The Nine Rules of Wealth You Should Have Learned in School
Adopt the investment strategy that turned a school teacher into a millionaire Millionaire Teacher shows you how to achieve financial independence through smart investing without being a financial wizard.
Millionaire Teacher — Book Review
Here’s an interesting fact, Andrew Hallam is a high school teacher and a millionaire. Andrew Hallam built a $1 Million portfolio with a high school teacher salary, showing us that nothing is impossible with a savvy financial decision.
Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School is a personal finance bestselling classic on personal finance. And it’s also one of my personal favourites alongside The Richest Man in Babylon. The book offers non-nonsense straightforward rules for improving our finances and wealth. You might also be interested in reading “The Wisdom of Finance” and “The Loophole of The Rich“.
Hallam explains the difference between spending money like a millionaire and spend like a wannabe millionaire. Personally, this book might be a very good introduction to investing.
Highly recommended, I would rate the book @ 4★ while Goodreads average rating of the book stands tall @ 4.30★.
Millionaire Teacher — Book Summary
What We Didn’t Learn in School
“We should all make a pledge to ourselves much like a doctor’s Hippocratic oath: above all, do no harm.”excerpt from Millionaire Teacher
Generally, school don’t teach money management or personal finance, and most people grow up with limited knowledge of how to invest, save and get rich. We often spend most of what we earned and have little left to invest — even if they know-how.
And as per The Richest Man in Babylon would suggest that we often take advice from the wrong people, hence making terrible destructive mistakes. But it’s never too late to learn.
Here is how we can build our investment portfolio and wealth — The Nine Rules of Wealth:
1. Spend like you want to grow rich
If you want to be wealthy, promise yourself to do no harm. Create “assets, not debts.” You should spend wisely, but you don’t have to scrimp.
Growing wealthy requires a strategy. You must carefully watch how you use your money so you will have some leftover to invest. If you consume less than you earn, you will dramatically increase your odds of becoming financially secure. Change the way you look at your life, so you can be happy with what you have and less inclined to spend recklessly. As you build your savings, you’ll be able to make long-term investments in the stock market. With the right returns, you could create a healthy portfolio.
2. Use the Greatest Investment Ally You Have
“The surest way to grow rich over time is to start by spending a lot less than you make.”excerpt from Millionaire Teacher
My journey started when I read Rich Dad Poor Dad and the magnified when I read The Richest Man in Babylon. Some might think these books are boring, but in these boring pages is something incredibly beneficial. And among that is the 7th wonder of the world, compound interest.
For example, Warren Buffett bought his first stock at age 11 and jests that – given the benefits of compound interest – he should have begun investing much earlier. As Buffett says, planning can make all the difference.
If you invest $100 and it grows at 10% compounded annually, your investment becomes $161.05 in five years and $78,974.69 after 70 years. Stock markets can move dramatically up or down, but since the 1930s, the US stock market has provided investors with a return of more than 9% annually.
That’s the wonder of compound interest.
To start, make a note of all your expenses for three months. At the end of that period, calculate how much it costs you to live every month. Make that the basis of your fiscal plan. Pay off any high-cost loans. The sooner you begin, the better off you will be.
3. Small Fees Pack Big Punches
“Financially efficient households know what their costs are.”excerpt from Millionaire Teacher
“Before we learn to invest to build wealth, we have to learn how to save.”excerpt from Millionaire Teacher
We won’t be able to compete with an expert in his or her field unless it is in the area of money management. Know this, some financial advisers won’t guide you to the right investments while many just want to sell you products that make the most money for them. Yes, for them.
Instead of suggesting that you buy an index fund – “a single product that has thousands of stocks within it” and typically charges low fees – an advisor might recommend that you buy an actively managed mutual fund with multiple transactions and fees.
Millionaire teacher suggests that in order to earn better returns than most experts can provide, invest in three index funds: one from your country, a global stock market index fund and a government bond fund. Paul Samuelson, the first American to win the Nobel Prize in economics, says that purchasing an index fund provides you with the most effective way to diversify your investments.
What Warren Buffett would suggest?
If you could ask Warren Buffett where you should invest, he’d suggest that you buy index funds. He has instructed his estate’s executors that he wants his heirs to invest in index funds.
Studies show that you can’t pick the best-performing mutual funds based on how they did in the past. Mutual funds that achieve outstanding results in one period can perform dismally in the next. However, you can boost your chances of success by investing in indexed mutual funds. You won’t be able to opt for an actively managed mutual fund that outperformed stock market indexes, and you could make a serious mistake if you choose a mutual fund based on its past performance.
Always remember that advisers make money when they sell you actively managed funds. That’s why they counsel you to buy them.
4. Conquer the Enemy in the Mirror
We might be our own worse enemy.
Understand your own feeling and biases. If you understand how your feelings can torpedo your strategy, you’ll be able to invest more sensibly. Consider a mutual fund with average returns of about 10% over the last two decades. It might have underperformed in certain years and done well in others.
“If we want to grow rich on a middle-class salary, we can’t be average. We have to sidestep the consumption habits to which so many others have fallen victim.”excerpt from Millionaire Teacher
If the fund had 1,000 investors, you might think they’d all get about the same return. But, in fact, they don’t, because most investors pull their money out of poorly performing investments to chase better returns elsewhere. If you don’t want to live with the stock market’s gyrations, invest in an index fund over the course of 25 years, and add the same amount to it every month.
It’s hard to time the market
Many people invest under the delusion that they can get into the stock market and cash out of it at just the right time to earn a big profit. Professionals call this “market timing,” and it’s difficult. Most financial advisers stand a better chance of beating someone on the level of Roger Federer at tennis than they have of growing their portfolio by timing the market. The Vanguard Funds’ John Bogle – Fortune magazine’s choice as one of the four “investment giants” of the 20th century – said that in his 50 years of investing, he didn’t know of anyone who systematically made money using market timing.
“Sticking with index funds might be boring. But it beats winding up as shark bait, and it gives you the best odds of eventually growing rich through the stock and bond markets.”excerpt from Millionaire Teacher
When you buy a stock market index fund, you come to own, in effect, a part of several businesses. Through them, you may own real estate, manufacturing facilities and consumer products. Understanding this gives you an edge as an investor.
A company’s earnings and the growth of its stock price may diverge at times, but they are inextricably linked. The share price of a company typically reflects the growth in its profitability.
Over the short term, stock markets can act in a variety of wild ways. If they seduce you while they’re surging upward in price, you could become much poorer when they drop.
“Gold has jumped up and down like an excited kid on a pogo stick for more than 200 years. But after inflation, it hasn’t gained any long-term elevation.”excerpt from Millionaire Teacher
The Richest Man in Babylon would suggest, always picked the low-risk investment with consistent return first.
5. Build Mountains of Money with a Responsible Portfolio
We can benefit from owning an index fund but we must balance our portfolio so we can absorb market fluctuations. If the market falls, the value of our investments will drop by an equivalent amount. That’s hard to take, especially as we near retirement.
With bonds, over time, we may make less money than with stocks. However, their value fluctuates less, and that could protect us if the stock market tumbles sharply.
We can have confidence in purchasing bonds from governments in developed countries and we can take on more risk when we buy corporate bonds from leading companies.
Examine your allocation regularly
People have sharply divergent views on the proportion of stocks to bonds you should own. You can use your age as a rough guide. Some experts suggest that you deduct 10 years or 20 years from your age and use that as a percentage for the proportion of bonds you need in your portfolio. Regularly examine your relative allocations between stocks and bonds.
6. Sample a ‘Round-the-World’ Ticket to Indexing
“Warren Buffett famously quips: ‘Preparation is everything. Noah did not start building the Ark when it was raining’.”excerpt from Millionaire Teacher
Index funds relate to exchange-traded funds (ETFs). Both are made up of a certain amount of stocks representing a particular market, but ETFs trade, just as equities do, on the stock market. The fees for ETFs are higher than those for index funds.
Countries all over the world have index funds, but the United States offers the most. Nowadays, citizens of most countries can buy index funds or ETFs listed overseas. If you live in Canada, you can evaluate the Canadian bank TD’s actively managed funds alongside its e-Series index funds; over a decade, you will find that the index funds provide a higher return. In the United Kingdom, financial institutions offer index funds with fewer benefits and they charge greater fees.
7. You Don’t Have to Invest on Your Own
Today, “intelligent investment firms” can help you manage your finances for a low fee. Or you can build a portfolio of index funds.
Often, investors don’t want to expend energy in investing or they aren’t sure about their choices. They would rather someone else did it for them. Americans have to spend far less money than anyone else in the world for financial advice.
8. Peek Inside a Pilferer’s Playbook
Even if you decide to buy an index fund, your financial advisers may produce a range of reasons for advocating against it. For instance, they could say you take on greater risk when you buy an index fund. They would note that an index fund commits all its money to the market, so if stock prices plummet, you could face greater losses. To prevent such losses, active fund managers do not invest fully in the stock market.
Consider any manager’s fees before you make a decision
Your advisers might suggest that active managers can liquidate their holdings before stock market crashes and buy shares back once markets become less volatile. Such ideas theoretically denote good opportunities, but the assumption is based on the perfectability of the managers to successfully time the market.
Your adviser may offer to show you mutual funds that outperformed stock market indexes. However, research shows that mutual funds that did well in the past may or may not do well in the future. They rarely match their previous performance. Hence, be wary of advisers who suggest that, because they understand the economy so well, they can help you outperform a collection of indexes. When it comes to predicting the economy, even the expert opinion only have a 50-50 chance of being right — similar to that tossing of a coin.
The financial industry grants brokers and financial advisers a relatively low status. Some financial advisers train for only two weeks in financial planning, so be sure the advisers you select are well educated and well trained, with sound reputations. When possible, check the “financial advisers” track record.
9. Avoid Seduction
Keep an eye out for scams. You can outperform most investors by participating in index funds. But we open ourself up to making mistakes when you seek unconventional investments. Some people look for index funds that suggest they can outdo the market. Never succumb to sucker claims that you’ll make “easy money.”
Beware of gold investment
Gold can turn out to be a poor investment. If you invested $1 in gold in 1801, by 2016 your investment would have been worth only $54. That simply is not good enough.