Unshakeable

1. Financial freedom comes from mastering your mind, not just your money

The single biggest threat to your financial well-being is your own brain.

Psychological mastery. To achieve financial freedom, you must first master your mind. The human brain is wired with cognitive biases that can lead to poor financial decisions. These include confirmation bias (seeking information that confirms our beliefs), recency bias (overweighting recent events), and loss aversion (feeling losses more intensely than gains).

Overcoming biases. To counteract these tendencies:

• Seek out diverse opinions and challenge your assumptions
• Take a long-term perspective and avoid reacting to short-term market fluctuations
• Reframe losses as opportunities to buy assets at a discount
• Develop a systematic investment approach to remove emotion from decision-making

By understanding and overcoming these psychological pitfalls, you can make more rational financial choices and stay committed to your long-term investment strategy.

2. Prepare for market volatility and use it to your advantage

Corrections are not something to fear. They're inevitable, and they create some of the biggest opportunities to leapfrog to financial freedom.

Market cycles. Volatility is a natural part of financial markets. On average, the stock market experiences:

• A correction (10%+ drop) about once per year
• A bear market (20%+ drop) every 3-5 years

Opportunity in chaos. Instead of fearing market downturns, view them as opportunities to:

• Buy high-quality assets at discounted prices
• Rebalance your portfolio to maintain your target asset allocation
• Take advantage of tax-loss harvesting to offset gains

By preparing emotionally and financially for market volatility, you can remain calm during turbulent times and capitalize on opportunities that others miss due to fear and panic selling.

3. Minimize fees and taxes to maximize your returns

Fees are the termites in your financial house. They're eating away at your financial future.

The impact of costs. High fees and taxes can significantly erode your investment returns over time. Even small differences in annual costs can compound to massive amounts over decades.

Strategies to reduce costs:

• Invest in low-cost index funds instead of actively managed mutual funds
• Minimize portfolio turnover to reduce transaction costs and capital gains taxes
• Utilize tax-advantaged accounts like 401(k)s, IRAs, and Roth IRAs
• Consider tax-efficient investment vehicles like ETFs and municipal bonds
• Review your investment and retirement accounts for hidden fees

By focusing on minimizing costs, you can dramatically increase the amount of money you keep and compound over time, accelerating your path to financial freedom.

4. Diversify globally and across asset classes for long-term success

Diversification is the only free lunch in investing.

Spread your risks. Diversification helps reduce portfolio volatility and improve risk-adjusted returns. Don't put all your eggs in one basket.

Key diversification strategies:

• Invest across different asset classes (stocks, bonds, real estate, commodities)
• Diversify geographically by investing in both domestic and international markets
• Include a mix of large-cap, mid-cap, and small-cap stocks
• Consider alternative investments like REITs or private equity for additional diversification

Avoid home bias. Many investors overweight their portfolios towards their home country. By diversifying globally, you can potentially capture higher returns and reduce overall portfolio risk.

Remember that proper diversification doesn't guarantee profits or protect against losses, but it can help smooth out your investment journey and improve your odds of long-term success.

5. Choose a fiduciary advisor who puts your interests first

Most people think all financial advisors are legally required to act in their clients' best interests. Believe it or not, that's not true.

Understanding advisor types. There are three main categories of financial advisors:

1. Brokers: Operate under the "suitability" standard and can sell products that benefit themselves
2. Registered Investment Advisors (RIAs): Legally required to act as fiduciaries
3. Dually registered advisors: Can switch between fiduciary and non-fiduciary roles

Selecting a fiduciary. When choosing an advisor:

• Look for a fee-only Registered Investment Advisor (RIA)
• Ask if they are always acting as a fiduciary
• Understand their compensation structure and potential conflicts of interest
• Check their credentials and experience
• Ensure they offer comprehensive financial planning, not just investment management

By working with a true fiduciary advisor, you can be confident that your financial recommendations are in your best interest, not driven by commissions or hidden agendas.

6. Build a cushion and rebalance regularly to weather market storms

The single biggest threat to your financial well-being is your own brain.

Financial cushion. Maintain an emergency fund and create a "Rule of 7" income cushion:

• Aim to have 7 years of anticipated income needs in conservative investments
• This allows you to avoid selling stocks during market downturns
• Start with a smaller goal (e.g., 3-6 months) and build up over time

Regular rebalancing. Periodically adjust your portfolio back to its target allocation:

• Helps maintain your desired risk level
• Forces you to buy low and sell high
• Can be done annually or when allocations drift beyond predetermined thresholds

By building a financial cushion and consistently rebalancing, you create a system that helps you stay the course during market turbulence and take advantage of opportunities when they arise.

7. Focus on gratitude and giving to achieve true wealth and fulfillment

The secret to living is giving.

Gratitude practice. Cultivate an "abundance mindset" by regularly focusing on what you're grateful for:

• Write down three things you appreciate each day
• Practice a daily gratitude meditation
• Reframe challenges as opportunities for growth

The power of giving. True wealth comes from making a positive impact on others:

• Find causes you're passionate about and contribute time or money
• Start giving now, regardless of your current financial situation
• Consider setting up a charitable giving plan as part of your overall financial strategy

By focusing on gratitude and giving, you can experience a sense of richness and fulfillment that goes beyond monetary wealth. This mindset shift can also lead to more positive relationships, increased happiness, and even better financial decision-making.

Last updated: August 8, 2024