Month: June 2014 (Page 7)

Many people dream of being debt free. However, being debt free is not a destination, but rather it is a lifestyle. It is a continuous and methodical way of living your life. Even if you have a great deal of debt today, you should still be adopting these characteristics in your personal life. If your goal is to be debt free in the next 12 months (or 2 years or even 5 years), you should probably look to adopt these habits FIRST so that you can get to your goal.

To become debt-free, you are going to have to shed some of your current bad habits and take on some new, more constructive ones.

1. Pay attention to the details of each transaction. You won’t notice that recurring fee on your credit card for the gym you’ve stopped using if you’re not checking your statement regularly. People without debt monitor their personal finances closely. They are less likely to waste money by forgetting about payment due dates or overdraft fees. Try looking at your credit card statements every month.
2. Debt free people do their own research. They might have an accountant, but they don’t send over paperwork or sign their taxes without looking them over. If you want control over your finances, you need to learn about them. I suggest that you start by taking control of your investments. This is not a difficult task, simply subscribe to this site’s feed (or the weekly digest) and buy my book, The Confident Investor.   You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad. 
3. Pay yourself first! Even if you are already deep in debt, you can start to improve your situation by immediately changing the way you look at your money. Imagine you make 10% less than you do. Make a budget using that math. It may be impossible at first, but start making cuts to your spending. Debt free people live on less than they make. This allows them to put money aside for buying a house, retirement and an emergency fund.
4. They wait to buy things until they really need them. You should never go shopping without a list. If you really want to control your spending, never leave home with your credit card unless you are going shopping (with a list). If you see something you want to buy, you will be forced to go home and get a card or money to buy it. In that time, your brain might be able to overrule your heart.
5. Ask for help. Ask for lower interest rates. Ask for forgiveness when they make one late payment. Ask for a discount. What is the worst thing that you can have in reply – No. That isn’t too painful. It is more painful to not being debt free than to be rejected for a discount request.
6. Save your money. Your check should be direct deposited into a savings account and not a checking account. Only move money from savings to checking to cover the checks.
7. Set goals. You’ll find it easier to put aside money if you have a strong sense of what it’s going toward. This works for when you are saving up for those shoes, planning a vacation or thinking about retirement. Unfortunately, being debt free is probably not tangible enough. You should focus on a particular number.
8. Just say, “No.” You may get lots of tempting offers throughout the week for lunch with co-workers or dinner with friends. Don’t be afraid to say no. Debt free people know that saying no to smaller expenses can add up to big savings. This doesn’t mean you can’t have any fun just do it with moderation and try to find activities that don’t cost a lot of money.
9. Use cash not cards. Above, I mentioned that you should never leave your house with your credit card unless you have something specific to purchase. You should also never leave your house with more than a few dollars. Have enough money to buy yourself lunch, add a couple of gallons of gas to the tank, or hire a taxi to get home. That’s it. No more than $20 and preferably only $5 or $10.
10. Debt free people aren’t focused on things. They value experiences more than having the latest things. The average person will list family and friends high on what they value. But are your choices reflecting that? If you are working extra hours to pay for a fancy meal with the family, think about the tradeoffs. Would you be better off not working late and having two (or five or 10) meals at home with the family?

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

An ADR (American Depositary Receipts) allows US investors to diversify their portfolio with foreign securities. ADRs are bought and sold on American markets just like regular stocks.

The stocks of most foreign companies that trade in the U.S. markets are traded as ADRs. U.S. banks issue these stocks. An ADR is not perfectly aligned with the stock that is traded on a foreign exchange. Each ADR represents one or more shares of foreign stock or a fraction of a share of foreign stock. If you own an ADR, you have the right to obtain the foreign stock it represents, but U.S. investors usually find it more convenient to own the ADR. The price of an ADR corresponds to the price of the foreign stock in its home market, adjusted to the ratio of the ADRs to foreign company shares. An ADR is the actual physical certificate whereas an American Depositary Share (ADS) is the actual share. An ADR can represent any number of ADSs. The term “ADR” is often used to mean both the certificates and the securities themselves.

ADRs are quoted and traded in US dollars in the US securities markets. Also, the dividends, if any, are paid to investors in US dollars. This is an excellent way to buy shares in a foreign company while realizing any dividends and capital gains in U.S. dollars. However, ADRs do not eliminate the currency and economic risks for the underlying shares in another country. For example, dividend payments in euros would be converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordance with the deposit agreement.

ADRs are good for individual investors in the US. They were introduced as a result of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values. For this reason, U.S. banks simply purchase a bulk lot of shares from the company, bundle the shares into groups, and reissues them on an exchange in the US. In return, the foreign company must provide detailed financial information to the sponsor bank.

There are four different types of ADR issues:

1. Unsponsored
2. Sponsored Level 1
3. Sponsored Level 2
4. Sponsored Level 3

While there are different types of ADRs, the individual investor really will see little difference in Level 2 and 3. Most of the stocks that you will see discussed on this site (and might make my Watch List) are Level 2 and Level 3 ADR issues.

Unsponsored ADR

Unsponsored shares trade on the over-the-counter (OTC) market. These shares are issued in accordance with market demand, and the foreign company has no formal agreement with a depositary bank. Unsponsored ADRs are often issued by more than one bank. Since these stocks are only OTC, it is rare (but not impossible) that there is enough information on them to make my Watch List.

Level 1

This is the most basic type of ADR where foreign companies either don’t qualify or don’t wish to have their ADR listed on an exchange. Level 1 ADRs are found on the over-the-counter market and are an easy and inexpensive way to gauge interest for its securities in North America. Level 1 ADRs also have the loosest requirements from the Securities and Exchange Commission (SEC). The company is not required to issue quarterly or annual reports in compliance with U.S. GAAP. However, the company must have a security listed on one or more stock exchange in a foreign jurisdiction and must publish in English on its website its annual report in the form required by the laws of the country of incorporation, organization or domicile. As with Unsponsored ADR issues, these stocks probably do not have enough information to make my Watch List.

Level 2

This type of ADR is listed on an exchange or quoted on Nasdaq. Level 2 ADRs have slightly more requirements from the SEC, but they also get higher visibility trading volume. This level is more complicated for a foreign company. The company must file a registration statement with the U.S. SEC and is under SEC regulation. In addition, the company is required to file a form that is the basic equivalent of an annual report for a U.S. company. In their filings, the company is required to follow U.S. GAAP standards. These stocks can be listed on NYSE or NASDAQ and must meet the exchanges listing requirements.

Level 3

Is when an issuer floats a public offering of an ADR on a U.S. exchange and is the highest level a foreign company can sponsor. Level 3 ADRs are able to raise capital and gain substantial visibility in the U.S. financial markets. The company is required to adhere to stricter rules that are similar to those followed by U.S. companies. Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their U.S. shareholders because they rely on them for capital.

In general, you can consider an ADR to be the same as any other stock that is based in the US. Since you should always have some exposure to foreign markets, it may be wise to try to keep 2-4 ADR issues in your stock portfolio. On this site, I try to identify an ADR in parenthesis when I discuss such an offering. You should also consider an international index fund in your portfolio, it should be one of the four funds in your portfolio.

Image courtesy of Salvatore Vuono / FreeDigitalPhotos.net