My Favourite Takeaways – Millionaire Teacher and FREE book giveaway (Part 3/3)

Over the last couple of weeks, in Part 1 and Part 2, I raved about Andrew Hallam’s book.

I have good reason to.

I consider Millionaire Teacher a gem for your personal finance library because it is an excellent and an enjoyable read.

Andrew goes beyond the technical and academic merits of spending less than you make, investing for the long-haul and digs into the behavioural challenges that come with investing. He understands people and his book helps people get out of their own way to be financially free, faster.

For today’s post, Part 3, I’m going to wrap-up my favourite takeaways from Andrew’s book and share his remaining rules of wealth we should have learned in school.

First, a quick recap of rules 1 to 4:

Rule 1 – Spend Like You Want to Grow Rich

Rule 2 – Use the Greatest Investment Ally You Have

Rule 3 – Small Percentages Pack Big Punches

Rule 4 – Conquer the Enemy in the Mirror

Now, let’s move on to Andrew’s other rules…

Rule 5 – Build Mountains of Money with a Responsible Portfolio

Many folks complained about their portfolios after the recent Great Recession rolled through, whereby most equity markets plummeted 30-40% off their peak values.

While these investors had a good reason to complain, the way Andrew Hallam sees it, “only an irresponsible portfolio would fall 50 percent if the stock market value were cut in half.”  What is he getting at?   Andrew says bonds are parachutes for an investors’ portfolio.   Sure long-term, we all know, bonds don’t make as much money as stocks but investors need them because bonds are less volatile; when the stock market tanks Andrew says bonds are your friend.   These IOUs in government or corporate debt are relatively safe.  “If you’re looking for a safe place for your money, it’s best to keep it in short-term government bonds or short-term, high-quality corporate bonds.”

That’s a great tip Andrew.  There’s plenty more in Millionaire Teacher.

Rule 6 – Sample a “Round-the-World” Ticket to Indexing

Rule 6 was a great chapter in Millionaire Teacher because it began to profile real investors Andrew has helped.    Take “Kris”.

Kris’s portfolio is comprised of just three indexes, 35% in a total U.S. stock market index fund, 30% in an international stock market index fund and 35% in a total bond market index fund.  Over time, Kris is not guaranteed to beat every actively managed mutual fund manager Andrew Hallam notes.   Kris is however, assured to beat most of these fund managers since Kris is paying rock-bottom fees that don’t eat into his indexed returns, returns that must be greater for actively managed funds to offset the fees (and benefits) of that active management.

With indexing, Andrew confidently tells us “nobody is going to know how the stock and bond markets will perform over the next 5, 10, 20 or 30 years.  But one thing is certain, if you build a diversified account of index funds, you’ll beat 90 percent of professional investors.”

Rule 7 – Peek Inside a Pilferer’s Playbook

In this chapter, Andrew tells us to be wary of financial advisors, our financial institutions, and their “playbooks”.   Learn to fight the salesperson rhetoric.

“Walking into a bank or financial service company, we’re then settled into plush chairs across from a financial adviser selling us on the merits of his ability to choose actively managed mutual funds.”

These advisors are making us feel comfortable for sure, because they want to sell us something, but the merits of their investing abilities over indexing are only good in theory.  The financial advisor may suggest they understand the markets, the fund manager knows how to “get in” and “get out” of assets before they drop or climb in price, but it’s just chatter.  Nobody can predict the future of the markets.

Andrew isn’t saying the entire financial industry is rigged against you, just most of it.

Read Millionaire Teacher and Andrew will help you put the highest odds of investment success in your favour.

Rule 8 – Avoid Seduction

Every investor makes mistakes, even great investors make mistakes.   Don’t beat yourself up.  In fact, learn from your silly mistakes.  That includes avoiding investment schemes that provoke greed.

Andrew Hallam has made a few mistakes himself and shares them in this chapter, brilliantly.  Here’s a few takeaways from Andrew’s book, what we should avoid:

Avoid high-yielding bonds called “junk”.   Avoid fast-growing markets because they can make bad investments.  Avoid gold as an investment.   Andrew will give you a host of reasons why in his book.

Rule 9 – The 10% Stock-Picking Solution …If You Really Can’t Help Yourself

When Andrew Hallam delivers seminars on indexing, he said many women who attend the seminars learn to put together a pretty diversified portfolio.  He isn’t surprised by this by any means, only worried – the husbands will mess the portfolio up!   Andrew feels women might make better investors than men because men often run the risk of, well, being men – imploding their investment accounts by chasing hot stocks and other fads.  Basically too much testosterone gets in the way.

In this regard, if you feel the urge to buy common stocks (like I do) and you really can’t help yourself from being a shareholder (like I am) then do so using only a small percentage of your portfolio.  Set aside a small proportion for stock-picking and keep the rest, 90% in a diverse set of indexed products.

If you are going to use this 10% rule, Andrew has set aside some great guidelines in his book for us.

The Summary?

Millionaire Teacher is really not your classic investing book.  It doesn’t overwhelm you with concepts.   It’s an informative, intelligently-written book full of content that won’t take you months to read or require a Bachelor of Commerce degree to understand.

Using Millionaire Teacher as your guide, you can avoid many financial pitfalls, if you want to.  High-cost mutual funds, massive debt, sky-high mortgage costs, an underperforming portfolio and chasing story stocks are just some examples.   Millionaire Teacher is your guide to understanding the wealthy and becoming wealthy.  Andrew Hallam has done it, on a teacher’s salary, and so can we if we learn to apply his rules.

Now, want the book?

Don’t want to pay for the book?

Well you don’t have to if you win Andrew’s book from my blog!

After this blogpost, I’m going to tally up comments and tweets to randomly select one lucky reader to send them a FREE copy of Andrew Hallam’s book just in time for Christmas!

There are a few ways to enter:

• 1 entry point: Leave a comment on this post telling me what you liked about this book or why you want it.
• 1 entry point: Retweet this post. If you do, you must include “@myownadvisor” in the tweet so I can find it or you must add the tweet timestamp in the comments below.
• 1 entry point: Link to this post from your site, to your readers. Again, please let me know about this link in the comments below so I can add your point.

Entries will be accepted until midnight December 11, 2011. From a long list of entries I’ll use Random.org to choose our lucky winner!  Good luck!