Two Week Site Visit

At some point, I will write up a comprehensive layout of the training process that volunteers must complete before being “sworn-in” as official volunteers. The process is long and frustrating so I’ll spare you for now. I will say that it all feels worth it when your perminant site is officially announced. Almost immediately after receiving this all-important information, you are sent on a two-week site visit.

It is basically a meet-and-greet with anyone you come within earshot of: locally elected officials to those with more royal pedigrees, Clergimen to taxi-men, venders, re-venders, restaurant owners, school masters and medical doctors. And all of their spouses, children, mothers, cousins and brothers if any of them happen to be in the vicinity. It is a fantastically social experience. 

It is also the first time you will get to hear about the work you will be doing for the next two years. As a volunteer, it is your responsibility to aid the community in attaining its dreams -maybe with a little tweaking where necessary, but never to instill upon the community, your own, singularly personal visions or morals.

For this reason, I have been spending as much time as possible trying to find projects that my counterparts are most passionate about and how I can make the biggest impact within my two-year service. 

Here is a list of some of the largest projects that seem to be the most important to my community and my Beninese counterparts (There are other secondary projects that are not mentioned here). 

1. Creating a waste management service. In the developed world, we are used to throwing our trash in cans, putting them out on the curb and forgetting about what happens to the wrappers, bottles, and scraps we put in them. Forgetting about those things is impossible here, where there is no such service and trash is often left in piles outside, and more than often – burned. Trash is often overlooked by development agencies because, let’s face it, it’s trashy. There is no flash or glamour in the work and it doesn’t tug on the heart strings of donors quite like building orphanages and giving children shoes. It is nevertheless a fundamental element of hygiene, environmental stewardship, and tourism. As a Community Economic Development volunteers, I will add that it is also potentially, a cash cow!

2. Restructuring a Hospital. There is no health insurance for people here. There are clinics and private hospitals but, similarly to in the  U.S, services are very expensive. For this reason, a hospital with which I am working, is trying to restructure itself as a membership organization that provides health services to its members. This would, in effect, function like an HMO with only one medical service provider. This would provide reliable services to patients while providing a reliable income source to the hospital. 

3. Harnessing the power of ecotourism. The farm with which I work has several extra rooms and not enough hands. The road to my village has recently been repaved and it is only 60 kilometers to the national capital. There is therefore, renewed potential for tourism here, especially given the peaceful past of this West-African nation. 

4. Engaging with youths. At least half the beninese population is under 18 years-old. There is therefore, an abundance of unmet need in this area. I will be running English clubs, entrepreneurship clubs, and environmental action clubs at several local schools. This well help development efforts in the years to come. Encouraging creativity and analytical thinking will be a priority in all these classes since the educational system here generally emphasizes pure memorization of raw information. 

My IRA Asset Allocation

Here is a short description of my asset allocation for my IRA. Before I get into it, I’d like to say first that it is incomplete and imperfect in many ways. I am not a professional investor and do not have access to more complex financial instruments that I would use if available. My IRA portfolio is therefore a rough approximation of my ideal portfolio. I have a relatively high risk tolerance and this portfolio may not be suitable for other investors.My portfolio is currently invested 80% in equities through the use of ETFs (allowing for investments in over 800 companies with some overlap) and 20% in short- and medium-term debt.

This allocation description does not constitute financial advice and is merely meant to be thought provoking.  I have not and will not go into a description of my broader strategy or a justification of my investment choices. I have simply added a short description of my reasoning for each investment. That being said, go ahead and take a look.

  • 30% Aerospace / Defense – (ITA) is an ishares ETF with holdings in companies like Lockheed Martin, General Dynamic, Boeing and so on. Lets face it all you hear about in the news is violence and with markets the way they are this is about as safe a place as any. These are also low Beta stocks that should help cushion your portfolio in times of high volatility. Plus a lot of these companies offer solid dividends. My major issue with this ETF is that the companies are all American not Global.
  • 15% Alternative Energies – (GEX) is a VanEck ETF offering global exposure to companies producing energy from renewable sources like solar and wind. This market segment can be more volatile, but I think in the long run the world needs to end up using these sources so its worth taking the risk. First Solar and Tesla are two of the American companies held in this ETF. One of the plus sides of this fund is that you can feel good about holding these companies (where you might feel a little lousy for owning those held in ITA).
  • 5% Energy Exploration – (FILL) is a globally diversified ishares ETF that holds companies like Royal Dutch Shell and BP. While the oil market might be soft, rock bottom prices leave the market with only one direction to go. These companies pay good dividends and have relatively low Betas. At only 5% of my allocation, I feel fine taking the risk. The ice caps are melting and who knows what we will find beneath them. I don’t condone drilling and destruction of the environment but if these companies are going to ruin our environment they might as well pay us dividends to deal with the consequences.
  • 10% Global Pharmaceuticals – (IXJ) is another ishares globally diversified ETF and includes companies like Pfizer. Global climate change is causing increased rates of natural disasters. Natural disasters exacerbate disease issues. These companies also offer decent dividends and relatively low Betas to help cushion a portfolio. Share prices change depending on drug development schedules not broad market movements; this asynchronous behavior helps smooth out portfolio performance.
  • 5% Global Telecom – (IXP) I hate utilities but they offer stability. Companies like AT&T included in this ishares ETF are like the U.S. Treasuries of the stock market. That being said, they are overpriced in the current market. These do offer great dividends and low Betas as well though and will make a good addition to a safer portfolio.
  • 5% Du Pont – (DD) is a chemical company that also produces things like HAZMAT suits. Share prices popped during the Ebola epidemic and I am including this company in my portfolio for the same as Global Pharma. This company has a higher Beta but pays a decent dividend.
  • 10% S&P 500 – (SPY) is a SPDR ETF that approximates the performance of the S&P 500 (ie. the broad market in general). I have a relatively high risk tolerance and I bought in when the market was down earlier this year. While I think the market is bound to take another dip in the near future, I am happy to be long from where I bought in and welcome a little more risk over the long term.
  • 10% Income – (DODIX) is a fund made up of intermediate-term bonds. This is the eminence of a previous allocation that I have not yet reallocated. In the mean time, it has performed fairly well.
  • 10% Money Markets – The remaining assets in my IRA are held in money markets. I will be doing more research to decide where best to put these funds. Between this and the other 10% income allocation, I have sufficient liquidity to take on new investment opportunities during the summer. I have a feeling the market might go on sale soon with all the Brexit, U.S. elections, and Fed-rate-hike shenanigans going on.

I will likely be making some changes in the not too distant future. 

Financial Preparations for an International Life

If you want to live abroad or work abroad, I am sure there are countless professionals and human resource people that would be happy to help you prepare your finances for the move. If you don’t feel like paying for the help or don’t work for a company that provides it, you may have significantly fewer options. I have decided to put together a list of things that I have done to prepare for my move abroad with the Peace Corps. I hope that these things will help other people that are more limited in there resources.

  1. I opened a bank account that reimburses all ATM fees. I opened an Aspiration Summit Account. It is a mastercard so you can use it like a credit card as well as an debit card. This is a phenomenal, transparent new company that offers 1% interest on deposits over $2500. As a client you can choose to pay them any fee that you want for the services you receive (You can choose to pay $0). All ATM fees are reimbursed at the end of the month and they allow mobile deposits. The charge a 1.1% fee on international withdrawals but since the ATM fee is reimbursed it is still less than almost any other bank’s fees for the same transaction.
  2. I opened a credit card that has no foreign transaction fees. I got a Capital One Quicksilver. It is a VISA, so almost anywhere that takes a credit card will take it. Credit cards are also great last resort if you are in a pinch. This card offers a flat 1.5% cash back rewards program, which is nice too. I recommend using the cash back to offset purchases, as there is no point in saving up reward dollars since they do NOT earn interest. This is especially true if you have opened the checking account described in number 1. (This is true for any rewards program.)
  3. I also have had an American Express Gold Card for similar reason as the Capital One Quicksilver. There are no foreign transaction fees. Amex has outstanding customer service especially if you travel a lot. I have used Amex for several years and been very happy with them. The reason that I got the Quicksilver was to have a different payment option since many non-touristy businesses do not take Amex since it is so expensive to accept. This card has an annual fee after the first year but the points pay for it if you use it. I really have it for the safety that Amex provides and the credit limit flexibility.
  4. Took my student loans out of deferment. As a Peace Corps volunteer, you are entitled to defer your loan payments. If you do not expect to have significant other income aside from your Peace Corps income, it would be a good idea to simply sign up for an income-contingent repayment plan (ICR). Odds are your payment will be zero or near zero and you will still have qualifying payments for the federal forgiveness program.
  5. Set up auto payments for my student loans. These will be my only recurring obligation while I am abroad. I would recommend automating any mandatory recurring payments though just in case you forget or do not have internet access while abroad. While I am not actually obligated to make payments, it is a wise idea to at least cover the interest incurred so that your loans aren’t growing. I pay a nominal amount above the amount of interest being charged just so that I am at least picking away at the principal.
  6. I rebalanced my IRA. I do not know how much time I will have to adjust my investments while away so I figured I should make sure I feel very secure with my investments while I have the time. I love ETF’s for the diversity they offer, their low management costs and their general liquidity.

Saving: Be the first of your friends to try it! (Part I)

Piggy banks and jingling coins were the first things that came to mind when I heard the word “saving” as a kid and a teen. The picture above features the top 14 images from a Google search of the word. Both my early understanding and Google seem to align quite well with the common conception of what savings is – small amounts, several coins at a time, here and there that eventually amount to a useful sum of money. Saving is the essence of wealth creation.

The issue with this understanding is that it makes saving seem like an afterthought. The leftovers. The scraps of consumption. This is the case in the United States where individuals save, on average, less than 10% of their income. For some, this rate even goes subzero. In other words the average person went into debt during the year instead of saving for the future. This hasn’t always been the case though. The average used to be over 15%. Time to bring it back like the mustache.

7-1-2016 Saving Rate Graph

In fact, financial advisors will tell you, that you should be saving at least 10 – 25% of your income after already having an emergency fund of 3 months to 6 months income set aside in cash.

The graph below shows how different wealth groups save. Ironically, the more money you have (money, NOT income – stagnant, piled, cash, money), the easier it is to save. The nature of interest rates (see Interest Stuff posts) makes saving exponentially easier as one’s wealth increases. This is because the money you have produces more money/income and therefore more savings potential.

7-1-2016 Saving By Wealth Class

This exponentially powerful reproductive quality of saving money is what is not explained to young Americans. I did not learn about this manmade phenomenon until I was out of my parents’ house, struggling with bills, and took my first economics course. (Honestly, I would recommend that every single person, at least that plans on living in contemporary society, take basic micro- and macroeconomics courses until they ace them.) When I found out, that you could truly make money with your money through investing, I decided to study business. It seemed the only logical course of study.

I am not saying that people should forego their dreams, major course of study, or whatever to study business. I was, first and foremost, a French major and when it came time to graduate, I walked with the other six French grads instead of with my Business School buddies. I guess what I am saying though, is that the conception of saving as an afterthought, a superfluity is detrimental and should be revised. Saving is a powerful tool that should be aggressively advertised. Too bad it only makes the SAVER money.

Disclaimer: This is not a scholarly blog. I am not citing any sources, rather any information has come from my personal studies and any graphs or data used or referenced is easily accessible via Google Search.

Interesting Stuff: Anything in the paper today, Joe? (Part II)

Interest rates, like any other price, change over time. The price of money just happens to be more volatile and more people pay attention to it than to most other things. This volatility is caused by “the market” or, in other words, the the generally masses that borrow and lend (essentially buy or sell the service of using money).

To round out the formula for an interest rate mentioned in the first part of this post, let me introduce the idea of Market Equilibrium – Sounds more complicated than it is; here is how it works.

Interest Rate = General Inconvenience + Risk Premium +/- [How you feel after reading a Newspaper]

  1. If more people want to lend money than borrow money . . .

Interest rates will drop. The cost to borrow will be cheaper. This is because the market is not at equilibrium. There is extra cash lying around that no one knows what to do with.

  1. If fewer people want to lend money than borrow money . . .

Interest rates will rise. The cost to borrow will be more expensive. This is because the market is again not at equilibrium. Everyone is trying to get there hands on cash and there is not enough to go around.

  1. If the same number of people want to lend money and borrow money . . .

The market is said to be at equilibrium. If this is the case the interest rate should rest at one level and not change. This is said to be around 5% depending on what you look at and who you ask. I think the concept is pretty much Bull Sh*t since its so hypothetical that it’s pretty much irrelevant.

This chart tracks the U.S. 10- Treasury Rate movement over the last year: one of the most internationally followed rates. Found it at BigCharts.com, its my favorite chart website.7-1-2016 US 10 Yr Rate

This is how I use this idea of Market Equilibrium . . .

Read a newspaper, almost any one will do. Not just the business section. Read the international news. The weather. The stuff about politics and what not. Definitely read the front page because odds are that’s all most people hear about and act on. Think about all the articles you read and whether or not you think based on the articles, people will start buying more stuff. Then think about if anything you read made you think that Joe-down-the-block-that-owns-the-hotdog-stand would be in a worse financial situation in the near future. Then read stuff from other news providers to round out your opinion.

  1. If you think people are gonna buy more stuff, odds are rates are going up. People will borrow to buy more.
  1. If you think Joe is gonna be just “meh”, rates might be coming down. Lenders want to entice borrowing with lower rates and encourage Joe to spend more to help his business.
  1. If you think Hotdog Joe is about to be Hobo Joe, odds are rates are really going up. No one will want to lend to Joe ‘cause the dude probably ain’t good for it (remember what I said about risk premiums!). Unless you read something else that mentions QE or “Quantitative Easing”, that means rates are coming down (if you want to know more about it QE, Wikipedia’s gotcha covered, also helps for anything business related)

For the record, this Market Equilibrium stuff is all you need to know to understand how the prices of things will change over time. And the process of analyzing prices is the same for interest rates as it is for cotton, computers, salt, water, gas, air, whatever really. Bottom line, read! Read a lot!

† This is a rough approximation. Any newspaper will do. Accuracy is absolutely directly correlated with the number of newspapers and articles you read in them.

Disclaimer: This is not a scholarly blog. I am not citing any sources, rather any information has come from my personal studies and any graphs or data used or referenced is easily accessible via Google Search.

 

 

Interesting Stuff: Risky Business (Part I)

Interest Rates are always in the news. Prime Rate. 10-Year Rate Treasury. 3-Month LIBOR. If you are the average person though, the only interest rates you care about are the near-zero one that puts $0.01 in your bank account at the end of the year, the one you charging $100 every month on your student loans, and maybe the one you forget is part of your car payment that you think is only like 10% of your payment but is probably like 40% of it. What is an interest rate though?

Interest rates at the most basic level are the price you pay someone else for the service of using their money for a period of time. Since that person has the inconvenience of not having access to their own money while you borrow it, you have to pay them a percentage of the borrowed sum. If there is no risk of you defaulting (not being able to repay), then the interest rate is considered “risk-free” and will simply cover the inconvenience of lending.

If however, you, the borrower present a risk to the lender, you will have to pay a higher rate as compensation for the risk that the lender must assume on top of the inconvenience of lending in the first place. This extra amount is called a “risk premium”, i.e. the extra amount charged because of risk factors.

            Interest Rate = General Inconvenience + Risk Premium 

Disclaimer: This is not a scholarly blog. I am not citing any sources, rather any information has come from my personal studies and any images or data used or referenced is easily accessible via Google Search.

Business Concept Series

I am finally getting started on the Business section of this blog. My aim is to make micro-finance and business in general as fun as the other parts of my blog. Challenging, I know, but I accept that. So, I am going to try and make my posts short and sweet. I want them to be helpful and interesting.

To start out, I will do a short series of posts on concepts that relate to micro-finance and will draw them in together as I move forward.

I will cover:

Interest Rates,

Savings,

Borrowing,

Spending,

Investing,

-Maybe some more if I think of them while writing these . . . on va voir.

In the mean time, I recommend checking out Investopedia for info on all things business related. Wikipedia can fill in anything else. Don’t listen to the haters.

Disclaimer: This is not a scholarly blog. I am not citing any sources, rather any information has come from my personal studies and any images or data used or referenced is easily accessible via Google Search.