The Global Expatriate’s Guide to Investing: From Millionaire Teacher to Millionaire Expat – Andrew Hallam

Here are my comments on the book:

What’s the best way for expatriates to invest? Andrew Hallam, author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, international school teacher, and millionaire by age 30 through saving and investing, states that buying a diversified portfolio of low cost index funds is the best way to go. When Hallam compared private pension funds to low cost index funds, the low cost index funds consistently projected higher returns despite the seemingly lucrative offers the pensions gave upfront. For those of you living abroad, it can be quite daunting when it comes to planning your future finances especially if you’re not eligible for a pension or social security/unemployment insurance. But with Andrew Hallam’s advice, you can’t go wrong as other top investors have also stated the same thing about investing in a diversified portfolio of low cost index funds. Here are some of the points to the book:

 

1) When it comes to the stock market, there’s a notion that active trading is what gets you rich. Surely by being on top of the ball to get in at the right time to buy low and sell high is what will make you a millionaire. However, active investing has been proven on numerous occasions to actually do the opposite; the only real winner through active investing is the financial institutions collecting commission on your trades. Even the great investor Warren Buffett addresses this point as he has stated that his holding period of a stock is forever. The reason for this is that you have to be right two times when buying and selling as opposed to just the one time when buying. When you make a purchase, just opt in for DRIP (dividends reinvestment plan) should your stock pay enough dividends to repurchase and leave it on auto pilot. Studies have shown that, on average, people who trade stocks (buying and selling them) don’t tend to make investment profits that are as high as those of investors who do very little (if any) trading. What’s more, to maximize profits, investors should reinvest dividends into new shares. Doing so increases the number of shares you own. And the more shares you have, the greater the dividend income you’ll receive. Joshua Kennon, a financial author at About.com (a division of the New York Times Company), calculated how valuable reinvested dividends are. He assumed an investor purchased $10,000 of Coca-Cola stock in June 1962. If that person didn’t reinvest the stock’s dividends into additional Coca-Cola shares, the initial $10,000 would have earned $136,270 in cash dividends by 2012 and the shares would have been worth $503,103. If the person had invested the cash dividends, however, the $10,000 would have grown to $1,750,000.

 

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2. When asking about low cost index funds from your financial institution, they usually avoid them like the plague and pretend they don’t know much about them. They will, most of the time, do this because the profit margins on these products are so minimal that there’s no point in getting the average consumer (who probably doesn’t know much about investing) to buy them when they can upsell them on actively traded, high management fee mutual funds and cash in on higher commission. For you Canadians, just try going to a TD bank in person and ask them about wanting to purchase their e-series funds and most of the tellers will act like they don’t know what you’re talking about and you’ll get what I mean. If you’ve never read an investment book before, chances are you’ve never heard of index funds. No, your financial advisor won’t likely discuss them. Index funds are flies in the caviar dishes for most financial advisors. From their perspective, selling them to clients makes little sense. If they sell index funds, they make less money for themselves. If they sell actively managed mutual funds, advisors make more. It really is that simple. The term index refers to a collection of something. Think of a collection of key words at the back of a book, representing the book’s content. An index fund is much the same: a collection of stocks representing the content in a given market. For example, a total Australian stock market index is a collection of stocks compiled to represent the entire Australian market. If a single index fund consisted of every Australian stock, for example, and nobody traded those index fund shares back and forth (thus avoiding transaction costs), then the profits for investors in the index fund would perfectly match the return of the Australian stock market before fees. Stated another way, investors in a total Australian stock market index would earn roughly the same return as the average Australian stock.

 

3. Your ability to do well in investing has to do more with how you manage your emotions towards your money rather than your knowledge of the market. In the book The Intelligent Investor by Benjamin Graham, Warren Buffett’s mentor, he states in the beginning chapter that to be an intelligent investor, one needs to get a good grasp of their emotions first. He then gave the example of Sir Isaac Newton and how brilliant the man was. However, when it came to investing not so much. Keep your emotions in check and don’t stray away from your strategy. Thousands of years ago, a couple of your ancestors pushed their way through jungle foliage looking for their next meal. A tiger attacked from behind and ate one for lunch. The survivor told other villagers. One woman shared a similar story. So the villagers realized a pattern. Giant cats eat people. Better avoid them. Another time, your ancestors discovered which berries were poisonous, which caused diarrhea, and which they could safely eat and enjoy. To survive and propagate, they learned patterns: which berries would kill, which would woo, and which could ruin a perfect picnic. Humans are hardwired to seek such patterns. But while good for survival, these same pattern-seeking tendencies make us lousy investors. We figure if something is rising in price, it will keep rising. And if something drops in price, it will keep falling. But the stock market isn’t a tiger or a jungle berry.

 

4. One of the reasons why low cost index funds work so well is because of the fact that they’re low cost. Here’s the math behind it for demonstration purposes. Investment A costs 0.5% in management fees every year. Investment B costs 3% in management fees every year. Assuming that the market makes a 9% return, the net return on investment A is 8.5% (9-0.5) and investment B will have a net return of 6% (9-3). If over the course of 25 years both investments started off with $10,000, investment A would be worth $76,867 and investment B would be worth $42,919. That’s a difference of almost $34,000. Low cost funds are the way to go. To keep costs low, think of the 1 percent rule. Never pay more than 1 percent of your total invested proceeds in commissions. You can’t exactly strong-arm your brokerage into providing a better deal. But think strategically about how much you’ll invest at any one time. Assume minimum commissions are 28 euros. By following the 1 percent rule, you would never invest less than $2,800 euros. If you don’t have 2,800 euros a month, save for the investing occasion. Perhaps you can save 500 euros monthly. In this case, keep the money in a savings account until you’ve accumulated 2,800 euros. Then make your purchase. Don’t be afraid to buy one index at a time. The first time you save 2,800 euros, perhaps you could buy an international stock index. A few months later, buy a bond index. Build your portfolio slowly, one index at a time. Don’t worry about rebalancing until your portfolio hits roughly 50,000 euros. From that point, you could buy the underperforming index with each purchase, trying to align your portfolio with your goal allocation.

 

By Ryan Timothy Lee

 

My rating:
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Check out the book here:

Amazon US
Amazon Canada
Amazon UK

 

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2 Comments

  1. It’s awesome seeing a kindred soul. You read the same stuff I do. What spurs you to read stuff like this?

    P.S. Do you offer any guest post opportunities? I would love to help contribute to your blog.

    Like

    1. Will, thanks for the positive feedback. Sure, a guest post would be nice. I can create a section for it. Do you have any sample articles that I could read?

      Like

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