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:
- No sales charges to pay
- No account maintenance fees to pay
- 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 |
|||||
|
$10.35 |
9,113.6345 |
38.15% |
$102,072.71 |
|||
|
$15.00 |
5,612.3335 |
30.04% |
$80,368.62 |
|||
|
$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.
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16 comments
squasher55 says:
October 16, 2012 at 10:07 pm (UTC 8 )
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.
Andrew Hallam says:
October 17, 2012 at 10:16 am (UTC 8 )
Thanks Squasher!
Kevin Kim says:
October 16, 2012 at 10:43 pm (UTC 8 )
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
Andrew Hallam says:
October 17, 2012 at 10:17 am (UTC 8 )
Great stuff Kevin!
Are you adding to your investments?
Leonardo Pabroquez Jr. says:
October 16, 2012 at 11:17 pm (UTC 8 )
but TOO BAD…
“…these are for Americans only.”
;(
Jeremy says:
October 17, 2012 at 3:04 am (UTC 8 )
@Leonardo you can get the same vanguard products in etf form which you can access from any country
Andrew Hallam says:
October 17, 2012 at 10:18 am (UTC 8 )
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.
sgibbs says:
October 17, 2012 at 10:07 am (UTC 8 )
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
Barry says:
October 22, 2012 at 6:19 am (UTC 8 )
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
Andrew Hallam says:
October 24, 2012 at 4:05 pm (UTC 8 )
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
Barry says:
October 24, 2012 at 7:58 pm (UTC 8 )
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’.
Andrew Hallam says:
October 28, 2012 at 9:58 am (UTC 8 )
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
Barry says:
October 30, 2012 at 5:47 am (UTC 8 )
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
Barry says:
October 30, 2012 at 5:50 am (UTC 8 )
This page has the nuts n bolts
http://www.saveoursuper.com.au/about-sos
Barry
Chad Squires says:
November 4, 2012 at 3:13 pm (UTC 8 )
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
Joe George says:
May 4, 2013 at 9:37 pm (UTC 8 )
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