In my last blogpost, Part 1 of My Favourite Takeaways – Millionaire Teacher and FREE book giveaway, I raved about Andrew Hallam’s book.
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. Andrew should know about this. He’s completed that journey himself!
For today’s post, Part 2, I’m going to start sharing a few of Andrew’s nine rules of wealth that we should have learned in school, and some excerpts from Millionaire Teacher that made an impression on me.
Part 3 with closeout the other rules. Let’s go!
Rule 1 – Spend Like You Want to Grow Rich
If you want to be a millionaire, you better start thinking like one. You also need to spend like one and that means you need to save.
“Before we learn to invest to build wealth, we have to learn how to save.”
Easy to say but hard to practice and stay committed to. Andrew has it right and we all know it. Andrew cites U.S. author and wealth researcher Thomas Stanley (of The Millionaire Next Doorfame) to reinforce his message when he looks at the costs of home ownership.
“For example, most U.S. homes valued at a million dollars or more (as of 2009) were not owned by millionaires. Instead, the majority of million-dollar homes were owned by nonmillionaires with large mortgages and very expensive tastes.”
Andrew believes if there were such a thing as a financial Hippocratic Oath, many of us would be committing malpractice. This malpractice not only goes for houses, but for cars and other major purchases. Andrew wants you to know that responsible spending habits are never overlooked by the rich because these habits are how they got there. Avoid credit as much as possible Andrew says. People continually buying goods on credit, will never be wealthy. Instead, they will be stressed.
Rule 2 – Use the Greatest Investment Ally You Have
“Starting early is the greatest gift you can give yourself” Andrew says. Time is an investor’s best friend.
Warren Buffet famously quipped “Preparation is everything. Noah did not start building the Ark when it was raining.”
Our Millionaire Teacher uses a few tales within rule 2 to demonstrate the power of compounding. Over time, Andrew tells us that long-term investing or should I say staying invested will ultimately create the wealth you are looking for but you need to be patient. You also need to learn how to save money first. Pay off all high-interest debt first then save. This will put as much investing time on your side as possible.
Andrew also reminds us that “financially efficient households know what their costs are. By writing down expenses, two things generally occur. You get an idea of how much you spend in a month, providing an idea of how much you can invest. It also makes you accountable for your spending, which encourages most people to cut back.”
Again, we know Andrew is right! On a personal note, we’re trying this exercise at home lately and it’s AMAZING to see where your money is going. It’s also a bit scary. Like every 12-step recovery program, admission and awareness are your starting points. Millionaire Teacher says if you start early enough, for patient investors, the aggregate returns of the world’s stock markets have provided phenomenal returns. Just for an example, the U.S. stock market has averaged almost 10% annually from 1920 to 2010. That’s a long timeframe, but the point is, early investing almost guarantees market-like returns are on your side.
Rule 3 – Small Percentages Pack Big Punches
“With training, the average fifth grader can take on Wall Street” writes Andrew. Rather bold don’t ya think?
One could mistake this comment as overly-confident, maybe even cocky until Andrew shares his logic with us: “The vast majority of financial advisers are salespeople who will put their own financial interests ahead of yours. They sell you investment products that pay them (or their employers) well, while you’re a distant second on their priority list.” So what can we do about this?
Andrew suggests instead of buying the banks and insurance companies’ products, or the bank and insurance companies themselves, rule 3 tells us to own thousands of the world’s best companies in indexed products. With “just three index funds,” your money can be diversified over almost every available global money market. You need to buy or win the book from my giveaway to find out what index funds he’s talking about!
Millionaire Teacher goes on to describe the major holes in actively managed mutual funds, expense ratios, trading costs and sales commissions to name a few. The more trading that occurs within a mutual fund, the higher the taxes paid by an investor – if we know what is good for us, we won’t let that happen to us.
Rule 4 – Conquer the Enemy in the Mirror
“John Bogle, the founder of Vanguard, explains in his book, The Little Book of Common Sense Investing, that the average mutual fund reported a 10 percent annual gain from 1980 to 2005 after fees and expenses, but investors in those funds over the same time period only averaged 7.3 percent per year.”
Shocking? Not to Andrew Hallam. Why? Because one of the biggest challenges any investor must overcome, is not the mutual funds they hold, is not the expense fees they pay, it is them. Investors need to learn to get out of their own way.
Andrew says “I’m not going to suggest that all indexed investors are evolved enough to ignore the market’s fearful roller coaster, while shunning the self-sabotaging caused by fear and greed. But if you can learn to invest regularly in indexes and remain calm when the markets fly upward or downward, you’ll grow far wealthier.”
By understanding stock market history and managing your own behaviour and emotions accordingly, you can avoid falling victim to market or media craziness.
I guess you don’t have to go too far back into time to see this madness in action. The U.S. for example, went through some significant growth in the 1990s when many stocks were rising twice as fast as earnings. We know, logically, this is not sustainable (and wasn’t). Bubbles will come and go, markets will have peaks and valleys. Through Great Depressions, World Wars, Oil Crises, Dot-Com Busts, 9-11 Terrorism and the recent Great Recession of 2008-2009, Andrew reminds us that businesses survive and many continue to thrive. Instead of fretting over all this, do your best not to give into your irrational short-term behaviour and if anything, do the opposite of what might seem right at the time:
“Think of the stock market as a grocery store filled with non-perishable items. When prices fall, it’s a good idea to stock up on those products because the prices will inevitably rise again. A stock market drop is the same as a sale at your local supermarket.” Witty and well said!
I encourage everyone to get their copy of this book like I did, so you can avoid being schooled by the financial industry and others who want your money. Better still friends, win Andrew’s book from my blog!
With this blogpost and Part 3 to follow, I’m going to tally up comments and tweets to randomly select one lucky reader or tweeter 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.
Great blog. My freinds in Singapore originally told me about Mr. Hallam and I have followed him since. His book has been on my must read list and I would love my own copy to share with my four daughters- one is a teacher in Europe. Another is just starting in the work force. Please pick us!!
Well, you’ve got a shot now Hope, you’re in the draw! Good luck!
“With training, the average fifth grader can take on Wall Street” writes Andrew. Rather bold don’t ya think? Very bold statement I would be most interested in how Andrew backs up such a bold statement!!!
Don’t worry penny, he does! He’ll tell you how to beat Wall Street gurus in his book, quite easily in fact. Good luck, you’re in the draw!
Great review, I would like to read everything in more depth.
Thanks Ed. You’re in the draw!
Well, Mark, so far I really like all the rules of the Millionaire Teacher, especially the first one. I have been playing by that simple and yet fundamental rule all my life (since I became an adultwhenever that was : ) ). Last night we had some friends over for dinner, and I noticed that all three of their girls had I-phones. Great, cool, good for them (especially when Daddy paid for the toys)-image is very important for teenagers. However, it occured to me that in our household by not spending our money on expensive technology toys and gadgets, we save the money to purchase something a lot more dear to me- our financial freedom!
You see, I am not opposed to buying technology such as I-phones, I-pods, etc, not at all. One day I will probably own one myself. However, destinguishing between needs and wants is important, as well as there are so many other things to take care of beforethat like paying off our mortgage.
Oh, well! Life is the greatest teacher of all and she keeps on teaching us the easy or the hard way over and over again…until we learn the lesson : ) Have you heard of the expression: Too soon old, too late smart!
I am looking forward to Part Three!
If you like the first few rules, you’ll love the rest!
I’m opposed to tech toys either, my wife and I have BBs (Blackberry phones), we both have laptops and I’m typing this response while watching HD TV. We’re lucky and very, very fortunate no doubt. That said, I don’t “need” any of this stuff. It’s a want. Over time, I need to be a bit more critical about needs and wants, especially if I want to retire early.
I should be posting part 3 in a couple of days, do stop by for that!
BTW – you’re in the draw!
Just made the big move after 10 years with my advisor. Would love a copy of the book to start off right. Have tried to buy it but never in stock
Well, you’re in the draw Shameer! Good luck!
This is a great review, Mark! I already finished the book, but I’m giving it a second go before I write my review simply cause I went too fast the first time! Haha….
The book is worth a second, third and fourth read 🙂
Sounds like a very interesting book. And as a teacher myself, I’m attracted to the book just because of the title.
Thanks for the review – great run down of the “rules”!
Thanks for stopping by SarahT. You’re in the draw 🙂
Nice article, hopefully I win the book!
Well, you’re in the draw so you have a chance Joel! Stop by again soon!
Always interested in more information about smart investing.
Great to hear Doug!
This sounds like something that I can get started on right now.
Well, you’re in the draw Jeanette!
Would like to learn more from this author!
Great, you’re in the draw Carolyn!
I am interested in starting a passive index portfolio & would love a copy of the book to see which funds are recommended!
Thanks for your comment, you’re in the draw!
I like the simplicity of the message!
Yes, simple message and simple works! We just need to follow the recipe and stick to it! 🙂
Another Stellar review MOA! 🙂
Thanks good friend!
My buddy the Dividend Ninja send me over here to check out your site. Being a teacher and a stock picker, I am interested in a passive strategy for my rsp. I am currently pulling out of a 2.5mer fund to get more bang for my bucks using indexing. I want to learn more about what Hallam has to say. Cheers!
Thanks for your comment, and well, any buddy of Ninja’s is a buddy of mine! Sounds like we have the same strategy, I go passive with my RRSP but invest in dividend-payers otherwise. I love the dividend income!
BTW – you’re in the draw!