Tuesday, January 29, 2008

Apple iPod and Starbucks Coffee catching on in Asia

Apple iPod and Starbucks Coffee catching on in Asia

It has been two years since I have been in Asia. Last year was a slow overseas travel year for me. I noticed two really important product or company differences this trip. The first one was the number of iPods people were using in Japan. Last time I visited I didn't see any of them. Now they seem to have really taken off. This of course is great for Apple's stock because Asia is just a huge market. Click here for product information on the ipod

The second thing that I noticed was a lot more Starbucks coffee shops. And just like their counter parts in the U.S. they were packed. I always like to joke that Starbucks needs watercooled cash registers because they never stop ringing the cash register. I say Starbucks in China, Tokyo, in the train stations, heck they even have one in the Nissan Tech Center lobby in Japan. Amazing!

Check out this video on Starbucks from Morningstar!

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The Smartest Guys In the Room: The Amazing Rise and Scandalous Fall of Enron

The Smartest Guys In the Room: The Amazing Rise and Scandalous Fall of Enron

I picked up the book The Smartest Guys in the Room which is about the Rise and Fall of Enron. It is a fasinating book. It is really sort of amazing to me how many crooks they had in the company and the overall level of disfunctionality inside the company. It is very easy to read and super interesting. I highly recommend it.

I didn't realize that there is also a movie made about the story. Below you will find the trailer for the movie. If you are a fan of business books you will really enjoy this book. I can recommend the movie yet until I see it.

By the way I just added a survey to my blog so I can get readers feedback on topics that I should be writing about. Please take a moment to complete the survey. I appreciate the comments and the feedback.

Tuesday, January 15, 2008

When to take Social Security Managing Your Retirement

When to Take Social Security - Managing Your Retirement

Interesting article in US News on understanding when to take Social Security along with my comments.  The first baby boomers are turning 62 this year, the magical age at which you can begin to lay claim to all those payroll taxes you shelled out paycheck after paycheck your entire working life. The nation's symbolic first baby boomer, Kathleen Casey-Kirschling, a retired Maryland teacher, who was born one second after midnight on Jan. 1, 1946, has already filed online for her Social Security retirement benefits.  It is really interesting how the baby boomers spread from 1946 all the way to 1965.  Of course most people born in the 40s or 50s or 60s really can't relate that much to the people born in a different decade.

Nearly 80 million Americans of the baby boom generation (born from 1946 through 1964) will follow her in becoming eligible for Social Security benefits over the next two decades, a phenomenon Social Security Commissioner Michael Astrue is fond of calling America's "silver tsunami."  Being that I am 42, I look forward to the retirement of the baby boomers.  I think for guys and gals like me having 80 million people leaving the work force will only make our skills and services in more demand.  Hopefully!

Almost a third of the 2.9 million boomers born in 1946 plan to apply for benefits this year, like Casey-Kirschling, according to a recent MetLife Mature Market Institute survey. But class of 1946 boomers who file this year will receive a reduced benefit for life, compared with those who hold out until what the Social Security Administration deems their full retirement age—in this case, 66.  Holding out until age 70 will bring in an even bigger monthly check.  I think the early baby boomers will get their checks for a long time.  However, I worry about the folks that were born in the 60s.  I think the system will run out of money.

So, for example, a boomer with a final salary of $75,000 might receive a $1,320 monthly Social Security check if he collects at age 62, according to a University of Pennsylvania Pension Research Council Working Paper by James Mahaney and Peter Carlson. If the same boomer were to delay until age 70, he would get $2,884 monthly, more than twice as much. Even after counting cost-of-living increases, the boomer who began to collect at age 62 would by age 70 probably receive only $1,637 a month.  It is a very sizeable difference if you wait until age 70.  The key is how long do you think you are going to live.  No one really knows.  The other factor is can you afford to wait, do you have other income, retirement savings, pensions, investments, etc.

"Waiting is a good deal if you have other means of getting by," says Laurence Kotlikoff, an economics professor at Boston University, unless you are certain you won't live a long life because of a health problem. "If you have a terminal heart condition, you want to take benefits immediately. Otherwise, in general—if you can—you want to wait as long as you possibly can to get benefits." Kotlikoff found that delaying taking the Social Security benefit can raise your standard of living in retirement by up to 10 percent. "That's like working an extra year or two," he says.

Your Social Security benefit increases by approximately 7 percent each year you delay taking it from age 62 to 66 and by 8 percent a year until age 70, Kotlikoff found. That could be a better return than retirees are getting on their investments. "You have to compare that with what your pension is giving you," says Hugo Benitez-Silva, an associate professor of economics at SUNY-Stony Brook. So, if your 401(k) or IRA is not giving you a higher return than that, you might want to start delaying Social Security and drawing down your other assets first, Benitez-Silva says.

Olivia Mitchell, a professor of insurance and risk management at the University of Pennsylvania's Wharton School, agrees. "Delaying is better if you can afford to wait," she says. "What you should do is save more of your money upfront and use that savings to finance your early retirement and then use the [Social Security] benefit later."

But most employees show little inclination to wait before collecting Social Security. The Employee Benefit Research Institute found that 65 percent of current workers plan to retire at age 65 or younger—before most will be eligible for full Social Security benefits. And only about 32 percent of boomers born in 1946 say they will wait until age 66 or beyond to receive full benefits, MetLife reports. Those who plan to collect as soon as possible cite feeling entitled to receive their benefit, preferring to have the cash in their pocket and not the government's, needing the money now, and having a pervasive fear that the Social Security system will collapse.

"There is a widespread belief among Americans that benefits in the future are going to be lower than they are today," Benitez-Silva says. "There are justifications that claiming early may be a very rational behavior." Other retirement experts say the fear is unfounded. "I think the government would sooner default on its debt than cut benefits for someone who is currently age 62," Kotlikoff says.

But it is not only your age that matters when deciding when to claim Social Security. Retirees should also consider whether or not they intend to work, which can temporarily reduce benefits and increase taxes if their earnings are too high, and review their spouse's plans before collecting their due.

Monday, January 14, 2008

Should you rent or own a home - buying your first house

Should you rent or own a home - buying your first house
Rent or buy, determining if you should own a home or live in an apartment. I read and interesting article in US News and World Report about determine if you should rent or buy a home. Here is what the article said along with my comments.

Real-estate agents have been pushing the virtues of homeownership since homes were invented. Or since real-estate agents were invented, anyway. Paying a mortgage, they insist, is a can't-miss investment (the tax breaks, the appreciation, the thrill of fixing your own roof!). Renting is for simpletons who don't like keeping their own money. Another thing to consider in buying a home is if you take our a 15 or 30 year loan that loan payment, providing that you take a fixed interest rate loan will stay the same forever. Your rent will not stay the same. Any good landlord should be raising your rent on a regular basis.

But does owning a home really trump renting? With the economy stumbling, house prices falling, and credit tightening, many housing experts are questioning the conventional wisdom. Remember some day you want to retire. Do you really want to be paying rent or a mortgage when you retire? "Over the last decade, it may have been true," says W. Van Harlow, an economist at the Fidelity Research Institute. "Clearly, there are periods where [the housing market] will dominate. But give this market correction another 18 months, and it may not be true anymore." A lot of people made a lot of money in real estate over the last 5 years. Of course the market was over bought and there was speculation. People that got in late got burn because they bought high and sold low. Sort of the story of my life of investing?

Not so hot. The housing boom produced endless stories of homeowners getting twice what they paid for their homes. But "prices don't always go up," says Jay Butler, director of realty studies at Arizona State University. Even a boomtown like Phoenix has seen median rates of appreciation climb only 4.6 percent a year since 1981. According to a Fidelity study published this year, the return on a dollar invested in real estate in 1963 barely beat that of a low-risk treasury bill.

When the housing market slumps—as it has every 10 or 15 years for the past several decades—homeownership becomes little more than renting, from a bank. Without appreciation, buying a $400,000 house—instead of renting the same property for, say, $2,000 a month—can turn into an expensive, potentially money-losing proposition. Part of the problem here is the $400,000 house issue. That is what got a lot of people in trouble. The $400,000 house was their first home and they could only make the payments if both the husband and the wife were working. Even worse some people borrowed money on adjustable rate mortgages that that have adjusted and now they are screwed because the payment is too high. Assuming home prices come out of their death spiral (prices fell 4.5 percent in the third quarter compared with last year), they would still have to appreciate at 4 percent every year for a decade—even if rents climbed well above the rate of inflation—before a family would save more owning than renting. An $80,000 down payment could be invested instead in a mutual fund earning 8 percent, and housing comes with myriad other expenses, from maintenance to insurance to taxes, none of which build equity. The article fails to mention the size of what you are living int the quality of life of living in a neighborhood, the fact that you have a yard for your kids to play in and so on.

Tax breaks do ease the pain. But with the average family staying in a house only six years, homeownership during a slump (especially in foreclosure pits like Las Vegas and Tampa, where prices have dropped more than 9 percent since last year) can look less and less like the American dream. Vegas, Florida, Arizona, and California where totaly over heated markets. They markets were full of speculators that were buying second homes just for investment purposes and then they go burned.

Renting, meanwhile, has its virtues. It's cheaper in the short term, it offers maximum flexibility, and it pushes the headaches of maintenance and taxes onto landlords. Remember, he can, will, and should raise the rents over the years. It can also be a sound long-term investment. According to Fidelity, if renters save even $300 a month—the difference, say, between their rent and a monthly mortgage payment—that money, invested in stocks growing at only 4 percent, could add up to $114,000 in 20 years. (And that's on top of earnings on a down payment that never had to be made.) "Over long horizons, if you reinvest the savings," Harlow says, "you're probably not going to find that much difference between renting and buying." Saving hasn't proved to be the national forte, of course. But with the bloom off the homeownership rose, it may have to be soon.