Singapore American School Teachers Making Some Nice Profits

On September 11, 2006 I spoke to a group of teachers at Singapore American School about investing. 

I created a hypothetical account with $200,000, and I promised to track that account and report on its results.

With no money added, that $200,000 account would be worth $250,549.25 by Friday, January 20, 2012 – gaining $50,549.25.

I echoed, back in 2006, what uncontested academic research suggests:

If we diversify our investments with low cost index funds, we stand a far greater chance of success, compared to a commonly practiced alternative among international schoolteachers:

That alternative, unfortunately, is the act of falling for salesmanship (and high costs) of travelling financial salespeople who make the rounds at international schools, stockpiling clients and new accounts, in exchange for enormous commissions.

 

There are a few things that investors should never do:

  1. Never pay a sales commission to buy an investment product.  These go directly to the salespeople.  Some of my colleagues pay 5.75 percent of everything they invest.  To break even on that money the following year, they have to make 6.1 percent.  That’s not a good deal for investors, but it’s a great deal for the person selling the product.
  2. Never buy financial products that penalize you for selling them early.  I’m not talking about a tax penalty here; I’m referring to back end loads—costly fines delivered by your friendly financial company if you sell your funds before a given time period.  These funds are sold by immoral folk (or those who don’t know the damage they’re causing).  Don’t buy them.
  3. Never mix investing with insurance.  It’s universally accepted as a bad deal for you, and a great deal for the sales rep. 
  4. Never allow an investment advisor to charge you a wrap fee or advisor’s fee to stuff your account with actively managed mutual funds. 

 

Here are the Vanguard funds that I suggested, back in 2006, with the following allocations:

  • 1.  33% in the U.S. stock market index (VTSMX)
  • 2.  33% in the International stock market index (VGTSX)
  • 3.  33% in the U.S. bond market index (VBMFX)

The concept is quite simple:

Once a year, you check the portfolio’s alignment.  If the stock indexes are worth less than the bond index after one year, then you sell some of your bond index to top up your stock indexes, bringing the account back to the allocation above. I tracked this account using the portfolio tracker at www.smartmoney.com.

As mentioned, the hypothetical $200,000 investment that I used on September 11, 2006, would be worth $250,549.25 on Friday, January 20th, 2012.

That’s a $50,549.25 increase with no money added.

Even simpler, as I suggested in 2006, you could have plopped your money into Vanguard’s Target Retirement 2020 fund. It has a similar allocation as above:  roughly 35% bonds and 65% stocks. Its investment returns would have been very similar to what you see above.  You can check out a chart here.

And there’s a third option for Americans who want to wipe their hands clean of the investment process themselves, while paying a small fee to do it.

A company called Assetbuilder (which I also mentioned at my seminar) manages indexed portfolios for its clients.  And they charge a fraction of what most international financial planners charge.

Assetbuilder’s portfolio #10 has roughly 30% allocated to bonds, with the rest in stocks and REITs. If $200,000 were invested in this portfolio of funds in September, 2006, the gain would be slightly north of $49,000, with no money added.

There’s only one catch:

To open an account with Vanguard or Assetbuilder, you need to be American, and you need to present them with an American address. Assetbuilder has been increasing its number of American expat clients at a rapid pace. They’re easy to deal with, and they understand the challenges faced by American school teachers abroad.

For the record, I write for Assetbuilder, but I am not compensated for my articles, nor do I receive financial remuneration from the company.

 

 

 





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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26 Responses

  1. Gerry Born says:

    Andrew,

    I loved your 4 things an investor should never do. What do you think about Vanguard's LifeStrategy funds now that they use only index funds? I enjoy your articles.

    Gerry

  2. DIY Investor says:

    I agree with Gerry. In fact, they could be formulated as 4 questions to ask at the very beginning and to be answered in writing by financial salespeople. It would get a lot of them running in the opposite direction.

  3. Diana says:

    In fact, they could be formulated as 4 questions to ask at the very beginning and to be answered in writing by financial salespeople.

  4. Daniel says:

    While on the subject of expats. I'm a Canadian born guy who foolishly decided to use my fathers American citizenship to become a naturalized US citizen at age 19. I say foolishly because now all dual US/ Canadian citizens have found out they MUST file taxes in USA and will face huge penalties for not doing so and must reveal all their Canadian banking information to IRS. Canadian tax shelters like T.F.S.A and RESP will be taxed 15% on capital gains and dividends. All this even if you have NEVER resided in USA or received any benefit from USA. Renouncing US citizenship is very difficult and will most likely put you under an instant and in depth IRS audit.

    My wife is a Chinese citizen with landed immigrant status in Canada. I'm thinking i better open a TFSA with her and transfer everything in my own TFSA to her account so IRS can't get their greedy hands on it. Does this seem like a good move? I hate doing all this work to follow your advice only to have a foreign nation tax retirement savings gains at 15%!

  5. Giovanni says:

    Hi Andrew!

    I just read your book and I have a general question to my current situation. I"m 26, I have a great girlfriend and want to buy a house within the next 2-3 years. Should I invest as much as I possible can over that time and use that invested money as a down payment on a house? Or should I invest little while saving other money for that big purchase?

    Thanks!!

    Giovanni

    Washington

  6. Stanley says:

    Hey Andrew ,

    I am a big fan of yours after reading your book. I always lookout for this website for updates. I would be thrilled if you could answer any of my questions.

    I started investing religiously after reading your book. I don't have money to set up the bond , total market and international vanguard fund as you suggested but I have opened up a total retierment account 2050. Is this good enough? Or I should look for your sort of portfolio. I am ready to make considerable effort.

    I am just starting out so I am ready to take on a lot of risk early on.

    When you started out, how much could you save per month for investing. I am a big fan of your after reading your book , seriously you drive your point really well. I am excited to know you personally reply in this website.

    Thanks a lot for writing a superb book.

    • Hey Stanley,

      Thanks for the kind words about the book. Using a Vanguard Target Retirement fund is a great option. YOu can start with just $1000 and get diversification with a single fund.

      When I first started out, I invested $100 a month, then quickly increased it to nearly $300 a month. Every year, I invested more each month.

      Starting when I was so young had its advantages because today I don't really have to invest much if I don't want to. The power of compounding has worked its magic.

  7. Hey Giovanni,

    You asked a great question. And I think it's great that you are saving for a home. With luck, house prices will remain somewhat depressed, and you may end up getting a fantastic deal, in retrospect, when looking back at this point in time when you're older.

    There's a general rule of thumb (and it's a good one) suggesting that you should never put money in the stock market that you plan to use within the next five years. The markets are always too unpredictable over the short term. They always have been.

    Interest rates on CDs are paltry at the moment, but if you're saving for a house, park your money in a CD and keep saving, making sure that you can pull your money out when you're ready to buy that home.

    Once you make your purchase, you can take advantage of tax deferred investment accounts (a IRA or 401K) will also trying to pay a bit extra on that mortgage. See if you can pay the house off in 20 years, rather than 25 or 30. You'll end up paying a lot less for the house that way. And while interest rates are low, you'll be able to pay much more off your principle.

    Good luck Giovanni!

  8. squasher55 says:

    Hey Andrew,

    This is a bit late to be writing…but it is about your article entitled 'America's Promise'. I was actually in Korea when you wrote it….so I missed it. I was at two Universities there, as my wife is a Scientist and was giving talks at both Unis. So this article is really interesting to me…esp since I am a retired Mathematics teacher from Ontario. I did teach many Asian students back in the early '90's….they were from Japan, Korea, and China. I agree with your writing very much……their work ethic just blew my students away quite quickly. I know they were weak in creativity…but I did not teach that discipline. But their problem solving ability was very solid.

    I am now involved more with University Grad students…..many from Asia. And I agree in this sense……their theoretical ability is awesome, but solving real world problems is lacking….they just love theory.

    BTW, this is an awesome article that you have written. It will cause many people to sit up and notice….but… will it actually awaken the U. S. school authorities before it is too late? I am not sure on that one.

  9. Hey Squasher,

    You're right about the U.S. having their backs against a barbed wire fence. It's going to be interesting to see what the future holds. I think it's going to take time to set things straight–and I don't even know if the U.S. can do so. Asia might bury them. But at the same time, I believe that it will take many generations for Asia to catch up on the analytical thinking front. I don't think it will happen within the next 30 years.

  10. Hi Gerry,

    I love Vanguard's index only life strategy funds. They sure make things easy for Americans to invest effectively.

  11. kiwi says:

    Hi Andrew

    As an international educator like yourself I just bought your book as I was keen to see what advice you could offer that would apply to me. However, I am not American (nor Canadian or Australian) but a New Zealander, and I am having trouble finding out a way to invest in index funds in New Zealand that sounds as simple as using a company like Vanguard. I assume since long term I intend to retire in New Zealand, that I should invest there – do you have any advice for me? I am a complete novice in terms of investment and I find the range of possibilities quite overwhelming.

  12. Hi Kiwi,

    This depends on where you live. Are you currently in New Zealand?

    • Katrina Mangous says:

      At the moment we're living in China (and probably will be for at least another 6 – 7 years).

      • Hi Katrina,

        If you can find a brokerage in China giving you access to the U.S. stock market, you could buy a New Zealand ETF, a world stock market ETF and a world government bond ETF through the New York Stock Exchange. It's a wonderful supermarket (of sorts). If you can't find access to the U.S. exchange through a local brokerage, Singapore might be your best option to open an account. But you would have to fly here and open it in person. After that, you could wire money here and manage your account online.

  13. Cate says:

    Hi Andrew,

    I'm am educator who found out about your book from another Minnesotan who was in the know.

    I am 30 and am wondering which specific type of account I should open with vanguard an ETF? I have about 50gs to put into it.

    I have a ROTH IRA making nothing and a tax free 403b with 1,500 yearly matching through my employer should I keep contributing to those or not?

    Thanks,

    Cate

    • Hi Cate,

      Here are the steps I think you could take:

      1. Make sure your contribution room in tax sheltered accounts (like IRAs) is fully used up before investing in taxable accounts.

      2. Rollover your current IRA into a Vanguard Target Retirement Fund. This one would do nicely: https://personal.vanguard.com/us/funds/snapshot?F
      This is the only investment you'd need to make. It's diversified, indexed, will rebalance for you, and will become more and more conservative as you age (increasing its bond allocation)

      3. Have a look at your 403b options. Do you have any? Where, specifically, does the money get invested? Often, the employer doesn't have a choice, but if you're allowed to choose Vanguard as an option for your 403b, you know where to put the money.

      4. If your tax deferred contribution room is maxed out, open a Vanguard non retirement investment account, and buy the same target retirement fund I mentioned above.

      I hope this helps.

      Andrew

  14. Heather says:

    Thanks Andrew….just opened a VanGuard account. Thanks for the advice! -Heather (SAS teacher)

  15. Sharon says:

    I'm looking into investing in REITs and this was the only article about them. Do you have any advice for someone wanting to invest in them? Do you think they're worth it?

  16. Joe A says:

    I am a British international teacher currently working in Mexico. I want to begin to invest in Vanguards Life Strategy 80 but I cannot find a platform who will act on my behalf. Both Alliance Trust and Hargreaves Lansdown have said that they will only work for British residents not expats. Does anyone know of a Platform for British expats to invest in Vanguards Life Strategy?

    I would greatly appreciate any help on this.

    • Hi Joe,

      You might be out of luck with Vanguard, unfortunately. See if you can find a brokerage in Mexico that would give you access to the New York stock exchange. I'm sure it exists. Citibank might even be an option. Then you could build a portfolio of low cost exchange traded funds, buying the British index, the world index, and an international bond index. Let me know how your search goes.

      Andrew

  17. Joe says:

    Hi Andrew,

    I spoke to a (Hargreaves Lansdown [HL]) advisor this morning and he needed to check about residency rules etc and was going to come back to me. Off the top of his head, he thought that it might be more difficult to take out a SIPP but with an ISA or Fund account as long as I could show I am a UK domicile.

    Having discussed my position with him he didn’t think that a SIPP or even stakeholder pension were necessarily my best option, in my current circumstances, in any event. As compared to an ISA it gives a lot less flexibility in terms of what I can do with the investment and the tax advantage of a SIPP over an ISA in mycircumstances is not great perhaps even negligible.

    In relation to index or tracker funds, he said that if I wanted to invest in one then Vanguard was a good company. However when you consider that over the last decade the FTSE has remained static, then a tracker would not have given any growth over that period. Of course, he said, with dividends re-invested, as you would intend with the accumulation fund, there would have been growth.

    However, HL have dedicated research teams which obtain information from mathematical analysis (quantitative research) and fund manager interviews which allow them to make detailed assessments of their investment strategies (qualitative research). As opposed to many other firms which simply provide past performance data. As such he was confident that, even with charges, their active funds could outperform any passive fund or tracker/index fund. Additionally the funds and fund managers are regularly reviewed. (The advisor did not have any tracker or index funds in his own pension portfolio.) Is this what you refer to inthe book about fund managers saying that they can out perform the indexes???? I think perhaps so. I wanted to say to him that Fund Managers will not consistently out perform indexes!

    He suggested considering their master portfolios. These are for investors seeking more guidance. They have five Master Portfolios, each for a different type of investor, with different time horizons and attitudes to risk. (The one for me would be the 'longer term view') If you click on that link you can click on the level of risk, put in what you want to invest per month and it provides a readymade portfolio with a list of charges. These portfolios are regularly reviewed by their research team and changed if they are not performing.

    Alternatively, he suggested one (or more) of their multi-manager funds. He suggested for me the special situations fund. They're designed to go one step further than the master portfolios and leave the choice of underlying funds entirely to their experts. Multi-manager funds offer a broad, managed portfolio of funds through one single investment/regular monthly investment . These are regularly reviewed and changed if not performing.

    So in summary he said, if possible, a stocks and shares ISA wrapper around either a master portfolio or a multi-manager fund with HL would seem to be your best option. If I choose to go with a tracker (Vanguard or whomever) then you could do this within an ISA wrapper too, if possible. At least then if I transferred back to the UK you could transfer the ISA into a SIPP as a one off lump sum premium should you wish to do so in the future. If the ISA is not possible then at the very least I should be able to open a fund account with them, or anyone else for that matter, providing you can prove my nationality (passport) and a UK address

  18. Joe says:

    'Best Invest' have contacted me to say that they are willing to act as a platform for me to invest in the 'Vanguard Life Strategy 80' even though I am not curretly living in the UK. Should I jump at this opportunity? Or due you think that there may be difficult tax implications in the future?

    Thanks,

    Joe

    • Hey Joe,

      Ask them what they will charge for this service. If it's less than 0.5% per year, then that's a good deal. If it's 1%, it's still better than many alternatives. But don't pay more than 1%. Keep me posted.

      Andrew

  19. Joe Aldus says:

    Dear Andrew

    'Best Invest' have contacted me to say that they are willing to act as a platform for me to invest in the 'Vanguard Life Strategy 80' even though I am not curretly living in the UK. Should I jump at this opportunity? Or due you think that there may be difficult tax implications in the future? Should l look to invest vía a tax wrapper of some sort?

    Thank you,

    Joe

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