From the book Millionaire Teacher by Andrew Hallam.

These are my key notes from the book.

9 Rules

1.  Spend like a millionaire (or less) if you want to become rich

2.  Start investing as early as possible – after paying off credit card debt and other high interest loans

3.  Invest in low-cost index funds instead of actively managed funds. Nobody can consistently pick “winning” active managed funds ahead of time

4.  Understand stock market history and psychology so you don’t fall victim to the craziness that infects every investing generation (often, more than once)

5.  Learn to build a complete, balanced portfolio with stock and bond index funds that will easily beat most of the pros

6.  Create indexed accounts no matter where you live

7.  Learn to fight an advisory’s sales rhetoric

8.  Avoid investment schemes and scams that tickle your greed button

9.  If you must buy common stocks, do it with a small percentage of your portfolio and pick a mentor such as Warren Buffet

Other Notes

Cars – old Japanese (Toyota) 1500 to 5000 range. Buy and resell for bout same price

Home – double interest rate. If can still afford after doubling interest rate then can afford

5 fees in actively managed mutual fund

1. Expense ratios – costs associated with running the fund
2. 12B1 – 60% have these, marketing fees essentially
3. Trading costs – obvious
4. Sales commission (loaded funds) – load fees – fees to buy/sell the fund
5. Taxes – 60% mutual funds have them, associated with how much buying and selling happens, have to pay taxes when fund makes money

Morningstar – rates mutual funds

Hulberts financial digest – investment newsletter that rates performance predictions of other newsletters

Vanguard – u.s. based non-profit financial service company and largest provider of index funds. AssetBuilder, RW Investments, Aperio Group, Evanson Asset Management – all other companies that charge low fees to build index fund accounts.

Avoid actively managed tax based mutual funds

Dollar-cost averaging = putting an equal dollar amt each month into fund

The value line investment survey – free, online historical data of the 30 DOW Jones industrial stocks

Bond allocation percentage of portfolio equal your age. 40% of portfolio should be bonds when you’re 40.

Bonds are important – keep your portfolio safe when stocks plummet

Short term first world government bonds or high quality corporate bonds

Why short term? If bond pays 4% annually over next ten years inflation will cancel that out (box of cereal increases in price by 6% each year you lose money) short term = 1 to 3 yrs

OR….buy short term gov bond index!

Total international stock market index

35% in U.S index, 35% in international index and 30% in short term gov bond

If you do this and make monthly investment purchases, then look at which index (us or int) and buy the one that has done worse!

Less than one percent difference between the two indexes since 1970. There are times when one lags behind other and we need to take advantage of that.

• Vanguard U.S Bond Index VBMFX
• Vanguard Total US Stock Index VTSMX
• Vanguard International Index VGTSX

Exchange Traded Funds – index funds that are purchased off the stock market exchange using a brokerage firm – small fee each time you buy more (invest every month could cost $10 every time)

Paying even 1% each year to purchase index fund (expense ratio) can costs you thousands

Pension fund managers are the gods dealing with huge gov portfolios. They have their money 60/40 stocks bonds, pay lower fees than retail investors, and don’t pay taxes on capital gains.

Study from 1988 to 2005 pensions still didn’t beat index portfolio of 60 in S&P 500 index and 40 in intermediate corporate bond index

BUSINESS SECTION

Business earnings vs stock price relationship – stock price might soar ahead of business earnings but will always come back down to fall in line with business earnings

Price-earnings ratio – indicates how cheap or expensive a stock is. A $5 stock could be more expensive than a $100 stock. Lower is better. $5 per stock, 5 million shares buy all for $25 million (5×5) so can say value of company is $25 million. If business earnings are $1 million each year them can say price of company is 25 times greater than firms annual earnings. So P/E ratio is 25. Business two also has $1 million in annual revenue. Stock price is $100. If have 20,000 shares buy all for $2 million total. 2 million is just 2 times higher than annual business earnings of 1 million so P/E is just 2. Much better. Essentially not as expensive…

Technology stocks vs old economy (Pepsi, coke, Johnson and Johnson) – tech company like Dell makes product that gradually gets cheaper over time. 20 years from now will Dell be common household PC name? Don’t know. But coke or Pepsi makes products that price goes up with inflation. 20 years from now will still probably be a household name.

If have to do individual stock picks buy subscription to investment research Value Line. 10 year track records that average 15% return on total capital