As I describe in my book, Millionaire Teacher: The Nine Rules of Wealth You
Should Have Learned in. School, I'm a conservative investor. But my risk-
aversion ...
Market Volatility---Better Than Christmas By Andrew Hallam, author of ‘Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School’
Retirees or those who are squeamish about market volatility may want to toss a few eggs at my doorstep after reading this, but I’ll say it anyway. With Europe teetering on chaos coupled with the U.S. economy’s tenuous buoyancy on a scuttled ship, I’m feeling (to steal one of Warren Buffett’s expressions) like an oversexed guy in a harem. There are two things I love about stock markets, in this order: 1. Dramatically falling stock markets 2. Volatile stock markets The past year (indeed, the past decade) has seen the world’s markets bounce up and down like an unconscious tourist on a bungee. And this frightens plenty of people. But it shouldn’t frighten everyone. Long term investors who balance their accounts between stocks and bonds should embrace market volatility like a welcome date with Christmas. As I describe in my book, Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, I’m a conservative investor. But my risk-aversion has made me bucket loads of money over the past decade, and if stock markets continue to ride like a roller coaster on an invisible track over the next ten years, you could make as much money as me...or more. Here are the steps allowing you to make a fortune during volatility: 1. Keep costs low and diversify across world markets My equities are in low-cost, broad- based stock market index funds. Mountains of academic evidence suggest that over my lifetime, stock market indexes will beat the vast majority of actively managed mutual funds---thanks to low fees, low trading costs, and low taxable turnover. 2. Ensure a healthy bond allocation I keep a bond allocation that’s close to my age. For instance, as a 40 year old, roughly 40% of my money is in first world government bond indexes. There’s rarely a direct correlation between stock and bond movements. When stocks fall, bonds often rise. Even when they don’t rise during a market freefall, they rarely fall as heavily as stocks. 3. Rebalance When stock markets fall, I rebalance my account, selling some bonds to greedily buy stocks, bringing my portfolio back to its desired allocation of 60% stocks and 40% bonds. I do this once a year, unless the stock markets unexpectedly plunge, gifting me a cheap gourmet meal on a platter. Such delectable fire sales occurred after 9/11; during the start of the Iraq war (2003); and during the
economic crisis of 2008/2009. Even the June 2010 market drop and the more recent stock declines since August had me salivating....and rebalancing. In each case, when markets plunge, I ignore the media, sell some of my bonds and bring my portfolio back to its desired allocation by adding to my stock indexes, at irresistible discounts. If the markets fall further, I sell more bonds. And when the markets eventually recover, I turn the boat around: selling some stocks to buy bonds. This isn’t rocket science. Market volatility is a special treat for a long term, dispassionate investor, especially if you’re still earning an income, and able to add fresh money to the markets at cheap prices. That said, if you’re retired and living off your investments, you could be looking up my address by now. Let’s just hope you have a weak throwing arm; I don’t feel like cleaning eggs off my door.
About Andrew Hallam Andrew Hallam is a high school English teacher who built a million dollar investment portfolio on a teacher’s salary. He has been writing personal finance articles since 2002, and he has been nominated a finalist for two National publishing awards. His work has appeared in MoneySense magazine, L’Actualite and Reader’s Digest. He has also been profiled in The Globe and Mail, for his nine rules of wealth, and in The Wall Street Journal--with a quirky plea to sleep in Warren Buffett’s garage. Motivated to protect his friends and colleagues from the conflicts of interest running rampant in the financial service industry, Andrew started delivering investment seminars in 2006, showing how people can easily beat the investment returns provided by the vast number of financial advisers. Currently, Andrew lives in Singapore with his wife, Pele. Together, they enjoy traveling, adventuring outdoors, and savoring life.
About the Book “Millionaire Teacher” 9780470830062, Paper, US$16.95, 208pp How a school teacher built a million-dollar portfolio, and how you can too Most people wouldn’t expect a school teacher to amass a million-dollar investment account. But Andrew Hallam did it, long before the typical retirement age. And he wants to show you how. With lively humor and the simple clarity you’d expect from a gifted educator, he demonstrates in Millionaire Teacher how average people can build wealth in the stock market by shunning the investment products peddled by most financial
advisors and avoiding the get-rich-quicker products concocted by an ever widening, self-serving industry. Using low cost index funds, coupled with a philosophy in line with Warren Buffett’s, he guides readers to understand how the stock and bond markets really work, arming readers with a psychological advantage when markets fall. Readers will learn that young investors should hope for stock market crashes if they want to grow rich. Millionaire Teacher shows how you can spend just 60 minutes a year on your investments, never open a financial paper, and avoid investment news, while leaving most professional investors in the dust.
