Since a little more than seven months ago, I made some adjustments to the path in which my career was taking me and took up a job instead of pursuing PhD. One of the main reasons for going that route was that I was so narrowly focused for so long that I forgot why I was doing PhD in the first place (of course, there is more to that story that just that, but I won’t go into that with this post).

Anyways, our household income increased by about four times after I took up the job. Initially, things were taking a deflating turn for the first couple of months - I guess this was in part because I was a relatively “newly employed” and was undergoing training without any major responsibilities (plus,  I apparently hadn’t discovered new ways of spending the increased income). However, our spending took a turn for the worse right after I published this post in early February.

Additionally, I have now started paying a lot less attention to our financial details (”details” is the key word here). There are only two fundamental concepts that I have been keeping in front of me: 1. to not spend more than what we earn (look at #7 in the linked post), and 2. to not time the market. Everything else is just falling in its place automatically.

The rest of our life is now governed primarily by convenience. Here are just a few changes in our spending habits and financial attitudes that occurred over the last few months.

1. Paradigm shift in the way I manage credit cards: I no longer have the time or the patience to follow those balance transfer offers and research/keep track of how our income would be increased by juggling such offers. I don’t care about optimizing the rewards anymore, and just use credit cards for the simple reason that I get an itemized list of where we spend our money at the end of the month.

As such, I am not using all my credit cards anymore. The fact that I have so many of them seems a bit ridiculous to me at present (this is an interesting development). Plus, I have discovered other practical problems in having too many credit cards (more on this later), so I am down to using just two credit cards at present.

2. Preferences for schedules rather than prices. We have flown thrice since February and every time, we went for flights that were more “convenient” instead of flights that were cheaper. On one of those three occasions, we had the option to drive (which would have been a whole lot cheaper), but again, the time spent in driving didn’t seem worth money saved. Interestingly, in the past, we have driven to that very location twice and at that time, the money saved seemed a lot more worth than amount the time spent in driving.

3. Buying what we “like” rather than buying what is “cheap”. Affordability is still in our minds but we don’t kill ourselves trying to save a few cents (or even a few dollars at times). For example, earlier, for cereals, it was usually “Great Value” from Walmart - now, it’s Kellogg’s or whatever brand that seems better - from a store that is closest to home.

4. Outsourcing clothes for ironing. Ironing is one activity I hate - it may be because I never ironed my clothes (over several years) when I was a student. It either took 10 minutes of my time every morning, or about an hour every weekend. Now that’s replaced by 5 minutes of detour every other week and $25.

5. Eating out more. This is again a product of optimizing convenience rather than costs. If we are too tired or not in a mood to cook, we just eat out without worrying too much about it. And, when we eat out, the choice of restaurant is usually dictated by time (and sometimes by what we feel like eating) rather than by how cheap or expensive it is.

6. Using toll roads instead of regular roads. I tried using regular roads (read as traffic-light-infested-roads) for the first couple of months. However, as the stress at work started growing, I started using toll roads more frequently. The toll costs me a lot more than I would like, but using toll roads has reduced a lot of stress in my life. I am now happy when I reach my workplace in the morning, and I am happy when I reach home in the evening, and I don’t have to bitch about how horrible my luck is to catch all the red lights on the way.

Also, the drive that used to take me 30 minutes via regular road now takes about 10 minutes via toll road. That much time saved everyday is just priceless.

7. If the market bothers me, I just don’t look at it. Out of sight, out of mind is what probably works with me in this case. I have some set investing goals this year (in terms of how much I should invest and where) and I just stick with that without really worrying too much about what the market is doing at any given time.

Come to think of it, the increased income is working towards making our lives a bit easier. Call it lifestyle inflation or improvement in the quality of life, or call it just sheer laziness (I am sure there will be different perspectives), or whatever. All we care about is that there is a lot less stress in our lives by spending a little more  money.

As long as we avoid these problems with lifestyle inflation, I think we are okay.

I read somewhere over the weekend a letter to the editor of some newspaper (I can’t for the life of me remember where I read the comment) by a guy who was lamenting the fact that investors get screwed no matter who is president. His letter mentioned that some stocks do well when a Republican is in office and other stocks do well when a Democrat is in office—he just didn’t know which ones.

I have a suggestion:

Buy the index and don’t worry about it.

Yes, we can make more money IF we know which stocks are going to outperform the market. The problem is either WE DON’T KNOW or it’s hard to know. Therefore, buying the index is the prudent way to go because you don’t have to worry about picking stocks (unless that’s something you love doing).

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German Volkswagen Group expects to sell more than 800,000 vehicles in China this year, encouraged by its strong sales in the first half.

The projection, made by Volkswagen's China chief Winfried Vahland, is up from 711,298 units it moved in the world's fastest-growing major auto market in 2006. Its January-to-June sales on the mainland and Hong Kong rose 24.6 percent year-on-year to record 431,369 units, including 379,705 Volkswagen-brand cars, 49,267 Audi vehicles and Skoda 2,274 units.

The German company's record sales figure is likely to help it remain the top seller in China's passenger car segment though its rivals, such as the General Motors Corp. and the Toyota Motor Corp., have yet to disclose their first-half results in the territory. "This (record sales) indicates that our 'Olympic Program' has been yielding good results in China," Vahland said in a recent interview in Beijing.

Volkswagen, the sole automotive partner of the Beijing 2008 Olympics, flagged off the program in 2005 to launch 12 to 14 new models by 2009 in China. The automaker also intends to cut costs by 40 percent by 2008 and to improve sales and service networks.

Vahland predicted that China's entire passenger car market would reach five million units this year, up from the company's previous forecast of 4.6 million units. In 2006, 4.2 million passenger cars were sold in the country. "However, we will not slacken our efforts to cut costs and improve customer satisfaction, although we performed well in the first half," he said. He warned that interest rate rises and soaring oil prices in China are likely to have a negative impact on the car market.

The VW turn signal alerts the automaker to a greener pasture. The German automaker now runs a joint venture with First Automotive Works Corp in the northeastern city of Changchun. The venture is responsible for the production of Bora, Caddy, Jetta, Golf and Sagitar, as well as the Audi A6 and A4. Additionally, the venture will launch a 1.8-liter turbo Magotan sedan next week.

The Mangotan also features Fuel Stratified Injection in nearly every petrol version. It ranges from 1.6 to 3.2 L, but the multivalve 2.0 L TDI is the most sought out version in Europe. In the United States, it features a 200 horsepower 2.0 L turbocharged I4 as the base engine, or a 280 horsepower 3.6 L VR6 engine as the upgrade and six-speed manual and automatic transmissions.

An Tiecheng, the venture's general manager, said that it plans to roll out at least two new models under the Volkswagen and Audi marques annually in the next five years to lure increasingly sophisticated auto purchasers.

The VW Mangotan, also called the Passat, follows the latest design philosophy first introduced on the VW Phaeton luxury car. The new styling is a dramatic departure from the styling of the B5.5 Passat. Although the new design using improved VW parts is somewhat controversial, sales have improved over the old model.

For the full year, VW, which operates car manufacturing ventures with leading Chinese auto maker SAIC Motor Corp. and FAW Group, aims to increase its sales by roughly one-fifth and maintain its 17 percent share of the world's second-largest auto market, a senior company executive said.

The venture will have a "minimum" profit growth of 25 percent this year from 2006, said Joachim Wedler, its vice-president in charge of finance. But Wedler did not reveal how much the firm, in which FAW holds a 60 percent stake and Volkswagen 40 percent, will earn this year.

The Wolfsburg-based company is one of the world's biggest producers of passenger cars and Europe's largest automaker.

About the Author

Anthony Fontanelle is a 35-year-old automotive.buff who grew up in the Windy City. He does freelance work for an automotive magazine when he is not busy customizing cars in his shop.

Finance Findings is Binary Dollar’s periodic link dump.

• Zecco IS Cheap [Sun’s Financial Diary]
• Traditional Jobs For Men And Women And The Gender Divide [Digerati Life]
• Practicing Basic Tax Diversification [Tao]
• How to Talk Your Way into Debt [Money Smart Life]
• Lazyman’s Prosper Update [Lazy Man and Money]
• Don?t Be Fooled Into Thinking an Oil Change Every 3,000 Miles Is Necessary [Generation X Finance]
• Are Inflated Shipping Charges On eBay Bad? [Mighty Bargain Hunter]
• Why You Need a Budget [Free Money Finance]
• Are You a 0% Credit Card Daredevil? [Five Cent Nickel]
• GEICO Paid Out A Fraudulent Claim [Blueprint]

Send your submissions for Finance Findings to henry@binarydollar.com.

Sponsor: Parlayer - Henry and Matt blog about sports and stuff.

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Okay I admit it? I used to be an active ?chatter? in a local chat room on Yahoo. It was a room where many people from the Dallas area met up to?Chat. Many of us had met outside of the cyber room at local restaurants, clubs and the like.

Yahoo had recently shut down a lot of the member created chat rooms in the wake of all the negativity and sponsor lawsuits. Lets face it?The public opinion of chat rooms was not good. I was a virtual unknown person to most chatters because I stayed away from the ?in person? socials but, that all changed one morning. Here is what happened:

A room regular was talking on ?voice? and venting about his house early one morning and I was listening a few steps away making my breakfast. This is what ?Monte? said, ?I got this letter from some attorney who says he is going to sell my house! How does he think he can do that? He doesn?t own MY house so, how can he sell MY house?? My head spun around so fast that I almost gave myself whiplash. I ran to the computer and grabbed the microphone to speak in the room and here is what was said?

Jim: Monte, what is the name of the law firm that sent you that letter?
Monte: Uhmmm, it says ummm.. Barnett, Burke & Associates.
Jim: Would that be BARRETT Burke?
Monte: Yeah, that?s it.
Jim: Monte, email me your number. I need to talk to you NOW.
(That law firm processes nearly 40% of all foreclosures in the state of Texas)

Within a few minutes I was on the phone with him and I told him that I was a local foreclosure expert and taught classes at Foreclosure Listing Service in Addison. I told him I needed to meet with him and his wife right away because, the letter he got was his notice that his house was in foreclosure and he had less than three weeks left before it would go to the auction. He was shocked and claimed he had no idea (I didn?t know how he could be shocked after missing nine payments). Two hours later I was at his house and explained all about the foreclosure process to him and his wife and what options he may have to save his house.

I remember how bad I felt while explaining the situation because his wife just sat there, staring at me with her eyes wide open, not able to say a word. She had no idea the mortgage was past due at all. She had not seen any letters from the lender or taken any call from them. Monte never told her early on and the situation only got worse as the missed payments added up.

After going over all of the possible solutions, I decided that bankruptcy was likely the best option for them and they agreed. I made a call to Hariett Langston, a friend of mine who is a bankruptcy lawyer in Dallas. Monte and his wife were overwhelmed with the situation and asked if I would go with them when they met with the attorney and I told them I would.

We met with Hariett that same week and everything appeared to be set to stop the foreclosure. All Monte needed to do was pay the bankruptcy filing fee.

A week before the foreclosure sale I went to their house and was a bit surprised to learn that he had not paid the filing fee. I asked him when he was going to file and he just shook his head and said he didn?t know. I remember pausing for a few seconds and it dawned on me why he had not filed. I said, ?Monte? You don?t have the money to file, do you?? In a very humble manner, he looked down at the floor and shook his head. ($500 was the amount he needed to get the bankruptcy filed)

As I drove home I thought to myself that it would be simple if I just wrote a check for the $500 but, I thought that he really needed to pay something so important himself. I got an idea about that time and sent an email to one of the chat room regulars who organized the chat room socials. I recall stating in that email that online chat rooms have such a negative public image and went on to tell her about Monte, his situation and I asked her if she could set up a fund raising get together. It would be our way of proving that normal, everyday people go to chat rooms and this was a chance to show at least one chat room could do something good. I told her that he only needed $500 and all it would take is $5 here, $10 there and a $20 from a few? $500 could be raised.

She arranged to have a Dallas chat fundraiser social for that coming Saturday night. I called Monte and told him about the fundraiser. He asked me to not do it (his pride was the obstacle) but, I told him that we were going to do it anyway and it would be nice if he attended. He later told me he was so choked up that he couldn?t say anything but, he did finally say he would attend.

I expected a handful of people to show up for the fundraiser but, I was wrong. Much to my surprise? At least 50 to 60 regulars from that chat room showed up and contributed. At the end of the night, ordinary people from a Yahoo chat room donated more than $700 to help save someone from losing their house.

The next day I gave the proceeds to Monte & his wife and they quickly paid the attorney the fee to file their bankruptcy and their house?No?Their ?home? was saved.

The story got another interesting twist a few days later. I got a call from a reporter who wrote for a well known local media outlet. They had heard about the fundraiser and thought it was a great community effort story that should be told and asked if I wanted them to write about it.

It took only a few seconds for me to process my answer but, I remember thinking that such publicity would be great for business and my classes would see a boost in attendance. Then I thought about the possibility of other homeowners that would read the story and what would my answer be to them if they contacted me and asked me to do a fundraiser for them as well?

I told the reporter that as wild as the story was, I never expected things to unfold as they did. I told them that I had to pass on their offer because, I had done it to help someone and wouldn?t feel right about profiting off of someone else?s stressful and humbling foreclosure experience. They understood and that was the end of it.

I have to admit . . . Of all the positive experiences I have had in real estate, helping Monte might rank as number one. What stands out in my mind was the fact that so many people pitched in to help save a family from losing their home and they did it for someone most had never met or only knew of by screen name?That?s what made it so great.

This happened in 2005 and two days ago I got a phone call from Monte. He just wanted to give me an update and I was happy to hear they still have their home.

During the call I told him about the reporter. He was surprised I hadn?t told him and more surprised that I turned them down. At the end of the call, Monte told me that three years was long enough and he encouraged me to tell the story of how a bunch of chatters from a Yahoo chat room, came together and did something good.

Thanks Monte.

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

Online Chat Room Helps Save Foreclosure Homeowner

As I mentioned on Monday, May brought the highest numbers of visitors this site has seen so far.  I decided to take a look at what people were most interested in over the course of the month.

Tracking your stimulus check was the most popular article, there must be a lot of people waiting to get their rebate money.

Gas prices are obviously on everyone’s mind, the topics of riding the bus to save gas money, different ways to save gas money commuting to work, and the best gas credit cards were popular with readers as well.

The series on personal finance issues for college graduates has garnered alot of interest from former college students entering the working world for the first time this summer.

People are getting ready for their summer trips and have found the saving money on vacation series useful in making their preparations.  This one is only partially complete with several more articles on the topic coming up soon.

With high gas prices, people must be looking for more in home entertainment. Saving money on online movie rentals with a free trial of Blockbuster Total Access was another popular one for the month.

Here are some of the more popular articles from The Money Writers during the month of May:

• Investing in the Stock Market Over the Past 10 Years: How Did Dollar-Cost Averaging Fare?
• how to make money without a job and why you should
• Frugal Tips I Can’t (or Won’t) Do
• Save Money on Gas Tips from Consumer Reports
• The Future of Personal Finance Tools
• Is Investing In Rental Property A Good Move?
• Why your Retirement Account is NOT an Emergency Fund

We may think that we need a lot of things.  We may think we need cable TV, our morning coffee and bagel, a couple of pints at the pub each Friday, or a really big house with a mortgage that the lender had to “make work for our income.”

These aren’t really needs when we get down to it, of course.  They’re wants.

The stuff we really need — after breathing — are (a) food (and clean water) in our stomachs, (b) clothes on our backs, and (c) cover over our heads.  To this you might add basic medical care, education, and a few other very important things.

Most people (especially if you’re reading this now, and especially me) can stand to cut out a lot of non-essential items if it’s needed.  This is extreme downsizing and simplification.  It isn’t fun, but it can be done.  Moreover, what’s spent on the essentials can be trimmed way down to boot as well, by doing the little money-saving things again.  Even the essentials can be simplified and scaled back!

Here are a few ways to get by on spending less for food:

• Consider generic brands over name brands.  Generic or store brands are usually (but not always) cheaper than the name brand, and for some products they’re comparable or even better than the name brands.  I prefer store brand diet soda in some cases because I like the taste of one sweetener over another.
• Use coupons for items you buy anyway.  You can get them a number of places, like your weekend newspaper, from magazines, online at the websites for the products, or online at places like CoolSavings or MyPoints.
• Substitute less expensive foods.  How about oatmeal instead of cereal?  How about eggs instead of meat?  How about rice and beans?
• Buy food that requires more preparation or reconstitution.  As in dried beans over canned beans, dehydrated milk over milk in a carton, raw oatmeal over instant oatmeal, or big bags of rice over instant rice.  The other advantage of reconstituting food is that it may keep longer than the “fresh” food.
• Buy food with less packaging.  Packaging means extra cost, and the food tastes the same if it can be resealed and consumed in time.  Binder clips work fine to keep “family-size” snack bags shut.  Reusable storage containers are great for all kinds of food storage.
• Buy in bulk if the price is right and if you know you’ll use what you buy.  We buy rice 50 pounds at a time, and use it.  I buy the big Costco-size box of oatmeal, and eat it.  It usually saves money to buy in quantity.
• Spend more at the grocery store and less at the restaurant.  The cost savings is clear here.  Eat in with friends as opposed to eating out with friends.
• Learn a few easy, cheap recipes.  I know how to cook rice well enough so that I can prepare a cheap, filling lunch (and dinner sometimes) merely by putting a few ounces of beans over the top with some Worcestershire sauce.  Heck, adding rice to a can of soup works, too.
• Be diligent about consuming leftovers.  Odds are you’ll only be eating the same stuff a few days in a row at most.  (Except at Thanksgiving: It’s turkey leftovers for at least a week!)

Cut your clothing bills, too:

• Make your clothes last.  Making things last can be a money-saver.  My wife is an excellent sewer and has given some of my clothes an extra life.  Simple Debt Free Living has a decent introduction and link collection for clothing repair.  But even before that, be kind to your clothes in the washer and don’t overdry them. 
• Check out yard sales.  We’ve found great deals on baby clothes at yard sales, as in maybe a dime apiece for a bagful.  My wife and I have found clothes for us, too.
• Check out thrift shops.  Sometimes the donated clothing has hardly been worn.  The bigger ones usually have a good selection of sizes.  Sometimes they run sales to make room for things.
• Check out consignment shops.  These are perceived as a little higher-brow than thrift stores but the premise is the same:  buy used and save.
• Check out the clearance racks in department stores.  Some department stores perpetually mark things up just to mark them down, but there are still good deals to be had at places like Macy’s or Kohl’s.  Since my wife has a Macy’s store charge card she gets special coupons that get her some really good deals.  Wal-Mart’s hard to beat, too.
• Check out eBay.  There’s always eBay!  They’ve been getting much more buyer-friendly these days.  Buyers cannot receive negative feedback anymore, and eBay is also waging war against inflated shipping charges (which is in their interest, but that’s another story).

Cutting costs on shelter can be a touchy subject but please remember, it boils down to a roof over your head:

• If you’re renting, think very carefully before buying a house.  Owning a house is a worthwhile goal but it can be very expensive.  During the real estate bubble times of the past few years it was more expensive to own a house than it was to rent.  Or, if it was affordable to own a house, in some areas, it would become too expensive later (adjustable rate mortgages).  The start-up costs can be a bit of a shock.  Plus, you’re a lot less mobile in a home than in a rented apartment.
• Reduce operating costs of your living space.  Keep the temperature warmer in the summer and cooler in the winter.  Use compact fluorescent lightbulbs where you can.  Seal cracks where heat (or cool air) can escape.  Don’t use the clothes dryer for one pair of socks.  And so forth.
• Reduce financing costs of your living space.  Pay the mortgage (or rent) on time.  Consider paying the mortgage down a little faster.  Consider refinancing an adjustable-rate mortgage to a fixed-rate mortgage to remove interest rate risk and take advantage of a depreciating currency.  Work to get rid of private mortgage insurance as soon as possible.
• Test the waters for signs of trouble.  Is the checkbook balance going down month by month?  Why?  Is it due to increasing costs associated with your living space?  Is is possible to move into a cheaper living space if the costs of your current living space are getting out of control?  (A good friend realized this.  His family had built a larger house and had been renting their original, smaller house.  The costs of the larger house were too much, so they are working to sell off that one and move back in to their original house.  Hey, it happens, but they recognized what the problem was and are fixing it.)
• Can someone share your living space?  Can you take on a boarder or a roommate?  An unmarried woman at work has a house and has taken on a roommate to subsidize her housing cost.  Alan Corey did this to great benefit; he took the smallest room in the house so that he could rent out the larger ones for more money.
• No affordable options in your area?  Since moving is costly, it’s usually easier to cut other expenses before contemplating a move, especially one out of town to a less expensive area.  But if nothing else seems to work, this is an option.  It may mean leaving friends and family, and finding another job, but the housing cost issue can go away if the price difference is large enough.
• What if the worst happens and you lose your living space?  There are some options.  They’re not great options, obviously, but better than nothing.  Living after foreclosure or eviction might mean moving in with someone who will take you (and your family if they’re involved).  It can mean finding a church or other group that will take you as a “shut-in.”  It could mean taking whatever job you can and renting by the week (Barbara Ehrenreich, author of Nickel and Dimed found this to be a tough life ).  Even more simply, it could mean pitching a tent or sleeping in your car.  This kind of living isn’t something I’d wish on anyone, but unfortunately more people will be thrust into this kind of situation.  And in any case, it doesn’t have to be forever.

Last year while big lenders like Countrywide collapsed and Wall Street took a beating on mortgage-backed securities, smaller banks weathered the storm pretty well. These guys seemed pretty stodgy while the market was racing along, home values were zooming, and investors were chomping at the bit to jump into the latest negative-amortization mortgage structure. But slow and steady wins the race, as it turns out. Smaller banks wouldn't touch this stuff with a ten foot pole. They looked like luddites a couple of years ago, but they're looking pretty smart right now.

When I started this website I funded it with the backing of Partners Bank of Texas, a small Houston based private bank with assets of less than $200 million. Last year Partners was acquired by Texas based Sterling Bank. Sterling is somewhat larger than Partners - with assets of around $4 billion - but they're very small when compared to, say, Wells Fargo, which has assets of around $600 billion.

In the past I've relied on companies like USAA ($68 billion in assets) and Wells Fargo, but Sterling is my go-to bank now. USAA is the financial institution dedicated to serving current and former members of the military community, and I've been a member for over twenty years, starting when I was a cadet at the United States Military Academy. I still appreciate their great customer service (although some of their lending practices have annoyed me). But even though I have a military connection with USAA, at the end of the day I'm just a number. No one knows me there. They put my data into a computer and it spits out an answer.

But when I talk to Sterling, I'm sitting across the table from the guy who is gonna make the decision. And I like that. When I trying to get this website funded I spent almost a year jumping through hoops for the guys over at Bank of America ($1.7 trillion in assets) and the venture capitalists wanted me to sign away my first born. But at Partners (now Sterling) I got to sit across from someone and pitch my idea; and the woman who I talked to was the same person empowered to make the decision.

I'll still shop the big boys for the plain vanilla deals I'm considering. But when I'm looking at some more challenging opportunities in this crazy market - raw land and multi-family - my first stop is Sterling. Real estate investing is all about relationships, and smart investors know that their reputation can be one of their most valuable assets.

What now? I’ve put off writing this article for a while. Like many of you out there I’ve watched the Dow retreat in huge, wealth-destroying, multi-hundred-point chunks. Every time it looks like the end is in sight it takes another single-day 5% lurch in the wrong direction. Not a pretty sight.

A couple of weeks ago I attended the annual meeting of the National Association of Business Economists in Washington D.C.. The event featured some interesting speakers, including recent Nobel laureate Paul Krugman and Fed Chairman Ben Bernenke. After a day of hearing smart guys w/ lots of letters after their name wax poetic about credit default swaps, mortgage backed assets, and government bailouts I came away with a single conclusion: no one knows how this thing is going to turn out. There was some suggestion in using the word “bailout” the Treasury did a poor job in selling the $700billion plan to the American public – perhaps “rescue” would have been more appropriate. Krugman added some levity by suggesting some media-friendly nicknames: how about “Bailie May?” Or perhaps “Hanky Panky” after Treasury Secretary Henry Paulson.

So I came away from the three day event with a more profound understanding of my failure to understand this whole mess; but I don’t feel particularly bad about it because no one else really understands it either. Bernenke’s reassuring message: we don’t really know how we’re going to price these distressed assets that the Treasury is gonna be buying with your $700 billion, and we don’t know who we’ll by them from or how we’re going to do it. This will be a trial and error process. But we’ll work it out.

Mmmmmkay. But Bernenke delivers the message with such an aura of academic cool that the audience seemed assured that he’ll succeed in making the best of a bad situation.

So, generally speaking, I’m not feeling to great about all of this. Basically I think we’re headed into one of two possible scenarios:

• Scenario 1: We’re already in a recession but we’ll muddle through. The market is cyclical. This is a particularly brutal cycle we’re dipping into, but fundamentally no different than those we’ve slogged through before. We’ll get some discouraging GDP numbers, the Dow with flit around 9,000 for a while, but eventually the market will give back some of that money it’s taken out of your 401k plan.
• Scenario 2: The wheels are about to come off. The banking system is not just in a superficial funk fueled by poor investor-confidence; it’s really in trouble. As banks write down toxic mortgage backed assets their balance sheets will be fundamentally damaged to the extent that credit will continue to tighten, consequentially decreasing spending, chopping profits, raising unemployment, and fueling foreclosures – which in turn worsens the state of the mortgage backed assets which started the whole mess. Repeat. Deflating prices, which initially feel kinda good (who can argue with $2.50 gas?) accentuates the woes of the business community which will be unable to justify new investments at lower revenue levels, further cutting business spending and jobs, pushing down demand, and deflating prices further. Repeat. Once you’re in this spiral it’s tough to engineer an exit.

Now I think (hope) that we’re in scenario #1. That’s the best case. I don’t think we’re headed towards the meltdown case, but it is something that I worry about. As further evidence that I believe in scenario #1 I recently made two long term trades, buying exchange traded funds (ETF) that track the S&P (RSU) and the Dow (QLD). Someday we’ll look back at 2008 and realize that the dow in the 8,000’s was a buying opportunity.

A few observations:

• You know this already, but if you’re going to need your retirement money in the next few years then you can’t have it socked away in the stock market.
• If your company 401k plan automatically loads you up with company stock, then you need to periodically go in and rebalance. I never cease to be amazed at smart, educated folks who have 40% of their wealth in a single stock. This is goofy.
• Rethink “diversification”. I have stocks divided between small-cap funds, large-cap funds, value funds, growth funds, and international funds. They’re all in the same toilet now. One lesson of the current crisis is that markets are now linked like they’ve never been linked before.

And yes, this is a real estate blog, so a few thoughts here:

• Hooray for Texas: We didn’t run up during the boom so we’re not getting whacked right now, but I’m expecting flat prices for a while. My strategy for finding and investing in long-term value projects is treating me pretty well right now. Plus, that’s a hunk of money I have in properties instead of in the stock market. This is effective diversification.
• Some markets really are feeling the pain. I was in Minneapolis last weekend, and as I walked the streets of some of these neighborhoods it seemed like every third house was a foreclosure. It’s gonna take a while for the market to absorb this carnage.
• All real estate is local – that is, unless the economy is melting down. I won’t be feeling so smug about Texas property values if we got into the doomsday economic scenario that I outlined above. If the banking system goes into the tank then we’re all gonna be in the same boat.
• A buying opportunity? I’m nervous about our economy, but I’m not quite ready to bury my life savings in coffee cans in my back yard. Investors who can still get loans should think about investing now, depending on how your local market conditions look.

I made 12 phone calls today. 2.5 hours of talk time. Here’s what I learned:

1. All mortgage companies cost the same-ish.  If their rates were lower, their closing costs were higher.  If their rates were higher, the closing costs were lower.
2. Some mortgage companies sell your loans.  3 of the mortgage companies I called today gave me an unsolicited aside:  “We buy loans.  We don’t sell them.”  Does that mean that you should always go with a direct lender?  Nope.  It just means that the mortgage company might not be able to view or change things if the mortgage is owned by someone else.
3. You don’t need to give out all your information (address, social security) to get rates and closing costs.  You can get ballpark numbers as long as you provide the purchase price, the down payment amount, and the type of mortgage.
4. If you call a company and they won’t give you any estimated numbers without giving all your information, hang up.  Call again.  A different mortgage specialist will be glad to help you without giving all your information.
5. Closing cost fees are where you can differentiate a mortgage company from another.  Ask the mortgage people to break down their closing fees.  Fees can include:
   • Property appraisal
   • Credit report
   • Lender’s inpsection
   • Mortgage insurance application
   • Assumption
   • Mortgage broker fee
   • Tax related service fee
   • Application
   • Commitment
   • Rate lock
   • Processing
   • Underwriting
   • Wire transfer
   • Abstract or title search
   • Title examination
   • Document preparation
   • Notary
   • Attorney
   • Title insurance
   • Recording
   • City/county tax stamps
   • Transfer tax
   • Survey
   • Pest inspection
   • Condominium application
   • Prepaids for interest
   • Prepaids for hazard insurance
   • Prepaids for property taxes
   • Prepaids for mortgage insurance
   • Prepaids for flood insurance
6. The rates and payments assume you have great credit and good stability.  They want to quote you the best rate and closing costs possible so they pretty much assume you’re a model citizen.
7. Lenders don’t like it too much if you’re quitting your job and you don’t have a job secured yet.  Hopefully you have a wife or wife-to-be who looks more stable to lenders.
8. They ask you if the down payment is gift money or if you saved it on your own.  No one gave me a clear answer on why they ask that question.
9. Do your research even if your wife-to-be’s sister’s soon-to-be husband is a mortgage specialist.  You never know…
10. Every mortgage person you talk to will give you a piece of advice.  The advice that resurfaces the most is probably important.

Did I apply for a mortgage yet?  Nope.  This whole day just narrowed down my choice to 2 or 3 mortgage lenders.  Time to talk to Miss Soon-To-Be-Wife…

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How much of your money is in domestic stocks? What percentage of your portfolio is invested internationally?  If you’re like many average investors in the US the majority of your investments are in US companies.

Global Investing Seminar
I attended a seminar on global investing yesterday and it really made me think a little harder about our current exposure to international investments.  I had to keep in mind it was presented by a financial company that runs a global fund, so the point of the seminar was to reinforce the importance of international investing in the minds of current and potential investors.

However, they did cover some interesting statistics that apply no matter what investment vehicle you use to diversify overseas.  They fed us lunch so I didn’t get to write down all the statistics since I was busy feeding my face but I still remember the general concepts.

Global Growth Trends
One of the graphs was from a Morgan Stanley study that looked at the total value of US public companies compared to the total value of international companies.  The graphic showed the value in approximately 20 year time intervals: 1988, 2008, and 2030 projected. 

I wish I had the exact numbers but the overall trend showed a global economy that was dominated by American companies in 1988, maybe about 2/3 of the global corporate value was in the US,  but the estimates for 2030 approximated US companies making up only a quarter of corporate capital markets.

Of course the numbers aren’t exact but I think the trend is definitely accurate and that the US position as the world’s financial superpower is slipping.  While this may not be great news for us as consumers or workers, it does present an opportunity for us as investors.

Evaluating International Markets
The speaker worked for a global fund, his role is to fly around the world visiting and evaluating companies that the fund is considering putting money into. He walked us through his fund’s investment positions in the various global regions, explaining their reasoning behind being underweight in places like Great Britain and overweight in places like Taiwan and South Korea.  He definitely pointed to Asia as the region with highest potential for growth over the next two decades.

He gave some staggering statistics on the sheer size of the Chinese consumer and business market and the enormous potential for growth there.  He also commented on the enormous currency reserves the Chinese government has built up and all the money they need to spend on infrastructure.

However, the speaker went on to warn us that the Chinese markets are overpriced, in his opinion, due to a massive runup in the stocks of Chinese companies over the last few years.  He had the same caution for stocks in India, that the price earning (PE) valuations were higher than they wanted to pay.  His company is looking for opportunities in areas like Taiwan or South Korea where the PE ratios are much lower.

Risks of Investing Internationally
The truth is we live in a global economy and changes around the world can effect how US companies perform so even domestic investments are influenced to an extent by international markets.  However, if you decide to put your money in a foreign company your investment is suddenly influenced heavily by regional events, currency fluctuations, and the policies of the foreign government. 

If you’re investing in an emerging market where there is large amount of growth there’s also typically a lot of change both economically and politically that can potentially put your investment at risk. Although there are risks associated with global investing, in my opinion they are definitely worth the opportunity to benefit from the growth in economies around the world. 

You wouldn’t want to put all of your money into international companies, just make them a part of your investment portfolio.  Several years ago about 10% of our portfolio was in international funds when I increased it to around 15% and now I’m looking to raise the percentage even higher.  How much exposure you want to international markets is up to your situation but it’s definitely something you should at least look into.

How to Invest Internationally
So how can you put your money into companies overseas?  The easiest way is to buy an international ETF or mutual fund.  The approach I decided to take several years ago was to invest in multiple international funds.  I choose an option from my 401k, Dodge & Cox International Stock (DODFX), one from my wife’s 403b, American Century Intl Growth (TWIEX), and also opened a non-retirement account with Oakmark International (OAKIX).

Dodge & Cox International Stock has done the best for us. American Century Intl Growth has been decent but nowhere near the performance of the Dodge and Cox fund.

Oakmark International had been going gangbusters until last December when it took a big hit.  I had been debating between the Oakmark fund and the Vanguard Total International Stock Index Fund (VGTSX) back in early 2003. 

Our financial advisor recommended Vanguard but I went with Oakmark instead.  As the graph shows, I’d be wealthier if I’d have listened to her, I guess hindsight is 20/20.  The Total International Stock Index Fund is actually composed of investments in three other Vanguard international indexes:

• Vanguard European Stock Index Fund
• Vanguard Pacific Stock Index Fund
• Vanguard Emerging Markets Stock Index Fund

The fund is a simple way to gain exposure to a variety of markets all over the world.  There are many other international funds available so you have lots to choose from.

One other option I’m considering for investing overseas is opening an account with ETrade to take advantage of their online global trading.  This would be a different approach than the mutual fund route which would require more research and carry more risk.  It would allow me to invest directly in companies in Canada, France, Germany, Hong Kong, Japan and the United Kingdom.

International Investing Summary
Whatever approach you decide to take, I’d recommend at least reading up on the growth of economies outside our borders and how you can invest in them.  As I mentioned in the beginning, the long term trend is that international companies are growing to compose more and more of the investment options available to you and all the other investors in the world.  In order to diversify your portfolio and benefit from global growth consider taking a look at your international investment options.