Afford Anything - The Four Quadrants of A Successful Life, with Andrew Hallam

Episode Date: January 12, 2022

#359: Money, relationships, health and purpose: life is running smoothly when all four of these elements are working together in tandem, like wheels on a car. But how can we make spending and investing choices that facilitate stronger relationships, better health and a deeper sense of purpose? Andrew Hallam, who became a millionaire on a teacher’s salary, shares researched-backed, evidence-based insights into how to find balance, drawing from the worlds of behavioral finance and stock market history. Subscribe to the show notes at https://affordanything.com/shownotes Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every choice that you make comes with a trade-off, and that doesn't just apply to your money. That applies to any limited resource you need to manage, like your time, your focus, your energy, your attention. Saying yes to something implicitly carries an opportunity cost. It means you're saying no to all other options. And that opens up two questions. First, what matters most? Forget what society tells you ought to matter most.

What genuinely is a priority in your own life? That's the first question, and the second is how do you put that into action? How do you make decisions on a daily basis that reflect that which matters most? Answering those two questions is a lifetime practice. And that's what this podcast is here to explore and facilitate. My name is Paula Pant. I'm the host of the Afford Anything podcast. And today, the millionaire teacher, Andrew Hallam,

joins us to talk about how to optimize your income and optimize your wealth for maximum happiness. This comes from two things. One is investing responsibly, and the other is by living according to your values. In this upcoming interview, we draw on behavioral finance and evidence-based investing

to discuss how to maximize the four quadrants of a successful life, money, relationships, health, and purpose. Now, Andrew Hallam has been a two-time guest on this podcast way back in 2017. He was a guest on episode 59 and episode 60. A little bit about his life, Andrew, upon graduating from college, took a job as an English teacher with a salary of 28,000 per year in take-home pay.

So after taxes, he was taking home 28,000 per year. He saved nearly half of his income, even at that salary. He did so by avoiding paying for his housing. was a full-time house sitter, just searched for house-sitting gigs so that he wouldn't have to pay rent. He rode a bicycle to work. He even went so far as to pick his own clams from the sea rather than pay for it at the grocery store. So he had $12,000 in student loans. He paid them off within one year of graduation. And after that, he aggressively began investing in the market. By his mid-30s, he became a millionaire on a teacher's salary. And by the time he turned

40, he was very comfortably financially independent. But we're not going to talk about that today. If you want to hear that story, you can hear that in episode 59. Today we're going to talk about the research that he's synthesized around the relationship, that Venn diagram intersection between wealth, health, and happiness. So to learn more about the four quadrants of a successful life and how money plays a role in that, here's Andrew Hallen. Hi, Andrew. Hi, Paula. Thanks for joining us.

Thanks so much for the invitation. Andrew, you have written extensively about how to grow wealth, how to become a millionaire on a middle class salary. Your current focus, however, is a bit more holistic. You talk about the four quadrants of a successful life, money being one of those four quadrants. Can you elaborate on this concept? Yeah, what I would find is that when we're looking at success or we're trying to define,

success. When we look at what people's motivations are for doing things, when we continue to dig with that question why, it eventually boils down to life satisfaction. And so as I saw it, and as I see it, and as a lot of the research really pans out, life satisfaction equals success. It's not generally the other way around. So when we think of success, we think of just monetary, but you can have people with all kinds of money who aren't successful if they don't have strong life satisfaction, great relationships. So I boiled down success into four quadrants. One was enough money. For sure, that's something that we all need. So we have enough money so that we can keep a roof over our heads. We can obviously have good food and we can have our health and be able to save or at least have some

money required for spending on cool things like cool experiences and then saving for our future. So that's a one quadrant of success. The second is relationships, and not in that sort of order, because relationships are key. The third is your health. You have one vessel. And so to abuse it is crazy. It's hard to imagine that we could be really successful as human beings if we're not looking after our health.

And a lot of people that get really lopsided and focused just on money end up dropping the ball in that health and or relationship department. And then the fourth quadrant is a sense of purpose, like what the Japanese called Ikega, that thing that gets you up in the morning. So the idea, too, that when I think of FI, when I think of people pursuing financial independence, when you look at people who have done that successfully, none of them are doing nothing. We need to continue to do things. And typically what the research suggests is that if we retire early, and in most cases, people who retire early on aggregate, end up dying earlier. And that's something a lot of us don't think about. And so, you know, when we retire, it's so important regardless of what age we retire at or what age we're

financially independent to dial back and to continue to work, to continue to do things to give ourselves a sense of purpose. The research on this is so robust with respect to things like Alzheimer's disease and dementia. And that not to say that you're not going to get Alzheimer's or dementia if you end up working a long time, but it's that brain activity that's essential because you're dealing one with different people when you're continuing to work, working part-time at something that you're passionate about. You're working with new ideas generally. So you're just, you know, you're not letting cobweb set in the human brain. Right. Can you elaborate more on the research around early mortality among people who retire? Because I've looked at that research

as well. And I know that most of, all of that research has been done on people who retire at traditional ages. There hasn't been any significant research done on people who have quote unquote retired in the FI sense, people who've retired in their 30s or 40s. But in terms of the impact of retirement on a person, once they're in their 50s or 60s, can you describe some of those correlations? Well, it's hard to say when we're not looking at a case group of people who are retired early. But, you know, when you're looking at these studies, and one in particular published in the Journal of Epidemiology and Community Health, suggesting that even retiring like one year before a traditional retirement age can end up increasing a person's level of

mortality regardless of what their initial health was at previous. So, you know, I know Harvard Health did an interesting study that was really similar as well. And I think, that it's something that we should really be focused on as young retirees too. But again, it's a natural thing for us to do. Like when we're striving for FI, we're the sorts of people generally who are goal-oriented anyway. So even though many of us will set these goals to retire early, once we've achieved it, we don't typically end up stopping.

And you've probably read and interviewed different people who have done it and they've stopped for a while thinking that, you know, playing golf every single day and going to the beach is going to be like the cats a s-hast they're going to absolutely love it but eventually what ends up happening is these people and I think because we're wired to be productive end up doing things and I think that's the healthy thing that we need to keep in mind when we're striving for fI because if we don't you know we're not going to be feel like good productive adults and our moods are they hugely affect our immune systems in terms of how we think and feel both about ourselves and about the world in general. It affects us on a cellular level. We need that sense of

purpose. Let's talk more about then how to develop that sense of purpose. You mentioned the sense of purpose as one of those four quadrants. At a tactical level, for the average person who's listening to this, how can they take steps in assessing their current sense of purpose and assessing whether or not they're on the right track, and then how can they take tactical steps to get them onto the quote-unquote right track or better-fitting track if they don't feel as though they're currently there? I think a broad interest base is probably key, Paul, where you try different things. And you're not just trying different things when you reach FI.

You're trying different things all the time. And they may not all be work-related, but you'll discover some passions by experimenting with different things. So, for example, somebody might decide that they want to take a personal training course to become a personal trainer. So they're athletic. They enjoy that. Take a personal training course on the side. They like it. And they've got a purpose already. So it's something that they could then do once they reach FI or they could even tinker with it as a side hustle if that's what they want to do. But I see that as really key. So you could do that with just about anything. But trying different things, exposing yourself to different things, I think tactically, Paula, it's probably the best thing that you can do

rather than getting to some point where it's like, okay, well, now what do I do? What do I want to do? Let me start doing a few things just to see if they make me happy. And I don't think that's as productive. How then do you differentiate between purpose versus a fleeting interest? I think it's a passion that ends up igniting or it doesn't. So like my father, for example, introduced me to a wide variety of sports. And I'm so glad he did that. And some were fleeting interests, just like some, you know, for adults, you might take guitar lessons or language classes and figure, you know, that's not really for them. It might be for a little while. But then I think having that broad base where my tad, he introduced me to like every single sport.

And what it did was eventually. And there's some that I did for a little while. But there was others that I grabbed whole love that I ended up doing for a really long time, became passionate about. It became part of who I was. And I think that's something that people can end up doing. I think it makes sense. When it comes to defining and refining our sense of purpose, how do we think about managing our money and managing our investments within that context? How do those two circles on the then diagram intersect?

When it comes to managing money, I've always felt that the less you do in terms of spending time thinking about it, the better. So if it's an actual investment platform, the less you're doing, the better. And a lot of people think that they have to actually follow their investments and they have to track the economy and they have to purchase the latest, greatest, ETF or the latest greatest stock. But, you know, I'm a little bit in the camp of Kathleen Vos when she looked at how much we actually think about money with respect to how that affects us on a social level. And so Kathleen Vos's research is fascinating in this capacity because she shows the more we think about money, the less helpful we are to our fellow human beings, typically. And I'm not going to say that everybody who thinks a lot about money isn't going to be helpful to other people or as social as they could be.

But on the aggregate, that's the research that she's found. And she ended up looking at dozens of different studies whereby that premise was replicated. And that's what I think is so interesting. So now back to your investments. The idea that, okay, one, if we think less about it, I'd like to think of your investment portfolio as like a bar of soap in the shower.

Like the more you get it, the smaller it gets. And Morningstar's research on multi-asset class investment funds is fascinating. You know, somebody might say to me,

okay, well, Andrew, you know, you're talking about just feeling good. No, I want to make lots of money, so I want to think about this.

I want to actually follow my investments. I want to track how the market's doing. But if you look at Morningstar's research, one of the cool things Morningstar's been doing for years is it has been looking at cash flow analyses of different funds. So what's going into them, what's going out of them. I'll give you an example of ARC funds, for example. She absolutely ripped it up in 2020. And so many people ended up looking at Kathy Wood's funds, June, July, August of 2020, getting really excited because

it had this great track record, right? And especially in 2020. And what it ended up happening is most of the money that went into those funds, went into Kathy Woods, ARCETs, went in late. So now you get 2021 where despite the fact that the stock market's up about 28% for the year, Kathy Woods' arc funds are down. So she's lost to the index. The tragedy is in people who are watching things rise that jump onto rising bandwagons end up buying high after it's really, really popular. And it's a human nature sort of thing to do, like trying to follow whatever's hot is a really bad strategy. So there was an interesting study that was published, and I think Bespoke did the study,

where they looked at the average investors' return based on cash flow into Cathay-Arx funds since their inception. And so since their inception, especially because of the last few years, they've just had this incredibly profitable, like 30% per year, 35% per year run since their inception of these funds, which is unbelievable. However, the average investor in those same funds only averaged at the time. And this study was done to February 2021 earned a return of 5% per year. So what we would get now is if we were to look at a cash flow assessment of that, we would find that most of the people that invested in Kathy Wood's funds, because they've dropped

quite a bit since February, would actually not have beaten inflation. So the idea that we chase rising asset classes and are always looking for the thing that's hot eventually usually comes down to bite us in the butt. So now back to the asset allocation funds, the really simple ones like Vanguard's target retirement funds or Vanguard's life strategy funds. So a Vanguard Life Strategy Index fund, for example, maintains a consistent allocation as a component of U.S. stock market index, international developed market index. emerging market index and a bond market index. And Vanguard essentially just rebalances that allocation to maintain it. And they do it with monies that are coming in and out. So they're not always like selling things to rebalance more money.

When money comes in, they just push that money in manner such that that fund typically then maintains that allocation. But this is a really hands off approach. And so many investors will say like, you know what, that's just that's just way too simple i want more control and i'm going to be able to do better on my own often doing research but the irony is that when morning star does its cash flow analysis they find that investors in these all-in-one funds more or less set it and forget it products because they don't end up chasing the market they end up paying or speculating or not knowing

when they should rebalance they end up earning on aggregate higher investment return than the funds themselves, at least the study was done over the last 15 years. And I like that 15 year study, Paul, because when you're looking at a 10-year study in terms of investment behavior, that tells you nothing. Because the investments, you know, the S&P 500 has done nothing but rise for the last 10 years. But now add in something that's a bit more natural like a market cycle. So we had the 2008, 2009. So we're looking at a 15-year period ending 2020. What we see is really, really interesting is that the investors in the all and one funds on aggregate, their money weighted returns were actually better than the posted

returns of the funds themselves. Now taking contrast, someone who bought the S&P 500 index, on aggregate, their money weighted returns underperformed, the very index that they owned, by about 2.2% per year over that same 15-year. duration. So the thing is that as the research is so compelling on this, Paula, that if we think less about our money, we put our money into something that's simple, that's set at a specific allocation. Not only does it free up more time for us, so we don't have to think about it, but on aggregate, our investment returns are going to be better. And back to that research that Kathleen Bowes talks about, and I don't think we should be ignoring that, is that the less we

think about money, the better off we're going to be. So if we can put our money related things on autopilot, this is always going to be a good thing to do. And so then to that then diagram intersection of money and purpose, the more that we consider money to be purely a tool and not intersect it with purpose, the more we're free to actually pursue purpose itself. I think that makes sense, doesn't it? Right. It is by virtue of automating finances and spending as little mental bandwidth on finances as possible that we then are free to focus on purpose, as well as relationships and health and fitness. It is really interesting looking at, you know, the returns and Morningstar are doing their analysis on even over the last 10 years when

investing was a piece of cake and how EGF fund and ETF investors underperformed by about 1.75% per year. This is unbelievable, considering that we've had pre-eastern that we've had pretty easy times. I mean, anyone who says, well, wait, Andrew, you know, 2020 was really scary. And I'll tell you, I mean, I've been investing for 32 years. That was nothing. I mean, if you're a, if you're a historian of the markets, that was nothing. That was like a blip for a couple of months. And the calendar year ended up over 20% positive. So we can't look at that and say, well, I was able to handle that so, you know, I can handle a risky allocation. in terms of my portfolio and I can move things around accordingly to my benefit as well.

Well, you probably haven't been tested by a real down market. Right, right. And those of us who were investing in 2008 know what a prolonged and protracted downturn feels like. Yeah, I think even like 2000 to 2003 was even worse because, you know, with 2008, we, yeah, it was really scary because everybody's always calling financial Armageddon. Anytime you get a market crash. Anytime. I mean, if we get a market crash next week, we're going to be talking about financial Armageddon,

and the news media is going to say, you know, it's only going to get worse. So I don't want to downplay that. And perhaps I shouldn't have downplayed the 2020 March drop as well, because that was really scary for a lot of people. But it's the continuous ones where I look at something like 2000, where the market dropped, and then it dropped again in 2002. Sorry, 2001 it dropped.

So it dropped in 2000. It dropped further in 2001. It dropped again in 2002. Just before the Iraq war started, 2003, it dropped again. I mean, this is where a lot of people were seriously starting to question whether it made sense to invest in equities at all. Every time a thing like that happens, the cries of this time it's different always come out. And every time people start to argue this time it's different, which we all know are, are the foremost dangerous words in finance.

That's a quote from Sir John Templeton. But every time that people claim this time it's different, they cite attributes of this point in history that are different. So right now, for example, cryptocurrencies, NFTs, new technologies, the global pandemic, there are many attributes about our given point in history that do make this era different than the late 90s, early 2000s. How do you then respond to people who claim that the rules that applied to the stock market of the 20th century may not apply to the market of the 21st?

Every era is different. I mean, the 1920s was a different era. The late 1950s where we had an explosion of electronic stocks. I think it's so important to become a student of financial history. If you have an opportunity to go back and read a finance book that was written in the 40s or the 50s, if you have an opportunity to read some of Benjamin Graham's class stuff like securities analysis, every time it's different. I like what Mark Twain says.

You know, like history doesn't repeat itself, but it rhymes. And so you get these periods where in the 19th, 50s, for example, when electronic stocks were anything that had a tron at the end of its name, much like a dot bombed in the late 1990s, was absolutely soaring. So we had prices that were exceeding far faster than business earnings. And so, and people said, well, this time it's different. We haven't had these kinds of electronic businesses. They're changing everything. Now everybody's going to have televisions in their homes. And this was a really, really big deal. people for the first time ever the world was coming to them visually there were so many tech stocks that were absolutely soaring and it was one of those things that warren buffett had a really hard time actually getting his head around at the time he was saying i think this was really right into the 1960s where eventually he ended up closing his limited partnership as a result because he said i can't really find an intelligent connection between prices and

actual corporate earnings. And then as we know, you know, from 1965 to 1982, that's a 17-year period, the Dow was at the same level. So the S&P 500, let's put perspective here, the S&P 500 over a 17-year period, including reinvested dividends, did not beat inflation. But people in the late 50s said, no, no, this time it's different. People would say that in, I'm going to give an example of Singapore because in the late 1990s, people said that about Singapore and real estate. It had been absolutely soaring. And everybody had said, look, this time it's different. If you understand Singapore, it's an island city state.

It's 42 kilometers long and 24 kilometers wide. So there's a finite piece of land there. The natural inclination was for people to say, no, wait a second, here, based on supply and demand, especially because we can't build, you know, we're not making any more land, literally. Prices have to continue rising. But they ended up having a real estate crash in 1997. And when I was living there in Singapore in 2013, prices still hadn't ended up back at the 1997 level. And what triggered that crash?

It was, I think, a couple of things. A lot of these things end up, you know, it's easy to look back retroactively and try and retrospection and try and determine like what it actually was. In Asia, one of the things that we really had was, I mean, a whole series of economic situations here. But one of them was just that prices had risen so much faster than rents. And with corporations, prices had risen so much faster than corporate earnings. And so you could see it with Japan. Japan was a case in point. it was the world's biggest market.

It was the world's biggest stock market in the late 1990s. It was bigger than the United States. It was worth more than the U.S. in terms of market capitalization. A lot of people forget that today. And its prices had soared exponentially. And things just got so, so overheated. And it doesn't take a lot, Paula, before, like,

it could be some kind of economic span. Somebody gets a cold and then everybody gets a flu. It's just one of those things where once you get a, degree of panic selling early on as well, then it just cascades. And so eventually there had to be a reversion to the mean. And we always get this with bubbles. Like we always need to have some kind of reversion to the mean. It's just that thing that happens. Now, we look at all these different countries in terms of cyclically adjusted price to earnings ratios. It's look at, you know, how price to earnings are. When we look at a cyclically adjusted price to earnings ratio is an average

of corporate earnings, injustice to inflation over the previous 10 years compared to current stock prices. And when we get above a certain threshold, something like 20% or 30% above what the median typically has been, then we usually get almost always a really bad decade that follows. So this sort of rule has counted for, it's Canada, whether it's Japan and whether it's the United States,

It's just been this eerie reality for all of these different markets historically. And one of the things we, you know, when we show people this data, some people will look at cyclically adjusted PE ratio and see it at, you know, in 1995, it was at 25, 26 times earnings. And that's about where it was at in 1929. But there are people that actually try and time it. But I like to think of the market as like in charge of, I think like Loki that the Norse god of mischief. is in charge of the stock market. He just wants to try and screw with anyone who tries to actually speculate. And so he messes with anyone who says, okay, you know, if you try and guess or pull out

of the market based on something like a CAPE ratio, you're going to get, you know, your butt handed to you in a sling. So in the case of people trying this in 1995, when the CAPE ratio hit this all time high, the stock market over the next four or five years ended up making about 220 percent. So again, we're in this situation now. where we've got a really high CAPE ratio. You know, it's as high as it was in the year 2000. We're at about 40 times earnings.

And the idea that you would try to pull out of the market is kind of dangerous. So what I would suggest, of course, is because you could get another 1995 to 2000, where the markets end up increasing by another 200%. So keep diversified. Don't chase the U.S. stock market. And that's one risk a lot of people do is they end up chasing the rising market. and the U.S. stock market's very expensive, whereas developed international and emerging markets are actually relatively cheap. So if you've got a globally diversified investment portfolio,

overall, it's not going to be overly expensive. And that's not to mean that when the markets crash in the U.S., and they will. That's not to mean that all of the other markets won't come down with them. They will. But it'll be the other markets that are more reasonably priced that will end up recovering far faster. So we've had to be. that every time. It's just been this historical thing, but it's the idea of us trying to time it, which is foolish. So I come back to those life strategy funds. Don't worry about where the markets are at. Don't follow the markets. Don't try and pick what's hot. Don't try and predict anything. If you invest in a set it and forget it, life strategy fund or target retirement fund, you're going to

be 95, 99% of so-called sophisticated investors over your lifetime. And it really is, is over your lifetime, that's the only measurement that counts. It's not short term. It's not, I'm going to retire in five years. So this is my point of reference. No, your point of reference is how long are you going to be around? We'll come back to the show in just a second. But first, Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also powered by the latest in payments technology built to evolve with your business. Fifth Third Bank has the big bank muscle to handle payments for businesses of any size. But they also have the FinTech Hustle that got them named one of America's most innovative companies by Fortune magazine.

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all month long. I use Wayfair to get lots of storage type of items for my home, so I got tons of shelving that's in the entryway, in the bathroom, very space saving. I have a daybed from them that's multi-purpose. You can use it as a couch, but you can sleep on it as a bed. It's got shelving. It's got drawers underneath for storage. But you can get whatever it is you want, no matter your style, no matter your budget. Wayfair has something for everyone.

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what kept coming to mind is that these conditions that you've been describing historically sound very much like the U.S. market today. So as you were describing corporate prices not being reflective of corporate earnings, corporate stock prices, of course, the company that immediately came to mind today is Tesla. And Tesla is just one of many, many companies that has a current stock price that is absurdly high relative to their earnings. And yet that condition has continued for literally years at this point. In addition to that, getting away from individual stocks and onto broader indices and broader asset classes, every asset class is high right now, from equities to real estate, even cryptocurrencies. Anyone who is afraid of heights is afraid of the entire market right now.

So what should a investor who is thinking long term, who is thinking about returns over the span of their lifetime, what a prudent approach should they take? Is it more international diversification? Is it a greater bond allocation? Is it a barbell allocation? And this is in most people's case, a lot of people are, they will chase, right? asset classes and they'll be very overweight U.S. market. And yet when they do that, if they're fully 100% U.S. stocks, they're really giving up about almost half of the world's global market capitalization is elsewhere.

And emerging market shares are cheap. International developed market shares are cheap. I mean, not just relatively cheap compared to the U.S. market. actually pretty cheap. Like their cape ratios are slightly lower than average. And I think rather than somebody then tactically shifting their money around, I come back to that simplicity of that diversified, you know, all in one portfolio. And I think that if somebody is going to maintain their portfolio of individual ETFs,

the idea that I would suggest is make sure that it's fully global. diversified so that you mitigate your risk because there's no doubt there's extremely high risk in the U.S. stock market right now. Are stocks overpriced? Globally no. Are U.S. stocks overpriced? Yeah. By every traditional measurement, they definitely are. That doesn't mean that you should ditch U.S. stocks. We could end up seeing them hit new highs for the next three, four or five years. But eventually, yeah, we're going to get a crash. And eventually it will always be, as it always has been, the most pain will be felt by that market, which is priced highest relative to corporate earnings. Now, two more things come to mind.

Number one is there are people who argue that because the U.S. stock market is so heavily, particularly large cap stock, so heavily comprised of companies that have a major overseas footprint, companies in the Dow. who do so much of their business overseas that having that major large-cap allocation necessarily gives us inherent global diversification in itself. That's the first thing that comes to mind. The second thing that comes to mind is the other element of that is currency conversion risk, which is an added layer of risk that we expose ourselves to when we directly invest in emerging markets or develop market funds? I think with currency risk, it's as much a benefit as it is a risk. So it's neutral. Now, there are going to be times when the U.S. dollar ends up doing better than the euro and the Canadian dollar and vice versa. So long term, there is no risk. This is just for people who think

really, really short term, Paula. There is no risk when we look at long term because it's going to be ups and downs where you get like the Canadian dollar, for example, was valued so much higher than the U.S. dollar in 2011 to 2014. And now we have a flip. Now we have a reversal. And you're going to get that multiple times over your investment lifetime. So the people who are thinking about currency risk in that respect and saying globally diversified portfolio offers currency risk aren't thinking long term.

Sometimes it will benefit you. Sometimes it won't. But overall, you're going to do pretty reasonably, you're going to do reasonably well with it. In fact, you'll probably do far better than most because most people are thinking about things like currency risk. And they're actually using that and playing that into whatever allocations they're shifting around. I love the fidelity study. You know, it looked at what Fidelity's best investors were. Like, who are they?

Oh, are they like people that are following the economy or the economists? I know where you're going with this. Yeah. There are people who were dead. Who are dead. Yeah. Or forgot they had accounts with Fidelity. This is the reality.

So, yeah, the currency risk. aspect is a mute point. The interesting thing too, and I understand the idea of a company like Coca-Cola, for example, because I believe you can say, oh, but Coca-Cola has 70% of its revenues that are overseas. So surely this is a global company. And no doubt it is. But having said that, when it comes to how companies are actually priced, that's a different thing. Now, we have to remember that that happens in reverse as well. If we look at Samsung and we look at how Samsung sells or what Samsung's revenue is in Korea, it's small compared to what Samsung's revenue is in the United States and in Europe. And so we can't forget that the United States

isn't the only player here. So we have this cross-fertilization, but how it's treated, how a foreign stock is treated is entirely different right now in terms of that, in terms of actual price relative to earnings. Like it's not as popular. So how have they been treated? They've not been treated with as much popularity. So their corporate earnings are rising, but their share prices are not rising in some cases as fast as corporate earnings.

So we're actually having the opposite of what we have in the United States. And when we get that reversion to the mean, we get a really big swing. So you can look at the example of emerging markets, for example, where emerging markets definitely ended up misaligning with the price appreciation growth of the U.S. stock market, say from the year 2000 to the year 2011, where emerging markets were the really big winners. And so for me, when I go out and I give financial talks and I'm talking to people around the world, and I would ask them, like, when did you start? People would show me their investment portfolios, and I found something interesting that in the years 2013 and 14,

when people had started investing around the years 2005, six, and seven, they were heavily into emerging markets. The U.S. was considered a dead economy. People were saying, well, that's not the future. The future is in Asia. The future is China. The future is India.

That's right. Look at how much gross domestic product is rising. And all of that was true. And they were saying, as proof, look how high the stock markets have appreciated in these countries. We're destroying the United States. And they were right. They were.

That's right. I remember that around 2005. There was a lot of chatter then about emerging markets. Right. And so these entities are, although a lot of emerging market companies, a lot of their revenue, too, comes from the United States. So it does go both ways, but they're treated differently psychologically. And I think that's the important part we have to remember here.

It's all about human psychology. Like, we are a bunch of lemmings on aggregate. Like even the really sophisticated ones who will come up with theories to support their lemming-like behavior. We are lemmings. And we have, you know, and the evidence is so compelling that, you know, if somebody does predict where the stock market is going to go during any time period, generally speaking, they fail to predict the next time. So it's like walking into a casino, the worst thing you could do is win the first time. We will scroll through media search reports on, well, so-and-so predicted the crash of 2008, 2009, so we should follow what they do. When generally speaking, if you follow them from that point, you follow the people that have made stock market quote predictions in the past and you've actually tracked them, those same people, they'll continue to try and milk that in their speaking gigs and in their writings and such, claiming to be the person that predicted the crash of 1987.

as I explained in the book, Balance, and I went through this, and I said, hey, what about this and this and this? And you get these people that continue to make predictions, like continue to do it. And eventually, when you say the stock market's going to crash next year, like Robert Kiyosaki, how long has that guy been doing this? Right. How long, Paula? I mean, since very shortly after he wrote rich dad, poor dad, he's been saying, the stock market's going to crash and it's going to go down and it's going to be worse than 1929. He says it every single year.

And when he's right, he's going to go, see, I was right. Well, he's not really right. He's just a broken record. Broken clock is right twice a day. That's right. So the concept of your book, balance, as we started talking about at the beginning of this interview, are those four quadrants, money, purpose, health, and relationships. We've talked about purpose. How do health and relationships, how do those two verticals fit into this broader conversation around money?

It's a, this is so interesting. If you want to be fitting it into the broader conversation of money, if we look at obviously not spending a lot of money on like material acquisitions because we know they don't enhance our life satisfaction. Right. We know. There's quite a bit of research around that. And we do know when we see the research on the fact that if we are spending money on material things and that becomes a big focus for us, people that do that end up actually reporting lower levels of life satisfaction. Because it's kind of like they're just eating sugar all day. And so it sends them through this perpetual spiral. So by not chasing money, we end up with, or sorry, by not chasing material things, we end up with more money. And I'm going to bring us to the town of Rosetta, Pennsylvania. Rosetto was originally founded by a group of people that came in from Italy, and I believe it was Sicily.

So they came down at this town at about 2,500 and 1,500. And it really got on the radar with respect to, there was a doctor there who said, people here live a freakishly long time. Like, why are they living so long? Right. People came in, scientists came in and they tested the water and they looked at the food and a lot of them smoked. And it was like, well, why are they living so long? And what they found was that they were incredibly social, which is common among the blue zones. Like when you look at Dan Bootner's book, like where to people live a really long time, it's where they're social.

Back to the money thing. What the people in Rosetta found distasteful, culturally distasteful, was that if you had a lot of money, it was distasteful to show it off. It was considered distasteful to buy a better car than your neighbor. It was considered distasteful to try and one up your neighbor with a better house. And so there was this interesting level of harmony because there wasn't a lot of people, there weren't people trying to keep up with the Joneses and there wasn't this degree of envy. It was just this community where people had their doors open. They were all raising each other's children in a really cool way. They were walking.

They were active. They were doing a lot of stuff together. And so that financial part, there wasn't that wedge of jealousy that drives that. So I think this is really cool. Like back to that original, back to your question, Paula, is that we can grow wealthy by not trying to one up everybody in a materialistic, showy sense. and in doing that we end up with better relationships with other people by not trying to show off. I mean, I think I told you in my book, Balance, or I mentioned to my book Balance about one of my neighbors who has a brand new corvette. His license plate, I mean, that's cool.

He's got a new corvette. So it's by far the best car on the block. It's brand new. Looks awesome. Keeps it super clean. And his license plate reads, you are second. people don't like him and they haven't even met him I mean he could be the nicest guy in the world but people don't like him so the relationship component is so important not just for our life

satisfaction but for our actual longevity as the study that dan bootner has done in looking at different blue zones around the worlds which really reflect what you used to see in risetto interestingly in rosetta in the 1980s when people started getting this whole concept of the younger people, got the concept of the American dream, and people started to build bigger houses, and they decided if they could afford to buy flashy cars they did. They moved out of the town nucleus to do that, so they could afford larger home. People today in Rosetta, Pennsylvania, live no longer than they do in the average U.S. town. So to summarize what you're saying, social cohesion and strong social ties are correlated with

longevity, those can best be achieved or those can best be facilitated by communities that maintain a lifestyle in which everyone's spending habits, perhaps not their income, but at least their spending habits, are roughly aligned with one another's. Yeah, that's correct. And you can do things to enjoy your money. That's not like saying, you know, I'm not going to enjoy my money, because we can, have these really cool experiences. I keep thinking of something like going to Turkey and taking a balloon ride in Cappadocia. If you're listening to me right now, put that on your bucket list because

it's unbelievable. It's unbelievably beautiful. But these aren't the sort of things that we need to rub in people's faces. We can go and we can enjoy it. We can also use our money to help other people. We can use our money to empower other people. I really like the idea of loaning money to people. on Kiva, for example. And my wife and I have helped to found a foundation in Cambodia where we give in that capacity. And in a weird way, Paula, it's kind of selfish because it makes us feel awesome. Like it helps somebody else, but it makes us feel great. And when we do feel good about ourselves, that now only affects us, but our relationships

and our longevity on a cellular level. We'll come back to this episode after this word from our sponsors. How does health and fitness play into this conversation? You mentioned the research around blue zones and the importance of social ties when it comes to longevity. And of course, that is, longevity is, of course, a crucial element of health and fitness. It is the goal of health and fitness. Beyond that, however, what other elements of health and fitness play into this conversation around money, since certainly money is necessary, not sufficient, but necessary, to achieve a certain level of health.

It is. It's interesting when you're looking at, say, the research on life satisfaction as it relates to income. And this is something that Richard Easterland first looked at in the 1970s. So absolutely that there's a direct correlation between life satisfaction and income. But then it rises to a point where, and it's typically, and I did this with a, I looked at an assessment more of a recent study that was done by Purdue University. And they looked at dozens of different countries. And they found that life satisfaction increased with income up to a certain point. Then there was a plateau. And beyond a certain point in every one of those countries, life satisfaction actually dipped.

And so the theories behind this are that, one, people that earn a lot of money work hard and often perhaps potentially too hard where they drop other balls like the health and the fitness ball. And so they're not potentially sleeping as well. So these are just theories because the researchers really didn't know, but they dropped these ideas and said, we think that this is probably the result of them dropping balls in those other quadrants. And so I think it's just something that we all need to be really aware of because in terms of your health, you have one vessel. You know, you have one body. And it's smart.

It's really smart to do the very best that we can to ensure that we at least give it the best odds of thriving. And there will be so many things that we can't control. But if we can, if we can control our sleep and we can control our physical activity, and especially if that physical activity includes other people, then we really end up nailing it from a health perspective. You mentioned physical activity that involves other people. And what strikes me is that when I think of examples like that, such as going skiing or swimming, those are activities that may take some money, but the money that's being spent isn't being spent for the sake of keeping up with the Joneses. You're not buying superfluous designer accessories. You are instead buying tools that

facilitate prosocial activities. Can you talk about the distinction between materialistic spending versus experiential spending? Yeah, I can do it really, really simply here. You know, when you were looking at research that's been done on life satisfaction, it suggests that based on hedonic adaptability, when we buy things, the luster wears off, whereas when you actually buy an experience, you do something kind of cool, especially with friends and family, you remember those things. They become part of your identity. They become part of who you are. And so we recall them fondly later. Like, Paula, if you and I were sitting around a campfire and we were talking about some of the cool, just reflecting on life, you and I are never going to talk about, typically about the stuff that we bought back in 2026, you know, the latest phone or like some car that we bought.

We're going to be talking about the experiences that we had, the places that we went, things we did with other people, the dumb stuff we did. these are parts of our identity, which are so important, which is why, you know, when it comes to allocating money for life satisfaction, allocating it in a way where we're spending it on experiences, especially when we build memories with people we love and respect, and especially if those experiences can be novel. And this is one thing that I really love too. At the end of the book, Balance, what I did was I looked at research based on the elasticity of life perception. We may not be able to control how long we live, but what we can control is our perception of time. By mixing things up, we create alternative stimuli.

So when you think of the eighth grade, Paul, it lasts forever for you. Because you had all of these, you had a friend, you had a best friend, and the best friend that you had a fight, and then you had a boyfriend, and then you didn't, and your body is changing, your mind is changing. And so not only is one year a greater percentage of your life as a 14-year-old than it would be today, but we're measuring time based on those alternative stimuli. So now we bring that back to the money equation. If we can use that to facilitate alternative stimuli, using our money to do that, we end up stretching our perception of time, thereby living longer, without chronologically living longer and living a more satisfied life.

Travel comes to mind right away because anytime you're traveling, there's a lot of novel stimuli and as a result, a week traveling feels like a month. That's exactly it. And it doesn't have to be traveled, but you're 100% right. Like when you fly to a place and you think back, you've been there, let's say, a week, especially if it's not just a, you're sitting on a beach doing the same thing, you know, drinking like your tequila, that you actually get out there and meet new people and learn new things.

You'll think back if you flew to a designated, it flew to a destination. You think back to the previous week when you flew in a, when you landed, you'll think, was that just five days ago? Like, I can't believe that. Because we do measure time based on alternative stimuli. And for you, it's travel. That's what really gets you excited. And it gets me excited too. But for some of your listeners, it's not going to be travel. And that's okay, too. It could be something entirely different, like picking up the guitar, like taking guitar lessons. So taking your money and paying for guitar lessons. This will do the same thing. It creates an alternative of stimuli and a challenging one, whereby to a point, life does slow down. But then the achievement

that's associated with that, that feeling is awesome, which brings me back to one of your earliest questions about finding those passions. And so it all works together. Beautiful. And we will end it there. Andrew, where can people find you if they would like to know more about you and your ideas? At Andrewhallam.com is where I post most of my stories. And there you'll also find links to my book, Balance, How to Invest and Spend for Happiness, Health, and Welfth. Nice. And will you tell people the title of Chapter 5? Afford anything, but not everything. Thank you. I'm honored to have inspired the title of that chapter. Thank you so much. for the steal on that, Paula.

And I was so happy to give you credit. I read it on an airplane and I literally laughed out loud. So, yes, I'm honored. Well, Andrew, thank you so much. It's a joy to have you on the show again. And Andrewhallam.com. Thank you, Andrew. What are three key takeaways that we got from this conversation?

Number one. The less we think about money, particularly in the context of investing, and the more we take a hands-off automated approach, the better off we are. Not only do we get higher returns, but we can also then use our limited cognition to focus on building a better life. So many investors will say, like, you know what, that's just way too simple. I want more control, and I'm going to be able to do better on my own, often doing research. But the irony is that when Morningstar does its cash flow analysis, they find that investors in these all-in-one funds more or less set it and forget-it products. Because they don't end up chasing the market, they end up paying or speculating or not knowing when they should rebalance.

They end up earning on aggregate higher investment return than the funds themselves. At least the study was done over the last 15 years. And I like that 15-year study, Paul, because when you're looking at a 10-year study in terms of investment behavior, that tells you nothing. Because the investments, you know, the S&P 500 has done nothing but rise for the last 10 years. But now we add in something that's a bit more natural like a market cycle. So we had the 2008, 2009. So if we're looking at a 15-year period ending 2020, what we see is really, really interesting is that the investors in the all-on-one, funds on aggregate, their money-weighted returns were actually better than the posted returns

of the funds themselves. Now, taking contrast, someone who bought the S&P 500 index, on aggregate, their money-weighted returns underperformed, the very index that they owned, by about 2.2% per year over that same 15-year duration. So the thing is, as the research is so compelling on this, Paula, that if we think think less about our money. We put our money into something that's simple, that's set at a specific allocation. Not only does it free up more time for us, so we don't have to think about it, but on aggregate, our investment returns are going to be better. And back to that research

that Kathleen Bowes talks about, and I don't think we should be ignoring that, is that the less we we think about money, the better off we're going to be. The less we think about money, the better off were going to be. That is key takeaway number one. Key takeaway number two, your asset allocation matters. Asset allocation is a systematic, automated way of buying more of that which is undervalued. And I bring this up now, particularly because there has been a run-up in so many asset classes that many people have a fear of heights. They believe what goes up must come down, and that fear of heights keep some people out of the market, and conversely, others have irrational exuberance. They have so much enthusiasm that it leads them to take unwise risks. What I've just

described, of course, are the two most powerful emotions in investing, fear and greed. In our interview, Andrew discusses Coca-Cola and Samsung. We talk about the fact that there are major players, major companies overseas, who are or are not represented in U.S. large-cap stocks. And the discussion around that, the discussion around international investing, is a subset of this broader discussion around the importance of proper asset allocation. Because once you lock that into place, then you can follow key takeaway number one, which is to not think about money as much. you set up the structure such that you're well diversified and you're rebalancing periodically,

and by virtue of setting up that structure, your portfolio runs itself, which means you don't have to be reactive. You can rest easy and stop thinking about your money, knowing that the systems are in place for your money to self-manage. The interesting thing, too, and I understand the idea of a company like Coca-Cola, for example, because I believe you can say, oh, but Coca-Cola has 70% of its revenues that are overseas. So surely this is a global company. And no doubt it is. But having said that, when it comes to how companies are actually priced, that's a different thing. Now, we have to remember that that happens in reverse as well. If we look at Samsung and we look at how Samsung sells or what Samsung's revenue is in Korea, it's small compared to what Samsung's revenue is in the United States and in Europe.

And so we can't forget that the United States isn't the only player here. So we have this cross-fertilization, but how it's treated, how a foreign stock is treated, is entirely different right now in terms of actual price relative to earnings. Like, it's not as popular. So how have they been treated? they've not been treated with as much popularity. So their corporate earnings are rising, but their share prices are not rising, in some cases, as fast as corporate earnings. So we're actually having the opposite of what we have in the United States.

And when we get that reversion to the mean, we get a really big swing. So that is the second key takeaway. Finally, key takeaway number three. And there are three points associated with key takeaway number three. The broad overarching key takeaway for number three is to use your money in a way that enhances and facilitates your relationships, your health, and your sense of purpose. So when we talk about the four quadrants, the four quadrants being money relationships health purpose, money is a tool that fuels those other three quadrants. So the three points to key takeaway number three. First, Andrew gives the example of Rosetto, Pennsylvania.

In 1964, research published in the Journal of the American Medical Association showed that the mortality rates in Rosetto were between 30 to 35% lower than they were in nearby towns. And it was very rare for anyone under the age of 65 to suffer from heart disease. And so, as Andrew mentioned in the interview, initially scientists studied the town's water, but they found it no different. They looked at the diet of residents in Rosetto, but they learned that their diet was just as bad as everybody else's. They ate a lot of processed sugar. They smoked cigarettes. Scientists couldn't find any explanations for their longevity that were based on diet or exercise. What they did find was that the residents of Rosetta were incredibly social.

They had very strong social cohesion, social ties. And this was the only documented differentiating factor that set Rosetto apart from other nearby communities, all of which is to say that strong relationships correlate with a longer life. And so to this point within a point, using your money to enhance your relationships, which, as he discussed in the interview, in part comes from not being flashy or materialistic, not rubbing your good fortunes in other people's faces, but instead managing your money so that it's not a source of friction. It doesn't set you apart from the people that you care about. That is one of the components of using your money to help enhance the relationships that are in your life.

And so that's subcomponent number one of this broader third key takeaway. Subcomponent number two, he then talks about giving. He talks about giving with Kiva and about setting up his own foundation. Giving is an example of enjoying money and it adds to your sense of purpose. It adds to your happiness and your overall well-being. And it's a wonderful way to enjoy your money, to enjoy the purpose that you feel when you give. So that's subcomponent number two. And then subcomponent number three is that when you do spend money on yourself, like if you take an amazing, amazing vacation to Capodokia in Turkey. Maybe don't post it on social media, or at least don't brag about it. Again, don't use it to create a sense of distance between you and the people in your life who aren't able to do that. That doesn't mean hide it. It just means, again,

don't let your money become a source of friction. These aren't the sort of things that we need to rub in people's faces. We can go and we can enjoy it. We can also use our money to help other people. We can use our money to empower other people. I really like the idea of like loaning money to people on Kiva, for example. And my wife and I have helped to found a foundation in Cambodia where we give in that capacity. And in a weird way, Paula, it's kind of selfish because it makes us feel awesome. Like it helps somebody else, but it makes us feel great. And when we do feel good about ourselves that now only affects us, but our relationships and our longevity on a cellular level.

Those are three key takeaways that come from this conversation with Andrew Hallam. I hope that you enjoyed today's episode. And if you did, please open up whatever app you're using to listen to this podcast. Make sure you hit the follow button so that you can get all of our awesome upcoming episodes. And please leave us a review. As of the time of this recording, we are so close to having 3,000 reviews. Please help us reach 3,000. And I want to give a shout out to J.S.K. Gill, who on January 5th, left a review that says,

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Thank you. Thank you so much. So if you haven't left us a review yet, please do so. Open up whatever app you're using to listen to this. Please leave us a review. And while you're there, hit the follow button. If you want to chat about this episode or any of the topics that we cover with other members of our community, go to afford anything.com slash community.

That's affordanything.com slash community. Finally, make sure that you share this episode with a friend or a family member. It's the single most important thing that you can do to spread the message and further the movement of wise financial decision making. Thank you again for tuning in. My name is Paula Pant. This is the Afford Anything podcast. And I will catch you in the next episode.