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Monthly Archives: February 2008

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Consider International Investing

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Hi All,

This is James writing. My darling wife and I have been staying in a lovely small town at the foot of the Swiss Alps called Interlaken. In our time between going for scenic walks, hiking and visiting the sites, we’ve been watching a bit of CNN international and CNBC Europe. The long and of the short of it is that even though the US is having some economic problems, parts of Europe, the Middle East and Asia are in good shape. Because of this, if you’re interested in investing to beat the US markets, you might consider investing internationally. Some Asian markets like Singapore, and some European stock markets are mature and well regulated. These markets may offer an upside that you can’t find in America.

We don’t have any specific recommendations for companies or mutual funds to buy, but we can definitely attest to the fact that the there are LOTS of opportunities to make money outside of the states.

Best,

James

Budget Travelers Beware

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Switzerland is not the place for you!

We DINKS have been in Switzerland for about a week now and can attest to the Swiss having the reputation of the most expensive country in Europe. We selected Switzerland because it was the only country in Western Europe that Miel hadn’t been too, plus James speaks German, and it is moderately half way between DC and Kabul. We didn’t consider the fact that Miel may have avoided Switzerland in her days of backpacking, as your money doesn’t go far around here.

Speaking of which, the decline of the dollar is definitely felt as we are roughly equivalent to the Swiss Franc. The difference is that your average meal, not at the spendier places, is around $20 each, plus $5 for a soda. Vending machine prices are about 4 bucks for a pack of candy and large lattes at Starbucks are $9. As you can imagine, we haven’t gotten “mein latte” from Starbucks this trip.

We are currently in Interlaken, and the train ride up to the highest peak in Europe is $173 per person. Yikes! We did just get a fabulous dinner and beer for a steal of $40 at the local pub.

The moral of this posting is…Go to Switzerland. Get sticker shock. Enjoy the Alps. Enough said.

Best,

Miel&James

Greetings from Zurich

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Hi All,

We are currently in Zurich, where things are expensive in general. It’s a neat mix between modern technology and cultural with a background of old-school Europe. Things are expensive, as they would be in other major cities around the globe.

Tomorrow we head to Vaduz, in Liechtenstein, where “they wash the money”, as the couple next to us at dinner explained last night.

All is well and we are enjoying time together. We’ll share more when we have a less expensive internet connection!

Cheers,

Miel&James

Why High Taxes Suck

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Hi All,

I’m running around like crazy getting ready to head off the land of nestle and watches (e.g. Switzerland). But before dashing off to the airport, I wanted to take minute to complain a bit about DC’s tax situation.

For those of you outside the beltway – thats most of the real world – DC experienced a real estate boom in 04, 05 and 06. Because of this, property taxes skyrocketed. In some neighborhood’s the rate doubled. Well, now in 08′ real estate prices have leveled off in DC, but we’ve still got the high levels of real estate tax. People don’t always understand what this means, but from everything I’ve read and understand its clear that high taxes impact economic prosperity.

Just to reference this point: We live in a transitional neighborhood in DC. There are several businesses in the area that cater to a working class clientèle. One of them I love – its a discount clothing store. Their business model is terrific, they buy slightly imperfect name brand stuff and sell it at a steep discount. In other words, its great source of cheap good quality clothing. Now, due to higher property taxes, it looks like their landlord is trying to raise the rent. Probably the place is going to close up shop. If that happens people in our neighborhood will have to go elsewhere for low cost jeans.

While economic dynamics of the District are obviously complex – I’m seeing a relationship between high taxation and pressure on local retail. And its not a good thing.

Best,

James

Heading to Switzerland

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Hi All,

Just wanted to do a quick posting to update our readers on whats going on. For the next couple of weeks Miel and I will be writing from Switzerland! When we first thought about the prospect of having a long distance marriage we both recognized the need to see each other frequently.

From a strictly financial point of view, vacations in Switzerland don’t make a whole lot of sense. It makes less sense given the weakening US dollar and the current timing in the middle of my academic semester. However, its important to balance our financial goals with the opportunity to see each other again – its difficult to hold down a marriage without this kind of healthy contact. So, even though its going to be hard on our pocketbooks, it makes sense to go to somewhere picturesque like Switzerland where we can reconnect away from our respective busy lives.

So, even though its not the greatest from a strictly financial standpoint, going to Switzerland like its a good investment in keeping our relationship emotionally healthy. Mostly I’m just happy to see my wife again.

Best,

James

DRIPS

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Todays posting is on bank and investment accounts – specifically Dividend Reinvestment Plans (DRIPS).

If you don’t know what at DRIP is, it is essentially a direct investment account that allows you to purchase shares in companies without the help of a broker or other financial intermediary. Most also allow you to reinvest your dividends without an additional charge, hence the name, dividend reinvestment plan. Most DRIPS are direct investment plans where you buy your desired shares from the company via snail mail or the internet.

I like dividend reinvestment plans. I like them a lot.

There are several advantages to investing through DRIPS.

1) Low Investment Minimums: Lets face it, most people don’t have a lot of money to invest. According to the census bureau, the average American family had a net income of $44,000 per year. After taxes, food, housing, transportation and miscellaneous expenses, there often isn’t much left over for investing. The great thing about DRIPS is that many of them have minimum investments amounts in the $100 or $250 range. These smaller amounts are more realistic for most people.

2) Low Transaction Fees: Like Warren Buffet says, fees and and emotion are the enemy of investors. Most traditional brokerage accounts and financial products charge fees higher than those levied by the average DRIP plan.

For example assume that you have $500 to invest. If you were to purchase shares in the S+P 500, you’d be looking at a transaction cost of $50.00 through Vanguard (The Vanguard Group is known for their low fees). Fifty dollars on an investment of $500 is 10 percent! You would immediately loose 10 percent of your investment if you directly purchased your funds through a brokerage account. On the other hand, an equivalent investment in a DRIP security would cost you maybe 8 or 10 dollars. In sum, DRIP plans are generally a lot cheaper than traditional transaction schemes.

You might be wondering who pays for the management of DRIPs. Usually the company whose shares you buy foots the bill. They do this because investors tend to be customers and executive managers prefer a wider shareholder base to reduce equity volatility and to limit the influence of large institutional stock owners.

3) Free Money: Some DRIP plans offer discounted shares. Basically what this means is you send in your payment and you automatically purchase shares at some percentage reduction from the prevailing market price. Before you start getting excited, I should tell you that the discounts are usually three to five percent. Not much, but enough to cover the effects of inflation. With these kinds of plans, any market return you get is a real return (e.g. it takes inflation out of the picture).

Finally, getting rich seems to be about controlling expenses and maximizing return. DRIPS are perfect ways to do both.

To take action, you might want to consider the following websites:

American Stock Transfer & Trust

Equi Serve

Happy Investing! As always, feel free to email us or post a comment!

-James

Budgeting for Vacation

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Whether you are treating yourself to a deluxe vacation or are traveling on a shoe-string, I’ve found that it really helps to budget things out. This certainly helps while traveling as an individual, but it is tremendously valuable for couples. I should also note that this applies when traveling with a friend as well, since often choices in where you go and what you do will affect both of your budgets.

Vacation is an easy time to want to treat yourself and spend in ways that you normally wouldn’t. While this is completely understandable, you’ll likely be much happier and content, even if you are set up to spoil yourself.

Here are a couple of steps that help to make sure that you are on the same page and know what to expect for travel expenses.

  • Determine the main purpose of your trip. This may seem like a no-brainer, but it helps to consider what you’d like to take away from the vacation. Whether it’s trying new foods, lounging on the beach, sight-seeing, or adventure experiences you are after, this will affect your budget significantly. If you know that food is the most important part of your trip to Italy, then you’ll feel fine by dropping some Euros on a nice meal. However, if what you really want out of your trip is to go sky-diving in New Zealand, you won’t be as content to have spent all of your money on an expensive hotel room. The main point is to make sure that you’re putting your money on what you value most. Looking back you’ll appreciate what you spent your money on more than if your dough was shelled out on something that you resented having to pay for.
  • Decide what level of travel you’d like to travel at. This could mean $3 hotels in Peru or $300 rooms in Dubai. I’ve done both, but it helps to have a good idea of what your expectations are before you head out.
  • Make a budget of expected costs. This should include accommodation, food, transportation, communications, entertainment, sight-seeing and souvenirs. Once you realistically think about the costs of everything, they tend to add up. This will help to make sure that you realize how much you will shell out before you are standing with the bill.
  • Make sure the money is already in the bank. It’s easy to over spend on vacations and think that you’ll just sort it out later. It’s best to look at what your expected expenses will be and then make sure that you’ve got your costs covered before you head to the airport or drive off into the distance.

If you do all of the above, I am most certain that you’ll be less stressed during your trip and relieved to have planned and enjoyed another well-deserved holiday. The stress of being on vacation with someone who wants to stay at the Ritz and someone who’d rather being eating bread and cheese for every meal is no fun at all.

I’d love to hear from our readers on what experiences they’ve had with budgeting for vacations (or not).

Happy Vacation Planning!

Miel

Never Nod in Agreement

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After my travels in Southeast Asia I thought I’d give a couple of tips on negotiation.

My number one tip is never to nod, say uhuh, or agree if you don’t fully understand what you are agreeing to. It is very, very easy to want to be nice and nod if you don’t have a clue of what is being said. This of course works both ways, as those you are negotiating with may very well want to nod and agree with what you are saying, when they haven’t a clue of what you are saying either.

If you can’t sort out numbers, resort to writing it down or using a calculator to discuss the price. The best negotiation I had in Thailand was with a very nice deaf man who was a skilled negotiator but gave me a good price and made the sale.

Make sure your taxi driver knows where they are going before you agree to go with them or agree on a price. They are prone to nodding and agreeing that they know where the place is, even if they haven’t the slightest inkling.

Here’s a good example of what not to do: Heading to a business meeting in Bangkok the other day, my taxi driver and I didn’t exactly reach agreement. My first taxi driver didn’t know where the place was. The second driver assured me that he knew where it was, but then had to stop four places along the way to ask for directions. His taxi was metered, but with it broken he wanted to charge me four times the price it should have been. He was sure that I had agree on this price before getting in the car, but considering I didn’t understand much of what he was saying, this certainly wasn’t a mutual agreement. I left him with the fair taxi rate and went off to my meeting.

Negotiation is an art, particularly with language barriers, not knowing the price of things, etc. It’s no wonder that tourists get screwed just about everywhere in the world. In the end it all becomes part of the adventure.

Happy Haggling!

Miel

Wesley Snipes: Tax Denier?

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Hi All,

I just saw a gem in the New York Times. Evidently the famous actor Wesley Snipes has been found not guilty of income tax evasion. The story is that Snipes became involved in the tax denier movement after the IRS hit him up for a 2 million dollar bill back in 1999. For those of you who don’t know about the tax denial movement – they say the income tax is unconstitutional because the 16th amendment was never properly ratified. Its nonsense, but whatever.

Uncle Sam went after Snipes, alleging that he had committed a variety of fraudulent and other illegal actions in the course of becoming involved with the tax denial movement. Well, it seems that a court sided with Snipes just yesterday. He was found not guilty of the major felonies charged against him, but was nailed on 3 misdemeanour counts of failing to his 1040s. He’ll probably get probation and a modest fine.

Check out the NY times story. Old Wesley looks pretty happy about the outcome.

I can’t say I blame Snipes. I pay my taxes, but if the federal government tried to hit me up for a 2 million dollar bill, I might go a little ape myself.

Best,

James

Discussing Your Values

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Hi All,

Most of the blogsphere talks a lot about saving and investing. There are fewer good postings on personal finance for couples and even less on working as a team when you’re in a committed relationship.

While we certainly aren’t experts in marital and financial issues, one helpful aspect of our marriage is that we’ve openly discussed our values. This is important because it gives us a a basis for recognizing where we have differences and where we can better forge consensus when setting goals and working together on them.

Frankly, our values are pretty different from each other – Miel prefers freedom and James is more interested in security. But, negotiating our goals are a lot easier because we’re aware of the differences in our values. For instance, we can choose to compromise by putting part of our money into a goal that provides freedom (such as paying down debt) and part of the money in something more security focused (like maxing out our retirement).

We realize that both of these goals help us financially, but they also help to cement our marriage. Like most things life it isn’t necessarily about the end goal, but the process. If we have loads of money and hate each other because of what it took to get there, it doesn’t much matter at all. By openly discussing your different values you can ensure that both people are satisfied while still building a strong marriage.

How do you do this? We ended up using David Bach’s book Smart Couples Finish Rich. Bach’s book has a number of exercises which help you work out your values, but all you may need to do really need to do is list them. If you’re sitting down with your partner, try drawing your top five values. Values are typically things like: security, making a difference, personal growth, love, health, power, family, etc. You should be careful to distinguish your values from goals. Goals would be something like: save a million dollars, take a trip to Europe, be debt-free, etc.

It’s a worthwhile exercise and it might help improve how you and your partner talk about money.

Best,

James & Miel

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