Having been busy in the past few months with the new life of an entrepreneur, it’s been a while since I’ve had the time to read a personal finance book. However, this week I’ve taken the time to rattle through the new book from Andrew Hallam, the author of the 2011 book The Millionaire Teacher. This book explaines the story of how he, as a schoolteacher, built a million-dollar investment portfolio. Now, he is back with his new book “The Global Expatriate’s Guide To Investing”.
And it’s every bit as good as his first. Whilst the final few chapters are focussed on expats, the majority of the book is entirely relevant to anyone (expat or not).
I would highly recommend that you to read this book as it will either cement the good things you are doing from an investment perspective, or help you think about changes you need to make to help you save towards retirement. Here are just 10 of the lessons I learned from this book.
Lesson 1: Inspiration – The Kaderli story
One of the first things I liked about his book was the story of the Kaderli family. It’s a true summary of a couple who retired early due to being financially savvy in their 20s and 30s, and now spend their time travelling the world. You can find more about them at Retire Early Lifestyle. They retired at the age of 38 back in 1991 and have been living the financially independent lifestyle for the past 24 years! Doesn’t sound all that bad, does it?
Lesson 2. How to get there – The reality of saving towards a retirement goal
There are other examples highlighted in the book of certain individuals and their plan to retire. This helps balance the inspiration and dreams from above with the financial mathematics required to be able to do so.
Lesson 3. Things to remember about the stock market
There are a lot of good reminders (or information if you didn’t already know it) about the stock market throughout this book. Some great numbers to remind us about the power of the stock market and compound returns, for example: $10k invested in 1976 would be worth $0.5m in 2014, or $100 invested each month since 1976 would be worth $0.4m.
Another thing I’d not seen before was the fact that whilst average US market returns are between 9 and 11% annually, actual annual returns have only fallen within that range three times in almost 90 years. A good reminder that stock markets are pretty darn volatile and should be treated with care in the short-term.
On the contrary, there is also a good explanation of how global stock markets exceed inflation over the course of 112 years by over 5.4% each year.
In the short-term, be careful. In the long-term, you’d be mad not to be investing!
Lesson 4. Fees and passive vs active investing
We’ve recently covered this in detail on moneystepper, but it was great to see this confirmed in this book. Passive investing is better than active investing. That is all.
Lesson 5. Don’t try to time the market; don’t pick stocks
Another two confirmations, very neatly presented, which we couldn’t agree more with here at moneystepper:
Lesson 6. Consider your risk profile as you reach retirement
Another good discussion in the book is how you should consider your risk profile and your investment split as you near retirement. This is a complex issue, with ever increasing life expectancies and changing pension rules, but it is extremely well summarized in the book and the discussion here is very useful for expats and domiciles alike.
Lesson 7. The Permanent Portfolio
This was probably the biggest takeaway from this book, and may actually alter my investment approach. The Permanent Portfolio is an approach to investing, splitting your investments between stocks, bonds, gold and cash in equal proportions. The portfolio is then rebalanced once a year.
This approach can be taken through very low fee index funds or ETFs and therefore is in line with our own investment approach. However, it does have a much higher amount invested in bonds and gold than moneystepper currently does (we currently have 0%!). Therefore, this has encouraged me to do more research on this asset allocation approach, and I’m currently very tempted to slightly amend my investments to align it (albeit with slightly different weightings).
The biggest takeaway was that since this was first implemented 41 years ago, the average returns have been 9.8 per year (only very slightly less than the S&P 500), but the variance was much lower, with only 3 years out of 41 showing a negative return.
This, therefore, is a great investment approach for a lazy investor, which can also protect the investor slightly against high variances for only a very slightly reduction in average returns. Certainly something to consider to older investors who are nearing retirement, but equally interesting for everyone in my opinion.
Lesson 8. Do you need a financial advisor to stop you changing your mind?
Hallam also asks a very interesting question in this book. Do you trust yourself not to change your mind when the market tumbles? If not, paying a 0.5% management fee for a financial advisor who could encourage you not to make any rash decisions may not be a complete waste of money!
Luckily for me, I have a ninja-like (and ultra long-term) approach to the market and so I’m going to save myself the fee! However, this could be a great decision for some.
Lesson 9. FAQs
Another good chapter is the FAQs. Hallam goes through around 15 FAQs related to investing for retirement, each of which provides a great deal of information for all investors, again whether they are an expat or not.
Lesson 10. Investing for the expats from each country
Finally, the part of the book which is specifically tailored to expats. There is one chapter for expats from each of these regions:
- New Zealand
- South Africa
- South America
That covers most people, right. Each chapter has a strong focus on the investments these expats may have, the tax implications for expats, currency risks, etc. All essential information for expat investors and retirees.
I would highly recommend that you pick up a copy of this book and learn these lessons and many, many more. Simply click on the book below to be taken directly to the amazon page (hard cover and kindle versions available):