Guest post by Andrew Hallam, author of The Global Expatriate’s Guide to Investing
If you have a financial advisor, odds are high that he or she has a dirty little secret. Most of your investment costs are hidden. And the more you pay in investment fees, the less you make. In fact, investment fees are a bigger drain on many people’s wealth than income taxes. Getting them under control can mean one of two things:
1. Retiring a heck of a lot sooner
2. Enjoying a lot more money in retirement
I wrote The Global Expatriate’s Guide To Investing to increase your odds of both.
Let me introduce myself. I was financially free at 38. I wrote a bestselling book in 2011 at the age of 41. It’s called Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School. Now my wife and I enjoy an early retirement lifestyle. We’re currently in Lake Chapala, Mexico. That doesn’t mean, however, that we lay around in hammocks drinking margaritas. I enjoy writing, including a finance column for The Globe and Mail.
So let’s get back to that dirty little secret. You probably pay too much money in investment fees. The more you pay, the more your financial advisor earns. Most advisors are keen to boost their salaries and commissions. Their salesmanship, however, gets deducted from your bottom line.
If you asked Warren Buffett how to invest, he would tell you to invest in low cost index funds. These are cheap products. They put more money in your pockets. But they line your advisor’s pockets with less. Economic Nobel Prize winners William F. Sharpe, Paul Samuelson, Daniel Kahneman, Merton Miller and Robert Merton all agree. Harvard’s endowment fund manager, Jack Meyer, says “The investment business is a giant scam. It deletes billions of dollars every year in transaction costs and fees…You should simply hold index funds.” Yale University’s endowment fund manager, David Swensen, says the U.S. government should stop the mutual fund industry’s exploitation of individual investors.
In the eyes of most financial advisors, these financial wizards are total party poopers. My book shows you how to hire the right kind of financial advisor. This person would build you a portfolio of low cost index funds. It also shows how to build such portfolios on your own.
Let’s assume you’re 40 years old. You invest $10,000 into a low cost index fund. If the markets average 8 percent, your money would grow to roughly $81,573 after 30 years. Investors paying 2 percent more in annual fees would likely earn just $48,268. Those north of 50 may wonder why this matters to them. It does. And it matters a lot. Most 50 year olds, for example, hope to live happy healthy lives into their 80s. If you’re living off your investments, you won’t be spending it all at once. You’ll be selling part of your money each year, while the remainder (you hope!) continues to grow. This is how you can combat the rising costs of living.
I wrote The Global Expatriate’s Guide To Investing for an expatriate audience. But if you’re residing in your home country, you’ll still find it useful. It’s the only book in the world that shows exactly how to invest, regardless of where you live, and regardless of nationality. It’s also the only book showing you how to build low cost portfolios of index funds using three different cutting edge strategies. One of them, you’ll find, has been remarkably stable. It has averaged slightly more than 9 percent a year since 1971. Its worst year was 1981. It dropped just 4.1 percent. During the crash of 2008, it lost less than 1 percent.
Yeah, I’m gushing about this book. But I know you’ll find it helpful.
Best of all, it gets that dirty little secret out.