5 Investing Mistakes Tony Robbins Wants You To Avoid
Famed motivational speaker Tony Robbins offers advice to his followers on a wide variety of subjects, including personal finance. In a blog on his website, Robbins addressed a number of common investment mistakes that can act as a drag on your returns. As Robbins puts it, one common trait successful people share is their obsession with not losing money. They accomplish this by investing smartly, learning from their mistakes and avoiding them in the future.
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The purpose of Robbins’ blog post is to help investors avoid some of these common mistakes right off the bat so they don’t have to go through the process of making them in the first place. Here are the five investing mistakes that Tony Robbins wants you to avoid.
Paying Too Much for Mutual Funds
Mutual funds have long been the recommendation for investors who don’t have the time, expertise or desire to learn about picking individual stocks. As mutual funds can offer instant diversification, with a single purchase gaining access to potentially hundreds of different securities, the strategy seems to make sense. However, Tony Robbins doesn’t look at the industry very favorably.
For starters, Robbins said that their fees, in aggregate, are simply too high. Data seems to support his contention. Roger Edelen, Richard Evans and Gregory Kadlec of the University of California, the University of Virginia and Virginia Tech, respectively, conducted a study finding that mutual fund trading costs investors 1.44% per year on average, and up to 3.17% in the case of small-cap funds.
That’s bad enough, but to Robbins, it’s a foolish bet, as the vast majority of mutual fund managers don’t even outperform the market. According to Robbins, 96% of actively managed mutual funds do not beat the market over 15 years.
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Neglecting To Rebalance
Rebalancing a portfolio is one of those basic investment principles that most people understand. After all, if your portfolio was constructed to match your investment objectives and risk tolerance — as it should be — then you’ll usually have to rebalance your portfolio on a regular basis to keep it in line. Typically, instead of all of your investments rising in exact proportion to one other, some will outperform others. Eventually, this outperformance will get to the point that your portfolio is out of balance.
The problem, Robbins points out, is that it’s human nature to be happier with your winners than your losers. This can make it hard to rebalance your portfolio from an emotional perspective. As Robbins puts it, when part of your portfolio is rising sharply, “it’s easy to convince yourself that your investment successes will continue forever or that the market can only go up.”
You’ll need the mental discipline to make sure you rebalance on a regular basis, typically once or twice per year.
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Failing To Use a Fiduciary
If you’re trusting your money with an investment professional, you want them to be required to act in your best interest — something which is known as a “fiduciary duty.”
But would you be surprised to learn that most brokers only have to make recommendations that are “suitable” and not necessarily the best choice for you? As Robbins — and many others — point out, this can easily lead to a conflict of interest for your broker. If they can generate more commissions and profits for themselves by recommending something that’s “suitable” but not necessarily the best choice for you — one which would earn them less money — they may not steer you in the right direction. For this reason, Robbins said that you should only work with a fiduciary advisor.
Bad Asset Allocation
As Robbins put it, “Anybody can become wealthy; asset allocation is how you stay wealthy.” While asset allocation can provide proper diversification for your portfolio, when used properly, it will also diversify your risk.
Robbins said that in addition to owning a variety of assets — such as real estate, stocks, bonds and commodities — you should also look at owning both conservative and aggressive investments.
Robbins likens a good asset allocation to owning a sports team. You want to have both “offense” and “defense” in your portfolio, meaning you should own some assets that offer the potential for explosive growth and others that are more defensive in nature so that you don’t wipe yourself out in the event of a market calamity.
Overlooking Taxes
Robbins is adamant about reducing taxes. According to his analysis, the average American will pay more than half their income over the course of their lives to interest expenses and taxes, ranging from income tax and property tax to sales tax and use tax, such as on gasoline purchases.
But Robbins said that wealthy people know that “it’s not what you earn that matters, it’s what you keep.” He emphasized that Americans should work with tax professionals to understand how to implement legal methods of minimizing their taxes.
One example Robbins gave is tax-loss harvesting. Imagine if you have a successful year investing and have $20,000 in profits. If you also have $7,500 in unrealized losses in a losing position, you can sell it and use that loss to reduce your $20,000 capital gain. This way, you’ll get to keep more of what you earn. Robbins said there are additional ways to make your investments more tax-efficient and that you should actively look for ways to integrate them into your financial life.
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