Millionaire Teacher
Page 1
Praise for Millionaire Teacher, Second Edition
“The first edition of Millionaire Teacher had a huge readership because Andrew Hallam writes with such passion and conviction. This new edition deserves to reach an even larger audience. Andrew brings years of wisdom to his discussion of smart saving and simple, low-cost investing. Readers who follow this teacher’s advice will retire at the top of their class.”
—Dan Bortolotti, CFP, CIM, associate portfolio manager at PWL Capital, and creator of the Canadian Couch Potato blog
“Millionaire Teacher, Second Edition is packed with humor, solid evidence, and advice. It might be the clearest and most engaging investment book that has ever been written!”
—Sam Instone, founder and chief executive of AES International
“While there are scads of fine books on passive investing for US residents, until Andrew Hallam came along, non–US investors were left to the tender mercies of local brokers, advisors, and investment companies that serviced their clients in the same way that John Dillinger serviced banks. If you’re in that boat and you’ve just come across Millionaire Teacher, Second Edition, consider yourself lucky: read, enjoy, and fatten up your portfolio!”
—William J. Bernstein, author of A Splendid Exchange and The Investor’s Manifesto
“Andrew Hallam’s second edition of Millionaire Teacher is perfect for novice investors. He recommends the right kind of investment products. He also demonstrates a strong awareness of how human emotions can sabotage even the best-laid plan. Hallam does a great job showing how to avoid this trap, whether you choose to invest on your own or you hire an advisory firm to build you a portfolio of index funds.”
—Larry Swedroe, author of Your Complete Guide to Factor-Based Investing, and principal and director of research, The Buckingham Family of Financial Services
“Billionaire teacher Warren Buffett and millionaire teacher Andrew Hallam offer you the same advice and guarantee: invest in low-fee and low-tax index funds on a regular basis over your lifetime, and you too will be financially independent.”
—Robert P. Miles, Warren Buffett scholar, and author of Warren Buffett Wealth and The Warren Buffett CEO
“If investing were a religion, the second edition of Millionaire Teacher would be the Holy Grail. Everyone with a pulse should read this book! I’m confident your time and effort will be rewarded.”
—Sonny Wadera, MBA financial security advisor, Kelson Financial
“This is a must-read book for any first-time investor. Andrew Hallam helps build the framework for those looking to build real wealth. Hallam’s simple, yet powerful, lessons of ‘start young, spend less, do your homework, and keep costs low’ cannot be overstated.”
—Ryan A. Hughes, founder and portfolio manager, Bull Oak Capital
“This book provides some great and simple guidelines for people who are serious about building and protecting their wealth. The principles provided are an excellent roadmap to financial security and peace of mind.”
—Richard E. Reyes, CFP, The Financial QuarterbackTM, Wealth and Business Planning Group, LLC, Maitland, FL
“Millionaire Teacher, Second Edition is one of those must-read books for both novice and experienced investors. Through experience and humor, the author identifies an approach that’s in the best interest of investors, and he provides the evidence to back it up. Understand what you spend. Save and invest monthly into a well-diversified portfolio of index funds. Ignore the investment industry ‘noise,’ and manage your own emotions. This book offers the reader a clear path to prosperity!”
—Chris Turnbull, portfolio manager, Index House
“Managing one’s financial life doesn’t have to be rocket science. We have been living below our means and investing simply long before it became popular. Retired almost three decades now, we have been traveling the world, taking advantage of great weather, food, culture, and lifestyle. Andrew Hallam hits upon understandable and basic points that can make you wealthy too, and uses plain English, not fancy jargon, to get his message across.”
—Billy and Akaisha Kaderli, RetireEarlyLifestyle.com (Free Newsletter)
“As an industry veteran of more than 20 years, I know all too well how the financial services industry exploits people. But if you read Andrew’s enjoyable book and follow his straightforward suggestions, you can simplify your life and save an amazing amount of money for you and your family!”
—Mark Zoril, AIF, and founder of PlanVisio
“Mr. Hallam teaches what you don’t learn in school—how to be rich. He built a $1 million portfolio before he was 40 years old. With his nine rules of wealth he shows how you can, too. I recommend Millionaire Teacher, Second Edition. Class is in session.”
—Robin Speziale, author of Market Masters
“Millionaire Teacher, Second Edition provides such smart and simple investing advice that it should be required reading for every investor. Using analogies and humor mixed with hard data, Andrew Hallam spells out an investing strategy that will outperform the vast majority of professional money managers—and with less than an hour a year of portfolio maintenance. How brilliant is that?!”
—Joe Snyder, CIM®, and product analyst, Tangerine Investments
Millionaire Teacher
The Nine Rules of Wealth You
Should Have Learned in School
Second Edition
ANDREW HALLAM
Cover image: Chalkboard: © balabolka/Shutterstock, Alphabet: © Kevin Renes/Shutterstock, Books and Stool: © Sandra Cunningham/Shutterstock
Cover design: Wiley
Copyright © 2017 by Andrew Hallam. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750–8400, fax (978) 646–8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748–6011, fax (201) 748–6008, or online at http://www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762–2974, outside the United States at (317) 572–3993 or fax (317) 572–4002.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download
this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
ISBN 978-1-119-35629-5 (paper)
ISBN 978-1-119-35632-5 (ePDF)
ISBN 978-1-119-35631-8 (ePub)
For Adam, Tyler, Matthias, Anna Claire,
Niklas, Abby, and Jeremy
Contents
Acknowledgments
Introduction
RULE 1 Spend Like You Want to Grow Rich The Hippocratic Rule of Wealth
Can You See the Road When You’re Driving?
One of the Savviest Guys I Ever Met—And His View on Buying Cars
Careful Home Purchases
Millionaire Handouts
How Did I Become a Millionaire?
Looking to the Future
RULE 2 Use the Greatest Investment Ally You Have Compound Interest—The World’s Most Powerful Financial Concept
The Bohemian Millionaire—The Best of Historical-Based Fiction
Gifting Money to Yourself
When You Definitely Shouldn’t Invest
How and Why Stocks Rise in Value
RULE 3 Small Fees Pack Big Punches With Training, the Average Fifth Grader Can Take on Wall Street
Financial Experts Backing the Irrefutable
What Causes Experts to Shake Their Heads
When the Best Funds Turn Malignant
Reality Check
When Best Mutual Fund Lists Can Strip You Naked
What’s Under the Hood of an Index Fund?
Captain America Calls for Government Action
Who’s Arguing against Indexes?
RULE 4 Conquer the Enemy in the Mirror When a 10 Percent Gain Isn’t a 10 Percent Gain
Are Index Fund Investors Smarter?
It’s Not Timing the Market That Matters; It’s Time in the Market
On Stocks . . . What You Really Should Have Learned in School
Internet Madness and the Damage It Caused
Taking Advantage of Fear and Greed
Young People Should Salivate When Stocks Sputter
Opportunities after Chaos
RULE 5 Build Mountains of Money with a Responsible Portfolio What Are Bonds?
Profiting from Panic—Stock Market Crash, 2008–2009
Having a Foreign Affair
Introducing the Couch Potato Portfolio
Combinations of Stocks and Bonds Can Have Powerful Returns
RULE 6 Sample a “Round-the-World” Ticket to Indexing What’s the Difference between an Index Fund and an ETF?
Indexing in the United States—An American Father of Triplets
Indexing in Canada
A Canadian Couch Potato Strips Down Costs
Indexing in Great Britain
Indexing in Australia—Winning with an American Weapon
Indexing in Singapore
The Next Step
RULE 7 No, You Don’t Have to Invest on Your Own Are You Wired Like a Buddha?
How Does the Average Index Investor Underperform the Index?
Intelligent Investing for Americans
Intelligent Investing Firms for Canadians
Intelligent Investing Firms for British Investors
Intelligent Investing Firms for Australians
Intelligent Investment Firms in Singapore
Don’t Ask about Another Lover
RULE 8 Peek inside a Pilferer’s Playbook How Will Most Financial Advisers Fight You?
The Totem Pole View
Is Government Action Required?
RULE 9 Avoid Seduction Confession Time
Investment Newsletters and Their Track Records
High-Yielding Bonds Called “Junk”
Fast-Growing Markets Can Make Bad Investments
Gold Isn’t an Investment
What You Need to Know about Investment Magazines
Hedge Funds—The Rich Stealing from the Rich
Don’t Buy a Currency-Hedged Stock Market ETF
Beware of the Smart Beta Promise
Don’t Jump Heavily into Small-Cap Stocks
Conclusion
About the Author
Index
EULA
List of Tables
Chapter 1 Table 1.1
Chapter 2 Table 2.1
Chapter 3 Table 3.1
Table 3.2
Chapter 4 Table 4.1
Table 4.2
Table 4.3
Table 4.4
Table 4.5
Table 4.6
Chapter 5 Table 5.1
Table 5.2
Table 5.3
Chapter 6 Table 6.1
Table 6.2
Table 6.3
Table 6.4
Table 6.5
Table 6.6
Table 6.7
Table 6.8
Table 6.9
Chapter 7 Table 7.1
Table 7.2
Table 7.3
Table 7.4
Table 7.5
Table 7.6
Table 7.7
Table 7.8
Table 7.9
Table 7.10
Table 7.11
Chapter 9 Table 9.1
Table 9.2
Table 9.3
Table 9.4
Table 9.5
List of Illustrations
Chapter 2 Figure 2.1 Turning Less into More
Chapter 3 Figure 3.1 Five-Star Funds vs. Total Stock Market Index (1994–2004)
Figure 3.2 US News and World Report: Recommended US Value Funds
Figure 3.3 US News and World Report: Recommended US Growth Funds
Figure 3.4 US News and World Report: Recommended US Small-Cap Funds
Figure 3.5 US News and World Report: Recommended US Mid-Cap Funds
Figure 3.6 US News and World Report: Recommended US Large-Cap Funds
Figure 3.7 US News and World Report’s Recommended US Stock Funds Versus Benchmark Index Funds: Six-Year Profits Made on a $10,000 Investment, May 2010–May 2016
Figure 3.8 The New York Times Investment Contest
Chapter 4 Figure 4.1 Vanguard’s US Stock Market Index: January 2008–January 2011
Figure 4.2 Coca-Cola’s Stock Price vs. Coca-Cola’s Earnings
Figure 4.3 Compounding Growth of Differing Scenarios
Figure 4.4 US Stocks Offered a Wonderful Sale
Figure 4.5 Worldwide Stock Market Sale
Chapter 5 Figure 5.1 Comparison of Funds
Figure 5.2 Portfolio at Age 37
Figure 5.3 Portfolio at Age 38
Figure 5.4 Investment Portfolio Percentages
Chapter 6 Figure 6.1 Vanguard Canada’s Global Stock Market ETF Price
Figure 6.2 Order Purchase Sample.
Figure 6.3 Kris Olson’s Account Allocation
Figure 6.4 US Stocks Triumphed, 2011–2016
Figure 6.5 International Stocks Triumphed, January 2006–January 2011
Chapter 7 Figure 7.1 S&P 500, March 31, 2003-March 31, 2016
Figure 7.2 What’s Under the Hood?: Vanguard Target Retirement 2020 Fund
Figure 7.3 Vanguard Target Retirement 2010 Fund vs. Vanguard Target Retirement 2045 Fund: 5-year Performance Ending May 23, 2016
Acknowledgments
I want to thank Ian McGugan, who first inspired me to write this book. He and Scott Burns have been great writing coaches. Nick Wallwork, my first publisher at John Wiley & Sons, offered to publish this book’s first edition back in 2011. My continued thanks, Nick.
I also want to thank my friends at Singapore American School. You guided this book’s first edition, helping to ensure that it was jargon-free.
Thank you, also, to the team at Wiley. Tula Weis, you’re a great publisher to work with. I hope you enjoy many adventures to some of the coolest corners of the world. Julie Kerr, thanks for the excellent edits. I’m thrilled that you appear to be an ice hockey fan.
The rest of my production team at Wiley also deserves my gratitude. And I can’t forget John S. Woerth, at Vanguard, who helped me with the charts
.
Finally, this book wouldn’t exist without the encouragement of my wife, Pele Hallam-Young.
Introduction
“Don’t Stay In School.” That’s the title of a rap song on YouTube. More than 11 million people have viewed it. It was created by David Brown, a young twenty-something rapper with long, dyed red hair. He walks along a path in the trees and rants about the education system. Despite the provocative title, however, he isn’t against school.
When I first saw the video, I shared it on Facebook. I’m not the sort of guy who posts pictures of his food. But if I decided to post a hamburger, about a dozen of my friends would politely click “like.” So what do you think happened when I posted “Don’t Stay In School”? In a popularity contest among my friends, a burger would have crushed it.
You see, I’m a schoolteacher. Most of my friends are teachers. The title, “Don’t Stay In School,” was a fly in a glass of wine. But those who watched the video saw the wisdom of its message.
The young rapper’s beef is with the absence of real-world learning. Higher-level mathematics, for example, is mandatory in most schools. Everybody also learns some Shakespeare. But learning about laws, human rights, voting procedures, mortgages, how to get a job, and how to invest aren’t mandatory.
I think most schools let us down. I first started to learn about money from a wealthy mentor. From there, I read more than 400 personal finance books before I turned 35. I boiled my learning down to nine rules of wealth that I should have learned in school. By applying them, I became a debt-free millionaire in my late 30s.