Catching up with Millionaire Teacher and Expat – Andrew Hallam Part 2

I’ve been a fan of Andrew’s for a long time.  I continue to follow his blog and his book Millionaire Teacher continues to shape how I invest.  I recently got a chance to catch up with Andrew to get his thoughts about the current state of the stock market, his current investment strategy, what he thinks about my investment approach, his advice to Gen X and Millennials, and much more.

Part 1 of my interview of Andrew Hallam was here.  This post concludes my interview with Andrew.

Back to you Andrew, how are you investing today? 

My wife has a Vanguard Target Retirement Fund.  It’s a blended portfolio of stock and bond market index funds that gets automatically rebalanced each year.  It costs 0.17% per year.  It might be the easiest portfolio in the world.  Unfortunately, it’s just for Americans.

My portfolio didn’t used to have any Canadian equity content. I never knew where I would retire, so I kept a more global allocation.  My equities were split between Vanguard’s Total U.S. stock market index (VTI) and Vanguard’s Developed Market Index (VEA), with about 40% in Canadian bonds (VSB). But I’ve been recently buying a Canadian stock index.  Most of my earnings comes in U.S. dollars and Singapore dollars. The Canadian dollar is on sale and the Canadian markets are cheap.

I’ve since purchased Canadian domiciled ETF equivalents, instead of going with VEA and VTI, which trade on the U.S. market.  I did that to avoid potential U.S. estate tax issues.  Most Canadian residents don’t have to worry about that.

What are your predictions for the stock market?  Will that change how you invest going-forward?  Why or why not?

I like Warren Buffett’s quote on the matter:  “Stock market forecasters exist to make fortune tellers look good.”

I rebalance my portfolio once a year.  And I add fresh money to whichever of my index funds is lagging.  I hope stocks crash today or tomorrow.  But that’s the greedy side of me talking.  When stocks crash, I rebalance.  I sell some of my bonds (which usually rise when stocks crash) and I buy stock market index funds with the proceeds.

Retirees should hope that stocks rise.  But young people should get down on the ground and pray that stocks crash.  I’m still 20 years from a “normal” retirement age.  I’m still earning money and adding to the markets.  That’s why I want stocks to stagnate or fall, and stay down for many years.  The longer they’re cheap, the better!  When they rebound (and they always do) those who had the courage to load up on the sale will reap massive rewards.

Most of Gen X (my cohort) and Millennials are probably struggling with decisions like how to invest, where to invest and what to invest in to secure their financial future.  What advice would you provide these folks?

I could try to answer this question in 1000 words, but it would leave too many rocks unturned.

Interest rates remain at rock-bottom and house prices seem to keep climbing in major cities across Canada.  Do you think paying down your mortgage today makes any sense over investing?

As for paying down a mortgage, I think that’s important.  In the United States, you can get a fixed rate 30 -year mortgage, charging about 3 percent per year.  The interest is tax deductible.  But in Canada, our mortgage rates aren’t guaranteed over the long term.  If interest rates rise (when they rise!) homeowners will pay higher interest. I have a friend in B.C. with a 10-year mortgage.  Every extra dollar that he puts on that mortgage earns him a guaranteed, post-tax return.  I don’t think any financial instrument in the world today promises even a 3 percent guaranteed, after tax return.  So I’m a big fan of paying off mortgages faster AND investing.

Your books Millionaire Teacher and The Global Expatriate’s Guide to Investing were major success stories.  Any plans for another book?

I’ll probably write another book, perhaps a money/investment book for kids.  But it would also be fun to try something different.  Kerry Taylor (Squwakfox blogger and Globe and Mail writer) joked with me about writing a fitness and health book.  I proposed that we should do it together.  I’m going to quote her directly on this:

My first chapter; “Eat the darn cookie!”  Your first chapter:  “Put down the darn cookie!”  This could work?

Lastly Andrew, if you had to give some words of wisdom to investors today, savers trying to scrimp their way to a secure retirement, what would that be?

I just read a book called Stuffocation by James Wallman.  I think people should check it out.  In a nutshell, it says that we spend too much money on junk.  Things that we think are necessary for our happiness often detract from happiness.  When we build this mindset, we can find money to invest.  When we do so, we give ourselves plenty of options:  Will I take a year off?  Will I retire early?  Will I travel around the world on my 30th birthday?  Money (and not debt) gives us the options to do these things.  Life is for living.  I think it’s best that we control our money, instead of letting money (and debt!) control us.

Thanks for your wise words and time Andrew. Talk again soon.

Andrew Hallam is the author of Millionaire Teacher – The Nine Rules of Wealth You Should Have Learned In School and The Global Expatriate’s Guide to Investing.  You can follow Andrew on Twitter @aphallam.

Readers, what do make of Andrew’s investing advice and suggestions?  How would you answer my questions?  Got any follow up questions for Andrew?  Thanks for reading. 

32 Responses to "Catching up with Millionaire Teacher and Expat – Andrew Hallam Part 2"

  1. Thanks Mark. Sorry to be delivering the bad news on your security plug in. About half the time my posts go through and the other half usually need 2 or 3 tries. I am surprised if no one else is having an issue.

  2. Mark, you can see the problems I am having with the captcha, with multiple copy and pastes that I thought had been removed.

    Unfortunately it doesn’t seem we can edit anything here.

  3. I’m using an annually updated spreadsheet to calculate total gross income (withdrawal & pension), based on inputs of pension income, asset balance, inflation & conservative ROR assumptions, life expectancy etc. Withdrawal rates over the full projected period vary depending on changes in govt pensions etc but range from around 4-5.5%

    Mark, I can relate to what you’re saying regarding being conservative with withdrawal rates, although I’m not making withdrawals based on specific %’s. However, I find myself wanting to be safe and conservative especially early on in retirement which started approx 22 months ago on my 55th birthday.

    I examined our withdrawal rate and it was 2.94% for the first 12 months and for the next 12 months (10 months actual and 2 months estimate) the withdrawal rate will be about 2.88%. For the first 2 years my spreadsheet indicates an approx 3.8% withdrawal rate, so it looks like we’re under spending, and our asset base is growing.

    I think all of this will be a work in progress as we see how results go. Our nature may make it more difficult to spend up to the max suggested although maybe that will change as time goes on and we have more retirement experience.

    Thanks also for posting that link Grant. Indeed IMO you’re one of the savviest investors on this site and I appreciate reading your insights. I find all of these approaches interesting. I kind of like the guardrail idea which I’d read about before. We’re very flexible in lifestyle so it’s easy to adapt to less for a period of time. Maybe harder to spend more. LOL

  4. That being said, behavioural issues are the most important elements in investing, so it’s very important to be comfortable with whatever strategy you choose.

    Yes, the cash wedge approach is great way of dealing with sequence of return risk – having 2-5 years of cash/GICs/short term bonds depending on your risk tolerance.

    I think you can push the 3% withdrawal rate a bit higher – 4-5% depending on what the market does. Here’s a good video looking at various strategies.

    1. Thanks for the video link Grant. You’re probably right, when it comes to the withdrawal rate. It really depends how much fixed income our pensions can cover. If our pensions can eventually provide for most, if not all, basic living expenses – we should be good 🙂

  5. But, Mark, this is a behavioural thing – you just need to to create a home made dividend to make up the difference. You take that home made dividend (sell) from either stocks or bonds (one will be higher than the other) to bring your portfolio back to your asset allocation. The research shows that starting with 4% and adjusting for inflation you won’t run out of money.

  6. Great interview guys!

    I really enjoyed both part 1 et 2!
    So interesting that I wish it could have been longer…

    Did not have the chance to read any of Andrew’s books yet but this sure made me add them to my list.

    I used to do indexing but now have a more dividend oriented approach. I still feel I would leave some money on the table by only indexing but maybe things could be different if I followed advices from an expert indexer like you Andrew.

    Anyway, we have to remain confident in our ability to wrestle all the crocodiles out there.

    Inspiring people like you and Mark sure help us to do so!

    1. I’m not convinced indexing is leaving “money on the table” as you put it, rather, indexing is putting as much money on the table as possible with the least amount of risk – i.e., over individual stock selection.

      I think what confuses the indexing issue is our small market on the world stage. We are 3-4% of the world market and likely always will be. That means to be a true equity indexer, on the world stage, >95% of your assets may be invested abroad. That may not make sense for a few reasons (namely currency risk) but hopefully you see where I’m coming from; to ride Canada’s growth means at most – using one equity product like XIC, VCN, etc. A proxy for those broad market ETFs is owning the same 30-40 blue-chip stocks those funds own/the index owns directly. The challenge of course is building a portfolio that sizable, which begs the question, why not save yourself the hassle, own a simple ETF, pay a small fee, and get market returns.

      I’m warming up to the indexing approach, I’m just not “there” yet. 🙂

      Andrew always has a great take on things. He’s a very bright guy to learn from. Thanks for reading 12-Minute!

      1. Indexing is a very interesting option for most people. It’s simple, cost-effective, relatively safe and diversified.

        Maybe Andrew could convince me otherwise but I think it may be too diversified. With indexing, you are pretty sure to catch all the great winners out there but the problem may be that you are also pretty sure to catch all the big losers.

        Contrary to big fund managers who have to deal with subscribers taking money in and out often at the worst time, disciplined individual investors can probably do better than average and achieve superior returns while tackling acceptable risk.

        Rest assured, I’m not saying individual stock selection is for everyone as most should probably be contempt with safe and average.

        1. Agreed, indexing is: “simple, cost-effective, relatively safe and diversified.” You are almost assured to get “winners” but the flipside is, you’ll buy the duds as well.

          The biggest problem I have with indexing, I think, is the current yield. Rather low (approx. 2%) when compared to dividend paying stocks (3-5%). That’s a HUGE difference when you’re planning to live off dividends. 🙂

  7. Thanks for the interview of Andrew, Mark. We appreciate it.
    I like Andrew’s approach on Indexing as it’s easy peasy and doesn’t require much time. Moving forward, I will lean towards that approach but still investing in only high quality individual companies. Why not? Like you said Mark, “Hybrid” approach. I like that.
    Keep up the great work and Cheers to our journey my friend.

    1. Thanks DH. Great to see you comment. I’ve been checking out your site more.

      I’m a hybrid investor and likely always will be to some degree, holding some individual stocks for passive income and indexing everything else.

      Stay in touch,

  8. Brian, I think what Andrew means by his comment is that you can only get from the markets what the markets are going to give. It would be nice or better (the hope) for young people if stocks would crash so they could buy more shares at the lower prices (which always later go up), and it would be nice or better (the hope) for retirees that the market goes up as they are sellers of shares, but the success of the strategy does not depend this hope.

    1. Thanks Grant and this is the compromise if you will, with indexing, you get what the market returns less minuscule money management fees but in the end, you take the guesswork (hope) out of stock and bond selection. Allocation is still an issue, but that can be resolved based on a risk profile and longer-term objectives.

  9. My only concern about his investing methods come from two of his own phrases, that is young people should HOPE that the market crashes, and retirees HOPE that the markets go up. When you are young and you are wrong, there is time to make up for your mistake, but seniors don’t have that luxury.

    1. But no investor, regardless of age, has any control over market direction. So what are you going to do, not invest?

      (Side note: it’ll be interesting to see what the Japanese market does once their massive population of elderly ceases to be.)

      Also great to see Andrew is normal minded enough to realize “Money (and not debt) gives us the options to do these things. Life is for living. I think it’s best that we control our money, instead of letting money (and debt!) control us.”

      Money is a part of life which can enhance or detract life’s options, but money is not life. Most people would be wise to put much more effort into developing their career, as that’s where most of their wealth will originate, rather than spending an inordinate amount of time and energy on the investment side of the equation.

      I admit I haven’t read Andrew’s book, does he go into detail about his time with his investment club?

      1. I agree with that 100% – nobody has control over market direction.

        I feel long-term that money is a tool to provide me/us with options regarding how to live my life. I don’t have any many options now since I have (mortgage) debt, unfortunately, but I’m working on that over time – i.e., killing it 🙂

        Andrew doesn’t go into too much detail in any books about his investment club, although I recall on his site he talked about it a few years ago. You can read some of his posts on that in 2010 and 2011, before he became a devout indexer!

    2. Agreed Brian. Seniors don’t have any luxury of time left,, so they have to largely live in the “here and now”. I think this comes down to good asset allocation and only taking on enough risk (i.e., more equities in this case) in order to meet your long-term objectives.

      Unfortunately if some seniors have not saved enough money, then there is longevity risk. I hope to never worry about that for us.

  10. An interesting and practical take on finances and investing from Andrew. It’s easy for me to read since I’m of a very close mind set and approach with investing.

    My wife is probably tired of me preaching the same words about people controlling their money vs money controlling them.

    1. Well, FWIW, my wife is warming up to indexing more and so now I’m getting pressure to alter our portfolio because of it. I suspect if I can index more in her TFSA and RRSP, that will help me/save me 🙂


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