Progress Blog

In my Personal Finance class, we are assigned a final project called Real Life Project, which we have to create a realistic scenario of yourself 3 to 4 years after we graduated from colleges or universities.

The aim of this project is to help us with our future finance, to get an idea how to deal with these situation later on. I am sure that almost everyone will have to deal with the income and the living costs. Even if the situation is not the same with what we've planned, we still have an idea and will have to change the plan in order to adapt the new situation.

    So far, I've done my first and second phase of my Real Life Project. But there is one thing I was questioning myself many times is about the "Transportation" part. Since I have to include in the taxi cost for my transportation after i graduate since I am not getting car, I don't really know how much should I factor for the taxi. I kept asking myself how much should i factor for it.
    For "Home savings", i think it's fine because I used the previous project that i've done, which is the real estate project. I am going to buy a house in Kuantan, Malaysia and lease it for rent. By doing so, it will also help me pay off the mortgage quickly.

Discussion with parents:

As i was doing the "Transportation" part, i wondered whether to buy a car or not. So I asked my parents during our dinner time. My mom said it depends on my finance and also the job that I chose. And she also reminded me how expensive to buy a car in Singapore. So since I am going to be a chemical engineering, I don't think I will need a car to travel place to place like a salesman. It's also convenient to go by the Mrt and buses in Singapore since the government recently and will increase the price of the COE and ERP. Added to this, I think I will need a little more time to settle in my job, to find a fix, stable job. I don't want to not have enough money to pay for the car insurance, maintenance,... in the worst case like loosing my job.

American Expat? Should not buy Actively managed funds!

If you are an American expatriate, you would probably live oversea for sometimes now. You would probably also have invest a small amount of your money to a IRA, which you can only put up to $5000/year if you are under 50 years old, and $6000 if you are older than 50. But just by invest this little $5000 a year, that will just give you nuts when you're retired. That means your investment mostly would be put in banks or invest in taxables accounts.

So far we know Actively managed funds and Passively managed funds are taxable accounts.
But which of these should American expats invest?
Based on a study: http://www.nerdwallet.com/blog/investing/2013/active-mutual-fund-managers-beat-market-index/

That shows the Average Returns for active fund are likely higher than index fund by 0.12%. Wait, now, have a look at the Average Returns, which is telling active fund now gives you less than the amount index fund gives you. From the Average Returns before Fees and Average Returns without looking at the fees yet, you can conclude that active funds would have higher fees and higher taxes compare to index. It is also proved by this data. 

• There are 2 main ways that you could make money by invest your money in taxable accounts:
• Dividend - A share of profits received by a stockholder or by a policyholder in a mutual insurance society
• Capital gain (price appreciation) - An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price

And these money will be taxed as it is an income, roughly 2% from dividend, and roughly 8% from capital gain.

• For capital gain, it will be taxed in two ways:
• Short term - taxed at a higher rate
• Long term - taxed at a lower rate

Now, what is a active fund manager do to managed his fund? Yes, he keeps buying and selling stocks. If you invest in his fund, you would likely to have different stocks each year. By doing so, they will have to pay SHORT TERM tax - which is held within a year, taxed at a high rate. But the other way around with passive funds.

Reflect:

Article: Hello passive, goodbye active: fund investors make a switch
Link: http://www.ft.com/intl/cms/s/0/3aa2cd62-d4da-11e2-9302-00144feab7de.html#axzz2kRquihXV

This article shows that investors finally realize how the high fees and costly active funds are. The number of investors in passive is increasing recently.  In the past four years, assets held in passive investment funds have more than doubled, and the sector now accounts for $1.3tn of US investors’ assets – just under one-tenth of the country’s gross domestic product. People turned their backs on active fund and favor low-cost passive fund mainly because of the feeling of dissatisfaction. They realized that they usually have to pay for indifferent service by active managers as well