Legendary investor Paul Tudor Jones pays him $1 million per year to be his coach and has consulted with him for the last 25 years. If that isn't enough of an endorsement for you, nothing is.
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Tony Robbins is one of the world's preeminent experts when it comes to modeling success. In other words, Robbins studies the most successful people in any given endeavor to learn their strategies for reaching the top. Next, he distills this knowledge into an easy-to-understand method which he passes along to his clients and followers.
Tony's book "Money: Master The Game" is his magnum opus on successful investing.
Needless to say, I am extraordinarily impressed with Tony's ability to present these sometimes divergent viewpoints into a unified investment strategy. It is one of the most reasoned, well-rounded, and insightful investment books I have read in the last two decades.
Tony's Tip 1. Buy Index Funds
This is where Tony Robbins and Warren Buffett agree on an investing strategy. While not very exciting, buying low-cost index funds is a time-proven method of making consistent money in the stock market.
Index fund investing is so powerful that Warren Buffett has said it is how he would instruct his wife to invest if anything happened to him. He even put his money where his mouth is by betting hedge fund Protégé Partners $1 million that index funds would outperform hedge funds over the next decade. In 2017, Buffett won a million bucks, which were donated to charity.
Robbins explains the reason for index funds: "Index funds take a 'passive' approach that eliminates almost all trading activity. Because humans aren't actively managing index funds, they also aren't actively making mistakes. When you own an index fund, you're also protected against all the downright dumb, mildly misguided or merely unlucky decisions that active fund managers are liable to make."
Tony's Tip 2: Keep Costs Low
Constant commissions and fees kill investment performance. Active traders not only have to choose the right investments, but they also have to make enough to cover the fees and costs. The more active you are as an investor, the costlier investing becomes. The best way to keep costs low is to invest in index funds via a consistent investment program. The steady investment takes advantage of dollar cost averaging.
Tony's Tip 3: Automate
Making investing automatically is critical to winning at the game. Set up an automatic deduction from your paycheck that will go to your investments. The reason automation is so crucial is it eliminates you thinking about the money and perhaps misappropriating it away from the investing goal.
Tony's Tip 4: Compound Interest
Taking advantage of the power of compound interest is the key to building wealth in the stock market. Compound interest is the interest that forms on top of the principal and interest from past periods. Dividend reinvestment is one way to capture the power of compound interest. Tony stresses the importance of starting early with compound interest. The earlier you start taking advantage of it, the more money you can expect to earn over the long term.
Tony's Tip 5: Diversify
Diversification is the best way to protect yourself from investing risk. Investing in index funds at the start is an ideal way to diversify in the stock market. As your portfolio grows, Tony suggests diversifying into a mix of stocks, bonds, and real estate.
Tony's Tip 6: Watch The 200-Day Moving Average
If you have read any of my previous articles, you know that I am also a huge proponent of the 200-day moving average as an investing signal. Tony learned the power of the 200-day moving average from investing legend Paul Tudor Jones. Jones told Robbins: "My metric for everything I look at is the 200-day moving average of closing prices. I've seen too many things go to zero, stocks and commodities. The whole trick in investing is: "How do I keep from losing everything?" If you use the 200-day moving average rule, then you get out. You play defense, and you get out."
Tony's Tip 7: Shoot For A 5:1 Risk-Reward Ratio
This means for every $1.00 risked in the stock market, your goal should be to earn $5.00. You only need to be right 20% to not lose money with a 5:1 risk ratio! Jones told Robbins: "What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I'm still not going to lose."
Risks To Consider: Even if you are personally coached by the world's best investors, you can and will lose money when investing. There is no holy grail to never lose money in the markets.
Action To Take: Tips 1-5 are primarily targeted at passive, long-term investors, while tips 6 and 7 are meant for more active, experienced investors. Try to apply the above tips to your investing. You may be pleasantly surprised!