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Oct 16 2012

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Singapore American Teacher Investment – Even Better Than It Looks


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In September 2006, I created a hypothetical $200,000 portfolio for some expatriate American teachers at Singapore American School.

To build this portfolio at Vanguard, investors would have had:

  1. No sales charges to pay
  2. No account maintenance fees to pay
  3. No redemption fees to withdraw money, should they choose to

 The initial $200,000 went through one of history’s biggest tests: the 2008/2009 economic crisis.

 Despite this, the original $200,000 portfolio (which I rebalanced taking less than 10 minutes a year) would now be worth $267,088.81.

 The overall gain has been $67,088.81

 

Indexed Portfolio:  September 2006-October 2012

Chart

Ticker

Company Name

Cost

Shares

% of Total

Current Value

Overall Gain:

 

+$67,088.81

Total

 

$267,088.81

 

VBMFX

Vanguard Tot Bd;Inv

$10.35

9,113.6345

38.15%

$102,072.71

 

VGTSX

Vanguard Tot I Stk;Inv

$15.00

5,612.3335

30.04%

$80,368.62

 

VTSMX

Vanguard T StMk Idx;Inv

$28.35

2,376.8043

31.82%

$85,137.13

 

Why is this even better than it looks?

 American expats can’t contribute much money to their IRA accounts, so most of what they invest is fully taxable.  Actively managed mutual funds are far less tax-efficient than indexes.  But most advisors will stuff your accounts with actively managed products instead.

 Why?  Advisors earn higher commissions on actively managed products;  they buy them at your expense (and their personal gain).

 I can’t afford to buy somebody else a Mercedes Benz.  Can you?

 Consider contacting a company that can help you build indexed portfolios.  Here are a few:

 But remember…these are for Americans only.

About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

Permanent link to this article: http://andrewhallam.com/2012/10/singapore-american-teacher-investment-even-better-than-it-looks/

19 comments

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  1. avatar
    squasher55

    Hi Andrew,

    Long time no chat. I like this article…..partly because it makes a lot of common sense, but also because I am also invested with Vanguard in very similar funds……with equal success. So I just want to say to others that your success is not a one-time deal…anyone can participate if they wish.

    1. avatar
      Andrew Hallam

      Thanks Squasher!

  2. avatar
    Kevin Kim

    Hello Mr.Hallam!

    Good to read all these posts about the index funds.

    It almost feels like yesterday I learned about the benefits of index funds.

    Just wanted to let you know I keep reading your posts!

    Best wishes,

    Kevin Kim

    1. avatar
      Andrew Hallam

      Great stuff Kevin!

      Are you adding to your investments?

  3. avatar
    Leonardo Pabroquez J

    but TOO BAD…

    "…these are for Americans only."

    ;(

    1. avatar
      Jeremy

      @Leonardo you can get the same vanguard products in etf form which you can access from any country

    2. avatar
      Andrew Hallam

      True, but you can invest using the same premise. I'm not American, but I can invest just as efficiently. Even more so, as an expat.

  4. avatar
    sgibbs

    As usual Andrew good sage advice. I think the big caveat for most people in this article is that they can see the benefits of Index's.

    Best regards,

    Sgibbs

  5. avatar
    Barry

    Hi Andrew

    Its an increase of roughly 33.5%, but that's with only an annual compound growth rate of 4.94% per year, to turn the $200,000.00 into $267,088.81 according to a CAGR calculator

    Though I worked it out a bit less to get..

    Value after 1 year : $209,876.74

    Value after 2 years : $220,241.24

    Value after 3 years : $231,117.57

    Value after 4 years : $242,531.01

    Value after 5 years : $254,508.10

    Value after 6 years : $267,076.65

    Interesting to break it down also

    Barry

  6. avatar
    Andrew Hallam

    Hi Barry,

    Of course, it's an outstanding return, considering the market conditions we went through in 2008/2009.

    The Dalbar study suggests that the average investor made 3.27% between 1990 and 2010, when the markets actually increased (U.S. markets) by 9.1% on average. It's hard to believe that a disciplined strategy of indexing between 2006 and today would have beaten what the average investor made during a period that nearly made 10% on average.

    Cheers,

    Andrew

  7. avatar
    Barry

    I was reading about Superannuation fund performance in Australia (mainly run by the insurance companies and banks) and to Nov 2011 the worst fund made just 1.5 per cent a year – around half the annual rate of inflation of 2.93 per cent a year over the seven years reviewed, which equates to compounded losses of 9.6 per cent after inflation is factored in.

    Over five years it was even worse, losing 2.43 per cent a year, or 5.36 per cent a year once inflation was taken into account.

    The Top ranked fund was 6.5% a year over the seven years to Nov 2011

    The target goal set by manyof these funds, is inflation plus 3 per cent over the 'long term'.

    1. avatar
      Andrew Hallam

      Very interesting indeed, Barry. I was under the impression that Australian interest rates on bonds have been high (by global standards anything above 3% is high) and the Aussie market has done quite well recently, by global standards. I'm surprised that these plans have performed so poorly. Fascinating. Thanks for sharing.

      Andrew

      1. avatar
        Barry

        Hi Andrew

        Having a crack at Superannuation Fund Managers and the Banks/Insurance companies who run them seems to be a national pastime here.

        Industry Superfunds with less fees have moved in with a goal of benefiting members, however the returns are still woeful

        Many have turned to the option of Self Managed Super Funds (a DIY option), something we are doing and using "The Millionaire Teachers" strategy ;o)

        There's an interesting page here by an Aussie Commentator http://www.saveoursuper.com.au/ . There's a sales pitch within, but the facts and figures are accurate and make for an interesting read

        Barry

        1. avatar
          Barry

          This page has the nuts n bolts

          http://www.saveoursuper.com.au/about-sos

          Barry

  8. avatar
    Chad Squires

    Good stuff. I got your name from Andy Donaghue, who knows you. We used to teach together and we met in Bellingham this summer.

    I guess you can no longer say that Personal Finance isn't taught in Public Schools. Our program had 1 semester long class of 32 students back in the early 2000's but now in 2012 we have 4 classes that are a year long and include a third year math credit. It is certainly becoming more popular as students see the need for financial literacy and a math curriculum centered around the topics they need to know!

    Thanks for bringing this information to others. I appreciate your passion.

    Chad Squires

  9. avatar
    Joe George

    Hi Andrew,

    Thanks for your efforts, Andrew. Your site and book have been amazing resources for clueless investors like I was.

    As far as my situation, I am currently using Vanguard Admiral funds, broken up in a similar fashion to the ones listed here; however, I remember you covering something about shifting to ETFs when a portfolio surpasses a certain amount. Unfortunately, I cannot remember when, and I gave the book to a friend. What threshold do you recommend shifting to ETFs, and would that be per portfolio or per fund?

    Thank you,

    Joe George

  10. avatar
    Anthony

    What is your opinion of the Alexander Beard Group Fund for Expat Teachers?

    1. avatar
      Andrew Hallam

      Hi Anthony,

      Alexander Beard is extremely expensive. They charge a 5% commission on every purchase. They charge platform costs of 1.75% per year. And their funds charge expense ratios of a further 1.5%. What’s more, you can’t withdraw without penalty (from what one of their reps told me via email) before the age of 55. All told, annual costs are 3.25% per year, not including the 5% sales commission. I recently profiled the firm in my upcoming book for expatriate investors, so the shocking data is fresh.

      Andrew

  11. avatar
    Anthony

    Just want to thank you for your book and your website. I wish I had read the book 15 years ago. Better late than never, in any case. Now actively investing in indexed funds with a slightly higher risk of 70/30. “Buy the haystack instead of looking for the needle.”

    Cheers.

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