By Tony Robbins with Peter Mallouk (2017)
In this book, Tony Robbins talk about 7 facts of financial market.
The Seven Facts:
- 1. On average, corrections have occurred about once a year since 1900 – Historically, the average correction has lasted only 54 days—less than two months! In other words, most corrections are over almost before you know it. Not that scary, right?
2. Less than 20% of all corrections turn into a bear market – if you panic and move into cash during a correction, you may well be doing so right before the market rebounds.
3. Nobody can predict consistently whether the market will rise or fall.
4.The stock market rises over time despite many short-term setbacks – Despite a 14.2% average drop within each year, the US market ended up with a positive return in 27 of the last 36 years.
5. Historically, bear markets have occurred every 3-5 years. But know that they don’t last for ever, on average, they last about a year.
6. Bear markets become bull markets and pessimism becomes optimism – when the mood in the market is overwhelmingly bleak, super investors such as Buffett tend to view it as a positive sign that better times lie ahead.
7. The greatest danger is being OUT of the market – If you stay in the market long enough, compounding works its magic, and you end up with a healthy return—even if your timing was hopelessly unlucky.
Four Principles That Can Help Guide Every Investment Decision You Make
- Don’t Lose. The best investors are obsessed with avoiding losses. Why? Because they understand a simple but profound fact: the more money you lose, the harder it is to get back to where you started.
- Asymmetric Risk/Reward. You need to take big risks to achieve big returns. The best investors don’t fall for this high-risk, high-return myth. Instead, they hunt for investment opportunities that offer what they call asymmetric risk/reward: a fancy way of saying that the rewards should vastly outweigh the risks.
- Tax Efficiency. Taxes can easily wipe out 30% or more of your investment returns if you’re not careful. Yet mutual fund companies love to tout their pretax returns, obscuring the reality that there’s only one number that truly matters: the net amount that you actually get to keep.
- Diversification. Don’t put all your eggs in one basket.
What asset classes will give you the highest probability of getting from where you are today to where you need to be? In other words, the design of your portfolio must be based on your specific needs.
- Asset allocation drives return. Deciding on the right balance of stocks, bonds, and alternatives is the most important investment decision you’ll ever make.The moral: never bet your future on one country or one asset class.
- Use index funds for the core of your portfolio.
- Always have a financial cushion.
- The rule of seven. Ideally, we like our clients to have seven years of income set aside in income-producing investments such as bonds and MLPs. If stocks crash, we can tap these income-producing assets to meet our clients’ short-term needs.