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Monday, January 24, 2011

Andrew Hallam Goes 100% Indexed

Andrew Hallam "The Millionaire Teacher"
Andrew Hallam, author of the forthcoming book "The Millionaire Teacher" to be published by Wiley, has sold $700,000 of individual stocks and is now invested solely in low-cost index funds. He  invested the entire amount in 3 funds:
  • 40% in XSB-To (the short-term Canadian bond index)
  • 30% in VTI (the total U.S. stock market index, with an expense ratio of 0.07%)
  • 30% in VEA (the low dividend paying first world international index, with an expense ratio of 0.15%)
Many people label this approach "passive investing" and, unfortunately, this is construed negatively by some people. They just feel like they have to try to "beat the market."  For this reason, I refer to it as "evidence-based investing" when explaining it to new clients.  In his post, Andrew, a long-time advocate of low-cost indexing, talks about the evidence presented by John Bogle in "Don't Count On It!" that swayed him to keep it simple with three funds.

Notice the low-expense ratios for the funds Andrew is using, and contrast this with the costs involved with active managers who use mutual funds with an average expense ratio of 1.4% tacked on to their management fee, not to mention other more subtle costs.

DIY investors would do well to examine and think about Andrew's approach to investing and read his book when it is released. Along with his many fans, I am anxiously awaiting it.


  1. That is definitely a very Bogel-like portfolio, or a second-grader couch potato portfolio. Surprised he sold his Berkshire stock though.

  2. I liked how you re-framed "index-investing" to "evidence-based." That does sound like a superior way to present it!

    Simpler doesn't necessarily mean inferior.

  3. Thanks for the mention Robert.
    As for Berkshire Hathaway, I would probably still own it if I could be guaranteed that the holdings would passively remain as they are when Buffett is gone. But a money manager who's my age is going to be running the acquisition side of things when Buffett dies. I have no idea what that guy's going to do. I trust old guys over young guys anyday. So....I'm fully indexed. And I'm guaranteed to perform in the 90th percentile if I can keep my head with a passive strategy...which I can. And with a fully passive strategy (evidence based strategy!) there are better odds of me outperforming the guy Buffett hired than the other way round! I'm an odds guy.

  4. @Grouch See Andrew's response. It will definitely be interesting when Buffett and Munger step down.

    @Shawn I got the idea to reframe it from, of all things, the "death tax" tag cleverly put on the inheritance tax debate. Behavioral finance people teach us that labeling is very important.

    @Andrew It's interesting that you would consider hanging in with Berkshire if the new manager kept things pretty much the same. I find the passive strategy a challenge these days with interest rates so low. I find myself tilting a bit towards the shorter end and having representation in dividend yielding ETFs as well as Trust Preferred ETFs.