Debt and Conspicuous Consumption Speak Fundamental Problem

2007111850020101.jpgDebt and conspicuous consumption are symptoms of a much fundamental problem.

The subprime crisis, consumer debt issue, and negative national saving rate don’t happen together out of sheer chance like giving birth to triplets. They demonstrate the change in people’s values and perception from past decades. What is the difference?

It is a fact that life can be a bitch and some are very unfortunate to be much handicapped to begin with. However, it is also a fact that they are the minority of the population who have no choice being in poverty. Here today, let’s focus on the majority of the population who has the luxury of the freedom to choose.

At the end of the day, people deep down know what they need to do for themselves regarding their finance, but somehow somewhere along the timeline, people stop admitting to reality and ignore what they know. They prefer to be denial, and may even do their best to stay in ignorance, so they can justify themselves. Ah, ignorance is a bliss… but not really. There is always a choice, and people choose to be ignorant so they can be superficially happy through materialism and instant gratification. They like taking the easy way out, though it is only temporary, but they don’t care if it’s only temporary.

Being in denial, people try to become something they are not. And whether they know it or not, that builds up a void within… you can think of it as a spiritual void or a feeling of emptiness. Call it what you want. As this void gets bigger, people try to fill it with external things, which are paid for with money or credits — money they don’t have. These external things provide instant gratification and the perfect noise to mask that void. As time goes on, they lose a great deal of responsibility, integrity, discipline, and compassion with such behaviors.

I don’t think people should blame credit cards. Credit cards are merely financial tools and dead object. Like subprime mortgage, like all other forms of intelligent(dumb)financing program. Like money. They are all dead objects. How can they be held accountable? Companies make them available, and people choose to use them.

I think life is structured a way that allows us to make many mistakes. We can make a lot of mistakes at different times, as long as we recover from each. And frankly, we all make mistakes in life. We need to do our best to stay aware and catch and correct mistakes as quickly as we can. I cannot fathom that it is one big mistake that brought everyone down to their knees. Humans are tough and adaptive creatures. The key lies in being aware and always learning — the opposite of being in denial and ignorant.

It only becomes the big issues today as people remain in denail and continuously make the same mistakes, until one day — WHAM!!! — they found out they are holding on to a thread hanging off a cliff. They tried to chase after the something that they vaguely see and believe that will bring happiness but won’t and now they need to catch themselves before they fall. They need to recover from their mistakes, and they will if they choose to.

Indeed, we need external things for survival and for pleasure. It’s a part of life. But when you look to ONLY externals for happiness, you are chasing after shadows.

I believe happiness happens when you look within yourself first. When I said to look within yourself, I mean to find the values in life that are important to you. You need to get to know yourself. Know what you want in life. To each person, there are many important values, so you must prioritize, and I dare claim that no one should have money and fame at the top of the list. With such a list, you shall know what is “enough” and hence, be able to distinguish between “wants” and “needs”. You can then simplify your life and not have excessive externals yet be content, though remember being content does not mean being satisfied and complacent.

Problem happens when people never stop to find out their values. Again, they try to become what they are not. I don’t believe it is entirely the people’s fault because of how they become conditioned the way their are — constantly being distracted by advertisements, bombarded with information, and conditioned about money/appearance/fame. As a result of those: They think they will be happy when others see them as rich. They think they will be happy when they have that next-best-thing. They think they will be happy when they beat their neighbors.

However, there comes a time for each of us to come to understand that such a culture doesn’t work and therefore, learn not to buy into such a culture. It is not easy, but it is what we need to do. This is where discipline comes into play, and where we take responsibility for ourselves.

So at the same time you are learning and reading about all those “methods” on how to get rid of debt or to build your wealth, why not take a pause to learn about yourself and get your values straightened out? Because if you don’t, your changes will likely be short-lived because your character has not changed.

You can shred your credit cards, but if you don’t fix the problem by fixing the fundamentals, the problem will come back as easily as it is to shred the credit cards.

Originally posted 2008-03-28 10:22:28. Republished by Blog Post Promoter

Reaching Greatness – It Gets Lonelier On The Way

People are always coming and going in and out of life. This happens especially if we choose to strive for change and self-improvement.

Our perception and ideals would continue to change, and the people we use to hang out with no longer share the same feelings or in worse scenario, could become incapable to understand and communicate with our newer, improvedand character. Additionally, when our behaviors change, others will distance themselves from us as they reject us for being “different”. They may also envy us, wish us bad luck, try to deter us, as we strive for success…unfortunately. Of course we wish for them to change for the better together, but we all walk a different path in life. That is something must be accepted in life.

People fear difference. Sometimes people limit themselves because they are afraid to be different.

Consequently, it gets lonelier the more we change and try to become our better selves. Thus, the dilemma for each of us…

In the face of loneliness, how do I respond?
Can I maintain myself with confidence?
Or will I choose conformity out of fear?
Can I presevere, knowing it will only get more difficult?
Or will I take the easy way out instead?
And worst case, will I be okay with the fact that no one in the world can understand me?

Let me share this quote:

Anybody can be famous
Fame is cheap
Fame is easy
Fame is fleeting,
Try achieving greatness.

Greatness is hard
Greatness is lonely
Greatness is work
Greatness is humbling
Greatness is a responsibility and greatness lasts forever,
you don’t want greatness do you?

Therefore, greatness requires determination and perseverance. Striving for greatness is a true test of ourselves, and that’s why we need to know who ourselves really are and what we want.

For those of us who choose greatness, we can safely assume the individuals who stay with us by our side on this path will be the greatest companions we will ever encounter in life. Encounterance with these individuals are truly invaluable, so we shall know and cherish these individuals.

Originally posted 2007-06-08 23:50:57. Republished by Blog Post Promoter

Beginning Investors Guide and Considerations

Investing can be intimidating and confusing. For people who’s wholely unfamiliar, the slight thought could be scary and give a headache. It’s like stepping in a foreign land where people speak a different tongue, and one would be in deep trouble if nature happens and bathroom is nowhere to be found.

I was like that. But I was not ready to run away. So I “paid” the market to learn.

After 3 years, I am still no expert. I learned a few things from experience and much magazines reading, news studying, and internet browsing. I put together today’s post as a stepping stone for you who are beginning to invest or still thinking about it. Hopefully it will give you a sense of direction.

Why invest? And getting ready

Investing is for people looking to grow their money beyond the rate of high yield saving account and certificate of deposit. If you feel saving is not enough and too slow to lead you to financial freedom, it will do you well to learn to invest your money. As the saying goes, “Make your money work for you.”

Before you start investing, it will be good to pay off debt with high interest rate, especially ones with doublt digit rate and/or are not tax-deductible. Doing so basically means you make a rate of return equivalent to as if you invest the amount of the debt. Additionally, how can you invest with a clear mind when debt is nagging you constantly.

Once the debt is paid off, saving up a comfortable amount of money is the second line of duty. By “comfortable” I mean an amount of money that will allow you to stay cool in case of emergency (ie. loss of job, doctor visits, urgent car fix…). More on this later under risk tolerance.

Investing is not…

… a get-rich-quick scheme. If that’s what you are looking for, you are looking at the wrong place. It’s important that we get this clear.

Know your time horizon

You must know the amount of time you can keep your money invested in the market. Anything less than 5 years is not enough to ride out the turbulance of the market. It is the general concensus to assume your money to grow 11% on average in stock market, but remember that 11% is an average taken over couple decades. Correct me if I’m wrong.

I would suggest to only consider investing when you have at least a 5 years horizon. Time is your best friend and greatest asset in investing. The more time you have, the more time the money can grow. The more time you have, the better hedge you have against the turbulance in the market.

What about short-term trading? Day trading?

If you can only invest in less time than that, I suggest to choose either cash account or short-term bonds. If you plan to buy a house in a year or two, keep the downpayment money in cash saving. Obviously, you don’t want to lose that money. But I can’t stop you if you want to do otherwise. It is your choice.

If you want to trade short-term or even day trade anyways, first assure that you have the time and effort available to do homeworks:

  • study and understand the balance sheet, income statement, cash flow, and other stats
  • read news about the market sector and undertand its flow and future
  • learn the structure and behaviors of the management of the company
  • learn as much else about the company as possible (if you cannot make sense of the business, forget it)

Again, I don’t suggest doing this because it’s not easy, and it’s more dangerous than it is fun.. But I am not here to stop you, nor can I. I did it at the beginning myself to learn NOT to do it anymore. I paid to learn a lesson that I think is worth every penny. Short-term/day trading is more like gambling. Sure you can hit a jackpot, but you can lose it all just as easily. Plus, you will have “a lot of fun” entering your transactions at tax time.

Know your risk tolerance

Can you stand to see your money fluctuate a lot? Will you sell everything out of panic when you see your portfolio down 20%? You should select investment relative to your risk tolerance.

If you are not very risk tolerant, your portfolio should contain more stable investments that fluctuate less (ie. blue-chip companies and bonds). If you don’t give a darn about the money you are investing, you can bet on riskier investment vehicles. With greater risk, comes possibility for greater gain, and loss.

Your risk tolerance is closely related to how emotionally you are attached to the money you are investing. If you invest money that is of great importance like the fund for an engagement ring, consider yourself divorced. Go create your online dating account before dropping the money.

What I’m saying is that your chance of losing money is much higher due to panic caused by your emotion. This is why it is important to have saving for emergency before you plunge into the market. You don’t want to be forced to sell at a loss because you need to feed your dog.

Basically, the more you can emotionally detach yourself from your money, the better.

Allocation and Diversification

To lower the risk in investing, you diversify. Simply put, don’t bet it all on ONE thing.

Spread your money into different piles. That’s diversification.
Deciding how big each pile is. That’s allocation.

Once you know where to diversify, you decide an allocation that fits your risk tolerance. Your allocation should also change over time. For example, if you observe instability in domestic stocks for the near future, you will want to re-allocate bigger amount to bonds or foreign market. As you approach retirement when you cannot afford to lose your money, you will want to allocate to bonds or even cash.

Watch the expense

If you trade stocks, most brokerage account costs you each transaction, though I know that Zecco offers free trade (I use TDAmeritrade). Assuming otherwise, transaction cost can greatly lower your rate of return, especially if you day trade. If it costs you $10 to buy $1000 of stocks, you automatically lost 1% up front. Another reason to invest long-term.

This is also true for funds. You need to pay attention to its expense ratio. Don’t just look at the rate of return. Your true gain is the rate of return minus the expense ratio minus tax rate. Remember that.

The Simplest Way – Index Fund

Since I talked about cost, it would be blasphemous if I don’t mention index fund. An index fund simply traces a specific index in the market. If you bought an index fund that traces the S&P500, you would have made 11% annually for past few decades. If I further explain, it will becomes insulting to your intelligence.

The greatest benefit of index funds is their low expense ratio, versus traditional mutual funds or privately managed funds. You can have an entire portfolio of index fund, which keeps the cost low. And because they are already diversified, it saves you the tedious job of picking individual stocks and at the same time, provides you with safer and more stable growth than individual stocks.

If you go with index fund, all that needs to be done is to contribute regularly and control your portfolio’s allocation on intervals (quarterly or yearly). Doing so is enough to maintain a steady growth. It’s as simple and easy as it gets! Oh, and Vanguard has been wonderful.

Special accounts for retirement and college fund

Just a reminder… If you are investing for your retirement, you can open an IRA or Roth IRA account that provides tax benefits. Same goes for college fund, whether for you children or yourself, there are 529 plans available that differ by state, each with its own pluses and minues.

Some words of wisdom

Don’t be greedy because it can only be harmful. Don’t try to time the market because it’s a fool’s job. You can never catch the top nor can you catch the bottom.

Understand that a huge part of the market is based on speculation, and speculation is based on human emotion. Human emotion is never a predictable thing in itself and most fickle in nature. Conversely, how can you accurately predict the market? Especially when experts with advanced analysis tools have failed to do so.

Three key points

  • pick solid investment
  • diversify and allocate
  • invest long-term

With that, I’m done. But don’t just take my words and because this is only a quick guide for beginner.
Go study, read, try, and learn from your own experience.
Go build your own intuition of the market.

Let me know how you are doing later.

Originally posted 2008-02-28 23:32:37. Republished by Blog Post Promoter

A Generation Gone Awry

In the latest issue of BusinessWeek, there is an article about students taking the extra effort to be competitive by participating in financial/investing clubs AFTER getting into prestigious school, Meet Your New Recruits, They Want to Eat Your Lunch. Here is an excerpt:

Once, merely graduating from an Ivy League college or similarly prestigious rival like Stanford or Swarthmore qualified students for a choice entry-level perch on Wall Stree. No longer. “The whole idea of smart people just falling into banking is becoming rarer,” says Lance LaVergne, a vice-president and global head of diversity recruiting at Goldman Sachs. “Clubs are essential to preparation, especially for students who are not majoring in traditional discipline like finance or accounting.”

Also in the article, a girl is described to gain admission to three prestigious clubs at Stanford, and it is AMAZING.

I understand the world is getting tougher out there. Therefore, it is great to be driven. It is great to prepare for the future. It is great to kick-start learning about investing because that’s what I am doing now. But despite all that, I can’t help but contemplate if these students are getting too mixed up in the money-means-success culture at a very young age. I can’t help but worry that these students would grow up with the only ability to handle money, finance, and investing and narrow vision due to being a money-purist. Is that what life is all about?

I am not saying one should not focus on academic work because I did that and graduated with a 3.8+ GPA majoring in Computer Science and Japanse, and here I am working in the computer industry. One must need pragmatism to survive in this society.

However, from when I was an undergraduate, a huge part of what makes me the person today is being a part of the fencing team for 4 years, where focus, discipline, hard-work, comradeship, travelling, and fun happened, and then other things like social dancing, Japanese cultural events, a few music classes, misc. physical exercise, or just having some plain(dumb) fun with my friends. Perhaps that is why I am not rich, in today’s commen sense at least, but I am perfectly content with how I am and what I have, which are not just things and money.

On top of that, these investment clubs may have an unintended consequence of promoting short-term trading because the students are driven for immediate results to show recruiters and they have an investment time horizon of at most 4 years.

I only wish the students can still take their sweet time, in spite of those clubs, and participate in other cultural, character cultivating, or simply fun events. Because I would hate to see a bunch of physically-dwarfed, money-mongering, rich, yet utterly unhappy people to be grown out of this generation.

Your thoughts?

Originally posted 2008-05-18 11:01:41. Republished by Blog Post Promoter

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