Millionaire Expat E-Book

Andrew Hallam

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 578

Veröffentlichungsjahr: 2017

Beschreibung

Build your strongest-ever portfolio from anywhere in the world Millionaire Expat is a handbook for smart investing, saving for retirement, and building wealth while overseas. As a follow-up to The Global Expatriate's Guide to Investing, this book provides savvy investment advice for everyone--no matter where you're from--to help you achieve your financial goals. Whether you're looking for safety, strong growth, or a mix of both, index funds are the answer. Low-risk and reliable, these are the investments you won't hear about from most advisors. Most advisors would rather earn whopping commissions than follow sound financial principles, but Warren Buffett and Nobel Prize winners agree that index funds are the best way to achieve market success--so who are you ready to trust with your financial future? If you want a better advisor, this book will show you how to find one; if you'd rather go it alone, this book gives you index fund strategies to help you invest in the best products for you. * Learn how to invest for both safety and strong returns * Discover just how much retirement will actually cost, and how much you should be saving every month * Find out where to find a trustworthy advisor--or go it alone * Take advantage of your offshore status to invest successfully and profitably Author Andrew Hallam was a high school teacher who built a million-dollar portfolio--on a teacher's salary. He knows how everyday people can achieve success in the market. In Millionaire Expat, he tailors his best advice to the unique needs of those living overseas to give you the targeted, real-world guidance you need.

Leseprobe

Table of Contents

Cover

Title Page

Foreword

Acknowledgments

Introduction

Chapter 1: Grow Big Profits without Any Effort

Why Average Returns Aren't Normal

Stocks Pound Inflation

What Has the Stock Market Done for You Lately?

Undressing Stocks with 50 Shades of Gray

The Stock Market Stars as the Great Humiliator

Fast‐Growing Economies Can Produce Weak Returns

Bonds Are Protective Nets for Jumpers

Can You Lose Money with Bonds?

Chapter 2: Don't Start a Fight with an Escalator

Yes, the Financial District Loves You!

Global Investors Getting Fleeced

Chapter 3: Where Are the Customers' Yachts?

Global Investors Bleed by the Same Sword

American Expatriates Run Naked

Why Brokers Want to Muzzle Warren Buffett

Financial Advisors Touting “The World Is Flat!”

Hedge Fund Money Spanked for Its Con

Why Most Investors Underperform Their Funds

Why Do Financial Advisors Lie?

Chapter 4: Don't Let a Fool or a Psychopath Wreck Your Future

The deVere Group Faces Trouble

Expats Pay the World's Highest Investment Fees

A Canadian Investor Gets Bled

Investment Schemes That Cripple Like a Virus

British Expats: Can I Trade You That Diamond for a Big Lump of Coal?

Featuring the Rip‐Offers

The 10 Habits of Successful Financial Advisors…Really?

When Your Advisor Is a Sales Commando

Welcoming Sharks into the Seal Pool

Misled Investors Pay the Price

Would You Like a Band‐Aid for That Bleeding Gash?

Masters of the Insured Death Benefit Illusion

Free Fund Switching Isn't a Perk

Making Millions off the General Public

Fooling the Masses with Numbers

Regulators Making an Effort

Record Complaints in the UAE Are Gaining Some Attention

Can Squeaky Wheels Gain Redemption?

Should You Ditch Your Offshore Pension?

When High Fees Meet Gunslingers

A Son's Inheritance Gets Plundered

Canadian Teacher Gets Scalped

Investor in Thailand Makes the Great Escape

Poor Performance Packs a Three‐Way Punch

Responsible Savers Often Pay a Big Price

Chapter 5: Self‐Appointed Gurus and Neanderthal Brains

Why Most Investors Should Hope for Falling Markets

Are You Cheering for the Right Team?

If You're Just Starting Out, Pray for Stocks to Sputter

Should You Worry When Stocks Hit All‐Time Highs?

The Only Thing That Matters

It's Not Timing the Market That Matters; It's Time in the Market

High Unemployment and High Stock Returns

What Can You Miss by Guessing Wrong?

When Investors and Advisors Sabotage Their Rides

Popular Stocks Underperform

How About the Next Big Thing?

When Genius Fails

Are Index Fund Investors Smarter?

Chapter 6: An Employer's Greatest Challenge

Keep the Foxes Out of the Henhouse

Is Your Devil Big or Small?

Don't Give a Climber a Flaming Rope

Would You Hire a Guy without a License to Drive Your Retirement?

Fees—How Much Is Too Much?

So What's the Solution for Global Employers?

When Employers Offer Carrots

Non‐American Teachers: If You Slash Your Bicycle Tire We'll Reward You With A Push

How School Administrators Could Really Boost Savings

Chapter 7: Couch Potato Investing

Don't Bonds Tie You Down?

Is It More of a Fling than a Real Relationship?

Are You Worried That Bond Interest Rates Are Low?

Potatoes Growing Globally

Bonds Relative to Age and Risk

What If You're Falling Behind?

Profiting from Panic—Stock Market Crash 2008–2009

Owning the World

Where Do You Plan to Retire?

Are You Retiring in an Emerging‐Market Country?

Does This Sound Too Good to Be True?

Chapter 8: Investment Advisors with a Conscience

Do You Have a Ninja's Discipline?

Qualities of a Great Financial Advisor

Investment Professionals Worth Considering

British Investors: You Ready for a Hybrid?

Crush Your “Sophisticated” Investment Friends

Why Many Global Expats Are Naming Their Newborns Mark

Conclusion

Chapter 9: Choosing Your Offshore Brokerage—For Non‐Americans

DBS Vickers Securities Opens the Door to Everyone

Why You Should Avoid TD Ameritrade Singapore

TD Direct Investing International (Internaxx)

Saxo Capital Markets—A Jewel with Distractions

Swissquote Offers Options

Is Interactive Brokers the Dark Horse Winner?

Chapter 10: The 30 Questions Do‐It‐Yourself Investors Ask

What's the Difference between an Exchange‐Traded Index Fund (ETF) and an Index Fund?

Do Non‐Americans Have to Pay US Estate Taxes upon Death if They Own US Index Shares?

What's a Sector‐Specific ETF?

Should I Buy an Index that's Currency Hedged?

What's the Scoop on Withholding Taxes? (For Non‐Americans)

Will You Have to Pay Currency Conversions?

Should I Be Concerned about Currency Risks?

Do the Unit Prices of ETFs Show Which are Expensive or Cheap?

If I Have a Lump Sum, Should I Invest It All at Once?

I'm in Some Expensive Products, but They're Currently Down in Value. Should I Sell Now or Wait?

How Do I Open a Brokerage Account and Make Purchases? (For Non‐Americans)

What If I Find a Higher‐Performing Bond Index?

What If I Find a Cheaper ETF?

Should I Be Most Concerned about Commissions, Annual Account Fees, Fund Costs, or Exchange Rate Fees?

How Little Can I Invest Each Month?

Stock Markets Are High. Should I Really Start Investing?

Should I Buy ETFs from Vanguard, iShares, Schwab or Another Low‐Cost Provider?

Can Muslims Build a Portfolio of Shariah‐Compliant Funds?

Could You Build a Portfolio of Socially Responsible Index Funds?

Why Doesn't My Brokerage Offer the Funds I Want?

Why Hasn't My Bond ETF Risen in Value?

What If My Bond ETF Is Priced in a Different Currency?

Are Cryptocurrencies, like Bitcoin, Good Investments?

Should I Buy a Real Estate Investment Trust (REIT) Index?

Should I Buy a Smart Beta ETF?

Should I Invest in Gold?

Don't Small‐Company Stocks Beat Larger‐Company Stocks?

What If You and Your Spouse Represent Different Nationalities?

Could Index Fund Investing Become Too Popular?

What If I Need Help Building My Portfolio?

Let's Go!

Chapter 11: Portfolio Models for American Expats

Do You Currently Invest with Vanguard?

Couch Potato Investing with Vanguard

Couch Potato Investing with a Vanguard Stick Shift

When Investors Binge on Speculation

Socially Responsible Investing

Interactive Brokers Offers a Great Deal

Doing the Couch Potato with Interactive Brokers

Socially Responsible Couch Potato Portfolio

Don't Contribute Illegally to Your IRA

What Exactly Is an IRA?

Roth IRAs Are Different

Americans In Europe Face A New Challenge

Chapter 12: Portfolio Models for Canadian Expats

Canadian Funds Earn an “F” for Costs

Brokerage Options for Expatriate Canadians

Brokerages for Canadians in Capital Gains–Free Jurisdictions

Building a Canadian Couch Potato Portfolio

ETF Canadian Price War

What About RRSPs and TFSAs?

Swap‐Based ETFs—The Ultimate Legal Tax Dodge

Chapter 13: Portfolio Models for British Expats

Expensive Firms Performing Like a Virgin

Couch Potato Investing for British Expatriates

How Do You Rebalance a Multicurrency Portfolio?

Socially Responsible Investing for British Expats

Shariah‐Compliant Investing for Muslims

Are You Really Ready to Do This?

Chapter 14: Portfolio Models for Australian Expats

Fancy an Australian Couch Potato?

Socially Responsible Investing for Australians

Now Look Deeply into That Mirror

Chapter 15: Portfolio Models for New Zealand Expats

Socially Responsible Investing (SRI)

Do You Have What It Takes?

Chapter 16: Portfolio Models for South African and South American Expats

South African Investors

South Africans Fry Up the Couch Potato

South American Investors

Are You Having Troubles Selecting Your Portfolio?

Chapter 17: Portfolio Models for Irish and European Expats

The European Cheapskate Couch Potato Portfolio

Socially Responsible Investing for Europeans

Don't Get Suckered by the Sirens

Chapter 18: Portfolio Models for Asian Expats

Speculators Suffer

Chapter 19: Setting Your Bull's‐Eye

What's a Better Definition of Wealth?

What's This Ailment Expatitis?

Cheating Conventional Retirement Rules

Married Couple Lives Well on Just $20,000 a Year

Could You Retire on Less than $15,000 a Year?

The Home‐Country Retirement Plan

How Much Money Will You Need?

British Teacher in Japan Aims to Retire in Style

Single Canadian Woman Lights Her Investment Fire

Dubai‐Based Pilot Plans to See His Savings Soar

Now It's Your Turn

Chapter 20: How Much Money Should You Be Saving?

How to Never Run Out of Money

Could You Cleverly Withdraw More than 4 Percent?

Third‐Culture Kid Sets Her Savings Goal

How Much Money Will Rosanna Need?

Where Can International Teachers Save a Lot of Money?

Robert and Yik Consider Thailand or New Zealand

Should This Couple Stress?

Couple Plans for a Two‐Country Retirement

Now It's Your Turn

Conclusion

Index

End User License Agreement

List of Tables

Chapter 1

Table 1.1 Global Stock Market Growth

Table 1.2 S&P 500 Annual Returns: 1926–2016

Table 1.3 What $10,000 Invested in US and Global Stocks Would Have Grown to (ending May 18, 2017)

Chapter 2

Table 2.1 Single‐Year Profits Siphoned by Financial Industry When Markets Earn 6 Percent

Chapter 3

Table 3.1 Growth of a £5,000 Lump‐Sum Investment over 55 Years

Table 3.2 US‐Sold Actively Managed Funds: Percentage of Actively Managed Funds That Failed to Beat the Market over the 10 Years Ending December 31, 2016

Table 3.3 Canadian‐Sold Actively Managed Funds: Percentage of Actively Managed Funds That Failed to Beat the Market over the 10 Years Ending December 31, 2016

Table 3.4 European‐Sold Actively Managed Funds: Percentage of Actively Managed Funds That Failed to Beat the Market over the 10 Years Ending December 31, 2016

Chapter 4

Table 4.1 Hedge Fund Fees Based on Different Annual Gains

Table 4.2 Offshore Investment Schemes Cost More than Hedge Funds

Table 4.3 Results of $10,000 Invested Annually if Global Stock and Bond Markets Averaged 9 Percent

Table 4.4 Bonuses Don't Offset Costs

Table 4.5 Would DeAnn Be Wise to Take the Financial Hit?

Table 4.6 Undiversified Portfolio Gets Dragged through the Dirt

Table 4.7 Gains Required to Offset Losses

Table 4.8 SCI Group Ltd. Friends Provident Premier Plan

Table 4.9 Eric's Friends Provident Premier Portfolio versus Global Stock Market Index, February 2008 to April 2017

Table 4.10 Soukeina's Lopsided Portfolio

Chapter 5

Table 5.1 $10,000 Invested Annually

Table 5.2 Years US Stocks (with Dividends Reinvested) Hit All‐Time Highs, 1970–2016

Table 5.3 High Unemployment and S&P 500 Returns

Chapter 6

Table 6.1 International Teachers 401(k) Total Annual Charges Including Fund Fees and Administrative Expenses

Table 6.2 $10,000 Invested per Year Annual Returns: 6.55% versus 8.0%

Table 6.3 When Fees Are High, Taxable Portfolios Can Beat Tax‐Free Portfolios

Chapter 7

Table 7.1 US Stocks and Bonds, 2000–2011

Table 7.2 Couch Potato Portfolios 1986–2017

Table 7.3 100% Stocks versus Balanced Portfolios: 5‐Year Compound Annual Returns 1987–2016

Table 7.4 Growth of $10,000 Invested in the Canadian Couch Potato Portfolio with No Money Added, 1976–2016

Chapter 8

Table 8.1 Vanguard UK's Life Strategy Funds

Table 8.2 Vanguard's Target Date Fund Investors Outperformed Their Funds, May 31, 2007– May 31, 2017

Table 8.3 Firms Building Index Fund Portfolios for Expatriates

Chapter 9

Table 9.1 £3,000 per Month Invested MFS Meridian's Actively Managed Funds versus ETF Portfolio with Internaxx

Chapter 10

Table 10.1 S&P 500 Indexes Available on Different Global Exchanges

Table 10.2 Joe's and Julie's Profits

Table 10.3 Shariah‐Compliant ETFs on the London Stock Exchange

Table 10.4 Small Stocks and Large Stocks Go Toe‐to‐Toe

Chapter 11

Table 11.1 Vanguard's Target Retirement 2030 Fund: A Look under the Hood

Table 11.2 Vanguard's Target Retirement Funds

Table 11.3 Fund Returns versus Investors' Returns, 1998–2013

Table 11.4 Vanguard's Target Date Fund Investors Outperformed Their Funds, May 31, 2007–May 31, 2017

Table 11.5 Vanguard Global Couch Potato Portfolios

Table 11.6 Vanguard Global Couch Potato Portfolios—Admiral Series

Table 11.7 Global Couch Potato Two‐Fund Portfolio Solutions

Table 11.8 Global Couch Potato Two‐Fund Portfolio Solutions—Admiral Series

Table 11.9 Global Couch Potato Portfolios with a Socially Responsible Fund

Table 11.10 Couch Potato Portfolio with Schwab's ETFs

Table 11.11 Global Couch Potato Two‐Fund ETF Portfolios

Table 11.12 Global Couch Potato Portfolios with Socially Responsible ETFs

Chapter 12

Table 12.1 Canadian Couch Potato Portfolios

Table 12.2 Mark and Christina's Couch Potato Model

Table 12.3 Portfolios for Canadian Couch Potato Global Nomads

Table 12.4 The Most Tax‐Efficient Couch Potato Models for Canadians Overseas

Chapter 13

Table 13.1 Virgin versus Vanguard, 2010–2016

Table 13.2 British Couch Potato Portfolios

Table 13.3 British Couch Potato Portfolios with Accumulating Shares

Table 13.4 Hypothetical Portfolio Account Statement

Table 13.5 British SRI Portfolios

Table 13.6 British Global Nomad Portfolios

Chapter 14

Table 14.1 Australian Couch Potato Portfolios

Table 14.2 Australian Global Nomad Couch Potato Portfolios

Table 14.3 Australian Socially Responsible Investment (SRI) Portfolios

Chapter 15

Table 15.1 Couch Potato Portfolios for New Zealanders

*

Table 15.2 Global Couch Potato Portfolios Using Alternative Exchanges

Table 15.3 Couch Potato Portfolios for Kiwi Global Nomads

Chapter 16

Table 16.1 Couch Potato Portfolios for South African Investors

Table 16.2 South African Portfolios: Market and Currency Neutral

Table 16.3 Couch Potato Portfolios for South American Investors

Chapter 17

Table 17.1 European Couch Potato Portfolio

Table 17.2 European Cheapskate Couch Potato Portfolio

Table 17.3 The Global Nomad's Portfolio

Table 17.4 Socially Responsible Investing Portfolios for Europeans

Chapter 18

Table 18.1 Couch Potato Portfolios for Asians

Table 18.2 The Global Nomad's Portfolio

Chapter 19

Table 19.1

International Living

's Annual Global Retirement Index—Final Scores

Table 19.2 Ten Affordable US Cities for Retirement

Chapter 20

Table 20.1 Four Percent Withdrawal Rate for a $1 Million Portfolio with Inflation at 3.5 Percent per Year

Table 20.2 Where to Draw the Line: Withdrawal Rates and Portfolio Allocations for a 30‐Year Retirement

Table 20.3 Three Percent Withdrawal Rate for $1 Million Portfolio with Inflation at 3.5 Percent per Year

Table 20.4 Retiring When the Market Falls January 2001–September 30, 2017

Table 20.5 Retiring with the Financial Crisis January 2008–September 30, 2017

List of Illustrations

Chapter 1

Figure 1.1 Global Stock Market Growth Source

Figure 1.2 Bonds Are More Stable than Stocks

Chapter 3

Figure 3.1 Hedge Funds Fail to Live Up to Their Hype

Figure 3.2 How Many Top 100 Funds Remain in the Top 100 the Following Year?

Figure 3.3 US Stock and Bond Market Returns versus Investor Returns, 1987–2016

Figure 3.4 Financial Advisors Can't Predict the Future

Chapter 4

Figure 4.1 How Could an Extra 4 Percent Annual Fee Hurt Your Returns?

Figure 4.2 Irresponsible Investment Allocations

Figure 4.3 Kerryn Tucker's Zurich Vista Investment Portfolio

Chapter 5

Figure 5.1 Investors Don't Require Immediate Gratification

Figure 5.2 Investors' Returns versus Stock Market Returns 1986–2016

Chapter 10

Figure 10.1 Purchasing 370 Shares of Vanguard's International Developed World Index

Figure 10.2 Purchase Using TD International's Brokerage in Luxembourg

Figure 10.3 Purchase Using Saxo Capital Markets

Chapter 13

Figure 13.1 Converting to a Common Currency

Figure 13.2 Goal Allocations versus Actual Allocations

Chapter 19

Figure 19.1 Kevin and Sachiko's Postinflation Adjustment

Figure 19.2 Equivalent Buying Power of $60,000 if Inflation Averages 3.5 Percent

Figure 19.3 Equivalent Buying Power of $35,000 if Inflation Averages 3.5 Percent

Figure 19.4 Equivalent Buying Power of $40,000 if Inflation Averages 3.5 Percent

Figure 19.5 Your Postinflation Adjustment

Chapter 20

Figure 20.1 Rosanna's Postinflation Calculation

Figure 20.2 Rosanna's Required Annual Savings Amount

Figure 20.3 Robert and Yik's Postinflation Adjustment

Figure 20.4 Robert and Yik's Required Annual Savings Amount

Figure 20.5 Wayne and Emma's Postinflation Adjustment

Figure 20.6 Wayne and Emma Have Plenty of Room to Run

Guide

Cover

Table of Contents

Begin Reading

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E1

Additional Praise for Millionaire Expat, Second Edition

“When international schools and employers hire an expatriate, their HR departments should give them a copy of Millionaire Expat. Life as an expat can be exciting. But years of excitement can turn into years of despair for those who spend too much money and fail to save and properly invest. Andrew Hallam urges expats to plan for their futures and to calculate how much they should be saving to reach their financial goals. His investment guidelines aren't a matter of opinion. They are evidence‐based realities, explaining why we all should invest in a globally diversified portfolio of low‐cost index funds and never speculate on stocks, times, managers, or styles. This is a must‐read book!”

Mark T. Hebner, author, Index Funds: The 12‐Step Recovery Program for Active Investors, featured in the documentary film of the same name, and founder and president of Index Fund Advisors, Inc.

“Expats generally move away to seek a better life and career. But then building wealth can be a tough and independent pursuit. Mr. Hallam explains in a straightforward way how to live below your means, invest in low‐cost passive index funds, and avoid those cunning ‘investment sharks,’ so that you can focus on your life and career—and not stress about your financial future.”

Robin Speziale, national best‐selling author, Market Masters

“Millionaire Expat is like a trusted shield, protecting expatriates from the industry's self‐serving dragons. Andrew Hallam describes investment strategies that are aligned with academic evidence, not the sales‐driven rhetoric to which so many naïve investors get burned.”

Larry Swedroe, co‐author of Your Complete Guide to Factor‐Based Investing, The Incredible Shrinking Alpha, and Reducing the Risk of Black Swans; director of research for the Buckingham Family of Financial Services

“Andrew Hallam's books are a must‐read for anyone sick of buying Porsches for other people. If you're feeling overwhelmed by cold‐calling, graph‐thrusting, 25‐year‐plan‐touting financial advisors, then you need to hear what Andrew has to say. He'll give you the knowledge and confidence to make your own investment decisions, as well as the ability to sniff out the genuinely good finance professionals from those who see you as just another source of commission.”

Brandy Scott, presenter on The Business Breakfast, Dubai Eye 103.8

“Education's failing around the globe lies in the high amount of people who are not financially literate. We go to work on a daily basis and somehow hope that 20 or 30 years down the line we will have enough money put aside to keep us in retirement. What Andrew illustrates clearly is that becoming more financially literate does not take a long time (this book only took me a few hours to read) and will save you hundreds of thousands of dollars in the long run. By reading it you are investing in both your own education as well as learning how to wisely invest your own money. Don't leave it to chance or, worse, someone else. As an expat teacher, I make sure there is a copy of this book in our staff room.”

Simon Kenworthy, headmaster of Cranleigh Prep School, Abu Dhabi

“Andrew Hallam has a huge, international following. I call them Hallam‐ites. Expatriates pack auditoriums to hear him speak. But Millionaire Expat is even better than his talks. It's a humorous page‐turner that's packed with solid academic evidence. It provides a step‐by‐step guide for investors of every nationality. If Warren Buffett had the time (and a quirky sense of humor), I think this is the sort of book he would have written for expatriates. After all, Buffett has instructed that his estate be invested much the way Andrew Hallam describes in Millionaire Expat.”

Sam Instone, CEO, AES International

“Millionaire Expat combines wit and wisdom. Andrew Hallam's irreverent examination of the expat investment world is very carefully researched. The book is full of unambiguous actionable advice that will help anyone residing away from home who is trying to build financial security and hates being ripped off. The addition of sections on socially responsible investing hits a chord with me. Buy it, read it, and get into action.”

Ben Sherwood, principal, Hillier Hopkins LLP, Chartered Accountants and Tax Advisors, UK; author, The 7 Secrets of Money

“The majority of offshore financial salespeople should fear this book. All expatriates should embrace it. Packed with numerous real‐life examples and well‐researched, practical advice, this book should be compulsory reading for any expat looking to be smart with their money. Buying this book and reading it could be the best investment you ever make.”

Jason Butler, financial well‐being expert and Financial Times personal finance columnist

“The seas of expat living can be rough at times, and there are sharks preying on the fresh and inexperienced. Andrew Hallam and his book Millionaire Expat: How to Build Wealth Living Overseas is the perfect antidote to this. Hallam's advice will help you make the move worthwhile. His humorous, straightforward, and expert guidance means that you look after your hard‐earned investments and actually make your money work for you. The book may cost you $20, but it will save you thousands!”

Kate Bradley, headmistress, LCIS (La Côte International School), Nord Anglia, Switzerland

“Expat investors have it tough. Not only must they understand the complicated logistics of managing their portfolio in overseas accounts, but they may also be preyed upon by local advisors who see them as hapless tourists. That's why Millionaire Expat is such a unique and important book. No one has more firsthand experience helping expat investors than Andrew Hallam, and no one is more generous in sharing his knowledge.”

Dan Bortolotti, CFP, CIM, PWL Capital, Toronto

“Andrew Hallam is living proof that ordinary people can build extraordinary wealth by investing in simple, low‐cost index funds. His no‐nonsense approach—live within your means, buy and hold, avoid speculation—worked for him, and it will work for others who live abroad and want to avoid the predatory investing practices that are all too common in many foreign countries. Millionaire Expat really is a great guide for expatriates.”

John Heinzl,The Globe and Mail

“The advice in Millionaire Expat is simple but well thought out, fully explained, and easily understood. I now supply a copy to all of our teachers to help them through the minefield of investing and preparing themselves for their future retirement. I would thoroughly recommend this book to anyone looking to enter into the market and, while especially relevant for those ‘expats,’ the principles apply wherever you are in the world.”

Kieran Dempsey, bursar, Dubai College

“If you're an expat—or simply thinking of becoming one—Millionaire Expat will teach you all you need to know in a simple and engaging way. More important, the financial info it lays out to help you successfully manage your money—in sometimes unfamiliar lands—is rock solid. At the same time, it shows you the red flags to watch out for, including being wary of offshore investment salespeople. They are often long on promise and short on delivery. Without a doubt, Millionaire Expat is a financial must‐read book.”

Julie Cazzin, senior editor, MoneySense

“I purchased a copy of this book's first edition for every member of my staff. This second edition is even better. Millionaire Expat should be mandatory reading for any expatriate corporate or educational wellness program!”

James Dalziel, GEMS, director of Educational Operations for Continental Europe

“Unlike most financial writers, Andrew Hallam has actually been successfully doing what he recommends to his readers. In Millionaire Teacher, he showed how the son of a mechanic who became a high school teacher could become a financially independent millionaire by following a few simple, albeit hard‐to‐follow, commonsense rules. Now, in Millionaire Expat, he shows how expats could achieve financial independence by following the same rules.”

Michael O'Higgins, author of Beating the Dow, Beating the Dow with Bonds, O'Higgins Asset Management, Inc.

“If you're currently an expat—or planning to be one—do yourself a huge favor and pick up Millionaire Expat. Andrew Hallam has literally spelled out a proven approach to investing that is easy to follow and will give you a better‐performing portfolio than the majority of investors have. At the very least you'll learn to stay away from high‐cost investment schemes, and at best, you'll become a better investor than the majority of investors out there. Read this book!”

Joe Snyder, CIM®, product analyst, Tangerine Investments

“This book allows expats to plan for their future, avoid financial sharks, and build a solid retirement plan. As a lifelong teacher, I love Andrew's motivation—learn and execute. When you know better, you do better—and I did!”

Colin Boudreau, head of school, Benjamin Franklin International School, Barcelona, Spain

“I was very fortunate to have discovered Andrew Hallam's website upon making the decision to move overseas. I immediately purchased his book The Global Expatriate's Guide to Investing, and it became the single most important resource guiding my expatriate financial planning. Andrew's background as an educator is evident in the clear and understandable presentation of complex tax and financial planning concepts. I believe that Millionaire Expat will have a dramatic impact on the future financial well‐being of those who choose to save and invest following Andrew's recommendations and cautions.”

Diane Stone, CA, CPA, director of Finance and Business Operations, American School of Dubai

“I had not paid much attention to our family's financial health. I had a financial advisor taking 1% to manage our portfolio of actively managed funds. I thought, ‘Hey, what's 1%? What a bargain!’ Wrong! Including the actively managed mutual fund fees, I paid more than 2% each year. Using the information in Andrew's books, we have changed financial advisors and shifted everything into index funds. What used to leak out the back door is now staying home to support us. We teachers tend to ignore these important financial issues, at our peril. Millionaire Expat is clear, important, and life‐supporting!”

Dave Straffon, middle school principal, AIS Vienna

“Andrew Hallam's Millionaire Expat demonstrates solid, practical, real‐world investment strategies. They're designed to keep costs low, realize the value of diversification, and avoid the pitfalls of speculation and self‐serving financial salespeople. Every expat needs to read this book!”

Kennon Grose, CEO, AssetBuilder

“It is so good to see Andrew's actionable wisdom in his book Millionaire Expat. Its conversational style and thematic importance reflects Andrew Hallam's personal finance class. As a high school counselor at his former school, I saw that his class was a magnet from day one. It became obvious that today's students seek physical, mental, and financial well‐being. Most impressive were the conversations students began having with their parents about how not to leave their financial lives to chance. Millionaire Expat reflects the lessons that his students were lucky to learn.”

Frieda Dietrich, recipient, 2013 Lifetime Achievement Award, OACAC (Overseas Association for College Admission Counseling)

“Millionaire Expat is a must‐read for expat investors! Learn why most financial advisors are merely salespeople in disguise, selling investment products, selling predictions, and lacking a fiduciary duty to act in your best interest. As a result, expatriate investors overpay for advice and product recommendations that serve the investment industry first and the investor second. Millionaire Expat walks you through the conflicts of interest between investors and their ‘advisors,’ and it shows how to avoid excessive fees that reduce returns. Andrew Hallam describes the parameters of a properly diversified portfolio, how to win over the long term, and why index funds provide a solid investment solution.”

Chris M. Turnbull, CFA, CFP, TEP, The Index House

“Andrew has already saved millions of dollars for expats around the world by teaching them the principles of simple, smart investing. This book has become the bible for all members of our community and we recommend it to all expats who want to protect and grow their wealth.”

Sebastien Aguilar, Founder of SimplyFI.org - Common Sense Personal Finance and Investing, the UAE Bogleheads Chapter

“Once again Andrew Hallam delivers exactly the kind of investment book expatriates around the world need. Its simple, clear advice helps to steer those living away from home onto the right financial path, while ensuring they stay well away from predatory investment schemes that litter expat destinations.”

Alice Haine, personal finance editor, The National

Millionaire Expat

How to Build Wealth Living Overseas

Second Edition

Andrew Hallam

Cover Design: Wiley

Cover Image: UK passport © Jeffoto/iStockphoto; US Passport © spfoto/iStockphoto

Copyright © 2018 by Andrew Hallam. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

First published: 2014

Published simultaneously in Canada.

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Library of Congress Cataloging‐in‐Publication Data:

Names: Hallam, Andrew (Teacher), author.

Title: Millionaire expat : how to build wealth living overseas / by Andrew Hallam.

Other titles: Global expatriate's guide to investing

Description: Second edition. | Hoboken, NewJersey : John Wiley & Sons, Inc., [2018] | Originally published as: The global expatriate's guide to investing : from millionaire teacher to millionaire expat. | Includes index. |

Identifiers: LCCN 2017048928 (print) | LCCN 2017053458 (ebook) | ISBN 9781119411918 (pdf) | ISBN 9781119411901 (epub) | ISBN 9781119411895 (pbk.)

Subjects: LCSH: Finance, Personal. | Investments. | Retirement income—Planning.

Classification: LCC HG179 (ebook) | LCC HG179 .H238 2018 (print) | DDC 332.6—dc23

LC record available at https://lccn.loc.gov/2017048928

Foreword

I was shocked recently to realize that I've been reading personal finance books for 40 years and writing about the topic for 30. (Yes, I started when I was just months out of the crib, thank you.) Over the decades, I've perused hundreds of popular words in the field and I've developed a three‐point checklist to quickly determine whether any author is worthy of attention. The key questions are these: Is he or she impartial and noncommercial? Does he or she base their recommendations on sound academic evidence? And—just as important—can this person make me laugh?

Andrew Hallam is one of the few people to earn full marks on this three‐point checklist. He's not trying to sell me anything. He knows his research. And he's not only funny but enormously likeable.

Now that last quality may strike you as a bit superficial, but I would argue it's not. As much as I admire many of the leading academic writers in this area, and as eagerly as I read their thoughts, I would not want to go on a long camping trip with any of them. They're fine friends to have if you're trying to debate a point or test a hypothesis, but they're not the folks who are going to inspire you to change your life, get your spending in order, or do any of the other chores necessary to build your wealth.

The unavoidable reality of personal finance is that it's personal. What I've always enjoyed about Andrew's writing is that it springs from his life. When he tells you about stock markets or investing strategies, he's telling you about areas he's experienced himself—and not as an academic, or as a highly paid fund manager, but as an ordinary working stiff. His background gives him an unusual ability to sympathize with you, me, and other regular people. Most of us would like to become millionaires on middle‐class salaries. Andrew has done exactly that. As a result, he can offer an unusually personal take on what works and what doesn't.

This book in particular fills an important need. More and more of the world's best and brightest folks are now working abroad. They operate in a world that is liberating but also risky. Expats typically make more money and pay less tax than many of their peers back home. But, as a consequence, they're ripped away from the dependable anchor of state pensions and social safety nets. If they want to replace those familiar stand‐bys in their new homes, they have to navigate a sea of odd companies with unfamiliar names, all of them peddling indecipherable financial products with murky guarantees.

Andrew has been there. A Canadian with British roots, he spent years teaching high school in Singapore. So he's heard the same sales pitches you have. The difference is that he knows how much of those pitches is pure, unadulterated bunk. (Pro tip: If you're in any doubt, set your personal bunk‐o‐meter to “a lot” and move the dial up from there.)

To be sure, there are many consumer advocates. What separates Andrew, to my mind, is that he's also unusually skilled at communicating what he knows. I attribute this to his years in the classroom.

A personal note: Several years ago, Andrew convinced his high school to fly me over to teach a week of classes on writing. Until that time, I had always assumed I fell into the category of Somewhat Interesting Person. Sadly, there is nothing like addressing a morning class of 15‐year‐olds to reveal your personal excitement quotient. After a day or two of attempting to teach teenagers, I was horrified to discover I was human Ambien. The nodding heads of my students told me I was doing everything wrong.

Andrew was kind enough to offer tips about breaking lessons into easily mastered chunks, providing frequent but not obvious repetition, and using humor to communicate serious points. I see those same techniques at work in this book. So if you've always found personal finance to be a snooze, think again. Andrew has the knack of making the subject both easy and fun.

He's also, in a quiet way, inspirational—the great missing quality in much personal finance writing. Anybody can hector us to spend less and invest more. What is difficult is explaining that bringing your money situation under control isn't torture and can even be fun. What many books fail to communicate is that the great payoff from becoming master of your financial domain is that it allows you to go further, do more, and live better.

Andrew certainly does all those things. For years now, I've lived vicariously through his adventures. Whether he's biking through Vietnam, swimming on a Thai beach, driving an RV to Mexico, or doing something equally outlandish, he boldly goes where few us of us have gone before. Along the way, he somehow manages to be both budget conscious and funny. Many investors, for instance, idolize billionaire Warren Buffett and even fly thousands of kilometers to attend his annual get‐together in Omaha, Nebraska. To the best of my knowledge, though, Andrew is the only attendee to ever write the great man and ask if he could sleep on his couch. (True story. It got written up in the Wall Street Journal.)

If your own journey into personal finance is just beginning, I highly recommend Andrew as the ideal traveling companion. He will make sure you see all the essential sights while painlessly communicating great reams of useful knowledge. And, yes, oh yes, he will make you laugh.

—Ian McGugan, The Globe and Mail

Acknowledgments

In 2009, my friend Patrick Green said I should start a blog. We were at a party in Singapore. He loves the occasional beer, but that night, he was a little tipsy.

The next day, Patrick phoned me. “Andrew, remember what I was saying about that blog? You really need to start one.” I didn't think he would remember.

I half‐heartedly mentioned it to another friend, David Dixon, later that afternoon. David's a tech wiz. “I'll manage the blog,” he said, “you just write the stories.” So that's what I started to do at www.andrewhallam.com.

I also continued to write articles for finance magazines. In 2011, I wrote an international best‐selling book, Millionaire Teacher. That brought a whole new group of readers to my blog. Many of them were expats. They asked, “How do I build a portfolio of index funds while I live overseas?”

I had been using Singapore's DBS Vickers brokerage since 2003. But I didn't know, for example, how a British engineer in Kuwait could invest in a portfolio of index funds. To help these people, I did a lot of digging. I asked a lot of questions.

My readers introduced me to offshore pension products, such as those created by firms like Friends Provident and Zurich International. I had no idea that they were so prolifically sold. I wanted to do what I could to keep people away from them. I asked readers questions. I dug into their prospectuses and continued to research. I helped other readers. But they also taught me too.

Thanks to Patrick Green and David Dixon, the blog at www.andrewhallam.com soon became the world's most comprehensive site for expatriate investors. It was the genesis for this book's first edition, The Global Expatriate's Guide to Investing (Wiley, 2015).

That's why Patrick Green, David Dixon, and my many readers deserve my heartfelt thanks.

I would also like to acknowledge investment writers Ian McGugan and Scott Burns. They're the best personal finance writers I know. Scott retired in 2017, but he continues to guide my writing.

If this book is easy to understand, with a dash of humor, it's largely thanks to Ian and Scott.

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. We haven't met in person. But based on his tenacity, I wouldn't recommend fighting Sam in a no‐holds‐barred cage match.

I would also like to thank my publishing team at John Wiley & Sons and Andrew Chacko, for his editing wisdom.

Finally, to my lovely wife, Pele, you tolerated my mission, working as my editor and time manager. I look forward to the rest of life's journey with you.

Introduction

The man stood naked. His back and butt were clean. But his arms and legs were caked with mud. He held a towel in his left hand as he stood behind his pickup truck. With his right hand, he held a running shoe.

A couple strolled behind him, along a grass trail beneath an overcast sky. The walkers looked furtively at the naked man. No, I wasn't one of the walkers. Nor was I (despite what many of my friends might think) the naked guy behind the truck. It was simply a full-page advertisement for Adidas in Runner's World magazine. It read, “Runners. Yeah, we're different.”

In 1999, Adidas published a slew of similar ads. They showed the eccentricity of the long-distance runner. Runners might be different. But expats are too. My friend, Catherine Parent, lives in Indonesia. She recently posted a picture of her toothbrush on Facebook. It was in a cup…with a cockroach. Her caption asked, “To brush or not to brush?”

My friend, Debbie Woodfield, lived in Asia for years. The New Zealander posted a photo of a drink menu at a café in Laos. They offered Lao Coffee, Espresso, and…silkworm poo tea.

Expats don't leave their home countries for giant bugs or poo tea. Most of us just want to experience something different. Some of our friends back home marvel at our bravery, or they think we've lost our marbles. But unless you're living and working in an active war zone, living overseas might be as safe, or safer, than the life you left behind. That said, there is one risk that many expats face. We risk running out of money during retirement.

You might wonder what I'm smoking if you're on a cushy expat package. After all, there's a large league of expats in Southeast Asia and the Middle East who make bucket loads of cash.

They left their home countries to teach at international schools or work abroad in industries such as banking, information technology, oil, cosmetics, pharmaceuticals, and shipping. Many work for firms like Coca-Cola, American Express, Johnson & Johnson, Google, Microsoft, and Exxon Mobil.

Not all expats (including millions in Europe) make massive sums money. But even those who do face financial risks.

In 2003, when I left Canada to teach in Singapore, I kissed goodbye to a defined benefit pension. Had I continued with my former job, I could have paid off a home, contributed modestly to investments, and received pensionable income for life.

By comparison, most expats run naked. Many don't realize they would need more than a million dollars in the stock market or multiple mortgage-free rental properties just to equal, for example, the retirement benefits earned by most public-sector workers in the United States, Britain, Australia, or Canada.

Such benefits are globally waning. But they're still a reality. Governments offer additional monthly cash: Social Security (for Americans), Canadian Pension Plan for Canadians. In fact, most developed world countries offer retirement benefits for their respective home-country workers. But it's different for expats. Few expats contribute to their home-country social programs once they've moved abroad. Without maximizing contributions to these plans, they can't fully open their mouths to such morsels once they've retired.

One of my former colleagues learned this the hard way. She's American. But she taught overseas for most of her career, so she contributed little to US Social Security. While working abroad, she earned a lot of money. She furnished her large apartment with fine carpets. She bought beautiful jewelry. She enjoyed flashy holidays—often flying business class to five-star resorts. Unfortunately, she didn't save much. Today, my friend is back in the United States, renting a room in somebody else's home. She's 70 years old and struggling far below the US poverty line. As Warren Buffett says, you only know who's swimming naked when the tide goes out.

In sharp contrast, I also taught with a couple who retired with about $5 million dollars in their investment account. That's a lot of money—especially for teachers. They paid for their two daughters to go to college. They own a mortgage-free home. They lived well as expats and retired fully clothed. But they were great planners.

My wife and I were similar. When I first started investing, I wanted to retire at 40. I was 19 years old and saving like a lunatic. I won't confess the screwy things I did to pinch pennies. Instead, I want to share what I did right: the part you'll find helpful. I planned how much money I wanted to save, and why. Such planning, even more than the hyperactive saving, made my life a heck of a lot easier.

In 2014, shortly after my 44th birthday, we retired from our Singapore-based teaching jobs. That doesn't mean we live like trust-funded hedonists. Nor does it mean we'll never work again. It does mean, however, that our private parts aren't sitting in somebody else's vise. A few years back, if our boss had gone on a firing spree, sacking skinny bald guys and bilingual blondes, we would have been fine. We had enough money to survive without working.

We saved and invested in the stock and bond markets—in a manner that I detail in this book. Fortunately, we dodged the armies of silver tongues who peddle horrible investment products. If we hadn't, we would still have to work for many more years.

Such investment schemes are sold most prolifically to British expats. Expats of every nationality, however, get sucked in. These schemes get pushed like Viagra. But they leave investors limp. Investors pay obscenely high fees. That's why they rarely make money when the gains (if they exist at all) are adjusted for inflation. The salespeople who sell these schemes make Everest-sized commissions—sometimes totaling more than $1 million a year. That's why some of these salespeople bribe their current clients. “I'll offer you a free iPad,” they might say, “if you give me the contact details for 10 of your friends.” Victims get locked into 10-, 20-, even 25-year schemes.

Once an investor catches on to the fee-burdened riptide, it's often too late. Those who scramble out of the water face redemption penalties. Some could lose everything if they try to sell early. What's worse, many overseas employers welcome financial sharks into their company seal pools. With the best of intentions, they endorse offshore pension sellers, most of whom have a single purpose: to reap the highest possible commissions from unwary workers.

But it doesn't have to be this way. Expats can enjoy the best of both worlds. They can live adventurous (even luxurious) lives and retire wealthy. But they need to save and invest effectively. I'll show you how to do that.

I'll show where you can open your investment account, while describing how to make investment purchases for different nationalities.

The strategy I describe beats the returns of most professional investors. Best of all, you won't have to watch the stock market, follow the economy, or read the dull business pages of The Wall Street Journal. This strategy takes about 60 minutes a year.

Don't believe me? Good. Don't believe anyone who talks to you about money. That goes double for a financial salesperson. Consider everyone a shark, until proven otherwise. Use the Internet as you read this book. Confirm all my sources.

Does 60 minutes a year sounds like too much time to spend on your investments? No problem. You could hire a scrupulous financial advisor. I list some in this book. They would build you a portfolio of low-cost index funds. Nobel Prize winners in economics recommend these products. Warren Buffett does too. In fact, Mr. Buffett says that when he dies, his estate will be invested in index funds.

I'll explain what index funds are and how they work. I'll also show you how to buy them.

Millionaire Expat outlines how to plan for your future. How much money should you invest, based on your future needs? How much of your investment portfolio can you afford to sell during each retirement year? The final two chapters provide these answers.

As an expatriate, you can live better, earn more, and provide for a generous retirement. You'll just need a plan. Fortunately, you're reading it.

Chapter 1Grow Big Profits without Any Effort

Once upon a time, in a land far away, there lived a young farmer. His name was Luke Skywalker. Don't get confused by his Star Wars namesake. That was just a movie.

Luke had a farming mentor, an awkward little guy with a massive green thumb. His name was Yoda. “Use the Force you must, young Skywalker,” he said. “Add new seeds to your crop fields every year. The Force will grow those seeds. They will flower and spread more seeds and those seeds will grow.”

“Which seeds should I plant?” asked Luke. “Buy the bags that contain every type of seed for every type of vegetable,” replied Yoda. “You'll never know which vegetables will grow the best in any given year,” he said. “Plant them all, you should. Let the Force look after the rest. But watch out for the dark side.”

Luke wasn't sure what Yoda meant by the dark side. He just knew that Yoda was a mysterious little dude. So Luke bought a bag that contained every seed. He planted every one, and his crops began to flourish. Some years, his carrots grew best. Other years, his lettuce, parsnips, or beets took center stage. Sometimes, droughts and a searing sun hurt his crops. But his crops always came back, stronger than ever.

This is how the stock market works. You can buy a single fund called a global stock market index fund. Like a bag of seeds representing multiple plants, it contains thousands of different stocks, representing dozens of different markets. It contains American stocks, British stocks, Canadian stocks, Australian stocks, and Chinese stocks. In fact, a global stock market index contains about 7,400 stocks from at least 49 different countries. Nobody trades those stocks. With a global stock market index, you own all of those stocks. You would also have access to that money, any time you want.

Some years (much like the garden during a drought), the proceeds recede. But just like that garden, the stock market always comes back stronger than before.

Imagine if someone had invested $100 a month from 1970 to 2020. That would have amounted to just $3.29 per day. Between January 1970 and January 2020, that person would have added a total of $60,000 (see Figure 1.1 and Table 1.1). If they equaled the return of the global stock market index during those 50 years, that investment would have grown to almost $1.6 million. Between 1970 and 2020, global stocks averaged a compound annual return of 10.10 percent per year.

Figure 1.1 Global Stock Market Growth Source

SOURCE: Morningstar Direct.

Table 1.1 Global Stock Market Growth

SOURCE: Morningstar Direct.

Year Ended Dec 31

Annual Return

Total Cost of Cumulative Investments

Total Value after Growth

1970

−2.25% 

 $1,200

    $1,173

1971

 18.52% 

 $2,400

    $2,812

1972

 28.21% 

 $3,600

    $5,144

1973

 −8.96% 

 $4,800

    $5,776

1974

−21.09% 

 $6,000

    $5,505

1975

 32.44% 

 $7,200

    $8,880

1976

  8.97% 

 $8,400

   $10,984

1977

  3.32% 

 $9,600

   $12,588

1978

 24.22% 

$10,800

   $17,128

1979

 12.33% 

$12,000

   $20,588

1980

 21.85% 

$13,200

   $26,548

1981

 −3.19% 

$14,400

   $26,863

1982

  6.61% 

$15,600

   $29,918

1983

 25.37% 

$16,800

   $39,013

1984

  6.47% 

$18,000

   $42,815

1985

 51.83% 

$19,200

   $66,827

1986

 45.35% 

$20,400

   $98,878

1987

 10.06% 

$21,600

  $110,146

1988

 20.56% 

$22,800

  $134,238

1989

 24.15% 

$24,000

  $168,147

1990

−12.00% 

$25,200

  $149,025

1991

 18.42% 

$26,400

  $177,897

1992

 −4.10% 

$27,600

  $171,754

1993

 25.25% 

$28,800

  $216,624

1994

 6.19% 

$30,000

  $231,308

1995

 20.73% 

$31,200

  $280,707

1996

 13.73% 

$32,400

  $320,612

1997

 15.33% 

$33,600

  $371,146

1998

 27.58% 

$34,800

  $475,039

1999

 29.04% 

$36,000

  $614,539

2000

−13.80% 

$37,200

  $530,767

2001

−17.86% 

$38,400

  $436,958

2002

−18.75% 

$39,600

  $356,003

2003

 38.08% 

$40,800

  $493,226

2004

 18.27% 

$42,000

  $584,758

2005

 11.52% 

$43,200

  $653,460

2006

 23.11% 

$44,400

  $805,953

2007

 11.16% 

$45,600

  $897,231

2008

−41.72% 

$46,800

  $523,605

2009

 30.40% 

$48,000

  $684,346

2010

  8.62% 

$49,200

  $744,640

2011

 −7.99% 

$50,400

  $686,248

2012

 18.34% 

$51,600

  $813,526

2013

 26.59% 

$52,800

$1,031,361

2014

  2.02% 

$54,000

$1,053,419

2015

 −0.44% 

$55,200

$1,049,979

2016

  6.53% 

$56,400

$1,119,821

2017

 24.49% 

$57,600

$1,394,068

2018

-9.76%

$58,800

$1,258,000

2019

26.82%

$60,000

$1,595,348

Compound Annual Average Return: 10.10% per year

Your Investment Time Horizon Is Longer Than You Think

In 2017, I met a 50‐year‐old Canadian woman who lives and works in Ethiopia. “I need to take bigger risks with my money,” she said, “because I'm only going to be investing for 15 years. I want to retire when I'm 65.” She failed to realize, however, that if she retires at age 65, her investment duration isn't 15 years. If she lives until she's 85, her investment duration would be 35 years. Investment lifetimes have two phases. That's why she shouldn't take unnecessary risks.

The first is an accumulation phase. This is when we're working and adding money to our investments. The second stage is a retirement (or distribution) phase. The day we retire isn't the day we sell our investments, hold a massive party with the proceeds, and drink tequila until we puke. We need to keep our money invested, so we can sell pieces of it to cover our costs of living. That money should keep growing so we can continue to live off its proceeds (see Chapters 19 and 20).

That's why a 50‐year‐old investor's time horizon could be 35 years or longer. A 40‐year‐old investor's time horizon could be more than 45 years.

Why Average Returns Aren't Normal

If we look at various 30‐year investment periods, global stock markets have averaged 9 to 11 percent per year. But individual calendar year returns that land precisely within that range are about as normal as a two‐headed poodle.

During my lifetime, it has happened once. Global stocks gained 10.06 percent in 1987 (See Table 1.1).

It's much the same for the US stock market. Between 1926 and 2019, US stocks recorded calendar year gains between 9 and 11 percent just three times. In 1968, they gained 11 percent; in 1993, they gained 10.1 percent; and in 2004, they earned 10.9 percent. The rest of the time, stocks soared, sank, or sputtered.1

US stocks averaged 10.05 percent between 1926 and 2019, but single‐year performances were schizophrenic. On 24 occasions, US stocks recorded annual losses. On the flip side, stocks gained 25 percent or more during 25 other calendar years. Note the year‐by‐year performances in Table 1.2. Stock market volatility is normal. And it always will be.

Table 1.2 S&P 500 Annual Returns: 1926–2019

SOURCE: Bogleheads.org; Morningstar.com.

11.62%

1926

(14.66%)

1973

37.49%

1927

(26.47%)