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.  

August 26 - 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

August 22 - Challenging the SAS Culture

Last class we discussed the possibility of earning more money over a lifetime by attending a cheaper college and investing the unused tuition money instead of going to an expensive private school.  Studies show that perhaps the reason why Ivy League graduates tend to have higher-paying jobs isn’t because of their diploma, but instead because of the hard work ethic that got them accepted to the Ivy League school in the first place.  For example, say a high school graduate from a wealthy family got into Yale University.  Instead of paying the fifty-something-thousand dollars a year for tuition, they decide to go to University of Maine where they received a full scholarship.  If their parents still gave them the money for the Yale tuition, they could invest it.  They would still probably get a high-paying job in the future too because they have the skills to get them accepted to Yale. 

            I talked to my dad about this idea.  He said it’s a good thought, but rarely would someone invest the money saved by going to a cheaper college.  A parent would probably just keep the money instead of giving it to their kid.  There also aren’t a ton of advantages to going to an Ivy League college.  At my dad’s old law firm in Maine, there were Harvard Law School grads that didn’t do so well in real law.  There is some correlation to getting good grades and success in professions, but it isn’t an exact correlation. 

            http://blogs.payscale.com/salary_report_kris_cowan/2008/08/why-graduates-o.html

            Here’s an article discussing how Ivy League graduates generally earn more than their liberal arts counters. The article states that Ivy League students generally earn 32% more for their starting salaries than other graduates.  Perhaps the reason for this is because they are introduced and welcomed by successful businesses because of their college achievements. It’s possible that there are better candidates from less well-known schools, but they are brushed away when an Ivy League candidate comes around.

August 16 - Real Estate

             Today in class we discussed how the typical American buys stock or real estate when they are at the highest prices or when the market is doing well.  I can understand why because say the real estate market is high, a house you’re interested in might cost $500,000.  Ten years later, when the market has gone down, the house might cost around $200,000.  Now you don’t want to buy the house because you think the low price equals a bad house.  Mr. Hallam has really enlightened us on how much of a profit we can make by buying the house for $200,000, renting it out and paying off your mortgage, then selling the house when the market goes back up and it once again costs $500,000.  That is at least a $300,000 profit. 

            I talked to my dad about his experience with the housing market.  When we left Maine in 2009, the housing market wasn’t bad but it was dropping.  My dad didn’t want to hold onto the house because of the falling market.  He said that he considered renting it, but decided against it for a few reasons.  One, that it is hard to rent out a house while living in a different country because you can’t check up on the renters and see how they’re taking care of the property.  Property managers can be used to make sure the renters are taking care of the house but there is also the possibility that the renters will move out and the process of finding a new renter starts all over.  My dad ended up selling the house for around $300,000.  He gained about a hundred thousand-dollar profit from when he bought the house in the late 90s, when the housing market was lower. 

            One suggestion my dad has for me is to start saving.  I earn $50 a week for allowance, and I’m starting a job in a couple of months.  If I save 10% a week, five dollars, for a whole year (52 weeks), that’ll make me $260.  Saving will also teach me good habits for the future when I have a real income.  

August 14 - Investing

Last class Mr. Hallam talked about investing, specific incomes for different professions, and his personal investing history.  Using Moneychimp, the class played around with different interest rates and monthly savings to see how much money we could earn over a certain time period.  The results were shocking to me.  Never before had I thought about how my money could grow so much just by sitting in the bank.  Mr. Hallam said he started investing as a 19 year old, which inspired me to start as well since I’ll have a job in a few months.  In class we discussed the median salary of a teacher: about fourty grand.  I took the time to search the median incomes of different professions in America.

My family history contains a long line of lawyers so I looked into the average salary of an American lawyer and came up with $112,000.  An American pilot was $100,000 and an orthodontist $374,000.  A median salary is the average salary of these professions.  Of course there will be some individuals well over and well under the median.  The median American salary is $41,000.

Gross income is a person’s total income before any taxes or deductions.  Net income includes the costs of taxes and deductions.  The average net income of a student recently out of Duke University is $79,000.

            I asked my dad about some of his financing.  He told me that he doesn’t really regret anything he’s done financially in his lifetime.  He has always made a profit from buying and selling houses.  One thing he has never tried however is personally buying stock.  I might be interested in that one day.