,MarketWatch,November18,2013.

32.“TimetoBracefora20%Correction,”RichardRescigno,Barron’s,December14,2013.

33.“Blackstone’sWien:StockMarketPoisedfor10%Correction,”DanWeil,Moneynews.com,January16,2014.

FreedomFact4:TheStockMarketRisesoverTimeDespiteManyShort-TermSetbacks

The S&P 500 index experienced an average intra-year decline of14.2% from 1980 through the end of 2015. In other words, thesemarket drops were remarkably regular occurrences over 36 years.Onceagain,nothingtobescaredof—justamatterofwinterputtinginitsusualseasonalappearance.Butyouknowwhatreallyblowsmymind?As you can see in the chart below, themarket endedup achieving apositivereturnin27ofthose36years.That’s75%ofthetime!

HappyEndings

Despitea14.2%averagedropwithineachyear,theUSmarketendedupwithapositivereturnin27ofthelast36years.

Whyisthissoimportant?Becauseitremindsusthatthemarketgenerallyrises over the long run—even though we hit a huge number of potholesalongtheway.YouknowaswellasIdothattheworldhaditsfairshareofproblemsoverthose36years,includingtwoGulfwars,9/11,theconflictsinIraq and Afghanistan, and the worst financial crisis since the GreatDepression.Evenso,themarketultimatelyroseinallbut9ofthoseyears.

Whatdoesthismeaninpractical terms?ItmeansthatyouandIshouldalways remember that the long-term trajectory is likely to be good, evenwhentheshort-termnewsisdismalandthemarketisgettingsmacked.Wedon’t need to get bogged down in economic theory here. But it’s worthmentioning that theUS stockmarket typically rises over timebecause theeconomy expands as American companies become more profitable, asAmericanworkersbecomemoreefficientandproductive,asthepopulationgrows,andastechnologydrivesnewinnovation.

I’m not saying that every company—or every individual stock—will dowellovertime.AsyouandIbothknow,thebusinessworldisaDarwinianjungle!Somecompanieswilldie,andsomestockswillfalltozero.Butonebigadvantageofowninganindexfundthattracksabasketofstockssuchas

the S&P 500 is that the weaker companies intermittently get culled andreplaced by stronger ones. It’s survival of the fittest in action! The greatthingisthatyoubenefitfromtheseupgradesinthequalityofthecompaniesintheindex.How?Well,asashareholderofanindexfund,youownpartofthe future cash flows of the companies in that index.Thismeans that theAmericaneconomyismakingyoumoneyevenwhileyousleep!

ButwhatifAmerica’seconomicfutureislousy?It’safairquestion.Weallknowthereareseriouschallenges,whetherit’sthethreatofterrorism,globalwarming,orSocialSecurityliabilities.Evenso,thisisanincrediblydynamicandresilienteconomywithsomepowerfultrendsdrivingitsfuturegrowth.In his 2015 annual report,Warren Buffett addressed this subject atlength, explaining how population growth and extraordinary gains inproductivitywill create an enormous increase inwealth for the nextgeneration of Americans. “This all-powerful trend is certain tocontinue:America’seconomicmagicremainsaliveandwell,”hewrote.“For240years,it’sbeenaterriblemistaketobetagainstAmerica,andnowisnotimetostart.”

FreedomFact5:Historically,BearMarketsHaveHappenedEveryThreetoFiveYears

Ihopeyou’restartingtoseewhyit’sagoodideatobealong-terminvestorinthestockmarketandnotmerelyashort-termtrader.AndIhopeit’snowequally obvious that you don’t need to live in fear of corrections. Just torecapforamoment:youknownowthatcorrectionshappenregularly; thatnobody can predict when they’ll happen; and that the market usuallyreboundsquickly,resumingitsgeneralupwardtrajectory.Anyfearyouoncefelt should turn to power.Believeme, these facts hitme like a revelation:onceIunderstoodthem,allofmyconcernsaboutcorrectionsmeltedaway.Herewasfactualproofthatthesnakewasnothingbutaninertrope!

Butwhataboutbearmarkets?Shouldn’twebeterrifiedofthem?Actually,no.Hereagain,weneedtounderstandafewkeyfactssowecanactonthebasisofknowledge,notemotion.

Thefirstfactyouneedtoknowisthattherewere34bearmarketsinthe115yearsbetween1900and2015.Inotherwords,onaverage,they happened nearly once every three years. More recently, bearmarketshaveoccurred slightly lessoften: in the70years since1946, there

havebeen14ofthem.That’sarateofonebearmarketeveryfiveyears.So,dependingonwhenwestartcounting, it’s fair tosaythatbearmarketshavehistoricallyhappenedeverythreetofiveyears.Atthatrate,ifyou’re50yearsold,youcouldeasilylivethroughanothereightortenbearmarkets!

You and I both know that the futurewillnot be an exact replica of thepast.Still,it’susefultostudythepasttogainabroadsenseoftheserecurringpatterns.As the sayinggoes, “Historydoesn’t repeat itself,but it rhymes.”So, what do we learn frommore than a century of financial history?Welearn that bear markets are likely to continue happening every few years,whetherwelikeitornot.AsIsaidbefore,winteriscoming.So,we’dbettergetusedtoit—andprepare.

Howbaddoes it getwhen themarket really crashes?Well, historically,the S&P 500 has dropped by an average of 33% during bearmarkets. Inmore than a third of bearmarkets, the index plunged bymore than40%. I’mnot going to sugarcoat this. If you’re someonewhopanics, sellseverything in themidst of thismayhem, and locks in a loss ofmore than40%,you’regoingtofeellikeagrizzlybearmauledyouforreal.Evenifyouhave the knowledge and fortitude not to sell, you’ll likely find that bearmarketsareagut-wrenchingexperience.

Even an oldwarhorse likemy buddy JackBogle admits that they’re nowalkinthepark.“HowdoIfeelwhenthemarketgoesdown50%?”heasksrhetorically.“Honestly,Ifeelmiserable.Igetknotsinmystomach.SowhatdoIdo?Igetoutacoupleofmybookson ‘stayingthecourse’andrereadthem!”

Sadly, many advisors fall victim to the same fear and hide under theirdesks during these tumultuous times. Peter Mallouk told me that theongoingcommunicationduringthesestormsiswhatsetsCreativePlanningapart.His company is the proverbial lighthouse, broadcasting themessage“Staythecourse!”

Buthere’swhat youneed toknow:bearmarketsdon’t last. If youlookatthechartonthenextpage,you’llseewhathappenedinthe14bearmarketswe’veexperiencedintheUnitedStatesoverthelast70years.Theyvariedwidelyinduration,fromamonthandahalf(45days)tonearly2years(694days).Onaverage,theylastedaboutayear.

Whenyou’reinthemidstofabearmarket,you’llnoticethatmostofthepeoplearoundyoubecomeconsumedwithpessimism.Theystarttobelievethatthemarketwillneverriseagain,thattheirlosseswillonlydeepen,that

winter will last forever. But remember: winter never lasts! Spring alwaysfollows.

Themostsuccessful investors takeadvantageofall that fearandgloom,usingthesetumultuousperiodstoinvestmoremoneyatbargainprices.SirJohnTempleton,oneofthegreatestinvestorsofthelastcentury,talkedtomeatlengthaboutthisinseveralinterviewsIdidwithhimbeforehepassedaway in2008.Templeton,whomadea fortunebuyingcheap stocks in themidstofWorldWarII,explained:“Thebestopportunitiescomeintimesofmaximumpessimism.”

ALookBackatBearMarkets

Years NumberofDaysinLength %DeclineinS&P500

1946–1947 353 -23.2%

1956–1957 564 -19.4%

1961–1962 195 -27.1%

1966 240 -25.2%

1968–1970 543 -35.9%

1973–1974 694 -45.1%

1976–1978 525 -26.9%

1981–1982 472 -24.1%

1987 101 -33.5%

1990 87 -21.2%

1998 45 -19.3%

2000–2001 546 -36.8%

2002 200 -32.0%

2007–2009 515 -57.6%

FreedomFact6:BearMarketsBecomeBullMarkets,andPessimismBecomesOptimism

Doyourememberhowfragiletheworldseemedin2008whenbankswerecollapsing and the stock market was in free fall?When you pictured thefuture,diditseemdarkanddangerous?Ordiditseemlikethegoodtimeswerejustaroundthecornerandthepartywasabouttobegin?

Asyoucanseefromthechartonthenextpage,themarketfinallyhitrockbottom onMarch 9, 2009. And do you know what happened next?TheS&P 500 index surged by 69.5% over the next 12 months. That’s aspectacularreturn!Onemoment,themarketwasreeling.Thenextmoment,webeganoneofthegreatestbullmarketsinhistory!AsIwritethisinlate2016, the S&P 500 has risen by an astonishing 266% since its lowpointinMarch2009.

Youmight think thiswasa freakoccurrence.Butasyoucan seeon thechartabove,thepatternofbearmarketssuddenlygivingwaytobullmarketshasrepeateditselfagainandagaininAmericaoverthelast75years.

FromBeartoBull

BearMarketBottom Next12Months(S&P500)

June13,1949 42.07%

October22,1957 31.02%

June26,1962 32.66%

May26,1970 43.73%

October3,1974 37.96%

August12,1982 59.40%

December4,1987 22.40%

September21,2001 33.73%

July23,2002 17.94%

March9,2009 69.49%

Now can you see whyWarren Buffett says he likes to be greedywhenothersarefearful?Heknowshowquicklythemoodcanswitchfromfearanddespondencytoexuberantoptimism.Infact,whenthemoodinthemarketisoverwhelminglybleak,superinvestorssuchasBuffetttendtoviewitasapositivesignthatbettertimeslieahead.

Youseeasimilarpatternwhenitcomestoconsumerconfidence,whichisameasureofhowoptimisticorpessimisticconsumersfeelaboutthefuture.Duringabearmarket,commentatorsoftenremarkthatconsumerspendinghasfallenbecausepeoplearesonervousaboutthefuture.It’saviciouscycle:consumers spend less money, so companies make less money. And ifcompaniesmake less,doesn’t thatmean the stockmarketwon’tbe able to

recover?Youmightthinkso.Buttheseperiodsofconsumerpessimismareoftentheidealtimetoinvest.Lookatthetableonthenextpageandyou’llseethatanarrayofbullmarketsbeganwhenconsumerconfidencewasatalowpoint.

Why?Becausethestockmarket isn’t lookingat today.Themarketalwayslookstotomorrow.Whatmattersmostisn’twheretheeconomyisrightnowbutwhereit’sheaded.Andwheneverythingseemsterrible,thependulumeventually swings in theotherdirection. In fact, everysinglebearmarket inUShistoryhasbeenfollowedbyabullmarket,withoutexception.

Thisrecordofincredibleresiliencehasmadeliferelativelyeasyforlong-terminvestorsintheUSmarket.Againandagain,badtimeshaveeventuallybeen followed by good times. Butwhat about other countries?Have theyseenasimilarpatternofbearmarketsbeingfollowedbybullmarkets?

Broadly speaking, yes. But Japan has had a much tougher experience.Remember the 1980swhen Japanese companies seemedpoised to rule theworld?Japan’sstockindex,theNikkei225,rosesixfoldduringthoseyearsofgiddy optimism, hitting a high of 38,957 in 1989. Then the market gotblowntobits.ByMarch2009,theNikkeihadsunktoalowof7,055.That’san 82% loss over 20 years! In recent years, though, it has staged a strongcomeback, recovering toahighof17,079.Evenso, the Japanesemarket isstillwaybelowitspeakafternearlythreedecades.

Aswe’ll discuss later, you canprotect yourself against this sort ofdisasterbybuilding a portfolio that’s broadlydiversifiedglobally andalsoamongdifferenttypesofassets.

WhoNeedsConfidence?

ConsumerConfidence<60% Next12Months(S&P500)

1974 +37%

1980 +32%

1990 +30%

2008 +60%

2011 +15%

Thestockmarketisadevicefortransferringmoneyfromtheimpatienttothepatient.—WARRENBUFFETT

Did you ever listen to the news andhear the announcermention that thestockmarket just hit an all-time high?Maybe you got that queasy feelingthat we were flying too close to the sun, that gravity was about to do itsthing,thatthemarketwouldinevitablyfallbacktoearth.

AsI’mwritingthesewords,theS&P500standsjustafewpointsbelowitsall-timehigh.Inrecentweeks,ithitnewhighsonmultipleoccasions.And,asyouknow,thisbullmarketismorethansevenyearsold.So,thepossibilitythat wemay be due for a fall has probably been on yourmind as well asmine. It certainlymakes sense not to take carefree riskswhen stocks havesoared for years. If there’sone lesson from Japan’s experience, it’s thatwehumanshaveanaturaltendencytogetcarriedawayandlosesightofdangerwhenstockpriceshavebeensurging.

Butthefactthatamarketisclosetoitsall-timehighdoesn’tnecessarilymeanthatthere’stroubleahead.Aswediscussedearlier,theUSmarkethasageneral upward bias. It rises over the long term because the economycontinues to grow. In fact, the US market hits an all-time high onapproximately 5% of all trading days. On average, that’s once amonth.II

Thanks to inflation, thepriceof almost everything is at an all-timehighalmostallthetime.Ifyoudon’tbelieveme,checkthepriceofyourBigMac,yourcafélatte,yourcandybar,yourThanksgivingturkey,oryournewcar.Chancesare,they’reallpricedatanall-timehigh,too.

FreedomFact7:TheGreatestDangerIsBeingoutoftheMarket

Ihopeyouagreewithmebynowthatit’snotpossibletojumpinandoutofthemarketsuccessfully.It’sjusttoodifficultforregularmortalslikeyouandmetopredictthemarket’smovements.AsJackBogleoncesaid,“Theideathatabellringstosignalwheninvestorsshouldgetintooroutofthestockmarketissimplynotcredible.”Evenso,thefactthatthemarketishoveringclosetoanall-timehighmighttemptyoutoplay it safebywaitingonthesidelinesincashuntilstockpriceshavefallen.

Thetroubleis,sittingonthesidelinesevenforshortperiodsoftimemaybethecostliestmistakeofall.Iknowthissoundscounter-intuitive,

but as you can see in the chart below, it has adevastating impactonyourreturnswhenyoumissevenafewofthemarket’sbesttradingdays.

Youmissonehundredpercentoftheshotsyoudon’ttake.—HOCKEYHALLOFFAMERWAYNEGRETZKY

From1996through2015,theS&P500returnedanaverageof8.2%ayear.Butifyoumissedoutonthetop10tradingdaysduringthose20years,yourreturnsdwindled to just4.5%ayear.Canyoubelieve it?Yourreturnswouldhavebeencutalmostinhalfjustbymissingthe10besttradingdaysin20years!

Itgetsworse!Ifyoumissedoutonthetop20tradingdays,yourreturnsdroppedfrom8.2%ayeartoapaltry2.1%.Andifyoumissedoutonthetop30 tradingdays?Your returns vanished into thin air, falling all theway tozero!

Meanwhile,astudybyJPMorganfoundthat6ofthe10bestdaysinthemarketoverthelast20yearsoccurredwithintwoweeksofthe10worstdays.Themoral:ifyougotspookedandsoldatthewrongtime,youmissed out on the fabulous days that followed, which is when patientinvestorsmadealmostalloftheirprofits.Inotherwords,marketturmoilisn’t something to fear. It’s the greatest opportunity for you toleapfrog to financial freedom.Youcan’twinby sittingon thebench.

Youhavetobeinthegame.Toputitanotherway,fearisn’trewarded.Courageis.

Themessage isclear: thegreatestdangertoyourfinancialhealth isn’tamarket crash; it’s being out of the market. In fact, one of the mostfundamentalrulesforachievinglong-termfinancialsuccessisthatyouneedtoget in themarket and stay in it, soyoucancapture allof itsgains. JackBogleputsitperfectly:“Don’tdosomething—juststandthere!”

Hellistruthseentoolate.—THOMASHOBBES,seventeenth-centuryBritishphilosopher

Butwhatifyougetintothemarketatexactlythewrongtime?Whatifyougetunlucky,andyou’rehit immediatelybyacorrectionoracrash?Asyoucan see in the chartbelow, theSchwabCenter forFinancialResearchstudied the impact of timing on the returns of five hypothetical investorswhohad$2,000incashtoinvestonceayearfor20years,startingin1993.

Themost successfulof these five investors—let’s callherMs.Perfect—invested her money on the best possible day each year: the day when themarket hit its exact low point for that year. This mythical investor, whoperfectlytimedthemarketfor20yearsrunning,endedupwith$87,004.Theinvestorwith theworst timing—let’s callhimMr.Hapless—investedallofhismoneyontheworstpossibledayeachyear:thedaywhenthemarkethititsexacthighpointforthatyear.Theresult?Heendedupwith$72,487.

What’s striking is that, even after this 20-year run of spectacularly badluck,Mr.Haplessstillmadeasubstantialprofit.Thelesson?Ifyoustayinthemarket longenough,compoundingworks itsmagic,andyouendupwithahealthyreturn—evenifyourtimingwashopelesslyunlucky.Andyouknowwhat?Theworst-performinginvestorwasn’ttheunluckyone,buttheonewhostayedonthebench,theoneincash:heendedupwithonly$51,291.

FREEATLAST!

In this chapter, you’ve learned seven facts that show you how themarketworks. Based on more than a century of financial history, you nowunderstand that corrections, bear markets, and recoveries follow similarpatterns again and again.Now that you have the power to recognize theselong-termpatterns,youwillalsohavethepowertoutilizethem.

Later in thisbook,we’ll explain indepth the specific strategies you canusetotakeadvantageoftheseseasonalpatterns.Forexample,we’llshowyouwhat to look forwhen creating your ideal asset allocation strategy, so youcanminimizeyourlossesinabearmarketandmaximizeyourgainswhenthemarket rebounds. But for now, you should have a big smile on your face!You know the facts. You know the rules of the game. You know thatcorrectionsandbearsaretobeexpected,andyou’llsoonlearnhowtotakeadvantageofthem.You’reonestepclosertobeingtrulyunshakeable.

Best of all, you’re taking control of your financial life. You’re takingresponsibility. Because you know what? Most people never takeresponsibility. They prefer to blame the market for whatever happens tothem.Butthemarketnevertookadimefromanyone!Ifyoulosemoneyinthemarket,it’sbecauseofadecisionyoumade—andifyoumakemoneyinthemarket, it’s because of a decision you made. The market is going to do

whatever it’s going to do. But you determine whether you’ll win or lose.You’reincharge.

This chapter has taught you that financial winter is always followed byspring—alessonthatwillallowyoutoproceedwithoutfear.Or,attheveryleast, a lot less of it. Knowledge brings understanding, and understandingbringsresolve.Youwon’tbethepersonwhopullsyourmoneyoutofstockswhen the market is getting slammed! You’ll be the one who stays in thegameforthelonghaul—plantingtherightseeds,nurturingthempatiently,andthenreapingtheharvest!

But in the next chapter, you’ll discover that there’s one thing that it’sactuallyhealthy to fear: financial firms that charge clients like you andmeoutrageous fees for lousy performance. As you’ll see, there’s no morepowerfulwaytotakecontrolofyourfinancesthantocutouttheseexcessive—andoftenhidden—fees.Howwillyoubenefit?You’llsaveatleast10yearsofincome!How’sthatfortakingcharge?

Soturnthepage,andlet’sexposethosehiddenfeesandhalf-truths...

I. Formore information, see the chartonpage309ofMoney:Master theGame fromNobelPrize–winningeconomistRobertSchiller.

II. Remember:reallifeisnotanabsoluteaverage.Youtendtohavestreaksofupdaysandalsodowndays.Butit’sgoodtoknowtheaverage.

CHAPTER 3

HIDDENFEESANDHALF-TRUTHS

HowWallStreetFoolsYouintoOverpayingforUnderperformance

Thenameofthegame?Movingthemoneyfromtheclient’spockettoyourpocket.—MATTHEWMCCONAUGHEYTOLEONARDODICAPRIOINTHEWOLFOFWALL

STREET

Ioftenaskpeople“Whatareyouinvestingfor?”Igetavarietyofanswers:from “high returns,” to “financial security,” to “retirement,” to “a beachhouse in Hawaii.” But before long, nearly everyone’s answers begin torhyme.Whatmostpeoplereallywant,regardlessofhowmuchmoneytheyhavetoday, is freedom.Freedomtodomoreofwhattheywant,whenever theywant,withwhomever theywant. It’s a beautiful dream,andanachievableone.Buthowcanyousailoffintothesunsetifyourboathasaholeinit?Whatifit’sslowlybutsurelytakingonsomuchwaterthatit’llsinklongbeforeitreachesitsdestination?

Ihate totellyouthis,butmostpeopleare inexactly thisposition.Theydon’trealizethatthey’redoomedtodisappointmentbecauseofthegradual—but ultimately devastating—impact of excessive fees on their financialwell-being.Whatkillsmeisthattheyhavenoideathisisevenhappeningtothem.Theyhavenoideathattheyarevictimsofafinancialindustrythatissurreptitiouslybutsystematicallyoverchargingthem.

Don’t just take my word for it. The nonprofit organization AARPpublishedareportinwhichitfoundthat71%ofAmericansbelievethattheypaynofeesatalltohavea401(k)plan.That’sright:7outof10peopleareentirelyunawarethatthey’reevenbeingchargedafee!Thisistheequivalentofbelievingthatfastfoodcontainsnocalories.Meanwhile,92%admitthattheyhavenoideahowmuchthey’reactuallypaying.IInotherwords,they’reblindly trusting the financial industry to look out for their best interests!Yup, that’s the very same industry that brought about the global financialcrisis!Youmightaswelljusthandoveryourwalletandthepasswordtoyourdebitcard.

Youknowtheoldsaying“Ignoranceisbliss”?Well,letmetellyou:whenit comes to your finances, ignorance is not bliss. Ignorance is pain and

poverty. Ignorance is disaster for you and your family—and bliss for thefinancialfirmsthatareexploitingyourinattention!

Thischapterwillshineabrightlightonthesubjectoffees,soyouknowexactly what’s going on. The good news: once you know precisely what’shappening, you can put a permanent, life-changing stop to it.Why doesthismattersomuch?Becauseexcessive feescandestroy two-thirdsofyournestegg!JackBoglespelleditouttomequitesimply:

“Let’s assume the stock market gives a 7% return over 50 years,” hebegan.Atthatrate,becauseofthepowerofcompounding,“eachdollargoesup to30dollars.”But the average fund charges you about2%per year incosts,whichdropsyouraverageannualreturnto5%.Atthatrate,“youget10dollars.So10dollarsversus30dollars.Youputup100%ofthecapital,youtook100%oftherisk,andyougot33%ofthereturn!”

Did you get that? You forfeited two-thirds of your nest egg to line thepocketsofmoneymanagerswhotooknorisk,putupnoneofthecapital,andoften deliveredmediocre performance!Nowwho do you thinkwill end upwiththebeachhouseinHawaii?

Once you’ve read this chapter, you’ll know how to take backcontrol!Byminimizingfees,you’llsaveyears—or,morelikely,decades—ofretirement income.Thisonemovewilldramatically accelerateyourjourneytofinancialfreedom.Butthat’snotall.You’llalsolearnhowtoslashthetaxesyoupayonyourinvestments.That’scrucialbecauseexcessivetaxes,like fees, are a destructive force that can overwhelm all the positive stepsyou’vetaken.

Howdoyouthinkyou’ll feelwhenyou’venotonly identified these twoenemiesbutalsodefeatedthem?You’llfeeltrulyunshakeable!

THEWOLVESOFWALLSTREET

Ifyou’relookingtoachievefinancialsecurity,theobviousrouteistoinvestinmutualfunds.Maybeyourbrother-in-lawwasluckyenoughtobuysharesinAmazon,Google,andApplebeforetheyskyrocketed.Butfortherestofus,pickingindividualstocksisalosinggame.Therearejusttoomanythingswe don’t know, toomany variables, toomuch that can gowrong.Mutualfundsofferasimpleandlogicalalternative.Forastart,theyprovideyouwiththebenefitofbroaddiversification,whichhelpstoreduceyouroverallrisk.

But how do you pick the right funds? There are certainly enough tochoosefrom.Aswementionedearlier,thereareabout9,500mutualfundsinAmerica—morethandoublethenumberofpubliclytradedUScompanies!Soit’ssafetosaythemutual fundmarket isa tadsaturated.Whydosomanycompanies want to be in this business? Yup, you got it: because it’sfabulouslylucrative!

The trouble is, it tends tobemuchmore lucrative forWallStreet thanfor actual customers like you and me. Don’t get me wrong. I’m notsuggesting that the industry is consciously out to screw us. I’m notsuggesting that this is a business full of crooks or charlatans! On thecontrary,themajorityoffinancialprofessionalsareintelligent,hardworking,and thoughtful. ButWall Street has evolved into an ecosystem that existsfirstandforemosttomakemoneyforitself.It’snotanevilindustrymadeupof evil individuals. It’s made up of corporations whose purpose is tomaximizeprofitsfortheirshareholders.That’stheirjob.

Eventhebest-intentionedemployeesareworkingwithintheconfinesofthis system. They’re under intense pressure to grow profits, and they’rerewarded for doing so. If you—the client—happen to do well, too, that’sgreat!Butdon’tkidyourself.You’renotthepriority!

When I met David Swensen, the chief investment officer for YaleUniversity, he helped me to understand just how badly the mutual fundindustry serves the majority of its clients. Swensen is the rock star ofinstitutional investing, famous forhaving turneda$1billionportfolio into$25.4billion!Buthe’s alsooneof themost caring and sincerepeople I’veevermet.HecouldeasilyhaveleftYaleandbecomeabillionairebystartinghisownhedgefund,buthe’sguidedbyadeepsenseofdutyandservicetohis almamater. So Iwasn’t surprised to hear his dismay at thewaymanyfundcompaniesmistreattheirclients.

Asheputit:“Overwhelmingly,mutualfundsextractenormoussumsfrominvestorsinexchangeforprovidingashockingdisservice.”

Whatserviceisitthatfundsaresupposedtoprovide?Well,whenyoubuyan actively managed fund, you’re essentially paying for the manager togeneratemarket-beatingreturns.Otherwisewouldn’tyoubebetteroff juststickingyourmoneyinalow-costindexfund,whichattemptstoreplicatethereturnsofthemarket?

Asyoucan imagine, thepeoplewhorunactivelymanaged fundsarenofools. They aced their math tests in high school, studied economics and

accounting,andearnedMBAsfromtheworld’sbestgraduateschools.Manyof themevenwearsuitsandties!Andthey’rededicatedtoresearchingandselectingtheverybeststocksfortheirfundstoown.

Sowhatcouldpossiblygowrong?Prettymucheverything...

TheHumanFactor

Fundmanagerstrytoaddvaluebypredictingwhichcompanieswillperformbest in the weeks, months, or years to come. They can avoid or“underweight” particular sectors (or countries) that they believe haveunattractiveprospects.Theycanbuildupcashiftheycan’tfindstocksworthbuying—or they can investmore aggressivelywhen they’re feelingbullish.But it turns out that the professionals aren’t really any better atpredicting the future than the rest of us. The truth is, humans aregenerallypretty lousyatmakingpredictions!Perhaps that’swhyyouneverseeanewspaperheadlinethatsays“PsychicWinstheLottery!”

Whenactivefundmanagerstradeinandoutofstocks,thereareplentyofopportunitiestomakemistakes.Forexample,theydon’tjusthavetodecidewhichstockstobuyorsell,butwhentobuyorsellthem.Andeverydecisionobliges them tomake anotherdecision.Themoredecisions they face, themorechancestheyhavetomessup.

Tomakemattersworse,allthistradinggetsexpensive.Everytimeafundtradesinoroutofastock,abrokeragefirmchargesacommissiontoexecutethe transaction. It’s abit likegamblingat a casino: thehousegetspaidnomatterwhat.Sothehousealwayswinsintheend!Inthiscase,thehouseisabrokeragefirm(liketheSwissfinancialcompanyUBSorMerrillLynch,thewealthmanagement divisionofBankofAmerica) that charges a toll everytime the fundmanagermakes amove.Over time those tolls addup.As ithappens,I’mworkingonthischapterwhilestayingatahotel inLasVegasrunbymybuddySteveWynn,whobecameabillionairebycreatingsomeoftheworld’smostpopularcasinos.AsStevewilltellyou,it’smuchbettertobetheonewhocollectsthetollsthantheonewhopaysthem!

Likepoker, investing is a zero-sumgame: there are only somanychipsonthetable.Whentwopeopletradeastock,onemustwinandone must lose. If the stock goes up after you buy it, you win. Butyou’vegot towinbyabigenoughmargin tocover those transactioncosts.

Wait, it getsworse! If your stock goes up, you’ll also have to paytaxes on your profits when you sell the stock. For investors in anactivelymanagedfund,thiscombinationofheftytransactioncostsandtaxesisasilentkiller,quietlyeatingawayatthefund’sreturns!Toaddvalueaftertaxesandfees,thefundmanagerhastowinbyareallybigmargin.And,asyou’llsoonsee,thatain’teasy.

Do your eyes glaze over when we start talking about taxes? I know, Iknow! This isn’t the sexiest topic. But it should be!Because the largestexpenseinyourlifeistaxes,andpayingmorethanyouneedtopayisinsane—especiallywhen it’s absolutely avoidable! If you’re not careful,taxescanhaveacatastrophicimpactonyourreturns.Here’sanextremeyetsurprisinglycommonexample:

Let’s say you invest in a fund in December. Then, the next day, themanager sells a stock that’s shotupover thepast10months.Sinceyou’renowanownerof thefund,you’llbegettinga taxbill for thosegains,eventhough you didn’tbenefitonebit from the stock’smeteoric rise!IINobodysaidthetaxcodewasfair.

Another common problem has to do with how long actively managedfundsholdtheirinvestments.Mostaretradingconstantly.Theysellmanyoftheirinvestmentsinlessthanayear.Thatmeansyounolongerbenefitfromthelowercapitalgainstaxrate.Soregardlessofhowlongyouholdthefund,you’llbetaxedatyourhigherordinaryincometaxrate.

Whyshouldyoucare?Becauseyourprofitscouldbeslashedby30%ormore,unlessyou’reholdingthefundinsideatax-deferredaccountsuchas an IRA (individual retirementaccount)or a401(k)plan.Notsurprisingly, fund companies don’t like to dwell on these tax issues,preferringtotouttheirpretaxreturns!

Imagine that over time you’re losing two-thirds of your potentialnest egg to fees—and you’re giving up another 30% in unnecessarytaxes.Howmuchwillreallybeleftforyourfamily’sfuture?

Sowhat’stheantidote?Index funds take a “passive” approach that eliminates almost all trading

activity. Instead of trading in and out of themarket, they simply buy andholdeverystockinanindexsuchastheS&P500.Thisincludescompanieslike Apple, Alphabet, Microsoft, ExxonMobil, and Johnson & Johnson—currently the five biggest stocks in the S&P 500. Index funds are almostentirely on autopilot: theymake very few trades, so their transaction costs

andtaxbillsareincrediblylow.Theyalsosaveafortuneonotherexpenses.Forone thing, theydon’thave topayenormous salaries toall thoseactivefundmanagersandtheirteamsofanalystswithIvyLeaguedegrees!

When you own an index fund, you’re also protected against all thedownrightdumb,mildlymisguided,ormerelyunluckydecisionsthatactivefundmanagersareliabletomake.Forexample,anactivemanagerislikelytokeep a portion of the fund’s assets in cash, ready to invest if an enticingopportunityarises—orreadytomeetredemptionrequestsiflotsofinvestorsdecidetoselltheirsharesinthefund.Keepingsomecashonhandisn’tabadidea,andit’shandywhenthemarketfalls.Butcashdoesn’tearnareturn,soitwillunderperformstocksovertime,assumingthatthemarketcontinuesitsgeneralupwardtrajectory.Ultimatelytheresulting“cashdrag”tendstohaveanegativeimpactonthereturnsofactivelymanagedfunds.

Whatabout index funds? Insteadof sittingoncash, they remainalmostfullyinvestedatalltimes.

“GOODLUCKWITHTHAT”

Whyisitsodifficulttotimethemarketsuccessfully,movinginandoutofstocksatjusttherightmomentsothatyoucanbenefitfromthemarket’supturnsandavoidthepainofitsdownturns?Manypeoplemistakenlyassumethatyoujustneedtoberightalittlemorethan50%ofthetimeforthisapproachtopayoff.ButanexhaustivestudybyNobellaureateeconomistWilliamSharpeshowedthatamarket-timinginvestormustberight69%to91%ofthetime—animpossiblyhighhurdle.

Inanotherlandmarkstudy,researchersRichardBauerandJulieDahlquistexaminedmorethanamillionmarket-timingsequencesfrom1926to1999.Theirconclusion:justholdingthemarket(viaanindexfund)outperformedmorethan80%ofmarket-timingstrategies.

If you’re feeling pissed off right now, I’m with you. You’re probablyasking yourself: “What the hell am I really getting when I invest in anactivelymanagedfund?”Well,most likelyyou’rebuyingthis toxicbrewofhumanerror,highfees,andnastytaxbills!NowonderDavidSwensenissoskeptical aboutyour chancesof achieving financial freedom throughactivefunds.Hewarns:“Whenyoulookattheresultsonanafter-fee,after-tax basis, over reasonably long periods of time, there’s almost nochancethatyouendupbeatingtheindexfund.”

YouGetWhatYouPayFor—ExceptWhenYouDon’t

Themutualfundindustryisnowtheworld’slargestskimmingoperation,a$7trilliontroughfromwhichfundmanagers,brokers,andotherinsidersaresteadilysiphoningoffan

troughfromwhichfundmanagers,brokers,andotherinsidersaresteadilysiphoningoffanexcessivesliceofthenation’shousehold,college,andretirementsavings.

—SENATORPETERFITZGERALDOFILLINOIS,cosponsoroftheMutualFundReformActof2004(killedbytheSenateBankingCommittee)

WhenIwasateenager,I’dsometimestakeagirlouttoDenny’sonadate.IhadsolittlemoneythatI’dorderanicedteaandpretendI’dalreadyeaten.The truth was, I couldn’t afford for both of us to eat! The experience ofgrowinguppoor leftmewith a keen awareness ofwhat things should costversuswhat theyactually cost. If yougoout for a fantasticmeal in agreatrestaurant,youexpectittobeexpensive.That’sfine.Butwouldyoupay$20fora$2taco?Noway!Letmetellyou, that’swhatmostpeoplearedoingwhentheyinvestinactivelymanagedmutualfunds.

Haveyouevertriedtofigureouttheactualfeesyoupayforthefundsyouown?Ifso,youprobablyzeroedinonthe“expenseratio,”whichcoversthefundcompany’s “investment advisory fee,” its administrative costs for stuffsuch as postage and record keeping, plus critical office expenses like freesodas and cappuccinos.A typical fund that invests in stocksmighthave anexpenseratioof1%to1.5%.Whatyouprobablydidn’trealizeisthatthisisjustthestartofitsfeebonanza!

Afewyearsago,Forbespublishedafascinatingarticleentitled“TheRealCostofOwningaMutualFund,”whichrevealed justhowexpensive fundscantrulybe.Asthewriterpointedout,you’renotonlyonthehookfortheexpenseratio,whichthemagazineestimatedconservativelyat justlessthan1%(0.9%)ayear.You’realsoliabletopaythroughthenosefor“transactioncosts” (all those commissions your fund pays whenever it buys or sellsstocks), which Forbes estimated at 1.44% a year. Then there’s the “cashdrag,”which itestimatedat0.83%ayear.And then there’s the“taxcost,”estimatedat1%ayearifthefundisinataxableaccount.

The grand total? If the fund is held in a nontaxable account like a401(k),you’relookingattotalcostsof3.17%ayear!Ifit’sinataxableaccount, the total costs amount to a staggering 4.17% a year! Bycomparison,that$20tacoisstartingtolooklikearealbargain!

You’vegottolookverycarefullyatthesmallprint.Idon’tlikethingsthatrequiresmallprint,bytheway.—JACKBOGLE

Ihopeyou’repayingreallycloseattentionrightnow,becausetheknowledgeaboutallthesehiddenfeeswillsaveyouafortune!Butwhatifyou’rereading

this and thinking “Yeah, but we’re only talking about 3% or 4% a year.What’safewpercentagepointsbetweenfriends?”

ADD’EMUP

NontaxableAccount TaxableAccount

Expenseratio:0.90% Expenseratio:0.90%

Transactioncosts:1.44% Transactioncosts:1.44%

Cashdrag:0.83% Cashdrag:0.83%

_______________ Taxcost:1.00%

Totalcosts:3.17% _______________

Totalcosts:4.17%

“TheRealCostofOwningaMutualFund,”Forbes,April4,2011

It’s true that the numbers look small at first glance. But when youcalculate the impact of excessive costsmultiplied overmany years, it takesyourbreathaway.

Here’sanotherwaytoputthis inperspective:anactivelymanagedfund that charges you 3% a year is60 timesmore expensive than anindex fund that charges you 0.05%! Imagine going to Starbuckswith afriend. She orders a venti caffé latte and pays $4.15. But you decide thatyou’re happy to pay 60 timesmore. Your price: $249! I’m guessing you’dthinktwicebeforedoingthat.

IncaseyouthinkI’mbeingtooextreme,let’sconsidertheexampleoftwoneighbors, Joe and David. Both are 35 years old, and each has saved$100,000, which they each decide to invest. Over the next 30 years, theuniversesmilesonthem,andeachachievesagrossreturnof8%ayear.Joedoesitbyinvestinginaportfolioofindexfundsthatcostshim0.5%ayearinfees.Daviddoesitbyowningactivelymanagedfundsthatcosthim2%ayear.(I’mbeinggenerousherebyassumingthattheactivefundsmatchtheperformanceoftheindexfunds.)

Checkoutthechartthatfollows,andyou’llseetheresults.Bytheageof65, Joe has seen his nest egg grow from $100,000 to approximately$865,000. As for David, his $100,000 has grown to only $548,000. They

both achieved the same rate of return, but they paid different fees. Theoutcome?Joehas58%moremoney—anadditional$317,000forretirement.

As the chart also shows, these two neighbors then start to withdraw$60,000 a year to support themselves in retirement. David runs out ofmoney by the age of 79. But Joe has an entirely different life experience.He’sabletowithdraw$80,000ayear—33%more—andhismoneylastsuntilhe’s88!Hopefully,JoeletsDavidliveinhisbasement.Forfree.

Now do you see why you need to pay such close attention to the feesyou’rebeingcharged?Thisonecrucialfactormightmakeallthedifferencebetweenpovertyandcomfort,miseryandjoy.

OverpayingforUnderperformance:TheFive-StarTrap

Here’saquestionyouprobablynever thought toask:Howdoyou findanactivefundmanagerwhowillnotonlychargeyouthoseoutrageousfeesbutalso provide you with mediocre returns in exchange? Don’t worry. Thefinancial services industryhasyoucovered. If there’sone thing inplentifulsupply,it’sactivemanagerswho’lloverchargeyouforunderperformance!

That’s the incredible thing. It’snot just thatactivelymanagedfundsareovercharging their customers. It’s that their long-term performance isappalling. It’s like a double insult. Imagine that you just bought that caffélattefor$249,tookasip,anddiscoveredthatthemilkhadgonebad.

OneofthemostshockingstudiesI’veseenonthistopicofmutual fundperformancewasbyanindustryexpertnamedRobertArnott,thefounderofResearchAffiliates.Hestudiedall203activelymanagedmutual fundswithat least$100million in assets, tracking their returns for the15years from1984 through 1998. And you know what he found?Only 8 of these 203fundsactuallybeat theS&P500 index.That’s less than4%!Toput itanotherway, 96% of these activelymanaged funds failed to add anyvalueatallover15years!

If you insist on buying an actively managed fund, what you’re reallybettingonisyourabilitytopickoneofthe4percentthatoutperformedthemarket. This reminds me of a gambling analogy that appeared in a FastCompanymagazinearticleentitled“TheMythofMutualFunds.”Itsauthors,Chip andDanHeath, highlight the absurdity of expecting to pick a fundfromthat4%group:“Bywayofcomparison,ifyougetdealttwofacecardsinblackjack[eachfacecard isworth10,sonowyourtotal is20],andyourinneridiotshouts,‘Hitme!’youhaveaboutan8%chanceofwinning.”

I don’t know about you, but I prefer not to letmy inner idiot run theshow!SowhywouldIbetonmyabilitytoidentifythetinyminorityoffundmanagerswho’lloutperformovermanyyears?

Youmight be a hard-core researcherwho loves to read theWall StreetJournal and Morningstar, searching for the illustrious five-star fund—theoutperformer.Butthere’sanotherproblemthatfewanticipate:today’swinners are almost always tomorrow’s losers. TheWall Street Journalwroteaboutonestudythatwentallthewaybackto1999andlookedatwhathappenedoverthenext10yearstoallofthetop-performingfundsthathadreceived a “five-star” rating fromMorningstar.What did the researchersdiscover?“Ofthe248mutualstockfundswithfive-starratingsatthestartoftheperiod, justfourstillkeptthatrankafter10years.”Thefancytermforthis process is “reversion to the mean”: a polite way of saying that mosthighflierswilleventuallyfall,revertingbacktomediocrity.

Unfortunately,many people pick top-rated fundswithout realizing thatthey’re falling into the trap of buying what’s hot—usually right before itturns cold. David Swensen explains: “Nobody wants to say, ‘I own abunchofone-and two-star funds.’Theywant toown four-star fundsand five-star funds and brag about it at the office. But the four-andfive-starfundsaretheonesthathaveperformedwell,nottheonesthatwill perform well. If you systematically buy the ones that have

performedwell and sell theones that haveperformedpoorly, you’regoingtoendupunderperforming.”

COULDITGETANYWORSE?

Mutualfundcompaniesarenotoriousforopeninglotsoffundsinhopesthatafewofthemmightoutperform.Theycanthenquietlycloseall thefundsthatdidbadlyandheavilymarketthefewthatdidwell.Afterall,theycan’tsellshoddypastperformance,nomatterhowglossythebrochure.JackBogleexplains:“Afirmwillgooutandstartfiveincubationfunds,andtheywilltryandshootthelightsoutwithallfiveofthem.And,ofcourse,theydon’twithfourof them,but theydowithone.So theydrop theother four and takepublictheonethatdidverywell,withagreattrackrecord,andsellthattrackrecord.”

Bogleaddsthat,statistically,you’reboundtohaveafewoutperformersifyou create enough funds: “Tony, if you pack 1,024 gorillas in agymnasium and teach themeach to flip a coin, one of themwill flipheads ten times in a row.Most would call that luck, but when thathappensinthefundbusiness,wecallhimagenius!”

Doesallofthismeanit’simpossibletobeatthemarketoverlongperiodsoftime?Actually, no. It’s extremelyhard, but there are a few “unicorns”outthere who have outperformed the market by a mile over several decades.These are superstars such asWarren Buffett, Ray Dalio, Carl Icahn, andPaul Tudor Jones, who not only are brilliantly clever but also have idealtemperaments, enabling them to remain calm and rational even whenmarketsareimplodingandmostpeoplearelosingtheirminds.Onereasonwhy they win is that they base every investment decision on a deepunderstandingofprobabilities,notonemotionordesireorluck.

Butmostoftheseunicornsrunenormoushedgefundsthatareclosedtonewinvestors.Forexample,RayDaliousedtoacceptmoneyfrominvestorswho had a net worth of at least $5 billion andwho entrusted himwith aminimum of $100 million. Nowadays he won’t accept any new investors,regardlessofhowmanybillionsyou’vegothiddenunderyourmattress!

WhenIaskedRayhowharditistobeatthemarketoverthelongrun,hedidn’tpullhispunches.“You’renotgoingtobeatthemarket,”hetoldme.“CompetinginthemarketsismoredifficultthanwinningintheOlympics.Therearemorepeoplewhoaretryingtodoitandmuchbiggerrewardsif

you succeed. Like competing in the Olympics only an infinitesimalpercentagesucceed,butunlikewinningintheOlympics,mostpeoplethinkthey can do it. Before you try to beat the market, recognize that yourlikelihoodofbeingsuccessfulisextremelysmallandaskyourselfifyouspentthetimetotrainandpreparetobeoneofthefewwhoactuallywins.”

You can’t ignore itwhen one of the giantswhohas actually beaten themarket over decades tells you that you shouldn’t even bother trying butshouldstickinsteadwithindexfunds.

Warren Buffett, who has outpaced the market by a huge margin, alsoadvisesregularpeopletoinvestinindexfunds,sotheycanavoidthedrainofexcessive fees. To prove his point that almost all active managersunderperform index funds over the long run, hemade a $1million bet in2008with aNewYork–based firmcalledProtégéPartners.He challengedProtégétoselectfivetophedgefundmanagerswhocouldcollectivelybeattheS&P500overa10-yearperiod.

Sowhathappened?After8years,Fortunereportedthatthesehedgefundswereuponly21.87%,versus65.67%fortheS&P500!Theraceisn’toveryet.Butas itstands,theseactivemanagers looklikecontestants inathree-leggedracetryingtocatchUsainBolt,theworld’sfastestman.

Meanwhile, Buffett says he’s left instructions that, after his death, themoneyhe leaves in trust for hiswife should be invested in low-cost indexfunds. His explanation? “I believe the trust’s long-term results from thispolicywillbesuperiortothoseattainedbymostinvestors—whetherpensionfunds,institutions,orindividuals—whoemployhigh-feemanagers.”

Even from his grave, Buffett is absolutely determined to avoid thecorrosiveeffectsofhighfees!

BrilliantguidancefromtheOracleofOmahahimself.

DoyourememberwhenItoldyouearlierthatknowledgeismerelypotentialpower?It’sonlywhenyoutakeyourknowledgeandactonitthatyoupossesstruepower. Inthischapter,you’ve learnedwhatanastounding impact feescanhaveonyourfinancialfuture.Butwhatwillyoudowiththatknowledge?Howwillyouactonitandbenefitfromit?

Imagineforamomentthatyoustopbuyingactivelymanagedfundsthatcharge exorbitant fees. Instead, from now on, you invest only in low-costindexfunds.What’stheresult?Attheveryleast,Iwouldestimatethatyoucancut your fundexpensesby1%ayear.But as youknow, that’snot theonlybenefitofswitchingtoindexfunds.Hypothetically,let’simaginethatyour index funds outperform those actively managed funds by 1%annually. In total, you’ve just added2%a year to your returns.Thisalonecangiveyou20yearsofextraretirementincome.III

Now do you see howmuch power you possess to take charge ofyour financial future? Take that power and use it to dramatically drivedownyourcosts.Thiswillhelpyouimmeasurablytobecomeunshakeable!

Meanwhile, let’s take a breath.Then let’s step into another areawhereyoucansaveyourselfafortune:your401(k).Turnthepage....We’reabouttoembarkonamissiontorescueyourretirementaccount.

I. “Nine in 10 Americans make this 401(k) mistake: Retirement Scan,” http://www.financial-planning.com/news/nine-in-10-americans-make-this-401-k-mistake-retirement-scan.

II. It’scalledcapitalgainstax,andyougethitbyiteventhoughyoudidn’tearnthosecapitalgains.Owningafundforalongperiodoftimedoesn’tnecessarilyensurelong-termcapitalgains.Quitetheopposite.Owninganactivefundmeansyouwillgettaxbillseachyearduetoprofittakingbythefundmanager,andthoseprofitsaretypicallytaxedatordinaryincometaxrates.

III. Thisassumes2investorswithastartinginvestmentof$100,000andequalreturnsof8%over30years,butwith1%feesand2%fees,respectively.Assumingequalwithdrawalamountsatretirement,theinvestorpaying2%infeeswillrunoutofmoney10yearssooner.

CHAPTER 4

RESCUINGOURRETIREMENTPLANS

WhatYour401(k)ProviderDoesn’tWantYoutoKnow

The401(k)planwasabeautiful invention.Createdin1984,itgaveregularpeople likeyouandmeachance tobuildwealthbymaking tax-deductiblecontributions toaretirementaccountdirectly fromourpaychecks.Whatagreatconcept!YouandIweregiventhisopportunitytoownapieceoftheAmericandream,toinvestinourownfutures,totakefullresponsibilityforachieving our own financial freedom. Now nearly 90 million Americansparticipate in 401(k) plans. To put that in perspective, only 75 millionAmericans own a home.Withmore than $6 trillion currently invested in401(k)s,thisisthesinglemostimportantvehicleforthefinancialsecurityoftheUSpopulation.

Butyouknowwhathappened?Somewherealongtheline,thedreamgotderailed.With trillionsof dollars up for grabs, financial firmsdreamedupcountlesswaystodipalloftheirfingers,thumbs,andtoesintothepie.Thisistheugliersideofournation’sgift for innovation!Anditplacesusunderenormous pressure to learn how to protect ourselves from these moneygrubbers.

Youmightnotbelievethis,butforalmost threedecades, thecompaniesproviding401(k)planswerenotevenrequiredbylawtodisclosehowmuchthey were charging their customers! Only in 2012 did the governmentfinallyforcethesefirmstomakedetaileddisclosuresofhowmuchtheywereextracting from your savings. In what other industry would customerstoleratethis“Trustme!”styleofdoingbusiness?Canyouimagineaclothingstorewithnopricetags?Canyouimaginebookingavacationandleavingituptotheairlineandthehoteltodecidehowmuchtodrainfromyourbankaccountwithoutinformingyou?

Needlesstosay,financialfirmsresistedthetemptationtotakeadvantageofthislackofdisclosure,sincetheyunderstoodthathandlingourretirementmoneyisasacredtrust.Justkidding!Ofcoursetheytookadvantage!

Now that the law has changed, would you guess that the problem hasbeen fixed? Hardly! The whole 401(k) system is still a black box. Todayfinancial firmsprovidedisclosuredocuments that areoften30 to 50pageslongandfilledwithimpenetrablelanguage.Surprise,surprise:notthatmany

peopledevotetheirweekendstoreadingtheseultracomplicateddocuments.Insteadofdiggingthroughthefineprint,mostplanparticipantssimplytrustthat their employers are looking out for them. And most employers aretrusting the broker who sold them the plan over a round of golf.Remember,71%ofpeopleenrolledin401(k)sthinktherearenofees,and92%admitthattheyhavenocluewhattheyare!Butthetruthis,the vast majority of plans are characterized by huge brokercommissions,expensiveactivelymanagedfunds,andlayerafterlayerofadditional—andoftenhidden—charges.

RobertHiltonsmith,aseniorpolicyanalystatathinktankcalledDēmos,took the trouble to studyanddecipher theprospectusesof20 funds inhis401(k) plan.Hehackedhisway through the forest of bewildering legaleseand confusing acronyms, and then wrote a report entitledThe RetirementSavingsDrain:TheHidden&ExcessiveCosts of 401(k)s.Whatdidhe find?Customerslikehim—andyouandme—werehitwith17differentfeesandadditionalcosts!

Just to be clear,we’re not referring here to the absurdly high fees thatyou’re being charged by the mutual funds in your 401(k) plan. It’s notenough foryou topay forall thoseactivelymanaged funds—theones thatForbes sayscouldbecostingyou3.17%ayear!No, theseare theadditionalfeesthatyou’realsobeingchargedbytheplanproviderthat’sadministeringyour401(k).Theseprovidersaretypicallyinsuranceorpayrollcompanies—but youmightwant to thinkof them as another set of exceptionallywell-paidtollcollectors.

You’vegottohandittotheseproviders:they’retrulyingeniouswhenitcomestodreamingupdifferentwaystosiphonoffthemoneyinyour401(k)!Here’s a short sample of the many categories of fees they’ve invented:investment expenses, communication expenses, bookkeeping expenses,administrative expenses, trustee expenses, legal expenses, transactionalexpenses, and stewardship expenses. Why not just add a category called“expenseexpenses”?

I’m always amazed by what you can find buried in the fine print ofproviders’ disclosure documents—the vague terminology that obscuresexactlywhat’sbeingdonetoyou.Forexample,you’lloftenseeintentionallymeaningless terms such as “net asset charge,” “asset-management charge,”“contractassetcharge,”“AMCcharge,”or“CACcharge.”Oneprovider—aleading insurance company—was so brazen as to add a line item called

“requiredrevenue.”Requiredbywho?Whatfor?TopayfortheCEOtobuyayacht?

Howmuchdoesallofthiscostyou?Hiltonsmithcalculatedtheimpactoftheseadditional401(k)feesonanaverageworkerwhoearnsabout$30,000ayearandsaves5%ofhisorherannualincome.Overalifetime,thisworkerwould lose $154,794 in fees. That’s more than five years of income. Aworkerwhoearnsabout$90,000ayearwouldlose$277,000in401(k)fees.

YouknowaswellasIdohowharditisformostpeopletosavemoneyforretirement. It requires real sacrifices. But excessive expenses can easilydestroythebenefitsofallthateffort.Someplanstaketheexcessivefeestoawhole other level. Certain providers, not content with their typical take,chargeafront-end“salesload”onallinitialdeposits.Oneoftheworstwehave seen takes a whopping 5.75% of every single dollar you sockaway.It’slikeatithetothecorporategodsrunningthesecompanies.Addthattothe2%inannualfeestheycharge,andyou’redown7.75%beforeyou’reoutofthegate.

Sadly, teachers,nurses, andnonprofit employees aremost vulnerable tothis huge skimming operation. This is because their 403(b) plans—theirequivalent of a 401(k)—aren’t covered under the same ERISA (EmployeeRetirement IncomeSecurityAct of 1974) laws that are (at least in theory)designed to protect employees. It makesme sick to think that those whosacrifice themost tomakeour societybetterarebeing screwedbybrokerswho somehowmanage to sleep at night—probably on 2,000-thread-countsheets.

InaNewYorkTimesarticletitled“ThinkYourRetirementPlanIsBad?Talk to a Teacher,” reporter Tara Siegel Bernard does a brilliant jobexposing how these poor folks are mugged. In one of the most ghastlyscenariosimaginable,“Theteacherswereeachchargedafeeofatleast2%oftheirsavingstomanagethemoney, inadditiontosaleschargesofupto6% each time theymade a deposit . . .Moreover, the calculations didn’tinclude the expenses of the dozens ofmutual funds theywere invested in,someofwhichexceeded1%.”

That’s 9% in first-year expenses alone. That’s not a hole in yourboat.That’sthewholebackoftheboatrippedoffanddragginginthewater.

This iswhy it’s so important to be aware of how the financial industrystackstheoddsagainstyou.Knowledgeisyourfirstdefense.Afterall,howcan you protect yourself from a threat to your financial well-being unlessyouknowthatthisthreatexists?

Onepersonwhosharesmyoutrageabout401(k)expensesisthecomedianJohn Oliver, who investigated the subject for his HBO show Last WeekTonightwithJohnOliver.Whenthemembersofhisresearchteamdissectedtheirown401(k)plan,theydiscoveredthattheirprovider’sfeesamountedto1.69%ayear,excluding theexorbitant feestheywerealsobeingchargedtoinvest in the actively managed funds in their plan.Oliver explains how“seemingly tiny fees can mount up” until “you’ve lost almost two-thirds of what you would have had.” He warns: “Think of fees liketermites:they’retiny,they’rebarelynoticeable,andtheycaneatawayyourf———gfuture.”

HEADSIWIN,TAILSYOULOSE

Whatmakesallofthissoupsettingisthata401(k)shouldbe—andcanbe—apowerful tool for building wealth, if it’s used correctly. Instead, the vastmajorityofplansareriddledwithopaquefeearrangementsandconflictsofinterest.In2015theObamaadministrationannouncedthat“hiddenfeesandbackdoorpayments”werecostingAmericansmorethan$17billionperyear.AndSecretaryofLaborThomasE.Perezhassaid,“Thecorrosivepoweroffine print and buried fees can eat away like a chronic illness at a person’ssavings.”

In early 2016 Congress passed new laws designed to force 401(k)providers to act in their clients’best interests.Sadly,by the time lobbyistshad done their worst, these regulations had lost their teeth. For example,401(k) brokers can still charge commissions, sell you their ownoverpricedname-brandfunds,andwhackyouwithfront-loadedsalescharges.Businessasusual.

Ifyouaskme,oneoftheworstabusesisthatnearlyallofthebig-nameproviders routinely accept payments from the mutual funds they offer in401(k) plans. This legal but grubby arrangement is called revenuesharing,or“paytoplay.”It’stheequivalentofbuyingshelfspaceinastoreto ensure that itwill stock a crappy product that shoppers really ought toavoid.

What’stheresult?Manyofthefundsyougettochoosefrominyour401(k) plan are on the list only because the fund company paid theprovidertoincludethem!Thesefundstendtobeactivelymanaged,sothey’re expensive. And they’re rarely the best performers. In somecases,theyevenchargea“front-endload”:afeethatoftenamountsto3%ofyourassetsjusttobuythefundinthefirstplace.

Sowhynotjustpicklow-costindexfundswhenyou’reinvestinginyour401(k) plan? Great question! The trouble is, most providers make indexfundsavailableonlyiftheplanhasahighlevelofassets.Why?Becauseindexfundsaren’tsufficientlylucrativefortheprovider.Sotheyprefertoexcludethemfromthemenu,iftheycangetawaywithit.Ifyouworkforasmallercompany, chances are that you’ll be forced to invest in funds withhigherfees.Infact,93%of401(k)planshavelessthan$5millionintotalplan assets. These are small and midsized companies that don’t have thebuyingpowertodemandbetterinvestmentoptionsfortheiremployees.Yetit’sentirelyunfairtopenalizepeopleforworkingatsmallercompanies.

Some 401(k) providers do offer index funds to smaller plans, but theytypically charge a significantmarkup.Onemajor insurance company isofferinganS&P500 index fund for1.68%annually,when the actualcost is just0.05%.That’sa3,260%markup!Thinkof it thisway: yourfriend buys a Honda Accord for the regular retail price of $22,000. Butyou’re forced to pay a 3,260%markup. Your cost for the exact same car:$717,200!Welcometotheworldofhighfinance.

Anotherwell-knowninsurancecompanychargesa3%salesloadtobuyaVanguardindexfund,andthencharges0.65%ayearinfeesforthe fund—a steal at a mere 1,300% markup. This is the white-collarequivalent of ruthless mobsters coming round to your small business andhittingyouupforprotectionmoney.Theonlyjustificationisthatyouhavemoney,andtheywantit.

Meanwhile, some providers will allow you to open your own “self-directed”401(k)accountifyouwantaccesstolow-costindexfundsorwanttomanage your own investments. Sounds like a good option, right? Onefriendofminethoughtso.Heopenedaself-directedaccount,boughtsomeindex funds, and congratulated himself on bypassing all the ridiculouslyexpensive funds in his plan. Then he found out that the provider wascharging him an additional 1.9% a year for the privilege of using a self-directedaccount!Inotherwords,headsyoulose,tailsIwin.

Thesetricksofthetradeare,at last,comingbacktohauntmany401(k)providers. As I write this, at least tenmajor providers have been sued bytheiremployeesforchargingexcessivefeesintheirown401(k)plans!Oneofthebiggest401(k)providerssettledtwoclass-actionlawsuitsfor$12millionafter accusations by its own employees that its 401(k) fees were too high.Imaginegoing toa restaurantanddiscovering that thewaitersandkitchenstaff refuse to eat the chef’s food!When the insiders don’t likewhat theircompany is selling, shouldyouandI just smilepolitelyandaccept that it’sgoodenoughforthelikesofus?

One reasonwhy I feel so passionate about this is that I’ve experiencedfirsthandhoweasy it is to get exploitedbyunscrupulous 401(k) providers.WhenIbegantoseethesewidespreadabusesatcompaniesacrossAmerica,Icalled theheadofhumanresourcesatoneofmycompanies to learnmoreabout the plan we were providing for our employees. I think of them asfamily,andIwanted tomakesurewewere treating themwithall thecaretheydeserve.

To my horror, I discovered that our name-brand 401(k) plan—administered by a major insurance company—was loaded with expensivemutualfunds,excessive“administrativeexpenses,”andfatcommissionsthatwe paid to the broker who sold us the plan. It turned out that the totalexpensesinour401(k)planamountedto2.17%ayear.Overtimethesefeeswould erode much of the money that our employees were savingscrupulouslyfortheirfuture.Iwasbesidemyself.

SoIbegantolookaroundforasolution.Aftermuchinvestigation,IwasintroducedbyafriendtoTomZgainer,CEOofacompanycalledAmerica’sBest401k(ABk).Asyou’dimagine,Iwasmorethanalittleskeptical.Whyshould I believe that his firmwould live up to its less-than-modest name?Butitdidn’ttakelongtorealizethathe’satruthtellerwho’sdeterminedtochallengehis industry’s unseemlypractices.AsTomtoldme, the401(k)businessis“thelargestdarkpoolofassetswherenobodyreallyknowshoworwhosehandsaregettinggreased.”

Bycontrast,ABkisentirelytransparent.Forexample,hehasnointerestin the sordid pay-to-play game. Instead of accepting kickbacks frommutualfundcompaniesthatwanthimtoselltheiroverpricedfunds,heoffersonly inexpensive index funds fromfirmssuchasVanguardandDimensionalFundAdvisors.Tom’scompanychargesonefee—withnomarkupsorhiddencosts. It’sa fullybundledsolution thateliminatesbrokers,commissions,andhigh-paidmiddlemen.

I’mdelighted to tell you that Iquickly andeasilymovedmycompany’sold plan into a new plan administered by America’s Best 401k. The totalcosts for our new 401(k) plan—including investment expenses, investmentmanagement services, and record-keeping fees—addup to agrand totalofjust 0.65% a year.That’s a savings of about 70% in our annual expenses.Over the years, this should put asmuch as $5million back into thepocketsofmyemployees.AndTomchargesnothingforcompaniestomaketheswitch.

I was so impressed that I referred many other friends to ABk. Tomydelight, theywereall thrilled.Nowonder.Tom’s firmsaveshisaverageclientmore than57% in fees! I got excited anddecided topartnerwithTomonhismissiontorescuetheretirementplansofmillionsofpeople.It’stime to break the ruthless chokehold this industry has on our families’financialfutures.

Whetheryouareabusinessowneroranemployee,youcanseehowyourcompany’s401(k)planstacksupbyusinghisfreeonlineFeeCheckertoolatwww.ShowMeTheFees.com.Itwillanalyzeyourplanandcalculatewithinsecondshowmuchyou’rebeingchargedinfees.Businessownerscangoonestepfurtherandprovideacopyoftheir“feedisclosure”foramoredetailedlookunderthehood.Mostimportant,thisquickprocesscanalsoshowyouhowmuchyoucansaveovertimebyswitchingtoabetterplan.Iwon’tbesurprised if you save yourself hundreds of thousands of dollars over theyears.

Iwas chatting about thiswithmydentist and friendDr.CraigSpodak.Hehasmorethan40employees,andhewantedtomakesuretheyweren’tbeing ripped off. I don’t want to name specific names here because theseproblemsaresystemic,notjustlimitedtoahandfulofcompanies.ButwhenCraigtoldmethenameof the infamouscompanythatprovidedhis401(k)plan,Icouldn’thelpbutcringe.Mydiagnosiswas immediate:hisdentistrypractice would need to undergo an urgent extraction. Otherwise the painwouldonlygetworse.

I put Craig in contact with my partners at America’s Best 401k. In amatter of minutes, he emailed them his plan’s “fee disclosure” form, andtheydrilleddowntoexposehisfees.Hewasshockedbytheresults.Itturnedout that his plan contained a long list of overpricedmutual funds and anadditional layerofbloated“contract asset charges.”The total costsheandhisemployeespaidforthisterribleplanwerenorthof2.5%ayear!SuddenlyCraig understoodwhyhis broker used to bringhimdonuts as a gift—andwhythemanwasalwaysgrinningfromeartoear!

Youwon’t be surprised tohear thatCraig firedhisbroker, dumpedhisprovider,andentrustedhisplaninsteadtoAmerica’sBest401k.

As you can see in the box below, employers need to wake up—just asCraig and I did—so they can ensure that their employees aren’t beingexploited. Otherwise there could be a high price to pay, not just for theemployeesbutalsofortheemployer.

If you’re an employee, after you use the Fee Checker, you canforwardthereporttoyourcompany’sownerortoseniormanagement.Oncetheyknowthetruthaboutwhat’sgoingon,theymaywellwantto improveyour401(k)plan.Afterall, their financial future isalsoatstake.

BUSINESSOWNERSBEWARE!TAKE3MINUTESTODISCOVERHOWYOUCANELIMINATELEGALLIABILITIESANDPROTECTYOURSELFANDYOURCOMPANYFROM

NEWDEPARTMENTOFLABORFINES:

If youownor run a company that offers a 401(k) plan, you’re officially regarded as the plan’s“sponsor”—whether you know it or not. That means it’s your legal obligation to act as the“fiduciary” toyourplanandtoyouremployees,whichmeans thatyouhave tooperate in theirbest interests. If you trip up, you could easily find yourself with a major liability that coulddamageyourbusinessandevenyourownfinances.It’sabitlikeowningahousethat’sstructurallyunsound:youmightbefineforyears—untilyou’renot.So,ignorethisatyourperil!

Whatdoyouhavetodo?First,youneedtodemonstratetotheDepartmentofLabor(DOL)that you’re taking the necessary steps to fulfill your role as the plan’s sponsor. This includesperiodicallybenchmarkingyourplanagainstotherplanstoensurethatthefeesbeingchargedinyourplanarereasonable.MostbusinessownersItalktohavenoideaaboutthisobligation.Thispotentially exposes them to the mighty wrath of the DOL. In 2014 the departmentdeterminedthat75%oftheplansitexaminedwereillegal.Theaveragefine:$600,000.

Andthat’sjustthebeginning.You’realsoexposedtotheriskthatyourownemployeescouldsue you personally. In 2015 the US Supreme Court issued a major ruling against EdisonInternational,thepowergiant.Thisdecisionshouldmakeiteasierfor401(k)planparticipantstosuetheiremployersforchoosinginvestmentswithexcessivefees.Smallbusinessesareparticularlyvulnerable—notjustbecauseit’shardforthemtoaffordheftyfinesbutalsobecausetheytendtohavesmall401(k)plans,whichtypicallychargethehighestfees.

Onepractical step thatcould saveyoua fortune is tocontactmypartnersatAmerica’sBest401k and ask them to provide you with a free benchmark for your plan. All it takes is a fewminutes to furnish themwiththe feedisclosurestatement foryourplan.Thefactthatyou’veobtained this benchmark demonstrates to the DOL that you’ve taken your legalresponsibility seriously. Even better,many companies discover that they can easily cut theirplan’sfeesinhalf—ormore.Ifso,thatwillendowyouandyouremployeeswithahugewindfallformanyyearstocome.

www.showmethefees.com

Whereareweheadednext?Beforeweturnourfocustoyourinvestmentplaybook, we’ve got one more invaluable lesson to cover: how to findsophisticated, conflict-free financial advice that will turbocharge yourjourneytofinancialsuccess.

You’lllearnhowtoavoidallthosesalespeopleindisguisewhogetrichbydishing out so-called advice that benefits them, not you. As you’ll see,choosing the right advisor can mean the difference between poverty andwealth,betweeninsecurityandfreedom.Thechoiceisyours.

Solet’sfindout:Whocanyoureallytrust?

CHAPTER 5

WHOCANYOUREALLYTRUST?

PullingBacktheCurtainontheTricksoftheTrade

Itisdifficulttogetamantounderstandsomethingwhenhissalarydependsonhisnotunderstandingit.

—UPTONSINCLAIR

When I ask people how they’re doing, themost common answer I get is:“Busy.”We’reallrunningfasterthaneverthesedays.Soit’snosurprisethatmore andmore of us are hiring financial advisors to help us navigate thecomplicated journey to financial freedom. From 2010 to 2015, thepercentageof theUSpopulationusing financial advisorsdoubled. In fact,morethan40%ofAmericansnowuseanadvisor.Andthemoremoneyyouhave, themore likely you are to seekout advice: 81%of peoplewithmorethan$5millionhaveanadvisor.

Buthowdoyoufindanadvisoryoutrust—andwhodeservesyourtrust?It’s astonishing how many people don’t trust the person giving them

financialadvice!A2016surveybytheCertifiedFinancialPlannerBoardof Standards found that 60% of respondents “believe that financialadvisors act in their companies’ best interests rather than theconsumers’bestinterests.”Thatfigurehadsoaredfrom25%since2010.ITo put that in perspective, Congress currently has a dismal 20%approval rating,II but just 10% of Americans surveyed trust financialinstitutions.It’shardtothinkofanyotherindustrywherecustomersfeelsosuspicious—exceptperhapstheused-carbusiness.

Whataccounts for thisepidemicofdistrust?Well, it’snoteasy toplaceyourfullfaithandconfidenceinanindustrythat’sconstantlyinthenewsforyet another scandal.Check out the “Hall of Shame” table below, andyou’llseethat10oftheworld’slargestfinancialfirmshavehadtoforkout $179.5 billion in legal settlements just in the seven years from2009through2015.Betweenthem,America’sfourlargestbanks—BankofAmerica, JPMorgan Chase, Citigroup, and Wells Fargo—made 88settlementsamountingtoatotalof$145.84billion!

HallofShame

TableofCorporateSettlements

Company TotalSettlements Sumspaid($billions)

BankofAmerica 34 $77.09billion

JPMorganChase 26 $40.12billion

Citigroup 18 $18.39billion

WellsFargo 10 $10.24billion

BNPParibas 1 $8.90billion

UBS 8 $6.54billion

DeutscheBank 4 $5.53billion

MorganStanley 7 $4.78billion

Barclays 7 $4.23billion

CreditSuisse 4 $3.74billion

Source:Keefe,Bruyette&Woods

Some of the stories behind these settlements are so outrageous that theymake you shake your head in wonder. Here’s a sample of four typicalnewspaperheadlinesjustfromthelastfewmonths:

• “Bank ofAmerica to Pay $415Million to Settle SECProbe”: theWallStreet Journal reports that the bank’s Merrill Lynch brokerage unit“misused customer cash and securities to generate profits” for itself,puttingatriskupto$58billioninclientassets!

•“CitigroupFinedinRate-RiggingInquirybutAvoidsCriminalCharges”:the New York Times reports that the bank was fined $425 million formanipulating benchmark interest rates from 2007 to 2012. Citigroup’smotive:“tobenefititsowntradingpositionsattheexpenseofitstradingpartners’andclients’.”

•“Ex-BarclaysEmployeesGuiltyofLIBORRigging”:USAToday reportsthat three formerBarclays employees conspired “tomanipulate aglobalfinancialbenchmarkusedtosetratesontrillionsofdollarsofmortgagesandotherloans.”Didyougetthat?That’strillions,withaT!

•“WellsFargoFined$185MforFraudulentlyOpeningAccounts”:theNewYork Times reports that employees of the bank “opened roughly 1.5

million bank accounts and applied for 565,000 credit cards” withoutcustomerconsent!Thebankfiredatleast5,300employeesinvolvedinthisscandal.

Howcanyouplaceyourfinancialfutureinthehandsofpeoplewhoworkinanindustrywiththisdemonstratedrecordofputtingitsowninterestsabovethoseof its clients?Howcanyouexpect themnot todeceive, exploit, andabuseyou?

After all, these companies aren’t fringe operators with fly-by-nightreputations. These are—or were—some of the most respected and mostblue-chip behemoths in this business! For example,Wells Fargo had longbeencelebratedasoneofthebest-runbanksintheworld.YetitsCEOwasforced to resign in shame over his firm’s opening of fake bank accounts,forfeiting$41millioninstockoptionsthathe’dreceivedasarewardforhisperformance.

Now, letmebeabsolutelyclear. I’mnotcriticizingany individualswhoworkinthisfieldorforthesespecificfirms.I’dbesurprisediftheCEOofWells Fargo truly knew about this widespread wrongdoing within hismassive company, which has more than a quarter million employees.Policing companies this enormous has become an almost impossiblechallengeforsome.Ihavelotsoffriendsandclientsinthefinancialindustry,soI’mspeakingwithfirsthandknowledgewhenItellyouthatthey—andthevast majority of their colleagues—are people of real integrity. They havegoodheartsandgoodintentions.

Thetroubleis,theyworkinasystemthat’sbeyondtheircontrol—asystemthathastremendouslypowerfulfinancialincentivestofocusonmaximizing profits above all else. This is a system that richly rewardsemployees who put their employer’s interests first, their own interestssecond,andtheirclients’interestsadistantthird.Andforfolkslikeyouandme, that’s a recipe for disaster—unless we take the precaution of learninghowthesystemworksagainstus,andhowtocounterit.

“YOUCANTRUSTME”. . . TOTAKEADVANTAGEOFYOU!

Beforewegoany further, it’sworthexplainingwhere financial advisors fitwithinthisprofit-hungrysystem—andwhatexactlytheydo.Theyoperateinarealmwherenothingisquitewhatitseemstobe.Soit’sfittingthattheygobymanydifferentnames,whichoftenseemdownrightmisleading!

According to theWall Street Journal, there aremore than200differentdesignationsforfinancialadvisors,including“financialconsultants,”“wealthmanagers,”“financialadvisors,”“investmentconsultants,”“wealthadvisors,”and(incasethatdoesn’tsoundexclusiveenough)“privatewealthadvisors.”Thesearealljustdifferentwaysofsaying“I’mrespectable!I’mprofessional!Ofcourse,youcantrustme!”

Regardlessofthetitle,whatyoureallyneedtoknowisthat90%ofthe roughly 310,000 financial advisors in America are actually justbrokers. In other words, they’re paid to sell financial products tocustomerslikeyouandmeinreturnforafee.

Whydoesthismatter?Becausebrokershaveavestedinterestinhawkingexpensive products, which might include actively managed mutual funds,whole life insurance policies, variable annuities, andwrap accounts.These

productstypicallypaythemaonetimesalescommissionor,evenbetter(forthem),ongoingannual fees.Abrokeratamajorfirmmightberequiredtoproduceatleast$500,000ayearinsales.Soitdoesn’tmatterhowfancythetitle sounds: these are salespeople under intense pressure to generaterevenues. If calling themselves a financial consultant or a private wealthadvisor helps them reach their aggressive sales targets, so be it. If callingthemselvesawizard,apixie,oranelfhelpedmore,that’dbejustfine,too.

Does this mean they’re dishonest?Not at all. But it does mean they’reworking for the house. And remember: the house always wins. There’s agood chance your broker is a sincere person with high integrity, but he’ssellingwhat he’s been trained to sell—and you should always assume thatwhateverhe’ssellingwillbenefit thehousefirst.Sophisticatedcustomersknowthisisstandardoperatingprocedure:onesurveyfoundthat42%of ultrawealthy clients think their advisor is more concerned withsellingproductsthanwithhelpingthem!

WarrenBuffett jokes that you neverwant to ask a barberwhether youneedahaircut.Well,brokersarethebarbersofthefinancialworld.They’retrainedandincentivizedtosell,regardlessofwhetheryouneedwhatthey’reselling!That’snotacriticism.It’sjustafact.

IalsowanttomakeitclearthatI’mnotouttocriticizeordemonizethefinancialfirmsthatemploythesebrokers.Havethesecompaniesdonetheirfair shareof stupid, unethical, and illegal things?Youbet.But they’renotevil ormalicious.Theynever setout to sabotage theglobal economicsystem!These companies simply dowhat they’re incentivized to do,whichistomeetshareholders’needs.Andwhatdoshareholdersneed?Biggerprofits.Andwhatcreatesbiggerprofits?Morefees.Ifthere’salegally grey area that these companies can exploit to generate thoseadditional fees, they’re likely to do it because that’s what they’reincentivizedtodo.

You might expect all those enormous legal settlements to act as adeterrent, encouraging these companies to improve their behavior. Butthesepenaltiesarepaltryforsuchcolossalbusinesses.BankofAmericahadtoshellout$415millioninfinesformisusingitscustomers’assets.Bigdeal!Inonethree-monthperiodin2015,thebankearnedaprofitof$5.3billion.That’sinjust12weeks!Forcompaniesthisrich,thosepeskyfinesarejustaroutinecostofdoingbusiness—theequivalentofyouormegettingaparkingticket.

Instead of changing their ways, these companies focus much of theireffort on burnishing their brands through slick ad campaigns featuringdreamy images of sailboats and romantic walks on the beach.Why am Itelling you this? Because we’re conditioned to trust brands. We need tobreak free from this conditioning and look with more critical eyes at thereality,not the illusion.Otherwisehowcanwe safeguardourselves againstthispowerfulsystemthat’sfueledbyself-interest?

It makesme angry and sad that the financial system is so broken. Butanger and sadness won’t protect you from getting ripped off. What willprotectyouisknowinghowthesystemcanworkagainstyou.Ifyoudon’tunderstandtheincentivesofyouradvisor,you’reliabletodiscoverthatyou’vedonewondersforhisfinancialfuturewhilepotentiallywreckingyourown.

Thischapterwillshowyouhowtonavigatetheminefield.You’lllearntodistinguishbetweenthreedifferenttypesofadvisorssoyoucansidestepthesalespeopleandchooseafiduciarywhoisrequiredbylawtoactinyourbestinterests. We’ll also give you the criteria to judge whether a particularadvisor isrightorwrongforyou,basedonfact,notonhowlikeableheorsheis.Afterall,it’seasytobepersuadedbypeopleyoulike,especiallywhentheyaresincere.Remember,peoplecanbesincere—andsincerelywrong.

Maybe you’rewondering if youneed an advisor at all. If you decide tomanage your own finances, this book andMoney:Master theGamewill setyou on the right track so you can achieve your financial goals. But inmyexperience,thebestfinancialadvisorscanaddextraordinaryvaluebyhelpingyou with everything from investing, to taxes, to insurance. They provideholistic advice that’s truly invaluable. If you’re not convinced, check outVanguard’sstudybelow.

Forme, getting first-rate advice has been a game changer, savingme atremendous amount of money and time. I’m a capable guy, and I pridemyself on understanding themost important principles in anything I’m apartof,butI’mnotabouttodobrainsurgeryonmyself!

SKEPTICALABOUTTHEVALUEOFTHERIGHTADVISOR?

Whilethewrongadvisorscanbedetrimentaltoyourfinancialhealth,therightonescanbeworththeir value in gold. A recent Vanguard study explored exactly how much monetary value anadvisorcanbringtoyourinvestments.

•Loweringexpenseratios:45basispoints(0.45%)backinyourpocket• Rebalancing portfolio: 35 basis points (0.35%) of increased

performance•Assetallocation:75basispoints(0.75%)ofincreasedperformance• Withdrawing the right investments in retirement: 70 basis points

(0.70%)insavings• Behavioral coaching: 150 basis points (1.50%) for serving as your

practicalpsychologist

Thegrand total:3.75%ofaddedvalue!That’smorethanthreetimeswhatasophisticatedadvisorwouldcharge.Andheck,thatdoesn’tincludereducingtaxesandmore.

FrancisM.KinniryJr.etal.,PuttingaValueonYourValue:QuantifyingVanguardAdvisor’sAlpha,VanguardResearch(September2016).

ALOSINGBET

Oneoftheseisnotliketheother.—BIGBIRD

Didyoueverhavethatunsettlingsuspicionthatsomeonewasn’ttellingyouthe“whole”truth,butyoucouldn’tquiteputyourfingeronwhyyoudidn’ttrust the person or how exactly he or she might be lying to you? It’s afamiliarfeelingwhenyou’researchingforfinancialadvice.Howcanyoutellif the person offering you “help” is the real deal? And how can you evenknowwheretostart,whensomanydifferentpeoplewithsomanydifferenttitlesareofferingyoupotentialsolutions?

Intheinterestsofcuttingthroughtheconfusion,I’mgoingtomakethisas simple and straightforward as possible. In reality, all financial advisorsfall into just one of three categories.What you really need to know iswhetheryouradvisoris:

•abroker,•anindependentadvisor,or•aduallyregisteredadvisor.

Nowlet’sbreakthisdowninmoredetailsoyouknowexactlywhatyou’redealingwith.

Brokers

As Imentioned earlier, about 90%of all financial advisors inAmerica arebrokers,regardlessofthetitleontheirbusinesscard.They’repaidafeeorcommission for selling products.Many of them work for enormousWallStreet banks, brokerage houses, and insurance companies—the kind thatsplashtheirnamesonsportsarenas.

Howdoyouknowiftheproductabrokerrecommendsisthebestoneforyou?Letme clear it up. Brokers don’t have to recommend the bestproductforyou.What?!Yes,youheardmeright.Allthey’reobligedtodois followwhat’sknownas the“suitability”standard.Thatmeanstheymustsimplybelievethatanyrecommendationstheymakeare“suitable”fortheirclients.

Suitability isanextremely lowbar toclear.Doyoudreamofmarryingasuitablepersonoryoursoulmate?Butforabroker,suitableisgoodenough.

The problem is, brokers and their employers earn more byrecommending certain products. For example, an actively managed fundwith high expenses will be far more lucrative for the broker and thebrokeragehousethanalow-costindexfund,whichwillbefarmorelucrativeforyouandyourfamily.Doesitsoundtoyoulikethere’saseriousconflictofinteresthere?Damnright!

Howisitthatprofitsoverpeoplehasbecometheacceptedstandard?Toput this in context, the United Kingdom has a fiduciary standard, whichmeans thatall financial advisors are requiredby law to act in their clients’bestinterests.Australiaalsohasafiduciarystandard.Sowhyaren’tAmericanprofessionals obliged to act as fiduciaries? Actually, they are—except forfinancialprofessionals.Doctors,lawyers,andcertifiedpublicaccountantsinthe United States are legally required to act in the best interests of thepeopletheyhelp.Yetfinancialadvisorsgetafreepass!

Therehavebeenmanyattemptstoenactlawsrequiringadvisorstoservetheir clients’ best interests. But the financial industry has lobbied hard toblock these laws. Why? Frankly, advisors and their employers wouldearnway lessmoney if they could no longer stack the deck in theirfavor. Imagine their horror if they could no longer hawk their own

overpricedproducts,orcollectsubstantialcommissionsandsecretkickbackssuchasrevenue-sharingdealsfromothercompanies.

One piece of (moderately) good news is that theDepartment of Laborrecently passed a new regulation requiring advisors to put their clients’interests first in one specific situation: when handling 401(k) and IRAretirement accounts. But even then, there are still major loopholes.III Inaddition, with the recent election of Donald Trump, his advisors are alltalking about rolling back the new regulations before they’re evenimplemented.Sobythetimeyoureadthis,thoseprotectionsmaynotevenexist!

Here’sthebottomline:thissystemissoriddledwithconflictsofinterestthat it puts you in ahighly vulnerableposition.Butwhat if you’re alreadyworkingwithabrokeryoulikeandtrust?

I’m not suggesting that it’s impossible to find talented, trustworthybrokers who do a fine job.But playing a gamewhere the odds are soheavily stacked against you isn’t an intelligent move. The mostsuccessful investors—and even professional gamblers—always try to makesure theoddsareon their side.Howcan theoddsbeonyour side if yourbroker has a hidden financial agenda? David Swensen, Yale’s investmentguru,warnedmethatnomatterhowmuchyoumaylikeyourbroker,“Yourbrokerisnotyourfriend.”

RegisteredInvestmentAdvisors

Of 308,937 financial advisors in the United States, only 31,000—approximately 10%—are registered investment advisorsIV (also known asRIAs or independent advisors). Like doctors and lawyers, they have afiduciarydutyandalegalobligationtoactintheirclients’bestinterestsatalltimes.It’ssimplecommonsense,right?But inthestrangetwilightzoneofthefinancialindustry,it’sanythingbutcommon.

Togiveyouasenseofhowstrongthelawsare, ifyourRIAtellsyoutobuyApple in themorning,andhebuys it forhimselfatacheaperprice inthe afternoon, he has to give youhis stock!Try asking your broker to dothat! In addition, before doing businesswith you, yourRIAmust discloseanyconflictsofinterestandexplainupfronthowheorsheispaid.Nohocuspocus,nothinghidden,notricks,nolies,allcardsonthetable!

Whywouldyoueverchooseafinancialadvisorwhodoesn’thavetoact in your best interests over onewho does? You wouldn’t! Yetmostpeopledo just that!Onereason is that they simplydon’tknowanybetter.Thefactthatyou’rereadingthisbookputsyouinanelitegroup—onethat

understandsthefundamentalrulesofthishigh-stakesgame.AnotherreasonwhysomanypeopleusebrokersisthatRIAsarelikerarebirds:there’sonlyaone-in-tenchanceofspottingone.

HowcometherearesofewRIAs, ifthis issuchasuperiormodel?The most obvious reason is that brokers tend to earn a lot moremoney.All those fat fees from selling financial products canbe extremelylucrative. By contrast, RIAs don’t accept sales commissions. Instead,theytypicallychargea flat fee for financialadvice,orapercentageof theirclients’assetsundermanagement.It’sacleanermodelthatremovesawkwardconflictsofinterest.

DuallyRegisteredAdvisors

When I first learned about the difference between brokers and RIAs,everything seemed so clear and simple to me! You undoubtedly wantsomeone who’ll act in your best interests, right? So it seemed obvious toinsistonworkingwithanindependentadvisorwho’slegallyobligedtoactasa fiduciary. I thought of fiduciaries as the gold standard. But then IdiscoveredthatthissubjectismurkierthanI’drealized!

Here’s the problem: the vastmajority of independent advisors areregistered as both fiduciaries and brokers. WTF?! In fact, as many as26,000outof31,000RIAsoperateinthisgreyareawheretheyhaveonefootin both camps. That’s right: only 5,000 of the nation’s 310,000 financialadvisorsarepurefiduciaries.That’sameasly1.6%.Nowyouknowwhyit’ssohardtogetunconflictedandtransparentadvice.

When I wrote Money: Master the Game, I became a champion offiduciaries,onlytodiscoverthis inconvenient truthaboutdualregistration,firstbroughttomebyPeterMallouk.

It infuriated me to learn how these “dual registrants” actually operate.Onemoment, theyplaythepartofan independentadvisor,reassuringyouthattheyabidebythefiduciarystandardandcanprovideyouwithconflict-free advice for a fee.A second later, they switch hats and act as a broker,earning commissions by selling you products. When they’re playing thisbrokerrole,theynolongerhavetoabidebythefiduciarystandard.Inotherwords,they’resometimesobligedtoserveyourbestinterestsandsometimesnot!Howwarpedisthat?

How are you supposed to tell which hat they’re wearing at any given

moment? Believe me, it’s not easy. I’ve had the experience of asking anadvisor ifhewasa fiduciaryandhavinghimlookmeintheeyeandassuremethathewas.Hetalkedtomeabouthowuntrustworthybrokersareandhowmuchbetter it istobeafiduciary.Hetoldmethatourinterestswereperfectlyaligned.ThenIdiscoveredthathewasalsoactingasabroker,sincehewasduallyregistered,anditturnedoutthathemadeallsortsofsidedealsthatearnedhimloadsofcommissions!HerewasapersonIthoughtIcouldrecommendasafiduciary,andheliedtomyface.Still,hehadn’tbrokenanylaws.IwasfuriouswhenIrealizedhoweasyitistogetmisled.

Ironically, most dual registrants were originally brokers who gave upcorner offices and sizeable incomes to make the leap to becoming RIAs.Theywantedcompleteindependence,tobeabletoprovidetheirclientswiththefullrangeofinvestmentoptions—notjustthecarefullycraftedmenuofproducts that their previous employer imposed. They wanted to wear thewhite hat and not the black hat. And so they took the risk andmade thejumptoRIA,onlytodiscoverthesadtruththatit’sfinanciallyreallyhardtobeapurefiduciary.

Theseduallyregisteredadvisorshavegoodintentions,buttheygetcaughtbetween two worlds, trying to be honorable while also having to makecompromises. It’s not the fault of the individuals; it’s that the industry isstructured so that selling products is the easiestway tomake goodmoneyandpaythebills.

ALITTLERESPECT

I’mabouttogiveyouallofmymoneyAndallI’maskin’inreturn,honeyIsforalittlerespect.—ARETHAFRANKLIN,“Respect”

Bynow,you’ve learned somekey facts thatwill saveyoua lotof sufferingandsorrow.Youknowthat90%offinancialadvisorsarereallyjustbrokersindisguise.Youknow that theydon’thave toputyour interests first.Youknowthatthey’reundertremendouspressuretopeddleoverpricedproducts.Youknowthattheoddsoffindinggoodadviceimprovedramaticallyifyousteerclearofallbrokers—howeverunfairthatseems—andworkinsteadwithindependent advisorswhohave a fiduciary duty to put your interests first.Youknowthatallfiduciariesarenotcreatedequal,sincesomecansuddenlymutateintobrokers.

Sonowyouknowwhattoavoid.We’veeliminatedabout98%ofalltheadvisors out there, on the grounds that they’re either brokers or duallyregistered hybrids. What are you left with? Thousands of independentadvisorswho are legally obligated to act as fiduciaries. It shouldn’t be toodifficulttofindonewhomeetsyourneeds.

But you still have to tread carefully.Why?Because conflicts of interestcanariseevenwhenyou’reworkingwithanindependentadvisor—typicallyinvolvingcleverbut legal schemes tomakeadditionalmoneyoffyouwhileyou’relookingtheotherway.Herearethreetricksofthetradeyoushouldwatchoutfor:

ThePoisonofProprietaryFunds

Brokersroutinelysellproprietaryfundscreatedbytheirownfirm.It’sanot-so-subtlestrategyforkeepingfeesinthefamily—acommonmoney-makingscheme that depends on clients being naïve enough not to ask whetheranother firmmightofferbetterorcheaper funds. It’s just thekindof self-serving behavior that shouldmake youwary ofworkingwith brokers.ButI’msorry to tellyou thatmany independentadvisorshavealso figuredoutfurtivewaystousethisruse.

Here’s how it typically works: the advisory firm has two arms, one ofwhich isa registered investmentadvisor thatoffers independentadvice.Sofar, so good. But the firm’s second arm is a sister company that owns andoperates a bunch of proprietarymutual funds. The RIA pretends to offerimpartialadvicebutactuallyrecommendsthatyoubuytheoverpricedfundssoldbyitssistercompany!AsSaturdayNightLive’sChurchLadywouldsay,“Howconveeeenient!”Thegreat thing is thatall theprofits stay inhouse,whichisbetterforeveryone—oh,exceptfortheclient.

The poor client (wemight as well call him themark) pays the advisortwice: for “independent” advice on which investments to own and for theparentcompany’sownmediocre funds.Mostclientsaren’tevenawarethatthey’rebuyingfundsownedbythesamefirm.That’sbecausethefundarmandtheadvisoryarmtypicallyoperateunderdifferentbrandnames.It’slikewatchingamasterpickpocketatwork.Thetrickeryissoslyandcynicalthatyoualmosthavetoadmireit.

AnAdditionalFeeforDoingNothing

Here’s another scheme that’s become increasingly common: you pay anadvisor a fee to manage your money—let’s say, 1% of your assets. Theadvisor thenrecommendsa“modelportfolio” (hemayevengive ita fancyname like the “XYZPortfolioSeries”),whichhas its own additional fee—let’s say, 0.25%of your assets.This fee is over and above the cost of theunderlyinginvestmentsinyourportfolio.

But nothing additional is being done for you: the “model portfolio”consistsofvariousinvestmentstheadvisorhasassembled,whichiswhatyoupaidhimtodointhefirstplace.It’slikebuying$100worthofgroceriesandthengetting slappedwith a $25 fee for the right to carry themoutof thestoreinapaperbag!

Ifanadvisorchargesamoneymanagementfeeforselectinginvestments,thatshouldbeit.Endofstory.Whyshouldtheybeabletoaddanotherfeeforpoolingthoseinvestmentstogether?I’ll tellyouwhy:becausetheycan.Becauseyoumightnotnotice.

“ICan’tAcceptaCommission,SoLet’sJustCallIta‘ConsultingFee!’ ”

Some independent advisorsmake private deals with investment firms thatenabletheadvisortoearncommissionswithoutyouknowingit.Here’showit works: your advisor recommends the funds of a specific mutual fundcompany.Theadvisorcan’tdoanythingsotawdryasreceivingabackdoorcommission from the fund company in return for recommending itsproducts.Thispresentsa terribleconundrumfortheadvisor.Whattodo?Easy!Callthispayoffsomethingelse!

So the ingeniousadvisorapproaches the fundcompanyandasks insteadfora“consultingfee.”Thefundcompanygladlypaysthisfee,andeveryoneliveshappilyeverafter.Except foryou, theclient,who justgotduped intothinking that you were actually getting “independent” advice.What’s themoral?Ifitwalkslikeaduckandtalkslikeaduck,it’sprobablyaduck.Orabroker.

HOWTOFINDTHEBESTADVISORFORYOURNEEDS

CompetenceissuchararebirdinthesewoodsthatIappreciateitwheneverIseeit.

—FRANKUNDERWOOD,HouseofCards

Ihopeit’sclearbynowthatyourbestbetistohireanindependentadvisorwho’sa true fiduciary.Buthowdoyouselectaspecificadvisorwhomakessenseforyou?

Asyoucanseefromthequadrantonthefollowingpage,notallfiduciariesarecreatedequal.It’snotenoughtofindsomeonewho’s legallyobligedtoput your interests first. You also need someone who is financiallysophisticatedandhighlyskilled.Inotherwords,yourfiduciaryshouldfitinthetoprightcornerofthequadrant:highfiduciarywithhighsophistication.That’sthediametricoppositeofthelowerleftcorner,whichisasalespersonwithlowsophistication.

NotAllFiduciariesAreCreatedEqual

How can you tell if a particular fiduciary has the right skills andexperienceforyou?Whenyou’reselectingandvettingthem,youcanapplythefollowingfivecriteria:

1.First,CheckOuttheAdvisor’sCredentials.Youneedtomakesurethattheperson,orsomeoneonherteam,hastherightqualificationsforthejobyouneeddone.We’renottalkingaboutfancytitleshere.Imeanactualprofessionalcredentials.Ifyou’relookingforplanninghelp,makesure theadvisorhasacertified financialplanner (CFP)onthe team.Ifyou’re looking for legal help, make sure there are estate planningattorneys on the team. Looking for tax advice? Make sure there areCPAsontheteam.

Thesecredentialsaren’taguaranteeofhigh-levelskills.Evenso,it’simportanttoknowthatanyadvisoryou’reconsideringhasreachedtheminimumlevelofcompetencyrequiredtoadviseintherelevantfield.

2.Ideally,IfYou’reUsinganAdvisor,YouShouldBeGettingMoreThanJustSomeonetoDesignYourInvestmentStrategy.Whatyoureallyneedissomeonewhocanhelpyouastheyearsgobytogrowyouroverallwealth by showing youhow to savemoney on yourmortgage,insurance, taxes,andsoon—someonewhocanalsohelpyoutodesignandprotect your legacy.Thatmight soundunnecessary rightnow,but it’s important to have this breadth of expertise, since taxesalone can make a difference of 30% to 50% in what you retainfromyourinvestmentstoday!

IfinditironicwhenIseeadsforwealthmanagement,andallthey’redoing is designing a portfolio. It’s best to start with a person you’regoingtogrowwiththroughtime.Somakesurehehastheresourcestogrowwithyouevenifyou’restartingsmall.Alsokeepinmind,sizedoesmatter. You don’t want to end up with a sincere but inexperiencedadvisorwhomanagesonlyarelativelytinysumforafewdozenclients.

3.Next, YouWant toMake Sure Your AdvisorHas Experience inWorkingwithPeopleJustLikeYou.Doesshehavethetrackrecordto prove she’s performed well for clients in your position, with yourneeds?Forexample,ifyourmainfocusisonbuildingwealthsoyoucanretire, you want a real expert in retirement planning. Yet in ananonymous survey, the Journal of Financial Planning found that46% of advisors had no retirement plan of their own! I can’tbelieve they admitted this! Can you imagine hiring a personaltrainer who hasn’t exercised in decades or a nutritionist who’spoundingdownTwinkieswhiletellingyoutoeatvegetables?

4.It’sAlsoImportanttoMakeSureThatYouandYourAdvisorAreAlignedPhilosophically.Forexample,doeshebelievehecanbeatthemarket over the long run by picking individual stocks or activelymanaged funds? Or does he recognize that the odds of beating themarket are low, leading him to focus on selecting a well-diversifiedportfolioofindexfunds?Someadvisorsmightmeetyourneedforatruefiduciary but still fall short because they’re determined to pick stocks.Personally, I’d run a mile from any advisor who claims to beat the

market regularly.Maybe it’s true,but Idoubt it.More likely,he’s toooptimisticorislyingtohimself.

5.Finally,It’sImportanttoFindanAdvisorYouCanRelatetoonaPersonal Level. A good advisor will be a partner and ally for manyyears, guiding you on a long-distance financial journey. Sure, it’s aprofessionalrelationship,butisn’tmoneyalsoadeeplypersonalsubjectforyou,justasitisforme?It’stiedupwithourhopesanddreams,ourdesiretotakecareofthenextgeneration,tohaveacharitableimpact,tolive an extraordinary life on our own terms. It helps if you can havetheseconversationswithanadvisoryouconnectwith,trust,andlike.

THEGRANDPRIZE

Much of this chapter has focused on the many obstacles we need toovercomeinourquestforgreatfinancialadvice:theconflictsofinterest,thedissembling and deceit, the cynical and self-serving behavior. Isn’t itextraordinarythatit’ssohardtofindclient-focusedadvisorswithhigh-levelskillswhoactuallyprovidetheservicetheyclaimtoprovide?Nowondersomanypeopleloseheartanddecidetohandletheirfinancesontheirown!

Butletmetellyou,there’sahugeprizewhenyoureachthefinishline of this crazy obstacle course and find a truly great advisor. Formany people, nothing has a more positive impact on their financialfuture than partnering with an intelligent guide who knows theterritoryandcanshowthemprovenwaystowininanyenvironment.Aworld-class advisor will help you immeasurably from start to finish:defining your goals, keeping you on a steady path toward them—inparticular,byhelpingyoutoweathermarketvolatility—andmassivelyincreasingtheprobabilitythatyou’llactuallyachievethosegoals.

Creative Planning, the registered investment advisory firm run by mycoauthor,PeterMallouk,providesconflict-freeinvestmentadvicethatisalsoremarkablycomprehensive.He’sstructuredthecompanysothatclientsareadvisedbytheirownteam,whichincludesexpertsoninvesting,mortgages,insurance,taxes,andevenestateplanning.Thecost?Lessthan1%annually(onaverage)forthisentireteamofexperts.

This might sound like a service built exclusively for high-net-worthindividuals.ButPeterandhisteamdon’tjustservicetheultrawealthy.Atmy

request,he’screatedaspecialdivisiontohelpclientswhoareearlyintheirfinancialjourneyandhaveaminimumof$100,000inassets.

IwanttoemphasizethatI’mnotpushingyoutouseCreativePlanning,eventhoughI’maboardmemberandchiefofinvestorpsychology.

If you have someone else who can do a terrific job for you, I’m trulydelighted.But I knowhowdaunting it canbe even to start the process ofsearching for great advice and figuring out who to trust. If you want ashortcut,youcanstartbyaskingCreativePlanningforafreesecondopinionby visiting www.getasecondopinion.com. One of the firm’s wealthmanagerscanassessyoursituationanduncoverwhetherornotyourcurrentadvisorisoperatinginyourbestinterests.IfyouwanttogofurtherandhireCreativePlanningtoserveasyourfiduciary,we’dlovetohaveyouaspartofthefamily.

Letmegiveyouoneexampleofwhythisholisticapproachissopowerful.Manypeople own real estate investments outsideof theirmore traditionalinvestmentportfoliobutrarelyaretheyaccountedforwhenthey’reusingatypical advisor. Imagine youown a number of properties.An advisorwiththeproperexpertisewilllookathowtomaximizeyourcashflowandmightbe able tohelp restructure themortgageson thoseproperties.The result?The ability to potentially invest in an additional property or twowith noadditionalcash.Infact,youroverallmortgagepaymentsmaybeevenlowerthantheywerebefore!That’sthebenefitoftrulysophisticatedadvice.

SEVENKEYQUESTIONSTOASKANYADVISOR

Onewaytomakesureyouhiretherightadvisoristoaskhimorherseveralkey questions that will help you to uncover any potential conflicts andconcernsthatyoumightmissotherwise.Ifyouhaveanadvisoralready,it’sequallyimportantforyoutogettheanswerstothesequestions.Here’swhatI’d want to know before placing my financial future in the hands of anyadvisor:

1.AreYouaRegisteredInvestmentAdvisor? If theanswer isno, thisadvisorisabroker.Smilesweetlyandsaygood-bye.Iftheanswerisyes,heorsheisrequiredbylawtobeafiduciary.Butyoustillneedtofigureoutifthisfiduciaryiswearingonehatortwo.

2. Are You (or Your Firm) Affiliated with a Broker-Dealer? If theanswerisyes,you’redealingwithsomeonewhocanactasabrokerandusuallyhas an incentive to steer you to specific investments.One easywaytofigurethisoutistoglanceatthebottomoftheadvisor’swebsiteorbusinesscardandseeifthere’sasentencelikethis:“Securitiesofferedthrough [advisor’s company name],member FINRA and SIPC.”ThisreferstotheFinancialIndustryRegulatoryAuthorityandtheSecuritiesInvestorProtectionCorporation,respectively.Ifyouseethesewords,itmeansheorshecanactasabroker.Ifso,run!Runforyourlife!

3. Does Your Firm Offer Proprietary Mutual Funds or SeparatelyManagedAccounts?Youwanttheanswertobeanemphaticno.Iftheanswer is yes, then watch your wallet like a hawk! It probablymeansthey’re looking to generate additional revenues by steering you intotheseproductsthatarehighlyprofitableforthem(butprobablynotforyou).

4.DoYouorYourFirmReceiveAnyThird-PartyCompensationforRecommendingParticularInvestments?Thisistheultimatequestionyouwantanswered.Why?Becauseyouneedtoknowthatyouradvisorhas no incentive to recommend products that will shower him or herwithcommissions,kickbacks,consultingfees,trips,orothergoodies.

5.What’s Your PhilosophyWhen It Comes to Investing? This willhelp you tounderstandwhetherornot the advisorbelieves thatheorshecanbeatthemarketbypickingindividualstocksoractivelymanagedfunds. Over time, that’s a losing game unless the person is a totalsuperstar like Ray Dalio or Warren Buffett. Between you and me,they’reprobablynot.

6. What Financial Planning Services Do You Offer BeyondInvestment Strategy and Portfolio Management? Investment helpmaybeallyouneed,dependingonyourstageof life.Butasyougrowolder and/or you become more wealthy with various holdings tomanage, things often become more complex financially: for example,you may need to deal with saving for a child’s college education,retirement planning, handling your vested stock options, or estateplanning. Most advisors have limited capabilities once they venturebeyondinvesting.Asmentioned,mostaren’tlegallyallowedtooffertaxadvicedue to theirbroker status. Ideallyyouwantanadvisorwhocan

bringtoolsfortaxefficiencyinallaspectsofyourplanning—fromyourinvestmentplanningtoyourbusinessplanningtoyourestateplanning.

7.WhereWillMyMoneyBeHeld? A fiduciary advisor should alwaysuse a third-party custodian to hold your funds. For example, Fidelity,Schwab,andTDAmeritradeallhavecustodialarmsthatwillkeepyourmoney in a secure environment.You then sign a limited power ofattorneythatgivestheadvisortherighttomanagethemoneybutnevertomakewithdrawals.Thegoodnewsaboutthisarrangementisthatifyoueverwanttofireyouradvisor,youdon’thavetomoveyouraccounts. You can simply hire a new advisor who can take overmanagingyouraccountswithoutmissingabeat.ThiscustodialsystemalsoprotectsyoufromthedangerofgettingfleecedbyaconmanlikeBernieMadoff.

MISSIONACCOMPLISHED!

We’vecoveredanenormousamountofgroundinsection1ofthisbook.Asyou’llrecall,thissectionwasdesignedasyourrulebookforfinancialsuccess.Just think for a moment about some of the most important rules you’velearnedsofar:

•You’velearnedthepowerofbecomingalong-terminvestorwhodoesn’ttrade in and out of the market, who stays the course without gettingshakenandstirredbycorrectionsorcrashes.

•You’ve learned that the vastmajority of activelymanagedmutual fundsoverchargeforunderperformance,whichiswhyyou’resomuchbetteroffwithinexpensiveindexfundsthatyoucanholdformanyyears.

•You’ve learned thatexcessive feeshaveadevastatingeffect, like termiteseatingawayatthefoundationsofyourfinancialfuture.

•Andyou’velearnedhowtofindanindependentadvisorwhotrulydeserves—andwillrichlyrepay—yourtrust.

Now that you’ve completed the rule book, you’re one of the few whoactually understands how our financial systemworks.Now that you knowtherules,you’rereadytogetinthegame!

Section2ofUnshakeablewillgiveyouafinancialplaybookthatempowersyou to put your personal action plan in place right now. In chapter 6, I’llsharetheCoreFourprinciplesthattheworld’sbestinvestorsuseinmakinginvestment decisions. In chapter 7, you’ll learn how to “slay the bear” byconstructing a diversified portfolio that protects you during marketmeltdowns. Then, in chapter 8, I’ll show you how to “silence the enemywithin”—lettingyou inon themost important secrets I’ve learnedover40yearsonthepsychologyofwealthcreation.

This playbook will give you the knowledge and the practical tools youneedtoachievetotalfinancialfreedom!Doyoufeelthatstrength,thatpower,coursing through your veins? Then turn the page—because it’s time todesignyourplaybook,takecontrol,andgetinthegame....

I. “ParticipantTrustandEngagementStudy,”NationalAssociationofRetirementPlanParticipants(2016), www.ireachcontent.com/news-releases/consumer-trust-in-financial-institutions-hits-an-all-time-low-575677131.html.

II. “CongressionalJobApprovalRatingsTrend(1974–Present),”Gallup.com.

III. If you’reworkingwith a broker, at some point you’ll probably receive a phone call or a letterasking you to sign a “best interest contract exemption,” or BICE.The brokermay tell you, “Thegovernment passed a ridiculous law that limits your choices. If you sign this form, I can continueofferingyouafullmenuofoptions.”Don’tfallforit.Thisiscodefor“PleasesignthisformsoIcankeepsellingyoumyfirm’smostprofitableproductsandcollectingbigcommissions!”

IV. FidelityInstitutionalAssetManagement.

SECTION2

THEUNSHAKEABLEPLAYBOOK

CHAPTER 6

THECOREFOUR

TheKeyPrinciplesThatCanHelpGuideEveryInvestmentDecisionYouMake

Let’smakeitsimple.Reallysimple.—STEVEJOBS,cofounderofApple

Anyonecangetluckyandwinthelottery.Anyonecanpickawinningstockfromtime to time.But ifyouwant toachieve lasting financial success,youneed more than just the occasional lucky break. What I’ve found overalmost four decades of studying success is that the most successfulpeople in any field aren’t just lucky. They have a different set ofbeliefs.Theyhaveadifferentstrategy.Theydothingsdifferentlythaneveryoneelse.

I see this in every area of life, whether it’s sustaining a happy andpassionatemarriageformorethanahalfcentury,losingweightandkeepingitofffordecades,orbuildingabusinessworthbillions.

The key is to recognize these consistently successful patterns and tomodelthem,usingthemtoguidethedecisionsyoumakeinyourownlife.Thesepatternsprovidetheplaybookforyoursuccess.

WhenIembarkedonmyjourneytofindsolutionsthatcouldhelppeoplefinancially,Istudiedthebestofthebest,ultimatelyinterviewingmorethan50investmenttitans.Iwasdeterminedtocrackthecode—tofigureoutwhatexplains their stunning results. Above all, I kept asking myself onequestion:Whatpatternsdotheyhaveincommon?

AsIsoonrealized, itwasaremarkablydifficultquestiontoanswer.Thetrouble is, all these brilliant investors have entirely different styles andapproaches to makingmoney. For example, Paul Tudor Jones is a traderwho makes huge bets based on his macroeconomic view of the world.Warren Buffett makes long-term investments in public and privatecompanies thatpossessadurablecompetitiveadvantage.CarlIcahntargetsbusinesses that are underperforming, and then cajoles (or bludgeons)management to change its strategy in ways that can benefit shareholders.Clearly, there are many different paths to victory. Finding commondenominatorswasquiteachallenge!

But over the last seven years, I’ve done what I’ve always loved doing,which is to takecomplexsubjects thatseemoverwhelmingandbreakthemdown into a few core principles that people like you andme can actuallyutilize.SowhatdidIdiscover?Icametorealizethattherearefourmajorprinciplesthatnearlyallgreat investorsusetoguidetheminmakinginvestmentdecisions.IcallthesetheCoreFour.Thesefourpatterns,whichI’llexplaininthischapter,canpowerfullyinfluenceyourabilitytoachievefinancialfreedom.

DoyourememberwhatIsaidearlieraboutcomplexitybeingtheenemyofexecution?Well,whenI tellyouabout these fourprinciples,youmightrespondbysaying“Howbasic!Howsimple!”Andyouknowwhat?You’reright!

But it’s not enough to know a principle. You have to practice it.Executioniseverything. Idon’twanttoneedlesslycomplicatematterssothatyouendup sittingonamountainof rich informationbutdon’tknowwhattodowithit.Mygoalisn’ttodazzleyouwithelaboratearguments.It’sto synthesize, simplify, and clarify so you feel empowered to take actionnow!

Together these principles provide us with an invaluable checklist.Whenever I’m speaking with my financial advisors about a potentialinvestment, Iwant to knowwhether or not itmeets themajority of thesefourcriteria.Ifnot,thenI’msimplynotinterested.

WhyamIsoadamantaboutthis?Becauseit’snotenoughtosay“Theseare useful insights; I’ll try to keep them in mind.” The best investorsunderstand that these principles must be obsessions. They’re soimportant thatyouneed to internalize them, liveby them,andmakethemthefoundationofeverythingyoudoasaninvestor.Inshort,theCoreFourshouldbeattheveryheartofyourinvestmentplaybook.

COREPRINCIPLE1: DON’TLOSE

Thefirstquestionthateverygreatinvestorasksconstantlyisthis:“HowcanIavoid losingmoney?”Thismaysoundcounterintuitive.Afterall,mostof

usfocusonexactlytheoppositequestion:“HowcanImakemoney?HowdoIgetthebiggestpossiblereturnandhitthejackpot?”

But the best investors are obsessed with avoiding losses. Why?Becausetheyunderstandasimplebutprofoundfact:themoremoneyyoulose,theharderitistogetbacktowhereyoustarted.

Idon’twantyoutofeel likeyou’rebackinyourhighschoolmathclass!But it’sworthpausing toclarifywhy losingmoney is suchadisaster.Let’ssayyoulose50%ofyourmoneyonabadinvestment.Howmuchwillyouneedtoearntomakeyourselfwholeagain?Mostpeoplewouldsay50%.Butthey’dbedeadwrong.

Let’slookatit.Ifyouinvested$100,000andyoulost50%,younowhave$50,000. If you thenmakea50%returnon that$50,000,younowhaveatotalof$75,000.You’restilldown$25,000.

Inreality,you’llneeda100%gainjusttorecoupyourlossesandgetbackto your original $100,000. And that could easily take you an entiredecade.ThisexplainsWarrenBuffett’sfamouslineabouthisfirsttworulesofinvesting:“Rulenumberone:neverlosemoney.Rulenumbertwo:neverforgetrulenumberone.”

Other legendary investorsareequallyobsessedwithavoiding losses.Forexample,mygreat friendPaulTudorJones toldme,“Themost importantthingformeisthatdefenseis10timesmoreimportantthanoffense....Youhavetobeveryfocusedonprotectingthedownsideatalltimes.”

But inpractical terms,howcanyou actually avoid losingmoney?For astart, it’s important to recognize that financial markets are wildlyunpredictable.ThetalkingheadsonTVcanpretendasmuchastheywantthat they know what’s coming next. But don’t fall for it! The mostsuccessfulinvestorsrecognizethatnoneofuscanconsistentlypredictwhatthefutureholds.Withthatinmind,theyalwaysguardagainsttherisk of unexpected events—and the risk that they themselves can bewrong,regardlessofhowsmarttheyare.

TakeRayDalio.Forbes says he’s produced $45 billion in profits for hisinvestors—more than any other hedge fund manager in history. His networth is estimated at $15.9 billion! I’vemet a lot of extraordinary peopleovertheyears,butI’venevermetanyonesmarterthanRay.Evenso,hetoldme that his entire investment approach is built on his awareness that themarket will sometimes outsmart him, veering in a totally unexpected

direction. He learned this lesson early in his career, thanks to what hedescribedas“oneofthemostpainfulexperiences”ofhislife.

In1971,backwhenRaywasayounginvestorlearninghistrade,PresidentRichardNixontooktheUnitedStatesoffthegoldstandard.Inotherwords,dollarscouldnolongerbedirectlyconvertedintogold,whichmeantthattheUScurrencywas suddenlyworthnomore than thepaperonwhich itwasprinted. Ray and everyone he knew in the investment community werecertain that the stock market would plummet in response to this historicevent. So what happened? Stocks skyrocketed!That’s right. They did theexactoppositeofwhat logicandreasontoldhimandall theotherexperts toexpect. “What I realized is nobody knows and nobody everwill,” he says.“SoIhavetodesignanassetallocationthat,even if I’mwrong,I’ll stillbeokay.”

That,myfriend,isaninsightthatyouandIshouldneverforget:wehave to design an asset allocation that ensures we’ll “still be okay,”evenwhenwe’rewrong.

Asset allocation is simply amatterof establishing the rightmixofdifferenttypesofinvestments,diversifyingamongtheminsuchawaythatyoureduceyourrisksandmaximizeyourrewards.

Idon’tlooktojumpoverseven-footbars:Ilookaroundforone-footbarsthatIcanstepover.

—WARRENBUFFETT

We’lldiscuss the ins andoutsof asset allocation inmuchgreaterdepth inthenext chapter.But fornow, it’s important to remember this:we shouldalways expect the unexpected. Does that mean we should hide away in fearbecause everything is so uncertain?Not at all. It simplymeans that weshouldinvestinwaysthathelptoprotectusfromnastysurprises.

As you and I both know, many investors get hurt by market bubblesbecausetheystarttoactasifthefuturewillbringnothingbutsunshine.Asaresult, they throw caution to thewind. Long-timewinners such as Bogle,Buffett,andDalioknowthefuturewillbefullofsurprises,bothpleasantandunpleasant.Sotheyneverforgetabouttheirdownsiderisk,andtheyprotectthemselvesby investing indifferent typesofassets, someofwhichwill risewhileothersfall.

I’mnoeconomistormarketseer!Butitstrikesmethatthisemphasisonavoidinglossisparticularlyrelevanttoday,giventhatnoneofuscanpredict

the effect of the radical economic policies we’re seeing around theworld.We’re in uncharted territory. As Howard Marks told me in late 2016,“When you’re in an uncertain world with high asset prices and lowprospectivereturns,Ithinkthatshouldgiveyoupause.”Athis$100billioninvestment firm,OaktreeCapitalManagement, themantra in recent yearshas been “Proceed with caution.” He explains: “We are investing.We’refullyinvested.We’rehappytobeinvested,buteverythingwe’rebuyinghasanunusuallyhighdegreeofcaution.”

How do I apply the “DoNot Lose” principle in my own life? I’m soobsessedwiththisideaofnotlosingthatInowtellallmyadvisors,“Don’tevenbringmeaninvestmentideaunlessyoufirsttellmehowwecanprotectagainstorminimizethedownside.”

COREPRINCIPLE2: ASYMMETRICRISK/REWARD

Accordingtoconventionalwisdom,youneedtotakebigriskstoachievebigreturns.Butthebestinvestorsdon’tfallforthishigh-risk,high-returnmyth.Instead, they hunt for investment opportunities that offerwhat theycall asymmetric risk/reward: a fancy way of saying that the rewardsshould vastly outweigh the risks. In other words, these winninginvestors always seek to risk as little aspossible tomake asmuch aspossible.That’stheinvestor’sequivalentofnirvana.

I’ve seen this up closewith PaulTudor Jones, who uses a “five-to-onerule” to guide his investment decisions. “I’m risking one dollar in theexpectationthatI’llmakefive,”heexplainedtomeintheearlydaysofourcoachingrelationship.“Whatfive-to-onedoesisallowyoutohaveahitrateof20%.Icanactuallybeacomplete imbecile. Icanbewrong80%of thetime,andI’mstillnotgoingtolose.”

Howisthatpossible?IfPaulmakesfiveinvestments,eachfor$1million,andfourinarowgotozero,thenhe’slostatotalof$4million.Butifthefifth investment is ahome run andmakes$5million,he’s earnedbackhisentire$5millioninvestment.

Inreality,Paul’shitrateisawholelotbetterthanthat!Imaginethatonlytwo of his five investments pan out as expected and go up fivefold. Thatmeanshisoriginal$5millionhasjustgrownto$10million.Inotherwords,he’sdoubledhismoneydespite,inthiscase,beingwrong60%ofthetime!

By applying his five-to-one rule, he sets himself up to win the game,despitesomeinevitablemistakes.

Now, let’s be clear: five-to-one is Paul’s ideal investment.He obviouslycan’tfindthatratioeverytime.Insomecases,theratioofthree-to-oneishistarget. The larger point is, he’s always looking for limited downside andhugeupside.

Anotherfriendofminewho’sobsessedwithasymmetricrisk/rewardisSirRichardBranson, the founderof theVirginGroup.Richard,whooverseesaboutfourhundredcompanies,isn’tjustaninspiredentrepreneur.He’salsoanadventurerwithadangerouspassionforputtinghislifeontheline,fromhot-air ballooning around the globe, to setting the record for the fastestcrossing of the English Channel in an amphibious vehicle! So he’s theultimaterisktaker,right?Yesandno.It’struethathetakesoutlandishriskswithhislife.Butwhenitcomestohisfinances,he’smasterfulatminimizingrisk.

I’llgiveyouaclassicexample:whenhelaunchedVirginAtlanticAirwaysin 1984, Richard started with just five airplanes. He was challenging anentrenchedGoliath, British Airways, in an infamously tough business.Heoncejoked,“Ifyouwanttobeamillionaire,startwithabilliondollarsandlaunch a new airline!” But Richard spent over a year negotiating anunbelievabledealthatwouldallowhimtoreturnthoseplanesifthebusinessdidn’t panout.That left himwithminimaldownside and limitless upside!“Superficially, I think it looks like entrepreneurshave ahigh tolerance forrisk,”hesays.“Butoneofthemostimportantphrasesinmylifeis‘Protectthedownside.’ ”

Thispatternofthinkingaboutasymmetricrisk/rewardcroppedupagainand again in my interviews with famous investors. Consider Carl Icahn,whosenetworthisestimatedat$17billionandwhowasdubbed“Masterofthe Universe” on the cover of Time magazine. This is a guy whosecompounded rateof return since1968was31%,better even thanWarrenBuffett’s20%.ICarlearnedafortunebymakinghugeinvestmentsinpoorlyrunbusinessesand then threatening to take themoverunlessmanagementagreedtomenditsways.Thismightseemliketheworld’sriskiestgameofhigh-stakespoker,withbillionsontheline.

ButCarlneverlostsightoftheodds.“Itappearedthatwewereriskingalotofmoney,butweweren’t,”hetoldme.“Everythingisriskandreward.Butyou’vegottounderstandwhattheriskisandalsounderstandwhattherewardis.MostpeoplesawmuchmoreriskthanIdid.Butmathdoesn’tlie,andtheysimplydidn’tunderstandit.”

Are you starting to see a pattern here? These threemultibillionaires—PaulTudorJones,RichardBranson,andCarlIcahn—havetotallydifferentapproaches to making money.Yet all three share the same obsession:howtoreduceriskswhilemaximizingreturns.

Now,forgivemeifI’mwrong.ButI’mguessingthatyou’renotabouttostartanewairlineorlaunchahostiletakeoverofacompany.Sohowcanyouapplythispatternofthinkinginyourownfinanciallife?

Oneway to achieve asymmetric risk/reward is to invest in undervaluedassets during times ofmass pessimism and gloom.As you’ll learn in thenextchapter,correctionsandbearmarketscanbeamongthegreatestfinancialgiftsofyourlife.Thinkbacktothefinancialcrisisof2008–09.Atthetime,itfeltlikehellonearth.Butifyouhadtherightmind-setandyoureyes were open, the opportunities were heavenly! You couldn’t movewithouttrippingoverabargain!

When themarkethit rockbottom inMarch2009, the future looked sobleaktomostinvestorsthatyoucouldsnapupsharesinblue-chipcompaniesforpenniesonthedollar.Forexample,Citigroupsanktoalowof97centsashare, down from a peak of $57! You could literally own a piece of thecompanyforlessthanitcostyoutotakemoneyoutofanATM.Buthere’sthe kicker: winter is always followed by springtime, and sometimes theseasonsturnmuchquickerthanyou’deverguess.This97-centstockshotto$5withinfivemonths,givinginvestorsa500%return.

That’swhy“value”investorslikeWarrenBuffettlicktheirchopsduringbearmarkets.Theturmoilenablesthemtoinvestinbeaten-upstocksatsuchlowpricesthatthedownsideislimitedandtheupsideisspectacular.

Buffett did just that in late 2008, investing in fallen giants such asGoldman Sachs and General Electric, which were selling at once-in-a-lifetimevaluations.Betterstill,hestructuredtheseinvestmentsinwaysthatreducedhisriskevenfurther.Forexample,heinvested$5billioninaspecialclass of “preferred” shares of Goldman Sachs, which guaranteed him adividendof10%ayearwhilehewaitedforthestockpricetorecover!

Mostpeoplegetsoscaredduringcrashesthattheyseeonlythedownside.ButBuffettmadesurethatitwasalmostimpossibleforhimtolose.

Inotherwords,it’sallaboutasymmetricrisk/reward!Here is an example from my own personal investments. A window of

opportunityopenedupforme intheyears followingthe2008-09financialcrisis, when banks had decided to implement some of the most stringentlendingrequirementsinyears.Atthetime,manyindividualshadsignificantequityvalueintheirhomesbutnowaytoaccessthefunds.Arefinancing,orre-fi,wasoutofthequestion.Theywerelookingforawaytoaccessshort-

termfunds(typicallyonetotwoyearsorless)andwerewillingtoposttheirhomeascollateral.

In short, Iwould lend them the funds theyneeded andbecamewhat isknown as the “first trust deed holder” on their home. Back in 2009, ahomeownercametomyteamwithahousevaluedat$2million,anditwasowned free and clear. He was requesting a $1 million loan (50% of thecurrentappraisedvalueoftheproperty)andwaswillingtopay10%interestfor 12 months. Not bad in a world where I could invest in a 10-yearTreasurynote andcurrently earnonly1.8%ayear.And since theFederalReservehasalreadybegunraisingrates,thatwillputdownwardpressureonbondpricessomynetreturncouldbeless(unlessIamwillingtoholdallthewaytomaturity).

SowhatwasmydownsideifIinvestedinthetrustdeed?Iftheborrowerdefaulted, the real estatemarketwouldhavehad to collapsebymore than50% for me to not get my money back. Even in the worst real estatedownturnwe’ve seen inoverhalfacentury (2008) this specificcommunitydidnotseepricedecreasesgreaterthan35%.Sowithashortone-yeartimehorizon, thismet the firstofmycriteria—how to increasemyoddsofnotlosingmoney!

Plus,lookattheasymmetricalrisk/reward:Therewaslittleriskoflosingmoney, given that the real estatemarket could drop by 50% and I’d stillbreak even; and a 10% annual return gave me plenty of upside in anenvironmentofcompressedreturns.Basedonthesefactors,Iwasconfidentthatthisinvestmentofferedanexcellentbalanceofriskandreward.

Nowyoudon’tneedtohaveamilliondollarstodoinvestmentslikethis.Manyborrowerswereasking for$25,000 to$50,000 loansaswell.Butmypointhereisnotthatyoushouldgohuntingforfirsttrustdeeds.Thereareotherrisksassociatedwiththesetypesof investmentsthatare importanttounderstand. The point is, different opportunities will always presentthemselves,dependingontheeconomicclimateormarketbehavior.

COREPRINCIPLE3: TAXEFFICIENCY

As we discussed earlier, taxes can easily wipe out 30% or more of yourinvestmentreturnsifyou’renotcareful.Yetmutualfundcompanieslovetotout their pretax returns, obscuring the reality that there’s only one

number that truly matters: the net amount that you actually get tokeep.

When people congratulate themselves on their investment returnswithouttakingintoaccounttheimpactoftaxes(letalonefees),whatthey’rereallydemonstratingisagiftforself-delusion!It’sabitlikesaying,“Iwassogoodonmydiettoday,”whileconvenientlyforgettingthatyouscarfeddownacoupleofdonuts,adoubleportionofFrenchfries,andahot-fudgesundae!

In investing, self-delusion is an expensive habit. So let’s remove theblindfold and confront theunvarnished truth! If you’re a high earner, youcould currently be paying an ordinary income tax rate of 50% betweenfederal and state taxes. If you sell an investment thatyou’veowned for lessthanayear, yourgainswillbe taxedat the same sky-high rateyoupayonyourordinaryincome.Brutal,right?

Bycontrast, ifyouholdmost investments forayearormore,you’llpaylong-termcapitalgainstaxwhenyousell.Thecurrentrateis20%,whichiswaylowerthantherateyoupayonyourordinaryincome.Simplybybeingsmartaboutyourholdingperiod,you’resavingupto30%ontaxes.

Butifyouignoretheimpactoftaxes,youpayaheavyprice.Let’ssayyouownamutualfundthatearns8%ayear.Afterdeductingfeesof,say,2%ayear,you’re leftwith6%.If the fund trades frequently (asmost fundsdo),thenallthoseshort-termgainswillbetaxedatyourordinaryincomerate.IISoifyou’reahighearnerinastatesuchasCaliforniaorNewYork,your6%annualreturnjustgotcutinhalftoameasly3%post-taxreturn!Atthisrate,you’lldoubleyourmoneyonlyevery24years.Butyoualsoneedtotakeintoaccounttheeffectofinflation.Ifthatcomesinat2%ayear,yourrealreturnhas justdroppedfrom3%to1%.Atthisrate,you’re likelytoretireattheageof120.

Ihaveenoughmoneytoretireandlivecomfortablyfortherestofmylife.Theproblemis,Ihavetodienextweek.—ANONYMOUS

Now can you see why it’s so important to invest in a tax-efficient way?Believeme,allthebillionairesI’veevermethaveoneattributeincommon:they and their advisors are really smart about taxes!They know that it’snotwhattheyearnthatcounts.It’swhattheykeep.That’srealmoney,which they can spend, reinvest, or give away to improve the lives ofothers.

In case you’re wondering, there’s nothing sordid or immoral aboutmanagingyour finances inways that lawfully reduceyour taxburden.Theauthoritymost often quoted on this subject by legal scholars and theUSSupremeCourtisFederalAppealsCourtJudgeBillingsLearnedHand.Hefamously stated in 1934: “Anyonemay arrange his affairs so that his taxesshallbeas lowaspossible. . . .Nobodyowesanypublicduty topaymorethanthelawdemands.”

When I met David Swensen, he pointed out that one of his biggestadvantagesininvestingmoneyforYaleisthatit’sanonprofitinstitutionandthusexemptfromtaxes.Butwhatshouldtherestofusdo?First,steerclearofactivelymanagedfunds,especiallythosethattradealot.AsDavidtoldme,one benefit of index funds is that they keep trading to aminimum,whichmeans“your taxbill isgoing tobe lower.This ishuge.Oneof themostseriousproblemsinthemutualfundindustry,whichisfullofseriousproblems, is that almost allmutual fundmanagers behave as if taxesdon’tmatter.Buttaxesmatter.Taxesmatteralot.”

As he spoke, I could feel his deep concern, his determination to helppeople understand the significance of what he was saying. The enormousimpact of taxes on your returns “speaks to the importance of takingadvantage of every tax-advantaged investment opportunity that you can,”Davidemphasized.“Youshouldmaximizeyourcontributionsifyou’vegota401(k), or a 403(b) if you work for a nonprofit. You should take everyopportunitytoinvestinatax-deferredway.”

It sounds so obvious, right?We all know that tax-advantaged vehiclessuch as 401(k)s, Roth IRAs, traditional IRAs, private placement lifeinsurance (or PPLI, the “rich man’s Roth”), and 529 plans (for collegesavings) can help us reach our goals quicker. You’re probably takingadvantage of some of these opportunities already. But if you’re notmaximizingyourcontributions,nowisthetimetodoit!

Ifyouwanttolearnmoreaboutthistopic,Money:MastertheGamecoversitindepthinchapter5.5:“SecretsoftheUltrawealthy(ThatYouCanUseToo!).”Remember:oneproblemyou’llencounterifyou’reusingabrokeristhat they arenot tax professionals, so they’renot allowed legally to adviseyou on taxes. Even most registered investment advisors don’t have a taxexpertontheirteamtoguideyouinthisarea.That’swhyyouideallywanttopartnerwitha firmthathasCPAsonstaff, since they’llkeeptaxefficiencytopofmind.

I’ve applied what David taught me. This tax-sensitive way of thinkingpermeatesmyapproachtoinvesting.Ofcourse,Idon’tstartwithtaxes.Thatwouldbeaseveremistake.Ialwaysstartwitha focusonnot losingmoneyandongettingasymmetricrisk/reward.Then,beforemakinganyinvestment,Imakeapointofasking,“Howtaxefficientisthisgoingtobe?Andisthereanywaywecouldmakeitmoretaxefficient?”

One reason for this obsession is that I spentmuch ofmy life living inCalifornia, where—after tax—I kept as little as 38 cents of every dollar Iearned.When you’re taxed that heavily, it sensitizes you pretty quickly! IlearnedtofocussolelyonwhatwouldbeleftafterpayingUncleSamhisdue.

Wheneversomeonetellsmeabouta financialopportunitythatseemstoofferenticingreturns,myresponse isalways thesame:“Is thatnet?”Moreoftenthannot,thepersonreplies,“No,that’sgross.”Butthepretaxfigureisphony,whereasthenetnumberdoesn’tlie.Yourgoal,andmine,isalwaystomaximizethenet.

I’llgiveyouaspecificexample:CreativePlanning,whereIserveaschiefof investor psychology, might recommend master limited partnerships(MLPs) for certain client portfolios, when appropriate. As I soon learned,these publicly traded partnerships offer an easy way to invest in energyinfrastructuresuchaspipelinesforoil,gasoline,andnaturalgas.IcalledmyfriendT.BoonePickens,who’smadebillionsintheoilbusiness,andasked,“WhatdoyouthinkofMLPsrightnow?”

Heexplained that their pricehad tumbledbecauseof a crash in energyprices. In fact, from 2014 through early 2016, the price of oil had fallenmorethan70%.ManyinvestorsassumedthatthisdropwasterriblenewsforMLPs, since they provide infrastructure to clients in the energy business.ButMLPs—atleast,thebestofthem—aremuchbetterprotectedthantheyseem. That’s because their clients typically sign long-term contracts withfixed fees in return for the right touse this infrastructure.Thisprovides areliableincomestreamyearafteryear,enablingMLPstopayoutgenerousroyaltyincometotheirpartners.

AsBooneexplained,you’renotreallybettingonoilandgaspriceswhenyou invest in anMLP. As an owner of a pipeline, you’remore like a tollcollector.Regardlessofwhathappenstooilorgasprices,energyisgoingtokeepgettingtransportedaroundthecountry,becauseit’sthelifebloodofthenationaleconomy.And,asanowneroftheMLP,you’llkeepcollectingyourtollslikeclockwork!

Meanwhile, the fact that the price ofMLPshadnosedivedwas actuallygoodnewsforinvestors.Why?Becausethiswasanoverreactiontothedropinthepriceofenergy.Mostinvestorsweresofearful,thatyoucouldinvestatahistorically lowvaluation.Evensomeofthehighest-qualityMLPshadseentheirpricesfall50%.

But the tollbooth was still working beautifully. AnMLP that had soldpreviously for $100 paid an annual income royalty of $5 per share—that’s5%incomeperyearontheinvestment.Whenthepricedroppedto$50,theMLPstillpaidout$5pershareofincome.Butthisnowamountedtoa10%annualincomereturn!Thatmightnotsoundlikeabonanza.Butinthiseraofrock-bottominterestrates,it’sawholelotbetterthanbondsthatyield2%or less.Evenbetter, you still had all of theupside if thepriceof theMLPrecovered!

Solet’stakeamomentandseehowMLPsstackedupagainstthecriteriainourCoreFour:

1.Don’tLose.ThepriceofenergyandMLPshadfallensomuchthatitwasunlikelythey’dfallsignificantlyfurther.Expertslike“theoiloracle”T.BoonePickensalsopointedout thatenergyproductionhad shrunkmassively because prices had cratered. That meant supplies werediminishing, andevenwith lesserdemand, thepriceswouldeventuallyhavetorise.Withallthisonyourside,theoddsoflosingmoneyweregreatlydiminished.

2.AsymmetricRisk/Reward.Aswe’ve said, therewas very little risk ofloss. But there was a high probability that energy prices wouldeventually recover and that MLPs would return to favor. In themeantime,you’dbecollecting10%ayearinannualincome.Believeme,I’mhappytosittightandcollectmytolls!

3.TaxEfficiency.Buthere’s thebestpart: theUSgovernmentneeds topromote domestic energy production and distribution, so it has givenMLPspreferentialtaxtreatment.Asaresult,mostoftheincomeyoureceiveisoffsetbydepreciation,whichmeansthatroughly80%ofyourincomeistaxfree.Soifyoumakea10%return,you’renetting8% annually.That’s pretty nice, right? By contrast, if you didn’t havethis tax-preferential treatment, the incomepaidwithin the yearwouldbe taxed at your ordinary income tax rate.Ahigh income earnerwhopays50%intaxeswouldnet just5%.Inotherwords,byusingthetax

efficiencyofanMLP,younet8%insteadof5%.Thedifference:60%moremoneyinyourpocket.That’sthepoweroftaxefficiency.

AsPeterwillexplaininthenextchapter,MLPsaren’trightforeveryone—norarewespecificallyrecommendingthemforyou.But it’s thebroaderprinciplethatI’mlookingtoillustratehere:byfocusingonafter-taxreturns,youcanputyourselfonamuchfasterpathtofinancialfreedom.

Incidentally, it’s worth pointing out that there’s almost always an assetclassoracountryoramarketthat’sgettingclobbered,presentingyouwithequallyenticingopportunitiesforasymmetricalrisk/reward.

Finally,forgoodmeasure,beingsmartaboutyourtaxesalsohelpsyoutohave a greater impact on theworld. Instead of leaving the government todecidehowtospendyourmoney,yougettodecideforyourself!MyownlifeisinfinitelyricherbecauseI’mabletosupportcausesthatexciteandinspireme.I’vebeenabletoprovideaquarterofabillionfreemealssofar,andI’mon my way to a target of one billion meals through my initiative withFeedingAmerica.I’malsoproviding250,000peoplewithfreshwatereveryday in India, and I’m helping to save over 1,000 kids from sexual slaverythroughapartnershipwithOperationUndergroundRailroad.IIIThese arejust a few of the gifts I can share as a result of being tax efficient inmyinvestments.

COREPRINCIPLE4: DIVERSIFICATION

ThefourthandfinalprincipleintheCoreFourisperhapsthemostobviousand fundamental of all: diversification. In its essence, it’s what almosteveryone knows: don’t put all your eggs in one basket. But there’s adifferencebetweenknowingwhat todoandactuallydoingwhatyouknow.AsPrince-ton professorBurtonMalkiel toldme, there are four importantwaystodiversifyeffectively:

1. Diversify Across Different Asset Classes. Avoid putting all yourmoneyinrealestate,stocks,bonds,oranysingleinvestmentclass.

2.DiversifyWithinAssetClasses.Don’tputallyourmoneyinafavoritestock such asApple, or a singleMLP, or one piece ofwaterfront realestatethatcouldbewashedawayinastorm.

3.DiversifyAcrossMarkets,Countries, andCurrenciesAround theWorld. We live in a global economy, so don’t make the mistake ofinvestingsolelyinyourowncountry.

4.DiversifyAcrossTime.You’renevergoingtoknowtherighttimetobuyanything.Butifyoukeepaddingtoyourinvestmentssystematicallyover months and years (in other words, dollar-cost averaging), you’llreduceyourriskandincreaseyourreturnsovertime.

EveryHall of Fame investor I’ve ever interviewed is obsessedwith thequestionofhowbesttodiversifyinordertomaximizereturnsandminimizerisks.PaulTudor Jones toldme, “I think the singlemost important thingyou can do is diversify your portfolio.” This message was echoed in myinterviewswithJackBogle,WarrenBuffett,HowardMarks,DavidSwensen,JPMorgan’sMaryCallahanErdoes,andcountlessothers.

Theprincipleitselfmaybesimple,butimplementingitisanothermatter!That requires real expertise. This is such an important topic that we’vedevotedmuch of the next chapter to it.My partner, PeterMallouk—who

guided his clients through the frightening crash of 2008–09—will explainhow to build a customized asset allocation, diversifying among differenttypesofinvestmentssuchasstocks,bonds,realestate,and“alternatives.”Hismission:tohelpyouconstructaportfoliothatwillenableyoutoprosperinanyenvironment.

Thismightsoundlikeabigpromise,butdiversificationdoesitsjobintheworst of seasons. Between 2000 and the end of 2009, US investorsexperiencedwhathasbecomeknownasthe“lostdecade”becausetheS&P500 was essentially flat despite its major swings. But smart investors lookbeyond just the largest US stocks. Burt Malkiel authored a Wall StreetJournalarticletitled“ ‘BuyandHold’IsStillaWinner.”Initheexplainedthat if youwere diversified among a basket of index funds—includingUSstocks,foreignstocks,andemerging-marketstocks,bonds,andrealestate—between the beginning of 2000 and the end of 2009, a $100,000 initialinvestment would have grown to $191,859.That’s a 6.7% average annualreturnduringthelostdecade!

Onereasonwhydiversification is socritical is that itprotectsus fromanatural human tendency to stick with whatever we feel we know.Once aperson is comfortable with the idea that a particular approach works—orthatheorsheunderstandsitwell—it’stemptingtobecomeaone-trickpony!As a result,manypeople endup investing tooheavily inone specific area.Forexample, theymight stakeeverythingonrealestatebecause theygrewupseeingitworklikemagicfortheirfamily;ortheymightbeagoldbug;ortheymightbettooaggressivelyonahotsectorsuchastechstocks.

Thetroubleis,everythingiscyclical.Andwhat’shotcannowsuddenlyturntoice.AsRayDaliowarnedme,“It’salmostcertainthatwhatever[assetclass] you’regoing toputyourmoney in, therewill comeadaywhenyouwilllose50%–70%.”Canyouimaginehavingmostorallofyourmoneyinthatoneareaandwatchinginhorrorasitgoesupinflames?Diversificationis your insurance policy against that nightmare. It decreases your risk andincreasesyourreturn,yetitdoesn’tcostyouextra.How’sthatforawinningcombination?

Ofcourse,therearemanydifferentwaysofdiversifying.Idiscussthisindetail in Money: Master the Game, laying out the exact asset allocationsrecommended by Ray and other financial gurus, such as Jack Bogle andDavid Swensen. For example,David toldme how individual investors candiversifybyowninglow-costindexfundsthatinvestinsix“reallyimportant”

asset classes:US stocks, international stocks, emerging-market stocks, realestate investment trusts (REITs), long-termUS Treasuries, and Treasuryinflation-protected securities (TIPS). He even shared the precisepercentagesthathewouldrecommendallocatingtoeach.

As for Ray Dalio, his unique approach to diversification does anextraordinary jobof tamingrisk. Ihad theprivilegeof speakingrightaftermydear friendRayat theRobinHood InvestorsConference in late2016.Thebest investors in thebusiness listened intently asRay revealedoneofthegreatsecretsofhisapproach:“Theholygrailofinvestingistohave15ormoregood—theydon’thavetobegreat—uncorrelatedbets.”

In otherwords, everything comes down to owning an array of attractive assetsthatdon’tmoveintandem.That’showyouensuresurvivalandsuccess.Inhiscase, this includes investments in stocks, bonds, gold, commodities, realestate, and other alternatives. Ray emphasized that, by owning 15uncorrelated investments,youcanreduceyouroverall risk“byabout80%,”and“you’ll increasethereturn-to-riskratiobyafactorof five.So,yourreturnisfivetimesgreaterbyreducingthatrisk.”

I’m not suggesting that there’s a perfect, one-size-fits-all approach thatyoushouldnecessarilyfollow.WhatIreallywanttoconveyisthatallofthebest investors regard diversification as a core component of long-termfinancialsuccess.Ifyoufollowtheirexamplebydiversifyingbroadly,you’llbe prepared for anything, freeing you to face the future with calmconfidence.

READYTORUMBLE!

Bynow, you’re alreadyway aheadof thegame.Youbelong to a tiny elitethat understands these four all-important principles that the best investorsuse to guide their investment decisions. If you live by them, your odds ofinvestmentsuccesswillriseexponentially!

In the next chapter, we’ll delve deeper into the nitty gritty of assetallocation. PeterMallouk will explain the benefits of taking a customizedapproachthat’s tailoredtoyourspecificneedsandcircumstances.Withhisexpertguidance,you’lllearntoconstructadiversifiedportfoliothatenablesyou toweather any storm.Remember:we all know thatwinter is coming.Weallknowthatbearmarketsareregularoccurrences.Mostinvestorslive

in fearof them.Butyou’reabout todiscoverhowtomakewinter thebestseasonofall—aseasontorelish!

Socomewithme,intrepidwarrior!It’stimetograbourweaponsandslaythebear!

I. AccordingtoKiplinger’sPersonalFinance.

II. According to William Harding, an analyst with Morningstar, the average turnover ratio formanageddomesticstockfundsis130%.

III. OperationUndergroundRailroad(OUR)gatherstheworld’sexpertsinextractionoperationsandinanti–childtraffickingeffortstobringanendtochildslavery.ItsteamconsistsofformerCIA,NavySEALs,andSpecial-Opsoperativesthatleadcoordinatedidentificationandextractionefforts.

CHAPTER 7

SLAYTHEBEAR

HowtoNavigateCrashesandCorrectionstoAccelerateYourFinancialFreedom

Ilearnedthatcouragewasnottheabsenceoffear,butthetriumphoverit.Thebravemanisnothewhodoesnotfeelafraid,buthewhoconquersthatfear.

—NELSONMANDELA

THEPATHTOFEARLESSNESS

When I was 31 years old, I visited a doctor for my annual physical—aroutinecheckupthatwasrequiredformetorenewmylicenseasahelicopterpilot.Inthedaysthatfollowed,thedoctorleftseveralmessagesaskingmetocallhim.Iwasrunningaroundlikecrazyanddidn’thavetimetospeakwithhim.Then,oneevening, Igothomeaftermidnightand foundanote thatmyassistanthadtapedtomybedroomdoor:“Youmustcallthedoctor.Hesaysit’sanemergency.”

Youcanimaginehowmymindbegantorace.Iwasextremelydisciplinedaboutmyhealth,andI’dneverfeltfitter.Sowhatcouldpossiblybewrong?Themindtendstogocrazyintimeslikethis.Ibegantowonder:“Itravelalot,somaybeit’srelatedtotheradiationonairplanes.CouldIhavecancer?CouldIbedying?”Surelynot.

Ipulledmyselftogetherandmanagedtogetsomesleep.ButwhenIwokeupthenextmorning,Iwasfilledwithfearanddread.Iphonedthedoctor,andhetoldme:“Youneedsurgery.Youhaveatumorinyourbrain.”

Iwasstunned.“Whatareyoutalkingabout?Howcouldyouknowthat?”Thedoctor,acombativeguywithnobedsidemanner,saidhe’ddonesomeextra blood tests because he believed that I had an enormous amount ofgrowthhormoneinmybody.Itdidn’ttakeageniustofigurethatout,giventhatI’msixfootsevenandhadshotup10inchesinasingleyearwhenIwas17.Buthewasconvincedthatthisexplosivegrowthwastheresultofatumorin the pituitary gland at the base ofmy brain.Hewantedme to come inimmediatelyandhavethetumorcutout.

IwasscheduledtoflytotheSouthofFrancethenextdaytoteachaDatewith Destiny seminar. But I was now supposed to drop everything andundergoemergencysurgery?Somuchfordestiny!Iwentaheadandtaught

theseminaranyway,andthentraveledtoItaly,whereIstayedinabeautifulfishingvillagecalledPortofino.ButitwastherethatIstartedfreakingout.Ifeltlikeadifferenthumanbeing,gettingangryandfrustratedatlittlethings.Whatwaswrongwithme?

Growingup,I’d livedinaworldwithnocertainty.Whenmymomwasondrugs and angry, she’d sometimes lose control over little things. If shethoughtIwaslyingaboutsomethingshemightpoursoapinmymouthuntilIthrewup—orsmashmyheadagainstawall.Sincethen,I’dspentalifetimetrainingandconditioningmyselftofindcertaintyinanuncertainworld.ButI’dallowedthisdoctor’scommentstosuddenlyplungemeintothedeepestlevel of uncertainty. Out of nowhere, my world had been turned upsidedown,andthelifeI’dbuiltwascrumbling.Afterall,howcanyoubecertainaboutanythingwhenyou’reuncertainaboutthemostbasicquestion:“AmIgoingtoliveordie?”

SittinginachurchinPortofino,Iprayedfordearlife.ThenIdecidedtogo home and deal head-on with this situation. The next few days weresurreal. I remember comingout of theMRImachine and seeing the grimlookonthelabtechnician’sface.Hesaidtherewasdefinitelyamassthere,but he wouldn’t give me any details until the doctor had interpreted thescan.Thedoctorwasbusy,soIhadtowaitanother24hours.NowIknewforsurethatIhadaproblem,butIstillhadnoideawhetherornot itwasfatal.

Finally, the doctor met with me to explain my test results. The scanconfirmed that I had a tumor, but also showed that it had miraculouslyshrunk by 60%over the years. I had no negative symptoms, and I hadn’tgrown since Iwas17.Sowhydid Ineed surgery?Thedoctorwarnedmethat excessive growth hormone could trigger an array of health problems,including heart failure. “You’re in denial,” he said. “We have to operateimmediately.”

Butwhat about the side effects?Beyond thedanger of dyingunder theknife, thebiggest riskwas that theoperationwoulddamagemyendocrinesystem, so that I’d never again have the same level of energy.This was aprice Iwasn’tprepared topay.Mymissionofhelpingpeople to transformtheirlivesrequirestremendousenergyandpassion.Ikeptwondering,whatifthesurgeryleftmeunabletodomylife’swork?Togiveyouanidea,myaverageweekendeventtodayhas10,000people inattendanceandgoes for50hoursover4days.Intoday’sworld,mostpeoplewon’tsit througha3-

hourmoviethatsomeonespent$300milliontomake!Sowithoutenormousenergy,thereisnowayIcoulddeliveranexperiencewherepeoplefrom40different countries are not only totally engaged, but feel like they’vecompletelytransformedtheirlives.

Thedoctorwasfuriouswithme:“Withoutsurgery,youcan’tbesurethatyou’ll live.” I wanted a second opinion, but he refused to recommendanotherdoctor.

Through friends, I eventually found my way to a legendaryendocrinologistinBoston.Hescannedmybrainagainandthensatmedowntoreviewtheresults.Hewasawonderfulman, fullofcompassion,andhisattitudewasentirelydifferent.HesaidIdidn’tneedsurgery;therisksweretoogreat.Instead,hesuggestedthatIflytoSwitzerlandtwiceayearforaninjection of an experimental drug that hadn’t yet been approved in theUnited States. He was certain this drug would stop my tumor fromexpandingandprevent thegrowthhormone fromcausingdangerousheartproblems.

WhenItoldhimaboutthedoctorwhowantedtocutintomybrain,helaughedandsaid:“Thebutcherwants tobutcher, thebakerwants tobake,thesurgeonwantstocut,andIwanttodrugyou!”Itwastrue.Weallliketodowhateverweknowbest inordertoachievecertainty.Theproblemwas,thisdrugwasalsolikelytohaveaprofoundeffectonmyenergylevel.Theendocrinologist could see why this troubled me so deeply. “You’re likeSamson,”hesaid.“You’reafraidthatyou’ll loseyourpower ifwecutyourhair!”

IaskedhimwhatwouldhappenifIdidnothing—nosurgery,nodrugs.“Idon’tknow,”hereplied.“Nobodyknows.”

“SowhyshouldItakethisdrug?”“Ifyoudon’ttakeit,”hesaid,“youcan’tbecertainthatyou’llsurvive.”Butbynow, Ino longer feltuncertain.Therewasno evidence thatmy

healthhaddeterioratedin14years.SowhyshouldIrollthedicebyhavinghigh-risksurgeryorbeinginjectedwithanexperimentaldrug?IwenttoseeaseriesofadditionaldoctorsuntilIfoundonewhotoldme,“Tony,it’strue,youhaveanenormousamountofgrowthhormoneinyourbloodstream.Butithasn’thadanynegativesideeffects.Infact,itmaybehelpingyourbodytorecovermorequickly.Iknowbodybuilderswhowouldhavetospend$1,200amonthtogetwhatyou’regettingforfree!”

Intheend,Idecidedtodonothingmorethangetmyselftestedeveryfewyearstoseeifmyconditionhadworsened.Ididn’trealizeitthen,butI’djustdodgedalethalbullet:theUSFoodandDrugAdministrationlateroutlawedthatdrug,basedon studies showing that it causedcancer.Despitehisbestintentions,mybig-heartedendocrinologist’sflawedadvicecouldhaveruinedmylife.

Andyouknowwhat?Twenty-fiveyears later, I stillhave that tumor. Inthe meantime, I’ve had an amazing life, and I’ve been blessed with theopportunitytohelpmillionsofpeoplealongtheway.Thiswaspossibleonlybecause I made myself unshakeable in the face of uncertainty. If I’doverreactedorfollowedunquestioninglytheadviceofeitherdoctorwithoutconsideringallofmyoptions,I’dbemissingapartofmybrain,orI’dhavecancer, or perhaps I’d be dead. If I’d relied on them for my certainty, itwouldhavebeencatastrophic.Instead,Ifoundcertaintywithinmyself,eventhoughnothinginmyexternalcircumstanceshadchanged.

CouldIdie tomorrowbecauseofmybraintumor?Yes. IcouldalsogethitbyatruckasIcrossthestreet.Still,Idon’tliveinfearofwhat’sgoingtohappen. I shut that off.Youcanbeunshakeable, too, but this is a giftthatonlyyoucangiveyourself.When it comes to the areas of your lifethatmattermost—your family,your faith,yourhealth,your finances—youcan’trelyonanybodyelsetotellyouwhattodo.It’sgreattogetcoachingfrom experts in the field, but you can’t outsource the final decision. Youcan’tgiveanotherpersoncontroloveryourdestiny,nomatterhowsincereorskilledheorshemaybe.

WhyamItellingyouthisstoryoflifeanddeathinabookaboutmoneyand investing? Because it’s important to understand that there’s neverabsolutecertaintyinlife.Ifyouwanttobecertainthatyou’llneverlosemoneyinthefinancialmarkets,youcankeepyoursavingsincash—butthen you’ll never stand a chance of achieving financial freedom. AsWarrenBuffettsays,“Wepayahighpriceforcertainty.”

Even so, many people avoid financial risk because uncertainty terrifiesthem. In2008 theUSstockmarketplungedby37%(and it crashedmorethan 50% from peak to trough). Five years later, a survey by PrudentialFinancialfoundthat44%ofAmericansstillvowednevertoinvestinstocksagainbecausetheyweresoscarredbytheirmemoriesofthefinancialcrisis.In2015anothersurveydiscoveredthatnearly60%ofmillennialsdistrustedfinancialmarkets,havinglivedthroughthecrashof2008–09.Accordingto

State Street Corporation’s Center for Applied Research,manymillennialskeep40%oftheirsavingsincash!

I’mheartbrokentoseethatsomanymillennialsaren’tinvesting.Becauseletmetellyou:ifyouliveinfear,you’velostthegamebeforeitevenbegins.How can you achieve anything if you’re too scared to take arisk? As Shakespeare wrote four centuries ago, “Cowards diemany timesbeforetheirdeaths;thevaliantnevertasteofdeathbutonce.”

Letmebeclearwithyou:I’mnotsuggestingthatyoutakerecklessrisks!When it came tomy health, Imetwithmultiple experts, explored all theoptions, and let the facts guide me—not somebody else’s emotions orprofessionalbiases.Ithenmadeaninformeddecisionformyselfthatputtheprobabilitiesonmyside.Thisprocessallowedmetomovefromuncertaintytounshakeablecertainty.

It’s the same with investing. You can never know what the stockmarketwilldo.But thatuncertainty isn’t anexcuse for inaction.Youcan take control by educating yourself, studying the market’s long-termpatterns,modeling the best investors, andmaking rational decisions basedon an understanding ofwhat’s worked for them over decades. AsWarrenBuffettsays,“Riskcomesfromnotknowingwhatyou’redoing.”

There’sonethingwedoknowforsure:therewillbemarketcrashesinthefuture,justastherewereinthepast.Butdoesitmakesensetobeparalyzedwithfearmerelybecausethere’sariskofgettinghurt?Believeme,itwasn’teasytofindoutthatIhadabraintumor.ButI’veflourishedforthepast25yearsbecauseIlearnedtolivefearlessly.Doesbeingfearlessmeanhavingnofear?No!Itmeansfearingless.Whenthenextbearmarketcomesandothersareoverwhelmedwithfear,Iwantyoutohavetheknowledgeandfortitudeto fear less. This fearlessness in the face of uncertainty will bring youtremendousfinancialrewards.

Infact,whileothersliveinterrorofbearmarkets,you’lldiscoverinthischapterthattheyarethesinglegreatestopportunityforbuildingwealthinyourlifetime.Why?Becausethat’swheneverythinggoesonsale!ImaginelongingtoownaFerrarianddiscoveringthatyoucanbuyonefor half price.Would you be downhearted?No way! Yet when the stockmarket goes on sale, most people react as if it’s a disaster! You need tounderstandthatbearmarketsarehere toserveyou. Ifyoukeepyourcool,theywill actually accelerate your journey to financial freedom. If you findinternalcertainty,you’llactuallybeexcitedwhenthemarketcrashes.

I’mnowgoingtopassthebatontomyfriendandpartnerPeterMallouk,whowillexplainhowheandhisfirm,CreativePlanning,navigatedthroughthelastgreatbearmarketbackin2008–09.Peterdoesn’tliketoboastabouthis phenomenal results. But let me tell you, he handled the crisis somasterfullythathisfirm’sassetsundermanagementrosefrom$500millionin 2008 tomore than $1.8 billion in 2010,with hardly any advertising ormarketing—and he now oversees $22 billion and counting.What’s more,Creative Planning is the only company ever named byBarron’s as the topindependentfinancialadvisorthreeyearsinarow.

Peterwillshowyouhowtoprepareforandprofitfromabearmarket.Ashe’llexplain,itallstartswithbuildingadiversifiedportfoliothatcanprosperthroughthickandthin.He’llgiveyou invaluableadviceontheartofassetallocation. Armed with this knowledge, you’ll have nothing to fear frommarketmayhem.While others flee, you’ll stand your ground and slay thebear!

PREPAREFORTHEBEAR

ByPeterMallouk

Asimpleruledictatesmybuying:befearfulwhenothersaregreedy,andbegreedywhenothersarefearful.Andmostcertainly,fearisnowwidespread.

—WARRENBUFFETTINOCTOBER2008,explainingwhyhewasbuyingstocksasthemarketcrashed

TheEyeoftheStorm

On September 29, 2008, the Dow Jones Industrial Average plunged 777points. It was the biggest one-day drop ever, obliterating $1.2 trillion inwealth.Thatsameday,theVIXindex,abarometeroffearamonginvestors,hit itshighest level inhistory.ByMarch5,2009, themarkethad tumbledmore than 50%, devastated by the worst financial crisis since the GreatDepression.

Thiswas theperfect storm.Bankscollapsed.High-flying fundsblewupandcrashedtotheground.SomeofWallStreet’smostrenownedinvestorssawtheirreputationsshattered.YetIlookbackonthattumultuoustimeasone of the highlights ofmy career—a timewhenmywealthmanagementfirm,CreativePlanning,guideditsclientstosafety,positioningthemsotheynotonlysurvivedthecrashbutalsobenefitedenormouslyfromthereboundthatfollowed.

Tony has askedme to share this story with you because it embodies acentral lessonofthisbook:bearmarketsareeitherthebestoftimesortheworst of times, depending on your decisions. If you make the wrongdecisions, asmost people did in 2008 and 2009, it can be financiallycatastrophic,settingyoubackyearsorevendecades.Butifyoumakethe right decisions, as my firm and its clients did, then you havenothingtofear.You’llevenlearntowelcomebearmarketsbecauseoftheunparalleledopportunitiestheycreateforcoolheadedbargainhunters.

Howdidourshipsurvivethestormwhilemanyotherssanktothebottomofthesea?Firstofall,wewereinabettership!Longbeforethebearmarketoccurred,wepreparedforitintheknowledgethatblueskiesneverlast,thathurricanesare inevitable.Noneofusknowswhenabearmarketwillcome,howbad itwillbe,orhow long itwill last.Butasyoulearnedinchapter2,they’ve occurred, on average, every 3 years over the last 115 years.That’s

notareasontohideinterror.It’sareasontoensurethatyourvesselissafeandseaworthy,regardlessoftheconditions.

Aswe’ll discuss in detail in this chapter, there are twoprimaryways toprepare for market turmoil. First, you need the right asset allocation—afancy term for theproportionof yourportfolio that’s invested indifferenttypes of assets, including stocks, bonds, real estate, and alternativeinvestments.Second,youneedtobepositionedconservativelyenough(withsomeincomesetasideforaveryrainyday),sothatyouwon’tbeforcedtosellwhilestocksaredown.It’sthefinancialequivalentofmakingsureyou’reequippedwithsafetyharnesses,lifevests,andsufficientfoodbeforeheadingouttosea.AsIseeit,90%ofsurvivingabearmarketcomesdowntopreparation.

What’stheother10%?That’sallabouthowyoureactemotionallyinthemidstofthestorm.Manypeoplebelievethey’llhaveiceintheirveins.Butasyou may have experienced yourself, it’s psychologically intense when themarketismeltingdownandpanicisintheair.That’sonereasonwhyhavingabattle-hardenedfinancialadvisorcanbehelpful.Itprovidesanemotionalballast, helping you remain calm so youdon’twaver at theworstmomentandjumpoverboard!

One advantage our clients had is that we’d gone to great lengths toeducate them in advance, so they wouldn’t be in shock when a crashoccurred. They understood why they owned what they owned, and theyknewhowtheseinvestmentswerelikelytoperforminacrash.It’slikebeingwarned by your doctor that a medication might make you dizzy andnauseous;you’renotthrilledwhenthisriskbecomesareality,butyou’llcopemuchbetterthanifitwereatotalsurprise!

Evenso,someclientsneededalotofreassurance.“Shouldn’twegetoutofstocksnowandgotocash?”they’dask.“Doesn’tthiscrashfeeldifferent?”ThisremindedmeofSirJohnTempleton’sfamousremark:“Thefourmostexpensivewordsininvestingare‘Thistimeit’sdifferent.’ ”Inthemidstofamarketmeltdown,peoplealwaysthinkthistimeisdifferent!Batteredbyallthebadnewsinthemediaeachday,theybegintowonderifthemarketwilleverrecover—orifsomethinghasfundamentallybrokenthatcan’tbefixed.

I kept reminding my clients that every bear market in US history haseventuallybecomeabullmarket,regardlessofhowbleakthenewsseemedatthe time. Just think of the many calamities and crises of the twentiethcentury: the1918 flupandemic,whichkilledasmanyas50millionpeople

worldwide;theWallStreetcrashof1929,followedbytheGreatDepression;twoworldwars;manyotherbloodyconflicts,fromVietnamtotheGulf;theWatergate scandal that brought about the resignation of PresidentNixon;pluscountlesseconomicrecessionsandmarketpanics.Sohowdidthestockmarket fare in that chaos-filled century? The Dow Jones IndustrialAverageroseinexorablyfrom66to11,497.

Here’s what you have to remember, based on more than a century ofhistory: the short-termoutlookmay lookdire,but the stockmarketalwaysrebounds. Why would you ever bet against this long-term pattern ofresilience and recovery? This historical perspective gives me unshakeablepeaceofmind,and Ihope itwillhelpyou tokeepyoureyeson theprize,regardless of the corrections and crashes we encounter in the years anddecadestocome.

The best investors know that the gloom never lasts. For example,Templeton made his first fortune by investing in dirt-cheap US stocksduring thedarkdaysofWorldWar II.He laterexplained thathe liked toinvest at “the point of maximum pessimism,” when bargains wereeverywhere. Likewise,Warren Buffett invested aggressively in 1974 when

markets were slammed by the Arab oil embargo and Watergate. Whileothers were filled with despair, he was exuberantly bullish, telling Forbes:“Nowisthetimetoinvestandgetrich.”

Psychologically,it’snoteasytobuywhenpessimismisrampant.Buttherewards often come spectacularly fast. The S&P 500 hit rock bottom inOctober1974andthenjumped38%inthenext12months.InAugust1982,withinflationoutofcontrolandinterestratesatalmost20%,theS&P500bottomedoutagain—andthensoared59%in12months.Canyouimaginehow investors felt if they’d panicked and sold during those bearmarkets?They not only made the disastrous mistake of locking in their losses butmissedoutonthosemassivegainsasthemarketrevived.That’sthepriceoffear.

Whenthebearstruckagainin2008,Iwasdeterminedtomakethemostofthisopportunity.Ihadnoideawhenthemarketwouldrecover,butIwascertain itwould recover.At the height of the crisis, Iwrote to our clients:“There is simply no precedent, ever in history, of themarket staying at avaluationlevelthislow....Thereareonlytwopotentialoutcomes:theendofAmericaasweknowitorarecovery.Everytimeinvestorshavebetontheformer,theyhavelost.”

Throughoutthecrash,wecontinuedtoinvestheavilyinthestockmarketonbehalf of our clients.We tookprofits from strong asset classes such asbondsandinvestedtheproceedsinweakassetclassessuchasUSsmall-capand large-cap stocks, international stocks, and emerging-market stocks.Instead of betting on individual companies,we bought index funds,whichgave us instant diversification (at a low cost) across these massivelyundervaluedmarkets.

Howdid thiswork out?Well, after bottoming out inMarch 2009, theS&P500shotupby69.5%injust12months.Over5years,theindexrose178%,vindicatingourbeliefthatbearmarketsaretheultimategiftforopportunistic investorswith a long-termperspective.As Iwrite this,themarkethasrisen266%sincethe2009low.

Asyoucan imagine,ourclientswereecstatic. I’mproud to say thatourclientsheldfirmduringthecrashandhardlyanyabandonedship.Asaresult,theyprofitedhandsomelyfromtherecovery.Onlytwoclientsthatleftstandoutinmymemory.Oneofthetwowhoabandonedourstrategywasanewclientwho’dcometousshortlybeforethecrisiswithaportfolioloadedwithreal estate.Wehelpedhimdiversify,which savedhim a fortunewhen the

propertymarketcrashed.Buthecouldn’tcopewiththevolatilityofthestockmarket.Hepanickedandputallhismoneyincash.

Icalledhimayearlatertoseehowhewasdoing.Bythen,themarkethadrallieddramatically.Buthewasstillwaitingonthesidelines,toonervoustoinvest.ForallIknow,he’sstillwaitingandhasmissedtheentirebullmarketof the last seven years. As Tony mentioned, you pay a high price forcertainty.

The other client who left Creative Planning during that time wasoverwhelmed by the barrage of alarmist news in the media. He’d hear apundit claiming that the market would fall 90%, or the dollar wouldcollapse,ortheUnitedStateswoulddeclarebankruptcy,andthesewarningsterrified him. To make matters worse, his daughter fed these fears. SheworkedatGoldmanSachs,whereshehadnoshortageofbrilliantcolleagues.Butonecolleagueconvincedherthatthefinancialsystemwouldcollapseandthatgoldwastheonlysafehaven.Herfatherlistened,cashedoutofstocksatthe worst moment, and lost a fortune in gold. When I spoke with himmonthslater,stockswereskyrocketing,buthefeareditwastoolateforhimtogetbackin.Hewasutterlydejected.

Itsaddensmetosaythis,butthesetwoformerclientshavebothsufferedpermanentfinancialdamagebecauseofrashdecisionstheymadeduringthebearmarket.Thereason?Theiremotionsgotthebetterofthem.Inthenextchapter,we’lllookathowtoavoidsomeofthemostcommonpsychologicalmistakesthattripupinvestors.Butfirst,let’sfocusonanequallycriticalsubject: how to prepare for the next bear market by constructing adiversifiedportfoliothatreducesyourrisksandenhancesyourreturns.This will help you to generate increasing wealth in any environment andallowyoutosleepsoundlyatnight!

TheIngredientsofSuccess

HarryMarkowitz, theNobel Prize–winning economist, famously declaredthatdiversification is the“only free lunch” in investing. If so,whatare theingredients?We’llrunthroughthemquicklyhere,lookingatstocks,bonds,andalternativeinvestments.Thenwe’lldiscusshowtomixthesetogethertocreate a well-diversified portfolio. But before we get to that, it’s worthclarifyingwhyaportfolioshouldincludemultipleassetclasses.

Let’sstartwithasimplethoughtexperiment.ImaginethatIhaveabunch

ofguests inmyhouse.Ioffer them$1eachtowalkacrossthestreet.As ithappens,Iliveonaquietsuburbanroadwithlittletraffic.Somyofferfeelslikefreemoney.Butlet’ssayIrepeattheoffer,andthistimeIgivethemtwochoices:eithertheycancrossmystreetfor$1,ortheycancrossafour-lanehighwayfor$1.Nobodywilltakemeuponthisoffertocrossthehighway.Butwhat if Ioffer$1,000or$10,000?Atsomepoint,I’llarriveata figurethatenticessomeonetocrossthathighway!

What I’ve just illustrated is the relationship between risk and reward.There’s a risk of injury in both scenarios—and, as that risk increases, thereward must rise in order for this to be perceived as a fair deal. Theadditionalrewardyoureceivefortakingthatadditionalriskiscalledariskpremium.Whenexpertsdetermineyourassetallocation,theyevaluatetheriskpremiumforeachasset.Theriskieranassetseemstobe,thegreatertherateofreturnaninvestorwilldemand.

Asa financialadvisor, Iconstructaclient’sportfoliobycombiningassetclasses,eachwithdifferentriskcharacteristicsanddifferentratesofreturn.The goal? To balance the return you need to achieve with the riskyou’recomfortabletaking.Thebeautyofdiversificationisthatitcanallowyou to achieve a higher return without exposing yourself to greater risk.Howcome?Becausedifferentassetclassesdon’tusuallymoveintandem.In2008theS&P500fell38%,whereasinvestmentgradebondsrose5.24%.IIfyouownedstocksandbonds,youtooklessrisk—andachievedbetterreturns—thanifyouownedonlystocks.

Now let’s look at the major asset classes we can combine to help youreachthepromisedland!

Stocks

Whenyoubuyastock,you’renotbuyingalotteryticket.You’rebecomingapartownerofarealoperatingbusiness.Thevalueofyourshareswillriseorfall based on the company’s perceived fortunes. Many stocks also paydividends, which are quarterly distributions of profits back to theshareholders.By investing ina stock,you’remakingtheshift frombeingaconsumer tobeing anowner. If youbuy an iPhone, you’re a consumerofAppleproducts;ifyoubuyApplestock,you’reanownerofthecompany—andareentitledtoapercentageofitsfutureearnings.

Whatcanyouexpect toearnasan investor in stocks? It’s impossible topredict,butwecanusethepastasa(very)roughguide.Historically,thestock

markethasreturnedanaverageof9%to10%ayearovermorethanacentury.Butthesefiguresaredeceptivebecausestockscanbewildlyvolatilealongtheway.It’snotunusualforthemarkettofall20%to50%everyfewyears.Onaverage,themarketisdownaboutoneineveryfouryears.Youneedtorecognizethisrealitysoyouwon’tbeshockedwhenstockstumble—andsoyou’llavoidexcessiverisks.Atthesametime,it’susefultorecognizethatthemarkethasmademoneythreeoutofeveryfouryears.

Intheshortterm,thestockmarketisentirelyunpredictable,despitetheclaimsof“experts”whopretendtoknowwhat’sgoingon!InJanuary2016,theS&P500suddenlysank11%;thenitmadeaU-turnandrosenearlyasrapidly.

Why? Howard Marks, one of America’s most respected investors,candidly toldTony, “There was no good reason for the decline. Equally,therewasnogoodreasonfortherecovery.”

Butinthelongrun,nothingreflectseconomicexpansionbetterthanthestock market.Over time the economy and the population grow, andworkers become more productive. This rising economic tide makesbusinessesmoreprofitable,whichdrivesupstockprices.Thatexplainswhythemarketsoaredoverthecourseofthetwentiethcentury,despiteallthosewars,crashes,andcrises.Nowdoyouseewhyitpaystoinvestinthestockmarketforthelongterm?

NobodyunderstandsthisbetterthanWarrenBuffett.InOctober2008hewroteanarticlefortheNewYorkTimesencouragingpeopletobuyUSstockswhile theywereonsale,eventhoughthe financialworldwas“amess”andthe“headlineswillcontinuetobescary.”Hewrote:“ThinkbacktotheearlydaysofWorldWarII,whenthingsweregoingbadlyfortheUnitedStatesinEuropeandthePacific.ThemarkethitbottominApril1942,wellbeforeAlliedfortunesturned.Again,intheearly1980s,thetimetobuystockswaswheninflationragedandtheeconomywasinthetank.Inshort,badnewsisaninvestor’sbestfriend.ItletsyoubuyasliceofAmerica’sfutureatamarked-down price. Over the long term, the stock market news will begood.”

Isuggestyoucommitthatlinetomemory:“Overthelongterm,thestockmarketnewswillbegood.”Ifyoutrulyunderstandthis,itwillhelpyoutobepatient,unshakeable,andultimatelyrich.

So where do stocks fit within your portfolio? If you believe that theeconomy and businesseswill be doing better 10 years fromnow, itmakes

sense to allocate a good portion of your investments to the stockmarket.Overa10-yearperiod, themarketalmostalwaysrises.Still, therearenoguarantees.AstudybyassetmanagementcompanyBlackRockshowedthatthemarketaveraged-1%peryearfrom1929to1938.Thegoodnews?BlackRock noted that this 10-year losing streak was followed by twoconsecutive 10-year periods of robust gains as the market resumed itsupwardtrajectory.

Of course, the challenge is to stay in themarket long enough to enjoythese gains. The last thing you want is to be a forced seller during aprolongedbearmarket.Howdoyouavoidthat fate?Forastart,don’t livebeyond yourmeans or saddle yourself with toomuch debt—both reliablewaystoputyourselfinavulnerableposition.Asmuchaspossible,trytokeepafinancialcushion,soyou’llneverhavetoraisecashbysellingstockswhenthemarket is crashing.One way to build andmaintain that cushion is toinvestinbonds.

Bonds

Whenyoubuyabond,you’remakingaloantoagovernment,acompany,orsome other entity.The financial services industry loves tomake this stuffseem complex, but it’s pretty simple. Bonds are loans. When you lendmoney to the federal government, it’s called aTreasury bond.When youlendmoneytoacity,state,orcounty,it’samunicipalbond.WhenyoulendmoneytoacompanysuchasMicrosoft,it’sacorporatebond.Andwhenyoulendmoneytoa lessdependablecompany, it’scalledahigh-yieldbondorajunkbond.Voilà!You’venowcompletedBonds101.

Howmuchcanyouearnasamoneylender?Itdepends.Loaningmoneyto theUSgovernmentwon’tearnyoumuchbecause there’s littlerisk thatit’ll renege on its debts. Loaningmoney to the government of Venezuela(whereinflationmayhit700%thisyear)iswayriskier,sotheinterestratesneedtobemuchhigher.Again,it’sallatrade-offbetweenriskandreward.The US government is asking you to cross a traffic-free rural road on asunnyday;theVenezuelangovernmentisaskingyoutocrossabusyhighwayonastormynightwhilewearingablindfold.

Theoddsthatacompanywillgobustandfailtorepayitsbondholdersarehigher than theodds that theUSgovernmentwilldefaulton its loans.Sothecompanyhastopayahigherrateofreturn.Similarly,ayoungtechfirmthatwants toborrowmoneymustpayahigherrate thanablue-chipgiant

suchasMicrosoft.RatingagencieslikeMoody’susetermssuchas“Aaa”and“Baa3”togradethesecreditrisks.

Theothercriticalfactoristhedurationoftheloan.TheUSgovernmentwillcurrentlypayyouabout1.8%ayearfora10-yearloan.Ifyoulendthegovernmentthatmoneyfor30years,you’llearnabout2.4%ayear.There’sasimplereasonwhyyoureceiveahigherrateforlendingthemoneyoveralongerperiod:it’sriskier.

Whydopeoplewanttoownbonds?Forastart,they’remuchsaferthanstocks.That’sbecausetheborroweris legallyrequiredtorepayyou.Ifyouholdabondtomaturity,you’llreceiveallofyouroriginalloanback,plustheinterestpayments—unless thebond issuergoesbankrupt.Asanassetclass,bondsdeliverpositivecalendar-yearreturnsapproximately85%ofthetime.

Sowheredobondsmakesenseinyourportfolio?Conservativeinvestorswho are retired or can’t tolerate the volatility of stocks might choose toinvestalargepercentageoftheirassetsinbonds.Lessconservativeinvestorsmightputasmallerportionoftheirassetsinhigh-qualitybondstomeetanyfinancial needs that could arise over the next two to seven years. Moreaggressiveinvestorsmightkeepaportionoftheirmoneyinbondstoprovidethemwith“drypowder” that theycanusewhen the stockmarketgoesonsale.This is exactly what Creative Planning did during the financialcrisis:wesoldsomeofourclients’bondsandinvestedtheproceedsinthestockmarket,snappinguponce-in-a-lifetimebargains.

There’s just one problem: it’s hard to be enthusiastic about bonds intoday’sweirdeconomicenvironment.Yieldsareabysmallylow,soyouearnapaltryreturnfortheriskyou’retaking.Itseemsparticularlyunappealingtoinvest in US Treasuries, which recently offered their lowest yields ever.Overseas,thesituationgetsevenwilder:theItaliangovernmentrecentlysolda 50-year bond with a 2.8% interest rate. That’s right! If you loan yourmoneyforahalfcentury,youmightbe“lucky”enoughtomake2.8%ayear—ifthiseconomicallyvulnerablecountrydoesn’trunintotrouble.It’soneoftheworstbetsI’veeverseen.

Thechallengeisthatyouearnnothingthesedaysifyoukeepyourmoneyincash.Infact,afterinflation,you’relosingmoneybyholdingcash.Atleastbonds provide some income. As I see it, bonds are now the cleanest dirtyclothinginthelaundrypile.

AlternativeInvestments

Any investments other than stocks, bonds, and cash are defined asalternatives. That includes exotic assets such as your Pablo Picassocollection, your cellar full of rare wines, the vintage cars in your air-conditionedgarage,yourpricelessjewels,andyour100,000-acreranch.Butwe’llfocushereonafewofthemostpopularalternatives,whicharelikelytoberelevanttoabroaderaudience.

First, awordofwarning:many alternatives are illiquid (inotherwords,hard to sell), tax inefficient, and ladenwithhigh expenses.That said, theyhave two attractive attributes: they can (sometimes) generate superiorreturns;andtheymaybeuncorrelatedtothestockandbondmarkets,whichmeanstheycanhelptodiversifyyourportfolioandreduceoverallrisk.Forexample,ifthestockmarketdrops50%,youdon’tsuffera50%dropinyournetworth,becauseallyoureggsaren’tinonebasket.Anychallengeyoufaceismuchsmaller.

Let’s lookatfivealternatives,startingwiththreethatI like, followedbytwothatIdon’t:

•RealEstateInvestmentTrusts.I’msureyouknowpeoplewho’vedonewell by investing directly in residential property. But most of us can’taffordtodiversifybyowningaslewofhousesorapartments.That’sonereasonwhyIliketoinvestinpubliclytradedrealestateinvestmenttrusts(REITs). They provide a no-hassle, low-cost way to diversify broadly,bothgeographicallyandacrossdifferent typesofproperty.Forexample,you can own a small slice of a REIT that invests in assets such asapartment buildings, office towers, senior housing facilities, medicaloffices,orshoppingmalls.Yougettobenefitfromanyappreciationinthepriceoftheunderlyingproperty,whilealsoreceivingahealthystreamofcurrentincome.

•PrivateEquityFunds.Privateequityfirmsusepooledmoneytobuyallor part of an operating company. They can then add value by, say,restructuring the business, cutting costs, and minimizing taxes.Ultimately, theyattempttoresell thecompanyforamuchhigherprice.Theupside:aprivateequityfundthat’srunwithtrueexpertisecanmakeoutsized profits while also adding diversification to your portfolio byoperating in theprivatemarket.Thedownside: these funds are illiquid,risky,andchargehighfees.AtCreativePlanning,we’reableto leverageourrelationships,and$22billioninassets,inordertogainaccesstofunds

managedbyoneofthecountry’stop-10privateequitycompanies.Theirminimum investment is usually $10 million, but our clients can investwithaminimumof$1million.Asyoucansee,thisisn’tforeveryone,butthebestfundsmaywellearntheirhighfees.

•MasterLimitedPartnerships.I’mabigfanofMLPs,whicharepubliclytraded partnerships that typically invest in energy infrastructure,includingoilandgaspipelines.What’stheappeal?AsTonymentionedinthelastchapter,wesometimesrecommendMLPsbecausetheypayoutalot of income in a tax-efficient way. They don’t make sense for manyinvestors(especiallyifyou’reyoungorhaveyourmoneyinanIRA),buttheycanbegreatforaninvestorwhoisover50andhasa large,taxableaccount.

•Gold.Somepeoplehaveanalmostreligiousbeliefthatgoldistheperfecthedge against economic chaos. They argue that it’ll be the one truecurrencyiftheeconomyfallsapart,inflationsoars,orthedollarcollapses.My view? Gold produces no income and is not a critical resource. AsWarrenBuffettsaidonce,“GoldgetsdugoutofthegroundinAfrica,orsomeplace.Thenwemelt it down, dig another hole, bury it again, andpaypeopletostandaroundguardingit.Ithasnoutility.AnyonewatchingfromMars would be scratching their head.” Even so, gold prices soaroccasionally,andeveryonepiles in!Everytime—withoutexception—theprice has ultimately collapsed. Historically, stocks, bonds, energycommodities,andrealestatehaveoutperformedgold.Socountmeout.

•HedgeFunds.AtCreativePlanning,wehavenoplaceforhedgefundsinour portfolios. Why not? A few of these private partnerships haveperformedbrilliantlyovermanyyears,butit’saminusculeminority—andtheverybestofthemtendtobeclosedtonewinvestors.Theproblemis,hedgefundsstartwithahugedisadvantageineverymajorcategory:fees,taxes, riskmanagement, transparency, and liquidity.Most charge 2% ayear,nomatterwhat,plus20%of their investors’profits.Whatdoyouget in return?Well, from2009 to2015, the averagehedge fund laggedtheS&P500 for 6 years in a row. In 2014 thenation’s largest pensionfund, CalPERS (the California Public Employees’ Retirement System),abandonedhedge funds entirely.As I see it, hedge funds arehandmadeforsuckersorforspeculatorslookingtorollthediceonabigbet.They’llmakesomeonerich,butitain’tlikelytobeyouorme.

ACUSTOMIZEDAPPROACHTOASSETALLOCATION

Nowyouknowwhatingredientsyoucanuse,buthowshouldyoucombinethemtocreatetheperfectmeal?Thetruthis,there’snosinglemethodthat’srightforeveryone.Yetmanyadvisorsuseacookie-cutterapproachtoassetallocation, ignoring critical differences in their clients’ needs. That’s likeservingsteaktoavegetarianorkalesaladtoacarnivore.

Onecommon—butmisguided—approachinvolvesusingaperson’sagetodetermine thepercentageofbonds inhisorherportfolio.For example, ifyou’re55,you’dhave55%ofyourassetsallocatedtobonds.Tome,that’scrazily simplistic. In reality, the type of assets you own should bematchedtowhatyoupersonallyneedtoaccomplish.Afterall,a55-year-old single mom who is saving for her kid’s college tuition has differentpriorities than a 55-year-old entrepreneurwho’s just sold her business formillionsandwantstobuildaphilanthropiclegacy.Itmakesnosensetotreatthemasiftheirneedsarethesamejustbecausethey’rethesameage!

Anothercommonapproachinvolvesbasingaperson’sassetallocationonhis or her tolerance for risk. As the client, you fill out a questionnaire toestablishwhetheryou’reanaggressiveorconservativeinvestor.You’rethensoldaprepackagedmodelinvestmentportfoliothatsupposedlymatchesthisrisk profile. Tome, this approach is equallymisguided because it ignoresyourneeds.Whatifyou’reriskaversebuthavenochanceofretiringunlessyou invest heavily in stocks? Setting you up with a conservative portfolioloadedwithbondswouldjustdoomyoutodisappointment.

Sohow shouldyouapproach thechallengeof asset allocation?As Iseeit,therealquestionthatyouandyourfinancialadvisorhavetoansweristhis:Whatassetclasseswillgiveyouthehighestprobabilityofgettingfromwhereyouaretodaytowhereyouneedtobe?Inotherwords,thedesignofyourportfoliomustbebasedonyourspecificneeds.

Youradvisorshouldstartbygettingaclearpictureofwhereyouaretoday(yourstartingpoint),howmuchyou’rewillingandabletosave,howmuchmoneyyou’llneed,andwhenyou’llneedit(yourendingpoint).Oncetheseneedshavebeenclearlyidentified,youradvisorshouldprovideacustomizedsolution tohelp you achieve them.Canyou figure all of this out yourself,withouthiringaprofessional?Sure.But thestakesarehigh,andyoudon’twant to mess up. So it probably makes sense to get help, unless you’reparticularlyknowledgeableaboutthesematters.

Inanycase, let’s sayyouneedanaverageannual returnof7%over thenext15yearssoyoucanretire.Youradvisormightconcludethatyououghttoinvest,say,75%ofyourportfolioinstocksand25%inbonds.Itdoesn’tmatter if you’re50or60yearsold.Remember: yourneeds determineyourasset allocation, not your age. Once your advisor has settled on the rightallocationtomeetthoseneeds,youshoulddiscusswhetheryoucanlivewiththe volatility you’re likely to experience. If you can’t, then you can adjustyour goal downward, and your advisor can create a more conservativeallocationthatallowsyoutoachievethisscaled-backgoal.

A sophisticated advisor will customize your portfolio to addresswhateverisuniqueaboutyourfinancialsituation.Let’ssayyouworkforan oil company and have a hefty portion of your net worth in youremployer’s stock. Your advisor would adjust your asset allocationaccordingly to ensure that your other investments don’t expose you tooheavilytotheenergysector.

Anotherpriorityistocreateacustomizedgameplanthatminimizesyour tax liabilities. Let’s say you show an existing portfolio to a newadvisor.Yourassetallocationisclearlyoutofwhack,sotheadvisorsuggestsatotaloverhaul.Inaperfectworld,heorshemayberight.Butwhatifyourinvestmentshavedonewell,andsellingthemwouldsaddleyouwithabigtaxbillonallyourcapitalgains?Asophisticatedadvisorwouldfirstassessthetaximpactofsellingtheseassets.Asaresult,youmightenduptakingamuchslowerapproach—forexample,usingyouradditionalmonthlycontributionstobuildmoregraduallytowardyournewallocation.

The point is, you want an advisor with the skills to tailor yourportfolio to suit your specific needs. A one-size-fits-all approach toassetallocationcanbedisastrous.Itwouldbelikegoingtoadoctorwhotells you, “This drug I’m giving you is the best arthritis treatment in theworld.”Yourreply:“That’sgreat,Doc,butIdon’thavearthritis!I’vegotacold.”

COREANDEXPLORE

Beforewewrapupthischapter,Iwanttoleaveyouwithafewkeyguidelinestokeepinmindwhenyou’reconstructing(orreconstructing)yourportfolio.TheseareprincipleswelivebyatCreativePlanning,andI’mconfidentthatthey’llserveyouwellthroughsunnydaysandstorms!

1. Asset Allocation Drives Returns. Let’s start with the fundamentalunderstanding that your asset allocation will be the biggest factor indetermining your investment returns. So, deciding on the rightbalance of stocks, bonds, and alternatives is the most importantinvestment decision you’ll ever make. Whatever mix you choose,make sure you diversify globally acrossmultiple asset classes. Imaginebeing a Japanese investor with all your money in domestic stocks:Japan’smarketisstilldownfromtheinsaneheightsitreachedin1989.The moral: never bet your future on one country or one assetclass.

2. Use Index Funds for the Core of Your Portfolio. At CreativePlanning,weuseanapproachtoassetallocationthatwecall“CoreandExplore.”Thecorecomponentofourclients’portfoliosisinvestedinUSand international stocks. We use index funds because they give youbroad diversification in a low-cost, tax-efficient way, and they beatalmost all actively managed funds over the long run. For maximumdiversification,wewantexposuretostocksofallsizes:large-cap,midcap,small-cap,andmicrocap.Bydiversifyingsobroadly,youprotectyourselfagainst the risk that one part of themarket (say, tech stocks or bankstocks)couldgetcrushed.Byindexing,youenjoythelong-termupwardtrajectoryofthemarketwithoutlettingexpensesandtaxescorrodeyourreturns.Forotherpartsofyourportfolio, therearemoresophisticatedoptionstoconsider,aswewilldiscusslater.

3.AlwaysHave a Cushion. You never want to be in a position whereyou’re forced to sell your stock market investments at the worstmoment. So it makes sense to maintain a financial cushion, if at allpossible. We make sure our clients have an appropriate amount ofincome-producing investments such as bonds, REITs, MLPs, anddividend-paying stocks. We also diversify broadly within these assetclasses: for example,we invest ingovernmentbonds,munibonds, andcorporate bonds. If stocks crash, we can sell some of those income-producinginvestments(ideallybonds,sincetheyareliquid)andusetheproceeds to invest in the stockmarket at lowprices.Thisputsus in astrong position where we can view the bear as a friend rather than afearsomeenemy.

4.TheRuleofSeven. Ideally,we likeourclients tohavesevenyearsofincome set aside in income-producing investments such as bonds and

MLPs.Ifstockscrash,wecantaptheseincome-producingassetstomeetour clients’ short-termneeds.Butwhat if you can’t afford to set asideyearsof income?Simplystartwithanachievablegoalandkeepraisingthe bar as you progress. For example, youmight start with a goal ofsaving three or sixmonths of income, and thenwork yourway—overmany years—toward the ultimate goal of setting aside seven years ofincome. If that sounds impossible, check out the wonderful story ofTheodoreJohnson,aUPSworkerwhoneverearnedmorethan$14,000ayear.Hesaved20%ofeverypaycheck,pluseverybonus,andinvestedinhiscompany’s stock.Byage90,he’daccumulated$70million!Thelesson: never underestimate the awesome power of disciplinedsavingcombinedwithlong-termcompounding.

5.Explore.Thecoreofourclients’portfoliosisinvestedinindexfundsthatsimplymatchthemarket’sreturn.Butatthemargins,itcanmakesenseto explore additional strategies that offer a reasonable chance ofoutperformance.Forexample,awealthyinvestormightaddahigh-risk,high-returninvestmentinaprivateequityfund.Youmightalsodecidethat a particular investor likeWarrenBuffett has a specific advantage,whichcouldjustifyputtingamodestportionofyourportfolioinsharesofhiscompany,BerkshireHathaway.

6.Rebalance. I’mabigbeliever in “rebalancing,”whichentailsbringingyourportfoliobacktoyouroriginalassetallocationonaregularbasis—say,onceayear.AtCreativePlanning,wetakeopportunitiestobuyastheyhappen,ratherthanwaitingfortheendoftheyearorquarter.Hereishowitworks:imagineyoustartwith60%instocksand40%inbonds;thenthestockmarketplunges,soyoufindyourselfwith45%instocksand55%inbonds.You’drebalancebysellingbondsandbuyingstocks.As Princeton professor Burton Malkiel told Tony, unsuccessfulinvestorstendto“buythethingthat’sgoneupandsellthethingthat’sgonedown.”Onebenefitofrebalancing,saysMalkiel,isthatit “makes you do the opposite,” forcing you to buy assets whenthey’reoutoffavorandundervalued.You’llprofitrichlywhentheyrecover.

AFINALWORD

Ifyoufollowtheadviceinthischapter,you’llbeabletorideoutanystorm.Sure, there’ll be turbulent times when the news is full of frighteningheadlines. But you’ll have the comfort of knowing that your portfolio isproperlydiversified,soitcanwithstandanymarketmayhem.

Inchapter2,youlearnedthatthere’snoneedtofearmarketcorrections,andIhopeyouseenowthatthere’snoneedtofearbearmarkets,either.Infact,theyprovidethebestopportunitytobuythebargainsofa lifetime,soyoucanleapfrogtoawholenewlevelofwealth.Thebearisyourgift—onethat comes, on average, once every three years!These aren’t just times tosurvive.Thesearetimestothrive.

ButasyouandIbothknow,there’sabigdifferencebetweentheoryandpractice.Justthinkofmyformerclientwhocashedoutofthestockmarketandgambledeverythingongoldduringthelastbearmarket.Fearledhimtojettisonacarefullyconstructedplanthatwouldhaveensuredhimafutureoftotalfinancialfreedom.Sohowcanyoumakesurethatyourownemotionswon’tgetoutofhandandknockyouoffcourse?

Thenextchapterwillfocusonhowtomasterthepsychologyofwealthsoyouwon’tmakethecommon—andentirelyavoidable—financialmistakeswesee again and again. As you’ll discover, there’s only one real barrier tofinancial success: you! Once you know how to silence the enemy within,nothingcanstopyou.

I. 2008performanceofBloombergBarclaysUSAggregateBondIndex.

SECTION3

THEPSYCHOLOGYOFWEALTH

CHAPTER 8

SILENCINGTHEENEMYWITHIN

TheSixMoneyMistakesInvestorsMakeandHowYouCanAvoidThem

Theinvestor’schiefproblem—andevenhisworstenemy—islikelytobehimself.—BENJAMINGRAHAM,authorofTheIntelligentInvestorandmentortoWarrenBuffett

Congratulations! You’vemade it through the rule book and the playbookandnowpossesstheknowledgeyouneedtobecometrulyunshakeable.

You’ve learnedwhatyouneedtowatchoutfor,you’ve learnedthefactsthatcanfreeyoufromthefearoftheinevitablecorrectionsandcrashes,andyou’re fully armedwith thewinning strategiesof thebest investorson theplanet. You’ve also acquired invaluable knowledge about fees, and how tofindatrulyqualifiedandeffectivefinancialadvisor.Allofthisgivesyouanamazingedge,vastlyenhancingyourabilitytoremainclear-headedeveninthefaceofuncertainty.Youhaveaprovenpathwaytofinancialfreedom!

ButIhavetoask...Whatcouldmessthisup?I’ll give you a clue: it’s nothing external. It’s you! That’s right. The

singlebiggestthreattoyourfinancialwell-beingisyourownbrain.I’mnot trying to insult you here! It’s just that the human brain is perfectlydesigned tomakedumbdecisionswhen it comes to investing.You candoeverything right—invest in low-cost index funds,minimize fees and taxes,and diversify intelligently. But if you fail tomaster your own psychology,you may ultimately become the victim of a costly form of financial self-sabotage.

In fact, this is part of a much broader pattern. In every area of life—whether it’s dating, marriage, parenting, the workplace, our health, ourfitness, our finances, or anything else—wehave a tendency to beour ownworst enemy.The problem is that our brains arewired to avoid pain andseek pleasure. Instinctively, we yearn for whatever feels likely to beimmediatelyrewarding.Needlesstosay,thisisn’talwaysthebestrecipeforsmartdecisionmaking.

In fact, our brains are particularly prone to bad decisions when we’redealingwithmoney.

Aswe’ll discuss, there’s an array ofmental biases—or blind spots—thatmakeitsurprisinglydifficulttoinvestrationally.It’snotourfault.It’spartofbeinghuman.Infact,it’sbuiltintothesysteminsideyourhead,likeapieceoffaultycodeinacomputerprogram.

Thischapterisdesignedtogiveyouthekeyinsightsandtoolsyoucanusetofreeyourselffromthenaturalpsychologicaltendenciesthatderailsomanypeopleonthejourneytowardfinancialfreedom.

Let me give you an example of a common psychological obstacle thatwe’realllikelytoencounter.Neuroscientistshavefoundthatthepartsofthebrainthatprocessfinanciallossesarethesamepartsthatrespondtomortal threats. Think about what thatmeans for amoment. Imagineyou’re a hunter-gatherer searching for dinner in the forest when you’resuddenly confronted by a saber-toothed tiger with a serious attitudeproblem.Your brain goes intohigh alert, sending youurgentmessages tofight,freeze,orrunforyourlife.Youmightgrabthenearestrockorspearsoyoucanbattlethebeast,oryoumightfleeandhideoutinthesafetyofadarkcave.

Now imagine that it’s2008, andyou’re an investorwithabig chunkofyour life savings in the stockmarket.The global financial crisis slams themarket,yourinvestmentstakeatumble,andyourbrainbeginstoprocesstherealitythatyou’relosingheapsofmoney.Asfarasyourbrainisconcerned,this is the financial equivalent of that saber-toothed tiger roaring in yourface,readytomakeyouhisdinner.

Sowhathappens?Redalert!Theancientsurvivalmechanisminsideyourbrainstarts sendingyoumessages thatyou’re inmortaldanger.Rationally,you may know that the smartest move in a market crash is to buy morestockswhilethey’reonsale.Butyourbrainistellingyoutoselleverything,grabyourcash,andhideunderyourbed(moreconvenientthanacave)untilthethreatsubsides.It’snowonderthatmostinvestorsdothewrongthing!It’sanunfortunatesideeffectofthehumansurvivalmechanism.Wehaveatendency to freak out because our brains believe our financial downfall iscertaindeath.

Andwhatcountsisnotreality,butratherourbeliefsaboutit.Our beliefs are what deliver direct commands to our nervous system.

Beliefsarenothingbutfeelingsofabsolutecertaintygoverningourbehavior.Handled effectively, beliefs can be the most powerful force for creatinggood, but ourbeliefs can also limit our choices andhamstringour actions

severely. Sowhat’s the solution?How canwe bypass the survival instinctsthathavebeenhardwired intoourbrainsandbeliefsystemsformillionsofyears, sowecan learn to stand firm in the faceofaplungingmarket (orahungrytiger)?

Itmayseemoverlysimplistic,butallthat’sreallyrequiredisasetofsystem solutions—a simple system of checks and balances—toneutralize or minimize the harmful effects of our faulty Flintstonewiring.Therehastobeakindofinternalcontrolchecklistsinceknowingisnotenough.Youneedthesystemicabilitytoexecuteeverytime.

Justthinkoftheairlineindustry,wheretheconsequencesofhumanerrorcanbedevastating.Forairlines, it’s imperative that they followthecorrectprocedures every time.So theyminimize risks by implementing a series ofsystem solutions and a series of checklists along the way. Consider thecopilot,whoprovidesanarrayofpotentiallylife-savingchecksandbalances,justincasethepilotslipsup.Thecopilotisn’tjusttheretomerelysteertheplaneifthecaptainisinthewashroom,butalsoservesasasecondopinionfor every decision point thatmay arise. Plus, it doesn’tmatter howmanythousands of hours they’ve flown—both the pilot and copilot constantlymonitor detailed checklists to keep everybody safely on course, so they’llarriveattheirintendeddestination.

Whenitcomestoinvesting,humanerrormaynotbeamatteroflifeanddeath,butfinancialmistakescanstillbecatastrophic.Justaskthosewholosttheirhomesduringthefinancialcrisis,orcouldn’tpayfortheirkidstostayincollege,orcan’taffordtoretire.Thisiswhyinvestorsalsoneedsimplesystems,rules,andprocedurestoprotectusfromourselves.

KNOWWHATTODO,DOWHATYOUKNOW

Thebestinvestorsareacutelyawareofthisneedforsimplesystemsbecausetheyrecognizethat,despitetheirabundanttalents,theycaneasilymessupinwaysthatcouldcausethemaworldofpain!Theyunderstandthatit’snotenoughtoknowwhattodo.Youalsoneedtodowhatyouknow.That’swheresystemscomein.

Overmy20plusyears as a coach toPaulTudor Jones, akey focushasbeentoconstantlyupdateandimprovethesystemsheusestoevaluateandmakeinvestmentdecisions.Infact,whenIfirstmetPaul,hehadjustmadeoneofthegreatestinvestmenttradesinhistory,takingfulladvantageofthe

marketonBlackMonday in1987—an infamousoccasionwhenthemarketfell 22% in a single day. Paul produced an almost unimaginable return of200%thatyearforhisinvestors.Butafterthisstunningsuccess,hebecameoverconfident—acommonbiasthatyou’lllearnmoreaboutinthischapter.The result?He became less rigorous in his adherence to the vital systemshe’daccumulatedovertheyearstobecomehismosteffectiveself.

Inordertocorrectthisbias,Isetouttodiscoverhowhisbehaviorasaninvestorhadchanged.ImetwithPaul’speers(includingsomeofthegreatestinvestors in history, such as Stanley Druckenmiller), interviewed hiscoworkers, and watched videos of him trading during his most successfultimes.Basedonthisin-depthunderstanding,IworkedwithPaultocreateachecklist:asimplesetofcriteriathathecoulduseashischecksandbalancesbeforemakinganytrade.

Forexample,oneofthecriteriaweestablishedwasthatbeforehecouldmakeanyinvestment(ortrade),Paulhadtofirstestablishinhisownheartand soul that itwas ahard trade—meaning itwasn’t a trade that everyonewouldmake.

Second,hedisciplinedhimselftomakesurethattherewasasymmetricalrisk/reward.Inordertodeterminethis,hewouldaskhimself:“Isitathree-to-one?Isitafive-to-one?CanIgetdisproportionaterewardsfortheleastamountofrisk?What’sthepotentialupsideandwhat’stheriskonthedownside?”Third,hewould sit down and ask himself, “Where are the breaking points for otherinvestors?Whenwillthepricegetsoloworhighthattheywillgetout?”Hewouldthen use this insight to establish his own entry point: his target price forexecutinghis investment.Andfinally,hewouldalsoestablishhisexit ifhisprojectionsturnedouttobewrong.

What’s the pattern here? The common link in Paul’s criteria is asimplesetofquestionsthatheusestoexaminehisbeliefsand lookatthesituationmoreobjectively.

AndwhileallofthesequestionshaveprovidedagreatchecklistforPaul,whatmadeitworkwasdiscipline.Afterall,asystemiseffectiveonlyifyouuseit!Inordertobesurethathedid,IaskedPaultowritealettertothemembersofhisentiretradingteamstatingclearlythattheywerenottomake any investment until they checked with him first and asked thequestionsweoutlinedabove:“Is this truly thehard trade?Does it reallyhaveasymmetric risk/reward? Is it a five-to-one or a three-to-one?What’s the entrypoint?Whereareyourstops?”

Totakeitonestepfurther,theywerealsoinstructednottoprocessanyordersaftertheopeningbell.Inotherwords,theyweren’tallowedtotradein themiddleof theday.Whynot?BecausePaul realized that toooftenatrade in that stage of the gamemeant that hewas reacting to themarket,buyingatthehighpriceforthedayandsellingat the low,givingawayhispowerandgiftingsomeoneelseabetterdeal.

As you can see, great investors such as Paul understand afundamentaltruth:psychologyeithermakesyouorbreaksyou,soit’simperativetohavearobustsystemthatenablesyoutostayontarget.Togetherinthischapter,weregoingtocreateasimplechecklistwithsixitemstowatchoutforandeffectivelycountertoinsureyourlong-termfinancialsuccess.

80%PSYCHOLOGY,20%MECHANICS

Forfourdecades,I’vestudiedthemostsuccessfulpeople inmanydifferentfields, including investing, business, education, sports, medicine, andentertainment. And what I’ve found again and again is that 80% ofsuccessispsychologyand20%ismechanics.

Investor psychology is an incredibly rich and complex subject. In fact,there’s anentire academic field called“behavioral finance,”whichexploresthe cognitive biases and emotions that cause investors to act irrationally.These biases often lead people to make some of the costliest investingmistakes,suchastryingtotimethemarket,investingwithoutknowledgeoftherealimpactoffees,andfailingtodiversify.

Our goal here is to keep things short and sweet! In this briefchapter,we’regoingtoexplainwhatyoureallyneedtoknowaboutoneofthebiggestpsychologicalpitfallsandhowtoavoidgettingsnaggedbycommoninvestmentmistakesyourbraincancauseyoutomake.

AsRayDaliotoldme,“Ifyouknowyourlimitations,youcanadaptandsucceed. If you don’t know them, you’re going to get hurt.” By creatingsystematic solutions, you can free yourself from the tyranny of yourconditioningandoperatethecontrolroomlikeoneofthebestinvestorsontheplanet.

Mistake1:SeekingConfirmationofYourBeliefsWhytheBestInvestorsWelcomeOpinionsThatContradictTheirOwn

During the 2016 presidential election battle between Donald Trump andHillaryClinton, you probably found yourself in heated political “debates”withfriends.Butdidyoueverhavethefeelingthatitwasn’tadebateatall—that everyone had made up his or her mind already? People who lovedTrump and loathed Hillary, or vice versa, felt so strongly that it oftenseemedlikenothingcouldaltertheiropinions!

Thiswasmagnifiedby thewaywe consumemedia today.ManypeoplewatchTVchannelsthattypicallyfavoronepointofview,suchasMSNBCorFoxNews;andournewsisfilteredmorethaneverbyFacebookandotherorganizations. The result? It often feels like we’re in an echo chamber,listeningprimarilytopeoplewhoshareourviews.

The 2016 election provided a perfect example of “confirmation bias,”which is the human tendency to seek out and value information thatconfirmsourownpreconceptionsandbeliefs.Thistendencyalsoleadsustoavoid, undervalue, or disregard any information that conflicts with ourbeliefs.

Forinvestors,confirmationbiasisadangerouspredisposition.Let’s say you love a particular stock or fund that’s performed

exceptionally well in your portfolio over the last year. Your brain iswiredtoseekoutandbelieveinformationthatvalidatesyouowningit.After all, our minds love proof—especially proof of how smart andrightwe’vebeen!

Investorsoften visit newsletters andmessageboards that reinforce theirbeliefsaboutthestockstheyown.Ortheypumptheiracceleratorbyreadingpositive articles about the hot sector where they’ve been earning fabulousreturns.Butwhatifthesituationchangesandthathigh-flyingstockorsectorstarts crashing back to earth? How well equipped are we to change ourperspectiveandrecognizethatwe’vemadeamistake?

Do you have the flexibility to change your approach, or is your mindlockedintoitsbeliefs?

PeterMallouksawthisphenomenonupclosewithanewclientwhohadpreviouslymade a fortune on a biotech stock that had skyrocketed over adecade.Theclienthadalmost$10million in thisone stock.Peter andhisteamatCreativePlanningsetupanefficientplanfortheclienttodiversify,

dramaticallyreducingherexposuretothisstock.Theclientagreedinitiallybut then changed her mind, claiming she “knew” her beloved stock andunderstoodwhyitwouldcontinuetosoar.ShetoldPeter,“Idon’tcarewhatyou’resaying.Thisstockiswhatgotmehere!”

Over thenext fourmonths,Peter’s teamkept trying to convinceher tobeginthediversificationprocess.Buttheclientwouldn’tlisten.Duringthattime,thestockdroppedbyhalf,costingher$5million.Shewassoupsetthatshe dug in her heels even more and insisted on waiting for the stock torecover.Itneverdid.Ifshehadlistenedtothiswell-consideredadvicethatcontradictedherownbeliefs,shewouldnowlikelybeontracktowardalifeoftotalfinancialfreedom.

In fact, this is also an example of another emotional bias called the“endowment effect,” in which investors place greater value on somethingthey already own, regardless of its objective value! This makes it muchhardertopartwaysandbuysomethingsuperior.Thetruthis,it’sneverwisetofallinlovewithaninvestment.Asthesayinggoes,loveisblind!Don’tgetsweptoffyourfinancialfeet.

TheSolution:AskBetterQuestionsandFindQualifiedPeopleWhoDisagreewithYou

The best investors know they’re vulnerable to confirmation bias and,accordingly,doeverythingtheycantocounterthistendency.Thekeyistoactively seek out qualified opinions that differ from your own. Ofcourse,youdon’twantjustanyonewithadifferentopinion,butrathersomeone who has the skill, track record, and intelligence to giveanothereducatedperspective.Allopinionsarenotcreatedequal.

Nobody understands this better than Warren Buffett. He consultsregularlywith his 93-year-old partner,CharlieMunger, a brilliant thinkerwhoisalsofamouslyoutspoken.Inhis2014annualreport,BuffettrecalledthatMungerhad single-handedly convincedhim to changehis investmentstrategy, persuading him that therewas a smarter approach: “Forgetwhatyou know about buying fair businesses at wonderful prices; instead, buywonderfulbusinessesatfairprices.”

In other words, Warren Buffett—the greatest investor in history—hasopenly attributed his success to his willingness to follow the advice of his

partner, whose “logic was irrefutable.” That’s how powerful it can be toresistourtendencytoseekopinionsthatmerelyconfirmourown!

Ray Dalio, too, is obsessed with the idea of searching for divergentviewpoints.“It’ssodifficulttoberightinthemarkets,”hetoldme.“SowhatI’vefoundveryeffectiveistofindpeoplewhodisagreewithmeandthenfindoutwhattheirreasoningis....Thepowerofthoughtfuldisagreement is a great thing.”AsRay explains, the key question is:“Whatdon’tIknow?”

You can benefit greatly as an investor by finding people you respect(ideally, this includes a financial advisor with an extraordinary long-termrecord) and asking them questions designed to uncover what you don’tknow.WheneverI’mcontemplatingamajorinvestment,Ispeakwithfriendswhothinkdifferently,includingmywisepalandgeniusentrepreneur,PeterGuber. I explain what I believe, and then I ask: “Where could I be wrong?WhatamInotseeing?What’sthedownside?WhatamIfailingtoanticipate?AndwhoelseshouldIspeakwithtodeepenmyknowledge?”Questionslikethesehelptoprotectmefromthedangerofconfirmationbias.

Mistake2:MistakingRecentEventsforOngoingTrendsWhyMostInvestorsBuytheWrongThingatExactlytheWrongMoment

Oneofthemostcommon—anddangerous—investingmistakesisthebeliefthatthecurrenttrendwillcontinue.Andwheninvestors’expectationsaren’tmet, they often overreact, leading to a dramatic reversal of the trend thatpreviouslyseemedinevitableandunstoppable.

Aperfect exampleof thisphenomenonoccurredelectionnight in2016.HillaryClinton,byfarthefront-runner,wasexpectedtowinbyalandslide—or at least by a “significant margin” according to nearly every poll. Atnoononelectionday,bookiesaroundthecountrygavehera61%chanceofvictory. But by eight o’clock, the situation flip-flopped completely, givingTrump a 90% chance of winning. As the election results became clear,investorspanickedbecausetheirexpectationsaboutthefutureweresuddenlyturned upside down. The market responded violently, with Dow futuresdroppingmorethan900points.

Ironically, the next day, the market snapped back in the oppositedirection,withtheDowjumping316pointsasinvestorsbegantoadjusttotheirnewversionofreality.WewitnessedaTrumprallythatcontinuedfor

weeks.As Iwrite this inDecember2016, theS&P500 justhitanall-timehighforthethirddayinarow,theDowJonesIndustrialAveragehasscoredits eleventh all-timehigh in amonth, and themarket has surged 6% in 7weekssincetheelection!

Howdoyou think investors feel rightnow?Prettycheerful, that’show!When you read that themarket is “roaring ahead,” it’s hard not to feel alittle rush of delight! Maybe you peek at your investment portfolio andnoticethatit’sthehighestit’severbeen.Lifeissweet!

Granted,Ihavenoideawherethemarketisheadedfromhere,andasthegreatestinvestorsintheworldwilltellyou,neitherdoesanyoneelse!ButIdo know that people get carried away at times like this. In the stacking ofemotionsandbeliefs theystart toconvince themselves that thegood timeswill keep on rolling! Likewise, when themarket is plunging, they start tobelievethatitwillneverrecover.AsWarrenBuffettsays:“Investorsprojectoutintothefuturewhattheyhavemostrecentlybeenseeing.Thatistheirunshakeablehabit.”

What’stheexplanationforthis?There’sactuallyatechnicaltermforthispsychologicalhabit. It’scalled“recencybias.”This is justaposhwayofsayingthatrecentexperiencescarrymoreweightinourmindswhenwe’reevaluatingtheoddsofsomethinghappeninginthefuture.In the midst of a bull market, the neurons in your brain help you toremember that your recent experiences were positive, and this creates anexpectationthatthepositivetrendislikelytocontinue!

Why is this soproblematic?Because,asyouknow, the financial seasonscansuddenlychange,withbullmarketsgivingwaytobearmarketsandviceversa. You don’t want to be that guy who, after a long, sun-drenchedsummer,concludesthatit’llneverrainagain.

Greatthingsarenotaccomplishedbythosewhoyieldtotrendsandfadsandpopularopinion.

—JACKKEROUAC

Irecently interviewedHarryMarkowitz,a famouseconomistwhowontheNobelPrizefordeveloping“modernportfoliotheory”:thebasisformuchofwhatweknowtodayabouthowtouseassetallocationtoreducerisk.Harryis a financial genius, and, at the age of 89, he’s seen everythingunder thesun, so I was eager to speak with him about themost common investingmistakesweneedtoavoid.

Here’s what he told me: “The biggest mistake that the small investormakes is to buywhen themarket is going up on the assumption that themarketwillgoupfurther—andsellwhenthemarketisgoingdownontheassumptionthatit’sgoingtogodownfurther.”

In fact, this is part of amuch broader pattern of believing that currentinvestment trends arebound to continue. Investors repeatedly fall into thetrapofbuyingwhat’shot—whetherit’sahigh-flyingstocklikeTeslaMotorsor the latest five-starmutual fund—and abandoningwhat’s not. AsHarryputs it: “Whatever is going up, that’s what they buy!” People assume thatthese shooting stars will continue to burn brightly. But as we warned inchapter3, today’swinners tend tobe tomorrow’s losers.Asyoumayrecall,onestudylookedat248stockfundsthatreceivedMorningstar’sfive-starrating.Tenyearslater,onlyfourofthemkeptthatrank!

Even so, brokers routinely promote funds that outperformed in thepreviousyear,onlytoseetheserecommendationsunderperformthefollowingyear. Investors tend toarrive justas theparty iswindingdown.Theymissout on all of the gains and participate fully in all of the losses. DavidSwensen summed this up neatly, telling me, “Individuals tend to buyfundsthathavegoodperformance.Andtheychasereturns.Andthen,whenfundsperformpoorly,theysell.Andsotheyendupbuyinghighandsellinglow.Andthat’sabadwaytomakemoney.”

TheSolution:Don’tSellOut.Rebalance.

What the best investors in theworld do is create a list of simple rules toguide them so that when things get emotional, they stay the course andremainon-target long term.Youmightwant tostartmakinga listofyourown—an investment success checklist for the flight deck—that spells outwhereyou’retryingtogoasaninvestor,whatyouhavetowatchoutfor,andhowyou plan to navigate the journey securely. Share your flight plan withsomeoneyoutrust—ideally,asophisticatedfinancialadvisor.Heorshecanhelpyoustickwiththeprogrambymakingsureyoudon’tviolateyourownruleswithimpulsivesurvival-braindecisions.Thinkofthisasthefinancialequivalent of having a copilot to clarify and verify that you’re notheadingintothesideofamountain!

Animportantcomponentoftheseinvestmentrulesisdecidinginadvancehow you’re going to diversify by allocating a specific percentage of your

portfoliotostocks,bonds,andalternativeinvestments.Whatwillyourratiobe?IIfyoudon’tlockitdown,circumstanceswillchangeandyourmoodwillchangewiththem.You’relikelytoreacttothemoment,insteadofstickingconsistently with an asset allocation that’s ideal for you over time. If yourecall,oneofthesolutionstothisemotionalstumblingblockistoregularlyrebalanceyourportfolioonceayear.

Whatdoes thatmean?HarryMarkowitzgavemeaclearexampleofaninvestorwhostartswith60%ofherportfolioinstocksand40%inbonds.Ifthestockmarketsoars,shemightfindherselfwith70%instocksand30%inbonds. So she would automatically sell stocks and buy bonds, therebyrestoringherportfolio toheroriginal asset allocation ratio.Thebeautyofrebalancing,saysHarry,isthatiteffectivelyforcesyouto“buylowandsellhigh.”

Mistake3:OverconfidenceGetReal:OverestimatingOurAbilitiesandOurKnowledgeIsaRecipeforDisaster!

Forgivemeforgettingpersonalhere,butletmeaskyouthreequestions.Areyouanabove-averagedriver?Areyouanabove-averagelover?Andareyoubetter-looking than the average person?Don’t worry! You can keep youranswerstoyourself!

Myreason foraskingyou these impertinentquestions is toraiseafundamental point that could be vitally important to your financialfuture:humanshaveaperiloustendencytobelievethatthey’rebetter(or smarter) than they really are. Again, there’s a technical term forthispsychologicalbias: it’scalled“overconfidence.”Toput it simply,we consistently overestimate our abilities, our knowledge, and ourfutureprospects.

Countless studieshavedescribedsomeof thewonderfullyabsurdeffectsofoverconfidence.Forexample,onestudyfoundthat93%ofstudentdriversbelievetheyareaboveaverage.Inanotherstudy,94%ofcollegeprofessorsconsidered themselves above average in the classroom. There was even afindingthat79%ofstudentsbelievedtheircharacterwasbetterthanmost,despite the fact that 60% admitted they had cheated on an exam in thepreviousyear.Weeachenvisionourselvesasamemberofthe“I’dneverdothat”moralminority.

All this reminds me of LakeWobegon, the fictitious Minnesota town

inventedbythewriterGarrisonKeillor,“whereallthewomenarestrong,allthemenaregood-looking,andallthechildrenareaboveaverage.”

Sohowdo individual investorsbecomeoverconfident? Inmanycases, a“professional” convinces them that there is a hot new investment that’sgoingtocrusheverythingoutthere,andtheyallowthatperson’spassiontobecome their unwarranted confidence. In other words, one person’ssalesmanshipfuelsanotherperson’smisguidedcertainty.

Someindividualsareextremelysuccessfulinrunningabusinessorlivingtheir lives, so they just assume that they’ll be equally as effective as aninvestor.Butinvesting,asyouknownow,ismorecomplexandchallengingthanitmightinitiallyseemtothesehighachievers.

Are certain people more prone to overconfidence? Finance professorsBradBarberandTerranceOdeanexamined the stock investmentsofmorethan 35 thousand households over five years.They found thatmen areespeciallypronetooverconfidencewhenitcomestoinvesting!Infact,mentraded45%morethanwomen,reducingtheirnetreturnsby2.65%ayear!Whenyouadd to this the additional costsofhigh transaction feesandtaxes,youcanseethatexcessivetradingistrulyadisaster.

But there’s another form of overconfidence that can prove even morecostly; theperilousbelief thatyou(oranyTVpundit,marketstrategist,orblogwriter)canpredictwhat the futureholds for thestockmarket,bonds,gold,oil,oranyotherassetclass.“Ifyoucan’tpredictthefuture,themostimportantthingistoadmitit,”HowardMarkstoldme.“Ifit’struethatyoucan’tmakeforecastsandyetyoutryanyway,thenthat’sreallysuicide.”

TheSolution:GetReal,GetHonest

Oneofthebestantidotestooverconfidenceistostandinfrontofamirrorandaskyourself this: “Do I reallyhaveanedge thatwill allowme tobeamarket-beatinginvestor?”Unlessyouhavesomesecretsauce—forexample,thesuperiorinformationandanalyticalskillsthatdistinguishgreatinvestorssuchasHowardMarks,WarrenBuffett,andRayDalio—there’snorationalreasononearthtobelieveyoucanoutperformthemarketindexesoverthelongrun.

So what should you do? Easy! Do whatHoward,Warren, Jack Bogle,DavidSwensen,andotherof theworld’sgreatest investors tell theaverageinvestor todo: invest inaportfolioof low-cost index funds,and thenhold

themthroughthickandthin.Thiswillgiveyouthemarket’sreturn,withoutthe triple burden that active investorsmust carry: exorbitantmanagementfees,hightransactioncosts,andheftytaxbills.“Ifyoucan’taddvalue,ifyoucan’tcreateanasymmetry,thenthebestthingyoucandoisminimizeyourcosts,”saysHoward.Inotherwords,“Justinvestinanindex.”

Indexfundsalsogiveyoubroaddiversification,whichisanotherpowerfulprotection against overconfidence.After all, diversification is an admissionthat you don’t knowwhich particular asset class, which stock or bond, orwhichcountrywilldobest.Soyouownabitofeverything!

Here’s the great paradox: by admitting to yourself that you have nospecialadvantage,yougiveyourselfanenormousadvantage!Howcome?Because you’ll do so much better than all those overconfidentinvestorswhodelude themselves intobelieving they canoutperform.Whenitcomestoinvesting,self-deceptionmaybethebiggestexpenseofall!

Mistake4:Greed,Gambling,andtheQuestforHomeRunsIt’sTemptingtoSwingfortheFences,butVictoryGoestotheSteadySurvivors

When Iwas 19, I rented a house in an upscale community by the PacificOcean in Marina del Rey, California. One day I was dropping off someclothes at a local dry cleaner when a convertible Rolls-Royce Cornichepulled up, and a gorgeous woman stepped out. I couldn’t help but payattention!Westartedchattingwhileshepickedupherclothes,andIaskedwhatsheandherfamilydidforaliving.Shetoldmethatherhusbandwasinpennystocksandhaddonereallywell.“Icanseethat,”Isaid.“Doyouhaveanytips?”

Shereplied,“Actually,rightnow,there’sanextraordinaryone.”Shegavemethenameofahotstock—andletmetellyou, it felt likeagift fromonhigh!A sure thing, right fromthehorse’smouth!So I took$3,000,whichwastheequivalentof$3millionformebackthen,andIbetitallonthatonestock. And guess what happened? It went to zero! Boy, did I feel like anidiot.

As I learned from that painful experience, greed and impatience aredangeroustraitswhenitcomestoinvesting.Weallhaveatendencytowantthebiggestandbestresultsasfastaspossible,ratherthanfocusingonsmall,incremental changes that compoundover time.Thebestway towin thegameof investing is toachieve sustainable long-termreturns.But it’s

enormously tempting to swing for home runs, especially when youthinkotherpeoplearegettingrichfasterthanyou!

The trouble is, you’remore liable to strikeoutwhenyou swing for thefences.Andthatcanbedevastating.Aswediscussedinchapter6,allofthebestinvestorsareobsessedwiththeideaofnotlosing.Rememberourmathlesson?Whenyoulose50%onaninvestment,youneeda100%returnjusttogetbacktowhereyoustarted—andthatcouldeasilytakeyouadecade.

Unfortunately,thedesiretogambleisbuiltintous.Thegamingindustryknows this well and ingeniously exploits our physiology and psychology:whenwe’rewinning,ourbodiesreleasechemicalscalledendorphins,sowefeel euphoric anddon’twant to stop;whenwe’re losing,wedon’twant tostop either, since we crave those endorphins and also want to avoid theemotionalpainoflosses.Casinosknowhowtomanipulateusbypumpinginextraoxygentokeepusalertandbyplyinguswithfreedrinkstoreduceourinhibitions!Afterall,themoreweplay,themorethey’llwin.

Wall Street isn’t all that different! Brokerage houses love it whencustomerstradealot,generatingablizzardoffees.Theytrytolureyouinandhookyouwithadvertisements thatoffer freeor low-cost trades, alongwithmarket“insights”thatwillsupposedlyhelpyoupickthewinners.Yeah,right!Doyouthinkit’sacoincidencethatyouronlinetradingplatformlooksandsoundslikeacasino,withgreenandredcolors,scrollingtickers,flashingimages, and dinging sounds? It’s all designed to unleash your innerspeculator!

The financialmedia reinforces the sense that themarkets are justone giant casino—an intoxicating get-rich-quick scheme forspeculators! It’s easy to get sucked in,which iswhy somany people losetheirshirtsbybettingonthehotteststocks,tradingoptions,andmovinginandoutofthemarket.Allthisactivityismotivatedbythegambler’sdesiretohitthejackpot!

What you need to understand is that there’s a world of differencebetween short-term speculation and long-term investing. Speculators aredoomedto fail,whiledisciplined investorswhostay in themarket throughthick and thin set themselves up for victory, thanks to the power ofcompoundingovertime.WallStreetwinsbygettingyoutobemoreactive,but you win by patiently staying in the game for decades.Remember, asWarren Buffett says, “The stock market is a device for transferringmoneyfromtheimpatienttothepatient.”

TheSolution:It’saMarathon,NotaSprint

So here’s the big question: In practical terms, how can you silence your innerspeculatorandforceyourselftobeapatient,long-terminvestor?

Onepersonwho’sobsessedwiththisquestionisGuySpier,arenownedvalue investor. Guy began coming tomy events two decades ago, and hecreditsmewith inspiringhim tomodel thebest investors.Heapplied thisideabymodelingWarrenBuffett’slong-termapproachtoinvesting.In2008Guyandanotherhedgefundmanagerevenpaid$650,100tocharitytohavelunchwithBuffett!

AsGuyseesit,oneofthebiggestbarrierstosuccessformostinvestorsisthat they get distracted by all the short-term noise onWall Street. Thismakes itmuchharder for them tohold their investments for the long runand harness the awesome power of compounding. For example, theyfrequentlychecktheperformanceoftheirinvestments,andtheylistentoTVpunditsandmarket“experts”makinguselesspredictions.“Whenyoucheckyourstockpricesorfundpricesonyourcomputereveryday,you’refeedingcandy to your brain,” says Guy. “You get an endorphin hit. You have torealize it’s addictive behavior and just stop doing it.Move away from thecandy!”

Guy suggests checking your portfolio only once a year.He recommendsavoiding financial TV entirely. And he suggests that you disregard allresearchproducedbyWallStreetfirms,recognizingthattheirmotiveistopushproducts,nottosharewisdom!“Thevastmajorityofwhatpurportstobeanalysisandinformationaboutthestockmarketisactuallyjustdesignedtogenerateactivity,togetustopullthetriggerbecausesomebodyouttherewillmakemoneyoutofthefactthatwe’rebeingactive,”heexplains.“Ifit’sactivity-generatinginformation,weshouldshutitoff.”

Instead,Guyrecommendscreating“amorewholesomeinformationdiet”bystudyingthewisdomofultrapatientinvestorssuchasWarrenBuffettandJackBogle.Theresult?“You’refeedingyourmindthoughtsthatwillmakeitmucheasierforyoutothinkandactlongterm.”

Mistake5:StayingHomeIt’saBigWorldoutThere—SoHowComeMostInvestorsStaySoClosetoHome?

Humanshave anatural tendency to staywithin their comfort zone. If youlive in theUnited States, you’remore likely to crave a cheeseburgerwithfriesthanafeastconsistingoffoiegras,poutine,orescargot.Likewise,youprobablyhavea favoritegrocery store,gas station,orcoffee shop thatyouvisitregularly,insteadofventuringfurtherafield.

Whenitcomestoinvesting,peoplealsotendtostickwithwhatevertheyknowbest,preferringtotrustwhat’smostfamiliar.Thisisknownas“homebias.”It’sapsychologicalbiasthatleadspeopletoinvestdisproportionatelyintheirowncountry’smarkets—andsometimestoinvesttooheavilyintheiremployer’sstockandtheirownindustry.

Forourcave-dwellingancestors,homebiaswasasavvysurvivalstrategy.Ifyouventuredtoofaroutsidethe’hood,whoknewwhatdangersmightbelying inwait?But inourownera, investingglobally actually reduces youroverall risk. That’s because different markets are imperfectly correlated,whichmeanstheydon’tmoveinlockstep.

Youdon’twanttobeoverexposedtoanycountry—evenifit’swhereyoulive—because you never know when it will hit a rough patch. In the late1980s, Japanese investors had 98% of their portfolios in domestic stocks.Thispaidoffhandsomelyformostoftheeighties,whenJapanseemedtobeon topof theworld.Then in1989 the Japanesemarket collapsed, and it’sneverfullyrecovered.Somuchfor“Home,sweethome!”

A report byMorningstar showed that the averageAmerican investor inmutual funds had almost three-quarters (73%) of his or her total equityallocationinvestedintheUSstockmarketattheendof2013.YetUSstocksaccountedforonlyhalf (49%)oftheglobalequitymarket.Inotherwords,AmericanssignificantlyoverweightedtheUSmarket,leavingthemrelativelyunderexposed to foreignmarkets such as theUnitedKingdom,Germany,China,andIndia.

In fact, it’s not just American investorswho view the rest of theworldwithsuspicion!RichardThalerandCassSunstein,whoare leadingexpertsonbehavioralfinance,havewrittenthatSwedishinvestorshaveanaverageof48% of their money in Swedish stocks—despite the fact that Swedenaccounts foraround1%oftheglobaleconomy:“Arational investor intheUnited States or Japan would invest about 1% of his assets in Swedishstocks. Can itmake sense for Swedish investors to invest 48 timesmore?No.”

TheSolution:ExpandYourHorizons

Thisisreallysimple.Aswe’vesaidinpreviouschapters,youneedtodiversifybroadly,notonlyindifferentassetclassesbutalsoindifferentcountries.Itmakes sense todiscussyourglobalassetallocationwitha financial advisor.Once you’ve decided on the appropriate percentages to keep at home andabroad, you should write down these figures in your investment successchecklist.It’salsoimportanttolayout,inwriting,thereasonswhyyouownwhatyouown.Thatway,youcanremindyourselfofthesereasonswheneverapartofyourportfolioisunderperforming.

The best advisors help you to keep a long-termperspective so you canavoidfallingintothecommontrapoffavoringwhatevermarketisinvogue.HarryMarkowitz,whohasadeepsenseofhistory,toldme,“We’verecentlyhad a long stretch where the US market has been doing better than theEuropeanmarket...andemergingmarketshavehadadryspell.Butthesethingscomeandgo.”

Bydiversifyinginternationally,you’renotonlyreducingyouroverallriskbutalsoincreasingyourreturns.Rememberwhenwetalkedaboutthe“lostdecade”of2000through2009,whentheS&P500producedanannualizedreturn of only 1.4% a year, including dividends? During that time,international stocks averaged 3.9% a year, while emerging-market stocksreturned16.2%ayear.So,forinvestorswhodiversifiedglobally,thoselostyearswerejustaminorbumpintheroad.

Mistake6:NegativityandLossAversionYourBrainWantsYoutoBeFearfulinTimesofTurmoil—Don’tListentoIt!

Humanbeingshaveanatural tendencytorecallnegativeexperiencesmorevividlythantheydopositiveones.This isknownas“negativitybias.”Backwhenwewere cavemen, thismental biaswas reallyhandy. It helpedus torememberthatfirehurts,thatcertainberriescouldpoisonus,andthatitwasdumb to pick a fight with a hunter twice your size. Recalling negativeexperiences can also be pretty helpful inmodern times:maybe you forgotthat itwas yourwedding anniversary, spent thenext day in the doghouse,andtherebylearnednevertomakethatmistakeagain!

Buthowdoesnegativitybiasaffectthewayweinvest?Thanksforasking!Asyouknow,marketcorrectionsandbearmarketsareregularoccurrences.

Remember: on average, correctionshaveoccurred aboutonce a yearsince1900,andbearmarketshaveoccurredaboutonceeverythreetofive years. If you lived through the bear market of 2008–09, you knowfirsthand how emotionally painful these experiences can be. If, like manyinvestors, youowned funds or stocks that plungedby a thirdor a half (ormore),you’renotlikelytoforgetthosenegativeexperiencesanytimesoon!

Now,youandIbothknowthatthebestinvestorsrelishcorrectionsandbearmarketsbecausethat’swheneverythinggoesonsale.Bynow,I’m sure you remember,WarrenBuffettwants to be “greedywhenothersarefearful,”andSirJohnTempletonmadehisfortune—doyouremember?That’s right. At “the point of maximum pessimism.” At this point, I’mguessingthatyourrationalmindknowsthatmarketcrashesareawonderfulopportunitytobuildlong-termwealth,notsomethingtofear!Butnegativitybiasmakesithardfortheaverageinvestortoactonthisknowledge.

Why? Because in themidst ofmarket turmoil, our brains are wired tobombarduswithmemoriesof thosenegativeexperiences. In fact, there’sapart of the brain—the amygdala—that acts as a biological alarm system,floodingthebodywithfearsignalswhenwe’relosingmoney!Evenaminormarketcorrection is liable to triggerournegativememories,causingmanyinvestors tooverreactbecause they’re afraid that the correction could turninto a crash. During a bear market, this fear reflex goes into overdrive,makinginvestorsanxiousthatthemarketwillneverrecover!

Tomakemattersworse, thepsychologistsDanielKahneman andAmosTverskyalsodemonstratedthatfinancial lossescausepeopletwiceasmuchpain as the pleasure they receive from financial gains. The term used todescribethismentalphenomenonis“lossaversion.”

The trouble is, losing money causes investors so much pain thattheytendtoact irrationally just toavoidthispossibility!Forexample,when themarket is plunging,many people sell their battered investmentsand go to cash at exactly the wrong moment—instead of snapping upbargainsatonce-in-a-lifetimeprices.

One reason why the best investors are so successful is that theyoverride thisnatural tendency tobe fearfulduringperiodsofmarketturmoil.TakeHowardMarks.Inthelast15weeksof2008,whenfinancialmarkets were imploding, he told me that his team at Oaktree CapitalManagement invested about$500million aweek indistresseddebt.That’sright!Theyinvestedhalfabilliondollarsaweekfor15straightweeks

duringatimewhenmanythoughttheendtimeshadarrived!“Itwasobvious that everybody was suicidal,” Howard told me. “In general,that’sagoodtimetobuy.”

Byfocusingcalmlyonthisbargain-huntingopportunity,Howardandhisteammatesmadebillionsofdollarsinprofitswhenwinterendedandspringbegan.Thiswouldneverhavebeenpossibleiftheyhadsuccumbedtofear!

TheSolution:PreparationIsKey

Byfailingtoprepare,youarepreparingtofail.—BENJAMINFRANKLIN

First of all, it’s important to be self-aware. Once we know that we’revulnerable to negativity bias and loss aversion, we can counter thesepsychologicaltendencies.Afterall,youcan’tchangesomethingifyou’renotawareofit!Butwhatspecificmeasurescanyoutakesothatfearwon’tknockyouoffcourseeveninthemosttumultuoustimes?

Aswediscussed in chapter7,PeterMalloukhad tremendous success inhelping his clients navigate the global financial crisis. One reason: Heeducated them in advance about the risksof abearmarket, so itwasn’t assurprisingorscarywhenitactuallyoccurred.Forexample,heexplainedhoweach asset class had performed in previous bear markets, so they werepreparedmentallyforwhatcouldhappen.

TheyalsoknewinadvancethatPeterplannedtousethisturmoiltotheiradvantage,sellingconservativeinvestmentssuchasbondsanddeployingtheproceedstobuymorestocksatbargainprices.“Weprovidedcertaintyaboutthe process,” says Peter, “so they knew exactly what to expect. Thisdramatically reduced their uncertainty.” In otherwords, the single bestway tohandlemarket turmoil—and the fears it can trigger—is to bepreparedforit.

Aswe’ve discussed at length, one criticalway to prepare is to have therightassetallocation.Italsohelpstowritedownyourreasonsforinvestingineachoftheassetsinyourportfolio,sinceinevitablytherewillbetimesaparticular asset class or investment performspoorly, sometimes for severalyears.Manyinvestorslosefaithbecausethey’resofocusedontheshortterm.Butwhenthegoinggetstough,you’llbeabletolookoverthesenotesand

remindyourselfwhyyouowneachassetandhow it servesyour long-termgoals.

This simple process can take a lot of the heat and emotion out ofinvesting. As long as your needs haven’t changed and your assets are stillalignedwithyourgoals,youcansittightandgiveyourinvestmentsthetimetheyneedtoprovetheirvalue.

It alsohelps immeasurably tohave a financial advisorwho can talk youthroughyourfearsandconcernsduringthemostdifficulttimes,remindingyou that the strategyyouagreedupon inwritingwhenyouwerecalmandunemotionalisstillvalid.

It’s a bit like flying a plane through a really rough storm.Most pilotswouldbe just fine if theywereflyingsolo.But it’sawhole loteasierwhenyou know that you’ve got an experienced copilot in the seat beside you!Remember:evenWarrenBuffetthasapartner.

MASTERINGYOURMIND

Now that you’re aware of these destructive psychological patterns, you’remuch better positioned to guard against them. Given that we’re humanbeings,we’reboundtotripupfromtimetotime.Afterall,thebiaseswe’vediscussedinthischapterarepartofourancientsurvivalsoftware,sowecan’texpect to eliminate them totally. But asGuy Spier says, “This isn’t aboutgettingaperfectscore.Evensmallimprovementsinourbehaviorcandeliverenormousrewards.”

Why?Becauseinvestingisagameofinches.Ifyourreturnsimproveby,say,2or3percentagepointsayear, thecumulative impactoverdecades isastounding,thankstothepowerofcompounding.Thesystematicsolutionswe’vediscussedinthischapterwillgoaverylongway,helpingyoutoavoid—orminimize—themost expensivemistakes that themajorityof investorsmake.

Forexample,thesesimplerulesandprocedureswillmakeiteasierfor you to invest for the long term; to trade less; to lower yourinvestment feesand transactioncosts; tobemoreopen toviews thatdiffer from your own; to reduce risk by diversifying globally; and tocontrolthefearsthatcouldotherwisederailyouduringbearmarkets.Will you be perfect? No. But will you do better? You bet! And the

difference thismakesovera lifetimecanamount tomanymillionsofdollars!

Nowyouunderstandboththemechanicsandthepsychologyofinvesting.You know what it takes to master your mind so that you can investsuccessfullyoverthelongterm.Theknowledgeyou’veacquiredispriceless,anditcanenableyouandyourfamilytoachievetotalfinancialfreedom.Solet’sturntoourfinalchapterandlearnhowtocreaterealandlastingwealth!

I. Ifyou’d likemoreguidance inthisarea,Chapter4.1ofMoney:Master theGamegivesyousimplestep-by-stepguidanceinhowtosetyourassetallocationpercentages.

CHAPTER 9

REALWEALTH

MakingtheMostImportantDecisionofYourLife

Everyday,thinkasyouwakeup,“TodayIamfortunatetobealive,Ihaveaprecioushumanlife,Iamnotgoingtowasteit.”—THEDALAILAMA

Ifthisbookhelpsyoutobecomefinanciallyfree,I’llbethrilledforyou.Butif I’m honest, I don’t believe that’s enough. Why not? Because havingfinancialwealthdoesn’tguaranteethatyou’llbewealthyasahumanbeing.

Anybodycanmakemoney.Asyou’velearnedinthepreviouschapters,thetools andprinciples youneed are reallypretty simple.For example, if youharness the power of compounding, stay in themarket for the long term,diversify intelligently, andkeepyourexpensesand taxesas lowaspossible,youroddsofattainingfinancialfreedomareextremelyhigh.

But what if you achieve financial freedom and you’re still not happy?Many people dream for decades of becoming millionaires or billionaires.Then,whentheyfinallyreachtheirgoal,theysay:“Isthatit?Isthatallthereis?”Andbelieveme,ifyougetwhatyouwantandyou’restillmiserable,thenyou’rereallyscrewed!

When people dream of becoming rich, they’re not fantasizing aboutowningmillions of pieces of paperwith pictures of dead people on them!Whatwereallywantaretheemotionsweassociatewithmoney:forexample,thesenseoffreedom,security,orcomfortwebelievemoneywillgiveus,orthejoythatcomesfromsharingourwealth.Inotherwords,it’sthefeelingswe’reafter,notthemoneyitself.

I’mnotbelittling the importanceofmoney. Ifyouuse itwell, therearecountless ways in which it can enrich your life and the lives of those youlove. But real wealth is about somuchmore thanmoney.Real wealth isemotional, psychological, and spiritual. If you’re financially free, butyou’restillsufferingemotionally,thenwhatkindofvictoryisthat?

Maybethis strikesyouasanodddigression inabookaboutmoneyandinvesting!ButI’dfeelremissifIwroteanentirebookthatshowsyouhowtoachievefinancialwealthwhileneglectingtosharewithyouthesecretofhowtoachieveemotionalwealth.Fortunately,youdon’thavetochoosebetween

them!Asyou’lldiscoverinthischapter,it’spossibletobefinanciallyrichandemotionallyrich.This,myfriend,istheultimateprize!

Tomymind, thechapteryou’re about to read isundoubtedly themostimportantinthisbook.Why?Becausewhatyou’lllearninthepagestocomeisthatthereisasingledecisionyoucanmaketodaythatcanchangetherestofyour life.This one decision—if you consistently act on it—will bring youmorejoy,morepeaceofmind,morerealwealththanmostpeoplecanimagine.Bestofall,youdon’tneedtowait10,20,or30years.Ifyoumakethisonedecision,youcanberichrightnow!

The truth is, I want to share this idea with you because it’s been lifechangingforme.So,ifyou’rereadytojoinme,let’sbeginthefinalstepinourjourney!

ANEXTRAORDINARYQUALITYOFLIFE

My entire life has been focused on helping people turn their dreams intoreality. I’ve visitedmore than 100 countries and have spokenwith peoplefrom every corner of the earth about what they really want. And do youknow what I’ve found? Every culture has different beliefs and values, yettherearefundamentalneedsanddesiresthatallhumanbeingsshare.WhatI’vefoundwhereverIgoisthatweallcraveanextraordinaryqualityoflife.

Forsomepeople, thatmeansowningabeautifulhomewithanexquisitegarden.Forothers, itmeansraisingthreewonderfulchildren.Forsome, itmeans writing a novel or a song. For others, it means building a billion-dollarbusiness.Andforsome,itmeansbeingonewithGod.Inotherwords,it’snotaboutlivingsomebodyelse’sdream.It’saboutlivingamagnificentlifeonyourownterms.

Buthowcanyouachievethis?Howcanyouclosethegapbetweenwhereyouare todayandwhereyouwant tobe?Theanswer:youneedtomastertwoentirelydifferentskills.

TheScienceofAchievement

ThefirstiswhatIcallthe“scienceofachievement.”Ineveryfield,therearerulesofsuccessthatyoucaneitherbreak(inwhichcase,you’llbepunished)

orfollow(inwhichcase,you’llberewarded).Forexample,there’sascienceto health and fitness. Biochemically, we’re all different. But there arefundamentalrulesyoucanfollowifyouwanttothriveandhavehighenergy.Ifyouviolatethoserules,you’llpaytheconsequences.

It’sthesameinthefinancialworld.Justthinkaboutwhatyou’velearnedinthisbook.Themostsuccessfulinvestorshaveleftatrailofcluesforustofollow.By studying thesepatterns and applying these tools, strategies, andprinciples inyourownlife,you’reacceleratingyour journeytosuccess.It’sobvious,right?Sowthesameseedsasthemostsuccessfulpeople,andyou’llreapthesamerewards.That’showyou’llachievefinancialmastery.

When it comes to the scienceof achievement, thereare threekey stepsthat can enable you to achievewhatever it is youwant.Can you think ofsomething fantastic that you’ve achieved in your life that once seemedimpossible?Maybe itwasa relationship,ormaybe itwasadream joborasuccessfulbusiness,orowningasleeksportscar.Thenthinkabouthowthisdreamwentfrombeingimpossibletoactuallybeinginyourlife.Whatyou’llfindisthatthepathtoachievementisfollowedbyafundamentalthree-stepprocess.

TheFirstStep toAchievingAnythingYouWant IsFocus.Remember:wherever your focus goes, your energy flows.When you put your entirefocusonsomethingthatreallymatterstoyou,whenyoucan’tstopthinkingaboutiteveryday,thisintensefocusunleashesaburningdesirethatcanhelpyou obtainwhatmight otherwise be out of reach.Here’swhat’s going onbeneaththesurface:apartofyourbraincalledthereticularactivatingsystemis activated by your desire, and this mechanism draws your attention towhatevercanhelpyouachieveyourgoal.

TheSecondStepIstoGoBeyondHunger,Drive,andDesire,andtoConsistentlyTakeMassiveAction.Alotofpeopledreambigbutnevergetstarted!Tosucceed,youneedtotakemassiveaction.Butyoualsoneedtofind the most effective execution strategy, which means changing yourapproach until you find what works best. You can speed up this processexponentiallybymodelingpeoplewho’ve alreadybeen successful,which iswhywe’ve focused so intently onmoneymasters such asWarren Buffett,Ray Dalio, Jack Bogle, and David Swensen. By studying the right rolemodels,youcouldlearninaweekwhatmightotherwisetakeyouadecade.

The Third Step to Achieving Whatever We Want Is Grace. Somepeoplecallitluck,somepeoplecallitGod.Here’swhatIcantellyou,basedonmy own experience: themore you acknowledge grace in your life, themore you seem to have it! I’ve been amazed to see how a deep sense ofappreciationbringsmoreandmoregraceintoourlives.

Ofcourse,youneedtodoeverythinginyourpowertoachieveyourgoals,buttherearestillthingsoverwhichyouhavenocontrol.Eventhefactthatyouwerebornatthistimeinhistory,thatyouweregivenabrainandaheartthatyoudidn’thavetoearn,andthatyougettobenefitfromtheawesomepower of modern technologies like the Internet—none of this was withinyourcontrol,nordidyoucreatethesegifts!

Nowyouknowthethreebasickeystoachievement.Butasimportantasachievementis,there’sasecondskillthatyou’llalsoneedtomasterifyouwant tocreateanextraordinary life.Thisskill iswhatIcall“theartoffulfillment.”

TheArtofFulfillment

For decades, Iwas focused obsessively on the science of achievement—onlearning to master the external world and on figuring out ways to helppeoplebreakthroughandsolveeverychallenge.ButInowbelieveinmyheart and soul that the art of fulfillment is an evenmore importantskilltomaster.Why?Becauseifyoumastertheexternalworldwithoutmastering the internal world, how can you be truly and sustainablyhappy?That’swhymygreatestobsessiontodayistheartoffulfillment.

The$86.9MillionPainting

AsImentionedearlier,weeachhaveadifferentideaofwhatconstitutesanextraordinary quality of life. To put this another way, what fulfills you islikely to be different fromwhat fulfillsme or anyone else.Our needs anddesiresare infinitelyandmarvelouslydiverse!OneexperiencethatbroughtthishometomewasanunforgettabledaythatIspentwithmydearfriendSteveWynn.

Afewyearsago,StevephonedmeonhisbirthdaytoseewhereIwas.Asluck would have it, we were both staying in our vacation homes in SunValley, Idaho.SoSteve invitedmeover tohangout.“Whenyougethere,I’vegottoshowyouthispainting,”hesaid.“I’vecoveteditformorethanadecade,andIoutbideveryoneatSotheby’stwodaysagoandfinallyboughtit!Itcostme$86.9million!”

CanyouimaginehowintriguedIwastobeholdthisprecioustreasurethatmy friend had dreamed of for so long? I was imagining some sort ofRenaissance masterpiece that you might see in a museum in Paris orLondon. But when I got to Steve’s house, you know what I found? Apaintingofabigorangesquare!Icouldn’tbelieveit.Itookonelookatitandjokinglysaid,“Givemeahundredbucks’worthofpaint,andIcanduplicatethis inanhour!”Hewasn’toverlyamused.Apparently,thiswasoneofthegreatestpaintingsbytheabstractartistMarkRothko.

SowhyamItellingyouthisstory?Becauseitperfectlyillustratesthefactthatwe’reallfulfilledbydifferentthings.SteveismoresophisticatedthanIamwhenitcomestoart,sohecoulddetectadepthofbeauty,emotion,andmeaning in thosebrush strokes that I couldn’t see.Toput it anotherway,oneman’sorangesplotchisanotherman’s$86.9millionfantasy!

While it’s true that we’re all different, there are still common patternswhenitcomestoachievingfulfillment.Ifthat’syourgoal,whatprinciplesorpatternsofbehaviorcanyoumodel?

TheFirstPrinciple:YouMustKeepGrowing.Everythingin lifeeithergrows or dies.That goes for relationships, businesses, or anything else. Ifyoudon’t keepgrowing, you’llbecome frustratedandmiserable,nomatterhowmanymillionsyouhaveinthebank.Infact,Icantellyouthesecrettohappinessinoneword:progress.

TheSecondPrinciple:YouHavetoGive.Ifyoudon’tgive,there’sonlysomuch you can feel inside, and you’ll never feel fully alive. As WinstonChurchillsaid,“Youmakealivingbywhatyouget.Youmakealifebywhatyougive.”WheneverIaskpeopleaboutthemost fulfillingaspectsof theirlives,theyalwaystalkaboutsharingwithothers.Thetruenatureofhumanbeingsisn’tselfish.We’redrivenbyourdesiretocontribute.Ifwestopfeeling that deep sense of contribution, we can never feel trulyfulfilled.

It’s alsoworth reminding ourselves of the obvious truth that becomingfinanciallyrichisnotthekeytofulfillment.AsyouandIbothknow,peopleoften chase after money in the delusional belief that it’s a kind of magicpotionthatwillbringjoy,meaning,andvaluetotheirlives.Butmoneyalonewillnevergiveyouanextraordinarylife.Overtheyears,I’vespenta lotoftime with billionaires, and some of them are somiserable that you’d feelsorry for them. If you’re not happy, you can’t have amagnificent life, nomatterhowfatyourwallet.

Remember: money doesn’t change people. It just magnifies who theyalreadyare:ifyouhavealotofmoneyandyou’remean,thenyouhavemoreto be mean with; if you have a lot of money and you’re generous, you’llnaturallygivemore.

What about professional success? Well, it’s wonderful if your successbringsyouthatsenseofgrowthandcontributionthatweallneedinordertofeel fulfilled. But I’m sure you’ve met plenty of “successful” people whoneverseemhappyorfulfilled.Andhowdoesthatqualifyassuccess?Infact,Itrulybelievethatsuccesswithoutfulfillmentistheultimatefailure.

Let’sthinkforamomentaboutapainfulexampleofthis.

ANationalTreasure

In2014welostsomeonewhomIconsideranationaltreasure:theactorandcomedian Robin Williams. Over the last couple of years, I’ve spoken toaudiencesallovertheworldaboutthisastonishinglygiftedman.Againandagain, I’d ask the same question: “How many of you in this room lovedRobinWilliams?Don’t raiseyourhand if you likedhim—only if you lovedhim.”Andyouknowwhat?EveryplaceIgo—fromLondontoLima,fromTokyo to Toronto—about 98% of the people in the audience raise theirhands.

WasRobinWilliamsamasterachiever?Absolutely.Hestartedoutwithnothing.ButthenhedecidesthathewantstostarinhisownTVshow,andhedoesit.Thenhedecidesthathewantsabeautifulfamily,andhecreatesit. Then he decides that he wants more money than he can spend in alifetime,andhemakesithappen.Thenhedecidestobecomeamoviestar,andhedoesit.ThenhedecidesthathewantstowinanOscar—butnotforbeing funny—and he does that, too!Herewas amanwho had it all,whoachievedeverythinghe’deverdreamedofachieving.

Andthenhehangedhimself.Hehangedhimselfinhisownhome,leavingbehindhundredsofmillions

ofpeoplewholovehimtothisday.Evenmoredevastating,helefthiswifeandchildrentraumatizedandbrokenhearted.

WhenIthinkaboutthisterribletragedy,I’mstruckbyonesimplelesson:ifyou’renotfulfilled,youhavenothing.

RobinWilliamsachievedsomuchthatourculturehasconditionedustovalue, including fame and fortune. Yet despite all his gifts, it was neverenough.Hesufferedfordecades, tryingtodealwithhisstress throughtheuseandsometimestheabuseofalcoholanddrugs.Neartheendofhislife,hewasalsodiagnosedwithaprogressiveneurologicaldisorder,Lewybodydisease. His wife, Susan, recently wrote in the medical journalNeurology:“Robinwas losinghismind, andhewas awareof it.Can you imagine thepainhefeltasheexperiencedhimselfdisintegrating?”I

RobinWilliamswasagoodmanwhocareddeeplyaboutothers—amanwho contributed so much to the world, despite his long battle withaddiction,depression,andillhealth.Butintheend,hemadeeveryonehappyexcepthimself.

Thisremindsmeofthesafetyinstructionstheyannouncewheneveryougetonanairplane:“Intheeventofanemergency,pleaseputonyouroxygenmask before assisting others.” It sounds callous and selfish when you firsthear it,but it actuallymakes sense:unless youhelpyourself first,howcanyouhopetohelpothers?

Believeme,IknowthatRobinWilliamsisanextremeexample.I’mnotworried thatyou’regoing tokill yourself.But I see somanypeople—eventhe“richest”andmost“successful”people—whoaremissingoutonsomuchof the joy and fulfillment they deserve to experience. I want you toexperiencethat joyandfulfillmenttoday.Yetnobodyteachesushowtobehappy.

ToSufferorNottoSuffer—ThatIstheQuestion

Amanisbuttheproductofhisthoughts.Whathethinks,hebecomes.—MAHATMAGANDHI

Letmetellyouthestoryofwhat’schangedinmyownlife.Overthelasttwoyears,I’vebeenonamarvelous journeyofthemind.I’malwayslookingto

grow personally, so I’m constantly exploring different ideas about how toreachawholenewlevel.

A couple of years ago, I was in India visiting a dear friend of mine,Krishnaji,whoisequallyfascinatedbythesequestionsabouthowtoachievean extraordinary quality of life. Asmy friend knows, I’ve taught formanyyearsaboutthepowerofbeinginan“energy-rich”state:apeakstatewhereyou can accomplish anything and where your relationships are filled withpassion.Bycontrast,whenyou’re inan“energy-poor”state, thebodyfeelslazy,themindfeelssluggish,andyoucan’tdoanythingmuchbutworry,getfrustrated,andsnapatpeople!

Myfriendsaidtome,“Whatifyouusedifferentwordstodescribethesetwo states?”Ashe explained, there are really only twodifferent states youcan be in at any givenmoment. Either you’re in a high-energy state thatcouldalsobedescribedasa“beautifulstate.”Oryou’reinalow-energystate(often characterized by internal pain) that could also be described as a“sufferingstate.”Hetoldmethathisspiritualvisionwastoliveinabeautifulstatenomatterwhathappenedinhislife.

MyfriendthenechoedwhatIandsomanyothershavetaughtforyears:Wecan’tcontrolall theevents inour lives,butwecancontrolwhat thoseeventsmeantous—andthuswhatwefeelandexperienceeverydayofourlives!Byconsciouslychoosingandcommittingtoliveinabeautifulstate,myfriendbelievedthathecouldnotonlyenjoysomuchmoreof life,butalsogivesomuchmoretohiswife,hischild,andtotheworldatlarge.

I thought a lot about what he’d said. Now, I’m an achiever. If you’rereadingthisbook,youprobablyare,too.Andweachieversdon’tbelievethatwe’reever“suffering,”dowe?No!Wejusthave“stress”!

Infact,ifyou’dtoldmeeventwoyearsagothatIwassuffering,Iwouldhave laughed at you. I have a heavenly wife, four glorious children, totalfinancial freedom,andamissionthat inspiresmeeverydayofmy life.Butthen I started to realize that I frequently allowed myself to fall into asuffering state. For example, I’d get frustrated, pissed off, overwhelmed,worried,orstressed.AtfirstIfiguredthatthoseemotionswerejustapartoflife.Thetruthis,IevenconvincedmyselfthatIneededthemasfueltomovemeforward.Butthiswasjustmymindplayingtricksonme!

The trouble is, the human brain isn’t designed tomake us happyandfulfilled.It’sdesignedtomakeussurvive.Thistwo-million-year-oldorganisalwayslookingforwhat’swrong,forwhatevercanhurtus,

sothatwecaneitherfightitortakeflightfromit.IfyouandIleavethisancient survival software to run the show, what chance do we have ofenjoyinglife?

An undirected mind operates naturally in survival mode, constantlyidentifying andmagnifying these potential threats to our well-being. Theresult:alifefilledwithstressandanxiety.Mostpeoplelivethisway,sinceit’sthe path of least resistance. They make unconscious decisions, based onhabit and conditioning, and are at the mercy of their own minds. Theyassumethatit’sjustaninevitablepartoflifetogetfrustrated,stressed,sad,andangry—inotherwords,toliveinasufferingstate.

But I’m happy to tell you there’s another path: one that involvesdirectingyourthoughtssothatyourminddoesyourbidding,nottheotherwayaround.

ThiswasthepathIchose.IdecidedthatIwouldnolongerliveinasufferingstate.IdecidedthatIwoulddoeverythinginmypowertoliveinabeautifulstatefortherestofmylifeandtobecomeanexampleofwhat’shumanlypossible!Afterall, there’snothingworse thanarichandprivilegedmanorwomanwho’sangryandungrateful!

FlyingHighandFallingLow

Now,beforewegoanyfurther,let’sjustclarifythedifferencebetweenthesetwoemotionalandmentalstates:

ABeautifulState.Whenyoufeellove,joy,gratitude,awe,playfulness,ease,creativity, drive, caring, growth, curiosity, or appreciation, you’re in abeautiful state. In this state, youknowexactlywhat todo, and youdo therightthing.Inthisstate,yourspiritandyourheartarealive,andthebestofyoucomesout.Nothingfeelslikeaproblem,andeverythingflows.Youfeelnofearorfrustration.You’reinharmonywithyourtrueessence.

A Suffering State.When you’re feeling stressed out, worried, frustrated,angry, depressed, irritable, overwhelmed, resentful, or fearful, you’re in asuffering state.We’ve all experienced these and countless other “negative”emotions,evenifwe’renotalwayskeentoadmitit!AsImentionedearlier,most achievers much prefer to think they’re stressed than fearful. But

“stress”isjusttheachieverwordforfear!IfIfollowthetrailofyourstress,it’lltakemetoyourdeepestfear.

Sowhatdetermineswhetheryou’reinabeautifulstateorasufferingstate?Youmightassumethatitdependsmostlyonyourexternalcircumstances.Ifyou’rerelaxingonabeachandeatingicecream,it’seasytobeinabeautifulstate!Butinreality,thementalandemotionalstateinwhichyouliveisultimatelytheresultofwhereyouchoosetofocusyourthoughts.

I’llgiveyouanexamplefrommyownlife.Forthelast25years,I’veflownback and forth between America and Australia several times a year.NowadaysI’mprivilegedtohavemyownplane,whichisabitlikehavingahigh-speedofficeinthesky.Forbetterorforworse,there’snoneedevertodisconnectfromwork!ButIvividlyrememberthedreadIusedtoexperiencewhen I’d sit down on a commercial flight to Australia and wonder how Icould possibly livewithout connection to emails and texts for the next 14hours!Howcouldmybusinessespossiblysurvivewithoutme?

Then,onemagicalday,IwassittingonaQantasAirwaysflighttoSydneywhen the captain proudly announced that the plane had internationalInternetaccess.Allaroundme,peoplestartedcheering,clapping,andhigh-fivingoneanother!ItwasasifGodhaddescendedfromonhighandenteredtheplane!Ididn’tstandupanddoajig,butIhavetoconfess:inmymind,Iwasclapping,too.Andthen,after15minutesofgiddydelight,doyouknowwhathappened?We lost Internet access. Itdidn’twork for the restof theflight,andit’sprobablystillnotworkingafteralltheseyears.

So how do you think the passengers reacted? We were crushed! Oneminute, we’re euphoric. The next minute, we’re cursing our terriblemisfortune. What’s amazing is how quickly our perspective changed:moments earlier, Internet access had been a miracle; now it was anexpectation!Allwecould thinkaboutwas that theairlinehadviolatedourinalienable right to Internet access—a right that hadn’t existed until thatveryday.

Inouroutrage,weinstantlylostsightofthewonderthatwewereflyingthrough the air like a bird, crossing the globe in a matter of hours, andwatchingmoviesorsleepingasweflew!

Isn’titridiculoushowjadedweareandhowupsetweallowourselvestobecome?Whenitrainsonourparade,whenwedon’tgetwhatwewantor

expect, we’re so quick to give up our happiness and sink into a state ofsuffering.

Everyonehashisorherownflavorofsuffering.Sohere’smyquestionforyou: What’s your favorite flavor of suffering? Which energy-sappingemotiondoyouindulgeinmost?Isitsadness?Frustration?Anger?Despair?Self-pity?Jealousy?Worry?Thespecificdetailsdon’treallymatterbecausethey’reallstatesofsuffering.Andallthissufferingisreallyjusttheresultofanundirectedmindthat’shell-bentonlookingforproblems!

Think for a moment about a recent situation that caused you pain orsuffering—a time when you felt frustrated or angry or worried oroverwhelmed. Whenever you feel emotions like these, your sense ofsuffering is caused by your undirected mind engaging in one or more ofthreeparticularpatternsofperception.Consciouslyorunconsciously,you’refocusedonatleastoneofthreetriggersforsuffering:

1. Suffering trigger is “Loss.” When you focus on loss, you becomeconvinced that a particular problem has caused or will cause you to losesomethingyouvalue.Forexample,youhaveaconflictwithyourspouse,anditleavesyoufeelingthatyou’velostloveorrespect.Butitdoesn’thavetobesomething someone else did—or failed to do—that caused you to perceivethesenseof loss.Thissenseof losscanalsobetriggeredbysomethingyoudidorfailedtodo.Forexample,youprocrastinated,andnowyou’velostabusinessopportunity.Wheneverwebelieveintheillusionofloss,wesuffer.

2.Sufferingtriggeris“Less.”Whenyoufocusontheideathatyouhaveless or will have less, you will suffer. For example, you might becomeconvinced that because a situation has occurred or a person has acted acertainway, youwillhave less joy, lessmoney, less success,or someotherpainful consequence. Once again, less can be triggered by what you, orothers,doorfailtodo.

3.Suffering trigger is “Never.”Whenyou focuson the ideaorbecomeconsumed by a belief that you’llnever have something you value—such aslove, joy, respect, wealth, opportunity—you’re doomed to suffer, you’llneverbehappy,you’llneverbecomethepersonyouwanttobe.Thispatternof perception is a surefire route to pain.Remember: themind is always

trying to trick us into a survival mindset! So never say never! Forexample, because of an illness, an injury, or because of something yourbrotherdidorsaid,youmightbelievethatyou’llnevergetoverit.

These threepatternsof focusaccount formost, ifnotall,ofoursuffering.Andyouknowwhat’scrazy?Itdoesn’tevenmatteriftheproblemisrealornot!Whateverwe focuson,we feel—regardlessofwhatactuallyhappened.Have you everhad the experienceof thinking that a frienddid somethinghorribletoyou?Youbecametremendouslyangryandupset,onlytodiscoverthatyouweredeadwrongandthatthepersondidn’tdeserveallthatblame!In the midst of your suffering, when all those negative emotions wereswirlinginsideyourhead,therealitydidn’tmatter.Yourfocuscreatedyourfeelings,andyourfeelingscreatedyourexperience.Notice,too,thatmost,ifnot all, ofour suffering is causedby focusingorobsessing aboutourselvesandwhatwemightlose,havelessof,orneverhave.

Buthere’s thegoodnews:onceyou’re awareof thesepatternsof focus,you can systematically change them, thereby freeing yourself from thesehabits of suffering. It all starts with the realization that this involves aconsciouschoice.Eitheryoumasteryourmindor itmastersyou.Thesecret of living an extraordinary life is to take control of the mind,sincethisalonewilldeterminewhetheryouliveinasufferingstateorabeautifulstate.

INTHEEND,IT’SALLABOUTTHEPOWEROFDECISIONS

Ourlivesareshapednotbyourconditions,butbyourdecisions.Ifyoulookbackonthelast5or10yearsI’dbewillingtobetthatyoucanrecalladecision or two that has truly changed your life.Maybe it was a decisionaboutwheretogotoschool,whatprofessiontopursue,orwhoyouchosetoloveormarry.Lookingbackonitnow,canyouseehowradicallydifferentyourlifewouldbetodayifyouhadmadeadifferentdecision?Theseandsomany other decisions determine the direction of your life and can changeyourdestiny.

Sowhat’sthebiggestdecisionyoucanmakeinyourliferightnow?Inthepast,Iwouldhavetoldyouthatwhatmattersmostiswhoyoudecide

tospendyourtimewith,whoyoudecidetolove.Afterall,thecompanyyoukeepwillpowerfullyshapewhoyoubecome.

Butoverthelasttwoyears,mythinkinghasevolved.WhatI’vecometorealizeisthatthesinglemostimportantdecisioninlifeisthis:Areyoucommittedtobeinghappy,nomatterwhathappenstoyou?

Toputthisanotherway,willyoucommittoenjoyinglifenotonlywheneverythinggoesyourwaybutalsowheneverythinggoesagainstyou, when injustice happens, when someone screws you over, whenyou lose something or someone you love, orwhen nobody seems tounderstandorappreciateyou?Unlesswemakethisdefinitivedecisionto stop suffering and live in abeautiful state,our survivalmindswillcreatesufferingwheneverourdesires,expectations,orpreferencesarenotmet.Whatawasteofsomuchofourlives!

Thisisadecisionthatcanchangeeverythinginyourlife,startingtoday.But it’s not enough just to say that you’d like tomake this changeor thatyourpreferenceistobehappynomatterwhat.Youhavetoownthisdecision,dowhateverittakestomakeithappen,andcutoffanypossibilityofturningback.Ifyouwant to take the island,youhave toburn theboats.Youhavetodecidethatyou’re100%responsibleforyourstateofmindandforyourexperienceofthislife.

What it really comes down to is drawing a line in the sand today anddeclaring,“I’mdonewithsuffering.I’mgoingto liveeverydaytothefullestandfindjuiceineverymoment,includingtheonesIdon’tlike,BECAUSELIFEISJUSTTOOSHORTTOSUFFER.”

BEWAREOFGODZILLA!

There are many different techniques you can use to take control of yourmindandachieveabeautifulstate.ThisissuchanimportantsubjectthatIplan towrite anentirebookabout it.Butyoudon’tneed towait tobeginthislife-changingjourney.Youcandeciderightnowthatyouwillnolongersettleforalifethat’slessthantheoneyoudeservetofeelandexperience.Allyouhavetodotochangeyourlifeforeveriscommitinyourheartandsoultofindsomethingtoappreciateineverymoment.Thenyouwillexperiencetherealwealthofongoinghappiness!

Areyouupformakingthisboldandbrilliantdecisionrightnow?!Ifso,let’s support you by reviewing two simple techniques that I’ve found

enormouslyhelpfulinstayingonthiscourse.ThefirsttooliswhatIcall“the90-secondrule.”WheneverIstartto

suffer,Igivemyself90secondstostopitsothatIcanreturntolivinginabeautifulstate.Soundsgood,right?Buthowdoyouactuallydoit?

Let’ssayI’mhavinganintenseconversationwithanemployeeatoneofmy companies and discover that he or she hasmade amistake that couldcauseanarrayofproblems.Naturally,mybrainleapsintodangerdetectionmode, launches that ancient survival software, and starts bombarding mewith thoughts about all the ways I and our whole teammight suffer as aresult.Inthepast,Icouldhaveeasilybeensweptupinawhirlwindofworry,frustration,oranger—amaelstromofmentalsuffering!

Buthere’swhatIdonow.AssoonasIfeelthetensionrisinginmybody,Icatchmyself.AndthewaythatIcatchmyselfisreallysimple:Igentlybreatheandslowthingsdown.Istepoutofthesituationandstarttodistance myself from all those stressful thoughts that my brain isgenerating.

It’snatural for these thoughts to arise, but they’re just thoughts.Whenyouslowdown,yourealizethatyoudon’thavetobelievethesethoughtsoridentifywiththem.Youcanstepbackandsaytoyourself,“Wow,lookatthatcrazythoughtgoby!Theregoesthatcrazymindagain!”Whyisthishelpful?Becausetheproblemisn’ttheexistenceofournegative,destructive,and limiting thoughts—everyone has those!What hurts us is the habit ofbelievingthosethoughts.Forexample,haveyoueverfoundyourselfgettingsomadatsomeonethatyoustartedtothink,“Man,Ireallywanttothrottlethisguy!Icouldkillhim!”I’mguessingthatyoudidn’tactuallydoit.Why?Becauseyoudidn’tbelievethethought.Atleast,Ihopeyoudidn’t!

OnceI’vedetachedmyselffromtheseunwantedthoughts,Istarttofocusmymindon finding something to appreciate.The survival brain is alwayssearchingforwhat’swrong,butthere’salwayssomethingtoappreciate.AsIalwayssay,“What’swrongisalwaysavailable...butsoiswhat’sright!”Maybe it’s the simple fact that I’m alive andwell, that I’m still breathing!Maybe it’s the fact that the person who made the mistake is a beautifulhumanbeingwhoworkshardandhasthebestintentions.Maybeit’sthefactthatIhavetheawarenesstoseethatI’msuffering,whichgivesmetheabilitytostopandletitgoimmediately.

It doesn’t matter what you appreciate. What matters is that byshifting your focus to appreciation, you slow down your survival

mechanism. Love, joy, and giving, will all trigger the same positivetransformation.Thisshiftinyourfocuscreatesspaceforyourspirittoenter thegame, soyoudon’tget stuck insideyourhead. Ifyoukeepdoing this with real consistency, you actually rewire your nervoussystem,trainingyourmindtofindthegoodineverysituation,soyourexperienceoflifeisoneofthankfulnessandjoy.

Andyouknowwhat’smiraculous?Beforeyouknowit,youfeelfree.Youletgoandstarttolaughatthingsthatusedtodriveyounuts.Thismakesfora happier life and healthier relationships, while also helping you to thinkmore clearly and make smarter decisions. After all, when you’re stressed,angry, sad, or fearful, you’re not likely to find the best solutions. Whenyou’re inabeautiful state, theanswerscomemoreeasily. It’s like tuningaradio to the right frequency so the static disappears and you can hear themusicloudandclear.

WhenIfirstbegantousethistechnique,Ishouldhavecalleditthefour-hourruleorthefour-dayrulebecauseitsometimestookmesolongtostopsufferingandregainmyequilibrium!Butit’slikeanyskill:themoreyouuse it, the better you get. I’ve found that it really helps when I catchmyself quickly, insteadof letting thosenegative thoughts linger for longerthan90seconds.Why?Becausethebesttimetokillanymonsteriswhenit’slittle. You don’t want to wait until it’s Godzilla and it’s devouring yourentirecity!

I’m still not perfect at this, and there are certainly times when I gethooked.But I use the 90-second rule so often that it’s gone frombeing adisciplinetobecomingahabit.Thisonetechniquehasgivenmeanamazingleveloffreedomfromallthosedestructiveemotionsthatusedtorobmeofmy joy and peace ofmind.Those emotions still come, but they disappearquickly, overwhelmed by the power of appreciation and enjoyment. As aresult,lifeismorebeautifulthanever!

Whatyou’llalsofindisthatyou’remuchmorepresentforotherpeoplewhen you’re not caught up in your own thoughts of loss, less, and never.Whenyou’re in a beautiful state, you cangive somuchmore to everyoneyoulove.

And you know what? There’s power in happiness. There’s a happinessadvantage in life. Happiness is an advantage in your relationships, yourbusiness,yourhealth,andineverythingyoutouch.Livinginabeautifulstatenomatterwhatistheultimatefreedomandtheultimategiftthatyoucan

givetothoseyoulove.It’stheexperienceofabsoluteabundance—andabundanceofjoy!—thatistruewealth.

Evenbetter,youcanpossessthisabundancenow,insteadofhavingtowait until you acquire a certain amount ofmoney! And the goodnewsis,thisdecisionrestsentirelyinyourhands.Youalonecangiveyourselfthishappinessedge.

UNCHAINYOURHEART:THEPOWEROFALIGNMENT!

Toovercomefear,thebestthingistobeoverwhelminglygrateful.—SIRJOHNTEMPLETON

ThesecondtoolI’dliketosharewithyouisasimpletwo-minutegratitudemeditation that I’ve taught to tens of thousands of people inmy seminarsoverthelastyearorso.I’verecordedthismeditationandmadeitavailableonlineatwww.unshakeable.comandontheUnshakeablemobileapp,soyoucanlistentotheaudiowithyoureyesclosed.

But I’m also giving you a written version below. We all absorbinformation in different ways. So youmay prefer to read this over, get ageneral sense of the instructions, and then do this brief meditation frommemory,without the audio. I’ve found that reading it once to understandwheretheprocessisgoingisvaluable,butit’smucheasiertolistentoit,soyou can stay out of themind and in yourheart.Eitherway, I hope you’lldiscover that it’s a powerful technique for aligning your mind and yourheart,quicklyplacingyouinabeautifulstate.

But first, letmegiveyouaquickwordofexplanationabout the sciencebehindthismeditation.Ifyouwenttoahospitalandwehookedyouuptoanelectroencephalogram (EEG) and an electrocardiogram (EKG), we couldmeasuretheelectricalimpulsesinyourbrainandinyourheart.Whatyou’dseewhenyou’restressedoutandsufferingmentally isthatthelinesontheEEGandtheEKGwouldlookjagged.Butthejaggednessfromyourheart’srhythmswouldlooknothinglikethejaggednessfromyourbrain’srhythms.Inotherwords,they’reoutofsync.

But scientific studies have shown that this short meditative focus candramatically alter those electrical impulses in your brain and your heart.What’smiraculousisthatthejaggedlinesontheEEGandtheEKGtendtobecomeroundedafterthismeditation.What’smore,thelinesfromtheheartand the brain become almost identical.Why? Because the mind and theheartarenowoperatingasone.Thisiswhathappensnaturallywhenyou’reinastateofflow.

Thesimplegoalof thismeditation is tochangeyouremotionalstatebyfilling you with a sense of gratitude, and to use that emotion to solvewhateverchallengehasbeencausingyoutosuffer.Whygratitude?Becauseyoucan’tbegratefulandangryatthesametime.Youcan’tbegratefulandfearfulatthesametime.Ifyouwantamiserablelife,there’snobetterwaytoachieve it than to focus your mind on anger and fear! But if you want ahappylife,ifyouwanttoliveinabeautifulstate,nothingworksbetterthantofocusongratitude!

Soifyou’rereadytotest-drivethistechnique,gototheaudionoworreadthestepsbelow.Here’swhatI’dlikeyoutodo:

Step1.First,Iwantyoutopickanaspectofyourlifewhereyouhavesome“unfinishedbusiness”:somethingyouneedtochangeorresolveinyourprofessionalorpersonal life;an issueyou’vebeenputtingoffbecause dealing with it would be upsetting, frustrating, or stressful.Maybe it’s a problem at work or a conflict or difficulty with a familymember.On a scale of 0 to 10 (with 10 being themost upsetting),wherewouldyourankit?Ideally,pickanissuethatranksatleasta6ora7,sothatyoucanfeelthetrueimpactofthissimpletechnique.

Step2.Nowset aside that situation for amoment andplacebothofyourhandsonyourheart.Feelitbeating.Iwantyoutocloseyoureyesandbreathedeeply into yourheart. And as you breathe, feel the bloodandtheoxygenflowingintoyourheart.Feelthepowerofyourheart.Findthe strength of your heart.What are you grateful for that your heart hasguidedyoutodo,enjoy,appreciate,orgive?

Step3.Asyoubreathedeeply,feelgratefulforyourheart.Feelwhatagiftyourheartis.Everydayitbeatsahundredthousandtimesandpumpsblood through60 thousandmilesofbloodvessels.Youdon’t evenhave tothink about your heart, and yet it’s always there for you, even while yousleep.It’stheultimategift,andyetyoudidn’thavetoearnit.Itwasgiventoyou.Somethinglovedyousomuchthatitgaveyouthisheart.Andaslongasitbeatsinyourchest,youlive.Whatagift!Feelthepowerofthatgiftnow.

Step4.Asyoubreatheintoyourheart,feelingdeepgratitudeforyourheart,Iwantyoutophysicallyfeelyourheartbeat.Andasyou’redoingthis,Iwantyoutothinkofthreeexperiencesinyourlifeforwhichyoufeelincredibly grateful—and you’re going to step into those three experiencesone at a time.They could be big or small.They could date back to yourchildhood,ortheycouldbefromthisweekoreventoday.

Step5.Iwantyoutothinkofthefirstexperienceandstepintoitrightnowasifyou’rethere,insidethatmemory,relivingit.Seewhatyousawin that moment of pure gratitude: feel it, breathe it, own it, and feel sograteful for that moment. Fill yourself up with gratitude because whenyou’regrateful,thereisnosadness,thereisnohurt,thereisnoanger.You

can’t be grateful and angry simultaneously. You can’t be grateful andworriedsimultaneously.Ifwecultivategratitude,wehaveadifferentlife.

Nowthinkofasecondexperience,anothermomentforwhichyoucanfeelsograteful—somethingthatfeltlikeapuregiftinyourlife,amiracle,anactofgrace,oflove.Andfillyourselfupwiththebeautyandthe joy of that experience. Fill yourself up with deep gratitude for thatmoment,takingtimetofeelitandappreciateitfullyforatleast30seconds.

Next, Iwant you to thinkof a thirdmoment forwhich you couldfeelsograteful.Butdon’tjustthinkaboutit.Stepintothatexperience,stepintothatenvironment,andfeelwhatyoufeltinthatmoment.Savorit.Fillyourselfupwiththejoy,themiracle,thegiftofthatexperience.

Step6.AndnowIwantyoutothinkofonemoreexperience,butthistime I want it to be an experience that was a coincidence. It wasn’tsomething you’d planned for, and yet it brought such joy into your life.Maybethatchanceexperienceledtoyourmeetingapersonyouloveorwhochangedyourlifeorwhoenrichedyourlife.Ormaybeitledtoanewcareerchoice, or brought you new opportunities for growth or happiness. Thiscoincidence happened just for you. Was it a coincidence, or were youguided?

Ihaveacorebeliefthathasoftenpulledmeoutofpainandintomeaning.Inmy soul, I believe that life is always happening for us, not to us!Eventhemostpainfulsituationscauseustogrow,toexpand,todeepen,ortocaremore.I’msuretherehavebeenevents inyour lifethatyou’dneverwanttogothroughagain.Yetwhenyoulookbackonit5or10yearslater,yousee thehigherpurpose in itall.Youseehowlifewasactuallyworkingforyouinthatmoment.Eventhosemomentsofsufferingturnedouttobegreattriggersforgrowth.

Take amoment to give thanks towhatever you believe has givenyouthesegifts.FillyourselfupwithgratitudetotheuniverseorGodorwhateveryoubelievein.Andtrustinthisuniverse,whichisbillionsofyearsold,andwhichhasalways takencareofyou,evenwhenyoufelt thatyou’dlostyourway!

Step 7. And now, as you breathe into your heart and feel thistremendous gratitude, I want you to remember the issue that wasupsettingyouearlier.Asyoustay inthisbeautifulstate, feelingfilled

with gratitude, I want you to ask yourself a simple question: “All Ineed to remember about that situation, all I need to focus on, all Ineedtobelieve,allIneedtodois...what?”

Don’tfilter.Yourfirst,instinctiveheartfeltthoughtsareusuallytherightones.Asyouremaininthisbeautifulstate,askyourselfthatquestionagain:“All I need to remember about that situation, all I need to focus on, all Ineedtobelieve,allIneedtodois...what?”

And your heart knows the answer, doesn’t it? Yes, it does. Trust yourheart.Itknowswhattodo.Breatheintoyourheartandgivethanksfortheanswer.Your heart andmind aligned are a powerful force.When unified,they’reunbeatable.

It’smuch easier to listen to thismeditation than to read it, so please takeadvantage of the app audio. As I mentioned earlier, I’ve guided tens ofthousands of people through thismeditation. At this point, I ask them toraiseahandiftheyknowwhattodointhissituationthatusedtostressthemout.Ithenaskthemtoopentheireyesandlookaroundtheroomtoseehowmanypeoplehaveraisedtheirhands.It’susuallyabout95%oftheaudience.Insomecases, thesituationrequiresmoreintensework.Butthissimple2-minutemeditationisjustoneofmanytechniquesIcanusetohelpthem.

But here’s the broader point I’mmaking: you and I have the power tovaultourselvesoutofasufferingstateandintoabeautifulstate in justtwominutes.How?Byfocusingonwhatweappreciate.It’ssosimpleandyetsoprofound: appreciation, enjoyment, and love arenothing less thantheantidotestosuffering.It’sallaboutshiftingyourfocusawayfromthe illusion of loss, less, or never, and engaging your gratitude,appreciation,andloveforwhatyoualreadyhaveinyourlife!

Take all of your negative thoughts and all of your negativeemotions,tradethemforappreciation,andyourwholelifechangesinaninstant.

ADREAMOFHAPPINESSANDAVISIONOFHOPE

Yesterdayisbutadream,Andtomorrowisonlyavision.Buttodaywelllivedmakeseveryyesterdayadreamofhappiness,Andeverytomorrowavisionofhope.

—KĀLIDĀSA,Sanskritdramatistandpoet,ca.fifthcenturyCE

Now,I’mnotsayingthatyou’llneversufferorbestressedagain.YouknowaswellasIdothatlifeisfullofextremecircumstances.Nomatterhowsmartweareorhowrichweare,noneofusisimmunetohealthissues,thepainoflosingpeoplewelove,andamyriadofotherdifficulties.

Ican’tcontrolwhat’sgoingtohappentoyouoryourfamilyinthefuture.I can’t control what will happenwith the financialmarkets, including thepossibility of a crash that lasts longer and is more severe than anyoneexpects. I wish I could . . . But I promise you this: if you make thedecision to master your own mind, you’ll be mentally equipped tohandlewhateverchallengescomeyourway.

Somepeopleareexpertsonposttraumaticstress.ButI’vespentalifetimefocusing on the miracle of posttraumatic growth. I study resilient peoplewho’ve been through the worst situations and still end up creatingmagnificentlives.

Afewyearsago,ImetanincrediblewomannamedAliceHerz-Sommer,abrilliant pianist born in Czechoslovakia in 1903. During World War II,

Aliceandhersonweredeportedandsenttoaconcentrationcamp.Shewasforced to give piano recitals in the camp—and somehow pretend that shewas gladly performing for her Nazi captors. Otherwise they would havekilled her child. The extraordinary story of how Alice survived theseexperiences with her spirit intact is recounted in a biography entitled AGardenofEdeninHell.

WhenImetAlice,shewas108yearsoldandlivinginEngland.Shehadenduredsomuchtragedy,yetshewasoneofthemostpositiveandinspiringpeopleI’veeverencountered,fulloflifeandjoy.Shelivedonherownandinsistedontakingcareofherself.Shestillplayedpianoandsangeveryday.Whatstruckmemostwasthateverythingseemedbeautifultoher.

How amazing is that? To me, it’s the ultimate reminder that evensomeonewhohasbeenthroughhellcanbefilledwithhappiness.Iwasmostdeeply moved by her description of her time in the concentration camp.Alice told me that every moment of her life—including those years—hadbeenagift.

When you meet people like this, you never forget them becausethey possess such an outstanding ability to live in appreciation, awe,andgratitude.Despitealloftheirchallenges,theyradiateloveandjoy.Andthentherearethosepeopleyouwanttoslapintheheadbecausetheyfreakoutwhenthemilkintheircaffélatteisn’thotenough!

Sowhatareyougoingtodo?Areyougoingtojoinmeinmyquesttoexperience trueand lastingwealth todayby trainingyourmind tofind joy in every moment? It’s your choice whether to live in asufferingstateorabeautifulstate.Youhavethecapabilitytobecomeamasterofenjoyment,tofillyourmindwithappreciation,tobehappynomatterwhat.Bestofall,thejoyinyouwillaffecteveryonearoundyou.

Ifyou’reready toburntheboatsandtake the island, I recommendthatyouwriteanoteexplainingyourdecisiontoliveinabeautifulstateandwhyyou’vemade it. Then send this note to three people you respect and askthemtotellyou(gently!)iftheyeverseeyouslippingintoasufferingstate.Youcanalsosendthenotetomeatendsufferingnow@tonyrobbins.com.I’dbetouchedtohearthatyou’vemadethisdecision,whyyoumadeit,andhowit’senrichedyourlife.

Bywritingdownyour decision, you crystalize it,while also committingyourselfpubliclyinawaythatwillhelpyoustaythecourse.Evenbetter,you

maywell inspire the recipients of your note to follow you inmaking thiscommitmenttoliveinabeautifulstate.

Everyoneneedsavision.Mineissimple.I’mgoingtoliveinabeautifulstateeverydayofmylife—andwhenIgetofftrack,Iwillsnapmyselfbackimmediately.ThiswillenablemetobringmorebeautytothelivesofothersandallthoseIlove.Ihopeyou’lljoinmeinthismission.Becauseletmetellyou: living in a beautiful state is the greatest prize, the real jackpot, theultimate treasure. This is rarer—and a much greater achievement—thanbeingamillionaireorbillionaire.Ifyoucanlearntoridetherollercoasteroflifeandenjoyboththeupsandthedowns,thenyouareutterlyunshakeable.

THESECRETTOLIVINGISGIVING

Istartedthischapterbytalkingaboutrealwealth.So,aswecometotheendofourtimetogether,whatisit?Andhowcanyoutrulyexperienceiteveryday?When I interviewed Sir JohnTempleton, one of the first greatinternational investors to become a billionaire, I asked him, “What’sthesecrettowealth?”Hesaid,“Tony,it’swhatyouteach.”Ilaughedandsaid,“Iteachalotofthings.Whichthing?”

With a big smile on his face, he replied, “Gratitude!You know,Tony,we’vebothmetpeoplewhohaveabilliondollarsandthey’remiserable.Sothey’retrulypoor.Andwebothknowpeoplewhoseeminglyhavenothing,yet they’re grateful for the breath of life, for everything. So they’re richbeyondcompare.”

Inourheartsweallknowit’snotmoneythatmakesusrich.AsI’msureyou’vefound,thegreatesttreasuresareneverfinancial.It’sthosemomentsofgrace when we appreciate the perfection and beauty of it all. It’s thosemomentswhenwefeelsomethingeternalandinvincibleinsideus,thecoreof our spirit. It’s the loving warmth of our relationships with family andfriends.It’sfindingmeaningfulwork.It’sthecapacitytolearnandgrow,toshareandserve.

Forme, it’s also the joyofhelpingpeople tobreak through their limitsand seeing them light up as they rememberwho they really are andwhatthey’re really capable of achieving. It’s the delight of seeing their livesbecome a celebration instead of a battle. It’s the magical feeling thatsomehow I’ve made a little difference, that I’ve played a role in theawakening of amarvelous and unique human being. It’s appreciating that

everythingI’vegonethroughhasservednotonlymebutothers—thateventhe deepest pain I’ve experienced has led to something beautiful. In fact,there can be no greater gift than for your life to have meaning beyondyourself.

Thisistheultimategamechanger.Findsomethingtoserve,acauseyoucanbepassionateaboutthat’sgreaterthanyourself,andthiswillmakeyouwealthy.Nothingenrichesusasmuchashelpingothers.

Peopleoftensaythey’llgivewhenthey’rerich.Butthetruthis,youcanstartgivingevenwhenyouhaveverylittle.Ifapersonwon’tgiveadimeoutofadollar theywillnevergive$100,000outof$1million!Startnowwithwhateveryouhave,andIcanpromiseyoublessingsbeyondcompare!Thispsychologicalshiftfromscarcitytoabundancemakesyouwealthyandbringsyouaglorious senseof freedom. Inmaking this shift, you’re trainingyourbrain to recognize that there’s somuchmore available for you to give, toappreciate, and to love. And remember: It’s not just money that you candonate. You can also give your time, your talent, your love, yourcompassion,yourheart.

MydailyprayeristobeablessinginthelivesofallthoseImeet.Ifyoumakethetoolsandprinciplesinthisbookapartofyourcore,you’llbeableto receive—and give—more than you could ever imagine. As thisextraordinary abundance flows to you and from you, you will feel trulyblessed—andyouwillbecomeagreaterandgreaterblessing in the livesofothers.Thisiswhatitfeelsliketopossessrealwealth.

I’m thankful that you’ve allowedme theprivilegeof spending this timewithyou.Isincerelyhopethecontentsofthisbookhavebeenhelpfultoyouonyourjourneytofinancialfreedom.Perhapssomedayourpathswillcross,andI’llhavetheprivilegeofhearingthestoryofhowthisbookhashelpedyouacceleratethebuildingofthelifeyoudesireanddeserve.

Pleasereturn to thesepageswheneveryouneeda reminderofwhoyoureallyareandallthatyoucancreate.Rememberthatyouaremorethanthemoment. You are more than your economics. You are more than anychallenging timeyoumay face.You are soul, spirit, and essence—andyouaretrulyunshakeable.Godblessyou!

—TonyRobbins

I. “By wintertime, problems with paranoia, delusions and looping, insomnia, memory, and highcortisollevels—justtonameafew—weresettlinginhard.Psychotherapyandothermedicalhelpwasbecoming a constant in trying to manage and solve these seemingly disparate conditions,”http://www.neurology.org/content/87/13/1308.full.

Creative Planning is a nationally recognized leader in the wealthmanagement community focused on providing clients with customizedinvestment plans and comprehensive wealth management services. Ourfierce commitment to independence means you get unbiased advice, notsales.No hidden fees, commissions, or proprietarymutual funds to cloudour vision or promote conflicts of interest.We are singularly focused onprovidingadviceandsolutionsthatchampionyourbestinterests.

Belowareafewoftheaccoladeswehaveearnedovertheyears:

•numberonewealthmanagementfirmintheUnitedStates(CNBC,2014,2015); • number one independent advisor in America (Barron’s, 2013,2014,2015);and•numberone investmentadvisor in theUnitedStatesforten-yeargrowth(Forbes,2016).

Wecurrentlymanage$22billionandgrowingforclientsacrossall50states.www.getasecondopinion.com

ACKNOWLEDGMENTS

AsIlookbackonsome40yearsofthismission,Iseethefacesofsomanyextraordinary human beings. Briefly here, I’d like to express my deepgratitudetothosewhohavetouchedthisparticularproject.

First,my family, of course.Thisbegins andendswithmywife,BonniePearl—mySage.Iloveyou.Igivethanksforthegracethatbreathesourloveandourlife.Tomyentirefamilyandallofourextendedfamily,Iloveyou.

To my friend Peter Mallouk, I’m forever grateful for that fatefulconversation you had with me in LA. I couldn’t have asked for a morebrilliant,honest,andsincerehumanbeingforabusinesspartner.Thankyou.

To Josh, thanks for goingon this journeywithme again.Creating andlaughing,I’velovedeverymomentofourtimetogether,andI’msoproudofourwork.ToAjayGuptaandtheentireCreativePlanningteamandtoTomZgainer,mysinceregratitude.

To my core team at Robbins Research International—Sam, Yogesh,Scotty,Shari,Brook,Rich,Jay,Katie,Justin,andalltherestofourfiercelyloyalandmission-drivenexecutivestaff—Icountmyblessingsforyoueveryday. Thanks to Kwaku and to Brittany andMichael. And I couldn’t havepulledthisbookoffwithoutmyrightarmMaryBuckheitandmywickedlysmartcreativeteam,especiallyDianeAdcock.Iloveyou;thankyou,ladies.

To Jennifer Connelly, Jan Miller, Larry Hughes, thank you. To allpersonnel at SanDiegoHQ and all our partners thatmake up theTonyRobbins Companies, thank you for all you do in our quest to createbreakthroughsineveryareaoflife.

Mylifehasbeenpowerfullyshapedbydeepfriendshipswithfourbrilliantmen.TomyrolemodelsPeterGuber,MarcBenioff,PaulTudorJones,andSteveWynn,thankyouforyourloveandforbeingsuchbrilliant,creative,impeccablehumanbeings.Tobeyourfriendissuchagift.EachdayIspendwithyouisanotherdayIaminspiredtotakemygametoanotherlevel.

Through events and appearances around the world, I am afforded theopportunity tomeet hundreds of thousands of gorgeous people each year

who touchmy life deeply. But this book, at its core, and its predecessor,MONEYMastertheGame,wasuniquelyshapedbyagroupofmorethan50extraordinary souls whose insights and strategies have been massivelyimpactfultomeandtoallwhoreadthesepages.Mydeepestthanks,respect,andadmiration for thosewhosharedtheirprecious timeand life’swork inour interview sessions. I am eternally grateful. To RayDalio, Jack Bogle,SteveForbes,AlanGreenspan,MaryCallahanErdoes,JohnPaulson,HarryMarkowitz, and Howard Marks: your wisdom is unrivaled, I am trulyinspiredbyyourmastery,andI’mprivilegedtolearnfromeachoneofyou.Thankyou.

Morethanks toT.BoonePickens,KyleBass,CharlesSchwab,Sir JohnTempleton,CarlIcahn,RobertSchiller,DanAriely,BurtonMalkiel,AliciaMunnell,TeresaGhilarducci,JeffreyBrown,DavidBabbel,LarrySummers,DavidSwensen,MarcFaber,WarrenBuffett,andGeorgeW.Bush.Thanksto all those who provided interviews or who gave of their time at myPlatinumPartnershipWealthMasteryevents,andforthosewhohavesharedyour insights over the years and who have served as examples of what ispossible—youallinspireme,andyourinsightsareechoedinthesepagesinmanyways.

Thanksagain toallmypartnersatSimon&Schuster,namely JonathanKarpandBenLoehnen.ToWilliamGreenforyourintelligenceandBritishhumor,andmostofall,forjoiningusonthisprojectandforcaringsodeeplyabouteverylastwordandemdash.ThanksalsotoCindyDiTiberioforyourcommitmenttothismanuscript.

Ofcourse,themissionofthisbookistoservenotonlythosewhowillbereading. And so my deepest thanks to everyone at the Anthony RobbinsFoundation and our strategic partners, namely Dan Nesbit at FeedingAmericaforhelpinguscoordinatethisnever-before-attemptedapproachtoprovide food to our hungry neighbors. The distribution of my initialdonationofonehundredmillionmealsandtheeffortsofallthoseworkingtirelessly tosecurematchingfundsthatwillenablethedeliveryofabillionmealsoverthenext8years.

Tothegracethathasguidedthisentireprocess,andtoallthosefriendsandteachersalongthepathofmylife—toomanytomention,somefamousandsomeunknown,whoseinsights,strategies,example,love,andcaringaretheshouldersIhavehadthehonortostandon.Onthisday,Igivethanksto

youall,andIcontinuemynever-endingquest toeachdaybeablessing inthelivesofallthoseIhavetheprivilegetomeet,love,andserve.

TONYROBBINSCOMPANIES

TonyRobbins is a global entrepreneur, investor,NewYorkTimes numberone bestselling author, philanthropist, sports team owner, and theworld’snumberonelifeandbusinessstrategist.

LEADER,TEACHER,ANDLIFEANDBUSINESSSTRATEGIST

Overthelastfourdecades,morethan50millionpeoplefrommorethan100countrieshaveenjoyed thewarmth,humor, and transformationalpowerofhisbooks, audioandvideo trainings, andmore than4millionpeoplehaveattendedhisliveevents.

He has coached global leaders and presidents of nations, including BillClinton,MikhailGorbachev,andPrincessDiana.Hehashelpedtransformtopsports teams, includingthreeNBAtitle–winningteams,plus individualstandoutssuchasSerenaWilliamsandAndreAgassi.Award-winningactorsand entertainers including Leonardo DiCaprio, Hugh Jackman, AnthonyHopkins,andPitbullalsocallonhimforcoaching.

He has coached some of theworld’smost successful entrepreneurs andbillionaire businessmen, including Marc Benioff, CEO and founder ofSalesforce.com; Peter Guber, chairman and CEO of MandalayEntertainment Group, and owner of the Golden StateWarriors and LosAngeles Dodgers; and billionaire hotel and gaming mogul Steve Wynn,chairmanandCEOofWynnResorts&Casinos.

ENTREPRENEURSHIPANDINVESTING

Robbinsisafounderof,orpartnerin,31companies,12ofwhichheactivelymanages across seven different industries, with combined annual sales ofmorethan$5billion.Hiscompaniesareasdiverseasafive-starFijianisland

resort (Namale Resort and Spa) and a virtual reality company that is theexclusivepartneroftheNBAandLiveNationconcerts(NextVR).Heisalsoan ownership partner of various sports teams, such as the Los AngelesFootballClub (LAFC) andTeamLiquid—the leading organization in theworldinthegrowingeSportssector.

PHILANTHROPY

Tonyhaslongbeenanextraordinaryphilanthropistwhohasneverforgottenhis roots—specifically, the time someone provided a Thanksgiving dinnerfor his family in a time of need when he was just 11 years old. He hasprovided250millionmealsforhungryfamilies,andoverthenext8years,hewillprovideabillionmeals for those inneed throughhispartnershipwithFeedingAmerica.

Inadditiontohismissiontofeedthehungry,Robbinsprovides250,000people per daywith freshwater in India, and is targeting to hit amillionpeopleperdayoverthenext5years.RobbinshasalsopartneredwithElonMusk and other innovators by providing $1 million of the $15 millionXPrizeforEducation.HehasalsopartneredwithOperationUndergroundRailroadtofreemorethan200childrenfromsexualslavery.

AWARDSANDACCOLADES

•Worthmagazinehas twicenamedhim to itsPower100 list of themostinfluentialleadersinglobalfinance.

• He has been honored by Accenture as one of the “top 50 businessintellectualsintheworld”;byHarvardBusinessPublishingasoneofthe“top200businessgurus”;andbyAmericanExpressasoneofthe“topsixbusinessleadersintheworld”tocoachitsentrepreneurialclients.

•Fortunemagazine’s cover story calledhim“theCEOwhisperer,” forhisextraordinaryworkasthe“leadercalleduponbyleaders.”

OTHERWORKSBYTONYROBBINS

BOOKS

MONEYMaster the Game: 7 Simple Steps to Financial FreedomAwaken theGiantWithin

UnlimitedPower

AUDIOPROGRAMS

TheUltimateEdge:Weallwanttoachieveourvisionofanextraordinarylife,but most simply don’t know how or where to begin. Many lack thestrategies, tools, and inner strength tomake lasting change andmay evenhave limitingbeliefs andobstaclesholding themback.TheUltimateEdgecanhelpyouindiscoveringthestrengthinsideyoutobreakthroughbarriersand create massive results. In this powerful 3-part Ultimate Edge audioprogram,TonyRobbinspersonally instructsyoutoconnectwithwhatyoutrulywantmostandhowyoucanstarttoachieveit.Tony’s lifeandcareerhas been defined by an obsession with creating change and influencingmassiveactioninpeople’slives.NowavailableontheAppStoreandGoogleMarketplace.

DOCUMENTARY

CheckouttheNetflixdocumentaryTonyRobbins:IAmNotYourGuru.FormoreonTonyRobbinsgotowww.TonyRobbins.com.

APPENDIX

YourChecklistforSuccess:FortifyingYourKingdom—HowtoProtectYourAssets,BuildYourLegacy,andInsure

AgainsttheUnknown

Invincibilityliesinthedefense.—SUNTZU,TheArtofWar

Congratulations on taking this journey with us. I hope you feel moreprepared, informed, and fully equipped to achieve financial freedom afterreading thisbook.Asyouknownow,Unshakeable isn’t just the title—it’s away of living that can permeate every aspect of your life. Ultimately, itmeansfreedomandpeaceofmind.

Yetthetruthis,noneofushasabsolutecontroloverthefuture.Thereareavarietyofunknownsthatcouldemergetopreventyoufromenjoyingtheverywealthyouhaveworkedsohardtobuild.

•What if youareno longer able toworkdue toanunexpected illnessordisability?

• What if you get slapped with a lawsuit, putting all your hard-earnedmoneyinjeopardy?

•Whathappenstoyourmoneyifyou’reconfrontedwiththeharshrealitiesofdivorce?

•Whathappenstoyourwealthandlegacywhenyouinevitablypassaway?

Remember how we said that losers react and leaders anticipate?Anticipationcanbetheultimatepower.Andthesefinalpagesareallaboutanticipation—bothofthingsthatyouknowwillhappenandthingsthatyoupraywillnot. I know, I know, it’snot themost fun thing to sit downandplan for unlikely events or one’s eventual passing.However, therewill betremendousreliefandpeaceofmindonceyoubuckledownandbulletproofyourwealth.There’snothing like theunshakeable feelingof knowing thatyouand thoseyou lovewillneverhave toworryaboutanyexternaleventsdisturbingthequalityofyourlives.

RememberRayDalio’smantra to expect surprises?This section allowsyoutodo just that.For thesamereasons thatyoudiversifyyourportfolio,theitemsinthischecklistallowyoutoprepareforallthoseunknownsthatcouldbelurkingaroundthecorner.Plus,you’lldiscoverevenmorewaystosaveontaxes!

Think of true wealth management as the building of your personalfinancial kingdom.At the center is yourportfolio, but youmust fortify allthe areas in and around the kingdom to protect your treasure from beingdestroyed or eroded by unnecessary taxes, costly lawsuits, or governmentintervention.Andultimatelyyouwantyourheirstogetexactlywhatyouwishuponyourdeath,ortobeabletoleavealegacyofimpactandphilanthropytocausesofyourchoice.

We’ll keep this section as short as possible. This is not even really achapter. It’s designed to be a guide or checklist. In fact, there are fourdistinctchecklistsforyoutoutilizewithyourattorneyandfinancialadvisor:one for health, one for wealth, one for insurance, and one for charitablegiving.

Dearlybeloved/Wearegatheredheretodaytogetthroughthisthingcalledlife—PRINCE,“Let’sGoCrazy”

In2016,millionsoffansaroundtheworldmournedtheunexpectedlossoftheiconwecametoknowasPrince—oneofmyfavoriteartists.Accordingto theNew York Times, Prince died at 57 years young without a will.Hedidn’t set up an estate plan or take any necessary steps to protect hisestimated$300millionestate.Nowinsteadofhisassetsgoingtohisfamily,they’llbetiedupincourtforyears,andthegovernmentisguaranteedmorethan$120million,or40%ofhisestate—allbecausehefailedtoputtogetheraplan.

WhilepurplemaynotbeyourfavoritecolorandyoumightnotwinsevenGrammys,thelessonisclear.Whetherwerealizeitornot,ifwefailtoplan,weareplanningtofail.

Now, to walk you through these checklists and to make sure you canavoidthesemisstepsthathaveharmedsomanyinthepast,I’mgoingtopasstheball tomypartner,PeterMallouk,because,asyouknowbynow,he isone of the top financial advisors in the country according toBarron’s andCNBC—andanestate-planningattorneytoboot!Inthepages that follow,heprovidesyou,freeofcharge(!),thesameadvicehegiveshisownclients.

Sobe surenot tomiss anyof this.Thenbring this book to yourmeetingwithyouradvisorsandgetyourfinancialworldinorder.

TRANSFERRINGANDPROTECTINGYOURWEALTHWITHPETERMALLOUK

Holdon!BeforeyouputdownthisbookwithoneofthemanyexcusesI’veheardbefore,letmejustaddressthemstraighton:

“IDon’tReallyHaveThatMuch,SoIt’sNotImportanttoSetUpaWill”

If it’snot important,whydoyouwork?Whydoyou invest?Whydoyoubudget?Ofcoursethisisimportant,andyou’veprobablyputthisoffbecauseit seems like a hassle. It can be done quickly and inexpensively, and yourfamilydeservestobeprotected,don’tthey?

“I’mYoung,andThisStuffIsIrrelevanttoMe”

This is relevant to you if you have people you care about—a mother, afather,agrandfather,anauntoruncle—whohavenottakenthetimetosetupprotectionforthemselvesandtheirfamily.

“IHaveaLotofAssets,SoIt’sGoingtoBeaHassle”

Ifyouthinkit’sgoingtobeahassletosetupyourestateplannow,imaginewhat itwillbe likeforyour lovedones ifyoubecomeincapacitatedordie.I’m sorry to be blunt, but Imust nudge you here. If you have significantassets,youshouldbeginyourestateplanningimmediately!Thereisnotimetowaste.Noneofusknowshowmuchtimewehaveleft.Puttingthisoffcanhavecatastrophicconsequences.

“MyPersonalSituationIsComplicated”

If you thinkyour situation is complicated andwill involve toughdecisions(forinstance,childrenfrommultiplemarriages,fiveex-spouses,andsoon),

imagine what it will be like to have your estate go through probate. Theprobate court, with all the efficiency and effectiveness of a state-runprogram,willmakeallofthosetoughdecisionsforyouwithoutthebenefitofyourinput.(Ihopeyoupickeduponmysarcasm.)

“IDon’tEvenKnowWhatProbateIs.AndWhyShouldICare?I’llBeDead!”

Probate istheprocessthatacourtusestoestablishthevalidityofawill (ifthere is one) and recognize the executor. If there isnowill, the courtwillappoint an administrator of its choosing to handle the affairs required byprobate.

BettertheDevilYouKnow...

So let’s just admit that the downsides of avoiding the inevitable aremorecostly than the onetime hassle of meeting with your financial advisor orlawyer.Inthefourcheckliststhatfollow,we’lltacklesettingupmeasurestoprotect you if you fall ill, we’ll discuss your estate plan or will, we’ll talkaboutwaystoprotectyourassetswhileyou’realive,andthen,finally,we’lltalkaboutcreatingalegacyofgenerosity.

These lists are designed to be usedwith your advisor of choice. If youdon’t have a financial advisor, a tax expert, an insurance specialist, and anattorneyinyourcorner,orifyouwouldsimplylikeasecondopinion,knowthat we handle all of these areas as part of our family office services atCreativePlanning.Ifyouhaveanyquestionsorwouldlikeourguidance,feelfreetoreachusatwww.getasecondopinion.com.

Checklist1:IGotthePower

IfIamincapacitated,Ireallydon’tcarewhomakeshealthcaredecisionsforme,nordoIcarewhohandlesmyfinancialaffairs.Ifachoicehastobemade,Ithinkthegovernmentis

thebestchoicetodoallthisforme.—SAIDNOONEEVER

Ihadaclientwho,at53,despiteseemingtobeinperfecthealth,suddenlybecameunresponsive.Asherfamilyrushedhertothehospital, itwassoon

determined that she had a brain tumor. She had not set up power ofattorney,andthusherhusbandwasunabletoaccessanyofheraccountsandgetherdisabilitybenefitsactivated.Shepassedawayshortlythereafter,neverhavingregainedconsciousness,andthefamilysoonlearnedthatshehadnotsetupherwill,leadingherestatetogointoprobate.

Thethreeitemsonthischecklistcouldhavebeentakencareofwithafewsimple decisions. This is not complex stuff. Any qualified attorney canquickly handle these core essentials, and these documents would haveprotectedmy client’s family.Here’s what youmust do, if nothing else, toprotectyouandyours.

DurablePowerofAttorneyforHealthCare(HealthCareProxy)

What if you or your spouse suddenly become incapacitated and are nolonger able to make any decisions on your own?Who is going to makemedical decisions about your care should this happen? This is somethingyoushouldthinkaboutnow,whileyouhave,yes, thepower.Ifyouhavealivingspouse,heorshemightbeyourfirstchoice.Makesuretoconsidertheimplicationsofthepersonyouchoose.(Forinstance,ifyouhavealotoflifeinsurance,youmightwanttogiveauthoritytosomeonewhoisn’tinvestedinpullingtheplug!)Okay,I’mkidding,butalljokingaside,youneedsomeoneyou trust inherently who can make the entire range of decisions, fromwhethertoremovelifesupportasmentioned,orwhethertochangedoctors,orwhether tomoveyou toadifferenthealthcare facility.Thesedecisionsliterallyhavelife-or-deathconsequences.Makeawisedecisionandgetitinwritingnow.

DurablePowerofAttorneyforFinances

Maybeyoutrustyourfamilywithyourhealthcaredecisionsbutknowthatmanaging money can be a problem for them. Just like you may needsomeonetohandlehealthcaredecisions,youwillneedsomeoneyoutrusttobeabletohandleyourfinancialaffairs.Thiscaninvolvepayingordinarybillssuchasyourmortgage, signing legaldocuments,andeven interactingwithother entities on your behalf (like the phone company or your healthinsuranceprovider).

Ifyoubecomeincapacitatedwithoutthisdocumentinplace,yourspouse,relatives,orfriendsmayhavetogobeforeajudgetogetauthoritytohandle

yourfinancialaffairs.INoonewantstohavetojumpthroughthesehoopsinthemidstofwhatis

alreadyadifficultsituation.Takecareofthisnowsothatyoucanknowyouwillbeingoodhands,andyourfamilymemberswillbesparedsomestressduringanalreadytryingtime.

ALivingWill(AlsoKnownasaDeclaration,aDirectivetoPhysicians,oraHealthCareDirective)

If you are unwilling to turn over decision-making power regarding yourhealthtoanyone,youcansetupalivingwill,whichtellsthedoctorswhichprocedures youwould like provided orwithheld in the event that you areunabletocommunicatesuchwishesyourself.Again,thisalleviatesstressforyourlovedones,asyourwishesarealreadystatedclearlyinwriting.

Checklist2:EstatePlanning

Thebestthingsinlifearefree/Butyoucankeep’emforthebirdsandbees/Nowgivememoney(that’swhatIwant).

—BARRETTSTRONG,“Money(That’sWhatIWant)”

Whenmost people think of estate planning, they usually think of simplydraftingawill.Butthereismuchmoretoestateplanningthanjustwhogetswhatwhenyoudie.Thereareanumberofdifferentthingsyoucandotodaythatcanhelpdecreaseyourtaxableincome,andincreaseyourtaxefficiency.Herearethefourcoreessentials.

SettingUpaWill.Drafting awill is the first step in anyestateplanning,andtherearefourkeydecisionsyoumustmake.

•Whoarethebeneficiaries?Inotherwords,whogetswhat?•Who will be the guardian for your children, if you have any children

undertheageof18whenyoupassaway?Ifthisisn’tspelledoutinawill,thecourtsgettodeterminewhowillraiseyourchildren.Letmesaythatagain.Thecourtswillgettodecidewhowillraiseyourchildren!Areyoupayingattentionyet?II

•Whowillbe theexecutorof thewill?This is thepersonwhowillbe inchargeofmakingsurethatwhatyourequestinyourwillactuallyhappens,

and the one dealing with probate if your estate must go through thatprocess.(Seetheboxthatfollowsonwhyeveryoneshouldavoidprobateregardlessofhowmuchmoneyheorshehas.)

• Do you want your assets distributed directly to the recipients ordistributed to trusts set up on their behalf (a testamentary trust)? Forexample,let’ssayacouplehas$400,000inassetsthatwillbesplitequallybetweentheirtwochildren,whoarecurrentlyages19and20,whentheydie.Iftheparentsbothpasstoday,thechildrenwilleachgetacheckfor$200,000withnorestrictions.Whatwouldyouhavedonewith$200,000atage19or20?IIIInstead,theparentscouldincludeaprovisionintheirwill for a testamentary trust that would allow their children to receiveprincipalandincomefortheirhealthandeducationuntiltheyare30,atwhich point the balance of the trustwill be distributed to them.IVThewill would also name a testamentary trustee, a person or company youselecttoholdthemoney,investit,anddistributeitinaccordancewiththetermsofyourtestamentarytrust.

WHATISPROBATE?ANDWHYYOUSHOULDAVOIDITATALLCOSTS

Themainpointofprobateistogiveyourcreditorstimetoseekpaymentofthemoneyyouowethemandyourexecutortimetocollectmoneyowedtoyou. Probate involves payment of taxes and debts, and the distribution ofwhatisleftundercourtsupervision.Whataretheotherdownsidesofprobate?

•ControlofAssets.Duringtheprobateprocess,yourbeneficiariescannotsellyourassets;theexecutorcanonlysellassetsonlywiththepermissionofthecourt.

•Time.Theprobateprocesstakesapproximately6monthsataminimum,but it usually lasts at least a year. It can take even longer if mattersbecome complicated by awill contest (where the validity of thewill ischallenged),businessproblems,oranythingelseunusual.V

•Expenses.It’spossibleforthecostsofprobatetostretchintothetensofthousandsoreventhehundredsofthousandsforsomeestates.

•Privacy.Probate is amatterofpublic record,whichmeans anyone canhave access to your personal financial affairs. For many people, the

thoughtof theirmostpersonal informationbeingmadepublic isprettychilling. You may think that no one will be interested in your affairs;however, some people actually “work” probate records, looking forpeoplewho are going to inherit substantial sumsofmoney in order tofindwaystotakeadvantageofthem.

Trusts

Aquickwordontrusts:alltoooften,peopleassumethattrustsareonlyfortheRockefellers and other 1-percenters, or something that you set up foryourchildrenshouldyoupassawaywhiletheyarestillyoung.ButIbelievethat trustsshouldbeacenterpieceofestateplanningforpeoplewithmoremodestassetsaswell.Theydon’tneedtobeexpensiveorcomplextosetup!

One important responsibilitywe all have is tomake sure thatwhateverwealthwebuild,howeverlargeorsmallitmaybe,ourfamiliesbenefitfromit, and it doesn’t get stuck in a legal process that drains the gift fromourheirs.Trustsareanimportanttooltodojustthat.Readontodiscoverhowtousethemtoyourbenefit.Butfirst,abitabouttaxplanning.

EstateTaxPlanning.Aswediscussed inchapter6ontheCoreFour, it’snotnecessarilyabouthowmuchmoneyyouearn,it’sabouthowmuchyoukeep.Taxefficiencyiskeytoyourfinancialfreedomwhileyou’realive,butyoualsohavetoconsiderwhattaxesyouwillincuruponyourpassing.

Formostpeople,estatetaxesarenotandwillneverbeaconcern.Why?TheIRSwillallowyoutogiveawayupto$5.45millionoveryourlifetimeoratyourdeathwithoutpayinganytaxes;thisisreferredtoasyourlifetimeexemption. Think of it as a onetime coupon.VI Married couples get tocombine their lifetime-exemption amounts, so estate taxes are due only iftheircombinednetworthexceeds$10.9million.

Ifyouareoneofthewealthythathasmorethan$5.45milliontobestowupon your death, you will be paying an estate tax of 40%.Ouch! I hopeyou’llagreewithmethatitisworthwhiletodiscoverwaystopassonsomeofyourwealthnow,beforeyoupassaway,sothatyoucandecreasetheamountofyourtaxableestate.

So,howcanyoudothis?TheIRSallowsyoutogiveaway$14,000peryear to whomever you choose without counting against this lifetimeexemptionlimit;thisisreferredtoasyourannualexclusion.Anyamountover

$14,000istaxedatthegiftrateof40%.Thismeansthatyoucouldgiveaway$14,000perpersontoallofyourfriendsandfamilyeveryyearandstillgiveaway$5.45millionwhenyoudie,payingnogiftorestatetaxesonanyofit.That can add up to quite a sum (depending on how many friends youactuallyhave!).

Belowareafewstrategiesforpassingalongyourwealthwithouthandingahugechunkovertothegovernment:

•HelpPayforYourChildren’sorGrandchildren’sCollegeEducationExpenses (andGet a Tax Benefit, Too!). Most people don’t realizethatyoucanusepartofyourannualgiftof$14,000tofunda529collegesavings plan for your kids or grandchildren. You may even get a stateincome tax deduction for the gift as well. If the student is alreadyattendingcollege,tuitionpaymentscanbemadedirectlytotheschool.

•InsteadofWaitingtoPassOnYourWealthAfterYouDie,YouCanGive $14,000 per YearTax FreeDirectly to Each of Your FamilyMembers.Let’ssayyouhavegrownkidswhoaremarried.Youandyourspousecaneachgiveyourchild$14,000peryear, fora totalof$28,000annually. You can also each give your son-in-law or daughter-in-law$14,000per year, for another $28,000.Thatmeansonemarried couplecan give another married couple $56,000 per year with no gift taxconsequences and without reducing your lifetime exemption! They getthebenefittoday,andyougetthejoyofsharingwithyourchildrenwhileyou’restillalive.

• Pay forMedical Expenses. You can pay for the medical expenses offriendsor familymemberswithout countingagainst your annualgiftinglimit, so longas thepaymentsaremadedirectly to thecareprovider.Sowhat does this mean? If your grandchild needs an emergencyappendectomy(costing$20,000),youcancoverthosecostsandstillgivethatgrandchildanadditional$14,000inthesameyearwithoutpayingthe40%gifttax.

•CharitableGiving.Anymoneyyougivetocharitableorganizationsdoesnot count toward the estate tax calculation either. Why pay it to thegovernment when you can give it away? That’s what the world’swealthiesthavedone,includingBillGatesandWarrenBuffett.Wecoverthisinmoredepthinchecklist4.

RevocableLivingTrust.Asyoubegin toaccumulatewealth,pleasedon’twaittosetupalivingtrust.Everyoneneedsone.Why?Becauseallassetsinthetrustavoidthecomplexstate-runproceedingsofprobate.

Arevocablelivingtrustisasimple,legalarrangementtoholdassets(thetrustpart).Becausethistrustisputinplaceduringyourlifetime,itisalivingtrust. And because the trust is written to allow you to terminate thearrangement at any time, it’s revocable. So even though the name looksconfusing,revocablelivingtrustjustmeans“alegalarrangementcreatedtoholdyourassets,whichyoucanendanytimeyouwantwhileyou’realive.”Youwillbenamedas the trustee (or theperson inchargeof theassets), soyoumakewhatever decisions youwantwith the assets in the trust. If youbecomeincapacitated,orafteryoupassaway,asuccessortrusteeyounamewilltake over the administration of the trust for you. And nothing touchesprobate!

Ideasareadimeadozen,andtheimplementationiseverything.—JACKBOGLE

ProtectYourAssetswithan IrrevocableTrust. Someof thewealthiestfamilies in the world have known for centuries what any great assetprotection expert will tell you: the secret is to own nothing and controleverything.Thiscanbedonethroughanirrevocabletrust.Itisconsideredtobeaseparatelegalentity,sotheassetsinsideitarenotsubjecttoestatetaxwhenyoudie.VIIThat’sright,yourfamilywillkeepthat40%ratherthanseeit confiscatedby thegovernment!Also, if the trust is establishedproperly,theassetsinsidecanbeprotectedwhileyouarealivefromcreditors,divorce,legal judgments, and other risks—thus its other name: an asset protectiontrust.VIII So what are the best ways to use an irrevocable trust to youradvantage?IX

•GivingAnnualGifts.Asyoulearnedafewpagesago,youareallowedtogiveanannualgiftof$14,000perpersoneachyeartaxfree.Ratherthangivingyourannualgiftstoyourbeneficiariesoutright,itmaymakemoresense toput thatmoney inan irrevocable trust instead, and thatpersoncan be the beneficiary of the trust. This is particularly effective if abeneficiary is young, has difficulty managing money, or if there areextenuating circumstances that lead you to want to establish some

benchmarks the person must achieve in order to obtain access to thefunds,suchassobriety,attendingcollege,orholdingdownafull-timejob.

•Holding Life Insurance. Sheltering life insurance through the use ofirrevocable trusts has become so common that this type of trust hasacquired its own acronym: the ILIT, which stands for irrevocable lifeinsurancetrust.Mostpeopleknowthattheproceedsfromalifeinsurancepolicy are not subject to income tax; however, it’s not aswidely knownthat theproceedsare subject to estate tax (thatpesky40%).However, ifthepolicy isheldwithinan irrevocabletrust,youareabletoavoidbothincometaxandestate tax!Adoublewhammy.Here’showitworks:youtakethe$14,000annualgift($14,000perkid,pergrandkid,ifyouwanttocontributemore) anduse it to fund life insurancewithin an irrevocabletrust, which allows your children or grandchildren to receive the lifeinsurancepayoutcompletelytaxfree!

• For Ultra-High-Net-Worth Individuals, Use Your LifetimeExemptionToday.Giving away a portion or all of your $5.45millionlimit (or $10.9million if you’remarried) today can be a great strategy,especially if given to a familymember through an irrevocable trust forprotection(forassetandtaxprotection).Whywouldanyonewanttogiveawaythatmuchtoday?Let’ssaythatyouhavecertainassetsvaluedat$5milliontodaythatyouexpecttoincreaseconsiderablyinvalueoveryourlifetime:forexample,sharesofacompanyorapieceofundevelopedland.Bygiving theassets to the trust today,youpayno taxeson the transferbecause it’s under your lifetime exemption amount. At your passing,hopefullydecades later, theassets couldhaveballoonedinvaluebythattime.Iftheoriginal$5millionpieceoflandisnowworth$20million,theentire$20millionpassestothetrustbeneficiariestaxfree.

Checklist3:Insurance

Everyone’sgotaplanuntiltheygetpunchedinthemouth.—MIKETYSON

Many of the scenarios that can take you down financially can be coveredwithinsurance.That’sright,justlikeyouinsureyourcarbecauseyoudon’twanttobestuckwithabillinthethousandsforacaraccidentthatwasjustthat (an accident), or how you pay for health insurance in case something

catastrophic happens to your health, and you don’t want hospital bills tocauseyou togobankrupt, thereareotherkindsof insurance thatcanbeafantastic tool if wielded correctly. Listen, I get it: nobody likes insuranceuntilheneedsit.Butyoucandoeverythingright—hireafiduciary,reducefeesandtaxes,constructanawesomeportfolio—andintheblinkofaneye,youreffortswillbewipedoutifyouaren’tpreparedforacatastrophicloss.

Solet’sprotectourselves,shallwe?

Thefearofdeathfollowsfromthefearoflife.Amanwholivesfullyispreparedtodieatanytime.

—MARKTWAIN

LifeInsurance. Ifyouhave insuranceonyourcellphonebutnotonyourlife,weneed to talk. I’mnot kidding.Life insurance is a crucial aspect toprotectingyourwealthandfamily.Ihaveseendevastatingsituationswherepeoplewith substantialmeans didn’t have life insurance (or enough of it),and the family members quickly ran out of money when the incomedisappeared and the expenses piled up. So even if you have life insurance,let’s take a look at the different types and make sure you have the rightpolicyforyou.

• Term Insurance. Term insurance is the most appropriate type of lifeinsurancefornearlyallAmericans;however, terminsurance isnotoftenrecommendedbyinsuranceagents,becausesellingitresultsinthelowestcommission.XWithaterminsurancepolicy,you’reinsuringyourlifeforaspecificperiodoftime(usually10,15,20,or30years).Attheendoftheterm, the policy ends, and you no longer have the coverage. Manyinsuranceagentswillusethisasthereasonthatyoushouldnotbuyterminsurance: because youmight never get a return on your investment. Ifind this tobequitea sillyargument. It’s likearguing that I should feeldisappointed that I have homeowner’s insurance and my home hasn’tburneddown!Butterminsurancecanbehelpfulifyouwanttosafeguardyour family in case something happens to you before you have securedfinancialfreedom.Howlongyouneedthecoveragedependsonhowfaroff you are from your financial goals. An insurance agent, or yourfinancialadvisor,canhelpyoudeterminethosenumbers.

• Permanent Insurance. As the name implies, you have this type ofinsuranceforyourentirelife;thus,it’smuchmoreexpensivebecausethe

insurance company is expecting topay adeathbenefit at somepoint inthe future.When is it a good idea to buy permanent insurance?Aswediscussedintheprevioussection,youcanutilizepermanentlifeinsuranceas part of your estate planning to both maximize your legacy andminimize your taxes by creating an irrevocable life insurance trust.Youcan also buy survivorship life insurance (also known as a second-to-diepolicy). This is a single policy covering the lives of two spouses ordomesticpartners.Thepolicypaysoutonlyafterbothinsuredindividualshave passed. Because two lives are insured, the death benefit is greaterthanapolicywouldbeononlyoneindividual.XIAndremember,ifheldinanirrevocabletrust,theproceedswillbefreeofincometaxandestatetax!

• Variable Life Insurance. This is a kind of permanent life insurance,exceptthecashvalueisreinvestedinanumberof“subaccounts”thataresimilar tomutual funds.Watchout for these!Thesequasi“investment”vehicles are bogged down with fees, huge commissions, and activelymanagedfunds.Theyalsohavehighsurrenderchargesifyouwanttogetout. The only exception is a tool for the ultra-affluent called privateplacement life insurance (PPLI, or sometimes referred to as rich-man’sRoth),wherethereisnocommissionpaid,nosurrendercharges,andfewlimitations on the investmentswithin.Youprobably haven’t heard of itbecause life insurance agents can’t make a dime selling it (and so it’susually structured by sophisticated attorneys). That said, privateplacement life insurance typically requires a deposit of $1 million ormore,soit’strulyatoolforthosewhohavesignificantassets.XII

HOWMUCHLIFEINSURANCEDOYOUREALLYNEED?

Determininghowmuchlifeinsuranceyouneedshouldbeanintegralpartofcreatingyourfinancialplanandissomethingtobedonewithyourfinancialadvisor.Therearemanypopularmethodologiesusedtoestimatehowmuchlife insurance a person needs.Most of themmake no sense. For example,one popular rule of thumb is that you should purchase life insuranceequivalent to five times your income.Butwhen you think about it, if youmake $100,000 per year and have $5 million, you likely don’t need lifeinsurance; the family will get by just fine. If you just graduated medicalschoolwith$250,000 indebt,purchaseda$700,000home, andhave three

little kids, then five times your income is likely nowhere near enough.Obviously, the best method to determine how much you need is tocustomizethesolutiontoyoursituation.

You’llneedtoreassessthisnumberasyouage,asyoureachcertaingoals,or as you create new ones. For example, once your children are throughcollege,oryourmortgageispaidoff,younolongerneedtocarryinsuranceto cover those liabilities, but youmay need to keep saving for retirement.Again,thisiswhenyourfinancialadvisorwillearnhisorherweightingold.

Timeandhealtharetwopreciousassetswedon’trecognizeandappreciateuntiltheyhavebeendepleted.

—DENISWAITLEY,speaker,writer,consultant

Disability Insurance. What do you think is your greatest asset? Manypeople thinkof theirhomeorpossibly theirretirementaccount.Formost,though, it’s your ability to earn. Your goals for financial security andfreedomareoftendependentonyourabilitytokeepthepaychecksrollinginsothatyoucansockawayenoughtocompoundintoasubstantialnestegg.Adisabilitycouldseriouslyderailallthatyouhavesetup.

Employers typically offer both short-term and long-term disabilitycoverage for their employees, so it’s a good idea to check what youremployeroffersbeforemeetingwithaninsurancespecialist.

Fortypercentofindividualswhoreachage65willenteranursinghomeduringtheirlifetimes.

—MORNINGSTAR

Long-Term Care Insurance: Covering the Costs of Assisted Living.Nobodylikestothinkaboutgrowingold.Iunderstand.ButunlessyouareBenjaminButton,youhavetomakesurethatifyousomedayneedlong-termcare, you have the necessary coverage. According to theNew York Times:“Some70%ofthoseoverage65willrequiresomeformoflong-termcarebeforetheydie.Butonlyabout20%havealong-termcareinsurancepolicy.Instead,millionsofthosewhoendupneedinglong-termcarepayforitoutofpocket.”

If you are fortunate enough to have a multimillion-dollar portfolio, aproperlystructuredportfoliowouldspinoffthemoneyneededtocoveryourneeds.However,thetypicalcostofanursinghomevariesacrossthecountry,from$67,525peryear inDesMoines, Iowa, to$168,630peryear inNewYorkCity.Giventhatjust44%ofthepopulationoverage50hasmorethan$100,000inliquidassets,itshouldn’tbemuchofasurprisethatmostpeoplewhoenteranursinghomearebrokewithinafewyears.

How do we prevent this? You need to get a long-term care policy foryourself or those you love well before it’s needed. You can, for example,purchaseapolicythatwillcover$200perday,or$72,800peryear,forupto3years, fora65-year-oldperson for just$5,000annually.However, ifyouwait too long, it becomes cost prohibitive, andmost insurance companieswon’t insure people over the age of 84. Long-term care typically covershome care, assisted living, adult day care, hospice, nursing home, andAlzheimer’s facilities. Insurancepolicies like this are available for someonewhoisasyoungas45yearsoldforaslittleas$100permonth.

Homeowner’s Insurance. Our homes are one of our biggest assets, andthus itmakessensetomakesurethatweareprotectedfromcertainthingsbeyond our control, such as a fire, tornado, earthquake, or flood.Homeowner’s insurance protects you by covering the costs of damage toyour home,within the limits of your policy. (This is key.Oftenwe don’tfully understand the limits and conditions of these policies and then findourselvesstuckwithbillsweneverexpectedtopay.)

Aswithallinsurance,yourfirststepshouldbetodetermineexactlyhowmuchcoverageyouneed.Thisrequiresyoutoevaluatethereplacementvalueof your home, which can be different from the sales price of your home.

Yourdwellingcoverageshouldmatchwhatitwouldcosttorebuildyourhomefromthegroundup,usingthesameorsimilarmaterials.Insomeareasofthecountry,thecostofmaterialshascontinuedtogoupwhilerealestatevalueshave remained level, so it’s important tounderstandwhat currentbuildingcosts are and to calculate your dwelling coverage appropriately.However,it’simportanttonotethatyourinsurancecompanywillfullycoverdamagesto your home only if your dwelling coverage is at least 80% of thereplacementvalueofyourhome.Whatdoesthatmean?Let’ssayyouownahomevaluedat$500,000,andyourdwellingcoverageis$350,000.Ifoneofyour water pipes bursts, causing $50,000 in damage, even though yourdwelling coveragemore than covers the $50,000 in damage, the insurancecompany is going to send you a check for $43,750 (minus anydeductible)andnot$50,000.XIII

Manypeoplearesurprisedtodiscoverthattheirpoliciesdonotprovideasmuchcoverageastheythink,becauseofinternalcapsonhowmuchdamageiscoveredbythepolicyorpayout limitations forvaluablearticles.Forthisreason, it oftenmakes sense for individuals with high-value homes, rentalproperties,orothervaluableoruniqueproperties(yachts,collectorsvehicles,and so forth) to work with specialty insurers selling products designed toprotect these types of assets, so that you don’t find yourself paying forinsurancethatultimatelydoesn’tprotectyouthewayyouthought.

UmbrellaInsurance.Ifyourumbrellaisnotinsured,youmightberequiredto replace it if a windstorm rolls in. (I’m sorry, I’m just kidding.Writingabout insurance is making me delirious.) An umbrella policy is an excess-liabilitypolicythatcoversyouaboveandbeyondtheliabilitylimitsofyourhome and auto policies. It’s effectively an asset protection policy that covers allsortsofthingsthatcanhappenanytimeandforanyreason,oftenunfoldinginwayswe couldn’t imagine. We live in an increasingly litigious society and theparentsofthatkiddownthestreetmightsueyouifhegetshurtjumpingonyourtrampoline.Wemaydoeverythinginourpowertosecureourfinancialindependence,butnoneofthatwouldmatterifwelostabiglawsuit.Forthisreason,itmakessenseformanyofustohaveanumbrellapolicy.Whenwepurchaseanumbrellapolicy,wearealsopurchasingtheabilitytoaccesstheteamofattorneys thatworks for the insurancecompany, in thehopes thatanyliabilityissuesthatmaycomeupwillbesettledbythisteam.

Checklist4:LeavingaLegacy

ThereisonethingincommonamongallthetitansTonyinterviewed:theynotonlylovetoearnmoneyforthemselvesandtheirfamiliesbutalsolovetogive it away.Theyknow firsthand the joy that comes from sharingwealthwith causes that are important andmean something to them. Remember,oneofthereasonsthatTonyandIwrotethisbookistohelpfeedabillionpeople!

However,whenmost people think of donating, they think ofwriting acheck to their favorite charity or cause. But in the section that follows, I’llsuggest the bestways to share yourwealthwith these causeswhile also increasingyourtaxefficiency.Belowareafewwaysyoucantrulymaximizeyourimpact:

•LeavetheRightAssetstoCharity.Manytimes,individualsnametheirchildrenasthebeneficiariesoftheirIRAorretirementaccount,andtheyspecifyabequestofcashorotherpropertytoacharity.Thisisn’talwaysthe best solution. For example, if you leave a traditional IRA valued at$100,000 to your children and a piece of land valued at $100,000 to acharity,yourchildrenwillhavetopaytaxesonthedistributionsfromtheIRA. If, instead, you leave the IRA to a charity and the land to yourchildren,thecharitycancashouttheIRAwithnotaxconsequences,andyour children can sell the property at your death without paying taxeseither.

Here’s another example: let’s say that Mrs. Donor owned someMicrosoftstockthatsheboughtagesago.Ifshesoldit,shewouldhavetopay significant capital gains tax. However, if the stock is donated, thedonoravoidseverhavingtopaycapitalgainstax,doesn’thavetopartwithcash,andstillgetsthetaxdeductionforgivingtoacharityofherchoice.

• Work with a Donor-Advised Fund. A donor-advised fund is a publiccharity that has two primary functions. First, it will help you findorganizations that aremakingameaningfuldifference in areas inwhichyouhaveaninterest.Second,whenyoudonatetoadonor-advisedfund,itwill segregate those donations into a separate account that is yours todirect.It’skindoflikeyourownprivatecharity.Soifyoudonate$25,000toadonor-advisedfund,first,yougetanimmediatetaxdeduction.Then,atyourleisure,youcandirectthosefundstodifferentcharitiesasyouseefit.

•Establish a Private Foundation. For ultra-high-net-worth individuals,creating your own private foundation can be a great way to create amultigenerationalcharitablelegacy.Aprivatefoundationisanindependentcharitableentitywithastaffanddirectorswhoadministertheoperationsof the foundation and the distribution of assets to support themission.While there are more rules and regulations regarding the use anddistribution of funds from a private foundation—which, along withstaffingneeds, canmake itmoreexpensive tooperate—familymemberscanbepaidasalaryfortheirworkwiththefoundation.

• Look for Creative Ways to Increase Your Impact. A number ofcompaniesarecreatingexponentialimpactinthefieldofcharitablegivingusingcrowdsourcing.Forexample,Crowdrise (www.crowdrise.com)wascofounded by actor Edward Norton and has exploded into the top 25global philanthropies, according toBarron’s (Tonywas one of its initialinvestors).Givennewtechnologiesandlargesocialnetworks,Crowdrisehas a unique approach for creating maximum impact: a friendlycompetitionamongcharitiesthatwantyourdonation.Let’ssaythatyouwantedtodonate$100Ktoacharity focusedoncleanwater.Crowdrisewillapproachten(ormore)differentclean-watercharitiestocompeteforyourdonation.For1month,thecompetingcharitieswillgototheirowndonornetwork,lettingthemknowthatwhoeverraisesthemostmoneyinthe month will win this $100K grant. If each charity raises $50K onaverage (10 charities x $50K = $500K), and the winner also gets your$100K, a total of $600K was raised—$500K more than you donatedpersonally!

AndHere’sYourDiploma!

If you havemade it to this page, congratulations!You have nownot onlydetermined how to become unshakeable in building your wealth, but alsolearned exactly what you need to do to protect your family, reduce yourtaxes,andleavealegacyofgiving.Itmaytakeafewconversationswithyourlawyer, your financial advisor, and your insurance specialist. A little bit offocustodaycanprovideinvaluablepeaceofmindforyouandyourfamily.

I. Ifyoudon’thaveanyonelikethisinyourlife,manybankshavetrusteeswhocanhandletheseaffairsforasmallfee.

II. Sometimes the very people the court might likely choose (your parents or siblings) are notnecessarilywho youwould choose to be guardians of your children.This is an importantmoment.Thinkaboutwhoinyourfamilyorevenyourclosefriendsyoutrusttoraiseyourchildrenthewayyouwouldwant themraised.Whatwouldprovideyourchildrenwith themostpeaceofmindafter thistragedy?Talk about thiswith your spouse, determinewhoyou’d like to choose, and thenhave theimportantconversationwiththemaskingthattheybelistedasguardians.

III. Ifyouarecurrently19or20with$200,000,mayIsuggestyourevisittheinvestmentschapterofthisbook?

IV. Iamconvincedthat30isthenew21.

V. Theprocesscanvarygreatlydependingonwhatstateyoulivein.

VI. Note:lawscanchange,asthisisapoliticalhotpotato.

VII. Assumingyousetupandfundthetrustmorethanthreeyearsbeforeyoudie.

VIII. Sowhat’sthedownside?Well,asitsnamestates,it’sirrevocable.Oncethetrustisestablishedandfunded,it’stechnicallyoutofyourcontrol.Infact,youwillnameatrusteetomakealldecisionsregardinghowthe fundsaremanagedanddistributed.However,youcanalso remove the trustee ifnecessary.Also,youcanhireaprofessional,bondedtrustcompanytodothisforyou.

IX. Irrevocabletrustscanalsobeusedaspartofother,moresophisticatedplanningstrategies—suchas advanced asset protection planning, providing support for family members with special needs,Medicaidplanning,charitablegiftplanning,businesssaleplanning—andmuchmore.

X. Rememberourchapteronbrokers?Icouldwriteawholebookonthewaystheinsuranceindustrytriestotakeadvantage.ButIdigress...

XI. Youwouldpurchasethiskindofpolicyinordertomaximizethevaluethatacouplecangifteachyeartax freetofundthepremiumsforthepolicy.Withthosepremiums,youtypicallybuyasmuchdeathbenefitaspossibletomaximizetheproceeds.

XII. TonydiscussesthebenefitsofPPLIonpage446ofMONEYMastertheGame.

XIII. The insurance company uses a ratio of the amount of coverage you actually have (in thisexample,70%ofthereplacementvalue)comparedwiththeamountofcoverageyoushouldhave(80%ofthereplacementvalueofyourhome).$350,000/$400,000=87.5%,sotheywillcover87.5%ofthe$50,000claim,or$43,750.

TONY ROBBINS is a bestselling author, entrepreneur, andphilanthropist.Formorethanfourdecades,millionsofpeoplehaveenjoyedthe warmth, humor, and the transformational power of Mr. Robbins’sbusiness and personal development events. He is the nation’s #1 life andbusinessstrategist.He’scalledupontoconsultandcoachwithsomeoftheworld’sfinestathletes,entertainers,Fortune500CEOs,andevenpresidentsofnations.Robbins isa founderorpartner inmorethanthirtycompanies,twelveofwhichheactivelymanagesinindustriesasdiverseasvirtualreality,major league soccer, and the #1 rated resort & spa in the Fijian islands.These companies have combined annual sales of $5 billion. Through hispartnership with Feeding America, he has provided a quarter of a billionmealstothoseinneedoverthelasttwoyears,andisontracktoprovideabillionmealsoverthenexteightyears.HelivesinPalmBeach,Florida.

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INDEX

Anoteabouttheindex:Thepagesreferencedinthis indexrefertothepagenumbersintheprintedition. Clicking on a page number will take you to the ebook location that corresponds to thebeginning of that page in the print edition. For a comprehensive list of locations of any word orphrase,useyourreadingsystem’ssearchfunction.

AARP,47achievement,scienceof,165–66action,massive,166advisors,seefinancialadvisorsairlineindustry:

Bransonand,101humanerrorin,143

Alphabet,52alternativeinvestments,122,130–32,151America’sBest401(k),67–69,70Apple,52,127Arnott,Robert,15n1,56–57ArtofWar,The(SunTzu),201assetallocation,16,98–99,112,122,150,151,161

CoreandExploreapproachto,135customizedapproachto,133–34diversificationin,seediversificationglobal,157–58rebalancingof,136–37,151–52returnsand,135riskpremiumsand,126

assetclasses,112,161assistedliving,216–17

BankofAmerica,72,73,76Barber,Brad,153Barclays,72,73Barron’s,13,121,203,220Basinger,Kim,23Bauer,Richard,53bearmarkets,29,102–3,120–21,150,159,160

becomingbullmarkets,39–42,123–24correctionsand,30–31fearof,11,16,18,27,137preparingfor,120–37

regularityof,37–39,159beautifulstate,170–72,175–78,183,185behavioralfinance,145beliefs,143,144–45,149

confirmationbiasand,146–48BerkshireHathaway,136Bernard,TaraSigel,63–64bestinterestcontractexemption(BICE),79nBigBird,78BlackMonday,144BlackRock,128BNPParibas,72Bogle,Jack,9,16,17,32,38,42–43,44,48,54,58,99,111,112,153,156,166,211Bohr,Niels,31bonds,5,27,103,111,125,127,129–30,133

assetallocationand,122,151typesof,129

brain,141–43,150,151,165,171,176–77amygdalain,159electricalimpulsesin,179–80seealsopsychologicalpatterns

Branson,Richard,101–2BritishAirways,101brokers,12,75,78–80,85,90,106

duallyregisteredadvisors,81–83feesand,84proprietaryfundsand,84suitabilitystandardand,78–79

Buffett,Warren,9,16,17,22,32,36–37,40,42,58–60,75,90,96–99,102,103,111,119,121,124,128,132,136,141,148,149,153,155,156,159,166

bullmarkets,11,17,27,150bearmarketsbecoming,39–42,123–24

CalPERS,132capitalgainstax,51,134cash,27,52,119CertifiedFinancialPlannerBoardofStandards,71charitablegiving,109,211,219–20Churchill,Winston,168Citigroup,72,73,102–3Clinton,Hillary,146,149CNBC,13,203collegeeducationexpenses,210comfortzone,stayingin,156–58commissions,17,85,214compounding,22–26,44,156,161confirmationbias,146consumerconfidence,40,41control,6,170–71,201CoreFore,16,95–113

asymmetricrisk/reward,100–104,107–9,144

avoidinglosses,97–99,106,108,154–55diversification,seediversificationexecutionof,96–97importanceof,97MLPsand,108–9taxefficiency,104–9

corrections,29,37,102,124,137,159bearmarketsand,30–31regularityof,29–30

CreativePlanning,13–14,38,88–89,107,120–25,130–32,135,136,147,204CreditSuisse,72Crowdrise,220

Dahlquist,Julie,53DalaiLama,163Dalbar,17Dalio,Ray,9,11–12,16,58–59,90,98,99,111–12,146,148,153,166,202decisions,7–8,28,142,144,171,177

byactivefundmanagers,50,52CoreFourprinciplesfor,seeCoreFourpowerof,175–76tostopsufferingandliveinbeautifulstate,175–76,185

declaration(livingwill),206DepartmentofLabor(DOL),69,70,79DeutscheBank,72DimensionalFundAdvisors,67directivetophysicians,206disabilityinsurance,216discipline,145diversification,49,109–12,126,135,137,151,153–54,158

fourtypesof,110international,157–58risk/rewardand,99,111–12,126–27withinassetclasses,135–36

donor-advisedfunds,220DowJonesIndustrialAverage,149Druckenmiller,Stanley,144duallyregisteredadvisors,81–83durablepowerofattorney:

forfinances,206forhealthcare,205

EdisonInternational,70electroencephalogramsandelectrocardiograms,179–80emotionalandmentalstates:

beautiful,170–72,175–78,183,185suffering,seesuffering

emotionalwealth,163–87emotions,17–20,122,126,145,149,161,174,178

fear,seefear

happiness,18,163,167,168,170,171,173,175,176,178,180wealthand,163

endorphins,155,156endowmenteffect,147energyinvestments,107,108,132energy-richandenergy-poorstates,170Erdoes,MaryCallahan,9,111ERISA(EmployeeRetirementIncomeSecurityAct),63estateplanning,202–13

probateand,seeprobatetaxesand,209–11,212willin,seewill

events,mistakingfortrends,148–52exchange-tradedfunds,14expectations,148–50,173,175experts,29–30,127

predictionsby,31–35,50,156extraordinaryqualityoflife,164–65,167,168,170,175ExxonMobil,52

FastCompany,57fear,10–11,18–20,46,119–20,124,159,161,172,180

ofbearmarkets,11,16,18,27,137factstofreeyoufrom,seeFreedomFactslossaversionand,158–61

FederalReserve,103FeedingAmerica,10,109,219fees,14–15,17,46,47–48,53,55–56,59–60,75,76,153,155

brokersand,84categoriesof,62–63commissions,17,85,214consulting,85expenseratioin,54in401(k)plans,47,61–70front-endload,65hidden,54,62ignoranceabout,47–48,62impactof,63modelportfoliosand,84–85forselectinginvestments,84–85transactioncosts,50–51,52,54,153

Fidelity,91fiduciaries,76,79,81–83,85–86,90,9150Cent,23financialadvisors,12–13,16,25,38,70,71–92,122,151,161,204

assetallocationand,133–34breadthofexpertisein,87,91brokers,seebrokerscategoriesof,76,78–83clients’bestinterestsand,12,76,78–79,81–83,85–86

credentialsof,86–87custodialsystemand,91designationsfor,74–75duallyregistered,81–83experienceof,87,148feesof,84–85;seealsofeesfiduciary,76,81–83,85–86,90,91findingthebestforyourneeds,85–88incentivesandconflictsofinterestof,75–76,80,83,90investingphilosophiesand,87–88,90monetaryvalueof,77needfor,77positiveimpactof,88proprietaryfundsand,84questionstoask,89–91registeredinvestment(independent),81–83,84,86,90relatingto,onpersonallevel,88retirementplansof,87trustin,12,71–76,78,80

financialcrisisof2008–09,4,8,18,39,48,102–4,111,119–22,124–25,142,143,159,160financialcushion,129,135–36financialfirms:

legalsettlementsof,72–74,76seealsofinancialadvisors

financialfreedom,25–26,47,48,53,96,119,120,162,163–64financialgoals,25–26,47,88,136,161,163financialmistakes,137,143,145–46

seealsopsychologicalpatternsFINRA(FinancialIndustryRegulatoryAuthority),90firsttrustdeeds,103–4Fitzgerald,Peter,53529plans,106five-to-onerule,100–101focus,165,174,183Forbes,13,54,62,98Forbes,Steve,9Fortune,59foundation,private,220401(k)plans,52,54,60,61–70,79,106

disclosurestatementsof,61–62,63,68,70feesin,47,61–70;seealsofeesindexfundsin,65–66lawsuitsagainstprovidersof,66mutualfundsin,65,67,68paytoplayand,65,67regulationson,64–65self-directed,66sponsoring,69–70

403(b)plans,63–64,106Franklin,Aretha,83Franklin,Benjamin,160

FreedomFacts,21–46onbearmarketsbecomingbullmarkets,39–42onbeingoutofthemarket,42–45oncorrectionsturningintobearmarkets,30–31onpredictions,31–35onregularityofbearmarkets,37–39onregularityofcorrections,29–30onrisingofstockmarketdespitesetbacks,35–37

FreedomFund,26fulfillment,artof,166

gambling,154–56Gandhi,Mahatma,170GardenofEdeninHell,A(Herz-Sommer),184–85GeneralElectric,103giving,168,186–87

tocharity,109,211,219–20tofamilymembers,210,212,213leavingalegacy,219–20

goals,165,166financial,25–26,47,88,136,161,163

God,166GoldmanSachs,103,125gold,132goldstandard,98grace,166,186Graham,Benjamin,141gratitude,186

meditationfor,178–83greedandgambling,154–56Greenspan,Alan,5,6Gretzky,Wayne,43growth,167,184guardianship,207Guber,Peter,148

Hand,Learned,105–6happiness,18,163,167,168,170,171,173,175,176,178,180hardtrades,144,145healthcaredirective,206healthcareproxy,205heart,179–82Heath,ChipandDan,57hedgefunds,15,58,132Herz-Sommer,Alice,184–85Hiltonsmith,Robert,62,63Hobbes,Thomas,44homebias,156–58homecollateralloans,103–4homeowner’sinsurance,217–18

umbrella,218–19HouseofCards,85

Icahn,Carl,9,58,96,102impatience,154,155independentadvisors(registeredinvestmentadvisors;RIAs),81–83,84,86,90indexfunds,15,16–17,52,53,55,59–60,79,106,111,112,125,135,136,153

in401(k)plans,65–66insurance,213–19

disability,216homeowner’s,217–18life,seelifeinsurancelong-termcare,217umbrella,218–19

IntelligentInvestor,The(Graham),141interest,27

compound,22–26,44,156,161negative,4

investmentchoices,amountof,14Investopedia,16nIRAs(individualretirementaccounts),52,79,106,219irrevocablelifeinsurancetrust(ILIT),212irrevocabletrust,211–13

Jackson,Michael,23–25Japan,41,42,135,157Jobs,Steve,95Johnson,Theodore,136Johnson&Johnson,52Jones,PaulTudor,9,58,95–96,98,100–102,111,144–45JournalofFinancialPlanning,87JPMorganChase,44,72,111

Kahneman,Daniel,159Kālidāsa,183Keillor,Garrison,152Kerouac,Jack,150Krishnaji,170–71

LastWeekTonightwithJohnOliver,64legacy,219–20“less,”assufferingtrigger,174,178lifeinsurance,212,214–16

amountneeded,215–16irrevocablelifeinsurancetrust,212permanent,214–15privateplacement,106,215term,214variable,215

livingtrust,revocable,211

livingwill,206loans,homecollateral,103–4long-termcareinsurance,217loss:

avoiding,97–99,106,108,119,154–55assufferingtrigger,173–74,178

lossaversion,158–61lostdecade,111,158luck,166Lynch,Peter,21

Madoff,Bernie,91Malkiel,Burton,17,22,110,111,136–37Mallouk,Peter,12–14,16,20,38,82,88–89,111,113,147,160–61

onpreparingforbearmarket,120–37ontransferringandprotectingwealth,203–21

Mandela,Nelson,115marketbubbles,99Markowitz,Harry,126,150–52,158Marks,Howard,5,99,111,128,153,160masterlimitedpartnerships(MLPs),107–9,132,136medicalexpenses,210–11meditation,gratitude,178–83Microsoft,52Money:MastertheGame(Robbins),9–10,11–12,25,26,77,82,106,112Moody’s,129MorganStanley,72Morningstar,57,150,157,217Munger,Charlie,148MutualFundReformAct,53mutualfunds,14,15,49–60,90,157

activelymanaged,14–15,50–57,59–60,62,64,65,79,106in401(k)plans,65,67,68performanceof,56–58,150–51top-rated,57–58taxesand,106

negativitybias,158–61Neurology,169“never,”assufferingtrigger,174,178NewYorkTimes,63,73,128,202,217Nikkei225,4190-secondrule,176–78Nixon,Richard,98,124Norton,Edward,220

OaktreeCapitalManagement,99,160Obamaadministration,64Odean,Terrance,153oilandgasinvestments,107,108,132

Oliver,John,64OperationUndergroundRailroad(OUR),109opinions,seekingother,146–48optimism,39–42overconfidence,152–54

patterns,21–22,95psychological,seepsychologicalpatternsinstockmarket,22,27–28seealsoCoreFour

Paulson,John,9paytoplay,65,67Perez,ThomasE.,64permanentinsurance,214–15pessimism,39–42,124,159Pickens,T.Boone,9,107,108PlatinumPartners,5portfolio,202

assetallocationin,seeassetallocationfrequencyofchecking,156model,84–85

power,21–22,60ofdecisions,175–76

powerofattorney,205forfinances,206forhealthcare,205

predictions,31–35,50,98,153,156failed,32–35

preparation,160–61,201–2forbearmarkets,120–37

presidentialelectionof2016,146,149Prince,202privateequityfunds,131–32privatefoundation,220privateplacementlifeinsurance(PPLI),106,215probate,204,205,208

downsidesto,208–9progress,167proprietaryfunds,84ProtégéPartners,59PrudentialFinancial,119psychologicalpatterns,137,141–62

confirmationbias,146–48greedandgambling,154–56mistakingrecenteventsforongoingtrends,148–52negativityandlossaversion,158–61overconfidence,152–54stayingincomfortzone,156–58

psychology,145

Reagan,Ronald,5realestate,89,103–4,111,122realestateinvestmenttrusts(REITs),112,131rebalancing,136–37,151–52recencybias,149–50registeredinvestmentadvisors(RIAs;independentadvisors),81–83,84,86,90ResearchAffiliates,56responsibility,45retirementplans,63,219

CalPERS,132offinancialadvisors,87401(k),see401(k)plans403(b),63–64,106IRA,52,79,106,219

RetirementSavingsDrain,The:TheHidden&ExcessiveCostsof401(k)s(Hiltonsmith),62,63returns:

assetallocationand,135ofmarketvs.averageinvestor,17riskand,seeriskandreward

revenuesharing(paytoplay),65,67reversiontothemean,57revocablelivingtrust,211risk,119

assetallocationand,133avoidanceof,119,127globalinvestmentsand,157,158ofunexpectedevents,seeuncertaintyandunexpectedevents

riskandreward,126asymmetric,100–104,107–9,144bondsand,129,130diversificationand,99,111–12,126–27

riskpremium,126rolemodels,166Rothko,Mark,167Roubini,Nouriel,32ruleofseven,136

S&P500,12,14–15,17,31,35,36,38,39,42,43,52,57,59,66,111,124,125,127–28,149,158savingsaccount,27Schwab,91SchwabCenterforFinancialResearch,44SEC,73second-to-diepolicy,214–15Shakespeare,William,119Sharpe,William,53Sinclair,Upton,71SIPC(SecuritiesInvestorProtectionCorporation),90snakeandtherope,storyof,18–19,37speculation,155Spier,Guy,156,161

Spodak,Craig,68–69StateStreetCorporation,119stockmarket,26–27,127,155,157

bearmarkets,seebearmarketsbeatingthemarket,59,87–88,90beingoutof,42–45bullmarkets,seebullmarketscorrectionsin,seecorrectionspatternsin,22,27–28predictionsabout,31–35,50,156resilienceof,124risein,despitesetbacks,35–37,124,128sevenfactsof,seeFreedomFactstimingand,53volatilityin,19,29,88,127–28,130

stocks,14,27,49,111,112,125,127–29,136,158assetallocationand,122,151globalmarketand,157

stress,171,172,184stressfulthoughts,distancingoneselffrom,176–78Strong,Barrett,207success,168

rulesof,165suffering,164,170–77,180,183,185

decisiontostop,175–76,18590-secondruleand,176–78triggersfor,173–74

Sunstein,Cass,157SunTzu,201SupremeCourt,70,105survivorshiplifeinsurance,214–15Swensen,David,9,16,49–50,53,57–58,80,106,111,112,150–51,153,166

taxes,48,51–52,53,87,91,104,153assetallocationand,134capitalgains,51,134estate,209–11,212andhavinganimpactontheworld,109mutualfundsand,106tax-efficientstrategies,104–9

TDAmeritrade,91teachers,63–64Templeton,John,38–39,123,124,159,178,186terminsurance,214testamentarytrust,207–8Thaler,Richard,157Time,102Toyota,5transactioncosts,50–51,52,54,153Treasurybonds,129,130

Treasuryinflation-protectedsecurities(TIPS),112Treasurynotes,103,112trends,mistakingrecenteventsfor,148–52Trump,Donald,79,146,149trustdeeds,103–4trusts,209

irrevocable,211–13irrevocablelifeinsurance,212revocableliving,211testamentary,207–8

Tversky,Amos,159Twain,Mark,213Tyson,Mike,213

UBS,72umbrellainsurance,218–19uncertaintyandunexpectedevents,27–28,98–99,119,120

Robbins’braintumorexperienceand,115–19unshakeable,meaningof,3,201USAToday,73

Vanguard,66,67,77variablelifeinsurance,215VirginAtlanticAirways,101VIXindex,121

Waitley,Denis,216WallStreetJournal,4,57,73,74,111Watergatescandal,124wealth:

financial,163–64,168real,163–87

WellsFargo,72,73,74will,202,203

keydecisionsand,207–8probateand,204,205

Williams,Robin,168–70WolfofWallStreet,The,47WorldWarII,124,128

Herz-Sommerin,184–85Wynn,Steve,51,167

YaleUniversity,49–50,106

Zgainer,Tom,67–68

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