The Smart? Money

Smart Money
I cannot tell you where the "Smart Money" is at. I don't know.

However, I CAN tell you where the "Adequately Educated and afraid to lose a lot of hard-earned" Money is at.

First, I will discuss my next largest allocation of money - My Equities (Stocks and Mutual Funds). However, keep in mind things are changing daily. I lessened my position in my main S&P 500 index fund drastically last week (by 80%!!). I am debating doing the same in most others as well.

Plagirism
I recently read in an article or another blog something that made me assess how I want to play the next couple months/years with all this uncertainty and negative forecasts of the markets. I really think it states the two main sides of investing:

"Wealth is obtained in concentration and preserved in diversification"

You have to ask yourself what do you want? Long-term and short-term.
Well, right now, with all this uncertainty, I just want to preserve my wealth (although I wouldn't consider myself "wealthy" yet"). I am trying to diversify like crazy right now.

My Holdings
I own 5 mutual funds(45% of my Networth), and a very small amount of stocks (.5% of my Networth).

Stocks
First, let's just get the stocks out of the way:About $3 in penny stocks that I own a hell of a lot of shares of. There's no reason to sell as the commissions (8$) would cost more than my return (3$). These stocks are just remnants of my idiocy in the .com era. I lost about 4000$ total on them. I know I should sell and take the tax deductions, but with me living overseas and no domestic earned income, tax deductions are basically useless (except to cancel out capital gains which I dont' really have much of). One of these stocks thast I still have quite a bit of shares of is CMGI - everybody's .com favorite. I think my position in that is up to $1.74.

I don't really dabble in stocks. I prefer to stay in mutual funds as I like the diversification. Additionally, the other reason I don't buy and sell stocks right now, is due to work. Since I work for a major investment bank, there are audit and compliance issues with me freely buying and selling stocks. Each time I want to do so, 5 days before each transaction, I have to fill out a form, get written approval from my supervisor (who then sees some of my finances and what I am doing with it) and then get approval from the compliance department. This is probably a good thing, as I might be daytrading like crazy losing money without these restrictions.

That said, before I joined the investment bank and before my stock account was pseudo-frozen, I owned positions in two companies: RHAT (Red Hat Linux) and EBAY. 900$ in RHAT and $1100 in EBAY. I have no reason to sell these and since I don't want to jump through beauracracy hoops to do so, I will just stick with them.

On to the Mutual Funds
S&P 500 Artificial Intelligence
Until last week I had about $110,000 in an S&P500 index fund. Well, it's not a straight index fund. They claim (as does everyone) to use computer algorithms to over/underweight parts of the S&P500 to gain a slight edge over the normal S&P 500 return. I haven't seen it. It's done almost exactly what the S&P 500 has done in the 5 years I've held it. That's been fine. Except, they charge like 1.2% managment fees for this AI. But, like their algorithms, mine, too has adapted and become smarter over time. I have been waiting for a time like now when I wanted to lock in some gains and liquidate my position in order to move to something like Vanguard funds where the manegement fees are like .2-.4 %. That's almost 1% a year I will make. When I started and only had $10000, that 1% didn't really matter much, but the larger amount of money you make and save and have, the more half a percent of interest matters each year.

[As an added bonus, I just noticed that Vanguard's Money Market (where I park my cash) is like .3% higher tha most others]

A couple nights ago, I sold off 80% of my position in it. Hopefully, the market continues to plummet. Should I buy some more Foreign stuff or some Gold? I want to sell off the last 20%, but didn't want to pay the "held less than one year Capital Gains", so I will attempt to sell more over the course of the next year. My last investment into it was February of this year, so by next March I can be totally out of it.

I will still be paying the Long Term Capital Gains at 15% on my profits. Since I have been investing monthly for 5 years via dollar-cost averaging like all good investers, it would be awfully tedious to calculate the capital gains on each little investment and any capital gains reinvested. Luckily, for tax purposes, the government gives you another way to calculate the cost-basis. You still need to know how much total was invested into the fund (you don't need to know the prices at which each amount was invested at). I have roughly calculated I will owe somewhere between 1000 and 1500$ on the gains. That's not bad as I still made much more money than that. And, now I can get the money into a similar fund (with slightly better returns) and much lower fees. That 1000$ in taxes will be made back the first year as I save an extra 1% on management fees each year.

Right now, I am thinking of dollar-cost averaging it into an International Fund something like the Vanguard Total International. Do I go for a Europe-only fund, Total International, International Growth, or Asia-only? I don't think I need the Asia-only as I am living and working in Tokyo, so I am already getting all my income from the conditions in Asia. No need to overly weight that area? Think again, as the original quote goes: "Wealth is obtained in concentration".

As for my other funds
40% of the remaining money is in an Emerging Markets fund, but I will be liquidating this soon in order to raise cash to hold for a while until I see a better place to invest it. I made a good deal of money on this and don't exepect much more.

30% of the remaining stuff is in a pretty high-risk mutual fund that has done well for me since the .dot com bubble burst 6 years ago. However, I will be liquidating that, too, in the next couple of weeks on any uptick in the market. I need to get me some gold with it! I have none and would like to get into it a little at a time and slowly build up my stash over the coming years.

15% in a contrarion fund that has also done quite well since I got in after the crash. I will liquidate this as well.

15% in a bio-tech, healthcare fund, but I am looking to get out of this too in the coming months.

Work and Salary History, Part III

Here is a graph of my Salary plotted against my age. Obviously, like all good capitalists in their 30's, it is sloping upwards :) I have not included any smaller incomes like my house rental here. The graph is just a representation of my pay from my main jobs (currently I do some consulting at night that brings in enough money to be worthy of being graphed)


The blue, top line represents gross pay before taxes, while the pink is a pretty good approximation of my net after taxes (and exchange rates). The taxes to some extent and the exchange rates to a large extent have really affected my net. For the last 4 years living in Japan, making my income in Yen, and shipping most of it home to US Dollars to be invested has affected my before versus after tax percentages. You can see about 2 years ago where my gross pay went up a little, but my net went down compared to what it was the year before. That was because of exchange rates.

You can also see the dot com bubble helping me out a couple years ago. It seems like Japan was 2 years behind on that. I was with a dot com company in the US, my salary was increased like crazy. Then they tanked, but we still had deals in Asia so I came to Japan to continue the development of the product (and internationlaize it) and was paid even more. Since Japan's economy was not doing much, they were not affected by the dot com crash (that much). While a sample size of one does not mean anything, you can almost see a mixture of the US and Japanese economies displayed in the graph.

I do try to wait for good exchange rates before I ship my money home, but it all depends on the amount of money I hold in my Japanese bank accounts. I usually save up about $20000 dollars (after taxes) every 4 or 5 months and then wait for a decent exchange rate (depending on forecasts of market conditions) and ship it to the US. However, it also depends on money market rates (I don't do US treasuries right now, but I guess I should for the extra 1%). About 3 years ago, I could wait longer for a better exchange rate because my $20000 would have only been getting 2% in the US money markets (which comes to $33 doallrs a month). But, the yen-dollar rate depending on it's swings, could save me 100-200$ a month if I held it waiting for a good rate. Now, it's different though. Now, with money markets returning 4.5%-5%, the longer I hold it in Japan, the quicker I start to lose money I could have gotten in interest in a US money makret account.

Also, don't even begin to ask about Japanese bank interest rates. They are always less than 1%. I get like a penny a month for $20000 here in Japan. That's one reason many Japanese don't save the same way Americans do.

May Month-End Net Worth

I just posted my new month-end for May at NetWorth.com . It looks like I'm back to where I was 2 months ago. 2 Months salary down the drain - I made 2 months salary in that time ($10000 - about $5000 per month after taxes), but my portfolio has dropped by the same amount in those 2 months. All my gains erased by this fickle market. That's what I have for being so heavily invested in stocks. It's really tough to manage my stocks from here in Japan. Once I get back to the US I'll be more proactive.

The other problem was an un-expected $950 payment for a new hot water heater and installation for my house that I am renting out. Is that a normal price for a 30 Gallon? With me in Japan and no property management (which I said I will look into in 2 years), the tenant was without water for 2 days and had to arrange the repairmen and replacement hot water heater themself. They knew that they'd have to do those kinds of things going in to it. But, it's still a pain. And, a big cost.

I will post the 3rd and final post dealing with my work history soon. It will just graph my total gross at each age and discuss where I'm headed with pay.