rather do something else. Almost anything else, in fact. People clean their ovens, sweep the garage and clean out old files to avoid it. Others will fold socks, return used printer cartridges or visit their in-laws. They will do all this to avoid thinking about saving and investing.
That's just the way it is.
But Andrew Hallam has opened a door. Here, people who don't like investing can mix with people who do. And both can benefit. The people who like investing can benefit: These pages are a passport to investing anywhere in the world. Here, you can learn to be a free agent, in charge of your life, now and later.
The people who don't like investing can benefit because this book is an easy read. It tells you how to invest at the lowest possible cost. The result is more money growing for you. The book does the telling in step-by-step detail. And when it has a calculation, which is rare, it shows you how. Wherever you are from, and wherever you are, the Millionaire Teacher tells you how to invest your savings. He does this using a variety of funds, all focused on low costs, simplicity and diversification. And, yes, there can be a “tilt” toward where you expect your retirement home base to be.
Absolutely, positively don't want to do this on your own? Not to worry. Andrew introduces you to some low cost investment managers. These firms will build and track your portfolio at a fraction of conventional costs. Better still, the number and variety of these firms is growing.
So if you are an expat, working or living in a country that isn't the same as your native country, this is your cornerstone book.
If the mere mention of a calculation makes you nervous, don't worry. Andrew is a teacher, a good one. He assumes you know nothing and takes you through it step-by-step. Making it simple is important because the best way to achieve your goals is by being a low cost do-it-yourself investor.
Here's why. Most people worry about the taxman and the damage taxes can do to their savings. But the person likely to do the most damage is the one who wants to sell you an investment program. The offer is that your sage advisor will make brilliant and wise investment decisions for you.
Sorry, this doesn't happen. Instead, your money helps a salesperson make a pressing Mercedes payment. It may also help his boss buy a house in Aspen or the Hamptons.
The damage that person does isn't obvious. The financial services industry does its best to disguise the burden of its “customary and normal” fees. The problem starts with how financial expenses are expressed. Universally, they state expenses as a percent of assets managed. So if we commit $1,000 and the expenses are one percent, it's only $10 a year.
It's hard to complain about that, right?
But the functional burden is much larger. You have to measure by what counts: the actual return on your money. Managing your investment costs for a “modest” 1 percent of assets is one thing. But if the gross return on your money is 8 percent, the manager is taking 12.5 percent of your return. Raise the fees to 3 percent of assets and the manager's take is 37.5 percent of your return. Yet charges of 3 percent of assets are common in most of the world outside of the United States.
That's more than the taxman takes from most people. We have also made the benign assumption that the manager will actually deliver such a return. Most don't. As a multitude of research studies have shown, about 70 percent of all managed money fails to beat its appointed index.
But even that measure understates the true burden people saving for their retirements face. In the Journal of Portfolio Management industry guru Charles Ellis tells us the truth.1 An “informed realist,” he says, would measure the cost of active management as “the incremental fee as a percentage of incremental returns.”
Sorry about that.
Here's his example, in plain arithmetic. Suppose you buy a managed fund that has expenses of 1.5 percent a year. Suppose it outperforms its benchmark index by 0.5 percent a year. Since the manager had to outperform the index by 2.0 percent to deliver the extra 0.5 percent, the true cost of management takes 75 percent of the gain. You won't find many taxmen, anywhere on the planet extracting that big a toll. But money managers around the world do it routinely.
Indeed, a management expense of 1.5 percent is low in most of the world outside of the United States. Check the examples provided in these pages. You'll see that expat investors often encounter fee levels of 3 percent and more.
Brokerage houses, insurance companies and banks would love to continue taking their gigantic fees. But the world has changed around them. Where once they were the only ways to distribute investment funds, today they are just the most expensive ways to invest.
Today, we have alternatives. The new institutions have fees so low that it can be 20 years, sometimes more, before their costs exceed what the old guard institutions collect in a single year. Today it is possible to put together a well-diversified global portfolio and do it for well under 0.20 percent a year.
When I introduced the first Couch Potato portfolio in 1991 index mutual funds were in their infancy. There were a handful of low-cost index funds in the United States. Of necessity the original portfolio was dirt simple: a 50/50 mix of US large stocks and US bonds. That simple solution has served thousands of people very well.
Today there are thousands of Exchange Traded Funds providing low-cost choices. And they are available almost anywhere in the world. So you can do this wherever you are, tailored to wherever you are or wherever you go.
The good news doesn't end there. Intense competition among the lower-cost distribution companies has eliminated commissions on many ETF purchases. It has also brought down annual expenses on many of the most important index funds to own. At long last, next to nothing stands between you and the return on your money. This is a buyer's market.
And Andrew Hallam is here to guide you.
Acknowledgments
No book on low-cost investing should be written without a nod to John Bogle. Referred to by many as Saint Jack, he created the first low-cost index fund. The firm he founded, Vanguard, is now the largest mutual fund provider in the world. What's especially cool is that he didn't profit from its growth. Run much like a nonprofit firm, it's testimony to altruistic goodness gone positively viral.
I hope this book does justice to his low-cost, diversified mantra for investors.
I would also like to acknowledge investment writers Ian McGugan and Scott Burns. They're the best personal finance writers I know. And they continue to coach my writing. If this book reads clearly, with a dash of humor, it's largely thanks to them.
The expats profiled within these pages also deserve my heartfelt thanks. You let me pry into the good, bad, and ugly aspects of your personal financial lives. And this book is far more instructive (and, I hope, entertaining) because of your generosity.
Saintly financial advisor Tony Noto also helped greatly with my section on American individual retirement accounts (IRAs). I'm not sure if your clients know, Tony, how fortunate they truly are.
My agent, Sam Fleishman (the man who appears never to sleep) worked tirelessly to ensure I was given a strong publishing contract. Thank you, Sam. Now get to bed.
Finally, to my lovely wife Pele: You tolerated my mission, working as my editor and time manager – pulling me away from the manuscript when life needed living.
Introduction
On U.S. television, when law enforcement closes in on a white-collar heister, the fugitive often flees to a foreign country. He might steal a yacht headed for the Dominican Republic or fly a Learjet to the Caymans.
The 67 percent of Americans without passports might gasp at the ballsy border-bounding foolishness.2 Doesn't the crook realize that by leaving the country, he risks being buried in an Afghan cave by Al Qaeda?
Smile if you're among the world's 230 million expatriates.3 Such risks aren't likely. One genuine pitfall for expats, however, could be poverty in retirement.
Many