The New Way For Ordinary People To Build Wealth - Tony Robbins - #1153

Modern Wisdom

Tony Robbins and Christopher Zook discuss evolving strategies for wealth creation in an increasingly concentrated market. They explore the s

Key takeaways

• Ray Dalio's 'Holy Grail' of investing involves holding 8 to 12 non-correlated investments to reduce risk by 80%.
• The 'Magnificent Seven' stocks now represent a massive portion of the S&P 500, leading to increased market correlation and volatility.

Main topics

• Asymmetric risk-reward
• Private equity vs. Public markets

Notable quotes

The best investors on earth are all about don't lose money.

Conclusion

The episode serves as a guide for moving beyond traditional index fund

Transcript preview

Speaker 3 (0:00) People of the UK and Ireland, I'm coming to you live. Imagine that, me on stage in your city. Dublin is completely sold out, but everywhere else has got limited tickets left, and you can get yours now at chriswilliamson.live. This is a custom-built live show. I absolutely adore it. I've spent over a year working on it. So, if you're a fan of everything Modern Wisdom, come and see me on stage this October around the UK and Ireland. chriswilliamson.live. Speaker 2 (0:22) Despite Speaker 3 (0:22) being just 4 % of the global population, Americans made up nearly 50 % of the world's new millionaires in 2025. You've written three books in this area. Why another one on finance? What hadn't you said already? Speaker 2 (0:36) Good question. I never even read the first book. In fact, I'd written a book for almost 15 years. I don't enjoy writing books. I like the variety and the aliveness of interaction and what happens. But when... 2008 happened, I was really annoyed because I worked with Paul Tudor Jones, one of the greatest financial traders of history. I've coached him for almost 30 years. So I had some insights for what was going on. And at the end of it, I thought somebody was going to get punished. Something's going to happen because a small number of people basically almost destroyed the world economy. And what I saw was their reward or their punishment was we gave them more money. And so about 2010, 11, 12, I started saying, man, something's got to happen here. And I was mad because it's like, Right now, the game seems like it's rigged, and the average person thinks that they can't win. I don't know, could they? And so since I've got access, I said, I'm going to interview 50 of the smartest financial investors in history, the most successful, the Ray Dalias, the Carl Icons, the Warren Buffetts, all of them, Paul Tudors, and I'm going to find from them whether the game is really winnable still. And so I wrote this book, Money Master the Game. I want to write a book that my billionaire clients will be blown away by, but I could also, someone just starting the journey would do it. And we were successful. Number one New York Times bestseller, really great. But then, you know, people are not prepared for what happens. And while I didn't know COVID was coming, anyone can anticipate the changes in the market. And so I run Unshakeable because I wanted people not to lose when the markets change. And people that applied that got tremendous value. But then along the way, so many people are behind. Like they're so far behind in terms of their investments, in terms of their retirements. So how do you get there? Well, you got to get better returns, but it usually requires bigger risks. And one of the people I became really good friends with was Ray Dalio, who's, you know, one of the greatest investors in history. They call him the Da Vinci. And one of the days I met him, I was supposed to have a 30-minute interview. And four hours later, we left. That's part of how we became friends because I studied everything about him. But one of the final questions I asked him was, what's the single most important investment, you know, principle that you know of, if there was one principle to guide people, what would it be? Because I'd now, I gathered all these brilliant people and I'd come down to like these core four things that everybody needs to do. Everybody needs to protect downside risk. And that's not what most people think about, right? The best investors on earth are all about don't lose money, which is so counterintuitive, but they do it by asset allocation. They don't ever put all their eggs in one basket. They know how to allocate well. So when they lose, they can still win. They know if you lose. 50%, you got to make 100 % return to get even. Most people don't do the math properly on their head. But the biggest thing I saw was asymmetric risk reward. Then when they went to risk a dollar, like Paul Tudor, his goal is, if I think I'm making investment, I got to believe I'm risking a dollar to make five. Now, if I'm wrong, I can risk another dollar to still make four. He could be wrong four out of five times and be in good shape, whereas the average person doesn't think that way. I met some people that did some investments like Kyle Bass. who you know, Kyle, from Texas. Kyle was a follower of my work. He took $30 million and turned in $2 billion in 2008. How do you do that in a year, in the worst year of economics? He saw real estate and saw everybody thinks it's going to go up, and it's not. And so he risks basically 15 cents on every dollar. He could be wrong 15 times and still make money. And he made money. So I asked him at the time, just for Ray Dalio, I said, how do you teach somebody this idea of You know, thinking that you're taking huge risks to get huge rewards is not how you win. It's disproportionate. I need asymmetric risk reward. How do you explain that to somebody who doesn't understand? He goes, well, Tony, it's interesting you say that. I want to explain it to my kids. So he said, I was trying to figure out how to teach it to him. So one day I asked a question, what is a riskless investment? And I said, riskless investment? Is it really such a thing? He goes, no, most people don't ask that question. So they don't find the answer. He said, there is one, nickels. He said, if you buy a nickel. You can never lose the money. It's always worth a nickel. But he said, let me explain to you how I taught my kids this. It costs nine cents for the American government to make a nickel. That's how we run our government. He said, pennies used to be full of copper, 95 % copper. And then we turned it out to 2 % copper. And those pennies from the past are worth twice as much money, right? He said, it's going to happen. And he said, but also I can melt it down. The meltdown value is worth 20 % more than I'm buying it for. So, or 36%, excuse me, more than I'm buying it for. He said, so I could know, I said, well, you can't do that legally. He goes, well, that's true, but some money goes outside the country. He said, but let me be clear. I called the Federal Reserve and said, how many nickels do you have? And I bought all the nickels they would sell me. And he said, he bought like 20 million nickels, whatever the number was. And he goes, if I could push a button and put all my money in nickels, I'd do it tomorrow. I have a 36 % return on day one. I'll have virtually guarantee 100 % return at some point in the future. You can't keep making things for nine cents that you're charging five cents for. And he said, and I have no downside. He said, so that's asymmetrical risk reward, right? So in that area, that's something that's hard to get, but I knew that was valuable. Then the third thing I found they all talked about is you got to be tax efficient, right? Because your net is based on taxes. And then the fourth is the one we all know, diversification. But diversifying against different assets, different asset classes, different timeframes, and different countries, different currencies. But Dalio said, when I asked him this question, he goes, Tony, I have thought about this for the last 15 years. And I have now, what I would tell you is the holy grail of investing, which is the title of our book. And he goes, it's simply this. I found out that if you will confine eight to 12 non-correlated investments, and they're things you believe in. You reduce your risk by 80 % and increase your upside. Now, when I heard this, I was like, wow, it's hard to find eight to 12 uncorrelated investments in the world we're in today, right? Even stocks and bonds are not supposed to be correlated. But if you look at what happened in 2008, 2020. They do. They both go down, right? They correlate. And then your broker says, I don't know what it is, right? So he explained to me in more detail about that. But the simple understanding is you have to go to private equity, private credit, private real estate to have that diversification unless you're, you know, a trader has sophistication synthesis that you can use, synthesized type of investments. And so that set me on looking at it. Then I was invited to go down to speak at the Alternative Investment Conference for JP Morgan. Got to be a billionaire to get in there, right? I've been there two or three times now. And who speaks right before me is Ray Dalio. And they do this full interview with him. And the last question, they ask him a very similar question. What's the most important thing you've learned in 50 years investing? He says, the holy grail. Everyone in the room is a billionaire plus. Nobody written notes the whole damn day. Everybody's head goes down, writes this down. Because it's such a simple principle, but it's the core. So I started saying, how do I get to that? How do I help the average person to get that? Because I've got a name. You've got a name. We all have access to a certain extent. Private equity is an extraordinary result, but here's what I found out. In the last 39 years, private equity has outproduced every stock market in the world for 39 straight years. Average private equity. Now, in this book, we interviewed 13 of the best in the world, right? Average is average 15.7 % returns. The S &P 500 of those 39 years is 9%. 74 % better per year compounded for 39 years. So if you put a million bucks in the S &P, you're pretty happy right now. You got just under 29 million, 28.7 million. If you put it in basic private equity, it's $293 million. The same money, same time, 10 times the return. So now the question is, how the hell do you get access? Because there's a big difference between the big boys and the average boy, right? So again, if you're famous, you might get it. I got access. I know people. But that... The slice they give me wouldn't change my life. There's nothing really huge. And I was lamenting about this to a friend of mine who used to be partners with Paul Tudor Jones. He's a really great guy, and I helped him a lot. He said, Tony, I'm going to make your day. I'm going to tell you where I put most of my money, and I'm going to change your life. He said, you've done so much for me. It's my time to do it for you. I said, really? I'm leaning forward. And this is a very sophisticated guy. He goes, there's a company that can allow you. to come in and not just try to get a little piece of these investments, but you become an owner, a general partner in these firms. Not a limited partner. You make the two and 20. You're on every single asset that they have, every single investment they have. I said, really? I said, where's this firm? And I thought he was going to say, you know, New York, Connecticut, London, Singapore. He goes. They're in Houston. I said, Houston? He goes, yeah, they're away from the beaten path. And they do this better than anybody I've ever seen. He said, they have the majority of my money. You got to go meet them. That's how I met my co-author here, Christopher. Because I went and sat down and it turned out Christopher had been through my program 25 years ago, started his business based on it. He has, I got to brag on him a moment. He has a 96 % profit ratio on the investments he's made for 25 straight years. We joined forces about five years ago. He's at about 2.7 billion. We've grown it to 13 billion just in the last four and a half, five years. And so I became an investor initially. I became the owner of the company, partner in the company. And we've grown the company to have that kind of impact. And it's because we're able to bring people general partnerships. It's like, do you want to own the race horse or do you want to own the race track? That's what the opportunity is. And the richest people in the world, if you look at the Ford 400, are all people that are in. Private equity, this is where the largest, it's not real estate, it's not technology. Look at the list, you'll see who they are. There's a reason. This is one of the most unique opportunities. And now the reason we wrote the book is the average American has not had access. If you look at the ultra high net worth people, 52 % of their money is in private equity, private credit, only 29 % in the public markets. There used to be 8,000 companies 30 years ago. Now there's only 4,000 in the public markets. 87 % of all companies are private today. 100 million to 3 billion, there's 200,000 of them. And that's a whole lot more to be able to do. And the old idea of private equity is you go in, you take over the company, and you sell everything off. It's not like that today. It's about added value. They have to be. So it's a new industry in the way it's been operating, and it's producing results unlike anything else. You can't pay all your money because you need liquidity, and there are even some answers to that today. But we went... all in figuring out how to help people be able to grow at a much higher rate so they can get to their goals, but with even less risk if they manage it effectively. Speaker 3 (11:06) Do you think ordinary people are making a mistake by putting all of their money into the S &P then? This is kind of old school wisdom, dollar cost average in, but it sounds like there's other returns to be made. Speaker 1 (11:18) It's so funny. I had a conversation with somebody literally a couple of months ago and they say, you know, Christopher, I understand this diversification thing, but I really don't need that. I own like six out of the seven of the Magnificent Seven. I'm like, dude, you are not diversified. They all move together. If one is zigging, the other is zigging as well. So they all get hit together. People don't think back to where the Magnificent Seven, literally in 2002, during the sell-off that we had there, that group of stocks dropped by almost 50 % in less than a year. So people might want that upside, but they have to be able to tolerate the downside. So do I think it's a mistake to put money in the S &P? No. but it can't be everything. They need to have diversification of other things that will zig and zag at different times, which is the whole point of the Holy Grail of investing, is if you have certain things that are making money when others are losing money. And I know it's a silly example, but for everybody who's a golfer out there, they'll get it, right? If you stock a golf shop and all you sell in there is sunscreen, well, on sunny days, you're going to sell a lot of sunscreen. If all you sell is umbrellas, well, then on rainy days, you're going to sell a lot of umbrellas. But the key is to have both. So on rainy days and sunny days, you're still making money. And that has been so hard. Here's another fun statistic. In 2005, just literally 21 years ago, if you had an average allocation that looked like most of the brokerage accounts, including alternatives, your average correlation was about 0.15, which meant they correlated about 15 % with each other. 85%, they were moving different directions. Okay? Today, literally, with no change in that S allocation, it is 82 % correlation. Speaker 3 (12:53) Globalization's a hell of a drug, man. Speaker 1 (12:55) It is, but it's also indexation. Because if everybody's buying the same stocks, just all in or all out every single day, they tend to all move together. Speaker 3 (13:03) ETFs don't discriminate. Speaker 1 (13:04) No, they don't. And what happens is in stressful environments, it actually gets worse to where it goes all the way up to about an 89 % correlation when you have a down market. Because what happens? Everybody indiscriminately sells everything at the same time. And that means they're getting hit from all sides, which is why 2020 and the early part of that year was so tough for people. Speaker 1 (13:27) Everything basically got hammered. Speaker 3 (13:29) And Speaker 1 (13:29) think about it right now. The Magnificent Seven are 32%. Can you explain the Speaker 3 (13:33) Magnificent Seven for people that don't know what that is? Speaker 1 (13:34) Absolutely. So Magnificent Seven is basically the big names that people know. The NVIDIAs, the Netflix, the Facebooks are meta now. Google, Amazon, et cetera. Those are the Microsofts included in that. That's the Magnificent Seven. And to what Tony was about to say, okay, right now that Mag Seven is 38 % of the S &P 500. Speaker 2 (13:54) Well, Speaker 1 (13:55) it's actually under 32 today. That's correct. It pulled back quite a bit here lately. And so what that means is 493 stocks make up the other 68%. And so seven make up 32%. And Speaker 2 (14:08) the highest percentage in history before this has been 17 % of any group of companies. So it's twice, more than twice. Speaker 3 (14:17) It's a consolidation of risk. even inside of the S &P 500, which is supposed to be spread across 500 companies. Speaker 1 (14:24) Completely. And very volatile companies as well. Speaker 2 (14:28) But I want you to know, they're complementary. We have things in the S &P as well. But you've got to spread your risk. You can't do it all. And if you look at pension funds, you look at university funds, if you look at what's happening with high net worth people, the majority of their investments are in private equity because that's where they're getting the returns. They have to be able to provide for the future and provide an income for the future. And so that's where they are. And there just isn't more, there's not enough volume. Speaker 3 (14:55) Think Speaker 2 (14:55) about it. To go from 8,030 years ago to 4,000 stocks, roughly, a little less than that actually now in the public markets, you've got more dollars chasing a smaller number of items. And you know what that creates? It creates inflation that isn't necessarily based on value. Speaker 3 (15:08) Okay. Lots of stats, lots of complex numbers to be able to understand here. Imagine that somebody doesn't understand investing, doesn't know where to start. How do you explain what diversification should look like just from first principles and where should that go? Speaker 1 (15:22) So what I always try to tell people is exactly like the business example. No single company really wants to sell one thing. So you want in your portfolio, you want things that are going to do well in lots of different environments. Good economies, bad economies, high inflation, low inflation, high interest rates, low interest rates. In order to accomplish that, you have to diversify across lots of different asset classes. And most people hear private investments and they get very intimidated by that. They're like, I don't know what a private investment is. Well, most people are in the private markets. They don't really realize it because they own a home. Anybody who owns a home owns a private asset. It's not priced every single day in the newspaper. You can't look it up online to see exactly what it's worth. You can get a guide, but you never know for sure what it's worth until you sell it. Well, that's a private asset. The same with the dry cleaner on the corner or the Subway sandwich shop that they might go shop in. Those are all private businesses. And obviously, anyone who owns those is going to make money or lose money based on the success of that particular business, not because of the fact that the Fed raises interest rates or lowers interest rates or all the other complex things that try to intimidate people or tend to intimidate people. So getting people to understand it's just simply good. diversification, good business practice, to not have all your revenue streams tied up in one single product, Speaker 2 (16:39) that's Speaker 1 (16:39) true also for your investments. Let your return streams come from lots of different sources. And Speaker 2 (16:44) here's the piece that's different today, and it's about to change because we're interviewing Secretary of Labor Sondland right after this interview. He's coming into the house. There are new laws. One of the reasons we wrote the book is it's great to know this, but most people can never have access. So what good is it? What's happened, though, is the Congress and the Senate actually passed a law initially, went through the Congress, not yet the Senate, that said that, look, you should not be barred from having these types of investments because you're not an accredited investor with a million-dollar net worth or a $5 million net worth as a qualified purchaser. The best investments have been reserved for people with the most money. It's completely unfair. Now, the idea is, well, we're protecting them from things that are unsophisticated. Well, think about it. A lot of— great business people are not great investors or a lot of people inherit money. They're not great investors, but they get to go there. So what they came up with is we're going to create a set of questions so you can educate yourself. And if you're going to answer these, you're qualified. You don't have to have an economic qualification. You just have to understand what you're doing, which makes so much more sense. But even since then, there's some new laws that are coming out, and maybe you can address them, that are happening. They're right now being reviewed as we speak. That's what we're having the Speaker 1 (17:52) interview with later with Secretary of Labor Sondland. So two things. Number one is last June, a year ago June, the Securities and Exchange Commission, the SEC, just literally with the stroke of a pen, said people... do not have to be an accredited investor anymore to invest in certain types of funds which own alternative assets. Funds that own things like the Los Angeles Lakers that just sold, or the Golden State Warriors, or Formula One teams, et cetera. SpaceX, before it was an IPO, right? Those kinds of funds were never available to investors unless they were already wealthy. So now anyone in the world, literally for a $2,500 minimum, can invest in those funds. That literally changed last June, and most people don't know that. The second thing that Tony's referring to is the Labor Department has put forth a rule that would enable it to be much easier for 401k plans to allow alternative investments to be available to every single person who has a 401k or a 403b or any kind of retirement account. That is a total game changer for the industry to be able to allow people. for the first time, to be able to invest in so much of the economy that they've been prohibited from before. Unless they were wealthy. Speaker 3 (19:04) Tell me if this sounds familiar. You train regularly, you eat reasonably well, you feel fine, but you're just kind of going off vibes. Most people have absolutely no idea what's going on inside their body, and that is why I partnered with Function. Function gives you access to more than 160 advanced lab tests spanning hormones, heart health, kidney function, and even detects early signals linked to more than 50 types of cancer. To put that in perspective, your typical annual physical might test... 20 markers. Function runs over 160. It's huge. Best of all, you test twice a year and everything lives inside of a simple dashboard. So you track trends over time, make sure you're moving in the right direction. And this level of testing would usually cost thousands, but with Function, it is $365 per year. Just $1 a day to actually know what's happening inside of your body. And right now you can get $25 off, bring it down to 340 bucks. Get the exact same blood panels that I use and save $25 by going to the link in the description below or heading to functionhealth.com slash modern wisdom. That's functionhealth.com slash modern wisdom. Can you, let's get specific. What are some of the... investment opportunities, asset classes that people don't think about. Everybody understands and you guys agree. S &P, that's probably a good place to have some, et cetera, et cetera, right? We can take away with that. What are the more... Speaker 3 (20:20) exotic. Well, Speaker 2 (20:20) I'll give you one that's fun. And it's not exotic because everybody knows about it, but they think it's probably impossible. Sports. Is he just related? Sports are an uncorrelated investment. They have nothing to do with the markets going up or down, what's happening with interest rates. In the last 10 years, they've had an 18 % compounded return. But if you look at through history, through wars, World War I, World War II, sports have always done well, and they're non-correlated. So you want to find assets. So sports Speaker 3 (20:45) are recession-proof. Speaker 2 (20:46) They are. And you know why? Today, they don't just sell hot dogs, which, by the way, they have a unique relationship. They have a monopoly in their cities, a legal monopoly. No one else can go compete with them. Speaker 1 (20:57) And Speaker 2 (20:58) by the way, their fans are called fanatics. That's where the fan comes from. They're multigenerational. And they come and when inflation goes up, they charge more for hot dogs, as we all know, and everything else you can imagine. But now they don't just sell tickets and hot dogs. Today, these are modern media organizations. We own a piece. I own a piece of silver. It took me, what, 20 years of my life to be able to own a sports team and to qualify it. Speaker 1 (21:21) They Speaker 2 (21:21) had a microscope to you. I helped us start the soccer team that we have in Los Angeles, the L.A. Football Club, and put the whole thing, invested, went through the whole nine yards. But then the rules changed. And they made it so certain firms were able to make investments directly into these firms. And now they did it in Major League Baseball. They did it in the NBA. They did it in Major League Hockey. And now the NFL has just done it. And the returns are unbelievable. So I'll just give you an example. We have a piece of the Dodgers. We have a piece of the Red Sox. We have a piece of the Lakers. Excuse me, the Lakers, the Golden State Warriors. All of these firms have grown. So Peter Gruber, one of my partners in business, we did the LAFC together. He was one of the guys that bought the Dodgers. In 2012, he paid $2.2 billion for the Dodgers. Every article said, he's insane. These people are never going to make money. This is the most ever paid for a sports team. Now Peter's my partner. And I was like, Peter, I know you're no dummy. What are we doing the right thing here? He goes, Tony. You can trust me on this. You know me well enough. But he said, I'm not even going to tell you. I'm going to make an announcement the next week. And then you come over and we'll have a little party together. So now here's what you need to understand. When you own a sports team, if it's like the NBA, you're 132nd of the league. You have 32 teams. Or the NFL. NFL is an even better example. All the national and international advertising, you get 132nd of. So if you own an NFL team, you get a $400 million check to start the season. That's your piece. But you also own. You're a local TV advertising yourself. So Peter bought them for $2.2 billion and then announced he just sold the rights for local television rights for $7 billion and made $5 billion in a day. Right? So he's done quite well in this area. And I've done quite well with him in this area. You know, today he took on the Golden State Warriors. They were the worst placed team. They had paid only $450 million for it. Now they're the second highest valued sports franchise in the world behind the Yankees to give it, excuse me, behind the Dallas Cowboys at this point, right?