As frequent readers of our blog know, I’m all for the “less is more” way of being.
Generally I’m the total minimalist when it comes to the purse/wallet category. Recently I’ve experienced an uncomfortable bulking of the wallet.
Not only do I have to carry multiple currencies, often in small denominations, I also live where I am. Aside from my snits in Kabul, I’m often living out of my suitcase or hotel.
This means that I’ve been prone to also carrying multiple frequent flyer cards (as you never know which airline you might end up on). Then of course there are a couple of credit cards to use for personal, business, and emergency situations.
All of this adds up for a very bulky wallet.
As I prepared to go on the trip I’m on at the moment, in Saigon for a month, I decided that slimming down was necessary.
Not only was it necessary, it was also liberating. I’ve now written down all of the pertinent info for frequent flyer miles in my date book. Now this leaves my passport, driver’s license, debit card, personal credit card, business credit card, insurance card, and United Gold Member (I just can’t give up that one!)
While writing all of these down it still seems like a lot, I can’t just go home for anything I’ve left.
Your personal situation may be different than mine, but I still believe that slimming down your wallet helps to simplify your life and your finances.
While you are at it, consider if there is anything that you have that could be canceled or is no longer in use. That helps even further.
Now that I’ve slimmed down my wallet I can highly recommend it. Even one or two cards less will make a difference!
“Never again will you look at a particularly successful person and sigh, ‘How lucky he is.’ Because you will know that ‘luck’ or ‘fate’ has absolutely nothing to do with success or failure. What we call ‘luck’ is, in fact, a direct result of the correct or incorrect application of natural laws anyone can use effectively if he knows how”.
Conventional wisdom holds that investors should avoid individual stocks and instead purchase mutual or index funds. While the reasons for owning mutual funds can be quite compelling, – greater diversification and improved return – investing in this type of asset present several disadvantages that most investors are not aware of, especially when compared to direct ownership of stocks.
Fees and Return:
A typical mutual fund can charge you upwards of two to three percent in management, distribution (12-b) and operating fees. In addition, many mutual funds also charge a sales fee or load. Even some no-load funds have sales fees or incentives for brokerage houses to push their fund, so even with so called “no load” funds there are implicit fee structures built into their prices.
Provided the funds management is good, fees are not necessarily a bad thing. However, it is important to recognize the impact that fees have on your profit. Lets say you invest $10,000 and it gives you a 9% return. At the end of 10 years you’d have $23,673.64. But, assuming you are charged a 2% annual fee, then you would only have $19,671.51 ten years later. Your 2% fee would have cost you a bit more than $4,000. Four grand is rather a lot to pay for management.
On the other hand, to purchase shares of stock, you’d pay roughly $0-100 per trade.
Unclear Valuation:
A second disadvantage to mutual funds is unclear valuation. The mathematics surrounding the calculation of pricing for mutual funds – known as Net Asset Value (NAV) is complicated. This suggests that a specialized set of knowledge is required to understand the value of your investment. This is a problem because when you purchase mutual funds you are essentially reliant on your funds management staff to determine the value of your investment. Valuation methods are less of a problem with exchange trades funds, and it is probably safe to assume that the mutual funds management is honest, but shouldn’t you be able to easily determine how much your investment is actually worth?
On the other hand, if you own a stock, its value is easy to determine, just check the quote online. Management Challenges:
Mutual funds managers vary in their quality. Some are good, some are bad, but most are just average. A bad manager can really ruin your investment. This is a lesson I learned the hard way. Back when I was starting to invest in 2000, I put a couple of grand into a Smith Barney Mutual fund. The fund lost promptly lost 20% of its value and Smith Barney was later sued for management improprieties related to their mutual funds.
Assuming however, that you manage to avoid a bad mutual fund manager, there are still significant challenges relating to management. First, it is very difficult for even good fund managers to consistently beat major stock market indexes. Second, many good money managers are no longer in retail mutual funds. Post 2003 there has been a “brain drain” from mutual into hedge funds. Hedge funds offer greater flexibility, higher profits and less regulation than mutual funds. Accordingly, many of the best financial minds left the retail mutual fund industry. On top of these challenges, you’ve got to pay the fees. So, why pay for what will probably be mediocre performance?
On the other hand, if you directly own stock you have can always improve the performance of your own manager – you!
Finally, we should disclose that we do invest in mutual funds. James has shares in the Vanguard S&P 500 index and Miel owns units in the ING Direct Real Estate Class O fund. So, while this asset class does have some drawbacks, we are both heavily invested in it.
Best,
James
P.s. Click here for the SEC’s explanation of fund fees.
This was an article we did last year, but its good so I’m reposting it to give you all something to read. It is on the topic of preventing family conflict over inheritance.
Sometimes when a parent passes away, his children fight over the assets the parent has left behind. I have some personal experience with this. My grandparents lived in Davis, California and were both lifetime cigarette smokers. At the tail end of their golden years, my grandparents developed lung cancer and passed away after a long, lingering and ultimately unsuccessful battle with the disease.
My aunt, who lived across town from my grandparents, took responsibility for caring for then during their dying process. She paid their bills, managed their care givers, visited them and made sure their house was in good repair. When they finally passed on, my aunt made much of the funeral arrangements as well.
Being that she lived in the same town as my grandparents, by default she was responsible for taking care of their assets, including the house. Unfortunately, my aunt was cheated by the contractor who was hired to renovate the house for sale and ultimately she had to sue the contractor.
The lawsuit ignited a number of long simmering disagreements between my aunt, my mother and my uncle. Unhappy with how things were being handled by my aunt, my mother and uncle drove to Davis to “get things moving”. This ment withdrawing the lawsuit, seizing control of the house and finally putting it on the market. This has complicated their already precarious relationship and now all three of them are hardly on speaking terms.
Now, what are the implications of this for personal finance? Generally speaking finance related conflict between siblings surrounding the death of parents is about much more than the actual money itself. It likely involves a complicated set of psychological factors related to history of the family. However, regardless of the deeper reasons for fighting, two things are clear.
1) An independent executor of the will should be established. This should be someone who is NOT a member of the family. Ideally a trusted attorney should fulfill this role.
Why someone independent? Because, the experience of death and disposing of assets leaves many with judgment subject to the whims of emotion. Also an independent executor can act as a scapegoat in case something goes amiss. For example, my family’s case, an independent executor would have allowed my family to direct their disagreement toward someone other than each other.
2) A will should be established before the death of the parent. This should spell out precisely what the parent’s wishes are prior to the parents death. The executor should merely execute the parent’s wishes as stated in the will.
Not effectively planning to manage inheritance disbursement simply leaves too much potential for trouble.
“The incorrect supposition that we live in a world of scarce resources has done more than preclude the most individuals from achieving economic success. Over the centuries, this zero- sum-game view of the world has been responsible for wars, revolutions, political strategies, and human suffering of unfathomable proportions“.
As in all areas of life, financial lessons are often learned the hard way.
My most recent lesson was to keep your eye on the funds at all times and trust no one.
I’ll spare you all of the boring details, but I basically got shamed out of $800 in my work’s finance office. I counted out funds twice in front of one of the finance folks to return an advance. I then turned to deal with clearing another advance in local currency, with a second finance person.
The next thing I know, the first finance person counted out $800 less than I had just counted out in front of her. (It was a large sum, in case you are wondering how the count could be off by that much.)
I had been shammed. Right in front of me. In my own office.
After all of my travels and all the precautions I take to not get taken advantage of, I felt cheated.
In the end my office ruled that I should have had her do the cross check right away (even though she had been present through both counts). If it were a matter of a hundred dollars it wouldn’t be that big of a deal and I would have just blamed it on myself. It’s another thing when $800 disappears before your very eyes.
I believe this is by far the biggest money mistake I’ve made in the sense of being stolen from. I’ve had a camera taken in Peru and $20 souvenir in the form of a counterfeit bill, but never anything to this degree.
There goes $800.
I guess I can tell myself that I’m contributing to an Afghan family by having just doubled the finance person’s salary. I can’t say that I need it more than they do, but it would have felt better to have it happen voluntarily. I would feel very differently about giving that much rather than having it taken in such a way.
Unfortunately it is experiences like these that make us travelers a bit more guarded, and often jaded. I’m now in Vietnam, as I was headed to the airport when the incident happened, and find myself being much more conservative with my trust of others. While I know it is good to keep my guard up, I also prefer not to have an inherent lack of trust either. We are all just people in the end.
This brings to mind a lengthy discussion at a recent expat dinner party. The discussion basically debated whether it was better to trust cleaners, cooks, etc. Or whether it was better not to provide any temptation (i.e. don’t leave a dollar on the table or money in your pockets going to the laundry). The debate was long and engaging where no one had a lack of an opinion or experience related to the situation.
I guess my lesson would have me fall on the side of not allowing for opportunities to be ripped off. Like James often says, crime happens only when the opportunity presents itself.
Just wanted to post this quickly. If there is anything you would like us to write about, or if there is something you think we should improve, please don’t hesitate to let us know.
Our contact email is:
dinksfinanceblog@yahoo.com
Any feedback, good or bad, would be most appreciated.
Americans are fascinated with wealth. We love TV shows like “Who wants to be a millionaire” or modern day Horatio Alger stories like Will Smith’s portrayal of Chris Garner in “The Pursuit of Happiness”. However, for people who are serious about measuring their wealth, its sometimes difficult to know precisely where you stand.
Since measuring your net worth is a very important part of personal finance, we wanted to let you know about a few links that can help compare your dollar worth to everyone else.
The best thing to do is compare your level of riches to scientifically valid measures of Americans overall population. There are two recent government reports that might be good for you to check out. These are from the Census Bureau and the Federal Reserve (here and here). Both of these are based on the most up to date social science techniques and therefore you can have some confidence their numbers are in fact true.
Survey reports aren’t exactly a barrel of laughs, so here are some links that are both useful and fun. CNN money has a handy interactive net worth calculator. Also, the New York Times was running a great series of articles on inequality in America that lets you compare your level of wealth, education and profession against everyone else in the country (here). The issue with these sources is, *I think*, they use data from 2001. – Wealth distributions are constantly in flux, so I’m not sure how helpful values from 2001 are.
NetworthIQ, which is a delightful little website, has some statistics on networth. One thing to keep in mind about NetworthIQ is that the data there is self reported. So, you’ll be measuring your wealth against that of people who like to post their net worth on the internet, not a scientifically representative sample like that in the Census and Federal reserve reports.
I just saw a great article on the AP wire. Evidently more Americans are selling their stuff on-line. Why? – The article says the main reason is that high gas and food prices are obliging more people to drum up extra money to make ends meet. The websites they are using are craigslist.com, ebay.com, Livedeal.com and auctionpal.com.
For what its worth, I’m feeling the pinch a bit also. The price of a pound of ground beef at Safeway today was $6.60. Last year it was about half of that. Yipes! Some of my DVDs may be going on the auction block soon as well!
As you probably know, outlining your net worth can be an useful way of tracking your overall financial picture. A couple of years ago we decided to make a simple chart showing our overall level of net worth. It is shown here because it illustrates a couple of important points about personal finance. So, briefly:
1) Keeping Track Makes The Process Real: As you can tell from the chart below, our financial growth has been about $50,000 a year. While this is not a lot, it does indicate that saving and investing in real estate and stocks is an effective method of building wealth. This is important because it is quite one thing to read about money in a book and another to see it working in real life for you personally. Graphing makes the saving and investing processes real because you can see your wealth increase or decrease.
2) Keeping Track Helps To Determine What Works: You cannot tell from the graph below, but the DINKs bottom line growth has been due partly to stocks and good debt management. For example at the end of 2007, the graph was flat lining so we started putting money into income stocks and maxing out Miel’s 401k. Interestingly enough, August of 06′ was the time we realized our adjustable rate mortgages were impacting us. By adding up the new worth figures we knew that Washington Mutual’s monthly $50-100 increase in ARM payments was eating our lunch. While these may seem like common sense, the processes of doing the net worth calculations greatly illustrated what was helping or hindering the wealth building processes.
