The following video was shown today on Yahoo’s Tech Ticker:
So, what’s the point in showing this video? Why do I try and convince people that America is in trouble? Is it because I’m against American power? Absolutely not. Instead, I’m trying to convince people that if America does not change her policies, we will be in trouble. We’re heading down a terrible path and we need to change course.
At a high level, this is what needs to happen for America to change course:
Get our fiscal house in order – stop expensive bail outs, slash the size of government, reform entitlement programs (social security, medicare, etc.)
Stop being the world’s police force – its unsustainable and unaffordable
Become a nation that is pro-business again – slash taxation and regulation
Emphasize saving and production versus spending and consumption
Become energy independent – go after all domestic resources including oil
Embrace the Constitution and get back to what made America great
Unfortunately, we’re going in the opposite direction of the most of the items listed above.
The Huffington Post has an article out regarding the trend of young Americans looking for work in China. This is an example of a trend I am a firm believer in; namely that China will be the land of opportunity both in the present and in the future, much more so than America.
There are many reasons for this but they can be summed up by the statement that China is much more pro-growth than America. Whether it is tax policy, government regulation or targeted stimulus money, China’s communist government seems much more dedicated to economic growth than our “capitalist” system.
For individuals looking to work hard and be rewarded for their effort, China seems like a great opportunity. If I were single without a family, I would definitely consider such an opportunity.
It will be interesting to watch how this story unfolds over the coming years. You can be assured that I will continue to write about the China story here at 20smoney.com.
I just recieved information from Euro Pacific regarding their new China Fund available for investors. For those who may not be familiar with Euro Pacific, this is Peter Schiff’s company who has made a big splash with his excellent predictions of the U.S. economy over the last few years.
If you know anything about Schiff and his economic views, he views China as a major long term opportunity. At first glance, it looks like this mutual fund will invest directly with Chinese companies on foreign exchanges. Schiff also focuses on higher dividend companies.
After a quick glance, it looks like the minimum investment is $2,500 and there is a 4.5% front load fee along with 1.75% annual management fee which means that this fund is not cheap. While I don’t own any mutual funds, I have to admit, this is the first one that I might actually consider since I’m such a fan of Euro Pacific.
If you haven’t seen the following video (many of you probably have), then you don’t quite understand the information age that we find ourselves living in today. The growth of information is staggering.
The examples presented in the following video will help you understand a little better the drastic changes our world has gone through in just the last few years.
What does this mean for business? For making money? for your career? How can you adapt and position yourself accordingly to profit from this new age?
Many of my readers participate in their employers’ 401(k) plans. In fact, for many, the 401(k) is the only way they touch investing.
First, the 401(k) is a great vehicle to take part in, especially for the company match. I strongly encourage it. With that said, are there ways to supplement your 401(k) plan with regards to your complete investment picture? Are there ways you should diversify from your 401(k)? Yes and yes.
Supplemental Investments
Most 401(k) plans are heavily tied to the direction of the U.S. economy. If you read my investing philosophy, you will see a few areas that I think we should have significant exposure for the coming years. The two major areas are inflation protected investments and China.
Additional Diversification
In addition to adding better international diversification as well as diversification from the US dollar (with inflation protected investments), you can also get some “taxation diversification”. The 401(k) provides a tax advantage on the front-end, by deducting your contributions from your taxable income. You can supplement your 401(k) by opening up a Roth IRA which provides a tax advantage on the back-end, when you withdraw your money.
Fund your account when you open it and add money once or twice a year – in 2009, your maximum contributions allowed are $5,000. If you can max that out, great; if not, don’t sweat it. The important thing is to do regular contributions (like you do for your 401(k).
Get China exposure by targeting the following ETFs: FXI, AIA, PGJ. Buying ETFs is much easier than individual stocks.
Get inflation protection with the following gold ETFs: GLD & GDX. Also, consider a position in the silver ETF: SLV. I would also recommend an energy ETF such as USO & DIG.
Add to these positions each time you fund your account. This will provide the same dollar cost averaging as you get in your 401(k).
Your 401(k) is a crucial part of your financial plan, but I strongly recommend supplementing it as detailed in this post!
I’ve looked into Waste Management (WM) recently as a potential long term investment. Most of their business is non-cyclical which means they will perform well even during a prolonged economic downturn.
Take a look at a recent Fortune interview with Waste Management’s CEO discussing the future of their business:
The part that grabs my attention the most is their drive to find high-growth, recession-resistent investments. The waste-to-energy market is where they are focusing. Even better, most of this business is coming from abroad, both in Europe and China. Especially when it comes to China, this market should fuel earnings for years to come for Waste Management.
I am adding Waste Management to my dividend target list with a target yield of 5.0%.
I’m in the camp that believes the 21st century belongs to China. The long term growth strategy, the billion plus population, the desire to achieve a higher standard of living, the work ethic, the surpluses that can be used to invest in future growth… it adds up to years and years of strong growth. Will there be mishaps along the way? Sure. Do the Chinese need to improve on aspects of their society such as corruption in government? Yes. But, every developing country (America was not an exception) grows and improves as time moves forward.
China Is Investing In Their Future
In a stark contrast to the next re-election cycle focus of our leaders, China seems to have a very long term focus on their economic strategy. Coupled with this are the trillions in reserves that China has built up by exporting products to the entire world, especially America.
As such, China is buying up resources that will help fuel and sustain growth for decades. China is buying commodities and establishing relationships with countries around the world, even Africa, to help fuel their growth requirements for years.
Furthermore, when it comes to stimulus, China is doing more of it and way more effectively than America, and, as I already mentioned, they actually have the money to do it (ironically, the Chinese are also paying for our stimulus through buying our debt). As a percentage of GDP, China is spending way more money on stimulus during this current recession than America. More importantly, China is actually spending on things that will stimulate and improve the economy both now and in the future. Specifically, China is building massive infrastructure projects including a huge high speed rail project. Check out the awesome video below from Fortune:
With that said, I’m a believer in China over the long term. Currently, the market is over heated. So, you could stand to wait before buying into securities with China exposure. But, even if you decide to buy now, you will make lots of money in the long term. I strongly believe that getting into China now is like getting into America a hundred years ago.
How To Invest
You have a few options if you want China exposure. You could invest in American multi-national companies that do business in China (i.e. the video above mentions IBM). You can buy China ETFs that hold Chinese companies, and for those looking for even purer plays, you can invest directly on the Chinese stock market through global trade accounts such as ETrade. Lastly, some brokers specialize in investing abroad (check out Euro Pacific).
Two ETFs Worth Considering
iShares FTSE/Xinhua China 25 Index (FXI)
This ETF invests in 25 large Chinese companies. It is diversified across industries in China. You can view the top 10 holdings by clicking here. Closing share price on Aug 18, 2009 was $40.03. Target Purchase price $30.00.
iShares S&P Asia 50 Index (AIA)
This ETF is a little more broad, it invests in the top 50 companies in the following four Asian markets: Hong Kong, Taiwan, Singapore and South Korea. Closing share price on Aug 18, 2009 was $35.43. Target Purchase price $26.00.
I personally like both of these ETFs over the long haul. Again, these ETFs are up big in the last few months. Wait for them to come back a little bit, then find your entry point. After getting a position, I’d recommend continuous buying for the next few years. The dollar-cost averaging over time will help prevent you from buying too much and too high of a price, and like I said before, we’re looking years out on these investments. If you do most of your investing in a 401(k), you are probably way overexposed to American companies. I’d recommend opening a brokerage account immediately simply for some China investments. It would be a fantastic compliment to your 401(k) and provide some healthy diversification.
As the title says, I want to retire off buying big and buying early in the long term China story.
A Quick Note On Chinese Markets This Week
The Shanghai index tanked another 4+% overnight similar to the start of the week. Interestingly it looks as if the U.S. markets are following Shanghai’s lead (both in the run of the recent months and the turn lower over recent days). If you are a long term investor, THIS IS A GOOD THING. We want attractive prices. Be patient. This applies to U.S. stocks and Chinese stocks. Assuming most of my readers are 20-somethings, the long term play here is to invest in undervalued stocks NOT OVERVALUED stocks. If you’re frantic about stocks going down, you’re not making the right moves and you definitely have the wrong approach.
With the overnight move lower, the Shanghai index is now 20% off the top. Many view this as a definite correction. I imagine the index is going lower. Determine your target entry points for your China ETFs, pull the trigger on them if they hit those targets, and then stick to your strategy, even if they move lower from there.
