Discover the Millionaire Mindset: How Anyone Can Invest and Retire Rich

Good morning, Believe Nation. Today we're going to talk about the how and the why of investing.

Many years ago, a man named Klassen wrote a book called The Richest Man in Babylon. This book became a worldwide bestseller, sold millions and millions of copies in every language, and it has one basic principle in the book, which is not very large, which says pay yourself first. Resolve today that you are going to save and invest at least 10% of your income throughout your working life. Take 10% of your income off the top of your paycheck each time you receive one. Pay yourself first. And put it into a special account for financial accumulation. The fact is that if you save just $100 per month throughout your working lifetime and you invest that money in an average mutual fund that grows at 8 to 10% per annum, you will be worth more than $1 million by the time you retire. My good friend David Bach wrote a book which said that If you simply spend one latte less, $5 a day, and he called it the latte factor, and save that money, $25 a week, you'll save $100 a month and you'll become financially independent. He's been on half the television shows in America explaining that by saving a few dollars each day and saving it, you can achieve all your financial goals. What this means is that anyone, even a person earning minimum wage, if he or she starts early enough and saves long enough, can become a millionaire over the course of his or her working lifetime. And that includes you.

Most people think that savings is smart, but my rich dad told me years ago that savers are losers. Now I know this goes against the grain of what most people tell you, you know, save money, save money, save money. But the reason savers are losers began back in 1971. And in 1971, President Nixon took the U.S. off the gold standard and made the U.S. dollar the reserve currency of the world. One of the reasons we have so much economic volatility in our economy today—high gas prices, high food prices, stock market booms and busts, housing values going down—all can be attributed back to 1971. Plus there are other changes. So what makes the Rich Dad Company different is that we do not really subscribe to the idea of being a saver. We think it's more important to learn to be an investor. You know, like if you had invested in oil 10 years ago, you'd be a rich person today, even though savers are losers. If you invested in gold 10 years ago, you would have been a lot better off. If you had invested in rental real estate 10 years ago, you would have been way ahead of the savers. So if you want to get ahead, you need to not be a saver, but learn to be an entrepreneur or an investor.

And I remember the story, and it really affected me years ago. My mother— I was born in Montreal— worked at a company called Kitty's Togs, and she used to come home and tell my brother and I, because they pay them every week on Thursday morning, she'd always invest a third of her paycheck into Bell bonds with coupons. She'd always say to me, boys, never spend the principal, just the interest, and never, ever, ever You should never buy a security that doesn't pay a dividend. And, you know, back in those days, stocks paid higher dividends than the bonds. So, example, you know, Bell Canada had a 6% yield on its 5-year paper, its bonds. The stock yielded 7% to entice people to take the risk to own an equity. And we got lost somewhere between the '50s and the '60s and '70s, and we actually thought that it was a good investment to buy a stock that didn't pay a dividend, which to me is insane. So anyways, I wanted to— found a firm on that, my mother's basic concept, because, you know, she died a few years ago and I was executive for her estate and I looked at her portfolio, which she never shared with anybody, but 40 years compounded dividends and bonds, you know, 73% of the market's returns over the last 40 years came from dividends, not capital appreciation, and she knew that intuitively. So that's how we built the foundation of O'Leary Funds. We listened to mom. We don't own a single security that doesn't pay a dividend. I will never buy a stock in my life that doesn't pay a dividend. If it's not returning cash to me, it's a speculation. And if a manager can't send me cash, I'm not interested.

If you have a 401(k) match and you don't do it for as much as you can possibly force yourself to do, you're an idiot. If you don't have a 401(k), then there's so many esoteric, dumbass banking rules, right? Where you can't just put $10 or $20 into the bank because of all the service fees. They're gonna crush you, right? And so there's a variety of new things and opportunities that are coming up where if you can get yourself to put in $10 a week, $20 a week, $100 a month. If you're 21 and you put in $100 a month, and you put it into a Vanguard index fund, let's say. Hopefully you'll be able to increase those amounts. And so literally, if you can train yourself to save $100 a month and grow it as you earn more, you're going to be a millionaire by the time you retire. If you don't, you're going to be in the same boat I was at 27 and broke, or trying to figure it out, or, you know, others at 50 or 60 who have nothing. The opportunities exist, um, and if you can invest in just a stock index fund, an SPX fund, Vanguard I mentioned because it's the lowest cost, do it. Do it, do it, do it, do it, do it. 2 less beers. No, these days, 1 less beer. 1 less Fireball shot and you can be rich. Have those first 5 Fireballs, but those last 2, that's for the future.

For the private investors, especially in the venture capital industry, What would you think is the most important thing, the key in evaluating a company? I'm not asking about doing mediocre, I'm not asking about being average, but about excellent, remarkable. Just name one thing.

The most important thing is to decide, is to be able to define which ones you can come to an intelligent decision on and which ones are beyond your capacity to evaluate. You don't have to be right about thousands and thousands and thousands of companies. You only have to be right about a couple. I met Bill Gates on July 5th, 1991. We were out in Seattle, and Bill said, you've got to have a computer. And I said, why? And he said, well, he said, you can do your income tax on it. I said, I don't have any income. Berkshire doesn't pay a dividend. He said, well, you can keep track of your portfolio. And I said, I only have one stock. I said, I mean, and he says, it's gonna change everything. And I said, well, will it change whether people chew gum? And he said, well, probably not. And I said, well, will it change what kind of gum they chew? And I said, well, then I'll stick to chewing gum and you stick to computers, you know? I don't have to understand all kinds of business. There's all kinds of business I don't understand, but there's, There's thousands of opportunities there. I did understand the Bank of America, you know, and I'm able to do that. I'm able to understand some given percentage, but Ted Williams wrote a book called The Science of Hitting, and in The Science of Hitting he's got a diagram, shows him at the plate, and he's got the strike zone divided into 77 squares, each the size of a baseball. And he says, if I only swing at pitches in my sweet zone, which he shows there, and he has what his batting average would be, which is.400. If he had to swing at low outside pitches but still in the strike zone, his average would be.230. He said the most important thing in hitting is waiting for the right pitch. Now he was at a disadvantage because if the count was 0-2 or 1-2 or so on, even if that ball was down where he was only gonna bat.230, he had to swing at it. In investing, there's no called strikes. People can throw Microsoft at me and, you know, you name it, any stock, General Motors, and I don't have to swing. And nobody's gonna call me out on called strikes. I only get a strike called if I swing at a pitch and miss. So I can wait there and look at thousands of companies day after day, and only when I see something I understand, and when I like the price at which it's selling, Then if I swing, if I hit it, fine. If I miss it, it's a strike. But it's an enormously advantageous game. And it's a terrible mistake to think you have to have an opinion on everything. You only have to have an opinion on a few things. In fact, I've told students if when they got out of school they got a punch card with 20 punches on it, and that's all the investment decisions they got to make in their entire life, they would get very rich because they would think very hard about each one And you don't need 20 right decisions to get very rich. 4 or 5 will probably do it over time. So I don't worry too much about the things I don't understand. If you understand some of these businesses that are coming along and can spot things on, if you can spot on Amazon for example, I mean, it's a tremendous accomplishment what Jeff Bezos has done. And I tip my hat to him, he's a wonderful businessman, he's a good guy too. But could I have anticipated that he would be the success and 10 others wouldn't be? I'm not good enough to do that. But fortunately I don't have to. I don't have to form an opinion on Amazon. And I did form an opinion on the Bank of America, and I formed an opinion on Coca-Cola. I mean, Coca-Cola's been around since 1886. There's 1.8 billion, 1.8 billion 8-ounce servings of Coca-Cola products sold every day. Now if you take 1 penny and get 1 penny extra, that's $18 million a day. And $18 million times 365 is $7 billion, 3 less $730 billion, or $6,570 million. So annually, $6,570 million from 1 penny. Do you think Coca-Cola is worth a penny more than, you know, Joe's Cola? I think so. So, you know, and I've got about 127 years of history that would indicate it. So those are the kind of decisions I like to make, and you may have an entirely different field of expertise than I would have, and probably much more up to date in terms of the kind of businesses that we're seeing evolve, and you can get very rich if you just understand a few of them and understand their future.

Well, the Freedom Fund is this idea nobody wants to save, right? And millennials right now are doing the worst job of it in a long time, And it's not because they don't care or they're irresponsible. It's frankly they don't trust the market. You know, they saw what happened in 2008. They don't know where to really to go. And so they're being stimulated like crazy and they're spending like crazy. But if you really want to have freedom, then what you have to do is you've got to take that percentage aside like Theodore Johnson did and you've got to just say, this is for me. This is my freedom. There's a part of what I earn, as basic as it is, we all know this from investing, there's a part of what I earn that is mine and my family's to keep and no one's going to touch it and I'm going to grow it. And, but I also believe that where you put that really matters. And so indexing is the most basic way to do it for sure. But what all these investors showed me is asset allocation is where the difference is in business, right? In life. If you look at it, the fourth key we talk about in the four steps is you gotta really understand asset allocation. Because, uh, when I was with David Swensen, Dave said, Tony, I said, what are the dials you can move? I mean, there's a limited number of dials you can move to increase your returns to get to your financial freedom faster. He said, "No, there's really only 3." He said, "You can make a better choice selection of the actual investments or the securities. You can have better timing or you can have better asset allocation." He said, "Let me give you a clue. The first 2 will never happen." He said, "Because they cost money if you get them from somebody else and everybody's wrong on timing and everybody's wrong on the stocks." This is where all your money is made is asset allocation.

This leads to what sounds— goes against all the conventional wisdom, which you call all-weather allocation. Yeah, well, let's talk about that. Which stocks only 30%? Yes.

Explain. Yes, well, I sat down with the famous Ray Dalio, right? Right. And I prepared for 18 hours for that interview because he's a genius and there's not that much on him. I wanted to absorb it all. So I got every little bit of it, sat down with him, and it turned out Ray was a fan of my work, which I was touched by. 20 years ago, I guess, he listened to my program. So he was very generous with his time. And we spent these 3 hours, and in the 3 hours, when I got to the end, I said to Ray, I said, listen, I really want to help the average person, so I got a question for you. I did this with everyone. I said, if you couldn't give your money to your children, any of it, and all you could do would be give them a portfolio or a set of investment strategies or instructions, and they were going to start over and build it, what would it be? And he said, Tony, I spent a decade figuring that out. All my money's already there. My kids' money is there. My money for philanthropy when I'm gone is there, because I'm not going to be here, and I want something that'll do well in the future. And I don't know what the future's going to be. Markets are going to always change. I need something that could work in any market. I call it my all-weather fund. Most of us in the business are familiar with it a little bit. And so he explained it to me and I have a good understanding. And I said, I get it. So what you're saying is the reason why— this was obsessed him— why is it if I have a balanced portfolio in 2008, I got nailed on both sides? Exactly. Why did that happen in 2000? Everybody says portfolio theory, this is supposed to protect me and it didn't work. But he said, as soon as things get better, no one talks about it. We just forget about it and happens again. Happened in 2000, happened in 2008. He said, I figured it out. When you have a 50/50 portfolio, right, that's 50/50 of where you put your money in assets. 60/40, 50/50, however you look at balanced portfolio, right? But he said the problem is that's not balanced risk. And this is where people are crazy. I've seen people write things up, they see this in the book and say Tony Robbins is promoting— first of all, I'm not promoting anything. Every word in this book is from the best investors on earth. Anything that's from me is about the emotions that I know for 36 years. That's been my expertise. These are their views. But I'll tell you what's amazing. He said, "Tony, when you have stocks and bonds half and half, you're not equal because equities are 3 times more volatile. So your risk is 95/5." He said, "So that's why people get killed in 2008." And he said, "I try to get this through to people," he said, "but all of our people handle it. You manage money for countries, the largest pension funds on Earth." He said, "But people don't listen. They look at it and go, 'Oh, this is bond heavy. The bond days are over because inflation's going forward.'" He said, "It's not true, Tony." This fund in the 1970s, it was the worst time for bonds and it was an extraordinary time for all-weather because it looks overbalanced because in order to get the same level of risk, you have to go for more long-term bonds or you have to use more leverage on the bond side. And so when he was all done, it was, you know, for the average person complex, I'm seeing financial people look at this and write things up that are just silly saying, you know, this is never going to work because we're in the, you know, interest rates go, the only place to go. If interest rates go up, it's a balanced fund. The other areas kick in. But here's what's interesting. After he told the whole thing to me, I said to him, I said, look, I said, this is wonderful. You've given me something that very few people understand on the planet. I think I really got it. And I played it back to him. He said, you got it. I said, but here's the problem. The average person is never going to know what to do with this. And I said, I'm trying to help somebody that needs to know what to do. I said, tell me, you're telling me to make this beautiful chocolate cake and you're saying, Tony, here's how to do it. Use some sugar, right? Use some chocolate, use some dairy products. I need to know the amounts. You know, give me the amounts. He goes, Tony, that's my secret sauce. And that's when he told me, he said, look, 10 years ago for you to even get in to talk to me, it was $5 billion net worth, $100 million to get in. And he said, and now for 10 years I haven't taken anybody's money. I said, you answered your own question. I said, you're not taking money anyway. It's not going to compete with you. The average guy, he says, never going to make it talking to a wealth manager. Tell me what to do. And he's so generous. You know, he's giving up half his net worth like many other people. And in the end he said, okay. He said, but it'll be complex. I said, I can make it simple. He said, "Well, I don't want leverage in it." I said, "Design one without leverage." He goes, "It won't be perfect." I said, "I don't care if it's not perfect. Your idea of unperfect will be somebody else's idea of the best thing they could do." And he laid out the numbers, we ran the numbers and used the same backtesting so you saw year by year how it really did over the last 75 years of modern investing. And here's what's amazing. Like all weather, similar. In 75 years, it's been right 85% of the time. What's even more extraordinary is the 15% when it wasn't doing well, when it didn't do well, its average loss was 1.6%. Not 50, 40, 30, 20. Think of the last 10 years, the 50% His biggest loss in 75 years was less than 4%, -3.95%. And that was 2008 when the market exploded, you know, down to 51% at peak.

Here are the allocations in the book, which would make a normal person gag, at least initially. Stocks only 30%. That's right. Even though it's the stocks on average are supposed to gain, what, 9% a year? Yes, 9.2%. Long-term Treasuries 40%. Yeah. Intermediates 15%. 15%, gold 7.5%, commodities 7.5%.

Absolutely counter wisdom. I know, and it's amazing. You know, when I interviewed David Swensen, he said— he wrote a book— and when he said the whole secret to success is to be contrary to what everybody else believes. But the math on this is what works. Here's what's interesting. That looks like you're heavy bonds, 40% and 15%, 55% bonds. And it looks that way visually. In terms of volume, you are. But in terms of risk, you're not. You're still— you're making it so you're equally weighted. Think of it this way. What triggers things to grow is inflation or deflation in terms of price. Certain things do really well in inflation, certain do in deflation. Growing economy, shrinking economy. And he's figured out which quadrant you need to put each to actually have equal risk. And that's why it's done well. This year, this formula is done— it's 1% better than the market. It's in 13 and a third right now. But more importantly, 3 weeks ago when the market dropped and gave up all of its entire benefits for the entire year and everybody's guts were checking, There was no gut check because it went up a quarter of a point. So the beauty of this is, I'm sure you know, there was a study done the last 20 years and studies from 1993 to 2013, and it's by Dalbar. And they found that the market, S&P 500 during that time did 9.2% on average, just as you said. But do you know what the average mutual fund owner got? Investor? 2.5%. That's before tax. Why? Because we as investors always do the wrong thing. Emotions. That's right. We sell when we should hang on, we buy when we shouldn't. So the greatest thing that I think that Ray offers somebody the opportunity to do is actually stay in the market. Because if you got 1.6% as your big hit, if 4% was the biggest hit you've ever seen in 75 years, I think you could stay in and you could do what Jack talks about, which is stay in that market through time.

Of course, this means resetting each year.

It's a reset once a year. That's the one recalibration. So 15 minutes a year and you're in the game. Thank you for watching. We made this video because Fadi Farif asked us to.

So if there's a topic you'd like us to cover in the next edition of Believe Life, leave it below and we'll see what we can do. Thanks for watching, have an amazing day, and continue to believe.

And we'll see you soon. And we'll see you soon.