The Book: Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned In School
The Big Idea: You can beat the financial pros and become wealthy simply by investing in low risk, low cost index funds.
The Author: Andrew Hallam worked as a high school teacher but didn’t let his teacher’s salary hamper his dreams of attaining wealth by the age of 38, all on a middle class income.
Key Points: The stock market has traditionally earned an annual rate of return of 8% to 10% over time, despite depressions, recessions, and market declines.
Unfortunately, most people fail to capitalize on these wealth building returns because they (1) are too busy chasing the latest hot stocks, (2) give in to fear and panic when the market drops, and/or (3) get fleeced by managed mutual funds whose high fees erode any chance of achieving decent returns.
The Review: What if I were to tell you that you could become financially independent by investing in the stock market? You’d probably never believe me. You see, fear inducing headlines and first person accounts of incredible stock market losses make most of suspicious about using the stock market to become wealthy.
But, I guarantee the Millionaire Teacher will change your mind. Andrew Hallam’s practical guide shows you how to earn great returns using the stock market without suffering gut wrenching fear or anxiety.
The author’s secret:
Hallam spends the first part of Millionaire Teacher extolling the virtues of aggressively paying down debt, learning to control spending, and living below your means.
All of this is pretty much standard personal finance information, but it is the next section of the book that’s worth its weight in gold.
Here, Hallam explains how to effectively invest the money you’ll have after you start living below your means, and his advice runs counter to what most of us have been taught.
According to Hallam, investors fall into the classic trap of investing their money in actively managed mutual funds, either as part of their 401Ks or at the prodding of their financial advisors.
Typically mutual funds are accounts in which a manager purchases a basket of stocks for the investor. The common belief is that a mutual fund manager will use his education, knowledge, and experience to purchase the best bag of stocks for you, maximizing your returns.
Unfortunately, the fees associated with actively managed mutual funds quickly devour your investment returns. Consider the following fees you’ll likely pay with many managed mutual funds:
Expense Ratio – This is the fancy term that encompasses the costs associated with running the mutual fund. It includes, for instance, the costs to pay for salaries, utilities, and office leases. The expense ratio even covers the costs associated with marketing the mutual fund.
Trading Costs – This represents the expenses that the mutual fund manager incurs to buy and sell the stocks in your basket. These expenses can become substantial.
Load Fee – This is basically the money you pay to actually buy into the fund. It is the sales commission your financial advisor or financial institution receives for selling you the mutual fund.
Instead of falling into the actively managed mutual trap, Hallam suggests that the average investor should instead purchase low cost index funds. Unlike actively managed mutual funds where a manager actively tries to pick the best stocks, with an index mutual fund, you’re simply purchasing a piece of all the stocks in a particular index.
An S&P 500 index fund would, for instance, allow you to own a small piece of every one of the 500 largest companies in America. The advantage is that index funds are not actively managed, drastically reducing the amount of fees you pay and improving your returns.
Hallmam provides evidence showing how, over years and decades, index mutual funds far outperform actively managed mutual funds. By investing at an early age in index mutual funds, Hallman arugues that you can easily create a path that leads to financial freedom.
Should You Buy This Book?: Millionaire Teacher is clearly for the person who has already begun taking control of their financial life. It will guide that person through the next step, showing them how to invest their money without enduring the high risks typically associated with investing.
In addition to discussing index funds, Hallam skillfully explains the importance of diversifying your portfolio and using bond indexes to further reduce your risk. For those of you looking to invest and make your money grow, Millionaire Teacher should be one of the first books you read.
Once we understand the true nature of wealth we can start making our money work for us instead of against us.
Personal finance is about more than math. It's about behavior. Change your behavior and you change your financial situation.
When we spend money we're really exchanging time spent on the job (our life energy) for a product. Understanding this leads to better buying decisions.
Put your finances back on track with Michelle Singletary's twenty-one-day financial fast.
Comments on this entry are closed.