Study: College students more narcissistic
Tue Feb 27, 12:32 AM ET
Today's college students are more narcissistic and self-centered than their predecessors, according to a comprehensive new study by five psychologists who worry that the trend could be harmful to personal relationships and American society.
"We need to stop endlessly repeating 'You're special' and having children repeat that back," said the study's lead author, Professor Jean Twenge of San Diego State University. "Kids are self-centered enough already."
Twenge and her colleagues, in findings to be presented at a workshop Tuesday in San Diego on the generation gap, examined the responses of 16,475 college students nationwide who completed an evaluation called the Narcissistic Personality Inventory between 1982 and 2006.
The standardized inventory, known as the NPI, asks for responses to such statements as "If I ruled the world, it would be a better place," "I think I am a special person" and "I can live my life any way I want to."
The researchers describe their study as the largest ever of its type and say students' NPI scores have risen steadily since the current test was introduced in 1982. By 2006, they said, two-thirds of the students had above-average scores, 30 percent more than in 1982.
Narcissism can have benefits, said study co-author W. Keith Campbell of the University of Georgia, suggesting it could be useful in meeting new people "or auditioning on 'American Idol.'"
"Unfortunately, narcissism can also have very negative consequences for society, including the breakdown of close relationships with others," he said.
The study asserts that narcissists "are more likely to have romantic relationships that are short-lived, at risk for infidelity, lack emotional warmth, and to exhibit game-playing, dishonesty, and over-controlling and violent behaviors."
Twenge, the author of "Generation Me: Why Today's Young Americans Are More Confident, Assertive, Entitled — and More Miserable Than Ever Before," said narcissists tend to lack empathy, react aggressively to criticism and favor self-promotion over helping others.
The researchers traced the phenomenon back to what they called the "self-esteem movement" that emerged in the 1980s, asserting that the effort to build self-confidence had gone too far.
As an example, Twenge cited a song commonly sung to the tune of "Frere Jacques" in preschool: "I am special, I am special. Look at me."
"Current technology fuels the increase in narcissism," Twenge said. "By its very name, MySpace encourages attention-seeking, as does YouTube."
Some analysts have commended today's young people for increased commitment to volunteer work. But Twenge viewed even this phenomenon skeptically, noting that many high schools require community service and many youths feel pressure to list such endeavors on college applications.
Campbell said the narcissism upsurge seemed so pronounced that he was unsure if there were obvious remedies.
"Permissiveness seems to be a component," he said. "A potential antidote would be more authoritative parenting. Less indulgence might be called for."
The new report follows a study released by UCLA last month which found that nearly three-quarters of the freshmen it surveyed thought it was important to be "very well-off financially." That compared with 62.5 percent who said the same in 1980 and 42 percent in 1966.
Yet students, while acknowledging some legitimacy to such findings, don't necessarily accept negative generalizations about their generation.
Hanady Kader, a University of Washington senior, said she worked unpaid last summer helping resettle refugees and considers many of her peers to be civic-minded. But she is dismayed by the competitiveness of some students who seem prematurely focused on career status.
"We're encouraged a lot to be individuals and go out there and do what you want, and nobody should stand in your way," Kader said. "I can see goals and ambitions getting in the way of other things like relationships."
Kari Dalane, a University of Vermont sophomore, says most of her contemporaries are politically active and not overly self-centered.
"People are worried about themselves — but in the sense of where are they're going to find a place in the world," she said. "People want to look their best, have a good time, but it doesn't mean they're not concerned about the rest of the world."
Besides, some of the responses on the narcissism test might not be worrisome, Dalane said. "It would be more depressing if people answered, 'No, I'm not special.'"
Tuesday, February 27, 2007
Thursday, February 22, 2007
Bad Habits: Why We Can't Stop, inate human defiance, social acceptance, risk weighing
Bad Habits: Why We Can't Stop
It might seem a total wonder that a smoker won't quit after hearing that puffing away is a leading cause of death, or that an obese person can't shed a few pounds after learning that lethal ailments loom for the overweight.
But scientists have come up with a host of reasons why humans stick to bad habits, and they are zeroing in on what to do about it.
Kiling Ourselves
A study by scientists at the U.S. Centers for Disease Control and Prevention (CDC) found that avoidable behaviors like cigarette use, poor diet and lack of exercise were the underlying cause of half of the deaths in the United States in the year 2000. Deaths cause by:
Tobacco: 435,000
Inactivity and bad eating: 400,000
Alcohol consumption: 85,000
SOURCE: March 10, 2004 issue of the Journal of the American Medical Association
--------------------------------------------------------------------------------
10 Easy Paths to Self Destruction
Among the reasons:
Innate human defiance.
Need for social acceptance.
Inability to truly understand the nature of risk.
Individualistic view of the world and the ability to rationalize unhealthy habits.
Genetic predisposition to addiction.
You'd think people were on a one-track mission to self-destruct rather than desiring immortality.
"We have found that people aren't changing their behaviors," said Cindy Jardine of the University of Alberta. "But it's not because they haven't gotten the information that these are big risks." She added, "We tend to sort of live for now and into the limited future—not the long term."
Killer knowledge
In a recent study, a group led by Jardine surveyed 1,200 people in Alberta, Canada in 1994 and again in 2005 about what they perceived to be risky behaviors. Many of the participants ranked lifestyle behaviors, such as smoking, drinking and sun tanning, as more dangerous than ozone depletion and chemical pollution.
In a related study that wrapped up this year, the scientists asked groups of indigenous Canadians why they ranked behaviors dangerous or not.
For instance, when asked about drinking and driving, most participants mentioned that you could hurt yourself or somebody else. If people know cigarettes can kill them or drinking and driving could be lethal, logic suggests they might quit it. Yet even with this knowledge, Jardine said, people continue to undertake these lifestyle risks.
Everybody's doing it
Jardine suggests several reasons for the contrary findings. For one, when a behavior is socially accepted or even considered desirable people tend to reconcile the fact that it's bad for them with the idea that "everybody's doing it," she said.
"I know this is bad for me but in social circles this makes me more accepted," Jardine said of the common reasoning. "It ends up being something people rationalize one way or another. And it's often easier to rationalize it in favor of trying to fit into your social group."
Addiction in Your Genes
Vulnerability to drug and alcohol abuse has been located to a particular gene.
Video News Story
One way of making it okay to smoke like a chimney or eat like a pig is with individual experiences that support your action. For instance, you could say, "It hasn't hurt me yet," or, "My grandmother smoked all her life and lived to be 90."
In 2004, Jardine found that stress moved past cigarette smoking as the most dangerous habit.
"Most of us wear our stress as a badge of honor these days," Jardine said. So rather than thinking about stress as causing physical damage to your body and perhaps hurting family relationships, "people often boast of their stress as a success."
Risky interpretations
Typically the likelihood of contracting a disease or dying from a substance or activity is reported numerically as a percentage or ratio [see The Odds of Dying].
Ellen Peters of the University of Oregon has found that people who are better at processing numbers look at the same information differently than people not as number-minded, who tend to rely more on fear than actual hard evidence. Being afraid of cancer could drive their decisions on whether or not to smoke or the importance of treatment for particular cancers. It comes down to emotions, which Peters suggests act as guiding lights in choices.
That's one reason she thinks the "truth" campaign by the American Legacy Foundation and other anti-cigarette campaigns have been so effective. The truth ads show gruesome images such as a bleeding brain or inflamed heart with text stating cigarettes as the cause. One video ad shows a human-size rat walking up from a subway station and then collapsing on the sidewalk with a sign about how cigarettes contain rat poison.
The Truth Hurts ... and Helps
The Canadian-based American Legacy Foundation's "truth" campaign relies on gruesome anti-smoking ads like this one of a giant, dying rat. Watch the Ad
A study by the American Legacy Foundation showed that 22 percent of the overall decline in youth smoking from 2000 to 2002 was attributable to their "truth" campaign.
No bad behavior vaccine
Social and physical environments also play large roles in fueling poor habits.
For example, if you perceive that all of your friends are staying up all night, baking in the sun every day at the beach or taking multiple smoke breaks during work, this will affect whether you also take part in the activities.
Couch potatoes might be glued to the TV by external factors more than a lack of desire to be healthy.
"We tell people they need to become physically active, but in certain neighborhoods if you get out and go for a walk you could be putting yourself in harms way from either traffic that's not well controlled or other kinds of things like violence in your neighborhood," said Andrea Gielen of Johns Hopkins University's Bloomberg School of Public Health.
Coming up with successful pro-health campaigns requires more research and multiple strategies, experts say.
"There's no single strategy or single bullet. We're not going to be able to find a vaccine for healthy behavior," Gielen said. "We have to be more creative. We have to have different kinds of partners and work with many different folks."
It might seem a total wonder that a smoker won't quit after hearing that puffing away is a leading cause of death, or that an obese person can't shed a few pounds after learning that lethal ailments loom for the overweight.
But scientists have come up with a host of reasons why humans stick to bad habits, and they are zeroing in on what to do about it.
Kiling Ourselves
A study by scientists at the U.S. Centers for Disease Control and Prevention (CDC) found that avoidable behaviors like cigarette use, poor diet and lack of exercise were the underlying cause of half of the deaths in the United States in the year 2000. Deaths cause by:
Tobacco: 435,000
Inactivity and bad eating: 400,000
Alcohol consumption: 85,000
SOURCE: March 10, 2004 issue of the Journal of the American Medical Association
--------------------------------------------------------------------------------
10 Easy Paths to Self Destruction
Among the reasons:
Innate human defiance.
Need for social acceptance.
Inability to truly understand the nature of risk.
Individualistic view of the world and the ability to rationalize unhealthy habits.
Genetic predisposition to addiction.
You'd think people were on a one-track mission to self-destruct rather than desiring immortality.
"We have found that people aren't changing their behaviors," said Cindy Jardine of the University of Alberta. "But it's not because they haven't gotten the information that these are big risks." She added, "We tend to sort of live for now and into the limited future—not the long term."
Killer knowledge
In a recent study, a group led by Jardine surveyed 1,200 people in Alberta, Canada in 1994 and again in 2005 about what they perceived to be risky behaviors. Many of the participants ranked lifestyle behaviors, such as smoking, drinking and sun tanning, as more dangerous than ozone depletion and chemical pollution.
In a related study that wrapped up this year, the scientists asked groups of indigenous Canadians why they ranked behaviors dangerous or not.
For instance, when asked about drinking and driving, most participants mentioned that you could hurt yourself or somebody else. If people know cigarettes can kill them or drinking and driving could be lethal, logic suggests they might quit it. Yet even with this knowledge, Jardine said, people continue to undertake these lifestyle risks.
Everybody's doing it
Jardine suggests several reasons for the contrary findings. For one, when a behavior is socially accepted or even considered desirable people tend to reconcile the fact that it's bad for them with the idea that "everybody's doing it," she said.
"I know this is bad for me but in social circles this makes me more accepted," Jardine said of the common reasoning. "It ends up being something people rationalize one way or another. And it's often easier to rationalize it in favor of trying to fit into your social group."
Addiction in Your Genes
Vulnerability to drug and alcohol abuse has been located to a particular gene.
Video News Story
One way of making it okay to smoke like a chimney or eat like a pig is with individual experiences that support your action. For instance, you could say, "It hasn't hurt me yet," or, "My grandmother smoked all her life and lived to be 90."
In 2004, Jardine found that stress moved past cigarette smoking as the most dangerous habit.
"Most of us wear our stress as a badge of honor these days," Jardine said. So rather than thinking about stress as causing physical damage to your body and perhaps hurting family relationships, "people often boast of their stress as a success."
Risky interpretations
Typically the likelihood of contracting a disease or dying from a substance or activity is reported numerically as a percentage or ratio [see The Odds of Dying].
Ellen Peters of the University of Oregon has found that people who are better at processing numbers look at the same information differently than people not as number-minded, who tend to rely more on fear than actual hard evidence. Being afraid of cancer could drive their decisions on whether or not to smoke or the importance of treatment for particular cancers. It comes down to emotions, which Peters suggests act as guiding lights in choices.
That's one reason she thinks the "truth" campaign by the American Legacy Foundation and other anti-cigarette campaigns have been so effective. The truth ads show gruesome images such as a bleeding brain or inflamed heart with text stating cigarettes as the cause. One video ad shows a human-size rat walking up from a subway station and then collapsing on the sidewalk with a sign about how cigarettes contain rat poison.
The Truth Hurts ... and Helps
The Canadian-based American Legacy Foundation's "truth" campaign relies on gruesome anti-smoking ads like this one of a giant, dying rat. Watch the Ad
A study by the American Legacy Foundation showed that 22 percent of the overall decline in youth smoking from 2000 to 2002 was attributable to their "truth" campaign.
No bad behavior vaccine
Social and physical environments also play large roles in fueling poor habits.
For example, if you perceive that all of your friends are staying up all night, baking in the sun every day at the beach or taking multiple smoke breaks during work, this will affect whether you also take part in the activities.
Couch potatoes might be glued to the TV by external factors more than a lack of desire to be healthy.
"We tell people they need to become physically active, but in certain neighborhoods if you get out and go for a walk you could be putting yourself in harms way from either traffic that's not well controlled or other kinds of things like violence in your neighborhood," said Andrea Gielen of Johns Hopkins University's Bloomberg School of Public Health.
Coming up with successful pro-health campaigns requires more research and multiple strategies, experts say.
"There's no single strategy or single bullet. We're not going to be able to find a vaccine for healthy behavior," Gielen said. "We have to be more creative. We have to have different kinds of partners and work with many different folks."
Wednesday, February 21, 2007
believe in markets, they make sense except when they don't
Markets Make Sense, Except When They Don't
by Charles Wheelan, Ph.D.
Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story Very Good (347 Ratings) 3.708948/5
Posted on Tuesday, February 13, 2007, 3:00AM
Do you believe in markets? Of course you do -- unless you're a communist.
Even the communists managed some pretty impressive black markets. I traveled for several weeks in the U.S.S.R. in 1988, and spent much of the time behind my hotel trading things out of my suitcase to Soviet teens for rabbit fur hats and Lenin pins.
Cornering the Market
Presumably, the 20th century proved that the market solution is usually the right solution. The theory is simple and elegant: Individuals and firms make themselves better off by entering into voluntary transactions, which collectively make up markets. By definition, all involved parties expect a transaction to make them better off, or else they wouldn't do it.
True, things may turn out badly, such as the hot stock you bought last year that fell 78 percent when the CEO revealed that all earnings since 1983 would have to be restated. But that's not what you expected. Nobody intentionally tries to lose money or to make their life worse. Instead, all parties to a transaction expect good things, or at least better than the alternatives.
That turns out to be pretty powerful stuff when you add it all up. If we leave people and firms alone, they naturally do things that make all of us richer -- they innovate, they work hard, they put resources to their most efficient use. Who can be against that?
Trapped by Progress
Just about everyone, it turns out, depending on the market in question. I would venture that economists like markets a lot more than the rest of the population, regardless of their political views.
Left-wingers aren't fond of sweatshops, for example. Why do we pay Vietnamese workers 75 cents an hour to sew shoes? Because we can. That's a pathetic reality; on the other hand, how exactly would closing the sweatshop make those workers better off? In all likelihood, if they had better options than sewing shoes for 75 cents an hour they wouldn't be working in a sweatshop in the first place.
Some liberal opposition to market outcomes is much more justifiable. We too often forget that every time someone builds a better (or cheaper) mousetrap, it's bad news for whoever made the old mousetrap. I don't advocate banning new mousetraps (or curtailing cheap imports from China), but there's nothing wrong with showing some empathy when markets create losers, as they always do.
Free and Easy Trade
What about conservatives? They talk the market talk, but don't always walk the walk. Try this experiment: Find a large Republican rally and take a turn at the microphone. Get the crowd warmed up with some general remarks about the elegance of markets and the evils of government. Then, when the applause lines are coming fast and furious, ask where you can buy some really good sex.
During the stunned silence, admonish these conservative market enthusiasts to fight against the oppressive zoning regulations that make it impossible for you to buy private property and build apartment buildings in most ritzy suburbs.
Why shouldn't you be able to do a tear down a single-family home on a five-acre lot in Greenwich if you can make a profit by replacing it with lots of cheap apartments? After all, don't they call it the housing "market"?
A Free-Market Self-Test
The reality is that most people -- from one end of the political spectrum to the other -- find some market outcomes objectionable.
Markets don't elicit any kind of consensus. The most interesting public policy questions often involve market outcomes that people decide they don't like -- whether it's sweatshops, prostitution, cheap imports from China, or something else.
So how do you feel about markets? Take this quick quiz. I've included my own (short) answers.
Should we legalize the sale and possession of drugs like marijuana, cocaine, and heroin?
My answer: I don't know. Certainly there's a market for these drugs -- lots of eager buyers and sellers. Society spends a lot of money trying to disrupt that market, seemingly to no avail.
Yes, drug use harms innocent third parties, but so do alcohol and tobacco. In those cases, we use taxes to raise the cost of smoking and drinking, and we regulate the specific behaviors that affect third parties, such as smoking at the office or driving drunk.
So why not do the same with drugs? Our current approach is both ineffective and expensive. Nonviolent drug offenders are clogging the courts and prisons. All the while, demand seems unabated and the illegal drug trade is empowering and enriching gangs and violent criminals, just as Prohibition did for organized crime.
Milton Friedman famously noted that everything wrong with drugs stems from the fact that they're illegal. I don't know about "everything" -- these are addictive substances that harm people and their families -- but I take his point.
And yet I'm not prepared to turn the sale of crack over to a Fortune 500 company that can maximize profits by finding new ways to get 18 year olds to sample their product. Nor do I want the government in the business of selling and distributing heroin. I don't have a moral objection to legalizing drug use and punishing only the behavior that affects the rest of us -- the drug equivalent of drunk driving. I just can't figure out how to do it.
Should we liberalize labor markets, so that workers can more freely cross international boundaries?
My answer: Yes. I find it hard to justify criminalizing anything that I would do myself. If I were poor and trying to raise a family in Mexico, I would do anything to get to the U.S. -- legally or otherwise. Capitalism is all about rewarding those who are willing to work harder or cheaper. Why is labor that crosses an international border any different?
When we buy a cheap stereo from China, that's globalization. When we give the kitchen remodeling job to the lowest bidder, that's competition. When some guy from El Salvador offers to cut the lawn cheaply, that's illegal. To an economist, it's just another voluntary transaction that makes both parties better off.
Yes, we need to police the borders -- for terrorists, not cheap poultry workers. You can reasonably disagree with me, but you must concede that I'm the one advocating the "free market" outcome in this case and you're not.
Should we implement a federal carbon tax and/or significantly raise the gas tax?
My answer: Absolutely. If you believe in markets when they work well, then you have to understand how they need to be tweaked when they don't. If page 10 of any introductory economics text explains the wonders of supply and demand, page 12 usually explains that markets don't deliver an efficient outcome when eager buyers and sellers impose some harm, or negative externality, on a third party.
If I can change the oil in your car more cheaply than the competition by dumping the old oil in Lake Michigan, that's not the kind of market transaction that got Milton Friedman so excited. Yes, I make profits and you save money -- a mutually beneficial, voluntary exchange -- but anybody who cares about Lake Michigan is not happy at all, and they aren't represented in our little transaction.
When the price of some activity is artificially cheap because society is picking up part of the tab, people do too much of it. That's not the economically efficient outcome that markets usually deliver. One standard economic fix is to impose a tax on whatever private activity imposes the social cost; when the price of the activity goes up, people do less of it.
That's exactly what a carbon tax or a higher gas tax would do. There's nothing voluntary about me breathing your tailpipe emissions. If we raise the private cost of driving, people will be less likely to commute 60 miles alone in a Chevy Tahoe.
The optimal market outcome isn't always synonymous with doing nothing; in this case, the market works best when the government does something. That something happens to be a tax, or anything else that raises the cost of the polluting behavior.
by Charles Wheelan, Ph.D.
Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story Very Good (347 Ratings) 3.708948/5
Posted on Tuesday, February 13, 2007, 3:00AM
Do you believe in markets? Of course you do -- unless you're a communist.
Even the communists managed some pretty impressive black markets. I traveled for several weeks in the U.S.S.R. in 1988, and spent much of the time behind my hotel trading things out of my suitcase to Soviet teens for rabbit fur hats and Lenin pins.
Cornering the Market
Presumably, the 20th century proved that the market solution is usually the right solution. The theory is simple and elegant: Individuals and firms make themselves better off by entering into voluntary transactions, which collectively make up markets. By definition, all involved parties expect a transaction to make them better off, or else they wouldn't do it.
True, things may turn out badly, such as the hot stock you bought last year that fell 78 percent when the CEO revealed that all earnings since 1983 would have to be restated. But that's not what you expected. Nobody intentionally tries to lose money or to make their life worse. Instead, all parties to a transaction expect good things, or at least better than the alternatives.
That turns out to be pretty powerful stuff when you add it all up. If we leave people and firms alone, they naturally do things that make all of us richer -- they innovate, they work hard, they put resources to their most efficient use. Who can be against that?
Trapped by Progress
Just about everyone, it turns out, depending on the market in question. I would venture that economists like markets a lot more than the rest of the population, regardless of their political views.
Left-wingers aren't fond of sweatshops, for example. Why do we pay Vietnamese workers 75 cents an hour to sew shoes? Because we can. That's a pathetic reality; on the other hand, how exactly would closing the sweatshop make those workers better off? In all likelihood, if they had better options than sewing shoes for 75 cents an hour they wouldn't be working in a sweatshop in the first place.
Some liberal opposition to market outcomes is much more justifiable. We too often forget that every time someone builds a better (or cheaper) mousetrap, it's bad news for whoever made the old mousetrap. I don't advocate banning new mousetraps (or curtailing cheap imports from China), but there's nothing wrong with showing some empathy when markets create losers, as they always do.
Free and Easy Trade
What about conservatives? They talk the market talk, but don't always walk the walk. Try this experiment: Find a large Republican rally and take a turn at the microphone. Get the crowd warmed up with some general remarks about the elegance of markets and the evils of government. Then, when the applause lines are coming fast and furious, ask where you can buy some really good sex.
During the stunned silence, admonish these conservative market enthusiasts to fight against the oppressive zoning regulations that make it impossible for you to buy private property and build apartment buildings in most ritzy suburbs.
Why shouldn't you be able to do a tear down a single-family home on a five-acre lot in Greenwich if you can make a profit by replacing it with lots of cheap apartments? After all, don't they call it the housing "market"?
A Free-Market Self-Test
The reality is that most people -- from one end of the political spectrum to the other -- find some market outcomes objectionable.
Markets don't elicit any kind of consensus. The most interesting public policy questions often involve market outcomes that people decide they don't like -- whether it's sweatshops, prostitution, cheap imports from China, or something else.
So how do you feel about markets? Take this quick quiz. I've included my own (short) answers.
Should we legalize the sale and possession of drugs like marijuana, cocaine, and heroin?
My answer: I don't know. Certainly there's a market for these drugs -- lots of eager buyers and sellers. Society spends a lot of money trying to disrupt that market, seemingly to no avail.
Yes, drug use harms innocent third parties, but so do alcohol and tobacco. In those cases, we use taxes to raise the cost of smoking and drinking, and we regulate the specific behaviors that affect third parties, such as smoking at the office or driving drunk.
So why not do the same with drugs? Our current approach is both ineffective and expensive. Nonviolent drug offenders are clogging the courts and prisons. All the while, demand seems unabated and the illegal drug trade is empowering and enriching gangs and violent criminals, just as Prohibition did for organized crime.
Milton Friedman famously noted that everything wrong with drugs stems from the fact that they're illegal. I don't know about "everything" -- these are addictive substances that harm people and their families -- but I take his point.
And yet I'm not prepared to turn the sale of crack over to a Fortune 500 company that can maximize profits by finding new ways to get 18 year olds to sample their product. Nor do I want the government in the business of selling and distributing heroin. I don't have a moral objection to legalizing drug use and punishing only the behavior that affects the rest of us -- the drug equivalent of drunk driving. I just can't figure out how to do it.
Should we liberalize labor markets, so that workers can more freely cross international boundaries?
My answer: Yes. I find it hard to justify criminalizing anything that I would do myself. If I were poor and trying to raise a family in Mexico, I would do anything to get to the U.S. -- legally or otherwise. Capitalism is all about rewarding those who are willing to work harder or cheaper. Why is labor that crosses an international border any different?
When we buy a cheap stereo from China, that's globalization. When we give the kitchen remodeling job to the lowest bidder, that's competition. When some guy from El Salvador offers to cut the lawn cheaply, that's illegal. To an economist, it's just another voluntary transaction that makes both parties better off.
Yes, we need to police the borders -- for terrorists, not cheap poultry workers. You can reasonably disagree with me, but you must concede that I'm the one advocating the "free market" outcome in this case and you're not.
Should we implement a federal carbon tax and/or significantly raise the gas tax?
My answer: Absolutely. If you believe in markets when they work well, then you have to understand how they need to be tweaked when they don't. If page 10 of any introductory economics text explains the wonders of supply and demand, page 12 usually explains that markets don't deliver an efficient outcome when eager buyers and sellers impose some harm, or negative externality, on a third party.
If I can change the oil in your car more cheaply than the competition by dumping the old oil in Lake Michigan, that's not the kind of market transaction that got Milton Friedman so excited. Yes, I make profits and you save money -- a mutually beneficial, voluntary exchange -- but anybody who cares about Lake Michigan is not happy at all, and they aren't represented in our little transaction.
When the price of some activity is artificially cheap because society is picking up part of the tab, people do too much of it. That's not the economically efficient outcome that markets usually deliver. One standard economic fix is to impose a tax on whatever private activity imposes the social cost; when the price of the activity goes up, people do less of it.
That's exactly what a carbon tax or a higher gas tax would do. There's nothing voluntary about me breathing your tailpipe emissions. If we raise the private cost of driving, people will be less likely to commute 60 miles alone in a Chevy Tahoe.
The optimal market outcome isn't always synonymous with doing nothing; in this case, the market works best when the government does something. That something happens to be a tax, or anything else that raises the cost of the polluting behavior.
Monday, February 19, 2007
What does every woman want more than anything else?
What does every woman want more than anything else?
She wants to feel wonderful about herself.
She wants to be convinced that the man she loves more than any other considers her #1 on his "most important" list. Valentine's Day is simply an opportunity that her partner can express that. One way for a man to successfully convince her of his love and her position of importance in his life is to plan a way to express that before Valentine's Day, so that when he puts that plan into motion, his actions reflect his inner feeling that she is, indeed, the single most important part of his life. So it's not so much about the type of gift exchanged as it is the thought that is put into his expression of love. Keep in mind that a well-thought-out and executed plan to express one's love for another in your life can happen any day of the year.
What does every man want more than anything else?
He wants to feel wonderful about himself.
The shortest route to that feeling for a man has nothing to do with cards or presents. It has to do with a deep inner sense that the woman in his life trusts him at the deepest of levels, wants to give of herself fully and freely, and adores him through and through. She can show this to her partner by reflecting on their shared love and by expressing appreciation and trust in his love for her.
She wants to feel wonderful about herself.
She wants to be convinced that the man she loves more than any other considers her #1 on his "most important" list. Valentine's Day is simply an opportunity that her partner can express that. One way for a man to successfully convince her of his love and her position of importance in his life is to plan a way to express that before Valentine's Day, so that when he puts that plan into motion, his actions reflect his inner feeling that she is, indeed, the single most important part of his life. So it's not so much about the type of gift exchanged as it is the thought that is put into his expression of love. Keep in mind that a well-thought-out and executed plan to express one's love for another in your life can happen any day of the year.
What does every man want more than anything else?
He wants to feel wonderful about himself.
The shortest route to that feeling for a man has nothing to do with cards or presents. It has to do with a deep inner sense that the woman in his life trusts him at the deepest of levels, wants to give of herself fully and freely, and adores him through and through. She can show this to her partner by reflecting on their shared love and by expressing appreciation and trust in his love for her.
Tuesday, February 13, 2007
Love yourself enough to rise above the criticism
"Fabulosity" Law #14: "Love yourself enough to rise above criticism."
Monday, February 12, 2007
commodities trading, get in and out before actual events
RESOURCES, NATURALLY
by Kevin Kerr
Commodity markets in various forms have been around forever, or at least
since the time of ancient Greece and Rome. They even survived the Dark
Ages, and reemerged at local fairs in medieval times, arranged by trade
associations formed by merchants, craftsmen, and promoters.
Over the next few centuries, these markets evolved into exchanges, or
bourses, in England and Europe, as well as in Japan and the New World.
U.S. cash commodity exchanges first appeared in New York for trading in
domestic produce. Though none of these markets exist now, they were the
foundation for the commodity markets as we know them today. Since 1848,
when the Chicago Board of Trade was formed, commodity futures have given
producers and consumers a way to even out price moves and protect against
market risk, as well as giving investors a way to capitalize on market
moves.
In their early days, futures markets were used primarily to make or take
delivery of the actual commodity; today, fewer than 1 percent of all
futures contracts actually result in delivery against the contract. So
there's really no truth to the myth that you'll end up with 200 head of
hungry cattle grazing on your front lawn, or 50,000 gallons of orange
juice cooling in your fridge, or a boxcar of grain dumped in your
backyard! Unless, of course, that's what you want.
Right now, the world is experiencing a commodities supercycle - a boom in
resources that's likely to last for at least another decade. The market
for raw resources is raging - because of China, because of India, because
of surging oil demand and plunging energy supplies and the crushing effect
of hurricanes on offshore U.S. oil. It's time for you to get in on the
profit cycle!
History is full of gear-turning, gut-churning events, each with its own
importance. But each is connected to the others by an endless cycle of
supply and demand. As the world scrambles for resources, the opportunities
for the savvy investor to profit are endless. And because these products
are finite, we can expect demand to continue to grow. At this moment,
you're looking at one of the best times in history to make money by
trading resources.
Let's face it - trading commodities is not for the meek or faint of heart.
You need sound judgment, guts, and an appetite for risk, not to mention
available capital. These markets move, and they move quickly. Just take a
look at all the markets over the past few months - gold, oil, grains,
stock indexes, tropical markets, all of them with wild swings in both
directions. There are huge risks but incredible rewards for the savvy
trader or investor.
Cycles in commodities can be very predictable. There are no CEOs on the
inside cooking the books. There are no accounting firms puffing up profit
reports. You just have the commodities on the move. Trading on those
moves, you can make money no matter which way prices are headed.
I often refer to commodities trading as "the last bastion of pure
capitalism on earth." I mean, where else can you sell something you don't
own, buy it back half an hour later, and walk away with 100 percent
profit? Few investment vehicles offer the excitement, flexibility, and
tremendous profit opportunities of commodities.
It's unfortunate, but profit opportunities often are greatest when things
go wrong. Look at the devastation from Hurricane Katrina. When hurricane
season is in full swing it can be a very long summer indeed. Often, Gulf
Coast residents have barely picked up the pieces from the previous year's
debacle when it is time to batten down the hatches yet again.
In 2005, four Category 3 storms - Dennis, Katrina, Rita, and Wilma - left
a trail of havoc and destruction through a large part of the United
States. Hurricane Katrina's strong winds and heavy waves devastated the
Gulf Coast in late August. The storm and resulting flooding caused more
than 1,300 deaths and an estimated $100 billion in damage, making it the
most expensive natural disaster in U.S. history.
Nobody can predict for sure what any storm season will hold, but some
experts say we are in the beginning stages of a hurricane supercycle,
which usually lasts 15 to 20 years. Stockpiling positions in some of the
key commodities that may be adversely affected can be a very profitable
strategy. As certain industries brace for each new storm season, traders
can hedge themselves by adding specific commodities to their portfolios on
a limited basis, using options or even futures to some extent.
Don't feel guilty betting on a rough hurricane season; after all, like any
type of hedging, it's insurance. When we purchase fire insurance on our
houses, we don't hope they'll burn down, at least not usually. No, we take
out insurance to protect our investment - that's all we're doing.
The vulnerable markets include everything from natural gas and sugar to
orange juice and crude oil. Take sugar, for example. Sugar crops have
sustained hard hits in Florida and elsewhere from recent years'
hurricanes. Sugar has the added benefit of being a key ingredient in the
production of ethanol and is already in high demand, so there's a double
whammy here. Another market likely to be heavily impacted by a rough
hurricane season is natural gas. Remember, natural gas is used for heating
and cooling - again, a double-edged sword.
Another good risk/reward scenario heading into an active hurricane season
would be adding some unleaded gasoline call options to your portfolio.
Whoa! I know what you may be saying: "Oh, no! There he goes using all of
that trader jargon - calls, puts, straddles, strangles, and so on." No
worries; in my book, and in my trading service, it's all about speaking
plain English. We will learn what calls are, and all the other trading
terms, later.
All of these commodities and many more are almost certain to experience
intense volatility heading into and during hurricane season. But keep in
mind that volatility drives the commodity markets. The fear of what "may
happen can be more of a factor than the actual storms, so it's best not to
be greedy. Use a hedge for what it's for: protecting your overall
portfolio from the losses other holdings in your portfolio and property
may take as a result of the storms.
Another thing about hurricanes is that they do a lot of damage and leave a
mess to clean up. In 2005, more than 113 oil platforms were destroyed and
over 400 pipelines were damaged. Sometimes the best way to play resources
is to buy equities related to the companies that harvest the resources as
well as provide the drilling equipment and, eventually, the transportation
of the finished goods. For example, while not a direct resource play,
buying stocks related to transport of oil workers from oil platforms and
terminals was a very good investment that year. Even heading into the 2006
hurricane season it proved fruitful. Smaller stocks in companies that
transport workers to and from rigs and facilities - specifically, boat and
helicopter companies - were a very good investment.
This play was good globally, too. In the Scottish newspaper The Scotsman,
Frank Urquhart wrote about it just prior to the hurricane season in 2006
("Copter crisis threatens oil industry," 6/30/05):
"North Sea helicopter companies are struggling to meet a surge in demand
for their services because of a shortage of aircraft and crews to fly
them, it was revealed yesterday. The soaring price of oil has led to a
sudden and major increase in helicopter operations in the offshore oil and
gas industry."
Helicopters and transport are commodities in their own right in times of
need. This is only one example of the many investment opportunities
available that are simply associated with the commodities themselves.
Shipping, rail, storage, you name it - if it hauls, plows, hips, builds,
or refines, we can relate it to commodities and it can be a profitable
addition to our portfolios.
It can be as important to understand the psychology of the markets as it
is the mechanics. At the start of hurricane season nobody knows for sure
just how bad it will be. One thing is certain, though - a lot of attention
is being paid to it. This can often have the reverse effect on a trading
market should the hurricane season be relatively light. The old adage "Buy
the rumor, sell the news" certainly applies here.
In other words, put your positions on early and take early profits simply
on the back of the fear of what might happen, not what actually does
happen. Being married to a weather position is never fruitful for a
portfolio. Simply get in and get out. A smart trading strategy would be to
add one or all of the vulnerable commodities; then as you enter the
season, with a bit of luck, grab fairly quick profits, even before the
first winds start to really hit. There are many different scenarios - at
least as many as there are weather patterns - and we will address them
more thoroughly later. Remember, timing is everything.
It's always important to be four to six months ahead of the regular
calendar when trading commodities. Keep in mind that we're trading futures
not "currents"; it's vital always to be looking forward and thinking about
the impact of news, weather, and geopolitical events months in advance.
by Kevin Kerr
Commodity markets in various forms have been around forever, or at least
since the time of ancient Greece and Rome. They even survived the Dark
Ages, and reemerged at local fairs in medieval times, arranged by trade
associations formed by merchants, craftsmen, and promoters.
Over the next few centuries, these markets evolved into exchanges, or
bourses, in England and Europe, as well as in Japan and the New World.
U.S. cash commodity exchanges first appeared in New York for trading in
domestic produce. Though none of these markets exist now, they were the
foundation for the commodity markets as we know them today. Since 1848,
when the Chicago Board of Trade was formed, commodity futures have given
producers and consumers a way to even out price moves and protect against
market risk, as well as giving investors a way to capitalize on market
moves.
In their early days, futures markets were used primarily to make or take
delivery of the actual commodity; today, fewer than 1 percent of all
futures contracts actually result in delivery against the contract. So
there's really no truth to the myth that you'll end up with 200 head of
hungry cattle grazing on your front lawn, or 50,000 gallons of orange
juice cooling in your fridge, or a boxcar of grain dumped in your
backyard! Unless, of course, that's what you want.
Right now, the world is experiencing a commodities supercycle - a boom in
resources that's likely to last for at least another decade. The market
for raw resources is raging - because of China, because of India, because
of surging oil demand and plunging energy supplies and the crushing effect
of hurricanes on offshore U.S. oil. It's time for you to get in on the
profit cycle!
History is full of gear-turning, gut-churning events, each with its own
importance. But each is connected to the others by an endless cycle of
supply and demand. As the world scrambles for resources, the opportunities
for the savvy investor to profit are endless. And because these products
are finite, we can expect demand to continue to grow. At this moment,
you're looking at one of the best times in history to make money by
trading resources.
Let's face it - trading commodities is not for the meek or faint of heart.
You need sound judgment, guts, and an appetite for risk, not to mention
available capital. These markets move, and they move quickly. Just take a
look at all the markets over the past few months - gold, oil, grains,
stock indexes, tropical markets, all of them with wild swings in both
directions. There are huge risks but incredible rewards for the savvy
trader or investor.
Cycles in commodities can be very predictable. There are no CEOs on the
inside cooking the books. There are no accounting firms puffing up profit
reports. You just have the commodities on the move. Trading on those
moves, you can make money no matter which way prices are headed.
I often refer to commodities trading as "the last bastion of pure
capitalism on earth." I mean, where else can you sell something you don't
own, buy it back half an hour later, and walk away with 100 percent
profit? Few investment vehicles offer the excitement, flexibility, and
tremendous profit opportunities of commodities.
It's unfortunate, but profit opportunities often are greatest when things
go wrong. Look at the devastation from Hurricane Katrina. When hurricane
season is in full swing it can be a very long summer indeed. Often, Gulf
Coast residents have barely picked up the pieces from the previous year's
debacle when it is time to batten down the hatches yet again.
In 2005, four Category 3 storms - Dennis, Katrina, Rita, and Wilma - left
a trail of havoc and destruction through a large part of the United
States. Hurricane Katrina's strong winds and heavy waves devastated the
Gulf Coast in late August. The storm and resulting flooding caused more
than 1,300 deaths and an estimated $100 billion in damage, making it the
most expensive natural disaster in U.S. history.
Nobody can predict for sure what any storm season will hold, but some
experts say we are in the beginning stages of a hurricane supercycle,
which usually lasts 15 to 20 years. Stockpiling positions in some of the
key commodities that may be adversely affected can be a very profitable
strategy. As certain industries brace for each new storm season, traders
can hedge themselves by adding specific commodities to their portfolios on
a limited basis, using options or even futures to some extent.
Don't feel guilty betting on a rough hurricane season; after all, like any
type of hedging, it's insurance. When we purchase fire insurance on our
houses, we don't hope they'll burn down, at least not usually. No, we take
out insurance to protect our investment - that's all we're doing.
The vulnerable markets include everything from natural gas and sugar to
orange juice and crude oil. Take sugar, for example. Sugar crops have
sustained hard hits in Florida and elsewhere from recent years'
hurricanes. Sugar has the added benefit of being a key ingredient in the
production of ethanol and is already in high demand, so there's a double
whammy here. Another market likely to be heavily impacted by a rough
hurricane season is natural gas. Remember, natural gas is used for heating
and cooling - again, a double-edged sword.
Another good risk/reward scenario heading into an active hurricane season
would be adding some unleaded gasoline call options to your portfolio.
Whoa! I know what you may be saying: "Oh, no! There he goes using all of
that trader jargon - calls, puts, straddles, strangles, and so on." No
worries; in my book, and in my trading service, it's all about speaking
plain English. We will learn what calls are, and all the other trading
terms, later.
All of these commodities and many more are almost certain to experience
intense volatility heading into and during hurricane season. But keep in
mind that volatility drives the commodity markets. The fear of what "may
happen can be more of a factor than the actual storms, so it's best not to
be greedy. Use a hedge for what it's for: protecting your overall
portfolio from the losses other holdings in your portfolio and property
may take as a result of the storms.
Another thing about hurricanes is that they do a lot of damage and leave a
mess to clean up. In 2005, more than 113 oil platforms were destroyed and
over 400 pipelines were damaged. Sometimes the best way to play resources
is to buy equities related to the companies that harvest the resources as
well as provide the drilling equipment and, eventually, the transportation
of the finished goods. For example, while not a direct resource play,
buying stocks related to transport of oil workers from oil platforms and
terminals was a very good investment that year. Even heading into the 2006
hurricane season it proved fruitful. Smaller stocks in companies that
transport workers to and from rigs and facilities - specifically, boat and
helicopter companies - were a very good investment.
This play was good globally, too. In the Scottish newspaper The Scotsman,
Frank Urquhart wrote about it just prior to the hurricane season in 2006
("Copter crisis threatens oil industry," 6/30/05):
"North Sea helicopter companies are struggling to meet a surge in demand
for their services because of a shortage of aircraft and crews to fly
them, it was revealed yesterday. The soaring price of oil has led to a
sudden and major increase in helicopter operations in the offshore oil and
gas industry."
Helicopters and transport are commodities in their own right in times of
need. This is only one example of the many investment opportunities
available that are simply associated with the commodities themselves.
Shipping, rail, storage, you name it - if it hauls, plows, hips, builds,
or refines, we can relate it to commodities and it can be a profitable
addition to our portfolios.
It can be as important to understand the psychology of the markets as it
is the mechanics. At the start of hurricane season nobody knows for sure
just how bad it will be. One thing is certain, though - a lot of attention
is being paid to it. This can often have the reverse effect on a trading
market should the hurricane season be relatively light. The old adage "Buy
the rumor, sell the news" certainly applies here.
In other words, put your positions on early and take early profits simply
on the back of the fear of what might happen, not what actually does
happen. Being married to a weather position is never fruitful for a
portfolio. Simply get in and get out. A smart trading strategy would be to
add one or all of the vulnerable commodities; then as you enter the
season, with a bit of luck, grab fairly quick profits, even before the
first winds start to really hit. There are many different scenarios - at
least as many as there are weather patterns - and we will address them
more thoroughly later. Remember, timing is everything.
It's always important to be four to six months ahead of the regular
calendar when trading commodities. Keep in mind that we're trading futures
not "currents"; it's vital always to be looking forward and thinking about
the impact of news, weather, and geopolitical events months in advance.
nicaragua - best kept secret
The world’s best-kept retirement secret
The war is long over, but the bad rap remains. Today's Nicaragua is an inexpensive paradise eager to welcome expatriates.
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Article Tools
E-mail to a friendTools IndexPrint-friendly versionSite MapDiscuss in a Message BoardArticle IndexBy International Living
Nicaragua is virtually unknown to most people and usually misunderstood, which is why forward-thinking investors can find some of the best real-estate deals on Earth in this country.
For the record, Nicaragua is not in the midst of a civil war, and it's not a communist state. The country has, however, suffered from a serious case of bad press.
Nicaragua is one of the most beautiful countries in all the Americas. It boasts a dramatic Pacific coastline; long, gentle Caribbean beaches, volcanoes and freshwater lakes dot the hilly inland. Colonial cities like Granada and León offer visitors a taste of days gone by, while Managua, the capital, is rapidly becoming a real first-world city.
The country's most famous beach destination, Barceló Playa Montelimar, is a 290-room, all-inclusive resort with four restaurants, an airstrip and miles of secluded beaches. Farther south is the popular town of San Juan del Sur, where cruise ships dock regularly. The town is quickly becoming a hot spot for North American expatriates.
Masaya is home to Nicaragua's best craft market, offering just about anything that's hand-crafted in the country -- ceramics, leather goods, iron work, hammocks, jewelry, rocking chairs, masks, clothing . . . you name it. There are five active volcanos at nearby Masaya Volcano National Park offering the best volcano viewing in Central and North America. It's the only place in the region where you can see hot magma rising from the depths of the Earth -- and you can drive right to the top.
Lake Nicaragua, the 10th-largest freshwater lake in the world, is famous for its freshwater sharks, the only ones in the world. The lake has great sport-fishing and, with 350 "isletas," island-hopping. The islands of Lake Nicaragua were created hundreds of years ago when the volcano Mombacho exploded. Today, you can explore this extinct volcano along trails in the cloud forest. You'll see more varieties of orchids than just about anywhere else in the world and all kinds of wildlife, including 170 counted species of birds and blue morpho butterflies. You can also take a canopy tour, shooting from treetop to treetop on harnessed zip-lines.
Safe and stunning
Nicaragua is a nation at peace. Its government is democratically elected, committed to a free-market economy and eager to attract foreign investors. A recent study by the Inter-American Institute on Human Rights and a survey of police forces in the Americas show that Nicaragua is the safest country in Central America and one of the safest countries in the world. Recent studies also point to Nicaragua's low reported crime rate -- lower than in Germany, France or the U.S.
In September 1999, Nicaragua enacted the most attractive -- and most aggressive -- tourism-incentive law in Latin America. If you've ever toyed with the idea of owning your own B&B, running a sailboat charter, leading adventure treks into the jungle, dishing up meals in your own restaurant or operating any kind of tourism-related business, Nicaragua is the place to do it.
Law 306 is sweeping in scope and offers hard-to-beat benefits for investors who take advantage of the program. If your business qualifies, you pay no income- or real-estate taxes for up to 10 years. You can bring in (or buy locally) all the supplies you need -- from furniture and boats to linens and cash registers -- tax- and duty-free.
Incentives for foreign retirees
If you're simply in the market for a place to relax and spend a few months a year in a quiet, safe, affordable retreat, again, Nicaragua is hard to beat. The country's retiree incentive program is much like Costa Rica's was in the 1980s, attracting thousands of expatriates. To be eligible, you need only be over 45 and have a monthly income of at least $400.
The benefits come mostly in the form of tax incentives. As a foreign retiree, you:
pay no taxes on any out-of-country earnings.
can bring into Nicaragua up to $10,000 of household goods for your own home, duty-free.
can import one automobile for personal or general use duty- and tariff-free, and sell it after five years, tax-free.
can import an additional vehicle every five years under the same duty exemptions.
The cost of living in Nicaragua is a fraction what you're used to paying up north. Our sources on the ground say a two-week supply of pork and beef costs about $65. For enough fresh vegetables to feed four or five people daily for a week, expect to pay about $55. A 30-minute consultation with a U.S.-trained physician will cost you about $35. You can hire a maid who will cook, clean and do your laundry for less than $120 a month; and you'll spend just $25 on a wonderful restaurant meal of local delicacies, including with wine and dessert.
The Pacific Coast
Because most of the world still believes Nicaragua is a country full of problems and political unrest, local real estate, especially waterfront real estate, is undervalued.
Developers are scurrying to build along the Pacific Coast, where the government is improving the local infrastructure by paving roads and improving tourist areas.
Not too long ago -- in 1997 -- we looked at raw land on the Pacific, a lot here and there for sale without amenities. Only one "development project" was under way. Now, you have several to choose from, all with water, electricity and views of the surf below.
While it's true that prices are already on the rise, it's still possible to find bargains. One development on a hill outside the town of San Juan del Sur has views of the harbor and the pristine coast. The development is a walk to the beach and a five-minute drive from town. Four years ago, a lot here with water, electricity, and paved roads started at $39,000. Now, an oceanfront lot in San Juan del Sur, with a home, can sell for up to $385,000. Yet, because Nicaragua is still booming, there are plenty of new developments emerging and a number of good deals remain along the Pacific Coast.
Near Grenada you'll find Lake Apoyo. This crater lake, formed over 21,000 years ago when a volcano erupted, is the largest crater lake in the country and one of the most beautiful. The views from the top stretch over the hillsides, taking in the blue waters below. Because of its elevation, Lake Apoyo is generally five degrees (Fahrenheit) cooler than Granada, just 15 minutes away. Its pristine water has therapeutic qualities, thanks to the sulfur and other minerals, and the temperature is 85 degrees all year long. It is in a Nicaraguan natural reserve and a proposed UNESCO World Heritage site.
Large three-bedroom, two-and-a-half-bathroom villas on the shore of Laguna de Apoyo can be purchased for $170,000 to $190,000. Each has views of the lake and Mombacho volcano, access to the lake and all resort facilities. Across the lake, one-acre beachfront lots are going for $90,000.
Granada
Charming Granada, on Lake Nicaragua, is the jewel of Nicaragua's colonial crown, the second-oldest city in the Americas. Its large central plaza is surrounded by 16th-century colonial buildings, great restaurants, museums and other entertainment.
You can pick up a vacant lot in an area of town where you might not want to live right now, but could probably live in a couple years, for around $45,000. You could also buy a habitable two-bedroom, two-bathroom house within walking distance of the center of town for around $80,000 to $100,000. Fully restored three-bedroom, two-bathroom colonial homes are going for $150,000 and up.
Word is getting out about this country. But it's not simply because the property deals are so attractive or the cost of living so affordable. It's because this country boasts a stable democracy, a booming economy and one of the most comprehensive incentive programs anywhere.
By Kathleen Peddicord, International Living
Kathleen Peddicord is the publisher of International Living, a 25-year-old business that publishes several free e-letters, a monthly print newsletter, and a growing line of books and reports, all detailing the best places in the world for Americans to live, travel and invest. Eight years ago she decided to bite the bullet herself, and moved her family of four from Baltimore, Maryland to Waterford, Ireland. Since mid-2004, she has been dividing her time between Waterford and Paris, France.
International Living publishes several free e-mail newsletters about retiring, living, and traveling overseas. Kathleen Peddicord recommends: IL Postcards, a daily publication on the world's best travel and retirement opportunities. You'll find full details here.
For more information about anything you have read in this article, write to Webeditor@InternationalLiving.com
The war is long over, but the bad rap remains. Today's Nicaragua is an inexpensive paradise eager to welcome expatriates.
advertisement
Article Tools
E-mail to a friendTools IndexPrint-friendly versionSite MapDiscuss in a Message BoardArticle IndexBy International Living
Nicaragua is virtually unknown to most people and usually misunderstood, which is why forward-thinking investors can find some of the best real-estate deals on Earth in this country.
For the record, Nicaragua is not in the midst of a civil war, and it's not a communist state. The country has, however, suffered from a serious case of bad press.
Nicaragua is one of the most beautiful countries in all the Americas. It boasts a dramatic Pacific coastline; long, gentle Caribbean beaches, volcanoes and freshwater lakes dot the hilly inland. Colonial cities like Granada and León offer visitors a taste of days gone by, while Managua, the capital, is rapidly becoming a real first-world city.
The country's most famous beach destination, Barceló Playa Montelimar, is a 290-room, all-inclusive resort with four restaurants, an airstrip and miles of secluded beaches. Farther south is the popular town of San Juan del Sur, where cruise ships dock regularly. The town is quickly becoming a hot spot for North American expatriates.
Masaya is home to Nicaragua's best craft market, offering just about anything that's hand-crafted in the country -- ceramics, leather goods, iron work, hammocks, jewelry, rocking chairs, masks, clothing . . . you name it. There are five active volcanos at nearby Masaya Volcano National Park offering the best volcano viewing in Central and North America. It's the only place in the region where you can see hot magma rising from the depths of the Earth -- and you can drive right to the top.
Lake Nicaragua, the 10th-largest freshwater lake in the world, is famous for its freshwater sharks, the only ones in the world. The lake has great sport-fishing and, with 350 "isletas," island-hopping. The islands of Lake Nicaragua were created hundreds of years ago when the volcano Mombacho exploded. Today, you can explore this extinct volcano along trails in the cloud forest. You'll see more varieties of orchids than just about anywhere else in the world and all kinds of wildlife, including 170 counted species of birds and blue morpho butterflies. You can also take a canopy tour, shooting from treetop to treetop on harnessed zip-lines.
Safe and stunning
Nicaragua is a nation at peace. Its government is democratically elected, committed to a free-market economy and eager to attract foreign investors. A recent study by the Inter-American Institute on Human Rights and a survey of police forces in the Americas show that Nicaragua is the safest country in Central America and one of the safest countries in the world. Recent studies also point to Nicaragua's low reported crime rate -- lower than in Germany, France or the U.S.
In September 1999, Nicaragua enacted the most attractive -- and most aggressive -- tourism-incentive law in Latin America. If you've ever toyed with the idea of owning your own B&B, running a sailboat charter, leading adventure treks into the jungle, dishing up meals in your own restaurant or operating any kind of tourism-related business, Nicaragua is the place to do it.
Law 306 is sweeping in scope and offers hard-to-beat benefits for investors who take advantage of the program. If your business qualifies, you pay no income- or real-estate taxes for up to 10 years. You can bring in (or buy locally) all the supplies you need -- from furniture and boats to linens and cash registers -- tax- and duty-free.
Incentives for foreign retirees
If you're simply in the market for a place to relax and spend a few months a year in a quiet, safe, affordable retreat, again, Nicaragua is hard to beat. The country's retiree incentive program is much like Costa Rica's was in the 1980s, attracting thousands of expatriates. To be eligible, you need only be over 45 and have a monthly income of at least $400.
The benefits come mostly in the form of tax incentives. As a foreign retiree, you:
pay no taxes on any out-of-country earnings.
can bring into Nicaragua up to $10,000 of household goods for your own home, duty-free.
can import one automobile for personal or general use duty- and tariff-free, and sell it after five years, tax-free.
can import an additional vehicle every five years under the same duty exemptions.
The cost of living in Nicaragua is a fraction what you're used to paying up north. Our sources on the ground say a two-week supply of pork and beef costs about $65. For enough fresh vegetables to feed four or five people daily for a week, expect to pay about $55. A 30-minute consultation with a U.S.-trained physician will cost you about $35. You can hire a maid who will cook, clean and do your laundry for less than $120 a month; and you'll spend just $25 on a wonderful restaurant meal of local delicacies, including with wine and dessert.
The Pacific Coast
Because most of the world still believes Nicaragua is a country full of problems and political unrest, local real estate, especially waterfront real estate, is undervalued.
Developers are scurrying to build along the Pacific Coast, where the government is improving the local infrastructure by paving roads and improving tourist areas.
Not too long ago -- in 1997 -- we looked at raw land on the Pacific, a lot here and there for sale without amenities. Only one "development project" was under way. Now, you have several to choose from, all with water, electricity and views of the surf below.
While it's true that prices are already on the rise, it's still possible to find bargains. One development on a hill outside the town of San Juan del Sur has views of the harbor and the pristine coast. The development is a walk to the beach and a five-minute drive from town. Four years ago, a lot here with water, electricity, and paved roads started at $39,000. Now, an oceanfront lot in San Juan del Sur, with a home, can sell for up to $385,000. Yet, because Nicaragua is still booming, there are plenty of new developments emerging and a number of good deals remain along the Pacific Coast.
Near Grenada you'll find Lake Apoyo. This crater lake, formed over 21,000 years ago when a volcano erupted, is the largest crater lake in the country and one of the most beautiful. The views from the top stretch over the hillsides, taking in the blue waters below. Because of its elevation, Lake Apoyo is generally five degrees (Fahrenheit) cooler than Granada, just 15 minutes away. Its pristine water has therapeutic qualities, thanks to the sulfur and other minerals, and the temperature is 85 degrees all year long. It is in a Nicaraguan natural reserve and a proposed UNESCO World Heritage site.
Large three-bedroom, two-and-a-half-bathroom villas on the shore of Laguna de Apoyo can be purchased for $170,000 to $190,000. Each has views of the lake and Mombacho volcano, access to the lake and all resort facilities. Across the lake, one-acre beachfront lots are going for $90,000.
Granada
Charming Granada, on Lake Nicaragua, is the jewel of Nicaragua's colonial crown, the second-oldest city in the Americas. Its large central plaza is surrounded by 16th-century colonial buildings, great restaurants, museums and other entertainment.
You can pick up a vacant lot in an area of town where you might not want to live right now, but could probably live in a couple years, for around $45,000. You could also buy a habitable two-bedroom, two-bathroom house within walking distance of the center of town for around $80,000 to $100,000. Fully restored three-bedroom, two-bathroom colonial homes are going for $150,000 and up.
Word is getting out about this country. But it's not simply because the property deals are so attractive or the cost of living so affordable. It's because this country boasts a stable democracy, a booming economy and one of the most comprehensive incentive programs anywhere.
By Kathleen Peddicord, International Living
Kathleen Peddicord is the publisher of International Living, a 25-year-old business that publishes several free e-letters, a monthly print newsletter, and a growing line of books and reports, all detailing the best places in the world for Americans to live, travel and invest. Eight years ago she decided to bite the bullet herself, and moved her family of four from Baltimore, Maryland to Waterford, Ireland. Since mid-2004, she has been dividing her time between Waterford and Paris, France.
International Living publishes several free e-mail newsletters about retiring, living, and traveling overseas. Kathleen Peddicord recommends: IL Postcards, a daily publication on the world's best travel and retirement opportunities. You'll find full details here.
For more information about anything you have read in this article, write to Webeditor@InternationalLiving.com
Tuesday, February 6, 2007
rich vs poor gap, protect from fall down economic ladder
Bernanke warns of growing rich-poor gap
By UPI
Feb 6, 2007, 19:30 GMT
OMAHA, NE, United States (UPI) -- Federal Reserve Chairman Ben Bernanke Tuesday warned about the growing U.S. gap between rich and poor and called for improved education and training.
'A substantial body of research demonstrates that investments in education and training pay high rates of return both to individuals and to the society at large,' he told the Greater Omaha (Neb.) Chamber of Commerce.
Bernanke noted 'inequality in economic outcomes' was a byproduct of improved U.S. standards of living.
While economic opportunity should be 'as equal as possible,' economic outcomes 'should be linked to the contributions each person makes to the economy,' he said.
But he said society had a responsibility to give people 'some insurance against the most adverse economic outcomes, especially those arising from events largely outside the person`s control.'
No one should be allowed to 'slip too far down the economic ladder, especially for reasons beyond his or her control,' he said.
He said the growing income gap might make some people less willing to accept the economic dynamism that prompts factory closings. But he warned politicians not to enact protectionist measures to control labor markets or international trade.
By UPI
Feb 6, 2007, 19:30 GMT
OMAHA, NE, United States (UPI) -- Federal Reserve Chairman Ben Bernanke Tuesday warned about the growing U.S. gap between rich and poor and called for improved education and training.
'A substantial body of research demonstrates that investments in education and training pay high rates of return both to individuals and to the society at large,' he told the Greater Omaha (Neb.) Chamber of Commerce.
Bernanke noted 'inequality in economic outcomes' was a byproduct of improved U.S. standards of living.
While economic opportunity should be 'as equal as possible,' economic outcomes 'should be linked to the contributions each person makes to the economy,' he said.
But he said society had a responsibility to give people 'some insurance against the most adverse economic outcomes, especially those arising from events largely outside the person`s control.'
No one should be allowed to 'slip too far down the economic ladder, especially for reasons beyond his or her control,' he said.
He said the growing income gap might make some people less willing to accept the economic dynamism that prompts factory closings. But he warned politicians not to enact protectionist measures to control labor markets or international trade.
Monday, February 5, 2007
million mile car, money decision
Cars that last a million miles
Yes, it's still rare to see a million miles on an odometer, but it happens. And while in decades past automobiles were often junkyard-bound at 100,000 miles, today's cars can easily run 200,000 miles or more with minimal maintenance.
Automaker Saab announced recently that it would give a free car to any original U.S. Saab owner who drives the car 1 million miles or more. Spurring the challenge were Wisconsin insurance salesman Peter Gilbert and his 1989 Edwardian Gray Saab 900 SPG, whose odometer not long ago clicked over to six zeros.
His car, now in a museum, still has its original engine and turbocharger.
That's impressive, but he can't touch retired New York schoolteacher Irv Gordon, who's in Guinness World Records for having driven more than 2.5 million miles in his cherry-red 1966 Volvo P1800.
Though stories such as Gilbert's and Gordon's happen once in a blue moon, people who drive their cars for several hundred thousand miles today aren't so unusual. And they're not all devotees of Swedish iron.
Virtually every marque -- Chrysler, Honda, Chevrolet, even Miata -- has a not-so-underground community that's just as proud of the car at 500,000 miles as when it was new, maybe even more. (Mercedes and Volvo hand out grille badges and window stickers.) And their secrets range from the mundane to the downright mystic.
How long should a car last?
"Days past, 100,000 miles was usually the average life of a car," says John Ibbotson, a workshop supervisor who's in charge of vehicles that are tested for Consumer Reports' Auto Test Center in Connecticut, referring to vehicles from the 1950s to 1970s.
"At 100,000 miles, we were into major engine and transmission rebuilding," Ibbotson says. "Cars in the '90s, it was 140,000, 150,000 miles."
The U.S. Department of Transportation reports the average life span of a vehicle is 12 years, or about 128,500 miles. But that could be low simply because people don't maintain them, Ibbotson says. "If you bought a car today, there shouldn't be any problem with that car going 200,000 miles," he says.
Here's how to take advantage of new pricing rules. Plus, find out what action you can take right now to cut down your premium.
Ibbotson's tips:
Read the book. "The biggest key is doing the maintenance that's in the owner's manual," he says. Simply stick to that schedule. But amazingly, he says, "very few people read the owner's manual."
Clean me. Don't let road salt build up on a car if you're in a state where you have to worry about that. It'll rust the car's body.
Money isn't the answer. Not every service will prolong your car's life. "Some dealers offer fuel-injection cleaning (for example). It's not necessary," Ibbotson says.
Pray for luck. "There is some level of luck" whether you get a car that lasts forever, Ibbotson says. He recalls his father recently sold a 1995 truck with 200,000 miles, and it was in good shape even though he had done almost "absolutely nothing" to it. Meanwhile, a friend has a newer truck of the same model, same body style, with only 65,000 miles, "and that vehicle has had much more maintenance done."
A fascination with Festivas
Suzanne Mitchell and her tiny 1992 Ford Festiva L have had quite the love affair. "We bought it when we left (New York City) and moved to the suburbs," says Mitchell, who lives in Rockland County, N.Y. She started using the Festiva to commute to her job as a TV producer. The years, and the miles, rolled by.
Today the Festiva has about 250,000 miles -- not bad for a car that cost her $5,600 new.
So much does Mitchell love this car that when the odometer approached 200,000 miles she threw a "Fiesta for the Festiva," complete with margaritas, Mexican food and a piñata filled with toy cars. About 10 people jammed into the Festiva -- including a cameraman -- to watch the odometer turn over.
Why does Mitchell adore it so? It isn't because it's beautiful. In fact, it's runty, stripped-down and tinny. But others love the Festiva, too: "I could be driving in a Bentley Continental GT, and nobody would care where I got it," Mitchell says. Yet several times each year people leave notes on the Festiva asking if she wants to sell it. "Not only notes -- but people will signal me or give me the thumbs up," she says.
"It's just incredibly, highly efficient," Mitchell says, explaining that a fill-up costs only about $15 and that the car still gets in the "high 30s" for gas mileage. "It's perfect for the city" -- shorter than her family's Mini Cooper by 4 inches, she says, yet there's more interior room than the Mini.
What has she done to keep it going? "Nothing. We repair a little rust. And I swear I've only done oil changes. And we recently put a strut in. But anybody would have to do that for a car that old." The car has never been garaged, either. It helps that the car gets mostly highway miles, Mitchell adds.
Her advice:
Change that oil. "My husband completely disagrees with me, but I change the oil religiously every 3,000 miles; hey, it works for me." (Other experts say to stick to the oil-change regimen prescribed by the owner's manual, whatever that is.)
Think simple. An inexpensive car like the Festiva has almost no electronics -- and therefore less that can send it to the mechanic, says Mitchell. Unfortunately, they don't make them much like that anymore.
Sticking with his Saturn
Duane Delegan isn't shy about it: He's frugal. Superfrugal. Growing up, when the family was "really, really poor," the Chicago-area man even recalls lending his parents money from his piggy bank.
So when Delegan buys a car, he makes it last. In 1994, Delegan splurged and bought a new four-cylinder Saturn SC2 for $14,000. About 390,000 miles later, the Saturn is still rolling. What's his secret?
Delegan says he once read about a short-haul railroad company that saved huge amounts on maintenance by not pushing its trains beyond 80% of their limits because the top 20% of speed was where of the 80% of the wear and tear occurred.
Video on MSN Money: Pay more for guilt-free gas?
Video: Terrorist-free gasoline and oil
A gas station in Omaha, Neb., will be the first to offer "terror-free oil and gas," which comes from non-terrorist-sponsoring nations. Would you buy it if it was available near your home?
He took the lesson to heart. He rarely if ever goes faster than 60 mph, instead settling in behind a slow-moving tractor-trailer on the highway. "If you slow down on the expressways, you get in less accidents, you get less speeding tickets. . . . You get better gas mileage," says Delegan, who now lives in a rural area near Chicago but has put both city and country miles on his car. "I just checked it the other day, and I still get 36 miles to the gallon."
The Saturn has required very little: an alternator, some tires. "I think I had to replace the rear wheel bearing once, but other than that it's been OK." Every other time he fuels up, however, Delegan now has to add a quart of oil. The fact that a car like the Saturn has a plastic exterior has saved it from much rust, he adds.
A vehicle will last a long time if you just avoid the temptation to buy another, says Delegan. Buy something you can live with, that has more classic styling and color, he advises. (Alas, he says his gold Saturn looks "kind of like a beached whale" and has teardrop mag wheels, but could look worse for a 12-year-old car.)
"Anytime you want to buy a new car, wait 60 days, then remember each day, you are not making payments, paying sales tax, higher insurance fees, new licensing fees and not worrying about dents," Delegan says.
"The cost of a new car is $20,000 to $30,000. The cost of a high-mileage car without payments? Priceless."
More do's and don'ts from Delegan:
Stick it. Buy a manual transmission vehicle; it will last longer.
Keep it to yourself. Never let anyone else drive your car.
Keep it simple. "Always purchase the most basic version of the car model. You will stay out of the dealership service department and save tons of money and frustrations. Power windows or seats and digital gauges always break," says Delegan. Those extras don't add much if at all to the resale value after a few years, but they can add to the headaches, he says.
The obligatory Volvo
Volvos have a reputation for longevity, but Dennis Hatfield's wife wishes his boxy 1985 740 station wagon would give up the ghost.
Fat chance. The wagon, with 473,000 miles, is Hatfield's pride and joy, and he babies it.
The 58-year-old Sacramento notary and his wife bought the Swedish stalwart new. "I used to drive a lot. I was a mortgage broker at the time, and I would drive 50 miles to my job," Hatfield says.
He didn't get really interested in the car, however, until about the time his son rear-ended someone with the Volvo, doing $4,400 in damage. "The insurance company said the car was only worth $1,000, so I bought it back from them" and made it a "daily driver." Around 390,000 miles, he began to modify it.
Automakers are cashing in on baby boomers, who spend an average of $40,000 per car and purchase 60% of all luxury cars.
And how. "I had a turbo engine transplanted in it -- it's probably got 60 more horsepower in it," Hatfield says. It's got bigger pistons. A special air-fuel management system. When the original computer chip couldn't deal with this, Hatfield put in some new electronics. He's even taken it to the track on special Volvo days.
Hatfield takes a different approach than the others. He's spent a lot of money on his ride. "Oh, my goodness, maybe $20,000 -- probably more like $30,000," says Hatfield. "This is my midlife crisis," he says of his major hobby.
"It's got loud exhaust on it, and it rides real rough because of the (racing) suspension, so my wife hates it, which makes me love it" more, he adds.
When asked if it's a stick shift, Hatfield replies: "It's gonna be, but it's not yet."
Hatfield's tip:
Find a good mechanic. Get a mechanic you really trust and who will come to know your car -- someone other than the dealer, who usually charges an arm and a leg and whose work doesn't always reflect that, Hatfield says.
Yes, it's still rare to see a million miles on an odometer, but it happens. And while in decades past automobiles were often junkyard-bound at 100,000 miles, today's cars can easily run 200,000 miles or more with minimal maintenance.
Automaker Saab announced recently that it would give a free car to any original U.S. Saab owner who drives the car 1 million miles or more. Spurring the challenge were Wisconsin insurance salesman Peter Gilbert and his 1989 Edwardian Gray Saab 900 SPG, whose odometer not long ago clicked over to six zeros.
His car, now in a museum, still has its original engine and turbocharger.
That's impressive, but he can't touch retired New York schoolteacher Irv Gordon, who's in Guinness World Records for having driven more than 2.5 million miles in his cherry-red 1966 Volvo P1800.
Though stories such as Gilbert's and Gordon's happen once in a blue moon, people who drive their cars for several hundred thousand miles today aren't so unusual. And they're not all devotees of Swedish iron.
Virtually every marque -- Chrysler, Honda, Chevrolet, even Miata -- has a not-so-underground community that's just as proud of the car at 500,000 miles as when it was new, maybe even more. (Mercedes and Volvo hand out grille badges and window stickers.) And their secrets range from the mundane to the downright mystic.
How long should a car last?
"Days past, 100,000 miles was usually the average life of a car," says John Ibbotson, a workshop supervisor who's in charge of vehicles that are tested for Consumer Reports' Auto Test Center in Connecticut, referring to vehicles from the 1950s to 1970s.
"At 100,000 miles, we were into major engine and transmission rebuilding," Ibbotson says. "Cars in the '90s, it was 140,000, 150,000 miles."
The U.S. Department of Transportation reports the average life span of a vehicle is 12 years, or about 128,500 miles. But that could be low simply because people don't maintain them, Ibbotson says. "If you bought a car today, there shouldn't be any problem with that car going 200,000 miles," he says.
Here's how to take advantage of new pricing rules. Plus, find out what action you can take right now to cut down your premium.
Ibbotson's tips:
Read the book. "The biggest key is doing the maintenance that's in the owner's manual," he says. Simply stick to that schedule. But amazingly, he says, "very few people read the owner's manual."
Clean me. Don't let road salt build up on a car if you're in a state where you have to worry about that. It'll rust the car's body.
Money isn't the answer. Not every service will prolong your car's life. "Some dealers offer fuel-injection cleaning (for example). It's not necessary," Ibbotson says.
Pray for luck. "There is some level of luck" whether you get a car that lasts forever, Ibbotson says. He recalls his father recently sold a 1995 truck with 200,000 miles, and it was in good shape even though he had done almost "absolutely nothing" to it. Meanwhile, a friend has a newer truck of the same model, same body style, with only 65,000 miles, "and that vehicle has had much more maintenance done."
A fascination with Festivas
Suzanne Mitchell and her tiny 1992 Ford Festiva L have had quite the love affair. "We bought it when we left (New York City) and moved to the suburbs," says Mitchell, who lives in Rockland County, N.Y. She started using the Festiva to commute to her job as a TV producer. The years, and the miles, rolled by.
Today the Festiva has about 250,000 miles -- not bad for a car that cost her $5,600 new.
So much does Mitchell love this car that when the odometer approached 200,000 miles she threw a "Fiesta for the Festiva," complete with margaritas, Mexican food and a piñata filled with toy cars. About 10 people jammed into the Festiva -- including a cameraman -- to watch the odometer turn over.
Why does Mitchell adore it so? It isn't because it's beautiful. In fact, it's runty, stripped-down and tinny. But others love the Festiva, too: "I could be driving in a Bentley Continental GT, and nobody would care where I got it," Mitchell says. Yet several times each year people leave notes on the Festiva asking if she wants to sell it. "Not only notes -- but people will signal me or give me the thumbs up," she says.
"It's just incredibly, highly efficient," Mitchell says, explaining that a fill-up costs only about $15 and that the car still gets in the "high 30s" for gas mileage. "It's perfect for the city" -- shorter than her family's Mini Cooper by 4 inches, she says, yet there's more interior room than the Mini.
What has she done to keep it going? "Nothing. We repair a little rust. And I swear I've only done oil changes. And we recently put a strut in. But anybody would have to do that for a car that old." The car has never been garaged, either. It helps that the car gets mostly highway miles, Mitchell adds.
Her advice:
Change that oil. "My husband completely disagrees with me, but I change the oil religiously every 3,000 miles; hey, it works for me." (Other experts say to stick to the oil-change regimen prescribed by the owner's manual, whatever that is.)
Think simple. An inexpensive car like the Festiva has almost no electronics -- and therefore less that can send it to the mechanic, says Mitchell. Unfortunately, they don't make them much like that anymore.
Sticking with his Saturn
Duane Delegan isn't shy about it: He's frugal. Superfrugal. Growing up, when the family was "really, really poor," the Chicago-area man even recalls lending his parents money from his piggy bank.
So when Delegan buys a car, he makes it last. In 1994, Delegan splurged and bought a new four-cylinder Saturn SC2 for $14,000. About 390,000 miles later, the Saturn is still rolling. What's his secret?
Delegan says he once read about a short-haul railroad company that saved huge amounts on maintenance by not pushing its trains beyond 80% of their limits because the top 20% of speed was where of the 80% of the wear and tear occurred.
Video on MSN Money: Pay more for guilt-free gas?
Video: Terrorist-free gasoline and oil
A gas station in Omaha, Neb., will be the first to offer "terror-free oil and gas," which comes from non-terrorist-sponsoring nations. Would you buy it if it was available near your home?
He took the lesson to heart. He rarely if ever goes faster than 60 mph, instead settling in behind a slow-moving tractor-trailer on the highway. "If you slow down on the expressways, you get in less accidents, you get less speeding tickets. . . . You get better gas mileage," says Delegan, who now lives in a rural area near Chicago but has put both city and country miles on his car. "I just checked it the other day, and I still get 36 miles to the gallon."
The Saturn has required very little: an alternator, some tires. "I think I had to replace the rear wheel bearing once, but other than that it's been OK." Every other time he fuels up, however, Delegan now has to add a quart of oil. The fact that a car like the Saturn has a plastic exterior has saved it from much rust, he adds.
A vehicle will last a long time if you just avoid the temptation to buy another, says Delegan. Buy something you can live with, that has more classic styling and color, he advises. (Alas, he says his gold Saturn looks "kind of like a beached whale" and has teardrop mag wheels, but could look worse for a 12-year-old car.)
"Anytime you want to buy a new car, wait 60 days, then remember each day, you are not making payments, paying sales tax, higher insurance fees, new licensing fees and not worrying about dents," Delegan says.
"The cost of a new car is $20,000 to $30,000. The cost of a high-mileage car without payments? Priceless."
More do's and don'ts from Delegan:
Stick it. Buy a manual transmission vehicle; it will last longer.
Keep it to yourself. Never let anyone else drive your car.
Keep it simple. "Always purchase the most basic version of the car model. You will stay out of the dealership service department and save tons of money and frustrations. Power windows or seats and digital gauges always break," says Delegan. Those extras don't add much if at all to the resale value after a few years, but they can add to the headaches, he says.
The obligatory Volvo
Volvos have a reputation for longevity, but Dennis Hatfield's wife wishes his boxy 1985 740 station wagon would give up the ghost.
Fat chance. The wagon, with 473,000 miles, is Hatfield's pride and joy, and he babies it.
The 58-year-old Sacramento notary and his wife bought the Swedish stalwart new. "I used to drive a lot. I was a mortgage broker at the time, and I would drive 50 miles to my job," Hatfield says.
He didn't get really interested in the car, however, until about the time his son rear-ended someone with the Volvo, doing $4,400 in damage. "The insurance company said the car was only worth $1,000, so I bought it back from them" and made it a "daily driver." Around 390,000 miles, he began to modify it.
Automakers are cashing in on baby boomers, who spend an average of $40,000 per car and purchase 60% of all luxury cars.
And how. "I had a turbo engine transplanted in it -- it's probably got 60 more horsepower in it," Hatfield says. It's got bigger pistons. A special air-fuel management system. When the original computer chip couldn't deal with this, Hatfield put in some new electronics. He's even taken it to the track on special Volvo days.
Hatfield takes a different approach than the others. He's spent a lot of money on his ride. "Oh, my goodness, maybe $20,000 -- probably more like $30,000," says Hatfield. "This is my midlife crisis," he says of his major hobby.
"It's got loud exhaust on it, and it rides real rough because of the (racing) suspension, so my wife hates it, which makes me love it" more, he adds.
When asked if it's a stick shift, Hatfield replies: "It's gonna be, but it's not yet."
Hatfield's tip:
Find a good mechanic. Get a mechanic you really trust and who will come to know your car -- someone other than the dealer, who usually charges an arm and a leg and whose work doesn't always reflect that, Hatfield says.
housing market masked a weak economy sdf
How housing masked a weak economy
Since 2001, the nation's economic growth has been powered by the real estate industry, particularly mortgage-equity withdrawals. Without housing to prop it up, the economy is in trouble.
"Housing mania will end in tears." That belief served as the headline of my column back on March 7, 2005. Now this scenario is slowly playing out as, directly or indirectly, the noose around the housing ATM continues to tighten.
Withdrawing equity from one's home was the economy, from essentially 2001 through sometime last year. A statistic from a recent report by John Mauldin says it all: Real GDP growth, excluding mortgage-equity withdrawals, averaged less than 1% over the past six years (it averaged a little more than 2.5% a year overall). During the thick of it, the real estate industry was responsible, directly or indirectly, for 40% of all jobs created.
That 40% contribution to job creation has, in the past 18 months or so, declined to about 13% of new jobs. It will soon be responsible for the bulk of job losses, in my opinion. In fact, my friend in the subprime business said that WMC Mortgage, a wholly owned subsidiary of General Electric (GE, news, msgs), is laying off 35% of its work force, taking a $100 million charge and cutting back on its writing of loans.
But what's even more important, he notes: "They (WMC folks) are going to get rid of all 100% financing on all borrowers below 700 FICO. Also, (there will be a) 95% cap on first-time homebuyers. All we talked about is coming to a head. Now watch the home builders suffer."
(Editor's note: A WMC spokeswoman declined to comment on what she called "speculation" about layoffs and said the company is currently adjusting the types of loans it makes and its guidelines for underwriting loans. As for the charge, she said there have been more requests than usual from WMC's investors asking that the company repurchase loans from those investors.)
This is a story with far greater ramifications than just for the subprime sector, and we need to keep that in mind, even as the lunatic fringe -- i.e., the banking industry -- once again lusts after last cycle's winners: the mortgage originators.
In 2000, banks were busy buying brokerage firms, particularly those of a tech bent, such as Montgomery Securities and Robertson Stephens. In past cycles, they wanted to lend to leveraged-buyout artists, and before that there were "oil patch" loans, etc. Banks have an uncanny ability to pour capital into the wrong place at the wrong time. Bottom line: Wherever they are busy making acquisitions will be the source of problems in the next two years.
Home lenders versus the House
I have repeatedly made the point that there are no adults at home in the home-lending business, which is why I found it interesting reading some comments by U.S. Rep. Barney Frank. Though I wouldn't necessarily have picked the Massachusetts Democrat as the voice of reason, in a recent edition of the San Jose Mercury News he shared this novel thought:
"You shouldn't lend (home buyers or re-financers) more than they can afford to pay back, and you don't lend them more than their house is worth. . . . You can't just make a loan and then sell it (to investors, forget about it and expect no legal liability for putting people into a mortgage that never made sense for their situation)."
(The parenthetical material is Frank being paraphrased by the writer.)
Though those comments make perfect sense, and one would think that any lender with a brain would refrain from that kind of risky behavior, we also know that it's exactly what lenders have done. As for the consequences on the other side, my guess is that we'll see an enormous amount of lawsuits brought by folks who say that they were unsuitable candidates for the loans in the first place. (To quote a Jan. 26 New York Times headline: "Tremors at the Door: More People with Weak Credit Are Defaulting on Mortgages.")
Given that Frank is the new chairman of the House Committee on Financial Services, it sounds to me like Congress will be receptive to their arguments -- though that doesn't mean the courts will be. In any case, it seems quite clear to me that new legislation will be enacted. Which, of course, is just another way to tighten lending standards that are already being tightened.
At some point, the amount of damage being done will rapidly accelerate. I am certain that one day, when we look back on this period -- which witnessed the incredible housing-stock rally that ran from summer 2006 through early 2007, before it collapsed -- and we describe it to folks who may not have seen it firsthand, they will shake their heads in disbelief, the same way that folks now look back at the Nifty 50, the stocks that propelled a doomed early-1970s bull market, and ask: How could anyone have been so naive to have believed that concept?
Since 2001, the nation's economic growth has been powered by the real estate industry, particularly mortgage-equity withdrawals. Without housing to prop it up, the economy is in trouble.
"Housing mania will end in tears." That belief served as the headline of my column back on March 7, 2005. Now this scenario is slowly playing out as, directly or indirectly, the noose around the housing ATM continues to tighten.
Withdrawing equity from one's home was the economy, from essentially 2001 through sometime last year. A statistic from a recent report by John Mauldin says it all: Real GDP growth, excluding mortgage-equity withdrawals, averaged less than 1% over the past six years (it averaged a little more than 2.5% a year overall). During the thick of it, the real estate industry was responsible, directly or indirectly, for 40% of all jobs created.
That 40% contribution to job creation has, in the past 18 months or so, declined to about 13% of new jobs. It will soon be responsible for the bulk of job losses, in my opinion. In fact, my friend in the subprime business said that WMC Mortgage, a wholly owned subsidiary of General Electric (GE, news, msgs), is laying off 35% of its work force, taking a $100 million charge and cutting back on its writing of loans.
But what's even more important, he notes: "They (WMC folks) are going to get rid of all 100% financing on all borrowers below 700 FICO. Also, (there will be a) 95% cap on first-time homebuyers. All we talked about is coming to a head. Now watch the home builders suffer."
(Editor's note: A WMC spokeswoman declined to comment on what she called "speculation" about layoffs and said the company is currently adjusting the types of loans it makes and its guidelines for underwriting loans. As for the charge, she said there have been more requests than usual from WMC's investors asking that the company repurchase loans from those investors.)
This is a story with far greater ramifications than just for the subprime sector, and we need to keep that in mind, even as the lunatic fringe -- i.e., the banking industry -- once again lusts after last cycle's winners: the mortgage originators.
In 2000, banks were busy buying brokerage firms, particularly those of a tech bent, such as Montgomery Securities and Robertson Stephens. In past cycles, they wanted to lend to leveraged-buyout artists, and before that there were "oil patch" loans, etc. Banks have an uncanny ability to pour capital into the wrong place at the wrong time. Bottom line: Wherever they are busy making acquisitions will be the source of problems in the next two years.
Home lenders versus the House
I have repeatedly made the point that there are no adults at home in the home-lending business, which is why I found it interesting reading some comments by U.S. Rep. Barney Frank. Though I wouldn't necessarily have picked the Massachusetts Democrat as the voice of reason, in a recent edition of the San Jose Mercury News he shared this novel thought:
"You shouldn't lend (home buyers or re-financers) more than they can afford to pay back, and you don't lend them more than their house is worth. . . . You can't just make a loan and then sell it (to investors, forget about it and expect no legal liability for putting people into a mortgage that never made sense for their situation)."
(The parenthetical material is Frank being paraphrased by the writer.)
Though those comments make perfect sense, and one would think that any lender with a brain would refrain from that kind of risky behavior, we also know that it's exactly what lenders have done. As for the consequences on the other side, my guess is that we'll see an enormous amount of lawsuits brought by folks who say that they were unsuitable candidates for the loans in the first place. (To quote a Jan. 26 New York Times headline: "Tremors at the Door: More People with Weak Credit Are Defaulting on Mortgages.")
Given that Frank is the new chairman of the House Committee on Financial Services, it sounds to me like Congress will be receptive to their arguments -- though that doesn't mean the courts will be. In any case, it seems quite clear to me that new legislation will be enacted. Which, of course, is just another way to tighten lending standards that are already being tightened.
At some point, the amount of damage being done will rapidly accelerate. I am certain that one day, when we look back on this period -- which witnessed the incredible housing-stock rally that ran from summer 2006 through early 2007, before it collapsed -- and we describe it to folks who may not have seen it firsthand, they will shake their heads in disbelief, the same way that folks now look back at the Nifty 50, the stocks that propelled a doomed early-1970s bull market, and ask: How could anyone have been so naive to have believed that concept?
Middle Class Crunch, who's to blame
Middle class crunch: Who's to blame?
You're not imagining it: It's harder than ever to get into the middle class and stay there. Here's how you’ll succeed . . . and why many others will fail.
Write about poverty, affluence, whether the middle class is disappearing and if so, whose fault it is . . . and people go berserk.
Reader reaction to stories MSN Money has posted on these topics, including "Surviving (and thriving) on $12,000 a year," "I make $6.50 an hour. Am I poor?" and "Middle class living on the edge," has been overwhelming and mostly positive.
But each story has touched off vociferous debates on message boards and in e-mails about who's to blame for financial failure.
In one camp are the folks who are convinced that American workers are being squashed by the economy, the government, big corporations, lenders, the system in general. They see many, if not most, people as helpless pawns in a game that's rigged against them.
In another are those equally sure that there's no excuse for failing. If you've fallen down the economic ladder, or never figured out how to climb it in the first place, in their view it is solely and entirely Your Own Damned Fault.
The truth is somewhere in between. A decent job is no longer an easy ticket to a middle-class life. It's not just that things like health care and pensions are disappearing; it's that they're disappearing at the same time as our expectations about our lives have risen.
It's not your imagination, there is a squeeze on the middle class. MSN Money's Liz Pulliam Weston explains how it's possible for anyone to get in the middle class -- and stay there.
I believe a middle-class life is still possible for most people. But you have to be smarter, more cautious and faster on your feet than ever before. You have to obey some deceptively simple rules. And one thing is certain: Wherever you currently stand on the economic ladder, the surest way to rise is to pull yourself up.
What's middle class, anyway?
"Middle class" is a squishy concept if ever there was one.
If we define it solely by income, then according to the U.S. Census Bureau, a household income of $36,000 to $57,657 in 2005 landed you squarely in the middle class. If you want to expand the definition to include "lower" and "upper" middle class, the range widens considerably, from $19,178 to $91,704. Here's the breakdown, with each "quintile" representing 20% of U.S. households:
Population group Lower limit Upper limit
1st quintile
$0
$19,177
Poor/working poor
2nd quintile
$19,178
$35,999
Lower middle class
3rd quintile
$36,000
$57,657
Middle class
4th quintile
$57,658
$91,704
Upper middle class
5th quintile
$91,705
Bill Gates?
Upper class
Of course, there are plenty of problems with using income figures, most notably because income alone doesn't reflect the huge variation in living costs across the U.S. Simply put, $50,000 might buy you a comfortable life in Iowa or Kentucky but keep you scrambling in San Francisco or Manhattan. And there are plenty of folks living in high-cost areas with nominally "upper middle class" or even "upper class" incomes who would adamantly reject those labels.
A more flexible definition for middle class would be having the resources to cover all your needs and some of your wants, plus the ability to save for the future.
That definition:
Doesn't necessarily mean homeownership, although it probably will; homeownership is still an achievable goal in most of the U.S., where close to 70% of all households own their own dwellings.
Certainly doesn't mean two new cars in the garage, or even one, although it probably means at least one reliable vehicle.
Doesn't mean being able to retire at 50, but it does mean being able to save for a retirement in which cat food is not a factor (unless you actually have a cat).
Sometimes, a middle-class life is out of reach
Am I setting the bar too low? Some of you may think so. But inflated expectations about what constitutes a middle-class life lead many people into the kind of spending decisions that endanger their long-term financial security.
Those who are too eager to buy the trappings -- the "wants" -- are the ones who wind up with credit card debt and who overspend on homes ("The 3 worst money moves"), educations ("How much college debt is too much?") and cars ("The real reason you're broke").
In other words, trying to look like you're middle class may well doom your prospects to actually be middle class.
And then there are those for whom the bar will remain too high. When I talk about most people being able to attain middle-class status, I have to carve out some exceptions. For example:
People not blessed with good, or at least decent, physical and mental health. It's hard to achieve much if you can't work. Illness, disability, addiction, depression and other afflictions can stop your economic progress in its tracks.
People who wait too long to start saving. If you hit your 50s, have never saved a dime and get bucked off the economic horse -- by a layoff, illness, disability, whatever -- your chances of being able to recover sufficiently may be dim.
People who can't or won't change. The alterations you need to make might be small, such as eating out less so you can put more into your 401(k). Or the adjustments might be big, like moving to another area or heading back to school to update your skills. Folks who are willing to consider their options, and then act, are going to be better off than those who insist it's the world that needs to change, not them.
Even if you're young enough and capable enough and willing to adapt, you've got powerful trends standing in your way. Don't expect them to be solved by politicians or to disappear in a puff of smoke.
Yes, the system is against you
There are fewer good jobs for those who don't have college educations. A decline in manufacturing, waning union power and increased globalization mean it's tougher than ever to get into the middle class without a college education. But globalization and outsourcing are sniping away at white-collar jobs as well, and a fast-evolving economy mean few can be content to end their educations after four years.
The price tag for education is rising. Education was, and still is, the ticket to a more affluent life. Eight million vets grabbed this ticket in the wake of World War II, which helped fuel a huge expansion in America's middle class. Education is even more vital today, but the cost of a college education has skyrocketed and financial aid hasn't kept up, even as the comparative worth of a degree has shrunk. Loans have replaced grants as the primary source of financial aid, and too many students graduate with crippling debt.
Health care and health insurance costs are soaring. We have 47 million uninsured, and health care costs eat a big chunk out of the budgets of many who do have coverage. Two of five adults (43%) who buy individual polices, and one in four whose employers help pay for their coverage, spend more than 10% of their incomes on premiums and out-of-pocket medical expenses, according to the Commonwealth Fund.
Lenders don't care who can afford to borrow. Lenders were simply more conservative before the advent of credit scoring and securitization (the process in which most loans are bundled up and sold to investors). As lenders discovered more ways to manage risk, their willingness to extend credit soared, especially in the past 15 years. As a result:
Credit card debt exploded. The amount of money owed to credit card lenders at year end more than quadrupled, according to CardWeb.com, from $172.6 billion in 1990 to $710.9 billion in 2005.
Payday lending skyrocketed. The number of payday loan outlets zoomed, according to the Federal Reserve, from about 300 nationwide in 1992 to more than 22,000 last year. Payday lending is now a $40 billion industry.
Mortgages and other lending got riskier. That 70% homeownership statistic has been achieved, in part, by riskier loans, with lower down payments, adjustable rates and in some cases terms that allow your mortgage balance to balloon over time. Car loans, which used to average two or three years, now average five or more.
In short, it's never been easier to hang yourself.
There is a plan, and it's deceptively simple
As complicated as the world has become, the middle class awaits anyone with an income and the strength to observe five vital steps:
Spend less than you make. The key to making any financial progress is to live within your means. Think it's impossible on your income? You're almost certainly wrong. And in the end, you really don't have a choice.
Limit your debt. It's costing you unnecessary interest and leaves you vulnerable to the slightest economic setback. The more you owe, the fewer choices you have.
It's not your imagination, there is a squeeze on the middle class. MSN Money's Liz Pulliam Weston explains how it's possible for anyone to get in the middle class -- and stay there.
Save for a rainy day. Even $500 in the bank could allow you to weather day-to-day crises like a car repair that could otherwise push you over the edge.
Plan for retirement. Start early, keep your mitts off the money and don't stop for any reason. Even a small amount, scraped together and invested over a lifetime, offers a much more comfortable retirement, if only psychologically, than Social Security alone.
You're not imagining it: It's harder than ever to get into the middle class and stay there. Here's how you’ll succeed . . . and why many others will fail.
Write about poverty, affluence, whether the middle class is disappearing and if so, whose fault it is . . . and people go berserk.
Reader reaction to stories MSN Money has posted on these topics, including "Surviving (and thriving) on $12,000 a year," "I make $6.50 an hour. Am I poor?" and "Middle class living on the edge," has been overwhelming and mostly positive.
But each story has touched off vociferous debates on message boards and in e-mails about who's to blame for financial failure.
In one camp are the folks who are convinced that American workers are being squashed by the economy, the government, big corporations, lenders, the system in general. They see many, if not most, people as helpless pawns in a game that's rigged against them.
In another are those equally sure that there's no excuse for failing. If you've fallen down the economic ladder, or never figured out how to climb it in the first place, in their view it is solely and entirely Your Own Damned Fault.
The truth is somewhere in between. A decent job is no longer an easy ticket to a middle-class life. It's not just that things like health care and pensions are disappearing; it's that they're disappearing at the same time as our expectations about our lives have risen.
It's not your imagination, there is a squeeze on the middle class. MSN Money's Liz Pulliam Weston explains how it's possible for anyone to get in the middle class -- and stay there.
I believe a middle-class life is still possible for most people. But you have to be smarter, more cautious and faster on your feet than ever before. You have to obey some deceptively simple rules. And one thing is certain: Wherever you currently stand on the economic ladder, the surest way to rise is to pull yourself up.
What's middle class, anyway?
"Middle class" is a squishy concept if ever there was one.
If we define it solely by income, then according to the U.S. Census Bureau, a household income of $36,000 to $57,657 in 2005 landed you squarely in the middle class. If you want to expand the definition to include "lower" and "upper" middle class, the range widens considerably, from $19,178 to $91,704. Here's the breakdown, with each "quintile" representing 20% of U.S. households:
Population group Lower limit Upper limit
1st quintile
$0
$19,177
Poor/working poor
2nd quintile
$19,178
$35,999
Lower middle class
3rd quintile
$36,000
$57,657
Middle class
4th quintile
$57,658
$91,704
Upper middle class
5th quintile
$91,705
Bill Gates?
Upper class
Of course, there are plenty of problems with using income figures, most notably because income alone doesn't reflect the huge variation in living costs across the U.S. Simply put, $50,000 might buy you a comfortable life in Iowa or Kentucky but keep you scrambling in San Francisco or Manhattan. And there are plenty of folks living in high-cost areas with nominally "upper middle class" or even "upper class" incomes who would adamantly reject those labels.
A more flexible definition for middle class would be having the resources to cover all your needs and some of your wants, plus the ability to save for the future.
That definition:
Doesn't necessarily mean homeownership, although it probably will; homeownership is still an achievable goal in most of the U.S., where close to 70% of all households own their own dwellings.
Certainly doesn't mean two new cars in the garage, or even one, although it probably means at least one reliable vehicle.
Doesn't mean being able to retire at 50, but it does mean being able to save for a retirement in which cat food is not a factor (unless you actually have a cat).
Sometimes, a middle-class life is out of reach
Am I setting the bar too low? Some of you may think so. But inflated expectations about what constitutes a middle-class life lead many people into the kind of spending decisions that endanger their long-term financial security.
Those who are too eager to buy the trappings -- the "wants" -- are the ones who wind up with credit card debt and who overspend on homes ("The 3 worst money moves"), educations ("How much college debt is too much?") and cars ("The real reason you're broke").
In other words, trying to look like you're middle class may well doom your prospects to actually be middle class.
And then there are those for whom the bar will remain too high. When I talk about most people being able to attain middle-class status, I have to carve out some exceptions. For example:
People not blessed with good, or at least decent, physical and mental health. It's hard to achieve much if you can't work. Illness, disability, addiction, depression and other afflictions can stop your economic progress in its tracks.
People who wait too long to start saving. If you hit your 50s, have never saved a dime and get bucked off the economic horse -- by a layoff, illness, disability, whatever -- your chances of being able to recover sufficiently may be dim.
People who can't or won't change. The alterations you need to make might be small, such as eating out less so you can put more into your 401(k). Or the adjustments might be big, like moving to another area or heading back to school to update your skills. Folks who are willing to consider their options, and then act, are going to be better off than those who insist it's the world that needs to change, not them.
Even if you're young enough and capable enough and willing to adapt, you've got powerful trends standing in your way. Don't expect them to be solved by politicians or to disappear in a puff of smoke.
Yes, the system is against you
There are fewer good jobs for those who don't have college educations. A decline in manufacturing, waning union power and increased globalization mean it's tougher than ever to get into the middle class without a college education. But globalization and outsourcing are sniping away at white-collar jobs as well, and a fast-evolving economy mean few can be content to end their educations after four years.
The price tag for education is rising. Education was, and still is, the ticket to a more affluent life. Eight million vets grabbed this ticket in the wake of World War II, which helped fuel a huge expansion in America's middle class. Education is even more vital today, but the cost of a college education has skyrocketed and financial aid hasn't kept up, even as the comparative worth of a degree has shrunk. Loans have replaced grants as the primary source of financial aid, and too many students graduate with crippling debt.
Health care and health insurance costs are soaring. We have 47 million uninsured, and health care costs eat a big chunk out of the budgets of many who do have coverage. Two of five adults (43%) who buy individual polices, and one in four whose employers help pay for their coverage, spend more than 10% of their incomes on premiums and out-of-pocket medical expenses, according to the Commonwealth Fund.
Lenders don't care who can afford to borrow. Lenders were simply more conservative before the advent of credit scoring and securitization (the process in which most loans are bundled up and sold to investors). As lenders discovered more ways to manage risk, their willingness to extend credit soared, especially in the past 15 years. As a result:
Credit card debt exploded. The amount of money owed to credit card lenders at year end more than quadrupled, according to CardWeb.com, from $172.6 billion in 1990 to $710.9 billion in 2005.
Payday lending skyrocketed. The number of payday loan outlets zoomed, according to the Federal Reserve, from about 300 nationwide in 1992 to more than 22,000 last year. Payday lending is now a $40 billion industry.
Mortgages and other lending got riskier. That 70% homeownership statistic has been achieved, in part, by riskier loans, with lower down payments, adjustable rates and in some cases terms that allow your mortgage balance to balloon over time. Car loans, which used to average two or three years, now average five or more.
In short, it's never been easier to hang yourself.
There is a plan, and it's deceptively simple
As complicated as the world has become, the middle class awaits anyone with an income and the strength to observe five vital steps:
Spend less than you make. The key to making any financial progress is to live within your means. Think it's impossible on your income? You're almost certainly wrong. And in the end, you really don't have a choice.
Limit your debt. It's costing you unnecessary interest and leaves you vulnerable to the slightest economic setback. The more you owe, the fewer choices you have.
It's not your imagination, there is a squeeze on the middle class. MSN Money's Liz Pulliam Weston explains how it's possible for anyone to get in the middle class -- and stay there.
Save for a rainy day. Even $500 in the bank could allow you to weather day-to-day crises like a car repair that could otherwise push you over the edge.
Plan for retirement. Start early, keep your mitts off the money and don't stop for any reason. Even a small amount, scraped together and invested over a lifetime, offers a much more comfortable retirement, if only psychologically, than Social Security alone.
5 biggest 401k blunders, get the account out of expensive managment co's
The 5 biggest 401(k) blunders
The smallest mistakes you make now can cost you dearly in retirement. Here are the common mistakes -- and five ways to get your savings on track.
By Tim MiddletonThe Pension Protection Act of 2006 is supposed to fix the 401(k) system, which is the principal retirement tool for Americans. It's meant to bring more workers into the system and to help direct their investments more intelligently. These are laudable goals, but more rules aren't going to fix the basic problem.
The average American commits five big blunders in planning for retirement, and their cumulative effect can turn potential millionaires into permanent paupers. It doesn't take an act of Congress to correct them. It takes the kind of sensible planning you already do to buy a car or, in Peter Lynch's famous example, a refrigerator. That famed stock picker said investors pay less attention to their portfolios than their appliances.
The five big mistakes are
Compounded over a lifetime, the smallest mistakes can have life-changing results. Ignoring expenses can clip 10% right off the top. I'll show you one example where a thoughtful choice involving just a few thousand dollars in your 20s can buy you a second home in the sun when your old bones need it most.
Consider this a 12-step program stripped to the bare essentials. Five steps can take you from dreading your financial future to enjoying it.
Get in, max out, catch up According to Fidelity Investments, the largest operator of corporate 401(k) plans, more than a third of corporate employees don't even join their plans.
The 2006 pension act, signed into law last August, allows employers to automatically enroll you into a plan, forcing you to opt out, rather than in, which is a start. But then there's this issue: Most plan members don't save enough. The average rate is 6.9%, Fidelity says.
That's on what another pension consultant, Hewitt Associates, says is an average salary of $52,120, which works out to be $3,596 annually. But you can contribute up to $15,500. Double this contribution and it is still just half the permitted limit. Contributing enough to get the company match is a no-brainer, but failing to contribute more could be more costly in the end.
Brian Pon, a financial adviser with Financial Connections Group in Berkeley, Calif., says clients come to him for advice because the whole issue of retirement planning overwhelms them with its seeming complexity. "Some kind of analysis paralysis sets in," he says. "Is now the best time to invest? The question really is, 'Is now the best time to save?' and the answer is yes."
Even worse, only about one worker in 10 over the age of 50 takes advantage of the "catch-up" provision that allows them to contribute an additional $5,000.
If you don't think you can afford to max out your company plan, consider opening a Roth IRA in addition to it. Because contributions are not tax-deductible, "the Roth could act as an emergency savings vehicle, since contributions can be withdrawn tax-free and penalty-free at anytime," notes Chad Smith of Financial Symmetry in Raleigh, N.C.
Retirement can last decades. Here are some tips to help you live well as long as you need.
Also, a Roth at a good, inexpensive mutual fund company will probably provide more investment options than a company plan.
Maximize growth, control risk One-quarter of all plan participants have their entire account in a single investment option, Fidelity says, and it is often a low-yielding stable-value account which provides no opportunity for the growth of capital.
"The overwhelming mistake that I see 401(k) participants make is that they fail to diversify and employ proper asset allocation," says Jeffrey N. Bogue, a financial planner in Wells, Maine.
According to Fidelity, 22% of participants hold only equities, which cost them 30% or more of their nest egg in the bear market of 2000-2002. A well-diversified portfolio includes bonds and other income-oriented investments to help avoid calamities like that.
But 13% of 401(k) participants err in the opposite direction, owning no equities. With average life spans extending well into the 80s, even retirees need to keep at least a third of their assets in equities to keep up with inflation. The Pension Act liberalizes the rules by allowing plan sponsors to recommend model asset allocation. A sturdy rule of thumb is 60% equities and 40% income.
And don't forget as you allocate assets within your 401(k) to take your other investments into account. Working couples often have two plans, and "most have not spent the time to determine how to maximize the asset allocation between their two plans," says Paul Merriman of Merriman Capital Management in Seattle. "The potential return advantage can be as much as 1% a year." Choose from among the lowest-expense options in each plan.
Sell that company stock Especially at big corporations, participants hold an average of 21.9% of assets in company stock, according to Hewitt Associates. Equity mutual funds spread risk across hundreds of companies; individual stocks are incredibly risky.
"I worked with several employees of AT&T and then Lucent Technologies who had unfortunately ridden their 401(k) plans to near nothing as the stock dropped from $70 to $3 a share," says Hal Schweiger of Capital Financial Advisers in San Diego. "The belief that a great company like AT&T is not vulnerable to this type of stock fluctuation is a costly problem."
The 2006 pension act gives plan participants more options out of company stock, and they should take them. But if you happen to be stuck with a bunch, there is a way to turn this lemon into a beverage. You can withdraw it from the plan at age 59 ½, pay the tax and then put it into a conventional taxable investment account, where future capital gains taxes -- a lower rate than pension income -- will be based on the value at the time of this transfer, not when you originally acquired it for, presumably, much less.
Rollover follies Young workers, especially, are apt to cash out their old 401(k) plan when they change jobs. "Apart from the obvious problem of not saving for retirement, they don't realize that the 20% withheld on the distribution isn't the whole tax bite," notes Ronald E. Shaw, president of Evergreen Financial Management in Ann Arbor, Mich. There is also a 10% penalty to be paid, plus state income taxes.
Imagine you're 28 years old and the plan balance you're cashing in when you switch jobs is $5,000. If you take the cash, you'll get little more than $3,000 after all the taxes and penalties are paid. Imagine instead that you roll the money into an IRA at a cheap mutual fund company like Fidelity or Vanguard Group. You leave the money alone and it grows at the stock market's average return of 11%.
At age 70, when your other retirement funds are looking thin, this account will be worth $400,438, which assuming a 2.5% inflation rate is $135,000 in today's dollars. That's enough for a little place in Florida. You swapped it in your youth for a week in Fort Lauderdale.
So, unless your old plan is gold-plated, meaning very, very cheap, take the money out, by all means, but roll it directly into a low-cost IRA. Good mutual fund companies are cheaper than most corporate plans, and they provide more alternatives, including asset classes like real estate investment trusts that are absent from the typical company plan.
This is true in spades if your company plan is run by an insurance company and consists of annuities. My wife, a school principal, owns a version of Fidelity Contrafund (FCNTX) called Fidelity Investments VIP Contrafund Portfolio. It returned 10.9% annually over the five years ended Dec. 31. Contrafund itself returned 12.3%. The difference was extravagant fees for the annuity.
Retirement can last decades. Here are some tips to help you live well as long as you need.
A $10,000 investment in the annuity grew to $16,780. In the fund, it grew to $17,866. The difference, of $1,086, is a whopping 10.8% of the original investment. Insurance companies argue that she received valuable insurance for this additional expense -- but she wasn't shopping for insurance. She's already got insurance. She got gouged, and so does every participant in an expensive retirement plan, which is most of them.
Eschew loans The deal sounds mouthwatering. You can borrow against your 401(k) to buy a car and pay a lower interest rate than you would for a conventional loan. What's more, you pay the interest to yourself.
If you think that sounds good, you aren't thinking hard enough. First of all, the interest you're paying yourself is less than your money could have earned in a good equity investment over those four or five years. In effect, you'll pay for the car again in retirement in the form of income you won't have. And that's not all.
"If you lose your job or decide to change employers, you will have to pay it back immediately," notes Donald E. Whalen of Versailles Financial in Atlanta. That could be the event that forces you to cash out, with all the woes that can bring, later as well as now.
Time is inexorable. In five billion years, the sun will explode. But for money invested at interest, time is the most powerful wealth-builder there is. A 401(k) can provide a comfortable retirement, if you don't let mistakes gut it.
The smallest mistakes you make now can cost you dearly in retirement. Here are the common mistakes -- and five ways to get your savings on track.
By Tim MiddletonThe Pension Protection Act of 2006 is supposed to fix the 401(k) system, which is the principal retirement tool for Americans. It's meant to bring more workers into the system and to help direct their investments more intelligently. These are laudable goals, but more rules aren't going to fix the basic problem.
The average American commits five big blunders in planning for retirement, and their cumulative effect can turn potential millionaires into permanent paupers. It doesn't take an act of Congress to correct them. It takes the kind of sensible planning you already do to buy a car or, in Peter Lynch's famous example, a refrigerator. That famed stock picker said investors pay less attention to their portfolios than their appliances.
The five big mistakes are
- failing to save hard enough;
- neglecting to maximize returns while controlling risk;
- relying too heavily on the stock of their employers;
- fumbling rollovers;
- and scalping themselves with heedless borrowing from their own nest egg.
Compounded over a lifetime, the smallest mistakes can have life-changing results. Ignoring expenses can clip 10% right off the top. I'll show you one example where a thoughtful choice involving just a few thousand dollars in your 20s can buy you a second home in the sun when your old bones need it most.
Consider this a 12-step program stripped to the bare essentials. Five steps can take you from dreading your financial future to enjoying it.
Get in, max out, catch up According to Fidelity Investments, the largest operator of corporate 401(k) plans, more than a third of corporate employees don't even join their plans.
The 2006 pension act, signed into law last August, allows employers to automatically enroll you into a plan, forcing you to opt out, rather than in, which is a start. But then there's this issue: Most plan members don't save enough. The average rate is 6.9%, Fidelity says.
That's on what another pension consultant, Hewitt Associates, says is an average salary of $52,120, which works out to be $3,596 annually. But you can contribute up to $15,500. Double this contribution and it is still just half the permitted limit. Contributing enough to get the company match is a no-brainer, but failing to contribute more could be more costly in the end.
Brian Pon, a financial adviser with Financial Connections Group in Berkeley, Calif., says clients come to him for advice because the whole issue of retirement planning overwhelms them with its seeming complexity. "Some kind of analysis paralysis sets in," he says. "Is now the best time to invest? The question really is, 'Is now the best time to save?' and the answer is yes."
Even worse, only about one worker in 10 over the age of 50 takes advantage of the "catch-up" provision that allows them to contribute an additional $5,000.
If you don't think you can afford to max out your company plan, consider opening a Roth IRA in addition to it. Because contributions are not tax-deductible, "the Roth could act as an emergency savings vehicle, since contributions can be withdrawn tax-free and penalty-free at anytime," notes Chad Smith of Financial Symmetry in Raleigh, N.C.
Retirement can last decades. Here are some tips to help you live well as long as you need.
Also, a Roth at a good, inexpensive mutual fund company will probably provide more investment options than a company plan.
Maximize growth, control risk One-quarter of all plan participants have their entire account in a single investment option, Fidelity says, and it is often a low-yielding stable-value account which provides no opportunity for the growth of capital.
"The overwhelming mistake that I see 401(k) participants make is that they fail to diversify and employ proper asset allocation," says Jeffrey N. Bogue, a financial planner in Wells, Maine.
According to Fidelity, 22% of participants hold only equities, which cost them 30% or more of their nest egg in the bear market of 2000-2002. A well-diversified portfolio includes bonds and other income-oriented investments to help avoid calamities like that.
But 13% of 401(k) participants err in the opposite direction, owning no equities. With average life spans extending well into the 80s, even retirees need to keep at least a third of their assets in equities to keep up with inflation. The Pension Act liberalizes the rules by allowing plan sponsors to recommend model asset allocation. A sturdy rule of thumb is 60% equities and 40% income.
And don't forget as you allocate assets within your 401(k) to take your other investments into account. Working couples often have two plans, and "most have not spent the time to determine how to maximize the asset allocation between their two plans," says Paul Merriman of Merriman Capital Management in Seattle. "The potential return advantage can be as much as 1% a year." Choose from among the lowest-expense options in each plan.
Sell that company stock Especially at big corporations, participants hold an average of 21.9% of assets in company stock, according to Hewitt Associates. Equity mutual funds spread risk across hundreds of companies; individual stocks are incredibly risky.
"I worked with several employees of AT&T and then Lucent Technologies who had unfortunately ridden their 401(k) plans to near nothing as the stock dropped from $70 to $3 a share," says Hal Schweiger of Capital Financial Advisers in San Diego. "The belief that a great company like AT&T is not vulnerable to this type of stock fluctuation is a costly problem."
The 2006 pension act gives plan participants more options out of company stock, and they should take them. But if you happen to be stuck with a bunch, there is a way to turn this lemon into a beverage. You can withdraw it from the plan at age 59 ½, pay the tax and then put it into a conventional taxable investment account, where future capital gains taxes -- a lower rate than pension income -- will be based on the value at the time of this transfer, not when you originally acquired it for, presumably, much less.
Rollover follies Young workers, especially, are apt to cash out their old 401(k) plan when they change jobs. "Apart from the obvious problem of not saving for retirement, they don't realize that the 20% withheld on the distribution isn't the whole tax bite," notes Ronald E. Shaw, president of Evergreen Financial Management in Ann Arbor, Mich. There is also a 10% penalty to be paid, plus state income taxes.
Imagine you're 28 years old and the plan balance you're cashing in when you switch jobs is $5,000. If you take the cash, you'll get little more than $3,000 after all the taxes and penalties are paid. Imagine instead that you roll the money into an IRA at a cheap mutual fund company like Fidelity or Vanguard Group. You leave the money alone and it grows at the stock market's average return of 11%.
At age 70, when your other retirement funds are looking thin, this account will be worth $400,438, which assuming a 2.5% inflation rate is $135,000 in today's dollars. That's enough for a little place in Florida. You swapped it in your youth for a week in Fort Lauderdale.
So, unless your old plan is gold-plated, meaning very, very cheap, take the money out, by all means, but roll it directly into a low-cost IRA. Good mutual fund companies are cheaper than most corporate plans, and they provide more alternatives, including asset classes like real estate investment trusts that are absent from the typical company plan.
This is true in spades if your company plan is run by an insurance company and consists of annuities. My wife, a school principal, owns a version of Fidelity Contrafund (FCNTX) called Fidelity Investments VIP Contrafund Portfolio. It returned 10.9% annually over the five years ended Dec. 31. Contrafund itself returned 12.3%. The difference was extravagant fees for the annuity.
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A $10,000 investment in the annuity grew to $16,780. In the fund, it grew to $17,866. The difference, of $1,086, is a whopping 10.8% of the original investment. Insurance companies argue that she received valuable insurance for this additional expense -- but she wasn't shopping for insurance. She's already got insurance. She got gouged, and so does every participant in an expensive retirement plan, which is most of them.
Eschew loans The deal sounds mouthwatering. You can borrow against your 401(k) to buy a car and pay a lower interest rate than you would for a conventional loan. What's more, you pay the interest to yourself.
If you think that sounds good, you aren't thinking hard enough. First of all, the interest you're paying yourself is less than your money could have earned in a good equity investment over those four or five years. In effect, you'll pay for the car again in retirement in the form of income you won't have. And that's not all.
"If you lose your job or decide to change employers, you will have to pay it back immediately," notes Donald E. Whalen of Versailles Financial in Atlanta. That could be the event that forces you to cash out, with all the woes that can bring, later as well as now.
Time is inexorable. In five billion years, the sun will explode. But for money invested at interest, time is the most powerful wealth-builder there is. A 401(k) can provide a comfortable retirement, if you don't let mistakes gut it.
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