Book Review and Giveaway Part Two: Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School

Welcome to part 2 of my review of “Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School“! If you don’t have the book yet, there’s a giveaway running across all parts of this book review with 5 copies of the book to be given away in all!

Read part one: Book Review and Giveaway Part One: Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School.

4. Conquer the enemy in the mirror.

If you buy stocks, should you be happy when the price is high or when the price is low? If you answered low, then great, but if you answered high, then you may be falling victim to the enemy in the mirror.

Andrew Hallam also wrote about this topic in MoneySense magazine back in the summer of 2011. He reported that “the average actively managed U.S. mutual fund reported a 10% annual gain from 1980 to 2005 after fees and expenses, but investors in those funds averaged just 7.3% over the same period. Their fear of low prices prevented them from buying when the funds were low, while their elation at high prices encouraged purchases when fund prices were high. Such bizarre behaviour has devastating financial consequences, as investors give away 2.7% annually because of their knee-jerking alter egos.”

How can we conquer the enemy in the mirror? Unfortunately, we are susceptible to emotional stress when investing, and financial advisors especially like to take advantage of this. They steer us away from “volatile” low-cost investments towards “safer” investments, although the only way that these investments can truly be considered safe is if you consider the impact on the financial advisor’s bottom line!

These emotions also go the other way – we can become fearful, but we can also become very confident, too, and we can start believing that we can actually time the markets. Instead, we lose money from jumping in and out of the markets at the wrong times because we followed our emotions instead of adopting a more rational approach.

There is, however, a way that we can turn fear & greed to our advantage: we can use an asset-allocation approach to determining when to buy and sell. With a bit of contrarianism and a willingness to follow your asset allocation strategy, it may even be possible to beat the market with bonds.

5. Build mountains of money with a responsible portfolio

In this section, Andrew talks about building up a responsible portfolio that will meet a person’s needs for growth and stability, as well as saving them money on expense fees. One of the rules that he recommends is to link your bond allocation to your age: for example, a 40-year old person would have about 40% of their investment portfolio in bonds, adjusted for their risk tolerance. Someone expecting a large pension might go more aggressive on the stock allocation, for example.

It can be even simpler than that: a couch potato strategy will outperform the vast majority of actively-managed funds out there.

6. Sample a “round-the-world” ticket to indexing

In this chapter, Andrew takes a look at actual portfolios held by people around the world, and the options available in different countries. Unfortunately, the landscape in Canada has been more dire than in other places. Our economy contains only a few large banks, and these banks have traditionally been very successful at scaring investors into forking over much of their gains. Indexing giants such as Vanguard do not offer their mutual funds in Canada, and until recently, the only alternative was to buy their ETFs off of an American stock exchange.

However, there are signs that this is now changing: Since December 6th, several Vanguard ETFs are now available on the TSX! For Canadian investors such as myself, this is great news. I can only hope that their mutual funds will follow soon.

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.

Giveaway

This is a continuation of the giveaway started in part one of the review. There are five copies of the book to be given away in all!

a Rafflecopter giveaway

So, reader, have you read this book? If so, let me know your thoughts. If not, then enter the giveaway! The giveaway is running across the entire book review, with 5 books to be given away in all. 🙂