Back in June, I had a preview of Andrew Hallam’s new book “Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School“, as well as a pre-order giveaway. I have been waiting since then for a copy of my own so that I could review the book and share my review with you guys.
I am happy to say that I finally received my copy not too long ago, and this book has been worth the wait!
The nine rules of wealth you should have learned in school
I remember learning about some long-dead explorers in school, as well as math, how to write an essay, and things like that. I can’t say that I ever learned anything about personal finance, however, unless you count learning about exponents. I had to learn about personal finance on my own, sometimes making silly mistakes along the way.
What if we were taught these lessons in school, by a teacher of Andrew’s caliber? The lessons would contain what you needed to know to be successful, as well as provide a solid foundation for learning more.
I have been following Andrew Hallam for a couple of years now, ever since he was kind enough to encourage a young blogger with thoughtful comments on a post about gold. He has been fighting the good fight and pushing to spread financial awareness through magazines, articles, seminars, his website, and now his new book.
Andrew Hallam is also a fit long-distance runner as well as a cancer survivor. His courage and passion motivate me to do better in my own life, and to do my own part in sharing the knowledge. You can read more about Andrew at my interview with him last year.
In this review, I’ll describe each of the lessons as well as how it relates to my own life. Andrew’s lessons are concise, yet are so in-depth that I will be breaking the review into three parts, like my good fellow blogger My Own Advisor.
1. Spend like you want to grow rich
The first rule is that if you want to grow wealthy, then you must spend like it. This is different than spending as if you are already rich. Some people spend as if they are already rich, but there is a difference between having a high income and being rich.
Andrew’s definition of a wealthy person is similar to the final stage of my path to financial independence — they should have enough money to never work a day again in their lives, if that is what they choose to do.
To grow wealthy, you need to spend below your means so that you can start to save money for the future. Many of us spend large portions of our income on our homes and cars, so this is a good place to save money.
When I was younger, I would throw away thousands in leasing cars. This is money that literally vanished since new cars lose a lot of value over time. I agree with Andrew that buying solid and reliable used cars or driving a new car until it’s finished makes more economic sense, especially when young and trying to build wealth.
I also agree with Andrew that getting into a lot of debt and becoming house-poor is not the route to wealth. I worry about the state of the Canadian market since housing prices are so high, but even in Canada it is still possible to avoid getting suckered by the banks into spending more than you can afford.
Andrew also makes the very important point that the lessons need to be re-learned every generation. We need to lead by example and teach our children to follow the right path on their own. If we make the mistake of spoiling them or by leading them through life by the hand, how will they teach their own children later in life?
2. Use the greatest investment ally you have
This lesson teaches us about the magic of compound interest and the importance of starting early. Someone who saves and invests from a young age can do better overall than someone who starts later, even if the latter person invests many times more per period.
I personally started to really accumulate my savings and investments starting at 25, when I got my first professional job. I would have preferred to have started earlier, but 25 is better than 35 or 40!
The main point to take away here is to save early and save often.
3. Small percentages pack big punches
Andrew now makes the case for index funds, and why investing in index funds will outperform the vast majority of actively-managed funds. One of the most important reasons why actively-managed funds underperform is due to their expensive management fees: paying just a couple of percentage points in fees can lead to giving up as much as 80% of your investment returns to the fund management.
There are many additional reasons why mutual funds can underperform, such as taxes from higher turnover and sales commissions. Survivorship bias can also make funds look better than they really are.
What if you only invested in the top-rated mutual funds and rebalanced as funds moved on and off the list? Nope, even this strategy would not have outperformed index funds.
My personal takeaway here is that many advisors have a natural conflict of interest, as they want to sell you what makes them the most money, rather than what will make you the most money. They like to steer casual investors and savers away from index funds and towards their balanced funds, which are “safer”. Safer for their jobs and the shareholders, probably, but not for the investor!
I do believe that there is a place for active investing. Passive investing could not survive without active investors driving the market. In fact, I think it can be lucrative if you are knowledgeable and skilled enough to do it on your own, rather than pay someone else an expensive fee to do so. It also doesn’t hurt if you have inside knowledge, like many members of Congress.
Otherwise, you are far better off getting a market return via index funds, rather than trying to chase for more and ending up with less. The annualized growth of the S&P 500 since 1872 has been 6.72%, adjusted for inflation. That includes the Great Depression, the Cold War, and two highly destructive world wars! It is 7.68% for the past 25 years, which includes our sideways market of the past decade.
Ordering the book
Clicking the picture of the book below (disclaimer: affiliate link) will bring you to Amazon, where you can order a copy of this great book.
So, reader, have you read this book? If so, let me know your thoughts. If not, then enter the giveaway!