The Sun's Financial Diary » Book

How to Talk about Money in any Stage in a Relationship

Sun — Thu, 29 May 2008 14:29:16 +0000

Original Post on The Sun's Financial Diary

How to Talk about Money in any Stage in a Relationship

The following is a guest post from Dr. Bonnie Eaker Weil, author of the book, Financial Infidelity: Seven Steps to Conquering the #1 Relationship Wrecker. Dr. Weil has been an internationally acclaimed relationship therapist for thirty years. New York magazine named her one of the city’s top therapists and Psychology Today named her one of America’s best therapists.

It’s imperative to talk about money in some capacity – your opinions, views, habits, etc. early on in the relationship, hopefully before you even cement your relationship by having sex! That may seem extreme, but who wants to go down the road to sexual intimacy only to have it torn apart by a struggle in the realm of financial compatibility?

This is why I’ve created the “Smart Heart Dialogue�? to help you share your financial history with someone you’re becoming intimate with. Many of these conversations can be triggered by a transition in a relationship – use that transition to be open and honest in finding out what you can about the other person’s view of money. Understand that a person’s money habits can be ingrained in them from a very young age, and therefore are usually held to pretty tightly, even if that person doesn’t realize it!

As you transition through a relationship there are a few scenarios that lend themselves to talking about money. Here are a few:

Q: If we move in together, do we split all the bills?

A: This can be a good time to talk about expectations for how to deal jointly with finances outside of a marriage. It’s not usually best to combine everything right off the bat, and a good way to deal with this question can be to suggest having a “fund�? that you both do contribute to equally, that can be used for your fun activities – then, you can make joint decisions about that fund.

Q: I overspent while we were on vacation, can you lend me some money?

A: The person asking for a loan may not take money and budgeting as seriously as you do. Or maybe you overspent too. Whatever the case, you need to evaluate how you deal with money, leisure activities and “spur of the moment�? purchases.

And if you’re in a committed relationship where you’ve had some of the more basic talks there are still ways that money conflict can manifest itself in ways you weren’t expecting!

Q: Do you have to review my credit card bill each month?

A: The person asking this question may feel like a child in the relationship – always being checked up on. If that’s the case, as a couple you need to work hard toward sharing the “power�? of the checkbook. One person shouldn’t feel like they’re less-informed or less-involved in the process. This can lead to contempt and revenge spending.

Q: We can’t afford to go on vacation with your family (or our friends) again this year if they’re going to invite us as their guests, then make us pay for our share of everything.

A: You need to lay out expectations for big ticket items and expenses at the on-set. Together, decide what you can afford and if necessary inform the other party, and present it as a unified decision.

By being honest and respectful you can get through these dialogues and relationship transitions and grow with your relationship as it continues to change over time!

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From Rich Dad’s Increase Your Financial IQ: What’s your Financial IQ?

Sun — Thu, 06 Mar 2008 15:36:15 +0000

Original Post on The Sun's Financial Diary

From Rich Dad’s Increase Your Financial IQ: What’s your Financial IQ?

Over the weekend, I received a copy of Robert T. Kiyosaki’s new book, Rich Dad’s Increase Your Financial IQ: Get Smarter with Your Money from Jeffery Anderson, a publicist from FSB Associate. Kiyosaki is no stranger to many people. He is the author of the popular book, Rich Dad, Poor Dad. I myself never read that book, though I did finish the first couple of chapters from an audio file two years ago and what I still remember is how Kiyosaki argued that house is really a liability, not an asset. Somehow, I kind of agree with his argument because until I pay off the mortgage, I don’t really own the house. By the time I really own the house, what I have paid for it may exceed its value. And if I decide to take profit and sell the house, the money I make from it may not be more profitable than, say, investing the money in the stock market while renting over the years.

Anyway, while I am still trying to finish up the book (too many things to do and too little time), I got the following financial IQ quiz from Jeff yesterday that I would like to share with everybody.

What’s Your Financial IQ?

1) Which of the following is not an asset?

Gold
The Corvette you bought for your 40th birthday
A business
Wheat

2) On average, Americans save how much of their income?

Enough to buy a new flat screen TV
Why save when you own a house?
They don’t save. They owe.

3) A retirement plan that is paid for by your employer is known as a:

Defined benefit plan
A miracle
Both

4) What kind of income is the hardest to protect from financial predators such as taxes?

The dividends that just got cut from the financial stocks you bought
The $50 and rocking CD collection you inherited from your uncle Craig
The forty hours worth of cash your company pays you for sixty hours of work

5) What is the best way to create a budget surplus?

Cut down on expenses by buying a fuel efficient car
Get a higher paying job to make more money
Saving and investing before paying your bills

6) An example of leveraging your money is:

Putting money in an interest bearing savings account
Buying investment real estate with a bank loan
Going to a local casino.

7) The best way to invest is in a diverse portfolio of stocks, bonds, and mutual funds. True or False?

8 ) The key to becoming wealthy is:

Only having two scotches per night
Buying high and selling low
Selling the CD collection you inherited from Uncle Craig
Increasing your financial intelligence

What are your answers?

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Book I Read: An American Hedge Fund

Sun — Thu, 22 Nov 2007 15:47:32 +0000

Original Post on The Sun's Financial Diary

Book I Read: An American Hedge Fund

Early in the summer, I received a book, An American Hedge Fund*, from Timothy Skyes, the author of the book. I intended to finish the book as soon as I could at the time when I got it, but seemed never have the time until recently.

The book is actually an autobiography of a young man, Tim Skyes, and how he became a millionaire by trading stocks in the late 90s and early this decade, which had turned his $12,415 trading account into a fortune of $1.65 million in just 3 years. After finishing the book, I have no doubt that Tim is very successful in picking and trading stocks and making money out of them. His experience is quite inspirational as not a lot of people can make a ton of money and start their own hedge fund at the age of 22. However, I didn’t find too much value in this book, partly because I am not a trader. In fact, for an average Joe or Jane who would rather take a get-rich-slowly approach to their money, then this book doesn’t offer many insights on the fundamentals of investments.

The majority of the book was devoted to details of how Tim traded stocks during the dot com bubble. Starting to follow the stock market at 12 when he bought his first stock, Tim discovered what he called “patterns” of how the stock prices moved and believed that he could make money from what he observed. And indeed he did. What I noticed the major theme from his trading days when he was then a college student was the pattern. The pattern that guided him to make the buy and sell decisions.

During the early days as a trader, he bought penny stocks whose prices were almost entirely driven by “press release,” whether there was a business or not didn’t matter at all. Like many people were just crazy about hot tech stocks, Tim spent his school days scrolling through news sources, discussion forums, and bulletin boards to find stocks he could profit from. Later, he shifted his focus on IPO tech stocks and kept testing and applying new trading techniques while watching his money grew. At that time, it was not rare to see prices of internet stocks doubled or even tripled in the first day of trading, though those companies never made a penny. This paragraph from book could best describe what was happening in the peak time of day trading:

The actual business execution was irrelevant. Traders didn’t care about the fundamentals of these companies; their only concern dealt with these companies’ ability to issue press releases that would influence other traders to bid the stock higher.

That could be true back then. However, I am not sure how the techniques that helped Tim make his first million could be applied to today’s market for investors like me who prefer buy and hold. The market has changed and lessons have been learned.

I have read quite a few books on finance and investing and this book is different from all the others. Though in the book Tim used quite some examples to demonstrate how he made, and sometimes lost, his money, not much was talked about investing. If that’s what you are looking for, then you will have to look something else.

*Affiliate link

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What John Bogle Has to Say about ETF in “The Little Book of Common Sense Investing”

Sun — Sat, 24 Mar 2007 15:08:35 +0000

Original Post on The Sun's Financial Diary

What John Bogle Has to Say about ETF in “The Little Book of Common Sense Investing”

I bought Mr. John Bogle’s new book, The Little Book of Common Sense Investing, after reading an article on SmartMoney.com the other day about his comments on ETFs. The book was received early this month, but I didn’t get time to read it until recently.

In his latest writeup, Mr. Bogle uses a chapter to discuss exchange traded fund (ETF), which he describes as “a fund designed to facilitate trading in its shares, dressed in hte guise of the traditional index fund.” In arguing the difference between classic index fund and ETF that tracks an index, Mr Bogle gives us a table

to make the case that

after all the selection challenges, the timing risks, the extra costs, and the added taxes - typical ETF investors have absolutely no idea what relationship their investment return will have to the return earned by the stock market.

However, with some exceptions, Mr. Bogle seems to agree that “all-stock-market ETFs are the only instance in which an ETF can replicate, and possibly even improve on, the five paradigms of the original index fund listed earlier. But only when they are bought and held for the long-term.” On the other hand, for sector ETFs, Mr. Bogle thinks that

whatever returns each sector ETF may earn, the investors in those very ETFs will likely, if not certainly, earn returns that fall well behind them. There is abundant evidence that the most popular sector funds of the day are those that have recently enjoyed the most spectacular recent performance, and that such “after-the-fact” popularity is a recipe for unsuccessful investing.

If ETFs are really as bad as Mr. Bogle can describe, why they are introduced in the first place? Well, the answer is very simple: because “ETFs are clearly a dream come true for entrepreneurs, stock brokers, and fund managers.” But what about investors who poured billions of dollars into ETFs?

Is it too much to ask whether these index fund nouveau are an investor’s dream come true? Do investors really benefit from being able to trade ETFs “all day long, in real time”? Is less diversification better than more diversification? is trend-following a winner’s game, or a loser’s game? Are ETFs truly low-cost when we add brokerage commissions to their expense ratios? Is buy-and-sell (often with great frequency) rally a better strategy than buy-and-hold? If the classic index fund was designed to capitalized on the wisdom of long-term investing, aren’t investors in these index funds nouveau too often engaging in the folly of short-term speculation? Doesn’t you own common sense give you the obvious answers to these questions?

Are you going to invest in ETFs?

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John Bogle: The Little Book of Common Sense Investing

Sun — Sun, 04 Mar 2007 19:31:37 +0000

Original Post on The Sun's Financial Diary

John Bogle: The Little Book of Common Sense Investing

This is not a book review, but rather from an article I read yesterday on SmartMoney.com.

The article, “John Bogle Says ETFs a Mistake for Many Investors,” cited Mr. Bogle, founder of Vanguard and pioneer of index mutual funds, as saying that with a flood of new ETF offerings, investors are “performance-chasing” by investing in ETFs that are lack of broad market coverage. In his previous comments on ETFs, Mr. Bogle said that “the newest ETFs have focused more and more on narrow segments of the markets rather than the stock and bond markets as a whole.” And these ETFs are “just disasters waiting to happen.”

The article also published some of Mr. Bogle’s remarks that touched on various issues from mutual fund industry to indexing to ETF investing. The following are excerpts from the article that I think carry Mr. Bogle’s word of wisdom:

Indexing

It is so clear that the more you speculate as a mutual fund investor the worse you do. It’s a mathematical certainty that long-term investing is better. Think about it this way: The market has half long-term investors and half short-term investors. The long-term investors don’t trade any of their stocks so they get the market return. The short-term investors trade back and forth. They will have to lose.

Target-date funds

The target-date fund is the single best alternative to indexing. But target-date funds are all over the lot in terms of the ways they do things. In no case do they fail to reduce equities as age goes on ….. (but) target funds with very aggressive managers are going to be anathema and funds with high costs are going to be anathema.

ETFs

the fees have been great for financial entrepreneurs like Barclays and PowerShares and WisdomTree. It’s great for brokers since there are a staggering amount of commissions. And it’s great for advisors because it allows them to do something with their clients’ portfolios. But is it too much to ask that these products be good for investors?

Mr. Bogle is having his sixth book, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns, coming out tomorrow, March 5, 2007. According to the article, the book reserves a whole chapter for Mr. Blog’s harsh words on ETF. I just ordered a copy of the new book and can’t wait to see what Mr. Bogle has to say about ETF since I have invested quite heavily in ETFs, though I don’t do active trading. If you are interested in getting the book for your own reading, I found two places to pre-order the book [Affiliate links]:

Buy.com: $13.56 plus $3.30 shipping, total $16.86
Amazon.com: $13.57 plus $3.99 shipping (free shipping for $25 or more), total $17.56

Barnes & Nobel also has the book for $13.96. I usually buy from Overstock.com since their price is lower than what Amazon.com charges and shipping is always $1.40. But they don’t have the book at this moment.

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