Reading the book 'Millionaire Teacher' showed me the huge mistake I was making with my retirement savings
Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.
- My dad taught me a lot about money growing up, but at a certain point his advice fell on deaf ears — I needed to learn these financial lessons for myself.
- That's when I discovered the book "Millionaire Teacher" by Adam Hallam. I had a lightbulb moment when I read his words: "It's not timing the market that matters, it's time in the market."
- Up until that point, I was letting my retirement savings sit idly in a Roth IRA, too afraid to invest my cash. But "Millionaire Teacher" changed all that.
- Sign up to get Personal Finance Insider's newsletter in your inbox »
One of the things I find so frustrating about the world of finance is how high the barrier to entry can be. A lot of this stuff isn't covered in school, so if you don't have someone in your life who teaches you about money, it's easy to remain in the dark until well into adulthood.
Lucky for me, my dad has always been eager to share his wealth of financial knowledge, but there came a point when his advice started falling on deaf ears. It's not that what he had to say became any less helpful, it's that I realized I needed to start understanding some of these concepts myself instead of relying so heavily on his input.
Happily, that's around the time I crossed paths with the book "Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School." It's a text by Andrew Hallam that wound up jump-starting my financial independence, and one that I'm quick to recommend to absolutely every new investor who's trying to master the basics.
The backstory on my financial life
Let's rewind to 2017. Four years before, my dad had finally convinced me to open a Roth IRA, and now I was dutifully maxing it out every year. What I wasn't doing, though, was investing my contributions into the market. Instead, my chunk of change was sitting neglected, gathering dust in an account at Vanguard while I missed out on hundreds if not thousands of dollars in dividends.
In hindsight, I see what a mistake this was, and why my dad kept insisting over those years that it wasn't enough to just save the money — that I needed to be growing it as well. But in the moment, I was experiencing a paralyzing mix of fear and ignorance that made it impossible for me to take that leap.
Basically, there was a major blind spot in my understanding of the stock market. I mistakenly believed that every investment strategy carried the same amount of risk; that any amount I invested was apt to vanish in the blink of an eye. I thought there were "good" stocks and "bad" stocks, and that the only people who made any money off their investments were the people who knew the difference, and were constantly moving their money around to stay ahead of the odds.
Since I wasn't one of those people, I assumed it was safer for me to stay out of the market altogether. I could only barely afford to set all that money aside every tax season, so there was absolutely no way I could afford to lose a single dollar of it. I was sure my dad had only the best of intentions, but the territory he was trying to steer me into was too uncertain, so I kept ignoring him.
'Millionaire Teacher' was the book I needed to kick-start my financial independence
Half of me hopes you're reading this and shaking your head ruefully at my ignorance right now. The other half, though, hopes that this feels all-too familiar, because that means that you just might be ready for a little "Millionaire Teacher" in your life. That's where I found myself in early 2017, wanting desperately to take ownership of my financial situation, but with no clear idea how.
Enter my New Year's resolutions.
Because I'm easily overwhelmed (are you sensing a pattern?), I have a tradition of giving myself monthly resolutions instead of yearly ones. I set a theme for each month, and assign myself a book to read in conjunction. That February was Money Month, and since I'd seen a friend on Facebook raving about "Millionaire Teacher," I decided to read it. (It also helped that the book is a mere 230 pages.)
And oh, my god, am I glad I did. In page after page, chapter after chapter, Hallam laid out concepts that had been completely inaccessible to me in crystal clear, unpretentious language.
It's hard to even choose what the most helpful pieces of information were, because they've all served me so well over the intervening years. But what I was most ready to read at the time was the fourth chapter, titled, "Rule 4: Conquer the Enemy in the Mirror."
My lightbulb moment
That chapter read like it was written just for me. Not only did it explain index funds and introduce the concept of dollar-cost averaging, it reassured me that: "It's not timing the market that matters, it's time in the market." It was the definition of a lightbulb moment.
Up until that point, I hadn't realized that the market at large had an average return rate of 10%, even when downturns like the Great Depression were taken into account. As a young investor, I'd be able to take advantage of that big-picture return rate simply by staying invested and getting a strong stomach for the natural ups and downs that would occur along the way.
In fact, Hallam urged me to look forward to those dips, and to see them for the excellent investment opportunities they are. He described the movements of the market as similar to those of a dog on a leash, where the dog represents stock prices, and its owner represents business earnings. When the dog races ahead, vastly outpacing its master, many traders place bets that the dog will go on at that speed forever. But bound by a leash (long as it may be), the movement of the dog must inevitably slow or stop.
Conversely, when it's the owner ahead and the dog far behind, many investors start to get nervous, fearing that that pattern will continue forever. Once again forgetting the leash, they pull their money out of the market when they should be adding capital.
When the dog is far behind its owner, Hallam urges the reader to see that not as stagnation, but as potential for growth. Logically, he pointed out, we know that the leashed dog and its owner will cover the same amount of ground in the same time frame, even if they travel at different speeds. So buying in when stock prices are low ensures that you'll get even more bang for your buck when the dog inevitably goes barreling past you again.
Plus, with so many decades between myself and retirement, I had ample time for all those ups and downs to even out into a remarkably low-risk upward trajectory.
I immediately invested my retirement savings instead of letting them sit idle
It's hard to overstate just how helpful this information was to me when I received it. After I read that chapter, I logged onto Vanguard that very night to invest my Roth. Based on Hallam's advice, I decided on two index funds, one international (VTIAX) and one US-based (VTSAX), and one bond index fund (VBTLX). Because of my age, I started with 90% stocks and 10% bonds, a ratio I could reset once a year when I made my annual contribution, and that I'd adjust as time went on and I got closer to retirement.
I think there's a good chance that these are the exact actions my dad would have urged me to take, if I'd been in a mindset to ask him more specifically what I should do. But that's not where I was. I felt like I'd reached an age where I was unwilling to make money moves that I didn't fully understand myself, since that seemed to be how so many people got themselves into trouble. I knew I needed to take the reins myself instead of relying blindly on my dad's input, but I didn't know how to get there.
As it turns out, "Millionaire Teacher" was the exact tool I needed to empower myself, lift my paralysis, and jump-start my financial independence for good; to this day, I still rely on the financial strategies it taught me.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
Source: Read Full Article