Deficiency Judgement

To the current homeowners: think again before you send the keys to the bank and walk away from the house. Do you think that when the housing prices fall, you can simply walk away from all the loans? Well, if you didn’t know, I am going to explain it to you. There are loans that you can walk away, and there are loans that you cannot. It’s called a recourse or a non-recourse loan.

A non-recourse loan means that there is no other recourse available to the lenders besides taking back the home. A typical non-recourse loan is a home loan for purchase. If the house falls below the balance of the purchase loan, the buyer can walk away from the house without any serious consequences (maybe except a big blemish on the credit report). On the other hand, a recourse loan means that the homeowner is personally liable for any “deficiency” when the lenders cannot recover the loan amount by selling off the house. A typical recourse loan is a home equity loan or a line of credit from home equity. As far as I could research, I don’t think a refinanced home loan is definitely a recourse loan. But I’m almost certain that a cash-out refinanced loan is recourse loan. As far as the legal language is concerned, a refinanced loan obviously is not a loan made for purchase.

So if you think that banks are so stupid of lending you a first loan of 80% LTV (Loan to Value), and piggy-back another 15% or even 20% through home equity loan, then you’re mistaken. On the first loan, the banks have a 20% cushion protection before they are not able to sell the house to recover the loan. On the other home equity loans, banks have the option of going after you in court even if after the sale, they cannot recover those loan amount. Legally speaking, you would have fare better if you took out a loan beyond 80% LTV, and pay PMI (private mortgage insurance) on the non-recourse purchase loan. The same is true for refinancing. If you have refinanced your purchase loan in the past, most likely you have just given up the ability of walking away from your home free & clear. I don’t know how adjustable rate mortgage (ARM) purchase loans are treated. But if you faked your income/asset numbers on the application, it would constitute as a mortgage fraud, and pretty much invalidate any legal protections that you have.

Of course, usually banks don’t like to resort to legal actions in recovering assets from you. If a market assessment indicates that they are able to recover most of the loan amount, they will probably not go after you, and do a quick Trustee’s sale instead of going through a judicial foreclosure. However, if the housing market turns, there is no guarantee that they won’t go after you in court for a deficiency judgment. A deficiency judgment is where you are personally liable for all the difference or deficiency between the sale of the home and the loan balances (plus all the legal costs and probably mortgage interests).

To read more about the details of trustee’s sale & deficiency judgments, including tax treatments for both, you can follow the links that I’ve found:

  1. Very good information from Weiss & Weissman.
  2. More from San Francisco Chronicles.

Why I Would Choose Emigrantdirect Over Others?

Obviously, when opening a bank account, interest yield is very high on my list. The more important thing than having the absolutely highest yield is whether the bank is consistently competitive in offering their bank yield. You don’t want to open a bank account and several years later go through all the hassle of moving money around to another better bank. Consistency for me is more important than absolutely highest yield. Among the online bank of choices from NetBank, ING, EmigrantDirect, CapitalOne, HSBC, IndyMac, both NetBank and ING have fallen behind the curve of competitiveness of the market. While NetBank still have the attractiveness of close to full banking service for writing checks and free online payments, ING has no additional attractiveness other than being the first to market with more credibility. IndyMac bank requires a minimum deposit of $25000 to get their highest quoted APY. For most people to find higher bank yields then, one is left with the choices of EmigrantDirect, CapitalOne, and HSBC. (There are always many other ones, but I’m only limiting my discussion to the more well-known choices.)

To narrow down my choice, I would be using a criterion that not many people pay attention to: financial risk of the bank. Most people overlook the financial risk of the bank when opening a bank account because bank deposits have FDIC insurance for upto $100K. But as with everything else, extra yield almost always come with extra risk. Nothing is riskless, even for bank accounts in my opinion. The financial risk with bank accounts is whether the bank institution will go belly up and force you to go through FDIC to recover all of your money below $100K. It’s a hassle that you would probably never want to go through. The best way to avoid that risk is to have your money split in two different banks, so that the probability of simultaneous belly-up is close to nil. This way, you will be always left with some money to get through the period of recovering your money from FDIC. But if you don’t want to have the hassle of managing two bank accounts, and just want to consolidate into one bank, which one of the above three would you choose?

From my stock investing experiences, I can tell you that I would choose EmigrantDirect over others. In 2002 slowdown, when I was looking for short-selling candidates in the area of consumer credits, I found two companies that had higher deliquency and bad loans on their consumer credit cards among others: Metris (MXT for its symbol, Yahoo’s message board & thestreet.com joked that you definitely don’t want to put your money under this mattress or Metris), and Capital One (COF for its symbol). And guess what? Metris is now under HSBC through acquisition, and Capital One has started offering banking services more actively. Is this a coincidence? I think not. In fact, it may really make a lot of sense. The only reason that banks want to offer higher bank yields than others is to attract more cash money, and nothing else. Why would a bank give you more interest money besides that? It’s a capitalistic society, and they are not charities. Now, the next question that you should ask yourself is that why do they want your cash. And the answer could be that they REALLY need it (for their delinquent real estate or consumer credit card loans). If they are desperate, or close to edge of going belly-up, you definitely don’t want to get into that mess.

While my information from 2002 is quite out-dated but still may be true, I really don’t want to take such chance with my money. Here are my views for each, assuming that not too much has changed since 2002:

  1. Capital One: Based on the risk assessment, this could be the worst choice. Why would they start offering banking services more actively? If you understand banking, you would know that for every dollar of bank deposit, they are allowed to lend out about $10 of loan. It’s called fractional reserve banking. With sufficient bank deposits, they can make both of their book on consumer loan and banking to look sufficiently decent, with this 10X help.
  2. HSBC: Because Metris was acquired by HSBC in Dec. 2005, your risk is averaged with the new merged company. I assume that the averaged risk should definitely be lower than Metris standalone, and therefore, HSBC should have lower risk than Capital One.
  3. EmigrantDirect: I cannot find their stock symbol (if it exists). I believe that they are probably a relative new player. A new player is good in the sense that it will take quite a long time before they screw up themselves totally, with the help of the 10X fractional banking reserve. They could pretty much mess up, and still limping forward. It’s very hard to get a bank to fail in general, and even harder to get a new bank to fail financially. While there are other risks such as internet security, I have no such information to be compared for these three banks. But a newer bank like EmigrantDirect in respect to financial risk of the bank should be on a solid ground.

I still believe that the above three should be quite good choices because it’s simply very hard to get a bank to fail. However, I prefer not to take a higher risk for such a tiny difference in the interest yield. Yes, you would earn $8 more a year on every $10,000 of deposit at Capital One, and receive $25 if you pay $100 Costco executive membership. And yes, you would earn $5 more a year on every $10,000 of deposit at HSBC. But the race of chasing the absolutely highest yield is simply elusive, especially when EmigrantDirect will be raising its 5.00% APY to 5.15% very soon.

Here is a short review for EmigrantDirect in case you want to read it over before opening an account. And if you appreciate for my effrots in offering you good financial information on this site, please open the EmigrantDirect account through the sponsoring ads on my site. It will help me defray the website hosting costs and misc. for the year and the coming years. I would really appreciate it.

P.S. Please do check out the comment sections. I won’t be pretending to “know all”. In fact, I probably looked a little stupid. But in any case, no one can know all, and no one can be perfect, and that’s why in the comment sections, there could always be some people who are kind enough to share their knowledge.

Questions To Ask Yourself Before Investing

Before I go any further, I want to remind you that I’m not a professional financial advisor, and you should just take any of my advices AS IS. Check the details in my disclaimer.

There are many questions that one should ask before investing. And hopefully, this post can let you start on the necessary thinkings.

Before you start investing your hard-earned money, the most important questions that everyone should ask him/herself are “how much can I afford to lose”, and “how much am I willing to lose”. Essentially, it’s RISK. How much risk one can take (1st question) is different from how much risk one is willing to take (2nd question). Gamblers are willing to take bigger risk than they can afford. The conservatives probably will always take an under-sized risk relative to their risk affordability. There are no right answers to these questions, but only answers that can put you to sleep soundly at night.

Very often, the answers are tied heavily to the ratio of your monthly or annual saving to your portfolio size and to your total networth. I will actually look at networth to annual saving, and portfolio (or liquid networth) to annual saving. Both of these ratios together give you a fairly good idea of your financial picture. The first ratio tells you how fast you’re increasing (or decreasing for that matter) your networth, and can help you answer on “how much you can afford to lose”. The second ratio tells you the relative importance of your savings to your investing, and lets you understand that maybe you should be focusing your energy more on savings rather than investing, or vice versa. Obviously, if the absolute numbers for savings & portfolio sizes are relatively small, then definitely you should “go back to the drawing board” and work on your savings. If your savings is relatively large compared to your portfolio AND you are young, it means that you can afford to take relatively bigger risk. If your portfolio is quite large compared to your savings, then probably you want to start to rein in a bit on your risk-taking, even if you’re young.

Here is an example. Suppose that if your portfolio to your annual savings is 10 to 1. It means that it will take 10 years of savings to replace your entire portfolio, if your portfolio goes to zero overnight. Put it another way, if your networth goes down by 10%, there it goes your entire year of savings with it. A big ratio of your networth/portfolio to your annual savings can mean two things: either your networth is quite significant, or your savings is quite insignificant. The case of having $100K networth with a $10K saving is quite different from the case of having $1K networth with $10 annual saving. In both cases, the ratio for evaluating your risk is the same, but instead of working on your investment, you may want to work on saving more money if you only save $10 a year.

To understand how your age affects the RISK tolerance, I will compare the “ratio of networth to annual savings” and “the number of working years before the retirement”. A simple comparison of these two numbers gives you a clear picture of risk relatively to your age.

For example, if your networth to your saving is 20 to 1, and you’re 5 years away from your retirement, then it’s time for some risk moderation. You don’t want to lose a big portion of it before going into retirement. If you are still 10+ years away from your retirement, you may be able to afford to take some risk since the time horizon may be long enough for any markets to recover from a big fall. In another extreme example, if your networth to your saving is 100 to 1, and you’re still 25 years away from your retirement, what should you do? In this case, I would advise a more conservative portfolio even if you’re still young. The reason is that your networth is quite big that a 20% drop of networth will require you to work another 20 years to make up such shortfall. And if you’re already into retirement, I would only put any excess money beyond the total required amount for the projected length of retirement into more risky investments. You may put more or less than the excess amount depending on your risk tolerance, but you definitely don’t want to screw up your retirement plan that has been well-executed in the past.

I always examine my networth to my monthly savings when I do my monthly networth review. The reason is that it gives me a picture how my finances are rolling forward, assuming everything else is stagnant. It also helps me to assess the risk that I can take. Whenever I invest a portion of my money into something, I always want to know what can happen in the worst case scenario. And one of the scenarios that I mentally go through is “what if this investment goes to ZERO?” How will it affect my daily life? When it goes to zero, the only thing that I can count on is my new incoming savings. Therefore, I always look at my investment transaction size relative to my monthly or annual savings. It tells me essentially how stupid I can afford to be for this time around.

Once you have done a good analysis on both your networth, portfolio and your saving rate, and have compared their sizes, and compared it to your age to retirement, you will have a very good assessment of how much you can afford to lose (relatively speaking). How much you are willing to lose should always be less than how much you can afford to lose. There are gamblers out there who will bet repeatedly on small probability events in the hope of big payout days. Oftentimes, they are either saved by their families and relatives, or by their age, or by the society through bankruptcy mechanisms. I simply don’t know any opportunity that warrants you to leverage and bet more than you can afford to lose. I guess it’s possible that a person may face such difficult decision once or even twice in their lifetime. But even when the outcome is positive, it is never guaranteed. I will always advise not to risk what you cannot afford to lose.

In fact, all the above questions should be re-assessed on a constant basis because of changes in your financial situations. You should adjust your personal finance risk as time goes on. The more difficult things are the market risks, and risks inherent in every stock selection or every real estate transaction. But sometimes (or often?), even a professional will get it wrong. There are no magic tricks for investing as I have explained in “My Advice to Preserving Wealth in 30s thru 50s“. Such magic Midas trick is self-defeating. One can pretty much devour all the money in the world through a consistent and compounding trick significantly higher than inflation rate. Since you know that’s not realistic, you know either such tricks cannot be consistent, or that they are consistent but with a return much much closer to the inflation rate.

My Advice To Preserving Wealth

At 30s to 50s, if you have put in some efforts in saving up a nest egg, you probably will have a okay to decent size of money, depending on your saving rate and age. At this stage, you probably should start constructing a picture of your networth & portfolio, if you have not already done so. The picture of your networth by market value gives you the idea of where your money is. The picture of your networth by the leveraged total value gives you the idea of how your networth may change per different asset classes that you have. Most people have their networth view as marked to value, but I strongly advise one to always take a look at the alternative picture of the leveraged view on the networth. I won’t go into details of the leveraged view, which you can read more about it by clicking the link.

With all the money in your nest egg, the most important thing for it is how one can preserve (if not expand) the buying power of the money through time before retirement or the time when you need it. Since the modern paper money is a fiat money backed only by the faith in the government, combating above inflation rate is the minimum goal that every money holder or investor should achieve.

Investing money is probably the most difficult task for anyone. Every minute, every second, every dollar from everyone is trying to gain the best return on investment (ROI). You can see how much competition is out there. If there is someone (including me) who tells you that he can consistently produce an annual return of 20% above inflation, you can almost be certain that he is telling a lie. Why? Compounding 20% for 25 years will give you 95.4 times back for your money. A mere $1000 dollar will become $95,400. Now if he has such investment knowledge to have such mida golden touch, will he be investing only $1000? He should be borrowing as much as he can and probably invest $100K to get some $9.54 million dollars. And if he has some $9.54 million dollars, I bet that he won’t be talking to you, but probably even making even more money for himself, or retired in some Carribean island. Such outrageous return simply don’t last long, or if it’s true, no one will be telling you about it. This applies to ALL investment, whether it’s real estate, precious metals, or stocks in general. The investing world is pretty much a self-correcting process. Any inefficiency (for investing trick) in the market will be immediately exploited in a short time to the extent that such inefficiency doesn’t work anymore. Every now and then, there will be some inefficiency in the market, but with so many investors and so much capital in the whole world, you can bet on that it will disappear before you know about it.

Despite the tremendous difficulty in investing, you can be sure that if you don’t pay attention or don’t do it, you will be at the bottom of the ROI (unless by pure luck). There are mainly two approaches to investing: passive and active. Passive investors follows the style of index investing by putting money into the general market weighted by market capitalization. An index investing style believes in the EMH, efficient market hypothesis, that the best current asset allocation is the current opinion of the market, which is expressed through the market capitalization of every stock. Therefore, buying index funds or ETF will give you the best asset allocation. I highly recommend the book Four Pillars of Investing by . It’s one of the most outstanding investment book that one can ever read. The arguments for index investing are so strong that I can barely find any faults in them.

The other style of investing is active investing, which is my current style of investing. I believe that I still have time to experiment with different investing strategies, and afford to get sub-par returns. But the biggest reason for me to follow such investing strategy is that the reasons for $US dollar devaluation and investing in natural resource sectors are so compelling that I cannot turn my eyes away from it. I will have separate posts on my reasons, but it is known that index investing gives you the average performance. Besides, it is also know that EMH in the most strict sense does not hold, and academics are discovering examples of market inefficiencies here and there (which gets exploited right away of course).

My own criticism to EMH is that in the entire formulation of EMH, there exists no time element. Obviously, nothing happens instantaneously. The time during which the market digests the information should be full of opportunities for smart people to take advantage. And while EMH claims that there is no market advantage at every time instant, I believe it does not directly translate into a conclusion that when you look out further in time for months or years, there exist no advantages. In essence, I believe that the entire formulation of EMH lacks the very important element of Time. That’s why I believe that by investing long enough (and smart enough), one should be able to harvest the inefficiency accumulated through time, and/or inefficiency projected into the future.

Of course, I may be wrong in my active investing, but it is for sure, that in every market, there are out-performers and under-performers, and index investing gives you the average performance of all market participants. One of the better books for active investing is the book from the master market technician Martin Pring “The Investor’s Guide to Active Asset Allocation”. It has explanations of how one can use potential knowledge of business cycle to dynamically allocate one’s asset.

While there is not a lot of concrete advices that I can give you for investing, definitely invest, invest, and invest to at least beat inflation. Also I suggest you to at least read my article on the importance of diversification, which relates directly to preserving wealth through diversification. And I won’t tell you that I know a trick to return 20% every year because I will be flatly out lying as I have explained. I have and will have many more articles on Introduction to Investing in certain asset classes, and Reasons for Investing in certain asset classes, to help you on how-to and understand why. But since I have no magic trick, you will need to make up your own portfolio compositions, and invest accordingly. And if you have time to spare, the following two books will probably increase your knowledge in investing tremendously, whether you choose to invest actively or passively.

My Blogging Tips On Generating Traffics

Ever wonder how I can garner some 200 visitors a day in 3 months time of blogging. Granted, it’s nothing grandiose compared to those highly trafficked sites, such as all the members of the MoneyBlogNetwork sites. But I think it is still a little above average, for a 3.5-month old blog.

Well, I did some of my homeworks before I started blogging. Here are my tips, not listed in the order of importance. There are probably more good ideas, but at least it’s something that you can begin on:

  1. Post everyday or frequently. Yeah, it’s very hard in the very beginning when no one is reading, but with every new post, you get your page (& site) flashes through internet, with some hope of catching a couple of eyeballs.
  2. Participate in the related carnivals at www.blogcarnival.com. You can slowly build some regular and one-time readers this way.
  3. Make sure your site has good & interesting readings, and structured well to grab and convert those one-time visitors into regular readers. Reference posts that can be read & referred several times as reference are good. Experiential posts with humor or interesting stories are probably good too. Tools/Calculators (actually, one of the first things that I have on my site) should be very good too. Good categories and a good navigating page will help a lot too.
  4. Occasionally go out of your ways to participate in some less directly related carnivals or leave your comments on un-related sites. This can bring some strayed but new readers to your site, once you’ve kind of exhausted the regular eyeballs on the directly related carnivals.
  5. Leave good & informative comments at related sites. After a while, you can leave a link back to your site for related articles. It will also build relationship with your peers/competitors.

Also, here are some of the social bookmarking sites that could potentially give you a ton of traffics.

  1. reddit.com: a simple submission site without categories. LOTS and LOTS of readers, and spam-haters. I’ve pretty much given up on reddit.com, after people either call me a spammer when I am trying to provide very useful information, or that my articles simply don’t get very welcomed. Still, even lowly ranked submissions will get LOTS of hits.
  2. del.icio.us: another very hot social bookmarking site. However, most of the submissions are related to high-tech stuffs, instead of money/finance stuffs. Since it works by tagging, there should not be any problems submitting your articles. Spam-killers however will not hesitate to call you spammers.
  3. popurls.com: I used to submit one or two articles to here, but unfortunately you can’t do that anymore. This site actually pulls the top articles from various top news or social bookmark sites.
  4. digstock.com: Here is a good site for investing blog to submitting their articles. I was able to get my articles ranked pretty high on this site. The number of readers cannot be compared to the big social bookmarking sites. But at least you can some targeted readers who will be specifically interested in this area.
  5. stumbleupon.com: This seems to be a growing social bookmarking site. But it requires you to install their software on your PC. I submitted a couple articles, and did get some readers. But that’s about it.
  6. digg.com: Same story as reddit.com, but a little bit better. Super-hot social bookmarking site. However, most of the categories are not directly related to finance, but rather to computer, high-tech stuffs.

You can check out this list for even more social bookmark sites. There are lots of competitions out there in this arena.
And if you want to follow one of the most highly successful PF bloggers, check out here. I’m sure J.D. at Get Rich Slowly is kind and will be still generous enough for any of you to take a pick at his traffics details. (My apology to JD for this disclosure. Being a success model for all of us, I don’t think you would mind, would you?) He is more than 10X if not 50X ahead of most people’s traffics (excluding the MoneyBlogNetwork members). I don’t think he needs to worry about any competitions up there. But unless you can get onto Lifehackers.com, Metafilters, 43 folders, and any sites at his link section, it’s likely that you won’t be able to reproduce his success. If you know how, please let me know. By the way, he is an oldie on the internet. Don’t be depressed about your own stats just because his site is less than 4 months old.

Two other terrific and diligent over-achiever among PF bloggers are Blueprint for Financial Prosperity and Free Money Finance. Check out Jim’s & fmf stats here. I believe that their traffics are quite organic, built upon solid regular readers and LOTS of Google Search hits. Now, you know how important it is to go back to your posts and fine-tune your SEO (search engine optimization), and add those keywords for search. And of course, quality articles are always essential for building a base of regular readers. Other MoneyBlogNetworks are all excellent PF sites & you can all learn from their stats. This includes AllFinancialMatters, Consumerism Commentary, FiveCentsNickel, MightyBargainHunter, listed in alphabetical order. There are many other good PF sites, but not every site makes their stats available for you to learn about their referals (including mine, but I’ve just told everything that I know so that you don’t need to go thru any of my stat data to find out how).

By the way, make sure you have listed your blogs at various blog aggregators. There are lots and lots of them. pfblogs.org, www.pfblogs.com, blogtopsites.com, blogxxxx (click for the list), and technorati.com. Every bit of traffics help. Just do make sure after you submit your RSS or URL, it’s actually working. It took me a long while before I realized that some of my submissions didn’t work at all for reasons such as I didn’t include their logo on my site.

At last, if not at first, study the ins & outs of blogging at probloggers.net. It’s almost like a manual to blogging. There are probably other good sites, but probloggers cover most of the essentials, if not all.

Haven’t seen any new tips from here? Sorry, blogging is more about work than tips. Tips are only meant to keep you on the right track and work smartly. But it won’t substitute any bits of the works that are required.

Why 9/11 – The Origin of the Palestine-Israel Conflict

A little digression from the usual theme of money.  But world politics and wars definitely have a serious effect over stock market and macro-economic.  It is therefore imperative to understand the international world politics in our global village.

I learned most of the things about the Palestine-Israel conflict directly from Jewish themselves.  The best summary critical of Israel by Jewish themselves is The Origin of the Palestine-Israel Conflict by Jews For Justice In the Middle East.  I highly recommend you to read thru all the details in that link.  By the way, if you decide to comment, I ask you to at least read through any 15 pages of the 37 pages document.  The document is in agreement with the same key resolutions signed by 3800 American Jewish in their open letter to US government.  I’m providing some excerpts from the views of these Jewish here (pg number refering to 8×11 edition).  There is no Zionism, no Anti-Semitism here.  Only a concerned and compassionate Asian third-party man who wants truth & justice to prevail for all fellow human beings.

Since 1967, Israel is the most extensive violator of UN Resolutions: 242, 238, 267, 271 and 298.

Canaanites were the earliest people in the region from 3000 to 1100 BC.  Jewish ruled the region until 586 BC, 414 years max.  And since 7th century, it is predominantly an Arab/Islamic place. (pg.2)

“By 1948, the Jew was not only able to ‘defend himself’ but to commit massive atrocities as well.  Indeed, according to the former director of the Israeli army archives, ‘in almost every village occupied by us during the War of Independence, acts were committed which are defined as war crimes, such as murders, massacres, and rapes’…Uri Milstein, the authoritative Israeli military historian of the 1948 war, goes one step further, maintaining that ‘every skirmish ended in a massacre of Arabs.’” (pg.8)

“The First UN General Assembly resolution — Number 194– affirming the right of Palestinians to return to their homes and property, was passed on December 11, 1948.  It has been repassed no less than 28 times since that first date.”  Till today, Israel still refuses this basic right of returning home for Palestinians.  (pg.10)

In violation of international law, Israel has confiscated over 52 percent of the land in the West Bank, and 30 percent of the Gaza Strip for military use or for settlement by Jewish civilian….Over this period (1967 to 1982), more than 300,000 Palestinians were detained without trial for various periods by Israeli security forces.” (pg.13)

Israel has split the West Bank by means of hundreds of trenches, dirt ramparts and concrete cubes which have been placed at the entrance to most of the towns and villages.  No one enters and no one leaves, not those who are pregnant and not those who are dying.” (pg.33)

I can go on and on.  It’s pretty much endless, and the injustice since 1948, after almost 60 years, is still happening daily to the poor Palestinians.  So why does Palestine-Israel conflict concern US or anyone at all?  And what does it have to do with 9/11?  As you may know, a major chunk of US foreign aid goes to Israel.  In fact, “Israel usually receives roughly one third of the entire foreign aid budget, despite the fact that Israel comprises less than .001 of the world’s population and already has one of the world’s higher per capita incomes. In other words, Israel, a country of approximately 6 million people, is currently receiving more U.S. aid than all of Africa, Latin America and the Caribbean combined when you take out Egypt and Colombia.”  “According to the American-Israeli Cooperative Enterprise (AICE), from 1949-2001 the U.S. has given Israel a total of $94,966,300,000. The direct and indirect aid from this year should put the total U.S. aid to Israel since 1949 at over one hundred billion dollars. What is not widely known, however, is that most of this aid violates American laws. The Arms Export Control Act stipulates that US-supplied weapons be used only for “legitimate self-defense.” (info taken from washington-report.org)  When Arabs look at Israeli military equipment, all the F-16 fighters and the best Apache helicopters, all made in USA, what would they think of USA?  When US presidents repeatedly sided with Israel, even after continuous UN violations and abuse of human rights, what would Islamic world think of us?  If America stands for the belief of its freedom and democracy, American tax dollar for foreign aids and foreign policy definitely do not reflect the belief.

Do you know any people who is willing to live under foreign occupation forever without revolting?  Do you know any people who will not be angry for having his home bull-dozed over without any financial compensation nor any legitimate reasons that are directly related to him?  Do you know any non-tyrannical government who would build a wall right through a Palestinian university campus?  Do you know anyone who is mentally sound, but will kill and blow himself up for no good reasons, unless battling as a soldier for self-defending their countrymen’s basic rights?  I just don’t.  Right after 9/11, I saw a TV program asking various people for reaction to 9/11.  None but a 5 year old girl had the intelligence of asking why.  She said, “what did we do wrong so that they will hate us this much to do such a terrible thing to us?”  A fresh mind, a refreshing inquiry indeed from a 5 year old.  Why?  Without knowing the answers, but simply exercising strong force is futile to resolving the root causes of the problem.  Like Bush said, there are people in the world who hate the way we live and enjoy our democracy?  I suggest Bush to read the book “Why do People Hate America?” to find out the reasons.

Understanding the Middle East conflict is the very first step to resolving the conflict.  Resolving the conflict by imposing injustice upon a people by force, lies, or any other ways will never work.  It may work for 10 years, 50 years, or even 100 years, but it just won’t work forever.  A government’s power may last a very long time, but the sense of justice and the will to overcome an foreign-controlled impoverished life lasts forever.  Palestinians (or any Arabs) don’t want to teach their children to hate Israeli.  Palestinians only want to reclaim what was properly belonged to them.  Because every man is created in the image of God, every man has the quintessential sense of justice from God.  Some of us are watching over Israeli government actions, blogging about it, doing everything that we can in our power.

For as long as US government continue to fund Israeli government and condone its military actions, 9/11 will not be the last horrific terrorist event.  We cannot put 9/11 behind us until we have resolved Palestine-Israel conflict in a peaceful and just way.

Right now, Israel is again attacking Lebanon with reasons of self-defense.  If the small rockets by Hezbollah can only be launched from the south of Lebanon, why is Israel attacking all over the Lebanon, destroying the entire Lebanonese communication and transportation infrastructures which are the lifeblood of economic development?  How can anyone call that self-defense, when civilians in un-related locations are dying?  What is USA and Bush doing at this moment (refer to my comment on World War III post)?  Do the actions of USA stand for what we all believe in, freedom and democracy for all?

By the way, I just want to add that this article is in no way supporting terrorism.  I am a pacifist, and I think any violence is simply WRONG.  Please see my comments here and comments in my post of first sign of world war III.

P.S.#1. I am taking a real risk by writing this post.  As of now at 1:30am Friday, the national chapter of SUSTAIN (Stop US Tax Aid to Israel NOW) website has been HACKED.  Instead, I get re-directed to a search portal.  The Memphis chapter of SUSTAIN appears to have being hacked too.  I hope you can still access Bay Area chapter when you read this page.  And I hope my small site will not get hacked or go down because of this post.  If my site goes down, you will know why.  If you feel that you agree to my post, and that you have a blog or website, I hope you could propagate this message.  Or you can email the 37 pages documents written by Jewish to as many people as you know.  Unless more people know about the truth, and eventually take actions to change our foreign policy, USA will be mired in conflict along with Israel forever.

P.S.#2. I reserve the editorial right to any comments posted.  I respect any differences in opinions that you may have with me.  In a democracy, we are allowed to have differences in opinions, but still mutually respect each other.  However, please be factual and compassionate to human lives.  Do a little research before you post your comment.

 

Reducing Posts To 5 Per Week

I apologize to inform you that until further notice, I will not be posting on Thursday and Sunday. And I may or may not post on Tuesday, so there goes my 0.5 post. The 4.5 posts don’t include any posts on My Portfolio and Market Pulses categories. I will comment on the market or make changes to my portfolio whenever I think it’s appropriate, usually at least once a week. In about 3 months from now (for a special personal reason) however, hopefully I should be able to resume postings back to 6 posts per week (well, just for a couple of months).

I am only sleeping about 4 to 6 hours a day now, and it is a little too much to be undertaken on an ongoing basis. Just trying to restore some sanity back to my life.

I want to express my gratitude to all the regular readers on this site (almost 50% of the visitors). Thanks to all of your encouragement, feedbacks, and comments. If I were to write for an unenthusiastic audience, I would have quitted long time ago.

And IF it’s appropriate, please refer your friends & families to this site. Or if you are so kind, you could digg/reddit or del.ioci.us my articles on any of the social bookmarking sites. My web traffics seems to have plateaued at this stage. Things seem to have stayed in the slow lane, if not in reverse. Maybe I need more patience.
Blogging is quite a low ROI activities. My wife keeps joking that if I just walk for a mile, I could pick up more pennies on the ground than I would earn from Google Adsense (actually, Adsense is slightly better, but you get the idea). And if my readership does not increase, I am not sure what’s in it for me, intangilbly speaking.

What to see what a multi-millionaire is doing with his money & his blog? Check out the blog by Rag2Riches. I am starting to think that maybe the reason for his lack of posts is the same reason for his wealth, basically time well-spent on good ROI activities.

In any case, Google ad cents or readership or nada, I have achieved a couple of things/goals through blogging:

  1. Track my networth closely. A special customized PERL script just to track my 60+ stocks.
  2. I’ve learned several new things and numerous good investing sites from some good commentators (BlueDaze, etc.). Without my blogging experience, I will probably never discover those sites and information.
  3. Articles written for my kids: I’m still in the process of writing several series that I’ve begun, such as My Advice “on wealth for different ages”, Definition of “monetary terms”, Intro to Investing in “different types of investments”, and the completed series of My Dividend Investing, and the yet-to-begun Career and Reasons for investing in “different types of investments” series. Maybe there will be more series if I can think of something. If you want to see my thoughts on anything else, please feel welcomed to leave your ideas in the comment sections. I had a Real Estate investing series that I’ve lined up for a guest blogger, but I don’t know whether it will pan out. And the purpose of all these series is not only for this site, but also for my kids. One day, I want to make my children to read these series (at the minimum). Yeah, I’m not kidding. If you want to write something, you might as well pre-write everything that you want to teach your children in an organized fashion. I bet your children prefer to read something than listening to your talk. Assuming my children will read these series in the future, I can surely collect the ROI from my time invested.
  4. I’ve also made some friends from blogging. As unexpected as the side benefits in #2, life is full of surprises when you look at the right places.
  5. Learn a little bit of PHP & some Java. I guess that’s good for my resume.

My Advice To Preserving Wealth

At 30s to 50s, if you have put in some efforts in saving up a nest egg, you probably will have an okay to decent size of money, depending on your saving rate and age. At this stage, you probably should start constructing a picture of your networth & portfolio, if you have not already done so. The picture of your networth by market value gives you the idea of where your money is. The picture of your networth by the leveraged total value gives you the idea of how your networth may change per different asset classes that you have. Most people have their networth view as marked to value, but I strongly advise one to always take a look at the alternative picture of the leveraged view on the networth. I won’t go into details of the leveraged view, which you can read more about it by clicking the link.

With all the money in your nest egg, the most important thing for it is how one can preserve (if not expand) the buying power of the money through time before retirement or the time when you need it. Since the modern paper money is a fiat money backed only by the faith in the government, combating above inflation rate is the minimum goal that every money holder or investor should achieve.

Investing money is probably the most difficult task for anyone. Every minute, every second, every dollar from everyone is trying to gain the best return on investment (ROI). You can see how much competition is out there. If there is someone (including me) who tells you that he can consistently produce an annual return of 20% above inflation, you can almost be certain that he is telling a lie. Why? Compounding 20% for 25 years will give you 95.4 times back for your money. A mere $1000 dollar will become $95,400. Now if he has such investment knowledge to have such mida golden touch, will he be investing only $1000? He should be borrowing as much as he can and probably invest $100K to get some $9.54 million dollars. And if he has some $9.54 million dollars, I bet that he won’t be talking to you, but probably even making even more money for himself, or retired in some Carribean island. Such outrageous return simply don’t last long, or if it’s true, no one will be telling you about it. This applies to ALL investment, whether it’s real estate, precious metals, or stocks in general. The investing world is pretty much a self-correcting process. Any inefficiency (for investing trick) in the market will be immediately exploited in a short time to the extent that such inefficiency doesn’t work anymore. Every now and then, there will be some inefficiency in the market, but with so many investors and so much capital in the whole world, you can bet on that it will disappear before you know about it.

Despite the tremendous difficulty in investing, you can be sure that if you don’t pay attention or don’t do it, you will be at the bottom of the ROI (unless by pure luck). There are mainly two approaches to investing: passive and active. Passive investors follows the style of index investing by putting money into the general market weighted by market capitalization. An index investing style believes in the EMH, efficient market hypothesis, that the best current asset allocation is the current opinion of the market, which is expressed through the market capitalization of every stock. Therefore, buying index funds or ETF will give you the best asset allocation. I highly recommend the book Four Pillars of Investing by . It’s one of the most outstanding investment book that one can ever read. The arguments for index investing are so strong that I can barely find any faults in them.

The other style of investing is active investing, which is my current style of investing. I believe that I still have time to experiment with different investing strategies, and afford to get sub-par returns. But the biggest reason for me to follow such investing strategy is that the reasons for $US dollar devaluation and investing in natural resource sectors are so compelling that I cannot turn my eyes away from it. I will have separate posts on my reasons, but it is known that index investing gives you the average performance. Besides, it is also know that EMH in the most strict sense does not hold, and academics are discovering examples of market inefficiencies here and there (which gets exploited right away of course).

My own criticism to EMH is that in the entire formulation of EMH, there exists no time element. Obviously, nothing happens instantaneously. The time during which the market digests the information should be full of opportunities for smart people to take advantage. And while EMH claims that there is no market advantage at every time instant, I believe it does not directly translate into a conclusion that when you look out further in time for months or years, there exist no advantages. In essence, I believe that the entire formulation of EMH lacks the very important element of Time. That’s why I believe that by investing long enough (and smart enough), one should be able to harvest the inefficiency accumulated through time, and/or inefficiency projected into the future.

Of course, I may be wrong in my active investing, but it is for sure, that in every market, there are out-performers and under-performers, and index investing gives you the average performance of all market participants. One of the better books for active investing is the book from the master market technician Martin Pring “The Investor’s Guide to Active Asset Allocation”. It has explanations of how one can use potential knowledge of business cycle to dynamically allocate one’s asset.

While there is not a lot of concrete advices that I can give you for investing, definitely invest, invest, and invest to at least beat inflation. Also I suggest you to at least read my article on the importance of diversification, which relates directly to preserving wealth through diversification. And I won’t tell you that I know a trick to return 20% every year because I will be flatly out lying as I have explained. I have and will have many more articles on Introduction to Investing in certain asset classes, and Reasons for Investing in certain asset classes, to help you on how-to and understand why. But since I have no magic trick, you will need to make up your own portfolio compositions, and invest accordingly. And if you have time to spare, the following two books will probably increase your knowledge in investing tremendously, whether you choose to invest actively or passively.

My Advice To Accumulating Wealth

Once you create your wealth by having a good job or owning a business, and start to have money coming in, you can then slowly build your wealth by accumulation. The primary vehicle to accumulate a substantial wealth is obviously through savings. Yes, through savings. You may not want to believe it. But the old fashioned and traditional way is the way, and the primary way.

However small the monthly saving is, a persistant saving that is multiplied and compounded through 30 years can become a large sum. For example, a saving that is compounded at 6.0% APR after 20 years gives you a multiplication factor of 462.04 (instead of 240), which also means that for every $1 you save today, it’s really $1.93 twenty years later (Of course, this is the part of good news about compounding the savings; see the bad news about compounding inflation in the next advice to preserving wealth in 30s thru 50s). Irrespectively to inflation or not, saving is the very first step to wealth. Without savings, you are always at the origin on the number line, at zero. With some savings, at least you are moving positively forward. So how does one save money without pinching pennies and driving oneself crazy? What is the proper balance between saving & spending money? How does one properly budget one’s expenses? These are the questions everyone ought to ask himself or herself.

There are no right answers to the these questions. Saving money is a personal choice. You can find my own answer to the proper balance between saving & spending money in the Definition of Being Frugal. I also have an article on How to Budget. But the bottom line of the process of increasing your wealth is (from Steps to Wealth)

Saving = Income – Expense
Networth = Asset – Liability
Accumulating networth is a process by which one controls the expenses and trickle down the savings into growable assets, while reducing liability.

Because the everyone’s income and spending needs are different, I don’t really think that anyone should have a saving goal as a percentage of their income, whether it’s 10% or 20%, unlike suggested by many personal finance books. Just because you can spend more, doesn’t mean that you should spend more. Vice versa, just because you cannot save more, doesn’t mean that you should strangle yourself for that extra dollar or penny. It’s simply not realistic to apply the same rule to everyone. And it’s also the same thing with your saving goals. I don’t think everyone should use 1 million dollar for their saving/networth goal either. If you’re a medical doctor, or a lawyer, you may use a saving goal higher than a million. If you’re the average US household, I won’t advise you to use 1 million dollar for your saving goal at all. Why? While it’s feasible to reach 1 million dollar (not adjusted for inflation) for the networth eventually, it simply does you no good to set a goal that may be reached after 30 or 40 years of hard work. Setting a goal that can only be accomplished that far out will simply drive your mental mind sick of reviewing your progress towards the goal. Every month or year when you review your goal process, your mind will tell you that “boy, I’m so so far away from my goal. Why am I bothering to accomplish it at all?” Eventually, you will quit from even trying to accomplish your goal even when it is possible. I know of no one who can happily and objectively review their goal when the goal may only be accomplished after 30 or 40 years. Human mind just doesn’t work that way. You need to “feed candies” to nurture your mind. Setting a goal just for 1 year is much better. If you don’t know how much you can save, you should start with a monthly goal. If you can achieve your monthly saving goals, you can up your goal by a little more, and set up a goal for the following entire year. Little by little, your mind can be satisfied with being able to reach your saving goals in small steps. Then it is possible to discipline your mind to carry out your daily struggle between the choices of saving & spending, fighting against your desires for immediate gratifications. If your mind does not get this constant positive feedback of reaching your near term saving goal, you can pretty much expect it to retire from trying. It’s simply human nature. Why bother, when you think you can’t even reach it? In fact, if your mental mind cannot be satisfied with the abstract satisfaction of reaching a saving goal, I would even go as far as suggesting people to allocate a 5% or $50 (or whatever number that is suitable to your situation) to simply materially reward yourself/family. Yeah, a sweet bonus waiting for you at the end of month or year after all the hard work of saving money frugally and diligently. An extra and regular festival on reaching saving goals may set you back a little, but hey, it’s really a million times better than not saving at all. Alternatively you can also use an allowance system for everyone in the family. This system works the best when not everyone in the family is on the same page on signing up the saving goal. An allowance system for kids, and also husband and wife, gives each of the family members a personal space allowed by the allotted money which can be accumulated on an individual basis for a bigger individual spending need.

Savings can be done in various forms, not necessarily in your bank account. You can also save by paying down your mortgage debt under the regular amortization schedule, if you own a home. The amount of principle that you pay towards the mortgage balance is your true saving. Obviously, if you have those interest-only or negative amortization loans, you won’t be saving anything in your home, but rather may even be building additional debt when you negatively amortize the loan. Often, paying down your mortgage according to amortization schedule is the most practical way of saving, since you need to pay your rent in an alternative case anyway (see Why Is Your Home the Best Investment). Of course, you need to carefully evaluate the decision between rent vs buy carefully in this housing market. If the mortgage payment on a 30-year loan using a 20% down payment is much bigger than prevailing rent, I am not so sure that buying a home will turn out to be a wise decision. To carefully evaluate your personal situation, you can use my Rent vs Buy Calculator and compare whether you will come out ahead financially by buying a home (or investing in a second home).

Another very good way of saving money is utilize your 401K or IRA account. The money you save in your pre-tax retirement account gets an immediate boost of some 15% to even 45% simply due to your combined marginal federal and state tax brackets. Besides, your money can grow tax-free. Tax consideration is the primary benefits for pre-tax accounts. Unless you have very substantial assets in the pre-tax accounts, and that you’re expecting a higher tax rates than your current year tax rate, otherwise, most of the time, you could take tax advantage and build up your pre-tax assets. Roth IRA is a good alternative to consider when you don’t want to contribute to your 401k/IRA.

At last, you should begin saving as soon as possible. When you just got your first significant paycheck from your first job, you may be celebrating your financial independence, and tempted to spend it all. But wealth must be accumulated, and accumulated through time. It’s obvious that if you are only 5 years to your retirement, and you just started saving for it, it’s simply too little too late. I’m not going to be a cheer leader for you. That is just the cold and hard truth. Definitely start early. Stages in life often don’t give you second chances to go back in past to save your money. Demand for spending your income will simply keep growing without stop. It’s always better to have money in the bank, than worries in the head.

In summary

  1. Save as much money according to your own financial situation. Use short-term saving goal for smaller steps forward, and/or an allowance system if you need them.
  2. Save money in your home by paying down mortgage under a regular amortization schedule.
  3. Save money in your 401k/IRA accounts to take advantage of the tax benefits.
  4. Start saving as early as possible.

At last, you need to do any longer term financial planning for your saving goal or retirement needs, you can try my Saving Goal/Retirement Calculator. The calculator is for realist, and may depress you with the cold facts. But that’s where the next article comes in, My Advice To Preserving Wealth in 30s thru 50s, hopefully to give you some tips on investing to combat inflation.

P.S. The number of links to my own posts may seem excessive. But it simply shows how important I think savings is to one’s wealth.

Pay Yourself First Under Withholding Tax

Some people don’t have the financial discipline to carry out a plan of under-withholding taxes. Some people don’t have the financial cushion to carry it out to make a difference. However, if you have both, you can use under-withholding to your advantage.

Is under-withholding illegal? No. Unlike estimated tax payments, which go towards a specific quarter and due on the 15 of April, July, October, and January for the following year, the tax withheld from your paycheck is calculated as if the entire withheld amount is contributed throughout the entire year. What does that mean exactly? It means that whether you pay your tax out of your paycheck in January or December, they’re treated exactly the same by IRS, as if every 1/12 of the amount was paid evenly every month throughout the entire year. Knowing this, why would you want to pay IRS in January when you can pay IRS in December? You can almost put the amount in a 11 month CD, and get some 4% to 5.x% interest out of it.

I personally have carried out this practice for several years now. I under-withhold my taxes throughout the entire year, and I start to check on the exact amount of taxes that I should be paying in around October. The bigger amount you under-withhold, the earlier before year end that you should check on your taxes. The reason is that if you don’t start planning early enough, you may not pay enough taxes for the whole year, even if you send your entire paycheck to IRS for the last month in December. Essentially, you want to pay just enough taxes in a year, as not to trigger a tax penalty, and you want to pay more of your taxes near the end of year, instead of the beginning of the year. Calculating how much taxes you should pay can be very complicated. It’s also different for people whose adjusted gross income in the last year exceeded $150K. But you can easily figure out the underpayment taxes using my 2006 tax calculator. The calculation of underpayment taxes have taken into accounts for all of the conditions listed by IRS. It is the amount of additional taxes that you need to pay in order to avoid any tax penalty assessment. You don’t need to work through any IRS rules. Just enter all the numbers, and it will tell you how much more in taxes you need to withhold or pay.

To under-withhold or pay additional amount of taxes from your paycheck, you can simply fill out a W-4 form and give it to your payroll department. Besides under-witholding your taxes, another trick that you can play is over-contributing to your 401K, so that you can put in most of the contribution dollars upto the maximum earlier in the year, instead of later. For more details, you can find them at my other post “How I earn extra 1.45% return without risk in my 401k account”.

To summarize and put your cash flow into timeline, here is the picture of “paying yourself first” if you have utilized both early 401k contribution and under-withholding taxes:

  1. If you make early 401k contribution, the first 3 to 4 months are the months when you will be paying into your own 401k account. Your net cash from paycheck will be tiny. You will be paying mostly the payroll taxes (social security and medicare taxes), but not much income taxes.
  2. Then from March/April to probably October, these are your golden months for cash flow. Since you’re done with your 401k contribution, plus that you are under-withholding income taxes, your net cash from paycheck will look really good. But obviously, it’s not the time for you to spend those cash. Rather, you should be saving or investing those cash and prepare for the upcoming November/December and also till next year of April if you’re doing early 401k contribution every year.
  3. November and especially December will literally be the dry months. If you have executed your under-withholding plan perfectly, you should be paying your entire paycheck towards IRS at the end of year. That means that there is $0 or close to $0 cash flow from your paycheck. You will need to be surviving from cash accumulated in the previous boom months of either January through October, or March/April through October if you contribute early to 401k.

Too complicated for you? Hey, if you know any ways to save or earn more money without any work, please let me know. To get something in return, you always need to pay at least a little bit of effort, whether it’s planning your cash flow, reading books or articles, etc.

Here is an article “Get next year’s tax refund now” from MSN money that talks about under-withholding taxes. It should supplement and reinforce this “tax saving” tip.