Principles to take with you on your journey to financial freedom
*This article was an op-ed by Tony Robbins, originally published by CNBC.
Harnessing the Power of Compounding
We all know that starting to save early is important, but most of us don’t. Frighteningly, some studies have shown 60% of American’s don’t have $1,000 saved for retirement. Most people falsely believe they need to hit a home run or earn a heck of lot more before they begin can save. This is simply untrue if, and only if, you start early!
Get this: A 19-year-old, who saves $50 PER WEEK, will save $2,600 per year. If they do this until age 65 and average a 10% annual return (i.e., about the S&P 500 average return over the last 90+ years (1926 through 2018), they will have over $2.2 million at age 65!
Sure, most reading this aren’t 19 years old, so we now we likely have to play catch-up. (Side note: make sure to send this to your kids or grandkids!) You must make the decision to not be left behind and begin saving today – no matter what it takes. This is especially true for Millennials who came of age during the financial crises of 2008 and are still fearful of the markets. Sadly, the Dow Jones is up 300% since 2009 and many have missed a huge opportunity to participate in this unprecedented bull market – a fact they will undoubtedly regret.
Eliminate Excessive Fees and Taxes
When I sat down with Vanguard founder, Jack Bogle, he said this wonderful phrase: “In investing, you get what you don’t pay for.” Paying excessive fees or unnecessary commissions to brokers will erode your account values.
Most Americans are entirely unaware of the fees being extracted from their accounts. A 2011 AARP study revealed that 71% of Americans think they pay NO fees in their 401k plan. Nothing could be further from the truth. (If you are a business owner and want a free review of your 401(k) plan fees, go here).
So, let’s take our same 19-year-old example from above to see just how fees can impact our future. If she paid 2% in annual fees (from age 19 until age 65), she would no longer have over $2.2 million at retirement. She would have $1.16 million – an almost 50% reduction in her potential nest egg.
Find a “Fiduciary” Advisor
Well over 90% of financial advisors are technically brokers. It’s a world driven primarily by compensation, so commission-laden investments and more profitable proprietary (aka name brand) funds are quite common.
This conflicted sales model is not lost on consumers. The Edelman Trust Barometer released a sobering survey in 2018 showing the financial services industry as the least-trusted industry, edging out Media and Government.
The good news is that there is a small segment of advisors, who, like doctors and lawyers, self-select to be a fiduciary. A fiduciary is someone required by law to put your interests first.* These are people who don’t “have a horse in the race” when they are making recommendations. This sounds like common sense, but the truth is, most advisors, although great and well-intentioned, do not fit these criteria.
*You can hear me speak about fiduciaries more in depth on the Unshakeable podcast.
So here are 2 questions you can ask your advisor/broker to flesh out their motivations:
- Do you or your firm receive any third-party compensation for recommending particular investments? Ideally, the answer is an emphatic no.
- Are you an independent registered investment advisor? “Yes” means that they are required by law to be a fiduciary.
Understand How Markets Work and Avoid Behavioral Mistakes
It’s no secret that the US stock market has periods of immense volatility. Unfortunately, this volatility causes investors to make irreparably poor decisions (i.e., selling everything and going to cash only to miss the recovery). Let’s explore a couple of facts that will dispel your fears during tumultuous times.
Corrections are a constant. On average, corrections happen about once per year (since 1900). A correction is a 10% drop, but not more than 20%. When I first heard this stat, I was blown away. Corrections are a remarkably regular occurrence, but they are usually nothing to fear. On average, they last 54 days and 80% of the time, corrections do NOT turn into a bear market. That means 4 out 5 times the market has shrugged and moved onto new highs.
The stock market rises over time. Despite many short-term setbacks, this is undoubtedly the trend. For example, The S&P 500 index experienced an average intra-year decline of 14.2% from 1980 through the end of 2015. But in the end, the market ended up achieving a positive return in 27 of those 36 years. That’s 75% of the time! Point being, most of the short-term volatility should usually be ignored.
If you have over $50k invested, Creative Planning will provide you with a complimentary second opinion on your investment accounts. It’s a great opportunity to take advantage of another look “under the hood” to make sure that you are optimally set up for achieving the financial future you deserve. Go to www.GetASecondOpinion.com to take advantage of this offer.
Legal Disclosure: Tony Robbins is the Chief of Investor Psychology at Creative Planning, Inc., an SEC Registered Investment Advisor (RIA) with wealth managers serving all 50 states. Mr. Robbins receives compensation for serving in this capacity based on increased business derived by Creative Planning from his services. Accordingly, Mr. Robbins has a financial incentive to refer investors to Creative Planning.
Tony Robbins is an entrepreneur, bestselling author, philanthropist and the nation’s #1 Life and Business Strategist. Author of five internationally bestselling books, including the recent New York Times #1 best-seller UNSHAKEABLE, Mr. Robbins has empowered more than 50 million people from 100 countries through his audio, video and life training programs. He created the #1 personal and professional development program of all time, and more than 4 million people have attended his live seminars.