Tag Archives for " Index Funds "

The Ultimate Passive Income Strategy to Retire Early

MTO8- Podcast on the ultimate passive income strategy to retire early. Note, I am not a financial advisor these are just my opinions that have been formed from researching different studies and books. Please, please, please do your own research. Remember, knowledge is power! There may be affiliate links in this article, read the full disclaimer here.

  1. 7 reasons you should invest in index funds today
  2. How to invest in index funds
  3. The ultimate passive income strategy using index funds

 

Everyone knows that the way to retire early is to find a passive income stream. However, it can be hard to know what is the best way to actually achieve this. 

Most people will be willing to put in hard work now if it means they can reap the rewards later on in life. You may be thinking that there really isn’t such a thing as passive income because no matter how you make money you will have to put in some work at certain points. Well, this strategy is the closest thing to earning true passive income.

This podcast will reveal the ultimate passive income strategy to retire early. 

 

How Much Money do I Need to Retire Early? 


(1 min) 

Work out your own “financial freedom figure” so that you would never have to work another day and live off this passive income forever. 

The only number you need to know is how much money you spend each year (annual expenses). 

 

Here’s the maths:

Annual expenses x 25

 

e.g. $50,000 x 25 = $1.25 million

 

Now, I can almost hear your mind saying… How the heck am I going to get $1.25 million? 

This is a great question and is the whole point of this website and podcast. To help you make money, retire early and make more time in your life. 

 

Before we really get into that remember this important quote:

If you aim for nothing you will hit it every time.

 

Related: 

Financial Freedom Book Review

Why Make Time Online? Financial Independence Retire Early Blog

 

Tony Robbins Freedom Stats


(4 min)

These freedom stats will help you to realise why you should start investing ASAP:

  • Corrections (a drop by at least 10%) have happened on average once a year since 1900
  • Less than 20% of corrections turn into a “Bear Market” (fall by over 20%)
  • Nobody can predict the market
  • The stock market rises over time despite many short-term setbacks
  • Bear markets have happened every 3-5 years, historically
  • Bear markets always become bull markets (see chart below)
  • The greatest danger is being out of the market (see chart below)

BEAR MARKET TABLE

 

Why the Stock Market Goes Up Over Time


(5 min)

There are 2 main reasons why the stock market goes up over time:

  1. Inflation
  2. Current financial system

As you absorb this information you’ll realise our current financial system needs growth to survive. You may have heard on the news about how a 2-3% annual growth is healthy for our economy and is good news. 

The fact is it doesn’t have to be!

If there was a set amount of money in the world and it was all backed to something that was finite (such as gold… which is what the economy used to be before 1913…) then growth wouldn’t be needed at all. 

Our current financial system relies on quantitative easing and would implode if deflation was to occur. This means the powers that be do everything in their power to prevent a deflationary economy (resulting in more money being printed, hence an increase in the stock market prices and all assets over time!)

 

Related: 

How our wealth is being stolen- The power of Inflation

Save Hours of Time with these Resources

 

How This Strategy Allows Your Pot to Grow (…and Earn Passive Income)


(6 min)

Remember a 7% return each year is a conservative number compared to the growth of the stock market over the last 100 years.

  • The US stock market has averaged 10.16% annual return between 1920 and 2016- Stat from Andrew Hallam’s book Millionaire Teacher
  • The S&P 500 returned an average of 10.28% a year from 1985 to 2015 (if you invested $50,000 in 1985 that would be worth $941,613.61 in 2015) – Fact from Tony Robbins book Unshakeable

So let’s assume the index fund returned a conservative 7% interest rate (suggested by Grant Sabatier in Financial Freedom). This means you can take 4% out to live on ($50,000) and leave the extra 3% in your pot to allow it to grow!

 

In the example this means:

  • 1.25 million would increase to 1.2875 million

This would mean the following year you could live off $51,500… and your pot would grow to $1,326,125. Are you beginning to see how this strategy is inflation proof?

To learn more about this ultimate passive income strategy to retire early check out this related post:

Examples to Reach Your Figure


(7 min)

So going back to that great question you asked earlier…

“How am I going to get $1.25 million?”

Well, if you could save and invest $20,000 a year you would reach your figure in 23 years. If you’re a high earner this could easily be within your reach as long as you don’t live beyond your means. And don’t you think that sounds better than working for 50 years on the off chance your pension pot pays you when you’re old enough to retire?

 

If you think that would be impossible to save this amount each year, then you may have to find an additional stream of income. After all, if you currently earn $18,000 a year the most you could possibly save is $18,000!

But don’t worry that is where this website will come in handy to help!

 

Related:

 

Do you remember hearing that there are 4 main asset classes to invest in?

  1. Paper (Stocks, Shares, Bonds etc.)
  2. Property
  3. Business
  4. Commodities 

If you have no idea where to start I would highly recommend focusing on learning new skills that can be monetised in the future. 

Skills are your future equity. 

 

Can you imagine learning marketing, website design and copywriting skills all whilst making an income? Jumpstart your own profitable website by following this 11-day course for free. 

 

 

ACTION


(12 min) 

There are 3 pieces of action for you to take today that your future self will be very grateful for…

1. If you haven’t already, the first step is to understand what your own financial situation is. Work out where you spend money and how you earn money. 

You can get your free financial statement planner and the tips on how to use it below to easily work out your annual expenses. 

 

 

 

2. The second main way to ensure you are making good financial decisions is to learn more about the current financial system.

You probably know that most people do not understand how the economy works. 

The more you learn about the way that money is used within society the more informed decisions you can make about what to do with your money. By watching these 30 minute YouTube videos you will learn more than what the vast majority of people know about our current financial system. 

If you haven’t got time now, pin this page and come back to it later on for some quality Netflix and chill time 😉

 

 

 

3. Just start! Open an account with Vanguard if you are living in the UK, US or Australia. If you live somewhere else or are an expat you can open an account with Saxo to invest using ETFs. 

Even putting in the lowest amount possible may seem ridiculously far away from your “financial freedom number”. But it is infinitely closer to that number if you currently are not investing anything (I guarantee it’s the hardest step to take, but it’s actually very simple to do!)

Learn more about how to do this in the 2nd episode of this series.

 

The Ultimate Passive Income Strategy to Retire Early Summary


Little by little you begin to notice this ultimate passive income strategy to retire early could be possible. It doesn’t mean getting there is super easy but it certainly can be done!

Taking these small steps and actions will compound over time to make your future situation that much better!

 

 

Keep changing for the better,

 

Mike

 

P.S. Please do subscribe and leave a review here… If you are reading this on a computer find the podcast by going into your podcast app and search for Make Time Online. 

 

P.P.S. Leave a comment on whether you found this mini 3-part series useful on investing in index funds and what you would like to hear more about in the future. 

How to Invest in Index Funds

MTO7- Podcast on how to invest in index funds. Note I am not a financial advisor these are just my opinions that have been formed from researching different studies and books. Please, please, please do your own research. Remember knowledge is power!

This is a 3 part podcast series on index funds:

  1. 7 reasons you should invest in index funds today
  2. How to invest in index funds
  3. The ultimate passive income strategy using index funds

You may agree that finding a way of earning passive income is not very easy. 

Most people will want to find ways of doing this but don’t know where to start. If you listen to episode one of this 3-part podcast you will learn 7 reasons why index funds can provide a genuine passive income stream. 

This podcast will show you how to invest in index funds and the best platforms to use when doing so.


How to Invest in Index Funds if You’re From the UK, US or Australia


(1 min)

There is a simple way to get started if you are from one of these 3 countries… Vanguard.

John C. Bogle (the founder of Vanguard) has basically invented index funds so that normal people can get invest in index funds. 

There are 2 main reasons why Vanguard is the best way to invest in index funds:

  1. Their fees are the lowest you’ll find
  2. You can invest in “retirement funds” which are managed for you

Click the following links to learn more and get started:

Vanguard UK

Vanguard US

Vanguard Australia

(Note these are not affiliate links!)

Stocks vs Bonds Figures


(5 min)

Stocks are small portions of a company. The company uses this money for growth and you can see an increase in the price of the company stocks if they do well over time. 

Bonds are basically a form of debt (usually for a company or government)- you find out the interest rate and when the borrower agrees to pay you ahead of time. Check out this short Penny Hoarder YouTube video to explain this simply…

Typically stocks will outperform bonds in the long run. However, bonds are historically much more “safe” and less likely to have a big drop in any given year. 

These are the stats for the 10-year range between 2008-2018:

Bonds- 4.18% annual return 

Stocks- 8.72% annual return

Just remember if you invest in a single company and it goes bust you would lose all of your money invested with them. When you invest in index funds this cannot happen (unless all the companies in the whole country go bust at the same time). Check out part one for a reminder about this. 

The simple way to look at this is that if you are younger it would be wiser to invest more in stocks than bonds (as they have a larger gain over time). If you need to start withdrawing money from your investment pot then you may want to have a higher ratio of bonds as they are less likely to have a big drop in any given year.

This leads to Vanguards amazing retirement funds…

Vanguard Retirement Fund Benefits


(6 min)

There are 2 massive advantages of using Vanguard retirement funds. 

  1. Hands off- Saves you more time!
  2. Leave your emotions out of it Rebalance portfolio- Buy low and sell high automatically 

Look at how transparent the fees are for this account as well. You will find it almost impossible to pay such a little amount in fees when compared to transaction costs (if you buy stocks yourself) or management fees you would find in any mutual funds. 

So the best thing about investing in these retirement funds is that you don’t have to do anything! It’s completely hands off and your account will be managed for you making you more time! But that’s not all…

Morningstar discovered that DIY investors tend to underperform the Vanguard retirement fund.

This is because investors tend to speculate on the market and buy when prices are higher and sell when prices are lower (if you listen to the news it makes it very hard not to do these things!)

So all of this uncertainty in the market at present (March 2019) leading up to Brexit and the trade agreements between USA and China may mean the market is more stagnant or we may even see a correction. But that is a great time to buy more funds (as the market is on sale!) 

Related:

Minimum Amount to Get Started


(11 min)

Now, I can almost hear your mind saying… but I haven’t got enough money to get started. This is a concern that a lot of people have when they start investing. But as you can see the minimum amount to open an account is very reasonable:

  • UK- £500 or £100 per month instalment.
  • USA- $1,000 to get started with a “retirement fund”.
  • Australia – $3,000 to get started with a “retirement fund”.

Just so you know you can put a lot more than this into an account if you have it, but you will likely need a lot less than you may have first thought. 

What Account to Open?


UK

If you’re from the UK you get £20,000 per year to put into an ISA (Individual Savings Account). This is completely tax-free and you won’t pay any capital gains tax (CGT) or income tax. Check out Vanguard’s “Benefits of Investing in an ISA” to understand more about which account you should open.

USA

If you’re from the US, check out this link to understand more about the best account(s) to open. 

Invest for the Long Run


(13 min)

View the money you are putting in like a future pension pot. It’s not money that you can dip into if you want to go on a fancy holiday next year. 

This lets compound interest do its magic over time. 

Skip the below video to 6:50 minutes in to see the power of compound interest in a simple story…

How to Invest as an Expat or From Another Country


(14 min)

Open an account with Saxo for the region you live in.

Invest in ETFs (Exchange Traded Funds). These are very similar to index funds but they just have a different fancy name. 

Read Investopedia’s article on the advantages and drawbacks of ETFs to understand them a bit more. 

  1. Open an account with Saxo
  2. Buy ETFs (Exchange Traded Funds)
  3. Keep your share allocation as you’d like it by buying more of the underperforming ETF

Read more about this in Andrew Hallem’s article about investing as a British Expat in Singapore

Related:
The Best Way to Earn Passive Income

ACTION


There are 2 action points for today:

  1. Work out your current annual expenses
  2. Open an account to start investing in index funds for where you live 

Finding out more about your current financial situation can be an unbearable thought for some people. It’s much easier just to carry on doing what you’re doing than facing the harsh reality of where your money is going. 

But I can tell you from experience it 100% helps your future self to allocate your money on things that you want rather than finding there’s not enough month at the end of the money.

Related: How we Save £30,000 a Year and Travel as Teachers

You can get your free financial statement planner and the tips on how to use it below to easily work out your annual expenses. 

Summary


So should you invest in index funds? Does a bear poop in the woods? 

Listen to the first part of this short series here to see the 7 reasons why you should invest in index funds ASAP. 

As you can see it doesn’t have to be a long task or really complex to get started with investing in index funds. If you can get a Vanguard account then get on like that bears poop would get stuck on velcro. If not find a brokerage account that you can buy ETFs for a low transaction fee (Saxo!)

….and remember…

The best time to start investing was when you were born. The second best time is today.  

Keep changing for the better,

Mike

P.S. Do comment below to let us know what you currently invest in or what is holding you back from starting… or send me a message on WA here

7 Reasons You Need to Invest in Index Funds Immediately

MTO6- Podcast on reasons to invest in index funds. There may be affiliate links in this article, read the full disclaimer here. Note I am not a financial advisor these are just my opinions that have been formed from researching different studies and books. Please, please, please do your own research

This is a 3 part podcast series on index funds:

  1. 7 reasons you should invest in index funds today
  2. How to invest in index funds
  3. The ultimate passive income strategy using index funds

You probably know that finding ways to invest your money can be very time consuming and daunting. 

However, it is possible to make a good return on your hard earned cash without having to spend hours in front of your computer screen. It’s also possible to do this without paying other people to manage a fund or relying on people pay you in the form of interest or rental income. 

This podcast will show you 7 reasons why index funds are so highly recommended by the financial giants of the world. 

If you’d like to see more detail about this podcast then check out this link:

What is an Index Fund? 


An index fund is a public fund that requires no “active” management. 

Basically, you don’t need to buy and sell individual stocks of certain companies, it will simply own all the stocks in the index (i.e. the 500 stocks in the S&P 500 index fund, which is the top 500 companies in the USA)

Simply put, there will be much lower fees that you pay to any brokers because it doesn’t require anyone to select stocks in certain companies.

As you continue to read on and listen to the podcast, you will realise this is the #1 that any investor should spend their time researching (how to lower the fees you spend on investments!)

Facts!


These are some of the facts that show why index funds are superior to mutual funds or the average individual investor!

  • The US stock market has averaged 10.16% annual return between 1920 and 2016 – (1) 
  • The S&P 500 returned an average of 10.28% a year from 1985 to 2015 (if you invested $50,000 in 1985 that would be worth $941,613.61 in 2015) – (2)
  • The average investor returned 3.66% during this same time (the result was $146,996 in 2015) – (2)
  • A 15-year study in the Journal of Portfolio Management showed that 96% of mutual funds underperformed the S&P 500 stock market index fund – (3)
  • Another study showed that 33 out of 195 (17.5%) mutual funds DISAPPEARED between 1979 and 1999. There’s almost a 1 in 5 chance that your mutual fund may go bust! And there’s no telling which ones they will be – (4)

Are you beginning to see why index funds are recommended by the smartest investors?

Here are some freedom facts from Tony Robbin’s book Unshakeable, which should help you to realise why you should be involved in the stock market:

  • Corrections (fall by at least 10%) happen on average once a year since 1900
  • Less than 20% of corrections turn into a “Bear Market” (fall by over 20%)
  • Nobody can predict the market
  • The stock market rises over time despite many short-term setbacks
  • Bear markets have happened every 3-5 years, historically
  • Bear markets become bull markets (see chart below)
  • The greatest danger is being out of the market (see chart below)

Unless the current financial system drastically changes then inflation will carry on occurring. This is a big factor in the reason why stocks, bonds, property and all commodities keep going up in the long run.

Related content:

How our wealth is being stolen- the hidden power of inflation

Sources of Information


  1. Value Line Investment Survey- A Long-Term Perspective Chart 1920-2005 and Morningstar Performance Tracking of the S&P 500 from 2005-2016, www.morningstar.com
  2. Tony Robbins, “Unshakeable- Your Financial Freedom Playbook“, 2017
  3. David F Swenson, Unconventional Success, a Fundamental Approach to Personal Investment (New York: Free Press, 2005), 217.
  4. Robert D. Arnott, Andrew L. Berkin, and Jia Ye, “How Well Have Taxable Investors Been Served in the 1980s and 1990s?” The Journal of Portfolio Management 26, no. 4 (Summer 2000): 86.
  5. Mark Hulbert, “Index Funds Win Again”, February 2009, The New York Times, https://www.nytimes.com/2009/02/22/your-money/stocks-and-bonds/22stra.html?_r=0
  6. Andrew Hallam, “Millionaire Teacher- The Nine Rules of Wealth You Should Have Learned in School“, 2017
  7. Grant Sabatier, “Financial Freedom”, 2019

ACTION


Watch how incredible compound interest really is!

This is why you need to get investing… immediately!

Now, you may be wondering how you are supposed to actually have enough money to invest in index funds. The first step is to get your own finances in check. My wife, Sarah, and I have used the below financial statement template for the past 4 years, which has helped us to save money and invest more money.

Related content:

How we Save £30,000 a year and travel as teachers

Summary


There are so many reasons to invest in index funds as so many financial experts say! But here are 7 big ones:

  1. Don’t Argue With the Facts
  2. Beware of Mutual Funds Managers & Financial Advisors!
  3. Avoid Paying HIGH Fees! (Your main job as an investor)
  4. It Saves so Much Time!
  5. It Forces you to Buy low and sell high
  6. You CANNOT go Bust
  7. Don’t Worry About the Next Crash, remember the 

To see these points in more detail check out this post.

If you enjoyed this podcast then please subscribe and leave a review on iTunes right here.

Keep changing for the better

Mike

P.S. What reason do you think is the most important to invest in index funds?

Earn Passive Income- Ray Dalio and Warren Buffet Reveal the Secret

Note I am not a financial advisor I am only giving my opinions and information I have learnt about how to earn passive income from different sources (see the bottom of this article). There may be affiliate links in this article, read the full disclaimer here.

 

You don’t realise it yet, but in the next few minutes, you’re going to learn the BEST way to earn passive income.

 

Earn Passive Income

 

The more and more you review this page the more you begin to find yourself amazed at how simple this method to earn PASSIVE income really is. 

This fact is verified by:

  • Warren Buffet (Best Investor ever)
  • Ray Dalio (Most successful hedge fund manager)
  • Tony Robbins (Life guru- Author of Unshakeable)
  • Andrew Hallam (Author of Millionaire Teacher)
  • Jack Bogle (Founder of Vanguard)
  • Carl Icahn (“activist” investor)
  • Grant Sabatier (Author of Financial Freedom)

These names may not mean anything to you but let me assure you, these are the financial GIANTS equivalent of David Beckham, Beyonce and Leonardo DiCaprio!

Ray Dalio goes as far as to say that if he were to die tomorrow he’s shown his wife exactly how to carry on using this investing technique to earn passive income.

If you’re like me, you will be delighted to learn about this. 

So my starry-eyed amigo read on to find out.

 

Invest in Index Funds… Earn Passive Income


Rare thinking people like you already know that you still need to put in some TIME and EFFORT to earn passive income. 

As you read every word of this article, you will discover WHY investing in index funds beats individuals investing in the stock market or mutual funds. 

By the end of this page, you will realise how index funds are the easiest way to earn PASSIVE income than other forms of income such as from property or a business. 

 

Hold up… What is an Index Fund? 


Great question!

Here is the difference between a hedge fund, mutual fund and index fund:

  • Hedge fund– Typically for high-net-worth-investors (HNWI). The fund manager can bet on both directions of the market (up or down). They charge a hefty 2% management fee and around 20% of the profits go to the manager
  • Mutual fund Public fund available to anyone. Managed by a team who buy stocks, bonds and other assets. They again charge management fees. This is VERY common in the USA.
  • Index funds This is a public fund that requires no “active” management. Basically, you don’t need to buy and sell individual stocks of certain companies, it will simply own all the stocks in the index (i.e. the 500 stocks in the S&P 500 index fund)

You may think that a 1 or 2% management fee is not a great deal. But in real terms, a 1% fee will cost you around 10 years of retirement income*.

Can you imagine investing your money without having to research individual companies or dealing with tenants and making a consistent 7% return on average each year? 

 

Related Articles:

Millionaire Teacher Review

NeTime- The Best Life Hack

What I’ve Learnt From Reading Over 100 Books in the Last 3 Years

How we Save £30,000 a Year and Travel as Teachers

How Our Wealth is Being Stolen

 

Isn’t it Possible to Get a Much Better Return Investing Somewhere Else? 


Does a fat dog fart?

In fact, check out “How our Wealth is Being Stolen” to see why it’s important to earn a better rate each year.

However, there are certain reasons as to why index funds are the most hands-off way to earn passive income:

  • You don’t need to MANAGE them regularly (once a year is fine… if that!)
  • You aren’t relying on tenants or other INDIVIDUALS to pay you
  • Don’t rely on an individual COMPANY to do well
  • You don’t need to keep RESEARCHING companies
  • You cannot go BUST
  • It can provide you with the ULTIMATE way to earn passive income (see below)

Simply put… investing in index funds is the closest thing you will get to truly earn passive income.

FACT!

 

But I’m Sure I can Beat the Market… Why use Index Funds? 


As you keep scanning over this report, are you beginning to see how index funds not only are the best way to earn PASSIVE income but also BEATS other methods of investing in the stock market?

Here are 6 reasons why:

1. Don’t Argue With the Facts

  • The US stock market has averaged 10.16% annual return between 1920 and 2016 – (1) 
  • The S&P 500 returned an average of 10.28% a year from 1985 to 2015 (if you invested $50,000 in 1985 that would be worth $941,613.61 in 2015) – (2)
  • The average investor returned 3.66% during this same time (the result was $146,996 in 2015) – (2)
  • A 15-year study in the Journal of Portfolio Management showed that 96% of mutual funds underperformed the S&P 500 stock market index fund – (3)
  • Another study showed that 33 out of 195 (17.5%) mutual funds DISAPPEARED between 1979 and 1999. There’s almost a 1 in 5 chance that your mutual fund may go bust! And there’s no telling which ones they will be – (4)

As you can see, many studies have already proven that investing in index funds beats the average individual investor or mutual fund to earn passive income.

 

Earn Passive Income

Source Unshakeable- S&P 500 Annual Return between 1980-2015 (notice 1995 returned 34% but 2008 lost 38%… 27 out of 36 years has produced a positive return)

2. Beware of Mutual Funds Managers & Financial Advisors!

Let me tell you the story of meeting a financial advisor…

They will start by telling you that index funds cannot EVER beat the market. For example, if the US stock market had an 8% return then the US stock market index fund would make around 7.8% after paying fees. 

Are you beginning to notice that they forget to mention any of the stats above, especially that 96% of mutual funds have underperformed index funds?

They will explain that they have beaten the stock market by 10 per cent or more in the past

But they forget to mention that a monkey randomly picking a stock that does well could beat the market by this amount.

They will go on to tell you all the reasons that their investment beats all other forms of investing and is the best thing since sliced bacon!!

Do you know why? 

Do you want to know the secret?…

They don’t make any money unless you use a product with them!

Remember that when you speak to a financial advisor it is unlikely they will have YOUR best interest at heart. 

They see a client and their brain screams “Show me the money!” Jerry Maguire-esk.

 

3. Avoid Paying HIGH Fees!

Here’s a fact for you…

It has been calculated that an average mutual fund will need to beat an index fund by 4.3% per year just to break even due to fees, trading costs, sales commissions and taxes. (5)

You can pay as little as 0.1% annual fees and easily under 0.5% using index funds to earn passive income. 

 

4. It Saves so Much Time!

If you want to actively trade stocks and shares you better be prepared to do what Warren Buffet does… 

Read about companies all day every day. 

Does that sound excessive?

Little by little you begin to notice that if you are not willing to do this you will lose in the long run vs index funds. 

Don’t believe me? Read reason #1 again. 

 

5. It Forces you to Buy low and Sell High- Leave Your Emotions at the Door

You’ve probably heard:

 

80% of investing in the stock market is psychological and 20% is technical.

This is the #1 reason why index funds win in the long run vs individual investors.

Vanguard index funds automatically rebalance your portfolio. But if you manage them yourself it’s a good idea to rebalance once a year (only do it more often if the stock market is going nuts!) 

 

Note for Expats- you will have to manage them yourself, read on to find out more…

 

Here’s a story about Anne in 2008:

Anne was sipping her coffee on September 29th 2008 when she saw opened the newspaper to see the headline:

 

“Congress rejects the bank’s bailout bill”

 

She knew that wouldn’t be great for the stock market so you know what she did?…

Carried on with her day as normal!

She knew her Vanguard index fund was due to “re-balance” in a few weeks time.

Anne had an index fund portfolio with 80% stocks and 20% bonds. The stock market tanked but bonds held their value. 

In November 2008 Anne now had 45% stocks and 55% bonds.

She still did nothing…

Her Vanguard Index fund “rebalanced the portfolio” back to 80% Stocks and 20% bonds. 

Because stock prices were falling off a cliff, the index fund sold some of Anne’s bonds and bought more stocks!!

 

Imagine the stock market crashing… what’s your first thought as an investor? 

That’s right “SELL, SELL, SELL” “Stop your losses!”

 

This is STUPID! Let me show you why:

 

You go to the supermarket and see your favourite blueberries cost £2 a pack. You always buy them so you chuck a couple into the shopping cart. 

Next week you notice that they are now ONLY £1. 

Do you decide you better not buy them?

NO!! 

You chuck in 4 packs and splash out on your porridge that week because they are ON SALE!

 

You’re clever enough to know that intelligent investors buy when the price is low and sell when it’s high. 

But because of human nature, it is VERY hard to do this when the media, you’re friends and the whole world is panicking about the stock market crashing and the financial system collapsing

And do you begin to notice the intelligent investor would buy MORE stocks and sell some bonds to do this! 

 

Investing is a place for your head only. 

Chuck your emotions out Hombre! 

 

6. You CANNOT go Bust

Just picture this for a moment:

You have been saving up for your retirement for years. 

You absolutely love the company Apple so you have £300,000 invested in their shares (over half your portfolio).

However, Apple has run up a load of debt and the new owners that took over who are bat s*** crazy. 

To make things worse Blackberry is making some ridiculous come back to storm the market again with their new phone that uses hologram technology. 

Apple stocks are tanking. 

In fact, they are about to go bust.

Your mouth goes dry, your throat is closing up, you smell that distinct smell of panic in the air. 

You realise your £300,000 is now worth £1,678.

There’s only one thing left to do… curl up in the corner and sob until you fall asleep.

 

You’re probably thinking this is extreme but it could (and has) happened to numerous companies that were “too BIG to fail”.  

Ever heard of…

  • Enron
  • Kodak
  • Lehman Brothers?

Investing in index funds mean there is a 0% chance of this happening. 

If you are invested in the S&P 500 index fund then as soon as Apple falls out of the top 500 in the New York Stock Exchange it is automatically removed from your index fund and replaced with the company that is now in the top 500.

Unless every company in America was to go bust at the same time you CANNOT go bust if you earn passive income through index funds.

 

OK I Get the Picture, But What About the Next Crash? 


You’re smart enough to know it’s not if but when the market crashes. 

This FACT blew my mind!…

Over the course of 2005-2015, the Vanguard S&P 500 Index averaged 8% per year... This was during the financial crisis of 2008-2009!! (6)

Now, let me ask you a personal question… 

Do you think you could buy MORE stocks if the media and the whole world were panicking about the stock market and telling you it could cause a financial meltdown?

I know I would find it hard! This is why a typical investor in the S&P 500 averaged 6.37% during the same time frame.

 

Fear meant that investors stopped buying when the market was “on sale”

Now imagine you keep paying in the same amount every month to your index fund. It means you buy MORE units when the prices are low and fewer units when they are HIGHER!

e.g. Let’s say you pay in $100 a month into a Vanguard Index Fund. If the price of the index fund is $10 you can buy 10 units. If it has crashed and is now $5 you can buy 20 units (it’s on SALE!!)

It is for this reason that the Vanguard Retirement 2045 Fund returned an average of 7.39% to their investors between 2005-2015.

But the average investor who had a direct debit with them made 9.32% a year to earn passive income. (6)

 

A return of over 9% a year on average DESPITE the crash of 2008-2009!!

 

If that’s not enough then here are some freedom facts from Tony Robbin’s book Unshakeable:

  • Corrections (fall by at least 10%) happen on average once a year since 1900
  • Less than 20% of corrections turn into a “Bear Market” (fall by over 20%)
  • Nobody can predict the market
  • The stock market rises over time despite many short-term setbacks
  • Bear markets have happened every 3-5 years, historically
  • Bear markets become bull markets (see chart below)
  • The greatest danger is being out of the market (see chart below)

 

The other main point is that in every year without fail the stock market bounces back after a bear market. Just see what happens in the chart below…

earn passive income

Source- Unshakeable (2)

 

If you were not in the market after a bear market you will lose a big gain. And there’s no telling when the bear market will end. Just imagine if you waited until 2010 to invest again… you would have missed a 70% gain!

This fact is amplified when you take out the best performing days of the market. 

If you missed the 30 best days in the stock market over a 19-year stretch (6,935 days!) you would not have made a profit compared to the 8.2% market annual gain…

earn passive income

It’s impossible to predict when these best days will be so it just makes sense to always be invested in the market!

 

How Should the British Invest in Index Funds? 


Vanguard is the best index fund manager for one simple fact:

Their fees are the lowest!

…So get on it like a fat kid on cake!

 

Important note: There is no affiliate scheme for Vanguard so I have no incentive to promote them other than the fact they are the best index fund manager at the time of writing (January 2019)…

 

Here is the simple 2 step process:

  1. Open a Vanguard account
  2. Pay into a retirement fund 

To invest in a retirement fund with Vanguard you will pay 0.32% annual fee and they are very transparent about these fees helping to break down where you’re money is going (although it says it should be 0.24% on the previous page).

 

earn passive income

Earn Passive Income

 

You can invest in different life strategy funds and individual index funds for different annual fees with different risk levels. 

 

 

Do you remember reading it is possible to but individual index funds for fees as low as 0.1%?

 

But here’s the truth… 

 

Morningstar studies report that DIY index fund investors usually underperform their funds because they often purchase high, sell low and speculate on market news. – Millionaire Teacher

So even though you could put together your own portfolio of index funds the simplest and often the best way to do this, in the long run, is to use the Vanguard retirement fund.

 

 

You can see the different target retirement funds above. 

It’s important to note that there’s no expiry date on these funds. They are just weighted more heavily to bonds if you want to “retire” sooner because bonds are supposedly less risky. 

So if you were a risk-averse 20-year-old you could still get the target retirement 2015 fund with 59% bonds and you can keep investing past 2015!

Equally, if you are approaching retirement at you can still invest in the 2065 fund with only 20% bonds.  

Here’s a fact for you:

  • Stocks tend to outperform bonds in the long run (see chart below- note the 10 years column includes the great crash of 2008-2009)
  • Stocks are more likely to drop in price than bonds (remember 2008 saw a 38% drop in the S&P 500)

(7)

What you need to invest with Vanguard UK:

  • Be a British resident
  • National insurance number
  • UK Bank account details
  • Minimum £500 lump sum
  • Minimum £100 per month investment

So after your initial £500 lump sum you just need £1,200 a year to start investing in index funds, completely hands off.

You’ve got to wonder that if most people find the money each month to pay for TV, a phone and other gadgets, do you think it’s possible for ANYONE to find £100 per month?

And as you are thinking about earning a conservative 7% return per year you become really interested in this way to earn passive income. 

Just think about it… the key here is to invest for the long run. You need to forget about this money, for the time being, you can’t keep dipping into it or it will never grow.

 

How Should Americans Invest in Index Funds? 


Use Vanguard… Simples

Here is the simple 2 step process:

  1. Open a Vanguard account
  2. Pay into a retirement fund 

Apparently, you can invest for as little as $3,000 and it has by far the best rates and service (currently) compared to other products. 

It’s a very similar process as above- Monkey Simple

 

How Should Expats Invest in Index Funds? 


This one’s a bit trickier as it’s not currently possible to get a Vanguard account unless you live in certain countries.

So with help from Andrew Hallam, who is “the Don” on this exact subject, this is what you should do…

  1. Open an account with Saxo
  2. Buy ETFs (Exchange Traded Funds), which are very similar to funds that track a stock index
  3. Keep your share allocation as you’d like it by buying more of the underperforming ETF

 

The costs are very reasonable per purchase. 

0.1% (£8 minimum)

Basically, if you can make purchases of £8,000 or more per go you will be paying the lowest commission fee % possible.

Obviously, this is not likely for everyone so it would be wise to keep commissions below 1% as much as possible. i.e. purchase over £800 worth at a time.

 

I even had confirmation from Andrew Hallam himself. 

earn passive income

 

Note- this is supposedly the most tax efficient method for a British expat to invest. If you are from the US or Australia then look into doing the exact same thing with your own local market for tax benefits, but please do consult a tax specialist for more information. 

 

The Ultimate Way to Earn Passive Income


Since you’re still here, I’m going to assume a few things:

  • You are not a High Net Worth Individual looking to use a special hedge fund (yet)
  • You’d like to earn passive income
  • You would like to invest in the stock market
  • You’re not willing to put in hours EVERY day to research companies 
  • You have some disposable income that you could invest
  • At some point, you’d like to retire and earn passive income to still enjoy your life

First of all, remember:

  • The US stock market has averaged a 10.16% annual return between 1920 and 2016. 

Let’s say you earn passive income with a Vanguard Index fund of 80% stocks and 20% bonds that averages a conservative 7% a year. 

 

In this scenario let’s imagine you and your family can live off $50,000 a year. 

 

The aim is to reach your own financial “Figure” that you can invest to earn passive income that you can live off FOREVER.

 

It’s important to have a buffer in here to allow for inflation and to help the portfolio grow over time rather than taking all of the profits. 

So if you can take 4% of the investment pot, you should be able to leave the extra 3% growth in the pot to allow for inflation and an increase in your living expenses over time. 

 

Here’s the maths!…

Annual expenses/ Avg. return = Total nest to invest 

$50,000/ 0.04 = $1,250,000

 

(a simpler way is to times your annual living expenses by 25-30)

 

So a total investment pot of $1.25 million would be required to earn $50,000 passive income each year (FOREVER) at a 7% return… allowing for inflation. 

Now, I’m not gonna go off on a massive rant again about how much the average person earns or can save each year as I did in Dave Ramsey’s Complete Guide to Money review.

But let’s just imagine you can save $20,000 a year and invest it in index funds.

This would take you just over 23 years to reach your figure. Seems like a lot to ask doesn’t it? But maybe this is possible for you?

 

Wouldn’t it be amazing if there were ways to drastically reduce this time frame?

Imagine if you could earn $2,000 a month from property rental income.

Your figure would change:

($50,000-$24,000)/0.04= $650,000

 

Let’s also imagine that your side hustle of dog walking really kicks off and you are able to save $60,000 a year. It would now only take you 7 years to reach your figure. 

 

Are you beginning to notice the importance of having your own side hustle or finding different ways to make money?

This is the whole point of this website… To help you find your own side hustle that works for YOU!

 

If you are thinking this all seems a bit far-fetched! Don’t worry about it all at once.

The main thing is that you start investing whatever you can NOW.

 

The best time to have started investing was when you were born. The second best time is today

Pin this post to come back to it later.

 

Make Time Online Summary on How to Earn Passive Income


I know, I know…

You made 18% return investing in the stock market by yourself last year. Or you have beaten the market 9 years out of the last 10.

I believe you.

 

Now, let me ask you this:

Can you honestly tell me that it was all your knowledge that did this? 

Did you study the companies you bought shares of inside out? 

Do you know what the owner’s temperament and personality are? 

Did you know the company was undervalued?

 

Here’s the truth… you have probably ridden your luck. When the market is doing well, you will do well. 

But what happens when it’s not doing so well or your favourite stock goes bust?

If you enjoy trading the market, by all means, carry on. But do not fool yourself into thinking you are investing. 

You’re tactically gambling.

If you want a sure fire way of investing in the market then index funds will wipe the floor compared with any other technique over the long run.

 

Call a duck a duck and own what you are doing.

Your future self will thank you.

 

By the time you read this page, you will have found the easiest way to earn PASSIVE income.

This is your guide.

Save it.

Re-read it.

Use it.

 

Keep changing for the better

Mike

 

p.s. Apologies for the rant at the end, it was purely directed at myself for the future when I think I’m better than Warren Buffet again!

p.p.s. If you have any questions or thoughts please feel free to drop a comment below… or send me a message on WA here

 

Sources

  1. Value Line Investment Survey- A Long-Term Perspective Chart 1920-2005 and Morningstar Performance Tracking of the S&P 500 from 2005-2016, www.morningstar.com
  2. Tony Robbins, “Unshakeable- Your Financial Freedom Playbook“, 2017
  3. David F Swenson, Unconventional Success, a Fundamental Approach to Personal Investment (New York: Free Press, 2005), 217.
  4. Robert D. Arnott, Andrew L. Berkin, and Jia Ye, “How Well Have Taxable Investors Been Served in the 1980s and 1990s?” The Journal of Portfolio Management 26, no. 4 (Summer 2000): 86.
  5. Mark Hulbert, “Index Funds Win Again”, February 2009, The New York Times, https://www.nytimes.com/2009/02/22/your-money/stocks-and-bonds/22stra.html?_r=0
  6. Andrew Hallam, “Millionaire Teacher- The Nine Rules of Wealth You Should Have Learned in School“, 2017
  7. Grant Sabatier, “Financial Freedom”, 2019

 

*Assuming two investors start with $100,000 equal returns of 8% over 30 years. One pays 1% and the other 2% fees. With equal withdrawal amounts the investor paying 2% fees will run out 10 years sooner

Millionaire Teacher Book Review- The Best Way to Invest in the Stock Market

Note I am not a financial advisor I am only giving my opinions on the Millionaire Teacher book review. There are also affiliate links in this article, read the full disclaimer here.

As you read every word of this review you will become amazed at how a teacher has become a millionaire!

Millionaire Teacher book review

Yes, you read that right!

Andrew Hallam really does have an extraordinary story. But the methods he used to get where he is are very ordinary.

Millionaire Teacher Book Review – The Overview and Rankings


  • Name: Millionaire Teacher- The Nine Rules of Wealth You Should Have Learned in School
  • Author: Andrew Hallam 86 out of 100
  • Originality: 80 out of 100
  • Practical methods: 92 out of 100
  • Enjoyability: 55 out of 100
  • Price: Kindle $13.16/ Paperback $15.50
  • Maketimeonline.com Rating: 78 out of 100

Pros and Cons


Pros

  • Inspirational story
  • Great advice for the “average” person
  • Makes you realise it is possible to build wealth no matter what your income is
  • Uses some excellent facts and opens your eyes to investing in the stock market
  • Great practical tips throughout the book
  • Gives you step by step advice of how you can start TODAY!

Cons

  • The advice is not going to help you retire really young (unless you are a child reading this)
  • Gets a bit technical later on – makes it less enjoyable (especially if you’re new to investing)
  • Quite generic advice and leaves you with questions if you don’t fit certain criteria (i.e. what to do if you’re an expat/ don’t live in one of the 4 countries he mentions… luckily he has another book for that!)
  • Only really shows one possibility of investing (invest in index funds

Who is Millionaire Teacher for? 


Let me ask you this, “are you interested in earning a passive income?”

Andrew demonstrates the importance of living frugally and investing in the stock market when young. If you read this book in school you would be laughing right now.

People this book is for:

  • Anyone that wants to achieve financial independence 
  • Anyone that wants to invest but doesn’t know where to start
  • People that find there’s not enough month at the end of the money
  • Low income workers
  • HIGH income workers
  • Ideal for young adults (but there is important advice for older generations too!)

Are you beginning to see how the millionaire teacher book review could help?

What is Millionaire Teacher about?


Since you’re still here I’m going to assume that you want to learn more about investing in the stock market. 

The methods Mr Hallam mentions in the book have been proven by numerous studies to be the BEST and easiest way to invest money to grow wealth. 

If you’re like me, you want to find multiple streams of passive income. 

This method is possibly the MOST passive form of income I have found to date.

As you keep reading this webpage, you will feel more and more amazed at how Andrew Hallam became a millionaire and some of the (slightly insane) things he used to do to save more money, pay off his debts and invest more. 

This includes when he used to ride his bike 70 miles a day to and from work. 

He did this because he could rent a basement for $350 a month out of town and avoid paying for fuel in his 20 year old $1,300 volkswagen (which he sold for $1,800 2 years later). 

There is lots of great advice in here but there are 3 big lessons I want to share in this millionaire teacher book review…

1. What car to buy?

Imagine what it would be like if you could use a car for a few years and be paid to use it?

Rather than leasing a car, Andrew Hallam has an EYE POPPING tip to purchasing a car! 

The secret is:

Buy second-hand Japanese cars that have low mileage and are well maintained…

Monkey simple!

Japanese cars like Toyota and Nissan typically hold their value well and it’s not uncommon to be able to sell the car for more money a couple of years later. 

When comparing this to leasing a car the savings are rediculous! The average savings of buying ANY second hand car is $4,856 per year for a two-car household. 

That may not sound like a lot but wait for this…

If you invested $4,856 a year into an index fund that pays 7% on average for 20 years the final amount will blow… your… mind!!…

$277,455 

Is leasing 2 cars compared to getting 2 second hand cars worth $277,455 to you? (btw if you carried on for 40 years it would be $1,890,496!!)

Do you still think leasing that brand new Audi is a good deal?

2. Want Stocks? Get Index Funds 

This part of the book is more important than the air we breathe. 

There are numerous reasons why Index funds are the best way to invest in the stock market but here are the main points summarised:

  • The fees are so LOW in comparison to most funds that you can buy (this is why index funds win!)
  • They consistently beat mutual funds even though they cannot beat the market (they track the market)
  • They cannot go BUST, unlike mutual funds or individual companies!
  • It saves so much TIME
  • It forces you to buy low and sell high (if you invest monthly or you rebalance your portfolio once a year)
  • If fund managers struggle to beat the market, what chance do you think you would have if you do it yourself

3. Start Young

Let me tell you the story of Star and Lucy…

A 5 year old girl Star invested the $1.45 a day she earnt from recycling cans. She carried on investing $45 a month until she was 65 years old (a total of $32,400 invested). 

Her friend Lucy, started to invest $800 a month at the age of 40 until she reached 65 (a total of $240,000).

Star’s final value was over $237,052 more than Lucy, despite Lucy investing WAY more money than Star.

QUOTE The best time to have started investing was when you were born. The second best time is today

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But What About When the Market Crashes?


You’re smart enought to know it’s not if but when the market crashes. 

This FACT blew my mind!…

Over the course of 2005-2015 the Vanguard S&P 500 Index averaged 8% per year... This was during the financial crisis of 2008-2009!!

Now, let me ask you a personal question. Do you think you could buy more stocks if the media and the whole world were panicking about the stock market and telling you it could cause a financial melt down?

I know I would find it hard! 

This is the reaso why a typical investor in the S&P 500 only averaged 6.37% during the same time frame.

Fear meant that investors stopped buying when the market was “on sale”


Now imagine you keep paying in the same amount every month. It means you buy MORE units when the prices are low and less units when they are HIGHER!

e.g. Let’s say you pay in $100 a month into a Vanguard Index Fund. If the price of the index fund is $10 you can buy 10 units. If it has crashed and is now $5 you can buy 20 units (it’s on SALE!!)

It is for this reason that the Vanguard Retirement 2045 Fund returned an average of 7.39% to their investors between 2005-2015 but the average investor who had a direct debit with them earnt 9.32%.

A return of over 9% a year on average DESPITE the crash of 2008-2009!!

So What Should I do?


Just picture this for a moment… 

You never have to work again because your index funds provide you with MORE money than you need to live off.

To get to this stage we need to know some numbers. 

Let’s imagine you and your family can live off $50,000 a year. 

Let’s also assume your index fund returns an average of 7% per year.

Here’s the maths!…

Annual expenses/ Avg. return = Total nest pot to invest 

$50,000/ 0.07 = $714,285.72

Just think about it… you can spend $50,000 a year forever, without touching the initial “nest pot”!

If you’re thinking that it will be IMPOSSIBLE to get a pot of $714,285.72 then read on…

Let’s just imagine you can save $20,000 a year and invest it in the stock market. 

This would take you 17 years to reach your figure of $714,285.75 or 21 years to reach $1 million. 

I will go more into detail about the unltimate strategy in a future post. 

For now just know that the most important thing you can do it set up an account and GET STARTED! £100 a month will make a huge difference to your future. 

Pin this to come back to this article again later.

My Final Opinion – Millionaire Teacher Book Review


If you are thinking to yourself “to be able to retire after 17 years is not bad” then you are right. 

To be honest it’s much better advice than you will get from most financial advisors. 

However, this is not allowing for inflation or any changes in your lifestyle (maybe you want to have children or your kids are going to uni or you want a holiday home to retire with etc.) 

Plus you NEED to save $20,000 a year… EVERY year.

Andrew Hallam is clearly an extraordinary man. 

He was able to be self-disciplined and did some things that most people would not be prepared to do. 

Personally, I don’t believe in focussing too much on cutting expenses as it closes our minds and you will never be able to save more money than you earn. 

The focus should always be on increasing our income!

Whilst Mr Hallam may have given himself a comfortable life and a financial indenpendence from his portfolio, he has only become “rich” by becoming an entreprenuer. He has missed out this fact in his book (just like Dave Ramsey). 

He makes a lot of his income from books, courses and selling HIS products. 

If you want to be “Financially Independent and Retire Early” (FIRE for short) you realistically need to find a side hustle or alternative ways of MAKING money. 

Millionaire Teacher Book Review: The “MakeTimeOnline” Review Final Word


Now that you’re at the end of this millionaire teacher book review, you will have learnt the importance of investing in index funds and living frugally. 

If you start early enough you can utilise compound interest to work for you, without having to put as much capital in yourself. 

Let’s face the reality that index funds consistetly beat private investors and mutual funds due to:

  1. Fear & Greed (people tend to sell low/ buy high)
  2. Fees (mutual funds need to beat index funds by over 4% due to taxes, fees and commission costs

If you are looking to invest in the stock market this book will provide you with a guide as to how to start and the best index funds to use (if you live in the US, UK, Australia or Singapore).

Keep changing for the better,

Mike

p.s. If you have any questions and I mean ANY questions about Millionaire Teacher, please leave them below. If you have read this book before or something similar please add your thoughts.

p.p.s. If you are serious about making money online, I would advise you to check out my #1 recommended program here