How to Become a Millionaire with Andrew Hallam

KERRY K. TAYLOR
– Hey, I’m Kerry and welcome to Squawkfox TV and The Cash and Kerry Podcast. Today we’re talking about investing. We’ll start with how to turn a small income into a big portfolio. Why actively managed mutual funds won’t beat the market over time and how you can start investing today with just one fund. My guest is Andrew Hallam and he is the Millionaire Teacher.

KERRY K. TAYLOR
– Hey Andrew, thrilled you’re back.

ANDREW HALLAM
– Thank you, Kerry. Thank you for the invite.

KERRY K. TAYLOR
– So I wanna know, how you did it. Like, how did you become a millionaire on a teacher’s salary? And is it something we can do ourselves?

ANDREW HALLAM
– Yeah, it is. It’s something that most people can do. It was for me. I met the right person at the right time. I was 19 years old and I met a mechanic who was a self-made millionaire on a mechanic’s salary. And I didn’t even believe it, like at first when he started talking to me about this. People actually said I was at a workplace. So I was working at a bus depot. He was a mechanic there. I was a serviceman so I washed and fueled buses. And people said to me, look, when this guy Ross when he wants to talk to you, if he ever asks you if he ever starts talking to you about money makes you listen to what he has to say. And they told me he was a millionaire. And I thought, well you can’t be a millionaire on a mechanics salary. That’s not even right. So I didn’t give it at first the respect that perhaps I should have because I didn’t understand how money compounds. I didn’t understand how small money set aside over lengthy periods of time become like a snowball. It just starts growing and growing and growing until we did sit down and I did listen to his story. So he was the one who got me investing from the age of 19. And he said, “Look, I know you don’t have a lot of money “but you’ve gotta do at least $100 a month.” And I said, “I can’t afford $100 a month.” Like, I’m a student I’m paying for my own college fees. He goes, “look, you’ve gotta get into this habit “it’s just a small amount but get into this habit “with a small sum of money. “I know you can afford $100 a month.” I said, “I can’t Ross I can’t.” And he said, “look, I’ve watched you “I’ve watched you college boy, “going over to that vending machine and getting “like a chocolate bar and whatever a can of Coke.” He says, “could you do that every day? “Could you do like the vending machine thing every day “where you get, like on, let’s say “a couple cans of coconut muffin every day. “Could you do that? “Could you afford to do that?” I said, “I guess I could.” He said, “well, do the math. “That’s like just over three dollars a day. “Now take that over a month there’s your $100 a month.” And when I thought about that realized, “wow yeah, he was right.” And he showed me how compound interest works. And he got me thinking about how small amounts could make a really big difference later on. And so I recognized that — he was a funny guy, you know, talking about consumption. He was judgmental. I’ll admit he was really, really judgmental. He would point to people that he knew that worked in the same establishment in the admin who might’ve been driving like a really fancy car. And he pointed the car and he’d tell me, “you know, how much that car’s really gonna cost that person?” And he talked to me about depreciation, you know, especially with some exotic car or a really expensive car, how much how it would drop in value. So quickly, shortly after bringing it off the lot that five years later it’d be worth like half or less than half of what the person paid for it. And so then there’s the interest related to that. And then of course what we call opportunity costs. Like what if the money didn’t go into that? But what if that money went into a low cost portfolio of index funds that just track the general market of stock and bonds over lengthy period of time what would the costs that one decision of that one car purchase what would that be worth? And when we look at that, we recognize that, “wow just that one decision to buy that exotic car.” Let’s say I borrowed a bunch of money in my twenties to do that. That one decision to do that had an opportunity cost of probably about six or $700,000 by the time I’m 60. And when we look at it that way, we recognize that “wow how much bang for my buck am I getting “from purchasing that car?” We talked earlier about the level of sort of joy that you would get long-term from it. Hedonic adaptation, how it would just become another car. Just getting me from A, to B after a short period of time versus putting that money into something that could buy me financial freedom that could buy me time. That could buy me an ability to travel the world much as my wife and I do today. To travel and enjoy these lovely experiences. Did I answer that question? I kinda go all over the place?

KERRY K. TAYLOR
– So, okay, so you stopped buying small things and you started investing. So how did you invest this money to make this work?

ANDREW HALLAM
– Well, I did what most people do at first. So I walked into the bank and they set me up with a portfolio of mutual funds. And then I met somebody about a year later who worked for Investors Group and they sell actively managed funds and they convince me “our funds are better than the banks.” And so I ended up, I was probably 20 and I was had my financial advisor with investors group and I was fortunate enough to start working. I had this part-time job where I worked for a fellow down on Beach Drive in Victoria. And he was the Dean of the Faculty of Commerce at the University of British Columbia. Before that he was a Business Professor at Oxford and he gave me a really old tattered copy of A Random Walk Down Wall Street. I think it was a first edition, like 1975 edition. He gave me that. And then he gave me a stack of financial papers and he said, read these, and you’ll know more than your financial advisor about the investing process. And you’ll be able to invest in a far more effective way. It will take you virtually no time at all. And so I took all of those the book and those papers back to my house. I worked for him every Saturday morning. So I would mow his lawn and wash his car and just do general odds and sods around his house. And I went back and I’d skimmed the book but I hadn’t really read too much of it. And so this guy like clockwork 10 o’clock, we sat down and we had to have, like, it was coffee time. And so it’s coffee time at 10 o’clock “Andrew come on it’s coffee time.” So he sat across from me and it was like this guy would probe me, Kerry. Like, it didn’t matter what the topic was. He would bring up these. And I remember talking to my parents about this. I said, “gosh, it’s like, he’s just trying to find small “tiny pieces of intellect in my brain. Nope. This guy obviously was just a pure academic and he would ask me questions that just made my brain explode tryna figure out “how would I not sound stupid? “How do I try to answer this?” So yeah, look at that random walk look a little bit. And he started asking me about it. At the time I didn’t really understand it but what he did was he set a seed for me and I started and eventually did finish reading it and then read more and then read more. And I got into buying individual stocks. I figured this is gonna be my, an easy key for me because at the time there was no such thing as an index fund in Canada. There was no such thing as an ETF in Canada it just didn’t exist for retail investors. And so there was no way for me to invest in a portfolio of index funds, I had to buy individual stocks. And in doing that I was avoiding the management expense ratio fees associated with active managed funds at the typical banks. But then once ETFs became much more commonly available in Canada, I started to move my money over. And now today my portfolio and as it has been for years is a 100% index portfolio. So I have exposure to Canadian stocks through a Canadian stock index. I have exposure to global stocks through essentially a global stock index. And then I have a Canadian bond market index. It’s incredibly simple, it’s incredibly effective. And all of the research in the world that’s been done on the statistical probabilities of success with investing show that a portfolio of index funds on an equal risk adjusted basis will outperform 90% of professional traders over a period of 10 years or longer after fees. And you don’t have to do any work. So I don’t have to follow the stock market, Kerry. I hardly ever look at my portfolio value. When I have money. I add it to my portfolio. As soon as I have the money. I don’t think about what level the markets are at. Whether the markets are high or low I just put the money in. And so I maximize my time doing other things not fretting about how the market is performing and knowing that no matter what I am going to outperform at least 90% of professional traders over my lifetime without doing any effort whatsoever.

KERRY K. TAYLOR
– So you built an index portfolio that’s gonna be 90% of all the active managed funds. Like that just sounds kind of amazing. So this is how is this possible? Like.

ANDREW HALLAM
– That’s an awesome question.

KERRY K. TAYLOR
– What is happening that actively managed funds are not beating just a standard index portfolio because you’re literally just buying the index, you’re doing nothing

ANDREW HALLAM
– Right. So you can see a really great example of this through William F. Sharpe’s, Stanford based piece called the Arithmetic of Active Management. And so essentially when we look at all of the money that’s in any given stock market let’s just say the Canadian stock market. And we say, well how is all of that money actually invested? Well, it would be invested in actively managed mutual funds index funds, pension funds, hedge fund managers and other institutionally managed products. Then a sliver through basic day traders. Okay. So if the Canadian stock market or the US stock market earns a given return in a year let’s say it earns an 8% return. Then what that means is on aggregate the monies that were invested in the stock market via the pension funds, the hedge funds the actively managed funds, the day traders and the indexes on aggregate. They had to have earned an eight percent return on their assets in that market during that given year. There’s no way around that because they are the market. So if the market makes eight and the aggregate return of all the monies that were invested in that market in that given year made eight. Now we take out the fees associated with actively managed funds. Once you’ve done that or hedge funds or pension funds or other institutionally managed products once you take their fees out as a group they must mathematically underperformed the index itself. This is an irrefutable mathematical reality it’s as irrefutable as gravity. So no academic will ever refute that concept. So now, if you’ve bought the index you’ve paid a sliver of a fee, let’s say 0.05% per year then you will earn the index to return minus the fees that you’re charged. So if the index made eight percent you would earn 7.95%. If you paid a say 0.05% fee. Take the typical actively managed funds sold in Canada.

KERRY K. TAYLOR
– So like a mutual fund?

ANDREW HALLAM
– Correct, a mutual fund that you buy through a bank in Canada. As a group let’s say they earn about an eight percent return. Now take two and a half percent out to cover their fees. So now you’re down to 5.5% instead of eight percent as an average return. So statistically speaking you are going to beat the actively managed funds. It doesn’t matter whether we’re talking about hedge funds the institutionally managed money the mutual funds that you buy at your bank. The day traders, you’re gonna beat them as a group after fees. Now, what the financial advisors will do is they’ll say “wait a second, if you say that you’re going to outperform “90% of professional traders after fees “that still leaves 10% that have outperformed the index.” That’s true. However, the investors that outperform the index during one time period are rarely the same investors or funds that outperform the index during the following time period. And what most people do Kerry is they actually buy actively managed funds that have beaten the indexes. That’s what they do. They buy actively managed funds that have beaten the index over the previous three years or five years or 10 years. And those are the ones that most people buy. That’s one of the craziest things to do because performance doesn’t persist an actively managed fund that your advisor sells you at the bank. He or she says, “look at this thing, it beat the index. “Don’t invest in the indexes invest in this winner.” Statistically speaking that winner during the next measured time period becomes the loser. And so why bother trying to be like a dog chasing its own tail? Build the portfolio of low cost index funds, add money to it every single month, or whenever you have the money. Don’t worry about chasing fads stay diversified and on an equal risk adjusted basis you will outperform the vast majority of professional traders over your lifetime.

KERRY K. TAYLOR
– It seems so counterintuitive though, because on one hand you have actively managed funds with all the fees. And on the other hand, you have just an index and algorithm that just follows the market for very low fees. I wanna think that the actively managed fund with fees like those guys do something, they do something special that helps beat these guys over here. ‘Cause this is just an algorithm, right? I think that’s why people go over here to active because it’s like people are actually earning the money and doing something, right? Like that’s kind of.

ANDREW HALLAM
– Right. Yeah.

KERRY K. TAYLOR
– That’s what I wanna think you know like act if you’re doing something. Good do something with my money over here, it’s an algorithm. Are you kidding me? Like, how do you wrap your head around that? It’s the opposite.

ANDREW HALLAM
– Yeah.

KERRY K. TAYLOR
– The algorithm is what’s gonna make you rich these guys over here maybe 10% of them one year or not. You know, it just, it seems so counterintuitive.

ANDREW HALLAM
– It is. And it’s interesting too when we say the word algorithm, it also sounds like it’s a bit more complex than it really is. It’s if when you buy a Canadian stock market index your money virtually gets divvied up into every single share that trades on the Toronto Stock Exchange. You can really think of it that way. So a broad stock market index, your money gets divvied up into virtually every share that trades on the Toronto Stock Exchange, you own the good the bad and the downright ugly but nobody knows which stocks typically. I mean, it’s very very difficult to know which stocks are going to be the winners next year, or the year after that. And that’s why you own all of them within index versus somebody trying to trade in and out like an active manager would be trying to trade in and out trying to buy what’s hot and avoid what’s not. So with typical actively managed fund, like you say, Kerry they’re looking at global interest rates they’re looking at the economy they’re looking at GDP they’re looking at corporate earnings projections, they’re looking at momentum, they’re looking at interest rates, all kinds of things trying to figure out what are the best stocks to buy. But they’re all doing that. And as a group before fees, because they are the market they earn the exact return that the index earns. Then we would deduct the fees associated with all of their active trading and their salaries and the profits required for firms like CIBC and TD and Investors Group. Take those fees out as a group. They must matter of fact, mathematically underperform. And they do.

KERRY K. TAYLOR
– So my biggest challenge with fees is they’re kind of hidden, right? They’re kind of these secret silent things that slowly erode wealth over time. And whenever I explained it in my writing or I tried to explain it to my friend, they’re right. They pull out their, you know, their statement and they’re like, okay, Kerry, show me the fees. You know, I don’t see the fees. Where are these fees? My money’s here. I think you’re wrong. And I’m like, no, I’m right. Like what, what are these fees? Why can’t I see them? How much they’re costing me? Like what what’s going on here?

ANDREW HALLAM
– Well they’re called management expense ratios in Canada. And to be fair, the fund company has to charge something because they’re hiring analysts they’re hiring their traders. If you’re buying it from the Royal Bank of Canada and it’s an actively managed fund the shareholders of that bank they’re gonna wanna know that the bank makes profit. So they wanna make money from let’s say Kerry’s actively managed fund or let’s say Kerry’s friend’s active, managed fund ’cause I know you don’t own these things.

KERRY K. TAYLOR
– Right.

ANDREW HALLAM
– The fee itself is, is hidden. So the return that you see is an after-fee return. But if you look into the prospectus into the really boring stuff that’s associated with how the fund works it’ll be typically in the prospectus but you can see it on Morningstar as well. So if you plug in your fund and you go to morningstar.ca you will end up seeing the fund profile and you will see something called the expense ratio or the management expense ratio. And that will be the fee. And it looked like a small amount too, like let’s say it’s two percent.

KERRY K. TAYLOR
– Right.

ANDREW HALLAM
– It sounds like a really small amount. You say, “two percent? That’s all I pay. Well, that’s nothing. Well, in a year when a fund or let’s say a year when the market earns four percent if you’re earning or if you’re paying two percent in fees you’re giving up 50% of the pre-fee profits that year. If the stock market earns two percent and you pay two percent in fees you’re giving up 100% of the pre-fee profit that year. When we compound the difference between let’s say five percent versus seven percent or eight percent versus 10%. When we compound the difference in return of two percent over a lifetime, it really ends up being a difference of let’s say, between having something like $500,000 as a portfolio versus 1.2 or $1.3 million. So these small fees pack really really big long-term punches.

KERRY K. TAYLOR
– I know like it’s phenomenal how one percent fee can consume at least one third of your portfolio over time. Because even when the market’s down it’s still chewing away at what you’ve got there.

ANDREW HALLAM
– Right.

KERRY K. TAYLOR
– You’ve earned nothing and it’s still consuming from your base amount which is preventing it from compounding. So when I say to someone that a two percent fee is gonna cost you half of your portfolio over time, maybe even more it’s just so hard to believe because we’re not good at looking at the opportunity cost and doing the compound mathematics in our heads to see where our portfolio is today and how two percent cost can just erode that over time. It’s mind blowing to me.

ANDREW HALLAM
– Yeah.

KERRY K. TAYLOR
– You guys are dipping in and like siphoning off my retirement and it just, it blew my mind that the cost seems so small, but it was massive. And it just, it fired me up to tell people about it because you can’t see it eroding your wealth. There’s no like statement that says you paid $250,000 in fees over the last 20 years. Congratulations, high five. You know, you’re not gonna get that report. You have to do the math yourself. It’s hidden.

ANDREW HALLAM
– It’s you know, Kerry when I first saw and recognized how prolific this was I wrote this story for the Globe and Mail. And I sent a bunch of millennials into banks. And these banks went into all of the big five banks and they all offer index funds. They’re not as cheap as the exchange traded funds that I typically recommend but they’re far cheaper. They cost far less than the banks typical, actively managed products. So I sent people in to each of these banks, different people into banks and they said, “okay, “I’d like to I asked them to ask, what would you recommend? “I want to invest in a, an RRSP. “What funds do you recommend? “I’ve heard index funds are pretty good. “I would like to build a portfolio “with your bank’s index funds. “I know you have them.” So I set these people up so that they’d know exactly what to ask for.

KERRY K. TAYLOR
– Right .

ANDREW HALLAM
– Five out of five times, Kerry, they were talked out of it.

KERRY K. TAYLOR
– Five?

ANDREW HALLAM
– Five out of five times, five times

KERRY K. TAYLOR
– That’s not a high five.

ANDREW HALLAM
– No way its not a high five. They weren’t talked into paying high fees, because I said to them no matter what, this is what I think will happen. I think they’ll try and talk you into paying high fees. I want you to record the entire conversation and I’d like you to come back to me and I wanna listen to it. And I ended up writing about that for the Globe and Mail. And then in the second edition of Millionaire Teacher I wrote about this experience. So you might think, okay, well, these people are evil. Like why would they do that? They’re actually not evil. They’re just not trained to understand the probabilities of returns as it relates to fees and different mutual funds. So one thing that I saw fascinating, it came out last month there was research that was done and I’m gonna give you the name of this paper. So anyone who’s actually listening can look this up. It’s a research paper called the Misguided Beliefs of Financial Advisors. It was published in the Journal of Finance on November 28th. I believe 2020.

KERRY K. TAYLOR
– I’ll find it and link it. I’ll link it in for you.

ANDREW HALLAM
– Link it in. So what this study did was it looked at two major financial institutions here in Canada that offer actively managed funds and that have financial advisors selling investment products to investors. They looked at the portfolio returns for those investors but they did something different too. They also were given access to the financial advisors, investment portfolios themselves. So you could see what the financial advisors had invested their personal money in. And you could see what the financial advisors had put their clients in. Now a couple of years ago if you said to me, “Andrew, would there be a difference?” I would’ve said, “I think there will be.” I would have said the financial advisors are generally wanting to pad their own pockets acquiesce to the banks, drive for profits. So at least like at least half of them for their own personal money would say “I’m going into a portfolio of index funds or ETFs.” Well, the fascinating part Kerry is that these really busy people who got their training to be financial advisors are dealing with all kinds of other things and who didn’t actually see that when they did their certified financial planning certification it does not actually include training with respect to how to build a low cost investment portfolio or what the probabilities let’s say this what the probabilities are of a low cost investment portfolio versus a higher cost portfolio. What are the probabilities of an index fund portfolio versus an actively managed portfolio that is not part of the certified financial trainer’s manual. So these people aren’t evil. They’re selling these products at the banks they’re selling what they think will do well for the clients. How do we know that? ‘Cause they themselves actually purchased these things. So here’s, what’s crazy. So they dug into 4,000 financial advisors portfolios and they found that on a risk adjusted basis those advisors underperformed stock on an equal risk adjusted portfolio. The stock market indexes by 3.5% per year Kerry per year. So not only are the fees associated with the active advantage products, but what they found was that the advisors would chase past performance. They themselves would buy funds that had done well the recent three or five-year period, they would buy them. No sooner do they buy them then they end up underperforming the typical actively managed fund. And so they ended up underperforming by 3.5% per year. Now we were talking, you and I were talking about the impact of just one percent fee or a two and a half percent fee, and how impactful that is over a lifetime three and a half percent. This is, this is mind blowing in terms of a difference. It’s unbelievable. The difference the hemorrhaging that occurs the opportunity cost of that is, is astronomical. So no, they’re not evil people. It’s just that they end up doing the best they can with the training that they have.

KERRY K. TAYLOR
– I know it’s amazing. So let’s break it down. Let’s, give people the education that they didn’t get in school, because both you and I have kind of struggled and learn the hard way early on in our lives. Let’s break it down. How, do you build an index portfolio? And when I learned about indexing it was called the couch potato portfolio because the whole idea was that it was simple. You, rebalanced once a year, twice a year you sit on your sofa and it’s gonna work for you because the indices will do what they do. You get the market returns. So if I’m new to this, how do you explain to people how to build an index portfolio?

ANDREW HALLAM
– The, the simplest answer let’s assume that you don’t even wanna learn anything. You just want it. You just like, you know what? I just want, a portfolio of index funds and I don’t wanna have to learn how to do it.

KERRY K. TAYLOR
– Okay.

ANDREW HALLAM
– But the beauty now is you have Robo-advisory firms that have popped up that have said, “Hey “if they’ve discovered that, wow, this is amazing. “That Canadians have been paying such high fees “for such a long time. “Here’s what we could do, why don’t we create portfolios “of indexes and why don’t we bundle them up “and then sell them directly “to retail investors who want to invest in an RRSP “or a TFSA or an RESP for their kid’s college. “Why don’t we just do that? “And we’ll charge them a fee on top of the normal “low fee for the exchange traded index fund.” And these are, wonderful because okay, in the end these people that invest with them will end up paying slightly higher fees than say you or I would if we do it directly, but they’re still going to be paying less than far, less than one percent overall they will still statistically easily beat the vast majority of financial advisors portfolios through any of the big banks or through any of the big investment firms or financial advisory firms here in Canada. So it can be, it could be as simple as just contacting Wealth Simple or Wealth Bar which is now CI Direct investing. There’s several of them in Canada. And one is Robo-advisors. If you wanna see a series up and you can just look them up online and you could literally say, “Hey “can I speak to one of your financial advisors? “Can you help me sort this out?” Yeah, they’ll start, they’ll set you up they’ll like to look at your tolerance for risk. So they’ll look at what percentage of stock indexes versus bond indexes. You should have the higher, the bond index component the lower, the longterm future returns but the higher stability of the portfolio. So the higher, the stock allocation obviously I think the more volatile, but the higher the long-term probability of higher returns is. So there’s a behavioral component to all this too. And so it’s that investing in a portfolio allocation that you can handle not just look at well, what’s the best for me. I’m gonna go with, what should statistically give me the best returns over the next 20 or 30 years? Well, statistically that should be a portfolio that’s really high in stocks. But if the volatility of that really freaks you out and a stock market drop can be gut-wrenching because when it happens, you’ll have the media talking about financial Armageddon and markets will never recover. People are gonna wanna pull their money out in the panic. And that’s why having that more of a balanced portfolio of stock and bond market indexes something like a 70, 30 allocation, 70% stocks, 30% bonds or 60% stocks, 40% bonds. It’s a bit more of a sweet spot for most people because when the markets drop people those people aren’t going to freak out as much as people that have a really high allocation of stocks. So it really can be as simple as contacting one of those firms and saying, do this for me you’ll cut your costs dramatically versus going with a major mutual fund company in Canada

KERRY K. TAYLOR
– Right. And they do the rebalancing for you. So you just have to focus on putting the money in. And I always suggest to people automate it. So you don’t even think you’ll have to make that decision. It reduces the friction from having that money in your checking account and then physically having to move it over. Because then you’ll like, I wanna keep that cash, right?

ANDREW HALLAM
– Yeah.

KERRY K. TAYLOR
– If you automate it. You remove the friction, you remove that decision and it just happens and you’ll become wealthier for it. And so many of the studies are showing that people that automate contributions to retirement savings plans do so much better than people that, that don’t because the money actually goes in So when I started indexing the way that we built it was you buy a couple of ETFs. You buy a bond, you buy an equity in your country and then you buy an international equity. And that was what you had to do three or four indexes. And then you had to rebalance it. But now things are a lot easier with, with Vanguard. and iShares in Canada and the United States because they have an all in one ETF that you can just buy and put it all in there. Like, how does, how is that possible? And it’s even cheaper than the, the Robo-advisors, isn’t it?

ANDREW HALLAM
– It is. Yeah it’s really cheap. And it’s so simple. Like you say, you buy one investment product you have to manually purchase it. So if you’re buying every month you have to go online to log into your account and just manually purchase at each time. So there’s that just that behavioral extra step that people have to take when they go that route versus the Robo-advisory route. But it’s so cheap. So and easy, because the fund company as you said, rebalances, the portfolio for you. So you’re just buying a single exchange traded fund off the Toronto Stock Exchange. And they have several companies that actually offer these like you said, Vanguard does, iShares, does. I believe Bank of Montreal has one. That’s actually cheaper than both Vanguard’s and the, iShares product. You and I have talked about this before and I wouldn’t get too wrapped up in saying, well I’m gonna go with the Bank of Montreal one instead of the Vanguard one because the Vanguard one charges 0.25%. And the Bank of Montreal charges, 0.17%. There’s gonna be a battle to the bottom as there always is trying to figure out your ETFs based on their current price or the current fund costs is a never ending endeavor because as they battle each other they end up lowering their prices. Each of them ends up lowering that bar. So just pick one that fits your tolerance for risk whether it’s a Bank of Montreal, all in one ETF or an iShares all in one ETF or a Vanguard, all in one ETF.

KERRY K. TAYLOR
– Absolutely, so it’s that easy? So I’ll link to too, as well. Some of the, the offerings that with Vanguard and iShares.

KERRY K. TAYLOR
– I wanna touch on something you have to say about investing, because you really, go there. I’m always surprised. So when people, okay, let me just pull it out. I had it bookmarked, but I somehow lost it. You talk about the difference between men and women investing. And I see this too. When I, talk to my readers, when I talk to people that when you’ve done speeches, and you’ve talked about women wanting to go say, from a mutual fund portfolio or a stock portfolio and switched to indexing, you basically say the biggest challenge the women have is not necessarily their behavior or their desire to commit money to an investment portfolio. You say the biggest challenge is their husbands. So you make the claim that women are better investors than men, so that we’re gonna get this job done. What’s happening here?

ANDREW HALLAM
– The backstory here too is that what I started noticing Kerry is I would go to these places. I would go to the corporations or I would go to international schools and I would show people how to build investment portfolios. And so I’d be up there on stage showing people how to do it. And then I would often come back to that same place three or four years later, they’d asked me to give another talk. And I ended up sitting down with some of the same people that I had personally met three years previous. And so they said, wow, thanks so much for that talk. You gave three years ago it was so helpful. And I’ll, say, good. Now, how did that go? And they look, and they say, “well, you know “it was pretty easy. “Like you said, we started out with that portfolio “of indexes and we’re, you know, we’re really pleased.” And then, and then there’ll be this awkward silence. And I’m saying this as if it’s one story, Kerry this happen over and over and over where if one of them sabotaged the portfolio like if one of them decide, this is so easy I’m gonna buy some penny stocks, or this is so easy I’m going to buy some Bitcoin. This is so easy. I’m going to buy like this really hot, active, managed fund. That’s just had this amazing recent track record and it’s filled with Tesla. Okay. Whatever it was what would happen is invariably people would end up hurting their returns. They would end up losing money as a result of speculation. And I’d asked like, whose idea was this? And typically the woman would either throw the guy under the bus or just jab them in the ribs. And they, and the guy would fess up and go, “yeah, it was me.” “I was predicting.” Or even like, usually it’s like predicting the economy. Usually it’s like read this report. And it said, stocks were gonna fall. I saw this guy on CNBC. And he said that, you know, this is gonna happen. And I saw the hedge fund managers were doing this X, Y and Z. And I thought, it just doesn’t make sense for me not to take advantage of some.

KERRY K. TAYLOR
– Nope.

ANDREW HALLAM
– It was always Kerry. It was always the man. So it wasn’t just my anecdotal observations. Wells Fargo did a study between women’s accounts and men’s accounts and found that women outperformed men on equal risk adjusted basis. Vanguard did a similar study, Fidelity did a similar study. It doesn’t matter whether it’s in the United States or whether it’s in the UK women outperformed men on a risk adjusted basis by between, depending on the study between one and a half percent to three and a half percent per year. So what I say to couples is, look I know your guy might be talking it up. Like he knows all about the markets and maybe he knows more than you. Maybe he doesn’t, but for goodness sakes, do not let the man in your relationship fully manage this money. And I’d say to women, either you manage it. And I’m really serious about that. Either you manage it as a woman or as a team you work it together, you manage it together but do not let the man inherently men. We are just bad at investing compared to women.

KERRY K. TAYLOR
– Okay so any advice for staying invested when the markets go up and down, ’cause I know you’ve seen a market downturn has a huge buying opportunity. You say in your book, you see that the market is on sale. When it, goes down, you just, you wanna buy. So how, what’s your mental framework in order to your mindset in order to not be one of those people that are jumping in and out how are you not that husband?

ANDREW HALLAM
– Well, when the markets dropped, you’re getting a better deal. And so if you have an income what a lot of people think is there are a lot of people in the twenties and thirties and forties, fifties I actually get excited when stocks rise. Stocks rise on average, about two out of every three years. That’s just what they do more often than not they rise and they continue to hit all time highs. Sometimes they pull back a bit they do continue to hit new all time highs. It’s just inevitable. When the markets pull back it’s wonderful opportunity to think, you know I’m now paying less for the same thing that I was buying a month ago. Buying the same thing, but I’m paying a lower price. And so this is great. But one thing people end up doing, I think too when they read Millionaire Teacher they misunderstood part of this. Part of this was when I talked about markets dropping and how excited I would get by the market drops. And I would want to I’m really happy to be investing at that point. A lot of people who sent me messages and emails said things like, ‘Hey, you said, it’s really “good to invest when the markets are going to drop. “I think they might drop next year. “‘Cause I just heard some guy on CNBC saying,” No, that’s not the point where people would say, well the market’s just dropped and I’ve got this cash on the side. So should I put it in now? That’s not what I’m saying either. It’s invest as soon as you have it as soon as you have it, ignore what the markets are doing but know that emotionally if the markets have dropped know that on an emotional level when you are buying and they happen to be down that month when you’re putting your money in, be happy about that even though your portfolio value has dropped, be happy knowing that you are now collecting assets at a lower price than you were the month before. The most important part is to not think about where the market is at any given point the best investors I love this study. Fidelity did a study to see which were its best investors. And we know gender wise, women beat men. We know that so fidelity did a study and it revealed much the same but the best investors of all, for those who’d forgotten they had accounts with Fidelity. They didn’t do anything. They didn’t even have had money going in on autopilot. They didn’t even know it. $50 a month, $50 a month. It was like it was going to a magazine subscription that they’d completely forgotten about.

KERRY K. TAYLOR
– Right?

ANDREW HALLAM
– It’s funny that just sat there they’d forgot they had it. So they weren’t tempted to move well. They weren’t tempted to move in and out of the markets because they forgot that they had that money in the first place. And that is so fascinating and so telling.

KERRY K. TAYLOR
– So you really just shouldn’t look, if the markets are dancing all over the place, you keep putting the money in you don’t emotionally connect to it because the markets are gonna do what they’re gonna do. is that it?

ANDREW HALLAM
– That’s exactly it Kerry. And obviously we’re gonna be bombarded by news. When we get big markets, it’s gonna be talking they’re going to be talking about that. Our big market drops. We’ll talk about that on the radio and on television. So we’re that news is going to hit us. And when it does take a deep breath and say, you know this month I’ll pay lower prices for the same stuff that I was buying last month. And, you know that at the end of the year you’re not selling the entire thing. And then having a massive party and drinking tequila till you puke that money is going to be used for you for your retirement. And even then how it performs on an annual basis year to year doesn’t matter that much because you’re gonna be withdrawing a sustained amount from that portfolio each year. So an inflation adjusted four percent per year. So you’re never gonna be pulling all of the money out. Even people who retired on the eve of a market crash even someone that retired in 1929 with a portfolio of say 60% stocks and 40% bonds. If they pulled out and withdrew an inflation adjusted four percent per year that money would’ve lasted longer than 30 year retirement. And that’s what someone retiring at the worst possible time in history. So these are the things that we have to think about. They’re the longterm picture things. The rest of it is just there as a distraction that essentially will be there to sabotage any future longterm gains or future financial independence that we might end up having. So stay the course stay calm when you have the money that’s when you invest it. Not based on when or a specific time period based on market movements.

KERRY K. TAYLOR
– Okay, do you have anything else to add for people? Because basically it seems so simple to take a modest income and build a large portfolio. You’ve done it. I’ve done it too. Yeah, I just, wanna get people pumped and have people understand that this is completely doable.

ANDREW HALLAM
– Yeah, it’s really exciting when you can step outside that whole back to that whole point that you were talking about that consumerism, when you can step outside of that realize that that’s not going to augment your levels of happiness. Wealth won’t necessarily do that either but it’s a foundation. It’s a foundation that will give you time. It gives you choices. It can give you money to give you experiences that you can spend with people that you love and respect doing things. So, yeah, it is easy and it is inspiring and yeah I would love everyone to do it.

KERRY K. TAYLOR
– Me too. So where can we find you online Andrew?

ANDREW HALLAM
– At andrewhallam.com. I think it’s probably the easiest spot. So I usually put my, my articles too. I’ll put links to the articles that I write for the Globe and Mail or that on there, or for Asset Miller which is a US-based financial service company that I write for every week. So yeah, everything usually ends up finding his way onto the blog site.

KERRY K. TAYLOR
– Okay. We’ll check you out there. I just wanna thank you for sharing the steps to index investing and your personal story. Millionaire Teacher is already a classic. I’ve bought so many copies for my friends and they love your stories so much. So because your writing is just so fun and accessible. You’re amazing. And I can’t wait to see what you do in the future. Thank you so much, Andrew.

ANDREW HALLAM
– Thank you Kerry.

KERRY K. TAYLOR
– Bye.

KERRY K. TAYLOR
– And now I wanna hear from you. What did you think about indexing? Did you know about all those investing fees? I wanna hear your investing insights in the comments. Because the best conversations happen over at squawkfox.com, head over there and leave a comment right now. And if you’re not already, please subscribe to my email list and become a Squawkfox Insider. You’ll get my free budget, bundle and priority access to all my stuff once a week in your inbox. Thank you so much for joining us on SquawkfoxTV and The Cash and Kerry Podcast. And I’ll catch you next time.