Q&A: “Help! My Mom’s Financial Crisis Is Becoming Mine!”

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26:19Welcome back. Our next question comes from Shannon. Hey, hey, Paula and Joe. Shannon here, just calling into my favorite podcast with a Q for the Q &A. Here it is. What do I need to know if I'm considering investing in American Depository Receipts or ADRs? Now, in case any of it matters, here's some context. After going through a divorce nine years ago, I started over from nothing. I have since saved up about$130 ,000, mostly in retirement funds now being directed along the efficient frontier, as well as some cash in a high-yield savings account for a home purchase in two to three years. I'm now 39, hope to retire early, and I also have no debt.

27:01I recently decided that I want to put a small amount of my portfolio towards individual stocks as a fun fund, so to speak. I'm talking about two to three percent, certainly no more than five, and I have identified the companies I want to invest in. But here's the catch. They're based out of Finland and Switzerland, so they're not primarily listed on U.S. stock exchanges, but apparently both companies offer American depositary receipts that trade over-the-counter in the United States. I may not have started listening to afford anything until late 2020, but when I did, I started from the very beginning and binged every episode, and I don't remember ever hearing about AVRs.

27:41So that brings me to my question today and the hope that you two can shed some light on whatever this is and that it might be helpful to someone else too. Cheers. Shannon, thank you for the question. And thank you for calling us your favorite podcast. I'm honored. I'm flattered. Joe, I feel like we should take a bow. Thank you very much. Thank you. I'm very honored. And I'm also happy that she is expanding the repertoire of things that we talk about. Yeah, exactly. This show has been on the air since 2016. It's hard to find something we haven't covered. It is. Which means that this should be, Paula, obscure and weird.

28:20And what's funny is it isn't. The good news, Shannon, it's actually pretty straightforward. So you ready, Paula? Let's do it. All right. When you buy a stock overseas and it's listed on another exchange, like maybe Frankfurt or let's take Tokyo Exchange, Hong Kong, and don't offer it first in the United States. It is exactly, Shannon, what you're saying, an ADR. So an ADR is just almost like, Paula, think about it as a placeholder. I want to buy the stock on my local exchange, but it's offered on a different exchange. So this is meant to be shares, receipts for shares. That's American Depository receipts for shares that are actually listed somewhere else.

29:04So I get the receipt, means I actually have claim to these shares. even though I'm buying it on a different exchange than they're offered on. By the way, back in the old days, there used to be some arbitrage opportunities here. You could look at it on the German exchange where it's listed or Sweden. She said one of these was a Scandinavian company. Look at that exchange and then look at it on the New York stock exchange. And the price is a little different, Paula. So you buy it on one and then you sell it on the other right away. And cha-ching, you make a little bit of money. But guess what? All the short-term high-frequency traders have really eliminated that, which is good because all this is exactly, Shannon, what you're looking for.

29:41It's just you're buying the company that you want to buy in a straightforward manner. There truly is nothing magical or different than buying the stock. I mean, the Uber nerds out there know that there are, if you really dig deep, okay, maybe. But for every purpose I've ever had, and I've bought a bunch of ADRs in my lifetime, you're just buying the stock. It's the way that you buy the stock in a foreign company. So I think, as we always do here on Afford Anything, we should broaden this out because truly that's the answer. We're done. That's it. But I think that a few things I want to point out for everybody else.

30:19Number one, Shannon, I love the fact that you said three to five percent of my portfolio is play money. Love that, Paul, and I know you do too. Yeah, yeah, absolutely. It's the perfect setup because we all know that the majority of our portfolio should be in buy and hold long-term index funds. But the problem is, particularly for people who are interested in personal finance and who are interested in investing, it's so tempting to invest in the latest hot fad. It's so tempting. And so rather than resist and then one day cave and binge, like why not a little bit of play money? If you use a nutrition and diet analogy, it is the equivalent of having one or two meals per week where you're like on Sunday night, anything goes.

31:10Sunday night is my anything goes meal. The other six days of the week, I'm going to eat really healthy. But on Sunday, all bets are off. Yeah, it's not unhealthy. There's a lot of healthy things, whether we're talking about the meal or the stock. With the meal, we're getting something that we enjoy. We're not overindulging because we're limiting it to one meal. We're having fun, but we're saying, I want to be healthy and have fun forever. So if I can have the cool meal once a week, that's fantastic. With individual stocks, I think there's a lot of behavioral lessons. Like, why the hell did I do that?

31:41Wow, that was stupid. the number of lessons I've learned. I'm like, why didn't I look at the number of shares that have been shorted before I did this? Or why didn't I look at free cash flow before I bought that stock? I learned so much just by having skin in the game that I really like it. But limiting it, Shannon, I think is pretty badass. The second thing though, whenever you deal with an international company, what you got to watch out for is that if you're a company, you mentioned a Scandinavian company, so let's go there. If you're in Scandinavia and you are investing in a Scandinavian company, it's pretty straightforward.

32:23The stock does well. My money goes up, but right now the dollar has been falling very quickly. And so Paula, companies can make money for local investors and a U.S. investor will lose money because we're buying it with dollars. So there also is the exchange rate game that we got to keep in mind whenever we invest internationally. Right. The dollar is currently having its worst year since 1973. I happen to know that stat off the top of my head. I said it earlier, Ninja. Just look at this. Sprinkler systems, dollars, Ninja. I remember that off the top of my head because somebody took that headline and posted a comment on social media where they just said, me too.

33:13And I wasn't even born yet. And I'm thinking, hey, bell bottoms went out and then they came back, right? Bell bottoms were in in 73 and then they came back later. So the dollar will be back. We know the dollar will be back. And that's going to also affect your shares. If the dollar bill goes in other directions, you'll find stocks go up and down internationally based on that as well. So just keep that in mind. You're like, hey, this company had record profits. Why am I losing money? It also is because you're buying it in a foreign currency. So remember those. But that's what an ADR is. Very straightforward, Paula.

33:46You're taking an international thing. You're buying it domestically. Now you own the stock. I'll say one other thing. I know there are a lot of great companies that are listed on foreign exchanges. But one thing to note, there are also a lot of great companies that start in other countries that decide to list themselves on U.S. exchanges. In fact, the London Stock Exchange in particular is struggling because companies don't want to list there. There was a big article in The Economist, which is a British magazine, big article in The Economist about how even companies that are UK-based would rather list on an American exchange.

34:21Yeah, the world in ADRs is changing and it's changed significantly over the time that you've had the Afford Anything podcast, where There are definitely fewer of them for that very reason. As we become daily more of a global economy, just very quickly becoming a global economy. There's one more thing we should mention. If you're buying an ADR or a foreign stock inside of a brokerage account, a non IRA brokerage account, and you have dividends that are paid out, you may have some foreign taxes that are due depending on the country. So I would look into what my foreign tax burden might be before I do that.

34:56Often it's very straightforward. where you just got one more form that you've got and your tax software picks it up really easily. But I think we should also talk about that. When you invest internationally, that can create some tax reporting that you wouldn't have if you stayed domestic. That said, I like the diversification and it truly isn't onerous. Just, I think, checking all the boxes, Paula. That's a box we need to check that you might have another tax form. Thank you, Shannon, for the question and have fun with international investing. Up next, we're going to talk credit card rewards and credit scores.

35:28And that's coming up right after this.

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37:31Welcome back. Our final comment today comes from Jennifer. Hey, Paul and Joe. This is Anonymous or Jennifer, as you named me in my previous question. I had called in a couple months ago to ask about potential downsides of putting my vacation expenses on a credit card and paying them off at a later time. I really appreciate your insights. And to clarify, you had questioned whether I actually had the money to pay it back now and was able to do so? The answer is yes. I have plenty in my savings account. If in the worst case scenario, I need to pay it back immediately, I can. But basically, I was just trying to game the system in order to invest my money now and pay my expenses later.

38:21I had asked you what potential downfalls are to using this method. And guess what? I came across one. After so many years of trying to game the credit cards and take advantage of their interest-free 15 months or 18 months, I finally got gamed back. I got rejected by a credit card for the first time ever the other week because I had opened too much credit in the last 24 months. Also, interestingly enough, the credit score that was being reported from certain credit bureaus, I believe TransUnion was one of them, was reporting my score in the 800s. But when my credit card rejection came back, they had used Experian and my credit score was around 750.

39:04So it was about a 50 point difference between one credit bureau to the other. Anyway, just thought I'd follow up and give you a new downside I just discovered on the credit card opening game that I've been playing for a while now. Thanks again for answering my question and thanks for all you do. Jennifer, thank you. First of all, thank you so much for calling back and sharing that update. This is one of my favorite things, Joe, when people call who have previously called in with a question and then we hear the follow-up so much of the time, we never hear the follow-up. So one of my favorite, favorite things, Jennifer, and thank you for doing it, is calling with a follow-up and sharing what happened.

39:44And how about those surprises? Right, exactly. And the additional downsides that you have listed, they're huge. And that's a big part of the credit card game. That difference between credit agencies, Paula, of 50 points, it sounds like forever. Like that just seems ridiculous, but that's not as uncommon as people think. Right, exactly. That is why we have three credit bureaus. It's the check and balance of knowing that your true FICO score is going to draw from all three of those credit bureaus, TransUnion, Experian, and Equifax. But Jennifer, to your point, sometimes you're going to be evaluated just on one of the three, which sucks, but that's how some companies do it.

40:29Between her scores, not a big difference in who's going to give you credit and who's not. There's some that want it really close to 800 or maybe over 800 if you're looking at those tippity top cards, but most creditors, Paula, between those two credit scores she's talking about, you're not going to find a significant difference. Those people are still going to offer her credit. Yeah, exactly. How about that? I applied for too much credit in the last couple of years. This is why I think they tell people, don't go apply for credit that you're not going to use because of the fact that if you get these hard credit pulls too often, then you need something in the future.

41:05Potentially, you won't get it because of Jennifer's cautionary tale. Exactly. That's a difficult place to be. In fact, it's funny. Another one, Jennifer, that happened to us. So we are adding on the back of our house and we found this clearance deal at Crate and Barrel, which by the way, if you find a clearance deal at Crate and Barrel, that brings it down to the price you pay anywhere else, which is pretty good. But they were going to give us more money off if we used a Crate and Barrel credit card, no annual fee, right? We pay it off. Like you, Jennifer, we already have the cash. Cheryl already had that from a previous sale that we had found.

41:43And she's like, yeah, but she didn't have Paula enough credit. So the sales person goes, oh, we'll just, we'll just get you more. Cheryl's had this thing forever. She applies. She's had the card. She's had the card, the crate and barrel card. And it's always at a zero balance. And this is funny. she goes to get more credit and they deny her they deny her more credit and they said you know we'll send you the reason the mail and cheryl's got it i don't know 8 38 48 50 like she's up at the top with her credit so then we decide the three of us i will open up a crate and barrel new credit card to get the additional money because it wasn't little money it was a lot of money they were going to give us wait the three of us decide you said yeah cheryl the salesperson.

42:30I was like, wait, who's the third in my head? I was like, maybe Joe's talking about he's working with his own financial advisor. No, with the salesperson. With the sales lady. Because the sales lady's got us on the hook, right? And we're like, yes, we will save even more money to bring this down to an even more reasonable price. So I apply for the card. My credit is low 800s. Cheryl's is up there near tippy top. So we both have sterling credit. They offer me far more credit than Cheryl has. Wow. Far more credit, which is hilarious because if you look at the current state of stuff, I have a podcast.

43:09I make decent money. My spouse loves her job, but she makes way more money than I do. And she has a better credit score. They would not give her more credit, but they would give me credit. Now, what's funny about this, and this is why, Jennifer, we talked about having the cash set aside. When that card came, which I also, by the way, am never going to use, we immediately used the credit. We paid it off. Done. I'm not doing anything with Crate and Barrel. Sorry, Crate and Barrel, not doing anything with that card. You know what's amazing? The interest rate on that credit card, Paula. What do you think the interest rate is on the Crate and Barrel credit card?

43:44In the 20s, I'd say over 20%, but under 30%. 33%. Jeez. 33. I can't even say with a straight face. Wow. That's why, and Jennifer already knows this, but that's why we asked Jennifer immediately, do you have the cash? Because if you got the cash and you could play the game, we played the game. Jennifer, you played the game. And now, yeah, I just take the credit card, cut it up, cancel as soon as they will let me. So that brings up, Paula, a couple other dangers that I thought of, Jennifer, while you brought up this topic. Because you know, Paula, why they denied Cheryl more credit? Too many recent hard credit pulls?

44:27No. Then what? She hadn't used that crate and barrel card in so long that they just weren't going to give her more credit. Is that amazing? Wow. Wow. She says she's got great credit. She just goes, hey, I just want to make this line bigger so I can put this sofa on it. No, you haven't used it. We're not going to give you more. We'll keep it open the way it is, but we're not going to give you more. If you are looking to extend a credit line, I think you go to the places that you use first and then places that you haven't used as much. That was so wild. Crazy. And then the second thing is a lot of people, you know, Jennifer, play this credit card rewards game, right, where they get the bonus points and then they cancel the card.

45:12And you really got to watch out because as an example with Chase, there's a time limit you have to respect between canceling that card and then re-signing up to get it again. And as an example, another example, American Express, you can only get the bonus points once for each of their cards. American Express goes, you're not playing the game. You're not playing it at all. you're going to get the bonus point one time. And then if you cancel the card and you get it the next time, there will be no bonus program for you. We have you on file. So make sure you know before you try to recycle your bonus point program, if you're playing the credit card reward game, how long it is you have to stay out of that point program.

45:53And in the case of American Express, it's just, if I get rid of the card, should I just get rid of it forever? Because I'm not getting bonus points again. Right. I don't think we mentioned those last time, Paula. So because Jennifer brought this up, I'm like, oh, timely topic, Jennifer. Timely. Timely. Because we've dealt with the same, same thing. And I'll just reiterate, I think I might have said this on the last show, but my favorite technique for keeping that credit score high is pay off the balance on your credit card multiple times throughout the month so that your debt utilization ratio is super low.

46:30I used to do that very regularly. These days I forget and I'm like, well, you know what? If I pay this off weekly, my debt utilization ratio is going to be just consistently really low and that keeps the credit score high. It also kind of keeps you on top of your game when it comes to what you're spending. So it's a win-win. The first part of that I had verified by an industry insider, a guy named George who works with Barclays. I just did this media tour with Barclays and General Motors around summer travel, which was fun. By the way, 25 interviews in five hours. Wow. Oh, my goodness. It was fun.

47:05There were all these news stations that I was on. But in one of the rare breaks we had, George from Barclays told me he was the contact there, said, the trick is exactly, Paula, what you said. Just pay it off as quickly as you can. Keep that utilization low because it's not the date that you pay it that they're going to check your utilization. They have their own date. So if you're paying it off on the 25th and they check it on the 20th, even if you pay it off every month, you might have less available credit than if you were paying it off several times. Every month, you might show a lot less credit than you truly have on average in a month, just based on the fact that you're paying it off every month on a different date than they check.

47:47Right, exactly. They have some arbitrary date and you don't know what that date is, which is when they're gonna be looking at that snapshot. Since we don't ever know what that date is, just always be prepared for it by virtue of just constantly paying that balance off. I like that, but I like the other part of what you said even better because I think behaviorally, just pay it off right now. If you got the cash, just pay it off right now. Don't wait for the statement. Don't wait for the due date. Just do it. Pay it immediately and behaviorally, I think. one less thing on your plate, the comfort that it gives you, the sense of security, the extra credit that you have.

48:22There's so many behavioral wins there. Extra credit. It's like homework. But yeah, yeah. Do your homework and you get extra credit. There you go. A++. By virtue of doing that, you essentially turn a card into a de facto debit card, but with additional protections and additional rewards. It's a wonderful system if you can keep up with it. Exactly. Well, you could do once a week, twice a week. I mean, just make it like Sunday and Wednesday routine. And I literally now, Paul, I didn't even do that. You know what I do? The second I spend the money on the credit card, I pay it. But the charge is pending for a little while.

48:58There's usually a 24, 48 hour lag when the charge is pending versus when it goes on the actual statement. They'll still give me the money as a credit. They give me the money. Let's say it's a$350 charge. I'll get a$350 credit. So I end up plus 350 and then zero it out. Like for me, I just spend it and I go pay that amount of money. And it's easy. I sit in the parking lot of the place. If I'm out shopping, if I'm online, I just jump over to the site. It's part of the transaction for me now. It makes it really simple. If you're at a cafe, you get a coffee and a croissant. Do you like pay that? No.

49:29Those little things where I just take it out for the$5,$10 deal. Those wait until the statement date. Like that one at the end of the month, I'm like, oh, I got this random$50 on here. But you know what? If I'm worried enough about my credit score where the 50 bucks is going to matter, then I certainly have a problem. And to be fair, when I was younger and I needed credit more than I do now, and I need to make sure my credit was pristine more than I do now, that 50 bucks might matter. At this stage of the game, for me, I can afford to wait. I think the technical term for that, if I did the$5 croissant and coffee or heck,$10 croissant and coffee.

50:08And I paid it off right away. I think the technical, the scientific term for that is anal retentive.

50:18I think it's what the scientists call it today. Well, on that note, Jennifer, thank you so much for calling in and giving us that update. Great update. Yeah. What a great conversation. Joe, where can people find you if they'd like to hear more of your not anal retentive financial habits. You know what? Just recently for Independence Day, we had a great round table where we talked about having a financial revolution. We just need to get our stuff together. So we talk financial revolution with frequent contributor, Jesse Kramer, Dorothea Kelly, our badass friend from Detroit. She's a fantastic creator.

50:55And get this, Paula, we got the guy who's on your podcast and my podcast every week, but you never hear him. Actually, behind the microphone on this one, Steve Stewart. Nice. Because we're talking about debt and Steve has so much that he can offer when it comes to budgeting and debt. I thought you were going to say, because we're talking about debt and Steve has so much debt. So much. If there's a guy with debt. You want to talk debt. Steve's got so much debt. For people that don't know Steve, he is Mr. Anti-Debt, like way more, way, way more. Yeah. Anyway, that's a great one. Monday, Wednesday, Friday, Stacking Benjamins, wherever you're listening to us now.

51:37Yes. Did Steve play for me in the trivia or was that Dorothea? No, Dorothea did. Ah. Yeah, Dorothea did. And I won't tell you whether she won for you or not, but let's just say she didn't. Oh. I know. Well, you know what? I'll ask this off camera. No, I'll ask it on camera. Did another point go to OG? I can't tell you. Ah. For those of you wondering what we're talking about, there's a year-long trivia contest, and there's one particular contestant who has just amassed all of the points. Just this year, he's killing us, Paula. Right? He's killing us. Absolute runaway winner. We're midway through the year.

52:16It's becoming difficult for any contestant to catch up, even in the next six months. But you know what's wild, Paula? Frequent contributor Doc G from Earn & Invest, our friend Doc G, has played on behalf of OG three times this year and he's gotten three points for OG. Doc G for people that don't follow our show, he sucks at trivia, but he's lighting it up this year and he's putting OG even further ahead. So yeah, not great. Meanwhile, Jesse and I have formed the coalition to defeat OG. I think we all have. I think Doug and I have too. I think it's everybody against OG and that train can't be stopped.

52:54And yet he still keeps winning. It's so annoying. Anyway, fun stuff on Fridays. Yeah. Yeah. It's a lot of fun. So thank you, Joe, for joining the show. And thanks to all of you for being part of the Afforder community. If you enjoyed today's episode, please do three things. First and foremost, share this with your friends, family, neighbors, colleagues, cousins, parents, grandparents. Grandparents, cousins. Yeah. Grandparents. The sprinkler repair guy. Share Share it with a person who sells you a garden hose. Your mom who lives in Ecuador's friends. Yes. The sales lady at Crate and Barrel. Share this with all of them because that is the single most important way that you spread.

53:38F-I-I-R-E. Second, subscribe to our newsletter, affordanything.com slash newsletter. And third, join our community, affordanything.com slash community. And can I throw in a fourth? I'm going to throw in a fourth. Go do it. Open your favorite podcast playing app. Hit the follow button so you don't miss any of our amazing upcoming shows. And while you're there, please leave us up to a five-star review. Thank you again for being an Afford. I'm Paula Pant. I'm Joe Salcihai. And we'll meet you in the next episode.