AskDong

I’m a big believer in public education.  I believe and support the public school system.  However, for my college education I chose a private school, some would even call it an “elite private institution.”  Was it worth it?  Was it worth the 30k a year that it cost? I was on financial aid, so it didn’t really cost my family the list price, more like 15k + 5k in loans a year.  For me personally, I believe it was worth it, but is it worth it for everyone?

The total cost of a private college is 30k vs. 12k for a public institution. That’s a difference of over 18k a year for 4 years. Assuming a return of 8%, that difference turns out to be worth over 295k in 30 years in today’s dollars assuming a 3% inflation rate.  In nominal terms it’s closer to 700 thousand.  While that’s nothing to sneeze at, if we assume that attending elite university adds on average 10% to one’s salary, and assuming a salary of 40k a year that 10% difference is worth 265k assuming that difference is invested over 30 years.  A 15% increase would push that difference to almost 400k.  So if we can increase the post college salary by a little over 10%, it might seem that paying more for an education is financially sound.  But does a expensive education actually produce the requisite salary bump?

“Elite” colleges churn out doctors, lawyers, scientists, bankers, and consultants, to that there is no doubt.   The question is it easier to become a doctor, lawyer, scientist, banker or consultant? This article on MSN purports most of the bias is embedded into the selective nature of these institutions.  Top students tend attend these “elite” universities.  They end up succeeding not because they have received a better education but because they are by nature already ready to succeed.  The degree is merely a reflection of succes rather than the root of success. 

I believe if you want to be doctor, lawyer or a scientist, go to public university and do well.  However if you want to become a consultant or banker then take the path I personally took, go to a school with old brick buildings and some nice shrubbery.  Consulting firms and Investment banks generally only recruit from the “top” college and universities.  For some people getting recruited and getting on the right career track makes a tremendous impact on their career.  It has for me.  I’ve had lucky breaks in the “business” world, but ultimately I’ve only been in position to have those breaks because of where I went to school.  I accept that and understand that.  There isn’t the same strong bias in the academic world making it possible to pursue prestigious graduate degrees from most universities as long as the grades and test scores are good.

The rub of course is that an 18 or 17 year rarely knows for sure what they want to do.  I thought leaving High School, I was going to go into the sciences, and get a phD.  Actually the real truth was worse.  I had no idea what I wanted to do with my life.  I believe that’s true for most seniors in high school.  At the same time,  I didn’t know anybody in high school who wanted to become a consultant or a banker.  Ultimately that’s what I believe a elite institution affords,  additional flexibility for the undecided, and more open doors.    Sometimes that flexibility is worth something, and other times nothing.  In that regard the value of the degree behaves very much like a financial option and options can be quite valuable.

I generally lean towards the rent side of the Buy vs. Rent debate.  However, this mostly because I think people often rush into a buying a property without really thinking about how long they actually plan on living in a house.  There are other reasons as well, but in general buying a home is mostly not a financial decision.  It’s a decision about where and how you want to live.

What is a financial decision is the mortgage.  Many proponents of buying like to cite how leverage is one of the single best reasons to buy.  For those who aren’t familiar with leverage, leverage is the ability to control X dollars with Y dollars which is less than X dollars. In the case of home purchase, it’s the basically the ability to put 20% down, and be exposed to 100% of the property value. Leverage magnifies gains AND losses.  It’s great in a bull market, and disastrous in a bear market.

However, in all this debate about leverage, sometimes the discussion loses sight of the basic benefit of the leverage equation – the ability to borrow.  Unlike a corporation, I can’t issue commercial paper, or corporate bonds.  My only options to issue debt are: personals loans, credit cards, using brokerage margin, mortgages, and now propser borrowing.  Of all these, a mortgage is by far the best; better rates, flexibility with length and amount.  I realize that many personal finance gurus rant against debt, and rightly so.  However, debt can also be a very useful part of someone’s investment and planning.  Most corporations would not succeed if they were unable to issue debt.

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Socially Responsible Investing, sometimes known as SRI, just doesn’t make sense to me. On the most part I feel like it’s a scam perpetuated by the mutual fund industry which has come back to bite them in the ass.  The thing is I’m on the same page with most of the socially responsible funds.  I support a better environment, better labor practices, and a better world.  I’m left of center and proud of it. I also understand the moral desire to not want to profit from practices you disagree with.  I even think it makes sense to invest in GREEN companies because those values reflect forward thinking, a sign of good management.

However, the way socially responsible funds are pitched is that somehow by investing in socially responsible way is better for the environment, or supports better labor practices.  I just don’t see this.  Maybe during the IPO process, but once the shares of the company are in the secondary stock market my purchase or sale of shares does not affect the company. The only affect I have on the company is how I vote my shares.  For this reason fund like the Free Enterprise Action Fund which tries to promote profit for profit’s sake and spite the left wing movement by shareholder advocacy makes more sense.

Part of the reason, I’ve been thinking about this is the media blitz put on recently attacking Fidelity Investments.  If you live in Boston and take the T, you’ve seen the ads I’m sure that ask, “Are your riches filthy?” I’m pretty sure those ads are part of the campaign, but unconfirmed.  Hey I’m all for the pitch for awareness. I just find the attack on the investment company counterproductive and just as pointless as most SRI funds.  It’s not like the investments that Fidelity has made in PetroChina which works with the Sudan government was the source funding that has allowed PetroChina to invest in Sudan.  Fidelity via its wide array of mutual funds has merely purchased shares from someone else in the investment world.

If we want to be socially responsible, and want to punish the bad companies, and reward good ones, the best way we can do so is by socially responsible consumerism.  Socially responsible investing does nothing but change who the winners and losers are the investment side, but not the actual profitability and therefore survivorship of any “bad” company.  If a company is unable to sell it’s products, it either has to change or go bankrupt.  If a company can’t sell its already issued stock (unless that stock is used to support its balance sheet via voodoo accounting i.e. Enron) it doesn’t matter. A low stock price is reflection of poor company performance, and not vice versa.

I’ve already reviewed the Maho Bay Camp. Now for something completely different. The Caneel Bay resort is about as far removed an experience from Maho Bay as you can get, despite being less than 3 miles apart.

Caneel Bay was originally founded by Laurence Rockefeller (son of John D. Rockefeller, Jr.; brother of Nelson Rockefeller). The entire island of St John, in many regards, is a product of Laurence Rockefeller’s vision. He donated the land to the U.S. Government that is now the U.S. Virgin Islands National Park. The Caneel Bay Resort is within the park boundaries, and was a member of the RockResort family between the 50’s and early 80s. After exchanging hands a few times, Caneel has been in the capable hands of Rosewood Hotels & Resorts, a company based in Texas since 1993.

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There’s been a recent spate of articles on the pfblogsphere about what do when you lose your job. This is my own drop in the proverbial bucket.

I think LazyMan stated it with his response to plea for advice,  then Jim took note referencing one of Mapgirl’s post from last month.  I’m sure other bloggers have responded as well, but those are the people I read and have come across.

I’ve never lost my job.  Knock on wood.  However having been very personally through the dot com boom and bust, and the Enron led energy industry meltdown, I’ve been well within firing distance. I think we live in a society where company loyalty, and employment security is a thing of the past.  I don’t think this a good or bad thing, just the product of a more fluid and flexible economy.

However, with this great risk shift most people are not adequately prepared to deal with the reality of losing a job. There are two ways to be prepared. 1) Financially 2) Mentally - If you’ve got the 2nd part handled, the former will come of itself.

So how do you prepare yourself?

1. Never be too proud – be willing to take a whatever job temporarily to pay whatever bills
2. Know that you can turn off the spigot. Ken Lay during his trials was quoted saying “We had realized the American Dream and we were living a very expensive lifestyle. It’s the type of lifestyle that’s difficult to turn off like a spigot.” Don’t be like Ken Lay. Make an emergency budget so you know what items can be easily shut off.
3. Make sure your network is always fresh. You should not only always have an old colleague’s email or phone number handy, but ideally have talked that person in the last 6 months. I’m actually terrible at this – just not my nature, though I get by with a very good network outside of the workplace.
4. Have current skills. Self improvement is its own reward.
5. Be current on your medical and dental visits so you don’t have to pay out of pocket when your insurance runs out.

Often it’s not the person who has a lot of money that deals well with a sudden financial crisis, but rather the exact opposite – the person who doesn’t have a ton. Why is that? The latter is often times more adaptable. Never be afraid to change.

p.s. I haven’t read the Great Risk Shift, and do not have an opinion one way or another. I should read it but there are many many books on that list… Someday I’ll find the time when I’m not working on this blog.