Chapter 3 The Truth about Stocks and Bonds

In 1992, the Canadian rock group Barenaked Ladies sang, “If I had a million dollars.” The lead singer listed the crazy stuff he could buy with a seven-figure bank account, including a monkey, a special green dress, and John Merrick's creepy elephant bones.

Most global expats have better taste. But they're mistaken if they think a million dollars in a low-interest savings account will keep them from a retirement of dumpster diving. I’m not suggesting a million bucks isn't a nice chunk of change. But retirees withdrawing $40,000 per year from such an account (while slowly increasing withdrawals to combat inflation) will likely be broke after 15 years.

Most expats can't afford such risks. Whether trying to preserve wealth or grow it, the stock and bond markets offer a far more effective option. However, before getting into specific, purchasable investment products, let's see how the stock and bond markets tick.

Between 1926 and 2013, the world's largest stock market (the U.S. market) averaged a 9.92 percent annual return.1

I’ll use the Standard & Poor's (S&P) 500 index to demonstrate the performance of the typical U.S. stock. Each year, this index represents the average growth or decline (including dividends) of 500 large American companies. You could purchase a product tracking this index, so it's not a hypothetical example.

Halloween Grab Bag Treats Investors

First available to investors on September 30, 1976, Vanguard's S&P 500 index ...

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