Rohan: I read Andrew Hallam’s book following my interview with Bill Bernstein. Bill recommended Andrew’s book “The Millionaire Teacher” and I can’t thank him enough for it. I liked it so much that I’ve gifted about 10 copies to friends and family over the past couple of months.
Interviewing Andrew was a real blast – he is SO full of energy! There are plenty of great personal finance and life ideas in there and I hope you enjoy it as much as I did.
About Andrew Hallam
Andrew Hallam the author of the best-selling personal finance book, Millionaire Teacher—The Nine Rules of Wealth You Should Have Learned in School. Andrew teaches Personal Finance at Singapore American School and I also writes a few regular columns for the Canadian Business magazine, weekly for The Globe and Mail , and at least twice a month for Assetbuilder , a U.S. based financial service company. Periodically, he also write for MoneySense magazine, where two of his articles were nominated as national publishing award finalists.
If you didn’t grow up in a wealthy household, Andrew and you probably have plenty in common. His dad was a mechanic, and his mom worked part-time at a retail store, earning slightly more than the minimum wage. As one of four children, his parents expected him to pay for my own college education. He developed an early respect for money because he never had any while growing up. And when he was 19, I met a mechanic who happened to be a millionaire. He learned that it wasn’t always necessary to have a high paying job in order to build wealth. He wanted to become a school teacher and figured that if a mechanic could grow wealthy on a middle class salary, then he could too.
So before his 20th birthday, he started to invest and along the way, he learned some vital financial lessons. And as he started to succeed financially, he grew more baffled at the absence of sound financial lessons in schools. His blog provides links to his published writing and more free-to-access content.
Rohan: I know you teach at the American school here. You’re also an investment guru; you’re an author. How did all of this come about, and how did Singapore come about? I know you’re Canadian. It would be great to get a sense of the big moves in your life.
Andrew: I think my interest in money is a healthy interest because at a really early age, I met a guy who happened to be a millionaire and he was a mechanic. He really inspired me by saying, “Look, it doesn’t matter what you do in life. If you find something that you’re passionate about and you learn to manage money, that’s the key. You can make $500,000 a year, and if you’re spending $501,000, you’re really not growing wealthy at all. The moment your job dries up, you’re done.”
I started investing from a really young age. What I recognized was that I wasn’t necessarily going to live until I was 60, 70, 80, 90 plus. Any one of us could get hit by a bus tomorrow. I recognized that so when I was about 31, I had been teaching and I had built up a reasonably sized investment portfolio. I took a year off, and I traveled. I had budgeted really well and I started a deferred salary leave program at my school. Hardly anybody took advantage of this opportunity, but it was a really good one whereby you give 33% of your salary to the school district for three years, then they give you back your full salary in monthly payments in your fourth year and you have your fourth year off. The idea is that you’re guaranteed to have your job back if you want it.
I saved up a lot of money. I had a fairly substantial amount by the time I was 31. I also recognized that life is short; I’m going to take this opportunity. I was able to live quite well on just 66% of my salary, giving 33% to the school district. I was used to that because I was a big saver. I still continued to save. In fact, I traveled around the world and I still saved and invested a fairly significant chunk of what the school district was paying me on a monthly basis.
While I was away, I happened to be in Morocco at the time, I was in email contact with an administrator that I had worked with on Vancouver Island. He had a job at Singapore American School and he said to me, “This place is really cool. I think you’d really like Singapore. It has fantastic travel opportunities. I think you should apply for a job here.”
So I flew to Boston and I went to job fair and met the superintendent. I’ve been here in Singapore ever since. This is my tenth year here now.
Rohan: What do you teach?
Andrew: I teach two things. I teach personal finance and English 9, which is English to 14 or 15 year old kids.
Rohan: How do you teach investing fundamentals to kids at school? It feels so far out from what a normal kid would be doing at school.
Andrew: I think there’s a trick to it. I think I found the trick. I ask them certain questions. I ask them, “What do you think $10,000 invested in the U.S. stock market would be worth today if it were invested 10 years ago?”
I show kids how to find that answer. I don’t give them the answer. I show them the Morningstar website, and I give them symbols for Vanguard’s S&P 500 index. It’s a really nice one. They can look at the chart. I show them how to determine what that compounding rate of return is.
They’ll ask other questions like, “What would $10,000 be worth if you invested 15 years ago?” And they figure it out. Then of course, their eyes go pretty big. I kind of start to get them there.
And then I’ll say, “What if somebody had put $10,000 away in 1978, on my 8th birthday? What would that be worth today?” Kids find out that it’s worth about half of a million dollars. Their eyes grow huge and they say, “I have to do this.”
The moment you have them saying that they have to do this is when you’ve got them. Here’s where you make a bridge towards something applicable. I’ll give you an example of what I did today. Today I did something called the opportunity cost circumstance. I said to the students, “Every decision that you make has an opportunity cost. If you choose to go to Starbucks three times a week for a muffin and a drink versus somebody else who chooses to go to Starbucks for a muffin and a coffee once every two weeks, there’s an opportunity cost to going three times a week.”
Kids say, “Okay, let’s figure out what that cost appears to be on an annual basis.” They may say something like, “Wow, you know what? Let’s just say it’s ten dollars each time you go.” Well you find that when you compare the person going three times a week to the person going once every second week, the difference between the two amounts to something like $1200 a year. They look at that and they go, “Wow, that’s a lot of money.”
And then I ask this question: “Let’s assume that instead of spending $1200 a year for going three times a week, what if somebody invested that $1200 a year for 40 years at the average rate of return that the U.S stock market has made over the last 30 years. They’ll say, “What has it made over the last 30 years?” And I’ll tell them to figure it out. They go to the Morningstar, figure it out, and come back and say that it’s about 10% a year.
I say, “That is correct. Now figure out what that savings would do if that savings went into the U.S stock market for 40 years. Let’s say it was $1200 a year and it earns 10% a year.” They do the math then they look at me and say, “Mr. Hallam, this can’t be right.”
“What do you mean it can’t be right?”
“It comes out to $600,000.”
And I say, “Bingo.” That’s the actual cost between going to Starbucks three times a week versus going to Starbucks every second week. Then we get to the point where I say, “That’s one decision. Now what happens if you have a person who every five years buys a new car versus a person who every five years buys a used car for the rest of their life? Let’s figure out what this would be.” You have decision after decision after decision.
Then I say, “Most school teachers here get paid roughly the same amount of money. If we were to take school teachers between the ages of 45 and 50 with two kids and I was to put their names up on the board with their net worth, it would range between them having a negative figure (despite SAS being a really good school and really well paid) to well over a million dollars on the far end. And this is a fairly general cross section of society. This would apply at any workplace.
And then I ask the question, “Why?” They now have an answer. Even something as simple as choosing to go to Starbucks three times a week versus once every second week can make a difference of hundreds of thousands of dollars over the course of a lifetime. What about other little decisions that get made? For example, taking the five star holiday versus the three star holiday, flying business class versus flying economy class, or taking taxis everyday versus taking the MRT are huge differences. For me the trick is getting the kids to come to these conclusions on their own. That’s when it starts to become powerful for them.
Rohan: The most common investment advice is to go buy a house. How do you think about property as an investment? What do you tell people? The property prices in Singapore seem to be way beyond normal levels. Would you invest in something like this, or would you stay away?
Andrew: The funny thing about any asset class whether its gold, stocks, or real estate, is that the moment after everybody thinks it’s a really good thing, it isn’t. I’ll give you a great example of something fascinating. In 2003-2005 when I first came to Singapore, all the teachers were rushing up to me and they all wanted to buy real estate in the United States. I would say, “Why do you want to buy it?”
“I want to buy it because it keeps going up in price. My friend’s real estate has just risen 70, 80, or 100%. If I don’t get in now, I’m never going to be able to get in.” That’s faulty reasoning if that’s your reason. One thing I find that’s very interesting is that some of the best real estate in the world right now in terms of price to yield ratios are in the United States. How many of my friends are coming up to me and telling me about homes they’re buying in the United States right now?
I tell my American friends, “If you buy a duplex or triplex in the United States in your hometown and you put 10% as a down payment for the mortgage, your tenants will pay for the mortgage, expenses, the upkeep, and the maintenance fee because the yield on those properties is so high. This means that the rent received relative to the price of the property is quite substantial. It’s not all that hard in the United States to get rental yields of 10-12% per year. This is phenomenal.
From a business perspective, people always need to think of cash flow. Not so much speculation, but cash flow. Every market goes through its thing. I’ll give you an example. When I first came to Singapore, I was kind of interested in Singapore real estate. I remember mentioning to some Singaporean friends of mine, “That condominium that’s selling for $650,000 and is 1700 square feet is pretty interesting.”
They would say, “No, you don’t want to buy that.”
Why don’t I want to buy that? I don’t want to buy that because it was worth more than that 13 years ago. If you recall in Singapore in the mid to late 90’s real estate really rocked. It really escalated exponentially. Then we had the Asian crisis, and we had real estate coming down significantly. It’s ironic, but it’s so much like human nature. People want to buy what has recently become more expensive. They like it. They feel good about buying what has recently become expensive.
Rohan: What’s your rule with this? I think you mentioned that if you don’t recoup the money in 10 years of rentals, then you’re looking at something that’s steep. Is that what you work with as a rule of thumb?
Andrew: I didn’t have that as a rule of thumb but I like to look at what the actual yield is. What is the return on rent relative to the price? I compare that with other investments. That’s what Warren Buffett does. When he looks at stock, he compares it to the yield on a 10 year treasury bond. When he looks at the yield of a stock, he’s not looking at the dividend yield. He’s looking at earnings divided by price to get an actual yield on the stock. Stocks probably yield somewhere in the region of about 5% in developed world stocks as earnings business yield. Real estate in Singapore yields 2%. It is half as attractive as developed market stocks currently. This is an incredibly low yield and it’s not something that I would be interested in buying at all. Would I ever be interested in buying Singapore real estate? Of course I would, but not now. Everything is cyclical.
Rohan: Your philosophy is to pick three indexes or so to invest in. When I was thinking about this I had a very practical problem. Are we in a time where the indexes are too expensive? How do I know if it’s expensive? Should I wait for the market to go down, because it’s better to buy them when they’re down? The advice that I got from a couple of friends was to just go and put the money in and to not worry about what the market looks like. Just make it a mathematical exercise. Is that how you would approach it? What would your advice be?
Andrew: Most definitely that is what I would do. Invest regular sums into the market and ideally, for someone your age, you should actually be really happy if the market drops after you start purchasing. It’s a really hard thing for people to do. Let’s say you put in $30,000 and you find that it’s worth $20,000. You think that you should have waited. Speculating is kind of silly because you never know where the markets are going to go.
Your viewers might find that this is interesting. I have a portfolio that is roughly 2 million U.S. dollars currently. I’m 43 and I will continue to work because I really enjoy it. By continuing to work, I’m continuing to add money to the markets. Do you think I would prefer to have a rising market or a falling market during the next five years?
Rohan: If you were looking to take money out, then rising markets and if you were looking to put money in, then falling markets, right?
Andrew: I’m 43 years old. I’m probably going to be working for at least another 15 years because I really enjoy it.
Andrew: Exactly. I want a stagnating market or a falling market. I think you have to remove yourself from what the value of your portfolio actually is as you’re making your purchases because it’s just distracting you more than anything else. Think about this. When you’re investing in the stock market, you’re buying real assets. You’re buying real companies. As an aggregate, those companies become more valuable over time because their earnings increase over time. The stock market is there to distract you. It tells you the popular price of the day but it doesn’t really give you the true price. What’s beautiful is that if your stock market investments plunge, keep in mind that your investments are actually worth more. In truth, they’re worth more because the aggregate value of those businesses that you’re buying is increasing. So if the price drops, this is a good thing. You just keep buying.
Rohan: What have been your biggest lessons from helping people sort out their financial lives? I’m sure people have come to you with financial disasters. What have been a couple of your biggest lessons?
Andrew: One of my biggest mistakes in teaching people about money was learning that not everybody can manage their own money. I’ll give you an example. I could say to you, “It is this easy. You buy a Singapore index, you buy a global index, maybe your bond portion for you becomes your CPF, you just buy your Singapore and global index every single year from now until you’re ready to retire and you’ll do well.”
That in theory is how it works. Unfortunately, what I’ve found is that when the market rises exponentially, people somehow scramble to find more money, or they start taking extra risks with their money. When the market drops, no matter what long term studies suggested, they’re watching CNBC or they start picking up the Wall Street Journal. They clam onto a reason why this time it’s different. Markets are going to collapse, and they sell or they cease to buy. I used to think that you could train everybody to invest. It’s so simple, anyone can do it. Then I recognized that a lot of really smart friends of mine with IQ’s way above mine just aren’t emotionally wired to invest.
Rohan: You don’t recommend people go to financial service institutions right? Bill Bernstein says to treat every financial services broker like a con man and you’ll do just fine. What’s the way out?
Andrew: Haha. He’s smart. He’s exactly right. I hate to say it, but 99.9% of those guys are somewhat crooked. Here in Singapore and in Southeast Asia, it’s far worse than Bill could ever dream. What Bill sees in the United States is nothing compared to the ILAS products that are sold here in Singapore by reps pawning stuff from groups like Friends Provident, Zurich International, Generali, and Aviva. These things are absolutely crooked but legal. I would suggest that under no circumstances should you go anywhere near those types of products.
I still have to have hope that people can invest. Maybe friends get together and say, “Just put your money in every month. Forget where the markets are going. Just do it dispassionately and you will beat 90% of professional investors.”
If you can’t do that, then you can hire somebody to invest dispassionately for you with low cost indexes or ETF’s. That’s the secret. Don’t pay them more than 1% per year to do that job. It’s not easy to find somebody who will do that. In Southeast Asia I know there’s a guy named Tony Noto in Shanghai. He’ll manage accounts and ETF’s for people. He charges 1%. He’s actually moved to Hawaii recently and is setting up shop there, but he’s still going to be dealing with expats anyway. That’s the hurdle that people need to look for, is not to pay anybody more than 1% and then make sure they invest passively for you. That they exchange funds and not actively manage funds. And back to the other thing, I can’t stress how much I want people to avoid the ILAS products from Zurich and National Friends Provident and Company.
Rohan: What is your advice for young/new investors? What percentage of salary is a healthy start to invest?
Andrew: Starting as early as possible is great, but my advice is that if somebody has debts they have to pay that off first. Investing while you still have credit card debt is categorically insane. You could be paying 18% on a credit card loan and at the markets you’re hoping to generate 8-10% per year. If you have a high consumer debt loan, pay that off before you actually start to invest. The second thing is to invest regular sums and to be really dispassionate about it. When I say regular sums, I’m looking at something like 10-15% as a minimum of somebody’s salary.
Rohan: What are your favorite books?
Andrew: Right now I’m reading a fantastic book called Our World’s Story. A friend of mine named Eric Burnett who is a really bright chap wrote this fantastic world history book. I’m reading it now and I’m really getting a kick out of it because it’s a history book that you wish you had in school. It’s highly entertaining. Right now I’m really enjoying that.
Rohan: Do you have any all-time favorites?
Andrew: I know it probably seems really dry to a lot of people, but I’ve probably read The Intelligent Investor by Benjamin Graham 30 times. I’m embarrassed to admit it, but I love it.
Rohan: Do you have any favorite movies or TV shows?
Andrew: A TV show that I absolutely love is American Ninja. Have you seen it?
Rohan: No, never.
Andrew: You have to see it. I like to keep really fit. Today, I ran home from work. It’s about a 12 kilometer run. I’m usually at the gym one day working out and then the next day I’ll go for a 10-12 kilometer run. I like to make it hard and intense. The show is fantastic. These guys go through obstacle courses that take about a minute to get through. The real studs take about 40 seconds. If it’s on tonight I want you to watch it because it is insane what these guys can do. It is incredible. I love that. I was watching just last night or the night before and I saw a 47 year old guy rip through a course. I said, “I want that to be me.” That was awesome.
Rohan: You do so much. You’re a teacher, you write, you write a blog and articles. What are some productivity hacks that you use?
Andrew: I’m wondering about that myself, because it is hard finding little bits of time. My wife takes longer to get ready for work than I do. That gives me about 15 minutes. I can sit on my butt and wait for her for 15 minutes, or I can write something for 15 minutes. If I just do four days of actually being productive and having a word document open and writing for 15 minutes at a time, I’m getting about an hour’s worth of writing done. It’s a lot of time that ordinary people would waste.
I like to work out and I like to run. Instead of driving home or taking a bus home and then going for a run, I just save time by running from work. It takes me about 50 minutes to run the 12 kilometers. On the bus, it might take me 30 minutes. So for 20 minutes I get a 12 kilometer run.
Another thing is that you have to be really passionate about what you’re doing. You have to be really excited about what you’re doing. Then when there are those little opportunities where I have 20 minutes or 40 minutes, I’m actually excited to write an article or to get something down on paper.
Rohan: What is an idea or thought that inspires you that you would like to share?
Andrew: This might sound morbid, but you’re going to be dead for a long time. Just recognize that life is short, and at any point it can be snuffed out. To me, it’s really inspiring knowing that every day I live is one day closer to my ultimate demise. If people don’t recognize that, I don’t think they truly live. You have to recognize that every single day is special.
If you work your butt off and you’re really not enjoying anything because you’re trying to reach some goal or some happy point 10 or 15 years in the future, that’s crazy. You can get hit by a bus, and then what? You’ve lived this life of misery. I see people in Singapore chasing the five C’s a lot. The five C’s are cash, condo, car, credit card, and country club. I live in a condominium here with a great swimming pool. Loads of people live in this condominium. I don’t ever see anybody down there. Where are they? They’re not down at the pool. They’re working their butts off. You have to have a better balance.
This was a LOT of fun, Andrew! Thank you so much for taking the time!
The Real Leaders Team