I received my copy of “Unshakeable” at the end of February. It’s a slim, easy read of 141 pages about investment strategy / tactics, supplemented with a further 80-or-so pages about motivation and the psychology of wealth.
So, what’s the book all about & how is it different from “Money: Master the Game”?
Tony Explains right up front on page 10:
First, I want to reach as many people as possible by writing a short book that you can read in a couple of evenings or a weekend. If you want to go deeper, I hope you’ll also read Money: Master the Game, but I understand if that big monster seems intimidating.
So the good news is that if you’ve read “the big monster”, you already know all of the detailed stuff you’ll find in “Unshakeable”. Of course, “Unshakeable” is full of the same America-specific language as “Money: Master the Game” – but there’s nothing new here to surprise you in that regard.
So, is “Unshakeable” worth reading if you’ve already digested “Money: Master the Game”? I’d say yes – because its slimmer content allowed me to focus on the forest instead of the trees – and it helped me refine my thinking as a consequence.
I remember reading and re-reading “the big monster”, making notes and trying to distill the tactics that would allow me to successfully navigate the scary world of investing. In “Unshakeable”, it’s pretty-much all spelled out, check-listed and summarised – which makes it much easier to digest and avoid overwhelm.
If you were going to give someone a book about investment, it’s far more likely they’ll read and internalise “Unshakeable” than “Money: Master the Game”.
I won’t bother reiterating the points I’ve already summarised from “Money: Master the Game”. The same, low-cost, index-fund approach still forms the core of “Unshakeable”, but here are the passages I highlighted as I was reading
The greatest danger is being out of the (stock) market (p42)
From 1996 to 2015, the S&P 500 returned an average of 8.2% a year. But if you missed out on the top 10 trading days during those 20 years, your returns dwindled to just 4.5% a year. If you missed out on the top 20 trading days, your returns dropped from 8.2% a year to a paltry 2.1%. And if you missed out on the top 30 trading days? Your returns vanished into thin air, falling all the way to zero!
That blew me away – even though I’ve read a similar summary in the past – the notion that 1 month out of 120 is enough to completely scupper stock market returns makes it so clear to me that:
- Trying to ‘time’ buying and selling is futile
- Pound cost averaging – investing a little consistently over time – is the only way to always be ‘in’ the game
Go hunting for first trust deeds (p104)
Tony mentioned this in passing in “Money: Master the Game”. The idea is to lend money against a real-estate asset where the return is high and the risk is low, because you can sell the asset to recover the debt if need be.
After reading “the big monster” I had no idea how to take action on this – so I didn’t do anything. Recently, however, the rise of property crowdfunding & P2P services have made this type of investment quite accessible.
I wouldn’t call this a key part of my strategy (see “Core & Explore later) – but there are potentially high returns (10-12% pa) and relatively low risk opportunities here.
There’s a great P2P comparison web site called 4th Way. They recently ranked their top picks and rated PropLend as their #2 and FundingSecure as their #3. (I’m not a fan of their #1 choice of LandBay because of the relatively low returns).
Bonus: If you haven’t already sorted out what to do with your 2016 ISA allowance, you can hold some of these property assets inside a new IFISA – meaning your profits are tax-free. Perhaps worth a look – particularly as the 2017 ISA allowance rises from £15K to £20K per person.
Diversify in 4 ways (p110)
On page 112, Ray Dalio summarises the benefits of diversification:
By owning 15 uncorrelated investments, you can reduce your overall risk by about 80% and you’ll increase the return-to-risk ratio by a factor of five. So your return is five-times greater by reducing that risk.
“Unshakeable” reiterates how to diversify in these four ways:
- Across asset classes – stocks, bonds, real estate
- Within asset classes – multiple stocks, bonds, properties
- Across markets, countries & currencies – don’t over-invest in your ‘home’ market
- Across time – pound cost averaging – investing a little and often
Using bonds as ‘dry powder’ (p130)
During the last financial crisis, savvy investors sold bonds to snap up stocks at bargain prices. This is an interesting idea – but it does require a bit of an ‘active’ approach and may be best left to your trusted IFA – if you can find one.
Alternative investments (p131)
“Unshakeable” suggests publicly traded REIT’s as a way of diversifying within the real-estate category. I know almost nothing about this – so it’s on my list of things to research, starting here.
From my point of view, the biggest problems of owning ‘real’ real-estate assets are:
- Illiquidity – if you need to sell, it’s only worth what someone is willing to pay at the time
- No diversification – a big lump of cash all tied up in one building
- Surprise costs – major things can and do go wrong with buildings
- Relatively low returns – it varies a lot by property type and location
- Maintenance and letting fees – can reduce net income substantially
- UK tax changes – makes buy to let less and less attractive currently
Core and explore (p135)
Given that asset allocation (diversification) drives returns, what should the core of any portfolio look like?
- Use index funds for the core of your portfolio – I’m more than happy with my choice of the SWDA index fund – low, cost, good performance, well diversified.
- Have a cushion of income-producing liquid assets (REIT’s, bonds) which can be sold to buy stocks (index funds) at bargain prices
- Ideally have 7 years of income-producing liquid assets set aside to meet short-term cash needs (and avoid selling stocks when they are low).
- Explore – having sorted out the core, have a bit of fun with high-risk, high-return investments
- Rebalance – benefit from tax loss harvesting and buy assets when they’re cheaper
Life planning (p201)
This section was a good reminder to me to get this stuff sorted sooner rather than later. What’s the point of accumulating wealth if we lose control of how it will be deployed and / or passed on to those we care most about?