Entries from June 2008 ↓

Well, I’m reading some panic-inducing headlines lately about the Dow going down 20% and how it is worst June since the Great Depression.  Recently my mom asked if I were selling my investments lately, and I  said no way.  Here are some of the reasons why I am not panicking and keeping my portfolio intact.

1. I don’t need the money  -  The hubby and I have a cash reserve that could last more than a year of our expenses.  So there is no need to touch our long term investments.

2. No reason to sell at a low point – Most mutual fund investors do not get the long term gains as advertised by the funds because of panic selling at low points.  Since most of my portfolio is in funds, I am keeping them still to get the long term benefits.

3. I have gains – Yes, my portfolio has gone down a few percentage points, but overall I still have gains because I have been investing for more than three years.  So if I do sell now, I still have capital gains taxes to pay, and that doesn’t seem to be worthwhile.

4. Volatility is normal - This is an election year, so volatility is to be expected since there are a lot of uncertainties. Additionally, the turmoil in the credit/finance industry has not totally settled yet. I would be more worried if there was no volatility and the markets are shooting straight up because that might indicate another bubble.

At this point, the best thing for long term investors to do is to not look at the market.  A funny story I read at the Vanguard Diehards forums said that a photographer asked one of the Bogleheads  “How’s the market doing?”, and someone answered, “I don’t know and I don’t care!”. I like that attitude.  I think   my portfolio is fairly well diversified and I am comfortable with its long term growth, so I am just leaving it alone.  If I look at it too much, I might be tempted to do something stupid, and that could be disastrous.

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Lately, one news story that has been really getting on my nerves is that of Laura Richardson, the Southern California congresswoman who defaulted on three separate homes repeatedly and most likely used her influence to take back a home that has already been sold. The investor that bought her home has filed a lawsuit against the congresswoman and Washington Mutual for illegally rescinding a proper sale. I hope the buyer James York wins because there was no possible way that the congresswoman didn’t know about the sale. She didn’t pay her mortgage for more than six months!! What did she think was supposed to happen? After the congresswoman’s mortgage troubles were publicized, more information came to light that she has a history of being a deadbeat and owed property taxes and many other debts. She took money out of her three homes to finance her campaigns, and made only a few payments on her Sacramento home. If debtors’ prisons were still in operation, this woman would be sitting in jail right now eating gruel . Instead, she is being treated to a fundraising party in her honor to help her with her debts. One thing that made me laugh and cry at the same time was that in this AP article she said “she is like any other American suffering in the mortgage crisis and wants to testify to Congress about her experience as lawmakers craft a foreclosure-prevention bill.” Right, she is just like any other American that buys three homes, pulls money out, stops paying the mortgage and property taxes, and then denies that she knew anything about an oncoming foreclosure. That is really believable and poignant!

Apparently, Laura Richardson is not the only representative with mortgage woes. A less publicized case is of state Senator Julia Boseman of North Carolina. She and her ex-partner Melissa Jarrell haven’t paid mortgage on their $1.3 million dollar mansion since August 1, 2007. In order to clean her own hands, Boseman has taken herself off the home’s deed without her ex-partner’s knowledge. The house is set to be auctioned, and I hope Boseman doesn’t use her political clout to take the house back like Laura Richardson did.

Finally, we have the bizarre story of Shirley Huntley, a state Senator from New York. She stopped paying her mortgage intentionally as an “experiment” to see if she gets proper notification from her bank. After four months of not paying her mortgage and facing foreclosure, she paid up everything plus legal fees to avoid foreclosure. According to the article, her “original mortgage in 1976 was $28,500. Three decades later, she owes $290,000 due to repeated borrowing against her home”. So did she really conduct an experiment or did she just try to cover up some financial trouble? Either way, at least this woman owned up to her debt and paid it off. The alarming thing is that she used her home as an ATM so that her initial debt ballooned to more than 10 times of its original size.

With representatives like these, I guess I understand why the housing bailout is so popular. Congressional rules do not prevent representatives from voting on issues that help themselves financially because it is hard to avoid, but is supporting financial irresponsibility really wise? Anyway, all members of Congress and the Senate are required to report their personal finances and you can see the reports at Open Secrets. I encourage all of you to take a look at your local politicians and see how responsible they are with their own money, because I believe a person really needs to get his or her own affairs in order before making laws that affect millions of other people.

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For a couple months now, people have been telling me that Obama’s tax plans will benefit middle class Americans and also people have been showing me this graph where the middle class gets a bigger tax cut, but I am a skeptic of this because I’ve never heard Obama talk about the Alternative Minimum Tax. McCain on the other hand wants to index the Alternative Minimum Tax with inflation. This is actually an important issue that most people do not think about, and here are my thoughts about it.

I have written about the AMT before and pointed out that it is no longer a tax for the rich even though it was designed to be a system to make “the rich” pay taxes. The main problem with the AMT is that it was never indexed for inflation, so what was rich in the 60s is now middle class. Every year congress spends a bunch of money and time to argue about the issue and patch the problem, but noone makes a permanent stand. So how does this relate to Obama’s tax plan? Well, a family pays AMT when their AMT amount is more than their regular income tax. So here is a simple example. Suppose a middle class family has a regular income tax liability of $7000, and an AMT liability of $6500, then they would pay the $7000 regular taxes. Now if Obama gives them a $3000 tax cut and doesn’t change the AMT liability, then their regular tax liability would be $4000, and their AMT liability would be $6500. So they’d still have to pay $6500 under the AMT and the effective tax cut is only $500. McCain originally wanted to repeal the AMT all together, but now says he wants to do a phase out because the AMT is really a revenue machine for the government that is hard to get rid of. So even though McCain’s plan seem to give less tax cuts to middle income families, I think he could save a lot of middle class families money on the AMT by indexing it appropriately. On the other hand, I don’t think Obama’s plan really gives that much tax cuts to middle income families because he does not address the AMT.

How many people will the AMT affect? Well,without any change it is supposed to hit 30 million mostly middle-class taxpayers by 2010. According to this article, The Tax Policy Center estimates that by 2010, 89 percent of married couples with two or more kids and adjusted gross incomes between $75,000 and $100,000 will be subject to the AMT if nothing is done. So even if Obama cuts the regular income tax on these people, it would not matter at all because they will already be paying the AMT.

Finally, I think Obama’s plan to make “donut holes” and tax the rich sounds awfully like creating another AMT system, and I’m very wary of this need to punish the rich with more taxes. Obviously, every new attempt to make the rich pay more just creates more complexity in the tax system and create problems down the road and hurt the middle class. So yes, it looks like Obama will give the middle class a bigger tax break and tax the rich more right now on paper, but I highly doubt that is what will actually happen.

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Today I read an  article on the New York Times titled “Lure of Big Paycheck Tugs at Graduates Considering Public Service“.  The basic gist of it is that top colleges are trying to encourage students to enter non-profit sectors and take jobs in public service, but many students are burdened with huge loans that they have to pay off so a secure job with a fat paycheck is the path they end up taking.  I am not surprised at this at all, but here are some of my thoughts in working in public service.

Most people are idealistic when they are young and then get disillusioned later, but I think I am the opposite.  In highschool I knew people that were truly believed that they could change the world for the better, but I wasn’t one of them.  I knew that after college I wanted a high paying job, and I wanted to be financially secure. I know that sounds selfish, but I figured that I am just practical. I also said to my friends that I would never work as a teacher or work for the government.  Now after graduating and working for three years at fairly well-paying corporate jobs, I think my thoughts on public service has changed quite a bit.

First of all, I think America really has a shortage of great teachers.  Most of my immediate family members have been teachers and professors in China at one time or another, and I think my dad enjoyed it more than most people. So I know that it can be a very personally fulfilling job. Anyway, I think one of the main problems with finding quality teachers is definitely financial.  The starting salary for highschool teachers in the Bay Area is around $30000 to $50000 depending on the school district and credentials, but the new teacher might have a buttload of student debt to pay off.  Couple that with the extremely high cost of living here in the Bay Area, I don’t see how we could get good public school teachers.  Good science and math teachers are especially hard to find because people who study science and math could get much more lucrative jobs. I went to Albany High School and I had a bunch of excellent science and math teachers who graduated from UC Berkeley.  They are mostly retired now, but any one of them could have taken up a more lucrative job as an engineer. I had a physics teacher that almost completed his electrical engineering PhD at UC Berkeley, but decided to be a high school teacher, and he was a great teacher.  If we don’t have more public school teachers like them, then the next generation of children will suffer as a whole.  Anyway, I know of one classmate who gave up her lucrative job at a large web retailer to apply for Teach for America, and I hope she is still teaching.

Next, I think many young people do not realize how much of their souls they have to give up for that big paycheck at that corporate job.  There are plenty of high profit businesses that have less than ethical practices.  Additionally, many highpaying jobs require you to work to your bone.  There is also corruption in public service, but for the most part I don’t believe it is encouraged.  Granted, there are plenty of great jobs in the private industry, too, but in the article I read a lot of these Harvard students are going to hedge funds, which I think are mostly shady businesses because they have very little regulation or disclosure. Of course, a public service job might also be terribly boring, but if it’s a job that helps people and fulfills you, then it might not be as bad.

Finally, there are lots of perks in public service and non-profit jobs, too.  For example, I think government employees still get pension for the most part, and my mom will get her healthcare covered after she retires.  Sure, the pay might be  lower, but a perpetual pension is worth quite a bit. Additionally, non-profit organizations  usually give more time off than for-profit corporations so that is worth something.  Also, I feel that there is a bit more job security in non-profit and public corporations.  Someone told me once that the government never fires anyone.  There is quite a bit of bureaucracy involved, and so people stay in a job forever.

Right now both of my parents work for non-profits.  My dad really thinks he is changing the world through his work, and I think that’s pretty cool.  My mom just started at a state university after working in a for profit company for all of her career in America.  She is trying to adjust to all the bureaucracy and a huge pay cut, but I think in the end she will reap the rewards of paid health care and a small pension. Now with that said, lately I have thought about getting a non-profit job sometime in the future because now I do want to change the world  for the better somehow.  However, I think I would be happier to do the job for free when I am financially independent.  As much as I have warmed up to the concept of public service, I am still practical and selfish by nature.  So I guess I will just have to spend a few more years as a well compensated corporate cube dweller.

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This is a continuation of my family’s immigration story originally written by my dad in Chinese. For more of my dad’s narrative see the category marked Fifteen Years in America. Enjoy!

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I remember that my first class was titled “Introduction to American Business”. The professor is a Japanese Hawaiian named John. He was about 40 years old, medium build, and spoke English with a distinct Hawaiian accent. For international students , and especially me, the greatest obstacle is really the language. The professor speaks quite fast, and at first I could only understand about 50 to 60%. So I bought a small tape recorder and taped every lecture. After I got home, I would listen to it again. The contents of the lessons are not that difficult to understand, but my vocabulary was lacking, and I needed to look up many things in the dictionary.

My major of accounting belonged to the business school, and the Introduction to American Business was one of the core introductory courses. It didn’t have much depth, but covered many subjects. After completing this course, students are supposed to understand the basics of American economy and the main channels America uses for production and trade. Additionally, the students should have a bit of knowledge about international trade. The textbook was simple to understand and had a lot of pictures. Additionally, John was a very good lecturer and included many examples that applied to everyday life. For example, when he talked about supply and demand, he used Hawaii’s real estate market as an example. At that time, Hawaii’s real estate markets was one of the most expensive markets in the entire country. The main reason is that many Japanese people snatched up real estate in Hawaii. The yen was extremely strong and traded 80 yen to 1 dollar, and the Japanese thought that everything was quite cheap in Hawaii. They bought all things large and small including toothpaste and real estate. Additionally, Hawaii is a chain of islands, and did not have that much land. Building materials and labor also had to be shipped from the mainland and that increased the cost to build. Thus, there was a small supply and a huge demand so the real estate market boomed. When John talked about Hawaii’s pineapple industry, he said that it was a different picture. In the beginning of this story I mentioned that Hawaii used to have three large industries, one is tropical agriculture. The pineapples grown in the volcanic soil of the islands are large and sweet, and they used to be very popular. However, in the beginning of the 90’s, America was in a recession, and the labor in Hawaii was expensive compared to other tropical regions in the world. So the demand for Hawaiian pineapples fell greatly, and they were quite cheap around the islands.

I felt that the most interesting thing about American education is that the professors intentionally create an entertaining and relaxed atmosphere for the student, and doesn’t just lecture monotonically.  It’s not like in China where the professors are supposed to talk, and the students are supposed to listen quietly and believe that whatever the professor said is true.  Students in China learn by memorizing formulas and definitions, and then recite it all during tests.  Here in America, the professors often put students in small groups so that they can debate amongst themselves and students are encouraged to have different opinions.  Additionally, on the written exams students do not necessarily have to agree with a professor’s opinion in essay questions.  As long as you have a great idea and great supporting points you could still score quite well.

At that time, the math classes I had to take were extremely easy.  I think they were at the level of 10th grade math in China so I had no problems.  However, I never expected that there is something in  these math courses that could be extremely difficult for me.

As I said previously, the community colleges are established to provide the community with capable workers.  So the math classes are not extremely difficult, but there are more hands on skills taught.  One particular class required us to learn to use something called a “Ten Key”, which is basically a calculator that prints out a calculation.  It is a pretty common tool used by most accounting departments.  I have never used a calculator such as this in China.  In fact, in China the accounting departments in my college years taught people to use the abacus.  In my department there was a professor famous for teaching the abacus.  He was always cheerful and unkempt and carried a giant abacus on his back.  Then he would hang the abacus on the blackboard and calculate with one hand while he taught.  I don’t know if the students learned anything from that guy or if  they still teach that course, but in Kapiolani the lesson of the ten key was extremely useful to me.

At that time everyone was assigned a ten key calculator.  The teacher told us to touch type and calculate results.  Additionally, the teacher would record everyone’s time and give a score.  Since I’ve never touched such a machine before I was extremely slow in the beginning.  In my first test I only typed about 50 numbers in a minute, and I still had calculation errors.  I was in the bottom three of the entire class even though my math scores were number one in another class.  However, if I couldn’t improve my score in the ten key class, my entire GPA would suffer.  My American classmates grew up with keyboards and they had no problems typing more than 100 numbers per minute, and I was extremely jealous.  In order to catch up, I used any extra time I had and went to the Student Learning Center to borrow a ten key machine and practice.  I practiced so  much that my fingers hurt to touch any object.  However, every bit of plowing brings an extra bit of harvest.  My final score was that I could enter more than 160 numbers per minute and my accuracy was above 98%.   So my final mathematics  score was number one in the class.  Many years later, when I moved to the San Francisco Bay Area, one of the world’s largest financial headhunting firms interviewed me and actually tested me on a ten key machine.  At that very moment it was clear to me  that my hard work was not wasted at all.

Stay tuned for more of my dad’s adventure in America! Feel free to subscribe to this feed if you don’t want to miss a single chapter.

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