If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I sold 61.943 shares VIIIX at 100.1 on October 14, 2009, when Dow first settled above 10, 000 since October, 2008. I bought 481.028 shares DODIX at $12.89 using the proceeds. I paid no commissions or transaction fees for these transactions are in my 401K account. I generally don't like mutual fund. Please take a look at this post: Sell Your Mutual Fund! The following is my general view on index fund.
The case against index fund
After my speech on "Sell Your Mutual Fund", I was stopped by a fellow member asking my opinion on index funds. I didn't have time to contemplate and elaborate since I am usually very hungry after the toastmaster meeting. I am writing the following piece to give my viewpoints on index funds.
First of all, paying an index fund is against my moral principle. An index fund, by definition, is a fund holding all of the securities in the index, in the same proportions as the index regardless of market conditions. The manager of an index fund, therefore, spends no time or any other resources, adds no value but collects a fee. Since the manager has no overhead, puts in no efforts and adds no value, usually he or she collects less management fee percentage wise comparing to actively managed equity funds. Some argue lower fee is an advantage of index funds. However, to me, paying any fee at all for no effort, no value added is morally wrong.
Secondly, anyone in this room with enough money can easily outperform an index fund. Just buy everything in the index in the same proportion. Replace holdings whenever the index committee announces its decision. Since you don't need to pay yourself a management fee, over time you will do way better than any index fund you can find. Piece of cake. For those of us with limited resources wanting instant diversification, we are doomed to do way better. Just buy Berkshire Hathaway, or any other similarly managed conglomerate. We get solid business, strong balance sheet, skilled management and most importantly, the lowest paid CEO and Chairman in Fortune 500. Remember, you don't need to do all the profitable trades in the world to be rich.
Last but not least, an index fund gives you a false sense of security. An index fund is a basket of stocks. With so many stocks, it is unlikely you know any one of them very well. The big blackbox approach hides behind the diversification assumption most people accepts as gospel. People blindly settles for mediocre results. I don't know if any people needs 500 stocks to diversify. Furthermore, most index funds are cap weighted meaning they are more overvalued than general funds when index is at its highs.
In summary, I don't like index fund. I only buy an index fund when I don't have better options.
Thursday, October 15, 2009
Thursday, October 8, 2009
Stop raising taxes
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
The following is a piece I will talk at a local toastmaster club.
Thank you, Toastmaster! Fellow member and distinguished guests!
The current issue of Forbes carried a story on how taxes change human behavior! That got me thinking about the rising tax burden facing all of us!
Yes. We are all nice people. Who wouldn't want to provide high quality education for our kids, free healthcare for seniors living under poverty and fancy sport facilities for all Ohioans? All noble causes! And all these good deeds don't cost that much. The new Worthington school levy will only cost $530 more on top of the $4537 we are already paying a year. I mean, who doesn't have additional $500 flowing around in his house, or hers. The added city income tax will only cost $500 more a year. A little bit here, a little bit there. But if we add each and every tax up, the figure is staggering. Remember, every tax dollar collected by the government is one dollar you can't spend on your kid, your parents and yourself.
The ever increasing tax is supporting waste, duplication and other irresponsible fiscal behaviors in our government. It is impossible to list all the extravaganzas in 7 minutes. I will only list three examples. In Worthington school district, the enrollment is down and expected to continue, but the labor contract contains element guaranteeing an automatic 5% annual raise. Revenue is down, the need is down, but the cost is up. The trend is continue. How irresponsible! Another one, can anyone tell me why we have so many layers of government? We have state government, city government, county government and township government, school board, sport board and bill board! When a company gets bloated, it is wise to cut the middle layers to make the structure more flat, more effective. The same for Ohio government! Another one, trash removal. Aren't we going to save a buck if the city pay Waste Management to do it? If so, why not sell the equipment and personal to Waste Management? Cut the refuse division!
The ever increasing tax burden will also drive jobs out of Ohio! As communication technology advances, a lot jobs no longer require worker stay in a certain location. Working from home becomes more and more popular. Given a choice getting the same salary, performing the same function for the same boss from Florida where I pay no income tax or from Ohio where I pay 7%, I will choose working from Florida. Here is a more extreme scenario. I can stop working or work on less pay but more flexible jobs. My living standard will not go down. Actually, it will go up! Since I have more time, I can enjoy the sport facilities, public library and metro park more often. Those are funded by tax while I pay no tax or very little tax. Not a bad deal! Also, the state and local law subsidizing poor seniors regardless if they ever paid taxes before will only attract people around the globe to retire in Ohio, people who pay no Ohio tax or as a matter of fact, no US tax when they are working but enjoy the benefits funded by Ohio tax when they are not working.
In summary, raising tax will tempt both government and individual with unproductive behaviors. More importantly, we can't afford more taxes in Ohio!
1. Why I created this blog?
2. How am I going to operate this blog?
The following is a piece I will talk at a local toastmaster club.
Thank you, Toastmaster! Fellow member and distinguished guests!
The current issue of Forbes carried a story on how taxes change human behavior! That got me thinking about the rising tax burden facing all of us!
Yes. We are all nice people. Who wouldn't want to provide high quality education for our kids, free healthcare for seniors living under poverty and fancy sport facilities for all Ohioans? All noble causes! And all these good deeds don't cost that much. The new Worthington school levy will only cost $530 more on top of the $4537 we are already paying a year. I mean, who doesn't have additional $500 flowing around in his house, or hers. The added city income tax will only cost $500 more a year. A little bit here, a little bit there. But if we add each and every tax up, the figure is staggering. Remember, every tax dollar collected by the government is one dollar you can't spend on your kid, your parents and yourself.
The ever increasing tax is supporting waste, duplication and other irresponsible fiscal behaviors in our government. It is impossible to list all the extravaganzas in 7 minutes. I will only list three examples. In Worthington school district, the enrollment is down and expected to continue, but the labor contract contains element guaranteeing an automatic 5% annual raise. Revenue is down, the need is down, but the cost is up. The trend is continue. How irresponsible! Another one, can anyone tell me why we have so many layers of government? We have state government, city government, county government and township government, school board, sport board and bill board! When a company gets bloated, it is wise to cut the middle layers to make the structure more flat, more effective. The same for Ohio government! Another one, trash removal. Aren't we going to save a buck if the city pay Waste Management to do it? If so, why not sell the equipment and personal to Waste Management? Cut the refuse division!
The ever increasing tax burden will also drive jobs out of Ohio! As communication technology advances, a lot jobs no longer require worker stay in a certain location. Working from home becomes more and more popular. Given a choice getting the same salary, performing the same function for the same boss from Florida where I pay no income tax or from Ohio where I pay 7%, I will choose working from Florida. Here is a more extreme scenario. I can stop working or work on less pay but more flexible jobs. My living standard will not go down. Actually, it will go up! Since I have more time, I can enjoy the sport facilities, public library and metro park more often. Those are funded by tax while I pay no tax or very little tax. Not a bad deal! Also, the state and local law subsidizing poor seniors regardless if they ever paid taxes before will only attract people around the globe to retire in Ohio, people who pay no Ohio tax or as a matter of fact, no US tax when they are working but enjoy the benefits funded by Ohio tax when they are not working.
In summary, raising tax will tempt both government and individual with unproductive behaviors. More importantly, we can't afford more taxes in Ohio!
Tuesday, October 6, 2009
How to get seed money?
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I would like to tell my own story first. When I first landed on the most fortunate land on the world, I had $1, 000 borrowed money in my pocket. I was guaranteed about $1, 000 a month through a research assistantship. For the first two years, wealth building is simply not on my agenda. I improved my oral English, learned the culture and custom of the new land and saved. Saving money is part of my childhood training since there was never enough money flowing around in my family.
I began to realize I need to build wealth when I had a car accident five months after I landed my first job. I got a new car to transport me to work every day. My networth became negative between a car loan and a couple thousand dollars in my checking account. According to an old Chinese saying, troubles always follow one another while delight never comes in pairs. About four months later, my then employer lost a contract from a State government, rumors of layoffs flied around the workplace. I soon changed jobs.
The sense of insecurity and instability grabbed me. I lost several nights' sleep. I decided to establish my financial freedom. I saved more diligently and control my spending more rigorously. I had about $50K in 2003, five years after I came to the States. One year later, I have about $100K in saving and I began to buy stocks. By 2005, I had about $170K. Before the severe recession, I had about $400K in October, 2007. On the date of my writing this blog, I still had about $400K. Of course, I expect much more once the recession ends. Excluding taxes, I spend about $17K per year. You can see I no longer worry about layoffs since I can live on my savings until social security and medicare kick in.
As you can see, I got my seed money by saving. Saving is the most reliable source but may not be the quickest one. Now looking through the rare view mirror, I always wondered what if I used a little more leverage, LEAPs for example. I may have come to my current status quicker. But most people are risk averse when offered the opportunity to double his money or lose all of it. After two incidents I may lose my salary income (I had an experience I nearly lost my assistantship in the graduate school besides the layoff rumor), I became more risk averse. If I had known I would keep my jobs this long, I probably should have risked more money since my then salary should cover the potential loss easily.
For you, readers of my blog, how to get your seed money? I expect most of you should get through rigorously budgeting and saving. A small percentage of you may get it through gifts or inheritance. I expect extremely small percentage of you will get it through adding leverage in your portfolio.
1. Why I created this blog?
2. How am I going to operate this blog?
I would like to tell my own story first. When I first landed on the most fortunate land on the world, I had $1, 000 borrowed money in my pocket. I was guaranteed about $1, 000 a month through a research assistantship. For the first two years, wealth building is simply not on my agenda. I improved my oral English, learned the culture and custom of the new land and saved. Saving money is part of my childhood training since there was never enough money flowing around in my family.
I began to realize I need to build wealth when I had a car accident five months after I landed my first job. I got a new car to transport me to work every day. My networth became negative between a car loan and a couple thousand dollars in my checking account. According to an old Chinese saying, troubles always follow one another while delight never comes in pairs. About four months later, my then employer lost a contract from a State government, rumors of layoffs flied around the workplace. I soon changed jobs.
The sense of insecurity and instability grabbed me. I lost several nights' sleep. I decided to establish my financial freedom. I saved more diligently and control my spending more rigorously. I had about $50K in 2003, five years after I came to the States. One year later, I have about $100K in saving and I began to buy stocks. By 2005, I had about $170K. Before the severe recession, I had about $400K in October, 2007. On the date of my writing this blog, I still had about $400K. Of course, I expect much more once the recession ends. Excluding taxes, I spend about $17K per year. You can see I no longer worry about layoffs since I can live on my savings until social security and medicare kick in.
As you can see, I got my seed money by saving. Saving is the most reliable source but may not be the quickest one. Now looking through the rare view mirror, I always wondered what if I used a little more leverage, LEAPs for example. I may have come to my current status quicker. But most people are risk averse when offered the opportunity to double his money or lose all of it. After two incidents I may lose my salary income (I had an experience I nearly lost my assistantship in the graduate school besides the layoff rumor), I became more risk averse. If I had known I would keep my jobs this long, I probably should have risked more money since my then salary should cover the potential loss easily.
For you, readers of my blog, how to get your seed money? I expect most of you should get through rigorously budgeting and saving. A small percentage of you may get it through gifts or inheritance. I expect extremely small percentage of you will get it through adding leverage in your portfolio.
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