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My friend wants to put my name down for a house he's buying. What risks would I be taking? | The risk is that you will owe the bank the principal amount of the mortgage. Based on your question it would be foolish for you to sign. Anyone who describes a mortgage as "something" obviously has no idea what they are doing and should never sign a mortgage which is a promise to pay hundreds of thousands of dollars. You would be doubly foolish to sign the mortgage because if you are guaranteeing the loan, you own nothing. So, for example, if your friend sold the house, pocketed the money, then left the country you would owe the full amount of the mortgage. Since you are not on the deed there is no way you can prevent this from happening. He does not need your approval to sell the house. So, essentially what your "friend" is doing is asking you to assume all the risk of the mortgage with none of the benefits, since he gets the house, not you. If a "girlfriend" is involved, that just increases the risk you will have a problem. Also, although it is not clear, it appears this is a second house for him. If so, that disqualifies him from any mortgage assistance or relief, so the risk is even higher. Basically, it would foolish in the extreme to co-sign the loan. |
Best way to buy Japanese yen for travel? | Have you tried calling a Forex broker and asking them if you can take delivery on currency? Their spreads are likely to be much lower than banks/ATMs. |
Is there any way to buy a new car directly from Toyota without going through a dealership? | As others have addressed the legality in their answers, I want to address the idea of the dealership being 'a middleman'. A dealership serves more of a purpose than just 'middlemanning' a car to a consumer. Actually, they consume a great deal of risk. Let's remember that a dealership is really an extension of the OEM, albeit independently owned and operated, the dealership must still answer to the brand they represent, if people have a bad experience with a dealership, a customer might go to another of the same brand, but more often than not they will go to the competition out of spite. Therefore, it's in the dealership's best interest to represent the brand as best as possible, but unfortunately that doesn't always happen. While the internet has made a certain part of a salesman's role null and void, and since this is a finance (read money) Q/A site let's take a moment to consider the risk assume and therefore the value added by a dealership: Test Drive. A car is a huge purchase, and while it's okay to buy a pair of shoes online without trying them on, a car is a bit different of course, we want to make sure it 'fits' before we shell out several thousand dollars. Yes, you (meaning consumers) can look at car pictures and specs online, but if you want to see how that vehicle handles on your town's roads, if it fits in your garage and/or driveway, then you need to take it for a test drive. It's not feasible for OEMs to have millions of people showing up to car plants for a test drive, right? Scalability aside, some business that is handled in automotive plants are confidential and not for the general public to know about. A dealership provides an opportunity for those who live locally to see and experience the car without flying or driving wherever the car was assembled. They provide this at a risk, banking on the fact that a good experience with the vehicle will lead to a sale. Service. A car is a machine, and no machine is perfect, neither will it last forever without proper service. A dealership provides a place for people to bring their vehicles when they need to be serviced. Let's set aside the fact that the service prices are higher than we'd like, because the fact remains most of it is skilled (and warrantied) labor that the majority of people don't want to do themselves. Trade Ins. It is not in an OEMs best interest to accept a vehicle just to sell you another vehicle, especially if that vehicle is from another brand. Dealership's assume this risk, and often offer incentives to do so, hoping it will lead to a sale. That trade in was an asset to you, but is a liability to them, because they now have to liquidate that trade in, just so that you can purchase a car. Sure, you could sell your car yourself, and now you would assume that risk: What if your car is not in perfect shape, or has a lot of miles for it's age? Would it do well in the used car market? What if it takes too long to sell and you miss that Memorial Day car sale at the dealer? This might be okay for some, but generally speaking most people would rather avoid the risk and trade it in at the dealer toward the purchase of a new car rather than the headache of selling it themselves. I'm sure there are more, but those are the one's that immediately sprung to mind. Just like Starbucks, there are terrible dealerships out there and there are great ones, and very few of us venture to farms and jungles just for fresh coffee beans :-) |
Do my 401k/Roth accounts benefit from compounding? | You might be confusing two different things. An advantage of investing over a long term is the compounding of returns. Those returns can be interest, dividends, or capital gains. The mix between them depends on what you invest it and how you invest in it. This advantage applies whether your investment is in a taxable brokerage account or in a tax-advantaged 401K or IRA. So, start investing early so that you have longer for this compounding of returns to happen. The second thing is the tax deferral you get from 401(k) or IRAs. If you invest in a ordinary taxable account, then you have to pay taxes on your interest and dividends for the year in which they occur. You also have to pay taxes on any capital gains which you realize during the year. These yearly tax payments are then money that you don't get the benefit of compounding on. With 401(k) and IRAs, you don't have to pay taxes during these intermediate years. |
Can I pay off my credit card balance to free up available credit? | Is it possible to pay off my balance more than once in a payment period in order to increase the amount I can spend in a payment period? Yes, but you should only do that if you expect an expense that is larger than your limit allows. Then, provide an extra payment before your expense occurs since it will take longer for the issuer to apply it to the outstanding balance. For instance, when going on holiday you could deposit additional money to increase your balance temporarily. That said if your goal is to improve your credit score I would recommend using the card, staying within your limit and pay it off every month. The 2 largest factors going into calculating your credit score are: By paying off the balance each month you After 6-9 months you can probably get a bigger limit, to improve your score. I wouldn't change to a different card or get a second one, as some issuers will run a check on your creditscore that lowers it temporarily. Also: you're entitled to a free credit report each year. I'd recommend asking for one every year so you can keep track on how your credit score improves. It also gives you the opportunity to check for mistakes on your report. Check here for more information: http://www.myfico.com/crediteducation/whatsinyourscore.aspx |
Suitable Vanguard funds for a short-term goal (1-2 years) | If you are younger, and you not under undue pressure to buy a home at any particular time, investing in the market is a reasonable way to prepare. Your risk tolerance should be high. Understand that this means you may buy in 3-4 years instead of 1-2 if the market takes a down turn. It took ~3-4 years for the S&P 500 to recover from the 2008 crash. I doubt anything that severe is in the making, but there is always an element of risk involved in investing. If you and your family will be busting at the seams of your current rental in a year, then maybe the bond fund advice others have provided is a better option. If you are willing to be flexible, a more aggressive strategy might be appropriate. Likely, you want something along the lines of the Vanguard S&P 500 mutual fund - something that is diversified (a large number of stocks), in relatively safe companies (in this case the 500 companies that Standard and Poor's think are most likely to repay corporate bonds), and 'indexed' vice 'actively managed' (indexed funds have lower fees because they are using 'rules' to pick the stocks rather than paying a person to evaluate them.) It's going to depend on you and your situation - and regardless of what you choose consistency will be key: put your investment on automatic so it happens every month without your input. |
How does a online only bank protect itself against fraud? | There are Cyber Security and Reporting Standards which Financial Service Provider (Banks and Financial services where customers deposit and/or transact fiat currency) You can find a comprehensive list on Wikipedia under Cyber security standards Depending on the geographic location there might be local Govt requirements such as reporting issues, data security etc. Concerning point 1. We have to differ between a fraudulent customer and an attacker on the banks infrastructure. Fraudulent customers / customers that have been compromised by third parties are identified with but not limited to credit scores and merchant databases or data from firms specialized in "Fraud Prevention". Attackers (Criminals that intend to steal, manipulate or spy on data) are identified/prevented/recorded by but not limited to IDS solutions and attacker databases. For firms that get compensation by insurances the most important thing is the compilant with law and have records of everything, they rather focus on recording data to backtrack attackers than preventing attacks. Concerning point 2. For you as customer the local law and deposit insurance are the most important things. Banks are insured and usually compensate customers on money theft. The authentication and PIN / TAN methods are most crucial but standard - these authentication methods consist of one password and one offline part such as a TAN from a paperletter or a RSA generator or card reader. WRAPUP: Financial institutions have to comply with local law and meet international standards. Banks use highly advanced Intrusion detection and fraud prevention which logically must be based on databases. For the average joe customer there is seldom high risk to lose deposits even if the attackers gains full access to the bank account but this depends a lot on the country you reside in. Concerning targeted attacks: |
How can small children contribute to the “family economy”? | If you're trying to teach them the value of money and quantifying the dollar difference between prices, one very effective way to do this is by using bar charts. For instance, if a toy is $5, and movie they really want to see is $10, and a vacation they want to go on costs $2000, it can be a useful tool to help explain how the relative costs work. |
How to evaluate stocks? e.g. Whether some stock is cheap or expensive? | Its like anything else, you need to study and learn more about investing in general and the stocks you are looking at buying or selling. Magazines are a good start -- also check out the books recommended in another question. If you're looking at buying a stock for the mid/long term, look at things like this: Selling is more complicated and more frequently screwed up: |
Options vs Stocks which is more profitable | More perspective on whether buying the stock ("going long") or options are better. My other answer gave tantalizing results for the option route, even though I made up the numbers; but indeed, if you know EXACTLY when a move is going to happen, assuming a "non-thin" and orderly option market on a stock, then a call (or put) will almost of necessity produce exaggerated returns. There are still many, many catches (e.g. what if the move happens 2 days from now and the option expires in 1) so a universal pronouncement cannot be made of which is better. Consider this, though - reputedly, a huge number of airline stock options were traded in the week before 9/11/2001. Perversely, the "investors" (presumably with the foreknowledge of the events that would happen in the next couple of days) could score tremendous profits because they knew EXACTLY when a big stock price movement would happen, and knew with some certainty just what direction it would go :( It's probably going to be very rare that you know exactly when a security will move a substantial amount (3% is substantial) and exactly when it will happen, unless you trade on inside knowledge (which might lead to a prison sentence). AAR, I hope this provides some perspective on the magnitude of results above, and recognizing that such a fantastic outcome is rather unlikely :) Then consider Jack's answer above (his and all of them are good). In the LONG run - unless one has a price prediction gift smarter than the market at large, or has special knowledge - his insurance remark is apt. |
Company A is buying company B, what happens to the stock? | I think the correct statement is that Expedia wants to buy Orbitz for $12/share. The market price is $11, which means there is somebody willing to sell for that price. But you can't say that a stock price of $11 means that everybody is willing to sell for that price. And Expedia is unlikely to bid $12/share for just 40% of Orbitz shares; they'll want at least a controlling majority. |
How are they earning money in the movie “Trading Places”? | Sell 200 at 142. What does that mean? I haven't seen the movie, so I won't try to put anything in story context. "Sell 200 at 142" means to sell 200 units (usually shares, but in this case it would likely be gallons or barrels of orange juice or pounds or tons of frozen juice). In general, this could mean that you have 200 units and want to sell what you have. Or you could borrow 200 units from someone and sell those--this is called a naked short. In this case, it seems that what they are selling is a futures contract. With a futures contract, you are promising to obtain orange juice by some future date and sell it for the agreed price. You could own an orange grove and plan to turn your oranges into juice. Or you could buy a futures contract of oranges to turn into juice. Or you could arbitrage two futures contracts such that one supplies the other, what they're doing here. In general people make profits by buying low and selling high. In this case they did so in reverse order. They took the risk of selling before they had a supply. Then they covered their position by purchasing the supply. They profited because the price at which they bought was lower than the price at which they sold. The reason why this is necessary is that before buying the oranges, the orange juice makers need to know that they can make a profit. So they sell orange juice on the futures market. Then they know how much they can afford to pay for oranges on a different market. And the growers know how much they can get for oranges, so they can pay people to water and pick them. Without the futures markets, growers and orange juice makers would have to take all the risk themselves. This way, they can share risks with each other and financiers. Combined with insurance, this allows for predictable finances. Without it, growers would have to be wealthy to afford the variation in crop yields and prices. |
What do brokerage firms do? | Off the top of my head, a broker: While there are stock exchanges that offer direct market access (DMA), they (nearly) always want a broker as well to back the first two points I made. In that case the broker merely routes your orders directly to the exchange and acts as a custodian, but of course the details heavily depend on the exchange you're talking about. This might give you some insight: Direct Market Access - London Stock Exchange |
Looking for a stock market simulation that's as close to the real thing as possible | Many online brokers have a "virtual" or "paper" trading feature to them. You can make trades in near-real time with a fake account balance and it will treat it as though you were making the trade at that time. No need to manage the math yourself - plus, you can even do more complicated trades (One-Cancels-Other/One-Triggers-Other). |
what is the timezone that yahoo uses for stock information | Using your example link, I found the corresponding chart for a stock that trades on London Stock Exchange: https://ca.finance.yahoo.com/echarts?s=RIO.L#symbol=RIO.L;range=1d As you can see there, the chart runs from ~8:00am to ~4:30pm, and as I write this post it is only 2:14pm Eastern Time. So clearly this foreign chart is using a foreign time zone. And as you can see from this Wikipedia page, those hours are exactly the London Stock Exchange's hours. Additionally, the closing price listed above the graph has a timestamp of "11:35AM EST", meaning that the rightmost timestamp in the graph (~4:30pm) is equal to 11:35AM EST. 16:30 - 11:30 = 5 hours = difference between London and New York at this time of year. So those are two data points showing that Yahoo uses the exchange's native time zone when displaying these charts. |
If you buy something and sell it later on the same day, how do you calculate 'investment'? | You're confused because the source you cite leaves out one number that isn't relevant to the argument they're making: total costs. The number you're expecting, $9 x 365 or $3285 is the total cost of buying the jewelry which, when subtracted from the $3650 sales volume gives us the net profit of $365. The investment is the amount of money original put into a system our company. In this case the merchant bought his first piece of jewelry for $9, sold it for $10, took one dollar in profit and used the other 9 to reinvest by buying a new piece of jewelry. We can extend the analogy further. After 9 days of selling, the merchant will posses $18, allowing him to now buy 2 pieces of jewelry each morning and sell them for $20. Every day his costs will be $18 and he'll turn a $2 profit, all with the original investment of $9. |
If Bernie Madoff had invested in Berkshire Hathaway, would the ponzi actually have succeeded? | I could be wrong, but I doubt that Bernie started out with any intention of defrauding anyone, really. I suspect it began the first time he hit a quarter when his returns were lower than everyone else's, or at least not as high as he'd promised his investors they'd be, so he fudged the numbers and lied to get past the moment, thinking he'd just make up for it the next quarter. Only that never happened, and so the lie carried forward and maybe grew as things didn't improve as he expected. It only turned into a ponzi because he wasn't as successful at investing as he was telling his investors he was, and telling the truth would have meant the probability that he would have lost most of his clients as they went elsewhere. Bernie couldn't admit the truth, so he had to keep up the fiction by actually paying out returns that didn't exist, which required constantly finding new money to cover what he was paying out. The source of that money turned out to be new investors who were lured in by people already investing with Bernie who told them how great he was as a financial wizard, and they had the checks to prove it. I think this got so far out of hand, and it gradually dragged more and more people in because such things turn into black holes, swallowing up everything that gets close. Had the 2008 financial crisis not hit then Bernie might still be at it. The rapid downturns in the markets hit many of Bernie's investors with margin calls in other investments they held, so they requested redemptions from him to cover their calls, expecting that all of the money he'd convinced to leave with him really existed. When he realized he couldn't meet the flood of redemptions, that was when he 'fessed up and the bubble burst. Could he have succeeded by simple investing in Berkshire? Probably. But then how many people say that in hindsight about them or Amazon or Google, or any number of other stocks that turned out similarly? (grin) Taking people's money and parking it all in one stock doesn't make you a genius, and that's how Bernie wanted to be viewed. To accomplish that, he needed to find the opportunities nobody else saw and be the one to get there first. Unfortunately his personal crystal ball was wrong, and rather than taking his lumps by admitting it to his investors, his pride and ego led him down a path of deception that I'm sure he had every intention of making right if he could. The problem was, that moment never came. Keep in mind one thing: The $64 billion figure everyone cites isn't money that really existed in the first place. That number is what Bernie claimed his fund was worth, and it is not the amount he actually defrauded people out of. His actual cash intake was probably somewhere in the $20 billion range over that time. Everything else beyond that was nothing more than the fictionalized returns he was claiming to get for his clients. It's what they thought they had in the bank with him, rather than what was really there. |
Why is the number of issued shares less than the number of outstanding shares | The formulae #issued shares = #outstanding shares + #treasury shares looks right. However it looks like the Treasury Shares are treated as -ve in accounting books and thus the outstanding shares are more than issued shares to the extent of Treasury shares. Further info at "Accounting for treasury stock" on wiki |
Do US mutual funds and ETFs pay taxes on dividends? | Mutual funds don't pay taxes themselves, they distribute any dividends or capital gains to the shareholders. Thus, if you hold a mutual fund in a tax-advantaged account like a 401k or IRA then the distribution isn't a taxable event while in a regular taxable account you would have to pay taxes on the distributions. From Forbes: There can be foreign companies on US stock exchanges that would still work the same way. Unilever for example is an Anglo-Dutch multinational listed on the NYSE as "UN." |
Execute or trade an options contract? | Here is the answer for #3 from my brokerage: Your math is correct. Typically, option traders never take delivery of the stock simply to then turn around and sell it at the higher price that the stock is trading at. You wold always expect the option to have a higher value that simply selling the stock at market price. There are many factors involved in options pricing and the math behind it is quite complicated, but unless it is right at expiration, the option will have a higher price than the stock itself. |
How should I think about stock dividends? | Dividends are actually a very stable portion of equity returns, the Great recession and Great Depression notwithstanding: However, dividends, with lower variance have lower returns. Most of the return is due to the more variant price: So while dividends fell by 25% during the worst drop since the Great Depression, prices fell almost by 2/3. If one can accumulate enough wealth to live only off of dividend income, the price risk becomes much more manageable. This is the ideal circumstance for retirement. |
How can I tell what is “real” Motley Fool advice? | These advertisements try to take advantage of the short term memory loss of older people. If you keep an old person watching long enough they will forget why they started watching in the first place. Yet they trust themselves and assume that it was for a good reason. So the long winded salespitch succeeds with older people who tend to have more money to invest anyway. Yes, I think that Motley Fool has jumped the shark. |
Company asking for card details to refund over email | I used to work for a online payment posting company. Anytime a payment is made via Credit Card to a company that does not have PCI DSS(aka the ability/certification to store credit card information) there is a MD5 checksum(of the confirmation code, not the Credit Card information) that get sent to the company from the processor(billing tree, paypal, etc). The company should be able to send this information back to the processor in order to refund the payment. If the company isn't able to do this, to be honest they shouldn't be taking online credit card payments. And by all means do not send your credit card information in an email. As said above, call the company's customer service line and give them the info to credit your account. |
A guy scammed me, but he gave me a bank account number & routing number. Can I use that to take out what he owes me? | You're not focusing in the right place and neither is anyone else on this thread because this isn't about the guy owning you money... This is about you not having enough money to pay your rent. If rent wasn't due and the utility bills weren't piling up, you wouldn't be trying to justify taking money out of someone else's account. So let's triage this. Your #1 problem isn't hunting down Dr. Deadbeat's wallet. So put a pin in that for now and get to the real deal. Getting rent paid. Right? OK, you said he called "regarding a business I have". It's great that you have your own business. Are you also employed elsewhere? If you are, then you really should simply go to your employer and tell them you are in financial distress. Tell them that right now you can't cover your rent or bills and you want to know if they can help, i.e. give you an advance from your paycheck, do a withdrawal/loan from a retirement savings that's in your employee benefits package, etc... They will HELP YOU because it's in their best interest as much as it is in yours. Foregoing that, consider these thoughts... If you were to go your grandparents telling them what you told all of us here, and ask them the same "do you think it's ok to...", they would say something close to "Absolutely DO NOT touch someone else bank account EVER! It doesn't matter what information you have, how you got it, or what you think they owe you. Do NOT touch it. There's a legal system that will help you get it from them if they truly do owe it to you." I guarantee you this, withdrawing funds from an account on which you are NOT an authorized signatory is both financial theft as well as identity theft. Bonus if you do it on a computer, because you'd then be facing criminal charges that go beyond your specific legal district, i.e. you'd face criminal charges on a national level. If convicted, odds are you'd be sentenced within the penal guidelines of the Netherlands 1983 Financial Penalties Act (FPA). Ergo, you would have much much much less money in the very near future, which would feel like an eternal walk through the Hell of the court system. Ultimately, over your lifetime you would be exponentially poorer than you may think you are now. I strongly urge you to rebrand this "financial loss" as "Tuition at the School of Hard Knocks". There's one last thing... the train jumps the tracks for me during your story... This guy called you? Right?... (raised eyebrow) What kind of business do you "have"? The sense of desperation and naiveté in your urgent need for money to pay rent. The fact that you are accepting payment for services by conducting a bank transfer specifically from your clients account directly toward your own utility bills is a big red flag. Bypassing business accounting and using revenue for personal finances isn't legitimate business practices. Plus you are doing it by using the bank information of brand new client who is a TOTAL stranger. Now consider fact that this total stranger was so exceedingly generous to someone from whom he wanted personal services to be rendered. Those all tell me that he's doing something he wants the other person to do for him and he doesn't want anyone else to know. The fact that he's being so benevolent like a 'sugar daddy' tells me that he feels guilty for having someone do what he's asking them to do. Perceived financial superiority is the smoothest of smooth power tools that predators and abusers have in their bag. For instance, an outlandish financial promise is probably the easiest way to target someone who is vulnerable; and then seduce them into being their victim. Redirecting your focus on how much better life will be once your problem is solved by this cash rather than focusing on the fact that they're taking advantage of you. Offering to pay rates that are dramatically excessive is a way of buying a clean conscious, because he's doing something that will "rescue you" from a crisis. The final nail in the coffin for me was that he left so abruptly and your implied instinct suggesting his reason was a lie. It sounds like he got scared or ashamed of his actions and ran out. It paints a picture that this was sex-for-money Good luck to you. |
Military Separation | It's not usually a good idea to buy a house as an investment. Buy a house because you want the house, not for an investment. Your money will make more money invested somewhere other than a house. Additionally, based on talking about renting rooms to pay the mortgage and the GI bill, I assume you are planning on going to school and not working? I am not that familiar with VA loans, but I imagine they will require you show some form of income before they are willing to give you a loan. 14% returns over the long run are very good, but last year the market was up almost 30%, if you were only at 14% for last year you left quite a bit on the table. I would advise against individual stocks for investments except as a hobby. Put the majority of your investments into ETF's/low fee mutual funds and keep a smaller amount that you can afford to lose in stocks. |
How to help a financially self destructive person? | You can't help people that don't want help, period. It just doesn't work, and you will waste your time and energy while making the other person mad. Both sides end up in the same place they started except now they are frustrated with each other. In a normal situation I would advise to stop enabling her by giving her money, but the court has already decided that part. There is no reason that she can't provide for her children on US$50k per year. In all honesty it sounds like she has a mental health problem and needs to see a professional. You, as the ex-husband, are probably not the right person to tell her that, though. If you really want to help her and are still on good terms with some friends or family members she trusts you could ask them to help her get help. They probably see the same mess that you and your kids do, but might need a little encouragement to act. The other option is if you sued for custody, based on living conditions, the possibility of losing her children and the child support might provide a much needed incentive to clean up her act. You probably won't win over a couple of incidents of the power being turned off and you will be putting your kids in the uncomfortable situation of telling on their mother though. |
Who are the sellers for the new public stocks? | In an IPO the seller is the Company selling new shares. Some of the IPOs also include something called "secondary" sales which are existing holders selling at the same time at the IPO price. But that is a but more unusual. And as someone noted, the $68 is the price paid for the people who bought at the IPO (the aggregate group usually called the syndicate). The $85 is the price that it is trading at once there is trading in the open market. People that are able to get into the syndicate to buy the stock at $68 sometimes quickly sell if the price is much higher when trading starts. This is called "flipping" the stock. Hedge funds do this much more often than institutional buyers like Fidelity. |
Is buying a lottery ticket considered an investment? | From a mathematical expected-value standpoint, there is no difference between gambling (e.g. buying a lottery ticket) and investing (e.g. buying a share of stock). The former probably has negative expected value while the latter probably has positive expected value, but that is not a distinction to include in a definition (else every company that gives a bad quarterly earnings report suddenly changes categories). However, investment professionals have a vested interest in claiming there is a difference; that justifies them charging fees to steer you into the right investment. Consequently, hair-splitting ideas like the motive behind a purchase are introduced. The classification of an item to be purchased should not depend on the mental state of its purchaser. Depending on the situation, it may be right to engage in negative EV behavior. For example, if you have $1000 and need $2000 by next week or else you can't have an operation and you will die (and you can't find anyone to give you a loan). Your optimal strategy is to gamble your $1000, at the best odds you can get, with a possible outcome of $2000. So even if you only have a 1/3 chance of winning and getting that operation, it's still the right bet if you can't find a better one. |
Should you always max out contributions to your 401k? | As long as you're in a lower tax bracket - you would probably be better off paying the taxes now, and investing into the Roth IRA/401K. However, you should be investing for your retirement now, and not later, because of the compounding effect, and also you'll gain the employer matching (if available). |
Equity - date of offer, or date of joining? | Options or Shares vest by date they are granted. It would strike me as odd for anyone to say their shares were given with 4 year vesting, but the clock was pre-started years prior. In my opinion, you have nothing to complain about. |
Why doesn’t every company and individual use tax-havens to pay less taxes? | Ditto @GradeEhBacon, but let me add a couple of comments: But more relevantly: GradeEhBacon mentioned transaction costs. Yes. Many tax shelters require setting up accounts, doing paperwork, etc. Often you have to get a lawyer or accountant to do this right. If the tax shelter could save you $1 million a year in taxes, it makes sense to pay a lawyer $10,000 to set it up right. If it could save you $100 a year in taxes, paying $10,000 to set it up would be foolish. In some cases the tax savings would be so small that it wouldn't be worth the investment of spending $20 on a FedEx package to ship the paperwork. Inconvenience. Arguably this is a special case of transaction costs: the cost of your time. Suppose I knew that a certain tax shelter would save me $100 a year in taxes, but it would take me 20 hours a year to do the paperwork or whatever to manage it. I probably wouldn't bother, because my free time is worth more than $5 an hour to me. If the payoff was bigger or if I was poorer, I might be willing. Complexity. Perhaps a special case of 3. If the rules to manage the tax shelter are complicated, it may not be worth the trouble. You have to spend a bunch of time, and if you do it wrong, you may get audited and slapped with fines and penalties. Even if you do it right, a shelter might increase your chance of being audited, and thus create uncertainty and anxiety. I've never intentionally cheated on my taxes, but every year when I do my taxes I worry, What if I make an honest mistake but the government decides that it's attempted fraud and nails me to the wall? Qualification. Again, as others have noted, tax shelters aren't generally, "if you fill out this form and check box (d) you get 50% off on your taxes". The shelters exist because the government decided that it would be unfair to impose taxes in this particular situation, or that giving a tax break encourages investment, or some other worthy goal. (Sometimes that worthy goal is "pay off my campaign contributors", but that's another subject.) The rules may have unintended loopholes, but any truly gaping ones tend to get plugged. So if, say, they say that you get a special tax break for investing in medical research, you can't just declare that your cigarette and whiskey purchases are medical research and claim the tax break. Or you talked about off-shore tax havens. The idea here is that the US government cannot tax income earned in another country and that has never even entered the US. If you make $10 in France and deposit it in a French bank account and spend it in France, the US can't tax that. So American companies sometimes set up bank accounts outside the US to hold income earned outside the US, so they don't have to bring it into the US and pay the high US tax rate. (US corporate taxes are now the highest of any industrialized country.) You could, I suppose, open an account in the Caymans and deposit the income you earned from your US job there. But if the money was earned in the US, working at a factory or office in the US, by a person living in the US, the IRS is not going to accept that this is foreign income. |
What risk of a diversified portfolio can be specifically offset by options? | Options are contractual instruments. Most options you'll run into are contracts which allow you to buy or sell stock at a given price at some time in the future, if you feel like it (it gives you the option). These are Call and Put options, respectively (for buying the stock and selling the stock). If you have a lot of money in an index fund ETF, you may be able to protect your portfolio against a market decline by (e.g.) buying Put options against the ETF for a substantially lower price than the index fund currently trades at. If the market crashes and your fund falls in value significantly, you can exercise the options, selling the fund at the price that your option has specified (to the counter-party of your contract). This is the risk that the option mitigates against. Even if you don't have one particular fund with your investments, you could still buy a put option on a similar fund, and resell it to another person in lieu of exercise (they would be capable of buying the stock and performing the exercise themselves for profit if necessary). In general, if you are buying an option for safety, it should be an option either on something you own, or something whose price behavior will mimic something you own. You will note that options are linked to the price of stocks. Futures are contracts whose values are linked to the price of other things, typically commodities such as oil, gold, or orange juice. Their behaviors may diverge. With an option you can have a contractual guarantee on the exact investment you're trying to protect. (Additionally, many commodities' value may fall at the same time that stock investments fall: during economic contractions which reduce industrial activity, resulting in lower profits for firms and less demand for commodities.) You may also note that there are other structures that options may have - PUT options on index funds or similar instruments are probably most specifically relevant to your interests. The downside of protecting yourself with options is that it costs money to buy this option, and the option eventually expires, so you may lose money. Essentially, you are buying safety and risk-tolerance from the option contract's counterparty, and safety is not free. I cannot inform you what level of safety is appropriate for your portfolio's needs, but more safety is more expensive. |
What is a good open source Windows finance software | Have you tried others on Wikipedia's list? |
I can make a budget, but how can I get myself to consistently follow my budget? | Switch to cash for a few months. No debit. No credit. This will help for two reasons: Once you've broken the bad habits, you should be able to go back to cards for the convenience factor. |
Price graphs: why not percent change? | I am in complete agreement with you. The place i have found with the sort of charts you are looking for is stockcharts.com. To compare the percentage increase of several stocks over a period of 2 market-open days or more, which is quite useful to follow the changes in various stocks… etc., an example: Here the tickers are AA to EEEEE (OTC) and $GOLD / $SILVER for the spot gold / silver price (that isn't really a ticker). It is set to show the last 6 market days (one week+)...the '6' in '6&O'. You can change it in the URL above or change it on the site for the stocks you want... up to 25 in one chart but it gets really hard to tell them apart! By moving the slider just left of the ‘6’ at the bottom right corner of the chart, you can look at 2 days or more. For a specific time period in days, highlight the ‘6’ and type any number of market-open days you want (21 days = about one month, etc.). By setting a time period in days, and moving the entire slider, you can see how your stocks did in the last bull/bear run, as an example. The site has a full how-to, for this and the other types of charts they offer. The only problem is that many OTC stocks are not charted. Save the comparison charts you use regularly in a folder in your browser bookmarks. Blessings. I see the entire needed link isn't in blue... but you need it all. |
Is CLM a stock or an ETF? | Cornerstone Strategic Value Fund, Inc. is a diversified, closed-end management investment company. It was incorporated in Maryland on May 1, 1987 and commenced investment operations on June 30, 1987. The Fund’s shares of Common Stock are traded on the NYSE MKT under the ticker symbol “CLM.”[1] That essentially means that CLM is a company all of whose assets are held as tradable financial instruments OR EQUIVALENTLY CLM is an ETF that was created as a company in its own right. That it was founded in the 80s, before the modern definition of ETFs really existed, it is probably more helpful to think of it by the first definition as the website mentions that it is traded as common stock so its stock holds more in common with stock than ETFs. [1] http://www.cornerstonestrategicvaluefund.com/ |
How to become an investment banker? | Apply for a job/internship to get a first impression of what it means to work in investment banking. Go to a tier one business school and try to get an CFA. Most importantly: work, work, work... Get practical experience as much as possible. |
devastated with our retirement money that we have left | The answers you've received already are very good. I truly sympathize with your situation. In general, it makes sense to try to build off of existing relationships. Here are a few ideas: I don't know if you work for a small or large company, or local/state government. But if there is any kind of retirement planning through your workplace, make sure to investigate that. Those people are usually already paid something for their services by your employer, so they should have less of an interest in making money off you directly. One more thought: A no-fee brokerage company e.g. Charles Schwab. They offer a free one hour phone call with an investment adviser if you invest at least $25K. I personally had very good experiences with them. This answer may be too anecdotal and not specifically address the annuity dilemma you mentioned. That annunity dilemma is why you need to find someone you can trust, who is competent (see the credentials for financial advisers mentioned in the other answers), and will work the numbers out with you. |
What is the difference between hedging and diversification? How does each reduce risk? | The difference is in the interrelation between the varied investments you make. Hedging is about specifically offsetting a possible loss in an investment by making another related investment that will increase in value for the same reasons that the original investment would lose value. Gold, for instance, is often regarded as the ultimate hedge. Its value is typically inversely correlated to the rest of the market as a whole, because its status as a material, durable store of value makes it a preferred "safe haven" to move money into in times of economic downturn, when stock prices, bond yields and similar investments are losing value. That specific behavior makes investing in gold alongside stocks and bonds a "hedge"; the increase in value of gold as stock prices and bond yields fall limits losses in those other areas. Investment of cash in gold is also specifically a hedge against currency inflation; paper money, account balances, and even debt instruments like bonds and CDs can lose real value over time in a "hot" economy where there's more money than things to buy with it. By keeping a store of value in something other than currency, the price of that good will rise as the currencies used to buy it decrease in real value, maintaining your level of real wealth. Other hedges are more localized. One might, for example, trade oil futures as a hedge on a position in transportation stocks; when oil prices rise, trucking and airline companies suffer in the short term as their margins get squeezed due to fuel costs. Currency futures are another popular hedge; a company in international business will often trade options on the currencies of the companies it does business in, to limit the "jitters" seen in the FOREX spot market caused by speculation and other transient changes in market demand. Diversification, by contrast, is about choosing multiple unrelated investments, the idea being to limit losses due to a localized change in the market. Companies' stocks gain and lose value every day, and those companies can also go out of business without bringing the entire economy to its knees. By spreading your wealth among investments in multiple industries and companies of various sizes and global locations, you insulate yourself against the risk that any one of them will fail. If, tomorrow, Kroger grocery stores went bankrupt and shuttered all its stores, people in the regions it serves might be inconvenienced, but the market as a whole will move on. You, however, would have lost everything if you'd bet your retirement on that one stock. Nobody does that in the real world; instead, you put some of your money in Kroger, some in Microsoft, some in Home Depot, some in ALCOA, some in PG&E, etc etc. By investing in stocks that would be more or less unaffected by a downturn in another, if Kroger went bankrupt tomorrow you would still have, say, 95% of your investment next egg still alive, well and continuing to pay you dividends. The flip side is that if tomorrow, Kroger announced an exclusive deal with the Girl Scouts to sell their cookies, making them the only place in the country you can get them, you would miss out on the full possible amount of gains you'd get from the price spike if you had bet everything on Kroger. Hindsight's always 20/20; I could have spent some beer money to buy Bitcoins when they were changing hands for pennies apiece, and I'd be a multi-millionaire right now. You can't think that way when investing, because it's "survivor bias"; you see the successes topping the index charts, not the failures. You could just as easily have invested in any of the hundreds of Internet startups that don't last a year. |
Should I wait to save up 20% downpayment on a 500k condo? | I'm of the belief that you should always put 20% down. The lower interest rate will save you thousands over the life of the loan. Also PMI is no different then burning that much cash in the fireplace every month. From Wikipedia Lenders Mortgage Insurance (LMI), also known as Private mortgage insurance (PMI) in the US, is insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. It is insurance to offset losses in the case where a mortgagor is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property. You are basically paying money each month for the bank to be insured against you not paying your mortgage. But in actuality the asset of the condo should be that insurance. Only you can decide if you are comfortable with having $50k in liquidity or not. It sounds like a good cushion to me but I don't know the rest of your expenses. |
What does it mean if “IPOs - normally are sold with an `underwriting discount` (a built in commission)” | Also, in the next sentence, what is buyers commission? Is it referring to the share holder? Or potential share holder? And why does the buyer get commission? The buyer doesn't get a commission. The buyer pays a commission. So normally a buyer would say, "I want to buy a hundred shares at $20." The broker would then charge the buyer a commission. Assuming 4%, the commission would be So the total cost to the buyer is $2080 and the seller receives $2000. The buyer paid a commission of $80 as the buyer's commission. In the case of an IPO, the seller often pays the commission. So the buyer might pay $2000 for a hundred shares which have a 7% commission. The brokering agent (or agents may share) pockets a commission of $140. Total paid to the seller is $1860. Some might argue that the buyer pays either way, as the seller receives money in the transaction. That's a reasonable outlook. A better way to say this might be that typical trades bill the buyer directly for commission while IPO purchases bill the seller. In the typical trade, the buyer negotiates the commission with the broker. In an IPO, the seller does (with the underwriter). Another issue with an IPO is that there are more parties getting commission than just one. As a general rule, you still call your broker to purchase the stock. The broker still expects a commission. But the IPO underwriter also expects a commission. So the 7% commission might be split between the IPO underwriter (works for the selling company) and the broker (works for the buyer). The broker has more work to do than normal. They have to put in the buyer's purchase request and manage the price negotiation. In most purchases, you just say something like "I want to offer $20 a share" or "I want to purchase at the market price." In an IPO, they may increase the price, asking for $25 a share. And they may do that multiple times. Your broker has to come back to you each time and get a new authorization at the higher price. And you still might not get the number of shares that you requested. Beyond all this, you may still be better off buying an IPO than waiting until the next day. Sure, you pay more commission, but you also may be buying at a lower price. If the IPO price is $20 but the price climbs to $30, you would have been better off paying the IPO price even with the higher commission. However, if the IPO price is $20 and the price falls to $19.20, you'd be better off buying at $19.20 after the IPO. Even though in that case, you'd pay the 4% commission on top of the $19.20, so about $19.97. I think that the overall point of the passage is that the IPO underwriter makes the most money by convincing you to pay as high an IPO price as possible. And once they do that, they're out of the picture. Your broker will still be your broker later. So the IPO underwriter has a lot of incentive to encourage you to participate in the IPO instead of waiting until the next day. The broker doesn't care much either way. They want you to buy and sell something. The IPO or something else. They don't care much as to what. The underwriter may overprice the stock, as that maximizes their return. If they can convince enough people to overpay, they don't care that the stock falls the day after that. All their marketing effort is to try to achieve that result. They want you to believe that your $20 purchase will go up to $30 the next day. But it might not. These numbers may not be accurate. Obviously the $20 stock price is made up. But the 4% and 7% numbers may also be inaccurate. Modern online brokers are very competitive and may charge a flat fee rather than a percentage. The book may be giving you older numbers that were correct in 1983 (or whatever year). The buyer's commission could also be lower than 4%, as the seller also may be charged a commission. If each pays 2%, that's about 4% total but split between a buyer's commission and a seller's commission. |
Saving up for an expensive car | This seems really simple to me. |
Company wants to sell all of its assets, worth more than share price? | The stock exchange here serves as a meeting place for current shareholders who want to sell their shares to someone else. This has nothing to do with liquidation, which is a transaction between the company and its shareholders. A company does not have to be listed on an exchange to make distributions to shareholders. |
Ways to avoid being labeled a pattern day trader | Sorry but you already provided the answer to your own question. The simple answer is to 'not day trade' but hold things for a longer period and don't trade a large number of different stocks every week. Seriously, have a look at the rules and see what it implies.. an average of 20 buys and sells of longer term positions PER DAY is a pretty fair bit of trading, that's really churning through the positions compared to someone who might establish positions with say 25 well picked stocks and might change even 5 of those a week to a different stock. Or even a larger number of stocks but seeking to hold them for over a year so you get taxed at the long term cap gains rate. If you want to day trade, be prepared to be labeled as such and deal with your broker on that basis. Not like they will hate you given all the fees you are likely to rack up. And the government will love you also, since you'll be paying short term gains taxes. (and trust me, us bogelheads appreciate the liquidity the speculative and short term folks bring to the market.) In terms of how it would impact you, Expect to be required to have a fairly substantial balance ($25K) if you are maintaining a margin account. I'd suggest reading this thread My account's been labeled as "day trader" and I got a big margin call. What should I do? What trades can I place in the blocked period? |
How does giving to charity work? | I'll answer your second question: it depends what your charity is for. There are two types: i) Emergency (i.e. to respond to environmental or social disasters where it acts a bit like an insurance policy); ii) Development (i.e. where the intention is to subsidise something missing in the local economy); A lack of insurance is certainly a problem for people who lose their homes and livelihoods to disaster. Your donations can go far. As for development aid: "We find little evidence of a robust positive correlation between aid and growth," write two ex-IMF economists, Raghuram Rajan, who stepped down as IMF chief economist at the end of 2006, and Arvind Subramanian, who left the IMF this year. "One of the most enduring and important questions in economics is whether foreign aid helps countries grow ... There is a moral imperative to this question: it is a travesty for so many countries to remain poor if a relatively small transfer of resources from rich countries could set them on the path to growth ... But if there is no clear evidence that aid boosts growth, then handing out more money makes little sense," they conclude. I do somewhat further in declaring that charity is equivalent to trade dumping. By artificially lowering the real cost of a particular good it ensures that there will be no local investment in that good. Free clothes to Africa has destroyed the local textiles industry. Free doctors has resulted in more African doctors in New York than in the whole of Africa. So decide where your charity is going: emergencies or development? Then decide what you can afford. But your first investment should always be in yourself. If by making use of that investment you can benefit the economy and keep others around you employed and productive you will achieve far more. |
Does a growing economy mean the economy is becoming less efficient? | A growing economy should become more efficient because of increased opportunity for division of labor: specialization. External regulation or monetary policy external to the free market can cause parts of the economy to grow in response to said regulations. This creates inefficiencies that are wrung out of the economy after the policies reverse. A couple of examples: Tinkering with the economy causes the inefficiencies. |
Be a partner, CTO or just a freelancer? | I write software myself and was involved in a couple of start ups. One failed, another was wildly successful, but I did not receive much in compensation. The former I received stock, but since it failed, it was worthless anyway. There should be compensation for your time in addition to equity in a company. Any agreement needs be in writing. In the later situation I was told to expect about a 17%/year bonus, but nothing could be guaranteed. Translation: "It will never happen." It didn't, but I meet my lovely wife there so I have that for a bonus. Agreements need to address the bad things can happen. What happens if one of you is no longer interested in continuing? What happens if one of you die, or addicted to something? What happens if one of you gets thrown in jail or disabled? Right now you are full of optimism and hope, but bad things happen. Cover those things while you still like each other. It might be enough to have a good salary, and some stock options. You man not be interested in running the day to day business. Most of all good luck, I wish you all the best! |
How to teach personal reconciliation and book balancing | If you are wanting to teach your kids basic accounting principles there is some good stuff on Khan Academy. However most of the stuff takes practice to really make it hit home and its kinda boring (Especially to kids who may or may not care about it). Maybe if you help them set up an account on Mint so that they are at least aware of their finances. Think it also has a heap of videos you can watch that teaches basic personal finance. If you actually want them to understand the techniques and methods behind creating & maintaining a personal ledger/journal and reconciling it against a bank account you are getting into what undergraduates study and there are plenty of first year textbooks around. Look around for a second hand one that is a few revisions old and they are usually dirt cheap (I scored one for only a dollar not that long ago). I feel like the mindset is what matters most. Journals and all that jazz are easy if you have the right mindset. That is something that you really have to demonstrate to your children rather than teach. Meaning you yourself keeping your finances in order and showing them how you organise and file your bills/ credit cards etc. (So they learn the importance of keeping financial records; meaning in the future when its talked about it doesn't fall on deaf ears) Emphasize the whole "living within your means" because even if they don't understand bookkeeping or learn anything else at least their finances won't turn out too bad. |
How to reconcile performance with dividends? | You didn't identify the fund but here is the most obvious way: Some of the stocks they owned could had dividends. Therefore they would have had to pass them on to the investors. If the fund sold shares of stocks, they could have capital gains. They would have sold stocks to pay investors who sold shares. They also could have sold shares of stock to lock in gains, or to get out of positions they no longer wanted. Therefore a fund could have dividends, and capital gains, but not have an increase in value for the year. Some investors look at how tax efficient a fund is, before investing. |
My investment account is increasingly and significantly underperforming vs. the S&P 500. What should I do? | Around Oct 03 2010 the SPY closed at 113. Today it is trading at 130. After four months, that means that the S&P is up 15% over that particular 4 month period. You said you need something pretty low maintenance, and you are comparing your returns to the S&P 500 (which as @duffbeer703 points out is a good thing to compare against because of its diversification). To kill two birds with one stone, I would sell your fund that you have and take the proceeds and purchase the ETF SPY. SPY trades like a stock but mirrors the S&P 500's performance. It has extremely low fees (as opposed to what I suspect your BlackRock fund has). You can own it in an Etrade or Fidelity or other low cost broker account. Then you will be extremely low maintenance, fully diversified (among stocks) and you don't have to compare your performance against the S&P :) |
What if I sell an stock that is going to give an stock dividend after the ex-date but before the payable date | I know that in the case of cash dividends I will get the dividend as long as I bought the stock before the ex-date but what happens in the case of an stock dividend? This is same as cash dividends. You would receive the additional stock. |
Why do people buy stocks that pay no dividend? | people buy stocks because there is more to Return on Investment than whether dividends are issued or not. Some people want ownership and the ability to influence decisions by using the rights associated with their class of stock. Another reason would be to park capital in a place that would grow faster than the rate of inflation. these are only a few of many reasons why people would buy stock. |
Withdraw funds with penalty or bear high management fees for 10 years? | I think the main question is whether the 1.5% quarterly fee is so bad that it warrants losing $60,000 immediately. Suppose they pull it out now, so they have 220000 - 60000 = $160,000. They then invest this in a low-cost index fund, earning say 6% per year on average over 10 years. The result: Alternatively, they leave the $220,000 in but tell the manager to invest it in the same index fund now. They earn nothing because the manager's rapacious fees eat up all the gains (4*1.5% = 6%, not perfectly accurate due to compounding but close enough since 6% is only an estimate anyway). The result: the same $220,000 they started with. This back-of-the-envelope calculation suggests they will actually come out ahead by biting the bullet and taking the money out. However, I would definitely not advise them to take this major step just based on this simple calculation. Many other factors are relevant (e.g., taxes when selling the existing investment to buy the index fund, how much of their savings was this $300,000). Also, I don't know anything about how investment works in Hong Kong, so there could be some wrinkles that modify or invalidate this simple calculation. But it is a starting point. Based on what you say here, I'd say they should take the earliest opportunity to tell everyone they know never to work with this investment manager. I would go so far as to say they should look at his credentials (e.g., see what kind of financial advisor certification he has, if any), look up the ethical standards of their issuers, and consider filing a complaint. This is not because of the performance of the investments -- losing 25% of your money due to market swings is a risk you have to accept -- but because of the exorbitant fees. Unless Hong Kong has got some crazy kind of investment management market, charging 1.5% quarterly is highway robbery; charging a 25%+ for withdrawal is pillage. Personally, I would seriously consider withdrawing the money even if the manager's investments had outperformed the market. |
Does investing in a company support it? | As said by others, buying shares of a company will not support it directly. But let's think about two example companies: Company A, which has 90 % stocks owned by supporters, and Company B, which has only 1 % of stocks owned by supporters. Both companies release bad news, for example profits have decreased. In Company B, most investors might want to sell their stock quickly and the price will plummet. In Company A, the supporters continue believing in the company and will not want to sell it. The price will drop less (usually, but it can drop even more if the sellers of Company A are very desperate to get rid of the stock). So, why is it important for the company to have a high stock price? In the short-term, it's not important. One example is that the company can release more stocks and receive more financing by doing that. Other reasons are listed here: http://www.investopedia.com/articles/basics/03/020703.asp |
Should I buy a house because Mortgage rates are low | There is a significant tie between housing prices and mortgage rates. As such, don't assume low mortgage rates mean you will be financially better off if you buy now, since housing prices are inversely correlated with mortgage rates. This isn't a huge correlation - it's R-squared is a bit under 20%, at a 1.5-2 year lag - but there is a significant connection there. Particularly in that 10%+ era (see chart at end of post for details) in 1979-1982, there was a dramatic drop in housing price growth that corresponded with high interest rates. There is a second major factor here, though, one that is likely much more important: why the interest rates are at 10%. Interest rates are largely set to follow the Federal Funds rate (the rate at which the Federal Reserve loans to banks). That rate is set higher for essentially one purpose: to combat inflation. Higher interest rates means less borrowing, slower economic growth, and most importantly, a slower increase in the money supply - all of which come together to prevent inflation. Those 10% (and higher!) rates you heard about? Those were in the 70's and early 80's. Anyone remember the Jimmy Carter years? Inflation in the period from 1979 to 1981 averaged over 10%. Inflation in the 70s from 1973 to 1982 averaged nearly 9% annually. That meant your dollar this year was worth only $0.90 next year - which means inevitably a higher cost of borrowing. In addition to simply keeping pace with inflation, the Fed also uses the rate as a carrot/stick to control US inflation. They weren't as good at that in the 70s - they misread economic indicators in the late 1970s significantly, lowering rates dramatically in 1975-1977 (from ~12% to ~5%). This led to the dramatic double-digit inflation of the 1979-1981 period, requiring them to raise rates to astronomic levels - nearly 20% at one point. Yeah, I hope nobody bought a house on a fixed-rate mortgage from 1979-1981. The Fed has gotten a lot more careful over the years - Alan Greenspan largely was responsible for the shift in policy which seems to have been quite effective from the mid 1980s to the present (though he's long gone from his spot on the Fed board). Despite significant economic changes in both directions, inflation has been kept largely under control since then, and since 1991 have been keeping pretty steady around 6% or less. The current rate (around 0%) is unlikely to stay around forever - that would lead to massive inflation, eventually - but it's reasonable to say that prolonged periods over 10% are unlikely in the medium term. Further, if inflation did spike (and with it, your interest rates), salaries tend to spike also. Not quite as fast as inflation - in fact, that's a major reason a small positive inflation around 2-3% is important, to allow for wages to grow more slowly for poorer performers - but still, at 10% inflation the average wage will climb at a fairly similar pace. Thus, you'd be able to buy more house - or, perhaps a better idea, save more money for a house that you can then buy a few years down the road when rates drop. Ultimately, the advice here is to not worry too much about interest rates. Buy a house when you're ready, and buy the house you're ready for. Interest rates may rise, but if so it's likely due to an increase in inflation and thus wage growth; and it would take a major shift in the economy for rates to rise to the 10-11% level. If that did happen, housing prices (or at least growth in prices) would likely drop significantly. Some further references: |
few question about debit credit and liabilities | Exactly what accounts are affected by any given transaction is not a fixed thing. Just for example, in a simple accounting system you might have one account for "stock on hand". In a more complex system you might have this broken out into many accounts for different types of stock, stock in different locations, etc. So I can only suggest example specific accounts. But account type -- asset, liability, capital (or "equity"), income, expense -- should be universal. Debit and credit rules should be universal. 1: Sold product on account: You say it cost you $500 to produce. You don't say the selling price, but let's say it's, oh, $700. Credit (decrease) Asset "Stock on hand" by $500. Debit (increase) Asset "Accounts receivable" by $700. Credit (increase) Income "Sales" by $700. Debit (increase) Expense "Cost of goods sold" by $500. 2: $1000 spent on wedding party by friend I'm not sure how your friend's expenses affect your accounts. Are you asking how he would record this expense? Did you pay it for him? Are you expecting him to pay you back? Did he pay with cash, check, a credit card, bought on credit? I just don't know what's happening here. But just for example, if you're asking how your friend would record this in his own records, and if he paid by check: Credit (decrease) Asset "checking account" by $1000. Debit (increase) Expense "wedding expenses" by $1000. If he paid with a credit card: Credit (increase) Liability "credit card" by $1000. Debit (increase) Expense "wedding expenses" by $1000. When he pays off the credit card: Debit (decrease) Liability "credit card" by $1000. Credit (decrease) Asset "cash" by $1000. (Or more realistically, there are other expenses on the credit card and the amount would be higher.) 3: Issue $3000 in stock to partner company I'm a little shakier on this, I haven't worked with the stock side of accounting. But here's my best stab: Well, did you get anything in return? Like did they pay you for the stock? I wouldn't think you would just give someone stock as a present. If they paid you cash for the stock: Debit (increase) Asset "cash". Credit (decrease) Capital "shareholder equity". Anyone else want to chime in on that one, I'm a little shaky there. Here, let me give you the general rules. My boss years ago described it to me this way: You only need to know three things to understand double-entry accounting: 1: There are five types of accounts: Assets: anything you have that has value, like cash, buildings, equipment, and merchandise. Includes things you may not actually have in your hands but that are rightly yours, like money people owe you but haven't yet paid. Liabilities: Anything you owe to someone else. Debts, merchandise paid for but not yet delivered, and taxes due. Capital (some call it "capital", others call it "equity"): The difference between Assets and Liabilities. The owners investment in the company, retained earnings, etc. Income: Money coming in, the biggest being sales. Expenses: Money going out, like salaries to employees, cost of purchasing merchandise for resale, rent, electric bill, taxes, etc. Okay, that's a big "one thing". 2: Every transaction must update two or more accounts. Each update is either a "debit" or a "credit". The total of the debits must equal the total of the credits. 3: A dollar bill in your pocket is a debit. With a little thought (okay, sometimes a lot of thought) you can figure out everything else from there. |
How do I use investments to lower my taxes [US]? | Not exactly. There are a few ways to manage your taxes with investments. 1) For most investments you get taxed on any gain in value in the investment or dividends paid by that investment. Most investments (with some exceptions for mutual funds) you don't take the tax hit until you sell the investment and realize the gain. For bonds, cds, and other cash type investments you have to pay taxes in the year they pay out the interest or dividend. 2) You can put money (up to a certain limit) in a traditional IRA and can subtract that amount from your income for tax calculation for the year you invest it. However, you are going to pay taxes on it when you take the money out at retirement. It really just delays the taxes. 3) If you put the money in a Roth IRA, you don't get a tax break now, but you don't have to pay any taxes on the money or the gains when you take it out at retirement. 4) The gains from some mutual funds can be tax exempt, but that just saves you from paying tax on the increase in value. 5) Don't fall for scams that try to use insurance policies as investments to avoid taxes. The fees are ginormous, which usually makes them a ripoff. |
Is an open-sourced World Stock Index a pipe-dream? | An index is just a mathematical calculation based on stock prices. Anyone can create such a calculation and (given a little effort) publish it based on publicly available data. The question of "open source" is simply whether or not the calculator chooses to publish the calculation used. Given how easy an index is to create, the issue is not the "open source" nature or otherwise, but its credibility and usefulness. |
Are those “auto-pilot” programs a scam or waste of time? | These have been around for decades. In the 80's and 90's they had you setup small ads in local newspapers and you would sell a brochure tells people how to make money, or solve some other problem. The idea was that money would roll in. The more ads you placed the more money you made. In the late 90's they had you setup a small website instead of a small newspaper advertisement , but the rest was the same. They were also done with eBay as the medium. Now they are live streams. Most of the money made is by the people selling you the course materials to show you exactly how to make money. Some of the people pitching these ideas though books, websites and infomercials were able to update their shtick to change with the medium, but the end result was always the same. Most people didn't make serious cash. The initial description of how it works is done for free and isn't enough information to know how to do it. The real secrets are after you pay for the advanced course. Of course to really make them work you need the expensive coaching sessions. |
What should I do with $4,000 cash and High Interest Debt? | I see some merit in the other answers, which are all based on the snowball method. However, I would like to present an alternative approach which would be the optimal way in case you have perfect self-control. (Given your amount of debt, most likely you currently do not have perfect self-control, but we will come to that.) The first step is to think about what the minimum amount of emergency funds are that you need and to compare this number with your credit card limit. If your limits are such that your credit cards can still cover potential emergency expenses, use all of the 4000$ to repay the debt on the loan with the higher interest rate. Some answer wrote that Others may disagree as it is more efficient to pay down the 26%er. However, if you pay it all of within the year the difference only comes to $260. This is bad advice because you will probably not pay back the loan within one year. Where would you miraculously obtain 20 000$ for that? Thus, paying back the higher interest loan will save you more money than just 260$. Next, follow @Chris 's advice and refinance your debt under a lower rate. This is much more impactful than choosing the right loan to repay. Make sure to consult with different banks to get the best rate. Reducing your interest rate has utmost priority! From your accumulated debt we can probably infer that you do not have perfect self-control and will be able to minimize your spending/maximize your debt repayments. Thus, you need to incentivize yourself to follow such behavior. A powerful way to do this is to have a family member or very close friend monitor your purchase and saving behavior. If you cannot control yourself, someone else must. It should rather be a a person you trust than the banks you owe money. |
Will a credit card issuer cancel an account if it never incurs interest? | Technically, yes but, in practice, no. I use a card for everything and pay it off every month. Sometimes, several times a month depending on how the month is going. In the last 10 years, I've paid a total of $8 in interest because I legitimately forgot to pay my balance before the statement came out when I was out of town. I wasn't late, I just didn't beat the statement and had a small interest charge that I couldn't successfully argue off. In the same time period, I've had one card cancelled at the banks request. The reason was that I hadn't used it in two years so they cancelled me. I never pay annual fees, I get cards with great rewards programs and I (almost) never pay interest. If your bank cancels your card because you're too responsible, find a better bank. |
How should I think about stock dividends? | DRiPs come to mind as something that may be worth examining. If you take the Microsoft example, consider what would happen if you bought additional shares each year by re-investing the dividends and the stock also went up over the years. A combination of capital appreciation in the share price plus the additional shares purchased over time can produce a good income stream over time. The key is to consider how long are you contributing, how much are you contributing and what end result are you expecting as some companies can have larger dividends if you look at REITs for example. |
What is high trading volume in a stock indicative of? Is high liquidity a good thing or a bad thing? | In general, liquidity is a good thing, because it means it is easy for you to buy or sell a stock. Since high liquidity stocks have a lot of trading, the bid-ask spreads tend to be pretty low. That means you can go into the market and trade easily and cheaply at just about any time. For low liquidity stocks, the bid-ask spreads can get pretty high, so it can make it hard or expensive to get into or out of your trades. On the flip side, everyone pays attention to high liquidity stocks, so it's harder to get an edge in your trading. For a company like Microsoft there are 30-50 full time analysts that cover them, thousands of professional traders and millions of investors in general all reading the same new articles and looking through the same financials as you. But in low liquidity stocks, there probably aren't any analysts, a few professional traders and maybe a few thousand total investors, so it can be easier to find a good buy (or sell). In general, high liquidity doesn't mean that everyone is selling or everyone is buy, it just means everyone is trading. |
How to read a mutual fund spec sheet? | The 0.14% is coming out of the assets of the fund itself. The expense ratio can be broken down so that on any given day, a portion of the fund's assets are set aside to cover the administrative cost of running the fund. A fund's total return already includes the expense ratio. This depends a lot on what kind of account in which you hold the fund. If you hold the fund in an IRA then you wouldn't have taxes from the fund itself as the account is sheltered. There may be notes in the prospectus and latest annual and semi-annual report of what past distributions have been as remember the fund isn't paying taxes but rather passing that along in the form of distributions to shareholders. Also, there is something to be said for what kinds of investments the fund holds as if the fund is to hold small-cap stocks then it may have to sell the stock if it gets too big and thus would pass on the capital gains to shareholders. Other funds may not have this issue as they invest in large-cap stocks that don't have this problem. Some funds may invest in municipal bonds which would have tax-exempt interest that may be another strategy for lowering taxes in bond funds. Depending on the fund quite a broad range actually. In the case of the Fidelity fund you link, it is a "Fund of funds" and thus has a 0% expense ratio as Fidelity has underlying funds that that fund holds. What level of active management are you expecting, what economies of scale does the fund have to bring down the expense ratio and what expense ratio is typical for that category of fund would come to mind as a few things to consider. That Fidelity link is incorrect as both Morningstar and Fidelity's site list an expense ratio for the fund of funds at .79%. I'd expect an institutional US large-cap index fund to have the lowest expense ratio outside of the fund of fund situation while if I were to pick an actively managed fund that requires a lot of research then the expense ratio may well be much higher though this is where you have to consider what strategy do you want the fund to be employing and how much of a cost are you prepared to accept for that? VTTHX is Vanguard Target Retirement 2035 Fund which has a .14% expense ratio which is using index funds in the fund of funds system. |
effect of bond issue on income statement | No, it would not show up on the income statement as it isn't income. It would show up in the cash flow statement as a result of financing activities. |
How do I research, analyze, and choose the right mutual fund for a roth ira? | There is a lot of interesting information that can be found in a fund's prospectus. I have found it very helpful to read books on the issue, one I just finished was "The Boglehead's Guide to Investing" which speaks mostly on mutual and index funds. Actively managed funds mean that someone is choosing which stocks to buy and which to sell. If they think a stock will be "hot" then they buy it. Research has shown that people cannot predict the stock market, which is why many people suggest index based funds. An index fund generally tracks a group of companies. Example: an index fund of the S&P 500 will try to mimic the returns that the S&P 500 has. Overall, managed funds are more expensive than index funds because the fund manager must be paid to manage it. Also, there is generally more buying and selling so that also increases the tax amount you would owe. What I am planning on doing is opening a Roth IRA with Vanguard, as their funds have incredibly low fees (0.2% on many). One of the most important things you do before you buy is to figure out your target allocation (% of stocks vs % of bonds). Once you figure that out then you can start narrowing down the funds that you wish to invest in. |
Dividend vs Growth Stocks for young investors | In financial theory, there is no reason for a difference in investor return to exist between dividend paying and non-dividend paying stocks, except for tax consequences. This is because in theory, a company can either pay dividends to investors [who can reinvest the funds themselves], or reinvest its capital and earn the same return on that reinvestment [and the shareholder still has the choice to sell a fraction of their holdings, if they prefer to have cash]. That theory may not match reality, because often companies pay or don't pay dividends based on their stage of life. For example, early-stage mining companies often have no free cashflow to pay dividends [they are capital intensive until the mines are operational]. On the other side, longstanding companies may have no projects left that would be a good fit for further investment, and so they pay out dividends instead, effectively allowing the shareholder to decide where to reinvest the money. Therefore, saying "dividend paying"/"growth stock" can be a proxy for talking about the stage of life + risk and return of a company. Saying dividend paying implies "long-standing blue chip company with relatively low capital requirements and a stable business". Likewise "growth stocks" [/ non-dividend paying] implies "new startup company that still needs capital and thus is somewhat unproven, with a chance for good return to match the higher risk". So in theory, dividend payment policy makes no difference. In practice, it makes a difference for two reasons: (1) You will most likely be taxed differently on selling stock vs receiving dividends [Which one is better for you is a specific question relying on your jurisdiction, your current income, and things like what type of stock / how long you hold it]. For example in Canada, if you earn ~ < $40k, your dividends are very likely to have a preferential tax treatment to selling shares for capital gains [but your province and specific other numbers would influence this]. In the United States, I believe capital gains are usually preferential as long as you hold the shares for a long time [but I am not 100% on this without looking it up]. (2) Dividend policy implies differences in the stage of life / risk level of a stock. This implication is not guaranteed, so be sure you are using other considerations to determine whether this is the case. Therefore which dividend policy suits you better depends on your tax position and your risk tolerance. |
Why is the total 401(k) contribution limit (employee + employer) so high? | Because 401k's are also used by self employed. A person who has a schedule C profitable income can open a 401k and "match" in whatever ratio he wants, up to 25% of the net profits or the limits you stated. This allows self-employed to defer more income taxes to the future. Why only self-employed? Good question. Ask your congressman. My explanation would be that since they're self-employed they're in much more danger of not having income, especially later in life, if their business go south. Thus they need a bigger cushion than an average W2 employee who can just find another job. |
Where can I find all public companies' information? | Moody's is now Mergent Online. It's no longer being printed, and must be accessed digitally. In order to browse the database, check with your local public library or university to see if you can get access. (A University will probably require you to visit for access). Another good tool is Value Line Reports. They are printed information sheets on public companies that are updated regularly, and are convenient for browsing and for comparing securities. Again, check your local libraries. A lot of the public information you may be looking for can be found on Yahoo Finance, for free, from home. Yahoo finance, will give financial information, ratios, news, filings, analysis, all in one place. |
Sales Tax: Rounded Then Totaled or Totaled Then Rounded? | Taxes should not be calculated at the item level. Taxes should be aggregated by tax group at the summary level. The right way everywhere is LINE ITEMS SUMMARY PS:If you'd charge at the item level, it would be too easy to circumvent the law by splitting your items or services into 900 items at $0.01 (Which once rounded would mean no tax). This could happen in the banking or plastic pellets industry. |
On what time scales are stock support and resistance levels meaningful? | Support and resistance only works as a self-fulfilling prophecy. If everyone trading that stock agrees there's a resistance at so-and-so level, and it is on such-and-such scale, then they will trade accordingly and there will really be a support or resistance. So while you can identify them at any time scale (although as a rule the time scale on which you observed them should be similar to the time scale on which you intend to use them), it's no matter unless that's what all the other traders are thinking as well. Especially if there are multiple possible S/P levels for different time scales, there will be no consensus, and the whole system will break down as one cohort ruins the other group's S/P by not playing along and vice versa. But often fundamentals are expected to dominate in the long run, so if you are thinking of trades longer than a year, support and resistance will likely become meaningless regardless. It's not like that many people can hold the same idea for that long anyhow. |
How do I interpret these income tax numbers for Chinese public company Dangdang Inc. (DANG)? | It was not taxed in the previous years because it wasn't in profit. The amount for 2010 is more due to accounting treatment, on account of "Deferred Domestic Income Tax". The figures are at http://data.cnbc.com/quotes/DANG/tab/7.2 You can search for a better understanding of Deferred Domestic Income Tax, a brief explanation is at http://www.investopedia.com/terms/d/deferredincometax.asp |
Why do card processing companies discourage “cash advance” activities | This is most likely protecting Square's relationship with Visa/Mastercard/AMEX/etc. Credit card companies typically charge their customers a much higher interest rate with no grace period on cash advances (withdrawals made from an ATM using a credit card). If you use Square to generate something that looks like a "merchandise transaction" but instead just hand over a wad of banknotes, you're forcing the credit card company to apply their cheaper "purchases" interest rate on the transaction, plus award any applicable cashback offers†, etc. Square would absolutely profit off of this, but since it would result in less revenue for the partner credit card companies, that would quickly sour the relationship and could even result in them terminating their agreements with Square altogether. † This is the kind of activity they are trying to prevent: 1. Bill yourself $5,000 for "merchandise", but instead give yourself cash. 2. Earn 1.5% cashback ($75). 3. Use $4,925 of the cash and a $75 statement credit to pay your credit card statement. 4. Pocket the difference. 5. Repeat. Note, the fees involved probably negate any potential gain shown in this example, but I'm sure with enough creative thinking someone would figure out a way to game the system if it wasn't expressly forbidden in the terms of service |
How does a brokerage firm work? | Real target of commisions is providing "risk shelter". It is kind of "insurance", which is actually last step for external risks to delete all your money. In part it cuts some of risks which you provide, brokers track history of all your actions for you (nobody else does). When brokerage firm fails, all your money is zero. It depends from case to case if whole account goes zero, but I wouldn't count on that. |
Credit Card Points from Refund | Because your friend isn't going to like the ~2% charge they have to pay to the credit card company on the $10,000 purchase. Credit card companies make money off of transactions. The cardholder normally doesn't pay any transaction fees (and in fact can make a profit via rewards), but the merchant has to pay a certain amount of money to the credit card company for the transaction. In this case, the apartment owners ate the charge, likely because it was easier for them to send a check than to refund the cost of the fee through the credit card company. If you started doing this a lot to take advantage of this, I would imagine they would get smart and refuse your business (it'll be pretty obvious what you're doing if you're not signing any leases). |
Is Bitcoin a commodity or a currency [duplicate] | It has properties of both. Tax authorities will eventually give their opinion on this. Through its properties of finite quantity, fungibility, and resistance to forgery/duplication, it acts as a commodity. It can be sent directly between any two parties anywhere on Earth, without regard for the quantity transacted or physical distance, to act as a currency. By the way, establishing trust in a trust-free environment through cryptographic proof-of-work is a remarkable invention. Sending economic value, cheaply and securely, around the world in minutes, not days/weeks, is a remarkable invention. This is where the value comes from. |
Schwab wants to charge me interest on the money I received for selling TSLA short | Brokers have the right to charge interest on any stock that they lend you. Since you borrowed the TSLA to short it, the owner of those shares can charge you interest until you return them. If you are not getting charged interest on some shares that you have borrowed to short, consider it generosity on the part of the lender. |
In what cases can a business refuse to take cash? | A business can refuse cash (paper currency) payment pretty much in all cases provided it's a reasonable policy and/or notified during/in advance of contracting. Details in this link. "all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services." Even if the payment is being made to settle a debt or other obligation, the creditor may refuse payment if their rationale is reasonable (as determined by the courts). |
Do I make money in the stock market from other people losing money? | The stock market is no different in this respect to anything that's bought or sold. The price of a stock like many other things reflects what the seller is prepared to sell it at and what the buyer is prepared to offer for it. If those things match then a transaction can take place. The seller loses money but gains stocks they feel represent equivalent value, the reverse happens for the buyer. Take buying a house for example, did the buyer lose money when they bought a house, sure they did but they gained a house. The seller gained money but lost a house. New money is created in the sense that companies can and do make profits, those profits, together with the expected profits from future years increase the value that is put on the company. If we take something simple like a mining company then its value represents a lot of things: and numerous other lesser things too. The value of shares in the mining company will reflect all of these things. It likely rises and falls in line with the price of the raw materials it mines and those change based on the overall supply and demand for those raw materials. Stocks do have an inherent value, they are ownership of a part of a company. You own part of the asset value, profits and losses made by that company. Betting on things is different in that you've no ownership of the thing you bet on, you're only dependent on the outcome of the bet. |
How to make an investment in a single company's stock while remaining market-neutral? | You can employ a hedging strategy using short selling, put options, or other methods that will partially neutralize your exposure to the overall market. e.g. You could short sell a market-wide index such as the S&P500, while going long (buying) the company you are interested in. Investopedia has a nice primer on this: Also, see this related question here: |
Shorting diluting stocks | It depends on how big the dilution is. Could be a good trade. Do the math yourself, many times nobody else has as all the employees think they are going to get rich because "options" :) |
Transfer $50k to another person's account (in California, USA) | It will not be a problem; people regularly move larger sums. It will be reported to law authorities as large enough to be potentially of interest, but since you can explain it that's fine. |
How to avoid getting back into debt? | Spend less than you earn. If you have no job (source of income), then you can not possibly stay out of debt as you have to spend money to live and study. |
How do you choose which mortgage structure is appropriate when buying a home? | Down payment: Emphatically avoid PMI if at all possible; it's pouring money down the drain. Do 20% down if you can, or pay off enough to bring you above 20% and ask for PMI to be removed as soon as you can. Beyond that it's a matter of how much risk you want to accept and how long you'll own the place, and you'll have to run the numbers for the various alternatives -- allowing for uncertainty in your investments -- to guide your decision. Do not assume you will be able to make a profit when you sell the house; that's the mistake which left many people under water and/or foreclosed on. Do not assume that you will be able to sell it quickly; it can take a year of more. Do not assume immediate or 100% occupancy it you rent it out; see many other answers here for more realistic numbers.... and remember that running a rental is a business and has ongoing costs and hassles. (You can contract those out, but then you lose a good percentage of the rent income.) Double mortgage is another great way to dig yourself into a financial hole; it can be a bigger cost than the PMI it tries to dodge and is definitely a bigger risk. Don't. |
how much of foreign exchange (forex/fx) “deep liquidity” is really just unbacked leverage and what is the effect? | In essence the problem that the OP identified is not that the FX market itself has poor liquidity but that retail FX brokerage sometimes have poor counterparty risk management. The problem is the actual business model that many FX brokerages have. Most FX brokerages are themselves customers of much larger money center banks that are very well capitalized and provide ample liquidity. By liquidity I mean the ability to put on a position of relatively decent size (long EURUSD say) at any particular time with a small price impact relative to where it is trading. For spot FX, intraday bid/ask spreads are extremely small, on the order of fractions of pips for majors (EUR/USD/GBP/JPY/CHF). Even in extremely volatile situations it rarely becomes much larger than a few pips for positions of 1 to 10 Million USD equivalent notional value in the institutional market. Given that retail traders rarely trade that large a position, the FX spot market is essentially very liquid in that respect. The problem is that there are retail brokerages whose business model is to encourage excessive trading in the hopes of capturing that spread, but not guaranteeing that it has enough capital to always meet all client obligations. What does get retail traders in trouble is that most are unaware that they are not actually trading on an exchange like with stocks. Every bid and ask they see on the screen the moment they execute a trade is done against that FX brokerage, and not some other trader in a transparent central limit order book. This has some deep implications. One is the nifty attribute that you rarely pay "commission" to do FX trades unlike in stock trading. Why? Because they build that cost into the quotes they give you. In sleepy markets, buyers and sellers cancel out, they just "capture" that spread which is the desired outcome when that business model functions well. There are two situations where the brokerage's might lose money and capital becomes very important. In extremely volatile markets, every one of their clients may want to sell for some reason, this forces the FX brokers to accumulate a large position in the opposite side that they have to offload. They will trade in the institutional market with other brokerages to net out their positions so that they are as close to flat as possible. In the process, since bid/ask spreads in the institutional market is tighter than within their own brokerage by design, they should still make money while not taking much risk. However, if they are not fast enough, or if they do not have enough capital, the brokerage's position might move against them too quickly which may cause them lose all their capital and go belly up. The brokerage is net flat, but there are huge offsetting positions amongst its clients. In the example of the Swiss Franc revaluation in early 2015, a sudden pop of 10-20% would have effectively meant that money in client accounts that were on the wrong side of the trade could not cover those on the other side. When this happens, it is theoretically the brokerage's job to close out these positions before it wipes out the value of the client accounts, however it would have been impossible to do so since there were no prices in between the instantaneous pop in which the brokerage could have terminated their client's losing positions, and offload the risk in the institutional market. Since it's extremely hard to ask for more money than exist in the client accounts, those with strong capital positions simply ate the loss (such as Oanda), those that fared worse went belly up. The irony here is that the more leverage the brokerage gave to their clients, the less money would have been available to cover losses in such an event. Using an example to illustrate: say client A is long 1 contract at $100 and client B is short 1 contract at $100. The brokerage is thus net flat. If the brokerage had given 10:1 leverage, then there would be $10 in each client's account. Now instantaneously market moves down $10. Client A loses $10 and client B is up $10. Brokerage simply closes client A's position, gives $10 to client B. The brokerage is still long against client B however, so now it has to go into the institutional market to be short 1 contract at $90. The brokerage again is net flat, and no money actually goes in or out of the firm. Had the brokerage given 50:1 leverage however, client A only has $2 in the account. This would cause the brokerage close client A's position. The brokerage is still long against client B, but has only $2 and would have to "eat the loss" for $8 to honor client B's position, and if it could not do that, then it technically became insolvent since it owes more money to its clients than it has in assets. This is exactly the reason there have been regulations in the US to limit the amount of leverage FX brokerages are allowed to offer to clients, to assure the brokerage has enough capital to pay what is owed to clients. |
How to exclude stock from mutual fund | Mutual funds invest according to their prospectus. If they declare that they match the investments to a certain index - then that's what they should do. If you don't want to be invested in a company that is part of that index, then don't invest in that fund. Short-selling doesn't "exclude" your investment. You cannot sell your portion of the position in the fund to cover it. Bottom line is that money has no smell. But if you want to avoid investing in a certain company and it is important to you - you should also avoid the funds that invest in it, and companies that own portions of it, and also probably the companies that buy their products or services. Otherwise, its just "nice talk" bigotry. |
Why can't online transactions be completed outside of business hours? | Generally, unless you're doing a wire transfer, bank transactions are processed in batches overnight. So the credit card company won't be able to confirm your transfer until the next business day (it may take even longer for them to actually receive the money). |
Evidence for timing market in the short run? | The time horizon for your IRA is years or decades, therefore there is little evidence that there is a benefit to waiting for the "perfect time" to invest. Unless you plan on making only one or 2 years of investments now and then waiting till retirement; the other deposits you will make over the decades will have a greater influence on returns. If you are going to search for the perfect time to invest in your index fund, pick a deadline. "I will take the first sign better than X but will not wait beyond Y". |
Can you explain the mechanism of money inflation? | An economy produces goods and services and people use money to pay for those goods and services. Money has value because people believe that they can buy and sell goods and services with it in that economy. How much the value of money is, is determined by how much money there is in comparison to goods and services (supply and demand). In most economies it is the job of the federal/national reserve bank to ensure that prices stay stable (ie the relationship of goods and services to how much money there is is stable); as this is necessary for a well running economy. The federal reserve bank does so by making more (printing, decreasing interest rates) or less (increasing interest rates) available to the economy. To determine how much money needs to be in the economy to keep prices stable is incredibly hard as many factors have an impact: If the reserve bank gets it wrong and there is more money compared to goods and services than previous, prices will rise to compensate; this is inflation If it's the other way round is deflation. Since it is commonly regarded that deflation is much more destabilizing to an economy than inflation the reserve banks tend to err on the side of inflation. |
Social Trading Platforms Basically Front Running? | I don't think you can really classify it as front running. Technically, the only information, that the alleged front runner in this case has over the followers is the knowledge of the trade itself. Knowledge of the trade may indeed be share price sensitive information (for some high volume traders or those respected and with many followers) but it's not really like they can't know about it before everyone else; parity isn't possible in this case. If an company/organisation (i.e. the social trading platform say) responsible for disseminating the details/log of a trader to a following (or individuals working for said company/organisation), were to act on the trading data before dissemination then THEY would be guilty of front running. The alleged front runner may profit from the following of course, but that's only really occurring due to the publication of information that is share price sensitive, and such information generally has to be published by law (if it is by law so classified) so it's difficult to find too much fault. There has to be a certain amount of consideration on the part of any trader as to who is more the fool, the fool or the fool that follows them? |
Homeowners: How can you protect yourself from a financial worst-case scenario? | Honestly, the best way to manage this risk is to manage your savings appropriately. Many experts recommend that maintain a reasonably liquid account with 6-9x your minimum monthly expenses for just this occurrence. I know, easier said than done. Right? As for insurance, I can only speak for what is the case in the US. Here, most mortgages will require you to get PMI insurance until you have at least 20% equity in your house. However, that insurance only protects the BANK from losing money if you can't pay. It doesn't save you from foreclosure or ruining your credit. Really, the type of insurance you are talking about is Unemployment insurance which all states in the US make available to workers via deductions from their paycheck. The best advice, I suppose, is to keep your expenses low enough to cover them with an unemployment check until you have accumulated enough savings to get through a rough patch. That may mean buying a less expensive home, or just waiting until you have saved a bigger down payment. If you didn't plan ahead, and you are already in the house, another option might be to extend your mortgage. For example from a 20 to a 30 year to reduce your payments to a manageable level. A more risky option might be to convert to a variable rate loan temporarily, which typically carries a lower interest rate. However, it might be hard to secure a new loan if you don't currently have an income. |
What should I do with my $25k to invest as a 20 years old? | My original plan was to wait for the next economic downturn and invest in index funds. These funds have historically yielded 6-7% annually when entered at any given time, but maybe around 8-9% annually when entered during a recession. These numbers have been adjusted for inflation. Questions or comments on this strategy? Educate yourself as index funds are merely a strategy that could be applied to various asset classes such as US Large-cap value stocks, Emerging Market stocks, Real Estate Investment Trusts, US Health Care stocks, Short-term bonds, and many other possibilities. Could you be more specific about which funds you meant as there is some great work by Fama and French on the returns of various asset classes over time. What about a Roth IRA? Mutual fund? Roth IRA is a type of account and not an investment in itself, so while I think it is a good idea to have Roth IRA, I would highly advise researching the ins and outs of this before assuming you can invest in one. You do realize that index funds are just a special type of mutual fund, right? It is also worth noting that there are a few kinds of mutual funds: Open-end, exchange-traded and closed-end. Which kind did you mean? What should I do with my money until the market hits another recession? Economies have recessions, markets have ups and downs. I'd highly consider forming a real strategy rather than think, "Oh let's toss it into an index fund until I need the money," as that seems like a recipe for disaster. Figure out what long-term financial goals do you have in mind, how OK are you with risk as if the market goes down for more than a few years straight, are you OK with seeing those savings be cut in half or worse? |
To rebalance or not to rebalance | In theory, investing is not gambling because the expected outcome is not random; people are expecting positive returns, on average, with some relationship to risk undertaken and economic reality. (More risk = more returns.) Historically this is true on average, that assets have positive returns, and riskier assets have higher returns. Also it's true that stock market gains roughly track economic growth. Valuation (current price level relative to "fundamentals") matters - reversion to the mean does exist over a long enough time. Given a 7-10 year horizon, a lot of the variance in ending price level can be explained by valuation at the start of the period. On average over time, business profits have to vary around a curve that's related to the overall economy, and equity prices should reflect business profits. The shorter the horizon, the more random noise. Even 1 year is pretty short in this respect. Bubbles do exist, as do irrational panics, and milder forms of each. Investing is not like a coin flip because the current total number of heads and tails (current valuation) does affect the probability of future outcomes. That said, it's pretty hard to predict the timing, or the specific stocks that will do well, etc. Rebalancing gives you an objective, automated, unemotional way to take advantage of all the noise around the long-term trend. Rather than trying to use judgment to identify when to get in and out, with rebalancing (and dollar cost averaging) you guarantee getting in a bit more when things are lower, and getting out a bit more when things are higher. You can make money from prices bouncing around even if they end up going nowhere and even if you can't predict the bouncing. Here are a couple old posts from my blog that talk about this a little more: |
What are the benefits of opening an IRA in an unstable/uncertain economy? | Even Gold lost 1/2 of it's value between 1980 and 2000. You would not have fared well if you retired during that period heavily invested in Gold. http://www.usagold.com/reference/prices/history.html You said yourself that one can not foresee what the future will bring. At least IRA's force you to into dollar cost averaging, whereas if your money was outside of a retirement account, you might be tempted to speculate. -Ralph Winters |
How do index funds actually work? | Now company A has been doing ok for couple of weeks, but then due to some factors in that company its stock has been tanking heavily and doesn't appear to have a chance to recover. In this kind of scenario, what does happen? In this scenario, if that company is included in the index being tracked, you will continue holding until such time that the index is no longer including that company. Index funds are passively managed because they simply hold the securities contained in the index and seek to keep the allocations of the fund in line with the proportions of the index being tracked. In an actively managed fund the fund manager would try to hedge losses and make stock/security picks. If the manager thought a particular company had bad news coming maybe they would offload some or all the position. In an index fund, the fund follows the index on good days and bad and the managers job is to match the asset allocations of the index, not to pick stocks. |
car loan but 2 people on title | Yes, but then either of you will need the other's permission to sell the car. I strongly recommend you get an agreement on that point, in writing, and possibly reviewed by a lawyer, before entering into this kind of relationship. (See past discussions of car titles and loan cosigners for some examples of how and why this can go wrong.) When doung business with friends, treating it as a serious business transaction is the best way to avoid ruining the friendship. |
How do I know when I am financially stable/ready to move out on my own? | I recently moved out from my parents place, after having built up sufficient funds, and gone through these questions myself. I live near Louisville, KY which has a significant effect on my income, cost of living, and cost of housing. Factor that into your decisions. To answer your questions in order: When do I know that I'm financially stable to move out? When you have enough money set aside for all projected expenses for 3-6 months and an emergency fund of 4-10K, depending on how large a safety net you want or need. Note that part of the reason for the emergency fund is as a buffer for the things you won't realize you need until you move out, such as pots or chairs. It also covers things being more expensive than anticipated. Should I wait until both my emergency fund is at least 6 months of pay and my loans in my parents' names is paid off (to free up money)? 6 months of pay is not a good measuring stick. Use months of expenses instead. In general, student loans are a small enough cost per month that you just need to factor them into your costs. When should I factor in the newer car investment? How much should I have set aside for the car? Do the car while you are living at home. This allows you to put more than the minimum payment down each month, and you can get ahead. That looks good on your credit, and allows refinancing later for a lower minimum payment when you move out. Finally, it gives you a "sense" of the monthly cost while you still have leeway to adjust things. Depending on new/used status of the car, set aside around 3-5K for a down payment. That gives you a decent rate, without too much haggling trouble. Should I get an apartment for a couple years before looking for my own house? Not unless you want the flexibility of an apartment. In general, living at home is cheaper. If you intend to eventually buy property in the same area, an apartment is throwing money away. If you want to move every few years, an apartment can, depending on the lease, give you that. How much should I set aside for either investment (apartment vs house)? 10-20K for a down payment, if you live around Louisville, KY. Be very choosy about the price of your house and this gives you the best of everything. The biggest mistake you can make is trying to get into a place too "early". Banks pay attention to the down payment for a good reason. It indicates commitment, care, and an ability to go the distance. In general, a mortgage is 30 years. You won't pay it off for a long time, so plan for that. Is there anything else I should be doing/taking advantage of with my money during this "living at home" period before I finally leave the nest? If there is something you want, now's the time to get it. You can make snap purchases on furniture/motorcycles/games and not hurt yourself. Take vacations, since there is room in the budget. If you've thought about moving to a different state for work, travel there for a weekend/week and see if you even like the place. Look for deals on things you'll need when you move out. Utensils, towels, brooms, furniture, and so forth can be bought cheaply, and you can get quality, but it takes time to find these deals. Pick up activities with monthly expenses. Boxing, dancing, gym memberships, hackerspaces and so forth become much more difficult to fit into the budget later. They also give you a better credit rating for a recurring expense, and allow you to get a "feel" for how things like a monthly utility bill will work. Finally, get involved in various investments. A 401k is only the start, so look at penny stocks, indexed funds, ETFs or other things to diversify with. Check out local businesses, or start something on the side. Experiment, and have fun. |
Purpose of having good credit when you are well-off? | People just love becoming more well-off than they currently are, and one of the ways they do it is with leverage. Leverage requires credit. That desire is not exclusive to people who are not already well-off. For a well-off person who wants to become more well-off by expanding their real estate ventures, paying cash for property is a terrible way to go about it. The same goes for other types of business or market investment. Credit benefits the well-off even more greatly than it benefits the poor or the middle-class. |
Tax me more: Can I pay extra to the government so I don't have to deal with all this paperwork? | Actually, if you don't care about paying a bit more, either hire an accountant and dump the paper on them, or (may be cheaper but a bit more work) spring for tax software. Modern tax programs can often download most of your data directly. If you don't care about claiming deductions you can skip a lot of the rest. I'm perfectly capable of doing my taxes on paper or in a spreadsheet... but I spring for tax software every year because I find it a _LOT more pleasant. Remember that most of the complexity does come from policies intended to reduce your taxes. When you call for simplification, you may not like the result. It's better than it was a decade or two ago. I used to joke that the battle cry of the next revolution would be "No Taxation Without Proper Instructions!" |
Why are banks providing credit scores for free? | I think the biggest reason is price; it's a lot cheaper now than it was to offer these. That's because for the most part, when you get a credit score for free, you're not getting a true FICO score. You're getting instead a VantageScore. VantageScore was created by the three credit bureaus, and as such they can offer it without paying Fair Isaac a licensing fee. That makes it a lot cheaper to offer, and while it's not absolutely identical to FICO (or more accurately to any of the FICO provided scores) it's close enough for most peoples' purpose. And of course undoubtedly Fair Isaac has some price pressure on their side now that Vantage is big enough that many people see them as fungible. As such they've had to make it easier, or they'd lose business - no longer being a monopolist. The other relevant piece here is that probably in many of these cases they're really just offering you what Experian would give you directly - so it's just a cross-marketing thing (where Experian, or perhaps another bureau, gets access to you as a customer so they can up-sell you ID theft insurance and whatnot, while the bank gets to offer the free score). |
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