- Three years ago, I didn't know much about managing my money except what I'd learned from my parents. Then I read "Millionaire Teacher" by Andrew Hallam and my whole perspective shifted.
- To this day, I recommend the book to friends all the time and share the six key lessons I learned from the book.
- Those lessons include: if it's too good to be true, it probably is; index funds are king; obey the 4% rule; and more.
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If you'd told me in 2017 that in three years' time, I'd be writing personal finance articles for Business Insider, that would have been a very confusing conversation for me. Up until that point, every intelligent money move I'd made was at my parents' urging. (And the mistakes were all me, baby.)
I felt stuck, wanting to take the next step toward financial autonomy, but with no idea where to start. Thankfully, that's when I crossed paths with "Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School." The international bestseller was written by Andrew Hallam, and has proved so essential to my ongoing education that it's survived not one but two merciless book-cullings.
I frequently pull it down from where it still sits on my shelf, and have recommended it to more friends than I can count. Here are just a few of the lessons I learned from "Millionaire Teacher."
1. Appearances can be deceiving — so resist them wherever you can
Just because people present as wealthy doesn't mean they actually are. Hallam describes working for a family in Singapore that had all the trappings of wealth, only to find the $150 checks they gave him for tutoring their son bouncing with disturbing regularity. He learned in that moment that there's more to being wealthy than a large paycheck and fancy things; if you aren't living within your means, you'll always be just getting by, no matter what it looks like from the outside.
Instead, he advises focusing on the actual accumulation of wealth rather than chasing the illusion of it. That means driving reliable cars instead of flashy ones, only taking on a mortgage if you're confident in your ability to pay even if it doubles, and saving up to buy things instead of putting them on credit cards. All lessons I've taken to heart in my own spending habits.
2. Start early and obey the 4% rule
Because of the miracle of compound interest, when you start saving turns out to be much more important than how much you're able to put away every month, which was news to me. Hallam compares it to a snowball rolling down the hill: the longer the hill, the more bulk the snowball can accumulate.
The stock market averages a 10% return, which over time produces some eye-popping results: A single $100 bill invested at 10% compounding annual interest turns into a whopping $1,378,061.23 after 100 years in the market.
Because of this growth, it turns out that early retirement isn't as much of a pipe dream as I'd originally imagined. Even for me! Mathematically, anyone can retire early, as long as they obey the 4% rule. If you're able to withdraw less than 4% of your investments every year to live on, the lump sum will continue to grow (nearly) unimpeded. Staying under that threshold means you'll be able to take out more from your investments than you've ever put in — and still have plenty left over.
This is particularly good news for me, because I'd been so stressed by the idea of saving enough to live on long term that I was often tempted to give up entirely. But now that I've been reminded of good old math, the goal doesn't feel nearly as hopeless.
3. Index funds are king
Before reading "Millionaire Teacher," I'd been reticent to invest my retirement savings because my view of market risk was skewed. I thought that successful investors moved their money around constantly, jumping from stock to stock at the slightest dip in order to avoid losses. But the reality is quite different.
Hallam champions index funds, which give the investor exposure to the entire market instead of individual stocks, and advises against mutual funds, which are expensive to own rarely outperform the average.
Ultimately, Hallam feels that index funds are a surer bet every time, and he instantly made a believer out of me: I invested the funds in my Roth IRA retirement account the same day I read that chapter.
4. Grit your teeth and stay in the market
Hallam teaches a system for investing that he calls the Couch Potato Method, which requires dollar-cost averaging and just an hour of money management every year, to bring the ratios of stocks to bonds back in line with your goals. The rest of the time, Hallam advises ignoring the market, because the biggest threat to our financial success is usually ourselves.
The author understands why so many investors get nervous and pull their investments when a fund is suffering. That's just how our brains are wired. But he insists that we have to try to reverse our way of thinking, or risk sabotaging our long-term goals.
He explains it with the analogy of a dog owner with their pet on a leash. If the two are walking to a park a mile away, they're going to cross that distance in the same amount of time. Sometimes the owner will take the lead, and sometimes the dog, but it's really the leash we should keep our eye on. When the market is vastly outstripping business earnings, it's tempting to buy in, imagining that things will go on that way forever. But sooner or later, the dog will reach the end of its lead, and the value of your holdings can only drop.
The better time to buy in is when the market is underperforming. The leash means that the dog will never be fully left behind, so Hallam encourages thinking of market dips as "sales." (Especially if you have a lot of runway left before retirement.) You'll be able to purchase shares at a discounted rate, and then watch them rocket upward as the dog catches up, which I've done repeatedly this year during dips spurred by the pandemic.
5. Your portfolio should change as you get closer to retirement
I'll be honest. When I first picked up this book, I was pretty unclear on what bonds even were. Helpfully, Hallam didn't over-explain them, which I might have tuned out. Instead, he referred to bonds as a parachute to be pulled during market free falls — which is exactly why I didn't know much about them.
As a younger investor, I could afford to be a little riskier with my investments, since I had time to make up the losses. But for anyone getting closer to retirement, those moments when the dog is lagging behind its leash-holder are a lot scarier, because there's less opportunity for it to catch up. That's where bonds come in: reliable, unsexy investments that don't don't offer the returns of stocks, but are nowhere near as volatile.
Like many experts, Hallam recommends a stock-bond split that corresponds to your age: I'm in my 30s, so I try to stick to 70% stocks and 30% bonds, while a 70 year old would have the opposite ratio. (Or an even higher percentage of bonds, if the market was in turmoil.)
6. If it sounds too good to be true, it probably is
As a millennial who graduated directly into the recession caused by the 2008 housing crisis, this was not a lesson I particularly needed to learn, but it's a helpful one to be reminded of nonetheless. If a fund is promising sky-high returns that excite you because they sound impossible, trust that instinct.
As we've all learned, just because something doesn't burn you immediately, or hasn't yet burned people you know, doesn't mean that it isn't going to. Index funds aren't entirely without risk — because nothing is — but they're about as close as you can come. Chasing down flashes in the pan in search of a mythical no-risk, high-reward venture is where a lot of people get into trouble.
The book had a lot of other really helpful things to say as well, but these are the main lessons that really stuck with me. The ones I think about on a weekly or even daily basis, and that I use in my own life, as well as to illuminate concepts to friends who are starting to take an active interest in their finances. In fact, I often just slide "Millionaire Teacher" across the table and recommend that they read it, and it hasn't failed me yet.
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