Volatility vs. Risk Ep 301

In the Gym Secrets podcast, Alex Hormozi, CEO of Gymless Prestige Labs, shares insights on wealth-building and risk management for entrepreneurs, sales teams, and employees. Hormozi emphasizes the distinction between volatility and risk, advocating for listening to financially successful individuals rather than less affluent advisors. He advises salespeople to view their role as low-risk due to revenue generation, and suggests living frugally on a base salary while investing the surplus, emphasizing wealth as an income-to-expense ratio rather than a fixed sum. Hormozi also recommends tackling high-interest debt first and investing consistently in the S&P 500. Additionally, he encourages aligning with revenue-driving channels and possibly leading a team to enhance income. Hormozi concludes by stressing the importance of understanding risk and volatility, tracking net worth, and making informed financial decisions.

• Alex Hormozi highlights the importance of considering the financial success of individuals giving advice.
• He suggests disregarding financial advice from those who are less successful.
• Emphasizes listening to those significantly wealthier for financial guidance.

"Rule number one, do not listen to people poorer than you about advice on money."

This quote establishes a principle that one should seek financial advice from those who are more financially successful than themselves. It suggests that wealthier individuals likely have more experience and knowledge in financial matters.

• The podcast focuses on customer acquisition, monetization, and retention.
• It shares lessons learned from failures and experiences in the business.

"Welcome to the Gym Secrets podcast, where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons that we have learned along the way."

This quote introduces the themes and objectives of the Gym Secrets podcast, indicating it is a resource for business strategies and learning from past mistakes.

• Alex Hormozi introduces himself as the CEO of multiple companies.
• He mentions his companies' financial success to establish credibility.
• Hormozi aims to share lessons from his business experiences.

"Alex Mwaz here, CEO of Gymless Prestige Labs, and Alan and a number of other portfolio companies that we have, we did 120 plus million last four years."

The quote serves to establish Hormozi's authority and business acumen, providing listeners with a reason to value his insights and lessons.

• Hormozi distinguishes between volatility and risk in business.
• He uses an insurance company example to illustrate that volatility does not equate to risk.
• The discussion aims to clarify misconceptions commonly held by less financially successful individuals.

"So the question is, is my insurance business risky? The answer is no. ... But the reality is that my insurance business is not risky. It is volatile."

This quote explains the difference between risk and volatility, using the insurance business as an example to show that predictable, periodic losses do not necessarily make a business risky if it is profitable over the long term.

• Hormozi argues that sales roles are low-risk due to their revenue-generating nature.
• He points out that salespeople are secure in a company because they bring in money.
• The discussion aims to counter the misconception that sales jobs are inherently risky.

"Salespeople are by definition, people who generate revenue, which means they are the lowest risk in a company."

The quote emphasizes the value of salespeople within a company, arguing that their role in generating revenue makes them less susceptible to job loss, thus representing a lower risk position.

• Hormozi advises decreasing personal expenses to mitigate paycheck volatility.
• He suggests saving and investing the difference between salary and living expenses.
• The goal is to build wealth over time through consistent investment.

"If you want to decrease the volatility in your life and get the upside benefit of your position is you need to decrease your expenses to your salary."

This quote provides practical advice on managing personal finances by living below one's means and investing the surplus to create long-term wealth, thereby reducing the impact of income volatility.

• Planning for financial security should be based on current income as if it won't increase, making additional earnings a bonus.
• Living below one's means accelerates progress towards wealth, freedom, and independence.
• Wealth is a ratio of income to expenses, not a fixed monetary value.
• A strong income-to-expense ratio is key to building wealth quickly.
• Compounding growth can significantly enhance savings over time.
• A modest lifestyle can lead to a comfortable retirement if managed properly.

But the reality is that this isn't all the person's going to make, but you should plan like it is, because then what happens is all of this becomes gravy.

This quote emphasizes the importance of conservative financial planning, where one should assume their current income is the maximum they'll earn, so any extra income is considered a bonus.

Wealth is a ratio. It's a ratio between how much you spend versus how much you make.

Alex Hormozi defines wealth as the relationship between income and expenses, suggesting that controlling spending is as important as earning.

His wealth is going to build very, very quickly, right?

This quote implies that maintaining a high income-to-expense ratio results in rapid wealth accumulation.

• High-interest debts, like credit card debts, should be prioritized due to their negative compounding effect.
• Student loans often have lower interest rates and can be deprioritized compared to high-interest debts.
• Alex Hormozi criticizes the ethics of student loans and their potential to create lifelong financial burdens.
• Paying off debt is sometimes more of an emotional decision than a mathematical one.
• After high-interest debts are cleared, investments, such as the S&P 500, are recommended.

So the way to guarantee a 16% compounding rate of return is to take away the drags that are at negative 16%.

Alex Hormozi suggests that paying off high-interest debt effectively yields a return equivalent to the debt's interest rate, as it prevents negative compounding.

It makes you a slave to the bank for the rest of your life.

This quote criticizes the structure of student loans and their impact on financial freedom.

Smartest investor of all time. That's what he's doing.

Referring to Warren Buffett's strategy, Alex Hormozi endorses investing in the S&P 500 as sound financial advice.

• Investing in index funds like the S&P 500 is recommended based on Warren Buffett's advice.
• Compounding interest in investments can contribute to wealth growth.
• Investment strategies should be simple and follow proven advice from successful investors.

Everything else gets plowed into the s and P 500.

Alex Hormozi advises that after debt is managed, remaining funds should be invested in the S&P 500, following Warren Buffett's guidance.

• The podcast encourages listener interaction on LinkedIn.
• Listeners are invited to connect with the hosts and suggest connections.

All right, so send me a connection request, a note letting me know that you listen to the show, and I will accept it.

This quote is an invitation for listeners to engage with the podcast hosts on LinkedIn to build a community around the show.

• Dollar cost averaging is a strategy where investments are made regularly regardless of market price fluctuations.
• This approach mitigates the anxiety of trying to get a good deal and reduces the risk of timing the market incorrectly.
• It ensures participation in the market both when it is overpriced and underpriced.

"And you do this every month. It's called dollar cost averaging, so that even when it goes down and goes up, you're going to participate at all times."

This quote explains the concept of dollar cost averaging, emphasizing consistent investment over time to avoid the pitfalls of market timing.

• Employees increase their value to a company by being directly involved in revenue generation.
• Selecting an unused acquisition channel and mastering it can lead to increased compensation.
• Demonstrating success in a new channel can lead to opportunities for team leadership and income growth.

"The closer you can tie yourself to an acquisition channel, the more valuable are to the company because you're driving revenue."

Alex Hormozi is advising on how employees can become more valuable by contributing to the company's revenue through acquisition channels.

• Salespeople in a company can earn more than the average small business owner.
• Employees often misconceive the revenue of a business as the owner's income, not accounting for expenses and reinvestment.
• A high-earning salesperson's income may be equivalent to owning a successful business without the associated risks and responsibilities.
• Understanding the risks of entrepreneurship is critical before deciding to venture out on one's own.

"So if my salespeople make 150 or $200,000 a year, and if he does all this thing, he could make five times what the average small business owner makes."

Alex Hormozi is highlighting the potential earnings of salespeople, comparing them favorably to the income of a small business owner.

• Entrepreneurs must understand the risks involved in starting and running a business.
• Not all individuals are suited for the challenges of entrepreneurship, which can include HR, finance, legal issues, and lead generation.
• It's crucial to assess one's risk tolerance and personal circumstances before becoming an entrepreneur.

"And I think that if I adequately understand the risk, and I'm being very, very honest with everyone here, I don't know if I would have become an entrepreneur."

Alex Hormozi shares his personal reflections on entrepreneurship and risk, suggesting that had he fully understood the risks, he might have chosen a different path.

• Regularly tracking net worth is a straightforward method to increase it.
• Monitoring all assets and liabilities provides a clear picture of financial progress.
• The frequency of tracking can vary, but doing so consistently is key to financial awareness and growth.

"So right now, every week, I get an email that has every single one of my assets, every single one of my bank accounts, all of my portfolios, and it has one number at the bottom."

Alex Hormozi describes his personal practice of tracking net worth, which helps him stay informed about his financial status on a weekly basis.

• Tracking net worth daily is crucial for financial awareness and growth.
• Using bank's dashboards can consolidate accounts and investments for easy monitoring.
• Daily updates on an excel sheet can help visualize incremental growth over time.
• Regular tracking leads to familiarity with cash flow patterns and aids in identifying unnecessary expenditures.
• Tracking helps in reducing outflows by spotting and eliminating unneeded expenses.

Tracking every day, the cumulative amount of your bank accounts is one of the single greatest things that I ever did.

This quote emphasizes the importance of daily tracking of bank accounts as a transformative financial habit.

And I would take five minutes in the morning, and I would update it, and I did it daily.

The quote suggests a practical approach to tracking net worth, dedicating a short, consistent time each morning to update financial records.

You start to get a pulse on the flow of money.

This quote highlights the benefit of daily tracking, which is developing an understanding of one's personal cash flow.

You'll plug the holes, you'll decrease the outflows of money in your life because you're tracking and not slacking.

This quote metaphorically suggests that regular tracking of finances helps to 'plug the holes' or cut unnecessary spending, thereby improving financial health.

• Track net worth consistently to know where you stand financially.
• Include debt in net worth calculations to track overall financial progress.
• Prioritize paying off high-interest debts to improve net worth.
• Invest excess money into the S&P 500 through dollar-cost averaging (with a disclaimer that investment involves risks).
• Decrease expenses aggressively and live below your means.
• Seek to earn income from new customer acquisition channels and build a team to scale.
• Understand the distinction between being an entrepreneur and an employee in terms of risk and income potential.
• Differentiate between volatility and risk to make informed financial decisions.

You have to track your net worth if you wanted to improve.

This quote reinforces the notion that tracking net worth is essential for anyone looking to improve their financial situation.

Pay off high interest credit cards or high interest loan debt. First.

The speaker advises prioritizing the repayment of high-interest debts as a strategy for improving net worth.

Dollar cost, average all of the money that you make in excess of your expenses into the S P.

The speaker suggests a strategy for investing, which is to regularly invest surplus money into the S&P 500, while also acknowledging the risks involved in investing.

Decrease your expenses as much as humanly possible.

This quote emphasizes the importance of minimizing expenses to maximize savings and investment potential.

Tie yourself to an acquisition channel.

The speaker is advising to find new ways to acquire customers to increase income potential.

Understand the difference between volatility and risk overall.

The quote underscores the importance of understanding financial concepts to make better decisions, in this context differentiating between volatility and risk.

• Material possessions such as private jets, exotic cars, and luxury items do not necessarily equate to happiness.
• Happiness can be found in simpler, more affordable pleasures and living situations.
• Excessive spending on luxury can lead to regret and is not a requirement for a fulfilling life.

I can tell you firsthand they're not what they're cracked up to be.

The speaker shares a personal perspective that expensive luxuries do not necessarily live up to their perceived value.

My happiness has in no way changed.

This quote communicates that the speaker's level of happiness remained constant despite changes in living conditions and material wealth.

Decrease your expenses.

The speaker reiterates the advice to cut back on spending as a means to financial improvement.