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Diversify your career; Double Irish with a Dutch sandwich; A closer look at bonds; Compounded experience; Kill your television

Posted in Personal Finance

By Amanda Morrall

1) Diversification

Investment experts bang on about the importance of having a well diversified portfolio to guard against risks associated by having too many eggs in one particular asset basket. Well, I believe the same can be said of one's skill set these days given our rapidly changing world and the technological revolution. Ideas guy Seth Godin explains why in his blog on what he's dubbed the "forever recession.''

2) Double Irish with a Dutch Sandwich

Yesterday in my Take Five for Tuesday, I made mention of my year in Dublin where I paid astronomically high rent while I was doing post graduate work. Fortunately, the overall experience made up for all the robbery that was taking place at the time. One of the reasons why this historically very poor country was transformed into a roaring tiger from a feral kitten was because the Government lured the multinationals in with absurdly low tax rates. It's a practise that hasn't disappeared. 

Altantic Wire explains in simple terms just how Apple (which now has more than US$117 billion in cash reserves) has taken advantage of the loose tax system there to avoid paying anything resembling a fair taxation rate on its gross profits. Through its two subsidiaries in Ireland - Apple Operations International and Apple Sales International (with some money being channelled through the Netherlands as well), the tech giant pays tax of 12.5 percent compared to the 35 percent corporate rate in the U.S.  Damn you Steve Jobs for getting me hooked on the rotten Apple.

HT to my tax troubleshooter Terry Baucher who wrote about why Apple and the like get away with this stuff  for spotting this. 

3) A closer look at bonds

Robert Brokamp of the Motley Fool, in this guest blog for Get Rich Slowly, takes a closer look at bonds, how they work, how much they pay and the effects of rising and falling interest rates. Some great tables, plain language and a good overview for those keen to learn more about how the market works. As a bonus, you'll get some random animal photos to break up the text. I love that trick. So here's one of my dog to amuse you today. 

4) Compounding experience

Tadas Viskanta, editor of Abnormal Returns, in his latest blog discusses why and how Gen Y's should get over their aversion to stocks and how compound experience can be as valuable as compounding interest.

Here's what he means by that:

..A more important, and relevant, concept isn’t compound interest but compound experience. By that I mean compounding experience upon experience. Taking what you learn from one experience and applying it to the next. In this context, piling lesson upon lesson helps generate much greater insights than trying to learn everything all at once and under intense pressure. Blair Livingston writing at his blog about the lessons of college life states:

The best insight into the whole process of compounding: it’s not how you finish, but how you start. How you finish is determined in part by you, but also largely by factors beyond your control – the competition, other people, etc. How you start is 100% within your control. If you start strong, layout good practices, and develop fruitful habits, you can set yourself up for a much easier journey.

These very sentiments apply perfectly to investing and saving. In retirement no one knows what kind of market conditions we will face over time. In part it depends on luck. However if you have established “good practices and fruitful habits” you will be better prepared to deal with the inevitable challenges we all experience as investors. Future retirees and near-retirees facing their first secular bear market will be at a disadvantage to those Gen Yers who embraced investing early on and who compounded not only interest, but experience along the way.

5) Kill your television

Remember those bumper stickers? Well having finally invested in a television that doesn't weigh 500 pounds and doesn't come with rabbit ears, I'm not about to take a sledge hammer to mine however truth be told I do miss the old junker. Not because it was so big it constituted a piece of furniture in and of itself but rather because I could ignore it more easily. Changing channels meant that I had to get off my arse and manually search for a channel, and then fine tune the reception with the ole' bunny ears until I could get a clear image. Neither myself nor my boys could be bothered, so we didn't watch a heck of a lot of telly.

Now because we have this nifty thing called a remote and great reception of 17 free channels, I catch them watching cartoons in the morning when they should be getting ready for school. And last night I found myself glued to the couch watching two hours of drivel because that's the effect that TV has on a person. 

U.K. financial blogger Monevator, in his latest post, explains why watching television is bad for you as an investor. Essentially it just adds unnecessary stress to your life if you obsess over the business shows (which he does) as well as drive you to make more impulsive investment decisions. Maybe the flat screen was a poor investment after all? 

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter @amandamorrall

 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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7 Comments

We took an odd approach and

We took an odd approach and although there are two televisions in the house there's no aerial.  We dumped the Sky after the world cup and buy tv shows and movies we like.  The act of having to choose what to watch makes you pause and think.

I just solved the problem by

I just solved the problem by moving to Australia. The free channels over (7,9 and 10) are just too appalling to watch. The first time I watched A Current Affair I thought it was a comedy like The Office, made like a mockumetary to look real. How wrong I was.

My 55" LCD LED tv is the best electronic item I have ever bought. I totally love it and am still impressed with how good it looks. It serves as a monitor for the PS3, and a viewing platform for bluray movies and the movies and odd TV show we download via bittorrent (no ads!).

There is some quality TV being made, you just have find it, download it, and watch it when you have specifically set aside time to do so.

I'd never watch it for investment advice though.

Three words to strike fear to

Three words to strike fear to the very soul ... Quality, Aussie, Drama.
 
Ahhhhhhhhh!

I wouldn't worry about Apple

I wouldn't worry about Apple in particular. The IT industry has been doing this for a very long time and they all run similar structures. When I worked for Iomega the deal went like this.
 
I worked for an Australian company who had a consultancy contract with an Iomega company based in Geneva who owned intellectual property. It made exactly the amount of profit the ATO required to qualify as a commercial entity and not a dollar more.
 
We ran channel programs but the distributors didn't purchase product from the Australian company.  They bought from another off shore Iomega production company in a low tax country.  You can be sure the production company was doing the same thing and most of the profit was channeled through payments for intellectual property into the lowest tax environment they could find.
 
The simple point being that's the way it's run industry wide.  This is just a media beat up.

My limited experience is that

My limited experience is that the question of diversification isn't simple or black and white.  That's because situation and timing play a big part.
 
As times it is better for focus, often at the start of a thing, especially if you have little to lose and the immediate challenge requires intense effort.  Later it becomes wiser to diversify to protect what has been created.
 
To know what the best thing to do is you have to know what the season is.

Indeed! But in this era of

Indeed! But in this era of global warming and economic meltdown it's virtually impossible to know.
Career diversification on the other hand is less opaque. Do a couple things well and you'll always have something to fall back on.  It used to be that journalists chose print, or radio or television, now if you want to survive you have to be able to move effectively between the three. Diversification in this sense is weather treating.