Relocating to California for internationals – Part 1

This set of articles are for Internationals who have recently relocated to California for a job. I am listing a few things which I wish I knew when I first arrived here for a full-time job. Short link to this page: http://bit.ly/fotb-ca)

  1. Hunting for apartment
    Use craigslist.orgpadmapper.com (this also provides average renting prices of the area) and housingmaps.com. Use crimereports.com to check the crime statistics of the area as well. Good apartments are booked really fast, sometimes, as quickly as the same day. Leases are usually a year long.
  2. Get SSN (Social Security Number)
    By visiting the nearest SSA office. A waiting period of 10 days is recommended after entering the USA. It’s a single number which will uniquely identify you in the USA. Its needed for credit cards, bank accounts and pretty much everything else. Most banks at their discretion will open a bank account without an SSN though.
  3. First phone
    USA has both CDMA and GSM networks. Phone numbers in the US are portable and that too for no fee. So, moving from one carrier to another is easy. The US has a weird contract phone system where people pay 200$ upfront and then buy a two-year contract to get a free phone locked to that carrier. If you are planning to go for a contract phone, go for either AT&T, which is GSM or Verizon, which is CDMA. They have the best coverage but they are expensive. T-Mobile, a GSM carrier and Sprint, a CDMA carrier, are less expensive but have limited coverage. If you go for a contract-less phone, you will pay more upfront but still much less over the two year period. In that case, go for either a good Nexus phone from Google Play or go for an unlocked iPhone from Walmart. And use that with an MVNO, mobile virtual network operators like Cricket wireless or StraightTalk. For the curious, a long list of MVNOs is available on Wikipedia.
  4. First Bank account
    I would recommend getting a primary checking account at a big bank like ChaseBofA or WellsFargo. Checking account is also known as current account in some countries. Open a checking account and not a savings account. Most savings account practically offer 0% at big banks and you cannot withdraw money more than thrice a month from them. Also, don’t pay a maintenance fee for your account. Usually, the accounts have a no maintenance fee clause if you meet certain conditions. Clauses like your employer making a direct deposit or you maintain a minimum balance ~ 1000$ dollars. If there is no such clause just tell the banker you will walk away and they will most likely fix it for you on the spot. Do check if any promotions are going on nearby. Also, ask your friends for a referral. In most cases, their banks/Credit Unions are happy to give you and them a referral bonus for a new customer. Credit unions don’t have shareholders to distribute the profit (unlike banks). So, in some cases, they can offer better service but usually, their small sizes interfere in that.
  5. First credit card
    Credit cards have better credit protection, in case they are stolen, and better rewards than Debit cards in the US. It takes time to build credit history and is useful for negotiating loans for big purchases like buying a home. So, even if you feel you don’t need one, just get one, use it and pay it in full before the due date. Say your card’s billing cycle started on Jan 1, then the billing cycle will end on Jan 31. Depending on the card, you will have time to make payment till Feb 15 or Feb 31. Don’t make the minimum payment, if you can just pay it fully. Credit card interest rates are ridiculous ~13%-17%. just pay in full. Don’t go for a secured credit card. Don’t go for a card with an annual fee. Preferably, go for a card which provides no foreign transaction fee, capital one cards are my favorite for that. Usually, big banks are reluctant to give credit cards to people with no credit history in the US. All transactions from credit cards as well as any mortgage/loans inthe US contributes to an individual’s credit history. If no big bank is ready to give you a normal (not secured) no-fee card then go for credit unions. I got my first card from SFCU. Six months later, my credit history was sufficient to get a normal no-fee credit card from Bank of America for which they denied earlier. Also, to avoid getting junk credit card offers in your mailbox, opt out.
  6. Driving license
    Your country’s driving license will work in California for only the first 10 days. I would recommend not to drive in California alone unless you are coming from a country which has similar traffic laws. Getting a driving license involves two steps – a written test, which is easy. Prepare for it by reading CA driving handbook and then book an appointment. The second step which is a driving test is more involved. Most of my friends failed at least once and in some cases twice. I would recommend looking for driving instructor on craigslist.

Continue to Part 2 (buying cars, car insurance, tax filings…)

Personal Finance: Thoughts on peer to peer lending

A year back I decided to try peer to peer(P2P) lending (out of curiosity) will a small sum of money.
My net conclusion is that peer to peer lending is not a sensible form of investing.
My money is still stuck (and that’s not the only reason why I would recommend people to stay away from it).

How it works

A lender with say 1000$ will go to a site like lendingclub.com or prosper.com and will loan money directly to people in units of say, 25$ notes. The loan (with interest)  will be paid back in fixed period of time (36 or 60 months).

Reasons why I dislike P2P lending

  1. Income counted as regular income
    The income counts as ordinary income and is treated at marginal income tax rates which is usually much higher rate then long terms capital gains and dividends. Not to ignore that if a person is living in high tax state like California, the state tax applies as well. So, the after tax rate of P2P lending is approx. 20% lower than equities.
    Note: This does not apply if you are using Roth IRA account for investment.
  2. Tax inefficient
    The lender will get a fixed amount of money every month (except for defaulted loans) unlike capital gains, there is no way to keep it unrealized and timing it (Eg. postponing gains for a year). Even worse sometimes the creditors will pay back well in advance.
    Note: This does not apply if you are using Roth IRA account for investment.
  3. Too much of work
    Unless the lender is ready to put in a minimum sum (~25, 000 $), the task cannot be automated.
    In my opinion, investing one’s savings in chunks of 25$ units is not the best investment of one’s time.
    Also, from time to time some creditors will pay back earlier forcing lender to spend time reinvesting that money.
  4. No liquidity
    While equities and bonds can be sold at will (Eg. in case of a better opportunity or emergency), that’s not the case with P2P lending. The notes can be sold though (through trading platform provided by P2P sites), but only at a loss.
  5. Money is not always invested
    While one can buy equities/bonds anytime in open market, P2P lending will not begin till the funding is finished. Eg. As a lender, you saw someone requesting a loan of 10, 000$ and decided to buy notes worth 1000$, but the rest of 9000$ did not arrive for next one week then the investing period won’t begin till then (even worse, all the loan requests have deadline and if requests is not 100% fulfilled then the loan will not be granted and you will get the money back after one week of lock-in and no gains). Therefore, the net annualized returns are misleading.

 

The bottom line is simple: If you want to try out P2P lending for fun then go ahead and try with small amount of money. Serious investors should probably stay away from it.

Malkiel’s Timeless lessons for Investors

(Notes from Burton Malkiel’s talk at Google in 2010)

Lesson #1: Buy-and-hold is still the best strategy
Not only timing the market is tough but people who are trying to time the market loose more often than not.

Lesson #2: Dollar-cost Averaging
Since it is impossible to guess whether the market is going to go bull or a bear, it is better to invest over a period rather than in one-shot.

Lesson #3: Rebalance yearly
It guarantees minimum volatility and unless the market is going monotonically upwards, it guarantees best returns as well.

Lesson #4: Diversifying helps
Even though markets across the world are correlated, gains in emerging markets are usually higher.

Lesson #5: Costs matter
Always judge the mutual funds by the expense ratio, lower the expense ratio, usually better the fund.

Lesson #6: Indexing helps
Roughly 2/3rd (actively managed) mutual funds are beaten by (unmanaged) S&P 500 every year.
Core portfolio must be held in low-cost index funds, small proportions can then be invested in risker investments for seeking higher alpha.

Good chinese ETFs (He was personally managing some of these funds at that time).
FXI – only 25 companies
YAO – 150 companies (recommended)
HAO – small private companies