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Tuesday, February 14, 2006

Move out of the country for better returns and more wealth?


The recent record snowfall here in NYC had nothing to do with me writing this post, I promise. This is something I've been thinking about and researching for a while.

Would moving and working in another country lead to higher net worth and more spending power? I'll try to leave the issues of quality of living out of this, since that is mostly subjective. Furthermore, I'm also leaving out the feasibility of just picking up and moving to another country, I'm no immigration expert. But first, we have to tackle the main components of growing wealth.

Since your choice and allocation of investments (stocks, bonds, etc.) is not limited by where you reside and work, your rate of return is also not going to be affected. The only factors in your REAL rate of return are going to be taxes and inflation. This is highlighted and thoroughly examined in this Study of Real Real Returns.

Looking at the first couple of charts, you can see that the real increase in net worth is only a fraction of the nominal gain. And most striking of all is that in the calculations, only dividends have been subjected to the capital gains tax! This means that if you were to cash out your investments, you would be further taxed another 20%! (I've read and reread his calculation methodology to confirm this, please let me know if I'm wrong).

Your other source of income is your job (or business). And likewise, taxes play a big role here. Assuming you hold a 50k job, a mere 5% reduction in your income tax rate would lead to 2500 extra dollars a year to invest. Do the compounding magic, and after 20 years that turns out to be a tidy sum (2500/yr, 5% growth turns out to be 88k, no taxes).

Ultimately, the point is that taxes play a HUGE role in your net income, your rate of return, and your capital gains (remember companies are taxed also, thus influencing their growth). Take a look at your paycheck and you'll realize that taxes are one of the biggest expenses you incur. While inflation is out of our control, taxes are not.

In the next part of this post, I'll compare some of the tax rates around the world and see how the US stacks up. I'll also explore the influence of tax rates on stock returns. Lastly I'll come up with a shortlist of possible and ideal places to move to!

Please realize that I am not advising anyone to move, I am merely pointing out alternatives. For most people, this will extremely difficult if not impossible. As usual, feel free to email or leave comments!

Friday, February 10, 2006

Just a few quick links.

I've been extremely busy recently and haven't had the time to post, but here are two links that have caught my eye recently:

Here's a fatwallet thread on maximizing cash back for your credit cards depending on various catergories (restaurants, groceries, etc.)

The Economist has a an interesting article this week about the influence of bloggers and other forms of online "social media" on corporations. A recent example of this power would be the Nvidia/AEG focus group incident.

While NYC will be blanketed in snow this weekend, I hope you won't be as unlucky. Have a great weekend!

Wednesday, February 01, 2006

Identity Theft Overblown?

According to a recent report , identity theft is under control and contained. Is this really the case? Should we believe what they say? Here's a well written article over at Arstechnica that analyses and digests this report.

Given all the conflicting information, I really don't know who to believe. However, what I do know is that it is important to be smart and prudent when dealing with my own personal information. Off the top of the head, these are some of the things I do to prevent identity theft happening to me:

1) I bought a shredder. All my old receipts, statements, and even junk credit card offers are now shredded. I've had my credit card number, name, and expiration date printed on some of my receipts before and shredding them before I throw them away makes sense.

2) I use a nick name (instead of my real name) and a bogus birth date when I deal with borderline trustworthy sites that ask for this information. This way, if I was expecting any mail it would still arrive in my mailbox.

3) I get a free credit report from Annualcreditreport.com every 4 months to make sure nothing funny shows up. Since you are allowed one credit report from each of the three companies, I space them out over course of the year to give myself more frequent updates on my credit history.

4) I have set up Quicken to download any transactions daily. This way if any errant charges were made on my credit card, I would know about it ASAP.

5) I use temporary credit card numbers. My Citi Platinum Dividend Select has this feature and it is called "Virtual Account Numbers." You can access it and learn more about it here. This feature generates a random virtual credit card number that expires in a very short time period. That way, even if your virtual card number was stolen, it would be useless.

While the effectiveness of my methods is uncertain, at the very least if anything were to happen, I would be able to notice and rectify it quickly.

What other methods do you use to protect personal data?