WalletPop

Naked Truth Investing: Go for the Roth IRA!

Dan Solin — 2008-05-12T15:15:00+00:00

This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Question: What is better. Traditional or Roth IRA? I have my Roth IRA invested in the Vanguard Total International Stock Index Fund (VGSTX)? I am 38 years old.

Answer: While this subject is not free of doubt, I prefer the Roth IRA. Both the Roth and traditional IRA's are tax-deferred accounts. But, unlike a traditional IRA, Roth IRA contributions are made with already-taxed income.

Here is a summary of the benefits of the Roth IRA:

No mandatory withdrawals when you reach any age;
No penalty for early withdrawals;
No taxes on withdrawals up to the amount contributed;
No tax on investment earnings within the Roth IRA once you reach age 59 1/2 (or become disabled), provided that the account was in existence for five or more years.

With the Roth IRA, are trading the certainty of tax avoidance for the uncertainty of tax deferral. With a traditional IRA, you are forced to make assumptions about the ordinary income tax many years in the future when you start taking withdrawals. This strikes me as risky bet.

You should not have 100% of your money invested in an international stock index fund. Instead, you should:

First: Determine your asset allocation by taking an asset allocation questionnaire. You will find many on the internet, including one on my web site.

Second: Keep your account with Vanguard. There are other fund families you could consider, like Fidelity and T. Rowe Price. However, Vanguard has historically been the leader in offering an excellent choice of low cost index funds.

Third: Invest 70% of the amount of your funds allocated to stocks in the Vanguard Total Stock Market Index Fund (VTSMX), and the balance of 30% in the Vanguard Total International Stock Index Fund (VGTSX). Invest 100% of the funds allocated to bonds in the Vanguard Total Bond Market Index Fund (VBMFX).

Fourth: Once or twice a year, re-balance your portfolio to be sure that your asset allocation remains intact.

This plan gives you a globally diversified portfolio of stocks and a broadly diversified portfolio of bonds.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

Read | Permalink | Email this | Linking Blogs | Comments

How much cash should you carry? A lot more than you think

Tom Barlow — 2008-05-12T11:30:00+00:00

Filed under: Saving, Wealth

How much cash do you carry? How often do you hit the ATM? Are your habits the most efficient? If you carry less than $500, the answer is no.

You may be surprised to learn that this question has generated a great deal of debate among economists. One way of approaching the question was by applying the Baumol-Tobin model of cash management, which takes into account several variables.

Professor Greg Mankiw ran the model for a person who spends $10 a day of cash, earns $60 an hour, takes 10 minutes per ATM visit, and makes 5% annual interest on his bank account. For this person, the model shows that this person should take out $1,200 three times a year, carrying an average balance in his wallet of $600. Much of this surprisingly high number is a function of the value of this person's time.

In 1995, Mankiw calculated that even the average American would be better off carrying an average of $551.05, when in fact the average citizen carried around $75.

A new study by Greg Hannsgen of Bard College injects an obvious complication not included in Baumol-Tobin; the potential for a criminal to relieve us of our pocket cash.

Using a plausible set of parameters to represent the impact of crime on our pocket money drops the ideal number, as does the expectation that people who carry large amounts of money attract thieves at a greater rate that those who don't. He also accounts for people's fear that they might experience injury to themselves or their property during the theft.

Even taking these factors into account, though, Hannsgen concludes that the ideal average amount of pocket cash drops only from $750.05 to $516.48. Since in 1995, the average American carried only $75.48, he states that that "Americans spent over 1.4 billion extra hours going to the bank in 1995 because of fear of crime."

This assumes, of course, that I have $500 in the bank, which would be nice.

Permalink | Email this | Linking Blogs | Comments

Suze Orman spoofed by Saturday Night Live

Zac Bissonnette — 2008-05-12T09:00:00+00:00

Filed under: Wealth

Last week we posted a video that featured Suze Orman giving sage advice about one of her favorite topics: debt.

This weekend, the funny people at Saturday Night Live lampooned the money maven and the results were hysterical. I like Suze as much as just about anyone, but her tendency to overemphasize unimportant words is just too easy to make fun of. Take a look below.

Permalink | Email this | Linking Blogs | Comments

Women and travel - it's not what you think

Beth Wechsler — 2008-05-10T13:30:00+00:00

Filed under: Wealth, Travel

If Marybeth Bond has her statistics right, there are a few relatively big changes in travel that women should know about:

80% of travel arrangements are made by women.
There are 28 million single women in the United States and we're traveling.
By 2010, women will control 60% of this country's wealth.
There has been a 230% increase in the number of women only travel companies in the last 7 years.
The average adventure traveler is a 47 year old female who wears a size 12!

Let's just say this is food for thought. First, it tells us that the magazine covers and article photos - all the cruise and travel scenes of couples gazing into each other's eyes - is only part of the story. It's the old part.

Women, unaccompanied by men, have historically been vulnerable when they travel. Not only are they more physically vulnerable, they are much more vulnerable emotionally too. If you are over fifty, and even if you are younger, there is still that lingering "one down" feeling when you walk into a restaurant un-escorted.

It takes awhile for our internal, psychological realities to catch up with changes in the outside world. It may just be that women - especially older women - are entering a time when traveling with friends or solo will no longer leave us feeling even remotely self-conscious.

Wouldn't that be nice!

Permalink | Email this | Linking Blogs | Comments

Make $17K for spending 90 days in bed: No sex required

Geoff Williams — 2008-05-08T15:30:00+00:00

Filed under: Extracurriculars, Wealth

There are days when I'd just like to lie in bed. All day.

If you've thought the same thing, then, boy, have I got a deal for you. Wired reports that NASA is offering a study that will pay people $17,000 to stay in bed for 90 straight days.

Of course, there's a catch or two.

You have to be willing to travel to the Johnson Space Center. The bed-rest experiment will take place in the Human Test Subject Facility, where scientists will study some of the effects of microgravity on the human body.

According to NASA's web site, "participants will spend 90 days lying in bed, (except for limited times for specific tests) with their body slightly titled downward (head down, feet up). Every day, they will be awake for 16 hours and lights out (asleep) for 8 hours."

They never say whether you have to lie on your back or face down, but the photo on the Bed Rest Study web page shows a woman on her stomach. Thank God. I don't think I could stand lying on my back with my head slightly down. What if you got a stuffy nose during all of this?

And actually, you're going to be at NASA for around 115-120 days. The first two weeks, you get to walk around in your bedroom facility and, according to their web page, you "will be free to move around inside the bed rest facility and do normal things." And not so normal activities, like taking part in tests to find out the normal state of your bones, muscles, heart and circulatory system, brain and nervous system and vestibular (inner ear balance) system, as well as your nutritional condition and ability to fight off infections.

Then it's bedtime for 90 days straight, all day and all night, with a few exceptions -- you'll take part in tests to find out what changes are happening with your bones, muscles, heart and so on.

For the last two weeks, during the "recovery period," you can move about again and do "normal everyday activity," albeit slowly, predicts NASA, "because of de-conditioning that takes place during bed rest."

To participate, you have to be a nonsmoker, in good health with no history of cardiovascular, neurological, gastrointestinal or musculoskeletal problems.

I'm a little concerned. The web page photo doesn't have a picture of a giant wide screen TV, which I'd like to think participants would get to watch. They just show a woman lying there, smiling, reading a magazine. Well, I suppose if they have a really big pile of magazines... But I don't think it's for me. Sometimes it's nice to be lazy, but in this case, being lazy never seemed like so much work.

Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

Read | Permalink | Email this | Linking Blogs | Comments

America: Land of the free and home of the poor little rich boys

Bruce Watson — 2008-05-06T12:00:00+00:00

Filed under: Wealth

A couple of days ago, Fidelity Investments released its second annual "Fidelity Millionaire Outlook" analysis. This report is, basically, a survey of 1000 people who have at least $1 million in assets to invest. The respondents were asked to plot their view of the U.S. economy on a scale ranging from +100 (very strong) to -100 (very weak). Last year, the average was +41, which translates to "strong." This year, the average was -50, which translates to "very weak."

Essentially, this means that even the wealthiest people in America don't really have a lot of faith in the economy. On average, the respondents were optimistic about the economy's potential for improvement in 2009, giving it a +18 score. In the meantime, however, the economy's downturn is making these investors feel exposed and endangered. In fact, almost 20% don't feel wealthy, in spite of the fact that they have a mean income of $270,000 and, on average, have at least $3 million to invest.

Fidelity's analyists have put a happy face on this data, stating that the millionaires' optimistic vision of 2009 suggests that they see "today's problem as tomorrow's opportunity." However, it's hard to get really chipper about an economy that's making the "Daddy Warbucks" segment of the population feel like they're hard up!

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. He found ten bucks in the street a couple of weeks ago and still feels like Diamond Jim Brady.

Read | Permalink | Email this | Linking Blogs | Comments

Young and wealthy but normal - they're called Yawns!

Beth Wechsler — 2008-05-05T10:00:00+00:00

Filed under: Wealth

Evelyn Nieves' Associated Press article has some really good news about a new breed of Gen Xers and Y's. The Sunday Telegraph of London coined the acronym, YAWN (Young And Wealthy Normal). These are young, successful men and women who have decided to do something different than shopping until they drop. Paris Hilton: you're going out of style.

Though the group has its share of high-tech success stories and dot.com millionaires, Nieves says that, "Yawns are actually a subset of a growing global movement of the eco-socially aware. The state of the economy and the state of the planet have inspired people to consider what they buy and how they spend in ways not seen since the 'Small is Beautiful' and ecology movements of the 1970's. "

YAWNS are young people who are choosing frugal lives and humanitarian projects. They choose normal sizes homes over McMansions, donate significant money to worthy causes, and drive energy efficient vehicles. Not only that but, "Second-hand stores are to Yawns what the Gap was to yuppies."

It sounds like the 60's - except that unlike hippies, yawns are financially savy.

Imagine.

Read | Permalink | Email this | Linking Blogs | Comments

Economic stimulus stimulating lots of fraud

Julie Tilsner — 2008-05-02T10:30:00+00:00

Filed under: Ripoffs and Scams, Tax, Wealth

The economy isn't the only thing getting a (alleged) boost from the government's economic stimulus checks, being sent out to taxpayers beginning this past week. The political windfall is also stimulating a lot of creative fraud as well.

According to story on MarketWatch, scammers are calling and emailing consumers posing as the IRS or the Social Security Administration. The callers tell consumers they need detailed bank account information or Social Security numbers in order to process their economic stimulus checks. Those consumers who fall for the scam and reveal this information are then subject to identity theft.

The story recommends some steps consumers can take to prevent getting so scammed.

Don't ever give out personal information such as bank account numbers, Social Security number or Mother's Maiden name to unsolicited callers.

Keep in mind that the IRS will NEVER call you in regards to the stimulus package. The Social Security Administration is unlikely to call you out of the blue, either. Also, remember that you'll only get a check if you filed a tax return this year.

Don't click on any links in unsolicited emails -- they may take you to a fraudulent site. Fraudsters these days can create very sophisticated websites that look almost like the real thing. Once there, they will prompt you for information. Don't give it out. If you want to go to the actual IRS site, go to www.irs.gov.

If someone calls you and says they're from a government agency, hang up, and call the agency yourself. The FTC keeps a list of government agencies and contact numbers here.

If you filed a tax return this year, be patient -- the check is in the mail, as they say. Wondering when you'll get yours? Check here to find out.

What do kids -- the non-millionaire types - do with their money?

Laura Moran — 2008-04-30T15:30:00+00:00

Filed under: Kids and Money, Wealth

The Olsen Twins were once the world's nations wealthiest kids but it seems that title has been handed over to none other than Miley Cyrus. PEOPLE magazine has reported that Disney's singing and acting sensation and her Hannah Montana brand are slated to bring in $1 billion by the end of the year. (Not bad for 15-years-old) And, while not a billion, other child stars, like the Jonas Brothers, Dakota Fanning, and Abigail Breslin are bringing in multi-millions each year.

This made me wonder what average kids are doing with their money and how much they get in the first place. I headed out on the streets of New York City to find out and it seems that New York's youth are spending the majority of money they receive on their sweet tooth cravings. Many said that they spend their allowances on candy, and sometimes toys and clothes.

These kids, who generally earn their dough by doing chores around the house, bring in a range of dollar amounts: anywhere between $7 and $40 a week. While Miley Cyrus says that she would like to purchase a vintage Corvette with all her cash and the Jonas brothers bought new computers with theirs, the kids on the street said that if they had that kind of money they would consider doing something else with it.

Many considered giving a portion of the money to a charity in need, while others said they would invest the money in the stock market, despite dismal returns at the moment. But, in general these wise kids came to the conclusion that someone of such a young age may not know how to handle large sums of money and it would be smart to get help dealing with it.

If you'd like to see more of the kids on the street, check out my video on Mainstreet.com!

Read | Permalink | Email this | Linking Blogs | Comments

Recession watch: We've lost some competitors... and it hurts

Gary E. Sattler — 2008-04-29T15:00:00+00:00

Filed under: Debt, Entrepreneurship, Tax, Career, Wealth, Recession, Bankruptcy

This post is part of a series about real-life signs we're in a recession.

Normally, the loss of competitors in your field of business could possibly be considered a good thing, giving a boost of orders and income to your own business or employer. In today's economic climate however, the loss of competitors gives me cause for concern. Even as we struggle to accommodate growth in our facility, I'm worried by the downfall of some of our wood products compatriots. I know I've written that it doesn't pay to cry over lost manufacturing jobs, but that doesn't mean we should be without compassion either.

The National Federation of Independent Businesses (NFIB) reports for March that its Small Business Optimism Index is at its lowest point since the second quarter of 1980. Businesses are complaining that increased selling prices are not keeping up with overhead inflationary pressures. Nearly one-quarter of the NFIB survey respondents indicated that they raised employee compensation by a margin which is outstripping profitability increases. I believe that therein lies the downfall of my company's fallen competitors.

One of the biggest concerns I have with these job losses is that they tend not to be felt outside their own regions. We as a country lose a hundred good jobs here or there every day, in a hundred unnamed places. But it doesn't make the headlines because it doesn't sell advertising space. Government statistics never paint the whole picture either. The government bean counters expect that we're too dull to understand that the loss of a well-paid machinist is not mitigated by the addition of yet another undocumented food service worker. They only give you the bottom line numbers, painted with a broad and blurry stroke of the brush.

So, my employer's loss of competitors has a core which tastes quite bitter. As I work my long hours I sometimes pause to think; Was that competitor we lost as much a buyer of my goods as it was a rival? Could my employer be the next to go under, or my neighbor's, or yours? Please say a quiet prayer for the unemployed among us, then get back to work. That is, if you still have it.

Permalink | Email this | Linking Blogs | Comments

Buy milk to beat inflation!

Josh Smith — 2008-04-29T14:00:00+00:00

Filed under: Food, Shopping, Wealth, Investing

Inflation was recently ranked as a number-one worry to consumers in a CNN poll. I can definitely understand why, CNN showcased several price increases over the past year, from 13% for milk to 33% for gas! It's clear that the prices for items we use everyday are going up up up.

These changes to the economy should spur you to change your saving strategy if you want to ride ride out the ever inflating prices at the pump and the supermarket. Right now you would almost be better of buying milk than putting money into your savings account, 13% growth is pretty good. Pity milk doesn't keep like gold though.

CNN offers three rules to use for anyone trying to save during a time of inflation.

One of the best rules they offer up is to avoid saving in a CD, which typically earns less than the rate of inflation. With all of the recent cuts by the Fed, even my high yield online savings account has dropped below the rate of inflation. I'm not yet ready to pull out and invest elsewhere since that is our emergency fund, but it is disheartening to know that it isn't even keeping up with inflation. The article also points savvy investors toward physical goods for investing and advocates heavily to get a fixed rate for your debt.

So if you are essentially losing value to inflation because of decreased interest rates, should you go on a spending spree? It almost seems like the prudent thing to do doesn't it? It's no wonder the savings rate in the U.S. has tanked in recent years. Combine this with government bailouts for those who borrowed irresponsibly rather than saving and you have significant disincentives to save.

Even with these factors, I don't plan to take the my paycheck straight to local dairy at the end of the week. If you can't get yourself to invest while losing money to inflation, keep shopping around to find a best case scenario or work to pay down any debt you are carrying.

Read | Permalink | Email this | Linking Blogs | Comments

'Rich' people facing foreclosures too

Zac Bissonnette — 2008-04-26T10:00:00+00:00

Filed under: Real Estate, Wealth

A piece in today's New York Times debunks the stereotype of lower-income subprime borrowers being the primary victims of the foreclosure boom -- sort of. Several dozen home owners in Greenwich, CT -- the hedge fund capital of the world -- have are facing foreclosure, including some 7-figure properties.

The New York Times reports that "The town, which typically has about half a dozen foreclosure notices each month, recorded 34 filings in January, according to RealtyTrac."

So these foreclosure victims aren't necessarily as sympathetic as single moms losing the homes they scraped to buy. We're talking about, for example, professional gamblers and hedge fund managers -- some of whom, ironically, saw their fortunes turn because of bad bets on subprime mortgages.

The plights of these affulent people -- some of whom are now formerly affluent -- illustrates an important less of personal finance: having a good income is no substitute for poor money management.

Read | Permalink | Email this | Linking Blogs | Comments

Naked Truth Investing: Is now a good time to invest?

Dan Solin — 2008-04-24T18:02:00+00:00

Filed under: Retire, Wealth, Investing

This is part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

This is a very common question: How do you know when to invest? Have the markets bottomed out? Or are we in for a precipitous decline?

Here is the answer: No one knows.

Here is what we do know:For the 36-year period from January, 1970 through December, 2006, missing only a relatively few days in the market resulted in a dramatic difference in returns.

During this period, the annualized compounded return of the S&P 500 index was 11.23%. But if you missed the 25 best return days, your returns were only 7.82%.

Missing only the 10 best return days in a given year can wipe out all of the market gains for that year.

It would be great if someone could time the markets and tell us when to be in and when to be out. That is what market timing newsletters attempt to do. They are not very good at it.

Studies of the performance of market timing newsletters demonstrate that following their recommendations caused investors to under-perform the markets. Given this dismal track record, it is not surprising that one study of over 15,000 predictions by 237 market timing investment newsletters from June,1980 through December, 1992 found that 94.5% of the newsletters had gone out of business!

What's an investor to do?

Determine your asset allocation by taking an asset allocation questionnaire. You can easily find one on the internet.

Invest in a globally diversified portfolio of low cost index funds consistent with your investment objectives and tolerance for risk. You can find a good selection of index funds from reputable fund families like Vanguard, Fidelity and T. Rowe Price.

Maybe it is more important to tell you what you shouldn't do.

Don't use a broker or advisor who tells you she can "beat the markets." This would exclude practically all brokers and most advisors.
Don't try to time the markets.

You should always be invested -- the right way!

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

Read | Permalink | Email this | Linking Blogs | Comments

Only snobs should read this

Geoff Williams — 2008-04-24T16:30:00+00:00

Filed under: Extracurriculars, Real Estate, Shopping, Wealth, Travel, Investing

Reuters is reporting that the 24th richest man in the world is planning on spending $150 million starting a magazine, web site and TV station called -- get ready -- Snob.

Snob has slightly a different meaning in Russia. They think of a snob as someone who has made a lot of money in life and is entitled to brag about it if they want. In America, of course, we see a snob as someone who looks down on others who aren't as rich or as classy, and thus, the rest of us tend to look down on snobs. At any rate, Andrei Shmarov, one of the billionaire creating Snob, told Reuters, "It's for people who are successful and those who want to be successful."

The web site will be out in June, the magazine in July, and it will focus on lifestyle, business and travel articles. The cable channel will follow shortly after that.

But Shmarov isn't the only billionaire working on this project. One of his partners, according to the Moscow Times, is Mikhail Prokhorov, the fifth richest person in the world. He told the paper that the web site will have a social networking site. Don't bother looking for it online, though. This is the "don't call us, we'll call you" routine. The snobs at Snob are inviting about 3,000-5,000 people or so to be charter members on the social networking site. They only want educated, successful professionals.

"Wealth is not a criterion for membership, but it tends to be a quality of the target audience," said Shmarov to the Mowcow Times.

All I can think is... he's a billionaire... his publication is bound to pay well. I'm a magazine writer. If I could get in on the ground floor, I could make out like a bandit... Hmmm... Anyone think they can teach me Russian? In the next few weeks?

Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale). He doesn't like to brag, but it's been estimated he is the 639,345,712th richest person in the world.

Read | Permalink | Email this | Linking Blogs | Comments

This tactic to save money on gas could cost you your life

Gary E. Sattler — 2008-04-23T12:00:00+00:00

Filed under: Budgets, Reduce, Reuse, Recycle, Simplification, Transportation, Health, Wealth, Travel

Ideas for reducing the cost of driving, such as carpooling or buying smaller, more efficient cars, have gained popularity. One concept however, may be getting far too much positive publicity. It's the risk-your-own-life practice of drafting. Sure, it's used in every NASCAR race on the circuit. But while it could save you in gasoline usage, it could also kill you in a split second.

Drafting is accomplished by tucking your vehicle in behind a larger vehicle while moving at highway speed. The tactic is most often employed behind the trailers of eighteen-wheelers. By moving to within 100 feet or less of the lead vehicle, drivers take advantage of the swath that the lead vehicle cuts through the air. The vacuum pocket behind the truck reduces air resistance and the "wake" of the truck closes in behind you helping to propel you along. However, my two brothers-in-law, who are professional drivers, will tell you that there's nothing more nerve wracking for a truck driver than when a car moves in so close behind that it can't be seen in the truck's mirrors. It's simply a recipe for disaster.

The problem is, for the maneuver to be effective at all, you need to be too dangerously close to the lead vehicle. Any successful drafting attempt eliminates your safe reaction time. If the lead vehicle needs to stop in a hurry, about all you'll have time to effectively do is to open your eyes very wide and then noisily go splat. If the truck kicks up road debris, it will be on you before you can blink.

Kiplinger 's Personal Finance writer, Stacy Rapacon has provided us with five safe ways to save money on fueling your car. Stacy's ideas don't involve risking your life or compromising the safety of other drivers. Additionally, Kiplinger's can help you to get ahead of the game by steering you into cars with the best fuel economy ratings.

Remember, saving money a few pennies on gas is a foolish bargain if it puts you or others at risk. You can't spend the money you saved on gas while resting in your grave.

Read | Permalink | Email this | Linking Blogs | Comments

China: An economic behemoth amps up its firepower

Bruce Watson — 2008-04-23T10:15:00+00:00

Filed under: Wealth, Recession

I have a moderately twisted sense of humor. Charles Addams' grim cartoons make me laugh out loud, I think that Edward Gorey is one of the best children's book writers in existence, and I sometimes find myself giggling at Franz Kafka's short stories. I read Romeo and Juliet for the jokes and keep praying for a massive derailment every time my daughter puts in her Thomas the Tank Engine video.

Like I said, I'm a little twisted.

This might help explain why I found myself giggling at a recent Financial Times article. For the last ten years, apparently, China has imported massive quantities of weapons from Russia; these have included guns, fighter jets, and missiles. In 2007, however, China's imports of foreign-made arms dropped by more than 60%. Basically, China has let Russia finish delivery on most of its big contracts, but has not renewed the contracts or opened new ones.

Part of the reason for this change is the fact that Russian weapons are just not all that reliable. For example, Algeria recently returned fifteen MIG 29 fighter jets that it had purchased from Russia, stating that some of the components in the jets were of "inferior quality."

On the one hand, this is the perfect time for a little bit of cross-cultural schadenfreude. After all, Russia is the second-largest arms exporter in the world; the United States is the first. There is a certain amount of grim pleasure that can be gleaned by watching our major competitor lose its largest client.
On the other hand, it's not as if China is going to come knocking at our door. The biggest reason that they have stopped buying arms from Russia is the fact that they are amping up their own military weapons industry, and many of their products are re-engineered versions of Russian weapons systems. For example, the Chinese J-11B fighter is based on the Russian Sukhoi Su 27, but is almost entirely constructed from Chinese-made parts.

Does this sound familiar? Those of us who were around in the eighties and early nineties probably remember the impressive Chinese ability to reverse engineer technologies from other countries and release comparable versions at greatly reduced rates. Today, of course, the process is pretty much complete, and it's almost impossible to find a reasonably-priced DVD player that wasn't made in China.

While it's a little amusing to see China producing its own version of Russian fighter planes, it's also somewhat discomforting, particularly when we consider that they might very well begin selling these weapons to other countries. All in all, it's not hard to imagine a future in which they will begin to challenge the world's biggest arms exporter.

Now, if you'll excuse me, I need to go brush up on my Chinese. Zàijiàn!

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. When he says "goodbye" in Chinese, his wife usually says "Gesundheit."

Permalink | Email this | Linking Blogs | Comments

Economic ripples hit both the rich and the poor

Bruce Watson — 2008-04-22T15:00:00+00:00

Filed under: Budgets, Debt, Extracurriculars, Wealth, Relationships, Recession

A couple of weeks ago, I was reading a backlog of newspapers and happened across two articles that addressed the rippling effects of the country's current economic woes. Although these two stories had almost nothing to do with each other, it seemed to me that, between them, they very eloquently showed how economic problems have a way of affecting everybody.

The first article dealt with food banks in the Bronx. The area's food banks, food pantries, and soup kitchens provide food to unemployed and lower-income individuals, often on a short-term, emergency basis. These organizations, in turn, receive their food stocks from a combination of personal and corporate gifts. Unfortunately, higher food costs and smaller amounts of disposable income have translated to massive drops in donations. Added to this, the unemployed population is steadily increasing, which means that a smaller and smaller pie is getting divided into more and more pieces.

This problem is, apparently, very widespread. For example, a food bank in Idaho has reported that the number of jobless people that it helps has increased by 10% every month this year. Moreover, these new food bank clients often come from the ranks of the middle and even the upper middle classes; for example, CNN recently reported the story of Patricia Guerrero, who went from having a $70,000 a year job in February to using a food bank in March. While Ms. Guerrero might have had fewer money in savings than most people in her economic position, hers is still a very eloquent cautionary tale.

At the other end of the spectrum, The New York Post recently reported ways in which the current economic downturn is affecting even the wealthiest segment of the population. A March article, Execs 'Bear-ly' Surviving, dealt with the economic woes suffered by Darren Henault, a high-end interior designer. Apparently, some of Henault's clients are employed by Bear Stearns, which has caused major problems for his business, as he's had to stop work on one redecoration and scrap plans for a second. In the first case, the redecoration was about $50,000 away from completion; in the second, this was to be a $300,000 contract.

Henault was optimistic about his loss of revenue, noting that he has numerous wealthy clients and will be able to weather this economic downturn. However, he is not the only one to feel the pinch since Bear Stearns' fortunes started tumbling. In the same article, Tom Martignetti, a bar and nightclub owner, noted that his sales had dropped about 25% since last year. Given that most of his revenue comes from workers in the financial district, Martignetti theorized that fears over potential firings had dampened the spirits of his regular patrons.

As the New York Times noted, one of the first things that many Bear Stearns employees did when their financial fortunes soured was to put their summer cottages on the market. Given that several of Bear Stearns; top-echelon executives count on yearly bonuses to provide most of their income and are heavily invested in Bear Stearns stock, the plummeting fortunes of the company hit them particularly hard. For example, James E. Cayne, Bear Stearns' Chairman, holds stock that was worth over $1 billion a year ago, but plummeted to $28 million in March.

Apparently, like Ms. Guerrero, many Bear Stearns executives weren't all that careful with their savings.

Even in the darkest times, however, there are businesses that know how to make lemons out of lemonade, and this is certainly true in the case of BF Designs, a firm that "stages" houses in the Hamptons. Basically, the company will repaint, refinish, and generally spruce up properties that are for sale or rent. According to one source, BF Designs has offered a discount staging fee to anyone who has worked for Bear Stearns and wishes to sell his or her weekend house in the Hamptons.

While these two stories couldn't be further apart, they tell about a similar progression: as economic woes increase and budgets get stretched tighter and tighter, we're likely to see ripples working their way through every segment of the population. I don't know about you, but I'm mighty pleased to see that, at least at BF Designs, the recession is inspiring unprecedented levels of charity!

Read | Permalink | Email this | Linking Blogs | Comments

Easterlin Paradox a myth?

Tom Barlow — 2008-04-21T13:00:00+00:00

Filed under: Wealth

I am in shock. For years, my view of society has been shaped in large part by the Easterlin Paradox, the conclusion drawn from a study done in the 1970s that increasing the wealth of a society does not bring about a similar increase in happiness. Since I read this report, I've seen countless examples that confirmed the hypothesis.

Now, according to a report in the New York Times by a couple of Freakonomics economists, I find out that this cornerstone of my thinking is an illusion. Justin Wolfers and Betsey Stevenson compiled the results of many studies unavailable to Richard Easterlin in 1974, and concluded that his finding were not substantiated. In fact, according to the two, evidence shows that-

"Rich people are happier than poor people.
Richer countries are happier than poorer countries.
As countries get richer, they tend to get happier."

No longer can I smugly discount the drive to accumulate wealth as a a fool's ambition. As one whose personal motto is "I never tire of being right," the findings are a major bummer. Now I have to go out and find some money, too.

Permalink | Email this | Linking Blogs | Comments

Sizing up the tax returns of the presidential candidates

Tracy Coenen — 2008-04-21T10:00:00+00:00

Filed under: Tax, Wealth

Income tax information is generally private, but in the case of presidential candidates, it's not. Their invasion of privacy makes for hours of fun for those of us interested in how much money others make. Here's how the numbers shook out for 2007 tax returns:

John McCain:
Adjusted gross income $386,527
Charitable contributions $105,467
Federal income tax $118,660
Actual tax return here (large file).

Other interesting information: McCain gave $105,467 to charity, which was 27% of his income. He also made just over $110,000 from books he's written.

Barack Obama:
Adjusted gross income $4.14 million
Federal income tax $1.4 million
Actual tax return here (large file).

Other interesting information: Obama gave $240,370 to charity, which was a measly 5.8% of his income. $3.2 million of his income was from Random House, presumably for books by or about him. (Nice work, if you can get it.)

Hillary Clinton:
The actual numbers aren't available yet because the Clintons filed an extension, but their estimates include:
Income $22 million
Estimate document here.

The Clintons estimated their charitable contributions $3 million, 13.6% of income. The bulk of the income, $10 million, comes from paid speeches made by Bill Clinton.

Politics, books and speeches can be good gigs if you can get them, apparently. I'm not so sure I'd want the rest of the world in my financial business, though. On second thought ... if my income was $22 million, I wouldn't mind letting all of you take a peek. It would be a small price to pay.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Taxes...now death. April 16 is National Healthcare Decisions day

Chris Clancy — 2008-04-16T16:30:00+00:00

Filed under: Home, Simplification, Health, Wealth

Now that tax season is officially over, you may be looking forward to getting back to the business of living your life, free from the distasteful chores of searching for W2s, collecting receipts and sharpening number two pencils.

Not so fast. It appears that "the cruelest month" just got a little crueler.

Toady, April 16, marks the first-ever National Healthcare Decisions Day, a countrywide initiative wherein healthcare providers, personal attorneys, chaplains and others highlight the importance of advance healthcare decision-making.

What is advance healthcare decision-making, you ask? Oh, just the creation of such "advance directives" as living wills and power of attorney. Or as those in the business call it, "end-of-life planning." It makes sense, when you think about it: You've finished with the taxes, so why not turn your attention to death and dying?

Nathan Kottkamp, chair of the National Healthcare Decision Day initiative, says that most Americans are woefully unprepared when it comes to making their wishes known in the event of a tragedy.

"As a result of National Healthcare Decisions Day, many more Americans can be expected to have thoughtful conversations about their healthcare decisions and complete reliable advance directives," he said. "Fewer families and healthcare providers will have to struggle with making difficult decisions in the absence of guidance from the patient; and healthcare providers and facilities will be better equipped to address advance healthcare planning issues before a crisis and be better able to honor patient wishes when the time comes to do so."

So yeah, it's pretty important. And, fortunately, it only lasts a day.

Read | Permalink | Email this | Linking Blogs | Comments