Managing Your Biggest Asset: Your Career (2007-07-16)

by David John Marotta

Your career is your biggest financial asset. Most people determine the value of their work by the dollar amount on their paycheck. However, judging your career based solely on your take-home pay is a short sighted evaluation. Learning to manage the full value of your career will translate into a higher quality of life and a higher net worth.

Two aspects of a career should be evaluated. One is the obvious quantitative measurement of salary and employee benefits. The second is a set of qualitative measurements which are even more important. As you will see, focusing on the qualitative measures is the surest way to maximize your bottom line in the long run.

The quantitative measurements are the easiest to assess but still involve much more than just comparing the base salaries of different career options.

A career's financial value can be determined by computing the net present value of wages and benefits minus the financial cost of the career, which will be explained in a moment. Don't overlook the value of your employee benefits. Employer matching contributions made to a 401k can be considered as valuable as a salary. Other benefits should be evaluated based on their value to you, not simply their cost to your employer.

If you are married with children, and both you and your spouse work, then be sure to account for the added cost of having both parents working. After subtracting child care, work clothes, transportation, prepared foods, and taxes, many two-career families would do just as well without the second career. Reducing household expenses and starting a part-time home business may be a better way to increase the family's bottom line.

The qualitative measurements of a career, although they are more difficult to assess, are even more important in the evaluation.

A job should be evaluated in relation to the new skills you learn and master as part of your employment. One job may pay you more because you are already a master of those skills, but a lesser-paying job may be better for your long-term career because of the skills you will gain.

It is your future skill set that will determine your future compensation. With the increase of project-based employment, longevity and seniority no longer have as much capital. Those who are the most successful at managing their careers are able to work at different jobs to gain the skills needed for each progressive step of their career.

In doing this, they treat their career as their own asset, not that of their employer. By taking ownership of their employment, they accept the fact that they are captains of their own fate. Those who follow this strategy often end up as top executives of large companies or start a business of their own.

A second important consideration is the social connections you will make on the job. Careers are as much about who you know as they are about what you know. No successful person in business functions alone. It is important to respect the value of building and maintaining relationships with other talented professionals as part of your career.

You don't need to be part of the "good ol' boys" club to benefit from a network. Simply knowing who can get a job done properly is a valuable commodity that will pay you back many times over. Every mom with a list of reliable babysitters or competent electricians knows the value of such a network. Just as you would evaluate how much money the company is going to put in your 401k, you should try to determine how much social capital the company will help you build.

Finally, make sure that your job is in harmony with the rest of your life and goals. It does not make any sense to spend the best decades of your life chasing after money so that you can finally do what you really enjoy in retirement. The strange truth is that people who do what they love often make more money that those who are simply after a big paycheck. And if you really love what you do, you'll find you'll never have to "work" a day in your life.

Fitting work into your life often begins by analyzing family constraints. Raising your children isn't worth missing. No matter how much time you spend with them, you blink twice and they are grown. If you are lucky, you will get another chance with your grandchildren, but it's better to not miss a moment with your children the first time around.

Learning to manage your career is every bit as important as learning to manage your money. Doing so will mean you will get to do what you love. And in the long run that should pay big dividends.

 

from http://www.emarotta.com/article.php?ID=240

Foreign Freedom Investing 2007 (2007-07-09)

by David John Marotta

Adding international investments to your portfolio is a good way to diversify for safety while boosting returns. On average, international stocks appreciate more than US stocks. What's more, companies located in countries with the most economic freedom typically appreciate more than the broader international average. Over the past year, countries with the most economic freedom appreciated 7% more than the international index.

The MSCI EAFE Index of international developed markets gained 27.0% (in US dollars) during the one-year period ending June 30, 2007 and has averaged 22.2% annually for the past three years. Compare that to the stock indexes of the twelve most economically free countries which gained 34.0% during the past year and returned 25.4% annually for the past three years.

For small accounts, investing in a good international mutual fund is usually sufficient foreign diversification for your investments. However, greater diversification and returns can be gained by putting some money into the "emerging markets" category. Emerging markets, as measured by the MSCI Emerging Markets Index, appreciated 36.6% (in US dollars) over the past year and has averaged 26.5% over the past three years. Although emerging markets have a higher appreciation rate, they are also inherently more volatile than the markets of more developed nations.

To balance investment performance and volatility, a simple foreign asset allocation might invest two-thirds in the MSCI EAFE Index and one-third in the MSCI Emerging Markets Index. Using this technique, you would have gained 30.2% for the past year and averaged 23.7% over the past three years.

For larger accounts, a more complex asset allocation can be used for further diversification. This asset allocation strategy takes advantage of the fact that economic growth is often better in those countries with the greatest economic freedom. We use the Heritage Foundation's measurement of economic freedom to emphasize those countries that combine the greatest economic freedom with large investable markets.

Since its inception in 1994, the <a href="http://www.heritage.org/research/features/index/" target=_blank>Heritage Foundation Index of Economic Freedom</a> has used a systematic, empirical measurement of economic freedom in countries throughout the world. The conclusions from this study clearly demonstrate that countries with economic freedom also have higher rates of long-term economic growth. This makes the study useful for investors to use to decide which countries should be emphasized in their country-specific foreign stock allocation.

According to the Heritage Foundation's study, "Economic freedom is defined as the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself. In other words, people are free to work, produce, consume, and invest in the ways they feel are most productive."

A country's economic freedom score is based on fifty measurements that fall under the following categories: trade policy, fiscal burden of government, government intervention in the economy, monetary policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation, and informal market activity.

A number of the countries ranked high in economic freedom have exchange-traded funds (ETF's) which track the market indexes of these countries and provide an easy, convenient, and inexpensive way to invest in each country. Exchange-traded funds combine the liquidity of individual stocks with the diversification of an index fund. The ETF's also typically have lower expense ratios than most mutual funds.

For larger accounts, we recommend investing half of the assets using the simple technique described above. As such, one-third is invested in the MSCI EAFE Index fund and one-sixth in the MSCI Emerging Markets Index fund. The other half is divided among the twelve countries with the most freedom that also have markets large enough to have a country-specific ETF.

All of the top twelve most economically free countries, except Japan, beat the United States's 20.6% return over the past year as measured by the S&P 500. In descending order, the past year's investment returns for the top twelve countries are as follows: Singapore 60.7%, Germany 48.8%, Sweden 44.3%, Australia 43.6%, the Netherlands 38.4%, Austria 36.4%, Belgium 33.2%, Hong Kong 29.5%, Canada 28.3%, the United Kingdom 27.4%, Switzerland 22.5%, and Japan 7.23%.

Over the past year, ten of these countries beat the broad MSCI EAFE Index and only two Switzerland and Japan) fell short. Of the twelve countries, Japan and Belgium were only ranked high enough by the Heritage Foundation's Freedom index this past year to warrant being added as country-specific investments. While Belgium's index had nice returns, Japan has not yet contributed as much.

Averaged together, the top twelve free countries gained 34% this past year. This is a full 7% above the MSCI EAFE Index which gained 27%. Excluding Japan, the other economically free countries beat the MSCI EAFE by a full 11%. Over the past five years, investing in countries with the most economic freedom is a strategy that has beaten the MSCI EAFE Index by an average of four or five percentage points annually.

Diversifying your foreign investments is just one important component of an optimal asset allocation. Building balanced portfolios that are more likely to meet your financial goals doesn't happen by accident or by working with someone whose interests are in conflict with yours. Visit NAPFA at <a href="http://www.napfa.org" target=_blank>www.napfa.org</a> to find a Fee-Only advisor in your area or call NAPFA at 1-800-366-2732.

 

 

from http://www.emarotta.com/article.php?ID=239

You too can become a billionaire 2007 (2007-07-02)

by David and George Marotta

There are 946 billionaires in the world according to a recent survey. Half are in one country, the United States of America! The others are scattered throughout 53 other countries. Because of the surging world economy, 195 newcomers were added to the list last year and only 32 dropped out. Learning how billionaires amass their wealth may expand your financial horizons and possibly stimulate some ideas that could lead to your name being added in the future.

Topping the list for the past thirteen years is Microsoft founder, Bill Gates, the richest person in the world with $56 billion. Investor Warren Buffet remains in second place with $52 billion. They are followed by three foreigners: Mexican telecom executive Carlos Slim Helu; Swedish Ingvar Kamprad, the founder of the Ikea stores; and Indian steel magnate Lakshmi Mittal

Germany is the next country with 55 billionaires, but probably not for long. Russia with 53 is moving up fast having been freed from the shackles of communism and benefiting from rising world oil prices. In fourth place is the "emerging-market" country of India with 36 billionaires overtaking the "mature" economies of Japan and the U.K.

How does one become a billionaire? If you are lucky, you are born into the right family. The fifteenth richest person in the world Karl Albrecht ($20 billion) inherited his mother's corner grocery store and grew it into the giant supermarket chain Aldi. In the U.S., he owns the fast-growing Trader Joes gourmet food shops.

Do what you're good at, work smart, invest wisely and you too may be pleasantly surprised.

If you are a "geek" in college, start a business in your dormitory. That's what two billionaires did: Larry Page and Sergey Brin. They were graduate students at Stanford University when they conceived the idea that has become the most popular computer internet search engine -- Google. When the company went public in 2005, they were each worth $7 billion. Now each is worth double that: $16 billion. Earlier, Michael Dell started his business while a student at the University of Texas.

Devise a method to sell good products at the lowest cost. That's what Sam Walton did by starting Wal-Mart. His five heirs are each worth about $17 billion. If Papa Sam were still alive, he would easily be the richest man in the world with $85 billion. Sam was a smart man who had six basic rules for his business: think small, communicate, keep your ear to the ground, push responsibility and authority down, force ideas to bubble up and fight bureaucracy.

Is it possible to get rich while you are on welfare? Well, one single mother in England did just that. Billionaire Joanne Kathleen Rowling started writing stories about "Harry Potter" while on "the dole" during the time her child was sleeping.

Is it possible to get rich collecting waste paper? Yan Cheung, China's richest woman with $2.4 billion did just that. The waste paper she collects in the US goes to China to be made into cardboard that then brings back to us the goods we buy from China.

How does one get rich? We analyzed the top fifty billionaires in the United States and found that most of them gained that stature by starting their own business. The next best (and easiest) way to become a billionaire is to have billionaire parents – inherit wealth. The third best way is to entertain people – be in the media business. Fourth, be a good investor (common stocks earn an average of 11 percent annually and at that rate you can double your money every six and a half years). Buying and owning real estate is the fifth best way as it earns an average of eight percent annually, and at that rate you can double your wealth every nine years.

Is a billion dollars a lot of money? Think of it this way. Just to COUNT to a billion would take over 32 years. The wealthiest people today are not like the "robber barons" of a century ago. Most are honest, good citizens, who worked hard to create their wealth, but also did well for society in general. Eventually, most of the wealth is gifted to charity.

Bill Gates, the wealthiest person, and his wife Melinda, set up the world's largest private charitable trust worth $33 billion that is dispensing funds for medical research, education, etc. Last year, Warren Buffet announced that he would give $31 billion of his Berkshire-Hathaway stock to charity; most of it to the Gates Foundation. Guided by the belief that every life has equal value, the Foundation seeks to reduce inequities and improve lives around the world.

If you want to be rich, be prepared to pay more taxes. The wealthiest people in the US, the top one percent of earners, pay 36% of all federal income taxes. The top 5% pay 57% of all federal income taxes. If the government wants to continue doing "good," a lot of tax revenues needs to come from the wealthiest families. When the wealthy do well, the government is able to afford to "do good" for society.

With the victory of capitalism over communism, the "democratization of wealth" is becoming more commonplace in Russia, Eastern Europe and China. Deng Zhao Ping, the architect of China's transformation, was smart. He told his fellow politburo members that in order to advance. China had to let some people get rich.

But, just where does one start? First, you need to accumulate some capital. If you work for someone else, save enough to quit your job and start your own business. It is a long shot to becoming a billionaire, but it's worth the try. On your way to becoming a billionaire, the million markers become commonplace.

Over seven million households now have a net worth of over $1 million. That is five times the number that existed in 1989. The odds of someone becoming a millionaire through personal efforts are good -- about one in five. Do what you're good at, work smart, invest wisely and you too may be pleasantly surprised.



from http://www.emarotta.com/article.php?ID=238

Bankruptcy Is Sometimes the Best Option (2007-06-25)

by David John Marotta

Most people want to honor their debt. But many families have allowed their debt to spiral out of control, and they feel helpless, ashamed, and at a loss to know what to do. While bankruptcy isn't anyone's first choice, sometimes it is an important choice to consider.

As strange as it may sound, bankruptcy is one of the benefits of capitalism. In traditional cultures debt was passed from father to son. Without the ability of individuals to escape the slavery of debt, they could become slaves permanently. While bankruptcy is unpleasant, it does beat falling on your sword.

For those who are facing desperate financial circumstances, it is better to get professional advice regarding bankruptcy than to feel trapped into taking desperate measures, either illegal or violent. Bankruptcy, although certainly not pleasant, can provide a way out.

Bankruptcy laws make it possible for people to be forgiven and make a fresh start. I'm not trying to make bankruptcy attractive, just more attractive than the horrible alternatives. Those who have been through bankruptcy will not be trusted with credit for a decade, but this can benefit them as much as it protects those who might be extending them credit.

When consumer debt is insurmountable, here are some rules of thumb for bankruptcy to be the right option:<ul><li>Paying off the debt would cause a long-term hardship to the family.<li>You have been unemployed or you are currently unemployed.<li>You are retired, and living on a fixed income or a permanently reduced salary.<li>You have become disabled, and the prospects of a quick recovery of your ability to work are in doubt.<li>You have insurmountable medical debts.</ul>Bankruptcy isn't a decision you should make on your own. Unless you are intricately familiar with the credit laws you won't be able to decide if you can seek hardship programs to have your payments reduced to a manageable interest rate, or file bankruptcy.

If you are feeling major financial pressures, a non profit firm that specializes in debt management may be able to help. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires you to get credit counseling from a government approved organization before filing for bankruptcy and you must complete a debtor education course.

A credit counseling organization may be able to save you from the headache of bankruptcy if you seek their help early enough. But be cautious. Most provide valuable advice. Some are scam artists engaging in questionable activities that circumvent consumer protection laws. The Federal Trade Commission has a set of guidelines at <a href="http://www.ftc.gov/opa/2003/10/ftcirs.shtm" target=_blank>http://www.ftc.gov/opa/2003/10/ftcirs.shtm</a> to help you pick a reputable credit counseling organization.

A debt management organization can negotiate and reduce your payments and interest rates. Usually your creditors will request 2%-3% of the balance as a monthly payment. A debt management organization can negotiate the terms of your repayment. Since they can negotiate the reduction of future fees, delaying seeking help increases the chance of bankruptcy. Failure to see help is part of the cause of spirally out of control debt.

A debt management organization can help you determine if you should seek hardship programs or client advocacy departments from your creditors. Many times they will have programs for those who qualify that will enable you to reduce your payments to a manageable interest rate such as 6%. And all of your creditor's payments will be combined into one payment to the debt management agency that then pays your creditors.

A debt management organization can also determine if bankruptcy is the best way out of your spiraling debt. If you want a quick way to determine if you are heading for bankruptcy try this computation. Take your total debt and multiple it by 2%. That is the amount you will need to pay each month. Assuming you can get your debt lowered to a 6% rate of return, it will take 5 years to pay your debt off. You will need to live on a cash only basis during this time, and your finances will need to be carefully monitored.

Bankruptcy is designed as a last resort to getting out of debt. But it protects against involuntary servitude for the remainder of your life. If bankruptcy is inevitable, seek legal advice. Ask your friends and family of an attorney they would recommend, and then ask that attorney for a referral to a bankruptcy attorney.

There are two ways to file bankruptcy. Chapter 7 bankruptcy is for the liquidation of unsecured debt. This type of bankruptcy is used for large unsecured credit card debt. The second type of bankruptcy, Chapter 13, is used when payments on a mortgage or vehicle payment are past due. In this case a court order will determine what payments you will need to continue making in order to keep your house or car.

If there is a chance that you are getting into debt trouble, get help sooner than later. You may be heading toward bankruptcy and the point of no return if you cannot pay off your credit card each month, or if you avoid medical or dental visits because you can't afford them.

Financial problems follow and find those who fail to save. We recommend saving 35% of your income: 10% for charity, 10% for retirement, 15% for short term expenses and emergencies. The 65% balance should be your standard of living.

The best way to avoid debt problems is to live well below your means and save and invest the difference. Compounded appreciation is financial heaven. Compounded debt is financial hell. And while bankruptcy isn't financial salvation, it can at least release you from eternal servitude.



from http://www.emarotta.com/article.php?ID=236