When asked what books about finance I recommend, my response ten years ago was:
They’re still my go-to books for self-education on finance and I haven’t seen anyone do better on those topics yet. Reading those books has been pivotal in my investing life.
In recent years I’ve added to my list:
Then, in late 2014, Tony Robbins released ‘Money: Master the Game’. I immediately preordered the book, wondering if it would become another financial ‘Bible’.
Now, I’m no Robbins disciple. He’s just not my style. That aside, I don’t doubt that he is genuine and that his methods work – the results abound and he must be one of the best-connected individuals on the planet. He’s clearly built a phenomenal brand. It’s wonderful to see him using that brand to get the message about financial education to the world (even if there are a lot of company-specific endorsements in the content). So I gritted my teeth against the inevitable overuse of exclamation marks and read the book…
…and I was impressed!
This book is not a replacement for any of the books I mentioned above, but it does cover some unique territory that I haven’t seen dealt with explicitly before. These include:
- Forget beating or timing the market, indexes will outperform you.
- Fees kill your profits.
- Current superannuation rates (401(k) or IRAs in America-speak) are not enough to support you in retirement.
- Pay your tax up front, because who knows what future rates will be in these times of massive debts.
- Diversify according to risk, not total asset value.
- The return of annuities to popularity.
- The All Seasons Strategy – perhaps the most interesting part of the book, a strategy with the potential to see you make solid profits in good times and sidestep major losses in down times.
There’s lots of other rehashed content in there – the power of compound interest, the importance of saving, why you need to make reasonable estimates of how much you actually need to live. These are all covered in detail in those books I listed at the start of this post too. Robbins does an admirable job at communicating these concepts in his usual enthusiastic style and they’re not out of place in this book, they’re just not new and they’re not good enough to replace ‘The Richest Man in Babylon’ or ‘Rich Dad, Poor Dad’. But that’s OK, the new stuff is worth it.
In my humble opinion, the book has just one major failing (apart from my objection to the overuse of exclamation points): it’s America specific. That will be enough to turn some Australian readers off. But should it? Are the concepts that far from Australian reality? Or is it just a case of ‘lost in translation’?
Here are a few tips for Aussie readers interested in the book:
1. 401k = Superannuation
Superannuation, or super, is the Australian equivalent of the American 401(k) account or Individual Retirement Account (IRA). It’s a form of compulsory saving that is intended to ease the burden on social welfare for those no longer working by making individuals self-sufficient financially – well, that’s the intent if not the typical result so far. The Americans also have a subset called the Roth 401(k) that affords special allowances, but that kind of differentiation doesn’t exist in Australia so you can skip those pages in Chapter 2.5 if they don’t interest you.
Like in America, minimum super rates in Australia will not be enough to support you in the old age most of us can expect to reach. Also like in America, super funds get away with charging fees that look small, but in fact erode significant potential from most super accounts.
2. Aussie fees are usually higher
Volume equals economies of scale and competition, and a 300 million strong population will always outclass the offers available to our country, which is less than 8% the size of America’s with a population of 20-something million. In addition, if you wish to avoid the colossal fees of the major funds and start your own Self Managed Super Fund (SMSF), you’ll be looking at 1% in costs to meet all the regulations before you start investing your capital if you’re in the early six-figures for your balance. So achieving Tony’s target of less than 1% fees on your retirement fund is a big ask for people with retirement fund balances less than half a million. Fortunately, our super funds are lifting their game by offering direct investment options with a fraction of the fees of their more managed choices, so keep an eye out for those.
3. Future tax rates are uncertain
We are at a point in the long-term economic cycle where debts are escalating. From individuals to entire countries, we owe more. This is true of America and Australia. The inevitable conclusion of our growing interest bills to service this debt is one or all of:
- Cuts to government spending,
- Increases in personal and company tax rates, or
- ‘Disruptive’ changes that cause a jump in productivity and/or Gross Domestic Product (GDP).
The first two aren’t exactly vote-winning strategies, and if the third was doable we’d be doing it right now. There will come a point where the incumbent governments will have no choice but to make tough decisions. We are lucky enough that we’ve been able to put it off, avoiding the fate of countries like Greece, but that’s not sustainable. The bottom line? Tax rates may go up. It’s unlikely they’ll go down. Paying tax up front on any payments to your retirement fund locks in the amount now. It may be a safer bet.
4. Aussie and American Stock Markets track
There are many references to the S&P500 throughout the book – of which there is an American and an Australian version (Robbins refers to the American one. Obviously). Essentially, their trends are similar. There is an excellent article on Cuffelinks that discusses this topic so I won’t labour it (go directly to the graph if you prefer). The message is that you can replace the American S&P500 with our local index and you’ll get the same effect, if not identical results to the numbers quoted in the examples.
To that end, the All Seasons Strategy is directly translatable to Aussie markets. I haven’t done the maths to demonstrate the historical returns, but the logic and risk split seems a good match for our economy too.
5. Annuities are about income
The annuities section is interesting. The message is: how do you take your retirement assets and convert them to an income? Even better, a guaranteed income that tracks with inflation? Annuities, akin to insurance, are certainly one way to go.
There are other cash flow options, for example getting income from dividends, interest and rent. The risk with all these forms is simply a downturn in the value of your asset severely hampering the rate of return you can expect – you may find your income halved overnight, as so many retirees did around the Global Financial Crisis.
Personally I like the idea of getting my retirement cash flow from rent on property because it generally tracks to inflation, you can still get capital growth and have an asset to pass onto your children rather than a zero balance. There’s also the fact that my property is mostly paid for by the tenants over the 30 years of the loan.
My verdict: now I recommend 5 books
‘Money: Master the Game’ is an excellent book and worth the read for Aussies and Americans alike. It doesn’t replace any of the other financial ‘Bibles’ in my library, but it’s complementary to them and the All Seasons Strategy alone is worth the price of the book. American or Aussie, it’s worth reading.
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