College Graduate Advice

Dear recent college grad,

I would like to offer you one significant piece of advice for you as you enter the "real world."  That advice is to never accumulate credit card debt.  Credit card debt is an absolute killer, and a killer to much of our population.  According to an article by NerdWallet, the average American household credit card debt is $7,193.  This is obnoxious.  There should be zero credit card debt across the nation, because you should only use your credit card if you are certain you have the money in your bank to pay the bill.  If you are the average American who owes the previous amount in debt, imagine if you invested that exact amount ($7,193).  See below

If you invested that amount as a current principal, and never added to it for forty years (earned an average of 8.5% per year), you could make yourself almost $200k.  And hear this, if you only look at American households who have debt, the average credit card debt goes up to $15,418!  In total, American consumers owe $852 billion in credit card debt.  Yes, I said billion.  

There is another debt factor in the States even larger than that of credit card debt, and it is student loan debt.  According to projectonstudentdebt.org, the average American who borrowed money for college owes $26,600 in debt.  However, since you are already graduated and cannot retrace your steps and pick a cheaper college, we'll continue to focus on credit cards.  Credit cards can in fact be advantageous.  Many credit card companies offer special bonuses (such as frequent flyer miles), hoping their users will use the card more (to rack up their flyer miles), while falling deeper and deeper into debt.  So yes, credit cards can be great (offer bonuses and safer than carrying around huge sums of cash), but make sure you only use it if you know you have the money in the bank for what you're buying.  

I found an article that gives some great advice on using your credit card (Credit Card Advice).  I suggest you take a look at it.

Here are some key points I picked up from it:

1) If you are planning on traveling a lot internationally, find a credit card without a foreign interaction fee (can be up to 3%).

2) Pay off the balance of your credit card in full every month.

3) You tend to spend more on debit cards than credit cards, more on credit cards than cash, and more with small bills with large bills. So put some large bills in your wallet and take out the credit cards and you are less likely to spend much.  

I hope this advice will help you out, and I wish you the best of luck in your career!

Tucker Erdmann   

December 11 - Phase V

      For Phase V, the final phase, we covered the costs of our future home (down payment, mortgage, maintenance, and insurance).  Since I will likely be working in NYC when I'm older, I found a house in a nearby county.  http://www.homes.com/listing/172682880/1107_Pondside_Dr_Unit%3A_1107_WHITE_PLAINS_NY_10607.  This house is in Westchester, which is a great area but also expensive.  The house is listed at  $469,000.  But I'm saying that I can get it for $450,000 since the seller rarely gets the price they are asking for.  According to an online mortgage calculator, http://www.ginniemae.gov/2x_prequal/le_detail_estimate.asp, I will need a $81,737 down payment on the house in order to get a loan.  This is a bit under 20%, so it is accurate.  I still haven't used my $19,761 bonus from my first year of work, so I'll put that towards the cost of the house.  To pay off the rest of the down payment will cost $7,080 annually for 8.75 years.  However, my salary will probably increase by then so lets say it will take me six years to pay off my down payment.  For my mortgage, I would definitely get it at the bank I am working at, Bank of America.

According to ginniemae, to pay off my loan will cost $2,825 per month for thirty years.  So it will be paid off by the time I'm about 55.  For insurance, according to http://homeinsurance.com/New-York/County-Westchester.php, the average home insurance costs $694.00 per year.  For maintenance, according to http://www.bankingmyway.com/real-estate/home-equity/estimating-annual-home-maintenance-costs, annual maintenance costs are around $4000, or $333.3 per month. I don't think I need to take this out of my budget because I don't own that house yet.

          I talked to my dad about home insurance and maintenance.  He used USAA for his home insurance on his house in Maine.  He couldn't quite remember how much he paid each year, but he said it was around the average ($694.00).  He thinks home insurance is very important because it's not worth the risk of having all your stuff destroyed/stolen.  For maintenance, my dad was pretty good about keeping this budget low.  He didn't have many damages.  For example, no windows broke and no frozen pipes.  Twice the sewer got backed up, but insurance paid for that.  My dad saved lots of money by painting the house by himself instead of hiring a painter, and he re-stained the deck by himself.  So his annual maintenance costs were under $4000, but I might be too busy with work to do that stuff.

          I am still debating over renters insurance, but I'm pretty sure I'm going to get it.  Zack and I would be in a lot of trouble if there was a theft at our apartment, so we want to play it safe.  The average renters insurance in NYC costs $150-$300 a year, so we'll average that and say $215.  Renters insurance protects you from many things, including fire, hail, explosions, aircrafts, smoke, vandalism, theft, weight of ice, snow, or sleet, water related damages, and electrical surge damage.  That's a lot if you ask me!  I increased my salary by 5%, and this will allow Zack and I to get a 55" HDTV and a nice Bose sound system.  

December 9 - Phase IV

         Before finishing Phase IV, I went back to Phase II to finish up my furnishing section.  Zack and I had to partially work together for this section since some things we won't need individually so we can pay for them together.  I used Ikea to find my stuff.  My mom thinks that our apartment will probably come with a refrigerator, so that is covered.  Zack found a microwave on craigslist $60 total, so $30 each. Also on craiglist we found a dining room table with four chairs that only cost $75 total, so $37.5 each.  For my bedroom, I think I'll need a bed, a nightstand, a lamp, a desk, a chair, and a trash bin.  I might need some other small stuff like a clock and rug, but I can get those at a local cheap place (Goodwill).

Here is some of the stuff I found.  My bed is just a single bed.  For the living room, we also found a coffee table for our couch which costs $90, or $45 total. Zack and I are deciding whether or not we'll need a TV, or we can just use our laptops for TV and movies.  My mom and Mrs. Chaudhry both have extra silverware and plates we can use for eating.  Zack and I also will be eating out a lot, so we won't need much.
         For stage IV, I covered investments, financial freedom, and insurance.  Insurance was super easy. I said that I will be working for Bank of America, and I researched that their employees are covered by Aetna, which covers medical, dental, vision, leaves of absence, disability and life insurance. So my basica necessidies for insurance are automatically covered by my company! I don't need car insurance since I won't be owning one. I am going to ask Mr. Hallam about renters insurance.  For investing, I am definitely going to take advantage of my company's 401(k) plan.  For Bank of America, for every dollar you invest, they will match it (up to $17,000).  I will already have $2,500 to invest by the time I start working, so if I invest $17,000 annually ($32,000 with 401k) I'll make over 4 million by the time I turn 55.

So I'll be financially free by the time I turn 55.  I'll use my 401k for a 2050 Target Retirement Plan with Vanguard.  The rest of my annual salary will be used for my own savings toward a house.

        I had a look at Zarima's blog http://sb-sas33372.blogspot.sg/.  Here she talked about Stage I and II of her project.  Her apartment only cost $840 if she lives with a roommate! That is great for her, but I can't imagine the apartment being of that high quality.  Just like me, Zarima won't be getting a car since she'll live in Boston.  Maybe we'll meet up sometime since we live in nearby cities! Zarima found a nice house she could see herself living at in the future for only $200k.  I'm excited to see Zarima's final project.

December 5 - Phase III

      In Phase III, we covered four different types of costs: Entertainment, Travel, Giving, and Clothing.  This phase was interesting to me because it mostly covered stuff that I would really appreciate.  Living in NYC, there are lots of entertainment outlets, so I had a large budget for it.  Movies: $20 a month; Bars: $100 a month; ITunes: $30 a month; Concerts $30 a month; and finally miscellaneous: $100 a month.  This all came out to $3,360 a year.  For travel, I said I'd take one big trip a year. A calculated the cost of a five day trip to London and it came out to be $3,495 (including airfare and hotels).  A trip to Florida would be $1,058. So that is $4,553 in total.  I understand that being in the upper-middle class, it's important to give back to the community.  I look up to Derek Jeter for the community work he does, and decided that I will donate to his charity, "Turn 2 Foundation."  This charity helps children surrounded by drug and alcohol environments.  I'll donate $50 a month, or $600 a year.  Finally, I had to cover clothing.  I'll be a business man in NYC, so I'll need about three suits.  I found three suits similar to this one (http://www.menswearhouse.com/shop/p_tallia-gray-tonal-stripe-modern-fit-suit_12001_700000935_12751_700288644_-1_700000935_____noSpecialSizes), which are $700 each.  I'll need two pairs of dress shoes similar to these (http://www.menswearhouse.com/shop/p_rockport-black-moc-toe-dress-shoes_12001_700000444_12751_700070556_-1_700000444_____noSpecialSizes), which costs $200 for two pairs.  I'll need two sweatshirts, (http://www.zumiez.com/catalog/product/view/id/359262/category/37/), which will cost $125 total.  Two pairs of Nike sneakers cost about $200, and I'll keep $700 aside a year for other clothing needs.  Let's not forget that I will still have lots of clothes from college.  Clothing costs come to $3,400 my first year.  
        Talking to my father, he said that I will probably need about three nice suits ($700 each) for my type of job, and at least two nice pairs of dress shoes ($100-150 each).  He says not to forget that it gets very cold in the winter, so I will need to buy gloves, a warm overcoat, maybe a hat, etc.  For vacations, he doesn't think I need to go to Europe while just out of college and I should rather pay for cheaper trips across the nation to visit family.  He thinks I'll have about two weeks of vacation my first few years.  Also for clothing, he thinks I'll probably go through two pairs of sneakers a year.  Giving is very important to my father.  Every year since he left college, he has given 10% of his money to various charities and churches.  This will be hard for me because I am probably a little bit more selfish than him, but he has a point.  Plus, giving makes you feel better.
         In my Finances, my most recent large purchases have been a new pair of shoes and a bike.  My mom thinks I'm a shoes addict.  I had a bike already, but it was a bit small for me and made a dreadful squeaking sound whenever I braked.  This new bike cost S$275, but it is in phenomenal condition.  The previous owner used it once a week and also oiled it once a week.  It is a good investment, since I'll use it most everyday until I graduate.

December 3 - Phase II

        Yesterday in class we worked on Phase II of our Real Life Project.  I am really enjoying this project and thankful we are doing it because Mr. Hallam is right, most graduates won't budget and will just buy expensive things with their credit card.  With the help of this project, I will be prepared to face the real world once I graduate.  In Phase II we went over a couple costs: Transportation, Home Savings, and Food.  Transportation will be pretty easy to handle.  Living in New York, I don't really need a car since I'm in a large city with lots of public transportation.  Plus, it's better not to buy depreciating assets.  An MTA (NY subway and bus) unlimited monthly card costs $104 per month, or $1,248 per year.  There will probably be emergencies where I want to take a cab instead of a subway, so I will put aside $160 a month for cabs.  For food, according to http://budgeting.thenest.com/average-grocery-budget-family-two-3421.html, an average NYC couple spent $274 a month on groceries. This was in 2010, so with a 6% interest it would come to $290 per month.  Zack and I would split this, so $155 a month each.  As young single males, we'll probably going out and on some dates, so we would put aside $500 a month for eating out.  Now for housing, I'm not completely sure where I will want to buy a house, but I just said I want a $500,000 house in Westchester, New York.  According to http://www.ginniemae.gov/2x_prequal/le_detail_estimate.asp, I will need a $90,715 down payment in order to receive at 30 year loan at 3% interest.  This is a bit under 20% of the total cost, so it is realistic. I think $15,000 a year is a realistic amount to put aside a year towards the downpayment.
           I had a conversation with my Dad about living on his own after college.  After graduating from Amherst College and before attending Cornell Law School, my father lived a few years with roommates. His first year out of Amherst, he lived near school in Hadley, Massachusetts.  He worked in the office of space management at UMass. He lived with three roommates, and they split the rent.  My father said he had no issues over paying rent, they all paid up every month.  They also split the cost of groceries, and would switch off who would go out and buy them.  My father lived there for one year.  He moved to New London, Connecticut and once again shared a house with four new roommates.  He worked as a systems analyst at United Technologies Research Center for two years. Since Connecticut doesn't have much public transportation, my father bought his own used car.  He had some money from his grandmother to pay for it.  During that time, he bought an engagement ring for my mother.  He put a downpayment on it and took out a loan for it.  My father agrees this project is a great idea.
          Financially, this month is a bit hectic for my family.  Not only is Christmas at the end of December, but my mother and two of my siblings also have birthdays during this month.  My parents save money all year to prepare for buying this month's presents.  Also, my sister in college and another sister and her husband are coming here for Christmas.  Fortunately, my sister and brother-in-law had frequent flier miles on Singapore Airlines from my father's credit card.  That is an example of some perks of using your credit card, but there are no perks if you do not pay off your credit card debt.

November 27 - Real Life Project Phase 1

          In class today we worked on the first phase of our Real Life Project.  By the end of class, our goal was to have picked a school we'd graduate from, find the average starting salary out of that school, tax that salary, and finally find a realistic house/apartment to rent out.  For some lucky students, their parents are willing to give them a large down payment or even offer them one of their houses/apartments to live in.  That will be a huge money saver for them.  Unfortunately for myself, the only house my family owns in the US is our one in Maine, where there aren't many opportunities for young professionals.  I would like to graduate under-grad from Duke University, and if I work hard enough there, I might be accepted into the New York University Stern School of Business.  This school is rated in the top ten business graduates schools in the nation by U.S. News & World Report.  On the Stern website, I found that for 2011 graduates, the average starting salary was $105,798 with a signing bonus of $30,127.  I found a good website to find the net salary (Salary Calculator).  It came out to be $89,797 the first year with the bonus, and $71,151 for the following years.  I would take the difference of those two, $16,646, and use it as a downpayment for my apartment in New York.  Divide my annual salary by twelve to find my monthly salary and it came out to be a little less than $6,000.  Since I am renting a place, not buying, I don't want to put too much of that towards my apartment.  So $2,000 is the most I'll pay.  I am trying to find a roommate, so I can get a nicer apartment and pay half.
        I found an apartment I might be interested in http://www.renthop.com/listings/exchange_place_wall_street/2210/1905698).  The apartment is located in the financial district, right around where I will most likely be working.  I think Zack would be a good roommate, since we are both interested in finance.  The apartment is $3,395 a month, which would be about $2,000 a month for each of us.  This would leave me over $4,000 a month for living and investing.  I also could use my bonus to pay for my first eight months at the condo.  The condo has two bedrooms and a fitness center downstairs.  The condo even allows for pets incase Zack and I want a dog or something!
        I had a conversation with my parents about this topic.  Here's what they said: My mom thought it was a good idea to share an apartment with a friend because I'll save rent money and won't feel lonely.  Living in New York City helps because I won't need a car to get around places.  For furnishings, my parents don't have much besides tables and burrows, so maybe the Chaudhrys can help us out there.  My Mom likes how I would be close to family, who generally live in New England.  She doesn't think I should get a dog right away since it costs money and the "poor little doggie will be all be itself."  My mom thinks it will be interesting to see how much food will cost in New York.

November 25 - Real Life Project

          Last class, Sohrob re-did his investment project.  I was very impressed by his presentation.  Not only did he engage the audience with some humor, but he had a loud, clear voice that was topped off with some top-notch information.  Sorhob showed us perhaps the easiest way for someone like us to start investing.  Using screenshots, he walked us through the Vanguard website.  Using an UGMA account, is it so simple for a minor to start investing.  With the supervision of their parent, they can set up an account on their parent or guardian's account, which will automatically be transferred to their own account once they turn eighteen.  As far as I know, Sohrob and I are the only ones in class who have started investing.  I feel we have an advantage because most students will forget about the class and investing once this semester ends.  Sohrob does have a great advantage on me however, he has several large accounts while I just have one small one!  Great job Sohrob.
         I can't really remember what we went over last class minus Mr. Hallam introducing our next project.  For this "Real Life Project," first we need to pick a college we think we may realistically graduate from.  This is iffy for me, since I really want to attend Duke University, but it is tough to get into.  I'll just pick that school anyway. From there I will find the average salary out of Duke and add 10% to that (hoping I'm above average).  From there, I'll have to find an actual house or apartment for rent that I could afford.  Then I have to take into account housing expenses (laundry, furniture, AC, etc).  Then I have to take into account many more other variables (transportation, travel, entertainment).
I'm looking forward to this project because it will actually have help us in our near future.
       During vacations, I typically spend much more than I do during an average school week.  However, this past Thanksgiving break wasn't typical for me.  I stayed in Singapore the whole time, only traveled to the city once, and ate most meals at home.  Most money I spend is for transportation and entertainment.  The money I spent these past five days were for groceries and some snacks at school where I was umpiring.  I made $180 this weekend for umping. I'm going to put this cash towards my investing!

November 8 - Gifts or Transfers to Minors

           Unfortunately for me, being under eighteen years old means that I cannot possess my own Vanguard mutual fund.  I want to start investing now though, so my father and I looking for ways to get me a fund even though I'm two years too young.  Right now, my father proposed that we can use one of his small, current funds ($361) and he will just transfer it completely over to me on my eighteenth birthday.  Most students in this class most likely don't have a parent with an account they're willing to hand over, so I researched other ways to start investing now.  I was planning on calling a Vanguard rep with my father to ask them how I could receive my fund when I'm older.  However, my dad just got back from a business trip and was too tired to call up a rep tonight.  I found an uncomplicated Vanguard method however (http://www.vanguard.com/pdf/bgtm.pdf).  Uniform Gifts to Minor Acts (UGMA) and Uniform Transfers to Minor Acts (UTMA) are two methods.  These accounts provide a simple way to give gifts or transfer assets to a minor without the complications of a formal trust.  According to my dad (a lawyer), a real trust fund requires an attorney.  For UGMA accounts, an account is created by an adult on behalf of the minor.  These accounts are controlled by the adult until the minor comes of age.  This could be a good option for students in our class wishing to invest before they become "adults."
        Today in class we learned about classes of equity mutual funds.  Mr. Hallam showed us a large variety of different mutual funds we can use.  Lets go through them.  One type is a large cap mutual fund.  This fund includes only big businesses (from the S&P 500) and only invests in those.  Mid cap funds are similar except in that they invest only in mid-sized businesses.  Small cap funds are the same thing except that they invest in small companies that haven't hit it big yet. A value fund is interesting in that it ONLY invests in cheap stocks, so you won't have to pay much to buy them.  A growth fund invests in companies with fast growing profits.  Remember that you can also buy mid-cap, small-cap, value and growth indexes.  If you were to buy a total stock market index (what Mr. Hallam invests in), you are investing in over 6,000 stocks. One very important thing to remember is that a balanced actively managed index has within it both actively managed stocks and actively managed bonds.
         This article http://andrewhallam.com/1901/01/calling-fee-based-financial-advisors/ on Andrewhallam.com interested me.  Mr. Hallam is trying to recognize the rare financial advisor who are true fiduciaries (def: a trustee).  These advisors can be super helpful because not only will they not act in order to increase their income, they instead only charge a 1% annual fee.  Mr. Hallam's upcoming page: Financial Advisors With a Conscience will be very helpful for all his subscribers who may need a bit of help investing.  This is a great idea by Mr. Hallam to recognize these financial advisors.

September 11 - Stock Market Profits

           The number one most important thing we learned last class was the two ways the stock market gives profit.  Those two ways are 1) Share price increases and 2) Dividend payouts.  When share prices increase, your stock is worth more money, so you can sell that stock for a higher price than you originally bought it for.  So for those who bought stock from Apple when the company was just starting spent very little cash on the stock.  Now an Apple share costs around $700, so if you held onto the stock you would make hundreds of dollars per share.  What most Americans do unfortunately is buy the stock when it’s already high and successful, so there isn’t much room for the stock to go but down. 

            I was a little confused on dividends during the class period so I decided to ask my dad about them.  He told me that the way dividends work is that the company decides whether or not to use some of their profits to give back to their stockholders.  Every company has a board of directors, of which the stockholders vote on, and the directors decide whether or not to give out dividends.  Most companies do give out dividends.  Stockholders can either use these dividends to buy more stock or to keep for themselves.  My father’s company receives dividends from their stock, but instead of using it to buy more stock they use it on current expenses. 

           

            This is a link to Home Depot’s stocks over the past ten years.  As you can see, the stocks are at it’s highest right now in 2012.  This would be a good time to sell!  However, it might be a good time to buy too because the stocks could continue to rise.  The stock market is a gamble; just remember to follow your head, not your heart.

https://www.google.com/finance?client=ob&q=NYSE:HD

November 4 - Investing Dilemma

      Today, my father and I attempted to start up my investing account with Vanguard.  We tried using the Vanguard Target Retirement 2045 Fund like Mr. Hallam suggested, but when we tried making it joint-operated under my name too, we couldn't because I am too young to be a part-owner. What my father is now proposing is that I just take over one of his small, current investments and once I'm 18 he will just give it to me.  This account currently has $161 already in it, and I wouldn't have to put in $1,000 to start a new one (no loan!).  The one problem with this mutual fund is that instead of a Vanguard Target Retirement 2045 Fund, it is a 500 Index Fund Admiral Shares fund. Do you know if there is a big difference between the two Mr. Hallam? Is this one perhaps more or less risky?

       I just had a look at Mr. Hallam's latest article, "Millionaire Teacher Invests $21,000 in U.S. Stock Index."  Here, Mr. Hallam gives us the low-down on why he did this.  It's quite simple really.  Mr. Hallam's portfolio is split like this: 41.3% Canadian bond index, 30.4% International stock index, and 28.3% US stock index.  As you can tell, his US stock index is falling a bit behind the others. However, this is purposeful.  Since Mr. Hallam is 42 years old, he has 42% of of his index invested in bonds (generally safer than stocks).  So the other 58% had to be evenly distributed between US and international stock indexes.  Mr. Hallam likes to skim off the index that is doing the best and add onto the index that is doing the worst, so that is probably why he invested $21,000 into his US stock index.  Mr. Hallam also talked about keeping low transaction costs.  I believe he means that he doesn't want to buy/sell his stocks to too often because he loses part of that money through transaction fees.

       Since for my new investment account I'm going to need to be investing US$500 annually, I need to start saving that money.  But how? As of right now, I'm sort of working two part time jobs.  I make $20 on Saturday reffing a SACAC soccer game, and I make $20 a day, two days a week working at a baseball clinic. So add that to my $50 allowance and I'll be earning $110 a week. I usually spend about $50 a week anyways, so lets say I have $60 to save up all year.  Sixty dollars a week will earn $240 a month, and $2,880 a year.  Even though this is in Singapore dollars, it is still far above $500, so I'll be set to invest every year.  It never hurts to invest a little more either!

October 31 - Halloween Special

      In light of the holiday spirit, I thought it would be interesting to talk about the finances of Halloween across America.  Who knew people are willing to spend so much just to get a little spook out of their friends or to get elder folks drooling over their baby's cute costume.  Last Halloween, CNN did a survey on what the average American spends during this holiday (http://edition.cnn.com/2011/10/31/living/halloween-fun-facts/index.html).  Even during harsh financial times and suffering economies, people are still willing to splurge for this late October evening.  The average American household spent $21.05 last year on JUST candy.  But what about the costumes you might ask?  Well, US consumers spend... wait for it... $2.5 billion on costumes this year according to the National Retailers Federation.  Ellen Davis from the NRF believes that people just like to get out every once in a while to have fun and spend money to forget about the financial troubles they are in.  Then again, there will always be those parents who go spend hundreds to please their spoiled children, which raises the average.  People also spend lots of cash on pumpkins, face paint, and haunted houses. Two Maniac Pumpkin Carvers come to Brooklyn each October and carve pumpkins that sell from $150-$400. The US produced more than one billion pounds of pumpkins last year.
       Last class, Mr. Hallam showed us a Dalbar study that showed how much the average investor made the last 20 years versus how much the stock market made.  The stock market made a remarkably higher percentage, 9.14% while the average investor only made around 3.83%.  Along with stocks, we looked at the same comparison except this time for bonds.  The markets made 6.89% while the average investor only made 1.81% in bonds.  You're probably asking, how could this be?  Why do so many people continue to invest if they aren't getting nearly as much as they should?  Well, it's simple.  There are two reasons why the average person makes much less in their investments than they should.  Number one is fees.  The majority of American investors use mutual funds and have people help them invest their money.  A large portion of the money Americans invest then goes to their financial advisor, trade taxes, advertisement costs, etc.  The other huge reason why Americans make less than they should is because of human error.  We, as human beings, listen to our heart too much more than our brain.  When the stock market is falling, we get a bad feeling and want to sell all of our stocks when the market is low.  When the market is rising, we feel good and want to buy as much as we can.  When we really, we should do just the opposite. Buy when the market is low, sell when the market is high.
       I had a look at Zack's recent blog (http://sb-sas19540.blogspot.sg/).  In it, he talked about Mr. Hallam's article, Investing From the Tour De France.  Zack talks about how through this plan, you constantly need to rebalance an index fund and a money market fund in order to meet a certain goal.  This sounds like a lot more work than a simple Vanguard retirement fund (don't have to do any work).  This plan can be very effective; however, like Zack said, it requires taking money out of where you are making the most and putting it where there isn't much profit making going on.  Most people would want to keep their money where it is increasing.

October 16 - Economic Bubbles

            Economic bubbles basically describe the trading of products or assets with inflated values.  Economic bubbles are typically only noticed in retrospect, when a sudden drop in prices appear. I'm guessing the word "bubble" is used because bubbles typically inflate very quickly, then suddenly burst into nothing.  So an economic bubble could be when there are many investors who put money into a product or asset, but when the value starts slowly decreased, one by one the investors start selling their stocks.  This quickly created inflation on that product.  Here is a site discussing some previous economic bubble incidents (http://www.businesspundit.com/10-most-bizarre-economic-bubbles-in-history/).  A few noticeable historical economic bubbles have been the 1711-1720 British South Sea Bubble, the Dutch Tulip Bubble, and the Uranium Bubble.  The British South Sea Bubble occurred when a British joint stock company granted exclusive rights to trade with South America, in return for financing the British government's war debt.  Many wealthy investors invested too much money into this company.  The Dutch Tulip Bubble occurred when tulips were brought to Holland from Turkey.  The Dutch people loved the flowers so much that eventually the price of a tulip was around the price of a Dutch house.  Finally, the Uranium Bubble happened in the 70s when the price of a pound of uranium was about $110.  It dropped to about $20 a pound until 2007, when a sharp fall in cost bankrupt for many mining companies.
            Mr. Hallam and I are both very interested in the possibility of opening up an investment account with Vanguard for myself this year.  Being only sixteen, this would be a huge financial advantage in my later years.  In order to create an account, I'd need a minimum current principal of US$1,000.  I am going to try to persuade my parents (Dad is gone for business) into loaning me this sum of money, which I'll be successful at if they see how much money I'll accumulate later on.  In this account, I'd start out investing about 20% in bonds, 50% in International Stock Index and 30% in International Stock Index.  As I get older, my bond index percentage will automatically increase.  For this account I would annually invest $500.  When I'm older and working, I'll be able to invest much more than this per year.
Here is a look at the compound interest calculator for this account:

I'm very excited about this possible account, and I'm hoping my father will be wise and loan me one grand.

          I had a tough time tracking my finances last week during IASAS.  For the majority of the trip, I was at the school (ISB) and I didn't have my phone on me, which I usually use to record my finances.  A few others and I were staying with a host family who cooked us supper every night and gave us numerous snacks.  I didn't want to ask for their grocery receipts so I had to estimate the approximate cost of each meal for myself.  We also got foot massages and I wasn't certain of the price.  I wrote all of my finances down, but only by memory and prediction.  Next time, I'll be sure to keep my phone on me.

October 2nd - Perks and Perils of Greener Pastures

         In class today, we continued working on our Car Opportunity Cost Project.  At this stage, Zarima and I have both found our "Dream Cars," and are finding information on those.  My dream car is a 2013 Audi A8.  You can see a picture of it here.  According to this site, the cost of this new car would be $152,295.  Later on in this project, I'm going to see how much it would cost to take out a loan for the car.  I also found the cost of gas for this car over five years.  First, I needed to find the average distance Americans drive per year (13,476).  An Audi A8 gets 23 miles/gallon (this is the average of miles highway and miles city), so I divided 13,476 by 23 to find the number of gallons needed to run this Audi for a year.  I got 586, so I multiplied this by $4.02 (average cost of premium gasoline per mile) and I found that the average cost per year for a 2013 Audi A8 would be $2,355.  Since we are finding the cost for five years, you simply multiply the yearly rate by five and get $11,775.  Next class, Zarima and I are going to start finding the depreciation cost of this Audi over five years, then find how much it would cost to insure the automobile.  This project is exciting because it one lets you dream about any car you want, but also brings you to reality on how much you could save by buying a used, but in good shape, car.
         I recently read Mr. Hallam's article, Perks and Perils of Greener Pastures.  In this article, Mr. Hallam talks about the advantages and disadvantages of living overseas.  Some of the advantages that he points out are that many expatriates enjoy affluent lifestyles.  Especially in Asia, labor is much cheaper so more people can afford gardeners, cooks, and maids, which are fairly rare back in the States.  Also, if a yearly salary for an expatriate is below $92,000 (perhaps a teacher salary?) then they don't have to pay any American taxes.  Of course, there are taxes if you own property in America.  However, one important fact to mention is that if you don't pay taxes (like the expatriate talked about earlier), then you don't get social security benefits.  SS can be huge financially.  "The average US retiree, as of early 2012, reaps $1,230 per month," writes Hallam.  For myself, I'm not quite sure of what I want to do in the future.  I'll probably go into some financial career, banking perhaps, but I'm not sure where.  I consider myself very patriotic and I want to live in and be a part of the great country America, but could I find better opportunities past the border?  I'm hoping I can find a high position inside the US.
         In Tobin's last blog, http://sb-sas17682.blogspot.sg/2012/09/september-24th.html, he talks about his parents' views on the collegiate decision.  His father took a similar route to mine.  They both attended good academic undergraduate schools, Mr. Hamby at the US Merchant Marine Academy and my father at Amherst, but these aren't Ivy Leagues.  Both parents went to an Ivy League for their graduate degree though, Mr. Hamby at Stanford and my father at Cornell.  Mr. Hamby doesn't find any good reason for paying loads of money to go to an Ivy League for undergrad when you can find a similar academic school for a much smaller price.  He believes that the graduate program is more important, and that's why he chose Stanford.

October 1st - Credit Cards

        Last class, we read pages 7-11 in Mr. Hallam's book, Millionaire Teacher.  This section mainly covered buying and selling cars.  Mr. Hallam believes that nobody should buy a new car.  You can find used cars with small mileage and not worn down.  Mr. Hallam told us that he has never bought a car in Canada over $5,000.  This is remarkable.  Back in Maine, my parents bought a new Toyota Sienna minivan for around $20,000.  Little did they know that they could have probably bought a nicer, used car for around the same price.  There are some important facts to know when buying used cars however.  Number one, you can find better deals through individual sellers rather than at a lot.  This is because the lot needs to make money off of their sales, whereas an individual selling a car only needs profit from his automobile (no salary).  Number two, you generally don't want to buy a used car that has over 90,000 miles on it.  If they've driven more than this, chances are the car is pretty worn down and won't last you much longer without spending hundreds on repairs.  Number three, there are always going to people who want to get rid of their automobile quickly and won't pay much attention to the actual price they should be selling for.  They might put the car up for sale a few thousand dollars cheaper than it's worth if they are trying desperately to get it off their hands.
         We've briefly discussed credit cards in class before.  Mr. Hallam has told us that, "If there is one thing you get out of this class, it should be that you never should have credit card debt."  According to this article, Credit Card Statistics, the average American household has almost $16,000 worth of credit card debt. This is ridiculous because if you cannot pay for your credit card payments, don't own one!  It is much easier to spend money on a plastic credit card than actually handing out cash.  My dad has $0 worth of credit card debt.  If his debt is 0, and the average debt is 16,000, that means there must be plenty of people out there with debt much higher than 16,000 too!  I had a discussion with my father on credit cards.  He says that he uses them for things like petrol, where it is more convenient than paying with cash.  He also uses credit cards for big purchases, but only when he knows he has the savings to pay for it.  One great thing about credit cards are that you get points whenever you purchase something with it.  My father uses the points for frequent flier miles, which helps when my four siblings come to visit in Singapore or when we return to Maine.  So credit cards are great, but ONLY if you have the savings for it.
        I had a look at Zack Chaudry's http://sb-sas19540.blogspot.sg/2012/09/september-27-class-blog.html blog.  In it, he discusses three types of cars that "Mr. T" could buy.  The first car he could buy is a brand new Mercedes Benz, which he would have to take out loans to pay for.  The second option is a used Ford that he could pay for upfront.  The third option is a leased Toyota, which Mr. T would have to pay for monthly.  I agree with Zack that the best option would be the Ford, because he could pay for it all right away and not have to worry about it later.  He already has student debts to worry about anyway.  Mr. T needs to make sure the Ford is in good working condition though and that the mileage isn't too high.
       

September 27 - Balancing Your Investment Portfolio

           Last class, we finished up our Ivy League Debate projects.  As expected, all of the groups held a similar standpoint on the matter.  If you are taking out loans for your college tuition or your parents are giving you the difference of going to a cheaper school rather than an expensive one, then it is not worth it one bit.  All of the presentations gave evidence that attending a cheaper "non-top tier" college instead of an Ivy could save you several million by the latter part of your life.  The one (and rare) situation where there might be an advantage to going to an Ivy League school is if your parents covered the complete cost of school's tuition.  In this case, the only deciding factor for picking your college should be the average starting and median salaries coming out of those schools.  The majority of Americans are not financially blessed enough to have their parents pay their full tuition though.  In fact, according to this article (http://www.thecollegesolution.com/stunning-how-many-are-borrowing-for-college), The New York Times found that 94% of college students earning their bachelor degrees take out student loans!
          In Mr. Hallam's article, "Millionaire Teacher Sells %50,000 of bonds (http://andrewhallam.com/2011/08/millionaire-teacher-sells-50000-dollar-of-bonds/), he teaches us by example how to diversify your investing portfolio.  One of the basic rules he teaches is that your bond percentage should be similar to your age.  The reason for this is that bonds are generally pretty consistent, they never have steep falls or increases.  So as a person reaches retirement, usually around 60 years old, more than half of their investment portfolio should be bonds, since they don't want to risk losing their savings before retirement.  Another important lesson Mr. Hallam teaches us is that we shouldn't have our portfolio dominated by one of the three indexes (U.S., International, and bond).  So if one of Mr. Hallam's indexes gains, what he'll usually do is sell enough of those funds so that he can use that money to purchase more for the index that is falling.

Look at this picture.  It shows that over a 5 month span, the Canadian Stock Market fell quite dramatically but the Canadian government bond index.  That's proof that bonds are usually more consistent.

          My sister is a prime example of the Ivy League problem.  Last year as a senior at SAS, she was accepted to several schools, including Cornell University.  This was probably her first choice because the Cornell has a great school for the area she wanted to major in: Human Psychology.  The one problem was that Cornell was the most expensive by quite a bit.  They also offered her the least in scholarship ($5,000).  Heather decided to go to another school, Furman University, which is a private school in South Carolina.  Although that school is expensive too, it costs less than Cornell and she received much more in scholarships.  She doesn't regret her decision one bit and loves it there.  It would be interesting to find the starting average salaries of those two schools and see the possible reward of going to Furman.

September 23 - The Laptop Debate

          Last class, two groups presented their College Opportunity Cost presentations.  The first presentation was comparing two universities: Columbia University and Georgia Tech.  Their presentation was organized well and their transitions were smooth.  I felt like Tanya did the best job speaking.  By the time the presentation was over, the audience was generally convinced that there wasn't much benefit from going to Columbia vs. going to Georgia Tech.  The next group included Jack, Dennis, Nick, and Sohrob.  Their presentation had a lot of good data in it, but it was very difficult to follow.  I don't think there will be one presentation who tries to prove that an Ivy League diploma will do you any better in the long run than a "non-top tier" school will.
         Last Thursday my laptop stopped working.  It had a full battery, but it wouldn't turn on.  My mom brought it into a mac repair store and the lady there told her that it was a problem with the mother board, and it would cost about S$1000 to repair.  Since my computer it already pretty old, my parents don't see a point in spending so much money on a repair when it will likely break again soon.  I e-mailed my father about it (he's in KL for work) and he told me to start researching laptops I am interested in buying.  My first choice for a computer would be a MacBook Pro 15".  If I were to buy it off the Singapore Apple website it would cost S$2,488 (MacBook Pro 15").  On the American Apple website, the same computer costs US$1,799(US MacBook Pro 15").  If you convert that price to the Singapore currency (1.225), using an online converter (http://www.xe.com/), the price becomes $2,203.  This is over 200 dollars less than the price on the Singapore Apple site.  It would cost quite a bit to ship over a laptop from the US though, and I have no relatives coming from their to visit until Christmas (an awfully long time without my own laptop).  The next laptop I'm researching is a ASUS K501.  This laptop only costs S$750.  The difference between prices is S$1,738.  If I were to invest this with a 9% interest rate for 40 years I'd make S$54,589.  I could buy multiple laptops with that money!
         In Zarima's most recent blog, http://sb-sas33372.blogspot.sg/2012/09/sept-10-2012.html, she talks about the 529 plan.  The Greco's use this plan for college savings.  They put money into an investment fund and an investment manager manages it.  As the time comes closer to Zarima's first year of college, the majority of the plan is in bonds (the most reliable).  I wonder if a better option would to just make your own index and manage it yourself instead of paying a manager to do it for you.
       

September 13 - Ivy League Dilemma

       I sat down with my father again tonight and asked him the Ivy League question.  Is it worth spending the tuition fees?  Does an Ivy League diploma really help you in the long run?  My dad's opinion is that it can go either way.  He doesn't have a preference on whether or not able people should go to an Ivy League.  "It's not your college that you come from, it's your dedication and hard work that lands you a good job," says Doug Erdmann.  What is the question we are really asking for this project though?  Does attending an Ivy League determine success more than a state or private school does?  To answer this, first we need to define success.  In Finance class, success would most likely be defined as: accumulating the most wealth, so getting the highest salary.  For people like my father, success is not defined by your paycheck, but rather the difference you make in the world.  So in his opinion, going to an Ivy League doesn't determine success any more than another university would.
        http://blogs.ajc.com/momania/2010/12/01/ivy-league-or-state-school-does-your-college-determine-success/
           Here is a blog titled Ivy League or State school: Does your college determine your success?
The New York Times quoted a survey by the National Bureau of Economic Research on 6,335 college graduates.  This survey was to see how students who applied to Ivy Leagues and were either rejected or chose not to attend, stacked up against Ivy League graduates.  The results were jaw dropping.  The students who didn't go to the Ivy Leagues actually ended up generally earning higher incomes than the actual graduates.  The Bureau concluded that the real determining factor for success is "student motivation, ambition, and desire to learn."  So, this study is saying that jobs don't hire based on your college, but rather your history of hard work and ambition.  I no longer see the desire in attending say Yale or Dartmouth, than maybe impressing a few people over your life time with the fact you graduated from there; however, if you really love an Ivy League (not just for the name) then be sure to go for it!  For myself, I would rather find a college I love and work hard there to be prepared for the work force.

Here's a list of the top 10 schools with highest career median salaries.  Sure, there are three Ivy Leagues there, but don't ignore the seven NON-Ivy League schools.  This is proof that you don't need an Ivy League diploma to make a lot of money.

This is Tobin's latest blog - http://sb-sas17682.blogspot.sg/2012/09/september-4th-beating-hedge-funds.html.  In the conclusion, he talks about how his family invests.  They do not use hedge funds and invest their money through a trusted, retired investment manager.  They stocks are spread across the stock market.  They do not have bonds however.  I know the Hamby's and I know that Mr. Hamby makes a lot of money.  It shows that you can earn lots through your career, even though investing can help.

Projectile Motion Video Lab Analysis

Graph of x-position vs. time (including best fit lines)

Equations for x-position vs. time

y = 2.286(m/s) x - 0.981(m/s)
For about 1.5 seconds, the slope is 2.286. This slope remains until the second bounce of the ball.  The new equation is y = 1.137(m/s) x + 0.712(m/s).  The reason why the slope dropped after hitting the floor was because gravity doesn't allow the ball to bounce quite as high as the previous bounce.

Description of the Horizontal Motion

This graph's horizontal velocity is constant, meaning it has no acceleration.  That is why the line is linear. For this experiment, we are ignoring air resistance.  The horizontal motion changes after the ball bounces because of the momentum shift.

Graph of y-position vs. time (including best fit lines)

Describe the Vertical Component of the Position of the Projectile

The vertical component is not linear, mainly because of gravity.  The component is both negative and positive at certain points.

Graph of y-velocity vs. time (including best fit line)

What can you say about the rate of change of the y-velocity as a function of time? How does the value of the slope of the linear fits compare to the acceleration of a freely falling object?

Rate of change is slope.  If our slope was steeper, it would have fell at the rate of gravity (-9.8 m/s/s) instead of -10.56 m/s/s.  Acceleration increases as the slope increases.

Explain the differences in the horizontal and vertical components of the motion of the projectile in terms of the force(s) acting on it after it was launched.

Horizontally, the components experienced no acceleration.  Horizontally the velocity did not change, it was constant throughout the video.  The only force it had horizontally was the force from the thrower, gravity, and air pressure.  Gravity created acceleration for the vertical component.  The force for the basketball came from gravity.  Once the ball passed it's origin (the throwers hands) on the way down, it's velocity increases.

September 9 - The Investment Magazine Dance

           Last class we spent the majority of the time reviewing Chapter 3 of Millionaire Teacher.  It was obvious that some students hadn't read it yet, so the discussion was sub-par.  We still got in a few points however.  These included 1) all investing portfolios should have three index funds (US, International, bond) 2) passive investing is more reliable than active 2) there are online financial service companies that help you invest for a small fee (Vanguard) and 3) Financial advisors want you to buy mutual funds rather than index funds because the advisors get more money that way.
           Magazines make their money through two ways: their readers and their advertisers. The readers pay a monthly or yearly subscription to the magazine to keep receiving it in the mail and the advertisers pay the magazine to have their ads put in the magazine.  Of course, it's very important to please both.  In Mr. Hallam's article, "The Investment Magazine Dance," (http://assetbuilder.com/andrew_hallam/the_investment_magazine_dance) he recalls one time where he wrote in an article that it is smarter to buy used cars rather than new. An advertiser for that magazine that sold new cars wasn't so pleased.  I think that is a tough lesson for Americans to learn.  Nobody wants to buy a car that somebody has already enjoyed before them.  We want the newest of the new, even if it would put us into debt.  On Chevrolet's website, they list their 2012 Tahoe starting at $40,000. (excluding taxes).  I found a used 2011 Tahoe for only $30,000 online.  That's $10,000 less for only a car that is only a year newer! If you were to take that $10,000 saved, invest it with a 9% interest for thirty years, you would make over $150,000 (http://www.moneychimp.com/calculator/compound_interest_calculator.htm).  You could buy three new Tahoes with that money!   Back to Mr. Hallam's article, it says that if an article does happen to say something that might offend an advertiser, there will be another article in the same issue refuting it.  Say an article is written on how passive funds almost always outplay mutual funds in the long term.  The next article might talk about how one mutual fund has beaten the stock market for five years.  I'm guessing the magazine does this so no readers or advertiser wants out.
        In Zarima's blog http://sb-sas33372.blogspot.sg/2012/09/august-4-2012.html she discussed how her finance tracking has gone.  In the month of August, she spent $827! This money was used for food, transportation, dinner, gifts, etc.  Grocery money wasn't even included in this sum.  Zarima is fortunate to be able to spend so much, but she could save hundreds of dollars by packing lunches and taking the subway.

       
       

September 5 - Small Percentages Pack Big Punches

        Chapter or Rule #3 of Mr. Hallam's book, Millionaire Teacher, dishes out proof after proof of why nobody should invest in mutual funds.  Rather, they should invest in index funds. Mr. Hallam suggests three different index funds to have in your portfolio: 1) U.S. Stock Index Fund 2) International Stock Index Fund and 3) Government bond index.  Each index fund should take up one-third of your portfolio.  If one of the indexes grows too much, you should sell some of it and use the sales to buy more of the other two indexes.  For example, say your US Stock Index is taking up 30 percent of your portfolio, your International Stock Index is taking up another 30 percent, and the Govt. bond index has 40 percent.  You would want to sell some of your bonds and buy more international and US stock indexes so the portfolio settled at 33%, 33%, and 33%.  You always want them even because if for some reason one of the indexes drops, it won't have a huge lasting effect on your portfolio as a whole.
        In class, Mr. Hallam was telling us stories of how some families put all of their child's college savings into mutual funds.  When the stock market crashed in 2008, they lost all of their savings.  However, if they had put all the savings into an index fund, they would have lost just a percentage of what they lost with mutual funds.  Here is an article talking about how Americans, since the stock market crash, have lost faith in the market and aren't willing to invest their money: http://themoneyupdate.com/tag/invest-their-savings/.  Interestingly, this article gives no advice on investing passively; rather, it concludes with a link to the site of a personal financial advisor! This article is telling the public that it is safe to invest when really, mutual fund investing isn't.  It's a shame that worried Americans can be sucked back into the schemes of sweet-talking advisors, when they could be saving much more safely by investing in the entire stock market.
        Here is a link to Tobin's last blog: http://sb-sas17682.blogspot.sg/2012/09/september-4th-beating-hedge-funds.html. In it, Tobin discussed Mr. Hallam's "Couch Potato Investing" blog.  Tobin relays Mr. Hallam's evidence that just one hour of portfolio re-arranging a year can save you hundred of thousands of dollars than can be lost through mutual funds. I wonder if hedge fund managers will still have their monstrous salaries towards the second-half of our lives. Perhaps by then Americans will realize that they are the wrong way to go.
     

Speeding Up and Slowing Down Lab

(g) On the observed graphs, describe the slope as 

a) constant, increasing or decreasing

b) positive or negative
c) state what the slope represents

Graph #1
This graph is both decreasing at first, and then increasing. It is never constant though.  The graph starts positive, then finishes back in negative ground. The slope represents the car moving up the ramp then coming back down the ramp without ever coming to a complete stop.

Graph #2
This graph is constant from start to finish.  The graph is negative. The slope represents that the velocity starts high when the spring is released, then it comes to a stop at the top of the ramp.  The cart velocity returns to the initial velocity before it hits the bottom of the ramp again.

Graph #3
The graph is constant throughout, there are no changes in acceleration.  The acceleration is negative because gravity is always pushing the cart back to the ground.  This slope represents that even though the velocity is changing throughout the ramp, the acceleration never changes.  When an object is moving up, there is always a negative acceleration because of earth's gravity pull. If the acceleration wasn't negative, the object would never stop moving up.

August 3 - Spend Like You Want To Grow Rich

      Right now I'm reading through Mr. Hallam's book, "Millionaire Teacher."  In chapter 1, Mr. Hallam talks about the difference between being rich verse living rich.  Being rich means you have financial freedom; the financial ability to take off work for a year or two and still living comfortably. Opulent folks tend to have high salaries (although not necessary) and invest smartly. Of course there are the outliers who get rich through luck (lotteries) or come from a wealthy family.  Unlike most SAS students, Mr. Hallam came from a humble background.  In a way, we have a disadvantage in this aspect.  We tend to assume we'll be wealthy forever and don't have to work for it like our parents did. Or even worse, we spend extravagantly as adults when we don't have the money because that is what we are accustomed to.  Poor kids have better intentions for becoming rich because they know what it's like not having money.  Here is an article on how to make yours kids rich: http://money.usnews.com/money/blogs/On-Retirement/2011/07/06/5-ways-to-help-your-children-become-wealthy
       Number one says to develop frugal habits yourself. This one basically says that your kids learn through your actions, not your words.  For example, if you smoke around your kids but tell them that it's bad for you, they are more likely to follow your actions than listen to your advice.  So when you show your kids that you save money, they will probably start doing the same with their allowance no matter how small it may be.
      Number three states that parents should teach their kids excitement of improvement. There are many small ways to save money: fly economy instead of business, take the public bus rather than cab, or even just eating at home rather than out. Kids will pick up on these actions and learn from them.

      I added up all my purchases since the start of class in August to the beginning of September. The total amazed me. $518. Never before had I imagined I spent this money on average. Probably the biggest factor that had been hidden to me before was the endless grocery bills. My mom goes grocery shopping almost everyday and the Cold Storage prices are almost double that of Fairprice. Too me it's not an issue though, us American's love our food.

August 30 - Women Investors Have Higher Returns

       In Mr. Hallam's latest article, "Women Investors Have Higher Returns in Good Times and Bad", he pulls the reader in by asking them who they think are better drivers? Male or female?  The majority of American's say men are superior in this aspect; however, it turns out that 80% of all serious car crashes are caused by male drivers. My theory for this is that men believe they are better drivers than they really are so they take risks on the road (speeding, not wearing seat belts, running red lights, etc.). Women are generally better investors too.   Men are less likely to follow simple investing rules such as "buy low, sell high" and don't sell when the stock market crashes.  Probably because men think they can cheat the system and earn a rare profit, but women know better.
        Another one of Mr. Hallam's articles I was interested in is "Doing the Math Behind a Calculated Move to Distant Shores."  In this piece, Hallam talks about the advantages and disadvantages he faced in his move to Singapore.  I have been surprised since I've moved here of how high the car prices are (I believe they have a 100% tax?) There is good reason to this however because since Singapore is such a small country, the roads would become over-clogged quickly with the selling of cheap cars. I agree completely about what Mr. Hallam said about the "expat disease".  Families here love dishing out their money for simple pleasures like shopping, dining, and entertainment.  Just because you have a high salary doesn't mean you should throw it all away.
       I just had a look at Tobin's blog http://sb-sas17682.blogspot.sg/2012/08/august-16th-housing-market.html.  He told us how his parents took advantage of the low real estate market happening in the US right now.  I thought it was brilliant how his parents are renting out the newly-bought house to the old owners because since they have an attachment to the house, they will most likely take good care of it.  It is always risky renting a house while living overseas though.

August 28 - Passive vs Active Investing

The big question from last class was, “Long term, what gives higher odds of statistical success, passive or active investing?”  To answer this, first we need to look at the differences between the two.  Active investing involves either paying a fund manager to take your money and invest it in what they believe will be the most profitable companies or choosing your own stocks to purchase. The advantages of these are that fund managers can sometimes correctly pick out future successful companies, which will make you a profit, and same with buying your own stock.  The disadvantages for these are that fund managers cost money and most people aren’t usually bright enough to pick great stocks.  Passive investing is paying for a part of the entire stock market as a whole.  If the stock market does well as a whole, then your stock will increase.  Advantages to passive investing are you don’t need to pay for fund managers and in history the stock market has usually done well long-term.

            We did some research on which investing type seems better statistically.  The majority of the class and I agreed that passive investing was a better option.  Statistics show that more than 70% of the time, passive investing will make a bigger profit than active investing.  I asked my dad about the two.  He both actively and passively invests.  He has some money put into an Index fund in the S&P 500.  This money he is saving for my sister’s weddings, my brother and my rehearsal dinners, and a new car in the future.  He actively invests his retirement savings in a fund called Fidelity Contra Fund. 

            Here is an article on why we should passively invest. http://www.post-gazette.com/stories/business/news/retirement-active-or-passive-investment-636226/

One question I have is that my dad says right now savings account percentage in Singapore is 1%, no where close to the 9% we put into moneychimp.