What actually is house "poor"? In singapore, I call these people asset rich, cash poor people. Let me explain. House poor is a situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities. House poor individuals are short of cash for discretionary items and tend to have trouble meeting other financial obligations like vehicle payments.
People typically become house poor because they buy more house than they can afford, but there are other ways that people can become house poor as well. For example, some people will become house poor after the birth of a child, when one spouse decides to stay at home with the new addition, rather than going back to work.
I have coined another term called Car "poor". These individuals own expensive and branded cars but stay in a small, public housing unit. Why these people choose to be car poor? The reason is simple: People usually do not follow you home to see where you stay. But they do get to see you on and off the road daily. So, rather than putting your wealth in hard solid ground, they prefer to show off their wealth through...right, their rides.
There is simply a high correlation between the car you drive and the type of house you live in. Hence, if you drive a BMW, you must be rich and possibly staying in a big private house. This assumption is faulty but, well, that's what shallow people think. At the end of the day, you are the best person to access who are the real wealthy ones and who are the fakes.
King of the Birds, Lord of the Skies
Gather ye rose buds while ye may, old time is still a flying;
and this same rose that you see today, tomorrow will be dying.
CarpeDiem: Seize the Day!
- Dead Poets Society
Monday, March 3, 2008
Sunday, March 2, 2008
How To Use ETFs In Your Portfolio
To recap: ETFs are an investing innovation that combines the best features of index mutual funds with the trading flexibility of individual securities. ETFs offer diversification, low expense ratios and tax efficiency in a flexible investment that can be adapted to suit a multitude of objectives. To reap the true benefit of investing in ETFs you need to use them strategically.
At the most basic level, ETFs can be used as part of both long-term and short-term investment strategies. Their low expense ratios and high trading flexibility make them attractive alternatives to traditional mutual funds.
Index Investing
From a strategic standpoint, the first and most obvious use of ETFs is as a tool to invest in broad-market indexes. On the equity side, there are ETFs that mirror the S&P 500, the Nasdaq 100, the Dow Industrials and just about every other major market index. On the fixed-income front, there are ETFs that track a variety of long-term and short-term bond indexes including the Lehman 1-to-3 Year Treasury, the Lehman 20-Year Treasury and the Lehman Aggregate Bond Index.
Using ETFs to cover the major market sectors, you can quickly and easily assemble a low-cost, broadly diversified index portfolio. With just two or three ETFs, you can create a portfolio that covers nearly the entire equity market and a large portion of the fixed-income market. Once the trades are complete, you can simply stick to a buy-and-hold strategy as you would with any other index product, and your portfolio will move in tandem with its benchmark.
Actively Managing a Longer-Term Portfolio
In a similar fashion, you can create a broadly diversified portfolio but choose a more active-management strategy instead of simply buying and holding to track the major indexes (which is passive management). While the ETFs themselves are index funds (meaning there is no active management on the part of the money manager overseeing the portfolio), this doesn't stop investors from actively managing their holdings. For example, say you believe that short-term bonds are set for a meteoric rise; you could sell your position(s) in the broader bond market and instead buy an ETF that specializes in short-term issues. (You could do the same for your expectations for equities.)
Of course, the major market indexes represent only a portion of the many investment opportunities that ETFs provide. If your core portfolio is already in place, you can augment your core holdings with more specialized ETFs, which provide entry into a wide array of small-cap, sector, commodity, international, emerging-market and other investing opportunities. There are ETFs that track indexes in just about every area, including biotechnology, healthcare, REITs, gold, Japan, Spain and more. By adding small positions in these niche holdings to your asset allocation, you add a more aggressive supplement to your portfolio. Once again, you can buy and hold to create a long-term portfolio, but you can use more active trading techniques too. For example, if you think REITS are poised to take a tumble and gold is set to rise, you can trade out of your REIT position and into gold in a matter of moments at any time during the trading day.
Active Trading
If actively managing a long-term portfolio isn't spicy enough for your tastes, ETFs may still be the right flavor for your palette. While long-term investors might eschew active- and day-trading strategies, ETFs are the perfect vehicle if you are looking for a way to move frequently into and out of an entire market or a particular market niche. Since ETFs trade intraday, like stocks or bonds, they can be bought and sold rapidly in response to market movements, and unlike many mutual funds, ETFs impose no penalties when you sell them without holding them for a set period of time.
While it is true that you must pay a commission each time you trade ETFs, if you are aware of this cost and the dollar value of your trade is high enough, the commission cost is nominal. Consider, for example, a $10 commission on a $10,000 trade. At .1%, the cost is hardly worth mentioning. Also, since they trade intraday, ETFs can be bought long or sold short, used in hedge strategies and bought on margin. If you can think of a strategy that can be implemented with a stock or bond, that strategy can be applied with an ETF - but instead of trading the stock or bond issued by a single company, you are trading an entire market or market segment.
Wrap Investing
For investors who prefer fee-based investments as opposed to commission-based trading, ETFs are also part of various wrap programs. While ETF wrap products are still in their infancy in Singapore, it's a safe bet that more are coming soon.
Conclusion
Overall, ETFs are convenient, cost efficient, tax efficient and flexible. They are easy to understand and easy to use, and they are gaining in popularity at such a rapid pace that some experts anticipate that they will one day surpass the popularity of mutual funds. If ETFs haven't found a place in your portfolio yet, there is a pretty good chance that they will in the future.
At the most basic level, ETFs can be used as part of both long-term and short-term investment strategies. Their low expense ratios and high trading flexibility make them attractive alternatives to traditional mutual funds.
Index Investing
From a strategic standpoint, the first and most obvious use of ETFs is as a tool to invest in broad-market indexes. On the equity side, there are ETFs that mirror the S&P 500, the Nasdaq 100, the Dow Industrials and just about every other major market index. On the fixed-income front, there are ETFs that track a variety of long-term and short-term bond indexes including the Lehman 1-to-3 Year Treasury, the Lehman 20-Year Treasury and the Lehman Aggregate Bond Index.
Using ETFs to cover the major market sectors, you can quickly and easily assemble a low-cost, broadly diversified index portfolio. With just two or three ETFs, you can create a portfolio that covers nearly the entire equity market and a large portion of the fixed-income market. Once the trades are complete, you can simply stick to a buy-and-hold strategy as you would with any other index product, and your portfolio will move in tandem with its benchmark.
Actively Managing a Longer-Term Portfolio
In a similar fashion, you can create a broadly diversified portfolio but choose a more active-management strategy instead of simply buying and holding to track the major indexes (which is passive management). While the ETFs themselves are index funds (meaning there is no active management on the part of the money manager overseeing the portfolio), this doesn't stop investors from actively managing their holdings. For example, say you believe that short-term bonds are set for a meteoric rise; you could sell your position(s) in the broader bond market and instead buy an ETF that specializes in short-term issues. (You could do the same for your expectations for equities.)
Of course, the major market indexes represent only a portion of the many investment opportunities that ETFs provide. If your core portfolio is already in place, you can augment your core holdings with more specialized ETFs, which provide entry into a wide array of small-cap, sector, commodity, international, emerging-market and other investing opportunities. There are ETFs that track indexes in just about every area, including biotechnology, healthcare, REITs, gold, Japan, Spain and more. By adding small positions in these niche holdings to your asset allocation, you add a more aggressive supplement to your portfolio. Once again, you can buy and hold to create a long-term portfolio, but you can use more active trading techniques too. For example, if you think REITS are poised to take a tumble and gold is set to rise, you can trade out of your REIT position and into gold in a matter of moments at any time during the trading day.
Active Trading
If actively managing a long-term portfolio isn't spicy enough for your tastes, ETFs may still be the right flavor for your palette. While long-term investors might eschew active- and day-trading strategies, ETFs are the perfect vehicle if you are looking for a way to move frequently into and out of an entire market or a particular market niche. Since ETFs trade intraday, like stocks or bonds, they can be bought and sold rapidly in response to market movements, and unlike many mutual funds, ETFs impose no penalties when you sell them without holding them for a set period of time.
While it is true that you must pay a commission each time you trade ETFs, if you are aware of this cost and the dollar value of your trade is high enough, the commission cost is nominal. Consider, for example, a $10 commission on a $10,000 trade. At .1%, the cost is hardly worth mentioning. Also, since they trade intraday, ETFs can be bought long or sold short, used in hedge strategies and bought on margin. If you can think of a strategy that can be implemented with a stock or bond, that strategy can be applied with an ETF - but instead of trading the stock or bond issued by a single company, you are trading an entire market or market segment.
Wrap Investing
For investors who prefer fee-based investments as opposed to commission-based trading, ETFs are also part of various wrap programs. While ETF wrap products are still in their infancy in Singapore, it's a safe bet that more are coming soon.
Conclusion
Overall, ETFs are convenient, cost efficient, tax efficient and flexible. They are easy to understand and easy to use, and they are gaining in popularity at such a rapid pace that some experts anticipate that they will one day surpass the popularity of mutual funds. If ETFs haven't found a place in your portfolio yet, there is a pretty good chance that they will in the future.
Saturday, March 1, 2008
Introduction To Exchange-Traded Funds
Exchange-traded funds (ETFs) are a type of financial instrument whose unique advantages over mutual funds/ unit trusts have caught the eye of many an investor. If you find the tasks of analyzing and picking stocks a little daunting, ETFs may be right for you. In this entry I will attempt to define ETFs, highlight their advantages, and list some of the most popular ETFs available to investors.
What Is an ETF?
Think of an exchange-traded fund as a mutual fund that trades like a stock. Just like an index fund, an ETF represents a basket of stocks that reflect an index such as the S&P 500. An ETF, however, isn't a mutual fund; it trades just like any other company on a stock exchange. Unlike a mutual fund that has its net-asset value (NAV) calculated at the end of each trading day, an ETF's price changes throughout the day, fluctuating with supply and demand. It is important to remember that while ETFs attempt to replicate the return on indexes, there is no guarantee that they will do so exactly. It is not uncommon to see a 1% or more difference between the actual index's year-end return and that of an ETF.
By owning an ETF, you get the diversification of an index fund plus the flexibility of a stock. Because ETFs trade like stocks, you can short sell them, buy them on margin and purchase as little as one share. Another advantage is that the expense ratios of most ETFs are lower than that of the average mutual fund. When buying and selling ETFs, you pay your broker the same commission that you'd pay on any regular trade.
Varieties of ETFs
The first exchange-traded fund was the S&P 500 index fund (nicknamed spiders because of their SPDR ticker symbol), which began trading on the American Stock Exchange (AMEX) in 1993. Today - tracking a wide variety of sector-specific, country-specific and broad-market indexes - there are hundreds of ETFs trading on the open market. You can pretty much find an ETF for just about any kind of sector of the market.
For example, if you were interested in the healthcare sector, perhaps Vanguard’s Health Care Viper (ticker VHT) would be worth looking into. Does the Austrian market peak your interest? Then take a look at the ishares MSCI Austrian Index fund (ticker EWO). Or if you’d like exposure to the internet infrastructure sector, then maybe Merrill Lynch’s HOLDRs (ticker IIH0) might be for you.
Some of the more popular ETFs have nicknames like cubes (QQQQ), vipers (VIPERs) and diamonds (DIAs). All ETFs are passively managed, meaning investors save big on management fees. Below you will find a closer look at some of the more popular ETFs:
Nasdaq-100 Index Tracking Stock (QQQQ)
This ETF represents the Nasdaq-100 Index, which consists of the 100 largest and most actively traded non-financial stocks on the Nasdaq, QQQQ offers broad exposure to the tech sector. Because it curbs the risk that comes with investing in individual stocks, the QQQQ is a great way to invest in the long-term prospects of the technology industry. The diversification it offers can be a huge advantage when there’s volatility in the markets. If a tech company falls short of projected earnings, it will likely be hit hard. Between 2000 and 2004, QQQQ was by far the most heavily traded index fund.
SPDRs
Usually referred to as spiders, these investment instruments bundle the benchmark S&P 500 and give you ownership in the index. Imagine the trouble and expenses involved in trying to buy all 500 stocks in the S&P 500! SPDRs allow individual investors to own the index's stocks in a cost-effective manner. Another nice feature of SPDRs is that they divide various sectors of the S&P 500 stocks and sell them as separate ETFs, there are literally dozens of these types of ETFs. The "technology select sector index", for example, contains over 85 stocks covering products developed by companies such as defense manufacturers, telecommunications equipment, microcomputer components, and integrated computer circuits. This ETF trades under the symbol XLK on the AMEX.
iShares
iShares is Barclay's (Barclay’s Global Investors “BGI”) brand of ETFs. In 2004 there were approximately 120 iShares trading on more than 10 different stock exchanges. Barclay has put out a number of technology-oriented iShares that follow Goldman Sachs's technology indexes. All of these particular ETFs trade on the AMEX.
Vipers
Just like iShares are Barclay’s brand of ETFs, VIPERs are Vanguard’s brand of the financial instrument. Vipers, or Vanguard Index Participation Receipts, are structured as share classes of open-end funds. Vanguard also offers dozens upon dozens of ETFs for many different areas of the market including the financial, healthcare and utilities sectors.
DIAMONDs
These ETF shares, Diamonds Trust Series I, track the Dow Jones Industrial Average. The fund is structured as a unit investment trust. The ticker symbol of the Dow Diamonds is DIA, and it trades on the AMEX.
Conclusion
A great reason to consider ETFs is that they simplify index and sector investing in a way that is easy to understand. If you feel a turnaround is around the corner, go long. If, however, you think ominous clouds will be over the market for some time, you have the option of going short. The combination of the instant diversification, low cost and the flexibility that ETFs offer, makes these instruments one of the most useful innovations and attractive pieces of financial engineering to date.
What Is an ETF?
Think of an exchange-traded fund as a mutual fund that trades like a stock. Just like an index fund, an ETF represents a basket of stocks that reflect an index such as the S&P 500. An ETF, however, isn't a mutual fund; it trades just like any other company on a stock exchange. Unlike a mutual fund that has its net-asset value (NAV) calculated at the end of each trading day, an ETF's price changes throughout the day, fluctuating with supply and demand. It is important to remember that while ETFs attempt to replicate the return on indexes, there is no guarantee that they will do so exactly. It is not uncommon to see a 1% or more difference between the actual index's year-end return and that of an ETF.
By owning an ETF, you get the diversification of an index fund plus the flexibility of a stock. Because ETFs trade like stocks, you can short sell them, buy them on margin and purchase as little as one share. Another advantage is that the expense ratios of most ETFs are lower than that of the average mutual fund. When buying and selling ETFs, you pay your broker the same commission that you'd pay on any regular trade.
Varieties of ETFs
The first exchange-traded fund was the S&P 500 index fund (nicknamed spiders because of their SPDR ticker symbol), which began trading on the American Stock Exchange (AMEX) in 1993. Today - tracking a wide variety of sector-specific, country-specific and broad-market indexes - there are hundreds of ETFs trading on the open market. You can pretty much find an ETF for just about any kind of sector of the market.
For example, if you were interested in the healthcare sector, perhaps Vanguard’s Health Care Viper (ticker VHT) would be worth looking into. Does the Austrian market peak your interest? Then take a look at the ishares MSCI Austrian Index fund (ticker EWO). Or if you’d like exposure to the internet infrastructure sector, then maybe Merrill Lynch’s HOLDRs (ticker IIH0) might be for you.
Some of the more popular ETFs have nicknames like cubes (QQQQ), vipers (VIPERs) and diamonds (DIAs). All ETFs are passively managed, meaning investors save big on management fees. Below you will find a closer look at some of the more popular ETFs:
Nasdaq-100 Index Tracking Stock (QQQQ)
This ETF represents the Nasdaq-100 Index, which consists of the 100 largest and most actively traded non-financial stocks on the Nasdaq, QQQQ offers broad exposure to the tech sector. Because it curbs the risk that comes with investing in individual stocks, the QQQQ is a great way to invest in the long-term prospects of the technology industry. The diversification it offers can be a huge advantage when there’s volatility in the markets. If a tech company falls short of projected earnings, it will likely be hit hard. Between 2000 and 2004, QQQQ was by far the most heavily traded index fund.
SPDRs
Usually referred to as spiders, these investment instruments bundle the benchmark S&P 500 and give you ownership in the index. Imagine the trouble and expenses involved in trying to buy all 500 stocks in the S&P 500! SPDRs allow individual investors to own the index's stocks in a cost-effective manner. Another nice feature of SPDRs is that they divide various sectors of the S&P 500 stocks and sell them as separate ETFs, there are literally dozens of these types of ETFs. The "technology select sector index", for example, contains over 85 stocks covering products developed by companies such as defense manufacturers, telecommunications equipment, microcomputer components, and integrated computer circuits. This ETF trades under the symbol XLK on the AMEX.
iShares
iShares is Barclay's (Barclay’s Global Investors “BGI”) brand of ETFs. In 2004 there were approximately 120 iShares trading on more than 10 different stock exchanges. Barclay has put out a number of technology-oriented iShares that follow Goldman Sachs's technology indexes. All of these particular ETFs trade on the AMEX.
Vipers
Just like iShares are Barclay’s brand of ETFs, VIPERs are Vanguard’s brand of the financial instrument. Vipers, or Vanguard Index Participation Receipts, are structured as share classes of open-end funds. Vanguard also offers dozens upon dozens of ETFs for many different areas of the market including the financial, healthcare and utilities sectors.
DIAMONDs
These ETF shares, Diamonds Trust Series I, track the Dow Jones Industrial Average. The fund is structured as a unit investment trust. The ticker symbol of the Dow Diamonds is DIA, and it trades on the AMEX.
Conclusion
A great reason to consider ETFs is that they simplify index and sector investing in a way that is easy to understand. If you feel a turnaround is around the corner, go long. If, however, you think ominous clouds will be over the market for some time, you have the option of going short. The combination of the instant diversification, low cost and the flexibility that ETFs offer, makes these instruments one of the most useful innovations and attractive pieces of financial engineering to date.
Thursday, February 7, 2008
Anger and Overcoming it
"Anger ruins joy, steals the goodness of my mind, forces my mouth to say terrible things. Overcoming anger brings piece of mind, leads to a mind without regrets. If I overcome anger, I will be delightful and loved by everyone."
-Charlie Crews from "Life"
-Charlie Crews from "Life"
Tuesday, February 5, 2008
Saturday, February 2, 2008
Stock Taking 2
If there is one thing I need to stop buying, this is it: Cuff Links!.
The last time I counted, I have 30 pairs of them - yeah right, one for each day! And the cost for them: Around $2000 in all. (The most expensive pieces here cost around $150).
.
Okay, I must admit that my little collection is no match against some of my lady friends' accessories, whose LV bag alone can cost up to $2000 a piece already!
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For the unfamiliar ones, a cufflink is a decorative fastener for the two sides of the cuff on a shirt.
Cufflinks are designed only for use with link cuffs shirts (also known as French Cuffs), which have buttonholes on both sides but no buttons. These may be either single or double-length ("French") cuffs, and may be worn either "kissing," with the ends pinched together, or "barrel-style," with one end overlapping the other.
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And yes, I have 2 (actually 3) pairs of silk knot, which is an alternative fastener to a cufflink. They are also known as monkey's fists (although, technically speaking, the knot is a Turk's head, not a monkey's fist) . Despite having a lower cost than cufflinks, they are just as well regarded and just as formal.
.
The problem with cuff links shirts is that sometimes you leave home without the links! That's kind of embarrassing and you will look quite wierd without them! So, for people like me who drive, I kept an extra pair in my car (just in case) :)
Friday, February 1, 2008
Stock Taking 1
As a child, I always look forward to the coming Chinese New Year. Reasons: Lots of food, ang bao, and new clothings. Sadly, for most part of my recent years, the food isn't cheap (all food bills footed by me), the ang bao received are decreasing compared to the ones I received, and ... new clothings aren't cheap.
Why?
Well, for a start, I have to pay for the mandarin oranges as well as the "bak kua", not to mention other types of goodies. Next, I prepared in the region of $800 for ang baos (some for my parents, some for parent-in-laws, and the rest for other 'outlaws') but I always received less than $800. Man...it is a money-losing business!!!
Now, as for new clothings, most of my shirts are tailor-made. On average, I arrange for 5 sets of link-cuffs shirt made every 6 months, plus a pair of black pants. On the record, I still have around 4 pairs of brand new pants in my closet!!!
Perhaps the only people that are happy during this Chinese New Year are the kids, and ... my tailor!
Why?
Well, for a start, I have to pay for the mandarin oranges as well as the "bak kua", not to mention other types of goodies. Next, I prepared in the region of $800 for ang baos (some for my parents, some for parent-in-laws, and the rest for other 'outlaws') but I always received less than $800. Man...it is a money-losing business!!!
Now, as for new clothings, most of my shirts are tailor-made. On average, I arrange for 5 sets of link-cuffs shirt made every 6 months, plus a pair of black pants. On the record, I still have around 4 pairs of brand new pants in my closet!!!
Perhaps the only people that are happy during this Chinese New Year are the kids, and ... my tailor!
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