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Saturday, 30 July 2011

Some Final Words on Money and Happiness

by Laura Rowley

I spent this week in Ohio at my brother-in-law's funeral. He died at 58 of a brain tumor after a long battle that he fought with diligence and patience and quiet humor. At a Catholic funeral, the priest gives a homily, or short talk, on the Bible readings. If you want a homily, the priest said, look at Bob's life.

Bob was married 38 years, a father of five, an engineer, the guy who volunteered to wire his parish church when personal computers first came out. He was the runner who competed in dozens of 10K races with his whole family, but never got an individual trophy because he insisted on keeping pace with the slowest runner. With Bob, no one was left behind.

He grew up one of eight children in a small town in Illinois, the son of a postman and a homemaker, where he took the American dream to heart. He was loyal, faithful, kind and positive in the extreme. We used to joke about how Bob would say hello with a bone-crushing hug and then tell you, four or five times, "You're great, you're great, you're a star!" As one friend wrote in an online condolence, "I am sure everyone will always remember him for seeing that 'star' in all of us."

There is nothing like the funeral of a very good person to put life in proper perspective. I've been thinking about money too much lately, a symptom of being in your mid-40s — an age that tends to come with a mortgage, three kids and New Jersey property taxes. And a certain amount of money is important; it buys crucial things like groceries and health care and a home in a safe neighborhood. But it is no substitute for creativity or character. As Bob's son said at the funeral, Bob's goal wasn't to guarantee that his kids were comfortable and secure. He wanted them to get an education and learn to be committed and disciplined so they could do that for themselves.

In fact, Bob was so devoted to his kids' education that he actually enrolled in the same calculus class with his son at the community college so he could help him with homework. Not that his son wasn't bright — it was just that he was still in high school. Bob wasn't wealthy, but he wouldn't let his goals be sidetracked by a little thing like the skyrocketing cost of college tuition. He figured out how the kids could earn high school credits while they were still in grammar school, community college credits while they were in high school, finish their bachelor's degrees at the state university two years ahead of their peers, and in a few cases move right on to law school.

And making money is important. But it isn't worth starving your relationships of the time they need to flourish, or your community of the gifts you have to offer. Bob's wake was attended by some of the families of kids he coached in soccer. The head of the local parks department wrote in an online condolence: "Bob was such an inspiration to many children in the Parks and Recreation programs. I'm sure he is in Heaven teaching soccer right now. I will never forget him and his positive attitude."

When I wrote the book "Money and Happiness" in 2005, just before I joined Yahoo! Finance, my thesis was that if you could clearly identify what you value most in life, set goals around those things, and use money as a tool to help you achieve them, you would find happiness. Not the immediate gratification, smiley-face kind of happy, but long-term contentment. Because everyone knows that pursuing your values is not the easy road and can mean short-term sacrifice — like taking calculus again when you're in your 40s, or coaching a squirrelly bunch of 9-year-olds in soccer when you could be laying in a hammock reading the Sunday paper.

I still believe that theory about money and happiness. But what I've learned over the last six years of writing this column is that money is something you should kind of watch from the corner of your eye while you live your real life. You obviously can't take it with you, and when someone writes the homily of your life, they're more apt to remember your attitude, character, creativity and spirit of generosity, than what you did or didn't do with your money or how much of it you had. So it makes sense to me to earn it doing something you value, something that gifts other people and the world rather than diminishing them. Save, invest and spend it the same way, reflecting your values, in a spirit of generosity and joy. And remember it's important, but it's not everything.

Are Retirement Calculators Reliable?

by Walter Updegrave

Based on my age, investments and the amount I'm saving, an online calculator suggested that my chances of being able to retire with the money I'll need is a virtual slam dunk. How confident can I be that my investments will actually earn enough over the next 40 years for me to retire? -- D.M.

I'm not a math wiz or a quant by any stretch of the imagination. But when it comes to making retirement planning decisions, I think it's important to look at the numbers.

That said, whenever you rev up an online tool or calculator, you've got to remember that you're dealing with estimates (often very squishy ones) not certainties. So common sense dictates that you take the results with more than a couple grains of salt.

Let's take the case of retirement calculators. Most project how large a nest egg you might accumulate -- and, in many cases, how long it might last -- based on a number of factors, including how much you've already accumulated, how much more you plan to save, how many years until you retire, the rate of return your investments will earn and how long you'll live.

You don't need a finance degree to know that all of these factors involve more than a little uncertainty. It's one thing to say you plan to save $500 a month or 15% of your salary for the next three or four decades and plug that assumption into a calculator.

It's another thing to actually do it. Reality often intrudes. Companies downsize, kids need orthodontia, college bills zap savings and sometimes the will to save yields to the urge to spend.

Projecting investment returns doesn't exactly lend itself to precision either. Forecasters generally start with a long-term expected return that builds in some variation -- both up and down -- since it's clear that investments like stocks and bonds don't churn out identical returns year after year.

Typically, the expected return is based on historical average returns for various asset classes or projected averages based on how returns might unfold given today's conditions.

Either way, there's as much art as science in determining this, as even when you're dealing with historical data, averages can vary substantially depending on the period you choose.

For example, the bible for investments stats, the Ibbotson SBBI Classic Yearbook, shows that from 1926 through 2010, the annualized return for large-company stocks was 9.9%. But there were many relatively long stretches over that span when stocks' annualized return was much higher (20.1% for the 10 years from 1948 through 1958) and much lower (-1.4% for 1999 through 2008).

[Note to purists: I know that investment firms use arithmetic averages, not geometric averages or annualized returns, to build forecasts. But individual investors are more accustomed to seeing annualized rather than arithmetic returns -- which for stocks would be considerably higher -- so I cite annualized figures to avoid confusion.]

My point is that, even people who take a meticulous approach can come away with different ideas of what investments might earn in the future. That's the nature of prognostication.

At the same time, you must also be careful of falling into the "recency" trap, or basing your estimates on what's happened lately. It would be just as wrongheaded to presume the rough times we're experiencing today represent our long-term future as it was to assume (as many did at the time) that the boom times of the '90s marked the beginning of a golden era of unabated prosperity.

And, indeed, most rigorous attempts to forecast returns try to avoid merely accepting past averages or extrapolating recent experience into the future. (For a look at how two recent forecasts do that, click here and here).

So what does all this mean for someone trying to get a handle on his retirement planning? It's great to come away from a session with a retirement calculator with good news.

But just to be on the safe side, do a little reality check. Maybe try another calculator to see if the results are at least in the same ballpark. I'd also advise running a few different scenarios to see how that affects the results.

A young person like you with some 40 years to go until retirement probably has a relatively aggressive investment portfolio, say, 80% or more in stocks. If that's the case, try re-running the numbers with more conservative mixes, say, 60% stocks -- 40% bonds or even 50% stocks -- 50% bonds.

You'll likely find that your odds of success are somewhat lower -- or, that you'll have to boost the amount you're saving each year in order to maintain those better odds of success.

The extent to which the odds drop, shows how much you're counting on the higher expected returns of stocks to achieve a comfortable retirement. If those gains materialize, that's fine. But you don't want your retirement prospects to collapse if those returns fall short.

So to be safe, you may want to set your savings targets based a more moderate investing strategy. Save a bit more so that you're still OK if your investments earn less than the return projected with a more stock-heavy portfolio (or if you happen to miss your savings targets in some years).

And remember that no tool or calculator can predict the future. That's especially true when you're looking decades ahead. Over the 40 years between now and the time you retire there are just too many unknowns. Neither you, nor I, nor anyone else can control how the economy or the financial markets will perform.

What you can do, though, is check your progress periodically -- say, every year or so -- and adjust your overall savings and investing strategy to stay on track as you draw closer to your planned retirement date. Do that, and you can rest assured you are doing all you can.

Copyrighted, CNNMoney. All Rights Reserved.

Thursday, 28 July 2011

I’ve worked at Deutsche Bank and Goldman Sachs. Now I run a bar. I have no regrets

Shree Ann Mathavan

Singaporean Colin Tay went from banking to beers when he left the financial industry after nine years. Formerly from Deutsche Bank, he now runs two businesses with a partner: Old Empire, a gastro bar, and TSA Wines, a beer and wine distribution company. He speaks to eFinancialCareers about his decision to give up the corporate life.

My former life as a banker

I studied economics and finance at the University of Sydney, so when I returned to Singapore in early 2002, I started looking for banking jobs. I saw banking as something lucrative, a safe route, especially since the sector was booming in Singapore. When I first started, I didn’t have any specific preference on which area I wanted to get into, I just wanted in. I am a people’s person though, so I thought a role where I dealt directly with clients would suit me.

My first job was at OCBC. I worked in retail banking, quality assurance, and finally I assisted a private banker. Three years later, I joined Goldman Sachs where I switched to operations, working in corporate client services. Moving from a front- to back-office function was not an easy decision, especially because I was being groomed to become a private banker at OCBC. I finally decided on the move because I wanted exposure at a global bank.

Goldman was a really good experience. I handled clients in various markets like Hong Kong, Korea, Taiwan, Australia, Malaysia, Japan and Singapore who traded futures all over the world. But most days I worked 14 to 15 hours – I didn’t have much of a life. I kept at it for another three years until I couldn’t do it any more.

I then moved to Deutsche Bank as an AVP in client services for the Asia Pacific team. This was a bigger role, with better pay and hours. My role there was more client-focused, less operations driven, I also travelled to Hong Kong, Australia and Japan to meet clients so I enjoyed that.

A business is born

In 2008, while I was still with Deutsche, the idea for setting up a wine distribution company came about while having drinks with a long-time friend. Both of us have always been passionate about wine and we decided to become business partners.

He worked full-time in our new firm, while I helped out in the evenings and on weekends, so it wasn’t too hard. But the plan eventually was to also have our own gastro bar after a couple of years, and I knew that if I went into the business full-time we could grow it much faster. So when we found a potential site earlier this year, things moved quickly. The bar’s soft launch was in late February and I finally left banking in April.

Why I quit banking

I was still unmarried and didn’t have kids, so striking out on my own was something I could do. It was now or never really. It wasn’t an easy decision. I didn’t hate banking, although I was tired of it. When I quit, I was still asking myself whether I was doing the right thing.

Here’s my analogy: In a bank you are a small screw in a big machine, whereas when you run your own business, you’re more like a wheel. When a screw falls off, the machine’s still able to run, whereas the vehicle can’t move when the wheel isn’t working. But the faster the wheel spins, the further you and the business go. So I left and have no regrets. Still, I don’t regret having been in banking either. Nine years of corporate knowledge has been a great asset in how I manage my business today.

Want to leave banking? Here’s my advice

Think really hard about what you want to do. You need something to fall back on in case things don’t work out. So yes, I invested money in our business, but I kept aside savings for a rainy day. Also, don’t burn bridges. Working in a bank is never a lost cause. Life is unpredictable, so who is to say that you won’t return to banking again one day?

If you do want to set up your own business, realise it’s something that goes on around the clock. It can be longer hours than working in a bank. I do have nights where I can’t sleep because I’m thinking of ways to grow the business, so there’s no such thing as switching off. But seeing your ideas and efforts pay off make it all worthwhile.

Tuesday, 26 July 2011

5 Signs You're About To Be Fired

There are many tell-tale signs that your job may be in jeopardy; if your company has just undergone a corporate merger, layoffs have begun to wind their way around the office floor, or your department's benefits have been slashed, for example. However, much of the time the signs are not so blatant and many employees are blind-sided when they are handed the pink slip. They never saw the red flags. Here are five warning signs that you might be nearing your final days:

1. You have been stripped of responsibilities.
Have you been given less work, had your projects and promotions stalled or been given a dead-end task? Does the office intern seem to have more responsibility than you? All of these are clear signs that your skills are not valued and your superiors do not see many prospects for you in the future of the company. Having a boss who champions your work and promotes you internally is a clear marker of your worth within a company. If this is not happening for you and you feel that your job is stagnating, you can try taking matters into your own hands. Start increasing your visibility in the company and volunteering for tasks to show your enthusiasm and commitment.

2. There has been a change in your boss's behavior.
Rusty Rueff, the director and career expert for jobs and career website Glassdoor, recommends becoming aware of any major changes in your boss's behavior towards you. Rueff cautions that "this isn't always a fatal sign, but you should be sensitive to it."

Take note if your boss is not being as friendly as normal or starts consistently canceling your one-on-one appointments. Without physically cornering your boss, you can improve your own work habits and then ask him (over an email if he is successfully avoiding you in person) how else you can develop your work.

3. You feel like the office leper.
Going beyond any relationship with your direct boss, take notice if you are left out of crucial decision making or company meetings that you would have previously been consulted on. Did someone forget to tell you about a recent management meeting that you would normally attend? Have you not been invited to an upcoming company event? Pay attention to any change in the attitude of your co-workers. Does the chat around the water cooler go mysteriously silent as soon as you pass by and does the kitchen empty as soon as you walk in? This may be a sign that the company believes you to be expendable and are slowly fazing you out of decisions. The most proactive response you can take is to start looking elsewhere for jobs in your field.

4. You have been given a poor written performance review.
Generally performance reviews are full of subtle praise and avoid overly negative comments. There is always room for improvement but you should pay attention if your performance review reads like a train wreck. Not only is it a clear sign that your work is not up to par but your boss may be creating a paper trail in order to build a case for firing you. In order to let an employee go, many companies require written documentation of problems and warnings. Take heed of their comments and determine whether the job is a good fit for your skills. If you decide that you do want to succeed at the role, make a conscious effort to step up your work.

5. You have seen a job posting that eerily matches your own role?
Companies don't want to fire an employee without having someone waiting in the wings. Beware if you see an advert for a job on the internet that sounds very similar to your own. If a new hire appears it is possible that your department needs extra staff but keep in mind that HR departments can be sneaky. You may be asked to train the new guy and then receive a pink slip as soon as he is ready to take over your role. Make sure that you have considered your own exit strategy.

The Bottom Line
Be sensitive to any of these red flags but try not to obsess over them. Rather act positively and use this information to excel at work. Volunteer for tasks that no-one else wants, speak to your boss, ask how you can improve your work and keep track of your accomplishments. Start updating your resume and job hunting just in case your suspicions are correct.

Sunday, 17 July 2011

Warren Buffett Invests Like a Girl, Says Author

By Jeff Macke

Over the years the exalted Oracle of Omaha has been called many things, most of them fawning. What the man had never previously been accused of, at least to my recollection, is being girly. This is, until Louann Lofton, author of Warren Buffett Invests Like a Girl, joined me and Nesto to elaborate.

Louann says Buffett is "able to manage his emotions better than most men are," a claim that caused me to make tight fists and snort in derision. She supports her assertion by pointing to studies showing that men "tend to take on more risk than necessary," in part because of his seeming ability to take some of the testosterone out of the investing process and focus on the long term.

With the hair on my back standing upright like a threatened guard dog, I pointed out that Buffett has done more than his share of aggressive trades, among which being his famous crushing of Goldman Sachs (GS) and General Electric (GE) in 2008. For those unfamiliar with those deals, Buffett capitalized on the financial crisis to make large private placement investments in the embattled Blue Chips. What was more macho about the trades was the fact that Buffett didn't buy common stock but hand-made derivatives (yes, "weapons of financial destruction"). The positions more or less paid Buffett dividends on call options, gutting Goldman and GE's earnings for 2010 and '11 and making Buffett's Berkshire Hathaway (BRK-A) (BRK-B) billions.

Weren't those macho trades, Louann? Both seemed like testosterone-laden trades to me!

She explains that Buffett's willingness to focus on long-term gain overall was a trait more evident in females than in the male set.

I read the book prior to ripping it to shreds and burning it out of frustration because it's good. I'd elaborate more on the topic, but it's causing me to sweat and giving me an insatiable desire to buy puts on some stupid company, then go to a kick-boxing class.

Girls. Grrrrrr.

Just check out the video and let us know what you think in the comment section. Do women invest better than men?

Happy people make better, faster decisions: study

There used to be a saying written on some shopping bags that said, "When the going gets tough, the tough go shopping."

But a study published Thursday in the Journal of Consumer Research has found that it's better to go shopping when the going's not so tough, and we're in a good mood, because we make faster and more consistent decisions.

Researchers Paul Herr and Derrick Davis of Virginia Tech, Christine Page of Skidmore College and Bruce Pfeiffer of the University of New Hampshire conducted a study to determine how mood influences the "very basic element of decision-making" -- deciding whether or not we like or dislike an object.

The authors manipulated study participants' moods by showing them pictures of positive things, like cute puppies, or unpleasant things, like diseased feet, and then showed them pictures of common objects, one at a time.

The objects were flashed on a screen and then replaced by a word -- like, dislike; good, bad; favorable, unfavorable; appealing, repulsive.

The participants were asked to press a key labeled 'yes' if the word matched their feeling about the object they had just seen, or the key marked 'no' if it did not.

The researchers found that people who were in a good mood -- probably the ones who had seen the pictures of puppies, not diseased feet -- responded more quickly and more consistently to the words.

In other words, if they responded that they liked an object, they were less likely to respond later, when the same object was shown again but with a negative word associated with it, that they disliked it.

The study's findings are relevant not only to shoppers, who might want to hit the mall when they're in a good mood because it will mean they'll get home faster and are unlikely to regret their purchases, but also to retailers and manufacturers.

Because retailers want shoppers to spend more in their stores, they "may want to be aware of factors that can induce negative moods, like abrasive salespeople and negative shopping environments," the authors of the study say.

And the study's findings may help manufacturers to understand why some new products fail where others succeed: it could have something to do with whether consumers like or dislike a new product at first glance, which in turn might be affected by the consumers' moods, something manufacturers could manipulate.

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