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.