Tie Care, Raymond James and Zurich International’s Biggest Fear

I’m pretty sure you can live on Coca Cola. 

Yes, it’s bad for you.  But I think you could stop drinking just about everything else and sustain your hydration on sweet, sugary syrup water.

You could even give it to your children.  They’ll still grow taller as they age.  And they might even end up performing pretty well in sports.

The Coca Cola Company would love that, of course.  They would point to the kids making Varsity baseball teams and say, “See, Coca-Cola helped them!”

But we’d know the truth.  If they performed well, they’d be doing it despite the Coca Cola, not because of it.

Stock market investments are no different.  When stock markets rise, investment accounts rise.  Investment accounts don’t generally rise because of an advisor’s savvy fund selections.  They often rise despite them.

Today, I’m going to throw down a challenge to three of the more common financial companies that service international school teachers overseas:

  1. Tie Care International
  2. Raymond James
  3. Zurich International

I want to show expatriate Americans that they could earn far better investment results with a different type of company.  Here we go:

 

I’ll start with the most important investment performance question: 

 “How has my total portfolio performed over the past five, ten, or fifteen year period compared to a portfolio of diversified, rebalanced total stock and bond indexes?”

Ask this question, and the advisors selling you actively managed mutual funds will likely feel like they’ve been kicked in the stomach…and for good reason.

As I explain in my book, Millionaire Teacher, there are two types of advisors:

1.  Those who build diversified accounts of index funds to give their clients the greatest likelihood of investment success

And

2.  Those who build investment accounts of actively managed mutual funds that will ensure great future holidays, retirements and material goods for the person selling you the funds

If you employ a financial advisor, you should choose the first type—those who build diversified accounts of index funds. 

 

A Simple Benchmark

On September 11, 2006, I built a diversified portfolio of stock market index funds for teachers at Singapore American School.  I knew what the overwhelming data suggested:

Diversified low cost accounts of index funds provide the greatest statistical chance of success compared to accounts of actively managed mutual funds.

 

Are index funds riskier?

No.

Risks are taken when accounts aren’t diversified into alternative asset classes, and the account I volunteered to track only had a 66 percent exposure to the stock market.  Fully 33 percent of the money was allocated to bonds—a safer alternative asset class that would smooth the total account’s fluctuations.

 

Does a diversified account of indexes gain money every single year?

  No.

 But over long periods of time (you must be patient) it will work its long term magic.

I hypothetically invested $200,000 into this account on September 11, 2006.

Today (February 17, 2012) it would be worth $259,192.88.

Write down those dates and numbers.  If your investment portfolio hasn’t gained a total of 29.5 percent between September 2006 and February 2012, then you should be asking yourself some very serious questions.

The dates are very important:  September 2006 to February 2012.  Don’t let anyone trick you with a non parallel date.  Don’t let them try showing you that you have gained 80 percent, for example, since March of 2009.  Insist on a comparison of at least five years, and ensure that you use the exact same start and end dates.

Trust me, many an advisor will quiver at the request. 

Below, I’ve shown the account I created in September 2006.  It was split into three index funds:

  1. A total U.S. stock market index
  2. A total International stock market index
  3. A total bond market index

With this account, rebalanced, you would have turned $200,000 on September 11, 2006 into $259,192.88 with no money added.  That’s a profit of $59,192.88.

Indexed–Sept 06
Saturday February 18, 2012 01:02 AM EST

Chart

Company Name

Cost

Shares

% of Total

Current Value

Gain / Loss

Gain / Loss %

Cash

0.17%

$443.13

   

Overall Realized Gain/Loss

   

+$40,767.24

 

Total

 

$259,192.88

+$59,192.87

29.60%

VBMFX

Vanguard Tot Bd;Inv

$10.27

7,993.4525

33.95%

$88,007.91

+$5,928.88

7.22%

VGTSX

Vanguard Tot I Stk;Inv

$15.00

5,861.9522

33.02%

$85,584.50

-$2,371.98

-2.70%

VTSMX

Vanguard T StMk Idx;Inv

$28.26

2,487.0716

32.85%

$85,157.33

+$14,868.73

21.15%

 

If you’re between 30 and 40 years of age, you could use this as a comparative benchmark.  Have your investments done this well since September 11, 2006?

Investors without pensions should have a percentage of bonds in their account that correlates roughly with their age.

 

But where can you find an advisor to do this for you?

If you’re an American, and you don’t want to bother buying index funds yourself, you could hire Assetbuilder to do it for you.

How would you have performed with Assetbuilder over the past five years?  Let me show you.

Because Assetbuilder constructs portfolios for clients and reveals the allocations on their website, you can see how an investor would have performed using their products.

They actually back-tested these portfolios to the year 2000, but initiated them officially when the company began in August, 2006:  roughly one month from the time I created the indexed portfolio for my colleagues at Singapore American School.

Using the suggestion of a bond component roughly equivalent to an investor’s age, I’ll show how a series of Assetbuilder portfolios actually performed from September 2006 to February 2012.

 

The big question is this:  Did your account keep up?

For a 30-40 year old without a defined benefit pension:

Assetbuilder Portfolio #10 has roughly 30% allocated to bonds.  As such, it would serve a 30-40 year old investor well.

If you invested $100,000 in this portfolio at the beginning of September 2006, it would be worth roughly $130,400 at the beginning of February 2012, for a total gain of +30.4%.

 

For a 40-50 year old without a defined benefit pension:

Assetbuilder Portfolio #9 has roughly 40% allocated to bonds.  As such, it would serve a 40-50 year old investor well.

If you invested $100,000 in this portfolio at the beginning of September 2006, it would be worth roughly $130,000 at the beginning of February 2012, for a total gain of +30%.

 

For a 50-60 year old without a defined benefit pension:

Assetbuilder Portfolio #8 has roughly 50% allocated to bonds.  You might consider it if you’re between the ages of 50 and 60.

If you invested $100,000 in this portfolio at the beginning of September 2006, it would be worth roughly $131,500 by the beginning of February, 2012 for a total gain of 31.5%.

Keep in mind that these returns are after all fees.

 

Your Advisor’s Success (as a salesperson) depends on how nice they are

It’s tough to fire an advisor with a nice personality.  But remember that the best salespeople are ALWAYS nice.  That’s the tool of their trade.

But their conflict of interest can come at a high price for you.

If you have lost to the above accounts by just 3 percent per year, you will likely be giving away half of your portfolio’s growth potential, or more.

Over an investment lifetime, a 3% annual investment lag could be the difference, when compounded, between a $500,000 portfolio and a $2 million portfolio upon retirement.

  • Save your money.
  • Hire an advisor who creates accounts of index funds.
  • Hire (by the hour) a tax accountant who can handle your tax needs. 
  • Buy insurance products that are independent to your investment products.

I won’t apologize to reps from Tie Care, Raymond James and Zurich International.

You have to make your living.  Besides, how dull would the world be if we all nodded our heads like drones and followed everyone else.

 

For Further Reading:

 

 

 

 

 

 

 

 

 





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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16 Responses

  1. James Meyer says:

    I've recently fired my Mutual Fund adviser, closed my account and started managing my own funds. While I'm more interested in dividends right now, I'll probably be looking into indexes as well over the next year.

    Loved the book, couldn't put it down. Learned a lot from it. Posted a Net-Out of it (as well as my financial moves related to the book) on my blog: http://walk.ingwithgod.com

  2. Stanley says:

    Hi Andrew,

    I hope you remember me. I wanted to ask you a question regarding asset builder ,honestly do you recommended going for it? Would it be profitable to be with it or vanguard target fund? Would you put your money in asset builder? Are the fees they charge

    I regard your comments as an epitome. As i have already mention to you i am a big follower of your blog and have read your book from cover to cover..

    Thanks a lot for being what you are.

    Stanley

  3. Hi Stanley,

    Thanks for the kind words. I would feel comfortable with Assetbuilder or Vanguard. If I were to rebalance my indexes on my own, I would choose Vanguard over Assetbuilder because it's cheaper. But if I were to put the rebalancing in the hands of others, I would likely choose Assetbuilder over Vanguard because Assetbuilder rebalances a greater number of indexes, thereby giving (potentially) greater returns with its small cap focus, rebalanced with the others.

    I have rebalanced on my own and have beaten the Assetbuilder returns, probably because I've done it cheaper, but also because I dove in to rebalance right in the middle of financial chaos, while Assetbuilder likely sets a disciplined date that they rebalance each year.

    The dilemma you face is a pleasant one. Both options are excellent.

  4. Andy says:

    Hi Andrew,

    I've read your fantastic book and immediately went with my wife to my local TD Canada Trust branch to open a TD e-series account. To make a long story short, the mutual fund specialist quickly realized that we weren't going for the managed funds, and she only had a faint clue about the e-series. I ended up showing her the MER comparison between the e-series and managed funds! It was quick funny in the end and all went as smoothly as a Sunday breeze. I transferred all my actively managed RRSPs from ING Direct to a balanced portfolio, as recommended in your book.

    Which brings me to my question. I'm sitting on a relatively modest pile of cash ($50K) that is rotting at 2% in a Manitoba credit union, barely keeping up with inflation. I'd like to know what you think of dollar-cost averaging vs. investing a lump sum. That is, is it wise for an investor to just go all-in into the market (in this case, $50K in a balanced e-series portfolio) at any given point or wait until the market falls and then jump in?

    I thought of asking here so as to benefit other folks who may be in the same (happy) dilemma as I am. I know you of course recommend re-balancing a portfolio annually regardless of market conditions, but what ought one to do at the entry point?

    Thanks!

    • Hi Andy,

      That's a nice dilemma to face.

      Some would argue that you should dollar cost average that money into your account, perhaps quarterly. But my view is this:

      In the grand scheme of things, the markets aren't terribly expensive at the moment. I'm not a market timer, but I do know when the markets have price to earnings ratios that are silly (and it does happen). And the current market levels aren't silly. Also, $50K isn't a huge amount of money–years from now, you'll see it as a small sum, relative to what your money should grow to. I think I would invest it all at once. Just diversify your money, of course.

      And if the markets drop after you invest, don't worry. Keep plunging your savings in the market. LIke I said, at the end of the day, you will end up dollar cost averaging (from monthly savings) much much more than $50,000 over the many years that you'll be saving and investing.

      Having said all this, your personal comfort level is the ultimate decider. I would be very comfortable investing it all, but people are different. And if it makes you uncomfortable, then perhaps you could dollar cost average the money over a series of quarters or months. What do you think?

      • Andy says:

        Many thanks for your thorough reply, Andrew! That's extremely useful advice, and your rationale is really in keeping with your investing philosophy. As a relatively new investor in my mid-30s, I'm still new to the game so I hadn't really taken P/E ratio into account. The secret is always to take a long-term view of investing, as you clearly do. Our goal is to amass a substantial war chest by the time we hit our 60s.

        I'm recommending your book to everyone I care about, especially the ones in the dark financially speaking. Have a great weekend, and thanks again!

  5. Andy says:

    Hi Andrew,

    I've read your fantastic book and immediately went with my wife to my local TD Canada Trust branch to open a TD mutual funds account (to be converted to TD e-series, of course). To make a long story short, the mutual fund specialist quickly realized that we weren't going for the managed funds, and she only had a faint clue about the e-series. I ended up showing her the MER comparison between the e-series and managed funds! It was quite funny in the end and all went as smoothly as a Sunday breeze. I transferred all my actively managed RRSPs from ING Direct to a balanced portfolio, as recommended in your book.

    Which brings me to my question. I'm sitting on a relatively modest pile of cash ($50K) that is rotting at 2% in a Manitoba credit union, barely keeping up with inflation. I'd like to know what you think of dollar-cost averaging vs. investing a lump sum. That is, is it wise for an investor to just go all-in into the market (in this case, $50K in a balanced e-series portfolio) at any given point or wait until the market falls and then jump in?

    I thought of asking here so as to benefit other folks who may be in the same (happy) dilemma as I am. I know you of course recommend re-balancing a portfolio annually regardless of market conditions, but what ought one to do at the entry point?

    Thanks!

    P.S. I edited my previous post for accuracy (re: TD e-series account set up).

  6. Elaine says:

    Hi Andrew,

    I attended all of your sessions at EARCOS last March and have read your excellent book from cover to cover.

    My question is…

    I am investigating opening an account at Vanguard. I plan to put 50% (I'm age 50) of my total portfolio into Total Bond Market Index Fund, 25% into Total Stock Market Index Fund, and 25% into Total Int'l Stock Index Fund. In doing my research on the Vanguard website, I have found that if I contribute 10K or more to the Total Bond Market Index Fund, I am asked if I would prefer to open Total Bond Market Index Fund ADMIRAL SHARES. This same question pops up in relation to both the Total Stock Market Index Fund and Total Int'l Stock Index Fund.

    If I have the 10K available, do you feel Admiral Shares are a better investment than the counterpart? It appears there is a lower operating expense for Admiral Shares. It appears Admiral Shares are making a better return in comparison to their counterparts in both Total Bond Market Index Fund and Total Stock Market Index Fund. BUT, for Total Int'l Stock Index Fund, Admiral Shares are making a lower return than the counterpart.

    Going forward, I plan to Dollar Cost Average monthly into the 3 index funds.

    My questions please…

    Do you feel Admiral Shares are a better investment than the counterpart?

    Do you feel my planned portfolio allocation looks good for the current economic situation and instability in Europe?

    I know that international stocks are low right now. Should I be allocating more of my total portfolio to Total Int'l Stock Index Fund than 25%?

    Thank you so much for your guidance and insight, Andrew!

    • Hi Elaine,

      The Admiral shares are exactly the same as the regular indexes—but with lower expense ratios. They hold exactly the same baskets of stocks. If there's data suggesting that the Admirals haven't outperformed its more expensive counterpart, then the data is wrong. Go with the admiral shares, of course.

      And the allocation you mentioned is excellent. During your investment journey, there will always be a crisis or euphoria. Just stick to the game plan, diversify, and rebalance. You'll be keeping your eggs in many baskets and through rebalancing, you'll be automatically practicing the idea of being "fearful when others are greedy and greedy when others are fearful." Just stick to the desired allocation, without try to speculate and load up further on an undesired geographic region (or a favored region). Just stick to the plan.

    • Elaine, incidentally, what school do you teach at?

      • Elaine says:

        Thank you for all of your insight and guidance, Andrew.

        I teach at JIS.

        • Thanks Elaine, I trust that you'll spread the word about efficient investing at JIS. International teachers, unfortunately, get the short end of the stick, and many administrations aren't very educated on the matter. Nor is ISS, sadly.

          Having said that, it warms my heart to see a number of international schools in the Middle East with Vanguard as their provider. With luck, one day, South East Asia's international schools will also offer its teachers some fair alternatives in the future.

          • Elaine says:

            Thanks again, Andrew. I have been spreading the word:-)

            I reread your email to me above. You wrote, "…and load up further on an undesired geographic region (or a favored region)". Sorry I'm such a novice at all of this… would you mind explaining exactly what you mean by this? Do you mean that in addition to sticking to my desired allocation that I should be putting additional funds into an additional international area? Such as a particular emerging market index fund? Any recommendations?

            Thank you in advance for clarifying, Andrew.

          • Hi Elaine,

            No, just by following the strategy in my book's fifth chapter you'll be doing what you need to do. If the international markets dropped 20%, for example, thanks to Greece, then you would buy the international market next month, with your fresh money. That's all I meant. Keep an eye on your allocation and make purchases with the goal of keeping the desired allocation somewhat consistent.

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