Don’t Invest In Mutual Funds, And 11 Other Counterintuitive Tips From Billionaires

By Tony Robbins | 11/18/14 10:00am

The author, Tony Robbins (Photo by Frederick M. Brown/Getty Images)

Four years ago, after watching the global financial system nearly melt down, I began an amazing journey to find a way for individual investors like you to take control of your money in a system that seems rigged against you. I vowed that, if I were going to do this, I would do it all the way; bringing you the best possible information from the most knowledgeable and influential experts in the world.

The only question was: where to start?

My whole career I’ve been obsessed with finding successful strategies and tools that can immediately change the quality of people’s lives. What I’ve found is that success leaves clues. For instance, people who succeed at the highest level are not lucky; they’re just doing something differently than everyone else. They zig when others zag, attack when others retreat. I’m interested in those people, those who have a relentless hunger to learn and grow and achieve.

So on my quest to help everyday people take control of their money, I searched out those people. And in the process, I ended up interviewing some of the biggest investment titans on Wall Street and elsewhere, asking every question I could think of about the art of building wealth.

I asked each of these great investors, “If you couldn’t pass any of your money to your children, but only a set of insights, strategies, or a portfolio, what would they be?”

Here’s a brief sample of some simple tips from 12 of the most colorful and brilliant minds in finance. These are some of the principles that have guided them through every economic condition.

Paul Tudor Jones (Photo by JIMI CELESTE/PMc)

Paul Tudor Jones II
Founder, Tudor Investment Corporation
Founder, Robin Hood Foundation
Legendary Financial Trader of 28 consecutive years without a single loss

“Defense is ten times more important than offense. The wealth you have can be so ephemeral; you have to be very focused on the downside at all times.”

If you lose 50%, it takes 100% to get back to where you started—and that takes something you can never get back: time.

Warren Buffett
CEO, Berkshire Hathaway

“The goal of the nonprofessional should not be to pick winners—neither he nor his “helpers” can do that—but should rather be to own a cross section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”

Indexing is the way to go. Invest in great American business without paying all the fees of a mutual fund manager and hang on to those companies and you will win over the long term.

Ray Dalio
Founder and Co–Chief Investment Officer, Bridgewater Associates, the world’s largest hedge fund, with $160 billion under management and a 21% compounded return before fees over 23 years

“My favorite question is, “What don’t I know?”

What has been very successful for me through my whole life is to not be arrogant about knowing, but to embrace the fact that I have weaknesses, that I don’t know a lot about this, that and the other thing. The more you learn, the more you realize you don’t know.

We’re all going to be wrong. So we have to set up a system that protects us from that.”

John C. Bogle (Photo by PATRICK MCMULLAN/PMc)

John C. Bogle
Creator of the Index Fund; Founder and former CEO of the Vanguard Group, the world’s largest mutual fund
85-year-old investment legend with 64 years of experience in the markets

“Surprise, the returns reported by mutual funds aren’t actually earned by investors.”

96% of all mutual funds don’t match the market over any ten-year period.

A firm will go out and start five incubation funds, and they will try and shoot the lights out with all five of them. And of course they don’t with four of them, but they do with one. So they drop the other four and take the one that did very well public with a great track record and sell that track record.

An “insider” knows that chasing the high flyer advertised fund is chasing the wind.

Kyle Bass
Founder, Hayman Capital Management
Turned $30 Million into $2 Billion during the subprime crisis

Taking a swing for the fence with no downside protection is a recipe for disaster.

Significant risk taker means we can lose all of our money. I never set myself up for the knockout punch. In fact, the way I produce such huge returns, is I risked only 6 cents for every dollar of upside potential. That’s how you set yourself up to win.

David Swensen (Photo by Chip Somodevilla/Getty Images)

David Swensen
Chief Investment Officer, Yale University
Grew university endowment fund from $1 Billion to $23.9 Billion in two decades

“Diversification is the only free lunch.” Why? Because spreading your money across different investments decreases your risk, increases your upside returns over time, and it doesn’t cost you anything.

Of the three tools for reducing your risk and increasing your potential for financial success: security selection, market timing and asset allocation, overwhelmingly the most important is asset allocation.

It actually explains more than 100% of returns in the investment world. Because those fees, taxes and losses that come along with stock picking and market timing put a drag on your profits.

Mary Callahan Erdoes (Photo by Stephen Lovekin/Getty Images for UNICEF)

Mary Callahan Erdoes
CEO, J.P. Morgan Asset Management Division
Managing $2.5 trillion in assets

“Specific portfolio construction will be different for different people. You can’t have someone in a perfect asset allocation unless it’s perfect for them.”

“I have three daughters. They’re three different ages. They have three different skill sets, and those are going to change over time, and I’m not going to know what they are. One might spend more money than another. One may want to work in an environment where they can earn a lot of money. Another may be more philanthropic in nature. One may have something that happens to her in life, a health issue. One may get married, one may not; one may have children, one may not. Every single permutation will vary over time, which is why even if I started all of them the first day they were born and set out an asset allocation, it would have to change.”

Charles Schwab
Founder and Chairman of Charles Schwab Corporation; revolutionized the investing business, $2.38 trillion in assets under management

“I invest in a lot of individual stocks. But I have the time. I have the expertise. I have the education. But 98% of people don’t focus on that.

Most people should really predominantly go into index funds, in my view. They have the most predictable outcomes. Better than they would ever by trying to pick different things, which is very difficult to do. And then do their other job too. You can’t do both.”

Carl Icahn (Mat Szwajkos/Getty Images)

Carl Icahn
Legendary Investor, Investment Activist, Founder of Icahn Enterprises, Net worth of $26.1 Billion

Everything is risk and reward. But you’ve got to understand what the risk is, and also understand what the reward is.

When you buy a company, what you’re really buying are its assets. So you’ve got to look at those assets and ask yourself, “Why aren’t they doing as well as they should be?” Fully 90 percent of the time, the reason is management.

Sir John Templeton
Founder of Templeton Mutual Funds; Philanthropist; Creator of the £1 Million Templeton Prize

“Not only do you buy at maximum pessimism but you want to sell at the peak of optimism.”

When everyone else thinks the world was going to end, it is the right time to invest. When everyone else thinks “Oh my God! These are the greatest times in history!”—that was when it is time to sell.

T. Boone Pickens (Photo by Chip Somodevilla/Getty Images)

T. Boone Pickens
Billionaire, Investor and Legendary Oil Oracle
Chairman and CEO of BP Capital Management
19 out of 21 accurate predictions on oil prices

“Most people say, ‘Ready? Aim! Aim! . . .’ But they never fire.”

It drives me crazy because they don’t make decisions. They don’t want to make decisions; they would like somebody to do it for them. I feel like the decisions I make will be good, and I’ll see good results.

Marc Faber
Director of Marc Faber Limited; Publisher of Gloom, Boom & Doom report

“The most money made is by doing nothing, sitting tight.” Sitting tight means you have cash.

In your life, the important thing is not to lose money. If you don’t see really good opportunities, why take big risks? Some great opportunities will occur every three, four, or five years and then you want to have cash available.

There are not more than five primary colors, yet in combination they produce more hues than can ever been seen.

—Sun Tzu, The Art of War

Like all experts, these money masters all have different views of what the near-term future might hold, and they have different opinions on which investment vehicles they favor most. Some are short-term traders; some like to hold long-term.

However, they have all won at the investment game. You can too, using these tips and others.

Remember that knowledge is not power, execution is. Execution trumps knowledge every day of the week. Just make a little bit of progress each day or each week and before you know it, your path to financial freedom will be realized.

Tony Robbins has helped more than 50 million people from more than 100 countries transform their lives and their businesses through his books, audio programs, health products, live events and personal coaching. His first book in over 20 years, MONEY Master the Game: 7 Simple Steps to Financial Freedom, is out November 18th.