Thursday, October 25, 2007

An Exhibition

Recently I went to an exhibition "Personal Finances", organized by several banks, brokerage firms, insurance companies and publishers. I was interested to see what was meant by "personal finances" in that particular case. I wondered if I could learn something new. I must confess I have never seen people in real life who invests their money. Almost nobody will talk to me about handling money for more than ten minutes. All I know comes from books, magazines and the internet. So, I just wanted to see other people who were interested in pf.

Well, this exhibition turned out to be deadly boring. It was aimed at well-to-do middle class Muscovites and was held in a luxurious hotel in the center of the city. The visitors were mostly middle-aged men, several young men and few women. Somehow nobody would notice me and try to sell something to me. Sales managers probably couldn't perceive me as their client. They focused on more prosperous visitors trying to sell them average mutual funds with exorbitant fees, brokerage accounts (oh, trading is so in vogue here) and, strangely enough, tuition in private schools for their kids.

I went to a random presentation, where some pompous man gave a speech about stock market. The presenter told about disadvantages of mutual funds and encouraged everyone to buy stocks directly. He claimed he can easily get 100% ROI per year. This man hinted that successful people who made lots of money on stock market couldn't wear cheap bad suits. Apparently, we had to trust him, because his outfit did look expensive. Ugh. He obviously was a smart professional. But his speech was inaccurate and misleading, some facts were not true. My own experience and common sense sometimes disagreed with his words. I saw that his only goal was to make people set up a brokerage account with his employer and trade intensely, thus feeding the company with fees. I felt uneasy and wondered why the audience didn't laugh at him or challenge him (two men opposed him a couple of times but that was all). Then I realized that the majority of those sitting in at the presentation were listening intensely and actually believed what the presenter was saying. I remember a man in the audience ask "If I invest my money in stocks, will it be safe there? Will I get everything back?" He probably thought stocks to be some kind of bank deposit with extra high 100% APY. The answer he got was unclear and ambiguous.

What did I learn at this exhibition? Well, I believe that the personal finance industry in Russia is beginning to boom. The business seizes every opportunity to benefit from it. Not always their practices are and will be beneficial for their client. There's still little good advice on money matters and little information. People here need basic knowledge, like what a stock and a bond are. But at these presentations no one will muse on dollar-cost averaging, reducing debt, minding fees, long timeframes, indexing vs. active management and so on. There's a talk about 100% and quick big money. So people get easily impressed and start trading stocks actively, not really understanding how it works. They don't watch fees, they estimate the price of a manager's suit.

I also learned that I know enough to tell when people try to dupe me. I'm literate enough not to believe everything I'm told. I can make my own decisions. Thank you so very much, pf blogosphere :)

Tuesday, October 16, 2007

My New Card

Till recently I had two debit cards, given to me by my college, but issued by different banks. Both of them are free for me, and both are Visa Electron. (By the way, I was so surprised to learn that this type of Visa cards is not issued in the US, Canada and Australia. It's the most popular debit card here in Russia.) Well, the first one is an excellent card which is very convenient. But I never liked my second card. It has no online banking, the customer service is poor, and the number of available ATMs is limited. But my college puts my stipend on it, it costs nothing, and I need to have a second card in case the first one is rejected at a point of sale. So I kept using it.

I've just gotten a new card, which is a debit Visa Classic. It's also free, has convenient online banking, gives me a 5% discount at my grocery store and the location of ATMs is good. The checking account linked to the card will earn me 7.00% APY for one year, insured. Actually, I was wary when I was offered this card. It seemed to me that it was too good to be real (and free). Before signing up I scrutinized closely the terms and conditions, searching for hidden fees or something like this, and reading the reviews on the web. But everything seems clear.

The APY is something I'm very happy about. It's not that much, because the inflation rate this year is going to be about 9%. But earlier I used to earn close to nothing, because none of my other accounts offered me more than 1% per year. (Savings accounts with higher APY work like certificates of deposit and require a high minimum balance, which just doesn't work for me.) In December, when the "7% for a year" offer is closing, I'm going to sign up for a MasterCard with the same features. Thus I will get extra two months of earnings. Maybe using debit cards as savings accounts sounds weird, but it will probably work, at least till the next December.

One nice feature of my new card is that it can be used in online transactions as a perfectly normal Visa Classic. (Electrons can't.) So, I can now shop at Amazon or eBay at last! Honestly, when I found out about this possibility, I felt an immediate desire to splurge. For a long time I was longing to buy some books that I couldn't find anywhere in Moscow, but wasn't able to because I lacked a proper payment method. Now that I have such a means, I still must think twice, because the shipping rates to Russia are something to count with :)

The drawback of this full functionality is a higher risk of fraud. My first two cards are really safe. They have no CCV and cannot be used in internet or phone transactions. That's why even if someone learned my Electrons' numbers, they couldn't do anything harmful. Now I have to be cautious and protect the number, CCV, and expiry date of my new card.

So, my second card goes on holiday. I intend to use it once a month to cash out my stipend, and then I will roll the money on a better card. It seems that I’ve found a good deal.

Sunday, October 14, 2007

September Net Worth

The September was quite favorable for my finances, even though I had to pay dorm fees. The $3K mark was passed rather easily. The main reason for that is I got the stipend and financial aid for July, August and September. By the way, since this September stipends in Russia will be 50% higher than they used to be. A nice bump! Also, the stock market picked up substantially. The ruble rose quite sharply against the dollar, so the change of my net worth in dollars is greater than it is in my currency.

I tweaked my goal bars in the sidebar to make my net worth goals more clear. It now states my short-term goal is $4,000 by February. At my rate of saving it seems rather doable. Why do I pursue exactly this not very impressive number? At the current dollar/ruble ratio $4,000 equals precisely 100,000 rubles. The six-figure line is important for me psychologically, because it's like getting on the next level. I guess after that it will be all the same, 123K, 150K or even 200K. I'll concentrate on tracking my NW in dollars, because small numbers are more convenient. But right now I'm so excited to approach one hundred thousand milestone.:)

I also decided that I want to have $10,000 when I graduate in June 2009. Right now I have about $3,000. I keep in mind that by that time my birthday deposit of about $2,000 will have matured. I think I'll be able to save the other $5,000 in the next two years.