Continue reading »]]> Daisy Chan, of Woman’s Day magazine, profiled me, along with two other people who turned a small amount of money into…more than a small amount.

Self-made fortunes all begin the same way: with a good idea and some startup cash. Steal these savings tips from three millionaires who made a little into a lot.

Winning the lottery is everyone’s fantasy, but the better bet is on a plan that relies more on pluck than luck.

 ”You can become wealthy if you’re disciplined, consistent and patient,” says Andrew Hallam, who pulled it off on a teacher’s salary.

 These qualities are especially important when you’re starting out and trying to save the money needed to get your business idea (or investment strategy) off the ground.

 Read more in this Woman’s Day magazine article

Continue reading »]]> One of the most significant investment mentors I have is a guy named Michael O’Higgins. 

Until last month, we had never met, despite the fact that he gave my book, Millionaire Teacher, a very kind pre-publication endorsement.

O’Higgins was recently in Singapore, capping off his annual round the world holiday.  We shared a few laughs over a meal, and the best selling investment author—who’s an extraordinary investor– shared his latest money making strategy with me.

It’s a value based indexing method that anyone could follow.  And it would have gained 14% annual returns over the past 39 years.  Its worst performance would have been a drop of just 5% in 1981, so it’s geared towards investors who want to sleep soundly at night.

I outlined the strategy for Assetbuilder here, and it will soon be featured in an upcoming Canadian Business article, once I finish the final touches. 

Continue reading »]]> Last week, I wrote Why International Teaching Isn’t a Lucrative Gig. 

I argued that the average stateside or Canadian school teacher has, upon retirement, far more wealth than the average international teacher. 

Barron’s Business News might agree.  Here’s what Robin Goldwyn published for Barron’s on Saturday, May 12, 2012.

Attention, graduating seniors: One of the best routes to becoming a millionaire just might involve turning around and going back to school—this time as an educator.

That’s because teachers and other educators account for 14% of the nation’s 8.6 million millionaires.

They trail only managers, who represent 21%, but exceed doctors, lawyers, and other professionals, at a combined 11%, according to a first-quarter report by consultant and market researcher Spectrem Group of Chicago. Spectrem defines a millionaire as someone with a net worth of $1 million to $5 million, not counting a primary residence.

In addition to pensions, educators, including college professors, earn “a fair amount,” when you factor in publishing, consulting, and summer jobs, says George Walper, Spectrem president and CEO.

“If they’re smart at investing, they can do pretty well,” he adds.

Educators, like most millionaires, are likely to be part of a two-income household, which could explain their wealth. Indeed, 23% of women in ultra-high-net-worth households say there is at least one teacher at home. Another factor: Some 46% of the educators attribute their wealth to inheritance.  That could leave them free to pursue a career regardless of the pay.

Continue reading »]]> First Published at www.savethestudent.org

If you haven’t figured this out by now, let me share one of the most important things everybody should know:

The world is full of people who would sell you toe nail clippings and magic cat dung… if they could get away with it.

Unfortunately, the financial service industry breeds more of those opportunists than any other sales field.  And they can skilfully disguise feline faeces to look (and smell) sweeter than a bouquet of spring flowers.

As a young investor, you can’t afford to put some of these products on your dinner plate—not if you eventually want to grow wealthy.  I’m a high school personal finance teacher who built a million dollar investment portfolio by the time I was 38 years old.

I published a book called Millionaire Teacher, The Nine Rules of Wealth You Should Have Learned in School.  It hit #1 on Amazon USA for personal finance books in November 2011, #1 in Canada in February 2012, and now I want to boil down the essential elements for a young UK audience.

If you just read this with scepticism, good!  That’s what I want. 

Be sceptical of nearly everything people tell you, when they’re giving financial advice.  Find academic studies that might refute it.  Only then will you be educated enough to make a financial decision.  Don’t listen to a salesperson or financial advisor who refutes or supports certain advice.  Find an academic study, something truly impartial.

For starters, if you’re going to invest, buy assets that appreciate over time. 

Cars lose their value each year, so it’s best to spend small amounts on depreciating assets (like cars) and more on assets that increase in value. I’ve seen the advertisements for Forex trading, especially targeting young people with grand promises. But remember this:  for every dollar that’s made, there’s a dollar that’s lost.  Always. 

Unlike stocks, bonds and real estate, currencies (as a group) don’t rise in value.  When you trade a currency, there’s another person on the other end of that trade.  Do you really want to gamble with them?  The only sure winner is the investment bank that makes money on the commission spreads from the sale and purchase.  These products are pushed for that reason.  They create excitement (usually for the naive) and reap tremendous benefits for the large brokerages doing the transactions.

Investors are better off buying assets that appreciate over time—rather than wasting time and money trading currencies.

If two people trade a currency back and forth for twenty years, the winner will win by an equal proportion to the amount lost by the loser.  The odds are, also, that the winner wouldn’t win by much, if they each played the game for twenty years.

If you and I traded a stock market tracking fund or a London flat back and forth for twenty years, we would both benefit from the rising value of the stock market (plus dividends) or the rising value of the flat.  We’d likely be better off holding those assets, rather than trading them, but my point is this:  the overall stock and bond markets increase in value over time, as do real estate prices.

Forex trading doesn’t offer that.  It gives low odds of success (like a night at Blackpool) and you won’t find Warren Buffett, nor a college endowment fund manager, nor an economic Nobel prize winner suggesting Forex trading as a sensible investment method.  It makes money for the house, but not for the players, as an aggregate.

What would Warren Buffett suggest?

Buffett isn’t a fan of the financial service industry.  He often jokes about a fantasy he has, where a bunch of brokers get trapped on a deserted island with no escape.  Many investors buy actively managed unit trusts, but the firms that create them have one goal:  to make money for themselves.

So how do you increase your odds of investment success?

If you think that Warren Buffett and a slew of Economic Nobel Prize winners offer valuable advice (these guys aren’t selling products) then you’ll be keen to build a diversified, low cost portfolio of tracker funds.

In the U.S., these are called index funds. 

They’re extremely low cost unit trusts that beat more than 90% of professional investors over twenty year study periods, after all fees, attrition, and taxes.  Investment advisors and brokers hate these products, and they’ll usually do everything they can to deter you from buying them.  Brokers, after all, make more money for themselves when selling you litter box products instead.  Portfolios of actively managed unit trusts (and their hidden fees) are generally a bad deal for investors.

Allan S. Roth, adjunct professor at the University of Denver, ran a Monte Carlo simulation to determine the likelihood that an account of actively managed unit trusts would beat an account of index tracker funds.  After all, a responsible portfolio would have more than one tracker fund within it:  it would likely have at least a British stock market tracker fund, a bond market tracker fund, and an international stock market tracker fund.

Roth determined that, if you had five actively managed unit trusts over a 25 year period, your odds of beating a portfolio of index tracker funds would be just 3%.

If you had ten actively managed mutual funds over a 25 year period, your odds of beating a portfolio of index tracker funds would be just 1%.

You won’t find academically supported evidence to refute those findings.  For the best odds of investment success, index tracker funds are the right choice.  Investing is about putting the odds in your favour.

 But not all tracker funds are created equally. 

Some of them can be pretty expensive.  In Richard Branson’s autobiography, Losing My Virginity, he said that:

“After Virgin entered the financial services industry, I can immodestly say it was never to be the same again.  We cut all commissions; we offered good value products; and we were practically trampled by investors in their rush to buy.”

The great funds that Branson touted were Virgin’s index tracker funds.  But they’re too expensive.  Branson’s intentions might have been good, but HSBC offers the same products at a fraction of the cost.  And in the world of money, small costs add up.

Check out what a 1% difference can make over an investment lifetime:

• One thousand pounds compounding at 7 percent interest for 50 years=  29,457 pounds
• One thousand pounds compounding at 8 percent interest for 50 years=  46,901 pounds

If you’re twenty years old, you could realistically have money working for you until the day you die.  Sure, you’ll be selling some of it to cover living costs as you retire, but you don’t want costs to anchor your money over a lifetime. 

I think the most convenient UK tracker funds are offered through HSBC. 

In a 2008 study titled “Mutual Fund Fees Around the World” (published by Oxford University Press) researchers Ajay Khorana, Henri Servaes and Peter Tufano found that UK’s stock market unit trusts cost investors an average of 2.28 percent a year, including sales costs and hidden expense fees.

A portfolio of HSBC’s tracker funds, in contrast, would cost you roughly 0.29 percent annually.  Virgin’s tracker funds cost more than three times as much.

When it comes to unit trusts, the lower the fees, the better.

As the global unit trust research firm, Morningstar reveals, low costs are the only reliable predictor of future performance.  Don’t fall for unit trusts with great historical returns.  The odds of them repeating that performance aren’t great. 

Create a diversified portfolio of low cost tracker funds, and you’ll beat more than 90 percent of investment professionals over your lifetime—without any work.  Don’t forget that a portfolio is not a single tracker fund—it’s a diversified basket of them.  This is the gem that most professionals will never be able to beat.

For further information on the topic, I recommend these books.

And don’t let anyone lure you into the litter box.

Continue reading »]]> If you’re an international teacher at one of the world’s high paying private schools, you might initially think I’m a driveling fool for making a ludicrous claim.

But here it is:

 Most teachers at the world’s highest paying schools (such as Singapore American School, the International School of Bangkok, and Saudi Aramco) will eventually have far less money than the educators they left behind in their home countries.

They don’t have to fall short.  But most will.

Teachers at home live a back end loaded lifestyle, while many international teachers enjoy front-end loaded privileges.  Expatriate teachers, for example, often travel prolifically, live in relative luxury, enjoy higher salaries and pay lower taxes.

Like NBA basketball players, their rewards are up front.

Teachers at home aren’t exactly cash flush icons, but they enjoy back end rewards including Social Security (for Americans), Canada Pension Plan (for Canadians) and defined benefit pensions (provided by many public school systems).  Relatively speaking, expatriate teachers can suddenly become prodigal sons and daughters holding half-filled tin cups when they retire.

If you don’t pay into these programs, you won’t reap their benefits.

Sure, these national, provincial or state benefits could be shaved in the future.  But the world’s economic boat is a bit like Noah’s Ark.  The hare can’t gloat when the tortoise’s end of the boat starts sinking.

Regardless of what happens, most public school teachers have greater capacities to swim.

When John Wiley & Sons sent a copy of my book, Millionaire Teacher, to The National Post’s Jonathan Chevreau, he didn’t want to read it.  As a veteran finance writer for decades, he views public school teachers as automatic millionaires.  And he’s right.

“When a review copy of Millionaire Teacher first landed on my desk, initially I didn’t pause to look at it… From where I sit, any career teacher who makes it to age 65 is already a millionaire, since the rest of us would need $1 million of capital in order to spin out an annual $50,000 from it.

So my initial impression was that the very phrase ‘Millionaire Teacher’ was redundant.”

So…do international teachers need one million dollars in capital to float like a teacher in Pennsylvania or British Columbia? 

Nope.  They need a lot more. 

Besides their pensions, the average retired public school teacher has a few other goodies lined up as well:

1. A mortgage-free home (and sometimes a second rental property)
2. Between $100,000 and $200,000, or more, in investments
3. Partial Canada pension plan payments (or its U.S.equivalent, social security).

International teachers need to create backward design models to plan for similar benefits.  And it can be done.  We can have the front end loaded thrills and the back end loaded benefits—in a different form.

But we need to follow a few important rules:

1. Ensure that your investments are separate from your insurance policies.  Investment products that couple the two, should certainly be avoided.
2. Don’t pay sales charges to buy actively managed mutual funds. 
3. Save like crazy.

  You don’t want to rob Peter to pay Paul—especially when their names are synonymous with yours.

If in doubt, go back to rule #3: 

Save like crazy. 

If you’re living in a dream world, it could turn into something far less pleasant.

Continue reading »]]> Few people specifically know how well their portfolios have done over the past decade. 

And most investors probably overstate their true profits.  I may be among the majority who doesn’t know his portfolio’s exact performance.  But I can make a decent guess.

I’d peg it at roughly 11.6 percent per year, or 200 percent overall, from May 2002 to May 2012. 

During this time period, my investment club earned exactly 8.9 percent annually on a full stock portfolio (measured by the club tracking software at www.bivio.com)  but I had a secret weapon in my personal account, allowing me to run circles around my investment club’s returns: my bonds.

On May 2^nd 2012, I added a further $120,000 of bonds to my portfolio.

I’ll explain why and how below.

Bonds?  Yeah, they’re about as exciting as a runny nose. You say the returns on bonds are currently awful?  Perhaps they are.  But I don’t buy them for their interest yields.  I covet them for their dry powder appeal.

Dispassionately rebalanced bonds and stocks can reap generous results, especially when the stock market’s chart looks like a series of peaks and canyons. 

Take a look at the decade long S&P 500 chart below.  Generally, stocks and bonds move in opposite directions.  Not always, but usually.  What if you bought bonds when the stock market was rising?  And what if you bought stocks when the stock markets were falling?  You would have been zigging when most people zag—and you would have earned enviable returns in the process.

What’s more, it wouldn’t have required any kind of special forecasting or market timing.

I wrote about this rebalancing process in my book, Millionaire Teacher. 

To boil it down as simply as possible, when stocks rise, I buy bonds.  When stocks fall, I buy stocks. 

As a recipe for success (especially during volatile stock markets) it’s a phenomenally profitable practice. 

To be clear, it doesn’t involve selling all of your stock investments when they rise, and buying them back when they fall.  That’s called market timing—and the side effects eventually hurt for nearly everyone who decides to play.

My process is less painful, and far less risky: 

I keep my portfolio somewhat balanced between stocks and bonds, with (currently) 40 percent in bonds and 60 percent in stocks.  When stocks fall, to keep my 60 percent allocation, I add fresh money to my stock indexes.  When stocks rise, I add to my bond allocation, to keep the portfolio split 60/40.

When the markets exhibit manic depressive behaviours, as they did in 2003, 2008/2009, June 2010, August/September 2011 and April 2012, then I’m forced to rebalance by selling some of my “winners” to buy some of my “losers”.  All I’m trying to do is keep my portfolio as close to my target allocation as possible.

If you’re questioning my claim of making 200 percent in the stock and bond markets over the past decade, consider this:   Assetbuilder, a financial service company, rebalances portfolios of indexes for their clients.  Three of their model portfolios would have made more than 200 percent over the past decade.  These aren’t single funds that I’m singling out.  They’re diversified portfolios, rebalanced with regular dispassion.

Unemotional rebalancing is a simple way to make loads of money when the markets are volatile. 

But it’s not psychologically easy for people to do.  To do so, you must ignore the financial media; ignore economic forecasts; and ignore your natural instincts.  Neither of the three is likely to encourage you to do anything useful.

Have a look at the three month chart of the bond index I just poured $120,000 into:

 Most investors would hate the looks of a chart like that. But I love it.

Let’s put the chart in perspective by moving to a longer time period:  the past six months of the Canadian bond index versus the six month price gain of the S&P 500 index.

The green line represents the bond index.  It has fallen slightly while the S&P 500 stock index has gained roughly 13 percent during the same six month time period.

Can you imagine what this did to my portfolio’s allocation?  Because of the market’s rise, I found myself with significantly less than a 40 percent bond allocation.

So I sold some of my stock indexes yesterday (mostly the U.S. market) and put $120,000 into my Canadian bond index.

Now I’m much closer to my 60 percent stock, 40 percent bond allocation.

Will such rebalancing always deliver great results? 

If the next ten years are as volatile as the previous ten, I think you’ll do very well, if you have the courage to follow the game plan.

During bull markets, however, rebalancing a portfolio could create a minor drag on your returns, relative to what a 100 percent stock allocation would deliver. 

But it’s still a prudent method of smoothing out returns, while giving you a wonderful position to take advantage of volatility if the markets have a crazy year, or ten.

Continue reading »]]> Every week, my wife and I stuff our grocery cart full of food from the local supermarket. 

And obviously, it bothers us when the bill creeps upwards with the rising cost of food.

My dislike for arising stock market, however, is far stronger than my aversion for higher food costs.  After all, a soaring market is a heck of a lot more expensive.

As a 41 year old, I’m still relatively young.  

I’ll be buying stock market assets for many years. 

When prices are low, my  indexes have higher dividend yields, giving me higher dividend proceeds per transaction, which can be reinvested into more shares, which throw off more dividends, which allow me to buy more shares.

A rising stock market is irritating on a few levels.  First of all, I have to pay dearer prices for my stock market assets—a supreme irritant.  Secondly, I receive a lower dividend yield on my new purchases, creating less dividend income for those newly purchased shares, allowing me to buy fewer shares with the dividend proceeds.

I preferred the levels that the markets were at in August 2011. 

They had fallen to a delicious point, and I happily sold bonds to add to my stock indexes.  But since that date, I’ve bought nothing but bonds because the stock market has ripped upwards.

A few readers have emailed me to ask about the wisdom of buying bonds, suggesting that if inflation rears its head (which they claim it will) then my bond values will drop. 

First of all, nobody knows this for sure. 

If it does happen, however, I’ll be happy.  

My portfolio is a fraction of the size it will be, after I’ve finished collecting stock and bond assets over the next 20 years.  I’d rather pay cheap prices for them, rather than expensive prices.

Young people who hope for rising stock or bond price levels and who quote analysts’ short term projections  aren’t displaying their sophistication, but their inexperience.

You can’t out-think the stock and bond markets.  It’s best not to try.

Rebalance a diversified portfolio with dispassion. Doing so will allow you to always be greedy when others are fearful and fearful when others are greedy.

Best of all, it gives you more time to spend on life’s more important aspects.  Market watching, after all, is a pretty sad past-time. 

Life is too short for that.  Tick tock, tick tock, tick tock.

Continue reading »]]> Here’s a Millionaire Teacher radio interview that aired on BFM 89.9 Malaysian radio recently.

I’m talking about the foolishness of chasing high investment returns, while telling a story of something silly (downright stupid, actually) that I once did with my money – click play to listen:

Alternatively, to listen or download the podcast go to the web site:

BFM.my

Continue reading »]]> Two years ago (April 14, 2010) I asked my blog readers to put their heads together to pick the worst stocks they could think of.

I wanted absolute bottom dwellers, stinkers, sulphur reeking pariahs that were destined for bankruptcy or a painful demise.

And my readers responded.

One person’s junk is another person’s treasure, but there’s no denying the public sentiment of most of these stocks.

In total, readers selected 23 of them.

From that date in 2010, the S&P 500 gained 11.3%.

 Our worst (or should I say best) outhouse business predictions were right on the sewage button:

• Alcoa    -32.51%                                                          
• AIG    -19.34%                                                                  
• AOL    -13.71%                                                               
• Bank of America   – 55.88%
• Citigroup   -27.63%
• Ciena   -13.23%
• Ford  -11%
• Goodyear Tire and Rubber  – 19.84%
• Gamestop Corp    -5.87%
• Nutrisystem   -40.29%
• Banco Santander     -54.91%
• USG Corp    -14.15%
• Zion Bancorp    -18.36%
• Juniper Networks  -30.81%

But some of the forecasted stinkers went the other way:

• Kimco Realty   +14.36%
• Krispe Kreme Doughnuts   +46.52%
• Eli Lilly & Co.    +8.16%
• Microsoft    +5.39%
• News Corp     +24.07%
• Pfizer    +30.68%
• Textron     +18.16%

Two bizarre pariah stock stories come from Burger King and ATC Technology Corp.

My readers, who selected these stocks to plummet, didn’t get their wishes when…..

Burger King was taken private at a 46% premium to its share price in 2010.  And if that wasn’t enough:

In a bizarre twist, according to BusinessWeek, Burger King is once again poised to re-enter the stock exchange as a public company.  It might enter the stock market at a premium to its previous premium.  We’ll find out.

Then there’s the hopeful dog, ATC Technology Corp.  Its shareholders earned a 43% premium to its closing share price on July 16^th, 2010 during a merger with GENCO Distribution Systems.

Tracking the collective performance of these stocks has become more complicated.  But I’ll continue to do it, and report on the results.

Currently, the “loser’s” portfolio has dropped roughly 4% since April 2010.

It’s falling short of the index—which is up 11%–and the selected top mutual funds my readers selected as benchmarks.  It’s no surprise that only two of these ten actively managed funds are beating the market.

But the losing stock saga could certainly give us unexpected future results.

What about you?  Do you think you could find lousy stocks ahead of time, or could you be foiled by the odd surprise?  Tell me a story.